Mobile, Broadband Growth Have Shifted to the Developing World

Not since abour 2006 have there been more fixed broadband lines in service in the most-developed broadband markets than emerging countries, and by 2009 a group of about 15 nations, including the BRICs, as well as countries in Southeast Asia, South American and Eastern Europe had surpassed the developed countries in total subscribers.

These days, the 15 emerging countries have the biggest share of broadband lines and the fastest growth rates as well, says Point Topic.

It's worth pondering that for just a moment. In 2000 there were 738 million global mobile subscribers. In 2010, there are 4.3 billion mobile subscribers, and most of those subscribers live in the developing world, according to the International Telecommunications Union.

It took just four years to double the number of global mobility users, from 2000 to 2004, and just another four years to double yet again, from 2004 to 2008. That sort of growth does not happen much in the telecom business, and has not happened before in the developed world.

Broadband growth is likely to assume something of the same pattern, but likely will be driven by mobile, not fixed access. Mobility has proven to be a raging, unexpected success story for people in developed regions. Broadband is about to repeat that feat.

Quietly, without much fanfare, communications really has become a capability available to all the world's people, after many decades of attempts by policymakers and providers to figure out how to do that. In the end, better technology has made all the difference. We don't use wires, we use airwaves. We don't use analog, we use digital. We don't use physical goods; we use electronic goods.

By 2014 just 15 developing nations will account for over 320 million broadband lines, 43 percent of the world total of 740 million broadband lines, by that time.

The fastest-growing group of 15 countries will have broadband growth rates of 14.2 percent annually. Another group of 12 countries, including the United States, Japan, Greece and Taiwan, will see annual growth of about 5.5 percent each year through 2014. Some 13 countries, including Western European nations, Canada, South Korea and Hong Kong, will see 4.6 percent annual growth rates.

All of those statistics are important for one compelling reason. Global subscriber and revenue growth for voice services, mobile services and broadband now has shifted to developing regions of the world.

Telecom Return on Investment: Implications for Broadband Policy

Return on investment for major U.S. communications service providers has been falling for about a decade, which means it is a clear trend.

In business terms, that means the largest, best-financed U.S. communications providers face a worsening situation, not a rosy and growing market.

Unless a person believes the U.S. government has access to enough capital to reinvent 90 percent to 95 percent of the nation's infrastructure, something that might cost $300 billion or more, policymakers are going to have to rely on the private sector to do the heavy lifting.

Though we are yet weeks away from knowing what the Federal Communications Commission actually will attempt to achieve as a "national broadband policy," we are years away from knowing how it all will work out.

The reason is that sweeping changes of this sort always result in years of litigation, even once rules are set.

It seems fairly safe to argue that, whatever emerges, the rules will not be as bad as service providers fear, nor as good as some policy proponents would like. So long as the nation requires private firms and private capital to do the vast proportion of the work, policies that negatively affect investment will doom the effort.

Nobody will be completely happy when the rules are announced, or modified and litigated. But rational policymakers will not kill the golden goose. And service providers likely will face some changes they would rather not have to confront. That's just the way these things work.

Global Voice Penetration Really is a Miracle

By the end of 2009, there were an estimated 4.6 billion mobile cellular subscriptions, corresponding to 67 per 100 inhabitants globally, says a new report from the International Telecommunications Union.

Last year, mobile cellular penetration in developing countries passed the 50 per cent mark reaching an estimated 57 per 100 inhabitants at the end of 2009. Even though this remains well below the average in developed countries, where penetration exceeds 100 per cent, the rate of progress remains remarkable.

Indeed, mobile cellular penetration in developing countries has more than doubled since 2005, when it stood at only 23 per cent.

Not many will recognize this success for the great achievement it really is. Policymakers of the 1960s, 1970s and 1980s would be, and probably are, shocked at what has happened. In days past, the thinking was that getting phone service to people who had never made a phone call would be stubbornly difficult. I do not recall anybody suggesting mobile technology would do the trick.

The broadband gap, though significant, also is showing dramatic progress, and again because of mobile networks.

There is a "problem" people and organizations who "solve problems" often have: they cannot recognize victory. Many difficult problems actually get fixed. When they do get fixed, rejoice and move on.

Getting voice services and now broadband broadly adopted throughout the world is a huge, miraculous success.

Consumer Price Points for Recurring Subscriptions are Fairly Clear

One might infer from average pricing for a variety of services ranging from fixed telephone service to broadband access, wireless and multi-channel video service that consumers have price sensitivity for any single service above $50 a month.

According to researchers at Pew Research and the Federal Communications Commission,  fixed voice costs about $48 a month. Wireless costs about $50 per user, while multi-channel video costs about $60 a month and broadband access costs about $40 a month.

Some of you immediately will note that your own spending is higher than these average figures suggest, with the greatest variability occurring in the mobile arena, as that is a service bought a person at a time, where the other services are bought household by household.

That's worth keeping in mind when surverys suggest there is robust consumer demand for just about any new application or service. Very few products ever have gotten mass adoption at prices above $300. Very few subscription products ever have gotten mass adoption at prices above $50 a month.

That doesn't mean it cannot be done; obviously it can. It simply is to point out that getting lots of consumers to buy a new recurring service at prices ranging from $5 to $10 a month is a big deal.

That's the reason so much consumer-focused content is advertising supported.

Is This Evidence of Declining Use of At-Home Broadband?

If one looks at the quarterly or annual data on broadband subscriptions during the course of the recent recession, one is hard pressed to find any significant evidence that broadband users downgraded their connections to dial-up or stopped using the Internet.

This data from the Pew Internet & American Life Project, on the other hand, shows leveling in 2009, about a year into the recession, and an actual decline late in 2009.

Some might note that a three-percentage point swing in reported behavior on this sort of survey would be within the margin of error, so it is hard to infer anything conclusively. But even a flattening would be significant, should the trend be later confirmed.

Broadband access at home has not yet ever declined. Virtually all the public firms have reported continual net customer additions, so any slowdowns or reversals might have occurred at private or smaller providers. We'll have to watch this.

Broadband "Overshoot": How Big an Issue?

Fixed network operators, including cable operators and telcos, face two different problems when considering upgrades of their broadband access networks. One danger is not investing enough to keep capacity in line with the level of market demand. The opposite problem is investing too much.

In fact, that is a scenario at least some mobile competitors hope might be the case. "Fixed line broadband will overshoot the performance needs of the market, resulting in increasing data cord cutting as individuals, families, and businesses appreciate the value of mobility more than the value of excess bandwidth," says Russ McGuire Sprint Nextel VP.

That's not an unexpected view,coming from a wireless-only company building high-capacity wireless networks, but it is worth considering.Mobile broadband might, or might not, be a reasonable substitute for users who really want to watch lots of video on their PCs, smartphones or other mobile devices.

But mobile is likely to be quite a reasonable alternative for users who don't stream or download much video, especially if they are fairly mobile, either locally or over larger distances.

Multiple Tools Needed to Preserve Mobile Bandwidth

Chetan Sharma Consulting forecasts that if left unchecked, the costs of delivering mobile data will likely outstrip incremental revenues by the second half of 2011 in the U.S. market and become unsustainable by 2013.

The rapid growth in mobile data costs has prompted operators to look at more sophisticated network congestion management strategies that fall into four categories: policy control, data traffic offload, infrastructure investment, and network optimization.

Shifting data traffic off a congested mobile network and onto another access technology fundamentally changes the economics of delivering that data. Offload is being implemented by operators globally, including offload to Wi-Fi and offload to femtocells.

Operators deploying a mixed multi-access offload strategy can expect savings in the range of 20 to 25 per cent per year. In the US market, operators will save between $30 and $40 billion per annum by 2013 through an offload strategy alone.

More-efficient new networks will help as well. Infrastructure evolution to 3.5G (HSPA) and 4G (LTE ) lowers the cost-per-bit for data throughput on the network, thereby reducing overall costs.

Chetan Sharma Consulting forecasts that evolving to HSPA and LTE will result in cost savings of just under 20 per cent or almost $25 billion per year in the U.S. market by 2013.

Network optimisation, through techniques such as compression and caching also adds incremental
savings by reducing the total number of bits traversing the network. Typically, Sharma reports,
operators can generate savings of five to 10 per cent by 2013 through this strategy.

Anecdotally, operators have reported that 80 per cent of the traffic in urban centers is being
generated by 10 per cent of the cell sites. So policy control (how, when and under which circumstances subscribers can access networks) can contribute annual cost savings of over 10 per cent, equating to over $15 billion in annual cost reduction by 2013 in the US market, Chetan Sharma says.

But cost reduction is only one side of the equation. Tiered and usage-based pricing also is required. Such policies need not be heavyhanded, top-down service provider rules but rather flexible, dynamic, and personalised pricing models that reflect subscribers’ preferences and context.

Taken as a whole, all the optimization techniques and new pricing models will be needed as the whole mobile business changes from a voice revenue model to an "bandwidth-based" business.

Fundamental Changes to PSTN: What Would You Do?

Legacy regulation doesn't make much sense in a non-legacy new "public switched network" context. Nor do legacy concepts work very well for a communications market that changes faster than regulators can keep pace with, both in terms of technology and the more-important changes of business model.

In a world of loosely-coupled applications, old common carrier rules don't make much as much sense. Nor is it easy to craft durable rules when rapid changes in perceived end user value, which relate directly to revenue streams, are anything but stable.

Consider the public policy goal of ensuring a ubiquitous, broadband networking capability using a competitive framework, to promote the fastest rate of application creation and development, under circumstances where the government has neither the financial resources nor ability to do so.

The typical way one might approach the problem is regulate intramodally, looking at wired access providers as the domain. The other way might be to regulate intermodally, comparing all broadband access providers, irrespective of the network technology.

Then consider how a major broadband provider might look at the same problem. No wired services provider, as a practical matter, is allowed for reasons of antitrust to serve more than about 30 percent of total potential U.S. customers. Mobile providers are allowed, indeed encouraged, to serve 100 percent of potential customers, if possible.

Would a provider rationally want to invest to compete for 30 percent of customers on a landline basis, or 100 percent, using wireless?

Ignoring for the moment the historically different regulatory treatment of wired networks and wireless networks, in the new historical context, is it rational to spend too much effort and investment capital chasing a 30-percent market opportunity, or is it more rational to chase a 100-percent market opportunity?

Granted, network platforms are not "equal." Satellite broadband networks have some limitations, both in terms of potential bandwidth and network architecture, compared to wired networks.
Mobile networks have some advantages and disadvantages compared to fixed networks. Mobility is the upside, spectrum limitations impose some bandwidth issues. But fourth-generation networks can deliver sufficient bandwidth to compete as functional substitutes for many fixed applications.

Verizon has already stated that they're going to launch LTE at somewhere between 5 and 12 Mbps downstream. LTE theoretically is capable of speeds up to 80 Mbps, but that assumes lower subscriber demand and also low distance from towers.

The point is simply that discussions about national broadband frameworks will have to open some cans of worms. It is a legitimate national policy goal to foster ubiquitous, high-quality broadband access.

It may not be equally obvious that the best way to do so is to impose "legacy" style regulations that impede robust mobile capital investment and business strategies. That isn't to discount the value of fixed broadband connections. Indeed, broadband offload to the fixed network could play an invaluable role for mobile providers.

Still, aligning policy, capital investment and business strategy will be somewhat tricky.

Few Takers for 50 Mbps Access

Time Warner Cable has about nine million high-speed access customers. It has about 20,000 customers for its fastest DOCSIS 3.0 service, which depending on configuration can support speeds up to about 43 Mbps per 6 MHz channel in the downstream direction, or more, if more bandwidth is made available.

All that means is that few customers are willing to pay $100 a month or more to get really-fast broadband access running at speeds of about 50 Mbps maximum.

In 2014, 80% of Broadband Access Will Be Mobile, says Huawei

By 2014, 80 percent of the world's two billion broadband users will be using mobile networks for their access, says Huawei. Of those two billion users, 1.5 billion will be first-time subscribers.

Predictions such as that are one reason regulators and suppliers need to be much more cognizant of how much is changing in the global communications business. Policies that relate to broadband access and deployment must reorient to reflect user behavior and supply that will be overwhelmingly mobility-based in just a few years.

Huawei also points out that voice services revenues also are steadily declining."In the past five years, the revenue for fixed voice services decreased by 15 percent, reflected by a decreasing growth rate for mobile voice services in 2009," Huawei says.

If that is a fundamental trend, as Huawei believes it is, then policies cannot be designed on the assumption that voice revenues, traditionally the underpinning for the whole global business, will continue to do so in the future.

In other words, instead of assuming service providers are powerful gatekeepers who need to be restrained, it might be more apt to view them as endangered suppliers who must replace the bulk of their revenues over the next decade or so, simply to remain in business. That certainly is not how telecom companies have been viewed in the past, but to ignore the changes could be dangerous.

U.S. regulators were so intent on introducing more competition in voice services in the early 1990s that they nearly completely missed the fact that the Internet, broadband and over-the-top applications and services were about to change the industry. Basically, the intended market result was to cause incumbents to lose market share while competitors were to gain share, precisely at the point that nearly every competitor was about to face a declining market for voice services.

It takes little insight to observe that a narrow focus on fixed broadband might likewise be dangerous at a time when usage is shifting so profoundly to mobile modes.

To use an analogy, regulators must resist the temptation to "fight the last war," rather than the different new war that is coming.

Internet Isn't What it Used to Be

Some time ago, the Internet was "controlled" by standards groups.

These days, some think it is controlled by ISPs.

Increasingly, it is controlled and shaped by ecosystems formed about devices or key applications (Click on image to see larger view).

That means our old notions about the "open" or "neutral" Internet have changed.

To some extent, the Internet still is about the ability of any one user to reach other user. To an increasing extent, it is about domains accessible only to members, users and subscribers.

For content owners, advertising and marketing specialists, users and enablers, that means development and business models are based on discrete ecosystems, not the "Internet" in general. And while much attention is paid to the role of ISPs as "gatekeepers," there are all sorts of gatekeepers these days, and application providers or device manufacturers might be more important gatekeepers than ISPs.

U.S. Mainland to St. Thomas Route Upgraded to 20 Gbps

The Americas I North Submarine Cable System between Vero Beach, Florida and St. Thomas, USVI; and the Columbus 2b Submarine Cable system between West Palm Beach, Florida and St. Thomas, USVI has been upgraded from  a single 2.5 Gbpschannel to 20 Gbps using Xtera Communications gear.

This upgrade project significantly increases capacity between the United States and the Caribbean. The consortium parties participating in this upgrade are ANTELCOM, AT&T, SETAR, Tricom and Verizon Business.

Despite the Noise, Broadband Subscribers are Highly Satisfied

Judging by some commentary one hears on the Internet and blogosphere, customers are very unhappy with their broadband access services.

After all, isn't the United States woefully behind other nations in speeds?

A new study by Parks Associates shows the opposite. The overwhelming percentage of U.S. broadband customers, across every single platform are "highly satisfied."

There is, to be sure, a small percentage of users on every type of access network who say they are "highly dissatisfied" with their service. The shock might be how few actually are really unhappy.

Granted, continual improvement is a good thing. But the Parks Associates study suggests providers need to keep improving a service that provides overwhelming "high" satisfaction, rather than scrambling to update services that basically are seen as somehow inadequate.

Rural-Urban Broadband Customers Not so Different

Are rural broadband customers all that different from suburban or urban customers? Not so much, a new analysis by Parks Associations suggests.

The percentages of rural broadband households who are very satisfied and very dissatisfied with their broadband services are within the margin of error for all U.S. broadband households, Parks Asociates notes. In other words, they are no more inclined to be pleased or upset with their service and service provider.

Rural broadband consumers desire value-added services on par with all U.S. broadband households, with premium technical support services and online backup as the top-two desired value-added services.

And the overwhelming percentage of U.S. broadband consumers are highly satisfied with their access services, despite a small percentage that say they are highly dissatisfied.

Overall, the rural status of a household has little impact on level of satisfaction with its broadband service. The type of access service does seem to have some bearing on high and low satisfaction.

Households with fiber broadband services report high satisfaction ratings in larger numbers, and households receiving satellite and wireless broadband services exhibit lower satisfaction ratings. But there is an important caveat. Customers who buy bundles of service are happier than customers who do not buy bundles. So the key variable seems to be the ability to buy a bundle, more than the type fo access.

The business implications would seem to be clear enough. Bundles create higher satisfaction and higher satisfaction reduces churn.  A highly satisfied broadband subscriber is 46 percent less likely to churn from a current provider, whereas a highly dissatisfied customer is 384 percent more likely to leave a current broadband provider.

A subscriber to a triple play of access services (broadband, television, and home telephone)
 is 15 percent more likely to be a highly satisfied broadband customer.

More than 70 percent of cable broadband households subscribe to a bundle, about 25 percent of which buy a triple play. But most, about 66 percent, buy a dual-play bundle of video and broadband access.

DSL providers have 58 percent bundle penetration, with 25 percent of customers opting for a dual-play package of  broadband and video while 17 percent buy a triple-play bundle.

Fiber broadband providers have 78 percent bundle penetration, with 64 percent buying a dual-play broadband and video bundle and 49 percent buying a triple-play package.

Rural broadband customers are 10 percent to 20 percent less likely than broadband subscribers on a national level to subscribe to the most-common broadband bundles. One would therefore expect lower satisfaction in rural areas, since satisfaction and bundles seem to be directly related.

To Solve the "Broadband Access" Problem, You Have to Know What Causes It

Solving the problem "people who don't use broadband access at home" hinges on the actual barrier to usage. Some people don't use the Internet; some don't use computers; some are unwillingness to pay current subscription prices while others would buy but literally have no physical access at their remote locations.

All too often the problem is viewed uni-dimensionally, as though lack of supply is the key problem. But there is increasingly acknowledgement that there are other barriers to surmount, such as users who would like to use the Internet, and could afford it, but who do not own PCs, and are unlikely to buy one.

The U.K. government believes "lack of PCs" is among the barriers, and now plans to give away
270,000 low-income families with free laptops and broadband access, as part of its £300 million broadband stimulation program.

Since the fall of 2008 U.K. officials have been training "well off" families about the value of broadband for users who can afford to buy broadband, but do not see the value.

The new inititiative aims to address a different problem: people who would use the Internet and see its value, but cannot afford the PC or recurring cost of a connection.

The program is to be included in the Children, Schools and Families Bill for 2009/2010, which is yet to be debated in the House of Commons. The legislation aims to ensure that all families with children aged between seven and 14 will be able to apply for a grant to buy a computer and broadband connection.

More Regulation Needed to Spur Broadband Competition? Really?

The U.S. Federal Communications Commission should consider regulations for broadband providers in an effort to increase competition, says Lawrence Strickling, National Telecommunications and Information Administrationassistant secretary, as reported by IDG News Service.

"We urge the Commission to examine what in many areas of the country is at best a duopoly market and to consider what, if any, level of regulation may be appropriate to govern the behavior of duopolists," Strickling says.

With all due respect for Strickling, who is a smart, experienced regulatory type who knows the terrain, and without disagreeing in full with the full content of his filing on behalf of NTIA, the notion that competition somehow is so stunted that new regulatiions are required likely would lead to greater harm, despite its good intentions.

Here's the argument. Consider, if you will, any large industry with critical implications for the entire U.S. economy. Now consider the following mandate: "you will be forced to replace 50 percent of your entire revenue in 10 years."

"During that time, for a variety of reasons, incumbents will be forced to surrender significant market share to competitors, so that in addition to replacing half of the industry's revenue, it also will have to do so with dramatically fewer customers."

"After that, in another decade, the industry will be required to replace, again, another 50 percent of its revenue. All together, the industry will required to relinquish at least 30 percent of its market share, in some cases as much as half, and also will be required to replace nearly 100 percent of its revenue, including the main drivers of its profitability."

Does that sound like the sort of industry that desperately needs additional competition? Really?

Nor is the argument theoretical. Over a 10-year period between 1997 and 2007, the U.S. telephone industry was so beset with new technology and competition that almost precisly half of its revenue (long distance), the revenue driver that provided nearly all its actual profit, was lost.

The good news is that the revenue was replaced by wireless voice. Then, because of the Internet, cable company entry into voice and the Telecommunications Act of 1996, market share began to wither. That, after all, is the point of deregulation: incumbents are supposed to lose market share to competitors.

Now we have the second decade's project, when mobile voice revenues similarly will have to be replaced, in turn, as IP-based voice undermines the high-margin voice services that have been the mainstay of the mobile business.

If you follow the telecom industry as a financial matter, you know that service providers have maintained their profitability only partly by growing topline revenues. They also have been downsizing workforces and slashing operating costs.

If you talk to ex-employees of the telecom industry, they will tell you the industry seems no longer to be a "growth" industry. That's why millions of people who used to work in telecom no longer do so.

So what about the other big incumbent industry, cable TV operators. As you clearly can see, and can read about nearly every day, there are huge questions about the future business model for what used to be known as "cable TV." Many observers already predict that such services will move to Internet delivery, weakening or destroying the profitability of the U.S. cable industry.

Industry executives, no dummies they, already have moved into consumer voice and data communications, and now are ramping up their assault on business communications. Why? They are going in reverse for the core video business.

Imposing regulatory burdens on incumbents--either telco or cable--that are losing their core revenue drivers on such a scale might not be wise. Few industries would survive back-to-back decades where the core revenue drivers must be replaced by "something else."

Imagine the U.S. Treasury being asked to replace virtually 100 percent of its revenue with "something else" in about 20 years. Imagine virtually any other industry being asked to do the same.

The point is that industries asked to confront such challenges and surmount them are not typically the sort of industries that need to have additional serious obstacles placed in their way.

Granted, they are niche suppliers, but Strickling also is well aware there are two satellite broadband providers battling for customers, plus five mobile broadband providers, and then hundreds of independent providers providing terrestrial fixed wireless access or packaging wholesale capacity to provide retail services.

Granted, only cable, satellite, telcos and several mobile providers have anything like ubiquitous footprints, but that is a function of the capital intensity of the business. Most markets will not support more than several suppliers in either fixed or wireless segments of the business.

One can argue there is not more facilities-based competition because regulation is inadequate, or one can argue investment capital no longer can be raised to build a third ubiquitous wired network.

The point is that wired network scarcity might be a functional of rational assessments of likely payback. Cable TV franchises are not a monopoly in any U.S. community. But only rarely have third providers other than the cable TV or incumbent phone companies attempted to build city-wide third networks. Regulatory barriers are not the issue: capital and business potential are the problems.

Also I would grant that mobile broadband is not a full product substitute for fixed broadband. But where we might be in five to 10 years cannot yet be ascertained. And we certainly do not want to make the same mistake we made last time.

The Telecommunications Act of 1996, the first major revamping of U.S. telecom regulation since 1934, was supposed to shake up the sleepy phone business. But the Telecom Act of 1996 occurred just as landline voice was fading, and the Internet was rising.

If you wonder why virtually every human being with a long enough memory would say their access to applications, services, features and reasonable prices is much better now than before the Telecom Act of 1996, even assuming it has completely failed, the answer is that the technology and the market moved too fast for regulators to keep up.

The Telecom Act tried to remedy a problem that fast is becoming irrelevant: namely competition for voice services. In fact, voice services rapidly are becoming largely irrelevant, or marginal, as the key revenue drivers for most providers in the business.

Yes, there are only a few ubiquitous wired or wireless networks able to provider broadband. But that might be a function of the capital required to build such networks, the nature of payback in a fiercely-competitive market and a shift of potential revenue away from "network access" suppliers and towards application providers.

It always sounds good to call for more competition. Sometimes it even is the right thing to do. But there are other times when markets actually cannot support much more competition than already exists. Two to three fixed broadband networks in a market, plus two satellite broadband providers, plus four to five mobile providers, plus many smaller fixed wireless or reseller providers does not sound much like a "market" that needs to stimulate more competition.

There's another line of reasoning one might take, but would make for a very-long post. That argument would be that, judged simply on its own merits, the availability and quality of broadband services, in a continent-sized country such as the United States, with its varigated population density, is about what one would expect.

Even proponents of better broadband service in the United States are beginning to recognize that "availability" is not the problem: "demand" for the product is the key issue.

North America is Ripe for New Broadband Backhaul Facilities

North America appears to be ripe for new high-capacity backhaul from mobile tower sites to points of presence.

The reason? Mobile broadband is not matched by backhaul broadband. Most tower links use T1 connections running at 1.544 Mbps.

That clearly is not good enough for mass adoption of mobile broadband services. Internet service providers located in rural areas have additional problems, though. Quite often, regional connections between local points of presence and the nearest Internet PoPs also use T1 connections.

If you wonder why "middle mile" projects were so prominent in the first wave of broadband stimulus awards, that's why.

Incumbent Telco VoIP Transition is Not Technology-Led

The fact that AT&T has asked the Federal Communications for a definite date to shut down the public switched telephone network is, like most regulatory filings made in Washington, D.C., more complicated than it might appear.

Virtually all telecom service provider executives believe IP voice is the future, whether in the mobile or fixed domains. But the economics of the transition are complicated, at least for an incumbent provider.

Attackers, such as cable companies or independent VoIP providers, have no installed base of customers to cannibalize. Incumbents most certainly do, and that makes all the difference in perspective.

A Verizon executive recently noted that, “at this point in time, the business case does not support a technology-led migration off of the PSTN with the combination of land line loss, the economy, competing priorities and competitive dynamics.”

The key phrase is "technology led." Cable digital voice, Skype and Vonage build on VoIP: the technology directly supports the business case.

For an incumbent telecom provider, the technology in some cases harms the business case. To the extent that VoIP services largely replace an existing service with no incremental revenue, added investment is not met by added revenue. To the extent that VoIP services are priced lower than the voice services they replace, the business case is negative.

Under such circumstances it is rational to harvest PSTN voice as long as possible, despite market share losses. At some point, the logic reverses, however. As the fixed costs of the old PSTN are shared over a smaller base of customers, it will at some point be advantageous to switch to IP voice, strictly on the basis of operating cost savings.

That point has not yet been reached, but it is inevitable. The issue right now is what regulatory regime will apply to incumbents as that transition occurs. And one might argue that is the real point of the AT&T request for the FCC to specify a firm timetable for shutting down the PSTN.

The replacement of PSTN technology with IP telephony also creates an opportunity for new rules about carrier obligations that directly affect the costs of providing such service. That is why the AT&T request also argues that legacy rules must be altered as the transition is made.

Those rules are arcane and of little visible consequence for the typical consumer user of fixed voice. But they have enormous impact on the voice business case, as viewed from an incumbent perspective. Basically, all the rules that govern how networks compensate each other for terminating traffic are the heart of the matter.

So incumbent sunsetting of the PSTN will not be "technology led." The institutional and business frameworks remain the key issue.

Broadband Stimulus Won't Change Much, Firm Says

Some observers seem to have believed the "broadband stimulus" program, as helpful as it will be for some organizations and service providers, would somehow "fix" a "broadband" adoption problem in the rural and some other "underserved" areas of the country. It appears reality is setting in.

"The bottom line is that the stimulus money is going to change any of the access issues," says Robert Rosenberg, Insight Research Corp. president. "It is far to few dollars to make any impact."

But "access" is only part of the "problem." In fact, Insight Research says, there are four different kinds of households that must be considered when looking at broadband "adoption" and "availability," which are quite different issues.

There are households "unable to buy" broadband service, at least from a terrestrial provider (most analysts seem to forget that there are two national providers of satellite broadband). There are households that can buy broadband, but choose to buy dial-up service.

There are households that do not own computers and households that own computers but do not use the Internet.

"I don't want to over-play the 'I can't buy it' issue, says Rosenberge. "Yes there is some of that, but it is also the issue of 'no computers' or 'dial up is fine for me,'" he says.

Insight says 60 million U.S. homes buy broadband access service, while 12.6 million homes buy dial-up access, for a total of 72.6 milliion Internet access buyers.

Insight Research says that if one adds up the households without any broadband service at all, plus dial-up households, perhaps 58 million households, or 49 percent of all U.S. households, potentially are candidates for broadband service and have not yet bought it.

Insight Research estimates that at least 12 million rural and non-urban market households do not have access to any broadband service (terrestrial) due to the lack of supporting terrestrial infrastructure. Given a minimum cost of $1,500 per household, it is easy to see that the price tag for expanding broadband access to 12 million new households could exceed $18 billion.

By definition, the funding available under the broadband stimulus program is just a bit over $7 billion, and that includes funding for middle-mile projects, computing centers and other projects that do not directly add new broadband access capability. In fact, only a theoretical $6.4 billion actually is available for infrastructure.

Insight Research projects that non-governmental funding will provide the majority of the
growth in broadband penetration for the next five years.

With an estimated 40 million households still lacking broadband access by year-end 2014, the $6.4
billion in government funding would allow for an investment of $164 per household to provide broadband access to these non-broadband households.

The availability of such a small investment amount per household casts serious doubt that any significant expansion of broadband access will result from this government action, Insight Research says.

At the current estimate of $1,500 per household, at least $60 billion would be needed to deploy universal broadband access across the United States for 40 million households.

The broadband stimulus will not change much, it appears.

64% of U.S. Broadband Connections Now are Mobile

There are more mobile broadband subscriptions in service in the U.S. market than fixed line.

The CTIA notes that there are now 103 million mobile broadband customers in the United States, according to Informa Telecom and Media. There are more than 58 million fixed line subscribers, according to Insight Research Corp.

By that measure, there are 161 million U.S. broadband subscriptions. So mobile connections represent 64 percent of broadband connections now in use. And mobile broadband has exploded over the last 18 months.

In June 2008, mobile broadband accounted for more than 59 million high speed subscribers, about 45 percent of all broadband connection in the United States, according to the Federal Communications Commission.

Clearly, any effort to create a national U.S. broadband policy would have to recognize the leading role wireless now plays.