Smart phones Now the "Lead Offer"

Lead offers vary by segment, in the U.S. or any other communications market. For competitive local exchange carriers, the lead offer long has been a bundle of business broadband access and business voice.


Consumer fixed-line providers have been leading with the triple play of consumer video, voice and broadband access. 


Wireless providers might arguably be leading with a device, not so much services. Basically, the "smart phone" now is the lead offer for a wireless provider, with data access, voice and texting becoming features. 


More than one-half (55 percent) of US consumers who purchased a new handset in the three-month period ended May 2011 bought a smartphone instead of a feature phone, up from the 34 percent who did so during the same period one year earlier, according to a survey from Nielsen.


Overall, 38 percent of U.S. consumers owned a smartphone as of May 2011, and 62% owned a feature phone. Smart phones as lead offer

More Bids for PAETEC?

At least some investors seem to be expecting additional offers to buy Paetec Holding Corporation, which had seemed to be selling to Windstream Corp.

In a research note, FBR Capital Markets analyst David Dixon said a higher bid for Paetec from from Level 3 Communications would be justified. Such a deal would make "greater strategic sense."

In a broad sense, the bid or bids are part of an on-going consolidation of every part of the communications business. For Windstream, the potential rival bid could spell trouble for that company's hoped-for expansion strategy in the business customer segments.

Paetec shares pop above value of Windstream offer

CLEC Precedent for VoIP Companies

Birch, a competitive local exchange carrier that declared bankruptcy twice, has been sold to Access Integrated Networks. The combined company is based in Atlanta, has about 400 employees and will have revenue of $200 million to $210 million a year. The combination is but the latest in a continuing wave of consolidation in the independent CLEC segment, which like most other parts of the telecom business requires scale.

In many ways the VoIP business already has taken a path similar to that pioneered earlier by the "CLEC" business. The CLEC business was lead, in terms of market share, by just two companies: AT&T and MCI. There were lots of independent CLECs, but most had fairly small market share and sales.

Both AT&T and MCI were absorbed into SBC Corp. and Verizon, respectively, leaving the CLEC industry essentially "headless" in terms of national regulatory clout.

The experience of VoIP providers is analogous in many ways. Though the business was pioneered by independents, as was the CLEC business, it now is "lead" by U.S. cable operators, who might be seen as the AT&T and Verizon to the rest of the small independents.

Cable companies have distinct regulatory interests distinct from those of independent VoIP providers, for the most part, and compete directly with VoIP providers in a commercial sense.

One might argue that the independent VoIP providers now also will start consolidating, for VoIP also is a scale business. And some of the more interesting pairing will be of business-focused VoIP providers with business-focused CLECs.

TowerStream: 8 Mbps for $1,000 a Month

Wireless has been the perennial favorite for believers in facilities-based access competition to the entrenched telephone and cable companies. Some 25 years ago, proponents argued that Multichannel Multipoint Distribution Systems (MMDS) based on 2.5 GHz spectrum were going to be the way new video entertainment providers would gain a foothold.

That effort failed. Similar spectrum then was touted by the likes of Winstar, Teligent and others as a solution for high-speed access in the business market. The effort failed.

Much spectrum then was acquired by firms such as Sprint Nextel, BellSouth and MCI and spend years essentially languishing. Now Clearwire and Sprint say the former MMDS spectrum will be the foundation for WiMAX.

We shall see. A smaller new company, Towerstream Corp., is selling 8 Mbps broadband connections for $1,000 a month in eight markets, and currently plans to operate in 20 cities within two years.

In its Seattle market, starting February 1, new customers will be able to buy 3 Mbps connections bandwidth for $499 a month, with free installation. Towerstream offers businesses a range of bandwidth options including T1, T3, 100 and 1000 Mbps connections

The company has established networks in Los Angeles, Miami, Chicago, Seattle, the San Francisco Bay Area, and the greater Boston, Providence and Newport, R.I.

Using WiMAX technology, the company can “light" a city with just a few antennas. Its New York City network uses four antennas, including one on the Empire State Building.

TowerStream undercuts competitor prices for a T1 line by 50 percent or better. The small antennas that the company locates at the customers’ premises are installed by contract DISH or DirecTV installers.

Provisioning intervals normally are two or three days, compared with three to six weeks for a T1 line from a telephone company or competitive local exchange carrier.

Mid-band speeds in the 8 Mbps to 10 Mbps range seem to be the "sweet spot."

TowerStream appears to be using both telesales and direct sales approaches. It is said to have a 180-seat telemarketing center and is in the midst of expanding its sales force to 160 people, according to Morgan Joseph analysts, who say the company won 27 contracts in eight days, on the strength of 58 proposals. The company appears to have 100 or so direct sales reps trained and ready to call on prospects.

If history is any guide the company should enjoy at least modest success. By avoiding the mass market, it stays out of the way of 3G and other 4G networks aimed at consumers and small business. That's a strategy that lots of other wireless access providers also use.

So far, however, no single entity has managed to build a big business on the backs of fixed wireless broadband in the small business, medium-sized business or enterprise markets. And it may be that the path to success is precisely to operate as a niche provider, in high-density markets, without getting grandiose. That's typically where operators have stumbled in the past. But we'll have to watch and see.

In many cases the business case rests on prosaic concerns. LMDS operators found they had trouble getting access to rooftops once landlords decided they were sitting on a gold mine. It wasn't, but the incremental real estate access charges were enough to kill the business case.

Then there is the availability of riser and conduit space, access to it and the cost of new cabling. Assuming those sorts of issues can be managed, TowerStream might have a shot, at least in some markets, such as New York.

Bandwidth in the 8 Mbps to 10 Mbps range is a bit more than the 4 Mbps to 6 Mbps mid-band Ethernet service some other providers are finding attractive.

BroadSoft for Act!

Forget the hype about "voice mashups," the integration of communications capabilities with applications. The idea is about as simple as mating the BroadSoft call control and feature set with the Act! customer management application.

The VoIP AddOn developed by C3IP seamlessly integrates ACT! with BroadSoft’s BroadWorks platform Basically, BroadWorks users now can access those features directly from Act!

That means the ability to "click to dial" from the database, automatic logging of calls and screen pops on inbound calls, for example. So far, voice mashups largely have been developed as a way to improve the efficiency or effectiveness of current business processes.

That's just the way such innovations are introduced, because in a business context there has to be some measurable benefit on either cost or revenue fronts. The easiest way to demonstrate such effects is to "save money" or "save time" doing things that already must be done.

It will be a while before people start to redesign whole processes in light of ubiquitous communications embedded inside the applications themselves.

Grande in Play

Grande Communications appears to be in play. Its board of directors has authorized management to "explore strategic alternatives to enhance shareholder value." That's a "for sale" sign posted by one of the largest "overbuilders" in the U.S. market.

Grande has retained Waller Capital to assist the board and management in exploring strategic alternatives.

Grande is in the process of building a deep-fiber broadband network to homes and businesses in portions of Austin, Corpus Christi, suburban northwest Dallas, Midland, Odessa, San Antonio, San Marcos and Waco. The San Marcos-based company offers high-speed Internet, local and long-distance telephone and digital cable.

Business Fiber: Better, Not Good

By some measures, business customers have better fiber access than they used to. By other measures, most businesses still do not. One has to be in a building with enough private line potential to support something on the order of four T1 circuits, says McLeodUSA CEO Royce Holland. And as recent data from service providers such as XO Communications shows, most business customers are not in those buildings.

In fact, despite strenuous efforts by all sorts of companies that make a living providing fiber-based services to business customers, lower T1 prices over the last decade arguably have made the "fiber to building" business case tougher. Lower T1 prices obviously reduce the amount of recurring revenue any provider can hope to make from a single site.

The countervailing trend is higher demand for optical services such as Ethernet. Though the cost of hardware has declined over the last 10 years, the cost of installation and construction has not, and that's most of the cost.

CLECs Must Race Tide

Even though consumers now account for only about 22 percent of total incumbent telco revenue, and even though dominant telcos are losing share in that market, competitors in the business segment essentially are racing an incoming tide.

That tide is lost incumbent market share. At some point, regulators will decide the market leaders have lost enough share, and give incumbents more freedom to price and package their services, which inevitably will lead to higher wholesale rates for competitors that now rely on incumbent facilities--and wholesale discounts based on their market power--to build their businesses.

So the essential strategic task is to take share now, while it can be more easily gotten, knowing that competitive conditions will sharpen once the incumbents are more free to package and price. And that tide is coming in.

U.S. telcos continue to lose residential phone subscribers to both cable VoIP and wireless subscriptions at a steady seven to eight percent a year, according to Citigroup analyst Michael Rollins. Wireless is a lesser issue, as incumbents own a majority of that business, and simply must cope with product substitution. Wireless penetration should rise from an estimated 83 percent this year to 87 percent by the end of 2008.

Indeed, by 2010, wireless-only households should rise to 27 percent, from 13 percent last year and an estimated 17 percent this year, Rollins argues.

Cable VoIP penetration should jump from 10 percent last year and an estimated 14 percent this year to 25 percent by 2010. If the Federal Communications Commission sticks with precedent, that is going to be enough lost share to trigger an end to wholesale access policies favorable to CLECs.

If Rollins is right, those deregulation rules will start to trigger in just a couple of years. Of course, one can argue that market share losses in residential are not the same thing as losses in the business markets. But that hasn't stopped the FCC from deregulating in the past.

Ironically, incumbent market share loss is the very thing that will unleash them as more formidable competitors.

"Bulk Up or Sell" Key for Telcos, Media

The big global media and telecom companies face very similar business issues in some of their key lines of business. International calling rates are getting so competitive that only large players with scale will have the mass to make a go of it, says Stephan Beckert, Telegeography head of research.

Likewise, media comapnies such as like Vivendi, Time Warner and News Corp. are investing very heavily in gaming. In fact, some observers suspect that gaming will grow to be the biggest media business in time, and will and supplant older media to a significant degree. That is sort of the same position telephone companies find themselves facing with their core voice businesses.

Gaming is set to grow 40 percent in two years, many project. And bulk really confers advantages in game publishing, which has massive scale economics. A publisher that can guarantee over a million sales, with global distribution and quality marketing, has an immense advantage over a publisher that struggles to get to half a million sales.

Much the same sort of thing is happening in the U.S. competitive local exchange carrier industry as well, where scale has started to assume a key role as well. Basically, every executive has to decide whether to be a strategic seller or buyer.

CLECs Touch Few Buildings in 6 Verizon Markets

By now, you'd think there would be significant optical fiber pulled to commercial buildings in major and secondary markets, even though you'd suspect it is tough getting fiber in outlying suburban strip malls, for example. But it appears optical fiber connections to commercial sites remains a significant work in progress. In six Verizon markets, for example, all competitors to Verizon put together can reach but a small fraction of sites.

European Commission, FCC Disagree on Competition

As U.S. competitive local exchange carriers and cable companies await key decisions from the Federal Communications Commission, the quantitative tests of "effective competition" are key. And on that score the FCC and the European Commission do not see eye-to-eye. In the video arena, the FCC targets the 30-percent market capture level as denoting "effective competition." In the voice services area the test seems to be 20-percent share loss by incumbents. The EC doesn't even think 50-percent loss of market share by incumbents is sufficient.

The disparities in thinking about what marks "effective" levels of competition leaves at least some room for new thinking on what measures might be required to stimulate even more robust levels of competition. In mass markets, 30 percent quite often is the share held by the market leader.

$2.4 Billion CLEC Decision Near

Sometime between now and Dec. 5th, the Federal Communications Commission is slated to make decisions that could significantly raise wholesale access and transport tariffs in six markets, including Boston, New York, Philadelphia, Pittsburgh, Providence, and Virginia Beach.

Customers can anticipate an additional $2.4 billion in extra charges for communications services, according to a study by QSI Consulting, if the rules are relaxed.

Basically, Verizon argues that market competition in each of the six markets is equivalent to that found in the Omaha, Neb. market, the benchmark used by the Federal Communications Commission to deregulate wholesale access rules and rates that have been favorable to competitors.

Up to this point, competitors in the six markets have been able to buy wholesale access and transport at rates below “retail” special access rates. Should Verizon prevail, it would be free to raise prices as it sees fit, with the likely result that wholesale rates would rise to just about what the retail special access rates are.

QSI estimates increased telecommunications expenses incurred by consumers for retail mass market, enterprise, and broadband access services would be $1.054 million, $747 million, and $565 million.. This amounts to a rate increase of $114 annually for an average household, QSI says.

Users in New York would wind up paying as much as $1.4 billion extra. In Philadelphia costs could rise $345 million; $380 million in Boston; $104 million in Virginia Beach and $177 million in Pittsburgh.

Consumers would wind up paying as much as $1 billion more for services; enterprises $751 million and broadband access users $565 million.

Opponents of the plan tend to think they have done what is needed to make the FCC commissioners aware of how woefully undeveloped access competition is in the six markets. But one never knows.

“The concern is that though the numbers are clear, there are media issues also on commissioner minds,” says Covad VP Angela Simpson. The danger is that the forbearance issue might wind up being a bargaining chip as commissioners grapple with the broader media deregulation issues.

Disruption? Maybe Not.

Lots of companies and lots of people have been at the "telecom disruption" game for quite some time, beginning way back with the Carterfone decision and MCI's assault on the long distance calling market. We have had Internet service providers, competitive local exchange carriers, hosted service providers, application providers, instant messaging providers, portals, VoIP providers, cable companies, satellite providers and others attacking one part or another of the global telecom value chain.

Through it all, global communications service revenue has kept climbing. In fact, you'd be hard pressed to find any year when that didn't happen. Perhaps the issue is not disruption at all, but rather transformation. There will be new spaces created, and a rearrangement of older spaces. But nothing has stopped global revenue from climbing, year after year.

Of course, all the analysts could be wrong. Some cataclysm could yet await. But it sure doesn't appear to be something you would build your company on.

Growth By Acquisition Works for at&t

Growth by acquisition clearly has been working for at&t, which is probably why executives there will stay on course with the strategy. The company reported a whopping 61 percent increase in second-quarter profit after $140 billion in acquisitions almost doubled revenue. This is an old strategy many competitive local exchange carriers attempted in the early 2000s, largely without success. Of course, CLECs had different problems. Investors were pushing them to grow fast, and organic growth obviously wasn't going to work. There also were more providers than customers (that's a bit of an exaggeration, but not much of one).

Lessons About Price from CLEC, DSL, VoIP

TeleGeography projects that nearly 30 million consumer VoIP lines will be in service across Europe by end of 2007, up from 6.5 million at the beginning of 2006. In France and some other countries, though growth is low, penetration is high. In others, penetration is low but growth high. Compare that to the U.S. market, where growth is slow and penetration relatively low.

So here's a drop-dead simple observation from what has happened in the U.S. market for new communication services: if you operate in a market with relatively affordable communications, then competing on "lower price" doesn't get you very far. If you compete in a market with expensive communications, "lower price" is just about all you need.

In markets where communications are affordable, blunting the attractiveness of the "lower price" platform, price still can be made to work if there are other attributes are emphasized, such as "pay the same price as you used to, but get free broadband."

"Pay the same price you used to, but get mobility." "Turn a variable cost into a fixed cost." "Make the whole cost more transparent." "Reduce real estate costs." "Work with people you actually know."

In the U.S. market, attackers have not yet succeeded when the incumbents decided they wanted to play; when lower prices were the primary marketing platform and the offering wasn't highly differentiated from what an incumbent offers.

Convergence Spells Opportunity for Managed Services | PodTech.net: Technology and Entertainment Video Network

Convergence Spells Opportunity for Managed Services | PodTech.net: Technology and Entertainment Video Network