2016: Over the Top for Video Services

2015 was the year that premium OTT video delivery graduated from peripheral to core business. Market leaders released products such as Sling TV from Dish, which delivered without the aid of a set-top box. Verizon added Go90, and; Comcast added Stream TV Smart devices got smarter and more impressive. Apple TV got a well-deserved update; Fire TV became even better; and Roku was embedded in consumer TVs. With these developments we turn to the question of momentum. Is this the start of unprecedented TV experience?

Let’s look at what I predict will happen in 2016:

Broadband Is the “New Black”

Broadband home service is a strong alternative to video and a bright spot for pay TV providers and can create tremendous opportunity for another revenue stream by offering cable-plus broadband services. Broadband home growth driven by OTT gains is helping to offset the higher programming costs and the decline in video revenue caused by cord-cutting. Large and even small operators may likely go back to basics, making broadband more of their future focus. To weather the rapidly transforming nature of traditional media consumption, cable companies appear to be beating the no-pay TV trend by focusing more on Internet services and creating a robust broadband ecosystem to emphasize more of data delivery instead of video while broadening broadband pricing as the demand grows.

Super-Sized and Connected TV Will See Growth

Smart and connected TV video-streaming devices are continuing to lure audiences back into the living room, and with the rise in OTT and streaming, the industry is looking ahead to a new and more immersive reality. Viewers on the go are watching more video on their pocket gadgets, but the average minutes per phone device per month is far less than the average for connected TV devices. Companies will be working for an improved search and discovery functionality for a better user experience and utilizing cloud to make it easier for operators. Ten percent of Americans stream video to a connected TV every day, and we expect streaming media homes will likely overtake pay TV homes in 2016.

Premium Content: a Visual Delight

To improve consumers’ experiences we will see operators increase bitrates range his year. Until now, nothing much has happened at the very top of the pyramid; streams of 5 Mbps or more aren’t growing very rapidly, although we are seeing a shift towards the 2–5 Mbps range. The lower end will continue to be there because video continues to be watched on smaller screens connected to cellular networks, but the same range would be unacceptable on a big screen TV. 

Premium Content Will Have Reliable Delivery

One of the challenges for any business operating on the Internet is management. Moving data of any kind, especially video, from the point of origin to the point of consumption is an intricate and tricky business. Some services try to go at it alone; others contract with content delivery networks (CDNs) to get the job done, which results in a markedly superior viewing experience. 2016 will be the year that premium streaming video providers phase out legacy in-house delivery networks and commit to CDNs. 

Conclusion or the Start of 2016

OTT is rapidly gaining acceptance and is a fait accompli by broadcasters and pay TV operators. If 2015 was the year that OTT stepped into the spotlight, 2016 will be the year of its maturation. Much of what is being forecasted for 2016 are trends that started to develop in 2015. Skinny bundle offerings, which were new last year, will be judged for the service they provide rather than their uniqueness. And as audiences are not driven by appointment viewing and won’t accept subpar viewing experiences anymore, they will be drawn to providers that can provide quality content. Companies will remain strategically focused on the best possible combination of factors where audiences, data, content and technology meet to deliver a good or even exceptional viewing experience.

Contact sales@acgcc.com for more information about our video services.

Meghna Zutshi
mzutshi@acgcc.com
www.acgcc.com

Innovation Drives Evolution: Video Industry No Exception

Analog over the air, on-demand and OTT experience are pushing vendors to evolve video technology and develop more sophisticated and viable business models

The first successfully demonstrated simple electronic television designed by Philo Taylor Farnsworth in 1927 transmitted a simple line. Philo T. Farnsworth, Vladimir Zworykin, C. Harles Jenkins and John Baird all made important contribution to this invention and contributed to what finally became television as we know it now, and which has helped spawn the huge video industry.

Back in time: TV history

In 1950 only nine percent of U.S. households owned a TV, but by 1960 87 percent owned one! Today, according to Nielsen, the number of TV households in the United States from 2010 to 2011 was estimated at 115.9 million and the average house has at least two televisions per household. 

In the 1950s the delivery method for content was over the air or terrestrial television in which the signal was transmitted by radio waves to the TV receiver from a television station, and received with an antenna. Viewers received significant benefit from this deliver method as content was easily accessible for the public. Using the antennas on the television, viewers would literally pull the signal out of the air. However, because the content was delivered over the air, there were distance limitations. An antenna could only transmit a signal so far, and if one was not within that range, one could not get the signal. Another limitation was that there was no way to institute a pay for access model. As the signals were being transmitted freely over the air, anyone with a reception antenna could view the signal. 

Next step in the evolution was the advent of cable television which delivered the video content to individual homes using coaxial cable. Large antennas were erected and coaxial cable ran from the antenna to individual homes. In coaxial cable transport, quality does not significantly deteriorate over distance, this delivery method also offered the ability for broadcasters and cable companies to create a subscription based model.

Then came satellite television, which delivered the video content to individual homes using signals relayed from communication satellites. The signals were received by  satellite dish which was then fed from the reception dish to inside the home through a coaxial cable. A satellite receiver, either a set-top box or a built-in TV tuner then decoded the program for viewing on a television set.

In 1984 digital video was invented and like OTA used radio frequencies to deliver video through the air. This technology allowed providers to compress video channels so that they take up less frequency space and offered two-way communication capabilities.

The most recent development is IPTV (live television, time-shifted television and VOD) which uses Internet Protocol for the delivery of video. This involves using hardware or software to encode the video and audio signals into an acceptable IP format that is then streamed in one direction or in a two-way scenario to provide users with interactive television. This development offers two advantages: Interactive ability where viewers can determine exactly what content they want to view and when and convenience. With wireless Internet and streaming capabilities, viewers can watch video content from their TV, laptops, tablets, and even their phones.

In IPTV, the subscribers have set-top boxes or other customer-premises equipment that talks directly over company-owned or dedicated leased lines with central-office servers. Packets never travel over the public Internet, so the television provider can guarantee enough local bandwidth for each customer's needs.

Shifting tide

Access on any device anywhere has prompted a shift from watching shows on TV to watching content on multiple devices. Additionally, high subscription costs, poor service, and the dismissive behavior from call centers are increasing the migration away from traditional cable services. Over-the-top content—film and TV services delivered directly over the internet to connected devices—has become a key part of the evolution of Video. Many consumers are opting to become “cord cutters” or are “cord nevers,” a generation raised on social media and Netflix that are used to any content, any time, on any device.

So how did OTT service become so enticing?

• Convenience: Anytime anywhere consumption

• Control: To choose what ,when and how to watch 

• Content: Availability of large existing content libraries

Where do we go from here?

The industry is on the cusp of the next major evolutionary phase in visual entertainment People are switching from traditional cable companies to watching videos online on their mobile phones, or through streaming services such as Netflix, Hulu, etc. Cord-cutting has grown by 44 percent in the past four years, with 7.6 million households using high-speed Internet for streaming or downloading videos instead of traditional cable or satellite television. The OTT market, already showing huge consumer uptake is expected to increase fourfold by 2019.

By leveraging OTT technologies and new business models, vendors and service providers are creating happier consumers, more profitable advertising, and a more efficient system overall. 

For more information about ACG’s video services, contact info@acgcc.com.


Meghna Zutshi
mzutshi@acgcc.com
www.acgcc.com

1Mainstream Acquisition Will Drive Cisco’s Infinite Video Roadmap

Cisco Systems has announced its intent to buy OTT cloud streaming service provider 1Mainstream to deliver improved cloud-based and live-streaming services

The San Jose-based startup 1Mainstream was formed in 2012 to eliminate obstacles for content providers to create compelling, ala carte, HD channels and applications. It operates on an OTT platform that uses sophisticated templating technology to enable companies to launch OTT services across multiple platforms. Although far from being a household name, 1 Mainstream has partnerships with top companies, including Apple TV, Samsung, Roku, Amazon Fire TV, and Chromecast, to provide seamless integration of their products to a customer base that includes Sky News, NOW TV, Acacia TV, etc.

Cisco has a strong portfolio with videos for PCs, tablets and smartphones but the company was unable to serve both the service provider customers and OTT players that wanted to get to the big primary screen and get there fast. With the acquisition of 1 Mainstream, Cisco will now have the startup’s platform. 1Mainstream’s technology complements Cisco’s new Infinite suite of cloud-powered video entertainment solutions, which are designed to help customers deliver TV services to multiple screens utilizing one cloud on any access network within and beyond the home. 1Mainstream's platform will allow service providers, broadcasters and media companies to configure and roll out the entire channel and content library available to their customers anywhere and on any device.

Acquisition of 1Mainstream is a good move for Cisco as IPTV supporting OTT video content viewing has significantly disrupted the pay TV industry and has become a primary channel for content consumption. The acquisition is expected to be complete in the second quarter of Cisco’s current fiscal year and once the acquisition is complete, 1Mainstream will join the Service Provider Video Software and Solutions Cloud Engineering Group under the leadership of Conrad Clemson, senior vice president and general manager. Rajeev Raman, CEO of 1Mainstream, will become director of cloud engineering at Cisco.

For more information about ACG’s video services, contact info@acgcc.com.


Meghna Zutshi
mzutshi@acgcc.com
www.acgcc.com

Set-top Box to Cloud: Thinking Outside of the Box

Until recently video viewing was done via a cable converter set-top box was required to receive extra analog cable TV channels and convert them to content capable of being displayed on a television screen. Although most U.S. customers still use cable boxes, video consumption is rapidly changing to “TV Everywhere,” where a streaming service allows you to see shows from networks and content creators anywhere, anytime and on any devices. 

Set-top boxes are no longer needed to perform the processing or recording when all these functions can now be done in the cloud. The delivery path for IP video is a direct IP connection from a consumer’s device to the content in the operator’s network. With high bandwidth and low-latency networks made possible by the roll out of fiber and the current DOCSIS standards, wireline operators are able to leverage these capabilities to offer cloud virtualization of set-top box.

Content has now migrated into the television with smart TVs offering Netflix, Roku, etc. With the growing popularity of streaming devices and the launch of new online TV subscription services from companies such as Sling and Sony, cord-cutters are increasingly moving from cable to stream everything to the screens of their devices of choice. Cable boxes may eventually become obsolete altogether, as pay TV evolves to become an app or online service. This is the virtualization of the STB in which all application execution and video streaming are in the cloud and by clicking a remote, the application is delivered as a running video stream to a client. 

There are various benefits of virtualization of STB:

• Simplifies the STB, thus  drastically reducing  CPE complexity and cost 

• Offers unlimited number of applications to customers 

• Able to run applications from multiple, different operating systems on the same client hardware

• Change the interface easily

Charter is one example; the company is upgrading its aging set-tops by using a cloud-based technology. Instead of replacing boxes in every single household, the company has built a user interface in the cloud that is being sent to existing boxes in the form of a video stream. A Charter customer can even continue to use an old remote control; the set-top box simply sends each key stroke to servers that take milliseconds to register updates as the customer browses the list of channels or programs a DVR.

ARRIS and TiVo have partnered to integrate TiVo software and cloud-based services with ARRIS’ set-top boxes to offer global service providers a variety of platform options for delivering multiscreen, TV everywhere, and DVR experiences to subscribers. The first product of this collaboration is the DCX3635 Video Gateway, which features six video tuners with eight DOCSIS downstream channels, carries one terabit of onboard storage and is capable of supporting dual simultaneous HD video transcoding sessions.

Consumers have demonstrated that they are willing to pay for high-quality premium content that meets their interests, witness the success of HBO, Showtime and other pay for content providers. The versatility of having numerous monetization options for these platforms creates the optimal climate for broadcasters to create a profitable business by streaming video through branded applications. The winners in the video race “are companies who can integrate across all devices, across all platforms with a common interface.” 

The cloud offers this opportunity, especially for those providers willing to think outside of the box.

For more information about ACG’s video services, contact info@acgcc.com.

Meghna Zutshi
mzutshi@acgcc.com
www.acgcc.com

Telecom 2025 Looks Like…

We can all to some extent predict the future; some predictions are a hit while most are a miss with lots in the “sort of” category. And when it comes to telecommunication predictions add the N-dimensional perfect storm of innovations, market disruptions, new business models, disintermediation, mega-mergers, etc.

The global telecom market (fixed and wireless) has unique characteristics which make it so fascinating to study. It’s critical to a city and to a country for economic prosperity, it impacts billions of people’s lives, it’s cross border and it’s a trillion dollar market to name just a few. It has also emerged as a key battle space for asymmetric warfare, leveling the battlefield which closes the gap of U.S. global dominance. If you add to the discussion the importance and outright dependence on satellites for an array of commercial and military applications and the deployment of anti-satellite weapons the global telecommunication market gets even more interesting.

That said here are my easy predictions that I think most people will agree with for what telecom 2025 will look like:

1. There will be less and larger global service providers.
    a. Mega mergers are inevitable as traditional carriers need economies of scale.

2. There will be a wider range of service provider business models.
    a. New “service providers” will arise
    b.There will be an Uber or AirBnB carrier, for example, large and successful without owning any network
    c. Intelligence interconnections and federations will be paramount.

3. Security will continue to be a constant and ever increasing challenge.
    a. Akin to 1920 leapfrogging between bank safe companies and back robbers.

4. Access will be thought of as … people and things accessing the cloud and each other.
    a. It will be a near real-time decision of what network

These are the easy predictions. Yet, the implications of them are vast and substantial and will impact billions of people and affect billions of dollars of investments. It’s truly an interesting time to be in this industry.

Send me (gwhelan@acgcc.com) your easy or innovative ideas of what the global telecom market will look like in 10 years and I will aggregate the replies and send them out to all who participated.

Click for more information about Greg Whelan.

Greg Whelan
gwhelan@acgcc.com
acgcc.com

Verizon: Are Your Future Looking Binoculars Blurry?

The trillion dollar global service provider industry is in a transformative phase. Mega mergers, hyper competition from new, nimble entrants and regulators stuck in a backwards looking time warp are just a few change vectors colliding in this big bang that are affecting carriers and vendor alike.

It’s becoming more challenging for carriers to differentiate bit transport, and they are actually accelerating this by aggressively marketing bits per second. Also, service providers are losing the narrative in IoT where the discussions are all about “the cloud” and “the thing.” Where’s the network in the narrative? Nowhere, hence it must be always there and free of course.

Forward looking service provider management teams with a good pair of future gazing binoculars realize the future is fixed and wireless access. It’s all about connecting people and things to the cloud and to each other regardless of what access network technology they are using. They want to keep people on their network, keep the billing meter running and control the user’s experience. Wireless companies that see this are buying fixed network operations, and fixed network operators are looking to add wireless technologies and services to leverage their embedded assets and subscribers.

Then there is Verizon. Fixed networks are more challenging to build and operate. Did Verizon get tired of getting dirty climbing utility poles and digging up streets? Or did they get tired of antiquated regulations, community quid pro quo (for example, kickbacks), inflexible unions and onerous pension obligations? In any case, they’ve been jettisoning fixed network operations for a while. The company sold Vermont and New Hampshire to Fairpoint and wire line assets in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin to Frontier. Are they paying now for investing in fiber-to-the-home (FTTH, FiOS) too soon? A decade too soon? 

Currently, and for the last 10 years mobile network operators (MNO) have been on a rocket ship of revenue, profit and market sex appeal. However, new, serious threats are emerging: cable voice-over-Wi-Fi and OTT voice and SMS (for example, WhatsApp). This wireless booster rocket is running out of fuel. and MNOs need to jettison this stage of the rocket and start the next rocket or they will level off and at best be stuck in low orbit or worse crash back to earth. What this rocket will look like is anyone’s guess. Yet, it’s a safe bet it will be a combination of 5G, massive IoT AND fixed networks.

Thus, if Verizon’s strategy is to become a global Tier 2 or 3 wireless-only carrier they are on the right track. Perhaps all Verizon needs to do is to use a bit of glass cleaner on their binoculars?

Click for more information about Greg Whelan.

Greg Whelan
gwhelan@acgcc.com
acgcc.com

Access Insights™: Intersection of SP Business Drivers and Emerging Tech

What is “access”? Simply put, it’s about access to the cloud and between people and things.

Access is no longer fixed or wireless. Access is about connecting people and things to each other and to applications and service in “the cloud.” Thus, access is about fixed and wireless. It’s about having the right combined architecture on a neighborhood-by-neighborhood basis. This “combo” trend is having, and will continue to have, major impacts and disruptions in the access market and in the entire service provider ecosystem. New technologies, architectures and business models will emerge. Market realities are forcing carriers to offer (up to) gigabit speeds and incumbents have billions of dollars in deployed assets and architectures. All this makes Access challenging for both technical/architectural and business decision making.

Top Access Insights to Ponder

• The future of Access is Fixed and Wireless… not “or”;  SPs need to adapt organizations, so do vendors

• Gigabit Deployment Strategy: Is timing everything? Real strategic implications to the @$# Speed Test.

• Next-gen Broadband CPE architecture and business models are being disrupted; a. big risk to incumbent SPs and vendors

• WiFi: The “toy” that grew up; strategic implications abound; Wi-Fi, further proof that the “low end always wins”

• Voice over Wi-Fi: nothing but upside to cable companies; nothing but threats to MNOs.

• LTE versus. Wi-Fi: Which one is for off-load?

• Next Gen Cable Access Networks: PON Greenfield is redundant, DOCSIS Greenfield is an oxymoron

• CPE vs. Carrier Gear (plastic versus metal): Plastic companies building metal?

• SDN-NFV in Access:  It’s coming, contemplation begins

• What’s the value of vendor incumbency at inflection points? Is Access different from any other industry?

Want to discuss these points with the analyst? Contact gwhelan@acgcc.com to schedule some time explore how these insights impact your strategies and how we can create actionable plans to address and exploit them.

Greg Whelan
gwhelan@acgcc.com
acgcc.com

1Q15 Worldwide Video Infrastructure Markets at Crossroads: Where to Invest

Video impact on both fixed and wireless networks key driver for new deployments

The Worldwide Video Infrastructure markets decreased revenue in Q1 and year over year because of a general slowdown in service providers’ capital expenses, uncertainty with mega-mergers and accelerated competition. The Q1 Total Worldwide Video Infrastructure market posted revenue of $3 billion. Set-Top Box Worldwide Market Shares, which includes IPTV STBs, Cable STBs, and DTAs, increased 3.3% quarter over quarter but decreased 12.0% year over year. Cable Set-Top Box Worldwide Market Shares, which includes SD, SD+DVR, HD, HD+DVR, and Hybrid STBs, increased 8.6% Q-Q but decreased 15.5% Y-Y.

U.S. capex was down 14 percent in 1Q and is projected to be down 10 percent in 2Q. The second half of 2015 is expected to be positive, with capex ranging from 2 to 6 percent, but overall for 2015, U.S. capex is projected to decline 4 percent. Europe is projected to increase approximately 5.8 percent, APAC will be up 6 percent and CALA, which was down 4 percent last year, will grow 2.2 percent.

Service providers are at inflection point as to what to do and where to invest and are debating about staying with current infrastructure solutions, adding incremental features and capacity to current installed base. “The realization that video is just packets, albeit a lot of packets, is impacting video specific investments,” states Greg Whelan, video analyst, ACG. “Service providers are driven by content acquisition as OTT momentum continues and access network upgrades to address real and imagined gigabit competition.”

TREND and DRIVER HIGHLIGHTS

• Service providers are reluctant to make major investments in current technologies as market uncertainties weigh heavily; this is illustrated in the CMTS market, down 15% q-q and y-y. New deployments are minimal with most being upgrades and additions. New architectures such as CCAP, DOCSIS 3.1 and Remote PHY are very appealing, causing MSOs to be hesitant to commit CAPEX to existing technologies.

• The industry is doing itself a major disservice by selling on bit rate and not the value and experience of the services they provide; it is akin to digital camera megapixels. More the better? Consumers do not understand that beyond 6 Meg it really does not matter for 99 percent of the use cases; the huge file size of 10+ megabit images is less desirable and arguably useless to consumer. Same is true with gigabit.

• Content acquisition is top video priority: Big issues are all about providing compelling content and “skinny bundles” emerging as key force in industry.

Click for more information about Greg Whelan.

Contact information@acgcc.com for more information about ACG’s video services.

Greg Whelan
gwhelan@acgcc.com
acgcc.com

Arris-PACE: Consolidation, Set-top Box Domination and Tax Avoidance

Arris (USA) has agreed to acquire Pace (UK) for $2.1 billion. According to Arris the key benefits of the deal are to accelerate growth and to improve finances. The growth part is driven by the enhanced international presence and the large-scale entry in to the satellite TV market. The finance part is driven by accretive earnings and corporate taxes.

SP video is still a top five CxO top-of-mind but it’s number five; they still need a compelling video offering to complete a competitive bundle. The driving issue is access to content not number of channels. Ask 100 random people what’s the problem with TV and no one will say resolution. Sorry 4K TV manufacturers. IP video, like IP voice, is just packets, albeit a lot of packets. The impact of video delivery to all devices on all networks is much more interesting to ponder.

With the Arris-Pace deal we have the Number 1 and Number 2 global providers of set-top boxes (STB) combining. If this deal goes through the combined company will have almost 60 percent market share in Cable STBs and 44 percent of the IPTV market. The next vendor, Cisco, will have 10 percent and 15 percent of these markets, respectively. It appears Arris is intent of being the dominant provider of STBs globally.

Set-top boxes have been and continue to be a tough market to sell to. The service providers constantly demand price concessions while at the same time demanding new features. No surprise gross margins are challenging. Cisco realized this late after buying Scientific Atlanta and adopted a “high-end” STB only strategy. As I predicted two years ago this was doomed since high volume is required in this type of market. Simply put, there’s not much of a difference in semiconductor content of a low-end and a high-end STB. Those participating in the low-end, high-volume market thus have a substantial price advantage at the high-end lower volume market because they are receiving substantial volume pricing from all silicon vendors.

Beyond challenging margins, the STB market is facing technical and architectural disruptions. The traditional functionality of the STB is being repositioned between the residential gateway and the cloud, TV manufacturers want a piece of this too, and over-the-top services continue to exert pressure on the legacy linear TV functionality as well. Arris will receive some immediate near-term benefit of entry into the satellite market and will increase its international presence. The value in the long term is less clear as the set-top as we know it is in a state of flux.

On the finance side the deal is accretive: “an increase by natural growth or by gradual external addition: growth in size or extent.” According to the press release the new Arris will be based be “incorporated” in the UK but based in Suwanee GA, USA. Transactions of this ilk, where the acquirer reincorporates to the target country, are not new. You can’t fault U.S. companies from wanting to avoid excessive U.S. corporate taxes. The fundamental of micro economics encourage this.

So, I see marginal long-term strategic benefit in the set-top box area that’s outweighed by the broader portfolio synergies and financial tax gains.

 

For more information about ACG's video services, contact sales@acgcc.com.

Click for more information about Greg Whelan.

Greg Whelan
gwhelan@acgcc.com
acgcc.com

Alcatel-Lucent Raises the Broadband CPE Bar

Announces a new ONT with advanced Wi-Fi and ties in Motive to streamline smart home deployments.

On April 20, 2015, Alcatel-Lucent announced its new broadband residential gateway the 7368 Intelligent Service Access Manager (ISAM) optical network terminal (ONT). The 7368 incorporates dual-band Wi-Fi (802.11ac/n on 5GHz and 802.11b/g/n on 2.4GHz) with enhanced signal strength (Up to 500mW) to deliver better in-home coverage.

Aside from the awkward product name, it addresses a real issue in the broadband and specifically the gigabit industry: namely, delivering gigabit speeds beyond the threshold of the home. In the early days of broadband consumers’ connections from their PC to the CPE devices was greater than the broadband access connection (10 Mbps feeding 1.5 Mbps). With the deployment of gigabit networks (or more accurately “up to a gigabit networks”) the reverse was true, with 802.11n feeding 300 Mbps to the gigabit access link. Alcatel-Lucent has evened out this equation.

The images provided by Alcatel-Lucent showed the new product as a wall-mount device. Aside from looking sleek this has a number of nontechnical barriers to adoption. The big one being home decor aesthetics. Based on a limited sample, my wife, adding anything to precious wall space is a nontrivial exercise. Plus, any device added to a home has to cope with the issues of batteries (power) and backhaul. It would seem that a management interface on a smart-phone, tablet or any existing screen would be more suitable for whole home management.

The second part of the announcement was the incorporation of Motive™ customer experience management solution. ONT Easy Start” streamlines the ONT activation process and performs service orchestration between the Motive care applications and network element managers. This too solves a real business issue of gigabit deployments by reducing the time and cost of activating each subscriber.

The addition of Motive to the total offering is noteworthy. It’s always great to see large companies integrate solutions from separate product lines and business units to offer a greater solution that solves real business issues. 

Alcatel-Lucent has raised the bar in the broadband CPE market. They’ve matched the in-home speeds with the access network, improved in-home Wi-Fi coverage and simplified deployment of gigabit services to the residential market. The company solved real service provider business problems with innovative technologies.

To discuss the implications of this and other issues in the broadband access space on your company and product strategies contact ACG (lleone@acgcc.com) to schedule a briefing.

Click from more information about Greg Whelan.

Greg Whelan
gwhelan@acgcc.com
acgcc.com

Virtualization: There’s got to be more!

Porting to Intel and virtual machines is a technical implementation detail not a business solution

When vendors are asked about their virtualization strategy you often hear a common answer. They say they’re “virtual” because they ported their software to Intel. What’s the value proposition? Porting to Intel isn’t it. Sure it reduces capital expense but it does so at the expense of performance. All it really does is shift industry revenue, power and influence from the Broadcoms of the world to Intel. Plus, we now know that if capex goes to ZERO less than 33 percent of CxOs’ top of mind business problems are solved. When pressed for the rest of their virtualization strategy they say they run on virtual machines in a data center. OK, and then what?

Let’s assume they perform three functions called A, B and C. They port them to Intel and then run them on virtual machines. Shifting revenue from Broadcom to Intel is a technical implementation detail and not a business solution. Service providers should be thinking there’s got to be more.

The logical question to ask is whether A, B and C are the right functions in the virtual world. Just because they were required in yesterday’s environment does not mean they are required in the virtual world. Do you really need 20 percent of A and 60 percent of B? Do you really need 150 percent of C? You get the picture.

If service providers will be spending billions of dollars moving to the virtual world they should be asking themselves, why? Sure there’s a benefit to take the As, Bs and Cs of today’s world to virtual machines. But is it really enough? This is a one in a lifetime transformation and a fight for ultimate survival. SPs need to ask for more.

Vendors, on the other hand, need to be asking themselves similar questions. Is porting to Intel enough? What can we do that’s game changing in the virtual world? The answer to the first question is no way. The answer to the second question depends on the vendor’s core competencies, ecosystem presence, business strategy, etc. The good news is that ACG Research can help you answer this second question. Contact us to find out how at sales@acgcc.com.

Click for more information about Greg Whelan.

Greg Whelan

gwhelan@acgresearch.net

acgresearch.net

Forecast of Residential Fixed Broadband and Subscription Video Requirements

Residential fixed broadband usage has evolved from static search and information retrieval to multimedia content delivery on a wide variety of devices. The move from broadcast service, which is multicast across the metro network, to broadband video service, which is unicast, and the use of many more devices in each household will have a massive impact on the required bandwidth capacity of the metro network.

ACG Research presents a five-year projection of average household bandwidth requirements. Average household bandwidth requirements are estimated to be 2.5 Mbps in 2014 and will grow at a five-year CAGR in a range from 19 percent to 44 percent with a most likely value of 31 percent. 

Read more in Forecast of Residential Fixed Broadband Requirements.

For more information on Michael Kennedy, click here.

Contact sales@acgcc.com for more information about ACG's business case analysis services.

Michael Kennedy

mkennedy@acgresearch.net
www.acgresearch

Demand for All Things Video, the Implications

Although video has transformed public and private networks and continues to drive network deployments it also dwarfs all other network traffic types, for example, Netflix can account for upwards of 40 percent of local Internet traffic. The massive amount of bandwidth required drives the need for capacity in all parts of the end-to-end network. If you solve this problem for video all other traffic, voice, email, web and even IoT benefits as well.  

Consumers have an unending appetite for all things video. They are watching TV shows, movies, YouTube, Vines, Facetime or Skype on every device they have. Advertisers are increasingly moving to video ads and away from static banners. Truly live TV is exclusively sports and news. Appointment TV is a thing of the past. Everything is becoming on demand.

The implications of these trends cannot be underestimated. Not only do they impact all aspects of the telecommunication and Internet ecosystem, they impact the movie and television industries in a major transformation way. As these businesses struggle to adapt to overwhelming innovative forces they only know one thing for certain: They don’t want video assets to go the way of music.

Service providers, facing a hypercompetitive zero-sum market, are attempting to adapt and upgrade their physical networks, data center, core, metro and access to support video traffic. The race to 1Gbps per home is well underway. Back office systems are adapting as well. Marketing departments are creating new service bundles with higher data caps and source funded noncap traffic, such as taking an order to sending a bill, all of which need to be supported. Legal departments are impacted too. Issues such as net neutrality, asymmetrical interconnects, must carry and spectrum acquisition are just of few of the array of legal issues facing service providers globally.

Mobile operators are in no way immune from video. As they address their coverage and capacity issues video traffic is front and center. More smart phones mean more handheld video screens, which use more bandwidth and have much longer connection times. Here too, all aspects of the mobile operators business are impacted. Small cell deployments, WiFi integration and SON plus the emerging requirements of 5G must address the demand for video.

Video might just be a lot of ones and zeros, but the impact of massive amounts of video is disrupting the entire telecommunication industry. It is safe to say that decisions made by the entire ecosystem, service providers, equipment vendors, software vendors, semiconductor vendors, must address the onslaught of video traffic.

Click here for press release information about Greg Whelan. 

Greg Whelan

gwhelan@acgresearch.net

acgresearch.net

Even if Aereo Wins Supreme Court Case, Can the Company Compete?

The Supreme Court recently decided to hear the Aereo case, which centers on whether Aereo is essentially another cable company that will be regulated as one (and pay retransmission fees) or whether it is an individualized service such as a home VCR that is exempt from transmission fees and cable regulation. 

Aereo took a risk with this all or nothing strategy. The company wanted to consolidate its court challenges to save on litigation cost and accelerate its expansion, but if Aero loses it will be quite calamitous for them. The outcome will likely hinge on whether the Court defines the services on a strict technological basis or more on a functional basis. 

Technologically, the company offers each subscriber an antenna, which is like having a virtual pair of rabbit ears for receiving over the air broadcasts.  Many lower courts have taken this view and have ruled in favor of Aereo. Most likely, the Supreme Court will look at the technology more broadly, and will consider the role of shared equipment: transcoders, servers, software, storage, routing and switching, network access.  Since not all of these can be neatly or efficiently cordoned off and dedicated to each customer, does that make Aereo a type of common carrier? What happens if the location of the antenna is positioned so that the stations available to the customers are different from what they can receive in their home, even if slightly? Does this change the classification of the service as an over the air antenna rental? What about renting an antenna in a different metro area, does that change the nature of the service? Does it change the regulations that are applied?

If the Court takes a more functional view, will it consider Aereo’s service functionally equivalent to cable service and, therefore, subject to the same regulations? While there are differences, it seems to me that Aereo’s service is indistinguishable from basic cable service. It is interesting to note that cable originated as community antenna TV, which is functionally quite similar to Aereo. 

Given these issues, the outcome of the court case is far from certain for Aereo, and even if the company wins, can it scale the technology? I suspect that adding a new antenna (actually two according to the web site) for each new customer eliminates the possibility of economies of scale and the costs for space, power and storage could become burdensome as subscriber numbers get into the millions. 

Regardless of how the Supreme Court rules, the decision will be momentous in how it shapes the industry. If Aereo prevails, consumer choice will increase, and the industry economics will be changed dramatically. Content owners will lose substantial leverage and probably significant revenue from retransmission fees. MSOs will face new, stiff competition that when combined with OTT streaming will be a formidable low-cost alternative to cable. On the plus side for MSOs, they might gain additional leverage in negotiating retransmission fees. If Aereo loses, expect to see further consolidation as incumbents seek to strengthen and protect their positions.

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David Dines

ddines@acgresearch.net

www.acgresearch.net

The Weather outside is Frightful, Time for ACG’s Annual Predictions for Video

It has been a tough year for many sectors of the video business. The STB business took a big hit and is now generally recognized that it is a commodity business. Home gateways grew significantly. The transition to CCAP is leaving many QAM vendors out in the cold and fights over retrans fees are not helping.

Pay TV is no longer a must have service, (about one-quarter of Charter’s customers do not want TV service) and cord cutting/shaving is becoming more common. Competition from outside the traditional competitor circle is getting stronger. Netflix continues its robust growth and now has 40 million subscribers. Google is continuing its fiber rollout. In an apparent response to Google, AT&T recently announced GigaPower, a fiber-based service with 300 Mbps and a free upgrade to gigabit service available next year.

The industry structure is shifting and talks about consolidation are rampant. Time Warner and Comcast both hired M&A staff. On the equipment side, Arris is still assimilating Motorola. Cisco is working on shifting its business away from commodity hardware to software with its NDS assets. With technology, viewing habits and competition rapidly changing, ACG sees consolidation as necessary and inevitable.

Tablets continue to grow and video viewing on tablets/mobile devices are the fastest growing segment. Forty-eight million tablets were shipped in Q3 13, 37% Y-Y growth rate. Video is about 44% of all mobile data usage and is expected to account for over 60% by 2018. 

MSOs are recognizing the need to change viewing experience with better user interfaces and more OTT like viewing options. Charter and Liberty both tested cloud-based UI/guides that are more competitive with the OTT players. They are also getting serious about business services and other services such as home monitoring. 

Trends:

• 2014 will be the year of 
• CCAP 
• Home gateways 
• Online video advertising systems 
• Cloud-based UI deployments 

• STB prices will continue to fall; there will be increasing competition from no-frills vendors.
• Traditional pay TV subscribers will continue to fall in developed countries; OTT services will grow.
• More MSOs will launch multiscreen and OTT like services, though if history is a guide, few will take much share from Netflix and other OTT services.
• Current home monitoring/security offerings from the MSOs will be modestly successful. Offerings must overcome negative brand perception that MSOs created over with high prices and poor service.
• Pay TV subscribers in developing nations will continue to grow, though long term we see that penetration rates will disappoint as customers just get data service and watch via streaming.
• Google will continue to deploy fiber in existing markets and may announce one more market in 2014, but no massive nationwide effort. 
• Google’s Loon project with weather balloons in the stratosphere is fraught with technical and business problems; there is a slight chance of it being deployed commercially. 

 For more information about ACG's video services, contact sales@acgresearch.net.

David Dines
ddines@acgresearch.net
www.acgresearch.net

Arris: First Earnings Post Positive since Motorola Home Division Acquisition

In the interest of full disclosure here are my biases: When Google first announced its acquisition of Motorola Mobility, from a strategic standpoint I was mostly negative. Other than the patents, I did not see much value or a fit with culture, expertise or products. I also assume that Home Division customers were probably uncomfortable making long-term architectural commitments to Google. If the acquisition was just about patents, then Google paid a premium. During the short tenure, there was little hard information, but anecdotally, it seemed that my assessment was correct and that Motorola Home was losing momentum. When Google announced that it was selling the Moto Home division to Arris, I was mostly bullish. There was a much better fit with Arris’ culture, management expertise, and products. This purchase gave Arris a more diverse customer base.  

As with any large acquisition, assessing the long-term success is tricky especially with a dearth of information. Now, with Arris’ first earnings post acquisition, we have some more insights. Revenues grew a huge (and expected) 186 percent, roundly beating earnings expectations. Arris is moving quickly to integrate Moto, and the company is already starting to see cost savings with supply chain efficiencies. On the product side Arris is seeing significant shipments of the E6000 (mostly to Comcast), with deployments and trials in multiple geographies. The company can boast wins in infrastructure and CPE, for example, Comcast XG1 hybrid QAM IP gateway.

The negative news came primarily from Moto, which lost momentum because of Google ownership[1]. Gross margins were down to 23 percent from nearly 34 percent last year, and the traditional STB business is down 8 to 10 percent from last year. I am most concerned about the gross margin. A back of the envelope calculation reveals that Moto’s gross margins[2] are 17 percent (see the delta column in Table 1).  

The challenges of integrating the two companies, rationalizing products, processes and organizations are more straightforward because the levers of change are mostly under the company’s control, which allows it to find the duplication/inefficiencies, make tough choices and address damage control. Boosting gross margin is a greater challenge, because it takes longer and is more nuanced. External factors, such as technological change, competitive pressures, customers’ needs, and internal factors, such as product design/life cycles, and manufacturing processes, limit degrees of freedom in moving the needle.

While I am still mostly bullish on the Arris/Moto combination, there are significant challenges ahead for its management team. Increasing Moto’s gross margins is one I would put at the top of the list. 

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[1] From Robert J. Stanzione in the earnings call on August 7, 2013: “As I mentioned during our call, after the close of the Motorola Home transaction, there was a loss of momentum caused by disruptions and distractions within Motorola, as well as a parent customer reluctance to fully engage our new product initiatives, given some of the uncertainties surrounding the business.

[2] This is not the exact number as it includes some organic growth and excludes the $66M revenue/$6M margins, pre-acquisition results but is a good approximation for analysis purposes.

For more information about ACG Research's Video Infrastructure service, contact sales@acgresearch.net.

David Dines
ddines@acgresearch.net
www.acgresearch.net

Snapshot: Mobile Data Usage

The following are points about mobile data traffic for North America Tier 2 mobile operators:

• Four major consumption usage buckets: Media,Web/Search/Maps, Social, Utility Traffic. 

• Consumption of multimedia applications (YouTube, Netflix, and ESPN) is approximately 70% of total usage; capping of unlimited data plans has led consumers to consciously move toward using multimedia apps, mostly smartphones, while on Wi-Fi coverage.

• Utilities traffic is approximately 25% of the total data: Signaling (GTP attach, detach messages & PDP context activations) and IP control plane & session establishment traffic, initiated by smartphones; mobile carriers have been inaccurately complaining about smartphone control and signaling traffic, claiming that it is huge.

• Apple, Google & Microsoft are emerging as the smartphone OS & app store leaders: Google dominates in the mobile application eco system, both from data traffic consumption and percentage of users; Facebook is second in data traffic consumption and percentage of users.

• Most would assume that the largest percentage of video use is in the service provider space; however in actuality it is consumers that use the greatest percentage. The largest percentage of video use (70%) is on smartphone on WiFi networks.

To download the data, click here.

For more information about ACG Research's mobility services or video services, contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Takeaways from the Cable Show 2013

It was apropos that the 2013 Cable Show was held in Washington D.C. considering the big role that regulators play in the industry. Not only did attendance seem lighter than last year, but opening sessions on Day 1 also were disjointed with speeches that were self-congratulatory, lacked substance, and made claims that were hard to believe, such as “the industry is an innovator; the US is really a leader in average Internet speeds.” And “all content will be available on all screens regardless of what MSOs and programmers think, and today’s disruption is really about business models.”

In Day 2 Michael Powell’s (president and CEO of NCTA) interview with Mignon Clyburn (current acting chair of the FCC) was interesting from a human perspective but lacked any real content. Brian Roberts demonstrated the Xi3 box and the new X2 user interface for Xfinity, which include voice commands and seem to be as good if not better than Siri. It appears to be powered by Veveo. I was impressed because it seems that Comcast finally got religion about user experience; it will be interesting to see how fast they can roll it out and how well it will actually works in the home.  

Other themes

M2M/IoT: CPE vendors and service providers were demonstrating home security, monitoring and control capabilities—a huge growth opportunity and a natural extension of their existing markets.  

Cloud: Cisco demonstrated cloud DVR (http://www.acgresearch.net/knowledge-insights/videos/cloud-dvr-perspective.aspx). ActiveVideo demonstrated cloud-powered guides. ActiveVideo showed that mission-critical functions can be moved to the cloud. The company also announced wins with Charter and Cablevision.

CCAP: Cisco, Arris/Moto and Casa demonstrated their capabilities, and we are starting to see commercial shipments, which should continue throughout the year. 

Gateways are starting to gain traction as well. Cisco was giving a sneak peak at its G8 hybrid IP gateway. Arris and Technicolor also were showcasing their products.

Azuki Systems, an innovator in delivering multiscreen over legacy networks, unveiled an approach for using its technology to reduce the bandwidth requirements for first screen viewing to enable QAM reclamation.

For more information about ACG Research's VideoInfrastructure service, contact sales@acgresearch.net.

David Dines

ddines@acgresearch.net
www.acgresearch.net