May 18, 2010 03:05 bpiper
Downtown LA’s Nokia Theater, venue of the Season 7 and 8 finals of American Idol, played host for a highly anticipated - though somewhat poorly attended - keynote from FCC Chairman Julius Genachowsi.  The interview format, moderated by NCTA president Kyle McSlarrow, was heavy on platitudes, and light on real news. “Let’s roll up our sleeves, and get down to business!” seemed to be overarching theme. In a very brief press conference later in the day, the Chairman did respond to some slightly tougher questions - and gave a pretty non-responsive answer to one posed by yours truly A “Healthy and Fair” Third Way? April’s court decision “has created a problem, and has damaged the legal foundation,"  according to Chairman Genachowski.  The FCC’s was faced with several options, according to a statement issued by the FCC:
  • Do Nothing
The Commission could continue relying on Title I “ancillary” authority, and try to anchor actions like reforming universal service and preserving an open Internet by indirectly drawing on provisions in Title II of the Communications Act (e.g., sections 201, 202, and 254) that give the Commission direct authority over entities providing “telecommunications services.”
  • Deploy the “Nuclear Option”
The Commission could fully “reclassify” Internet communications as a “telecommunications service,” restoring the FCC’s direct authority over broadband communications networks but also imposing on providers of broadband access services dozens of new regulatory requirements.
  • Third Way
With each of these deemed “too extreme,” the Commission instead has decided on a so-called “Third Way,”  a “Healthy and fair option” which would:
    • Recognize the transmission component of broadband access service—and only this component— as a telecommunications service;
    • Apply only a handful of provisions of Title II (Sections 201, 202, 208, 222, 254, and 255) that, prior to the Comcast decision, were widely believed to be within the Commission’s purview for broadband;
    • Simultaneously renounce—that is, forbear from—application of the many sections of the Communications Act that are unnecessary and inappropriate for broadband access service; and
    • Put in place up-front forbearance and meaningful boundaries to guard against regulatory overreach.
Unfortunately, the FCC's chosen path, reclassifying ISPs as common carriers and "forbearing" the majority of Title II regulations, hasn’t done much to instill confidence.  Critics say it opens the door to potential pricing regulation going forward, though the Chairman insists that is “off the table.” The key enforced provision, Section 202, prohibits carriers from making any "unjust or unreasonable discrimination" in the way it charges.  Section 208, another provision on the table for enforcement, allows carriers, enterprises, and individuals to file complaints directly with the FCC for violations.

Buckle Up and Hang On

Along with many others, I have long operated under the assumption that, in principle, net neutrality was decided with the election of Barack Obama in November 2008. The latest court rulings have insinuated more fear, uncertainty and doubt into the mix.  And markets don't adapt well to fear, uncertainty and doubt.  I would suggest everyone buckle in tight, because this ride isn't over.  
See You in Court!
The process will be slow, there will be numerous legislative challenges and speed bumps--Representative Cliff Stearns from Florida recently introduced a bill that would require the FCC to deliver a detailed cost-benefit analysis to Congress before moving forward.  When I asked the Chairman yesterday about this, he only said that FCC "will work with Congress as a resource." Not to mention the court cases…we should anticipate numerous legal challenges in the forthcoming months, and it wouldn't surprise me to see this ultimately end up in the Supreme Court. The real brunt of this will be felt by OTT ecosystem players.  Over the Top, by its very nature, is predicated on an open Internet. Twelve, eighteen, or twenty-four additional months of limbo is the last thing these guys need.   -Ben Piper

April 16, 2010 16:04 dmercer
“Hybrid” was one of the hot themes at this year’s IPTV World Forum a couple of weeks ago in London, in spite of the fact that the concept of melding two or more services into one is hardly new. But the term was scarcely mentioned here at the NAB Show, and when I suggested to Sezmi’s VP of Network Engineering and Operations, Veeraraghavan Krishnan, that his company offered a hybrid solution it didn’t appear to ring any bells. But hybrid TV is exactly what Sezmi has developed. The company began its commercial launch six weeks ago in Los Angeles and its set-top boxes are available in Best Buy at $299. Customers receive the standard digital terrestrial TV ATSC channels available in their local area, together with content delivered in two additional ways: via the broadband Internet connection; and in additional capacity over the wireless broadcast signal, which Sezmi licenses from local broadcasters. Sezmi’s playout facility in Florida determines what spectrum is available in each location and balances the use of broadcast and IP delivery accordingly. In general the system pushes more popular content to the broadcast spectrum, as expected, but is flexible enough to adapt on an hourly basis. Krishnan took me briefly through the viewer guide. The clever thing about Sezmi is that there really is no easy way for the user to know how content is delivered. The menu disguises the content’s origin, whether it arrives on demand over the Internet (and downloaded progressively), or stored on the set-top box’s 1TB HDD. The demonstration on the show floor inevitably suffered from some buffering and access issues. Sezmi claims that users require a 1.5Mbps broadband connection in order to watch internet-based video. We also discussed Sezmi’s decision to offer personalised content. When the box is switched on users have to log in, either as individuals or as a guest. We’ve pointed out before that the large screen TV is problematic when it comes to personalisation because it is usually sited in a multi-viewer environment. Which family member is supposed to log in to see their personal recommendations when everyone else is also watching TV? Krishnan did not appear to have an answer to this point beyond suggesting that the family should log in as a “guest” in their own home… It’s important that Sezmi sorts out its position on this question because one of its next steps will be to introduce targeted advertising. If broadcasters and, more importantly, advertisers, are to benefit from that capability they will need better clarity on which viewer or viewers they are targeting. There have been lots of discussions about Sezmi’s opportunities and business models. The assumption seems to be that people will not pay $299 up front for a subscription TV service that costs either $4.99 or $19.99 a month. As always, I’m not sure it’s as simple as that, and there may well be segments who find that a lower cost alternative to cable or satellite TV which blends broadcast and online content may be attractive. Whether those segments are large enough to sustain Sezmi towards profitability seems rather uncertain, but broadcasters cannot afford to ignore this sort of innovation in their battle for survival. David Mercer Client Reading: Global Digital Television Forecast: 1H'10 Add to Technorati Favorites

April 6, 2010 20:04 bpiper
"The FCC is not having a one-night stand with Net neutrality,” said FCC Commissioner Michael Copps back in 2008, “ but an affair of the heart and commitment for life.”   Today’s ruling by the U.S. Court of Appeals for the District of Columbia may amount to a trial separation for the lovely couple.  The court delivered a painful kick in the shins to the FCC today, ruling that the agency  overstepped its boundaries in 2008 by imposing an enforcement action against Comcast, alleging the cable company’s  broadband network management practices to be in violation of the FCC's policy principles. Today’s ruling vacates the enforcement, which had called on Comcast to be more transparent in its network management practices.   While today’s decision may raise more questions than it delivers answers, it may be useful to consider some of the short and medium term implications.   The court’s decision is more about the FCC’s authority than on “Net Neutrality” per se  My number one prediction?  The mainstream media will get it wrong.   They will suggest that this is a ruling against Net Neutrality.  To be clear, today’s ruling is about the role and the regulatory boundaries of the FCC—not necessarily a ruling against Net Neutrality or the concept of an Open Internet.  The FCC in a statement said the agency remains "committed to promoting an open Internet and to policies that will bring the enormous benefits of broadband to all Americans."   This decision will be challenged, but that could take years.  In the meantime, look for the service providers to begin “testing the waters.”   I’m no lawyer, but as a more than casual industry observer, I can predict with some certainty that this is not a definitive ruling.  It will more than likely end up in the Supreme Court—but don’t make any plans yet.  Broadband is now classified by the FCC as a “lightly regulated information service,” and as such it skirts many the regulations imposed on traditional Telecom services with regards to open networks. Some suggest that the FCC, as a rulemaking body, can simply reclassify broadband, and impose tougher regulation.   Whatever the final disposition is, time is on the side of the service providers.  The glacial speed of change in DC means that in the upcoming months (and even years), Comcast and other service providers—granted a temporary reprieve—will likely begin testing the waters, and recommence traffic prioritization and other various and sundry network management antics.   What about OTT?   An affirmative decision on Net neutrality has always been a cornerstone of the future of unmanaged over-the-top (OTT) video.  Today’s ruling throws a monkey wrench in those works.  Until the next challenge, Comcast (and any service provider for that matter), reserves the right to prioritize and manage traffic streams as they see fit.   “Sure we’ll get your YouTube video—just not all at once.” And oh yeah, what about the future of the US National Broadband Policy?   Here’s hoping the FCC is reunited with its soul-mate.   -Ben Piper

March 22, 2010 23:03 dmercer
As we reported today, the global IPTV subscriber base reached more than 30 million households last year. It's difficult to imagine that major vendors such as Alcatel were predicting 100 million by this stage a few years ago. That sort of over-optimism is hardly new, but in this case reflected a failure to appreciate the strategic challenges facing telcos as they entered the TV market. My colleague Ben Piper suggests that the IPTV market globally may be hitting a speedbump: perhaps it just never built up much speed in the first place. IPTV was supposed to be different. The built-in ability to integrate communications services with content delivery, together with one-to-one targeted delivery, would enable powerful and compelling new features and experiences which would help telcos leapfrog their established competitors in the cable and satellite industry. But instead of changing the game most telcos which offer IPTV today still play to the rules originally fixed by the incumbents. Most could not avoid getting dragged into content rights battles and disputes, and few if any have deployed the sort of exciting advanced capabilities which have been on show at countless exhibitions over the past decade or so. Which brings us to this year's IPTV World Forum, opening tomorrow at London's Olympia. Ericsson gave us a preview of its announcements this evening, which are encompassed by the new tag-line “End-to-Endless Television”, or “E2E TV” for short. Sure enough they include subjects such as on-demand advertising, new connected IP devices and hybrid solutions. Without doubt what I am most looking forward to seeing is Ericsson's IPTV Remote. Someone will explain to me one day why a home device with no obvious cellar network implications was launched at Mobile World Congress; in any case now that the mobile phone industry has seen it we await reaction from its core target customer base. Ericsson describes the IPTV Remote as the best thing they have done in a long while. The challenge for Ericsson, like its competitors, is that it does not sell these products to consumers, who are the end users, but to service providers and operators, who decide what they think their customers will want and will make them money, before making them available to the likes of you and me. Ericsson carries out a lot of its own consumer research to identify future customer needs, but it still has to persuade its operator customers of the validity of these predictions. Many of these scenarios sound good in a Powerpoint; Ericsson’s own presentation sees the future of TV as “blended services”, “converged interactive communication”, and “your media anywhere, anytime”. I hate to sound like a weary old cynic, but we have heard these promises more than a few times over the years. But I do look forward to seeing the IPTV Remote in action, and maybe, just maybe, this 10” touchscreen “tablet” (definitely not an iAnything) will persuade operators that their customers might value their service over their competitors for the privilege of using a particular device, rather than receiving targeted ads or first run movies. Our own research showed TV viewers are waiting for touch screen controllers, so Ericsson may be on to a good thing. David Mercer Client Reading: Orange's IPTV Challenge: Create a Non-Content Differentiator Add to Technorati Favorites

February 25, 2010 02:02 bpiper

An FCC report released February 23 announced the findings of its National Broadband Plan Consumer Survey, “Broadband Adoption and Use in America.” The findings reaffirm what Strategy Analytics has been saying for years about the state of Broadband in the United States. Namely, that in the "metrics that matter," including speed, availability, penetration and price, the US falls woefully behind. The FCC study finds that 67% of US households “contain a broadband user who accesses the service at home,” in line with the Strategy Analytics estimate of 63.4% household broadband penetration in 2009. According to the study, 93 million Americans (representing roughly 43 million households) are so-called ‘non-adopters.’ The reasons cited for “non adoption” of broadband include affordability, digital literacy, and relevance. These barriers to adoption will be—and must be—overcome in the near future.

Affordability Remains an Issue in US

Thirty-six percent of the “non adopter” respondents in the FCC study cited affordability as a key barrier to broadband adoption. Indeed, Americans do pay more on per Mbps than most of our peers. When it comes to faster speeds (i.e., above 50Mbps offerings), the “rip off factor” is even more evident. We estimate that, on average, Americans pay almost $16 per Megabit received to the home. In Korea, the amount is $2.00. Central to the relatively high cost of broadband in the US is the lack of meaningful competition. With essentially zero intra-platform competition, service providers have little incentive to innovate offerings beyond par. PRICE_PER_Mbps

Digital Comfort Factor and Relevance

Another notable finding from the study was the importance of digital literacy and ‘relevance’ as barriers to adoption. Twenty-two percent of non-adopters indicated a lack of comfort with the technology, while 19% saw little if any personal relevance. Of the one-third of American households falling under the “non-adopter” category, the largest sub-group doesn’t use the Internet at all. This particular category was older, lower-income, and less educated than occasional non-home users and/or dialup users.

Growth Opportunities Remain

Despite the 93 million unconnected Americans estimated in the report, Strategy Analytics continues to be bullish on the future of broadband in the US. We expect household penetration to breach the 80% mark by 2013.  Why?
It’s Generational
It’s not surprising that older Americans are more intimidated by (and see less need for) broadband. This group, however, is being replaced by a generation who will have known no world without broadband. They won’t be able to imagine a world without ubiquitous connectivity.
People Come Around
As was the case with non-adopters of microwave ovens, VCRs, cable tv and cell phones, people eventually do come around. Interestingly, 78% of the “Digitally Distant” (non-Internet using) respondents had cable or satellite tv at home, and over half had a cell phone.
It’s Inevitable
Broadband is so tightly woven into the fabric of our culture and society that it is almost impossible to imagine a future devoid of the technology. We truly do live our daily lives online, and the pipe dreams of five years ago are fast becoming reality. Telepresence, a technology until recently dismissed as a niche enterprise application, will be launched to consumer households this year. Telemedicine and distance learning are inching their way into the mainstream of American life. US_HOUSEHOLD_BROADBAND_PEN

January 5, 2010 15:01 bpiper
When I switched my home television service  from DirecTV to Comcast last summer, the slick sales guy on the other end of the line promised me that I would be receiving an identical channel lineup to the one I was currently receiving.  “Apples to apples,” he promised. “Only cheaper.”   What’s not to like? You’d think that I, someone who gets paid to research and write about digital television, would have done more due diligence on his own account.  I didn’t. So, when it became apparent that two “must have” channels for me (NatGeo and BBC America) were not in my Comcast tier, I called again to inquire.  Seems that to get those, I would have pay an additional $15 a month to buy up to the next highest tier, one filled with numerous channels of no use or interest to me.   Suddenly the calculus changed.  This was no longer a good deal.  

This time, it’s not coming from the FCC

Recent movements suggest that change may be afoot.  No sooner had Comcast announced the launch of its OTT-mitigating Fancast Xfinity TV service than rumors started circulating about Apple’s talks with CBS and ABC.  Seems the folks in Cupertino are mulling a subscription-based video service, obviating the need for iPhone/iPod users to depend solely on the Apple iTunes service for downloads. If the Apple service is successful at elegantly bridging  the '’screen gap,” and delivering compelling online content to the tv screen, it could fundamentally alter the way MSOs sell content.  The much maligned “bundled” system currently in place, whereby consumers are required to purchase content in blocks of channels--rather than individually--could finally be on the chopping block.  And that’s good news. What is interesting, though, is that the catalyst for this change will be the market—not a government mandate as previously feared. A la carte used to be somewhat of a cause célèbre in the television world, and one that the FCC has been wrestling for years. It was only the more recent emergence of “net neutrality” that has stolen the spotlight from the issue. Former FCC Commissioner Powell’s administration commissioned a 2004 report finding that, under an mandated a la carte scheme, customers would end up paying more.  That report has since been largely discredited and found to be riddled with misinformation and half-baked analysis.  Successor Kevin Martin embraced “cable choice,” though apparently more for the way it allows parents to monitor and block channels, than for household consumer budgetary reasons. One analyst firm  rather dramatically predicted ‘economic ruin’ if the FCC went ahead with its plan.

Who moved my talking points?

Government-mandated a la carte is bad for cable consumers, who would wind up paying higher prices to receive the same level of service and fewer channels than they receive today.”-NCTA Issue Brief, January 2009
The National Cable Television Association (NCTA ) talking points were crafted to respond to a possible “government takeover” of television.  In the context of a market driven change, the memo reads somewhat differently.  Most of the arguments fly out the window, and the market will call the cable industry’s bluff on the supposed technological barriers to offering personalized programming. As usual, the problem does not lie in the technology, but rather in the business model The very nature of cable advertising is in flux, brought upon largely by digital television.  The 30-year old model in place today, whereby flagship channels lead certain tiers and support fledgling new ones, could be facing some changes.  While the NCTA estimates that half of cable companies’ revenues come from national ad sales, this is certainly shifting.  Intelligent two-way networks will herald in addressable advertising—the next step in demographic targeting. Indeed, vendors I spoke with only months ago alluded to some “user identification” scenarios that could pinpoint actual viewers within a household, based on their “jitter signature.”  Seems that we all shake and tremble in our own unique ways, and it is possible to use these signatures like fingerprints, and serve up completely targeted advertising.  To be sure, , vendors will need to overcome the “creep out” factor first, but the general idea is the same.  Linear advertising as we know it is going the way of the dodo, and the MSO’s ‘old math’ will need to change.

It’s not about choice…it’s about the illusion of choice

Our research shows time and time again that consumers are tired are feeling that they are being screwed by their pay television providers.  The nickel and diming in all aspects of consumers’ lives has grown out of control.  Our latest survey work (to be published in Q1) found that only about 20% of pay tv customers felt that the ““value for money” they were getting from their pay television operator exceeded expectations. Part of the issue is consumers’ feeling that they have no control, that they are somehow being  taken advantage of.. Choice—or more importantly, the illusion of choice—is an extremely powerful tool.   Think of the immensely popular Build a Bear Workshop franchise, whose stores dot shopping malls across the world.  BABW allows customers to design and personalize their very own stuffed creatures by visiting eight “stuffed animal-making stations,” where they can choose (and buy) everything from stuffing to clothing.  The concept has been a huge hit, and the company is now a $300 million/year concern, with over 400 stores worldwide.  What is the secret to the company’s success?  Certainly not selling adorable plush animals; anyone can do that.  Rather, BABW has perfected the illusion of choice and flexibility.  All customer start at the same default position: buying a bear.  The trick is, they end up paying more for the additional  features relevant to them.

How about “Build a Bundle?”

What prevents MSOs from employing a similar strategy—allowing customers to design their own bundled offerings?  All would start at the same default position, the $XX/month basic tier.  The real money comes in the add-ons.  Critics say this is not how advertising works in the cable industry.  Guess what?  It’s about to change. My (still untested) hypothesis is that, if customers were given the choice to “personalize” a  television bundle, ARPUs would actually increase--or at least stay the same.  Allowing them to configure a package conveys the illusion of choice and control, and makes customers think they are in the driver’s seat. Sounds like a great project-opportunity…phone lines are open if someone out there wants us to test the concept.

December 8, 2009 17:12 bpiper
We’ve just published our European Broadband Tracker for Q3, focusing this month on the happenings in the UK market—a market that witnessed a significant change in landscape in the third quarter.  With its acquisition of Tiscali for a “fire sale price,” Carphone Warehouse now finds itself in the number two slot in the UK.  Three providers in the market now claim over 4 million subscribers; however, BT Retail still maintains a commanding 780,000 subscriber lead ahead of its nearest competitor.  Sky remains the fastest growing broadband service provider in the UK, though the company’s quarterly growth has slowed down from double digits a year ago to half of that this quarter. Nonetheless, Sky is poised to potentially approach three million subscribers by the end of 2010. While Orange’s subscriber loss in the UK market persists, we believe that the impending Orange and T-Mobile merger—reported to be on fast track from the Office of Fair Trading (OFT) –could potentially help to stave off further subscriber churn, through a combination of multiplay bundling and innovative service deployments. Indeed, we  expect to see accelerated M&A activity in the UK market in the upcoming year, with Carphone Warehouse a potential acquisition target.

November 12, 2009 18:11 bpiper

I’m on my way back to Boston,after spending 2 days at the Telco TV event in Orlando, a somewhat small--but nonetheless impressive--show focused on the IPTV space.  I’m posting this online at 35,000 feet, which is one of the few places I don’t particularly mind (or at least won’t audibly complain about) paying for connectivity.

My overall takeaway from the show is that IPTV still has a long way to go--and I feel like I say that every year at this time. A few notes and observations from the keynote sessions, workshops, and meetings:

What have you done for me lately?

For years, we’ve been hearing about the promise of IPTV, and the jaw-dropping array of services and applications it will ultimately deliver. The potential and promise of IPTV has been widely hyped. Jeff Weber, VP of Video Products at AT&T, suggested that IPTV’s upside is “beyond our understanding.” The question remains, though, what has the technology delivered?

Research we recently published confirms the strong growth opportunities for IPTV in the US—that growth, however, is dependent on a few basic conditions, including sustainable customer take up, and achievable and meaningful differentiation. The “me too” services won’t cut it anymore.

Um…the datestamp on that slide is “2005”

Sadly, the slideware on display at this year’s keynotes and sessions might as well have been from five years ago. The same tired slides and examples keep showing up again and again, presented as “innovative” and “new.” These include on-screen Caller ID (a curious notion in the first place, given the rapid decline of residential landlines, and the inherently personal nature of telephone communication), customizable EPG skins (really??), multiview, and remote DVR programming.

Not exactly earth shattering stuff.

Is there an app for that?

While IPTV may not fully realize its full potential for several years, the general consensus seems to be that the likely path to innovation in the space may come through the open “widgetization.” Drawing parallels to iPhone apps, proponents of this theory foresee a flood of new applications migrating to the television screen. Whether or not these can be (or should be) monetized remains another question. It does loop back to the fundamental question: how to compel a consumer to move to IPTV.

No first mover advantage

IPTV represents the first time in the Telcos’ history that they have been second to market…indeed, they enjoyed near or complete platform monopolies for decades. Television has a long and storied past, and consumers have developed a set of expectations and quality thresholds. Having to build to a set high-water mark is no easy task. And they have to do more than replicate what the cable companies are offering—to be successful, they have to surpass it.

What the Telcos have in their favor, however, is a long legacy of delivering “five nines” quality to consumers; an established brand and existing customer base.

The challenge is in meshing the two pieces together: harnessing the experience and success of the past, while simultaneously changing the fundamental Telco mindset from one of a monopolistic utility provider to that of a competitive provider of services.

November 5, 2009 16:11 bpiper

We’ve just published a report on broadband opportunities in the BRIC (Brazil, Russia, India and China) countries, estimating that broadband revenues in the four-country region will reach $46 billion by 2013. The BRIC designation, attributed to Goldman Sachs analyst Jim O’Neill, captures the commonalities shared by the four countries, including  rapid economic growth, burgeoning middle classes, and increasingly sophisticated communications marketplaces.  Just as the BRIC countries are expected to be a dominant force in the global economy in the next decade, so too will they become important leaders in broadband consumption. The bloc’s still somewhat young and immature broadband consumer base, rapidly growing upwardly-mobile middle class, and increasingly important consumer purchasing power all point towards substantial opportunities in the upcoming years. We see the region as one of the next broadband frontiers, more than doubling its number of broadband connections between 2009 and 2013. While there are some positive commonalities shared among the four countries, there are likewise some negative aspects which may ultimately hamper their success. Widespread and institutionalized corruption, social and political instability and inefficient bureaucracies all make for a less-than-ideal environment in which to do business.  Nor do we see the BRIC countries necessarily marching in lockstep. In many ways, the four countries are more different than similar, and it would be unwise to expect them to follow exactly the same path.  Rather, we think broadband adoption will play out quite differently in each.

November 3, 2009 21:11 bpiper
As we've said before, and as evidenced by AT&T’s and Verizon’s recent reporting, the days of consistent double-digit broadband growth are probably behind us.  The US market is rapidly maturing--we are estimating 63% household broadband penetration by year-end-- and the new customer pool is dwindling.  Q3 was a fairly flat quarter for the Telcos in terms of subscriber growth, and we expect to see similar results from Comcast and TWC when they report next week.  We estimate sequential subscriber growth for each to be just around 1%, bringing Comcast's total broadband base to around 15.4 million, and Time Warner's to near 8.9 million. MSO_ESTIMATESQ309 The name of the game for service providers today is mitigating churn--that is, holding on to what they've got.  Research we recently fielded in the US market (to be published soon) showed that Americans report very high satisfaction with their current service provider (75% are "somewhat" or "very satisfied".  That said, when presented with a compelling competitive offer (20% price discount or doubling in speed), roughly two-thirds would jump ship.