LAN Certification, Monitoring for Business VoIP

We have been hearing from LAN certification and installtion companies that 30 percent or more of enterprise or small/medium business local area networks are not able to support VoIP services without modification. Others say their own experience is that half of all LANs need rework or upgrades before VoIP will work. It might well be worse. As many as 90 percent of local area networks are not completely prepared to support VoIP services, says Lawrence Trifiletti, NetStar-1 executive.

The other thing: "More than 70 percent of enterprises do not make baseline performance measurements before they deploy business VoIP", says Scott Safe, Network Physics VP. That's a problem because "data volume grows 40 to 50 percent a year," Safe says. So a network that might have been in tolerance a year ago might well not be in that state today.

Brightcove + YouTube = Disruption

Brightcove's Brightcove Network, backed by AOL/Time Warner, Hearst and General Electric (NBC), is on the path to being a true game-changer in the broadcast media sector, say analysts at Mercator Capital. "It has become evident that IP is going to disrupt the broadcast sector in much the same way it has already reshaped telecom," they say. So how is Brightcove different from YouTube?

The Brightcove Network is a platform to allow professional creators of video content to bring their product to market in a commercially viable manner. It is a platform, a distribution channel and an ecommerce portal. YouTube’s content is essentially user-generated and not geared for a broadcast audience, whereas content running on the Brightcove Network is produced by professionals who are commercially driven and seeking an audience, says Mercator. "These are very different positions on the spectrum," Mercator says. At least for the moment, we'd say. YouTube's monetization model will be advertising. Brightcove's will be advertising and content sales. Mercator argues the two firms occupy different parts of the developing value chain, but we are not so sure, in at least one respect. YouTube ultimately will emerge as a distribution channel for professionally-created content.

"The underlying story here is that Brightcove is providing substantial validity to the Internet for being an important channel for video," says Mercator. "Brightcove is all about video content to be viewed on the Internet, and has little to do with television, as most people know it," Mercator says. "As such, Brightcove is not just expanding the pie, but they are potentially the foundation for an entirely new industry." We shall see. Aside from the "amateur" and "professional angles, there might be little fundamental difference between YouTube and Brightcove at the level of distribution. Google, of course, would not likely be found producing original content, so that is where the two ventures really are different.

Brightcove also might prove to be a vehicle for wider use of video-based advertising by companies priced out of the broadcasting or cable markets. More evidence of emerging "long tail" market segments, we'd say.

Adobe Acrobat Connects

Adobe Systems has announced the immediate availability of the Adobe Acrobat Connect product line for web conferencing. You might wonder why. The way Adobe sees things, documents are about collaboration. Users routinely create and share .pdf documents with others. So why not enable rich media communication about those documents? Why not try to turn the Adobe Reader client, present on most user machines, as a VoIP or conferencing client? After all, among the largest challenges for any IP communications provider is to get enough clients into the hands of users to create critical mass.

The Acrobat Connect products enable users to create personal web sites that serve as meeting rooms. A standard Web browser and the Adobe Flash Player software, installed on more than 97 percent of Internet-connected computers worldwide, completes the task. There's no software to download, because the client already exists on most PCs.

The Connect hosted service, which allows a user to moderate a web conference, can be used for up to 15 participants for $39 per month, or $395 per year per personal meeting room. Connect Professional, which starts at $15,000, supports up to 2,500 users at the same time plus interactive multimedia, integrated telephony, and VOIP (Voice over Internet Protocol). Meetings can be recorded for on-demand viewing, among other advanced features.

To be sure, web conferencing remains a niche business. IDC predicts that the conferencing-applications market will represent more than $1.1 billion in 2007. Two of the biggest players in the Web-conferencing market are WebEx, which has two thirds of the market share, and Microsoft, which purchased number two player PlaceWare.

But if you believe IP makes possible the emergence in newly visible ways of many "long tail" market segments, then web conferencing might in a genuine sense be seen as a current segment that will differentiate even further. And there is growing evidence of adoption by enterprise and small business customers.

In a survey, 41 percent of Citrix Online small and medium business web conferencing users say Web conferencing is more popular than meeting in person (41% vs. 36%).
Well over half of SMEs surveyed (56%) say they use Web conferencing to solve problems they could not solve before.

90 Percent Broadband by 2008

Cowen & Co. expects the dial-up Internet access market to have declined by 29 percent by the end of the year. Analysts also expect broadband share of U.S. Internet households to reach 72 percent by year-end. "We expect U.S. broadband penetration to reach 72 percent of total Internet households in 2006, 84 percent in 2007, and 90 percent in 2008," Cowen analysts say. "We believe dial-up access...will disappear within the next six to eight years," the analysts say. "We estimate that dial-up subscribers will decline to 20.6 million in 2006 and 12.4 million in 2007."

Cable companies reported 1.3 million net broadband additions in third-quarter 2006, up 20 percent from 1.1 million in the year-ago period. DSL service providers added 1.2 million residential subscribers in third-quarter 2006, down from 1.3 million in the year-ago period, assuming 10 percent of total DSL net additions are nonresidential.

AOL is a big reason for the decline. "We estimate that AOL's dial-up subscriber base will decline rapidly to 3.3 million at the end of 2007 from 9.6 million in the third quarter." AOL reported a decline of 1.9 million dial-up subscribers in the third quarter, which represents a 17 percent sequential decline in the subscriber base. Total AOL dial-up subscribers are down 35 percent year over year to 9.6 million from 14.7 million in third-quarter 2005.

The EarthLink premium dial-up subscriber base declined by 132,000 in the third quarter, compared with a 163,000 decline in the second quarter. PeoplePC, EarthLink's value dial-up asset, reported net additions of 51,000 in third-quarter 2006. United Online lost 131,000 subscribers in the third quarter.

Cowen & Co. also says U.S. VoIP subscribers increased 19 percent quarter over quarter to 6.9 million in third-quarter 2006, excluding Skype and similar nonsubscription services.

Metro Ethernet Market Appears Robust

Growth rates for metro Ethernet services are 40 percent and higher annually, says ANDA Networks Tony Tran, senior product manager. Some of that growth is coming at the expense of traditional T1 and DS3 services, and much of the growth rides on copper access rather than optical facilities.

Dedicated access services (T1, DS3 and other private line) represented about $16 billion in revenues for the largest incumbent telcos in 2005, says the Government Accounting Office. Some of that was DS3 and higher rate access, but more than $8 billion was comprised of T1 services.

And as is always the case, few actual business locations are directly served by optical access from any provider, much less multiple providers. In the 16 major metropolitan areas the Government Accounting Office examined, competitors to the incumbent telco are serving, on average, less than 6 percent of the buildings with demand for dedicated access in these areas. For buildings with higher levels of demand, facilities-based competition is more moderate, with 15 to 25 percent of buildings showing competitive alternatives.

"Obviously, fiber reaches only about 10 percent of all business sites," says ANDA Networks Tony Tran, senior product manager. "So reach is really the problem." The immediate problem is that many, if not most business customers require access bandwidth in excess of T1, with 6 Mbps being common, says Tran. Hence the growing popularity of Ethernet-over-copper access. By bonding multiple T1 pairs, service providers can emulate 10 to 100 Mbps access services, without ripping out the copper and without disturbing the SONET infrastructure already in place.

A Choice to Make

If, or perhaps just "when" SIP mobile devices get traction in the mobile market (Disruptive Analysis argues naked SIP device adoption will outpace IMS), mobile operators will face a choice. Do they "play nice" and allow third party entities to set up SIP sessions, or do mobile providers want to impair or block such sessions. The issue isn't "whether" they can do so. The issue is "will" they do so. Organizational DNA will scream "block," more so in the U.S. and Canadian markets than in Western Europe, we suspect. The current user agreement for Verizon Communications 3G service already bars its use for VoIP, for example. Ultimately, this strategy seems likely to fail.

And there are a number of scenarios that could produce an "open" result. The industry might find that enough revenue is captured from walled garden services that the value of a "naked SIP" feature, though it causes some revenue loss, is tolerable, and more than offset by the good will an open approach offers. Mobile providers might find that the financial results aren't so pleasing, but just one mobile provider of reasonable influence has to go "open" to put pressure on the others. Or, conceivably, if not likely, the market might evolve in ways that make open, third party offerings a mere annoyance, not a significant revenue challenge, and therefore not worth blocking. Regulatory barriers to such action might someday arise as well, as interconnection frameworks are applied to some SIP-based services.

And though not every potential or existing customer will even notice that a service is a walled garden, an increasing number will be aware that this is the case, and won't like it. This market segment provides just enough revenue at the margin to create pain if its business goes elsewhere. So in the end, third party SIP apps will function on IMS-based mobile devices, outside the walled garden.

Since Ericsson and Intel are collaborating on an extension of IMS to notebook PCs, there's another logical path for third party apps, even though IMS tends to be seen as a "closed" or "walled garden" approach (for business strategy reasons, not technological reasons). Still, there's arguably a higher barrier to service provider blocking for any features and services that are popularly seen as "computer" features, rather than "phone" features, in both the popular mind and regulatory bureaucracies. Still, there will be choices to make.

Why SIP Trunking is Hot

Companies can extend VoIP beyond the company private networks already in place, and reach off network customers, suppliers and business partners. Companies eliminate the need to buy and operate voice gateways and T1 connections, using less expensive IP connections. Ultimately, there are new applications taking advantage of SIP.

Why In-Home Networking Will Grow

People will buy more content on a download basis if they can port it to a TV for viewing. And because moving video content or voice around a network is quite a bit more complex than simple non-real-time data files, more value and revenue will be created in the system integrator and value-added distributor parts of the value chain. So traditional data networking, LAN specialists and high-end audio-video installers will wind up doing consumer home network installations. Up to a point, so will cable and telco installers.

Good News, Bad News

There was good news last year for U.K. service providers, according to Ofcom. Household usage and adoption of communications services accelerated. The number of households with broadband connections increased by 63 percent between 2004 and 2005, to a total of 9 million and the number of households with digital television also increased by 18 percent between March 2005 and March 2006, to a total of 18.3 million. Mobile phone usage also increased, accounting for 31 percent of all call minutes, up from 28 percent in 2004 and 20 percent in 2001.

The bad news is that aggregate customer spend seems to have dropped, despite the upsurge in usage.

Between 2004 and 2005 typical household telecoms costs fell by 5 percent, from £80 a month to £76 a month.

Ofcom data also shows that younger consumers are turning away from television, radio and newspapers in favour of online services , including downloadable content used on mobile devices. Television is of declining interest to many 16 to 24 year olds, Ofcom says. On average they watch television for one hour less per day than the average television viewer.

Instead, the internet plays a central role in daily life. More than 70 percent of 16 to 24 year old internet users use social networking websites, compared to 41 percent of all U.K. Internet users. The same group also uses mobile phones extensively, on average making seven more calls and sending 42 more texts per week than the wider U.K. population. Radio listening also is lower, by an average of 15 minutes a day compared to the wider population. Some 27 percent of those surveyed said they read newspapers less as a consequence of their online usage.

Different Platforms, Same Problem

A common challenge faced both by wired and wireless providers is the huge capital recovery challenge each faces from building of broadband networks at a time when voice revenues are dropping. Which is why the search for video, content and ad revenues is so urgently a priority. Sun Microsystems, for example, is adapting its Java System Content Delivery Server for mobile networks.

Sun's CDS provides a common infrastructure for delivering all types of content, including Java applications, games, ringtones and wallpaper. It also lets operators create storefronts, viral marketing tools and payment systems. It lets the carriers and other content providers set up services more easily and quickly, the company said.

Sun's move also illustrates another change that has taken place in the global telecom industry. Once upon a time, service and technological innovation was driven by the carriers themselves. That, after all, was what Bell Laboratories was all about. These days, innovation is in the hands of industry suppliers, not the service providers.

Which illustrates why major service providers no longer can hope to profit over the longer time by technological innovations. The suppliers will simply sell the latest and greatest to all the other contenders. Think back to competitive local exchange carriers buying Class 5 switches. Nice, but undifferentiated.

Instead, the sources of enduring value will have to be sought elsewhere. Knowledge of discrete customer segments and requirements will help. Better ways to move products out of the "factory" and into the hands of end users also will help. Unique content probably will help at the margin, but only at the margin. The bulk of interesting content will be offered by one's major competitors. And the problem faced by service providers there is pretty much the same as the technology supplier problem. All of the content suppliers will be anxious to sell as much of what they own to multiple buyers.

Oddly enough, it may prove to be the case that more efficient and effective channel relationships, part of the process of moving services out of the factory and into the market, will provide more enduring differentiation than content or technology platforms.

Consumers Confused, Long Tail Reigns

Consumers are confused and overwhelmed by the vast array of services telcos now offer, say analysts at Ofcom, the U.K. telecom regulatory agency. 

A "significant minority" of consumers have trouble working out which company offers the best value or quality of service on particular packages, Ofcom says. As it turns out, the huge range of services available, from phone line and broadband to cable television and mobile phone, confuses consumers. 

 Twenty-seven per cent of people find it hard to make cost comparisons for fixed-line phone services, Ofcom research reveals, while 34 per cent find it difficult to choose internet suppliers based on quality of service. 

 All of which points out why the "long tail" of telecom will continue to operate. Which is to say that cable company and telco basic packages will continue to maintain dominant market share. In an effort to reduce complexity, many consumers are simply going to choose from a small subset of relatively complete packages offered by the dominant providers in a market. That doesn't all buyers will do so, though. 

A significant percentage are going to go with some sort of "best of breed" approach that shifts demand "out on the tail of demand." And more customers will ultimately find they buy both a "package" of some sort from the dominant providers, as well as tailored services provided by others "out on the tail." 

 There are niches within the broader distribution of market segments as well. Looking just at today's use of mobile data apps, the same "long tail" already is apparent. SMS gets wide use by just about everybody. After that, usage trails off.

BT Sharply Reduces Reliance on Voice Revenue

BT has done a far better job of diversifying its revenue streams, by some measures, such as the percentage of total revenue coming from voice. BT gets less than 20 percent of its total revenue from voice. Most other tier one providers still generate 60 percent of more of total revenues from voice. In at least some cases, voice represents 80 percent of total revenue. In this regard, BT arguably outperforms all other tier one service providers.

This might explain BT's bullishness about its new all-fiber, all-IP network. It already can see its own future as one in which voice is not the dominant revenue driver. Nor is BT suffering from the scale of its capital investment. BT's profit in its second quarter rose 28 percent to £475 million, or $905 million, on sales of broadband Internet access and corporate computer-network contracts. BT's revenue rose 3.7 percent to £4.94 billion in the three months ended Sept. 30. We still will argue about the wisdom of 21CN and the pace of building all-fiber, all-IP networks. But BT seems to be getting the job done.

VoIP Audio Quality is Better, says Minacom (Tektronix)

Since late last summer, VoIP phone service has sounded better and connected faster than the public phone network, according to data collected by Minacom (Tektronix). Results show that VoIP service quality has increased steadily, with an average Mean Opinion Score (MOS) of 4.2, compared to 3.9 for the PSTN (scores range from 1 (worst) to 5 (best). Based on a MOS threshold of 3.6, only 1 out of 50 calls in North America were considered to be unacceptable (about 1 in 10 worldwide)while greater than 85 percent of VoIP calls exceeded average PSTN quality. In addition to superior sound quality, calls over VoIP connected quicker overall (8.2 seconds on average, compared to 8.9 seconds for those placed over the PSTN).

As happy as you might be about improving VoIP audio quality, uou might wonder about the performance of the public network. There are a couple of things at work here. First, lots of calls are now mobile to mobile or have mobile on one end. That automatically hits quality. The other thing is that perhaps a majority of international calls are terminating at one end in parts of the world where the public network simply isn't very good. In those cases, VoIP often does sound better.

Even though VoIP might sound better than the public network on average, including all calls to areas with poor public networks, the same sort of MOS score distribution probably wouldn't be seen so much for intra-country calls in North America, Europe or parts of East Asia. The other thing is that calls arguably traverse more networks and network elements now than was typical in the past. That can't help, and can harm, audio quality, as impairments accumulate.

Video Downloads, PPV, VOD Won't Top DVD Sales Any Time Soon

Though most people think video downloading will wipe out the DVD business, Kagan Research forecasts that U.S. consumer spend on VOD by 2016 will still be smaller by a wide margin. The company forecasts that U.S. consumer spending on video on demand and pay per view will be one-quarter the consumer spend on U.S. home video in a decade.

U.S. on-demand programming is forecast to grow at a 12 percent compound annual growth rate over the next decade, reaching $8.7 bil. by 2016. The CAGR for U.S. home video software will be under 3 percent over the same period, yet on a total dollar basis it still remains much larger, Kagan researchers argue.

Wireless, Not Skype, Cannibalizes Wireline Voice

It appears that Skype now represents a bit more than four percent of global long distance traffic, says TeleGeography. Skype users generated about 6.6 billion minutes of traffic in the third quarter of 2006, and are on track to make over 27 billion minutes of PC-to-PC calls this year, TeleGeography says. About half of Skype's traffic is international.

Still, the global switched and VoIP traffic base represents 264 billion minutes of use annually. So how about PC to PC Skype traffic? Last year such traffic was equivalent to 2.9 percent of international carrier traffic, and 4.4 percent of total international traffic in 2006. Furthermore, not all of Skype’s traffic is a net loss for international carriers. SkypeOut keeps traffic and revenue on the public network, at least for purposes of termination. SkypeIn provides a similar benefit for termination of traffic.

Still, it’s clear that VoIP services will continue to gain in popularity. "Someday, all calls will be routed over the Internet," says Stephan Beckert, Research Director at TeleGeography. “But the numbers suggest that traditional international carriers aren’t going to disappear anytime soon.”