Communications Spend Down 1% in 2009, Up 2.6% Next 5 Years

Total U.S. communications spending will decline one percent in 2009 to $882.6 billion, but will grow 3.6 percent per year over the next five years to more than $1 trillion, according to Veronis Suhler Stevenson, a normally sober outfit.

The caution there is how one defines "communications." Estimates of this magnitude for the U.S. market necessarily include lots of other activities such as local area network and other premises networking services and products, and is not a direct proxy for "telecommunications."

This growth will make communications the third fastest-growing sector (behind mining and construction) of the U.S. economy through 2013, VSS says.

Telecom's Third Rail

There's a thoroughly uncomfortable question nobody in the telecom business wants to touch. Most people have heard the analogy that communications networks are fundamental underpinnings to future economic success, much as roads, railways or airline routes might be.

Most people are at least casually familiar with the plight of the newspaper business, which seemingly has yet to find a way to remain financially viable in a market that offers many substitutes.

Now there are the first projections that the advertising business, which except for normal economic fluctuations has grown for 30 years or more, might now face a future where brand spending actually decreases over time, in a structural, not secular shift.

So the uncomfortable question is whether the telecom business is in fact becoming a sort of infrastructure, like roads. And what I mean by that is that the business model for roads is largely indirect. True, there are some toll roads, but most roads, though an input to other revenue-generating enterprises, do not make money: they lose it.

So the "roads" or infrastructure analogy should be troublesome in the extreme. It at least implies an industry that has the profit sucked out of it, that is foundational and important, but not profitable in the way it has been.

At some point, should that continue, the industry as we now know it could not continue to exist. There would be a need for big pipes to virtually all locations. We need roads. But all the other economic activity would then be created by industries that support people driving cars.

This is something here more than the fear of being reduced to "dumb pipe" providers. Many businesses operate as low-margin "commodity" affairs, especially when they have large scale.

The newspaper analogy is more unnerving. That analogy suggests that communication networks could become something more akin to "roads," where there actually is no viable business model, and the infrastructure is a societal "cost" borne by taxpayers.

Perhaps you think governments globally have enough extra headroom to increase taxes to do such a thing. If there is no viable business model, that will be your only choice.

Being an optimist, I suspect the analogy is imperfect. I think executives will show enough creativity to avoid the worst case, and that regulators will be prudent.

What seems less debatable is the risk that if enough profit is drained out of the telecom business, even a robust "pipes" business might be tough to sustain.

That's an insight regulators in many countries have learned they must grapple with. Let us hope sane heads will prevail

iPhone Drives 41% Increase in Wi-Fi Sessions in 3 Months

In the second quarter, AT&T handled nearly 15 million Wi-Fi connections on its network, a 41 percent increase over the first quarter of this year. With approximately 25.6 million connections so far in 2009, Wi-Fi connections this year have already surpassed the 20 million connections seen in all of 2008.

In part, that may be the result of an iPhone firmware release that has made it easier for users to log in to AT&T hot spots.

Now, the iPhone automatically detects available networks and logs users in automatically.

Cricket Ratchets Up Prepaid Offers, Unlimited Web Now Included

Cricket Communications, owned by Leap Wireless International, has ratcheted up its own offers in the budding value and price wars in theprepaid wireless business.

Cricket’s $40 monthly plan, which already includes unlimited voice, long distance, domestic and international text and picture messaging, and nationwide coverage, now will include unlimited Web, unlimited 411 and unlimited service to more than 4,600 cities and towns across the US.

In addition, Cricket’s $45 monthly plan in these markets will now include the additional features of unlimited email, unlimited data backup and 30 roaming minutes per month. The $55 plan mirrors the $45 plan but also contains 200 roaming minutes per month.

The new plans take effect August 4, 2009, in select Cricket markets that cover approximately 72.3 million potential customers.

"The new features we have included in our service plans significantly increase the value we deliver to our customers," says Al Moschner, Cricket COO.

And that appears to be the story: the prepaid market is in a new stage of development where the "standard offer" is changing quite radically.

Affordable Smart Phones Next Big Thing?

Despite dramatic downward shifts in expectations for handset shipments in 2009 and 2010 as a result of the economic recession--some forecasts call for sales declines of perhaps 10 percent overall--smart phone growth continues.

In the U.S. market, AT&T has predicted that 75 percent of its device portfolio will be comprised of QWERTY input devices by the end of 2009, and those devices assume a broadband connection or at least heavy text messaging.

One can argue that the biggest They will, however, face strong competition from the BlackBerry Curve, LG Voyager and other devices designed for this growing segment of consumers interested in a better messaging and Internet experience with QWERTY inputs and at an affordable price.

The key benefit for operators in offering a greater array of smart devices is simple: increased spending on wireless data services.

On average, survey respondents who own smart phones spend 21.8 percent more on their mobile communications than feature phone users, says the Yankee Group. In part, that is because smart phone users have higher incomes.

But that will change. A new generation of more affordable Android devices, for example, are slated for launch in 2009 will be focused to attract customers who are in lower income brackets and who simply aren’t interested in spending $2,600 for their mobile phone service when the cost of a two-year contract is bundled with a particular smart phone.

And smart phone usage skews to younger demographics, primarily the 18 to 44 age demographic.

Some 41 percent of the 1,519 respondents surveyed by the Yankee Group also indicated they were either likely or very likely to purchase a smart phone and a data plan as their next mobile device.

Google Voice "Not Really VoIP"?

There has been a fair amount of chatter over the last week about Google Voice "not really being VoIP." That misses the point.

Users don't care about how we label things, nor do they care how things get done. They only care about value, utility, fun and other things of a useful nature.

Whether Google Voice is "really VoIP" or not misses the point. People like and use technology the way they want, not the way we think they "should."

YouTube Adds "News Near You"

YouTube is customizing its video feeds with a "News Near You" function that allows users to view clips related to their locations.

"News Near You" grabs video clips from sources within 100 miles of your computer’s IP address. YouTube promises to share revenues with TV outlets, but it’s a double-edged sword for local broadcasters, as is the case for print and other forms of news content.

The extra exposure and promotion, plus some possibility of increased advertising, will be helpful. What might not be helpful is one more reason for users to avoid broadcast outlets and rely on Internet mechanisms.

YouTube has deals with content sources such as ABC News, Reuters and AP. So far, about 200 news outlets have signed on to YouTube’s local video-casting initiative.

71% of Wireless Users Watch Video, 19% Have Uploaded Video

You likely would not be shocked to learn that 62 percent of Internet users watch online video. But you might be surprised to learn that wireless connectivity has emerged as a strong predictor of online video viewing.

Fully 71 percent of users with wireless connectivity watch videos on video sharing sites compared with just 38 percent of those who do not access the Internet wirelessly.

"Our latest data shows that 14 percent of cell phone users have watched video on their devices, slightly up from the 10 percent we found in 2007, Pew Internet & American Life researchers say.

Cell phone users are more likely to record video on their cell phones than they are to watch it, Pew researchers say. About 19 percent of cell phone users now say they have recorded video with their phone, in addition to watching video.

If you wonder why mobile service providers are racing to add bandwidth, that's why: video consumption and video creation.

Many users are turning to the Internet to watch entire television shows and movies, as you also might have guessed. Overall, 35 percent of adult Internet users say they have watched television shows and movies online.

What Sprint Nextel's Pre Marketing Might Mean

Sprint Nextel has been criticized by some observers for not spending more money to promote the Palm Pre while Sprint Nextel has a six-month exclusive to market the device.

So here's a thought: maybe Sprint Nextel has concluded that the benefit from heavier promotion over the first six months will not provide a big-enough payback, and might simply pave the way for Verizon Wireless to sell even more Palm Pres when it begins selling the device after the Sprint exclusive ends.

Given the Federal Communications Commission's inquiry into handset exclusivity and the practice of tying handset discounts to contracts, perhaps we ought to consider just a bit more seriously the argument that handset exclusivity might provide consumer benefits.

Perhaps Sprint Nextel's allegedly tepid support for the Pre is a direct reflection of estimated benefit. Perhaps the inability to obtain a longer-term exclusive so dilutes the financial upside that it isn't worth more promotion.

Nor is it altogether clear consumers have clearly understood that contract-free service that requires users to pay retail prices for handsets might be a bit painful.

That isn't to say consumers should be barred from buying unlocked handsets at full retail. Prepaid customers do it all the time. But neither should customers be prohibited from buying subsidized handsets, with contracts, if that is what they prefer.

JD Power Study Suggest Potential for Huge Prepaid Wireless Shift

About 16 percent of prepaid wireless users have switched carriers in the past 12 months. Some 51 percent of those switchers previously had contract service, a new survey by JD Power and Associates says.

About 12 percent of those surveyed said they would switch carriers sometime in the next year, compared to 13 percent in 2008.

Among those intending to switch, 24 percent intend to switch to contract service. That suggests 75 percent of switchers would consider prepaid plans.

And there are clear differences between "pay as you go" users and prepaid customers, suggesting two clear niches. The study also finds the average pay-as-you-go user is older, more likely to be retired and has fewer wireless phones in their household.

The monthly prepaid plan user more closely resembles the contract plan user, desiring a large network, mid-range feature phones and messaging, but without the commitment or penalties of a contract.

That is likely the most significant finding, as it suggests the real difference between prepaid and postpaid users is in fact not so much ability to pay or demographics as it is preference for terms of service.

That is not to say some prepaid users are "credit challenged" or lower income. But the survey suggests the potential prepaid audience is quite a bit larger than it has been in the past. "Mainstream" postpaid users might in fact be persuadable candidates for prepaid.

About 66 percent of prepaid users who renew monthly report that they have cut ties with their former contracted service carrier. That suggests huge possibilities for market share shifts as well.

Pay-as-you-go users spend an average of $35 for each airtime purchase, a decrease of $5 from 2008.

Monthly non-contract users spend an average of $25 less per month than those with contracts do. They report spending $56 per month compared with an average monthly service cost of $81 for contract users.

Non-contract customers report using 320 minutes per month—a notable increase from 233 minutes in 2008.

Pay-as-you-go users report using an average of just 145 minutes, while monthly non-contract users report an average of 573 minutes per month.

According to the study, more than 40 percent of non-contract plans are monthly plans, compared with less than 30 percent in 2008.

FCC Investigates Google Voice Blocking

The Federal Communications Commission has opened an investigation into the blocking of Google Voice from the iPhone App Store.

James D. Schlichting, acting chief of the FCC's Wireless Telecommunications Bureau, has asked for answers to several questions. The FCC wants to know what role AT&T played in the decision. Keep in mind that the FCC already is looking at wireless open access and handset exclusivity, both of which seem for those reasons to bear on the status of Google Voice on the iPhone.

The FCC further wants to know what role AT&T might play in restricting other iPhone apps. The agency also wants to know what roles Apple and AT&T can play, by contract, in the development of iPhone apps.

The FCC wants to know whether Apple consulted with AT&T in the process of deciding to reject the Google Voice application. Documents relating to any such discussions must be produced.

The FCC also wants an explanatiion of how Google Voice might differ from any other VoIP application that al4ready is authorized to be used either on the iPhone or on AT&T's network.

The agency wants detail on any conditions included in AT&T’s agreements or contracts with Apple for the iPhone related to the certification of applications or any particular application’s ability to use AT&T’s 3G network.

If there are terns of use limiting customer use of third party apps in general, the FCC wants to know what those limitations are.

The FCC wants to know about AT&T’s role in certifying applications on devices that run over AT&T’s 3G network.

If there are any differences in AT&T’s treatment of apps running on the iPhone and other devices used on its 3G network, the agency wants to know what those are.

Please list the services/applications that AT&T provides for the iPhone, and whether there any similar, competing iPhone applications offered by other providers in Apple’s App Store. The agency wants to know whether any other devices that operate on the AT&T network can use Google Voice.

The FCC also wants to know whether apps rejected for the iPhone are allowed to run on other devices on AT&T's network.

"Please explain whether, on AT&T’s network, consumers’ access to and usage of Google Voice is disabled on the iPhone but permitted on other handsets, including Research in Motion’s BlackBerry devices," Schlichting has asked.

People sometimes forget how powerfully regulatory and legal policies bear directly on the telecommunications business. This is just the latest example.

For All of You Who Find Mobile Usage EVERYWHERE Annoying

Really, there are times when our mobiles do not HAVE to be powered up.

Price War Breaking Out in Prepaid Wireless

MetroPCS Communications is making another potentially disruptive move in the prepaid wireless market, introducing a prepaid $40 a month unlimted plan including voice, texting and Internet access.

The $45 plan now include sunlimited email, navigation and social networking applications. MetroPCS’ $30 and $35 local unlimited plans will now include caller ID and call waiting.

The $50 plan continues to offer smartphone customers complete HTML Web browsing and enterprise wireless email.

For anybody who doubted potentially huge changes in the prepaid market, this is yet another example.

MetroPCS was the first North American wireless carrier to offer unlimited international long distance calling for an additional $5 per month, to over 100 countries and over 1,000 destinations. This unlimited international long distance feature is available on both the $45 and $50 service plans.

MetroPCS is also offering consumers a family plan. With MetroPCS’ family plan, families with two to five lines will be able to enjoy MetroPCS Unlimited Nationwide service for talk, text and Web access for $35 per line.

TracFone Wireless, the nation's largest prepaid wireless service, recently introduced a $45 flat-rate monthly plan for calling and text messaging. That undercut the previous $50 benchmark for unlimited monthly plans set by Sprint's Boost Mobile prepaid service earlier this year. The pressure is now on Boost, and Virgin Mobile, to match its rivals by dropping pricing below the $50 level.

The other big change will be a breakthrough in phone models available to prepaid customers, particularly the higher-end smart phones. Historically, low phone cost has been something of a requirement for budget-oriented customers, but that will change as the customer base begins to reflect the same demographics as the postpaid base.

http://investor.metropcs.com/phoenix.zhtml?c=177745&p=irol-newsArticle&ID=1314223&highlight=

Apple, AT&T Ban Google Voice, Put Restrictions On Google Latitude

In the never-ending debate about whether usrs benefit more from "open" amd "closed" application environments in the mobile space, Apple has tended to be the best example of innovation and consumer benefit provided by the "closed" model, even though many would likely argue the evidence tends to suggest "open" leads to more rapid innovation, as a rule.

"Closed" can lead to benefits if the provider can optimize performance of all applications and devices, while at the same time delivering better user experiences. Apple has excelled, on that score.

But Apple's recent decision to ban Google Voice from the iPhone App Store is a salient reminder that the ability to optimize user experience can come at a cost.

To be sure, nobody is quite sure who was the driving the ban. AT&T obviously has incentive to protect its existing voice business. If Apple drove the decision, the reasons are more difficult to discern.

Google Voice allows free domestic calling and texting and cheap international calls, and will in the near future provide number portability. That AT&T wouldn't be too happy is obvious. But why would Apple support such a move, beyond the clear interests of its partner?

Could perceived competition between Apple and Google, which traditionally has been quite well mannered, be moving to a new stage more analogous to the ways Microsoft and Google now compete?

In what might be a related move, Google Latitude for iPhone and iPod touch. available as a Web application running in Safari, might have been "forced" to operate in a more restrictive way than the same app runs on other mobiles.

Gooble says it worked closely with Apple to bring Latitude to the iPhone in a way Apple thought would be best for iPhone users. But afterwards, Apple requested that Google release Latitude as a Web application "in order to avoid confusion with Maps on the iPhone, which uses Google to serve maps tiles.".

"Unfortunately, since there is no mechanism for applications to run in the background on iPhone, which applies to browser-based web apps as well, we're not able to provide continuous background location updates in the same way that we can for Latitude users on Android, Blackberry, Symbian and Windows Mobile," Google says.

Again, there are reasonable user experience reasons for Apple to avoid user confusion. But one suspects there might be more than that going on here.

Skype in Patent Dispute

eBay says in a regulatory filing that it is set to go to trial on June 10, 2010 on what appears to be a key VoIP patent dispute with Joltid Limited, which licenses peer-to-peer technology to Skype..

Skype has begun to develop alternative software to that licensed through Joltid.

EBay wrote in the quarterly filing that it recognized that pending litigation over the technology behind Skype could ultimately have an "adverse result," so it had begun to develop alternative software to the technology it licenses from Joltid Ltd for Skype.

In its regulatory filing, which contains the typical disclaimers about the potential damage if eBay's position is not upheld, eBay made the statement in typical legalese that if the company is not successful, it might have to shut Skype down.

That could, in a worst-case scenario, lead to Skype being shut down, but that typically is not what happens. The parties come to some sort of settlement. Remember the wave of patent infringement lawsuits back in 2007 that started with Vonage?

One way or the other, this will be settled. Joltid doesn't win if its customer goes away, and eBay is developing alternate methods in any case.