One of the challenges that wireline has faced (and it doesn’t need all that many challenges for gosh’s sakes!) is the “capacity gap”. If anyone thinks broadband Internet is profitable enough, you need to read somebody else’s blog. You need to deliver video, HD video, to make wireline work, and that’s a problem because traditional cable-TV linear RF won’t work over local loops. You have to do broadband (IP) video, and that’s been a problem too. Conventional copper loop has been good for perhaps 40 Mbps at best, and while FTTH offers almost unlimited capacity, it has a very high “pass cost”, the cost of just getting a service to the point of customer connection so the customer could order it.
Alcatel-Lucent has been leading the charge to come up with strategies that would expand capacity of copper loop, and their recent G.fast trial promises to drive a gig per second over copper. While the loop length that can be supported is short and loop quality has to be decent, the approach offers hope in supporting fiber-to-the-curb (FTTC) that would use the high-speed “vectored DSL” copper for the home connections. That could result in a reduction in pass cost, and also mean that IPTV in the sense that Alcatel has always promoted it (U-verse-style TV) would be feasible in more situations. That might give wireline broadband a new lease on life and provide a big boost to operator profits. Obviously it wouldn’t hurt Alcatel-Lucent one little bit either. But can Alcatel-Lucent rehabilitate copper loop with technology alone? That’s far from certain.
We can see from the US market that it’s a lot better to be a provider of channelized television services than not. The internal rate of return for cable companies is a LOT higher than for telcos, and the large US telcos (AT&T and Verizon) have both moved into channelized TV. But you can also see in the current push for consolidation in the cable market that even channelized TV isn’t a magic touchstone.
You can also see, based on broadband adoption patterns, that faster broadband by itself isn’t a consumer mandate. Users tend to cluster at the low end of service offerings, where the service is cheapest, not at the high end. In Seattle, a competitor commented that at 50 Mbps you don’t get much real interest, and that means that any operator who wants to provide that kind of speed and get any significant customer base for it will have do price down considerably. That reduces margins.
The final issue in all of this is the whole OTT video angle. My surveys have suggested that the number of households who have a largely fixed-schedule viewing pattern has fallen by over 50% in the last 20 years. It’s not that people don’t watch TV (most reports say they actually watch just a bit more) but that they don’t watch it at regular times, watch the same shows regularly, as much as they did. This isn’t being caused by OTT video IMHO, as much as by the fact that there are few shows today that tap into a broad market pool of interest to create loyalty. OTT has just given voice to a level of frustration with “what’s on” that has been building for decades. But whatever the cause, the fact is that we are gradually being weaned by our own lifestyles and by the availability of on-demand or recorded TV into a nation of unscheduled viewers. Which means, ultimately, that less and less value is placed on channelized TV.
This is important to players like Alcatel-Lucent and to network operators, because while a big telco can reasonably expect to command some respect in the channelized TV market because the capex barriers to entry are high, they’re just another competitor when it comes to OTT video. Take away video franchises derived from channelized delivery and you gut TV Everywhere because you don’t have the material under favorable terms. Apple’s likely TV offering and Google’s likely competitive response are both likely to present a more interest-based virtual channel lineup that would eradicate loyalty to traditional viewing fairly quickly, except where the networks are committed to their current time-slot models.
That’s the big rub here. Fresh content, we know for sure, is not going to get produced by OTT players to fill the bulk of their lineups. They rely on retreads of channelized material from network sources, and those networks are not going to kill their channelized ad flow for OTT ad flows when currently a minute of advertising is worth about 2.5% as much on streamed material versus channelized material. Will people still watch Apple or Google or Netflix or Amazon? Sure, when nothing is on the channels or when they can’t view what they want when they want it. As long as fresh material is what really attracts viewers (and who wants to watch the same stuff every night?) the networks will have the final say in where TV goes, and TV will have the final say in what technologies are meaningful for wireline broadband.