Metro Ethernet Getting to be a Bigger Deal

As wider adoption of IP phone systems spurs buying of SIP trunks, so IP itself drives demand for Ethernet access. The Yankee Group sees spending by enterprises in the Asia-Pacific markets doubling in four years, for example. "Year over year we see metro Ethernet becoming a greater percentage of our sales," says David Rusin, American Fiber Systems CEO.

The demand is "steady" at about 40 percent growth this year, Rusin says. And Rusin is very clear about how this market needs to be attacked. "After 10 years and billions of dollars of wasted capital we now know you must have your own network."

Needless to say, Rusin isn't a big fan of mandated wholesale access to high-bandwidth facilities. In the U.S. market, mandatory unbundled network element access should go away, maybe over a five-year period. If all competitors understand that they must have their own facilities to compete in the access market, that is what they will do, or they will do something else. "Then capital will come back in to the market," Rusin says. "The incentives need to be there."

In a market as competitive as the metro Ethernet space, how does Rusin answer the objection that there already is too much competition? Simple. "We don't build where there already is capacity," he says. In other words, if there is any existing fiber or capacity in place, AFS simply leases the capacity. The only time it will swing an optical lateral is when there is no other alternative. "If you aren't operating off your own network, IRU or capacity, I don't see how in the long run that's a sustainable business," he simply says. Lots of other providers would say the same thing.

Mobility is Key for Business Unified Communications

There's a really simple reason why mobile devices are destined to play a key, perhaps the key role, as unified communications develops. At least 41 percent of the workforce already is mobile, and just about every employee is a mobile user in their personal roles. So to the extent unified communications almost always the ability to send and receive communications on mobile and desktop devices, mobility is a virtual requirement, even for workers who are not "mobile" in the normal course of their work day.

"There are lots of ways people communicate now," notes Sphere Communications SVP Todd Landry. "What does it mean to unify all that?" Some might say it means different media types can be more tightly integrated with other forms, Landry says. "At the lowest level, you want multiple forms of communications unified, plus mobile and desktop integration. "At another level, it might mean availability of presence state and text messaging, voice and video, so calls are handled differently depending on what you are doing," Landry says. "At a still higher level, it is communications integrated with business processes."

"Traversing between work and personal roles, your presence and control might move between domains," he says. "So the mobile phone is probably the most important device to support." First of all it is ubiquitous. And it will become a more important tool for business users, simply because device power is growing so fast. Mobile devices now allow users to do "the same sorts of things you do on your PC, and yet we call one a "phone" and the other a "PC," Landry notes.

Appetite for "Bundles" Varies

With service providers spending so much attention on creating sticky bundles of services, and with so many suppliers seeking to "move up the value chain" or "add more value" to their existing product lines, it is interesting that businesses of various sizes have apparently distinct appetites for the "one throat to choke" principle that drives buyers to consolidate their buying and use fewer vendors. Very small businesses just don't seem to have the immediately compelling desire to consolidate suppliers. Well over 55 percent of very small businesses don't see the advantage of consolidating their buying of voice, Internet and mobile services.

This seems odd, if the Triple Play is seen as viable for small businesses as well as consumers. In contrast, well over 65 percent of enterprises with 250 to 10,000 or more employees prefer to consolidate their buying. Still, 40 to 50 percent of small businesses with two to 49 employees say they prefer the bundled approach for voice, Internet and mobile services.

So Far, Short Form Rules

About five percent of North American users who watch video on the Internet, and polled by ABI Research, say they have rented or purchased a digital movie download, a lower overall number than indicate they have downloaded a movie free from a peer to peer sharing site. Movie downloads, both legal and illegal, remain the least watched genre of online video on the Internet, where short-form content such as sports and news clips is watched by nearly 7 in 10 of those that watch Internet video.

"The vast majority of those watching content online are watching short-form content such as news and sports clips," says ABI research director Michael Wolf. "Older users in particular watch primarily news and sports, while younger users are watching more entertainment content, including viral media provided by sites such as YouTube."

You probably aren't surprised by this finding. For starters, movie downloads are something of a nuisance at the moment. First of all, the whole catalog you might be interested in is never in one place. So there are search "costs," paid in your time. Second, there's still some hassle involved for downloading, depending on the actual bandwidth one has available. It isn't just the time it takes to download a movie, but the other stuff one can't, or doesn't want to do on a PC, while a download is in progress. A user's time, in other words, represents a real cost, even if it isn't a directly measurable financial cost. Finally, there are product substitutes, and many of them are arguably better substitutes, at least for the moment.

When ABI Research asked consumers why they chose not to watch movies downloaded or streamed from the Internet, the biggest reason was satisfaction with existing cable and satellite services as well as DVDs. About 48 percent of respondents indicated they would never purchase a movie online for download because they were satisfied with their current providers and the rental market. We do think that will change, with time, but the fact remains that there are lots of viewing niches even within the market for "movie viewing."

Most people will watch most movies once. Some users will watch some movies twice. Children will watch the same movie lots of times. So the market segment "movies my children really like" is better served by a prerecorded DVD with no usage restrictions. The market segment "relatively current release we only want to see once" is quite a different market, in terms of delivery mode. Downloading makes sense for the latter. It almost never makes sense for the former.

Downloading to a notebook PC by a user who has no other family members who will want to view the movie is a different value proposition than downloading of a movie when most of the family, or at least two members, want to watch it. PC viewing often is suitable for the former. PC viewing normally is objectionable in some ways in the latter case. And end uses tend to say they are much more likely to download content if they can view it on a TV.

"Despite the growing interest in the pay market for Internet-delivered video, perhaps the biggest remaining hurdle to widespread adoption is that the status quo usually gives consumers a vastly superior, and often less expensive experience than Internet-delivered content," says Wolf. "The industry needs to develop reasons and business models that increase overall consumer interest in Internet delivered video, including allowing for easy transfer and better viewing on the large screen."

No Doubt About It

Regular weekly usage of new media is growing at high double digit rates, while regular usage of legacy media is dropping, albeit only at single digit rates, with the exception of magazines, which are dropping at about a 12 percent rate. All of the growing formats have a network delivery or core communications element to them.

Percentage Growth of Regular Weekly Media
Medium Regular Weekly Usage
TiVo/Replay TV 88.1%
Satellite Radio 79.9%
IPOD/MP3 Player 72.1%
Blogs 63.2%
Picture/Video Phone 59.2%
Text Messaging 58.8%
PDA 14.0%
Traditional Media
Magazines -11.7%
Newspaper -7.1%
Radio -5.7%
TV -5.2%
Source: BIGresearch, December 2006

Mutliple Wars Raging

Scoff if you like about the ultimate business models that might develop around user generated video content, but the trend will intensify competitor triangulation in the coming market share wars that are ranging at multiple levels. The access battle has telcos and cablecos, plus specialized wireless and other players competing for "lines." The "services" battle is being waged between portals and between portals and the access providers.

In some respects the "access" providers will bundle and tweak their walled garden and possibly some Internet applications so they work better, experience-wise. The portal and app providers will seek to create interesting community interaction or portal content experiences so users can be enticed to use other features. The key here is that rich communications and entertainment will be primary forms of "bait" to entice users to show up and stick around. So far, the main battle has been between the major "access" providers. At some point, though, compeitition at the other layers (intra-portal; portal versus access; service versus app) will emerge.

Smaller developments, such as the user generated video trend, as shown here by analysts at The Yankee Group, are laying the foundations for the next phase of competition.

SME Business VoIP Uptick

SMEs seem, at least according to one projection by Infotech, to be getting the message on hosted and premises-based business phone services. Adoption rates are tracking large enterprise deployments pretty closely, after initially trailing. There's growing evidence that prices also are getting more interesting as well, in large part because premises-based systems are becoming more affordable, thanks to Asterisk and other open source platforms, as well as suppliers such as Samsung staking out new price point terrain.

WAN Will Be Driven by Video, Obviously

Until recently, global backbone traffic was driven by voice. Then email, Web browsing and peer to peer traffic became significant traffic contributors. Clearly, though, high definition and other television-based traffic will be the dominant driver of global bandwidth demand, argue researchers at Information Gatekeepers. By 2010, as much as 94 percent of global traffic will be HDTV or IPTV content, IGI predicts.

Late 2008 Consumer VoIP Mainstream

Telecom industry executives and analysts generally believe consumer VoIP will hit mainstream status by late 2008 or early 2009, according to stl. They also believe that sometime in 2010, voice revenue will represent 20 percent or less of wireline service provider revenue. Mobile operators will be in the same position by 2011. Some 90 percent of respondents say the global telecom industry is undergoing a fundamental structural change.

Lots of Niches

Google is rumored to be talking to France Telecom's Orange unit about a Google phone optimized to support Google search functions. In Romania, Zapp is targeting the SME space, especially frequent business travelers and expatriates, with a prepaid EVDO mobility service. The point is that Web and IP platforms, as well as open source and other Web 2.0 programming tools and concepts will enable creation of many new service niches. The Google phone might ultimately appeal to specific groups with high needs to conduct search operations when away from their PCs, sort of a new subset of the "BlackBerry" and "push email" user base.

Throw it On the Wall and See if it Sticks

Though it isn't the way service providers are used to doing things, allowing customers to discover services they like is about as rational as anything else a provider might try. Especially when everybody is in discovery mode anyways. Mobile providers "discovered" the popularity of short message service, rather than being able to predict such success. And if it doesn't die of its own weight, IMS is supposed to allow such discovery and trial processes. The Web is the other way discovery processes happen every day.

In 2005, Forester Research estimates, just 2.6% of Western European broadband consumers used VoIP for almost all their fixed-line calls from home. But matters will change dramatically. Forrester Research expects three in four European telco network broadband subscribers to use VoIP within 10 years. But the average incumbent telco will not get more than €63.58 (a bit less than $7 a month) in net annual VoIP revenues per broadband user in year 10. That, plus a dramatic shrinkage in revenue-beating access lines, as indicated by Technology Futures Inc. forecasters, highlights the urgency and strategic importance of new revenue streams. There simply isn't going to be all that much consumer voice revenue to get.

Churn: Watch What :People Do, Not What They Say They Will Do

As wireless number portability comes to the Canadian market, consumers seem to be telling The Yankee Group there is a significant chance they will use the opportunity to switch providers. But that's what people told researchers when number portability came in the U.S. market as well. While one has to be careful about inferring too much from experience in other markets, there is a fair to good chance not much incremental churn is going to happen. People often say they will do this or that. Sometimes there is a huge discrepancy between what they say they will do, and what they actually do. This is probably one of those cases.

50 Mbps Symmetrical Access From SureWest

SureWest Comms. soon will offer a 50 Mbps Internet access service (up and down!) for residential customers with access to the company's FTTH network. The company has been selling 10 Mbps and 20 Mbps symmetrical services for some time. SureWest is bundling the 50 Mbps offering in its newly-created “Ultimate” quadruple play package, which includes the 50 Mbps access service; a 250-channel digital TV service; National Unlimited local and long distance telephone; and Unlimited wireless with 1,000 travel minutes each month. The package costs $415.18 a month. If it were offered on a stand-alone basis, SureWest says the 50 Mbps service would be valued at $259.95 per month.

So think about it this way: A DS3 service should cost less than $300! And we can only hope that Verizon is able to stick to, or increase, its own FTTH deployment. Not that all that many residential customers need symmetrical 50 Mbps access today, at least not for any purpose within the scope of "acceptable use" policies. The problem is that at such rates, about the only application that really benefits is hosting of video servers inside the home. And that typically falls outside a service provider's notion of acceptable use. Still, it's an awesome advance in access bandwidth.

Many Internets, Many Models

Whatever positions one takes on the "future of the Internet," or the "future of the telecom business," one thing seems clear enough: The Internet is going to change, because it is fragmenting into multiple Internets, private Internets, regional Internets, application-specific Internets (as odd as the concept seems). We aren't going to live in a world with a single Internet, but rather a world in which there are many types of IP networks, some more open than others.

Mike Volpi Cisco SVP, argues that service providers (telco and cable, for example) can reshape at least parts of the legacy Internet. For starters, transport and access providers probably will be able to charge differential rates for varying levels of quality and higher levels of policy management, especially for real time services. Providers probably also will find they can charge different amounts of money for different amounts of upload bandwidth as well.

Stepping back from the inevitable policy debates about how much intelligence "needs" to be in the network, and what such intelligence might mean for new gatekeeper roles for transport networks, it seems clear enough that services such as high definition video and audio do require policies such as enterprises normally apply for their own traffic, to prioritize packets and bandwidth access. This is less a matter of "controlling the Internet" and more a functional requirement, though the danger of abuse cannot be discounted.

And while the notion of an "application-optimized" IP network seems counterintuitive, it makes lots of sense, if one assumes there are large, sustainable markets for applications of various types that benefit from network tuning. Video and voice provide the most obvious widespread examples, but there are lots of vertical market apps that also would benefit from network tuning. Gaming networks, security networks, hospitality and medical segments come to mind. Advertising, marketing, video post-production and other specialized news feed apps are obvious as well. Some apps just require network tuning. And it probably will turn out that these new apps are the ones with clear revenue models attached to them.