Verizon Dangles Bait. Will Fish Bite?

Verizon is dangling financial bait in front of returning or new customers. Consumers who have chosen to use cable phones, computer phones or wireless phones for their primary lines can now add the reliability and security of a Verizon landline to their household for $9.99 a month for a year. Win back programs are a staple of the competitive communications business, so the mere fact of a win back offer isn't surprising. Even the promotional price, though quite promotional, is unheard of.

The key element here is that Verizon is signaling that it has had enough of competitor poaching, and is prepared to halt the erosion, even at the price of destroying its POTS line margins. The prize now is shifting to lines in service. Broadband may be foundational, but a customer relationship is key to upselling other services. If that is POTS, so be it. The worse thing at this point is stranded assets, not margin off a POTS line, necessarily.

Google, TV Spectrum Auction, GooglePhone

I will say in advance that this is merely a speculation, but look at some of the possible events headed our way, along with a rumor gaining more credence. The rumor is that Google has 100 people working on some sort of Google phone. Then there is the matter of what happens in 2009 when the analog TV broadcast system is shut down, and a block of really valuable spectrum, at frequencies that penetrate walls quite nicely, are available for some other use.

Google is among companies that "really doesn't want to be a communications service provider," and there are good reasons for that being its actual position. But things change. What if wireless service providers "pull a Viacom" and play hardball on approving use of the Google phone, much less actively pushing it. What if Google finds it has no really good choices for ramping up its presence in mobile search, presence and location?

There's all that truly wonderful spectrum being vacated by the TV broadcasters. They will fight to keep it, of course. They'll talk about how they can compete with cable and telcos and satellite broadcasters by switching to digital TV in the same spectrum. Just as obviously, other economic interests who would be in a position to gain from rights to use that spectrum will actively oppose any such notion.

But that's precisely where Google's rumored phone, along with its business need to move into mobile search, location and presence, might prompt a change of thinking about being a communications service provider. Of course, it also will consider partnering with others who really like running networks, to reduce its investment profile.

But there's the speculation. There might be times when application providers, despite their desire to avoid being in the networks business, simply can't get their primary mission accomplished without moving in that direction. Google has been dabbling in Wi-Fi access networks and investing heavily in data centers and backbone transmission. It might not be Google's first choice, but all that juicy spectrum is going to affect the thinking of all sorts of players out there, across the communications, media and electronics industries.

In Google's case, the value of owning spectrum and a network, along or with friendly others, is the opportunity to dramatically propel user dwell time with Google Docs & Spreadsheets, search, maps, Gmail and GoogleTalk. And since a mobile phone that doesn't connect to the public network isn't quite so useful, it will do that as well.

Comcast Adding 200,000 Voice Accounts a Month

Comcast is selling 50,000 wireline accounts a week, says Comcast CEO Brian Roberts. That’s 200,000 lines a month, or as much as 2.4 million lines a year. That’s just Comcast. Time Warner, Cox Communications, Cablevision Systems and other cable companies are adding more lines on top of that.

So wireline attrition does not necessarily benefit wireless companies as much as some might suspect or predict. Some analysts think 40 percent of all U.S. consumers will be “wireless only” in five years, for example.

In some Comcast markets, for example, including Philadelphia and the Washington markets, Comcast is selling 25 times more units of phone services than it is units of video, says Roberts.

Big Ditch or Small Puddle?

One's attitude towards any access net choice depends in large part on what one thinks one faces. If one believes that the path to the future is largely a matter of small steps, then an incremental approach to access bandwidth makes sense. If, on the other hand, one anticipates disruption, then a bolder choice might be better. Yes, the risk is magnified when a discontinuous access choice is made. But there is great risk if one believes one is going to have to jump a big ditch as well. If you are going to make it, you need to get a good running start and then stake everything on making the leap in a single move.

That's something of the background in all cable or telco considerations about bandwidth upgrades, compounded by the fact that mobile access has to be part of the solution. The point is, jumping a big ditch might require a bolder investment in advance of the leap. If you don't think a leap is required, incrementalism might work. Either way, one bets the business, though, so neither decision is without huge risk.

It is clear that the addressable revenue buckets are bigger than they used to be, there's more competition than there used to be, and markets are less predictable than ever. So the most flexible network has an advantage.

And networks wear out, no less than shoes, clothing or tires. They must be replaced periodically in any case, and every network encounters natural break points, where an incremental upgrade in performance is not possible. The issue is where that point now lies.

Vyyo 3 GHz: Bigger Pipes for Cable

Even back in 2005, before the YouTube, user generated video wave hit, cable operators were thinking the amount of bandwith they would be delivering in linear fashion would shrink, while on demand services would grow. Over the top Internet video only magnifies the trend. So it is no surprise that cable operators are looking at any number of ways to boost bandwidth without ripping up their hybrid fiber coax plants and going fiber to the home. After all, the consistent cable refrain is that FTTH is way too expense and HFC is much better.

Cablers are looking at signal compression and decoding, upgrades to 1 GHz bandwidth, creating smaller fiber-served neighborhoods, converting to all digital signal formats or overlaying new electronics on the existing plant to make use of non-traditional frquencies. Vyyo is one of the suppliers of an overlay system, and says it can boost downstream bandwidth by about double, and upstream bandwidth by 10 times, for something on the order of $125 investment for every home passed by the cable network.

That's the good news. The bad news is that every time an engineer adds an active element, serially connected to another active element in a network, reliability necessarily takes a hit. So the good news is that the Vyyo overlay dramatically increases bandwidth, at the cost of reduced network reliability.

If the 3 GHz Spectrum Overlay adds six elements in series on each fiber leg, then the reduced reliability can be calculated by multiplying the reliability of each single device (a number less than one)by the reliabilities of each of the other devices, to get the impact on system reliability. Obviously, multiplying numbers less than one by other numbers less than one can only go in one direction: down.

If one assumes a reliability of 100 percent--a device or system that never fails--you understand why telecom engineers are so fixated on 99.999 percent reliability for the entire network. Never mind that the goal is virtually impossible to meet for some services, as the terminal devices have reliabilities low enough to drop end-to-end performance below the targeted "five nines."

But that's why there is such emphasis on the telecom world on passive optical access networks. Telco outside plant technicians and engineers know just how labor intensive a system can be when it has many active elements in it. For the cablers, perhaps the overlay tradeoff is worth making. But it will come at a price beyond the capital investment, in the form of reduced network reliability. That's just the physics and math.

SIP Trunking, Even if You Have no SIP

Global IP Solutions has introduced Interoffice Voice Trunking, offering enterprise customers free, high-quality voice over their internal networks. And get this: IVT can be used even where an enterprise has TDM phone systems in place, using a gateway that converts TDM to SIP signals.

GIPS claims high-quality voice can be transmitted this way over any network, including the the public Internet. GIPS Solutions' products are fully compatible with the IP PBXs from Cisco, 3Com and Avaya as well as any other H.323 compatible PBX, including circuit switched telephone equipment. IVT runs on any Windows 2000 or XP server, which enables companies to extend the useful life of legacy hardware and also supports any broadband Internet connection.

Presence, Location, Existence

Google in 2005 filed a patent application regarding "a computer-implemented method of providing text entry assistance data, comprising: receiving at a system location information associated with a user; receiving at the system information indicative of predictive textual outcomes; generating dictionary data using the location information; and providing the dictionary data to a remote device." The concept might be looked at as a location-based communications service. It is more, we'd argue.

"Presence," the ability of a computer system to detect your present willingness and ability to communicate. "Location-based" services promise to tie your present location to your lifestyle and preferences. Google's patent goes slightly further. It would make possible not only location-variable messaging and communications, but time of day or day of week personalization as well. The system theoretically could alter the results of any active or passive "search" function based on your past history, time of day, day of week and actual location.

And, of course, it makes most sense for some sort of mobile device. "Presence" solves many problems related to the effectiveness and efficiency of communications. "Location-aware" features may help solve some additional problems (I'm hungry or thirsty. Where can I get something to eat?). Google's system could theoretically contextualize even one's life experience (If you hurry, you can catch an earlier flight; those size 4 pink Crocs you wanted for the granddaughter are for sale, or maybe even on sale, at the store one block ahead. You will want to ship them home and there's a FedEx Kinkos another block ahead).

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.