Monday, May 26, 2014

Like health insurance, tipping point of market dysfunction will come for premise Internet service

  • Low customer satisfaction levels and high churn
  • Rising prices and poor value
  • Little choice among providers
  • Market segmented into haves and have nots

All of these conditions describe the sickly individual health insurance market as it existed prior to the enactment of the Patient Protection and Affordable Care Act reforms that took effect at the start of the year. They also accurately define the market for premise Internet telecommunications service in 2014.

For the pre-Affordable Care Act individual health insurance market, a tipping point was reached in early 2010 when a California health plan issuer raised premium rates by nearly 40 percent for some plans. At the same time, millions of Americans not covered by employer or government health plans couldn’t purchase coverage at any price due to pre-existing medical conditions.

Today, millions of Americans face the same predicament when it comes to landline premises Internet service because none is available for sale to them -- two decades after most people accessed the Internet by slow, dialup modems still being used today. Mirroring poor customer satisfaction with health insurers, consumers give low ratings to telephone and cable companies.

Like the individual health insurance market, dissatisfaction with premise Internet telecommunications service will soon reach a tipping point that forces positive change. Tipping points are hard to predict precisely. They occur when the right combination of events and public sentiment converge at exactly the right time and place.

For landline Internet premise market dysfunction, it’s inevitable that point will soon be reached. It’s only a question of how and when we’ll get there.

One thing’s for certain. When a market for a product or service of vital importance to the nation’s economic well-being can’t remedy its own dysfunction, massive government intervention becomes more likely.

Tuesday, May 20, 2014

DirecTV CEO's hopes for AT&T deal could be disappointed

DirecTV CEO Mike White
DirecTV CEO Mike White
DirecTV CEO Mike White
White: AT&T Deal Unlocks Potential | Multichanne: White also sees a big customer service opportunity in the deal, allowing DirecTV to offer more products in a single truck roll.
“To me the real opportunity is growth,” White continued. “For us this is a real unlock, it unlocks our way to better serve rural areas, when you think about the 15 million [customer] build out of rural areas. We have been salivating to be able to do [a] one bill and one install experience for the customer and not have two different people show up on two different days, to run it from one call center. This is an enormous opportunity for DirecTV that’s one of the things we could not have gotten with any other partner.”
DirecTV Mike White's belief that AT&T will follow through with a commitment it announced concurrently with its planned acquisition of DirecTV to expand its Internet footprint to reach an additional 15 million premises could prove illusory, dashing his hopes of expanded cross marketing opportunities. For more than a decade, AT&T has announced various infrastructure expansion initiatives including Project Pronto, Project Lightspeed and most recently, Project VIP that have turned out to be far more sizzle than steak.

Sunday, May 18, 2014

Yet another AT&T premise infrastructure deployment by press release

Included in AT&T’s announcement today of its acquisition of DirectTV is yet another in a long legacy of Internet premise infrastructure deployments by press release over the years including Project Pronto, Project Lightspeed and Project VIP that were essentially PR gambits.

AT&T said cash generated by unspecified "merger synergies" (most likely lower costs for TV programming) will enable it to provide premise Internet service to 15 million customer premises in its service territory utilizing a combination of technologies including fiber to the premises and fixed wireless. The planned infrastructure deployments will be completed within four years of the closure of the DirecTV transaction, according to AT&T.

Most likely “Project DirecTV” or whatever AT&T calls it will be forgotten within a year or two and any reduced TV programming costs will instead be allocated to shareholder dividends and executive compensation.

Saturday, May 17, 2014

Boneheaded media coverage and analysis of AT&T purchase of DirecTV

AT&T close to announcing DirecTV acquisition: sources - Yahoo Finance: The deal would combine the largest U.S. satellite provider and the country's No. 2 wireless carrier, expanding AT&T's customer base by 20 million for its U-verse fiber product, which provides television and Internet service.

The transaction may also allow current DirecTV customers to get Internet service where AT&T u-Verse is available. DirecTV's growth has been hurt because unlike cable companies, it is unable to offer broadband alongside its TV subscriber services. AT&T has about 10.4 million u-Verse Internet customers in states such as California and Texas.

"AT&T just upped the ante," said Roger Entner, lead analyst at Recon Analytics, referring to the BuzzFeed report. "They have become an even more integrated telecom provider and are no longer tied to their U-Verse footprint."

I continue to be vexed by boneheaded media coverage and analysis of this deal. First of all, AT&T does not have a "U-verse fiber product." For the vast majority of U-Verse residential customers, it's based on twisted copper pair using VDSL IPTV transmission technology, with fiber backhauling the field equipment. Second, DirecTV is a satellite TV service that is separate and distinct from integrated telecommunications services delivered over landline connections via Internet protocol. Third, there's nothing about this deal if it consummates that "may allow current DirecTV customers to get Internet service where AT&T u-Verse is available." U-Verse is offered in only a selected portion of AT&T's service territory whereas DirectTV is offered most anywhere. The two have nothing to do with one another.

Finally, analyst Roger Entner's comment that the DirecTV acquisition would make AT&T "an even more integrated telecom provider ... no longer tied to their U-Verse footprint" makes no sense whatsoever. Offering satellite TV does not make AT&T or any other telco "a more integrated telecom provider."  Direct broadcast satellite TV has been around as a stand alone service for many years before AT&T or other telcos began offering DSL-based premises Internet service in the late 1990s. However, Entner's reference to AT&T uncoupling from its U-Verse footprint does make sense if viewed in the context of AT&T turning to DBS as part of a strategic withdrawal from U-Verse due to technological obsolescence of IPTV over copper and its inability to upgrade to fiber to offer a competitive level of service quality on a par with cable TV.

Thursday, May 15, 2014

FCC reports contradict ISP claims that build out requirement would deter infrastructure investment

Broadband CEOs to FCC: We're not a utility - CNET: The main argument from the CEOs is that reclassifying broadband services so that they're regulated like the telephone network rather than the light regulatory approach the FCC currently takes with the Internet would kill future investment in broadband networks. They argue that the current regulatory framework is why broadband and wireless companies invest more than $60 billion a year in their networks. They claim this more than $1.2 trillion investment over the years has resulted in great improvements in broadband networks every year.
If this is in fact true, consider that the U.S. Federal Communications Commission (FCC) found insufficient deployment of Internet infrastructure in annual progress reports mandated by the 1996 Telecommunications Act. In 2011, the FCC concluded a "significant and persistent deployment gap" in Internet telecommunications infrastructure deprives as many as 26 million Americans of Internet access.

Saturday, May 10, 2014

Time for the FCC to hit the reset button on Internet regulation

Congressional Democrats jump into net neutrality mix - Tony Romm and Brooks Boliek - AT&T, meanwhile, launched a counteroffensive. Executives from the company warned the FCC in a Thursday meeting not to reclassify broadband as a telecommunications service, saying such a step “would ignite multiyear regulatory controversies on a variety of issues,” according to a filing with the commission. Telecoms dislike that approach because they fear new regulations would unfairly restrict their business.
By classifying Internet service on a par with telephone service subject to common carrier mandates that all premises be offered service, the U.S. Federal Communications Commission (FCC) would not be restricting telecoms. Just the opposite. It would be opening up their markets beyond where they want to go by forcing them to embrace the fact that the Internet is the new telecommunications system. Notably, that's something the telcos themselves acknowledge in petitioning the FCC for relief from rules governing analog plain old telephone service (POTS) so they can allocate more capital investment to Internet infrastructure. With this reclassification of the Internet as a telecommunications service, telcos would be barred from their current market segmentation practices that arbitrarily redline parts of neighborhoods and even discrete roads and streets.

Telcos have been trying to hold onto the past by acting as if it's still 1996 and the Internet is a novel information service and not the global telecommunications service it has now become, carrying voice, data and video. It's time for the FCC to do an intervention and point to a calendar that reads 2014 (and for the Obama administration to fire the enablers who help the telcos cling to the past.) And at the same time, develop a new regulatory framework that allows a fair and orderly settlement scheme across all network layers and boundary points as called for by industry expert Michael Elling. As Elling correctly points out, that's what the "net neutrality" debate is really all about.

Friday, May 09, 2014

Forum discusses broadband possibilities in Alcona - | News, Sports, Jobs, Michigan, Community Information - The Alpena News

Forum discusses broadband possibilities in Alcona - | News, Sports, Jobs, Michigan, Community Information - The Alpena News

Community forums like this have been going on for at least a decade throughout the United States with little or no change in the status quo. People and community leaders show up and tout the benefits of landline Internet access and demand more of it. Incumbent providers counter they're doing the best they can within the limits of their monthly subscription-based business models that constrain the extent to which they can modernize and build out their networks. And round and round it goes as the locals and community leaders grow increasingly frustrated over the lack of progress.

As I blogged yesterday, Utah may provide a way out of this circular trap. Instead of wholly relying on Internet service provider subscription revenue to fund infrastructure construction and operating costs, nearly a dozen municipalities there are looking into a private-public partnership (PPP) that would entail a per-premise utility fee to help fund them. Communities across the U.S. that are tired of unproductive "broadband" forums should be looking to Utah as a potential path forward.

Thursday, May 08, 2014

Future of U.S. telecommunications infrastructure could be determined in Utah

Utah is the site of an economic laboratory for two different business models for the construction and operation of fiber to the premise telecommunications infrastructure. The outcome of the experiment is likely to have significant implications for role of the public sector in these networks as well as the overall future of U.S. telecommunications infrastructure at a time when the nation has reached an inflection point on the issue.

Drew Clark of BroadbandBreakfast has written an overview of the two models: a closed access network based on the business model used by incumbent telephone and cable companies and an open access network operated by a public-private partnership. In a closed access network, the network operator acts as a retailer that “owns” the customer, billing them monthly based on subscribed services. By comparison, an open access network is akin to a public thoroughfare. It wholesales network access to information and service providers that pay to reach customers.

Provo is the site of the closed access model operated by Google Fiber, which is purchasing iProvo, a municipally operated network. Nearby, an open access network operated by the Utah Open Telecommunications Infrastructure Agency (UTOPIA) serves 11 cities. Both the iProvo and UTOPIA networks have encountered financial difficulties but already have deployed a significant amount of fiber serving customer premises, making them attractive test beds for the contrasting business models.

Macquarie Capital, an Australian-based investment company that invests in large scale infrastructure projects like airports, is proposing to invest more than $300 million of debt and equity financing as part of a 30-year leasehold of the UTOPIA network. The rest of the funding needed to fully build out the network would come from a monthly telecommunications utility fee on all residences and businesses within the 11 cities of $18-20 per household, $9-10 per apartment unit and $36-40 per business connection, according to Clark’s summary. Residences would receive free access to a basic broadband network initially offering 3 Mbps symmetrical connectivity.

The key strength of the UTOPIA model is the utility fee assessed on all premises that helps mitigate the business risk of whether enough premises will sign up for services to generate sufficient revenues to offset construction and operating costs and in the case of investor-owned networks, generate operating profits within a reasonable time frame. This uncertainly has been the primary obstacle to build out of incumbent telephone and cable company networks that operate on the customer subscription model. Since Google Fiber uses the same model, it is similarly constrained and thus limits its fiber networks to select “fiberhoods” where the company believes enough premises will subscribe to its network.

UTOPIA’s open access model also has some uncertainty associated with it -- whether Internet service providers will choose to offer services over the network. Since the open access model is novel in the United States and runs counter to the dominant closed access model, UTOPIA has had difficulty attracting enough ISPs necessary to offer services in order to attract customers. Offsetting this uncertainty, however, is the UTOPIA model’s ability to scale and build out to reach areas ignored by closed access, investor-owned networks leery of the business risk associated with deploying to these areas that leaves about one in five U.S. homes without Internet connections.

Wednesday, May 07, 2014

Suddenly it's the 1990s again as dialup modems screech up AOL profits

AOL Still Relies on Dial-Up Profit as Its Media Shift Continues: AOL has worked hard to reinvent itself as a modern digital media and advertising company, but the bulk of its profits still come from its dial-up ISP business.
While the calendar may read 2014, this week it feels like time has jumped back nearly 20 years when most Americans accessed the Internet with slow dialup modems and Monica Lewinsky was in the news (as she is again this week). It's a sad testament to the retrograde state of U.S. telecommunications infrastructure that enough Americans are still on dialup -- many because it's the only landline option available -- that it continues to be a profitable business for AOL. That can hardly be called progress.

Saturday, May 03, 2014

LA Times offers flawed analysis of AT&T interest in DirecTV

Pay-TV field could shrink again with AT&T interest in DirecTV - For AT&T, the value and implications of a DirecTV acquisition are enormous.
First, DirecTV's signal and quality are considered far superior to AT&T's U-Verse television service. This could allow AT&T to rely on DirecTV for broadcast, and free up its fiber lines to increase broadband speeds to U-Verse customers.
This last sentence in this LA Times analysis of AT&T's interest in acquiring DirecTV is rubbish. Fiber lines offer enormous carrying capacity; AT&T does not need to offload video to increase it. The likely reason AT&T is eying satellite for TV distribution is because most of the telco's connections to customer premises are twisted pair copper that can't offer a comparable high definition experience that cable companies can deliver. That gap will only grow wider as ultra high definition TV adoption grows and gobbles up more bandwidth, forcing AT&T to compress it even more to squeeze video content over twisted pair and potentially degrading its quality even further. AT&T is reaching the point of technological obsolescence with its existing copper cable plant and is unable to quickly migrate it to fiber to the premise.

Another major reason is programming costs. AT&T already spends nearly $4 billion a year for programming on U-Verse, and it has just 6 million subscribers. DirecTV pays substantially less per-subscriber for channels than does AT&T.
Unlike the first rationale, this one actually makes sense. AT&T is being squeezed on the consumer side by outmoded delivery infrastructure that requires costly upgrades and on the programming side by TV program cartels that have substantial market power vis Internet service providers.
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