Feature Creep: We're Doing Something Wrong

Anybody familiar with the vast array of features available on a Class 5 switch or a private branch exchange can tell you that most buyers of such platforms never deploy most of the features. Of the features deployed, most end users never use them. The same appears to be true even of the more restricted features available on mobile phones. Most cell phone customers don't use the camera, email, or gaming options offered by their wireless providers, according a survey by JD Power and Associates. Most are satisfied when they can simply place a call efficiently.

Survey respondents said they use the speakerphone option more than any other, but only 26 per cent of respondents said they used this function. Only 19 per cent of people say they use the camera on their mobile and a mere 16 per cent opt to play games. True, behavior is changing. But after decades of exposure, most end users use but a handful of features available from their advanced phone switches. There's a lesson there.

iPhone Demand: Watch Behavior

Because what people are saying they might suggests no clear trend. It is clear that Demand for music enabled phones is growing. But iPod demand is distinct from phone demand. And iPhone prices are an issue. But the potential churn away from other carriers to at&t could be substantial.

More than 33% of all wireless phones now are music enabled, and market researcher Compete found music phones made up over 53% of all December cellphone shopping hits it tracked. There were just over 3 million total music phone shoppers in December, and almost as many iPod shoppers, with 2.7 million consumers evaluating iPods online.

But the market for combination iPod and cellphone devices isn't clear. Compete found that only 5% of all cellphone shoppers also evaluated an iPod in December, and only 3% viewed both a music phone and an iPod.

Of course, price is an issue. Even among the diehard segment of iPod shoppers who said they are very likely to buy an iPhone, only 6% said they would pay over $400. There's little question that the iPhone has achieved near instant name recognition, however.

A week after the historic announcement of the iPhone, Compete found that75% of iPod shoppers had already heard of the iPhone, and a healthy 20% said they would postpone their next cellphone purchase to wait for it. 20% also said they would postpone their next music player purchase.

The good news for Cingular is that 12% of iPod shoppers said they would be very likely to switch carriers to get the iPhone. The bad news is that of the people who are not willing to switch, over 30% cite Cingular’s service plan pricing, and another 35% cite Cingular’s coverage.

Of the people not likely to switch, almost 40% said they had no interest in purchasing a combination music player and phone, and over 55% said their current carrier has cellphones that meet their needs. And price will be a hurdle. Consumer oriented smartphones generally have sold in large volumes at a price point of about $200.

Still, we always have found that it makes more sense to pay attention to what people actually do, than to what they say they will do. And we'll have to wait six months to see what happens when iPhones actually go on sale.

Google, Avaya Aim at Enterprise

Avaya is supporting and joining the Google Enterprise Professional program to develop new capabilities for small businesses around Google's enterprise products. Under terms of the agreement, Avaya will develop, market and support offers that integrate Avaya's advanced communications solutions for small businesses with the new Google Apps Premier Edition, the subscription services solution for email, instant messaging, calendar and Web publishing services.

Examples of the open standards-based capabilities on which the solutions will focus include: enabling subscribers to easily share contact information, presence information and alerts; enabling a single in-box for voice mail, email, instant messages and fax messages; and enabling web calling over the Google Talk instant messaging service network. The companies' collaborative efforts will initially focus on Avaya IP Office, Avaya’s flagship IP telephony communications solution for small and mid-size businesses, with availability planned for fall 2007. Further solutions are expected to continue the emphasis on productivity-enhancing and cost-cutting capabilities for small and mid-sized companies.

The first integrated solution, which Avaya expects to deliver later this year, will be sold through Avaya's global network of resellers and distributors, providing customers with a single point of contact for sales, installation and support.

According to Google, Google Apps has been used until now by more than 100,000 small businesses and hundreds of universities. But not just small businesses.

“So much of business now relies on people being able to communicate and collaborate effectively,” says Gregory Simpson, CTO for General Electric Company. “GE is interested in evaluating Google Apps for the easy access it provides to a suite of web applications, and the way these applications can help people work together. Given its consumer experience, Google has a natural advantage in understanding how people interact together over the web.”

Tpad Gives Away SIP Addresses

Tpad now provides a unique incoming SIP number to every customer free of charge. All of which points out in a concrete way that while the cost to do such things is not "free," revenue models are not dependent on packaging cost elements in any linear fashion. Tpad has to cover it costs and make a profit, but the way it does so might be enhanced by doing some things in an unusual way and earning revenue someplace else.

"We believe that it is unfair to charge people just for a number to receive calls," says Steven Johns, Tpad marketing manager. Tpad also bills by the second, rather than rounding up to the next full minute.

GrandCentral and Gizmo Project Get Hitched

GrandCentral's unified communications service now is interoperable with SipPhone's Gizmo Project PC calling client. GrandCentral customers can now designate their free Gizmo Project profile ID, which appears like a 747 area code number in their Gizmo profile, as one of their destination numbers which will ring on their personal computers or select next generation Nokia dual mode Nseries mobile phone or Internet Tablet, whenever a call comes into their GrandCentral number.

This new GrandCentral feature also provides existing Gizmo users with the ability to receive calls for free directly from the traditional telephone network (PSTN) on their Gizmo enabled Nokia portable devices, Apple Macintosh and Windows PCs. Which eliminates at least one more direct inward dial number any user has to contend with.

Owners of Nokia dual mode N80-Internet Edition mobile phones, the Internet Tablet 770 or N series 800 Internet Tablet which access the Internet over Wi-Fi can also use versions of Gizmo Project on these handheld devices to receive calls without incurring any roaming charges or using any cellular minutes when connected to Wi-Fi networks.

Vonage to Try an "EarthLink"?

Vonage says it will start offering wireless services to subscribers during the second half of 2007, after announcing it would support dual mode phones working over Wi-Fi connections. The company also expects to announce new agreements to resell other carriers' broadband Internet access services, as well as new content deals later this year, sources say. That will make Vonage into something resembling an EarthLink.

Even residential video services, in some markets, might be offered. Though margin will be an issue, as it always is with resale, the moves will address the average revenue per unit problem Vonage has. Namely, its cost of acquiring a new customer is in line with what a cable company, at&t or Verizon would expect, but the monthly revenue is far below what those other providers typically get.

GigE at Desktop Taking Over

More than half of new Ethernet ports now being sold are gigE rather than 10/100 Mbps, says Jeff Fulton, Netgear network consultant. “Historically, 10Mb to 10/100 took place when the price per port for Fast Ethernet was $30," he says. "We are at that changeover now for 10/100 to GbE." The price for 10/100 has sunk to $10–$15 per port. The lower prices are fueling continuing Ethernet growth, says The Yankee Group.

The Dell'Oro Group says worldwide sales of optical transport equipment reached the highest level in five years during the fourth quarter of 2006. WDM system sales grew 42 percent year-over-year and accounted for all of the market increase.

Additionally, more than half of networking executives see the cost of wide area network facilities to be their primary concern this year. Also, 94 per cent of companies believe that they will need additional bandwidth than they are currently using over the next year, say researchers at the Aberdeen Group.

Access, Not WAN, is Bandwidth Issue

As always, the bandwidth choke point remains the access network. Local area network bandwidth is easy to upgrade. Long haul bandwidth also is not much of an issue, on most routes. The issue, for any service provider except a cable company or satellite company, is that replacments for linear TV will have to be delivered over the IP pipe, not a special purpose video delivery network. Multicast or broadcast networks are the best way to deliver linear TV. IP networks are a better way to deliver any sort of symmetrical service, but grossly inefficient for streaming content on a unicast basis. Access remains the choke point.

iPhone, at&t Deal Still is Significant

Big changes take time in the global communications industry, for good and not so good reasons. Still, it's important to recognize that Apple has succeeded where others have failed. It has wrested some significant degree of control away from normally powerful wireless carriers. But not in the way many disrupters prefer. As Apple tends to do, it demanded a great degree of creative control because that's the only way to ensure the sort of user experience it wants to provide. And the iPhone is no exception.

at&t agreed to leave its brand off the body of the phone. at&t also abandoned its usual insistence that phone makers carry its software for Web surfing, ringtones and other services. The deal also calls for Cingular to share with Apple a portion of the monthly revenues from subscribers, says the Wall Street Journal.

In another break with standard practice, the iPhone will have an exclusive retail network: The partners are making it available only through Cingular and Apple stores, as well as both companies' Web sites. The deal points the way to how service providers can balance control and freedom, vertical integration and horizontal innovation.

Cingular executives were willing to cede control to Mr. Jobs for the privilege of being the exclusive U.S. provider of one of the most highly anticipated consumer electronics devices in years, and to deny rivals a chance to do the same. Considering the number of music-capable mobile phones now being sold, a wise move.

Not many companies will have the bargaining power to do the same, but it will be better for mobile providers if they can learn to do this on a wider scale. Some things have to be controlled, for technical reasons. Some things have to be controlled for user experience reasons. But not everything has to--or should be--controlled by the carrier.

There's Always an Elephant in the Room

That's not a problem if it is your elephant. Vodafone CEO Arun Sarin warns his mobile compatriots that “as an industry it takes us a long time to get things done; we need to move faster otherwise others will eat our lunch." Forgetting for the moment about Microsoft, Google or the likes of Skype, what about WiMAX, which sometimes is seen as a comeptitive business platform, and sometimes just a platform?

"WiMAX is now a serious contender for mobile broadband," he thinks, positioning WiMAX as a platform any mobile provider can adopt, as Sprint Nextel already has done. Others might see WiMAX as a competing business platform that will be used by attackers to assault the legacy mobile providers, whatever technology they may use for fourth generation networks.

Nobody seems to disagree about the need, though. “If we don’t build our broadband networks we will have this opportunity taken away from us,” Sarin says. For some time Vodafone has distanced itself from the "3G or WiMAX" debate, in part because it seems to be thinking it will have to adopt WiMAX as its fourth generation network standard.

Vodafone subsidiary SFR in France may already have begun WiMAX testing. Vodafone network partner MTC-Vodafone recently won a license for WiMAX spectrum in Bahrain. The company also is expected to bid on WiMAX licenses to be auctioned in Egypt and Saudi Arabia in the coming months.

Vodafone acquired a WiMAX license in Greece last year, and is deploying a network in Malta. The company also has been testing WiMAX in New Zealand, and in South Africa.

Sarin notes that less than 10 percent of Vodafone revenues are derived from 3G services. The implication, it seems to us, is that 3G has proven to be not much more than a "wideband" niche between narrowband and broadband. Sort of like the analogy of narrowband voice (64 kbps); basic rate ISDN (up to 128 kbps) and "true" broadband in the megabit per second range.

So if legacy mobile carriers adopt WiMAX, how much sense does it make to track WiMAX deployment separately from wireless provider 4G? Really, the issue is not WiMAX. The issue is whether WiMAX can provide the platform for a competitive challenge to dominant wireless providers, because the early notion had been that WiMAX would open up another access alternative. But it won't if the dominant service providers simply offer it themselves.

There's an elephant in the room. The question is, whose elephant is it?

Global Capex Up, Video Drives It

Overall, North American telecom companies are projected to spend $70 billion on new infrastructure this year, down from the $110 billion they spent in 2000, up 67 percent from their 2003, says Infonetics Research. Global spending on new telecom gear is expected to rise to $240 billion in 2008, up 19 percent from 2005. Video is part of the reason.

While sending 100,000 emails costs a telecom company around 20 cents, transmitting 100,000 low-resolution videos costs around $15, and sending 100,000 high-definition movies costs around $10,800, says Infonetics Research.

Compared to Vonage...

Rightly or wrongly, Vonage's key marketing metrics get compared to those of cable or telco companies. Vonage's cost of acquiring a customer, its churn rate and average revenue per customer each month always are pointed to as issues. Well, compared to the best run telcos, that's true. Consider Telus, which operates largely in Western Canada. It has average revenue per unit of $64.50. Vonage is in the twenties. It has churn of 1.33 percent a month. Vonage's churn is double that. Acquisition cost is $436 a customr, which in about what Vonage spends. The issue is that Vonage's ARPU is less than half of what Telus gets, and Vonage keeps a customer half as long as Telus.

On the other hand, Vonage's costs of doing business are lower as well. Also, keep in mind that Telus is, by some measures, among the best-performing service providers in the world, and its fourth quarter 2006 results confirm that. On average, Telus keeps a customer more than six years. It is aided mightly in that regard by its wireless performance. So far, Telus and other leading wireless providers are turning in the best churn performance for virtually any consumer application one can think of.

Directionally Positive

North American fiber to home numbers still are small, but the direction is positive, says the Fiber to Home Council. The markets don't like the magnitude of investment, but telcos don't have much choice but to bet the farm.

Managerial prowess will prove important, but this bet will pay off. If IP-delivered video really does take off, in both the enterprise and consumer spaces, private networks have to be part of the solution.

And private networks will result in more revenue for access providers. To the extend that public networks are involved, it isn't clear that "all you can eat" plans can survive. Users will have to pay more for consumed bandwidth. That doesn't mean current pricing metrics necessarily are affected. But applications that chew up 1,000 times more bandwidth than voice will have to be provided at retail prices that reflect those levels of consumption. New networks will be built, no doubt.

Serious Moolah

The typical Fortune 500 company spends 3.6 percent of revenues on network services, gear and assets. Last year, more than $327 billion. The largest recurring cost is wide area network transport costs. Any wonder why enterprises are looking to switch that function to Ethernet?

EarthLink Wins Houston Wi-Fi

The City of Houston has selected EarthLink to deploy a large municipal Wi-Fi network covering 600 square miles. The network will be one of the largest in the U.S. and it will primarily serve urban and suburban sections of Metropolitan Houston. Another massive Wi-Fi rollout, in Michigan, is planned to serve urban and suburban regions as well as rural sections.

In winning the Houston contract, EarthLink adds to its list of municipal customers that include Philadelphia and New Orleans. Similar Wi-Fi deals with San Francisco and Pasadena are pending.

It remains to be seen how lucrative EarthLink's networks are. The deal also calls for the service to be made available for up to 40,000 low-income residents at $10 or less a month. There will continue to be pressure to keep the service affordable, though it may be possible to develop premium services or even advertising at some point, as The Yankee Group suggests.

And while cable companies and telcos will see this as compeitition, there may be ways even they will benefit, if some amount of traffic is offloaded from their own networks, much as offloading cellular network traffic to home broadband networks can help, even if there is a danger of some revenue cannibalization.