What if Sprint "Goes Nuclear"?

There now is speculation Sprint Nextel is considering an unlimited calling plan costing as little as $60 a month. Aside from disrupting nearly all pricing plans in the U.S. mobile business, one has to wonder what that does for wireless substitution and consumer VoIP as well.

If one can get unlimited calling for that sort of price point, most people who use mobiles and also live in single person, or households of unrelated people, are going to have huge incentives just to go "wireless only."

To the extent that consumer VoIP is mostly about cheap calling, mobile is going to be hugely competitive in a new way, in the event of "nuclear" conflict.

CLEC Precedent for VoIP Companies

Birch, a competitive local exchange carrier that declared bankruptcy twice, has been sold to Access Integrated Networks. The combined company is based in Atlanta, has about 400 employees and will have revenue of $200 million to $210 million a year. The combination is but the latest in a continuing wave of consolidation in the independent CLEC segment, which like most other parts of the telecom business requires scale.

In many ways the VoIP business already has taken a path similar to that pioneered earlier by the "CLEC" business. The CLEC business was lead, in terms of market share, by just two companies: AT&T and MCI. There were lots of independent CLECs, but most had fairly small market share and sales.

Both AT&T and MCI were absorbed into SBC Corp. and Verizon, respectively, leaving the CLEC industry essentially "headless" in terms of national regulatory clout.

The experience of VoIP providers is analogous in many ways. Though the business was pioneered by independents, as was the CLEC business, it now is "lead" by U.S. cable operators, who might be seen as the AT&T and Verizon to the rest of the small independents.

Cable companies have distinct regulatory interests distinct from those of independent VoIP providers, for the most part, and compete directly with VoIP providers in a commercial sense.

One might argue that the independent VoIP providers now also will start consolidating, for VoIP also is a scale business. And some of the more interesting pairing will be of business-focused VoIP providers with business-focused CLECs.

Mobile Price War Impact?

Though the impact might be quite overblown, at least some investment analysts think the recent adoption of unlimited calling plans by three of the four largest U.S. mobile providers is going to hammer their revenues.

Credit Suisse telecom analyst Christopher Larsen, for example, has reduced his rating on at&t, Verizon, Qwest and Sprint Nextel.

He worries that unlimited calling plans will trigger “a wireless price war.”

UBS telecom analyst John Hodulik thinks the potential impact will affect Verizon and at&t, at least at this point.

Hodulik says Sprint is likely to launch an unlimited voice plan in the next few weeks is considering pricing at $60-$80 a month. If Sprint gets traction, that logically would compel Verizon and at&t to reduce their prices to match.

I am not so sure about that. Each of the carriers might see some lost "overage" revenue from heavy users. But each should gain some customers who upgrade from lower-priced plans, as well as some customers upgrading because they are substituting wireless for wireline service.

It is possible higher subscription revenue will compensate for the loss of "overage" revenue.

Euro Managed Services Sales Slowing?

Managed IP PBX contracts won by European telecom service providers declined by an order of magnitude during the first half of 2007, says Phil Sayer, Forrester Research analyst.

The number of IP PBX managed services deals fell to three percent of deals, where in the first half of 2006 managed IP PBX deals were part of 39 percent of new contracts.

Forrester says there was an equally massive drop in the number of deals involving managed security services as well. The only IT service that recorded any increase was the provision of help desks.

Overall telco IT services sales with an IT services component was down from 31 percent to 22 percent.

It isn't yet clear whether that trend was seen in other regions, whether it continued through the balance of 2007, or what it means, if indeed the trend did continue.

Most likely, the data suggest a shift of buying to other channels, rather than a decline in aggregate purchasing. The survey suggests that most of the service provider sales were of the small sort. It is most likely the case that value added resellers and other providers now are increasingly active in that market with services that compete directly with service provider offerings.

The total number of managed services contracts signed in the first half of 2007 by European telecom service providers also showed a decline in the number of deals, compared to the first half of 2006, with slight less contract value.

Where 188 deals were reported by the participating carriers in the first half of 2006, with a contract value of €1.6 billion, contract value in the first half of 2007 was roughly flat at €1.5 billion.

The majority of deals continued to be small, but the increase in the average deal size was the result of a small number of very large contracts.

T-Mobile Adds $100 Unlimited Plan

T-Mobile USA will offer consumers an unlimited calling plan including unlimited ationwide text messaging for $99.99 per month. This offer will be available beginning Feb. 21.

Note that the T-Mobile offer includes unlimited text messaging (SMS), picture messages (MMS) and instant messages (IM). Full details of the at&t Wireless offer are not yet available, but it wasn't immediately clear whether at&t Wireless would include unlimited text messaging as part of the $100 a month unlimited voice plan.

$100 Unlimited Plans Spread

Wasting no time responding to a major new Verizon Wireless offer, at&t Wireless has unveiled its own $100 ($99.99)a month plan for unlimited mobile calling. The plans will be available to new and existing wireless subscribers Feb. 22. Existing customers can buy the plan without extending their current contracts.

New customers can buy on a month-to-month, 12 month or 24 month contract.

Sprint has been offering unlimited calling plans in four markets at about $119.

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.