Whether WiMAX?

Whenever the subject of slow moving telcos and broadband access choices come up, wireless typically is mentioned as the most hopeful alternative. So the latest incarnation of the wireless buzz machine is WiMAX, sharpened recently by Sprint Nextel's decision to use WiMAX as its fourth generation network platform, followed by Clearwire's initial public offering, successful by market measures.

Of course, I've been hearing this same refrain for two decades. And there's one surefire way to determine whether any proposed wireless technology is going to be disruptive (in other words, an important competitor to incumbents) is simply to follow the money. If any new wireless technology really is going to disrupt access markets, it has to remain under the control of an upstart, period. As soon as any platform is acquired by the incumbents, it ceases to be disruptive. Clearwire couldbe acquired outright, and still remain disruptive. It simply has to be acquired by a hungry company willing to upset the market.

But there are other important strategic factors to consider when evaluating the potential or the threat posed by wireless access technologies. The first is competition. The second is wireless transmission properties. For starters, most people who assume WiMAX will be mostly disruptive typically fail to consider how other wireless broadband service providers are going to react. Do you think incumbent
3G providers are going to sit by for very long and let Clearwire eat their lunch? And do you think wireline broadband incumbents will do likewise?

The last time we looked, independent telcos in the rural areas Clearwire has said are prime opportunities have begun to upgrade their networks for broadband. Then there are two broadband by satellite providers available in most, though not all, U.S. rural areas. They say the same thing as Clearwire: underserved market; less competition, or no competition, from cable and telcos.

On the other hand, mobility is a plus, and the basis for differentiating the service. And if one voice enables Clearwire, as the company says it will do, there is some ability to shift mobile customers away from their current providers.

On the bandwidth issue, though, Clearwire has to hope for modest--but not wild--success. The reason is that wild success kills the network. Recall that Clearwire, like any radio licensee, operates in a sliver of the radio spectrum. The radio spectrum is a part of the entire electromagnetic spectrum. Optical systems use visible light, can use every color of visible light (wavelengths) and so can carry
what is for all practical purposes infinite bandwidth. No radio system, operating in a sliver of the radio band, ever can do that.

Wireless networks can be reengineered to reuse whatever spectrum is available, of course. Still, at some point interference issues prevent unlimited reuse. The business impact is that any radio system has less aggregate network bandwidth to work with, and can allocate less of the practically available bandwidth to any single user. And the demands get worse as customer count rises and there is more contention for the available bandwidth.

So optical access always always has the advantage over radio, and gets more efficient as penetration rises. Radio gets less efficient as penetration rises. Sure, you can design the network for maximum reuse of the existing spectrum, which helps deal with bandwidth and penetration. But it also increases capital investment.

Still, the company has lots going for it. At some point, we are going to stop talking about how little broadband penetration there is and start talking about multiple subscriptions per home, and subscriptions per user. Wireless is not always a substitute for wired connections, but supplemental. The access game is not zero sum, as it is thought to be. And mobile broadband, in particular, is a service sold to
individual human beings, not places. So the market inherently is more elastic. Remember the difference between mobile phones and landlines. One is sold to people, the other to places.

Craig McCaw owns a good chunk of the company, and Craig is a smart guy. It has serious partners (Intel, Motorola, Bell Canada) and a $3.8 billion market cap. The company had $100 million in revenue last year. It could grow to $200 million to $300 million this year.

Still, there are issues. So far, the network footprint is modest, covering areas serving 8.6 million people, or less than three percent of the U.S. population. At the end of last year it had 206,200 subscribers. But it has licenses to coverage 250 million people. Still, the North American WiMAX market is expected to increase from the current 30,000 installed bases to more than 21 million by 2011. And mobile
WiMAX radios aren't available yet.

In the meantime, there's the matter of cash burn. It has to build networks, and that's expensive. Last year the company spent $1.1 billion. It will need to raise money money in 2008 to continue the build. All that said, in the end, whether Clearwire creates a serious alternative to cable and telco, 3G, other 4G and satellite broadband access services, remains to be seen.

If it remains independent, yes. If it is acquired by an incumbent, no.

Not Such Great News

Though it isn't yet clear how serious Verizon's patent infringement case against Vonage will turn out to be, it is hard to see how it is positive, overall, for any service provider targeting the VoIP replacement market as an "over the top" basis. We would assume that cable operators have not chosen implementations Verizon thinks infringing. At the very least, the royalty payments now impose a revenue drag of about 5.5 percent of revenues, if the judgment stands. Vonage still has the single largest number of VoIP subscribers, according to TeleGeography, but what that asset will be worth is just slightly more open to question.

Two Ways to Develop Apps...

...and neither is completely right. Mobile operators, no less than their wireline brethren, have to figure out now just what applications are hot, and how to build business models around them, but how to balance the walled garden with the over the top open approach to apps.

It's an old argument spun in new ways. Service providers traditionally have created the apps on behalf of end users, with modest success in some cases. The Internet, of course, changes everything. Now end users and third parties can develop as they like, without carrier permission. Neither the walled garden or the completely open approaches will completely exclude the other sort of approach, though.

Gatekeepers will still have a role in guaranteeing better user experience for some third party apps, as well as developing a few of their own apps. Most apps, though, are simply going to be delivered over the top. The real pinch points are going to come where the app involves real time services with high bandwidth requirements. In those cases, carriers often will emerge as providers of latency control and app context features.

As analysts at The Yankee Group see matters, Internet types will prefer flat rate pricing while service providers lean towards usage-based models. There is room for both, plus ad support. Hybrid models are the future.

Good for Users, Not for Service Providers...

Businesses can use fixed mobile convergence and VoIP to slash more than 30 per cent from their communications spend, according to researchers at Analysys. How? The same way prices have dropped in other areas of communications: bypass of the public networks.

"Companies are spending over 80 per cent of their call bill on mobile services," says Margaret Hopkins Analsys analyst. That's not surprising, if you consider that most people get mobiles sometime in their teens, and keep using them as they get older, as eMarketer suggests.

Google Phone?

This from Engadget. Venture capitalist Simeon Simeonov says Google has a team of about 100 people working on the Google Phone. The photo might be simply a represenation of what the user interface would resemble. That isn't the point. The point is that it looks like a buddy list. And it is possible that the buddy list becomes the hub of communications activity in many, perhaps most situations. All of which illustrates the importance of instant messaging as a metaphor for where a good chunk of communications is going. Which is to say, it works better when the people you want to communicate with can signal that they are available, right now.

Apple's Halo is Glowing

m Pacific Crest Securities says Apple computer unit sales are up 101 percent year over year, with revenue up 108 percent. This is the halo effect from buzz about the iPhone, following the iPod, both of which are raising brand awareness for virtually every product in the Apple family. Apple's PC market share also appears to have nudged up two points over the last six months, says Net Applications. Goldman Sachs predicts that iPod sales could approach 11 to 12 million units in the first calendar quarter of 2007. Morgan Stanley says iPhone interest is actually larger than what the market currently anticipates.

So it appears Apple's brand awareness and buzz is driving iPod and Macintosh sales now, and prepping the market for the iPhone which won't be widely available until later in the year.

In fact, iPod sales will pass 100 million units world-wide in April 2007. Magic.

One Trillion VoIP Minutes

Some 1,079 billion minutes of VoIP traffic were carried by service providers around the world last year, says ILocus. The data suggest over half of calls were for long distance national calls. Separate estimates by TeleGeography suggest global VoIP minutes amounted to just short of 72 billion minutes last year.

There were 37.5 million voice over broadband subscribers, an increase of 16.5 million subscribers over the year. The biggest growth occurred in the U.S., French and German markets.

In the VoIP equipment market, softswitch and media gateways sales generated combined revenues of $2.2 billion - with 36.9 million Class 5 softswitch licences, 34.8 million Class 4 softswitch licences and 48.2 million service provider media gateway ports sold worldwide.

Bandwidth Now Driven by Consumers

"About 85 percent of carriers want Ethernet intelligence embedded into the optical transport network," says Meriton Networks chief network architect Nick Cadwgan. 

In some cases that means the ability to create Ethernet tunnels through an optical network, so that the transmission fabric starts to become a service delivery fabric. 

In some cases, though, it remains important to transport TDM traffic through the optical fabric, as in the case of wireless backhaul, notes Emanuel Nachum, ECI Telecom executive. "You want to integrate TDM, SONET and Ethernet layers as part of the optical infrastructure," he says. And though it has gone unnoticed in some quarters, dramatic changes in transport bandwidth are starting to occur. 

There's a move to 1 gigabit Ethernet at the edge of the network, in part because that's what the cards now support," says Umesh Kukreja, Atrica executive. "Enterprise sites now are pushing 20 Mbps to 40 Mbps while data centers are putting in 10 Gbps links. "We're also seeing N by 1 Gbps paths carried within 10 Gbps wavelengths.

But there's an even bigger change going on. Historically, bandwidth demands were driven by business. 

From this point forward, they will be driven by consumer demand for IPTV and other applicatons. Cadwgan says that over the last 18 months the demand drivers have flip flopped and that telco requirements for consumer video, using IP transport, now are the single greatest bandwidth driver.

Even for service providers who serve small, medium or enterprise customers, there are key implications. Paramount among the changes are new buyer benchmarks for what bandwidth should cost. 

SureWest Communications, for example, offers a symmetrical 50 Mbps Internet access service for customers who take a premium bundle including unlimited wireless, wireline and premium video. On a sum of the parts basis the symmetrical 50 Mbps works out to something like $200 a month. When those consumer users go to their offices, they are going to wonder why their business bandwidth costs so much.

Likewise, even some independent telephone companies serving rural areas on a suburban fringe are planning now for residential access bandwidth in the 40 to 50 Mbps range, with a 10 Gbps "metro core" to support it. You might wonder whether this is "overkill." Not if the telco plans on delivering IPTV services. And executives also acknowledge that if competing cable operators start bonding channels to create 100 Mbps services, then there will have to be a competitive response.

All of which puts telcos and other service providers in an awkward position. Competitors are driving consumer bandwidth expectations and delivery, not the voice and data networks that used to be expected to provide such leadership.

iPhone Boosts Analyst Forecasts

Apple's iPhone will likely see positive acceptance when the device ships in June, according to research firm Goldman Sachs. Goldman points to a recent handset branding survey that was conducted in China, India, the U.K. and the U.S. as evidence that Apple's new gadget might yield positive results for the Cupertino-based company. Despite the fact that the survey took place before iPhone was debuted in January, the number of potential iPhone buyers is equivalent to 75 percent of the installed base of current iPod owners. Just under one-half of the potential buyers come from respondents who have never owned an iPod, and 71 percent of respondents in the U.S. indicated interest in a potential Apple cellular handset.

Separately, Morgan Stanley says they would be buyers of Apple on incremental revenue and operating leverage. The firm believes the market is underestimating the likely success of iPhone. They're raising their annual unit and revenue forecasts to better reflect iPhone interest levels.

Morgan Stanley expects sales of eight million iPhones in 2007. A survey of 2,500 US consumers found that more people are interested in buying an iPhone than the combined number of people who already own or are planning to buy a similar high-end device soon(23 percent of non-owners compared to 19 percent of owners).

Apple ranked as the fourth most desired multimedia handset brand in the U.S. even before the iPhone was ever announced, and 30 percent of U.K. respondents alongside 15 percent of U.S. participants suggested that they would switch carriers in order to get the handset they want.

In fact, it is dangerous to underestimate the Apple brand machine. That isn't to say the company doesn't occasionally produce a dud. Think Newton, Pippin or Lisa. Of late, though, it has been on a roll.

ABI Research late last year said a study it conducted suggested many prospective MP3 player buyers, including current iPod owners, would be likely to choose Microsoft’s Zune over an iPod.

Of course, forecasts can be quite wrong. When 1,725 teenage and adult US residents were asked whether they planned to buy an MP3 player in the next 12 months, of those responding they were likely to do so, 58 percent revealed they were “somewhat likely” or “extremely likely” to choose a Microsoft Zune player over the iPod or another MP3 player brand.

This 58 percent that were likely to go the way of the Microsoft Zune – all identified themselves as existing iPod owners. The respondents owning other brands, 59 percent, were also “somewhat or extremely likely” to purchase the Microsoft Zune as opposed to another brand – including the iPod.

But sales of the Microsoft Zune appeared to be trailing off rather quickly after a fast start last November, leading some analysts to believe consumer interest is waning. Which is why watching what people do, not what they say they will do, is so important.

The player, which stayed in the top 10 in sales in the Amazon.com electronics category for several days following its launch, has now nearly fallen out of the top 100, recently hovering around position 96.

However, that buzz appears to have been short lived. Whereas the iPod is expected to sell as many as 15 million players this holiday season, analysts only project Zune sales of about 300,000 to 500,000 units at most.

Steve Wilson, ABI Research principal analyst, even has argued that iPod users don’t display the same passionate loyalty to iPods that Macintosh users have historically shown for their Apple products. The survey revealed that only 15 percent of iPod owners said that they were “not very likely” or “not at all likely” to choose Zune.

iPod Worldwide Sales
Q4 2001 - 130,000
Q1 2002 - 57,000
Q2 2002 - 54,000
Q3 2002 - 140,000
Q4 2002 - 219,000
Q1 2003 - 80,000
Q2 2003 - 304,000
Q3 2003 - 336,000
Q4 2003 - 733,000
Q1 2004 - 807,000
Q2 2004 - 860,000
Q3 2004 - 2,016,000
Q4 2004 - 4,580,000
Q1 2005 - 5,311,000
Q2 2005 - 6,155,000
Q3 2005 - 6,451,000
Q4 2005 - 14,043,000
Q1 2006 - 8,526,000
Q2 2006 - 8,111,000
Q3 2006 - 8,729,000
Q4 2006 - 21,066,000
Total = 88,708,000

Consumers aren't willing to pay what Apple Inc. may ask for the iPhone but if the price drops they'll switch their mobile service to AT&T Inc. in order to get it, according to results of another survey.

Online market research firm Compete Inc. surveyed 379 people in the U.S., most of whom had heard of the iPhone and have shopped for an iPod, to find out how interested they are in the device.

Among the 26 percent of respondents who said they're likely to buy an iPhone, only one percent said they'd pay $500 for it. When Apple introduced the iPhone in January, it said it would cost $500 on the low end.

Forty-two percent of those who said they're likely to buy the phone said they'd pay $200 to $299. Just watch. You'll get early adopters at whatever price iPhone costs. Then lower-priced units will appear. At $300, demand explodes.

See What I Mean About the Phone?

It just looks industrial, compared to the design of the rest of the unit.

Verizon One, Competition Zero

Verizon is rolling out an all-in-one voice, data, and video center for the home riding on top of Verizon's FiOS service, though it looks like the first generation of the device will not have the planned Ethernet and Wi-Fi capabilities Verizon wants to add. The Verizon One makes VoIP phone calls, supports email access, limited Web searches, calendar functions and streaming audio as well as preview of digital camera images. "Limited" Web access means specific Verizon-approved content in the news, weather and movie listings areas are available.

The cordless phone available as part of the unit is a bit clunky looking, but will support Verizon's VoiceWing VoIP service, slated to be added to the FiOS bundle later this year. The Verizon One also runs Media Manager, the FiOS application that manages and routes all of a user's multmedia content to networked TVs, set-top boxes, and PCs. Hence the importance of Wi-Fi and Ethernet capabilities. The base unit apparently supports as many as five total handsets.

Presumably when the Ethernet capable units are available, users will be able to access any content on the Web. Multiple USB ports will be added to accommodate the peripheral devices. Verizon One can be located any place in the customer's home where there is access to a phone jack and an electrical outlet.

It's an interesting approach to creating a next-generation "phone" device. Some people won't like the look and feel of the cordless phone. And one would hope the walled garden content experience was intended as a way to simplify experience of the unit, not extract money from content suppliers. That said, Verizon will be climbing a wall of resistance for the device, since every other attempt to put a PC-style screen into "kitchen" areas in the home has flopped. I don't recall a combined "phone plus Web" unit, however. And we really won't know what demand might be until the full Ethernet and Wi-Fi version of the device is available.

Still, credit to Verizon for trying something new. The device might be attractive for quick searches as one is running out the door and doesn't have time to boot up a PC to grab information from the Web. In these "greener" days many users are powering down their machines when not in active use to cut carbon, so quick and simple information searches might be attractive. That at least has always been the theory about how a simple Internet access device could fit into a user's lifestyle.

But Nokia Says No...

The problem with market research is that findings can vary wildly from study to study. Nokia, for example, provides smartphone usage data that flatly contradicts other study findings. According to Nokia, messagng and voice drive the actual usage, not audio and video.

Audio, Video Drive Smartphone Use

Not email access, at least according to this data from ICM Research of users in seven countries.

Watch Wikipedia

Here's a trend you might not have expected. Wikipedia is one of the four most popular social networking sites, even though it is not of the "hang out with your friends or community" sort. In fact, you probably are among the users (including this one) that has come to expect and rely on the quality of most of the information available on Wikipedia, as well as the timeliness of the updating. If you had asked me whether so many human beings would help create a service so useful and so good, just because they wanted to help, I'd have said "no way." At least some times, what Web 2.0 proponents claim is true, is true. So in chatting with David Beckemeyer, PhoneGnome CEO, why would it not be able to create some sort of user research outfit (one hesitates to use the word "company") that essentially is a wiki, perhaps a private wiki for some purposes, and a public wiki for others? My point is that if IP-enabled applications and services are changing everything in communications and media, and changing many things in the learning and playing arenas, why is there not reason to believe it can change market research and analysis as well?

Fiber To Home Forecast

18 million homes by 2011, say researchers at Parks Associates. Normally I am more skeptical to the downside when evaluating nearly any sort of market forecast. This one, though, seems too cautious to me. We shall see.