Plum Consulting has released a really excellent and concise paper on the impact of over-the-top services on the telco business model. It’s entitled (appropriately) Over-the-top – hindering or helping achieve European Digital Agenda goals? If you read me on a regular basis, you will find a lot of the arguments exposed there to be familiar. What I find interesting though is the way they’re framed.
Brian Williamson who wrote the paper notes something important, and that is that the rate of growth of internet traffic, both over fixed and mobile networks is slowing down considerably. The source for this information is Cisco’s own Visual Network Index, hardly a source that could be suspected of downplaying traffic growth. Indeed, there’s a note by Karl Bode on that same topic that’s a little more direct, shall we say. He called it So Much for that Exaflood, Huh? I wish Andrew Odlyzko was still compiling internet traffic growth data like he used to: even back in 2008-2009 he was pointing out that actual growth numbers were systematically lower than predicted growth numbers.
All this to say that the argument that telco lobbyists constantly use that traffic growth is killing them is nonsensical: traffic growth is now lower than the capacity growth enabled by equipment renewal!
Anyway, Plum Consulting’s piece is on the point and recommends three complimentary policy actions (and I quote):
Promotion of the principle that consumers should have access to lawful applications and content of their choice.
Limiting use of the term “internet access” to those access providers who offer full and non-discriminatory access to lawful internet based applications.
Extending the concept of equivalence to internet applications in addition to network access and requiring equal treatment for over-the-top and vertically integrated services.
That last point goes above and beyond anything we have seen in policy circles ever on this topic, and I don’t dream of ever seeing it applied unless telcos start embracing OTT as a delivery mechanism for their own products and services (which some are doing, albeit quietly).
But even the first two bullets, which seem kind of straight-forward, I don’t believe will be implemented. As I wrote this morning in a ZDNet France article (in French) entitled Transparence n’est pas Neutralité (Transparency isn’t Neutrality), Neelie Kroes’s discourse shifted from protecting a neutral internet to demanding an internet where discrimination is transparent.
Last week I had the opportunity to speak about Net Neutrality at two separate events organised for and around internet start-ups. The first was an informal gathering organised by the recently founded France Digitale, a structure devoted to carrying the voice of internet entrepreneurs to the French government (who seems to rarely understand the specifics of start-ups). The second was a broader and more formal event called Web2Day. It’s an annual gathering in Nantes, and even though I only really had half a day there, I loved every bit of it and will undoubtedly attend again.
Of particular interest to me was a panel on the collaborative economy, a euphemism for all those disruptive business models (from project financing to accomodation booking) that circumvent the established aggregation structures like banks and hotel chains to address the end-user directly. I’m fascinated by the potential of these initiatives. On the panel in particular were Kiss Kiss Bank Bank and AirBnB, two emblematic examples of such collaborative initiatives.
The potential for disruption of these initiatives is hard to assess. Of course, they themselves think they are changing the world, and maybe they are, but at the same time they’re careful to stress that by and large they are not displacing existing business models as much as complimenting them (for example AirBnB insisted that the places where they see the most supply and demand are places where there’s very little accomodation to be found anyway because these places are saturated with demand.) At first I thought that was naïve or disingeneous, but at the same time I can’t really figure out how these currently grassroots initiatives may grow in the future.
A point about the disintermediation that I found interesting was the element of trust. Kiss Kiss Bank Bank for example insisted on the fact that very few of the projects the platform finances result in crooks taking the money and bailing, simply because most of the financing comes from people who know the entrepreneur personally. The interpersonal trust is an additional layer of stability into the system.
In particular, there’s one graph in there that blew my mind, I’m reproducing it here.
Source: Mobidia / Informa (2013)
This shows the proportion of mobile data traffic that is offloaded to private wifi networks (in blue) or public wifi networks (in light blue). Basically, only a quarter to a third of the data traffic consumed by mobile devices is actually delivered over mobile networks (except in Japan and India where it’s half).
Take that, “we’ll only need mobile networks in the future” posse…
The tech press has been abuzz last week when it was first leaked and later announced that Deutsche Telekom would soon apply data caps to their wireline broadband offers (see this Fierce Telecom article for details.) Unlike AT&T style caps, heavy users will not be charged overage, they will be throttled to service levels marginally higher than what we’d get in the days of dial-up.
The company, as is often the case with these stories, claims that this is to avoid the cost of bandwidth hogs spilling over to the general public’s subscriptions. It’s not.
Caps serve no purpose in managing traffic flows, as Diffraction Analysis clearly demonstrated in our study last year entitled Do Data Caps Punish the Wrong Users. In fact, that’s even been admitted semi-officially by the head of the US Cable lobbying association. Data Caps serve no purpose other than to create a very strong disincentive for customers to consume video “over the top”. The fact that DTs own video-on-demand service will not count as part of the monthly traffic allowance is to be expected, and is a clear giveaway.
DT is playing foul, but that is also to be expected: this is just a new front in the war against Net Neutrality. Since operators, incumbents in particular, can’t get a clear go-ahead on the ability to throttle online service providers to their hearts’ content or to make them pay a toll for delivering traffic to end-users who have already paid for the right to access that content, they’re creating barriers on the side of the end-users to make their own service offerings unfairly competitive.
The real question is what happens next: will DT lobby the government and regulator to apply the same caps to their wholesale bitstream offers ? I suspect they will, just as it happened in Canada. Otherwise, other operators in the market will start advertising no-capping policies, and if they’re smart they’ll even start partnering with online content providers to drive the difference (for more on that see Diffraction Analysis’ latest report Building the Optimal NGA Service Portfolio). That could mean loss of market share for DT.
Is the German market truly competitive ? Guess we’ll know soon enough.
The debate on net neutrality has been heated these last few months, with various initiatives both at policy levels and ISP levels highlighting the need to clarify how internet traffic is carried so that journalists and members of the public can form an opinion on these issues for themselves. A while ago, I was asked by Google to write a paper aiming to do just that. It was released yesterday under the title There’s no economic imperative to reconsider an open internet.
I’m quite proud about this. Working on this paper gave me the opportunity to really explore the net discrimination arguments and examine their worth. My conclusions are expressed in the title: there is no big issue related to the cost of traffic management, even as the traffic itself increases. I hope you find the paper interesting, and feel free to spread it around.
For the last few weeks, I have been busy working on a big in-depth report on NGA services. Although its importance can sometimes be exaggerated, TV content is of course at the heart of NGA portfolio considerations, and I wanted to delve a little bit here into how I have examined that issue.
The notion that broadband providers are scared of on-demand TV is not new, and it’s an understatement. All of the recent assaults that we have seen on Net Neutrality from ISPs around the world can be summarized in two issues: SMS and TV. The latter is of course of more relevance to wireline NGA networks, and this is what I wanted to focus on today.
I think the decision to offer a TV service is not as clear-cut as it’s often made to be, and I think many broadband providers may have gone down that road a little faster than was reasonable. TV delivery will only work if you can get the scale to operate it profitably, and even then the profits are likely to be limited. However, if you decide to deliver TV, then you are, like it or not, competing with the various Over-The-Top options available today. And if you decide to compete, you should make damn well sure your product is better.
My biggest frustration with IPTV strategies is this strange notion that it operates in a vacuum; that because a TV is connected to the broadband provider’s network that customer is somehow captive for TV. That’s absurd: with the multiplication of tablets, PCs and other screens in the home, there are now many alternatives to IPTV. If they provide a better quality of experience, then these will be used instead of the TV. And if that goes on for too long, then the IPTV service itself is at risk.
When you look at the marketing of TV offerings over NGA around the world, you see that the first thing put forward is quantity of content: number of channels, number of VoD movies, etc. That’s all well and good, but it’s meaningless to the customer if the ergonomy of the service doesn’t allow him to watch what he wants to see when he’s available to see it as opposed to watching something that happens to be on. And that’s where OTT offers tend to be vastly superior to broadband providers’.
What it takes to compete with OTT offers, in my opinion, is the following:
rich and well-indexed content
fast and intuitive ergonomy
a powerful search engine
an effective recommendation engine
I haven’t tested many broadband provider TV offers around the world, but none of those I did test had all four of these. In fact, very few of them had any of these.
To highlight the different operating paradigms of broadband providers and OTT TV providers, it’s good to remember that in 2007 Netflix opened its recommendation code to developers in the hope of getting improvements on recommendations, and offered $1m to the first team that would get a 10% improvement on recommendation accuracy. Last year, Netflix announced that 75% of their traffic was driven by the recommendation engine. The mindset here is to never let you go.
I remember when I used to work for mobile operators a few years ago and every screen design was conceived to maximise effectiveness, minimise lag and keep the consumer engaged. I don’t think many broadband provider TV interfaces are built that way, and if they don’t radically change the way they approach things, then they’re not competing.
To be fair, I see a few players starting to really get this. In January I talked briefly with the CEO of NDS, now part of Cisco, a company that offers such sleek and intelligent interfaces for broadband providers who want to deliver a high-engagement TV experience. The following video is an example of what Portuguese operator ZON has done with the platform:
Now I know this is an advert, and I don’t know if the quality of experience is really that good when you’re on the end of the line. And this isn’t an endorsement of NDS either: I don’t have the technical background to assess if their solution is better than others’. I just like what I see here.
What I do know though is that ZON offers this only with their fiber access, and I know why: you need a hell of a low-latency to make things this fluid. And NGA is what it takes to deliver low-latency.
At least ZON seems to be asking themselves the right questions to get customers engaged with the TV product, which will make them a lot less susceptible to go looking for OTT alternatives.
In the service report Diffraction Analysis published last week, Building the Optimal NGA Service Portfolio, we not only explore the field of NGA services of all kinds, we also examine the best delivery approaches for each. TV is only part of the equation!
The internet is disrupting so many established businesses that it’s sometimes hard to pull all of the threads together to get a good grasp of where things are going. I was recently pointed to this recent slide deck published by Business Insider entitled the Future of Digital. It’s not without its flaws (too US-centric, some of the data layouts questionable), but it’s the best attempt at pulling it all together I’ve seen so far. I strongly recommend reading it. I extracted one slide from it last week in my post on delinearization. Here’s another slide that got me pondering…
I was just talking yesterday about two French ISPs having given up on building their own linear content packages. One might argue that they did this in part because they see linear TV on a downward slope. The news last night about the Disney / Netflix deal will probably comfort them in that line of reasoning…
Earlier this year it looked like Netflix was facing an increasingly uphill battle to maintain its rich content at such a low price to consumers, and some of the large majors seemed to be poised to bet on cable as opposed to Netflix. But last night Disney and Netflix announced a multi-year agreement for Netflix to distribute Disney movies in the earliest Pay TV slot on their US platform. Of course, we have no idea what the financial aspects of the deal are, and whether in the long term such deals will drive Netflix’s costs (and therefore their prices) up. Still, it certainly puts a halt to rumours that Netflix would not be able to negociate access to such contents.
And as the slide above shows, 16% of US TV sets were used at prime time for non-linear video viewing 4 years ago, it’s now 33%. Maybe Disney sees the writing on the wall as well.
Meanwhile, over in France, Youtube is set to massively disrupt established television ecosystems with the launch of it’s Ligue 1 channel. Sure, they won’t be able to broadcast live soccer anytime soon, but they will I suspect swiftly undermine all the linear soccer TV shows by not only performing the same commentary and punditry roles that these shows have but also offering users multiple ways of watching exactly what they want when they want. Already you can view the content through teams, goals, fouls and high points, and I suspect soon you might be able to look at individual player performances and commentary and probably many other approaches that – as a soccer ignoramus – I can’t even devise.
All of this has left me wondering if the massive shift to de-linearized content on the TV that I anticipated in about 5 years time isn’t accelerating. Which of course raises issues of available bandwidth (all of that content is over-the-top) both in the access and at interconnexion points…
Late last week, French regulator ARCEP published the latest numbers for French FTTH. They’re not looking particularly sexy in terms of acquisition. Not that this comes as a surprise, considering how little marketing and sales action has been happening. However, this article in PC Impact entitled FTTH: Les Concurrents d’Orange Ne Recrutent Presque Pas d’Abonnés (FTTH: Orange’s Competitors Recruit Virtually No Subscribers) highlights a new trend which was anticipated but not yet seem, namely that only Orange, the incumbent, is actually trying to sell the technology. The summary table put together by PC Impact does not leave room for misinterpretation:
During the earlier parts of the year, Orange’s sales represented about half of the (very low) total sales of FTTH in France, which you would expect of a player whose market share in broadband is roughly 50%. But in the last recorded quarter (Q3), Orange’s sales have shot up while their competitors’ (essentially Free and SFR, Numéricable’s FTTLA offering is tracked separately) have dwindled to nothing.
This isn’t all that surprising for two reasons: unti now, none of the three operators deploying FTTH (or theoretically deploying FTTH) were actively marketing or selling. So each was carried by the momentum of their own brand, and roughly accrued subscribers equal to their broadband market share. In Q3 Orange started to market and actively sell through door to door salespeople. As a consequence, they accrued a larger share than what their brand alone carriers.
However, the overall number of new subscribers haven’t gone up, which suggests that there is either a natural cap due to the addressable market (it has long been known that the very large numbers of homes reported as open for service by ARCEP, over 2 million at the end of Q3, don’t mean these customers can actually be connected but simply that the building they live in has fiber in the basement) or that Orange’s marketing and sales are not really effective to carry over people who are not already interested in getting FTTH from any provider. Unsurprisingly, there’s no Field of Dreams effect.
If you want them to come, you have to entice them…
This also means that Free and SFR are sitting idle, having never really embraced FTTH even though Free’s own announcements was at the origin of the whole dynamic for FTTH deployment. Ironically, Free is now advocating for a balanced deployment of FTTH and VDSL (although they were influential in making VDSL persona non grata in the French regulatory landscape 5 years ago) and in this aligned with Orange.
It’s quite clear that Orange’s competitors have dipped their toes in the infrastructure waters and decided it was too cold for their taste. They will now likely wait for Orange to meet its deployment obligations before marketing services that will use Orange’s infrastructures to reach end-customers, just like they have always done. Meanwhile, both Free and SFR have pulled out of TV content curation in favour of French Pay TV giant Canal Plus (see this for SFR’s announcement today)? Please note that this isn’t exactly comparable to Fastweb’s more radical IPTV announcement a few months back. Fastweb pulled out of TV distribution altogether. Free and SFR are happy to distribute Canal Plus’ offers and a basic linear TV package of their own (with some replay features) but have pulled out of VoD completely and no longer offer repackaged TV offers of their own.