Regulating Over-the-Top Video

I know several cable head-end owners that are developing over-the-top video products to deliver over traditional cable networks. I define that to be a video product that is streamed to customers over a broadband connection and not delivered to customers through a settop box or equivalent. The industry now has plenty of examples of OTT services such as Netflix, Amazon Prime, Sling TV, Hulu and a hundred others.

While the FCC has walked almost totally away from broadband regulation there are still a lot of regulations affecting cable TV, so today I am looking at the ramifications of streaming programming to customers instead of delivering the signal in a more traditional way. Why would a company choose to stream content? The most obvious benefit is the elimination of settop boxes. OTT services only require an app on the receiving device, which can be a smart TV, desktop, laptop, tablet or cellphone. Customers largely dislike settop boxes and seem to love the ability to receive content on any device in their home. A provider that pairs OTT video delivery with a cloud DVR has replaced all of the functions of the settop box.

There are a few cable companies that have been doing this. Comcast today offers a streaming service they label as Xfinity Instant TV. This package starts with a package of ten channels including local broadcast networks. They then offer 3 add-on options: a kids and family package for $10, an entertainment package for $15 and a sports and news package for $35. Comcast also touts that a customer can choose to stream the content to any of the millions of Comcast WiFi hotspots, not only at their homes.

It’s an interesting tactic for Comcast to undertake, because they have invested huge R&D dollars into developing their own X1 settop box that is the best in the industry. The company is clearly using this product to satisfy a specific market segment which is likely those considering cutting the cord or those that want to be able to easily download to any device.

A second big benefit to Comcast is that they save a lot of money on programming by offering smaller channel line-ups. Traditional cable packages generally include a lot of channels that customers don’t watch but which still must be paid for. Comcast would much prefer to sell a customer a smaller channel line-up than to have them walk away from all Comcast programming.

The third reason why a cable provider might want to stream content is that it lets them argue that they can selectively walk away from cable regulations. The only real difference between Comcast’s OTT and their traditional cable products is the technology used to get a channel to a customer. From a regulatory perspective this looks a lot like the regulatory discussions we had for years about VoIP – does changing the technology somehow create a different product and different regulations. Before VoIP there were numerous technology changes in the way calls were delivered – open wire, party-lines, digitized voice on T-carrier, etc. – but none of the technology upgrades every changed the way that voice was regulated.

I can’t see any reason why Comcast is allowed, from a regulatory perspective, to stream their ITT content over their cable network. The company is clearly violating the rules that require the creation of specific tiers such as basic, expanded basic and premium. What seems to be happening is that regulators are deciding not to regulate. You might recall that three or four years ago the FCC opened investigation this and other video issue – for example, they wanted to explore if video delivered on the web needs to be regulated. That docket also asked about IP video being delivered over a cable system. The FCC never acted on that docket, and I chalk that up to the explosion of online video content. The public voted with their pocketbooks to support streaming video and the FCC let the topic die.  There are arguments that can be made for regulating streaming video, particularly when it’s delivered over the same physical network as traditional cable TV, like in the case with Comcast.

Clearly the FCC is not going to address the issue, and so the technology an lack of regulation ought to be made available to many other cable providers. But that doesn’t mean that the controversy will be over. I predict that the next battleground will be the taxation of streaming video. Comcast would gain a competitive advantage over competitors if they don’t have to pay franchise fees for streaming content. In fact, a cable company can argue they don’t need a franchise if they choose to stream all of their content.

It’s somewhat ironic that we are likely to have these regulatory fights with the cable product – a product that is clearly dying. Customers are demanding alternatives to traditional cable TV, yet the FCC is still saddled with the cable regulations handed to them by Congress. One nightmare scenario for Comcast and the industry would be if some competitor sues a cable company to stop the streaming product – because that would require the regulators, and ultimately the courts to address the issue. It’s not inconceivable that a court could decide that the Comcast streaming service is in violation of the FCC rules that define channel line-ups. Congress could fix this issue easily, but unless they do away with the current laws there will always be a background regulatory threat hanging over anybody that elect to use the product.

Replacing Legacy Telephony

office-handsetI remember sitting in on an industry panel somewhere in the mid-2000s and hearing a discussion about how VoIP was going to sweep the business world and that the PBX would be obsolete within just a few years. I took this with a grain of salt since those on the panel were mostly VoIP vendors or sellers. But still, the general consensus in the industry was that the new would quickly replace the old.

And yet here we are more than ten years later and there are still thriving PBX providers serving businesses. I have a client who sells PBXs and resells PRIs to serve them who has been steadily growing his business every year for the last decade. He still made a significant number of new PRI sales in 2016, many of them for two and three year contracts going forward.

There are several reasons that the PBX industry is still going so strong. The first is that a few years after I saw that panel, SIP came along as a big improvement to PBXs. SIP allows PBXs to mimic some of the best features of VoIP and reduced the sharp contrast between the old and the new technologies. SIP meant there was no longer a huge contrast between old PBX phones and phones with newer features.

But SIP alone doesn’t account for the continuing popularity of PBXs for businesses. As I mentioned earlier, there is still a thriving PBX industry that uses traditional PRIs and not SIP trunks and which still support that same old telephones that businesses have been using for decades.

There are a number of reasons why PBXs are still being used by businesses. Probably first among these is captured by the old adage, “if it ain’t broke, don’t fix it”. Offices full of information workers have probably upgraded phones during the last decade. But a lot of businesses operate in a different environment. There is no particular urgency to change a phone system that’s operating in a warehouse or a lumber yard or a milking barn. As long as such phones work well, the easiest path for the business operator is to keep renewing the phone systems and to not make a change.

I remember back when CCG still operated several offices that we were always being bombarded by vendors to upgrade our key systems. But it’s easy in a business office to defer such upgrades because they are disruptive and time consuming. My employees universally told me that they didn’t want to learn a new phone system – and so we never made an upgrade.

It seems like a lot of businesses also don’t want to make the capital spending decision to change technologies. Tearing out a PBX and installing new phones can mean a big one-time fee. Even if this is financed over time, businesses seem to put off making that decision until their old system stops meeting their needs.

And while most businesses still have office phones, you can’t discount the influence of cellphones on the workplace. It is a daily occurrence for me to be talking to somebody who is on a cellphone while they are sitting at their desk next to their office phone. Businesses are often not ready to get rid of office phones, but a lot of their business is handled with cellphones. This is only going to be bolstered by the widespread introduction of HD voice where the quality of cellphone calls promises to meet or exceed the quality of landline calls. Perhaps the real transition we will see in a few years will be businesses finally walking away from office phones altogether.

This all has a material impact upon those who sell phone service to businesses. I know a number of ISPs, for example, that only offer VoIP and they are often flummoxed by the number of businesses that are not interested in what they have to sell.

A lot of ISPs don’t want to hear the market’s message – that a lot of businesses are still happy with legacy voice products. My clients that do the best in sales of voice to businesses still operate their own voice switches and offer a variety of products to businesses including IP Centrex, PRIs, SIP trunks and traditional POTs lines. A seller who offers both the old and the new technologies is always offering something that people want to buy. I think a lot of us get wrapped up in the idea that newer is always better and it often takes customers to tell us that isn’t always true.

The Cost of International Calling

palm-trees2We have gotten so used to the cost of long distance calls dropping in the US that many people don’t realize that it is still very expensive to call some other places in the world.

In the US we are now used to unlimited long distance plans, and so most of us don’t think about the cost of long distance. We all still pay for it—for example, that’s one of the costs built into your cellphone bill. I imagine that there are younger people who have no appreciation that we were once very careful about making long distance calls.

I remember in the early 80s when AT&T announced a ‘reduced’ long distance plan that had a flat rate of 12 cents per minute. Before that plan, costs varied by distance called and it was not unusual to call some places in the US that were as much as 50 cents per minute. Long distance rates also varied by time of day and people would wait until midnight to call relatives to get the nighttime rates.

But over the years the FCC has deliberately taken steps to reduce long distance rates since they figured that might be the one thing they could do that would most boost the US economy. And it worked.

At the same time that the US made a deliberate effort to reduce costs many other countries did the same. Thirty years ago it was almost universally expensive to call other countries. Part of this was due to lack of facilities; there were only a few trans-oceanic cables that were capable of carrying voice – and they were generally full all of the time with calls. But today it’s almost as cheap to call places like Canada and a lot of Europe as it is to call in the US. And there are now many calling plans that include a number of foreign countries.

But this is not true everywhere. There are still a lot of places around the world that are very expensive to call. The rates I quote are from Comcast’s latest international long distance rates, but the rates charged by others carriers are similar. Even today it costs $2.90 per minute to call Afghanistan. A few years ago that was over $5 per minute. Surprisingly, it’s less than half that rate at $1.20 per minute to call Antarctica.

It costs a lot more in general to call islands. Most of the Caribbean is between $0.40 and $1.20 per minute (although the US Virgin Islands are at US rates). The pacific islands in Micronesia are generally around $1 per minute.

In general there are two reasons why rates are so high in some places. For some islands, the cost of the calling reflects the expensive cost of the facilities needed to complete the calls. Such calls these days are often completed over satellite since there are still places not connected to the world by undersea fibers. But the other big cost component is government tariff rates, charged as a moneymaker for the local governments. This is why you see calls to North Korea costing $3.28 per minute, calls to Laos costing $2.43, and calls to Myanmar costing $2.17.

In most cases these expensive rates are bypassed using voice over IP across the Internet, and so people that live in places with expensive rates usually bypass those costs and use the Internet to talk to family overseas. In many countries that is a risk and you can be prosecuted for bypassing the tariff rates. I remember when VoIP was new there were entrepreneurs in Jamaica who set up calling over the Internet and then dumped the calls into the local network. It seemed that the Jamaican government would arrest a few VoIP vendors every week, but new ones always sprung up to take their places. Now only the most repressive countries still try to police this while most have bowed to the reality of VoIP.

I remember working with many clients in the 70s and 80s and one thing I always looked at was their long distance revenues. Even the smallest telcos would have a few residential customers that made over $1,000 per month in long distance calls and many others who spent hundreds of dollars per month. I remember when parents would groan if one of their kids got a boyfriend or girlfriend who was long distance. We’ve come a long way from those days, and unless you have a reason to call a handful of expensive countries or islands a lot, long distance is now one of those things that you don’t give a second thought about.

An All-IP Telephone Network?

IPThe FCC posed a very interesting question to the industry. They asked if VoIP should become the only way of delivering voice service. This infers having an all-IP network that is extended out to every customer. The FCC asked this question as part of the IP trials that a few telcos are currently undertaking to see what an IP world looks like. While IP undoubtedly makes for the most efficient telco network, I think there many practical reasons why this can’t be implemented everywhere.

We can start with the FCC’s own estimate that there are something like 14 million rural homes without a broadband alternative. These are people who live in rural areas and are almost universally on old and sometimes very poor copper. These are people who can’t get DSL or cable modem and for whom VoIP would not work. There are also a ton of people in the country who are on marginal DSL service who also will have a hard time getting working VoIP. Most such people are also rural, but there are older urban networks with bad copper that also suffer from problems related to the condition of the copper.

But aside from the rural issue, it’s an interesting question. Cable companies already all use VoIP for voice, as do fiber overbuilds. Urban telcos could also give everybody VoIP, but it would mean providing a DSL connection to everybody on copper. This would cause all sorts of network problems. We found out years ago that you can’t put too many DSL lines into the same large copper sheathe or you create interference problems, and universal VoIP would put DSL on just about every copper pair. I also can’t think of any financial benefit to the telco for spending the money to put voice on DSL if that is all a line is going to be used for.

All of these issues make it hard to imagine mandatory VoIP at the customer end of the network. I’ve always envisioned that the IP transition would mean an all-IP network between carriers, which would create the most efficient network. But forcing VoIP where it won’t work right sounds both expensive and impractical. And it would likely boot millions from access to the voice network.

But there are other parts of an all-IP network that could be interesting. For instance, if the whole network was IP from end-to-end you could do away with telephone numbers. In an all-IP network each customer would be associated with an IP address, and so keeping telephone numbers would be forcing a historical structure onto an all-IP network. While we all would probably still have phone numbers, it would be just as easy to just pick somebody out of a computer menu by name and connect with them without going through the fiction that a number is required.

There are a few situations where going all-digital is a bit of a concern. Take 911. The current 911 network is comprised of a redundant pair of special access circuits between each carrier and each local 911 center. This network layout was created to greatly increase the likelihood that a 911 call can be completed. But in an all-IP world 911 traffic would probably be routed with everything else, which is not an issue of itself. But we know that Internet pipes go down all of the time. So anytime there was an Internet outage in a town or a region, 911 would go down with the Internet.

Of course, the FCC didn’t suggest this in a vacuum. They are being prodded in the whole IP-transition by both AT&T and Verizon who would like to get out of maintaining rural copper lines. AT&T has said many times that they want to cut down millions of rural lines and convert them to cellular. And so any pretense that the carriers are interested in creating a rural all-IP network is a fiction, because these large carriers don’t want to own or operate a rural landline connection of any kind. As we recently saw with a large sale of Verizon FiOS lines to Frontier I’m not sure that the two big telcos want to maintain any landline connections at all. These telcos are now mostly cellular companies who are finding landlines to be a nuisance.

A Comeback for Landlines?

Black phoneTime Warner Cable this past week announced an app it calls Phone 2 Go that will work on any smartphone or tablet and that will let a Time Warner customer use their home phone plan on these devices instead of cellular voice. At CCG we have predicting for several years that somebody would do this and hopefully Time Warner is the first among many to try this.

This gives landline telcos the ability to fight back against the continued loss of voice customers to the cellular carriers. We all know that cellphones are more convenient than landlines, but cellphone voice is much more expensive. Take the typical household. They probably can buy an unlimited long distance plan for their home phone for $25 – $30 per month. But if each member of their household buys unlimited voice on a cellphone then each one is paying $20 – $30 per month for voice. Even with a family plan it’s far cheaper for a family to share one landline than it is for each of them to buy a cellular voice plan.

With this app calls are completed over the data connection on the smartphone or tablet, be that on WiFi or cellular data. The press release I saw was short on details and I have many questions about the specifics of the product. But it’s a great idea for telcos to fight back against the continuing loss of voice lines to cellular companies. For example, how does this plan handle having more than one call at the same time? How does it allow for incoming calls to be segregated by family member so that each person only gets the calls intended for them? These are all solvable issues and I’m just curious to see the specific Time Warner solutions.

Since there are also numerous free text messaging apps available for smartphones today, it would be possible for a smartphone customer with a Time Warner landline to buy only data from the cellular company and avoid paying for both voice and text plans. It’s not a big secret that the cellphone companies are making a fortune today on voice and text plans – cellular voice has a very high margin and text is nearly 100% margin. It will be interesting to see how the cellular providers react to Time Warner’s move assuming that the product gets traction.

This app is going to create a demand for data-only plans for cellphones and tablets. There are a number of data-only plans available for tablets today, but I have never seen a data-only plan for smartphones. However, one has to imagine that Sprint of T-Mobile will offer a data-only plan if there is public demand for it. Such a plan would still be quite profitable for the cell carrier. One might picture AT&T and Verizon trying to squelch this idea, but if additional telcos pick up on the idea it’s going to be hard to stop.

This could potentially stop the flood of landlines that are being dropped in favor of cellular numbers. This plan gives people the flexibility to build a voice plan in a way that best fits their needs. Many people who have dropped landlines may well want them back again if the landline connection also covers their cell phones.

One of the articles I read on this suggested that this would only work for companies that already offer VoiP. But I can’t think of any reason why this wouldn’t work for any company that uses a modern softswitch. Such switches can handle calls in multiple formats from multiple sources and should easily be able to handle a mix of TDM and VoIP calls. I can’t think of hardly any of my clients who could not make this work, assuming they could get the app.

This app raises regulatory issues. For example, does a call made over a cellphone’s data connection have the calling scope of the cellphone or of the associated landline? This kind of application completely blurs the regulatory distinctions we have maintained between cellphone and landline voice and might force the FCC to examine those differences.

I find it funny when people say that voice has become irrelevant, because just the opposite is true. There are more people paying for voice plans today than ever before in this country. What we have seen is an increase in the number of people unwilling to pay for both a landline and cellular line. This app is the first step towards making voice agnostic of the platform and it gives anybody with landline customers the ability to serve voice to any device. This actually gives a big advantage to landline companies because they can serve every line a customer has while the cellular companies can only serve cellular lines. In some ways this gives the advantage back to the landline providers. Let’s see if they are able to take advantage of the opportunity.

 

Retiring the Copper Networks

telephone cablesAttached is a copy of FCC Docket DA-14-1272 where Verizon is asking to discontinue copper service in the towns of Lynnfield, MA, Farmingdale, NJ, Belle Harbor, NY, Orchard Park, NY, Hummelstown, PA and Ocean View, VA. In this docket the FCC is asking for public comments before it will consider the request.

In these particular towns Verizon is claiming that almost all of the households are already served by fiber and they are seeking to move the remaining households to fiber so they can disconnect and discontinue the use of the copper networks there. And perhaps if there are only five percent of lines left on copper in these towns that might be a reasonable request by Verizon. But this does prompt me to talk about the whole idea of discontinuing older copper networks, because both Verizon and AT&T have said that they would like to eliminate most of their copper by 2020.

In the case of Verizon it’s a tall order to get rid of all copper because they still have 4.9 million customers on copper with 5.5 million customers that have been moved to fiber. AT&T has a much larger problem since they don’t use fiber to serve residential customers except in a few rare cases. But both big carriers have made it a priority to get people off copper.

Many customers are unhappy with the idea of losing their copper and many have complained that they are getting a lot of pressure from the big telcos to drop their copper. There are numerous Verizon customers who say they are contacted monthly to get off the copper and they feel like they are being harassed. There are a few different issues to consider when talking about this topic.

Not everybody that loses copper will get fiber. Of the big telcos only Verizon even owns a residential fiber network. But even the Verizon FiOS network doesn’t go everywhere and they are not expanding the fiber network to new neighborhoods. For customers that live where there is no fiber, the goal is to move them to a DSL-based service or, in the case of AT&T to cellular phones.

Interestingly when a telco moves a customer from POTs (Plain Old Telephone Service) on copper to VoIP on DSL the telco will keep using the identical old copper wires. They will have changed the technology being used from analog to digital. But more importantly in most cases they will have changed the customers from being on a regulated product to an unregulated one. And that is one of the primary thrusts to get people off POTs.

POTs service is fully covered by a slew of regulations that are aimed at protecting consumers, such as carrier-of-last-resort obligations that require telcos to connect anybody who asks for service.  But in most states those same protections don’t apply to VoIP or fiber service. The most important right that customers lose with VoIP are the capped prices, meaning that the prices for VoIP or fiber service could be raised at any time by any amount. And the carrier-of-last-resort obligations have real-life impact even for existing customers. If a customer is late paying their bill on a VoIP network, Verizon would be within their rights to refuse to connect them back to service when they pay.

There are customers who want to stay on POTs on copper for various reasons. One reason is that POTs phones are powered by the copper network and so they keep working when the power goes out. There are still parts of the country where the power goes out regularly or where there is a reasonable expectation of hurricanes or ice storms. For example, houses that still had copper could make calls for up to a week after hurricane Sandy.

Another reason to keep copper is for security and medical monitoring. The copper POTs network has always been very reliable. But it is much more common for households to lose Internet service. Once a phone is converted to VoIP, then any time the Internet is down for a customer then their security and medical monitoring services that use those phones don’t work.

The FCC is going to be flooded with requests like this one to disconnect people from POTs. Certainly the copper networks are getting old. There might be merit for disconnecting copper in towns that are almost entirely fiber and where the customer losing POTs will move to fiber. In most cases fiber seems to be as reliable as copper, although it cannot power the phones when the electricity goes out.

But it seems somewhat ludicrous for the FCC to approve shuttling people from POTs to DSL while still using the same old copper lines. That clearly is being done as way to avoid regulation and customer protections and not for the carrier to save money. And it is clearly not in the customer’s best interest to move customers from POTs to cellular.

Making VoIP Work Better

Black phoneThe Broadband Internet Technical Advisory Group (BITAG) recently issued some guidelines for carriers to suggest ways to improve the delivery of VoIP. BITAG is a technical advisory group that makes recommendations about ways to make the Internet function better. They say that a substantial portion of global voice traffic now uses VoIP, but that there are numerous problems that stop it from working as well as it might.

The report looks in detail at how VoIP works and ways that it can be impaired or restricted. It goes on to make specific recommendations on methods for mitigating restrictions and then describers steps that ISPs, software developers and equipment vendors can take to make VoIP work better.

The primary impairment to VoIP is port blocking where the sending and receiving end of a call are unable to make the desired connection. A VoIP calls requires the synchronization of the source IP address, the destination IP address, the transport protocol being used, the source port and the destination port. The failure of both ends of the call to agree on these parameters will impair or block a VoIP call.

Another way that VoIP calls fail is when a connection is being made into or out of a network that sits behind a Network Address Translation (NAT) device which allows multiple devices in the network to share the same public IP address. These devices often don’t give any priority to VoIP and make it hard to make and keep a connection. Often there is a device sitting behind the NAT, a Application-Level Gateways (ALG), which is used to try to find a path for each kind of traffic hitting a NAT. But the ALGs often do a poor job in identifying and allowing for VoIP. particularly for VoIP that was not provided by the ISP deploying the ALG.

The other major cause of VoIP failure is compatibility problems between programs or applications that end up restricting some portion of the VoIP functionality.

BITAG has made specific recommendations that they hope will ease these problems:

  • They recommend that ISPs should avoid impairing or restricting VoIP applications unless there is no technical alternative. ISPs often take steps to block certain ports on their network in an attempt to kill spam or other unwanted traffic, and some of these network management techniques also end up blocking valid VoIP applications.
  • If ISPs use techniques or have policies that might impair VoIP they should provide full disclosure on-line of these policies on their web site. They should also provide a way for customers to communicate with them concerning such polices when they result in blocking ports or in other ways restricting VoIP. Interestingly, the original Net Neutrality rules issued by the FCC contained similar disclosure requirements for ISPs, but I think those rules stopped being effective when the courts overturned the Net Neutrality order.
  • BITAG recommends that the port selection in consumer equipment should allow for user configuration of the ports. Many devices or firewalls make it impossible for a consumer to modify the specific port assignment needed for their VoIP application.
  • They also recommend that VoIP-related ALGs should minimize the impact on VoIP other than the service provider’s VoIP. For example, a cable modem might be set to allow the cable company’s VoIP but will cause problems with VoIP from other sources.
  • They recommend that VoIP applications be designed to be port-agile, meaning that the application does not require a specific port but would allow finding a port that will work at either the sending or receiving end of a VoIP call.