Lower European Mobile Data, Texting Prices

Ofcom Chief Executive Ed Richards is lobbying European Commission telecom regulators to slash the allowed prices of international text messaging and mobile Internet access, says Jonathan Prynn, Evening Standard reporter. It appears Richards has in mind prices lower than currently offered by mobile operator O2. O2 charges £3 for one megabyte of data transferred.

So it appears Richards seeks prices significantly lower than the £4.11 per megabyte level that tends to be the average now. European mobile carriers probably will hope to stave off such regulation by voluntarily dropping their tariffs in time for an announcement at Mobile World Congress meeting in February.

The moves would be good for consumers, and obviously financially damaging for carriers. As always is the case, the lower tariffs also would make it harder for upstart competitors to grow their companies by undercutting the high tariffs.

Sprint WiMAX "Functional Separation"?

With new reports out that Sprint might try to resurrect its failed alliance with Clearwire, this time perhaps with new minority investors (Intel, Google and Best Buy), one wonders whether Sprint ought to do what wireless operators are doing elsewhere and create a separate transmission company from which it can buy wholesale capacity.

Functionally separating retail operations and network functions might make sense in this case, given the other pressing demands for capital Sprint also faces. It isn't clear that Sprint derives significant competitive advantage from retaining ownership of the transmission facilities.

Best Buy might also be more inclined to invest in the new WiMAX network if such wholesale access were built into the investment agreements, as Best Buy might want to brand its own services.

Google is more interested in fostering an open networks environment and might not be that interested in any sort of Google-branded service. But wholesale access might be interesting if Google wants to experiment with applications that require such access, and wants to do so in a "real world" environment.

Ethernet Keeps Growing

Ethernet continues to gain a more prominent role in networking capabilities being deployed by service providers in North America, Europe, and Asia Pacific, with most carriers reporting 90 to 100 percent increases in Ethernet traffic for the past two years, according to analysts at Infonetics Research. IP and MPLS traffic has grown 70 to 80 percent over the same period, Infonetics says.

A new optical transport layer also will emerge, Infonetics believes. This new layer will be a fused Ethernet-WDM packet transport with circuit-like capabilities via Ethernet transport tunnels, also known as COE, or connection oriented Ethernet. That means more adoption of T-MPLS and PBT, Infonetics believes.

There was a time when some argued that "connectionless" protocols such as IP would replace "connection oriented" protocols such as time division multiplex, SONET and asynchronous transfer mode. As it turns out, there's a reason why connection-oriented protocols, or at least protocols that emulate connections, are important. Some traffic types, especially video and voice, are susceptible to impairments that can arise when connectionless protocols are used.

Value-Based Pricing

Communications services in the past have been priced based on usage (minutes or distance, for example). These days, there's a greater range of retail pricing, including flat fee for buckets of usage, for example.

But with the advent of IP-delivered video services, service and application providers have a chance to price services in a more natural "value to me" basis. If one looks simply at retail pricing and "bandwidth consumed," text messages "cost" the most based on bandwidth consumed, with voice second. Video and Internet services "cost" very little on a "bandwidth consumed" basis.

But that isn't the point. Text, voice and other communications applications are valued one way; video entertainment or simple Web access another way. In other words, in the communications space, "cost" is not the same thing as "price."

Target and Wal-Mart sell some products as loss leaders to get traffic into the store, so people buy lots of other products with varying profit margins. Communications services aren't any different. Some have have margins for providers, others have slim margins. The key, though, is value to the end user, not "bandwidth consumed."

Text messages "cost" very little, as the network to enable sending and receiving them is a sunk cost. But cost isn't price. Users demonstrate by their behavior that they value text messaging highly, on a "bandwidth consumed" basis. If one letter of a text message requires one byte, then sending or receving 6,553 messages consumes about a megabyte of data.

So a 160-character or smaller message might "cost" 10 to 15 cents. So a megabyte worth of text messaging represents as much as $655 to $983 for domestic usage. International messages obviously "cost" more.

A month's unlimited usage of entertainment video might cost $50, consuming more than a megabyte in a single second of use.

The point is that the retail price of any particular message or service has little to do with the actual "cost" of providing it, any more than the "price" of perfume, luxury automobiles, shoes or applications.

"Price" for a video service has to be vastly lower, on a "bandwidth consumed" basis, than texting, instant messaging or voice. That has little to do with user-perceived value, though.

Nokia Gets Cross Platform Support

Nokia has acquired Trolltech, a development platform for applications that can run on the Internet, accessed from a PC or a mobile phone. That might mean support for applications that run across operating systems, for example. The acquisition illustrates a couple of trends.

Mobiles need to acquire the ability to run Web applications, and need to do so in ways that are similar to the use of those apps on a PC, so users don't have to relearn a behavior. Cross-platform support also means Nokia can benefit from the huge numbers of developers working in the C, Flash, Java and other environments, for example.

Sloooow 700 MHz Auction Pace

The high bid on the national 700 MHz spectrum block stood at about $3.4 billion on Tuesday. Bidding is proceeding slowly and about all we know is that it will go higher until the minimum to compell an open network framework is reached. Google has pledged to bid at least that much and we have no reason to think it will not. Another billion and some odd to go until that point is reached, though.

Competitive Cable Developing Too Slowly?

One year after the passage of a law designed to ease the entry into the cable market of competitive providers in Michigan, only 110 of 2,000 communities in the state have a choice of cable providers, according to Multichannel News.

That is to be expected. Cable choice requires construction of brand new networks, not just the granting of a franchise. That takes immense amounts of capital and time, as well. A single new network in a single community can take three years or more to build, if there are no competing demands on construction and installation resources.

And there is history to consider. New video service providers have been attempting to so just this sort of thing for several decades, using a variety of methods, of which the most successful so far has been the use of direct broadcast satellite. There have been scattered regional efforts to duplicate cable networks, but overbuilders have not been notably successful, in large part because it is difficult to justify building a network that gets less than 30 percent penetration, which is what overbuilders largely have been able to attain.

Voice and cable modem services have helped the business case, but overbuilding remains a challenging financial proposition, and few expect widespread new competition in the terrestrial space from any other than incumbent local telephone companies.

The point is that nobody should be surprised nothing much has happened in just a year. New ubiquitous broadband networks take time to build, as well as lots of capital. If it were easy, lots of people would be doing it.

T-Mobile USA: Strong Quarter

Of the four largest U.S. mobile carriers, all but Sprint seem to be posting strong gains. T-Mobile USA says it had added 857,000 net new customers during its most-recent quarter. Average revenue per user also was up to $53 in the quarter, rom $52 in the third quarter of 2006.

Operating income was up 15.1 percent compared to the same quarter of 2006, while churn was down to 2.0 percent from 2.3 percent in the third quarter of 2006.

Contract customer net additions in the third quarter of 2007 made up 65 percent of customer growth, down from 80 percent in the second quarter of 2007 and 96 percent in the third quarter of 2006. Prepaid additions are the reason.

Contract customers represented 84 percent of T-Mobile USA's installed base.

Blended churn, including both contract and prepaid customers, was 2.9 percent in the third quarter of 2007, up from 2.7 percent in the second quarter of 2007 and down from three percent in the third quarter of 2006.

Blended ARPU was $53 in the third quarter of 2007, the same as the second quarter of 2007 and up from $52 in the third quarter of 2006.

Contract ARPU was $57 in the third quarter of 2007, the same as in the second quarter of 2007 and up from $56 in the third quarter of 2006, driven by increasing data services revenues.

Data services revenues were $666 million in the third quarter of 2007, representing 15.4 percent of blended ARPU, or $8.10 per customer, compared to 14.7 percent of blended ARPU, or $7.80 per customer in the second quarter of 2007, and 11.3 percent of blended ARPU, or $5.90 per customer in third quarter of 2006.

Text messaging still is the most significant driver increasing data ARPU. The total number of short message service and multimedia messaging service messages increased to almost 21 billion in the third quarter of 2007, compared to 18 billion in the second quarter of 2007 and 10 billion in the third quarter of 2006.

SureWest Sells Wireless Assets

SureWest Wireless is being bought by Verizon Wireless for $69 million in cash. SureWest Wireless holds spectrum licences covering 3.8 million people in the Sacramento area and had around 50,000 subscribers at the end of September 2007.

SureWest, which operates triple play services in Roseville, Calif. and Kansas City, seems to have decided that mass market wireless is a scale business inefficiently operated by a purely local operator. Also, now that SureWest operates in more than one geography, it is unable to offer the same set of services in Kansas City that it now offers in Roseville, complicating the firm's marketing efforts.

Necessity often is the mother of invention, and SureWest seems now to be betting its future on broadband services, not wireless and broadband. In similar fashion, Qwest has decided to take a similar posture, having outsourced its wireless offerings to Sprint and its video entertainment to DirecTV.

It's worth keeping in mind: business strategies appropriate for scale players do not often make as much sense--if sense at all--for niche players. It is less a matter of what one would like to do and more a matter of what one practically can do.

Is FiOS a Different Product?

Verizon says it has 8.2 million broadband access subscribers. During the fourth quarter, Verizon added 245,000 net new FiOS Internet customers and 19,000 net DSL subscribers. So here's the question: is T1 (1.54 Mbps) a different product from a DS3 (45 Mbps) connection? Is T1 a different product from an asymmetrical cable modem or Digital Subscriber Line service? I suspect most people who create and deliver such services would say "yes."

So if a customer buys a FiOS fiber to home service, is that a different product than the alternative it replaces? If Verizon added just 19,000 DSL subs and an order of magnitude more FiOS subs, what does that suggest? Right now it is hard to tell what it means, as Verizon does not appear to be providing detail on DSL penetration as distinct from FiOS Internet.

So far, Verizon says it has 21 percent FiOS Internet penetration where it can sell the service.
Presumably that includes virtually all of the DSL subs who converted over to FiOS. At the end of March 2007 Verizon said it had overall broadband penetration of about 16.8 percent.

So it is conceivable that FiOS availability boosts broadband access penetration by something slightly less than four percent of marketable homes, as well as garnering 16 percent of homes as video subscribers.

For the moment, FiOS Internet appears largely to be a substitute for DSL. That should change over time, as nearly all major market consumers in Verizon's footprint have a chance to buy Ethernet services ranging from 10 to 50 Mbps. It's hard to imagine that not emerging as a differentiated product.

Verizon: 2.7% Consumer Wireline Revenue Gain

In football, they'd call his "tough yards on the ground." Verizon's four percent increase in fourth-quarter profit came primarily from the mobile business, as traditional land-line metrics continue to drift lower, despite gains in FiOS broadband access, Digital Subscriber Line sales and FiOS TV services.

Still, quarterly revenue in the consumer segment was up 2.7 percent, a significant achievement against a backdrop of share losses in the legacy consumer wireline voice business.

Verizon added about two million net wireless customers in the quarter, offsetting wireless declines of about 616,000 lines. For the full year 2007, Verizon lost about three million residential lines, or 10.6 percent of total, while business lines dropped 3.7 percent.

In essence, Verizon is getting higher average revenue per unit in its wireline business, even as the total number of customers is dropping. If you wanted any proof about the revenue impact product bundling has, Verizon is providing the evidence.

Though there are important churn reduction effects, the primary reason dual play, triple play and quadruple play offers work is that they raise ARPU dramatically, allowing service providers to build businesses based on scope (selling more things to customers) rather than scale (selling the same thing to more customers).

The company added 245,000 net FiOS broadband access customers as well as another 226,000 net FiOS TV customers in the most recent quarter.

Communications-Enabled CRM

C3IP Communications, a privately-held VoIP provider based in Scottsdale, Ariz., has integrated its communications functions with the Act! customer relations management software. As a result, C3IP clients using Act! have access to customer histories, account information and other resources whenever customers call in.

These days we might call the availability of communication features inside an application a "mashup." Decades ago we would have called this an example of computer-telephony integration. By either name, the idea is roughly the same: embed communications inside a business process.

Verizon FiOS TV up 356% Year Over Year

Verizon has broken the one million TV customer mark for the first time, growing its subscriber base 356 percent in 2007. Clearly, Verizon's network construction and video franchising phase now is yielding to the marketing phase. The next couple of years will provide us with a better handle on just how well Verizon will do as a provider of video entertainment services, but FiOS TV does not appear to have suffered the technology or performance challenges that have beset at&t's U-verse offering in the past.

So the issue now is how well Verizon will do in the market share battle with cable companies, as each swaps share in their legacy businesses while trying to gain the upper hand in the broadband access business. Up to this point cable has had the advantage, gaining more voice customers than Verizon and at&t have gained video customers.

Depending on whose data one wished to cite, telcos either have closed the gap with cable or are taking more new share in the broadband access business than cable companies are. The installed base generally is seen as reflecting a lead for cable, but the installed base gap is expected to close over the next couple of years, by most estimates.

Packet 8 Grew Customer Base 66% Last Year

It appears 8x8's Packet 8 hosted VoIP service for businesses gained about 4,000 net customers last year. In December 2007 the company reported having 10,000 customers. In December 2006 it had about 6,000.

FiOS, FTTN as Marketing Platforms

BT plans to launch its 24 Mbps service in April 2008 with available coverage reaching in excess of 50 percent of the U.K. market by April 2009. It will be using a fiber-to-node network very similar to at&t's FTTN network, with copper drops. Both BT and at&t believe that is sufficient bandwidth for anticipated customer demand. In at&t's case that also includes IPTV and HDTV services.

They might be right. But there is something more than bandwidth at issue here, and that is the marketing platform. If you have Millenial children, ask yourself what their preferences are in the area of broadband and video entertainment providers (You know they all rely on their mobiles).

Up to this point, though, it has been the common pattern to buy both video and broadband from the cable company. What we need to watch is what happens when services such as Verizon's FiOS fiber to home service are available. The issue is not just how much bandwidth they need or will pay for.

The issue is whether FiOS or fiber to home services are a more compelling product than cable modem services.