Mobility and Video Will Drive Growth

If Bear Stearns analysts are correct, mobile penetration will zoom past 100 percent, as will digital TV penetration, quite soon. Which suggests those two types of devices are where ad revenue opportunities are brightest, not to mention other sorts of "for fee" services and applications.

at&t to Drop DirecTV

at&t will stop offering DirecTV services to its customers toward the end of the first quarter. The not-unexpected move came as at&t found itself reselling both DirecTV and Dish Network services as a result of its acquisition of BellSouth, which had been a DirecTV partner. In its own territory, at&t has been partnering with Dish Network.

The Dish Network contract itself expires at the end of 2008, but at&t's longer business relationship with EchoStar, which offers the Dish Network service, probably is decisive.
DirecTV has to have anticipated the decision and has to be expected to roll out new channel and direct sales efforts early next year, to compensate for the loss of sales momentum from at&t.

It will have a lot of work to do. By some estimates, at&t accounted for an estimated 15.2 percent of DirecTV's gross additions but 58 percent of net subscriber growth. And though DirecTV probably will end 2007 with strong subscriber growth at the same level it saw in 2006, 2008 obviously will be more challenging.

Singapore will Structurally Separate NGN

Singapore is issuing a request for proposal to build a next-generation optical access network and has decided it will be built using a "structural separation" regime, where one company will build and own the access facilities and provide wholesale access to any retail provider that wants to use the network.

The RFP to construct the network will therefore provide for structural separation of the passive network operator from the retail service providers. If necessary, the government also is prepared to mandate open access provisions.

Put your finger in the air. The wind is blowing. As Bob Dylan once said: "you don't need a weatherman to know which way the wind blows."

Android: It's the Business Models

The most important thing about Android, the open mobile operating system and platform sponsored by Google, is arguably not the technology or the implications for handset cost: it's the development of business models.

One might think: "well, this is open source, so we will look for business models that are like the existing models for open source." But that's probably not going to be the case. Today's revenue model for open source is payment for enhancements, support and training.

To some extent, the business model is implicit rather than explicit. If I am a hardware or software applications provider, I simply use Asterisk because it is a lower-cost way of implementing something that an end user actually buys, even it the thing being bought essentially is a "legacy" requirement.

Voice mail, phone system or messaging platform are examples. In those cases, the operating system is an input to a business model, but not the model, which is the same one that existed before the open source tool was available.

Translated into a mobile market, it looks different. Open source will not do much, in and of itself, to lower the cost of a handset. So open source doesn't necessarily mean "cheap or free handset."

One can assume handset makers using Android will stabilize their versions so there is little need for third party end user support. That is a bug, not a feature, in the mobile end user world.

And since the whole idea is "easy to use," there shouldn't be much of a market created for training people how to use, develop, maintain and upgrade their operating systems. End users don't want to do that.

Assuming Android devices are used on existing networks (the 700-MHz C band network remains a bit of a wild card), the pricing models for data access are relatively affordable already, so it isn't clear whether there is immediate impact on data plan pricing either.

So consider Android a better way to help create a mobile Web business. The mobile phone business is built on recurring payment of access fees for voice, text and data access. The mobile Web just assumes access.

So the revenue model must begin where the Web itself begins. And that means advertising, to the extent that features and content have to be monetized directly. Of course, there's also content and applications given away for free in hopes that the attention will lead to support for some other business model, be that public relations, consulting, marketing, software or what have you. In that case a content provider doesn't necessarily require a revenue model.

But that's not what service providers, device manufacturers and application providers are looking at. The issue is revenue. And from where I sit, that means a media model.

The media model includes "for fee" and "for free" services and content, with greater or lesser degrees of advertising support. That means "aggregating eyeballs" and "aggregating highly-detailed information about the owners of those eyeballs" and "tracking the behavior of those people." That makes the advertising model quite valuable.

In the mobile arena, valuable as in "can I entice you to visit Starbucks right now; it is around the corner?" Valuable as in "are you hungry and a lover of good Thai food? You are half a block away."

Some will speculate about whether an entirely ad-supported model is conceivable. Well, it's conceivable, but not likely. Broadband access isn't free. But that isn't the point. If the value is high enough, a reasonable fee is not a barrier to usage.

Android is more likely to have an impact in making the mobile Web, and applications built on the mobile Web, far easier to use and vastly richer in functionality.

That's a hugely important and economically significant activity. But I don't think Android is about "free phone calls" or "free Web access" or "free phones," as many either think or hope for. Rich applications will be reward enough for users, who are quite capable of figuring out a value-for-money proposition. Android is about the promise of a mobile Web so useful we won't mind paying access fees to use it.

The one exception is that some users will appreciate "sometimes" being able to use Wi-Fi hot spots to access applications. This is a subset of users who choose not to pay a recurring fee for fully-mobile access, and want to rely on Wi-Fi for all of their connectivity.

Then there are users who occasionally will be happy to have Wi-Fi access for signal strength reasons, even if they are comfortable with a fully-mobile broadband connection.

Still, it seems likely that the early pull of Android applications is going to be location-based. "Where am I? How do I get there? Where can I find it? I didn't know that was on sale. So that's where you are."

Ad-supported phone calls, devices or access might have some role to play, sometimes. But I doubt that's the big impact.

Cable Squeezed on Both Ends

Most observers expect telco-delivered video to gradually take market share from cable operators, though modestly over the next couple of years. Most observers also think satellite-delivered services have crested, and will be lucky to hold onto their current market shares.

But one suspects there will be more change, longer term, than most observers now expect. For starters, video demand itself could shift to other IP formats, including at least some forms of Web video. So far, there isn't all that much evidence of shift. Consumers haven't embraced any of the devices and services that port video over to TV screens, though there continues to be evidence of a lessening of interest in linear television on the part of younger consumers.

Nearer term, satellite providers remain aggressive about high-definition TV services and pricing, and most consumers seem pleased with their satellite service.

And as compelling as many consumers find triple-play or quadruple-play services, not all buyers will find the pricing the most-compelling attraction. Some services, networks or suppliers are going to be picked as "best of breed" by some portion of the market, despite the fact that a bundle can be purchased from two providers in a market.

That will continue to put some incremental pressure on cable providers, who are using bundling, as telcos are, to lock in and protect the current customer base.

at&t U-Verse: 30 Million Homes Passed by 2010

at&t says it expects its U-Verse fiber-to-customer-driven video service to be available in 30 million homes by the end of 2010, compared to 5.5 million as of its last quarter. The company has said it hopes to pass 17 million homes by the end of 2008.

For users not interested in at&t's IPTV offering, the extension of the fiber-to-customer network means higher broadband access speeds will be available as well. For many of us, if not for at&t, that is the more important part of the story.

CLECs Must Race Tide

Even though consumers now account for only about 22 percent of total incumbent telco revenue, and even though dominant telcos are losing share in that market, competitors in the business segment essentially are racing an incoming tide.

That tide is lost incumbent market share. At some point, regulators will decide the market leaders have lost enough share, and give incumbents more freedom to price and package their services, which inevitably will lead to higher wholesale rates for competitors that now rely on incumbent facilities--and wholesale discounts based on their market power--to build their businesses.

So the essential strategic task is to take share now, while it can be more easily gotten, knowing that competitive conditions will sharpen once the incumbents are more free to package and price. And that tide is coming in.

U.S. telcos continue to lose residential phone subscribers to both cable VoIP and wireless subscriptions at a steady seven to eight percent a year, according to Citigroup analyst Michael Rollins. Wireless is a lesser issue, as incumbents own a majority of that business, and simply must cope with product substitution. Wireless penetration should rise from an estimated 83 percent this year to 87 percent by the end of 2008.

Indeed, by 2010, wireless-only households should rise to 27 percent, from 13 percent last year and an estimated 17 percent this year, Rollins argues.

Cable VoIP penetration should jump from 10 percent last year and an estimated 14 percent this year to 25 percent by 2010. If the Federal Communications Commission sticks with precedent, that is going to be enough lost share to trigger an end to wholesale access policies favorable to CLECs.

If Rollins is right, those deregulation rules will start to trigger in just a couple of years. Of course, one can argue that market share losses in residential are not the same thing as losses in the business markets. But that hasn't stopped the FCC from deregulating in the past.

Ironically, incumbent market share loss is the very thing that will unleash them as more formidable competitors.

If Operating Systems Were Airlines: Part 2

If Operating Systems Ran The Airlines...

UNIX Airways

Everyone brings one piece of the plane along when they come to the airport. They all go out on the runway and put the plane together piece by piece, arguing non-stop about what kind of plane they are supposed to be building.

Air DOS

Everybody pushes the airplane until it glides, then they jump on and let the plane coast until it hits the ground again. Then they push again, jump on again, and so on...

Mac Airlines

All the stewards, captains, baggage handlers, and ticket agents look and act exactly the same. Every time you ask questions about details, you are gently but firmly told that you don't need to know, don't want to know, and everything will be done for you without your ever having to know, so just shut up.

Windows Air

The terminal is pretty and colourful, with friendly stewards, easy baggage check and boarding, and a smooth take-off. After about 10 minutes in the air, the plane explodes with no warning whatsoever.

Windows NT Air

Just like Windows Air, but costs more, uses much bigger planes, and takes out all the other aircraft within a 40-mile radius when it explodes.

Windows XP Air

You turn up at the airport,which is under contract to only allow XP Air planes. All the aircraft are identical, brightly coloured and three times as big as they need to be. The signs are huge and all point the same way. Whichever way you go, someone pops up dressed in a cloak and pointed hat insisting you follow him. Your luggage and clothes are taken off you and replaced with an XP Air suit and suitcase identical to everyone around you as this is included in the exorbitant ticket cost. The aircraft will not take off until you have signed a contract. The inflight entertainment promised turns out to be the same Mickey Mouse cartoon repeated over and over again. You have to phone your travel agent before you can have a meal or drink. You are searched regularly throughout the flight. If you go to the toilet twice or more you get charged for a new ticket. No matter what destination you booked you will always end up crash landing at Whistler in Canada.
OSX Air:

You enter a white terminal, and all you can see is a woman sitting in the corner behind a white desk, you walk up to get your ticket. She smiles and says "Welcome to OS X Air, please allow us to take your picture", at which point a camera in the wall you didn't notice before takes your picture. "Thank you, here is your ticket" You are handed a minimalistic ticket with your picture at the top, it already has all of your information. A door opens to your right and you walk through. You enter a wide open space with one seat in the middle, you sit, listen to music and watch movies until the end of the flight. You never see any of the other passengers. You land, get off, and you say to yourself "wow, that was really nice, but I feel like something was missing"

Windows Vista Airlines:

You enter a good looking terminal with the largest planes you have ever seen. Every 10 feet a security officer appears and asks you if you are "sure" you want to continue walking to your plane and if you would like to cancel. Not sure what cancel would do, you continue walking and ask the agent at the desk why the planes are so big. After the security officer making sure you want to ask the question and you want to hear the answer, the agent replies that they are bigger because it makes customers feel better, but the planes are designed to fly twice as slow. Adding the size helped achieve the slow fly goal.

Once on the plane, every passenger has to be asked individually by the flight attendants if they are sure they want to take this flight. Then it is company policy that the captain asks the passengers collectively the same thing. After answering yes to so many questions, you are punched in the face by some stranger who when he asked "Are you sure you want me to punch you in the face? Cancel or Allow?" you instinctively say "Allow".

After takeoff, the pilots realize that the landing gear driver wasn't updated to work with the new plane. Therefore it is always stuck in the down position. This forces the plane to fly even slower, but the pilots are used to it and continue to fly the planes, hoping that soon the landing gear manufacturer will give out a landing gear driver update.

You arrive at your destination wishing you had used your reward miles with XP airlines rather than trying out this new carrier. A close friend, after hearing your story, mentions that Linux Air is a much better alternative and helps.

Linux Air

Disgruntled employees of all the other OS airlines decide to start their own airline. They build the planes, ticket counters, and pave the runways themselves. They charge a small fee to cover the cost of printing the ticket, but you can also download and print the ticket yourself.

When you board the plane, you are given a seat, four bolts, a wrench and a copy of the seat-HOWTO.html. Once settled, the fully adjustable seat is very comfortable, the plane leaves and arrives on time without a single problem, the in-flight meal is wonderful. You try to tell customers of the other airlines about the great trip, but all they can say is, "You had to do what with the seat?"

Enterprise Apple PC Buying Increases

Though some in the MIcrosoft operating system ecosystem will pooh pooh the news, a recent Changewave Alliance survey suggests the strongest enterprise buying of Apple computers since 2005. It may be the Leopard effect, the iPod or iPhone effect. Or maybe, as more
computing moves to Web interfaces, it is becoming more rational again to choose "easy to use" devices, as the key applications can be supported either on a Windows or Leopard operating system.

As somebody who was forced to give up Apple machines in favor of the PCs everybody else in the enterprise was using, this is a welcome change. Somebody needs to update this, but it is priceless:

What if Operating Systems Were Airlines?

DOS Airlines
Everybody pushes the airplane until it glides, then they jump on and let the plane coast until it hits the ground again, then they push again jump on again, and so on.

OS/2 Airlines
The terminal is almost empty, with only a few prospective passengers milling about. The announcer says that their flight has just departed, wishes them a good flight, though there are no planes on the runway. Airline personnel walk around, apologising profusely to customers in hushed voices, pointing from time to time to the sleek, powerful jets outside the terminal on the field. They tell each passenger how good the real flight will be on these new jets and how much safer it will be than Windows Airlines, but that they will have to wait a little longer for the technicians to finish the flight systems.

Once they finally finished you're offered a flight at reduced cost. To board the plane, you have your ticket stamped ten different times by standing in ten different lines. Then you fill our a form showing where you want to sit and whether the plane should look and feel like an ocean liner, a passenger train or a bus. If you succeed in getting on the plane and the plane succeeds in taking off the ground, you have a wonderful trip...except for the time when the rudder and flaps get frozen in position, in which case you will just have time to say your prayers and get in crash position.

Windows Air
The terminal is pretty and colorful, with friendly stewards, easy baggage check and boarding, and a smooth take-off. After about 10 minutes in the air, the plane explodes with no warning whatsoever.

Windows NT Air
Just like Windows Air, but costs more, uses much bigger planes, and takes out all the other aircraft within a 40-mile radius when it explodes.

Windows XP
See "Windows NT"

Windows Vista
See "Windows NT," but prettier, if useless

Mac Airlines
All the stewards, stewardesses, captains, baggage handlers, and ticket agents look the same, act the same, and talk the same. Every time you ask questions about details, you are told you don't need to know, don't want to know, and would you please return to your seat and watch the movie.

Unix Airlines
Each passenger brings a piece of the airplane and a box of tools to the airport. They gather on the tarmac, arguing constantly about what kind of plane they want to build and how to put it together. Eventually, they build several different aircraft, but give them all the same name. Some passengers actually reach their destinations. All passengers believe they got there.

Wings of OS/400
The airline has bought ancient DC-3s, arguably the best and safest planes that ever flew, and painted "747" on their tails to make them look as if they are fast. The flight attendants, of course, attend to your every need, though the drinks cost $15 a pop. Stupid questions cost $230 per hour, unless you have SupportLine, which requires a first class ticket and membership in the frequent flyer club. Then they cost $500, but your accounting department can call it overhead.

Mach Airlines
There is no airplane. The passengers gather and shout for an airplane, then wait and wait and wait and wait. A bunch of people come, each carrying one piece of the plane with them. These people all go out on the runway and put the plane together piece by piece, arguing constantly about what kind of plane they're building. The plane finally takes off, leaving the passengers on the ground waiting and waiting and waiting and waiting. After the plane lands, the pilot telephones the passengers at the departing airport to inform them that they have arrived.

Newton Airlines
After buying your ticket 18 months in advance, you finally get to board the plane. Upon boarding the plane you are asked your name. After 6 times, the crew member recognizes your name and then you are allowed to take your seat. As you are getting ready to take your seat, the steward announces that you have to repeat the boarding process because they are out of room and need to recount to make sure they can take more passengers.

VMS Airlines
The passengers all gather in the hanger, watching hundreds of technicians check the flight systems on this immense, luxury aircraft. This plane has at least 10 engines and seats over 1,000 passengers. All the passengers scramble aboard, as do the necessary complement of 200 technicians. The pilot takes his place up in the glass cockpit. He guns the engines, only to realise that the plane is too big to get through the hangar doors.

BeOS Air
You have to pay for the tickets, but they're half the price of Windows Air, and if you are an aircraft mechanic you can probably ride for free. It only takes 15 minutes to get to the airport and you are cheuferred there in a limozine. BeOS Air only has limited types of planes that only only hold new luggage. All planes are single seaters and the model names all start with an "F" (F-14, F-15, F-16, F-18, etc.). The plane will fly you to your destination on autopilot in half the time of other Airways or you can fly the plane yourself. There are limited destinations, but they are only places you'd want to go to anyway. You tell all your friends how great BeOS Air is and all they say is "What do you mean I can't bring all my old baggage with me?"

Linux Airlines
Disgruntled employees of all the other OS airlines decide to start their own airline. They build the planes, ticket counters, and pave the runways themselves. They charge a small fee to cover the cost of printing the ticket, but you can also download and print the ticket yourself. When you board the plane, you are given a seat, four bolts, a wrench and a copy of the seat-HOWTO.html. Once settled, the fully adjustable seat is very comfortable, the plane leaves and arrives on time without a single problem, the in-flight meal is wonderful. You try to tell customers of the other airlines about the great trip, but all they can say is, "You had to do what with the seat?"

Google Dominates Search Even More This Year

Google accounted for 65.10 percent of all U.S. searches in the four weeks ending December 1, 2007, according to Hitwise. Yahoo! Search, MSN Search and Ask.com each received 21.21, 7.09 and 4.63 percent respectively. The remaining 46 search engines in the Hitwise Search Engine Analysis Tool accounted for 1.96 percent of U.S. searches.

As you might expect, search engines also continue to be the primary way Internet users navigate to key industry categories. Comparing November 2007 to November 2006, the travel, entertainment and business and finance categories showed double digit increases in their share of traffic coming directly from search engines.

at&t Forecasts Strong 2008 Growth

In a forecast that, in some ways, resembles France Telecom's, at&t executives now say the company will achieve double-digit adjusted earnings growth in 2008. Where the forecast resembles France Telecom's projections is the full-year wireline segment, where at&t forecasts 2008 earnings before interest, taxes, depreciation and amortization in line with 2007. France Telecom executives recently projected 2008 cash flow consistent with 2007.

at&t also expects 2008 wireless EBITDA in the low 40-percent range.

For its U-Verse Internet-based TV project, at&t said it expects to reach more than one million subscribers by the end of 2008.

Longer term, at&t expects adjusted earnings growth in the double-digits and mid-single-digit or better revenue growth. That's another area where at&t and France Telecom have common views. Where 2008 might just keep pace with 2007, growth will accelerate after that.

Mobivox Hopes to Bridge Generation Gap

Younger people hooked on instant communications like SMS and IM communicate differently with their grandparents, a new survey by Mobivox finds. That there are clear generational differences in how we communicate with family and friends will come as no surprise to just about anybody.

Almost 60 percent of people under 35 say that they communicate differently with older, less tech savvy family members and friends. The reverse might also be true: parents sometimes communicate with their children using different modes than they do with peers.

But the gap probably is widest between teenagers and their grandparents 65 or older. Older users are two times as likely to say that technology "gives me a headache" (less than 10 percent of those over 65 use SMS or IM regularly and over half still use letters).

And the impact of these barriers on relationships is felt across generations, says Mobivox. One in three Americans, regardless of age, say that they don't connect as often as they would like with those they love because they don't use the same communications technology.

The poll also reveals that 60 percent of those under age 35 said that family and friends call them for help with their technology woes.

Mobivox has launched GiftVOX to lessen some of those woes.

GiftVOX lets every family's "go-to technologist" set up free international calling for family members. All the recipient has to do is call their local Mobivox access number and, during that first call, opt-in to activate their account.

GiftVOX eliminates the need to ever go online, program a contact list or learn to use a new gadget, Mobivox says.

What's interesting here is the pre-programming of accounts on behalf of other family or social group members who might not be motivated to do so themselves (I have encountered this problem myself, trying to set up a family calling group).

The new program is about as simple as it could possibly be. Group members don't need a computer, a credit card or even a calling card number. All they need is a mobile or landline phone.

Because Mobivox allows members to connect from any phone, it is especially easy for older generations to use since eight in 10 of those over 65 rely on home landline phones to communicate, compared to 50 percent using mobile phones and only one in three on email, Mobivox says.

24% of Landline Users Would Consider Abandoning Landline Service

As many as 24 percent of landline users would consider abandoning those lines in favor of mobile-only service, a survey by In-Stat sugggests. And some think that forecast is too conservative. Citigroup analyst Michael Rollins argues that by 2010, wireless-only households should rise to 27 percent, up from 13 percent last year and an estimated 17 percent this year.

In fact, the cord-cutting trend seen among younger U.S. wireless users might be hidden to a certain extent, as many teenagers may now be quite comfortable with the idea of using a mobile as the voice appliance, and simply haven't yet had a chance to make their preferences known in the broader market.

To be sure, the typical cord cutter is under 35 years old with a small household and a lower income than the traditional phone user, In-Stat says.

“The largest number of current cord cutters—those who do not have a landline, but rely solely on their mobile phone—are those one might expect: young, single, living alone, or sharing quarters such as a dormitory or rooming house,” says Jill Meyers, In-Stat analyst. “In many cases, these are people who are the least-likely candidates to have a landline phone.”

To nobody's surprise, current cord cutters, who have no landline service, use 22 percent more mobile minutes than the average user, and 40 percent more mobile minutes than those not interested in surrendering their landline.

As you also might suspect, potential cord cutters frequently are on family or group mobile rate plans. That is to say, they are teenagers or college-age adults whose bills are paid by other family members. They also are users who simply are accustomed to communicating using a mobile device rather than a "home phone."

Potential cord cutters also are heavy users, since nearly all their calling and texting is concentrated on a personal mobile device. Their spending averages $111.41 a month. Most estimates peg cord cutters at about five to eight percent of users. Analysts at the Yankee Group think the trend will keep growing, and reach 15 percent in several years.

As a parent with three young adults on a such a plan, I can attest that per-capita spending is much higher than for the parents also on shared plans. Way higher, and in line with the In-Stat findings.

More SOA-Based Voice, Text from BlueNote Networks

BlueNote Networks has launched a pair of new application program interfaces for its SessionSuite communications platform. The new APIs for BlueNote's SessionSuite SOA Edition, which allows developers to embed voice within SOA applications running on IP networks, make it possible to add outbound notification and interactive response to business applications.

For example, the ON-SF allows users to add account activity notification or stock alerts, prescription renewal notifications, flight delay or cancellation notifications within the framework of existing business applications.

The ON-SF goes beyond voice notifications to reach intended message recipients through multiple channels. It enables not only voice notifications, but e-mail and text message notifications as well.

The announcement provides more evidence that communications are being embedded within the context of Web and enterprise applications.

Good Reason to Buy a Wi-Fi-Equipped Smart Phone

On Dec. 11, JetBlue Airways Corp. will begin a trial of free in-flight e-mail and messaging using in-cabin Wi-Fi. If passengers respond positively, the airline said it could install the service across its entire fleet, according to Citigroup analyst Jim Suva.

The in-flight Wi-Fi service will be welcomed by many notebook PC users and owners of Wi-Fi-equipped BlackBerrys or iPhones, since some people travel with a BlackBerry, iPhone or some other smart phone and leave their notebooks at home. That's not me, but other people do it. The relevant BlackBerry devices include the 8210, 8820 and 8320 Curve. You are out of luck if you have service from at&t, though, as at&t blocks Wi-Fi usage on its Curve. T-Mobile supports Wi-Fi on the Curve.

Of course, there apparently is just one single aircraft involved in the JetBlue test. But if it proves popular, and one suspects it will, we can hope other carriers eventually will move to equip their cabins for Wi-Fi.

Of course, the danger is that people will start using VoIP over Wi-Fi, even if cabins aren't equipped for mobile phone use, an idea that many of us absolutely detest. As annoying as mobile phone etiquette now is, it will be unbearable when you can't escape the audio pollution created by your seat mates.