File Access

Qwest executives maintain that over-the-top video will emerge as a business with revenue models the company can benefit from.

 

"It's not a matter, in my opinion, of if it will come; it's when," said Qwest CEO Ed Mueller (News - Alert). "Some of the studios now are really pursuing that." You've got people out there like the Roku Box who deal with Amazon and Netflix. It's just coming."

 

That isn't to say Qwest (News - Alert) is absolutely sure about how it will monetize such content.

 

"I think it's too early to know how the video will be monetized," Mueller said. "I think it will be a mix of ad based and subscription based, but the customer clearly wants ala carte in addition to whatever linear program they have."

 

"But I think it's actually coming quicker than people would have expected," he said.

 

That would be welcome, indeed, as Qwest is among those providers that offer linear entertainment video, but have decided to do so using a satellite partnership, exclusively.

 

AT&T uses satellite as a delivery option in areas where its U-verse network is impractical, for example. But Qwest simply does not believe it makes sense to become a linear video provider in its own right, and chooses to partner with DirecTV (News - Alert) for this function.

 

"We're not going to be in the content business," Mueller said.

 

That is one assumption driving Qwest's optical access strategy as well, where it continues to believe fiber "to the home" is not warranted by its business case.

 

Regarding fiber to the home, Mueller said he still doesn't see the need.

 

 "Well, in our case I don't think it's required," he said. "Now if there's something I'm missing here, we would probably have to go there."

 

Not having the need to deliver linear multi-channel video entertainment over the fixed network has key bandwidth implications. Qwest arguably does not need so much capacity. On the other hand, since it is not providing multi-channel video on a facilities-based basis, neither does Qwest enjoy the gross revenue boost, either.

 

Both of those elements suggest a less-costly fiber to neighborhood approach is reasonable, under conditions where Qwest can deliver 40 Mbps downstream and 20 Mbps upstream.

 

Qwest also said developments in signal compression and storage will allow it to cope with an expected growth of on-demand video services.

 

"Storage is getting cheaper everyday," Mueller said. "So we can store on the edge and access from the edge." Those developments also support Qwest's decision not to opt for a full FTTH access network.

 

As it is, entertainment video is not a huge driver of Qwest's mass markets business. In the third quarter Qwest added 15,000 net DIRECTV subscribers, offset by the elimination of 6,000 legacy Qwest video customers.

 

Qwest also saw an increase of 28,000 high-speed access customers in the period, adding 71,000 net fiber to the node accounts.

 

In the mass markets segment, revenue decreased eight percent from a year ago while primary consumer access lines decreased 12 percent, year over year.

 

Those figures ought to be a stark reminder to policy advocates who blithely assume the "big rich telcos" can bear any burden where it comes to broadband investments. In fact, since everybody agrees the legacy business will continue shrinking, and some suggest voice will become a "no incremental cost" application, the entire infrastructure must be supported by broadband and new services built on it.

 

So far, all the evidence suggests this is a tough proposition, at best. Some people think telcos simply are "bluffing" about the fundamentally important impact regulation can have on continued investment and the fundamental business case. Qwest's report is a reminder that this is playing with fire.

 

Once-unimaginable local access provider bankruptcies already have occurred. There is no guarantee this cannot happen to any provider, no matter how large. Many observers, in fact, are too sanguine about the ISP business case, and its continued health. It is tough, tough work, and the outcome is by no means preordained.

 

For that reason, some policy advocates are missing a key point. One cannot redistribute wealth which does not exist. Equity is a fine and necessary public policy goal. But equal attention must be paid to the creation of enough surplus value that there are resources to redistribute "more equitably."