What do Amazon, Verizon, Apple, Google, Microsoft and Yahoo all have in common?
They’re all actively preparing to enter the over-the-top online video business with their own streaming service or proprietary online programming to compete with Netflix, Hulu, and facilities-based pay-TV providers like Comcast, Time Warner Cable, DirecTV, Dish, AT&T, Verizon, and others.
Why all this new competition now?
Several big recent changes have converged to create a tipping point for new broad scale, over-the-top (OTT) video competition.
The FCC made clear net neutrality does not apply to the Internet backbone market. Broadband providers are fiercely competing to offer plentiful wireless bandwidth for online video streaming. And several companies worth $1.5 trillion collectively have plans to compete as over-the-top online video streamers and programmers. Competition in this space is clearly intensifying.
First, in just the last three months, the U.S. regulatory environment has turned around 180 degrees in terms of facilitating market negotiations, economics and competition in the Internet backbone market. The removal of regulatory uncertainty has jumpstarted market negotiations between ISPs and multiple new competitive entrants seeking necessary quality of services guarantees for their planned OTT offerings.
Specifically, the D.C. Court of Appeals in its January Verizon v. FCC decision outlawed the FCC from regulating unregulated broadband ISPs as regulated common carriers. That means part of the FCC’s 2010 Open Internet order that implicitly set a zero price for downstream Internet backbone traffic (i.e. video streaming) was illegal.
Since then the FCC has decided to not appeal, and hence live with that ruling as law. In addition, FCC Chairman Wheeler and the agency at large have publicly affirmed the FCC would not include new Internet backbone regulation in the FCC’s redo of the partially overturned Open Internet order.
Competitively this is a big deal. The FCC’s old net neutrality rules fostered huge uneconomic arbitrage, where perversely the biggest corporate users of Internet bandwidth contributed the least to the infrastructure upgrade costs necessary to keep pace with exploding bandwidth consumption.
Now market forces can naturally balance costs with prices. And importantly new OTT entrants can negotiate the specialized quality assurance guarantees necessary for a viable competitive offering. That’s why Netflix and Comcast recently completed a multi-year, Internet backbone interconnection deal.
This is a big deal for growth as well. This change enables the creation of an entirely new business-to-business marketplace of specialized services to meet the various and different needs for specialized speed, capacity and quality for OTT video, telemedicine, industrial operations, connected cars, and the Internet of things.
Second, in just the last year, broadband competition has spurred a game-changing amount of new Internet infrastructure investment that has created a competitive tipping point for new OTT video and other specialized services.
America now leads the world in wireless 4G-LTE infrastructure investment. This means by year’s end, America’s four national wireless broadband ISPs will be offering speeds capable of supporting new OTT video streaming services, nearly ubiquitously. And Dish has aggregated enough spectrum nationally to offer a fifth ubiquitous, MVNO wireless broadband service to enable OTT video services.
On top of that world-leading LTE investment, Comcast, Time Warner Cable and the rest of the cable industry have been furiously adding more free WiFi hotspots to provide mobility to their wire line customers. Furthermore the FCC just freed-up another 100 MHz of unlicensed spectrum for WiFi to enable even more capacity for mobile video streaming.
The advent of broad scale mobile OTT competition should be of no surprise. This is just a continuation of the long back-and-forth competition between wireless and wire line infrastructures. In the 1980s cable TV largely replaced free broadcast TV. In the 1990s and the aughts Direct Broadcast Satellite took a third of cable share.
And now America’s wireless broadband infrastructure has reached the tipping point of increasingly delivering the video streaming throughputs necessary to enable mobile OTT video competition.
Third, new competitive entrants grasp the new competitive opportunity created by the more growth-friendly regulatory environment and the higher-bandwidth wireless infrastructure.
News reports indicate that at least six new OTT video competitors worth over $1.5 trillion – Amazon, Verizon, Apple, Google, Microsoft and Yahoo – are all individually readying new competitive assaults.
If it was only one or two companies planning this new big effort, one could be skeptical that a tipping point had been reached. But when at least six companies of this size are targeting the same opportunity at the same time in very similar ways, something big is afoot.
The broadband and pay-TV businesses are facing a tipping point of new game-changing OTT competition, because three necessary competitive prerequisites have been met.
The court/FCC removed a big regulatory overhang from the business-to-business Internet backbone space, opening up a whole new growth marketplace for mass specialized services in need of special quality of service guarantees. This in turn opens up new economic arrangements like AT&T’s Sponsored Data offering where businesses can pay for their consumers’ bandwidth usage to attract customers.
Competitive forces have goaded multiple ISPs to invest big in upgrading infrastructure to enable mass mobile OTT services.
Several companies that already serve most Americans, and that have among the deepest pockets of any businesses in America, are hungrily eying the OTT marketplace for growth and expansion.
This is more than just a competitive tipping point – it’s a perfect storm of pro-competition developments.
[Originally published at Daily Caller]