Quad Bundling

Since Comcast and Charter are now embarking in the cellular business we are soon going to find out if there is any marketing power in a quad bundle. Verizon, and to a smaller degree AT&T, has had the ability to create bundles including cellular service, but they never really pushed this in the marketplace in the way that Comcast is considering.

Comcast has said that the number one reason they are entering the cellular business is to make customers “stickier” and to reduce churn. And that implies offering cellular service cheaper than competitors like Verizon, or to at least create bundles that give the illusion of big savings on cellular. For now, the preliminary pricing Comcast has announced doesn’t seem to be low enough to take the industry by storm. But I expect as they gain customers that the company will find more creative ways to bundle it.

The Comcast pricing announced so far shows only a few options. Comcast is offering a $45 per month ‘unlimited’ cell plan (capped at 20 GB of data per month), that is significantly less expensive than any current unlimited plan from Verizon or AT&T. But this low price is only available now for customers who buy one of the full expensive Comcast triple play bundles. The alternative to this is a $65 per month unlimited plan that is $5 per month lower than the equivalent Verizon plan. Comcast also plans to offer family plans that sell a gigabyte of data for $12 that can be used for any phone in the plan – for many families this might be the best bargain.

One interesting feature of the Comcast plan is that it will automatically offload data traffic to the company’s WiFi network. Comcast has a huge WiFi network with over 16 million hotspots. This includes a few million outdoor hotspots but also a huge network of home WiFi routers that also act as a public hotspot. That means that customers sitting in a restaurant or visiting a home that has a Comcast WiFi connection will automatically use those connections instead of using more expensive cellular data. Depending on where a person lives or works this could significantly lower how much a consumer uses 4G data.

There are still technical issues to be worked out to allow for seamless WiFi-to-WiFi handoffs. Comcast has provided the ability for a few years for customers to connect to their WiFi hotspots. I used to live in a neighborhood that had a lot of the Comcast home hotspots. When walking my dog it was extremely frustrating if I let my cellphone use the Comcast WiFi network because as I went in and out of hotspots my data connections would be interrupted and generally reinitiated. I always had to turn off WiFi when walking to use only cellular data. It will be interesting to see how, and if Comcast has overcome this issue.

A recent survey done by the investment bank Jeffries has to be of concern to the big four cellular companies. In that survey 41% of respondents said that they would be ‘very likely’ to consider a quad play cable bundle that includes cellular. Probably even scarier for the cellular companies was the finding that 76% of respondents who were planning on shopping for a new cell plan within the next year said they would be open to trying a cellular product from a cable company.

I wrote recently about how the cellular business has entered the phase of the business where cellular products are becoming a commodity. Competition between the four cellular companies is already resulting in lower prices and more generous data plans. But when the cable companies enter the fray in all of the major metropolitan areas the competition is going to ratchet up another notch.

The cable companies will be a novelty at first and many customers might give them a try. But it won’t take long for people to think of them as just another cellular provider. One thing that other surveys have shown is that people have a higher expectation for good customer service from a cellular provider than they do for the cable companies. If Comcast is going to retain cellular customers then they are either going to have to make the bundling discounts so enticing that customers can’t afford to leave, or they are going to have to improve their customer service experience.

Even if Comcast and Charter have only modest success with cellular, say a 10% market share, they will hurt the other cellular companies. The number one driver of profits in the cellular business is economy of scale – something you can see by looking at the bottom line of Sprint or T-Mobile compared to Verizon or AT&T. If Comcast is willing to truly use cellular to help hang on to other customers, and if that means they don’t expect huge profits from the product line, then they are probably going to do very well with a quad play product.

And of course, any landline ISP competing against Comcast or Charter has to be wary. If the cellular products work as Comcast hopes then it’s going to mean it will be that much harder to compete against these companies for broadband. Bundled prices have always made it hard for customers to peel away just one product and the cable companies will heavily penalize any customers that want to take only their data product elsewhere.

Latest Industry Statistics

The statistics are out for the biggest cable TV and data providers for the first quarter of the year and they show an industry that is still undergoing big changes. Broadband keeps growing and cable TV is starting to take some serious hits.

Perhaps the most relevant statistic of all is that there are now more broadband customers in the country than cable TV customers. The crossover happened sometime during the last quarter. This happened a little sooner than predicted due to plunging cable subscribers.

For the quarter the cable companies continued to clobber the telcos in terms of broadband customers. Led by big growth in broadband customers at Comcast and Charter the cable companies collectively added a little over 1 million new broadband customers for the quarter. Charter led the growth with 458,000 new broadband subscribers with Comcast a close second at 430,000 new customers.

Led by Frontier’s loss of 107,000 broadband customers for the quarter the telcos collectively lost 45,000 net customers for the quarter. Most of Frontier’s losses stem from the botched acquisition of Verizon FiOS properties. Verizon lost 27,000 customers for the quarter while AT&T U-verse was the only success among telcos adding 90,000 new customers for the quarter.

Looking back over the last year the telcos together lost 727,000 broadband customers while the cable companies together gained 3.11 million customers during the same period. The cable companies now control 63.2% of the broadband market, up from 61.5% of the market a year ago.

Overall the broadband market grew by 2.38 million new broadband subscribers for over the last year ending March 31. It’s a market controlled largely by the giant ISPs and the largest cable companies and telcos together account for 93.9 million broadband subscribers.

Cable TV shows a very different picture. The largest seven cable providers collectively lost 487,000 video subscribers for the quarter. That includes AT&T losing 233,000, Charter losing 100,000, Dish Networks losing 143,000, Verizon losing 13,000, Cox losing 4,000 and Altice losing 35,000. The only company to gain cable subscribers was Comcast, which gained 41,000.

Total industry cable subscriber losses were 762,000 for the quarter as smaller cable companies and telcos are also losing customers. That is five times larger than the industry losses of 141,000 in the first quarter of last year. This industry is now losing 2.4% of the market per year, but that r is clearly accelerating and will probably grow larger. The annual rate of decline is already significantly higher than last year’s rate of 1.8%.

At this point it’s clear that cord cutting is picking up steam and this was the worst performance ever by the industry.

The biggest losers have stories about their poor performance. Charter says it is doing better among its own historic customers but is losing a lot of customers from the Time Warner acquisition as Charter raises rates and does away with Time Warner promotional discounts. AT&T has been phasing out of cable TV over its U-Verse network. This is a DSL service that has speeds as high as 45 Mbps, but which is proving to be inadequate to carry both cable TV and broadband together. Dish Networks has been bogged down in numerous carriage and retransmission fights with programmers and has had a number of channels taken off the air.

But even considering all of these stories it’s clear that customers are leaving the big companies. Surveys of cord cutters show that very few of them come back to traditional cable after cutting the cord after they get used to getting programming in a different way.

What is probably most strikingly different about the numbers is that for years the first quarter has performed the best for the cable industry, which in recent years has still seen customer gains even while other quarters were trending downward. We’ll have to see what this terrible first quarter means for the rest of 2017.

 

 

Can a Small Cable Company Succeed?

Today I ask the question of whether anybody small can really succeed with a cable TV product. This was prompted by the news that Cable One, one of the mid-sized cable companies, is bleeding cable customers. For those not familiar with the company they are headquartered in Phoenix, AZ and operate cable systems in 19 states with the biggest pockets of customers in Idaho, Mississippi and Texas.

The company just reported that for the 12 months ending on March 31 that they had lost 12.7% of their cable customers and dropped below 300,000 total cable customers. Most of my clients would consider anybody of this size to be a large cable company. But their struggles beg the question of anybody smaller than the really giant cable companies can seriously maintain a profitable and viable cable product in today’s environment.

The drop in their cable customers was precipitated by a number of factors. One that is very familiar to small cable operators is that Cable One decided in 2015 to drop the Viacom suite of channels from their system. We all remember that in that year Viacom announced huge and unprecedented rate increases of over 60% for the suite of channels that include MTV, Comedy Central, BET and a number of other channels. A number of my clients also decided to drop Viacom rather than pay for the huge increases in programming.

Cable One also shares another characteristic with smaller companies in that they are too small to unilaterally negotiate alternate piles of programming to sell as skinny bundles. So they and other small companies are likely to see customers abandoning them for smaller line-ups from Sling TV and other purveyors of smaller on-line line-ups – including Hulu which just announced entry into this quickly growing market.

And finally, Cable One and most other cable companies are now starting to feel the impact of cord cutting. While only a fraction of their customer losses can be blamed on cord cutting, it is now a real phenomenon and all cable companies can expect to lose a few percent of customers every year to Netflix and others.

The really large cable companies are not immune to these same market influences. The giants like Comcast and Charter / Spectrum are going to continue to see big increases in programming costs. Recent Comcast financials show that the company saw a 13% increase in programming cost over the last year (although some of that increase was paid to their own subsidiaries of programmers).

But the handful of giant cable companies are so big that they look like they are going to be able to offset losses in cable revenues in margins with new sources of revenues. For example, Comcast and Charter announced recently that they will be launching a jointly-provisioned cellular business that will help them grow revenues significantly instead of just treading water like smaller cable revenues. And I’ve recently written in here of all of the other ways that Comcast is still growing their business, which smaller companies are unable to duplicate.

The biggest dilemma for small cable companies is that the TV product still drives positive margin for them. While every small cable provider I know moans that they lose money on the cable product, the revenues generated from cable TV are still in excess of programming costs and almost every company I know would suffer at the bottom line if they kill the TV product line.

It has to be troubling for programmers to see cable companies struggling this hard. If somebody the size of Cable One is in crisis then the market for the programmers is quickly shrinking to only serving the handful of giant cable companies. The consolidation of cable providers might mean that the huge cable companies might finally be able to band together to fight back against the big rate increases. Just last week Charter announced that they were demoting a number of Viacom channels to higher tiers (meaning that the channels would not automatically be included in the packages that all customers get).

It’s hard to think of another industry that is trying so hard to collectively drive away their customer base. But all of the big companies – cable providers and programmers – are all publicly traded companies that have huge pressure to keep increasing earnings. As customers continue to drop the programmers raise rates higher, which then further drives more customers to drop out of the cable market. It doesn’t take sophisticated trending to foresee a day within the next decade where cable products could become too expensive for most homes. We are all watching a slow train wreck which the industry seems to have no will or ability to stop.

Broadband and Apartments

Comcast just released the results of a survey they completed that talked to apartment building managers around the country. The published results of this survey can be found here. No doubt the survey was conducted and published as a way for Comcast to convince apartment owners and managers that Comcast can provide them with a broadband solution. But the findings are interesting in that I’ve seen few such surveys that concentrate on the MDU demographic. I’m sure the big ISPs do this kind of market research all of the time, but have rarely disclosed their findings.

While there are some apartment buildings in most communities, this is particularly of interest for urban areas where there are significant numbers of people living in apartments. There are a number of big cities in the country where half or more of residents live in apartments and condominiums. As I’ve discussed in a number of blogs, many cities have spotty broadband coverage that ranges from buildings with fiber for tenants down to buildings with no broadband connectivity. Here are the most interesting results of the survey:

Renter’s Expectations. 87% of apartment managers thought that technology played a vital role in keeping tenants satisfied. 75% of managers said that a majority of prospective tenants ask about communications services. 46% of managers said that having fast broadband connections was their most important amenity for residents with another 36% ranking WiFi as the most important. A distant third was in-apartment laundry.

Property Values. Property managers were asked how technology improves the value of their properties. 30% of managers said that providing good communications services boosted the value of their property by at least 20%. Over 90% of building managers said that good infrastructure increased their value to some degree.

Competition. 67% of the buildings involved in the survey have only one or two telecom service providers – meaning generally the incumbents.

Desire to Modernize. A lot of building managers have plans to improve technology for tenants. 47% have plans to improve infrastructure capable of delivering gigabit speeds. 48% have plans to introduce some smart home technologies (which also require good communications infrastructure).

Challenges Faced. While apartment managers almost universally want to improve their communications infrastructure, they face several roadblocks. 67% are worried about the cost of upgrades. 40% worry about having a quality ISP available even should they make the upgrades. 82% said that they would be quick to adapt upgrades that reduce their operating costs.

Plans for Future Technology Improvements. 89% of managers said that technology plays an important role in the decision of tenants to renew leases. The same percentage said that they wanted to improve WiFi performance in their buildings; 60% want to add energy-efficiency improvements; 49% want to add better security; 43% want to add smart home technology and 43% also want to bolster the underlying communications infrastructure.

Demographics. Looking at the trends with apartments provides one of the few glimpses into how younger households are shaping broadband demand. The managers surveyed said that 36% of their tenants were between 18 and 34, a much higher percentage than seen in single family homes. 90% of building managers said that younger renters were driving the demand for faster broadband speeds and better WiFi.

Comcast as a Competitor

Somebody recently asked me about Comcast as a competitor. They have been a formidable competitor for many years, but I think they are pulling ahead of other cable companies in many ways. I’m sure that over time some of the other cable companies will try to emulate them. Consider the following:

  • They’ve created Comcast Labs (similar to Bell Lab). This group of scientists and engineers are concentrated largely on developing products that improve the customer experience. Nobody else has a research arm of this size and focus.
  • One of the first things out of Comcast Labs has been the proprietary X1 settop box, which has rave reviews and is heads above any other box. It has easy-to-use menus and is voice activated. It integrates the Internet into every TV. And it includes a growing list of unique features that customers really like.
  • Comcast has also now integrated Netflix and Sling TV into their settop box to keep customers on their box and platform. I suspect that Comcast takes a little slice of revenue for this integration. And it looks like they have a goal of becoming what the industry is starting to call a superbundler. There are around 100 OTT offerings on the market today and my guess is that over time they are going to integrate more of them into their ecosystem.
  • Comcast is working on skinny bundle packages that will let people buy smaller and more focused TV packages to keep them from leaving. Comcast is highly motivated to keep customers on the system since they own a lot of programming.
  • Comcast has found great success with their smart home product. This is probably the most robust such product on the market and includes such things as security and burglar alarms, smart thermostat, watering systems, smart blinds for energy control, security cameras, smart lights, smart door locks, etc. And this can all be easily monitored from the settop box or from a smartphone app. They don’t report numbers, but I’ve seen estimates that they now have a 7% to 8% customer penetration. Those customers are totally sticky and won’t easily drop Comcast.
  • Comcast has been an industry leader in in the race to unilaterally increase customer data speeds. They moved my 50 Mbps product to 75 Mbps with plans to raise it again to 100 Mbps after the DOCSIS 3.1 upgrade. I think they have figured out that faster speeds means a lot fewer customer complaints.
  • They are going to soon be offering cellphone services and will integrate them into the bundle. They just announced tentative pricing that looks to be lower than Verizon and AT&T in two-thirds of the markets in the US. Analysts say that over five years they could capture as much as 30% of the cellphone business in their markets. We’ll have to wait and see if that happens – because the cellular companies have better customer service than Comcast. But there is no doubt that they will get a lot of customers, and that those customers will also be sticky. They just bought a pile of spectrum that will help them offer some service directly to improve their margins.
  • One big advantage Comcast has over wireless competitors is that they own a lot of programming content. The industry expects them to use zero-rating, meaning that they will give their cellular customer access to all of their programming without having it count against cellular data caps.
  • As the biggest ISP Comcast probably has the most to gain from the reversal of customer privacy rules and net neutrality. Comcast already does well selling advertising but could become one of the major players online using customer data to target marketing.
  • Comcast is putting a lot of money into making their customer service better. They are quickly moving away from making everybody call their customer service centers. They also now have a decent customer service by text process. And they now allow people to ask and resolve questions by chat from their web site. Each of these improvements satisfies a niche of their customers and relieves the long wait times for a customer service rep.

They are also moving a lot of customer service back to the US, finally understanding that the cost savings of using foreign reps is not worth the customer dissatisfaction. But what they (and all of the other big companies) are banking on is the general belief that within five years there will be a decent artificial intelligence system for handling customer service. This will not be like the dreadful systems used today by airlines and banks. The expectation is that an AI will be able to satisfactorily handle the majority of customer service calls satisfactorily without needing a human service rep. Comcast will have these systems long before smaller competitors, giving them a big cost advantage.

I probably have a dozen blogs over the last few years blasting Comcast for their various practices and policies. But it’s not hard to see that they are possibly the most formidable competitor in the country. When you consider all of these positives and also understand that on a local basis that Comcast will match competitor’s prices – they are hard to beat. Like with any large ISP there are probably 20% of their customers that will choose somebody else out of reflex. But after that it’s a real challenge prying and keeping customers away from them.

Cable Company Gigabit

We are starting to get a look at what a gigabit product from the cable companies might look like. Late last year Comcast rolled out a gigabit product in parts of Atlanta, Detroit, Nashville and Chattanooga. They are now rolling implementation across the country and the company says that gigabit speeds will be available in all markets by 2018.

Comcast has elected to make the upgrades by implementing DOCSIS 3.1 technology on their networks. This technology allows the network to bond together numerous empty channels on the cable system to be used for broadband.

In markets where there is competition with Google Fiber or another fiber provider, the Comcast product is being sold at an introductory price of $70 per month with a 3-year contract. Month-to-month pricing without the contract is $140 per month. In reading group discussion websites where Comcast customers chat it sounds like there are already many markets where the $70 contract price is not available. I have read some customers say they have gotten prices at $110 to $120 per month, so perhaps the company is flexible with those willing to wade through the customer service maze and willing to sign a term contract.  

The current Comcast product delivers up to 1 Gbps download and 35 Mbps upload. You can expect Comcast to make future upgrades that will improve the upload speeds – but that upgrade is not included in this first generation of DOCSIS 3.1 technology. For now the upload speeds will be a barrier to any application that needs fast upload speeds.

The new technology also requires new hardware, meaning a new cable modem and a new WiFi router capable of handling the faster data speeds. So expect the price to be bumped higher to rent the hardware.

It’s hard to imagine that many customers are going to pony up more than $150 per month to get a gigabit connection and modem. When Google Fiber first introduced $70 gigabit to Kansas City (and when that was their only product), there were reports that there were neighborhoods where as many as 30% of the households subscribed to the gigabit product. But Google has a true $70 price tag and didn’t layer on fees for a modem or any other fees, like Comcast is surely going to do. It’s hard to imagine many customers agreeing to a 3-year contract for the gigabit product in competitive markets if they can buy it from somebody else without the contract. But perhaps Comcast will offer bundling incentives to pull the real cost under $70.

But we know when there are more choices that most customers will opt for the lowest-price product that they think is adequate for their needs. For example, when Google Fiber came to Atlanta they also had a 100 Mbps product for $50 per month and it’s likely that most customers chose that product rather than paying extra for the gigabit.

The Comcast pricing might reflect that Comcast doesn’t want to implement too many high-bandwidth customers at the same time. While DOCSIS 3.1 increases the size of the data pipes available to customers, it doesn’t make any significant improvements in the last mile network. To the extent that high-bandwidth customers use a lot more data, too many gigabit customers in a cable company node could degrade service for everybody else. But it’s likely that most gigabit customers don’t use a lot more data than 100 Mbps subscribers – they just get things done more quickly. But I am sure that Comcast still has worries about having too many high-bandwidth customers in the network.

Comcast and other cable companies are seeing more competition. For example, CenturyLink is selling $85 gigabit service in many western cities and passed about 1 million homes with fiber last year. Verizon FiOS just increased their data speeds in their fiber markets – not quite to a gigabit yet, but at ranges up to half a gigabit. But in the vast majority of the country the cable companies are not going to have significant competition with any foreseeable future.

FCC Commissioner Michael O’Reilly said a few weeks ago that ultrafast broadband is a marketing gimmick. While he was even referring to 100 Mbps broadband as a gimmick, it’s hard to not agree with him that a residential gigabit bandwidth product priced above $150 per month is more gimmick than anything else. There can’t be that many households in any market willing to pay that much extra just for the prestige of saying they have a gigabit.

But over time the prices will drop and the demand for bandwidth will grow and a decade from now there will be a significant portion of the market clamoring for an affordable gigabit product. Remember that we’ve seen this same thing happen a number of times in the past. I remember the big deal the cable companies made when they first increased speeds to 15 Mbps. The funny thing is that the market has a way of filling faster data pipes, and the day will come sooner than we expect where many households will legitimately want and need gigabit data pipes.     

The End of Data Privacy?

Congress just passed a law that reverses the privacy rules that were ordered by the prior FCC. Those rules were recently put on hold by the current FCC and this new laws makes sure the privacy rules never go into effect. Congress did this to ensure that a future FCC cannot implement privacy rules without Congressional approval. It’s important to note that this law applies equally to both terrestrial and cellular broadband.

On paper this law doesn’t change anything since the FCC privacy rules never went into effect. However, even before the prior FCC adopted the privacy rules they had been confronting ISPs over privacy issues which kept the biggest ISPs from going too far with using customer data. Just the threat of regulation has curbed the worst abuses.

How will the big ISPs be likely to now use customer data? We don’t have to speculate too hard because some of them have already used customer data in various ways in the recent past, all of which seem to be allowable under this new law.

Selling Data to Marketers. This is the number one opportunity for big ISPs. Companies like Facebook and Google have been mining customer data, but they can only do that when somebody is inside their platforms – they have no idea what else you do outside their domains. But your ISP can know every keystroke you make, every email your write, every website you visit, and with a cellphone, every place you’ve been. With deep data mining ISPs can know everything about your on-line life.

We know some of the big ISPs have already been mining customer data. For example, last year AT&T offered to sell connections that were not monitored for a premium price. AT&T also has a product that has been selling masses of customer phone and data usage to federal and local law enforcement. Probably other ISPs have been doing this as well, but this has been a well-guarded secret.

Inserting Ads. This is another big revenue opportunity for the ISPs. The companies will be able to create detailed profiles of customers and then sell targeted advertising to reach specific customers. Today Google and a few other large advertising companies dominate the online advertising business of inserting ads into web sites. With the constraints off, the big ISPs can enter this business since they will have better customer profiles than anybody else. We know that both AT&T and Charter have already been doing this.

Hijacking Customer Searches. Back in 2011 a bunch of large ISPs like Charter, Frontier and others were caught hijacking customer DNS searches. When customers would hit buttons on web sites or on embedded links in articles the ISPs would sometimes send users to a different web site than the one they thought they were selecting. The FCC told these companies to stop the practice then, but the new law probably allows the practice again.

Inserting Supercookies. Verizon Wireless inserted Supercookies on cellphones back in 2014. AT&T started to do this as well but quickly backed off when the FCC came down hard on Verizon. These were undetectable and undeletable cookies that allowed the company to track customer behavior. The advantage of the supercookies is that they bypass most security schemes since they grab customer info before it can be encrypted or sent through a secure connection. For example, this let the company easily track customers with iPhones.

Pre-installing Tracking Software on Cellphones. And even better than supercookies is putting software on all new phones that directly snags data before it can be encrypted. AT&T, T-Mobile and Sprint all did this in the past – just using a different approach than supercookies. The pre-installed software would log things like every website visited and sent the data back to the cellular carriers.

Who Wins with Cable Deregulation?

There has been a lot of press lately discussing what might happen if the FCC does away with Title II regulation of broadband. But broadband isn’t the only battle to be fought and we are also in for big changes in the cable industry. Since our new FCC is clearly anti-regulation I think the future of cable TV is largely going to be won by whoever best copes with a deregulated cable world.

Cable companies today are governed by arcane rules that rigidly define how to provide terrestrial cable TV. These rules, for example, define the three tiers of cable service – basic, expanded basic and premium – and it is these rules that have led us to the big channel line-ups that are quickly falling out of favor. Most households watch a dozen or so different channels regularly and even big cable users rarely watch more than 30 channels – but yet we have all been sucked into paying for 150 – 300 channel line-ups.

It’s likely that the existing rules governing cable will either be relaxed or ignored by the FCC. A lot of the cable rules were defined by Congress in bills like the Telecommunications Act of 1996, so only Congress can change those rules. But the FCC can achieve deregulation by inaction. Already today we see some of the big cable providers violating the letter of those rules. For example, Verizon has a ‘skinny’ package that does not fit into the defined FCC definition of the structure of cable tiers. The FCC has turned a blind eye to these kinds of changes, and if they are more overt about this then we can expect cable providers everywhere to start offering line-ups people want to watch – and at more affordable prices if the cable companies can avoid paying for networks they don’t want to carry.

The cable companies are now in a battle with the OTT providers like Netflix, Sling TV and others. It’s clear to the cable companies that if they don’t fight back that they are going to bleed customers faster and faster, similar to what happened to landline voice.

One way cable companies can fight back is to introduce programming packages that are similar to what the OTT providers are offering. This is going to require a change in philosophy at cable companies because the larger companies have taken to nickel and diming customer to death in the last few years. They sell a package at a low advertised price and then load on a $10 settop box fee, a number of other fees that are made to look like taxes, and the actual price ends up $20 higher than advertised. That’s not going to work when competing head-to-head with an OTT competitor that doesn’t add any fees.

The cable companies are also going to have to get nimble. I can currently connect and disconnect from a web service like Sling TV at will. Two or three clicks and I can disconnect. And if I come back they make it easy to reconnect. The cable companies have a long way to go to get to this level of customer ease.

Of course, the big ISPs can fight back in other ways. For example, I’ve seen speculation that they will try to get taxes levied on OTT services to become more price competitive. Certainly the big ISPs have a powerful lobbying influence in Washington and might be able to pull that off.

There is also speculation that the big ISPs might try to charge ‘access fees’ to OTT providers. They might try to charge somebody like Netflix to get to their customers, much in the same manner that the big telcos charge long distance carriers for using their networks. That might not be possible without Congressional action, but in today’s political world something like this is conceivable.

Another tactic the cable companies could take would be to reintroduce low data caps. If the FCC eliminates Title II regulation that is a possibility. The cable companies could make it costly for homes that want to watch a lot of OTT content.

And perhaps the best way for the cable companies to fight back against OTT is to join them. Just last week Comcast announced that it will be introducing its own OTT product. The cable companies already have the programming relationships – this is what made it relatively easy for Dish Network to launch Sling TV.

It’s impossible to predict where this might all go. But it seems likely that we are headed towards a time of more competition – which is good for consumers. But some of these tactics could harm competition and make it hard for OTT providers to be profitable. Whichever way it goes it’s going to be an interesting battle to watch.

OTT News, March 2017

There is a lot of activity going on with web-based video. There are offerings that are starting to look like serious contenders to traditional cable packages.

Comcast Integrates YouTube. Comcast has made a deal with Google to integrate YouTube into the Comcast X1 settop box. This follows last year’s announcement that Comcast is also integrating Netflix. Comcast also says they are working to integrate other SVOD platforms.

Comcast is making a lot of moves to keep themselves relevant for customers and to make the X1 box a key piece of electronics in the home. The box also acts as the hub for their smart home product, Xfinity Home.

One has to think that Comcast has worked out some sort of revenue sharing arrangements with Google and Netflix, although all details of these arrangements have not been reported. The most customer-friendly aspect of these integrations is that the Comcast X1 box is now voice-activated and customers can surf Netflix and YouTube by talking to the box.

Sling TV Adds More Sports. Sling TV has made another move that will make it attractive to more customers by adding the Comcast regional sports networks (RSNs) to their line-up. This includes CSN California, CSN Bay Area, CSN Chicago and CSN Mid-Atlantic. These networks carry a lot of unique sports content that is not easily available anywhere else on-line today. The networks carry pro basketball, pro baseball and a number of college sports. For example, CSN Bay Area is the home station for the popular Golden state Warriors. CSN Mid-Atlantic is the home station for the Baltimore Orioles.

I know in talking to my sports-centric friends that the narrow sports content on-line is the number one issue holding them back from switching to an OTT package. There are still other networks that Sling TV would need to add, like the Big Ten Network and the NFL Channel, to be a totally rounded sports provider. But they have already added a credible sports line-up that includes all the ESPN channels, the SEC Network, the ACC Network, NBA TV, the NHL Channel, the PAC12 Network and a few other sports networks like Univision TDN.

YouTube Launching an OTT Line-up. Cable TV just got another new OTT competitor. The new service is called YouTube TV and brings a fourth major OTT competitor along with Sling TV, PlayStation Vue, and DirecTV Now. The platform is going to launch sometime in the next few months, with no firm release date yet. The basic product will be $35 per month and allows customers to turn the service off and on at will.

YouTube TV will carry the typical network channels as well as ESPN, Disney, Bravo and Fox News – a line-up that sounds similar to its competition. The service will come with unlimited cloud DVR storage. It will allow 3 simultaneous streams per account and 6 user profiles per account. They will first launch in a few major urban markets (probably due to the availability of the local channels for various network channels).

If YouTube has any advantage in the marketplace it’s that they are becoming the preferred content choice for a lot of millennials. The company says they now are delivering over a billion hours per day of content. Millennials are leading the trend of cord cutters (and even more so of cord nevers), and if YouTube can tap that market they should do great.

Dish Network Predicts OTT will Replace Traditional TV. For the first time, Dish Networks Chairman and CEO said he thought that OTT programming is the real future of video. Until now the company, which owns Sling TV, has said that their product was aimed at bringing video to cord cutters.

But Sling TV and the other OTT products are getting a lot better. Sling TV now has over 100 channels that provide a wide set of options for customers. And these channels are not packed into a giant must-take line-up like traditional cable packages, and instead provide a number of smaller packages that a customer can add to the Sling TV base package. Sling TV and the other providers also make it easy for customers to add or subtract packages or come and go from the whole platform at will – something that can’t be done with cable companies.

Certainly Sling TV has made a difference for Dish. The company has been bleeding satellite customers and had customer losses for the last ten quarters. But the company had a small customer gain of 28,000 customers in the fourth quarter due to the popularity of Sling TV. The company does not report customers by satellite and OTT, so we don’t know the specific numbers.

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.