Business Broadband: Cable Modems Significant

Businesses use all sorts of access technology, if a recent Aethera Networks poll is to be believed. As you might guess, more than a quarter of business users have Time Division Multiplex access while more than a third use Ethernet of some sort.

You might not be surprised that more than a quarter use cable modems or Digital Subscriber Line, especially business-class DSL. What is interesting is that cable modem technology shows up in such surveys of the small business space. In fact, at least some business owners tell me they replaced T1 lines with cable modem service, and are happy they did.

Broadband Access Revenue: Bad News

Broadband access penetration might be climbing just about everywhere. Unfortunately, it looks like revenue is going to fall significantly, if Yankee Group analyst Vince Vittore is right. He projects Digital Subscriber Line revenue, which represents the overwhelming share of global revenue, is set to fall precipitously.

You might think fiber-to-home (OLT)revenue or cable modem revenue (CMTS) is poised to take up the slack. Vittore doesn't think so.

It looks like broadband access is turning out to be a product just like the Internet: useful, ubiquitous, necessary and something service providers can't make much money on.

Telcos Practice "Strategic Indifference"

People who like the idea of rapid service and applications innovation typically are frustrated by the glacial speed at which network services operators move. In fact, the thought often arises that "pipes" companies, especially those dealing with actual "first mile" connections to actual users, are incapable of understanding threats to their business models.

Well, they do move slowly, compared with anything in the software world. There is no Moore's Law at work with construction, trenching, installing drop wires and network interfaces. Which explains the attractiveness of wireless alternatives.

That said, it also is true that incumbents do practice "strategic indifference." That is to say, they will seemingly ignore a threat such as VoIP, just as they seemingly ignored the advent of broadband access, in the form of Digital Subscriber Line and cable modem services.

You might not remember, but North American carriers were slow to understand mobility as well. As awareness grew, carriers simply bought the whole wireless industry.

The point is that the indifference is quite planned. If an innovation will harm current revenues, it makes business sense to plan to lose some market share and revenue rather than embrace the trend fully and lose even more money. Up to a point, incumbents will let attackers take share, on purpose.

If the innovation reaches a tipping point, where there are strategic drivers, incumbents simply pile on in a massive way. That's why the VoIP activity on the part of North American incumbents is so different from that of European carriers. In Europe, VoIP is past the tipping point, and incumbents must play. That point hasn't yet been reached in North America.

When the tipping point is reached, they'll move, and aggressively. But this is a matter of maximizing total revenue. If revenue is maximized by delaying VoIP, that's what carriers will do. If revenue is maximizing by making POTS more attractive, that's what they'll do.

Such carrier behavior is not "dumb." It is planned. In fact, other industries have been "dumb."

In fact, the music industry seems not to have understood the threat or the changes posed by digital media.

You can be quite sure the video industry has learned from that experience and is anything but complacent. No serious video executive takes user-generated content lightly. Everybody is taking steps to participate in a broader media landscape, though nobody yet knows how the business models will play out.

Of course, that also means nobody is going to sneak up on video incumbents. They know exactly where to look for opportunities and threats, and are doing so. IP video will not be a replay of VoIP, in terms of executive denial, simply because tipping points might be somewhat clearer, and because change in the video software space will not entail the massive capital spending carriers must yet contend with in migrating to a broadband, all-IP future.

Video contestants will move faster than you might think.

Global Broadband Access Prices

Average prices in October 2007, according to the Organization for Economic Cooperation and Development. In the U.S. market, speeds keep going up and prices down.

Charter Communications, for example, will be upgrading speeds in most of its markets over the next three-to-four months. Charter's 3 Mbps tier will be bumped to 5 Mbps, the 5 Mbps service will be upgraded to 10 Mbps service and the company's 10 Mbps tier will be boosted to 16 Mbps downstream and 2 Mbps upstream. Prices apparently will vary by market.

Verizon in October launched a new tier of symmetric internet access service over its FiOS network that increases upstream and downstream speed up to 20 Mbps.

New Qwest FTTN Plan

Though it might be said to be a baby step, Qwest Communications has decided to up capital spending by an incremental $200 million over the next two years to bring 20 Mbps service to 1.5 million customer dwellings. The fiber-to-node plan obviously will rely on Digital Subscriber Line of some sort for the drop, but Qwest did not specify which particular approach it has in mind. It could use ADSL2 or VDSL, of course.

Basically, the company, which normally spends between $70 million and $100 million on fiber-to-node access plant, is incrementally spending the extra $200 million to pick up the tempo.

In a bit of a twist, Qwest will not deliver linear entertainment video over the network, relying instead on its DirecTV satellite service for that. Instead, it really sees the FTTN upgrade as a data services play.

As is always the case, investors seem not to like the idea. They didn't like Verizon's FiOS plan or fiber-to-customer plans launched by independent providers in France, for example. Investors fear Comcast and other cable companies will wind up spending more money on upgrades of their own as well.

Qwest is doing the right thing. Bandwidth is the reason any terrestrial wireline network has for existing. Failure to invest in bandwidth means business death. Sure, investor expectations have to be managed. But were in up to the investors Qwest would pay out a dividend and condemn itself to ulimate bankruptcy.

The program is not nearly as sweeping as upgrade programs underway at Verizon and at&t. Qwest simply can't afford that. But neither can Qwest sit still and do nothing. Investors might finally be seeing the fruits of at&t and Verizon investments in broadband infrastructure. They will see the same at Qwest, as unpopular as the investments are.

FiOS Goes 20 Mbps Symmetrical

Some residents of New York, Connecticut, and New Jersey now are able to buy Verizon's new symmetrical 20 Mbps FiOS service. The 20/20 service costs $64.99 per month and includes Verizon's Internet Security Suite and 1 GByte of online backup (up to 50GB can be purchased.

A small business version is certain to be offered. Can you guess what this will do to T1 demand and pricing where the offer is available?

How Long Can Cable Keep Prices Up?

For years, cable companies boasted the fastest residential broadband speeds, allowing them to resist lowering their prices. But that pricing stability may be changing, according to a new analysis by market research house Pike & Fischer.

For an expanding number of homes, at&t and Qwest can match or exceed cable offerings with downstream speeds up to 7 megabits per second. And with the launch of its fiber-based FiOS service, Verizon now can exceed cable modem speeds at competitive prices in a growing number of markets.

For customers signing a contract, FiOS delivers speeds of 5 to 10 Mbps downstream and 2 Mbps upstream for $40, and 15 to 20 Mbps downstream and 2 to 5 Mbps upstream for $50, note analysts at Pike & Fischer. Verizon has also begun offering FiOS "triple-play" service bundles priced below $100. This is forcing cable operators in FiOS markets to respond.

Significant downward price pressure will be the result. Cablers soon will find out that in capacity and access markets, unlike some content businesses, the typical and expected trend is lower prices over time.

BT Tries to Differentiate its Access

One way to differentiate what might otherwise be a fairly ordinary broadband access service is to extend access from a "one site" service to a "hundreds of thousands of sites" service.

And that's what BT hopes will happen as it capitalizes on an exclusive deal with Fon to create a huge new network of hotspots in the U.K., based on three million BT broadband access accounts. BT had been headed in that direction anyway with its Openzone program. The BT Fon effort accelerates the WiFi footprint within the U.K., and also offers connections abroad.

Greater density also makes possible more ubiquitous dual-mode mobile phone usage: which is part of why the Wi-Fi initiative made sense in the first place.

Broadband costs: Fiber Helps!

Fiber to the home helps, obviously. In the U.S. market, it helps to be a Verizon customer where FiOS is deployed, or to live within the SureWest Communications footprint. Make a note, though: this is actually a megabit per second (Mbps) metric, not a Mbyte metric. Apparently we are dealing with a technologically challenged journalist. The original data from the foundation make clear that we are talking about Mbps, not Mbytes.

Internet Phobia?

BT wants to find out why some people, even living in homes with broadband connections, resist using the Internet. About 39 percent of U.K. households do not have Web access. Fear of technology might be one reason, BT theorizes.

To acquaint them with online life, four subjects have been given a broadband link, a laptop, webcam and a digital camera. A two-month training plan has also been developed that will introduce them to what they can do on the Internet.

Writ large, that's one way to deal with any lingering short term "digital divide." Long term, I don't think there's a problem. There used to be a joke several decades ago in the U.S. cable TV industry about "resisters." Basically, the punch line is that the "resisters" are dying. There was a clear shift in the character of demand for television that now has fully established itself, as tough as it might have been to get the new behavior established in the first place.

The same thing is going to happen with broadband. Demand simply is shifting. All of which suggests BT ultimately will move beyond its fiber-to-cabinet; copper drop strategy and move ahead with a full fiber-to-customer upgrade. Like any other tier one service provider it is going to hold out for the most favorable deal it can get from regulators. But there's not much doubt about the long term outcome.

Bandwidth consumption is going to outstrip anything all the wireless networks together can provide, which makes the fiber connections an essential part of the future bandwidth story.

U.S. cable operators used to "diss" switched digital video" as well. Now they're starting to embrace it. They still say in public that fiber-to-home networks are way too expensive, and are unnecessary, from a cable standpoint. That's not necessarily what executives think privately, though.

Nor is it the case that resisters stay that way forever. Those of you with grandparents, who are grandparents or who have pre-baby boomer relatives know that mobile phones, PCs, cable and Internet connections frequently are used daily by people who might be prime "resisters." And the people who move them into the "connected" camp are friends, children and grandchildren. So BT might consider a "friends and family" program that enlists other family members in providing training and support for resisters. That's the way it works anyway.

No Wireline in This at&t Bundle

In a nod to new market realities, at&t is offering a package of wireless calling and residential high-speed Internet without wireline voice as a mandatory part of the package. at&t will launch the program in seven cities.

Bought separately, the wireless plan would cost about $40 while the 1.5 Mbps DSL would cost about $20. The advantage today is avoidance of the need to buy a wireline voice connection to get the DSL service as a stand alone. It's a half step to full naked DSL.

The $60 a month package is aimed at younger users and college students, and
includes 450 wireless minutes of "any time" wireless use plus 5,000 minutes on nights and weekends, plus free calls to other AT&T mobile customers. Customers also can roll over unused "any time" minutes.

The digital subscriber line service operates at a 1.5 Mbps rate downstream. The same plan is offered for $65 in the former BellSouth territory.

Later this year, AT&T plans to offer a naked DSL connection at about half that speed for $19.95 a month to all customers. That offer will put real pressure on the remaining dial-up connections.

Verizon FiOS Getting Ready to Blow Down Doors

Readers of ComputerWorld might not be "typical" U.S. consumers. Neither might members of the ChangeWave Alliance, as both will skew much more heavily into the technological savvy end of the customer spectrum. But there's growing evidence that at least for these lead elements of the technology-buying and influencing market, Verizon's FiOS is poised to take significant share.

Not that "satisfaction" is any guarantee of loyalty, but FiOS customers seem significantly happier than Comcast cable modem customers, for example. And on the "I'm going to switch" front, limited FiOS availability, like limited iPhone stock, has depressed sales. That will change, if ChangeWave member sentiments are any indication.

In fact, of users who say they are going to change video providers, the percentage of users who say they intend to switch to FiOS or another fiber-to-customer service is 300 percent higher than the percentage of users that say they will switch to cable for TV service.

So Verizon and at&t simply have to get their networks in front of more customers.

ISP Subscriber Growth Favors Tier One Providers

Not that anybody should be surprised by the latest ISP subscriber figures, but large tier one telco and cable providers are racking up more market share while independent mass market providers are losing share. The one countervailing trend is that providers focused on the small and mid-sized business, such as Covad, continue to grow.

For those of you familiar with the SME space, it is, always has been and always will be a fertile segment for independent providers of all sorts. The latest ISP figures only confirm that observation, again.

Defanged Skype

For all the fear Skype and other IM-based and peer to peer voice applications and services have created in the broader service provider industry, Skype seems to have crested. Skype still has lots of registered users, but they don't seem to be calling and using Skype chat as much as they used to.

Remember the concern municipal Wi-Fi networks raised just two years ago? Telcos and cable companies were worried muni Wi-Fi would cannibalize cable modem and Digital Subscriber Line services. And dare we even mention Vonage and other independent VoIP providers.

In fact, the only threat that really has materialized is cable companies. At least in North America, cable companies have emerged as the most serious threat to wireline voice and broadband Internet access revenue streams. Everything else essentially has remained a flea bite.

On the video and audio content side, remember the hackles BitTorrent and Kazaa raised? Now we have iTunes, Joost and a legal BitTorrent working with content owners.

So what conclusions should one draw from all of this? Probably that "disrupting" powerful incumbents is going to be much harder than attackers once had believed. Bandwidth exchanges thought they'd reshape interconnection. Competitive local exchange carriers thought they'd capture a goodly portion of the wireline voice market. Independent DSL providers thought they'd catch the telcos sleeping. Internet Service Providers thought the same about dial-up.

Turns out incumbents have more resiliency than anybody might have thought.

EarthLink San Francisco Network Now Toast

EarthLink will not be providing free wireless Internet access throughout San Francisco. As promised, EarthLink is not proceeding with any new muncipal Wi-Fi networks when it has to pay the full cost of construction, as would have been the case in San Francisco.

Under the original deal, EarthLink would have invested $14 million to $17 million to build the network. EarthLink also expected to be able to charge $22 a month for a premium tier of service.

San Francisco officials probably will issue another proposal request. And EarthLink conceivably could get additional sponsors. But it's getting tough to make the numbers work when tethered broadband rates now are so affordable. In cities where muni Wi-Fi networks are in operation, or have been proposed, it isn't unusual to find tiers of service comparable to Wi-Fi available for $10 to $15 a month.

Also, as video becomes a more important part of the Internet experience, muni Wi-Fi networks just aren't going to be able to keep up.

What EarthLink Didn't Say...

..in announcing a cut of 40 percent of its current workforce, a tactical move, was what it intends to do about a business strategy with no focus. And that was what EarthLink remains mum about. Helio and municipal Wi-Fi are bleeding cash; broadband is slowing and dial-up is dying.

One thing EarthLink did say is that gross subscriber additions will decelerate in 2008, in part because EarthLink will stop marketing to customer segments it believes likely to churn.

There's something else. The company expects fewer migrations from narrowband to broadband. Why? Because, industrywide, the pool of people using narrowband who want to upgrade to broadband is nearing exhaustion. And the number who see little value in owning and using PCs obviously won't be candidates for narrowband or broadband access.

We rapidly are approaching the point where the "problem" of broadband adoption is no longer a "problem" of access, but a problem of "demand." There just aren't that many more people who want broadband and can't get it. Which means the marketing battler will refocus, as it always does in saturated markets, on upselling more services and features and stealing market share from somebody else.

All things being equal, a facilities-based access platform typically beats a leased-access platform. But there's one more essential ingredient. There have to be customers. In the fixed broadband access market, we are running out of customers.

Verizon FiOS Blows Away Competition

A recent survey of ComputerWorld readers has Verizon's FiOS service topping the satisfaction rankings in virtually every measured category. Overall, 96 percent of FiOS customers rated the service "excellent" or "good." And though cable modem services scored better than Digital Subscriber Line overall, Comcast fared poorly as a provider. All that noted, and for all the grumbling one tends to see on blogs and discussion boards, about three quarters of the respondents think their services are "excellent" or "good." Upload speed remains the single biggest gripe.

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.

Midband Ethernet, Everything Else is Growing...

It has been a good year for suppliers of midband Ethernet connectivity equipment and access services. Heck, it's arguably been a good year for access services, period. Where providers used to get asked for T1s, they now get asked for DS3s. Where they used to get asked for DS3s, now customers are asking for optical connectivity. It's the same story on the consumer access front: more bandwidth, more often. That's what video will do to a network.