DOCSIS 3.0

Verizon DirecTV acquisition could ease FiOS video load

Some financial industry speculation is buzzing about the possibility that Verizon might buy DirectTV. While Verizon is clearly committed to FiOS, it’s not clear just how far FiOS could extend toward thin geographic areas or areas where household income is low.

Given that, a satellite offering would give Verizon a way to offer broadcast TV without consuming broadband capacity, which could be critical given cable’s plans to push DOCSIS 3.0 to the 50-to-100 Mbps level. video on demand (VoD) could still be delivered over DSL.

A deal would also tweak AT&T’s nose since that provider relies on DirecTV and is also rumored to be looking at the company.

Fast Internet, pricing policies and the middle mile

Rogers Cable showed how different Canada and the U.S. are with its new DOCSIS 3.0-based offering. The service is 50Mb/2Mb, which is more asymmetrical than the U.S. market would typically offer, and furthermore it has a 175 GB/month usage cap.

In Canada, the notion of usage caps doesn’t generate the hysteria it does here in the U.S., but we believe that the only way caps would be avoided here would be by increasing the oversubscription levels of the middle-mile network, which would mean that users with “fast” Internet wouldn’t get proportionally higher effective speeds.

There is no way to legislate profitability or to set effective speed standards; Congress would never consider the moves, in our view. A realistic usage cap would benefit consumers by helping insure that they gained a real advantage from what’s likely to be an access speed war between cable and telcos.

DOCSIS 3.0 spurs cable/telecom broadband “speed wars”

There are some signs that the DOCSIS 3.0 broadband speed wars are already having an impact on the market. Both Verizon and AT&T have been boosting their broadband speed tiers in preparation for the expected pressure on speed generated by cable companies. But there’s also a general industry push to sign new customers through incentives like the FiOS free-netbook deal.

Industry data shows that almost three of every four TV viewers will stay with their incumbent operator unless there’s some exciting incentive to switch. The summer is also a good time for promoting a change; with kids out of school and the main channels in reruns, there’s more interest in premium channels and in the use of the Internet for entertainment.

A more significant marketing initiative by Verizon is an increase in the uplink bandwidth to accentuate an area where cable lags even with DOCSIS 3.0. FiOS uplink speed has doubled or more in the lower tiers of the offerings, but pushing how fast uploading content could be risks encouraging P2P, which is the form of consumer uploading most commonly used.

Telco-versus-cable: An upload/download competition?

Cox is moving its DOCSIS 3.0 50 Mbps service into two areas where FiOS is available, creating another face-off between fast cable and FiOS. The two are priced similarly (cable is a bit cheaper), but FiOS has four times the upload speed. This creates an interesting dynamic. Verizon might find itself a promoter of the “no-caps” position simply because P2P hurts it far less than it does cable.

There is even some talk that telcos in general will be talking up unlimited access because it favors their architecture, just as higher download speeds favor cable over DSL. The question now is whether both parties will play chicken on capital infrastructure issues, hoping to force the other side into a costly investment they’d just as soon not make, or whether there is actually a longer-term division of customers ahead, where upload-centric users migrate to telcos and traditional downloaders move to cable.

DOCSIS 3.0 pushes U.S. broadband speed wars

Cablevision is planning to launch a 101/15 Mbps DOCSIS 3.0 broadband service, which would be the fastest available in the U.S., at a price of $99 per month. The service will launch in NYC suburbs, an area where Verizon has gained strongly with FiOS.

It’s expected that cable will be pushing speed limits up this year, since DSL services can’t begin to match DOCSIS 3.0 performance, and only Verizon among the U.S. RBOCs has the regional demographics to make FTTH widely suitable. This could be good news for equipment vendors, because nothing other than competition is likely to provoke investment in wireline broadband given the low ROI.

Cable access caps to stratify broadband users

Cable companies are increasingly interested in bandwidth caps, traffic management or both. Charter has joined the group, and now most of the major U.S. cable operators are in some stage of trial or deployment.

The trend is a critical problem for online growth, and yet it is also the fault of the industry for letting things get to this point. Broadband pricing is increasingly a tax on the underclass of technology users to support the elite. An operator told us that 80% of usage is created by a lot less than the top 20% of users. All of this is a byproduct of the monetization problems, of course.

At the same time, DOCSIS 3.0 interest is rising; Shaw is unveiling the first 100 Mbps service based on it. We also note that companies that are looking at bandwidth caps are also looking at DOCSIS 3.0 services with higher monthly rates, which would be immune from the caps.

Thus, it appears that broadband is going to stratify, with premium users paying more for faster no-cap services. All of this continues to focus investment on access and metro, and on things like CDNs, rather than the core. The fact that over a million Xbox users have activated Netflix streaming tells the tale: Traffic without revenue equals ROI problems, and thus caps on usage. Lack of logic is about to change the industry.

FCC could enter cable bandwidth management fray

Comcast has, as we had predicted, asserted to the FCC that its voice service is not carried over the Internet or Internet access infrastructure, and is therefore neither subject to their traffic management policies nor to the FCC’s four principles of net neutrality.

They’re right, of course. Cable, or PacketCable specifically, divides the data path, and broadband Internet and Comcast VoIP do not share capacity. The question now is whether the FCC will decide that it doesn’t matter whether the stuff is separate or not. We think such a decision would be the regulatory equivalent of junk science: It would imply that common carriage on any facility imposed the regulatory burdens of the most regulated service on all services.

These are not logical times, however, and regulations are never logical. The biggest risk here is that the FCC would do something that would overturn the original 2005 decision that broadband was not a “telecommunications service” and thus was not subject to unbundling provisions of the Telecom Act. That was a highly speculative ruling that stood largely because the RBOCs bought AT&T and MCI, who were bankrolling opposition.

Vuze, the online video company, has also asked the FCC to look into the Cox plan for bandwidth management. This shows that cable company needs to control bandwidth use, primarily uplink bandwidth for P2P, but also streaming bandwidth will be increasingly colliding with the over-the-top (OTT) players’ desires to pump content at no incremental cost. The shared-media nature of the cable plant is the industry’s biggest risk, as DOCSIS 3.0 is the biggest asset, and moving to DOCSIS 3.0 is useful only if content doesn’t just expand to fill the new pipe too.