International Long Distance: Merger Wave Coming

Look for a wave of mergers and outsourcing in the international long distance business in 2008. The issue is that voice traffic growth is slowing sharply after decades of rapid growth. That means more volume is needed to keep a business cash flow positive or profitable. Not every global carrier will be able to attain that level of scale, so executives are going to have to consider buying wholesale capacity and abandoning operation of their own networks.

That, of course, is a business opportunity for wholesalers with the ability to handle a large amount of additional traffic.

International voice traffic grew approximately 15 percent annually, from less than 18 billion minutes in 1986 to just under 300 billion in 2006. But international calls grew only 10 percent in 2006, and signs point to continued sluggish growth in 2007.

Skype and other computer-based voice services are a key reason for the slowdown. "Skype only accounts for a small share of international calls, but the volume was enough to cut global growth in half," says TeleGeography analyst Stephan Beckert.

France Telecom: Flat Organic Cash Flow for '08

In confirming its 2007 organic cash flow target of 7.5 billion euros and setting the same level for 2008, France Telecom executives also point out how hard it is for large incumbent service providers to achieve organic growth inside their present service territories, without expanding out of region.

France Telecom says it will achieve organic cash flow at this level as long as it also hits the same operating margin and maintains investment expenditure at about 13 percent of revenues and maintains the same 2007 dividend distribution rate at between 40 and 45 percent of organic cash flow.

Growth will occur "beyond 2008 and over the medium term," France Telecom executives say.

But growth might not be a problem only the largest incumbents have. SureWest Communications has acquired an out-of-market broadband provider, Everest Broadband, in Kansas City, marking SureWest's first-ever move outside its metro market, aside from the competitive local exchange carrier operations SureWest conducts in the broader Sacramento market, where it competes with at&t.
Growth, despite a management team's best efforts, seems now to be a matter of expanding out of territory. The corollary might be that internal, organic growth is stalled. Presumably, internal new services initiatives will have time to catch on while most companies look to acquisitions to fuel near-term growth.

Text Messaging Growing 37% a Month

U.S. text messaging (SMS) traffic volumes have increased at least 37 percent a month since 2003, according to CTIA researchers. Usage also is significant across many age categories as well. About 19 percent of users are 18 to 24; 24 percent are between 25 and 34; 22 percent are between 35 and 54 and 19 percent are between 45 and 54.

As of December 2006, over 18.5 billion text messages are sent every month and that number has grown by 250 percent each year for the last two years.

Verizon Wireless anticipates the number of text messages sent by their users on their network to grow nearly five times from 400 million per month in July 2005 to over two billion per month next year.

Apple to Gain Share

Apple's Macintosh computers are poised to make sizable market share gains in the coming months, according to ChangeWave Research.

ChangeWave says it sees continuing momentum for Apple's Macs among both consumer and business customers.

ChangeWave recently conducted two surveys that gauged PC-buying plans over the next 90 days, a period running from the holiday shopping season into first-quarter 2008. It polled members, who tend to be more tech-savvy and have higher disposable incomes than the general public.

The latest poll found that 29 percent of likely notebook and desktop PC buyers in the next 90 days are planning to get a Mac. That's higher than consumer purchase intent for HP laptops (21 percent), HP desktops (24 percent) and Dell laptops (28 percent).

Two years ago, 16 percent of likely notebook PC buyers and 11 percent of desktop PC buyers planned to buy Macs. Demand for Macs has risen steadily ever since.

More consumers are buying Macs because they're turned off by PCs using Microsoft's Windows operating system, Changewave analysts say.

A separate ChangeWave poll of corporate PC buyers found increasing demand for Apple as well. For companies planning to buy computers next quarter, seven percent of laptop buyers and six percent of desktop buyers plan to get Macs. That's up from four percent of laptop buyers and three percent of desktop buyers two years ago.

Do Mobile Phones Cause Cancer?

Though the evidence is contested, indeed many will argue highly contested, research studies on the effect of mobile phone use on cancer, especially those funded by the industry, continue to suggest there is no danger. Indeed, some scientists argue that non-ionizing radiation typical of cell phone use could not cause cancer. The problem is that not every study suggests there is no correlation.

Regular use of mobile telephones does increase the risk of developing tumors, a new study by Israeli researchers published in the American Journal of Epidemiology finds.

An extract of the report reported by Israel's Yedoit Aharonot newspaper put the risk of developing a parotid gland tumor nearly 50 percent higher for frequent mobile phone users, those who talk more than 22 hours a month.

The risk was still higher if users clamped the phone to the same ear, did not use hands-free devices or were in rural areas.

The study included 402 benign and 58 malignant incident cases of parotid gland tumor diagnosed in Israel at age 18 years or more, in 2001 to 2003.

The research was led by Dr Siegal Sadetzki, a cancer and radiation expert at the Chaim Sheba Medical Centre in Israel and as part of a World Health Organisation project.

Note that levels of usage identified as dangerous were 22 hours a month. As with many other studies, the potential danger has to be kept in perspective: sometimes it takes really unusual dosages of an irritant to trigger a negative result. In this case, we are talking about 44 minutes of use in a 30-day month. That won't appear excessive to many dispassionate observers.

Some researchers (such as Friedman and Richter)point out that there is a high degree of potential conflict of interest in the funding of studies showing that cell phone usage is safe.

Studies published in the New England Journal of Medicine and the Journal of the American Medical Association during 2001, for example, found a strong association for studies whose authors had an economic conflict of interest and also reported there is no danger from cell phone use. The association between industry-funded research and findings of "no threat" were associated with a greater than 99.9 percent level of confidence.

Maybe texting isn't such a bad precaution?

Observers cite:

1. Schutz J, Boehler E, Berg G, et al. Cellular phones, cordless phones, and the risks of glioma and meningioma (Interphone Study Group, Germany). American Journal of Epidemiology 2006;163:512–20.

2. Hardell L, Carlberg M, Mild KH. Case-control study of the association between the use of cellular and cordless telephones and malignant brain tumors diagnosed during 2000–2003.

3. Hardell L, Carlberg M, Hansson Mild K. Pooled analysis of two case-control studies on the use of cellular and cordless telephones and the risk of benign brain tumours diagnosed during 1997–2003. Int J Oncol 2006;28:509–18.

4. Friedman LS, Richter ED. Relationship between conflicts of interest and research results. Journal of Gen. Internal Medicine 2004;19:51–6.

Indian Wireless Firms Structurally Separate

Three Indian Wireless companies have concluded that owning and operating layer one infrastructure is not essential for retail operations.

Bharti Infratel Ltd., a unit of Bharti Airtel Ltd., is merging its telecom tower business with Vodafone Essar Ltd. and Idea Cellular Ltd.

The three companies will form an independent tower company called Indus Towers Ltd. that will provide passive infrastructure services in India. Bharti and Vodafone Essar will hold 42 percent each of the company, and Idea will own the remaining 16 percent.

Passive infrastructure services include towers, shelters, cooling systems, power supply and other items that enable telecom systems to work.

The new firm will merge the passive infrastructure assets of the three companies across 16 telecom territories in India and will initially have about 70,000 telecom sites, the statement said.

The move parallels "structural separation" (creation of a legally distinct and separate wholesale facilities company) more than "functional separation" (creation of an owned wholesale facilities company). Still, the move is interesting given the move to functional separation in Europe, where wholesale facilities are run by one entity, and all retail providers lease capacity and features to run their retail operations.

The move by the three wireless service providers mirrors a broader change in the global communications business from a completely vertically-integrated model to a partially horizontally-integrated model. Basically, communications networks increasingly operate the way data networks do, with applications running on top of facilities that are owned by many different entities in the value chain.

You might call this a move to more "open" networks, and indeed that is precisely what is happening, in small steps.

No Broadband Equality: Density Still Matters

Observers of both U.S. and U.K. efforts to stimulate innovation and competition in the core communications markets will note the vastly-different regulatory approaches. In the U.K. market, where satellite is a significant factor but cable is not, regulators have chosen an aggressive wholesale unbundled local loop regime.

The U.S. market has seen the same initial thrust, only to be followed by an alternate reliance on inter-modal competition between cable and telephone industries, rather than a primary reliance on wholesale, unbundled local loop.

So far, the U.K. market model has proven more friendly to competitors. But physical constraints still are an issue, irrespective of regulatory framework. In thinly-populated areas with low density, the cost of providing broadband remains hig

If BT’s 21st Century network provides evidence, it is that one does not change all access cost inputs simply because a network converts to IP in place of TDM protocols.

In fact, it appears that wholesale access cost for partners who want to use BT’s transmission network to serve rural or suburban customers will be as much as three times higher than similar features will cost in dense urban areas, says Keith McMahon, a U.K.-based blogger.

There’s nothing terribly surprising about this. Infrastructure always costs more, per household, per business or per person in lightly-populated areas.

There’s simply more construction cost and physical media to support, and less ability to share common costs (ports or software licenses, for example), in less-dense areas. IP doesn’t change that.

The implications for competitive providers who lease access from BT and provide retail services to customers under their own names (analogous to U.S. competitive local exchange carriers) are clear enough. Competitors will choose to place their own facilities where customer density is greatest.

The largest nationwide providers, including Carphone Warehouse, Sky, Tiscali, O2 and Orange will find it worthwhile to interoperate at the Tier 1 MSAN level, which gives them coverage of 1,200 exchanges and about 70 percent or 17.7 million of the 25.3 million U.K. homes.

U.K. cable networks largely overlap the areas served by Tier 1 MSANs, for obvious reasons: that is where most of the customers are. Cable networks pass by around 11.8 million homes or 47 percent of total U.K. homes. As McMahon lays out the competitive scenario, about seven companies will contest for customers in 11.8 million homes, or just half the market.

About six companies likely will compete to serve 5.9 million homes or 23 percent of the market. In all likelihood, just one company, BT, will be in position to serve 7.6 million homes, or about 30 percent of total homes.

Population density and loop length still are key impediments to high-bandwidth services, no matter what the regulatory framework.

Web, Internet, Unanticipated Consequences

As John B. Horrigan, Pew Internet & American Life Project associate research director points out, the way people use the Internet today was not necessarily the way policymakers were told people would use it more than a decade ago.

In 1993, thinking focused much more on applications related to education, health care and improving democratic discourse, for example, that would use two-way video.

Today, online interactivity means something different. It is commerce, transactions, content gathering and, unexpectedly for many, content production, or user-created or user-generated media.

Simply put, the way content, information, gossip and tastes get produced and distributed is changing. That sort of thing used to be highly centralized and expensive. These days, anybody can speak; anybody can publish; anybody can participate.

That implies a different sort of information economy in the future; a new way of getting messages out; a new set of influencers to work with.

Also, the emergence of user-generated content also shows another common artifact of transformational technology: it gets used in ways even its creators did not anticipate. We should now be preparing for something else that frequently occurs with technology transformations.

Change seems less significant than many would anticipate, in the early stages. But the changes are far more significant as the shift takes hold. We are about to hit that stage.

As one example, what do you think the primary purpose of an enterprise data network is today? What do you think the purpose will be in five years? How do enterprises create networks today? How do you think they will be created in five years?

Tom Austin over at the Gartner Group might surprise you with his answers. He argues that the primary purpose of an enterprise network in five years will be to support social networking (think Facebook). And where enterprises these days tend to create and operate their own data networks, in the future they will find themselves outsourcing a number of those functions, if not the entire basic architecture, to "compute in the cloud" suppliers.

The reason social networking turns out to be so important for enterprises is that it allows very-large organizations, or highly-distributed groups of people, to discover what skills and insights the other people have, in ways that have been impossible up to this point.

One researcher or consulting team might be working on a problem someplace, and not know that somebody else, someplace else, has insight that can help solve the problem at hand. Social networking will help organizations and people create those links. Today, much of that insight is simply trapped inside organizations because nobody can conveniently discover whether it exists and where it exists.

The move to a highly-distributed computing framework is driven by mobility. When most people are mobile or distributed, a highly-decentralized computing architecture, assuming only the existence of Web browsers and broadband access, is highly useful and efficient.

Google Docs & Spreadsheets Use up 84%

After a year, the data seems to suggest that users are figuring out how to use Google Docs and Spreadsheets, according to Compete data. Usage has been up sharply since June 2007, for example. In its first full year, Google Docs and Spreadsheets has seen an 84 percent year-over-year increase.

So why use Google Docs and Spreadsheets? Some people might like the fact that usage is free. Others might like the fact that Docs and Spreadsheets is easy to use. More important, perhaps, is the online sharing and collaboration aspect, which seems to be on the verge of greater importance in today’s workplace.

Personally, I use Docs and Spreadsheets because I do a lot of blogging, and Microsoft Word seems frequently to require translation to "text" to post cleanly on some sites. If I am going to have to do that, I'm simply not going to bother with Word.

Which Future for Telcos?

What name would you choose to describe "who you are" if you were an executive at any leading incumbent telecom company? Sure, you might come up with "converged communications and entertainment provider" or something like that, but the term is unsatisfying and probably will confuse most mass market customers in any case. BT already is trying the "information and communications" company tagline. The problem with such efforts as it isn't so clear how the tags differentiate "telcos" from large system integrators, large software houses offering hosted services, cable companies and possibly others.

"Experience provider" is a buzzword some toss around, but it lacks much descriptive power, beyond suggesting an approach to creating services and features. "Application provider" likewise hints at something important, but again is rather too broad to be useful.

But no matter how the nomenclature efforts finally resolve themselves, it seems clear enough that something important is changing. Even if the unique, irreplaceable assets any "telco" owns are the actual pipes and software used to create communications capabilities over those pipes, that will not be a key part of the future identity.

One way or the other, "applications" are going to figure into the description in some key way. Which is odd, in a way. To a very large degree, telcos have always been "application" providers, in the sense that voice is an application running on a network optimized to provide it.

The big change now is the sheer range of applications providers create or deliver.

The big conundrum is that the irreplaceable and unique assets "telcos" possess, aside from their regulatory prowess, is the pipes and associated software that makes those pipes useful. And yet it seems inevitable that "telcos" want to be known as something else more directly associated with "apps."

If you can configure this out, please, make sure all the rest of us know. Maybe somebody can capture the multiple values in one easy to remember phrase.

iPhone: Some Glimmers of Enterprise Adoption

SAP, Salesforce.com and scores of smaller developers are letting sales and finance teams work away from the office on their iPhones, says Reuters. SAP, in fact, has broke with precedent by introducing a version of its upcoming customer relationship management software for the iPhone before launching versions for mobile devices from Research in Motion and Palm.

In SAP's case, its own salespeople demanded it, according to Bob Stutz, SAP SVP.

There still are some issues many of us believe will be resolved over time. "Push" email and over-the-air synchronization are some of the features a really enterprise class iPhone would have to support. Integration with Microsoft Outlook is an issue, but basically a licensing deal.

Some potential business buyers probably are holding out for a model that runs on faster wireless networks, but that is a problem being resolved by Apple and at&t already.

One barrier some users might continue to have, though, is the relatively higher error rates for entering text, compared to other devices with keypads.

O2 Says iPhone is Share Changer

Three out of four buyers of the iPhone in Britain will be new O2 customers won from rival mobile networks, according to the new head of O2, which has an exclusive deal to sell the iPhone in the U.K. market.

"Over time, three out of four customers of the iPhone will be new O2 customers, because you can only get the iPhone by becoming a customer of O2," says Matthew Key, incoming O2 chief executive.

Google's Embrace of Failure

At the recent Stealth Communications Voice Peering Forum, a group of us were asked to speculate about where the telecom industry was headed. Panelist Rich Tehrani said Google was going to be a major factor. As part of a vigorous discussion that followed, one attendee argued the opposite position, that Google has pretty much failed at just about everything it has tried aside from search.

One point that wasn't made (as the moderator I had to let the panelists have at it) is an observation many observers have made about the process of innovation, and what is necessary to spur innovation inside just about any company.

And that point is that the rate of failure has to accelerate if truly significant innovations are to be discovered. Failure is an unavoidable part of the process of experimentation. And the issue, many observe, is that "failure" traditionally is not treated kindly inside most large organizations, including large telcos.

One reason many observers have little expectation that telcos will lead the innovative process is precisely the cultural aversion to failure. Telcos need to make big bets to get any meaningful revenue lift. That need to place big bets also acts as a brake on innovation, though.

What seems an insane culture at Google might actually be viewed as a deliberate attempt to "accelerate the rate of failure." The more failures, the more the organization learns. The more it learns, the more chance it can discover something really important.

Failure, in other words, is not the end. Failure is part of the process of figuring out what works and what doesn't. And Google is looking for large returns as much as any other major entity in the communications and media space. The difference is that Google is highly tolerant of experimentation and failure as a basic part of its attempt to "win big."

That isn't to say every idea Google tries to implement seems "logical" or even prudent. It does seem quite "messy," quite frequently. But there is a method to the madness, as they say.

That isn't to say Google is guaranteed success in its endeavors related to media and communications, going forward. It likely will fail in public ways in the future. That should not lead us to conclude Google really is overhyped as a force in the communications business because it fails so often.

I will be more concerned when Google stops failing so much. Because that will be the signal it really has ceased to be a force for genuine innovation with life-changing and market-affected impact.

iPhone Gets First Release of New SAP Software

Maybe usability really does matter. SAP unveiled the first version of its new generation of business software products for the iPhone, not the BlackBerry or some other enterprise class device, as one normally would expect.

Granted, the lag between the iPhone release and the BlackBerry release might only be a matter of weeks. But when was the last time you heard of this happening?

The German company is the world's biggest maker of business management software and, while analysts generally praise its broad line of products for their deep functionality and analytical abilities, they say they are difficult to use.

The software can be customized by each user with as much flexibility and ease as one might be able to customize an iGoogle page, or myYahoo page, officials with SAP said.

"The iPhone has become such a popular thing," said Bob Stutz, a SAP senior vice president who is responsible for developing customer relationship management software. "Everybody wants the ease of use of the iPhone."

Stutz said SAP decided to introduce the iPhone software ahead of programs for other devices at the request of its sales people, saying they prefer using iPhones to the other devices.

Programs for the Blackberry and other devices will ship a few weeks after the initial launch of SAP CRM 2007.

Apparently this is a case where the people who actually have to use a device to make a demo really prefer to do so using an iPhone. Which is about as strong a testimonial for usability one can note.

Enterprise IT Spend is Falling

The latest ChangeWave corporate IT spending survey shows--for the first time in years--a weaker IT spending growth rate and poor visibility headed into the first quarter of 2008. About 24 percent of respondents say their company will increase IT spending for the first quarter, a figure unchanged from the previous survey, but far below the average seven-point seasonal increase seen in each of the last four years, Changewave says.

Another 20 percent of those surveyed report IT spending will decrease, or there will be no spending at all in the first quarter, which is three percentage points worse than reported in the last survey.

While just over half (52 percent) say their company is giving a "green light" to IT spending, suggesting spending is normal, this figure is down five percent from previously and is now at its lowest level in more than three years, Changewave says.

Some 42 percent say their company is either reducing spending or putting spending on hold, the worst reading in three years, Changewave notes.