More Funding for U.S. WiMAX?

Sprint Nextel and Clearwire are close to announcing the formation of a WiMax joint venture funded in part by a $2 billion injection from Intel Capital, the Street.com reports. As currently rumored, the deal would create a new company that pools Sprint and Clearwire licenses in the 2.5-gigahertz wireless spectrum. Additional financing also is expected from other firms.

An earlier partnership between Sprint and Clearwire died last November, when the two parties could not reach agreement on terms of the partnership.

Through a joint venture with Clearwire and a big investment from Intel, Sprint can move the expenses off its books and yet still continue to build a fourth generation network. Intel's interest in WiMAX is creating a new market for chipsets supporting WiMAX devices, including mobile PCs and handsets.

The unusually large investment by Intel Capital, which hasn't invested so much in any single company before, seems to be a signal that Intel worries about the U.S. WiMAX market. Though at one point it might have been conceivable that large incumbent wireless carriers might move to WiMAX on a wider scale, at&t Wireless and Verizon Communications now say they will back Long Term Evolution as the basis for their fourth-generation networks.

The issue is that WiMAX and LTE are different ways of creating capabilities seen as integral for 4G networks, so if Verizon and at&t aren't going to be creating WiMAX networks, Intel has to look elsewhere. T-Mobile USA, the fourth-largest U.S. mobile provider, is a logical candidate to go with LTE as well, as most of the GSM-based network providers seem to prefer that approach.

Aside from that strategic consideration, Clearwire 's part, the deal would provide cash it needs to continue operating and building its network.
Clearwire had about $1 billion in cash and investments at the end of the September quarter, but burned through about $400 million in cash to fund operations in that quarter, according to the company's most recent quarterly filing.

Verizon Wireless to Launch Unlimited Calling?

Starting Tuesday February 19, Verizon Wireless will roll out new "unlimited calling" plans of the sort Sprint Nextel has been testing in several markets and which Sprint is said to have been considering for national availability. According to Engadget, the new plans include $100 national unlimited voice.

Other plans include a $120 plan with unlimited texting and voice; $140 for plans that add email and VCast content services. For $150 users can get unlimited data, voice and texting.

A $170 plan adds international data capabilities. A $200 family plan reportedly will be limited to additional two lines, priced at $100 per additional line.

It appears there will be no caps on data sent or received.

In one sense the new pricing plans represent an attempt to change the nature of mobile service pricing, making pricing a lot more like VoIP, or wired calling with unlimited, flat rate long distance within the continental United States.

And that might be the thing to watch: not so much a redefinition of mobile pricing as a new rationale for going "wireless only." Assuming a landline costs in the neighborhood of $50 a month, a user might rationally conclude that he or she is no worse off, and marginally better off, ditching a landline and using the mobile for all calling.

U.K. Internet Penetration Tops 60%

According to the most-recent data from emarketer, U.K. Internet penetration now tops 60 percent, and broadband penetration accounts for virtually all of that usage, as broadband penetration is nearly 55 percent.

Slight Skews to Google, Yahoo Search User Demographics

The Yahoo search engine is slightly more often to be used by younger users; Google slightly more often is used by older users. But the overall patterns are pretty similar.

The real difference is that Google accounted for 65.98 percent of all U.S. searches in the four weeks ending January 26, 2008. Yahoo! Search, MSN Search and Ask.com each received 20.94, 6.90 and 4.21 percent respectively. The remaining 48 search engines in the Hitwise Search Engine Analysis Tool accounted for 1.97 percent of U.S. searches.

Patent Troll Seeks Cable Operator Toll

Yikes. Rembrandt IP Management, a suburban Philadelphia firm whose sole business is to buy up technology patents, and whose business model is based on patent royalties derived from those assets, has filed numerous lawsuits in numerous venues to force large cable operators and major broadcasters to pay substantial license fees on the transmission of digital TV signals and Internet services. Rembrandt seeks royalties for use of intellectual property related to cable modem services as well as digital TV broadcasts.

Comcast, Time Warner Cable, Charter Communications, Cox Communications and Cablevision Systems are named as patent infringers.

iPhone 2nd Best Selling Smart phone in Q4

Smart mobile device shipments hit 118 million in 2007, up 53 percent over 2006, reports Canalys. In the fourth quarter, newcomer Apple shipped the third most devices globally. Nokia remained the global market leader, shipping 60.5 million smart phones.

Research in Motion shipments grew 112 percent year-over-year to 12.2 million, to take second place.

Symbian remains the operating system leader, with 67 percent share, followed by Microsoft with 13 percent, with RIM on 10 percent. Apple garnered seven percent while Linux had five percent share.

High-end devices represented around 10 percent of the global mobile phone market by units in 2007, with annual growth of 60 percent.

Apple’s entry into this market in 2007 with the iPhone sparked a lot of media attention and speculation about how much it could disrupt the status quo and take share away from companies such as Nokia, RIM, Palm and Motorola. “When you consider that it launched part way through the year, with limited operator and country coverage, and essentially just one product, Apple has shown very clearly that it can make a difference and has sent a wakeup call to the market leaders,” said Pete Cunningham, Canalys senior analyst. “What it must demonstrate now is that it can build a sustainable business in the converged device space, expanding its coverage and product portfolio. It will also need to ensure that the exclusive relationships that got it so far so quickly do not prove to be a limit on what it can achieve. Apple’s innovation in its mobile phone user interface has prompted a lot of design activity among competitors. We saw the beginnings of that in 2007, but we will see a lot more in 2008 as other smart phone vendors try to catch up and then get back in front. Experience shows that a vendor with only one smart phone design, no matter how good that design is, will soon struggle. A broad, continually refreshed portfolio is needed to retain and grow share in this dynamic market. This race is a marathon, but you pretty much have to sprint every lap.”

Canalys estimates that Apple took 28% share of the fast growing US converged device market in Q4 2007, behind RIM’s 41%, but a long way ahead of third placed Palm on 9%. This was also enough to put Apple ahead of all Windows Mobile device vendors combined, whose share was 21% in the quarter according to Canalys figures. In EMEA, where the iPhone officially launched part way through the quarter in only three countries, Apple took fifth spot behind Nokia, RIM, HTC and Motorola, but ahead of several established smart phone providers such as Sony Ericsson, Samsung and Palm.

For the full year 2007, as in 2006, the Asia Pacific region was the biggest in volume terms for converged device shipments. Apple has of course not yet launched the iPhone in the region, and many vendors who are successful in other parts of the world, such as RIM and Palm, have also made relatively little impact there so far. Nokia continues to lead in the region, with more than 50% share in converged devices, ahead of Japanese smart phone vendors Sharp and Fujitsu. Motorola, despite enjoying fourth place, has seen its Linux-based smart phone shipments in the region fall 28% from their high in 2006.

Symbian led in the Asia-Pacific (85 percent) and Europe-Middle East-Africa regions (80 percent) while in North America RIM was the clear leader on 42 percent smart phone share, ahead of Apple at 27 percent and Microsoft at 21 percent.

What's a Google Phone?

Apparently, just about any smart phone with broadband access, according to Financial Times reporters Maija Palmer and Paul Taylor. Google head of mobile operations Vic Gundotra says "it had seen 50 times more searches on Apple‘s iPhone than any other mobile handset."

“We thought it was a mistake and made our engineers check the logs again,” Gundotra says. "If the trend continues and other handset manufacturers follow Apple’s lead in making web access easy, the number of mobile searches will overtake fixed internet searches “within the next several years."

More mobile searches than fixed! I don't know about you, but my sense is that if that volume of activity can happen on most broadband-connected smart phones, Google won't have to worry much about creating a "Google phone," any more than it has to worry about a "Google PC."

Google has never separated out its mobile revenues but Gundotra says the business was growing “above expectations”, both in terms of usage and revenues.

Executives at at&t Wireless have said average revenue per user for iPhone users was nearly double the average, because iPhone plans come with capacious data plans.

Sprint Won't Reach Xohm Goal by 2009

No kidding. Sprint originally expected to have 100 million subscribers for its Xohm WiMAX service by the end of 2009. It now says it won't make that goal, and nobody is surprised.

Xohm, slated to deliver mobile broadband services of 2 Mbps to 4Mbps, for $40 to $50 a month, is slated to launch on a more or less full deployment basis in three cities this spring (Baltimore, Chicago, and Washington, D.C.). There's no conceivable way any new service of this sort, selling into a nearly-saturated broadband access market, is going to get that kind of traction so fast.

VoIP, Broadband Growth is Slowing

One of the tentative conclusions we might reach from Comcast's fourth-quarter results is that the broadband access market is approaching a saturation point, with slowing net additions. Comcast added about 331,000 broadband subscribers in the three months ending Dec. 31, 2007, down 26 percent from the 450,000 subscribers it added in the third quarter. That's congruent with net adds from telcos as well, and has perhaps a little to do with the economy and slower housing starts. But mostly it is simply that we are approaching the point where nearly every potential customer for broadband already has become one.

VoIP net adds are slowing as well, again confirming a broader trend seen in the consuemr segment of the VoIP business overall. Basically, significant numbers of people who are persuaded VoIP makes sense for them right now have become customers.

After adding 662,000 new subscribers in the third quarter, Comcast’s total net new voice additions dropped to 604,000 in the fourth quarter. None of this is unexpected.

T-Mobile 3G This Summer

T-Mobile USA will launch commercial 3G services this summer, finally. The company blames spectrum issues for the delay (3G was supposed to launch mid-2007). T-Mobile invested $4.2 billion in 2006 to more than double its spectrum holding in the top 100 U.S. cities it serves.

Those of you who have had to live with EDGE access speeds (just like most iPhone users) will be happy. Up to this point, EDGE access has felt remarkably like "dial up" access. And how many of you can imagine doing important work, or trying to get any of the normal sorts of information you look for in a day, over a dial-up connection?

People don't use the mobile Web much because it's too painful, even if there were interesting applications.

Cut Prices or Else: EU to Carriers

EU telecomumunications Commissioner Viviane Reding has given the mobile phone industry until July 1 to cut the price charged to people for sending text messages or surfing the Web on their laptops while outside their home nation in the EU region.

Hoping to head off mandatory pricing and regulation Vodafone, Deutsche Telekom and KPN also have announced cuts in their data roaming prices.

As many in the computing and Web worlds are starting to discover, governments and regulators have much to say about which services and companies can succeed in the communications business, and even affect the amount of profits any contestant can make.

Any mandatory EU intervention to cut the price of sending text messages or using the Internet while traveling outside one's home country would be limited to the wholesale level. In other words, the EU would regulate the prices carriers can charge other carriers for roaming access, but leave service providers free to set their own retail prices.

Telecom Italia: Functional Separation of Access Network

It's official: Telecom Italia is creating a separate wholesale access operation clearly separated from Telecom Italia retail operations. When the new change takes effect, Telecom Italia retail and all other competitors will buy access services from the wholesale business.

Open Access will develop and maintain the access network infrastructure and manage activation and other processes.

The move is the latest example of ways different service providers in different countries are adapting to differing regulatory regimes and competitive "facts on the ground."

While there have been discussions of structural separation in the U.S. market, there never has been any political will to change the regulatory regime strongly in that direction, though aggressive wholesale discounts were the rule, for a period after 1996, and began heading the other way after about 2004.

Markets where functional separation has been adopted tend to be characterized by weak ability on the part of cable operators to provide meaningful competition in voice and high-speed Internet access services.

That isn't the case in the U.S. market, where regulators basically have decided that a competitive duopoly where cable and telco incumbents battle it out will lead to the greatest consumer gains, in the shortest amount of time. As a practical matter regulators probably got this one right.

Given the current state of capital markets over the past four or five years, it is virtually impossible to raise enough money to build a third, widespread broadband terrestrial network. Aggressive wholesale requirements meanwhile were all the excuse the large telcos needed to drag their feet on rapid broadband upgrades.

It is no coincidence that Project Lightspeed and Verizon FiOS really cranked up after it was clear the aggressive wholesale requirements would not stand.

That said, nothing in the telecom world ever is completely stable. What the government gives, the government takes away. At some point, the rules will begin to change again. As always in the U.S. market, the issue is whether the problem is too much freedom or not enough.

Vonage Churn: Not an Issue if it Survives

Should Vonage survive, it might be able to get its churn rates under three percent a month. But it would be a surprise if, even under the best of circumstances, it got churn below two percent a month.

That's a big "if," but history suggests lower churn is possible, if not easy. The reason is that, over time, customers learn the value of a new type of service or application, and gradually come to have a better understanding of why it is they actually need and use a service. There always is lots of churn at first.

The U.S. cable industry struggled precisely with churn at the same levels Vonage grapples with, in the late 1980s and 1990s. Today's churn levels are far below that, but not much below two percent a month. And there's a reason even for that level of churn.

People move. That's called "uncontrollable" churn because there isn't a heck of a lot most providers (except those with a huge footprint) can do about people moving. Wireless providers used to have three percent a month churn as well. These days, most save Sprint Nextel are down just a hair under two percent a month.

They don't necessarily have the "customer is moving" problem so much with the advent of continental U.S. calling buckets that mean local calls cost the same as long distance. A new dwelling in a new area doesn't necessarily mean any change in calling rates and charges, so there is less "uncontrollable" churn.

Still, even the largest of the wireless carriers have just a bit under two percent a month churn. So far, in the consumer markets, that's about as good as it gets.

In the commercial markets, guess what the monthly churn rate is for many smaller independent service providers? Three percent.

That's not great, but the point is that it is hardly unusual, especially for new services, smaller providers and any service tethered to a location. The good news for Vonage is that, like a mobile provider, its service is not tied to a physical location. Over time, and should it survive, it can expect, with diligence and the passage of time, to get its churn down to about two percent a month.

The issue is simply to stay in business long enough for the learning effects to kick in.

Broadband Adoption: Under Par for the Course

Since broadband first became widely available to consumers in the late 1990s, adoption has hit the
halfway point faster than most other information and communication technologies.

It took 18 years for the personal computer to be used by 50 percent of Americans at home and 18 years for color TV to reach half of homes.

Mobile phone penetration took 15 years to reach the "half of homes" point. It took 14 years for the video cassette recorder, and 10 and one half years for the compact disc player to reach the same level of penetration.

It has taken about 10 years for broadband to reach 50 percent of homes. We can argue about the price of broadband, the definition of broadband, the quality or terms of service under which broadband can be purchased.

But it continues to surprise me that some observers still think there is some sort of crisis or problem here. Over the last year bandwidths have been leaping, not just incrementally increasing. There's more third generation wireless access, more WiMAX, more Wi-Fi. With a new SpaceWay satellite in orbit, there's much more satellite broadband capacity coming online as well.

And the last time I checked, some 98 percent of U.S. homes had access to at least one wireline broadband provider, and depending on where the location is, one or two satellite providers. Again, depending on location, users have access to one to three broadband mobile networks as well.

Few countries save Japan have prices-per-megabit lower than U.S. consumers do. By all means let us solve problems. But it doesn't do much good to keep trying to "solve" problems that already are in the process of being fixed.

And by any historical standard broadband access is a product being adopted by U.S. consumers at a faster rate than other highly-popular innovations have. In fact, one would be hard pressed to name another popular innovation that has penetrated the market so quickly.

More Price Regulation Coming?

Though European Union regulators are putting strong pressure on Europe's service providers to dramatically lower data and voice roaming costs, that isn't likely to happen anytime soon in Asian markets, says Rosemary Sinclair, International Telecommunications Users Group external relations officer, and reported by CommsDay.

“The significance to me of what has happened in the EU is that it indicates to us that the cost structure of delivering these calls is much, much lower than the retail prices,” Sinclair says. “The operators know exactly what the costs of services are,
but they are not prepared, without regulatory oversight, encouragement,
or if necessary, intervention, to do something about it."

"At the moment, as far as I can see, the only thing that would fix this is regulatory action," she says.

Service providers take notice: a re-regulatory wind is blowing around the world, though it isn't as windy everywhere. Telstra seems to be in a different situation than EU carriers. U.S. carriers have enjoyed a decade of less intense regulation. But there's one thing you can be sure of: it the telecom business, no set of rules, and no climate, lasts forever. The next swing will be back the other way.