Tuesday, June 30, 2009

59% of WiMAX Providers Expect to Offer VoIP By 2011

Some 59 percent of respondents to a recent Infonetics Research survey globally plan to offer VoIP over WiMAX services by 2011.

As always is the case, market considerations are key. Attackers, with no legacy voice revenues to cannibalize, will be more eager to do so. Providers with large revenue streams to protect will be less likely to do so.

Of the operators surveyed, 41 percent are from Asia Pacific, 36 percent from Europe, the Middle East, and Africa (EMEA), 18 percent from North America, and five percent from Central and Latin America (CALA).

Generation Z: Shift Happens

Though there's a bit of imprecision about the terms Generation X, Y and Z, their behavior is closely watched for obvious reasons: at some point relatively soon, they will start to represent the center of gravity for most products and services.

Generation Z, people roughly born between 1995 and through 2000s, have some characteristics in common with Generations X (roughly born between 1965 and 1980) and Y (roughly born between 1980 and 1994). We perhaps make too much of the precise delineations. But some behavioral trends seem common to all three "generations."

They don't read newspapers.

They tend not to watch scheduled TV, and some would note that even when TV is available, it isn't being "watched," as users are multitasking. They also often have access to digital video recorders and Internet video so "appointment television" doesn't make as much sense to them as it might for older viewers.

They tend to rely on mobiles for voice communications, and in any case texting is an equally dominant behavior.

They tend to trust their peers, even unknown peers, more than they trust experts.

They are used to iTunes, so paying for digital content, or watching some ads to get content at a reduced rate, or for free, might not strike them as unusual.

They are social in a digital way. Communication with “friends” is a primary activity.

Though they might not admit it, brands are important.

To a greater extent than older consumers, they expect to be able to move digital content from platform to platform. In part, that is simply because they know digital content can be moved from device to device.

They use instant messaging or text messaging for communications, they think that email is for their parents.

In part because they have grown up with Web media, mobiles and the Internet, sharing content seems natural.

Most of those behavioral traits have implications for marketing in general, and for Internet and mobile marketing in particular. For starters, new media require new rules and tactics. Each new medium has characteristics that are not well understood at first. That is why early movies essentially were filmed versions of stage plays.

Over time, each media becomes better understood, production values and marketing opportunities change.

Even traditional TV ads do not work as well as they used to, in part because, as media become more personalized, non-relevant messages become ever more annoying.

Also, perceptions of honesty are more important. All three generations have been bombarded from birth with marketing messages and they are fairly adept at tuning them out.

And since social values are strong, advertisers, for example, will have to truly commit to becoming a members of the communities. As a practical matter, that means brands essentially have lost control of their brands, which in many ways are defined by users.

That will be scary, in part because in the new social context, people will criticize what they don't like. Worse, they may simply indicate, by lack of interest, that a particular product is not interesting or relevant.

It's all about "pull," rather than "push," in other words. But since nobody really knows what will work in the new formats, experimentation is required. It will be a big shift.

But as has been said before, "shift happens."

Monday, June 29, 2009

Mobiles More Important than PCs, Study Finds

One reason lots of observers expect mobile broadband to grow in importance is that younger users rely on their mobiles more than PCs.

Or so suggests a new study by Toronto-based SRG. In that study, the mobile device was ranked the most important device by females between the ages of 12 to 24.

That doesn't mean women in other demographics rank mobiles the same way: they don't, yet.

But as some of us have noted for a while, it is important to follow the "youth" demographic because it isn't just a market segment.

Younger users represent 100 percent of the future market. And if younger users behave differently than older users, one has to pay attention. At some point, those younger users will move into different age groups, but likely will retain their behaviors.

Online Usage: Social Networking Grows Most

Users spend more time using social networking sites, less time on communications and more time on content sites in early 2009, compared to 2003, according to the Online Publishers Association.

Users also spend slightly more time using search and slightly less time on commerce sites.

It isn't yet clear how mobile Internet time spent matches up, but anecdotal evidence suggests that the trends should roughly match.

Not many of us would be surprised if use of social networking sites was higher on mobile devices, as a percentage of total mobile Internet time spent.

Click the image to see a larger view.

Network Services Generally Safe, But Only if Economy Does Not Worsen

Consumers say they are least likely to cut or reduce spending on Internet access and most likely to cut back on buying pay-per-view movies downloaded over the Internet, according to a new survey by Alcatel-Lucent.

Consumers also indicate they are likely to maintain spending on VoIP and multi-channel TV services.

They also indicate some other services, including mobile service and landline voice are less likely to be cut than other discretionary spending.

The findings are in line with past behavior during recessions. People say they are highly likely to reduce spending on such things as going out to bars and clubs, eating at restaurants, going to sporting events or renting movies.

But they are resistant to the idea of eliminating communication or entertainment video services. All that depends on the recession not growing worse, though. Should the economy deteriorate further, even network services will get a harder look.

About 29 percent say they will increase spending on communications when the economy improves. But 13 percent say they plan to reduce communications spending even when the recession is past.

At least at the margin, it appears there is some potential for permanent changes in communications spending even after the recession ends. And that always is a concern. People might change behavior during a recession as a temporary measure, but then discover the new behavior suits them, and not return to their pre-recession behaviors.

There's no way to tell, yet, how much that will happen this time. But it would not be unreasonable to predict some permanent changes.

Ads Won't Support Online TV Business

Too many media-related companies mistakenly believe their conventional advertising, subscription or even free business models will simply transfer over to a connected marketplace. They won't, says Diane Mermigas, Mediapost columnist.

But that's a mistake common to other industries buffeted by IP technology, such as the telecommunications, wireless and music industries, for example. The entire global telelcommunications business, for example, is finding itself facing a nearly-complete replacement of its underlying voice revenue model.

Media firms face something similar. Advertising has been 37 percent of all content revenues, and nearly half of all video revenue.

But advertising is expected to comprise only one quarter of domestic online video revenue by 2012. "The economics are simply not there for advertising to support online video, given rising variable costs and limited scale," says UBS analyst Matthieu Coppet.

There are some other, less quantifiable potential issues as well. Most believe online distribution will be more important in the future. The only issue is how important, and how long the change takes.

At the same time, cable TV's key value proposition--more choice--now is running into potential exhaustion. "Choice" is easier on the Internet.

Also, since most viewers watch a handful of channels (possibly seven to 16), adding more channels, and raising prices to match, is going to run out of gas. It seems to me the only issue is when.

There's a reason so many of us spend so much time thinking about evolving business models. If IP technology affects your core business, it also means your core business is going to face huge business model change.

Dumb Ideas for Saving Newspapers

Be worried, very worried, when attorneys supposedly quite familiar with the First Amendment to the U.S. Constitution (free speech, freedom of the press, he right to assembly, the right to petition the government, no prohibition on free exercise of religion) actually propose legally restricting free speech.

First Judge Richard Posner proposes rewriting copyright law to outlaw linking to and summarizing news stories. No summarizing? It's hard to talk about an idea without at least mentioning what the idea is.

Now we have "First Amendment" attorneys seriously proposing that copyright law be changed so that a newspaper’s story could appear only on its own Web site for the first 24 hours before it can be aggregated or retold. So a story about protesters on the streets of Tehran could not be summarized for full 24 hours.

Muddle-headed thinking will not save an old media form that is being supplanted by other new forms. Were it just muddle-headed, it wouldn't be so bad.

It's evil in banal disguise.

Sunday, June 28, 2009

Bar Linking? More Silliness!

United States Court of Appeals judge in Chicago Judge Richard Posner has suggested that linking to copyrighted material should be outlawed. The suggestion was offered as a possible way to stem the newspaper financial decline.

Though many will find the suggestion odd, and others will cringe at the potential implications for many other Web applications, the concept illustrates just how disrupted content ecosystems now are becoming.

Ignore some obvious and glaring questions about abridgements of free speech rights. Ignore the essential silliness of banning the equivalent of footnotes.

Ignore the analogy to efforts other content owners once made--seriously--to bar the use of VCRs, or to tax sales of blank tape. Ignore damage to "fair use" concepts.

Focus simply on what the suggestion implies about business ecosystem disruption. As in the past, new media are disrupting older media. And as has been the case in the past, some suggest ways of restricting new media to protect the old.

It won't workIt's just silliness.

Will Recession Behavior Stick? Will it Matter?

A serious, protracted economic crisis can result in changes in consumer behavior that persist after the end of the crisis. "Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen," Best Buy CEO Brad Anderson said in
the thrid quarter of 2008.

And that is what executives in the telecom, wireless and video industries are watching intently these days.

People make what they think will be merely temporary adjustments in their consumption behavior but may discover that they like elements of their new consumption pattern. For some incumbents, this could reset demand curves.

For others, there is an unusual opening: a chance to take share on a permanent basis that did not exist prior to the recession. So far, there are few tangible signs of overt change, with one exception: prepaid wireless.

Incumbent telcos continue to see landline voice erosion, but that trend predated the recession and is not directly attributable to demand changes caused by the recession. Some recent surveys of consumer attitudes suggest a willingness to consider downgrades or termination of virtually any service, but service provider reporting so far does not show that attitudes have been followed by action.

New technologies and end use behaviors complicate the analysis. Much as the Telecommunications Act of 1996 aimed to change the nature of competition in the U.S. voice market, but largely was eclipsed by other simultanteous changes in IP technology and applications, so we might ultimately discover that the longer-term changes in other areas eclipse recession-driven effects.

Behavior might well change, but not because of the recession.

Saturday, June 27, 2009

All Content Online, but Ad and Fee Models Don't Work: That's a Problem

It's hard to say which prediction is more far reaching: that all content will be online in 10 years; that portions of the advertising business are shrinking; that for-fee and ad-supported content models have not worked well; or that nobody but Google seems able to make money from digital content.

But Microsoft CEO Steve Ballmer argues all are true. And all are related trends. If all content is online, and if much content is ad-funded, then less ad funding or lower rates means less available professionally-produced content.

If ad support does not support the online equivalent of offline channels, then new revenue models have to be created, or less content will be made available.

One might argue this is "just a traditional media" problem. But it's a problem for users who want online access to virtually all the offline content they now enjoy, for telecom service providers who must supply the additional bandwidth and for all the media-related industries that depend on advertising as a business model.

Of Ballmer's predictions, the least controversial is that a shift away from offline media and towards online formats is underway. The global advertising economy--at least the portion that has been allocated for traditional media--has been permanently "reset" at a lower level, Ballmer warns.

So traditional broadcast and print media will have to plan their business models around a smaller share of the advertising market, as revenues continue to move to digital outlets, Ballmer argues.

"I don't think we are in a recession, I think we have reset," he said. "A recession implies recovery [to pre-recession levels] and for planning purposes I don't think we will. We have reset and won't rebound and re-grow."

Few likely would contest the trend towards online content, or the fact that few companies aside from Google and the Wall Street Journal have managed to create interesting ad-supported or fee-supported online businesses.

Most would be comfortable with the notion that traditional content and social media are blending, in many cases. There might be some dispute over the mix, the amount or the timing, but the direction is clear enough.

The big problem for consumers and producers is the inability to create widespread online content business models based on fees or advertising. That's the biggest challenge.

What Will Drive Consumer Demand for 50 Mbps Service?

While next-generation broadband speeds will increase dramatically to 50 Mbps, 100 Mbps, or even 1,000 Mbps, just seven percent of European online households will pay more for higher speed, says Forrester Research analyst Ian Fogg.

"Next-gen broadband will not be such an easy sell, as there's little pent-up speed dissatisfaction," at least not yet, says Fogg.

Evidence from the U.S. market tends to confirm that thesis. Not many consumers seem inclined to buy 50 Mbps service where it is available. Aside from the higher cost, there is no new application that compels such purchases, with the possible exception of households where are multiple users who tend to be online at the same time, sharing a connection and using high-bandwidth applications frequently.

Put simply, email drove dial-up access and the Web drove broadband access. It isn't yet clear whether video will prove to be the application that drives demand for higher-speed connections, but most people seem to think it will be.

Fogg is right: the next wave of high-speed access adoption will be driven by a compelling new application, just as dial-up and lower-speed broadband was driven by the graphically-rich Web.

Friday, June 26, 2009

Best Buy Hopes to be Bigger Force in Mobile Phone Business

Best Buy Co. is planning to open 40 standalone mobile-phone stores this fiscal year and hopes the move will help it quintuple its share of the U.S. mobile-phone device sales market to 15 percent.

Mobile phones are a crucial component of the company's new sales campaign to focus on gadgets that feature "connectivity." That view is part of an overall trend of recent years: more of the commercial value of any piece of hardware is the services stream attached to it. Likewise, more of the value attached to any piece of software is the services that are associated with it.

Best Buy's phone sales share has grown 1.6 percentage points in the past two years and now has about three percent share of new phones and connectivity plans sold.

New iPhone Boosts Mobile Video Uploads 400% a Day

Once again, we have evidence that Apple iPhone users behave quite differently from other smart phone users, and in ways with broad ramifications for mobile bandwidth consumption.

Since June 19, when the Apple iPhone 3GS came out, uploads from mobile phones have increased by 400 percent a day, YouTube says.

By way of comparison, over the last six months, uploads from mobile phones to YouTube have jumped 1700 percent, say Dwipal Desai, YouTube product manager and Mia Quagliarello, community manager.

Google Voice Now Open to New Subs

Google Voice now is available to new subscribers. Users who already have requested an invitation on the Google Voice site or on the GrandCentral site should be getting email invites shortly.

Once you receive your invitation, just click on the link and follow the instructions to setup your new Voice account.

Google Voice has added a Google number picker that will allow users to personalize by area code and text. The idea is to allow users to pick numbers, letters, a specific word or a number combination.

If you haven't signed up for a Google Voice invite, go to www.google.com/voiceinvite.

Thursday, June 25, 2009

Seamless Handoff Between Wi-Fi, WiMAX and 3G at 60 km/Hour

Fixed-mobile convergence has been growing in importance for several reasons, among them a general demand shift to wireless access, but also because of growing preferences for a more unified user experience and broadband economics.

On the latter score, the key issue is simply that wireline broadband is more economical than wireless broadband, and likely always will be. So to the extent that end user demand shifts to wireless devices, service providers must find ways to offload traffic to the wired network.
On that score, KT Corporation of Korea, TelcoWare, and mobile broadband gateway developer Stoke say they have succeeded in implementing seamless network handover between 3G, Wi-Fi and WiMAX networks, even when users are moving at speeds of 60 kilometers per hour.

Seamless handoff will be key for mobile providers trying to automatically shift access to any available wired broadband network, and to enhance seamless handoff back to the mobile network.

Historic Milestone for Online Advertising Reached

Ad rates for popular shows like The Simpsons and CSI are higher online than they are on prime-time TV. That's a stunning reversal from the rule of thumb that online ads cost less, often far less, than they would if placed on a TV, radio, magazine or newspaper outlet.

If a company wants to run ads alongside an episode of The Simpsons on Hulu or TV.com it will cost the advertiser about $60 per thousand viewers, according to Bloomberg. On prime-time TV that same ad will cost somewhere between $20 and $40 per thousand viewers.

Why the reversal? Targeting and engagement. Online viewers have to actively seek out the program they want to watch, so advertisers end up with a guaranteed "captive" audience for their commercial every time someone clicks play on Hulu or TV.com.

Also, fewer online ads means viewers are twice as likely to remember a commercial they've seen on Hulu than on television, Bloomberg reported.

The challenge for the networks, whose total prime-time audience shrank 3.6 percent last season, is that Web viewing and ad sales, while increasing, are still too small to replace traditional revenue sources.

Therein lies the danger. Networks risk siphoning off prime-time audiences with lots of inventory and higher sales volumes to sites with less inventory and lower ad sales volume.

A “Simpsons” episode on Hulu has just 37 seconds of ads, for example. A broadcast episode has nine minutes and produces three times the revenue per viewer at half the price.

So cannibalization remains an obvious danger.

Wednesday, June 24, 2009

Online Video Seen As Biggest Growth Opportunity in 2009

A broad cross section of executives from the telecom, cable, broadcast, mobile, satellite, consumer electronics, ISP and content businesses--but heavily weighted to broadcast industry firms--think video is the consumer service with the brightest prospects for growth in 2009.

In total, about 70 percent of survey respondents to a Pike & Fischer survey are from the video or radio industries, so it perhaps is not surprising that online video and high-definition TV emerged as the applications seen as having the greatest opportunities for growth in 2009.

About 27 percent of respondents cited Web-based video as the broadband application that will generate the highest adoption rates in 2009, though a quarter  believe HDTV will get the biggest number of new users.

But executives from cable and telephone companies were most likely to see online video as the fastest-growing application in 2009. More than half of cable executives and 56 percent of telephone industry executives said they believed online video would have the greatest growth.

About 40 percent of content provider executives and 29 percent of broadcast industry executives thought HDTV would be the fastest-growing app this year, a prediction boosted by the digital TV transition, which by definition replaces standard-definition over the air broadcasting with HDTV substitutes.

Tuesday, June 23, 2009

Broadband More Resilient than Mobility?

More than twice as many respondents to a Pew Internet and American Life Project survey say they have cut back or cancelled a cell phone plan or cable TV service than said the same about their internet service.

In the past 12 months seven percent of all adults have cancelled or cut back online service. But some 22 percent of adults sday they have cancelled or cut back cable TV service.

About 19 percent of all adults say they have cancelled or cut back cell phone service.

Monday, June 22, 2009

Mandatory Government Control of Broadband Pricing is Aim of HR 2902

Rep. Eric Massa (D-N.Y.) recently announced HR 2902,  the "Broadband Internet Fairness Act,” which would mandate government control of pricing for broadband. Consumer protection is a noble and worthwhile goal. Whether HR 2902 would have the opposite effect is the issue.

It is reasonable to assume that investment capital, and appetite to continue building broadband facilities, would dry up were the bill to become law.

What is Holding Up Blu-Ray Adoption?

It's hard to know precisely what message consumers are sending about HD DVD players these days. There no longer is a

format war, as Blu-ray has won its fight with HD DVD. But sales haven't exploded.

In fact, a recent Harris Interactive poll suggests that 93 percent of Americans are not likely to buy a Blu-ray player within the next year, up from the 91 percent who said last year that they were not likely to buy one.

But what that means isn't clear, yet, for several reasons. Popular consumer electronics adoption never seems to hit an inflection point until about 10 percent penetration of households.

About seven percent of U.S. households may already own a Blu-ray device, so we would be, by historical standards, about three percentage points away from any serious test of Blu-ray demand. Price points for both players and physical media seem high, by historical standards, as well.

In the past, no consumer innovation seems to take off until retail prices for devices get to about $300. So far, Blu-ray has failed to hit those levels, and some of us would therefore not expect much change in the adoption curve until that price point is reached.

Many speculate that a shift to digital media also is playing a part in depressing initial demand. It could be that consumers are using more pay-per-view methods or downloading to satisfy some needs Blu-ray was intended to address.

But it also is possible that consumers are wary of buying into yet one more playback technology when they've already been through VHS and DVD physical media. Some may simply be unwilling to shift to yet another format, despite the advantages.

Some 83 percent of U.S. homes own DVD players, and consumers might simply be signaling that image and sound quality is "good enough" on those DVD players, for the intended purposes. Consumers might also be waiting to buy Blu-ray as a replacement device, when their current DVD players stop working.

Whatever the reasons, Blu-ray is in a slowish adoption mode at the moment. Precisely why is hard to determine, as there are any number of reasons why an adoption tipping point has not been reached.

Singapore Will Offer 4 QoS Levels for Broadband: Key Implications for Net Neutrality Debate

It now appears subscribers to Singapore's new fiber to customer network will be able to buy different grades of service, ranging from "best-effort" to "mission-critical." Grades of service on the new wholesale network will be sold directly to providers of retail services, who will have the ability to buy four distinct grades of service.

Nucleus Connect, which will operate from two central offices in Singapore, from which retailers can buy wholesale broadband, now says it will offer the differentiated services as part of the "Opennet" framework, which allows retail providers to buy passive optical connections or "lit" service.

The network will support GPON, Ethernet, VoIP, VPN, videoconferencing, leased lines, security, mobile
backhaul and multicast functionality.

Under the new structural separation policy, the Opennet consortium, headed by Axia Netmedia with Singtel, will deploy a passive optical network, while Nucleus Connect, a StarHub unit, will operate the switches and electronics on the network as a wholesale, providing open access to retail service providers.

Though Nucleus Connect initially will be the only “operating company” allowed to operate electronics on the network, other “qualifying companies" will able to do so in the future. Most observers believe such firms will be other international carriers serving business customers in Singapore. Consumer providers are likely to buy active opto-electronics capability from Nucleus Connect.

The broader implications are clear enough. Irrespective of regulatory framework, the notion that end users can buy broadband with four distinct quality-of-service levels is important.

The ability to buy different broadband QoS levels offers a nice way to match end user applications, network demand and service provider revenue more directly. The concept needs to be considered elsewhere, including the United States, as the shape of "network neutrality" rules are weighed.

One wouldn't want to prevent end users from having such choice.

Why do People "Unsubscribe" from Email Lists?

Though email marketing is one of the more effective and less expensive ways to retain and engage customers, content irrelevance is an almost sure-fire predictor of user "unsubscribe" behavior.

Though comScore found earlier this year that e-mail had a 4.4 percent sales conversion rate in the U.S. market, the key is relevance.

In a survey by MarketingSherpa and ad:tech, 44 percent of marketers said that emails to house lists had “great return on investment.”

The issue is to keep them from "unsubscribing." According to an Epsilon and ROI Research study, 55 percent of email subscribers in the US and Canada unsubscribe from opt-in emails occasionally—and 14 percent do so frequently.

Only five percent of survey respondents say they "never" unsubscribe.

“North Americans are receiving a lot of content, and at the same time they're getting more and more selective about the kinds of e-mails they want to receive,” says Kevin Mabley of Epsilon.

Most Internet users unsubscribed due to irrelevant content.

Dell Earns $3 Million Using Twitter

The New York Times reports that since 2007, Dell has earned $3 million in revenues directly from Twitter postings, mainly through coupons and word-of-mouth. That might be among the most quantifiable benefits yet demonstrated for marketers using Twitter as a marketing channel.

“Twitter can be used as a form of permission-based marketing to encourage two-way conversation, and brands can use it to create relevant, authentic and transparent communications,” says Stephanie Busak of Bob Evans Farms.

“It can be used to build brand recency, loyalty and is a traffic generation tool in which links within profiles and tweets can direct people to specific areas of a site, microsites and blogs,” she adds.

“We have over 6,000 followers now on Twitter,” said David Tryder of Dunkin’ Donuts. “It’s another place where customers who really care about the brand can have a conversation with us.”

Cablevision, Verizon Offer $150 to $200 Inducements for New Bundle Customers

Here's one reason overall profits face potential pressure as a result of the recession: Cablevision and Verizon are offering new dual-play or triple-play customers between $150 and $200 in gift cards. At the very least, such tactics raise the marketing cost for each new subscriber or revenue unit. 

Verizon has been offering new triple play customers $150 gift cards since April and Cablevision now is offering $200 gift cards until June 30. 

To receive the $200 American Express card, Cablevision customers have to maintain Optimum Online and Optimum Voice service for four months.

The potential impact on average revenue per user is a bit more complex, as the new Cablevision promotion does not necessary represent a discount on monthly pricing. 

Nortel Sells Wireless Assets to Nokia Siemens Networks

In a move that will reassure Sprint Nextel and Verizon Communications and give Nokia Siemens Networks greater presence in the North American wireless market, Nortel is selling its wireless business units to NSN for $650 million. The move also is among steps Nortel is taking to essentially liquidate itself. 

Under the proposed deal, more than 2,500 Nortel staff will become employees of NSN. Though NSN also is acquiring Nortel's Long Term Evolution portfolio, perhaps the more-important near-term asset is the Code Division Multiple Access portfolio, used by Verizon and Sprint Nextel as well as Bell Mobility. 

The sale effectively makes NSN a key supplier to all three networks. 

Saturday, June 20, 2009

Net Neutrality is Inevitable: Will It be "Good"?

Like it or not, more regulation is headed the U.S. telecom industry's way, it now seems, and the changes will come as "network neutrality" rules are applied, either by the Federal Communications Commission, or Congress, or both.

The big implications, though, will not be found in the narrow "bit discrimination" area. As typically is the case, the new rules will reshape industry profit margins, business models, marketing and operations in ways that are unforseen at the moment.

Consider the future of the video entertainment business. Most observers would agree that the goal of net neutrality rules is to prevent anti-comptitive behavior. One example would be a case where an ISP with its own Internet content operations actively blocks or slows down competing operations.

Most of us would likely agree that is an appropriate application of neutrality rules. But many would note that prevention of such abuse is already part of the Federal Communications Commission "Internet freedoms" principles.

But that's where matters get tricky. Can a content provider--whether affiliated with an ISP or not--apply some form of content acceleration to its own services or applications? Many software, video or audio content providers use content delivery networks precisely for that reason, for example.

Or consider the matter of bandwidth caps. Some would argue that such caps are needed to protect the quality of service experienced by 99 percent of users, against the one percent of users who consume 40 percent of total bandwidth.

But others see an attempt to protect linear video businesses. So are bandwidth caps legitimate ways of managing network resources (so long as the caps are generous enough to account for a typical user's needs) or anti-competitive measures to protect an existing business from new competition?

It isn't always easy to say.

The good news is that network neutrality proponents and opponents seem to have gained something important over the last couple of years: better understanding of each others' positions that seemingly has narrowed the range of differences.

The bad news is that the next couple of years will feature an additional element of uncertainty as the discussion moves toward some resolution. And though we might hope the new framework will not wind up in court, significant changes to telecom policy always have that result. So one should not bet against a rather lengthy period of court challenges, one way or the other.

Telecom regulation always is political, so elections have consequences. And since President Obama favors action on network neutrality, as does as-yet-unconfirmed FCC Chairman Julius Genachowski, as do members of the Democrat-controlled Congress, action on net neutrality seems almost inevitable.

But there seems to have been progress over the last couple of years. Recent hints from executives at AT&T and Verizon that they "could live with" a proposed fifth "Internet freedoms" principle of "network non-discrimination" that the FCC is expected to authorize.

Still, the devil is in the details. Lots of issues tangentially related to network neutrality now will be swept into the formulation of new rules. And most of those issues bear directly on business models and profit margins. That, in turn, means the new framework inevitably will affect other actions that have a direct bearing on consumer welfare.

If, for example, complete "open access" rules are applied to every network, service provider profitability could drop about 32 percent almost overnight, says Lawrence Spiwak, president of the Phoenix Center for Advanced Legal and Economic Public Policy Studies.

That inevitably would lead to higher consumer prices for things such as mobile handset prices and subscriber fees. By reducing the profit margin on any new network, such rules also would lead to less market entry by new entrants as well, as it would be harder to make a go of the business, and therefore contestants would have have a harder time raising money to enter the business.

It is common these days to rail against the virtues of markets and market-based mechanisms. But consumers and producers alike are highly sensitive to most price signals. Raise the price of gasoline to $6 a gallon and one would see nearly-immediate shifts of behavior: less driving, less purchasing of low-miles-per-gallon vehicles, higher vehicle prices (to account for more use of higher technology engines) and lower demand for vehicles overall.

And that's the real implication. Net neutrality rules almost necessarily will change the range of feasible business models. And though the desire is to protect consumers from anti-competitive behavior (a good thing), rules might also deter new entrants (bad for competition and choice) or deter or eliminate some business practices that promote consumer welfare and lead to faster innovation.

The reason is that net neutrality in its strong form tends to be viewed as "open networks" policy. But much of the incentive service providers have to roll out new features, services or devices is precisely the higher margin less-open network permit.

Subsidized handsets might generally be seen as a good thing, allowing more people to buy high-functionality handsets at affordable prices. But a full open networks regime might prohibit handset subsidies tied to service contracts.

But getting rid of the bundling also means much-higher handset prices, which will discourage adoption of newer devices. To the extent that new applications often are associated with capabilities of new devices, innovation might be slower, rather than faster, in a full open networks environment, at least in the key mobility space.

Nothing about net neutrality is going to be easy. And inadvertent damage to consumer welfare will be a constant danger.

Thursday, June 18, 2009

Net Neutrality Battle Heats Up Again

President Obama, Acting Federal Communications Commission Chair Michael Copps, unconfirmed FCC Chairman Julius Genachowski and some U.S. senators say they support network neutrality. The problem, as always, is that it is tough to define what that is, and what it means.

Most people would agree that it means no blocking of legal content, or degrading of the content of rival services by Internet service providers. But many worry that "network non-discrimination," which might very well wind up on the list of FCC "Internet freedoms," could prohibit many forms of network managment.

Those principles include the freedom to access legal content, use lawful applications, attach personal devices and obtain service plan information. "Network non-discrimination" would become the fifth principle.

Few would quibble with the notion of Internet “openness,” so that consumers can freely access third-party applications, for example, without the fear that the broadband network provider will deteriorate or degrade the transmission to these third-party applications and services in favor of their own applications and services.

In that sense, network neutrality aims to prevent anticompetitive conduct; a worthy goal.

But while preventing anticompetitive conduct sounds sensible enough, it is also possible for a network neutrality rule to have the intent or effect of “commoditizing” broadband transmission and Internet access services by limiting the ability of broadband service providers to differentiate their service offerings from those of rival firms, say analysts at the Phoenix Center for Advanced Legal & Economic Public Policy Studies.

In principle, if no "packet discrimination" is permissible, then it might not be possible for service providers to provide different broadband access products, ranging from simple, lower-cost "best effort" services to other tiers of service optimized for voice, video, gaming or real-time services, as doing so might require slowing down other low-priority applications at times of congestion to preserve optimal quality for the priority services.

RUS About to Waste Lots of Money on Broadband Stimulus?

The Department of Agriculture's Rural Utilities Service might not be able to properly dispense funds supporting rural broadband as part of the American Recovery and Reinvestment Act "broadband stimulus" program, an audit of RUS by the Department of Agriculture's Office of the Inspector General for the Southwest Region warns.

In fact, an audit of RUS funding has been underway for some time, since irregularities were alleged in 2005. The problem is that RUS funds are alleged to have been disbursed in areas where broadband service already is available, rather than to projects that bring broadband to areas where there is no service.

The inspector general's audit finds that RUS has not corrected problems identified in 2005, and warns that the new "broadband stimulus" funds likewise will fail to achieve that program's objectives.

To date, irregularities have lead to wasting hundreds of millions of dollars. The USDA Rural Utilities Service has spent $1.35 billion on projects for Internet service since 2001 and of course is preparing to spend $2.5 billion or so as part of ARRA. The inspector general's report of 2005 found that RUS funds went to communities including Las Vegas and Chicago.

In fact, 77 percent of the communities that benefited from the rural broadband loans already had access to the technology, and 27 percent already had three or more Internet providers, the inspector general says.

Wireless Carterfone on the Way?

Despite all the attention that will be paid to the $7.2 billion "broadband stimulus" provisions of the American Recovery and Reinvestment Act of 2009, it is a sideshow compared to the much more important activities now building at the Federal Communications Commission, which is conducting an inquiry into national broadband policy, and a new inquiry that could radically change the way consumers and businesses buy their handsets and mobile service.

Mandatory bans on bundling of handsets with wireless service—referred to by many as “wireless Carterfone”—could be the result of a new proceeding the Federal Communications Commission already has directed staffers to open.

Acting FCC Chairman Michael Copps, in fact, says he already has authorized FCC staffers to open an inquiry into the handset subsidy issue, and that the commission will "take action if required."

Many warn that the result will be higher upfront device costs for all consumers, as the trade off for service without contracts. But others say the rules will spur innovation and free consumers from contracts that tie them to their service providers.

And though some praise wireless Carterfone (unlocked devices) as a way to spur innovation, some think the opposite could happen, as higher phone costs lead to less-frequent handset replacements. And since higher-functionality handsets are a spur to innovation and new services, slower diffusion of new handsets actually will retard innovation.

The FCC national broadband policy also could radically change the way the communications business operates, instituting strong forms of "network neutrality" that some say would radically affect the profitability of the broadband business, minimize techniques for managing network congestion and drastically affect the equity values, borrowing capability and retail strategies service providers could contemplate.

In some cases, the ability to offer higher quality of service might be limited or impossible because no packets could be offered higher priority than any others.

Depending on one's point of view, will drag the entire industry backwards into old regulatory models that will stifle continued investment, or alleviate what Acting FCC Chairman Michael Copps is the problem of "all of America being an under-served area" in terms of broadband.

The coming debates over the shape of national broadband policy,  and possible wireless Carterfone rules, will dwarf the broadband stimulus in impact.

IBM to Invest $100 Million on Easy-to-Use Mobile Internet Apps

IBM is investing $100 million over the next five years on development of easy-to-use mobile Internet services. The number of mobile Internet users will grow by 191 percent from 2006 to 2011 to reach roughly one billion users, IBM says, and emerging markets like India and China will be a main area of focus for the company.

One initiative will be developing ways for users to speak into their phones to grab content, so Web-enabled smartphones are not even needed. Two other areas IBM will concentrate on include mobile enterprise enablement and enterprise end-user mobile experiences.


U.S. Broadband Usage Grows Despite Recession

Broadband adoption appears to have been largely immune to the effects of the current economic recession, say researchers at the Pew Internet & American Life Project.

In an April 2009 survey, more than twice as many respondents said they had cut back or cancelled a cell phone plan or cable TV service than said the same about their Internet service.

About nine percent of Internet users (seven percent of all adults) say that in the past 12 months they have cancelled or cut back online service.

Some 22 percent of adults say they have cancelled or cut back cable TV service in the past 12

About 22 percent of cell phone users (19 percent of all adults) report that in the past 12 months they have cancelled or cut back cell phone service.

The latest survey also shows that U.S. home broadband adoption has reached 63 percent of adult Americans as of April 2009, up from 55 percent in May, 2008, say researchers at the Pew Internet & American Life Project.

Perhaps the better news is that the greatest growth in broadband adoption in the past year has taken place among population subgroups which have below average usage rates.

Among them, broadband usage among adults ages 65 or older grew from 19 percent in
May, 2008 to 30 percent in April, 2009.

Respondents living in households whose annual household income is $20,000 or
less, saw broadband adoption grow from 25 percent in 2008 to 35 percent in 2009.

Respondents living in households whose annual incomes are between $20,000
and $30,000 annually experienced a growth in broadband penetration from 42 percent
to 53 percent.

Overall, respondents reporting that they live in homes with annual household incomes
below $30,000 experienced a 34 percent growth in home broadband adoption from 2008 to
2009, Pew says.

Among adults whose highest level of educational attainment is a high school degree, broadband adoption grew from 40 percent in 2008 to 52 percent in 2009.

Among adults ages 50-64, broadband usage increased from 50 percent in 2008 to 61 percent in 2009.

Adults living in rural America had home high-speed usage grow from 38 percent in 2008 to 46 percent in 2009.

Big Brand Online Advertising Grows 27% in First Quarter: Momentum Shift?

Anamolies always are interesting, and sometimes they are important. No doubt advertising is down overall because of the recession. 

But ad spending for display ads placed by some of the biggest brands actually increased 27 percent in the first quarter this year, compared to the first quarter of 2008.

And note where that spending went: YouTube. In fact, display ad impression volume on the site jumped by nearly 580 percent year-over-year, says Nielsen. 

Large consumer packaged goods brands have generally been incrementally increasing their digital spending. The latest shift indicates some momentum for online video and online venues generally.

Online Video Viewing Up 49%, Nielsen Online Says

People who watch online video spent 49 percent more time doing so in May 2009, compared to May 2009, says Nielsen Online. The "average" viewer watched 189 minutes of video during the month.

Unique viewers grew 13 percent over the same period, while total streams viewed grew 35 percent and streams per viewer also grew 20 percent.

None of that would surprise anybody.

Tuesday, June 16, 2009

U.K. Officials Expect 10 to 100 Times Digital Content Growth in 3 to 5 Years

U.K. officials believe the volume of digital content used by consumers will increase 10 times to 100 times over the next three to five years.

So officials at the Department for Business, Innovation and Skills and the Department for Culture, Media and Sport have proposed an interim goal of 2 Mbps connections to all U.K. residences by 2012, and also propose a new tax of 50 pence per month on all fixed copper lines to fund the next generation of access networks.

The "Digital Britain" report suggests the funds raised by the tax will be available to fund construction to the one third of U.K. homes that are unlikely to get next-generation access because costs are too high.

"We are at a tipping point in relation to the online world," the report says. "It is moving from conferring advantage on those who are in it to conferring active disadvantage on those who are without."

The report also notes that the broadband "problem" has a few sources, not just "access." Though availability is an issue, affordability, ability to use the Internet and PCs, as well as the perceived relevance of broadband all are issues.

Building facilities addresses one of the problems. The others are more difficult, ranging from disinterest to the price of service. Ofcom, the U.K. communications regulator, points out in a recent survey of its own that 42 percent of U.K. residents say they would not use broadband even if the service were provided free, and they also got a free PC to use.

Monday, June 15, 2009

Buyers are Shfiting Behavior: Will They Keep Those Behaviors After the Recession Ends?

Recessions are important not only because people spend less money, but because they sometimes change their buying behaviors, and the behaviors persist even after the immediate recession driver has past.

In the telecom space, there already is some indication this is happening in mobility services, where more users are shifting to prepaid plans, comparted to postpaid. There is evidence of a slowdown in uptake of new handsets overall, though perhaps not of smart phones in the North American market, at least.

But everyone should be prepared for other shifts, if recent sentiment is any indication.

Some 75 percent of U.S. consumers, for example, say they are making big changes in their supermarket shopping, GfK Custom Research North America says. Among the changes, more than 30 percent say they are buying more store brands. In 2006, 22 percent of respondents said they were buying more store brands.

Nearly 23 percent say they will be purchasing more private label goods next yera.

Nearly 55 percent of respondents in the GfK study say they buy private label “frequently,” up
substantially from the 41 percent who said they bought private label frequently in 2006.

About 75 percent of shoppers surveyed now say store brands are as good as national brands.

While traditional supermarkets are still the most popular place for grocery shopping, 59 percent of respondents say they now shop at someplace other than a traditional supermarket.
In 2006, 70 percent of consumers said they preferred supermarkets for their main shopping.

What people do, not what they say they will do, will prove decisive. People might not continue to behave the way they now are, they might permanently shift their behavior or they might simply express new behaviors more than they did prior to the recession.

So far there is no strong evidence that behavior in other entertainment or communications areas is changing significantly. It does not appear there has been a pronounced change in use of multi-channel video services, or some change in IP telephony adoption rates, or evidence of customers downgrading broadband services to dial-up, for example.

But it would be unusual if some permanent shifts in behavior did not occur elsewhere in the communications business, even if such changes primarily are of the market share shift variety.

A Few Tough Years for Online Advertising Ahead in EMEA, Microsoft Says

Microsoft sees a few tough years for online advertising, at least in the European, Middle East and Africa markets, with a recovery not happening until 2012 "at the earliest," says John Mangelaars, Microsoft regional VP, consumer and online International division, EMEA.

"From a Microsoft view, we don't believe budgets will go up any time soon, and I'm talking the next three years," he says.

"Not a lot of people are making money from online at the moment," he says.

Thursday, June 11, 2009

Will ARRA Broadband Stimulus Actually Spur Much Broadband Use?

The U.S. federal government spends about $7.3 billion a year, every year, to foster broadband and telecommunications deployment. But "additional federal investments in broadband deployment...do not necessarily guarantee increased adoption," says the Government Accountability Office.

The GAO says "representatives from four organizations that provide broadband told us that between 80 percent and 90 percent of the residences in their service areas had access to broadband, but fewer than 60 percent subscribed."

For some providers, the subscribership rate was less than 40 percent.

Separately, the Pew Internet and American Life Project found that 75 percent of Americans use the Internet. About 57 percent use the Internet at home through broadband, nine percent use the Internet at home through dial-up connections and eight percent use the Internet from work or the library.

The Pew report also found that some Americans, particularly elderly or low-income persons, choose not to use the Internet, even when broadband technology is available.

A separate study by U.K. regulator Ofcoms found similar results. Even if given free PCs and broadband, 43 percent of adults who currently do not have Internet access would not use it.

BT Wants to Charge YouTube, Hulu, Others for Access

BT has publicly said it hopes to charge content owners for delivery of their programs over its broadband access network.

The issue has been circling around the industry for several years, and perhaps the major reasons it has not yet occurred is end user resistance, the fear that some competitors will gain share at the expense of ISPs who do charge content providers for access or other competitive responses by content owners. But the problem is very real.

A text message might consume just 140 bytes. A three-minute voice call might consume 1,800 bytes, an order of magnitude (10 times) more bandwidth than a text message.

A three-minute PC video clip might represent 33,750 bytes, another order of magnitude increase (100 times more than a text message).

A two-hour standard definition movie might represent 3.6 million bytes, an increase of five orders of magnitude (10,000 times more bandwidth than a text message).

And that's the problem. Video imposes loads far beyond anything networks have been expected to handle so far. Engineering a network for text or voice is one thing. Engineering it to handle video is something else again.

"We can't give the content providers a completely free ride and continue to give customers the service they want at the price they expect," says John Petter, BT Retail managing director.

Broadband providers such as Tiscali have been complaining for two years about the burden placed on their network by bandwidth-hungry video services.

BT says the trade-off could be quality of service guarantees for content providers.

To be sure, the issue of how to match the cost and revenue associated with broadband access is bedeviling. Consumption is growing while revenue per gigabyte is falling. Sooner or later the demand and revenue curves will converge, at which point the business model is destroyed.

Without changes in user behavior or pricing, the only question is how it takes before the converge point is reached.

European regulators also have been much more active than their North American counterparts in the area of compelling Internet service providers to assist in curbing content piracy. So it might not be surprising that BT is among the first European ISPs to publicly suggest matching video consumption with access fees.

The logic there is analogous to proposals some have made about pricing email to curb spam. Even slight charges "per message" are enough to destroy spam economics. Perhaps the same would prove true for charges to view content, one might suggest.

Wednesday, June 10, 2009

Prepaid Wireless Interest Explodes at Virgin Mobile, TracFone, MetroPCS, Cricket, BoostMobile and Net10

Online visitors to six leading prepaid wireless sites grew 37 percent in the first quarter, compared to the first quarter of 2008, says comScore. The nearly eight million visitors represent more than four percent of the total U.S. Internet audience.

The six prepaid wireless sites include VirginMobileUSA.com, TracFone.com (América Móvil), MetroPCS.com, MyCricket.com (Leap Wireless), BoostMobile.com and Net10.com (América Móvil). 

Growth in the category was driven primarily by MyCricket.com, whose traffic was up 107 percent) and Boostmobile.com (up 105 percent), both of which more than doubled their traffic.

MetroPCS.com and Net10.com also experienced strong gains, growing 63 percent and 37 percent, respectively.

Although the marketing messages of most prepaid wireless providers target the youth market, prepaid wireless site visitation data suggest considerable interest in the plans among 35 to 64 year olds. In fact, the majority of visitors to Net10.com (60.3 percent) and TracFone.com (58.7 percent) were from this older age segment. 

Even for sites where the majority of visitors were under 35 years of age, such as Boostmobile.com and MetroPCS.com, visitors between 35 and 64 years old still comprised at least 40 percent of visitors to the site. 

While it is likely that some of this older skew can be attributed to parents purchasing phones on behalf of their children, the data nevertheless underscore the appeal of prepaid wireless beyond the youth market, comScore speculates.

Another key marketing inference can be made, though: sometimes having a clear "niche" message can rebound to a brand's overall sales. The perhaps-classic example is what Pepsi discovered several decades ago. Suffering in its market share battle with Coca Cola, Pepsi decided to rebrand as a cola for the younger generation.

You might think this "niche" strategy would lead to a limitation of market share. It didn't. Pepsi pulled even with Coca Cola. The implication is that a strong "niche" brand can pull other user segments along. 

That likely is the explanation here, as "youth" brands pull other demographics along on the strength of the value pitch.

In order to understand the marketing factors driving traffic to prepaid wireless sites, comScore also conducted an analysis of search referral activity. The results showed that while both paid and organic search are driving increased referral activity, organic search is substantially outpacing paid search referrals on the whole. 

This dynamic suggests that the underlying consumer demand for prepaid wireless services is not just being driven by paid search marketing expenditures.

A few of the sites performed particularly well in obtaining growth from organic search referrals compared to paid search referrals. 

Organic clicks to BoostMobile.com grew 310 percent, while paid clicks grew 119 percent; organic clicks to MyCricket.com grew 123 percent compared to 63 percent growth in paid clicks; and organic clicks to MetroPCS.com grew 148 percent compared to 17 percent growth in paid clicks.

Mobile Handset Market Bifurcates: Smart Phones and Low Cost Phones are Key

Annual sales of low-cost mobile handsets aimed primarily at consumers in emerging markets, with with possible implications for the prepaid segment, will grow 22 percent between 2009 and 2014, to over 700 million units, say researchers at Juniper Research.

In some ways the handset market is bifurcating, with interest focused both at the high end smart phone segment and the low end segment.

Efforts by industry players to lower the total cost of ownership for devices and services to below $5 are already reaping benefits in markets such as Bangladesh, Pakistan and India, Juniper Research says.

Meanwhile, players such as Nokia are developing invaluable content-driven services that will encourage first-time mobile users to keep on using their devices and improving their standards of living.

“With around 80 percent of new mobile users set to come from emerging markets over the next six years, it is essential that operators and vendors work together to dilute the price barriers associated with mobile technology and to provide ongoing support through the development of specific social and personal services, such as Nokia’s Life Tools suite," says Andrew Kitson, Juniper Research analyst.

The Africa and Middle East region will account for the largest annual shipment volume by 2014, with its 166 million low-cost handsets representing 24 percent of all sales that year and up by 54 percent between 2009 and 2014.

With smart phones projected to account for 27 percent of mobile device shipments in 2014 (up from 13 percent in 2008), the market is effectively polarising into two groupings: entry-level and high-end devices.

At some point, the broad trend should result in new options for lower-price smart phones, and that could open up new mobile broadband segments, including both postpaid and prepaid.

134 Million Mobile Internet Users in 2013

There will be 134 million mobile Internet users in 2013, eMarketer now projects. Despite the global slowdown in new mobile phone sales, smart phone shipments will grow by 3.4 percent in 2009, International Data Corporation researchers project.

In fact, smart phone sales will grow three times faster than will sales of feature phones in 2010, IDC projects.

By 2013, Informa predicts smartphones will make up 38 percent of all handset sales worldwide, more than double their share in 2009.

“It is increasingly evident that for many marketers, mobile applications constitute a necessary avenue for reaching and engaging with their customers, either by building and marketing a proprietary application or sponsoring a third-party app,” says Noah Elkin, eMarketer senior analyst.

Shift from "Push Marketing" to "Pull Marketing" is Well Underway

It would be hard to name just one single reason traditional media are in trouble. In fact, there are several forces at work. Users are shifting attention to newer formats: getting news online rather than from newspapers, for example.

Then there is the shift of revenue: with classifieds now cannibalized by online sources, newspaper economics no longer are viable, as display ads and subscriptions always fall short of what is needed to product the product if classified revenue is pressured.

There are more subtle forces at work as well. "Push" marketing, which tends to drive display advertising, is not working as well as it used to. Other formats offer hope of better results, and most of those are Internet mediated.

Information richness now is the order of the day, so there simply are other ways to learn things, again typically mediated by Internet and mobile mechanisms. That means less "need" for traditional media.

Also, many if not most companies have discovered that the traditional media role has blurred. Companies can themselves become content creators, aggregating their own audiences. To a large extent, it now is true that "anybody can become a content creator."

That means less money will be spent on traditional advertising, and more on creation of content, which is the foundation for "pull" marketing. Instead of pushing messages at people who may be unwilling to receive them, companies are inviting users to participate by creating interesting content in various ways.

All of those forces now are at work.

The Downside of Multi-Purpose IP Networks

By now, virtually all observers agree that direct revenue generated by fixed networks will shift to supplying broadband access, while some o...