Google and Regulation

Logo of the United States Federal Communicatio...

Logo of the United States Federal Communications Commission, used on their website and some publications since the early 2000s. (Photo credit: Wikipedia)

AT&T said last week that they were not required to give access to Google Fiber to their poles in Austin Texas. AT&T owns about 20% of the poles there with the City owning the rest. And from what I can see, AT&T is right. This all comes down to various regulations, and it appears that Google is doing everything possible to not be regulated in any way. It seems they have set up a business plan that lets them claim to escape regulation. Let me look at the nuances of what they are doing.

There is a federal set of rules that say that pole owners must provide poles to any certified telecommunications provider. According to the Telecommunications Act of 1996, the states have the right to grant certifications to carriers. Every state provides at least two kinds of carrier certifications – CLEC and IXC. CLEC is the acronym for Competitive Local Exchange Carrier and is the federal term used to describe competitive telephone providers. IXC is the acronym for Interexchange Carrier and is the certification given to companies that only want to sell retail long distance.

Some states have other categories. Some states have a certification for a Competitive Access Provider (CAP) or for a Carrier’s Carrier, These two certifications are generally given to companies who only want to sell services to other carriers. They may sell transport, collocation or other services that only carriers can buy.

A company must obtain a CLEC or CAP certification if they want to gain all of the rights that come with such certification. This includes access to poles and conduits of other carriers, the ability to interconnect with other carriers, the ability to collocate equipment in the offices of other carriers. A CLEC certification also grants a company the right to bill ‘telecom’ products to customers, meaning traditional telephone or traditional TDM point-to-point data services. These are generally rights that anybody who is building a network or providing traditional telecom services must obtain before other carriers will talk to them. But along with those rights come some obligations. Certified carriers are subject to paying some regulatory fees and collecting other fees and taxes from their customers. Regulated companies have to follow rules that dictate how they can disconnect non-pay customers. Regulated companies in some states even have some light regulations concerning pricing, although there are very few rules anywhere dictating how a competitive carrier prices their services.

So strictly, AT&T is completely within their rights to not even talk to Google about pole attachments since Google does not have or plan to obtain a certification. As it turns out, AT&T reports that they are talking to Google anyway and are negotiating a deal to let them on the poles. And honestly, that steams me a bit, because this is how big companies treat each other. I am sure that there is enough business between AT&T and Google that AT&T doesn’t see any sense in going to war over this kind of issue. They would also be seen in Austin as holding up progress and further, Google could always get the certification if push came to shove. But if this was any company smaller than Google, then AT&T would be refusing to even open a discussion on pole attachments or any of the other issues associated with being certified. AT&T would insist that any other company jump through all of the regulatory hoops first. This I know because I have experienced it numerous times. I guess it pays to be as big as Google.

AT&T would also be required to provide access to the poles if Google was a cable TV company. This is a designation that is granted by the local community and the City of Austin could negotiate a cable franchise agreement with Google. But Google is taking the stance that they are not a cable TV company. They are claiming instead that they are a video service provider because they deliver two-way cable TV service, meaning that the customer’s settop box can talk back to Google since they offer IPTV. This is taking advantage of a loophole in the law because today every large-city cable system is two-way since customers in those systems have the ability to order Pay-per-view or video-on-demand from their settop boxes.

But Google does not want to be a cable provider, because there is one nuance of the FCC rules that say that anybody getting a franchise agreement would essentially have to sign onto the same rights and obligations as the incumbent cable company. The big catch in those rules is that Google would have coverage obligations to cover the whole City and they instead want to pick and choose the neighborhoods they serve. Google would also have to collect franchise fees from customers for their cable TV product, and such fees are around 3% of the cable bill in most places.

State regulators and cities are both willing to overlook these regulatory nuances for Google because they are so big and because they promise to bring gigabit data speeds. But these same rules never get overlooked for smaller companies, and so I guess regulations only really affect the small guys any more.

Will Software Eat the Telecom Industry?

no-cable-tv

no-cable-tv (Photo credit: hjl)

A few years ago Marc Andreessen, founder of Netscape coined the phrase that software is eating the world. And by that he meant that software based systems were killing off traditional industries one by one.

It’s a great observation because we have seen entire industries crumble from web competition. And just about every industry that doesn’t involve a direct physical service, such as transportation, or involve the manufacturing of goods has felt the pinch. We still need to go see a doctor when we are sick (although a lot of us will go to Web MD and misdiagnose ourselves first).

Everybody is familiar with the industries that have been decimated by competition with software. How many of you still use a travel agent when you want to book an airline ticket? When was the last time you drove to rent a movie to watch for the evening? How many music CDs have you purchased this last year? Those industries are largely gone. And many other industries have been injured by software, if not outright killed. For example, a large percentage of stock trading is now done online without the need of a  stockbroker. There is barely an industry that hasn’t felt some pinch due to software.

Looking out a decade or two it’s easy to foresee a whole lot more industries and jobs that are going to be killed by software. Driverless vehicles are likely to eventually get rid of cab drivers and truckers. 3D printing is going to wipe out a ton of manufacturing companies. When you need a small widget you’ll just print your own, and you’ll even be able to go to a friend to print a new 3D printer.

Can the same thing happen to telecom? Certainly the executives at cable companies seem to be denying that the web is changing their business model. They have an excuse and a story for every decline they see in subscribers. I think it is clear to anybody who understands the industry that for a communications company to be relevant a decade from now that they will need to change their corporate identity to become an ISP. If you can deliver a fast pipe you can survive, and possibly even thrive. But at some future point there is no longer going to be a company that is primarily a cable company.

Anybody who thinks that voice and cable TV, two legs of the triple play, are not in danger of going the way of the CD store or video rental store is kidding themselves. The history of products that have been killed by software is that, at some point, the general public sees more merit in the new software version of the product than in the traditional one. Such changes can be rapid and viral and it only took a few years for people to stop buying music CDs and renting movies at a local store. It was much easier and more affordable to do it the software way.

What the cable companies seem to be ignoring is how much the public is talking about and thinking about dropping their product. I know I am in the industry and so I am attuned to any discussion about telecom topics. But I have noticed that almost everybody I know has either dropped cable or has seriously thought about dropping or downsizing their cable subscription. If that idea goes viral and becomes conventional wisdom, then a huge percentage of cable subscribers could disappear in a very short time.

I am positive that the executives in all of these other industries saw the end coming. But in the US corporate world, with an overriding emphasis on quarterly earnings, no executive from the companies that are now dead ever came out and publicly said, “Our industry as we know it is doomed and our company needs to change massively if we want to survive”. Instead we saw the music and other industries go down in flames rather than admit publicly that they couldn’t make it. Our financial system punishes those who tell an ugly truth, and so company after company died without ever publicly admitting they could not compete with the new paradigm.

So, will software kill the telecom industry? I think it’s inevitable that it will kill voice and cable TV as products. The product that will survive in some form is fast data, because without that none of the software killer products will work. Fast internet, along with electricity and water will be the basic utilities of the future. Will software eat the telecom industry? Probably not, but it sure as hell is going to take a big bite out of it.

My Comcast Story

XfinityAs I mentioned last week, I just moved to Florida. My options for broadband here are CenturyLink DSL or Comcast cable modem. I am in a smaller town and the only CenturyLink DSL product sold here is a speed of ‘up to 10 Mbps’. The CenturyLink product is priced attractively low with packages starting as cheap as $20. I had a faster product than that in the Virgin Islands, and so I looked at Comcast.

I talked to the neighbors around here and was surprised that almost nobody uses Comcast. They use satellite for cable and most of them use CenturyLink for DSL. They all told me that they thought Comcast was too hard to work with. But I’ve had Comcast before and their broadband product is clearly superior, so I gave them a call.

Comcast in this market has broadband products that range between 12 Mbps download and 105 Mbps download. My family is two adults and a teenager. We have multiple computers, a few Kindles, an iPad and smart phones. Right now we don’t have a TV although I’ll probably get around to buying one. I decided on the 50 Mbps product. This seemed like enough bandwidth for us to watch multiple video streams, surf the web and play games at the same time. Even though I would love more bandwidth, the 105 mbps product seems too expensive at well over $100 per month. But I am glad to live in a place where I have that faster option and I won’t be surprised to find myself needing to upgrade to it one day.

We first signed up with Comcast on line, But after a few days nothing happened and we tried it again. It finally took calling the local Comcast office because the online customer service people, who seemed to be overseas, were not getting our order into the queue right.

The first thing I found out is that Comcast in this market would not sell me naked cable modem, except for the 105 Mbps product. Every other cable modem product is only available when bundled with a cable TV product. So in order, to get the 50 Mbps product I wanted I was forced to buy the smallest basic cable package which is a dozen or so channels. I got a first-time customer special and am being charged $59 for six months and then it goes to $79 per month. At that point I’ll see if they let me drop the cable, which I do not want.

Once I order the bundle, the first thing I am told is that there is a $259 charge to ‘make sure that my property can be served by Comcast’. I tell them that there is a Comcast pedestal in my front yard and that this didn’t seem necessary. But I go ahead and authorize this and then find out that it’s going to take up to ten days to make the verification. We call every day and after five days finally convince somebody that we have the pedestal and that they don’t have to come out to verify. But I still get nailed with the charge.

After two weeks into the process it’s finally time to schedule the install. I am told there is a big backlog in the area and that it’s going to be a while. I get an appointment for five days later for late afternoon. Nobody shows up at the scheduled time and we finally get a call at 9:30 PM that day asking if they still want us to come over. Since I need a new drop I tell them we don’t want them doing that in the dark, and I get a new appointment for four days later. When the installer finally shows up he seems like a good guy and pretty competent. I’ve had Comcast installers in the past that didn’t seem well trained, but this guy seems to know his stuff. He is in a Comcast truck, not a contractor, which probably explains that.

I point out that I don’t have a TV and don’t want the settop box. But he says he has to connect it and activate it for my bundle. He also leaves the drop on the ground and tells me that in three weeks somebody will show up to bury it.

In summary it took over three weeks to get a cable modem. It took a dozen phone calls. It took three tries just to get in the queue. I had to buy a cable product I don’t want. I then had to wait to verify that I could get service even though I have one of their pedestals in the yard. The installer doesn’t show up when scheduled and doesn’t call until much later in the day and we have to reschedule. I now have a settop box sitting on my living room floor although I don’t have a TV. And I have a drop wire laying across my lawn and making me wonder how I am going to mow around it.

I see now that my neighbors were right and I can see why people less determined than me give up on Comcast. It was not a good experience and costly as well. But the cable modem is fast and as long as it stays connected I guess I will be happy with it. I’m not going to be thrilled when the price goes up and I start paying for a cable product I don’t want. And I am just hoping the drop will get buried without more phone calls.

This experience makes me wonder if the big cable companies are ever going to understand that customer service needs to be their first priority. Because they still are not doing it right. They provided me with several chances in this process to change my mind and give up on them. I saw last week that Comcast is thinking about growing by buying all or parts of other giant cable companies. Perhaps rather than do that they ought to spend some time figuring out how to do things right. After all, connecting a new customer who needs a 30 foot drop is not that complicated.

The Future of TV – The Viewer

The Twilight Saga (film series)

The Twilight Saga (film series) (Photo credit: Wikipedia)

Probably the biggest change in the TV landscape is that viewers are changing, or at least their expectations for the viewing experience. For the first time in the history of the industry, the consumer is in the driver’s seat by their ability to collectively determine which content is popular. This must be driving the executives at cable companies and media production companies crazy.

For most of the history of the industry, the content providers were in charge. For most of the history of TV the studios or cable networks would choose the content and determine when it would be seen. And the process was a huge chess match trying to get the most eyes to product hits. New content that was scheduled opposite an existing hit show were dead on arrival.

Not all consumers fit well with the process of having to watch shows at pre-set times. I am an admitted space cadet and I have never been able to watch a TV show regularly at a pre-set time. And so, when TV shows started showing up on tape and then DVDs, I scrapped television and would just buy the series I was interested in to watch at my leisure. I saved money by not having cable TV, but buying DVDs for shows was expensive and so I would watch only a few old series per year. And I bought movies. Lots and lots of movies. But I was in the minority and I was an early cord cutter due to my personal spacey habits and my willingness to pay a premium price for alternate content.

But then along came new technologies that let people drop out of the treadmill of watching shows at pre-determined times. First came TIVO followed by video-on-demand that let people record and watch shows later. And more lately has come OTT programming on the web. So now, people have an immense amount of content that they can watch at any time. Both my wife and I are the kind of people who like to watch a whole TV series back-to-back and so OTT programming satisfies us for the most part.

And if that is all there was to the change in the industry the cable companies and content providers would not be worried. They would continue to monetize the ability for people to watch their content whenever they wanted to, and in the end their finances would not change too drastically.

But that is not the end game. If you want to see the end game, spend a few days watching how 14-year olds watch video. The way they watch content is the future:

  • They rarely watch just one thing at a time, at least for very long. They may watch something on a TV screen, but they will watch their tablet and smart phone at the same time.
  • They don’t have long attention spans, regardless of the content and getting them to watch a movie the whole way through is difficult.
  • They like to watch content made by themselves and their friends as much as they like professional content.
  • They don’t want to watch something end-to-end. They will not go back and watch a Twilight movie they have already seen. Instead they will watch compilations of their favorite scenes from the Twilight movies that they or somebody else has strung together on YouTube.
  • They love the 7-second clip content on Vine. No adult can handle Vine for more than a short time. Vine produces memes more than content, but kids find this entertaining.
  • They love watching together with other teenagers, be that live together or virtually together.
  • They don’t even need cable for the news. Take the example of the Boston marathon bombing. There were hundreds of people in the area going live on the web talking about what was going on there.
  • And they don’t want to pay for content. Not so much because they are 14, but because they believe that content ought to be free.

It is the 14-year old girls that are scaring the industry because they presage a new way of interacting with content. These kids are not going to grow up and buy traditional cable subscriptions. They are not even that likely to buy the alternates like Hulu or NetFlix. They are largely happy with free content or short clips of industry content. The cable companies are hoping to snag boys with ESPN and sports content, but they don’t know what in the hell to do with the girls.

The Future of TV – Content

Photo of cable tv headend rack. Louisiana. Now...

Photo of cable tv headend rack. Louisiana. Now closed out of business. (Photo credit: Wikipedia)

Since cable TV became a nationwide product the content has been delivered by the cable providers in large packages that differed little from coast to coast. Small rural systems have typically smaller line-ups, but the programming available in the big cities is about the same everywhere.

The first big crack in how programming is delivered came with Tivo which let people record TV to watch later, including the ability to skip commercials. And quickly following that was video-on-demand from the cable companies. Now we are seeing a large amount of programming available on the Internet and I think we have turned the corner and consumers now have more say than the cable companies in how and when they watch content. This trend will strengthen and greater numbers of people will step away from traditional packages. I looked around to see what others are expecting for the future of content and here are some of the predictions:

Content Participation. This started in a mild way when home viewers could vote each week for the winners of shows like American Idol. This got millions of viewers heavily invested in the outcomes of such shows. Expect a lot more of this in the future and to a much greater degree. There will be programs that are driven by the viewers. The viewers will get a say in the plot development, the introduction of new characters or getting rid of existing ones. The shows and characters will participate in social media and become part of fan’s lives.

Viral TV Production. Even better than participation, viewers will be able to help fund new shows they want to watch. To some extent this has happened to a few shows today that were discontinued by networks but then picked up for independent production for the Internet. Viewers will not only get to participate as backers of new shows but will have the ability to have some say in the creation of content. I can picture Star Trek fans funding episode after episode forever.

Produce Your Own Content. Anybody who has witnessed 14-year-old girls watching video will see that a lot of what they watch is clips made by their friends or by themselves. As it becomes easier and easier to make your own content, and as this content is easier and easier to play anywhere, a lot of people are going to produce content to share with their friends.

More Local Content. To a large degree local content has died on cable TV. Larger markets have local news, but there is a lot of demand to watch local content such as high school football and basketball, parades, government meetings and other local events. The Internet is already producing ways to channelize local content and I expect local ‘channels’ to pop up all over the country. There is no reason that every high school, every college, every church can’t have their own local channel of web content.

Fewer Network Channels. I think everybody expects that as more content is on the Internet and as some of the more popular content becomes available on a per-pay basis that many of the existing cable networks will die. It’s been reported that 80% to – 85% of cable channels don’t make enough money to stand alone in an a la carte cable world.

Different Perspectives. Expect programming that will offer different perspectives. This has been done a little in the past with shows being filmed with different endings for different viewers, but expect a lot more of this in the future. There will be shows that will allow the viewer to watch the show from the perspective of a specific character.

Personalized Ads. Of course, with all of the good changes that are coming, there is a lot of consensus that ads will become more personalized. Of course, advertisers think that this will make you like to watch their ads since most of what you see will be aimed at you, but I suspect that is going to make most people even more jaded about advertising.

Sensory TV. As a science fiction fan I have been to a number of movies that purported to invoke the sense of smell, taste or touch during movies. I must say that movies with Sniff-o-rama were a little less than successful! However, it is predicted that in the near future that it will be possible though personal electronics to make a viewer really invoke the different senses. This will begin with gamers and will involve wearing helmets or goggles that will trigger brain sensations. But this will move eventually to wider programming.

Time to End the Cable Card Rules?

no-cable-tv

no-cable-tv (Photo credit: hjl)

This week the National Cable Television Association (NCTA) published a document called The Integration Ban – A Rule Past its Prime. So what is the integration ban and why are they so upset about it?

When the cable industry uses the phrase integration ban, they are referring to the various rules that require cable companies to offer settop boxes that include a cable card. There is no actual FCC order called the integration ban and that is a ‘marketing’ phrase the industry came up with to talk about the cable card rules.

NCTA has a lot of really valid points and there probably is no other set of rules administered by the FCC that is as much of a mess as the cable card rules. These rules came into place in 1998 and were due to multiple requests from the public to be able to use their own settop boxes rather than use the ones supplied by the cable company (and for which the cable company charges). And so the FCC came up with some complicated rules that required cable companies to use boxes that included a cable card.

A cable card is a little device that is about the size of a credit card and that fits into a slot in settop boxes. Its function is to decrypt the television signal from the cable company in order to watch the programming. Different cable companies use different encryption techniques, and so a consumer must acquire a cable card from their own cable company, and then they can use the card in a settop box they buy on their own.

This sounds like a good idea. Cable companies have historically charged around $5 per month forever to ‘rent’ the settop box and the FCC clearly envisioned that a lot of people would buy their own settop boxes to avoid these fees. But they haven’t, and so from a practical aspect this order has been a dismal failure. According to the NCTA there are only 600,000 cable cards in use today compared to 40 million cable card-ready settop boxes. And there are a huge number of settop boxes that don’t include the cable card technology, so less than 1% of consumers have taken the opportunity to avoid the settop box charges. From a market perspective that is a failure.

But that is not the only reason that the cable card order is a mess today. The FCC has granted numerous waivers over the years and so some companies do not have to use cable cards. AT&T and the telcos who use DSL do not have to use cable cards because nobody has really figured out a way to make them work with the way that DSL is used to deliver TV signal. One of the functions of a cable card is to act as a tuner, meaning it changes channels, and these technologies change the channel back at the headend rather than at the customer location. Many of the smaller fiber providers cannot buy settop boxes that will allow cable cards, although Verizon must offer them. The satellite providers also do not have to use cable cards for similar reasons.

But the FCC has also granted conditional waivers to some traditional cable companies like Charter and Cablevision. These providers have been working with a new technology that would allow customers to download software that would allow external devices to act as settop boxes on their systems.

But there is even a bigger reason why the cable card rules are a mess. In January of this year the D.C Circuit Court of Appeals entirely vacated what is known as the ‘Plug and Play rules’ that were issued by the FCC in 2003. These rules made changes to the cable card rules along with other cable-related issues. Further, the FCC amended the cable card rules again in 2010, largely based upon the 2003 order, and yet those rules were not vacated by the Court. We now have a regulatory puzzle that I am not sure anybody can solve (but many lawyers will be glad to charge to try).

Finally, and probably most important of all, settop boxes are quickly going to lose relevance in the marketplace. The FCC needs to look into people’s living rooms to see how people are watching video today. (I don’t mean that literally since that seems to be the NSA’s job). People want to be able to watch video on a wide array of devices, not just their television sets. They are connecting a plethora of new devices to their TVs and wireless networks to let them do this on their own. And many cable companies are now helping them by offering some form of what they are calling ‘TV Everywhere”. There are also cable providers who are actively allowing boxes like Hulu, Playstation and Apple TV to act as their settop box.

So we have cable card rules that are a failure in the marketplace. Further, the cable card rules have been eviscerated by a Court order and almost nobody understands what is or is not required any more. And technology is getting ready to quickly bypass the traditional settop box. The FCC needs to admit that this is an order past its prime and should stop requiring new cable cards. It might make some sense for some period of time to allow existing cable cards to be used, but it’s time to face the reality of the market and the technology and get out of the way of innovation

The DSL TV Market

CenturyLink Contingent

CenturyLink Contingent (Photo credit: sea turtle)

I find it surprising that DSL TV providers have been the fastest growing segment of the cable TV industry. And my surprise is due to the fact that these companies are delivering TV over the smallest data pipe of any of the comparable technologies. Over the last year the companies using DSL and fiber to deliver cable TV have grown in customers while the traditional cable companies have lost customers.

Cable TV is delivered over DSL using a bonded pair of telephone wires using either ADSL2 or VDSL. In theory these technologies can deliver speeds up to about 40 Mbps. But depending upon the gauge, the age and the condition of the copper many actual deployments are closer to 20 Mbps than the theoretical 40 Mbps. The bandwidth that is left over after the TV signal is used to deliver voice and data.

The DSL providers make cable work by using a technology called IPTV. This technology only sends the signals to the home that the customer is asking to see. One can always tell that you are on an IPTV system because of the small pause that occurs every time you change channels.

The DSL cable industry is composed of AT&T U-verse, CenturyLink Prism and a whole slew of smaller telephone companies. Not every telco has taken the bonded DSL path. For example, a number of the mid-sized telcos like Frontier, Fairpoint and TDS have elected to partner with a satellite provider in order to have a TV product in the bundle. But last year TDS ventured out into the DSL TV market in Madison Wisconsin.

AT&T is by far the most successful DSL TV provider as one would expect from their large customer base. AT&T has made the product available to over 24 million homes. At the end of the first quarter of 2013 they reported having 5 million cable customers on U-verse and 9.1 million data customers.

The biggest problem with using DSL is the distance limitation. The speeds on DSL drop significantly with distance and so customers have to be on a relatively short copper path in order for it to work. The DSL that AT&T is using can support the U-verse product up to about 3,500 feet on good single copper pair and up to 5,500 feet using a two bonded copper pairs. And the key word in that description is good copper, because older copper and copper with problems will degrade the speed of the product significantly.

I really don’t know who is in second place. CenturyLink announced that they had 120,000 TV customers on their Prism product at the end of the first quarter of 2013. There may be some other telcos out there with more DSL cable customers. But CenturyLink if fairly new to the product line having launched it just a few years ago. They still only offer it in a few markets but are adding new markets all of the time. So if they are not in second base they soon will be.

In researching this article I came across some web sites that carry customer complaints about Prism. Look at the Yelp pages for CenturyLink in Las Vegas. I’ve always suspected that unhappy customers are more likely to post an on-line review than happy ones, but some of the stories in here are extraordinarily bad. Obviously CenturyLink is having some growing pains and has a serious disconnect between their marketing and sales departments and their customer service. But some of the policies in here, such as charging people a large disconnect fee even though there is no contract is surprising in a competitive environment. And yet, even with these kinds of issues the company has added over 100,000 customers in just a few years.

I have to wonder how this industry segment is going to handle where the cable business is going. How much they can squeeze out of a 20 Mbps data pipe when you have customers who want to watch several TVs at the same time, record shows while watching another show and also streaming video to tablets and laptops, all simultaneously? Yesterday I noted the new trend in large TVs which is to split the screen into four parts, each showing something different. Most reviews of the performance of TV over DSL are pretty good, but how will DSL handle the guy who wants to watch four HD football games at the same time while surfing the internet?

Telecommunications Enters a New Marketing Era!

Today’s guest blog is written by Mindy Jeffries the President of Stealth Marketing. She will be writing a series of blogs that will appear here on Fridays for a while. If you want to contact Mindy you can call her at 314 880-5570. Tell her you saw her here!

In this blog post, my intent is to examine the history of telecommunications marketing so we can all have an appreciation of the work we have today, the products and the marketing solutions in the fast paced environment we find ourselves. From the day I started in 1978 until today, one thing is certain and that is change. So this post will provide solutions and ideas on how to make that change fun and manageable.

Cable started as a technical product that solved a problem for people in places that could not get the new invention called ‘television’.  The cable industry solved a need. Today those needs are rarely present with products that telecommunications companies market. So, what started as a technical-needs-based product became more of an everyday consumer product, and a story had to be told in an effective and compelling manner which would help new consumers choose which product fit their needs the best. This is when it got a lot more fun for marketers.  But wait, telecom companies had no marketers!

Telecom began to get more competitive and a need emerged to tell the ‘how are we different?’ story in an increasingly compelling way. Competitors came in on the television side, on the phone side, and on the Internet side. All of a sudden, telecom companies had competitors emerging at every door.

In the early days of cable television we told the story through products. HBO, ESPN, and other similar companies would help pay for the marketing. Our competitors started marketing with those same brand names. Cruel. Products became ubiquitous, available through all competitors. Those premium product offerings were no longer a differentiator.

Of course, a few other things happened in the world of marketing in the last 30 years. A truckload of marketing options started to become available to us. The marketing industry was introduced to new technology, new research entities, new methods, new philosophies, etc. In the end, that yielded options, more than one way to skin a cat. More marketing options means more places to spend your money with a lot of variation in response rates to different audiences with different marketing methods.  Sophisticated, targeted, analytical marketing became very important.

The problem became: how do we effectively differentiate in a quickly emerging telecom world . . . how do we tell our story, what is the target market, who is the target demo and what is the best way to place that communication? How do we utilize all of these marketing innovations? Those are the questions we will answer over the next few weeks. Hopefully these blogs will explain the process behind the curtain and I hope to show you the processes and strategies behind effective marketing.

The Future of TV

Kicking Television

Kicking Television (Photo credit: dhammza)

Laura Martin and Dan Medina of Needham & Company, a branch of an investment banking and asset management firm have issued an analysis on  the Future of TV. There has been a lot of other reporting about this report, most of which zeroed in on the fact that ESPN would need to charge $30 in an a la carte environment. I’ve written several other blogs about the a la carte issue and instead want to highlight some of the interesting facts from the report.

They say that TV is a bargain and that the average family spends 30 cents per hour to watch TV. This is based upon an average cost of $75 for a cable subscription and a family watching TV eight hours per day. I think they miss two points with this. The price of cable has grown much faster than inflation and there are now more and more homes who feel they can’t afford the cost of the subscription. If cable rates keep climbing 6% per year, in only five years this same subscription is going to cost over $100 per month. Also, there are many households who do not watch TV eight hours per day. It is these two groups that are leaving the cable system, the first reluctantly and the second because it no longer feels like a bargain.

TV content is expensive to produce. The four main broadcast networks (ABC, CBS, FOX and NBC) spend an average of $2.5 million to create a prime time hour of programming. To contrast, all of the other 130 or so cable networks spend an average of about $100,000 per hour. But there are new rivals now producing programming. There are a number of companies now producing content for the web and this is expected to grow rapidly. For example, YouTube is spending about $100 million, NetFlix $200 million, Hulu $500 million. And both AOL and Yahoo have created web ‘channels’.

They say that about 80% of content never pays for itself. The TV world is driven by hits since they draw the bulk of the advertising revenue. But hits are ephemeral and unpredictable. The broadcast networks have been geared for decades to product hits and it’s obvious that even with the money that they spend that it’s very hard to do. But the top shows garner the lion’s share of ad revenues. To show the power of hits, the top 1% of movie hits account for 18% of movie rentals / views.

They recognize that TV viewing is shifting in a digital age. They cite the following statistics:

  • 72% of viewers watch content only on a TV set.
  • 11% watch content only on some digital medium such as computer, pad or smartphone.
  • 17% of viewers watch some content in both ways.
  • 61% of TV watchers now use the Internet while watching TV and 10 – 25% of those viewers go to the website of the show being watched (depends upon the network being watched).
  • 29% of the viewers who use the web while watching TV are on Facebook.

The report estimates that over 1 million jobs are dependent upon the TV sector. These are mostly middle class jobs and include cable TV installers, customer service reps, people who work in various roles at the networks. Comcast alone has 126,000 employees. By contrast the new companies trying to make money from web content have very few employees. Hulu has 420 employees, YouTube has 650 and NetFlix has 2,348. The report thinks that most of the traditional cable TV jobs are at risk if we move to an a la carte system.

The public companies in the TV sector have about $400 billion in market cap (investable securities). The report estimates that at least half of that market cap would disappear under a la carte programming. They warn that even having the government looking at a la carte programming puts these investments at risk.

These are just a few of the many facts cited in the report, which is why I have included link to the full report for anybody who wants to read more. Oh, and at the end of the report they recommend buying CBS and AOL stock. If you buy them and it doesn’t work out, you didn’t hear it here.

Do You Understand Your Chokepoints?

Almost every network has chokepoints. A chokepoint is some place in the network that restricts data flow and that degrades the performance of the network beyond the chokepoint. In today’s environment where everybody is trying to coax more speed out of their network these chokepoints are becoming more obvious. Let me look at the chokepoints throughout the network, starting at the customer premise.

Many don’t think of the premise as a chokepoint, but if you are trying to deliver a large amount of data, then the wiring and other infrastructure at the location will be a chokepoint. We are always hearing today about gigabit networks, but there are actually very few wiring schemes available that will deliver a gigabit of data for more than a very short distance. Even category 5 and 6 cabling is only good for short runs at that speed. There is no WiFi on the market today that can operate at a gigabit. And technologies like HPNA and MOCA are not fast enough to carry a gigabit.

But the premise wiring and customer electronics can create a choke point even at slower speeds. It is a very difficult challenge to bring speeds of 100 Mbps to large premises like schools and hospitals. One can deliver fast data to the premise, but once the data is put onto wires of any kind the performance decays with distance, and generally a lot faster than you would think. I look at the recent federal announced goal of bringing a gigabit to every school in the country and I wonder how they plan to move that gigabit around the school. The answer mostly is that with today’s wiring and electronics, they won’t. They will be able to deliver a decent percentage of the gigabit to classrooms, but the chokepoint of wiring is going to eat up a lot of the bandwidth.

The next chokepoint in a network for most technologies is neighborhood nodes. Cable TV HFC networks, fiber PON networks, cellular data networks and DSL networks all rely on creating neighborhood nodes of some kind, a node being the place where the network hands off the data signal to the last mile. And these nodes are often chokepoints in the network due to what is called oversubscription. In the ideal network there would be enough bandwidth delivered so that every customer could use all of the bandwidth they have been delivered simultaneously. But very few network operators want to build that network because of the cost, and so carriers oversell bandwidth to customers.

Oversubscription is the process of bringing the same bandwidth to multiple customers since we know statistically that only a few customers in a given node will be making heavy use of that data at the same time. Effectively a network owner can sell the same bandwidth to multiple customers knowing that the vast majority of the time it will be available to whoever wants to use it.

We are all familiar with the chokepoints that occur in oversubscribed networks. Cable modem networks have been infamous for years for bogging down each evening when everybody uses the network at the same time. And we are also aware of how cell phone and other networks get clogged and unavailable in times of emergencies. These are all due to the chokepoints caused by oversubscription at the node. Oversubscription is not a bad thing when done well, but many networks end up, through success, with more customers per node than they had originally designed for.

The next chokepoint in many networks is the backbone fiber electronics that delivers bandwidth to from the hub to the nodes. Data bandwidth has grown at a very rapid pace over the last decade and it is not unusual to find backbone data feeds where today’s data usage exceeds the original design parameters. Upgrading the electronics is often costly because in some network you have to replace the electronics to all nodes in order to fix the ones that are full.

Another chokepoint in the network can be hub electronics. It’s possible to have routers and data switches that are unable to smoothly handle all of the data flow and routing needs at the peak times.

Finally, there can be a chokepoint in the data pipe that leaves a network and connects to the Internet. It is not unusual to find Internet pipes that hit capacity at peak usage times of the day which then slows down data usage for everybody on the network.

I have seen networks that have almost all of these chokepoints and I’ve seen other networks that have almost no chokepoints. Keeping a network ahead of the constantly growing demand for data usage is not cheap. But network operators have to realize that customers recognize when they are getting shortchanged and they don’t like it. The customer who wants to download a movie at 8:00 PM doesn’t care why your network is going slow because they believe they have paid you for the right to get that movie when they want it.