Lessons in Video and Voice

Comcast’s numbers, which included broadband subscriber gains that far outstripped the estimates of analysts.  Basic cable subscription losses were less than expected, but still there was a loss.  The data suggests that the media blitz on “cord-cutting” was largely hype, which is what my model had showed.

TV viewing is definitely undergoing changes, and some of these are exacerbated by the increased availability of online material.  But the big problem is a growing dissatisfaction of viewers with “network TV” and defection to cable channels for an alternative.  This defection works for a time, but the material on cable isn’t inexhaustible and some of it isn’t much better from the viewer perspective than network TV.  The same can be said for online content via Netflix or Hulu or whatever; the pool of material is only so large and the subset that will appeal to a given viewer is even more limited.

Live sporting events continue to garner large audiences; better penetration of the viewer base than in the past, in fact.  That shows that it’s what you want to watch and not how you want to watch it that matters most.  Comcast’s NBCU deal, in this context, is critical.  What the company needs to do now is to create a different model of content, something tuned to the way that consumers have already voted (with their remotes).  They don’t want star power, or series TV that quickly grows stale, or successions of follow-on shows or re-makes.  They want stuff that’s entertaining, and some summer-season successes in cable show that can be achieved with low-budget production.  On their earnings call, their management suggested that it recognizes the cable-channel properties may be the secret value to this deal.  I think Comcast has an opportunity now to churn out dozens of new shows for what one big network series might have cost them, and by doing that collect a larger audience and greater loyalty to the channel model.  They can then focus on how to exploit their growing content inventory online, through multi-screen.

AT&T may be looking at its own video marriage, but rather than buying a network it may be buying a satellite company.  Rumors of a deal to acquire DISH have restarted, and there are certainly things that recommend the deal.  AT&T doesn’t have the economic demographics that Verizon does, and can’t easily deploy fiber to the home for a large chunk of its population (in fact, it’s behind even on fiber to cell sites).  U-verse, based on the slotting of DSL bandwidth for multi-channel delivery, is pressured by the demands of HDTV (and possibly 3DTV) and by cable company competition offering higher broadband speeds.  In theory, a strong satellite position could be a big help, and while AT&T has offered that in a resale deal, buying DISH would give them control and all of the revenues.  There’s also speculation that AT&T might want the spectrum space DISH controls.

In the telco space, MWC seemed to bring out support for VoLTE; both AT&T and Verizon indicated they’d be making the Big Move, though over a period of two to three years.  There are still open questions on how LTE networks will support voice, how they’ll support roaming and premium services, and how much or little IMS and more traditional interconnect concepts will drive the process.  But presuming that the migration happens on schedule and that operators continue to push hard with phones, it’s not unreasonable to think that by 2015 we’d be seeing some pressure on wireline voice.  Will this create that final push to FMC and IP infrastructure everywhere?

Sure, but probably not all that quickly.  The problem is that the great majority of households retain PSTN voice services.  Operators tell me that they don’t believe that they’d have reached 80% penetration of LTE handsets before 2016 or even later in some areas.  They believe that regulators would be distressed by plans to force upgrades either in wireline or wireless unless the operator could essentially create PSTN at the home dmarc and sustain compatibility with current in-home and in-business phones.  They’re worried about lifeline, about powering phones, and about 911 services.  But most of all they’re of the view that recapitalizing voice services when voice ARPU has nowhere to go but down is a bad move.  So they aren’t in a rush to change their strategy for wireline.

What VoLTE does show is that migration to VoIP and the resulting changes in infrastructure are most likely to come about because of some business initiative that creates new revenue.  Transformation is a proactive process, driven by opportunities to make money or requirements to make it on something different.  Because LTE is 4G, 4G is the future of wireless broadband, and wireless broadband is the future of mobile, operators are moving to VoLTE.  The “future” in all these cases is seen as being revenue-positive.  It remains to be seen how fast IP voice will penetrate the rest of the TDM world.

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