‘Quad Play:’ Remedy for the failed "triple play" business model as Title II universal service obligation kicks in?

Are Americans Ready to Pay for ‘Quad Play’? - WSJ: A combination of T-Mobile US Inc. and Dish Network Corp. would merge two companies rooted in different industries.

For consumers, it would merge some of the fastest-growing bills in their budgets.

American households spent more than $191 a month on average for television, Internet and phone services in 2013, according to Labor Department data. That was up 24% from 2007 and about what they spent on health insurance.

The question is whether Americans are going to take to paying all that to one company. The prospect isn’t so far-out anymore. With satellite broadcaster Dish Network pursuing a merger with wireless carrier T-Mobile US, AT&T Inc. about to close a $49 billion acquisition of Dish rival DirecTV and cable companies experimenting with cellphone plans, many of the services that keep people entertained and in touch are moving under the same roof.

Such providers are betting on so-called convergence—the idea that they will be better off if they can bulk up, as services that used to flow via different wires and satellite dishes all start traveling on the Internet.

It makes technical sense to deliver all these telecommunications services via Internet Protocol (IP). But there's a disconnect between Internet technology and economics. Many homes and small businesses are not offered landline premise Internet service since the economics of the current "triple play" business model (phone, Internet and TV) don't pencil when the costs of infrastructure CAPex and OPex are factored in.

Will bundling in mobile wireless to create a "quad play" offering improve the business case? One might think so when there's ARPU approaching $200 a month. And it might well better once new rules issued by the U.S. Federal Communications Commission go into effect this month classifying Internet as a telecommunications service under Title II of the Communications Act.

Title II subjects Internet service providers to universal service and nondiscrimination requirements and bars ISPs from redlining higher cost neighborhoods not offered triple play services. That in turn increases the pressure on ISPs to consolidate to ensure they can offer these all inclusive service bundles under their preferred vertically integrated business models where they own both the Internet "pipe" to the home and the services delivered over it.

Accelerating implosion of pay TV will hasten AT&T exit from residential wireline

The accelerating implosion of subscription pay TV offerings will hasten AT&T’s exit from the residential wireline market segment and could also result in the telco’s withdrawal of its planned acquisition of satellite provider DirecTV announced in 2014.

AT&T offers video packages with its U-Verse-branded triple play Internet-video-voice product. With the DirecTV deal pending regulatory approval, AT&T hopes to expand its audience of potential viewers and consequently, boost its purchasing power with TV programming providers as negotiations with the programming providers have hardened in recent years.

Viewers have historically regarded the TV programming packages as a poor value for the money since they typically watch only a handful of a few hundred channels. Now they can stream only the video programming they desire via their Internet connections, disrupting the triple play revenue model.

In addition, AT&T’s U-Verse product is delivered to residences over its aging legacy last mile copper cable plant that offers far less bandwidth headroom -- much of it consumed by video -- than hybrid fiber-coax (HFC) cable plants. To keep technologically abreast of cable, AT&T would have to replace its copper plant with fiber. But it is unable to easily do so, constrained by shareholder expectations for earnings and high dividends that militate against substantial capital expenditures.

That leaves AT&T with only one viable option – to continue to sell off chucks of its residential market as it did in December 2014, spinning off its Connecticut residential landline unit, including Internet and TV services to Frontier Communications for $2 billion.

Google Fiber's business model emulates -- and shares same downsides -- as incumbents'

Google Fiber: Make It Easier For Us Or Enjoy Time Warner Cable | DSLReports, ISP Information: Numerous cities have been so eager to get Google Fiber, they've signed rather sweetheart deals that, for example, allow Google to simply walk away from builds should TV subscriber uptake numbers not be met. Perks also include the right to redline and cherry pick deployment neighborhoods...

This illustrates how closely Google Fiber's triple play business model emulates that of legacy incumbent telephone and cable companies. And also how vulnerable it is to TV programming costs that are squeezing all but the biggest players such as Comcast and Time Warner.

What's ironic is localities across the United States have literally begged Google Fiber for relief from the legacy incumbents. Google has adopted much of the incumbents' triple play business model but utilizes fiber to the premise plant instead of wire or cable. And since it's such a high cost model, it naturally leads to market segmentation (cherry picking and redlining neighborhoods based on expected revenue) that reinforces an entrenched infrastructure gap that leaves one in five American homes unable to order landline Internet service.

High TV content costs threaten the “triple play” commercial Internet infrastructure business model

Television programming costs associated with the “triple play” (TV, Internet, voice) offering of legacy telcos and cable companies are the primary business risk facing the subscription-based, closed access, “own the customer” infrastructure business model employed by the legacy telephone and cable companies as well as Google Fiber.

Those costs are steep and threaten the viability of commercial fiber to the premise deployments that depend on future cash flows from service offerings – which include TV – to cover CAPex and provide ROI to investors.

So dear are TV programming costs that Google Fiber’s Milo Medin described them “the single biggest piece of our cost structure” and “the single biggest impediment" to further expansion. The Wall Street Journal reports costly TV content has prompted some small cablecos to scrap the triple play offering and reposition themselves purely as Internet and VOIP (Voice Over Internet Protocol) providers. Over the top (OTT) TV offerings by Sony and Dish Network are also similarly struggling with the high costs of TV programming.

Susan P. Crawford’s book Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age describes the self-reinforcing TV programming market dynamics that cement the dominance of the big subscription-based incumbent telcos and cablecos – and Comcast in particular for live sporting events. These large players can afford the high TV programming costs. But large scale notwithstanding, it’s not TV for all since the big legacy telcos and cablecos cherry pick their service areas, leaving lots of consumers redlined and without Internet TV since they opt not to build the infrastructure to deliver it.

One possible way around this negative circumstance would be for the OTT Internet TV content players to organize consumers into large regional purchasing pools and cater to smaller providers as well as open access community fiber networks operated by local governments and utility cooperatives. That would shift market power to the purchasing side while at the same time bolstering these home grown Internet infrastructure players.

Businesses Lining Up for Service in Longmont, FTTH Build-Out Studied | community broadband networks

Businesses Lining Up for Service in Longmont, FTTH Build-Out Studied | community broadband networks: If LPC wants to pursue a triple play offering, Uptown estimates it would cost another $6 million. At this point, LPC does not consider triple play a good investment:

"The young generation that's active now, they don't watch TV in the conventional way," Jordan said. At a recent presentation, he said, when he asked a college student how often he watched traditional scheduled TV programming, the response was "Never."

The implication here is the subscriber television channel Internet service offering is losing its appeal going forward with the changing viewing habits of younger adults.  This is a potentially huge disruption of the current business models of both incumbent cable providers and telcos offering TV in service bundles like AT&T's U-Verse product.  It's also very disruptive of the TV advertising business model that has traditionally targeted younger adults.  

HDTV growth emerges as driver for fiber to the home

While cable companies and telcos are making a play for so-called "triple play" services combining telephone, high speed Internet and video, the rapid growth of high definition TV is likely to require them to upgrade their systems to fiber optic cable, an industry consultant suggests. That's because metal wire-based coaxial and copper cable lack the capacity to carry the estimated 20 Mbps that end users will require in order to get all three services including HDTV. Michael Kennedy explains in Telecommunications Online:

Video services consume most of the bandwidth within the voice, video, and Internet Triple Play portfolio. About 2 Mbps is required to deliver Standard Definition TV and 9 Mbps is required for High Definition TV. Whereas network designers can safely over subscribe bandwidth higher up in the network this cannot be done when allocating bandwidth to a single enterprise establishment, household or local serving area— especially for video service. HDTV sets are already out selling SDTV so HDTV must be taken as the standard offering when planning an Optical Distribution Network. This means that each household must be allocated a minimum of 20 Mbps because several HDTVs are likely to be in use at the same time.

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