Business Fixed Lines Up, Not Down

Fixed voice lines used by consumers appear to have fallen since June 2000. Overall fixed voice lines have fallen as well since then. All that would lead a rational observer to conclude that fixed voice lines sold to small and medium-sized businesses have fallen as well. But that is not in fact correct. 

Fixed voice lines sold to business customers have increased from about 45.7 million to about 64.6 million in December 2007, according to the latest Federal Communications Commission data. 

What is not clear is the degree to which mobile voice lines have affected overall enterprise or SMB voice lines in service. Since 2001 wireless voice accounts in service have increased from 124 million to 249.3 million. A reasonable assumption is that business use of mobile voice has accelerated since 2001. 

Researchers at IDC reported in 2006 that surveyed IT managers think nearly 30 percent of their supported employees use their mobiles as their primary work phone. About 41 percent of wired voice lines are used by business customers. If the same percentage of wireless devices likewise are used primarily in business mode, then there are about 102 million wireless devices used in a business mode. 

Surprising SMB Trends

Service provider prospects in the small and medium-sized business market appear to be relatively immune from economic disruption, though it would be an obvious prediction that some enterprise communications needs have decreased because of reduced headcount. 

Despite the highly-publicized wave of enterprise layoffs in November and December 2008, generally unreported is another  trend: smaller businesses are not generally participating in the waves of highly-reported downsizings. In fact, there is new evidence that hiring actually increased throughout 2008, while 75 percent of small business CEOS plan to increase hiring in 2009. That, in turn, is important for service providers as much communications service demand is created by headcount. 

A survey conducted by online payroll service SurePayroll has found that nearly four out of 10 small business owners have not seen their business negatively impacted by the down economy, and an additional four percent indicated that their businesses are actually doing better. 

Still, 18 percent of surveyed SMB CEOs have seen a significant drop in revenues while 42 percent have seen small decreases. That is not especially helpful for anybody, but does not suggest communications services will be hit by reduced headcount. 

According to SurePayroll's monthly tracking surveys, small business hiring actually increased every month between January 2008 and November 2008 (December data are not available yet). What is significant is that the U.S. economy was in recession for that entire period. 

Separately, Entrex Inc, a Chicago firm that markets information on privately held companies, conducted a survey which found 72 percent of small and medium-sized business CEOs plan to increase the number of full time employees in 2009. Also, despite all the news regarding staff reductions, the remainder of the survey respondents indicated they would maintain the current number of full time employees. 

SurePayroll surveys show that,  year-to-date, small business hiring is up 3.3 percent nationwide.

One can argue there could be some weakening of business fixed line buying, but available evidence so far is that business lines in service have increased since 1996, not decreased, though propelled by increased buying of special access circuits more than voice lines. Still, increases in the number of small businesses over the last 10 years have increased SMB voice line buying. 

In 2002, for example, there were 23.3 million small business firms in operation. In 2004 there were 25.4 million small businesses in operation. In 1988 small businesses employed 87.8 million workers. In 2004 small businesses employed 115 million workers. That doesn't mean smaller businesses will fail to take measures to contain their operating costs. It is to suggest they do not seem to be any more willing to cut back on key communications capabilities than in past recessions.

Consumer and IT Spending in Recessions: The Record

Recessions affect consumer spending unequally. During the 1990–1991 and 2001 to 2002 downturns, for example, U.S. consumers changed their priorities, instead of making across-the-board cuts.

Daily amenities such as eating out, purchases of personal-care products and apparel buying tended to suffer, according to analysts at McKinsey & Co.

But categories such as groceries and reading materials, which substituted for more expensive options, actually benefitted from higher spending, as did insurance and health care. Spending on education showed the biggest increase.

What one probably cannot glean from this particular set of data is that "communications" and "multi-channel video entertainment" spending does not change much.

During recessions, tech spending has historically fallen more than gross domestic product has, say McKinsey researchers. "Our research covering economic downturns in 50 countries over the past 13 years indicates that information technology spending typically fell five to seven times farther than GDP, with the most severe declines in hardware (which fell eight to nine times GDP and less severe ones in software and services, falling three to to five times GDP, McKinsey says.

The decline was much larger during the 2001 downturn because spending on computing and telecommunications equipment as a percentage of GDP (IT intensity) had previously soared to historic levels. A boom in tech start-ups, along with Y2K fears, promoted a spending surge on communications equipment, servers, and a range of other products.

When the economic slowdown arrived, start-ups foundered, many companies had too much tech and telecom capacity, and spending cuts across the economy were severe, McKinsey notes. Chastened by that experience, many companies have since
pressured their CIOs to manage IT more effectively.

As the economy enters the current slowdown, the growth of IT intensity is closer to its historic trend, even slightly below the 10-year average. Still, "it does seem likely that the sector’s experience could be more in line with historic trends than it was in 2001."

Broadband: Where We're Going

It's tough to maintain meaningful metrics in the communications business, in large part because the essential business inputs change over time.

Telephone company "access lines" and "basic cable subscriptions," once useful metric s, no longer adequately capture business performance. So we have the substitute "revenue generating unit."

Something along the same lines now will happen in the broadband access area, where counting "lines" once made sense, but increasingly will not capture business performance.

For starters, "average" speeds and "prices" will not be so useful as higher speeds become commonplace, rendering "average" price less meaningful than perhaps "average price per Mbps of service." Also, as wireless broadband becomes more prevalent, we routinely will begin to exceed 100-percent broadband penetration per household, in at least most households.

Broadband: Where We've Been

In 2004, the average monthly Digital Subscriber Line price was $38, compared to $31.50 in 2008. The average cable modem monthly price was $41 in 2004, down to $37.50 a month in 2008. International Telecommunications Union data also show that the trend of higher speeds and lower prices has been underway since 2003 at the very least.

In 2003, each 100 kbps of capacity cost about $11.50. By 2006, 100 kbps of capacity cost less than $6. Over that same period, capacity rose from 1.5 Mbps in the downstream to more than 4 Mbps.

In 2009, Sell to the Federal Government, If You Can

U.S. federal government spending on telecom, applications, outsourcing, services, support, network hardware, computer hardware and IT personnel will grow about 5.6 percent in 2009, after growing about 5.3 percent in 2008, representing about $80.6 billion worth of spending, says  Compass Intelligence. The annual growth rate in 2007 was 6.5 percent.

By 2012, the federal government will spend $98.5 billion on IT goods and services, Compass Intelligence says. Initiatives to support a mobile workforce, E-government, a high-tech military, cybersecurity and green technology are among the federal spending priorities.  "Federal government IT spending is expected to remain rather steady, despite economic conditions," says Stephanie Atkinson, Compass managing partner. 

 

Application spending is expected to be the fastest growing segment, experiencing annual growth between 8.6 and 9.8 percent. Telecom services spending will be driven by wireline data, including IP telephony and broadband services, as well wireless data investments.

 

The Defense segment represents about two thirds of total Federal Government IT spending. 

Suppliers not already certified to sell to military and federal agencies may miss the direct opportunity, though. It takes time to build the relationships and supply the features required by many federal agencies, and none of that can be done fast. 

On the other hand, some suppliers will benefit from indirect federal spending, as they will receive tax credits or grants as part of a government stimulus package starting in 2009, though. 

The caveat is that most, if not all of that support will go to facilities-based service providers with access networks. In many cases, those recipients also will be "carriers of last resort."

Birch Communications Flips Switch on IP Network

Birch Communications a competitive local exchange carrier that serves small and medium-sized businesses in the North Texas market, has launched an Internet Protocol network to replace the company’s current digital network.

The objective of the launch, which utilizes MetaSwitch and Zhone Technologies equipment, is to provide customers with high-performing network services, Birch says.

Atlanta-based Birch serves clients in 31 states throughout the Southeast, Southwest and Midwest.

Clearwire Sued for Patent Infringement

A Dallas-based company has filed a lawsuit against Clearwire Corp. and Sprint Nextel Corp., alleging patent infringement related to the use of six patents held by Adaptix Inc., which has filed the lawsuit.

Adaptix says its patents on multi-carrier communications with group-based subcarrier-cluster allocation, adaptive subcarrier-cluster configuration and selected loading, medium access control for orthogonal frequency division multiple access, multi-carrier communications with adaptive cluster configuration and switching and adaptive subcarrier cluster configuration and selective loading are being infringed.

As is the case with such high-profile cases, it is doubtful the issue will result in a shutdown of the Clearwire network, though that cannot be discounted as a possibility if the parties cannot agree on a settlement.

Mediterranean Cable Cut Disrupts Europe-Asia Traffic

Internet and telephone communications between the Middle East and Europe were disrupted after three submarine cables between Italy and Egypt in the Mediterranean Sea were damaged, according to Bloomberg. France Telecom SA, which plans to send a maintenance boat to fix the problem, said the situation should be back to normal by Dec. 31.

Three cable systems carrying more than 75 percent of traffic between the Middle East, Europe and America have been damaged, according to the U.K.'s Interoute. The cables run from Alexandria in northern Egypt to Sicily in southern Italy. In January, an anchor severed the cables outside Alexandria after bad weather conditions forced ships to moor off the coast.

``The information we have is a bit sketchy, but chances are that it will have been an anchor again,'' Jonathan Wright, Interoute's director of wholesale products, said in a telephone interview. ``Close to 90 percent of all the data traffic between Europe and the Middle East is carried on these three cable systems,'' Wright said.

A January 2008 cable cut off Egypt brought down 70 percent of the Internet network in India and the Middle East.

Vodafone Group Plc's Egyptian unit is among service providers affected by the cable failure.

France Telecom's Orange mobile-phone unit said the cable failure ``greatly disturbed'' the traffic between Europe and parts of Asia. At one point as much as 55 percent of voice traffic in Saudi Arabia, 52 percent in Egypt and 82 percent in India was out of service, according to Orange.

Internet traffic from Mumbai to London now has been re-routed via Hong Kong which may lead to congestion and increased latency on this route,'' Reliance executives said.

The fault is affecting the SMW4 cable near the Alexandria cable station, the FLAG FEA cable and the SMW3 cable system.

Reliance Globalcom doesn't know exactly what happened, but there will be suspicions of an anchor snagging the cables.

The SMW4 cable, also known as SEA-ME-WE 4or South East Asia- Middle East-Western Europe 4 cable network, connects 12 countries: Pakistan, Indonesia, Singapore, Malaysia, Bangladesh, India, Sri Lanka, United Arab Emirates, Saudi Arabia, Egypt, Italy and France.

Downturn Changes "Build or Buy" Economics

SureWest Communications plans to pull back on the expansion of its fiber-to-the-home network next year in an effort to free up cash to buy other telecommunication companies, according to the Kansas City Business Journal. The possible change in growth strategy is a direct result of the decline in equity values that now makes it more affordable to buy assets rather than build new broadband access infrastructure. 

The economic downturn has lowered the stock values of many other telecommunications companies, while SureWest’s stock price has ticked upward. That happy prospect now makes possible acquisitions that some other firms might not be able to pull off. It’s at least temporarily become cheaper to buy telecom companies and networks than to build out a network, SureWest CEO Steve Oldham says. 

The company plans to cut its capital expenditures by about a third in 2009. In 2008, SureWest’s capital expenditures are expected to total about $86 million. Next year, SureWest plans to reduce its capital expenses to between $55 million and $60 million, with 17 percent dedicated to a network expansion. 

If acquisition opportunities don’t arise for SureWest in the coming months, the company would put more money back into adding more fiber connections on its existing network, Oldham says. 

One predictable outcome of the current recession, as always is the case, is a wave of mergers and acquisitions, and SureWest looks to be a buyer. 

2009 Business Comms Spending Probably Flat

Overall spending by all U.S. businesses on wired and cellular calling is forecast to reach nearly $140 billion by the close of 2009, says a new market research report from Insight Research. Insight doesn't make a specific forecast for how that will stack up against 2008 spending, but the company's other forecasts suggest slight growth in 2009. 

Wholesale trade; financial, insurance, and real  estate services; professional business services and communications verticals accounted for 70 percent of total  business telecom expenditures by the end of 2008. Add durable manufacturing and healthcare and these six verticals would account for over 80 percent of total business telecom expenditures.

The study predicts that cellular calling will account for just over 41 percent of the U.S. corporate phone bill for telecommunication services in 2009, and is the fastest growing  expense area. 

Insight Research estimates that businesses spent $81.4 billion on wireline services in 2008. Over the forecast period, an increasing percentage of the business revenue growth will come from enhanced services, often for vertical industries, as telecom providers seek to avoid damaging price competition by positioning their services as value-added solutions rather than commodities.

Insight estimates that the total U.S. telecom wireless market will reach $147.7 billion in 2008. The CAGR for the forecast period is 

estimated to be 15.2 percent. Thus, unlike the wireline market, the wireless market will continue to grow over the next five years, reaching $299 billion by 2013. 

In the fourth quarter of 2005, Verizon Wireless accounted for 40 percent of the company’s total revenue, as compared to the fourth quarter of 2004 in which wireless revenues accounted for 35 percent of the company’s total revenue. In terms of 2006 annual revenues, 

Verizon reported the following: Verizon Wireless contributed $38 billion to the bottom line; Verizon Telecom contributed $33.3 billion; and Verizon Business contributed $20.5 billion. For 2007, Verizon Wireless contributed $43.9 billion to the bottom line, up 15.3 percent from 

2006; Verizon Telecom contributed $31.9 billion, which was a drop from 2006; and Verizon Business contributed $21.2 billion.

All the data suggests that wireless will continue growing faster than all other segments.

 

Wireless service revenues are expected to grow at a compounded rate of nearly 16 percent annually from 2008 to 2013, while growth in wired services remains essentially flat.

Possible Increase in Wireless Substitution

If survey respondents act the way they say they might, we could see an acceleration of wireline voice substitution during the recession.  

Sprint sponsored a survey that found 32 percent of respondents are likely to eliminate their landline service and rely solely on a mobile phone in order to save money. About 18 percent of respondents already do not have landline phone service at their home.

When asked why they would give up their landline phone, 76 percent said they would disconnect in order to save money.

The findings are significant as all service providers are watching for signs of churn behavior, service downgrades and other actions consumers could take if they really are interested in saving money during the recession. 

Some 36 percent of respondents say "a mobile phone is the only phone they will ever need." 

The recession will end, of course. People will not have the same motivation to cut their landline service for financial reasons.  But there is one question we are not asking that will bear on demand for wireline voice service: if one argues there is a secular trend for people to abandon wired voice lines for wireless, one has to account for the reasons millions of consumers are keeping their voice lines, but moving them to cable providers. 

The question might more appropriately be asked: what value-price relationship is compelling enough for people to continue using wireline voice? At the moment, part of the answer seems to be that the service still is viewed as useful, when it does not cost as much. Certainly that would seem to be the cable digital voice customer profile. 

What nobody has had a chance to test on a wide scale is fixed broadband voice, delivered at a price so compelling the value-price relationship is changed. Someday we'll see such tests. 

Cbeyond Web Hosting Move Illustrates Trend

Cbeyond has announced a new "Enhanced Web Hosting" service for small businesses. The service package includes a design- it-yourself tool, marketing capabilities and an e-commerce solution.

The enhanced service is an example of an important trend: retailers of communication services to small and mid-sized businesses ultimately will be in the managed services businesses in a broader way than simply supplying voice and broadband access.

The math is simple enough: about 25 percent of SMB spend is for communications; about 75 percent for applications and hardware to support applications. To get more of the wallet, retailers of SMB services have to address applications, not just voice and broadband access.

Cbeyond's Enhanced Web Hosting package offers small businesses the essential tools to launch and manage their online Web presence. With this package, Cbeyond can host a company's website, configure their domain or transfer an existing domain to the company's Cbeyond account. Further, the design-it-yourself Web application available with this package enables small businesses to build and customize their own website by choosing from more than 200 pre-configured, easily customizable templates. The package also supports flash and video files to create a rich user experience.

International LD Gets More Mobile

At least where it comes to international long distance, sometime in 2009 it is conceivable that more calls will terminate on mobiles than on fixed lines, according to researchers at TeleGeography.

That doesn't mean most international calls will originate on mobiles, though. One of the dominant patterns will be landline origination, mobile termination.

The reason users and service providers will care about such trends is that retail prices and intercarrier compensation rates are based at least in part on what sort of network terminates a call. So changes in termination patterns directly will affect revenues that accrue to various providers of terminating service.

If You Build Will They Come?

Though it now is apparent communications service providers will have to become managed service providers over the long term, the way the need for viable applications is discovered, thrid party applications can be developed and sold remains a thorny problem. 

And the problem is measurably harder on the mobile side of the business, if only because applications have be tweaked for every handset the apps are supposed to run on. For this reason, some developers may well find it is easier to work with fixed line providers, as crazy as that might sound. 

Nor is it going to be especially easy for independent developers to get business deals done. "For two guys in a garage to make five different code applications, it's very hard," says Mark Kvamme, Sequoia Capital principal. 

The dream is to have any application run on any device and over any network. Ideally that allows developers to concentrate on what engages end users, instead of how to develop and deliver the apps. Platforms with large user  bases will help. The Apple iPhone is the best current example, though many have hopes for Google's Android OS as well. 

But business models remain a challenge as well, as it is doutbtful advertising will support most of the new apps developers expect to make available. That means subscriptions, which in turns means a really-compelling value proposition and serious willingness to pay. Few apps so far have that sort of status. 

For that reason along, a focus on business apps would seem to make sense, though the thought probably is unappetizing for many developers. 

All of which suggests the managed services business has a rather large opportunity before it, if some of these obstacles can be surmounted. Namely, make the process of aggregating demand, then authoring and delivering services--with huge scale--and simply. 

How Should VARs Sell Carrier Services?

Many solution providers these days would at least consider adding carrier sales to their product mix, providing the business case makes sense. But the actual sales model any particular solution provider should—or can—take will depend on several factors, say executives at Level 3 Communications, including:

• The current size of a solution provider’s customer base

• Rate of new customer growth

• Typical customer requirement for support at one or multiple locations

• Geographic scope of a solution provider’s operations

• Alignment to current solution provider strategy and focus

In broad outline, the “go to market” strategy will have smaller local VARs profiting from a “referral” or “assisted sale” fee arrangement. Some solution providers will consider becoming sub-agents. Solution providers serving multi-location enterprises will become carrier sales agencies

The new sales operations to sell carrier services can take several forms, Level 3 says.  If the agency route is selected, smaller organizations will train existing staff. Larger organizations may hire personnel with carrier sales experience. 

If a solution provider decides to take a less-extensive role, solution providers may choose simply to make referrals. In a more-substantial role, solution providers might become sub-agencies affiliated with a master agency.

There is no single business arrangement that makes equal sense for every solution provider. The typical smaller value added reseller with perhaps a dozen employees or less, working in a single metropolitan market, may not generally find that a feasible route, and might well opt for a referral fees model.

Broadband Stimulus Coming?

The Telecommunications Industry Association and Communications Workers of America have sent U.S. congressional leaders the outlines of a broadband deployment incentives program which they suggest be made part of any economic stimulus package passed by Congress early in the new year.

The proposal emphasizes tax incentives and direct grant. Specifically, the groups suggest allowing wireless broadband deployments to expense 75 percent of investments. Alternatively, the groups suggest a 15 percent investment tax credit for networks capable of 1.5 Mbps downstream/384 kbps upstream.

They suggest and 100 percent expensing or a 20 percent investment tax credit for new infrastructure capable of 3 Mbps downstream/1 Mbps upstream. the groups also recommend a 40 percent investment credit for a network providing 5 Mbps downstream/1 Mbps upstream.

For fixed broadband infrastructure, the groups suggest 50 percent expensing or a 10 percent investment tax credit for networks capable of 3 Mbps downstream/1 Mbps upstream, 75 percent expensing or a 15 percent tax credit for 25 Mbps downstream/5 Mbps upstream, or 100 percent expensing or a 20 percent tax credit for 50 Mbps downstream/20 Mbps upstream infrastructure.

They further propose a 40 percent investment tax credit for a network providing 100 Mbps downstream/20 Mbps upstream.

For satellite broadband infrastructure, which plays a special role in national broadband deployment, tax benefits associated with particular service capabilities remain to be determined, the groups now say.

The groups argue for investment in four segments: fixed broadband, wireless broadband, satellite broadband and broadband core and backbone transport.

The proposal also suggests “direct grants” for rural broadband deployments. TIA suggests a $25 billion grant program for deployment of broadband infrastructure in unserved areas.

Consumer Recession Behavior Still Consistent

In some ways, consumer behavior is similar to past behavior in recessions, a Parks Associates survey finds. What is similar is the greater--not lesser--reliance on multi-channel video services.

What is different is the bigger role for video on demand, especially of the "free" or "subscription" variety.

One suspects, though data is not yet available, that roughly the same sort of trend will be seen in the mobile and broadband access areas as well. People aren't going to disconnect. But they might shift buying a bit, delaying upgrades or purchases of advanced features and services.

Viral Works

Social media marketing might be more effective than just putting ads on social networks, according to SheSpeaks. The reason? Though women are active social networkers, a substantial percentage ignore ads or are annoyed by them. About 26 percent of respondents to a recent SheSpeaks-sponsored survey actively ignored most online ads and 20 percent were annoyed by ads on social networking sites.

For that reason, SheSpeaks argues that social media marketing—not just ads on social networks—could be especially effective among women for spreading word-of-mouth information.

About 46 percent of all women surveyed by SheSpeaks now use social networks. And since most observers note that Internet use and social networking are more common among younger users than older users, it probably is noteworthy tht more than 40 percent of women in their 40s have a social networking profile, and women with children seem to be active social networkers.

More than 70 percent of women with children ages 13 to 17 had talked about products on social networks, compared with 62 percent of all responding women.

“40-somethings are active users and members of online social networks,” says Aliza Freud, CEO of SheSpeaks, in a statement. “These women have started to use the Web and social networks in ways that mirror the rest of their lives—from finding out about a product to shopping or monitoring their children’s activities.”

Female Internet users ages 45 to 54 are a larger audience than male Internet users of the same age, according to comScore Media Metrix. There are also far more female Internet users ages 45 to 54 than there are ages 55 to 64.

When Bad People Use Good Technology

Technology now plays a key role in enabling terrorists, says New York Times reporter Jeremy Kahn. The attackers studied satellite images of the city online, navigated using the global positioning system, used a satellite phone and VoIP. In fact, VoIP was used during the Mumbai hotel attacks during the occupation of at least one hotel to keep terrorists aprised of security force movements, Kahn notes.

Indian security forces surrounding the buildings were able to monitor the terrorists’ outgoing calls by intercepting their cellphone signals. But Indian police officials said those directing the attacks, believed to be in Pakistan, were using a VoIP phone service that has complicated efforts to determine their whereabouts and identities.

In mid-October, a draft United States Army intelligence report highlighted the growing interest of Islamic militants in using VoIP, noting recent news reports of Taliban insurgents using Skype to communicate. 

Some people reflexively complain about electronic surveillance and privacy, which are reasonable concerns. Despite being unable to name a single instance when a a lawful U.S. citizen's use of technology has proven to be a problem, those same people would deny intelligence agencies the tools they need to prevent attacks or catch perpetrators. 

Several hundred innocent people are dead. A bit of balance would be nice. 

Recession ARPU Impact: This is Why

Alan Weinkrantz over at 3Screens.com makes a point that illustrates the likely impact of the current recession on retailers of voice, data an video services to consumer customers: average revenue per unit is going to be under pressure. Weinkrantz points out that he reduced his triple play billing from $164 to $94 per month by threatening to churn to another provider. 

"You just have to call 800-288-2020 and ask for a discount by telling them you are thinking of switching to your local cable or satellite provider," he says, saying that his U-verse Voice service pricing went from $35 to $25; U-verse 400 went from $99 to $59 and 

Broadband Elite went from $30 to $10. The discount is good for six months. 

"I told them to note it on my record that I was going to call back in May to ask for the same thing again," he says. 

53% of American Adults are "Gamers"

Some 53 percent of American adults age 18 and older play video games and about one in five adults (21 percent) play everyday or almost everyday. While the number of video gamers among adults is substantial, it is still well under the number of teens who play. Fully 97 percent of teens play video games.

Younger adults are considerably more likely than older adults to play games, and the likelihood that an adult is a video gamer decreases significantly with age.

Fully 81 percent of respondents18-29 years old play games, while only 23 percent of respondents 65 years old and older report playing games, according to to a recent Pew Internet & American Life Project poll.

Overall, men (55 percent) are slightly more likely than women (50 percent), and urbanites (56 percent) are a bit more likely than rural-dwellers (47 percent) to play any kind of digital game. There is no significant difference in game playing across income groups or between suburbanites and adults from other locales.

A person’s education level is another predictor of video game play. Some 57 percent of respondents with at least some college education play games, significantly more than high school graduates (51 percent) and those who have less than a high school education (40 percent).
Current students who are 18 or older are also avid players. Notably, 76 percent of students (82 percent of full-time and 69 percent of part-time students) report playing games, compared with 49 percent of non-students.

AT&T Will Hit 10% Video Penetration in December 2008

AT&T now says it will end the year with more than one million U-verse (multi-channel video) subscribers. The company expects to surpass that milestone in mid-December. That is important for people who track progress telcos are making in the video market, which is the mirror image of telcos losing voice customer share to cable companies.

At that level, AT&T will have surpassed 10 percent penetration within one year when we begin marketing operations. That itself is a milestone on the way to stable long-term penetration for wired network providers, which has in some other cases reached 30 percent or higher levels in a few markets where there is robust multi-channel video competition. Verizon has attained that level in some of its FiOS video markets, for example.

Most telcos probably think they will get to 20 percent in several years. Verizon already has hit about 24 percent penetration where it offers FiOS video. On average FiOS TV achieves 17 percent penetration in just 12 months and over 26 percent penetration within two years, Verizon reported in the third quarter of 2008.

Covad Certifies PBXes

Covad Communications has certified IP PBXs from TalkSwitch, Grandstream, Vertical and Epygi for its new Covad Integrated Access service.
 
IP PBXs certified by Covad include:
* TalkSwitch IP PBX equipped for VoIP (models 244/248vs, 284/288vs,  484/488vs and 844/848vs)
* Grandstream GXE502X ALL-IN-ONE IPPBX 
* Vertical Xcelerator IP
* Epygi Quadro 2x and Quadro 4x IP PBX

Mass Media Will Miss the Bottom...Again....

Count on the mass media to miss the "bottom" of the present recession: they always do. You now are seeing headlines about layoffs at larger and mid-sized companies.
Economists now say we have been in recession since December 2007. The only good news there is that one year of the recession already has passed.

So whether you think this is a garden-variety recession or a longer one, the average recession lasts 18 months. By the end of the year we'll have been in recession a full 13 months. And layoffs always are a lagging indicator.

So as you note news reports about job losses, keep one thing in mind: when we reach the peak of the job losses, the recession will have hit bottom and the recovery will have begun.

Peak job losses in the 2001 recession were 325,000, which were reported in October, the last month of that recession. Peak losses during the 1990-91 recessions—306,000—were reported in February 1991, again one month before the recession ended.

During the 1981-82 recession, peak job losses were 343,000, a figured reported four months before the end of the recession. A bottom in the labor market often indicates the near bottom of a recession, since employment is a lagging indicator.

There are implications for service providers. Though not every company is as cash rich as Cisco or Apple, opportunities to take market share or reshape a market always present themselves in a recession.

And there is clear evidence that in some customer segments, such as small business, hiring actually increased every month of 2008, says SurePayroll, a company that makes its living processing employee payroll checks (through the end of November, the last month where data is available).

Hiring tends to drive increased buying of communications products, so whatever weakness you think you will see in the enterprise segment, small business trends could well be quite different.

Small Business: Conventional Wisdom is Wrong

With all the bad news we are hearing, the conventional wisdom is that small businesses will be cutting back on hiring. As sometimes occurs, the conventional wisdom often is wrong. Keep in mind that economists now have concluded the U.S. economy has been in recession since December 2006.

So what might surprise you is that SurePayroll, a company that makes its living processing employee payroll checks, hiring in the small business segment climbed steadily through 2008.

What that means for providers of communications services to small businesses is that underlying demand in the small business segment grew all year in 2008.

After the carnage of October 2008, one might have expected, and news reports suggest, a wave of layoffs starting in November 2008. But SurePayroll says U.S. small businesses increased their staff levels by 0.26 percent in November. “It was the second lowest percentage increase this year, but it extended the run of monthly hiring increases to an impressive twenty-four months,” the company says.

The SurePayroll Hiring Index, which tracks the size of small businesses, ended the month of November at 11,249, which is 30 points higher than where the index stood in October.
For the first 11 months of 2008, when the economy was definitively in recession, small business hiring went up 3.3 percent nationwide.

Hosted IP Telephony: No Pain; No Gain

Retailers of hosted IP telephony (hosted PBX) services to small and medium-sized businesses have a problem, and it isn't the economy or other competitors.  The big problem is that most users are fairly satisfied with their current phone solutions. 

"Most users do not have problems with their current phone system," Andy Randall, MetaSwitch VP, notes. And that is a big barrier to adoption of hosted IP telephony. If there is no problem, there is no reason to buy an alternative solution.  

Essentially, the problem is that, in many cases, there is no current "problem" to fix. The "problem" essentially be created, though. If a potential customer finds out that they are "overpaying" by quite some amount for their voice and broadband access services, that becomes a problem. 

So one essential requirement here is to "create" a big enough problem that hosted IP telephony solves. Keep in mind that most smaller businesses essentially can compare any new solution to what they already are paying. And that metric typically boils down to a cost per employee per month. 

Randall  thinks providers of hosted PBX services to small and medium-sized businesses need to price at about $30 to $60 per employee per station to disrupt the value-price relationship now offered by current voice-plus-data services already bought by SMBs. 

The reason is that most SMBs today are spending from $29 to $125 per employee per month for voice and data access. At about 15 stations, hosted IP telephony generally costs $$56 to $106 per employee per month. At that rate, a new hosted IP telephony offer does not save SMBs money. And though new features are important, the biggest single objection to a sale is going to remain that the new solution, despite its benefits, does not save money. 

Since users expect hosted IP solutions to save them money, retail providers are trying to push a boulder uphill. "Where's the business driver?" Randall rhetorically asks. If a premises doesn't save an SMB money, and neither does a hosted PBX solution, there is no great incentive to change. "Disruption requires moving lower than $56 to $106, per employee, per month, for the total broadband access and voice offer, Randall argues. 

IP trunking also will be important for SMBs that really do not want to replace their current desk phones for new IP models. In part, SIP trunking can be a stealth adoption strategy. "Some people will keep their PBX for a few years," Randall says. "So sell the IP trunk today and then sell hosted voice later when the customer is ready to replace the TDM sets."

For 15 employees, a hosted IP telephony solution, plus the broadband, possibly costs $86 per employee per month, Randall says. The problem there is that it is tough to show savings from switching. And for any technology, whatsoever, the key is that the proposed new solution has to offer enough value to offset the pain level of the current solution.

The "problem" hosted IP telephony is supposed to fix is not generally perceived by the potential customer to be a "problem."  For most SMBs, the phone system they have works. There is not an obvious "crisis" that the hosted IP telephony solution can solve. 

And despite what most technologists tend to think, people don't change behaviors and adopt new technology because something about the solution is "10 times better" on some technical measure. What has to happen is that the pain a potential customer currently is experiencing can be alleviated by changing. 

At current pricing levels, lots of potential customers will not be persuaded to change because the level of pain is not so high. "The main competitor any retailer of hosted IP business voice faces is 'business as usual,' not some other competitor in the market," Randall says. 

One More Reminder: WiMAX is Not a Business Model

Clearwire CEO Benjamin Wolff says the network will built to support both WiMAX and Long Term Evolution, the "rival" standard favored by the world's GSM providers and even CDMA-based networks such as Verizon Communications.

"Our vendors will be able to deliver network infrastructure equipment to us that will enable us to operate both mobile WiMAX and LTE technologies if we decide that it makes sense to do so several years from now when LTE becomes commercially available," says Wolff.

"If LTE truly becomes established as a global standard as WiMAX has, Clearwire will be well positioned to take advantage of that opportunity," says Wolff.

Though sometimes obscured by the hype, WiMAX is broadband radio access. It is not a business model. Clearwire's willingness to use both protocols is simply further proof. If there is a new business model to be built, it will come from packaging, pricing and other elements that would create something like an open broadband wireless Internet experience, akin to what users can do today with 3G dongles for their PCs, but also including new "end user" segments, devices or applications.

Still, it is far from clear that even if Clearwire succeeds at doing those things, it will be alone. Verizon Communications has been quite vocal about opportunities for machine-to-machine applications, which would indeed open up new "end user" segments. And as we have seen time and time again, it isn't all that hard for one provider to mimic another provider's packaging, pricing or device features, if it is necessary.

Clearwire probably has something between a one-year advantage to two years worth of advantage on the "raw bandwidth" dimension. That won't provide much of a differentiator for long. To be sure, Clearwire has plans that would move it further away from the current mobile narrowband or broadband packaging model.

What remains untested is the size of the problem and the amount of "pain" users now face in the mostly-closed mobile broadband model. Technologists might experience "closed" environments as a pain point. Most users do not. More flexible, casual pricing arguably addresses a bigger pain point: the desire to occasionally use features.

Vidtel Launches Video Calling Service

Vidtel, a Sunnyvale, Calif. company lead by Scott Wharton, CEO and former BroadSoft VP, has launched its videoconferencing service, which today supports video calls between Vidtel users. In addition to video calling, users can also make and receive regular voice calls to anyone in the world with a telephone number.

In 2009, Vidtel will add the capability to call other video users around the world regardless of the service or type of device they use.

That means interoperability with Skype, iChat, Google and video-enabled mobile phones (3G and 4G mobile phones), Wharton says, arguing Vidtel will create the first interconnected video calling network, offering a standard by which all video callers can call each other, regardless of service they are using.

Vidtel uses the Grandstream GXV-3000 video phone, sold separately at a cost of $199.95 plus tax. Two service plans are offered. The "Standard" plan costs $14.95 per month or $99.95 a year. The standard plan offers unlimited video calling within the Vidtel network (Vidtel-to-Vidtel customer) using a regular 10-digit phone number.

Users also can make domestic and international phone calls in addition to video phone calls. Calls within the US, Canada and Puerto Rico are 3.9 cents per minute. Enhanced 911, a dedicated telephone number, call waiting, voicemail, caller ID and call forwarding, plus enhanced features you can’t get anywhere else like video mail.

The "Premium" plan costs $29.95 per month or $249.95 a year. The premium plan includes unlimited video calling plus unlimited telephone calls within the US, Canada and Puerto Rico. Like the Standard plan, the Premium plan includes enhanced 911, dedicated telephone number, call waiting, voicemail, caller ID, call forwarding, and video mail) and simultaneous ring.

Vidtel charges a one-time account activation fee of $19.95 and shipping and handling fee of $19.95. Vidtel monthly service packages are also charged the required federal and state taxes and 911 fees.

The video mail feature allows users to send and receive video messages from friends and family. Video messages can be retrieved on the phone or in email. Video messages can be forwarded to any email address, anywhere in the world.

At present, the service requires getting a new phone number. In 2009 uesrs will be able to transfer an existing number to Vidtel.

Billing is by credit card and users obviously require a broadband Internet connection.

Wharton says target customers include family and friends who live far away. Wharton also thinks some small or medium-sized businesses might use it as an affordable conference calling system.

Mobile Penetration at 90% of 18-Year-Olds

Some three quarters of online youth in North America have a mobile phone today, including more than 90 percent of 18-year-olds, says Charles S. Golvin, Forrester Research analyst. These young people rely heavily on their cell phones for a wide variety of communications and content services, he says.

In fact, they report spending more time texting than on any activity other than face-to-face contact with their friends. Almost one quarter of these young mobile users access the Internet on their phones, as well.

Broadband is Demand--Not Supply--Constrained

Broadband access in the United States now is a demand-constrained "problem," not a supply-constrained issue, for the most part. That is not to deny there remain some homes too expensive to reach economically using wired networks. But it is hard to ignore existing satellite broadband, terrestrial wireless broadband and multiple mobile broadband networks in service, even when a wired connection is not available.

Indeed, a recent study by Connected Nation found that nearly one-half (44 percent) of those with no home broadband connection say "I don’t need broadband." That suggests availability is not the actual problem.

Likewise, the top barrier to computer ownership is also a perceived lack of need. Nearly two-thirds (62 percent) of those who do not own a computer say "I don’t need a computer," Connected Nation finds.

That isn't to say cost is not an issue at all. Nearly one-fourth (24 percent) of those who do not own a computer cite the up-front cost as a barrier. Similarly, nearly one-fourth of those without a home broadband connection say broadband is too expensive.

Four out of ten parents with children who are without a home computer see no need for having a computer in the home. And nearly one-third (30 percent) of parents with children who do not have a home broadband connection see no need for a broadband connection.

More than one-half (56 percent) of people with disabilities who do not own a computer see no need for having a computer in the home. Four out of ten people with disabilities who do not have a home broadband connection see no need for a broadband connection.

Predominantly, even in contexts with reliable supply of broadband, it is consumer demand for broadband that is the tallest barrier to adoption and represents America’s competitive vulnerability, Connected Nation argues.

For example, among residents with children at home but without a computer at home, 41 percent did not see a need for a computer at home and 30 percent did not see a need for a broadband connection.

So which segments are most commonly receptive to broadband and use of computers? Households with children who need Internet access for homework are a high-adopter segment. About 84 percent of households with children own a computer, compared to 74 percent computer ownership among all residents.

And 62 percent of households with children choose to subscribe to broadband services at the home, contrasting with the overall broadband adoption rate of 50 percent. Parents, therefore, generally recognize the importance of what broadband has to offer their children. However, even among these parents with children at home, 13 percent still do not own a computer and 38 percent do not have a broadband home.

According to consumers, the primary barrier to computer ownership and home broadband adoption is not expense or lack of available broadband service, but rather, a perceived lack of need. When asked why they don’t subscribe to broadband or why they don’t own a computer, consumers responded most often with, "I don’t need it."

FCC Free National Wireless Plan Set for Dec. 18 Discussion

Federal Communications Commission Chairman Kevin Martin is pushing for action at its December 18 meeting on a plan to offer free, pornography-free wireless Internet service to all Americans, the Wall Street Journal reports. The plan would require the winner of to set aside a quarter of the airwaves for a free Internet service. 

The frequencies are the Advanced Wireless Service-3 block, which the FCC originally hoped would attract bidders to create a nationwide public safety network. The FCC reportedly wants the winner of the AWS-3 auction to devote 25 percent of the bandwidth to free wireless nationwide broadband with a downstream speed of 768 Kbps.

Predictably, carriers and service providers aren't happy about the idea, as readily-available free service would crimp demand for "for-fee" alternatives. But some policy advocates object to the "pornography free" provisions. 

Separately, a coalition of groups is calling for spending on a national broadband program as part of a possible infrastructure investment program Congress has been talking about. Precise details so far are vague, but the 57 member group, "A Call to Action for a National Broadband Strategy," includes Google, AT&T, Verizon, trade associations, labor unions and others.

The stated objective is to provide every American with affordable access to a high-speed broadband connection. Presumably that also means enacting policies to stimulate private investment and consumer adoption of broadband.

Tax incentives, grants and subsidies from the FCC's Universal Service Fund and different approaches to spectrum allocation are examples of possible policies the group suggests are worthy of consideration. 

One might note a growing body of evidence suggesting that demand, not supply, is the issue, for most potential consumers. Notable issues remain in rural areas, of course. 

Mobivox Decides to Work with Service Providers

Mobivox, which has operated as an over-the-top application, is changing its business model. Rather than compete with other over-the-top VoIP providers, Montreal-based Mobivox, which allows people to make free or cheap phone calls, is increasingly interested in partnering with service providers. 

In particular, Mobivox is white-labeling its platform of services, such as voice-enabling calls and an online hosted address book. Jajah, for example, uses Mobivox to provide voice-enabled dialing.  The Jajah Concierge service activates a phone call to anyone in a user's address book.   

Mobivox can provider a number of features for service provider partners in addition to voice-assisted calling. It also can be used to support group communications for social and business users, allowing users to say the name of a predefined group in the

address book or use the voice assistant to add contacts to a live call. 

Mobivox also can enable voice-activated calls to Instant Messaging voice clients from any phone. 

The reverse charging feature can enable receiving calls from anywhere in the world at local termination rates. Call costing and screening tells users who is calling and what it will cost to accept a call.

The voice-to-text feature supports hands-free recording of messages from any device, the messages being transcribed into text for delivery as email or text messages.

The issue here is that Mobivox now is an example of a "VoIP 2.0" firm concluding that its business interests are better aligned with "VoIP 1.0 service provider partners" rather than battling them as a stand-alone entity. Voice is a scale business, and Mobivox seems to have concluded that scale can be gotten a lot faster working with service providers than going it alone. 

Clearwire Might Use LTE

Clearwire CEO Benjamin Wolff says the company would consider using Long Term Evolution, the fourth-generation platform global mobile providers have settled on as their preferred 4G network. Wolff says that if LTE becomes a dominant wireless technology, Clearwire would consider using the technology in addition to WiMax.

The issue is not "if" LTE becomes a dominant technology, but probably only "when." That suggests LTE is in Clearwire's future, one way or the other. That isn't to say Clearwire would abandon WiMAX completely, or that other providers would. Such a move by Clearwire might well relegate WiMAX to "niche" status in the U.S. market, though.

Hawaiian Telcom Declares Bankruptcy

Carlyle Group's $1.65 billion bet on Hawaiian Telecom has gone bust. When the 2004 purchase from Verizon Communications was announced, Carlyle Group executive and former Federal Communications Commission Chairman Bill Kennard called it an "exciting opportunity" that was expected to add many new jobs, according to the Washington Post.

The bankruptcy filing by an incumbent local exchange carrier is extremely rare.

Hawaiian Telcom has about $1 billion in debt and missed $26 million in interest payments last month. It had been trying to work out a debt-restructuring plan with its creditors but apparently was unable to do so.

Of its current $1 billion in debt, about $574.6 million is in bank loans and $500 million is in bonds.

It isn't clear yet whether there will be other similar problems popping up. It might happen that a major proposed private equity buyout fails to occur, though.

Bell Canada Enterprises and the Ontario Teachers Pension Plan, which is leading a BCE buyout plan along with three U.S.-based private equity firms, are haggling over the deal's $1.2 billion break-up fee, according to a report in the Toronto Globe and Mail.

The acquisition, valued at around $35 billion recently, had been expected to close by Dec. 11, but might now be in question after independent valuation firm KPMG advised that market conditions and other factors would make it unable to render a solvency opinion on the deal.

Ease of Use Still a Problem

Technology ease of use remains a problem, according to a new survey conducted by the Pew Research Center's Internet & American Life Project. Nearly half (48 percent) of adults who use the Internet or have a cell phone say they usually need someone else to set up a new device up for them or show them how to use it. And many users of various devices and services also encounter breakdowns from time to time.

Some 44 percent of those with home Internet access say their connection failed to work properly for them at some time in the previous 12 months. About 39 percent of those with desktop or laptop computers have had their machines not work properly at some time in the previous 12 months as well, says John Horrigan, Pew Center associate director.

About 29 percent of cell phone users and 26 percent of smart phone usres say their device failed to work properly at some time in the previous year.

Some 15 percent of those experiencing problems with PCs, mobiles, Internet access or smart phones said they were unable to fix the problem. About 38 percent of users with failed technology contacted user support for help while 28 percent say they were able to fix the problems themselves. Some 15 percent fixed the problem with help from friends or family. About two percent found help online.

Voice a Broadband Killer App?

There is much truth to the notion that "email was the killer app for dial-up." There may also be some truth to the notion that "voice is the killer app for broadband." At least that seems to be a developing theme for SureWest Communications. 

SureWest benefits by selling more bundled triple-play services with the offering, thereby enhancing overall subscriber margins. "We have converted nearly 2,900 customers from the telecom voice product to the new broadband Voice over IP service since its launch earlier this year," he says. "And of those converted customers, over 20 percent added SureWest Internet with their phone service, and over 10 percent added TV."

In other words, VoIP has driven buying of other key services as well, especially broadband Internet access and IPTV. SureWest broadband residential voice RGUs increased seven percent year-over-year and five percent sequentially. In the original Sacramento region, voice RGU growth was 18 percent year-over-year and 13 percent sequentially.

U.S. Mobile Data Prospects in 2009

The U.S. wireless data market grew 7.3 percent sequentially in the third quarter 2008 and 37.5 percent year over year to reach $8.8 billion in data services revenues. For first nine months, mobile data revenues of $24.5 billion were equal to the revenues generated for all of 2007. 

The big question is what happens in the fourth quarter and after, as it appears handset upgrades and sales, for example, already are slowing. Some observers think wireless data service revenes will hold up. Analyst Chetan Sharma, for example, notes that text messaging represents 40 percent of all data revenues, and that the texting habit is unlikely to change. 

In the third quarter, U.S. messaging volumes grew 38 percent while messaging revenues grew six percent. Use of wireless dongles and cards for mobile PC access has been a big driver of revenue of late, and Sharma thinks that could an area of softness though, for the simple reason that many former users will fall victim to layoffs, while managements might be less generous in providing such technology to their remaining employees.

Still, it is conceivable that mobile data growth in the U.S. market will flatten out in 2009, says Sharma. "If the job loss rate increases substantially, more than it has been in the third quarter and into the fourth quarter, we might, just might, start to see flattening of data revenues in the first quarter of 2009 and gradual decline over the course of the year," says Sharma. 

Mobile providers probably can counteract economic issues by emphasizing sales of sub-$200 smart phones bundled with data plans, Charma says. To the extent there is an economic effect, it is likely to be on average revenue per user, Sharma suggests. 

That likely will be the case for wired network providers as well, as price and bundle promotions increase.

Operators in Europe have already started to feel the pinch, Sharma says. Vodafone and Telefonica recently have seen a decline in overall revenues. Though overall service revenues declined 1.7 percent, data revenues grew 30 percent. That suggests the importance of data plan, handset and bundling programs. 

100 Mbps Inevitable; Only Question is Price

NTT long has been the "gold standard" for residential bandwidth. But Verizon has closed the gap, suggesting that 100 Mbps is destined to become a common access speed.

The issue is how long it might take before such speeds are affordable.

To be sure, most of that bandwidth is needed for one simple reason: entertainment video. In its own analysis, Verizon has estimated that current and future needs for virtually all other applications top out at about 15 Mbps symmetrical bandwidth.

Beyond that, it is network-hosted applications and new forms of video that require higher bandwidth. Since it delivers linear video using a separate wavelength, Verizon thinks it really only needs about 15 Mbps downstream to support on-demand video.

But there's little question what happens if three-dimensional TV is commercialized. Then 75 Mbps might be required to deliver one stream.

88% of Internet Users Will Be Watching Online Video by 2013

By 2013, more than 69 percent of online video ad revenue will be associated with long-form video. By that point, about 88 percent of all Internet users will be watching online video as well, eMarketer now projects.

As good as that will be for content owners, it is unclear whether the trend will be good, bad or neutral for Internet access providers. Much depends on how involved ISPs are in the revenue value chain.

Have Landlines in Service Actually Decreased?

Just about everybody assumes that landlines in service have declined over the last seven or eight years. To be sure, if one looks at Federal Communications Commission data, there is a net loss of about 34 million access lines between the end of 2000 and the end of 2007, though there has been significant shift of market share from incumbents to cable TV and competitive local exchange carriers.

But there are some facts one wouldn't immediately see. Wired broadband connections increased by more than 65 million over the same time frame. And business lines in service likewise increased, despite technological substitution of broadband for narrowband lines.

So one has to differentiate between lines that shifted to new providers, lines that shifted from narrowband to broadband and lines that shifted to over-the-top providers (A customer buying an over-the-top VoIP service is still a wired voice customer, even if a "line" appears to be gone.

If one assumes that the roughly three million U.S. VoIP lines are active, revenue-generating wired voice lines, the market as a whole lost about 31 million lines, for all reasons, between 2000 and the beginning of 2008.

Broadband lines in service grew from perhaps five million in 2000 to about 65.4 million in 2007. Even if every broadband line represented the loss of a narrowband line, overall lines in service clearly have grown.

Is TV Getting Cannibalized or Not?

A new IBM study reveals that online video is cannibalizing television consumption. Another study by Nielsen says U.S. TV watching actually has climbed. Maybe there are key differences between U.S. and global TV viewing that could account for the differences. But the Nielsen report also notes that “TV use is at an all-time high, yet people are also using the Internet more often; 31 percent of which is happening simultaneously,” Susan Whiting, Nielsen vice chairwoman says.

That's a potential way of harmonizing some of the difference. People could be watching online video while the TV is on in the background.

The IBM poll of 2,800 people in six countries found that 76 percent have viewed video online and that 45 percent do so regularly. About 15 percent of those who watch online videos say they watch "slightly less" TV than they used to, while 36 percent say they watch "significantly less" TV as a result of their online video viewing. Indeed, "place-shifting alternatives may be changing consumer couch-potato behavior," the study claims. IBM polled 2,800 people in six countries for the study.

In the third quarter of 2008, the average American watched approximately 142 hours of TV per month, five hours more than they watched in a typical month during the same period a year ago, Nielsen says. During the 2007 to 2008 television season, the average U.S. household consumed eight hours and 18 minutes of TV per day, a record high since Nielsen started measuring television in the 1950s.

Americans who used the Internet were online 27 hours a month, and people who used a mobile phone spent three hours a month watching mobile video. Men were more likely than women to watch via mobile phone, while women were more likely then men to watch video online.

HDTV Drives 2.3 Million Churn Events

HDTV purchases seem to be driving some amount of service provider churn: nine percent of HDTV owners say that they switched multi-channel video providers when they purchased their HDTV, according to Leichtman Research Group. About 22 percent of all households purchased a new TV set in the past 12 months, with 43 percent of this group spending over $1,000 on a new TV.

There are about 114.5 million U.S. TV households. That suggests 25.2 million TV homes bought HDTVs. If nine percent of those buyers switched providers, that suggests 2.3 million homes switched providers, or about two percent of TV households, over the last 12 months, because of an HDTV purchase.

50 Mbps? Try 8 Mbps

U.K. workplaces with downstream broadband speeds topping 10 Mbps have risen from 18 to 25 percent, Point Topic says.

About 13 percent of businesses had speeds of 50 Mbps or above. About 21 percent of businesses have a connection capable of less than 2 Mbps, 33 percent run at up to 8 Mbps, 12 percent have 10 Mbps connections, six percent have 100 Mbps service, five percent use 50 Mbps and two percent have connections running at 100 Mbps.

The most common downstream speed among businesses is 8 Mbps, with 33 percent of businesses buying connections at that rate.

One wonders whether a quarter of cable modem subscribers will be willing to spend about $150 a month to get service at about 50 Mbps downstream, given demand so far for business broadband at speeds above 10 Mbps.

50-Mbps Demand Test

Comcast has begun introducing 22 Mbps and 50 Mbps broadband access, and the company says it will make the new services available to 10 million premises in at least 10 markets over the next few months. Comcast’s Extreme 50 service, offering up to 50 Mbps downstream and up to 10 Mbps upstream, costs $139.95 per month, plus taxes, when bought with cable TV service. The Ultra service, running at up to 22 Mbps downstream and 5 Mbps upstream, costs $62.95 a month, plus taxes, when bought in conjunction with cable TV service.

In the Pacific Northwest, Comcast will primarily compete with DSL services from Qwest Communications International (which advertises download speeds up to 12 Mbps) and Verizon Communications (up to 7.1 Mbps).

A business-class package offering 50 Mbps downstream and 10 Mbps upstream, sells for $189.95, plus taxes, and bundles in firewall services, static IP addresses, 24/7 customer support, and a suite of software from Microsoft.

We now will get a demand-side test of how many customers presently want to pay for service at such speeds.

Smart Phone Behavioral Differences

So far, it appears that Apple iPhone users download applications more often than other smart phone users. Some 72 percent of iPhone users say they have downloaded more than five applications on their phones, compared to only 23 percent of other smart phone owners.

Where 34 percent of smart phone owners have not added an application to their phone, just seven percent of iPhone users report they never have downloaded an app, according to a recent survey by Compete.

The issue is what this behavioral difference makes. It may be partly that iPhone lead adopters are tech savvy, compared to other smart phone users. It also may be that apps are easy to find and add to the iPhone.

It is conceivable download rates for Google and Blackberry devices might ultimately rise to match what iPhone now sees, Compete analysts suggest.

Wireless Won't Suffer, Ovum Predicts

One of the questions service provider executives are trying to answer is whether communications and multi-channel video services will hold up as well as they have in past recessions. Through the third quarter there still had been no evidence of damage. Some will note that the impact of October's credit crisis will not be seen until the fourth quarter, and that is a correct observation.

But there might be reasoned hope for stability. As noted before, only in one year since about 1945 has wireline revenue growth even flattened. With that single exception, wired network revenue always has grown, recessions or not.

Cable TV revenues have had the same sort of pattern since the 1980s, for example, and at least so far, there has been no detectable evidence of mobile revenue slowing.

In fact, Ovum predicts the North American mobile market will escape catastrophe as a result of macroeconomic conditions in 2009 and will continue to grow, albeit not at the rates we have seen in 2008, predicts Steven Hartley, Ovum senior analyst.

Ovum argues that U.S. mobile connections will rise 6.3 percent while revenue also rises 6.3 percent in 2009. In Canada connections are expected to grow 7.5 percent while revenue grows 11.3 percent.

The United States added 3.9 million connections in the third quarter and year-on-year total connections growth was 10 percent, Ovum says. Only Sprint saw a decline in connections in the third quarter (losing a net 1.3 million subscribers.

Canada's national wireless operators also saw continued connections growth, with Rogers connections base growing eight percent year-on-year, Bell Canada growing seven percent and Telus 10 percent.

One might argue that the fourth quarter will not be so robust, or that the real damage to come will be in the margin area, not the revenue area. Still, growth at the level Ovum predicts would be fairly convincing proof that wireless now has attained "necessity" status.

Something One Doesn't Typically See

Commenting about the recent Comcast peer-to-peer blocking adjudication at the annual Phoenix Center conference, Federal Communications Commission Chairman Kevin Martin noted one truly unusual aspect of the case. 

"Normally people fess up and promise never to do it again," Phoenix Center head Lawrence Spiwak  noted. Those of you who have had even casual acquaintance with the deference routinely shown to the FCC in Washington policy circles will agree.  

"In this case, Comcast first said they didn't do it, then said they did, but that the FCC had no authority over it," Martin said. That's unusual behavior. 

Network management is one thing; interfence with lawful applications another, Martin said. 

"It did not seem to be reasonable that Comcast denied that was what they were doing," Martin said. "It is a problem when you have a company that won't admit it is doing something" independent evidence shows it is. 

Not many who routinely deal with the FCC could say they have seen this sort of thing very often. 

U.S. Business Landline Purchases Up

Here's something you might not have suspected: U.S. businesses have added 700,000 wired network connections over the past five years, despite shedding large number of narrowband voice lines. 

Ethernet, business grade DSL and business grade cable modem connections have driven the growth. 

So despite narrowband line losses, service providers have seen overall growth of business lines of 15 percent over the past five years. 

Mobile Market Shifting

Market economies work because consumers vote with their wallets to buy the better products from the better suppliers. That is less true where markets are more managed, but the principle remains. But the logical end result of market economies is that, sooner or later, companies selling products with less demand will go out of business, while companies selling products with higher demand will grow. 

Sooner or later that tends to lead to market concentration, with the inevitable result, at least historically in the United States, for anti-trust actions to reset the playing field. But no amount of anti-trust regulation will stop the process from reoccurring. People are going to buy more of the products they think are best; allowing those companies to grow larger; while other companies disappear, leading to yet another cycle of anti-trust action.

Very few observers would probably think the U.S. communications market is so concentrated--again--that something drastic has to be done. Nor is it clear precisely how many effective competitors must exist in a single market to provide the benefits of competition. Some say three contestants is enough. Some argue for more; in some cases as few as two might provide meaningful competition, some economists argue.

We might be seeing some sort of a tipping point in the U.S. wireless market, though nearly all observers would argue that the U.S. wireless market remains highly competitive. An example: third quarter financial results.

Verizon Wireless and AT&T Mobility continue to perform well and pull further ahead of their competitors in the U.S. mobile business, says  Susan Welsh de Grimaldo, Strategy Analytics analyst.

Sprint Nextel continues to bleed subscribers, losing more than a million in the quarter. The company lost 1.3 million subscribers in the third quarter while AT&T Wireless gained two million and and Verizon Wireless gained 1.5 million.

Sprint's customer numbers have declined by a further 6.3 percent over the past 12 months while U.S. mobile subscriber numbers increased by seven percent over the same period.

One can argue the AT&T iPhone is responsible, that continuing customer service at Sprint or Nextel is responsible, that Verizon bundling capabilities are contributing, Sprint's failure to come up with a winning alternative to the iPhone, continued trouble at Nextel or some other combination of circumstances are responsible for Sprint's continuing slide. 

Nor is it clear whether Sprint can stabilize and then counterattack. On a value for money basis, it is hard to argue with Sprint's "Simply Everything" packaging, for example. But even that seems not to have halted the erosion. 

To be sure, the top of the U.S. mobile market has been relatively stable, in terms of market share, for some time. What appears to be happening now, though, is a destabilization of the market, with AT&T and Verizon gaining, while T-Mobile and Sprint are in flux. T-Mobile now is a relatively-distant fourth, but that could change over the next few years if Sprint cannot halt its slide. 

Voice Is Not a Commodity

One of the enduring pieces of conventional wisdom in the communications business is that "voice is a commodity." That perception typically is the result of even a casual analysis of "per minute" fees for long distance or even mobile usage over the last decade or two. 

Service providers in the wholesale space often sell their product based on per-minute fees as well, so it is easy to see why the working hypothesis is that voice actually is a commodity.

Despite all that, the way people use voice communications is anything but "commoditized," in the sense that one application is a fully functional substitute for another. 

People who use landlines also use mobile and IP-based communications as well. People who use IP communications also use mobile and fixed calling. Likewise, mobile users avail themselves of IP communications and fixed services as well. 

Beyond that, people tend to use each of the applications at different times, at different places, with different applications and different devices, to talk to different people, for different reasons. 

Not enough attention typically is paid to the ways all those use cases can be differentiated in marketing. Usage already is differentiated in fact.

Users Would Pay for Twitter

According to this poll taken by Guy Kawasaki, technology marketing consultant, people would pay to use Twitter.

As it true for other communication services, people do not seem to mind paying a fair price for services and applications they value. 

That also suggests a possible business model for Twitter, as well. 

Broadband Now Demand Constrained

Most of the time, we seem to be more concerned with the supply side of broadband: what penetration rates are, what speeds are, what prices are.

But consumer broadband arguably is demand constrained, not supply constrained. In Kentucky, for example, 65 percent of adults have broadband access.

Household broadband penetration tops 44 percent and another 21 percent of Kentuckians have dial-up service (keep in mind that most U.S. households have more than one adult in them).

Logically, the 21 percent of dial-up users are the primary customer segment to be targeted for an upgrade to broadband. About 70 percent of Kentucky households have at least one PC.

But that leaves 30 percent or so of homes that do not report having a PC. That is a demand problem, not an access supply problem.

$69 billion in 2007 Unlicensed Music

The value of unlicensed or pirated music trafficked on P2P networks in 2007 was $69 billion, according to new MultiMedia Intelligence research.
 
"Content owners of TV episodes and full length movies are seeing a growing impact as well," says Rick Sizemore of MultiMedia Intelligence .
 
MultiMedia Intelligence's new research also found the number of unlicensed full length movies "shared" will grow almost four times from 2007 to 2012.

Not all P2P content is unlicensed, though. P2P Internet traffic, despite having grown at a torrid pace for years, will grow almost 400 petrcent over the next five years, growing from a level of 1.6 petabytes of Internet traffic per month in 2007 to almost 8 petabytes per month by 2012. 

Covad Launches Channel Offer

Covad Communications has launched a new integrated access service for its channel partners. The new service features a new online quote and order system that Covad says can cut days to weeks off provisioning time.
 
The service is aimed at firms with up to 35 employees per location. Covad delivers the service over a voice-optimized T1 line, and the service works with customers' existing phone systems.
 
Customers can start with as few as four phone lines, and new lines can be added one by one, rather than in the more typical "blocks".

Covad completely overhauled its ordering process for this service. The new online ordering system handles quotes, pre-qualification and contracts all in one place and all in real time. Partners can store and manage quotes and orders through the website, and can check potential deal-killers—such as number portability—at the beginning of the process, rather than at the end.
 
"This is the voice and data service we've been asking for. The new online ordering system is easy to use and lets us know right up front that we can make a deal work," said Dan Keane, Director of Partner Sales with Keane Telecom Consulting, LLC, in Atco, New Jersey.
 
Covad Integrated Access now also utilizes SIP trunking and supports a wide range of IP, digital and analog PBXs.
Pricing starts at $435 per month with no installation fees.

The service uses Covad's voice-optimized technology to dynamically allocate bandwidth between voice and data.

Consumer Electronics Dip Predates "Economy"s

As evidence mounts of business slowdowns, it will be tempting to point to "economic weakness" as the reason for consumer and business spending weakness.  There will, to be sure, be such effects.

But not all spending changes are the result of the near-term economy issues, as some trends predate the such pressures.

Consider consumer buying of digital cameras, camcorders, audio players and hand-held game platforms. Sales of all four categories of devices have been declining for three years.

That could suggest product saturation, with the corollary that upgrades need to move beyond incremental changes.  There will continue to be replacement buying, to be sure. But incremental upgrades to memory or megapixels of resolution, for example, might not provide as much sales lift as one might have seen in prior years.

Category saturation is a normal part of the consumer electronics business, which is why consumer electronics retailers always are on the look for the next big "gotta have it" product.

DT Results: Still Tough to Sort Out "Economy" Impact

As further evidence of just how complicated it now is to figure out what actually is happening operationally in the communications business, Deutsche Telekom's overall year-to-date revenue has fallen about 2.5 percent. 

But international revenue has grown 1.1 percent, despite an unfavorable currency impact from U.S.dollar and U.K. pounds sterling denominated revenues. 

Deutsche Telekom generated revenue of EUR 45.6 billion in the first nine months of 2008, a decrease of EUR 1.2 billion or 2.5 percent year-on-year. To put the currency effect in perspective, revenue was negatively affected by exchange rate effects totaling EUR 1.5 billion. 

DT's T-Mobile USA revenue grew by 13.7 percent, but partly because of the acquisition of SunCom.

T-Mobile reported a 1.2 percent drop in its U.K mobile customer count, year over year. Mobile subscriber counts grew 8.3 percent, year over year. 

But mobile revenue was up 1.1 percent, year over year, overall, though there was weakness in the German, U.K., Austrian and "other" markets. 

So far, it might be reasonable to conclude that competitive conditions explain much of the weaker performance, though economic conditions could be contributing. 

We don't have the data yet, but what will be instructive is whether the overall mobile revenue in each of the countries is available, as that will provide a better sense of whether there actually is some slowing of consumer spending. 

Right now, all we can tell is that DT operates in competitive markets, has a secular wired voice lines problem as do other telephone companies, and that broadband access remains fiercely competitive.