Today’s REITs have to explore the connectivity question to remain competitive.
One year ago, Comcast, the largest cable provider in the country announced it would buy Time Warner Cable, the nation’s second largest cable provider, in a deal valued at $45 billion. Not since AT&T tried to scoop up T-Mobile had a communications deal rallied consumers and activists to a cause in such a huge way. At the time, the deal was perceived to be a mistake, but something that would likely pass muster with regulatory agencies. However, a year in, things have changed.
When it was announced, we argued that the deal was about achieving broadband dominance, noting that even if Comcast pledged to reduce its pay TV customers by ditching subscribers in select markets to reduce its overall pay TV market share to below 30 percent, judging the deal by television standards was looking into the past. This deal wasn’t about TV, it was about controlling the only pipe that mattered, which in this case was the coaxial cable that brought broadband into the home.
With that, Comcast already offers on-demand video, voice, home alarm and automation services and even could one day offer mobile if it wants to get aggressive as its cable colleague Cablevision has done. A year ago, regulators and even the mainstream media seemed fixated on the value of television and what this deal would mean for media companies, cable TV customers and the like. But in a year, that too has changed.
Streaming media has become more popular. Live TV viewing was down by 12.7 percent in January this year compared to the year before. HBO plans to launch a stand alone streaming service this year as does Nickelodeon.
As television follows voice over to broadband, more of the industry recognizes that pay TV — where the combined Comcast and Time Warner cable would hold less than 30 percent of the market share after the deal closes — means little. They are taking a closer look at the broadband market where the combined entity would hold about 35 percent of the market. That number is even higher — as high as 55 percent under a new definition of broadband that the FCC approved in January that defines the service as at least 25 Mbps downstream and 3 Mbps upstream.
BTIG Tech and Media Analyst Rich Greenfield has pointed out that because the FCC has shifted its perspective on broadband being of greater importance than television (because TV is increasingly reliant on broadband) and because the post-merger Comcast would have such a dominant position providing the faster speeds necessary to deliver high quality television services over broadband, the deal is unlikely to pass. He wrote on February 4:
[blockquote person=”” attribution=””]With Comcast’s scale both before and especially after the Time Warner Cable transaction, they become “the only way” for a majority of Americans to receive content/programming that requires a robust broadband connection.
Over time, the fear is that Comcast will favor its own IP-delivered video services versus third parties, similar to how it is able to offer Comcast IP-based video services as a “managed” service that does not count against bandwidth caps, while third-party OTT services that look similar count against bandwidth caps (remember this Hastings/Roberts debate from 2012, link). As we see a rapid rise in niche, OTT subscription services and virtual MVPDs, the natural inclination will be for the incumbent video provider to protect their business (think usage based caps that only apply to outsiders, peering/interconnection fees, etc.).[/blockquote]
Since then the FCC has only become more bold in what is indicative of perhaps the most important change that has occurred in the year since the merger was announced. The FCC has stepped up as a force for consumer advocacy when it comes to broadband competition and access. The agency, which has acted as a rubber stamp at worst and as a priggish scold doing little more than wagging a finger at the industry when it steps too far out of line at best, has changed.
That is the change that has thrown the deal into the most doubt. Last week the FCC Chairman Tom Wheeler proposed reclassifying broadband under Title II of the Communications Act in an about face for the agency that has been five years in the making. By classifying cable, DSL, wireless and other broadband services as transport rather than information , Wheeler subjects them to greater FCC authority and allows the agency to place strong network neutrality rules on providers — rules the ISPs were trying to avoid.
And while AT&T and now the National Cable and Telecommunications Association has threatened to sue if the agency passes those new rules, the markets are concerned that this newly brazen FCC has recognized the importance of broadband. And with this recognition that broadband is an essential service that could be better in parts of the U.S., as well as the recognition that the Comcast and Time Warner deal is really about broadband, the markets are concerned that regulators at the FCC and the Department of Justice may stop the deal.
They should. In a year a lot has changed. But here at Gigaom we have seen that change coming for almost a decade. We have argued for faster broadband, more competition, network neutrality and an elimination of broadband data caps. Because we are aware that broadband is platform on which our current innovations spring, and if we hand Comcast control 55 percent of the U.S. broadband market, even with the strong network neutrality rules that the agency has proposed, we are handing the future of half of our nation’s households to a company that has shown a willingness to invest in the future so far as it immediately benefits its bottom line.
Comcast doesn’t believe in disruption from startups. It believes in squashing them using its enormous market power and networks. It understands that it has to continue investing in new products and builds very good ones; its Xfinity home products are well designed and have a nice interface. But it’s not going to push pricing down. It’s not going to disrupt its business models and it’s certainly not going to change the way it treats its customers once it has more power.
A lot has changed in a year, but Comcast hasn’t. Is the federal government finally ready to show that it understands what’s at stake?
BT is stepping up its superlatives. “Superfast” broadband speeds are so 2014 – now the British telecoms giant is planning a shift to “ultrafast” broadband of up to 500 megabits per second (Mbps) or, for those willing to pay a premium, a whole gigabit per second.
All this is based on G.fast technology, which delivers fiber-like speeds despite using an older copper connection into the home. Pilots of the technology will take place this summer in Gosforth, Newcastle, and Huntingdon, Cambridgeshire, taking in up to 4,000 premises.
G.fast uses more spectrum than previous fiber-to-the-cabinet (FTTC) techniques, but it needs the fiber-copper connection point to be closer to the premises than many street cabinets are, probably meaning the addition of new boxes on telephone poles and the like (a technique known as fiber-to-the-distribution-point, or FTTdp.) This is still likely to be cheaper than running fiber into the premises.
In BT’s trials, G.fast achieved speeds of 700 Mbps on the downlink, and 200 Mbps on the uplink. BT Retail’s current FTTC product, BT Infinity, runs at up to 76 Mbps, while its pricier fiber-to-the-home option reaches a theoretical 300 Mbps.
The headline figures BT quoted in its Friday announcement were not, it should be noted, what everyone should expect once deployment begins in 2016 or 2017. As the speeds depend greatly on line length, the company said “millions of homes and businesses” can expect a few hundred megabits per second by 2020, with network upgrades subsequently taking that up to 500 Mbps. It’s not clear how many premises will have access to the 1 Gbps premium option.
BT’s network passes 22 million premises or thereabouts, and rivals can also use it thanks to the functional separation of the former state monopoly a decade ago — the network is run by an entity called Openreach, and BT’s retail business has to get access on the same terms as other ISPs. With fiber, this separation is maintained through a wholesaling process called virtual unbundled local access, or VULA. Openreach is currently providing fiber connectivity to over 3.7 million premises, BT’s new results showed, over 2.7 million of which are BT Retail customers.
However, there was a word of warning in BT CEO Gavin Patterson’s Friday statement:
We believe G.fast is the key to unlocking ultrafast speeds and we are prepared to upgrade large parts of our network should the pilots prove successful. That upgrade will depend however on there continuing to be a stable regulatory environment that supports investment.
This suggests that the timing of the “ultrafast broadband” announcement may have something to do with Ofcom’s recent statement to the European Commission about BT’s VULA pricing. The U.K. telecoms regulator wants to regulate the margin between BT’s wholesale and retail prices, and here’s why:
We are concerned that BT could distort the development of competition in superfast broadband by setting an insufficient margin between its wholesale VULA and retail superfast broadband prices. Therefore, this statement sets out detailed requirements on the minimum margin that BT must maintain. Our approach is designed to ensure that other communication providers have sufficient margin to be able to compete with BT in the provision of superfast broadband packages to consumers.
A couple weeks ago, BT responded to that missive by calling it “misconceived.” Patterson’s statement Friday talked about keeping the U.K. ahead of its European neighbors – in the context of the VULA pricing spat, that statement may be as much a veiled political threat as it was an invitation.
You thought that building out all that physical infrastructure is what has been slowing down Google Fiber’s expansion? Think again: Google Fiber head Milo Medin has called TV rights the “the single biggest impediment” to growing Fiber, according to the Wall Street Journal, which also quotes Medin saying that TV has been “the single biggest piece of our cost structure.” The problem is that Google, in order to win over cable customers, has to offer the same channels as the competition. But as a newcomer, it has to pay up to twice as much for some of the rights. No wonder internet TV ventures like the ones from Sony and Dish are struggling to keep costs under control.
Milo Medin is no longer the head of Google Fiber, although he is still with the company. Former Qualcomm executive Dennis Kish is now in charge.
Want the best broadband? Fiber to the home is increasingly the gold standard of high quality connectivity. Too bad more people can’t get it.
The FCC has been gently pushing for the end of state laws that make it difficult to build out municipal broadband networks. It should push harder.
Customers of AT&T’s GigaPower service could end up paying more than double the $29 advertised cost to keep Ma Bell from monitoring their web surfing if they elect to get video with their broadband.
Google Fiber started as a project to show how broadband could be improved in the U.S. On its earnings call yesterday its CFO shared a statement that shows it had accomplished that mission.
Google Fiber won’t start connecting customers in Austin until much later this year. A local news station has discovered that and where Google has so far applied for permits.