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Future State for MSOs: Ready or Not?

Jack S. Burton
9/25/2018
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Cable has entertained the masses with video packages for decades. But everything has changed. MSOs are now ISPs, first and foremost. High-speed data rules the roost. It has become the enabler to video competition. Over-the-top (OTT) companies have cracked the code and ride virtually free while getting paid for subscriptions and lucrative advertising deals.

How did we get here? Where should we go from here? Which paths should cable operators consider? In this series of three blogs, I will suggest some answers to these questions.

Transport services are already commoditized, and access services are quickly becoming so. New entrants with fiber or wireless infrastructure are already here. Network speed has become "table stakes" -- everyone needs reliable speedy networks to play in the access business. The new "feature" is low latency, which is required for gaming, virtual reality/augmented reality and IoT services.

It is the business of the access companies that is most threatened. That's because these companies have been selling resources (for example, television and telephony) as their main products for years, and access only as an incidental part.

While edge services and competing access networks are growing, MSOs have assets that are uniquely desirable by those providing these services.

The threat: edge services - video
Netflix is the giant in the field of over-the-top video. However, others such as Hulu, Vudu and DirecTV Now are also growing. In addition, programmers such as ABC/Disney, BBC and Fox have their own services that they sell directly over the top to customers. AT&T’s acquisition of Time Warner, which includes HBO and Turner networks, adds a major carrier to the list of OTT players.

In the Video category, the damage to the traditional cable business has already started. News reports showing the "cord cutting" and "cord shaving" phenomenon abound. As a result, revenue from video services comprised less than 50% of total MSO revenue last year.

Programmers are also encouraging OTT via their own offerings. Services such as HBO Now, BBC Player and ESPN Plus permit customers to buy their favorite programming outside of a cable video package.

Voice
Vonage was an early entrant in the over-the-top telephony space. Others include Packet 8, Ring Central and Magic Jack. Enterprise-grade services such as Bandwidth.com and vendor-created endeavors such as Kandy from Ribbon Communications offer businesses many alternatives for hosted voice-over-IP (VoIP) communications.

On the residential telephony front, the reason for declining subscriber numbers is different from video. Here, customers are not flocking to OTT telephony providers, they are disconnecting completely. This is because the telephone has transitioned from a household-based service to a personal one, and the devices have changed from landline to wireless.


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Turning to commercial telephony, the landline is still king. The challengers here are OTT providers that offer specialized business phone services, such as Hosted PBX (IP Centrex) and CPaaS (communications-provider-as-a-service). There is still some life left in providing IP-based trunking to IP PBXs on premise. However, profit margins for this service are slim and decreasing. Competitive trunking services are available not only from familiar names like Vonage and Bandwidth.com, but also from Microsoft and Google.

Internet
Service provider-supplied email addresses are not portable. Generic e-mail services, such as pobox.com and Gmail, allow users to switch providers without losing their addresses. These services may have features that a cable operator-supplied service does not. And because many of these OTT services are free, it is impossible for a local service provider to compete profitably.

Basic Domain Name Services (DNS) directory servers are always supplied by an ISP, but lately competition here has emerged. Free DNS from Google (8.8.8.8) and Cloudflare (1.1.1.1) are increasingly popular.

Other Internet services are plentiful and would probably not be the purview of a service provider. Everything from shopping to funny cat videos have leading providers and customers. Indeed, the Internet is the highway and these sites are the stores.

So what can a cable operator do? Rather than trying to replace the e-stores of the Internet, the operator can become a real-estate provider. Cablecos have local facilities -- their outside plant, headends and central offices. By converting these facilities into access nodes and data centers usable by wireless and edge services providers, providers can turn these expense centers into profit centers. Access nodes for wireless competitors require location, power, backhaul and maintenance -- things that service providers can sell. Cable headends and COs, increasingly available as equipment transitions to Remote PHY, can provide OTT competitors with local server space, power and operators. With the edge servers under MSO supervision, cable operator can also provide timely notice of performance issues, bandwidth constraints or other problems by not only notifying the customer but also pro-actively resolving these matters.

In the next installment, we will look at why the rise of OTT began and how access providers themselves have helped.

— Jack Burton, Principal, Broadband Success Partners

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