Tag Archives: Amazon

Amazon’s Huge IoT Network

In a recent blog post, Amazon invited developers to test drive its gigantic IoT network. This network has been labeled as Sidewalk and was created by tying together all of Amazon’s wireless devices like Amazon Echos and Ring cameras.

Amazon claims this huge wireless network now covers 90% of U.S. households. Amazon created the network by transmitting Bluetooth and 900 MHz LoRa signals from its various devices. This network provides a benefit to Amazon because it can detect and track its own devices separate from anything a homeowner might do with WiFi.

But Amazon has intended for years to monetize this network, and this announcement begins that process. This network has been under-the-radar until now, and most homeowners have no idea that their Amazon devices can connect and communicate with other devices outside the home. Amazon swears that the IoT connection between devices is separate from anything happening inside the house using WiFi – that the IoT network is a fully separate network.

Anyplace where there are more than a few Amazon devices, the network should be robust. The 900 MHz spectrum adds a lot of distance to the signals, and it’s a frequency that does a good job of penetrating obstacles like homes and trees.

Amazon believes that this network can be used by IoT device makers to improve the performance of IoT devices in a neighborhood – things like smart thermostats, appliance sensors, and smart door locks. Such devices use only a small amount of bandwidth but are reliant on the home broadband network being operational to work. Amazon’s vision with this network is that your smart door lock will still work even when your home WiFi isn’t working.

By making the network available to others, Amazon can unleash developers to create new types of wireless devices. For example, it’s always been a challenge to use outdoor sensors since WiFi signals outside of homes is weak and inconsistent. It’s not hard to imagine a whole new array of sensors enabled by the Sidewalk network. Picture a motion detector on a shed door or a leak detector on outdoor faucets. With this network, vendors can now manufacture such devices with the knowledge that most homes will be able to make the needed wireless connection.

This also holds a lot of promise for municipal and business sensors. This is a low-cost way to communicate with smart city or other sensors. This would enable, for the first time, the deployment of environment sensors anywhere within range of the Sidewalk network.

This is another interesting venture by Amazon. At least in the U.S., this is a lower-cost solution than trying to connect to IoT devices by satellite. The only cost of building this network for Amazon was adding the wireless capability to its devices – mere pennies when deployed across millions of devices. But interestingly, Amazon will also have a satellite network starting in 2025 that can fill in the gaps where the Sidewalk network can’t reach.

Amazon says that it has already made deals to test the network with companies like Netvox, OnAsset, and Primax. Now that manufacturers know this network exists and is available, this ought to open up a wide range of new IoT devices that are not reliant only on WiFi. This might finally be the network that enables the original promise of IoT of a world with sensors everywhere, keeping tabs on the environment around us.

A Comcast Product for Cord-cutters

It’s been interesting to watch how the big cable companies have been trying to battle cord-cutting. Comcast has had a product for a while that is aimed directly at cord-cutters.  It’s labeled as Flex and is a video streaming service that is only available to Comcast broadband customers who are not buying a Comcast TV product.

Comcast hoped that Flex would be a direct competitor to Roku, Amazon Firestick, and Google Chrome. The Flex product clearly wants to keep customers who cut the cord inside the Comcast umbrella.

The product delivers 10,000 programs including Comcast content and content from other free online services like Pluto, Xumo, and Tubi. Content comes with commercials. For now, Comcast is also throwing in Comcast’s paid service Peacock for free. The Flex platform also gives customers an easy portal to watch Netflix, Amazon Prime, HBO, and Hulu.

Flex is certainly price right and currently is free for Xfinity broadband customers. When first introduced, Comcast was charging $4.95. Flex still requires the Comcast settop box and remote. I’m guessing the price came down when Comcast found few buyers willing to rent a box to get free content.

There is a big difference between Flex and competitors like Firestick or Roku in that customers can only use the apps on the platform that Comcast has installed. No additional apps for video or music services can be added to the app. This is probably the biggest disadvantage of Flex in that people are using a lot of different video apps online. I have an Amazon Firestick and it will let me add any online video app regardless of whether the app provider has a deal with Amazon.

When Comcast first introduced the Flex product, I thought the company wanted to become another superbundler like Amazon. Amazon allows customers to buy a subscription to a huge array of different online apps, and I assume Amazon gets a slice of revenue for delivering customers to partner video platforms. There are many video services for which Amazon has become the primary marketing channel. Amazon even suggests content that requires a subscription to the partner apps. The superbundler concept is likely profitable. Amazon has to be doing well taking a small slice of the revenue stream from nearly one hundred other platforms.

Amazon’s made it clear a few years ago that it wanted to become the one-stop shop for online video content, and Amazon has bundled together far more content than anybody else. But in the last year, we’ve seen the rise of proprietary platforms from CBS, Apple, Disney, and others including Comcast’s Peacock that won’t cross-market with Amazon and others. It’s not looking like any one bundler is going to be able to pull together a giant percentage of online video content.

It’s less clear how Comcast intends to benefit from Flex. I assume Comcast gets a share of ad revenues generated on platforms like Pluto. But there doesn’t seem to any other major benefit to the company for operating the Flex program, particularly since they are providing the settop box to Flex customers for free. The plan probably made financial sense at a monthly $4.95 rate, but it’s hard to see the long-term benefit to Comcast of offering a free service. Perhaps the one big benefit to Comcast is that the settop box used for Flex can also be used to control smart home and other Comcast products. Perhaps the company is using Flex to draw in customers for these other products.

Comcast has one big advantage over anybody else in the industry in that every Flex customer is already a Comcast broadband customer. That should mean that Comcast has little incremental cost for delivering the free content offered by Flex. It’s easy to forget that Netflix and all of the other online providers must maintain an expensive network to enable them to disseminate video content.

The Flex product is somewhat symbolic of the attempt for industry players to somehow be relevant in the online video market. The product doesn’t drive direct revenue for Comcast even though the company must provide a settop box. The platform is proprietary, which seems to be the new norm for video platforms. It’s one more of the many confusing choices faced by cord-cutters.

Amazon Joins the Broadband Space Race

I wrote a blog just a few weeks ago talking about how OneWeb had fully leaped into the race to place broadband satellites by launching a few test satellites and also by raising a few more billion dollars to fund the venture.

It’s been rumored for several years that Amazon was also interested in the idea, but their plans have been under wraps. It just came to light that Amazon has taken the first public steps and had the FCC file paperwork with the International Telecommunications Union to make notice of Amazon’s intent to launch satellites.

Amazon filed with the FCC under the name of Kuiper Systems LLC. Space fans will recognize the corporate name as a reference to the Kuiper belt, which is the area of the solar system past Neptune that is believed to contain numerous comets, asteroids and other small objects made largely of ice.

Amazon has big plans and the ITU filing said the company wants to launch a constellation of 3,236 satellites in low earth orbit. That’s 784 satellites in orbit at 367 miles above the earth, 1,296 in orbit at 379 miles, and 1,156 in orbit at 391 miles. Added to the other companies that are talking about getting into the business that’s now more than 10,000 planned satellites.

We know that Jeff Bezos is serious about space. He owns a rocket business, Blue Origins, that is developing an orbital-class rocket called the New Glenn. That company already has some future contracts to make private launches for OneWeb and Telesat. Amazon also recently launched a cloud computing service knows as AWS Ground Station that is intended to provide communications data links between earth and object in outer space. We also found out recently that Bezos kept 100% control of Blue Origins as part of his divorce settlement.

None of the low-orbit satellite ventures have talked about broadband speeds, prices or customer penetration goals. The only one making any announcement was SpaceX who said that his Starlink satellites would be capable of making a gigabit connection to earth. But that’s a far cry from a realistic estimate of a broadband product and is the satellite version of the Sprint cellphone test that showed that millimeter wave spectrum could deliver gigabit speeds to a cellphone. It can be done but is incredibly hard and would involve synching big data pipes from multiple satellites to a single customer.

We got another clue recently when OneWeb asked the FCC for permission to eventually create 1 million links to earth-based receivers, meaning customers. That puts some perspective on the satellites and shows that they are not trying to bring broadband to every rural customer. But still, one million satellite connections would represent about 10% of the rural homes in the US that don’t have broadband today. If that’s their US goal it automatically tells me that prices will likely be high.

NASA and others in charge of space policy have also started talking recently about the potential dangers from so many objects in orbit. We don’t know the size of the Amazon satellites yet. But Elon Musk said his satellites would range in size from a refrigerator down to some that are not larger than a football. NASA is worried about collisions between manned space flights with satellites and space debris.

Amazon is still early in the process. They haven’t yet filed a formal proposal to the FCC discussing their technology and plans. They are several years behind OneWeb and Starlink in terms of getting a test satellite into orbit. But an Amazon space venture has the built-in advantage of being able to advertise a satellite broadband product on the Amazon website where the vast majority of Americans routinely shop. I can envision Amazon measuring the broadband speed of a customer connected to the Amazon website and popping up an offer to buy faster broadband.

It’s absolutely impossible to predict the impact these various satellite companies will have on US broadband. A lot of their impact is going to depend upon the speeds and prices they offer. A lot of rural America is starting to see some decent speeds offered by WISPs with newer radios. Every year some pockets of of rural America are getting fiber and gigabit speeds. Where might the satellites fall into that mix? We can’t forget that the need for broadband is still doubling every three years, and one has to consider the speeds that homes will want a decade from now – not the speeds households want today. We’re at least a few years from seeing any low-orbit broadband connections and many years away from seeing the swarm of over 10,000 satellites that are planned for broadband delivery.

Modernizing CPNI Rules

I think we badly need new CPNI rules for the industry. CPNI stands for ‘Customer Proprietary Network Information’ and are rules to govern the use of data that telcos and ISPs gather on their customers. CPNI rules are regulated by the FCC and I think it’s fully within their current mandate to update the rules to fit the modern world.

While CPNI is related to privacy issues it’s not exactly the same. CPNI rules involve how ISPs use the customer data that they must gather in order to make the network operate. Originally CPNI rules involved telephone call details – who we called, who called us, etc. Telcos have been prohibited by CPNI rules from using this kind of data without the express consent of a consumer (or else in response to a valid subpoena from law enforcement).

Today the telcos and ISPs gather a lot more information about us than just telephone calling information. For instance, a cellular company not only knows all of your call details, but they know where you are whenever you call, text or make a data connection from your cellphone. Every ISP knows every web search you make since they are the ones routing those requests to the Internet. If you buy newer ISP products like home automation they know all sorts of details that they can gather from monitoring motion detectors and other devices that are part of their service.

Such CPNI data is valuable because it can be used by the ISP to assemble a profile of each customer, particularly when CPNI data is matched with data gathered from other sources. Every large ISP has purchased a business arm that is aimed to help them monetize customer data. The ISPs are all envious of the huge advertising revenues generated by Facebook and Google and want to climb into the advertising game.

The FCC was given the authority to limit how carriers use customer proprietary data, granted by Section 222(b) of the Telecommunications Act of 1934. Those statutes specifically prohibit carriers from using CPNI data for marketing purposes. Over the years the FCC developed more specific CPNI rules that governed telcos. However, the FCC has not updated the specific CPNI rules to cover the wide range of data that ISPs gather on us today. Telcos still ask customers for permission to use their telephone records, but they are not required to get customer permission to track web sites we visit or our location when using a cellphone.

The FCC could invoke CPNI protections for companies that they regulate. It gets dicier for the FCC to expand CPNI rules past traditional carriers. All sorts of web companies also gather information on users. Google makes most of their money through their search engine. They not only charge companies to get higher ranking for Google searches, but they monetize customer data by building profiles of each user that they can market to advertisers. These profiles are supposedly very specific – they can direct advertisers to users who have searched for any specific topic, be it people searching for information about diabetes or those looking to buy a new truck.

There are many who argue that companies like Google should be brought under the same umbrella of rules as ISPs. The ISPs rightfully claim that companies like Google have a major market advantage. But the ISPs clearly prefer the regulatory world where no company is subject to CPNI rules.

There other web applications that are harder to justify as being related to CPNI. For example, a social network like Facebook gathers huge amounts of private data about its users – but those users voluntarily build profiles and share that data freely.

There are more complicated cases such as Amazon, which has been accused of using customer shopping data to develop its own product lines to directly compete with vendors selling on the Amazon platform. The company clearly uses customer data for their own marketing purposes – but Amazon is clearly not a carrier and it would be a huge stretch to pull them under the CPNI rules.

It’s likely that platforms like Facebook or Amazon would have to be regulated with new privacy rules rather than with CPNI rules. That requires an act of Congress, and it’s likely that any new privacy rules would apply to a whole large range of companies that use the web – the approach taken by the European Union.

Broadband and Gaming

I recently saw an interesting statistic that showed that the most popular worldwide video content is gaming. The worldwide gaming video content industry has more than 665 million viewers which makes it bigger than HBO, Netflix, ESPN and Hulu combined. This is a segment of the video industry that I was only peripherally aware of, which I suspect is true for many of you as well.

The GVC (Gaming Video Content) industry is distinct from the on-line playing of games. The GVC content consists of watching others play games along with content that talks about gaming. The industry is estimated to generate $4.6 billion in revenues in 2017. One third of that will come from subscriptions to GVC content along with other direct consumer spending. The rest comes from advertising. There is a whole industry that has sprung up around the GVC content including big conventions and merchandise.

While you can’t characterize such a large group of people, the gamers and GVC viewers are often what you might think of as tech-savvy. In the US the average GVC viewer is around 30, has more education that average and makes a higher than average income of around $58,000. And while you might expect the viewers of GVC content to be largely male a surprising 46% of GVC viewers are female.

Around the world there are numerous video platforms that have been created for gaming content. In the US and Europe the biggest content provider is Twitch. This is a platform that was originally known as Justin.tv. The platform was created in 2007 by Justin Kan and Emmett Shear. The platform allowed users to post live video streams that could be watched by anybody else on the platform. The platform was often used to show pirated live sports feeds, but over time the majority of the content centered around gaming.

Justin.tv was a large content generator and in 2013 – before Netflix really took off – the service said it had 45 million unique viewers and was the fourth largest source of peak Internet traffic in the US. When the biggest competitor to Justin.tv shut down the platform had a near monopoly on gaming content.

The company was renamed to Twitch Interactive and was acquired at the end of 2014 by Amazon. Amazon beefed up the underlying delivery platform, which increased the quality of the streams. Since then Twitch has grown significantly. Amazon reports that the service has over 100 million unique viewers per month, nearly 10 million per day. The average number of simultaneous viewers at any given time on the platform is about 622,000.

Amazon has grown the service by opening up the platform to ‘partners’ much as it has done with OTT content. Twitch now has over 17,000 partners – those that stream unique content. 35% of the content is viewed on cellphones, with the rest on landline broadband connections.

Twitch viewers are loyal. Over half watch the service more than 20 hours per week – and for many of them this is their primary source of video content. The average Twitch user watches the service for 1 hour 46 minutes per day.

While the Twitch platform is free (and I recommend taking a few minutes to watch the above link), many of the channel partners charge monthly subscriptions.

I find it interesting that Twitch is not counted in the universe of OTT providers. But Twitch viewers and statistics are separate from, and not counted with viewers of Amazon Prime. Perhaps this is not considered as OTT content since a lot of the content is viewer-generated. But this is still largely true for YouTube, which is now counted among the OTT providers. Many of the channels on Twitch are now professionally produced and certainly are hard to distinguish from other OTT content.

The GVC industry is worth noting because they are a big source of video content on our broadband networks. The video watched on the web doesn’t just come from sources like Netflix and more and more of it is coming from platforms like Twitch that carry a mountain of viewer-generated content. This is just one more example of how the major programmers are going to be in trouble as the generations turn. Younger viewers are not watching traditional programming to nearly the degree of older generations.

Content Finally is King

One of the more common memes in our industry is the phrase “content is king.” This was first said by Sumner Redstone of Viacom in 1994 but made more famous by Bill Gates in 1996. The phrase has been used since then to describe how the creators of content have the power in our industry – be that programming or web content.

John Stankey, the CEO of AT&T Entertainment, recently emphasized this same concept in talking about the company’s planned merger with Time Warner. At the recent Mobile World Congress in Barcelona he said, “We just cannot envision a future where AT&T is relevant if we don’t directly participate in some of the water flowing through our pipes.”

All of the big ISPs have decided that content is key to their survival. Comcast already owns a mountain of programming, and after the merger with Time Warner, AT&T will be a content powerhouse as well. Verizon has climbed into the game with the acquisitions of AOL and Yahoo. There are web companies with the same philosophy. Netflix has built a new industry by creating new content. Google is pushing content heavily through YouTube. Amazon has started to create unique content and recently said they are going to make that a priority. Facebook is becoming a content force through Facebook Now.

I remember having this conversation with Derrel Duplechin of CCG back in 2000. We were asked by several clients to speculate about the future of the carrier industry and we foresaw that most carriers were likely on the path to eventually become what we called “dumb pipe” providers. I remember that this was a story that many of our clients did not want to hear.

We lived in a different carrier world in 2000. Most homes still had telephones and voice was the most profitable product for most carriers. The cable TV product that many of our clients sold then also had decent margins. But we predicted that both products would eventually sink in importance and in margins and that eventually most of our clients would earn most of their profits from broadband. We thought this would happen to all carriers, small and large, and we figured that the most profitable future companies would be those that found some other line of business other than just selling data pipes to end users.

We had some clients take this to heart and some of them have made a really good living by providing extra value to customers. For example, we have several clients who thrive by bringing a suite of products to businesses other than just plain connectivity. But for the most part, the majority of the ISP industry sells dumb pipes today. They compete with the speed of those pipes and with price and with good customer service – but the primary products (and the driver of most of the profits) are now data pipes.

The big companies like AT&T, Verizon and Comcast looked at that future and it scared them. It’s pretty obvious that if your only product is dumb pipes that your earnings are not going to continue to grow fast enough to satisfy Wall Street. This is probably what convinced Verizon to stop expanding their FiOS network. Both AT&T and Verizon got huge earnings boosts from expanding their cellular businesses, but that industry also seems to be heading towards the same plateau as landline ISPs – cell service is becoming a commodity.

So these big companies are now pursuing content because it looks to be the last area in our industry with the potential for significant bottom line growth. It’s going to be an interesting race to watch. Content providers have succeeded or failed over the years according to their ability to find smash hits. A huge hit movie or TV series can mean huge returns to the bottom line. But content providers that don’t create what the public wants to watch suffer badly in terms of stock prices and earnings. Being a content provider is not predictable in the same way as telecom.

Interestingly. AT&T, Verizon, and Comcast are now direct competitors of Facebook, Google, Amazon and Netflix. Content certainly is king, but content also brings the risk from competition. The companies that fall behind in this race are likely to be gobbled up by their more successful competitors. I find it extremely unlikely that all of these big companies will still be in existence in 10 years.

There is no real barrier to entry into the world of content creation other than having a pile of money. It’s likely that other big companies will join the content fray. But all of these companies are entering a world that is in big flux. For example, traditional video and web content might well be replaced by virtual and enhanced reality. The companies that succeed in content will have to spend a lot of money staying one step ahead of the competition, and my money is on the more nimble technology companies. Twenty years ago I would have been shocked to know that someday AT&T would have a CEO of Entertainment – and that may turn out to be the most important job in the corporation.

Amazon as an ISP?

Amazon EchoI mentioned in a blog last week that there is a rumor that Amazon is considering becoming an ISP. This information came from The Information, which says it got this by somebody inside Amazon management.

It’s an intriguing idea. Amazon has shown throughout its history that it loves to own its supply chain. If you recall, Amazon started out as a web reseller of books. But over time the company has built what must certainly be the largest and most efficient bricks and mortar fulfillment infrastructure in the world.

And the company hasn’t stopped there. The company has been building a fleet of semi-trailers used to haul its inventory, thus bypassing UPS and the Post Office. The company uses third-party tractors today but their goal is to build a fleet in anticipation of self-driving trucks within the coming decade. The company is also experimenting with drones, wheeled robots and other ways to bypass local delivery services.

The company has done the same with its successful data center business. They have built massive data centers and assembled a dark-fiber network to connect them together and to connect to major customers. And it is that fiber network that could create the backbone of an ISP network.

You have to think that Amazon learned a lesson from Google Fiber’s foray into FTTP, and so it seems unlikely that they would leap into a massive infrastructure build in that same mold. The article says Amazon might consider using the open access networks in Europe as a way to avoid building fiber. But they don’t have to go the whole way to Europe to try this. For example, just across the mountains from Seattle are a number of Public Utility Districts (county-wide municipal electric companies) that have built open access fiber networks that pass over 100,000 homes – an easy way for Amazon to test the ISP idea.

And around the country are a number of other open access networks. All of the municipal networks in states like Colorado, Utah and Virginia are required by law to be open access. We have the example of Huntsville, AL that built a FTTP network for Google that will become open access after a few years. There are numerous communities around the country that would gladly build fiber networks if they were guaranteed to get companies like Amazon and Google as major ISP tenants. It’s been my experience that almost no city wants to be an ISP unless it has no other option – but there are many who want fiber badly and would welcome Amazon with open arms.

I would think that Amazon will also keep their eye on the developments with wireless last mile. There might come a time when they might be able to leap into the ISP business with a reasonable cost per customer – at least in selected markets.

Amazon would be an interesting ISP. It was just a few years ago that it was clear that an ISP needed a traditional cable TV product to be successful. Google tried to launch without cable TV in Kansas City and hit a brick wall in selling to residential customers. But the tide is turning and I’m not sure that TV is mandatory any longer.

Amazon already has an impressive content platform with Amazon Prime and they have said that they are going to spend billions to create their own content, following the lead of Netflix. It’s also becoming clear that customers are becoming willing to accept an abbreviated line-up of popular cable channels like what’s being sold by Sling TV and other OTT providers. Amazon could be competitive with an abbreviated cable line-up made up of local programming, popular cable channels and its own content.

But Amazon has some advantages that other ISPs don’t have. For now Amazon is leading the pack in the intelligent personal assistant market with its Amazon Echo. I’ve had an Echo for about six months and I already can tell that it is improving. The company is working towards introducing cloud-based AI to the platform and within a few years the Alexa assistant should become a true computer assistant like has been envisioned for decades in science fiction.

My gut tells me that bundles which focus on smart computer services like Alexa will soon be more popular than the traditional triple-play bundles from Comcast and AT&T. Amazon has one huge advantage as a start-up ISP in that customers like using them – something they have fostered by delivering packages regularly on time to a huge percentage of households in the country. They are at the opposite end of the customer service scale from Comcast and the other big ISPs.

I have no idea if this rumor is true. But the idea is so intriguing that I hope Amazon is considering it. One of the major complaints about broadband in this country is the lack of competition and choice. Companies like Amazon can bring fresh competitive bundles that break away from the traditional triple play and that can redefine the ISP of the future.

Update: This rumor persisted and in February 2017 I posted an update about this rumor. https://potsandpansbyccg.com/2017/02/21/amazon-as-an-isp-2/

Who Will Win the Telecom Battle?

facebookNow that Google has pulled back with expansion of Google Fiber it’s easy to see that the cable companies and telcos think they have won the broadband war. But I think if you look a little closer this might not really be the case.

Tech companies like Google, Facebook and Amazon are still focused on making sure that people have enough bandwidth to take advantage of the many products these giant companies offer or plan to offer in the future. And all three companies are growing in importance as content providers.

Consider first the strength of these companies as content providers. Google owns YouTube which is becoming the most important video destination for the younger generation – and those kids are growing up. We’ve seen young millennial households largely reject traditional cable TV offerings. While Amazon Prime is not nearly as big as Netflix it is a strong second and is continuing to grow. Amazon is also reported to be pouring big money into producing original content for its platform. Facebook is on a trajectory to become the preferred source of news and information. And their Facebook Live is also quickly becoming a huge content platform.

But content isn’t everything. Consider that these companies have amassed an enormous private fiber network. Google doesn’t talk about it’s network, but way back in 2013 it was reported that Google had assembled a network consisting of 100,000 miles of dark fiber. We also don’t know the size of the networks, but both Amazon and Facebook have also built large private networks. We know that Google and Facebook have partnered to build a massive undersea fiber to China and are looking at other undersea fiber routes. Amazon has built a huge network to support its cloud services business. It would not be surprising if these companies have already together amassed a larger fiber network than the telcos and cable companies. If they are not bigger yet, they are on a trajectory to get there soon. With these networks the tech companies could hurt the big ISPs where it most hurts – by taking a huge bite out of their special access and transport businesses.

These companies are also not done with the ISP business. Google Fiber has retracted from expanding FTTH networks for now, but they acquired Webpass and are looking to expand as an ISP using wireless last mile. And we saw in Huntsville that Google is not afraid to use somebody else’s fiber network – something we have never seen any of the telcos or cable companies consider. It would not be surprising to see Google make deals with other private networks to expand its ISP business to avoid spending the upfront capital. But perhaps Google’s biggest foray into providing data services is Google Fi, their service that provides unlimited cellular data using WiFi first rather than cellular. It’s been rumored that Google is looking for partnerships to expand WiFi access in many markets. And it’s been reported that Amazon is strongly considering becoming an ISP. I’ve not heard any details about how they might do this, but the company has shown the ability to succeed in everything it’s tackled – so it’s an intriguing possibility.

It’s a gigantic task to take on companies like AT&T and Comcast head on. I think Google Fiber learned this the hard way. But at the end of the day content is still king. As these companies continue to grow in influence as content providers they present a real challenge to traditional programmers. But they also are a growing threat to the big ISPs. If these tech companies decide that their best strategy is to directly deliver their content to subscribers they have a big enough marketing position to pull along a huge number of customers. It’s clear that consumers like these tech companies far more than they like the big ISPs, and in the end the accumulated animus with customers might be their undoing.

This kind of industry shift won’t happen overnight. But it’s already quietly going on behind the scenes. We may not be as far away as you might imagine when these companies provide more content than the traditional programmers and also carry more bandwidth on their own networks than the big ISPs. From my perspective that looks a lot like winning the battle.

OTT is Not Easy on the Consumer

Fatty_watching_himself_on_TVThis article compares the channel line-ups for Sling TV, DirecTV Now and Playstation Vue.  I think it provides the best demonstration I’ve seen yet of how confusing it’s going to be for consumers to choose an OTT option.

The process of choosing an OTT provider is only going to get harder in the future as additional OTT providers enter the market. In the coming year we are going to be seeing Google / YouTube with a similar on-line option. Hulu has announced that they will soon be launching a live-streaming alternative. There is a strong rumor that Amazon is considering an OTT option and has already announced they are pursuing live sports. And various articles I’ve read hint at a few more new OTT providers in 2017.

Comparing OTT channel line-ups is a lot more work than comparing the line-ups of your cable company vs. one of the satellite providers. While satellite providers aren’t required to maintain the same rigidly-defined line-ups as the cable companies, the two sets of line-ups are still reasonably comparable.

Cable company line-ups are defined by the FCC cable rules that require a basic and expanded basic line-up. Contracts between cable companies and programmers has led to uniformity and there are not major difference between cable companies. Cable companies are free to offer additional premium tiers and packages, but even those are largely the same between cable companies. The satellite providers know that their basic package is competing against the expanded basic line-up, so they include roughly the same channels in their 50 – 75 channel packages as the cable companies.

The OTT companies have a different set of challenges. The programmers are not required to sell them any content, and so the OTT companies must negotiate with each programmer individually. These have to be interesting negotiations because the OTT providers want to put together the skinniest bundles they can get while still offering what consumers want. They are then free to bundle channels in any way that the programmer contracts will allow. Since each OTT providers negotiates a unique arrangement with programmers there are going to be major differences between the line-ups from different OTT providers.

The programmers, however, either want to sell multiple channels or else they want a revenue stream that insures them of some decent profits. Programmers understand the math, which is that they are losing money for every customer that moves from traditional TV to a smaller OTT offering. This puts them into an awkward position. It’s obvious that the cord cutting phenomenon is gaining momentum. But if the programmers help to create really attractive OTT packages they are then helping to accelerate cord cutting for consumers.

As I’ve written before, many of the programmers are able to tolerate the growth of OTT since they are selling a lot more new content overseas than they are losing to cord cutting. Many of them acknowledge that there are cable channels that only exist because of the monopoly the handful of programmers have over the industry. They know that the cord cutting phenomenon is going to mean the death of less popular cable networks.

But back to consumers. You can see in the comparison in the link I posted above that between the first three major OTT providers it’s not easy to even visualize what you get in the various packages. The options between the three providers are significantly different, and all of these options have some glaring holes from programmers that have not yet allowed their content into these OTT bundles. It’s hard to imagine how complex this comparison is going to be with 3 – 6 more options by the end of 2017. I think a lot of consumers are going to come to web sites like this and be intimidated by the choices and will delay cutting the cord.

It’s likely that over time the various OTT providers will find niches in the market. Certainly if they all end up with the identical sets of channels there won’t be a lot of difference between them. But I would expect the ones that will be successful in the long-run will find a demographic niche that will give them an advantage. But for now their line-ups are a messy hodgepodge since they are cobbling together line-ups from the channels that they are able to acquire. This is going to make for a number of confusing products for the first few years of this new industry until they all figure it out.

Amazon as an ISP?

amazon_logo_rgbThere is an article on The Information that says that Amazon is considering becoming an ISP. They cite an unattributed insider at Amazon who says that the company has been discussing this. Officially the company denies the rumor, which is consistent with the way that Amazon has always operated.

It’s an interesting concept, but I honestly have a hard time seeing it. Amazon has been growing in Europe and it could make a little sense there. There are a number of cities on the continent as well as a few national ISP networks that allow open access to any ISP. On those networks Amazon could easily develop an ISP product. They already have massive data centers and it wouldn’t cost all that much to add the ISP functions.

But I just don’t see any big benefits to Amazon for doing this in the open access model. Due to price competition there are not a lot of profit for ISPs on the open access networks. But maybe Amazon can have some edge from somehow bundling ISP access with its Amazon Prime video and music. But every ISP already carries Amazon’s content today and unless bundling somehow sells a lot more Prime subscriptions it’s hard to see this as a big win.

I also can’t see any sense of Amazon being an ISP in the US. There are no open access networks to speak of outside a tiny handful of small municipal networks. One only has to look at Google’s foray into broadband in the US to see that it’s really hard to make money by building broadband infrastructure – at least the kind of money that excites stockholders. There are decent long-term infrastructure returns from building and operating a fiber network well, but those returns are miniscule compared to the returns on tech ventures.

I still don’t fully understand why Google got into the broadband business. In the fiber business they are investing a lot of money that is going to make relatively small returns compared to the rest of their core business. Google’s stock value comes from the company making high technology returns and infrastructure returns can’t do anything better than pull down their overall return. I can’t imagine how it will be any less so for Amazon.

Perhaps Amazon is intrigued by the idea of gigabit wireless connections.  But I think everybody looking at this new technology is going to figure out that millimeter wave spectrum technology is still going to require a lot of fiber in the urban network.

And even if Amazon is comfortable with the lower returns, they still have to deal with network neutrality. It would seem that the best advantage to Amazon from being an ISP would be to somehow bundle their content and broadband connections together – something that is not allowed in the US, and only barely allowed in Europe.

The biggest problem we have with getting real broadband in the country is that big money is chasing big returns. There was a time in our past where there were a lot of conservative investors who were very happy having part of their portfolio invested in safe and steady telephone, electric and water companies because they knew that they would receive secure dividends forever in these safe investments.

But it seems today that investors look at all of the instant tech billionaires and they don’t want to pour money into the basics any more. To compound the problem the big telcos and cable companies invest no more than absolutely necessary in capital to meet basic customer expectations. But big company networks are not nearly as good as they should be. You can’t watch a quarterly presentation of one of these big companies without hearing them talk about how they have plans to curtail capital spending.

So is Amazon really going to become an ISP? They certainly have access to the cash if they really want to. But it’s just hard to believe that they want to shift the company to be more brick and mortar company since they have fought hard to not be that. I just can’t see enough benefits to a publicly traded tech company to be an ISP.