Happy New Year! This Broadband Bytes covers from December 20 through the end of the year. The end of 2008 saw even more retransmission battles (in particular the 11th-hour showdown between Time Warner and Viacom), Qwest trying to unplug a rival that’s suing it for racketeering, and the pending launch of FTTH services in Lafayette, LA. I predict that 2009 will offer up explosive growth in broadband speeds and availability fueled by federal dollars, an increased flight of users from cable to online video streaming and continued greater-than-inflation rises in programming costs.
Qwest’s official company policy appears to compete on everything but having a superior product at a superior price. After small New Mexico ISP SkyWi sued them for anti-competitive practices, Qwest decides to shut down the ISP claiming that they are in arrears by $1.7M. Regulators in New Mexico responded by demanding that Qwest restore service pronto to “critical” customers. Given Qwest’s attitude with Centerville over RDA funds for UTOPIA and their continued efforts to block pole attachments, I think we can see a pattern from America’s least competent ILEC. At least they’re smart enough to slash prices on DSL service across the board.
After years of litigation and construction, Lafayette is finally to launch fiber services in the city next month. Packages are priced very competitively with AT&T and Cox with an $85/mo triple-play package that includes 10Mbps symmetrical Internet service. Lafayette is both wholesaler and service provider, so it makes their financial goals a good deal lower than open networks like UTOPIA that have to share revenue with third-party providers. The Lafayette Pro Fiber blog has a breakdown of pricing options.
It wouldn’t be 2008 without some more bad economic news. The Washington Post reports that the housing slump is hitting homebuilders pretty hard which means you can’t depend on greenfield development to power your growth. New providers will have to look at expensive brownfield development in order to gain new customers. One bright spot is that a think tank has recently called for lowering pole attachment rates as a way to spur broadband deployment. That could spell good news for overbuilds.
As if it wasn’t bad enough that video rates keep on climbing (thank the Governor of New York for some of those increases), text messaging rates are seeing a precipitous climb in overage charges even though it costs fractions of a cent to send each of them. Providers have uniformly increased the cost per message from 10 to 20 cents. Given that a text message is no more than 140 characters, you’re essentially paying over $1400 per MB for texting.
Could big broadband kill Blu-Ray? ZDNet seems to think so citing the growth on online HD video options and the high cost of both players and movies. (h/t: Woods Cross Citizen) A few high-profile flops aside, online HD video has been exploding with manufacturers like Roku and LG integrating Netflix, YouTube and a bevy of other video providers into set-top boxes and DVD players. Even the Wii is getting in on the streaming action. To really compete with Blu-Ray, however, requires a solid 16-24Mbps of bandwidth, something most households only dream of having access to. Will the explosion of on-line video kill cable and broadcast TV? Probably not. Despite some strong warnings to get ahead of the online viewing trend, a recent study showed that online viewers are just as likely to watch live TV as everyone else.
Remember how much TV sucked after the writer’s strike and how some shows (I’m looking at you, Heroes) managed to never quite recover? The Screen Actor’s Guild is getting dangerously close to authorizing a strike after it’s January 12 meeting. If, like me, you’ve been eagerly anticipating new seasons of hit shows like Lost, we might end up waiting a lot longer. Maybe it’s time to get around to watching Jack of All Trades on Hulu.
I think 2009 is going to end up being the year of broadband. Advocates are very well-organized and the new administration is putting a lot of post-election emphasis on telecom policy, an issue that’s typicaly given only election-cycle lip service.
FCC Chairman Kevin Martin decided to up and cancel a vote on what to do about a free nationwide wireless network rather than stare down the angry lobbyists on both sides of the issue. Industry execs want the spectrum free and clear whereas privacy advocates are in a tizzy about the mandatory filtering requirements. Some members of Congress are pretty ticked off and claim that it wasn’t legal to delay or cancel voting on the issue. I’m sure that most of them will be happy to have someone else in charge, whoever he or she may be.
Spending $44B or more on broadband? That’s what Free Press would like to see over the next three years to bring 5MBps+ connections to every home in America with a goal of hitting 100Mbps in the future. The Fiber to the Home Council thinks that we should drop closer to the tune of $100B to get fiber to 90% of American homes. Naturally there’s some distrust; these are the same guys who botched the USF to the tune of billions.
Charter Communications is headlining this week’s bad economic news. The debt-laden cable company hasn’t managed to turn a profit since going public in 1999 and repeatedly gets low customer satisfaction ratings. (On a personal note, I know a lot of disgruntled Charter subscribers who would happily jump ship if something better came along.) Odds are that they’ll sell off chunks of the network to get investors and analysts of their back and stop the talk of bankruptcy. I guess the 8.4% jump in cable ad revenues haven’t helped the company’s bottom line. TV Week has a pretty good round-up of questions about how the industry is going to weather the tough times.
This week was kind of a slow news week. Most of the telecom world has been focused on President-Elect Obama’s plans for broadband stimulus and the continuing bad economic news from providers, programmers and manufacturers.
Qwest is planning to keep spending flat in 2009 which could mean a halt to construction of its FTTN network. There’s a lot of concern that Qwest won’t be able to meet its 2010 debt obligations which has investors seriously spooked. If Qwest does halt or slow FTTN deployments, it could mean that Comcast will make similar cuts to DOCSIS 3.0 rollouts in shared markets as they get bloodied in FIOS territories. Fiber projects like UTOPIA can capitalize on these stalled rollouts to snap up more customers. Part of Qwest’s problems could be related to its tendency to litigate and legislate its way to success rather than offering compelling products. Its shenanigans have recently gotten it sued by a CLEC in New Mexico.
Wireless also matters… kinda. Verizon is going to make a push to have the first LTE markets ready for service by next year, no doubt spurred on by the Clearwire WiMax juggernaut. It’s mostly a marketing ploy, though it could end up being a very effective one. Clearwire is already facing substantial hurdles and it’s probably safe to assume that even cash-rich Verizon won’t have a solid product for several more years. There’s also the problem of transport from the towers, an area where UTOPIA can shine. In other wireless news, AT&T is planning to stream satellite TV to cars and trucks, yet another move beyond the triple play. Augmenting a wired infrastructure with wireless offerings such as this is going to be critical in the future to increase revenue streams and keep bundled customers, especially if they don’t blend in.
Obama’s plans to allocate a substantive chunk of any stimulus package for broadband is being called a “Broadband New Deal”. The real question is how much of any package will be allocated to broadband and how it will be administered. Obama’s plan is to give states “use it or lose it” grants and let them best figure out how to spend the money. If additional conditions aren’t attached to the grants and vigorously enforced, we could just get a repeat of the Telecommunications Act of 1996. It will be very important that providers start now to get their political ducks in a row and line up for some of the cash.
Add Congress to the list of people who are miffed at the FCC under Kevin Martin. The House released a 110-page report slamming his management of the agency and calling for substantive change. With the White House changing hands in 6 weeks, I don’t think that’s going to be much of a problem. Given Obama’s legit technology chops, I’m optimistic that the new FCC head will do a better job.
Even though households with HD sets have doubled since 2007, only a quarter of homes are using the latest technology. With converter boxes and subscription services that don’t require a new set, plenty of consumers are content to keep using what they have, especially during a pinch. Your standard-definition packages will still be relevant for some time to come.
Speaking of content, you’d better learn how to play nice with local broadcasters. There’s a lot of instances of over-the-air stations flexing their muscle against cable over retransmission issues. CableOne and Dish have both ended up dropping local channels when they couldn’t reach agreements on fees and Lafayette’s fiber networkfound itself in the same kind of squabbles.
Between visiting family in Sacramento for Thanksgiving and a business trip to Montreal (where the hotel apparently didn’t believe in reliable Internet service), I got a bit behind on the Broadband Bytes feature. Never fear: I’ll make it up to you with a special double feature to get caught up on the previous two weeks.
A recent study shows that 18% of HDTV owners can’t tell the difference between standard and HD programming. This may be why DirecTV can get away with claiming over 150 HD channels when they include 480p digital broadcasts. Also of interest is that 38% of all HDTV buyers are motivated by a broken/old TV set or are buying an additional set. A scant 22% bought their set for the better picture quality. There’s also a significant number of people who won’t upgrade to an HD set until well after the digital cut-off in February. Standard-definition video will be a significant player for some time to come.
It’s no wonder subscribers are shedding video packages. Price increases have been as regular as Yellowstone’s Old Faithful with Comcast, Time Warner and Bell Canada continuing to jack up the rate you pay. Qwest has decided to go in the other direction and extend their $15/mo offering (1.5Mbps/YourGuessIsAsGoodAsMineKbps). Comcast also upped the speeds on their value tier (from 768K/128K to 1M/384K), but it’s not as competitive as Qwest’s offering and was a direct response to Verizon making the same speed changes. Consumers are taking it into their own hands and finding ways to negotiate lower rates with thier providers. The French, however, are laughing all the way to the bank. Fierce competition has resulted in a triple-play package with 100Mbps data, VoIP and 120 channels of video for $38/mo.
Verizon continues to draw blood by not-quite-overbuilding AT&T U-Verse service areas. If the incumbents get into a full-scale war for customers down in Texas, you can bet consumers will be the winners. In other overbuilding news, it seems that BPL isn’t quite dead yet. While it’s a poor choice for end-to-end connectivity, it shows promise as the last mile of a FTTN system. With speeds of up to 400Mbps, it could very well spur even fiercer competiion.
The FCC is still trying to push a nationwide porn-free wireless network. The latest incarnation allows adults to opt out of the filtering, but, as usual, pretty much everybody is going home unhappy and nobody knows how the carrier that will eventually operate the network can end up turning a profit.
Comcast is looking at sneaking in data rate increases after all. Their plan is to upgrade various tiers of service to higher speeds with accompanying higher rates. If you want to downgrade to a lower-priced package, tough noogies: speeds under 12Mbps will be gone except for a 768Kbps “value” tier. Competing providers should be able to snap up a lot of customers by offering a slower and cheaper tier between the two. T-Mobile is also raising rates on data packages, but with a 10GB monthly cap and terrible ping times, few are likely to use it for primary access.
Telcos are hurting but cable could stick around for a while as coax offers a good chunk of bandwidth. They do, however, feel the pinch from the massive amount of bandwidth eaten up by video services. Even as SDV and DTA boxes ease some of that up, the demand for higher-quality signals to all of these shiny new HDTV sets will eat up a lot of the gains as cable operators are forced to move from 480p to 720p and 1080p signals. Competing providers will need to move quickly to offer true HD signals with low compression and superior data rates while the cable companies perform system-wide upgrades over the next 18-24 months. There’s something said for being first to market.
It also appears that DTA boxes could be a sticky subject. CableONE asked the FCC for a waiver for a HD-capable DTA box with integrated security. This could shut out CableCARD (and possibly Tru2way) as well as a number of third-party devices like TiVo DVRs. Manufacturers are already pushing these boxes which could very well kill the Carterphone of video before it gets off the ground. Competitive operators will see the opportunity to be fully interoperable with CableCARD and Tru2way and ensure that customer DVRs will work on their systems.
Local programming is in high demand, but there are some chinks in the incumbents’ armor. Since local programming options like high school sports, General Conference and rebroadcasts of local news are so popular, competing operators should mimic what Comcast is doing and look into an old-school public access channel.
On the DVR front, AT&T has finished deploying whole-home DVR in 69 markets. This will allow customers to watch recorded programs on any TV in the house and is a smart move on AT&T’s part to drive DVR adoption. While there’s no fee for this service, AT&T does charge for the STBs for each set. Dish Network, meanwhile, will be deploying a new kind of DVR next week that can record from satellite broadcasts, analog over-the-air and HD over-the-air and function as a digital-to-analog converter box. Not all is good in DVR news, however. The Supreme Court is going to hear appeals in the Cablevision networked DVR case and the content cartel is aggressively lobbying to make sure it gets outlawed. This will be an important case to watch as it will have a lasting effect on video innovation.
Forget triple-play: welcome to the quad. Cox Communications plans to use recently-purchased spectrum to deploy cell-phone serivce in its markets. Since Cox can leverage its existing infrastructure to keep transport costs low, the profit margins should be substantial. They will also deliver video services to handsets for existing video customers as they had tried to do with Pivot. AT&T and Verizon have been using wireless revenues to help subsidize the construction of their next-generation networks for quite some time with a lot of success. Qwest, meanwhile, has had poor financial performance as it does not offer its own video or wireless products.
Have you noticed that video rates have been going up at a painful rate? FCC Chair Kevin “I love Ma Bell” Martin did and he wants answers. Despite also naming Verizon in the inquiry, it’s pretty obvious that cable is the real target. The focus is on the move of more and more channels out of analog tiers and onto more expensive digital tiers, a practice he believes is compelling consumers to pay bigger prices for the same set of channels. We’ve already seen a bunch of cable providers up their rates with Cablevision and Time Warner both getting in on the hikes.
Unfortunately, Martin is not investigating how wholesale rates from programmers have gone through the roof and has more-or-less abandoned “a la carte” programming options. He’s also ignoring caps from both Frontier (5-20GB) and AT&T (20GB) that are designed to boost revenues. Telcom in general is hurting right now and companies may see rate increases as a way to soften the dropping subscriber numbers. Both Qwest and Cox are planning lay off workers and Comcast had disappointing earnings results.
We may, however, see some big changes in store once the new president takes office. Word on the street is that Martin will voluntarily resign to pursue political ambitions in North Carolina. It’s anyone’s guess as to who would take over his spot and what they would do about these out-of-control telcom prices.
Unfortunately, prices are likely to continue to rise in our current anti-competitive telecommunications market. Byzantine phone regulations are used to block new voice carriers, the programming cartel consistently flexes its muscle to increase wholesale television rates and data providers continue to increase markup even as the wholesale rate of bandwidth drops to new lows. DSLReports lambasts the lack of competition in a scatching editorial that details why telecom has the lowest consumer satisfaction ratings of any industry in the nation. As we continue to support duopolies and exclusive providers via HOAs, the problem is only going to get worse.
Meanwhile, details of Comcast’s new DOCSIS 3.0 deployments is coming to light and, while good news for current subscribers or those switching from DSL, it’s hardly competitive with offerings from UTOPIA. In addition to a 50Mbps/5Mbps tier at $150/mo, Comcast plans to upgrade current subscribers to 12Mbps/2Mbps at $42.95/mo and offer a 22Mbps/5Mbps tier at $62.95/mo to compete with a similar offering from Verizon. Compare that to a 15Mbps/15Mbps plan at $40/mo or 50Mbps/50Mbps for $55/mo from either MSTAR or XMission. Just be thankful you aren’t a SureWest customer. They charge around $192/mo for a 50Mbps connection.
For several months now, rumors have been swirling about that Verizon may attempt to purchase Qwest, a move that would put us one step closer to a reversal of the 1984 breakup of Ma Bell. Most cite Qwest’s switch to selling re-branded Verizon Wireless service as testing the waters. Qwest is also in a weak financial position with dropping profits and subscriber losses. It’s no secret that the company has spent years trying to find a buyer after the company suffered precipitous drops in customer satisfaction and service quality from 2001 onward. Could cash-rich Verizon be the white knight they’ve been waiting for?