Verizon to Hold "Open Network" Conference for Developers

Verizon Wireless will convene an Open Development Device Conference on March 19 to acquaint developers with its version 1.0 of the technical specifications for wireless devices that will work on its “Any Device, Any App” network-only service option.

The conference will discuss the certification of devices that users can use on the Verizon network, without having to buy a device directly from Verizon.

Broadband Penetration: How You Count Makes a Difference

Comparing broadband penetration across country boundaries is a tricky matter. It makes most sense to measure some services or products, such as cable TV, broadband access, TVs, HDTV, IPTV or telephone lines, on a "per household" basis, since that is how the service tends to be consumed.

Other services or products, such as mobile phones, MP3 players, Skype, smart phones or notebook PCs, might more accurately be counted on a "per user" basis.

The difference in broadband penetration, for example, can vary dramatically by the size of a household. In countries where households tend to be larger, for example, "per capita" and "per household" penetration will show a weaker correlation. Countries with lower household size will show a higher correlation between the two measures.

The latest ECTA data shows broadband penetration "per capita." So where we might be used to seeing "household" penetration figures in the 50-percent range, counting on a per-capita basis leads to penetration in the 15 to 35 percent range.

Planning on Buying a New Phone?

ChangeWave Alliance surveys suggest demand by consumers for new mobile phone has been weakening since July 2007.

Weaker Consumer Spending

Consumer spending turned south in the summer of 2007, according to surveys conducted by the ChangeWave Alliance. ChangeWave also found that business IT spending dipped in the first quarter of 2008.

In January, 34 percent of ChangeWave respondents said they planned to spend less during the next 90 days than they did a year ago. About 29 percent said they would spend more.

Business Hiring Heads South

Business hiring declined in the fourth quarter of 2007, according to survey data compiled by ChangeWave Alliance. That lead ChangeWave to declare that a recession already was underway.

Enterprise IT Spending Heading South?

ChangeWave’s latest enterprise IT spending survey points to a negative growth rate for the second quarter of 2008, suggesting that U.S. business spending has already in a recession of sorts.

Some 23 percent of respondents report their company’s IT spending will decrease--or there will be no spending at all--in the second quarter.

About 15 percent say spending will increase.

A total of 2,013 respondents involved with IT spending in their organization participated in the February survey, ChangeWave says.

The last time such negative growth was reported was August 2001. And you might recall that was the time when the Web and telecom industries melted down. The ChangeWave data show a slowdown in businesses of every size.

About 43 percent of respondents say their companies will spend normally. About 53 percent say their firms will slow spending.

In the first quarter, about 10 percent of respondents reported they had spent more than planned.

Another 27% say they’ve spent less than planned. It appears storage has been hardest hit. But spending on enterprise applications, servers and security also are weaker.

That doesn't seem to apply to smart phone activity, though. Respondents say their firms will be spending more on smart phones than before.

It's starting to look like the spending slowdown by business users already has begun, whether or not we find out later that the U.S. economy entered a formal "recession," which is to say back-to-back quarters of negative growth.

Consumer, SME Spending Tightening?

Large incumbent telco and cable companies say they haven't yet seen any adverse sales or churn impact because of economic stringency. But there are some signs this is not true, and has not been true, in parts of the consumer and small business and medium business market segments since perhaps last summer.

Cbeyond, which sells to small business, reports it began to see higher than normal credit issues in the third quarter, forcing it to tighten its credit rules. The result was a churn rate 40 percent higher than is typical for Cbeyond.

Leap Wireless, which sells heavily into lower-income customer segments, likewise saw an unusual and high rate of customer churn in the third quarter last year, an anomaly the company says can be explained by expansion into less mature markets as well as deliberate policy changes in the prepay and handset areas.

Now Henry Blodget of Silicon Alley Advisor says he detects real softness in small and medium business spending on advertising since the Christmas or holiday season. He says a source workking for a digital advertising company has seen severe drops in digital ad spending at small- and medium-sized enterprises in the past few months.

Blodget says he was told one client that had $4 million to $5 million in sales in the 2006 Christmas season had only $1 million in sales this season.

The source believes that Google is seeing, or will soon see, similar drops in spending in the SME segment.

It will be hard to separate out the many threads here. Both Cbeyond and Leap Wireless are in the middle of major market expansions, and each has taken internal actions which could account for nearly all, if not all of the unusual churn activity.

Beyond that, Leap Wireless executives have been watching for signs of economy-specific impact for quite some time, as the background rise in gas prices, sub-prime lending and housing slowdowns also could create higher churn, lower net addition effects.

Even slowing broadband or wireless subscriber growth alone will not be evidence of economic weakness, as both of those markets are nearing saturation. Growth necessarily will slow, and the economy has little to do with the slowing.

Lower housing starts plausibly are an issue, but only at the margin. The simple fact is that both broadband and wireless penetration rates now are nearing a natural limit.

Both Cbeyond, Leap Wireless and any other service providers expanding rapidly into new markets are going to have higher churn for new customers than is typical for customers they have had for several years. The reasons are simple enough. Customers who leave have found reasons not to continue. By definition, customers who stay for several years have found good reasons to do so.

They have learned how to use the services, are getting acceptable levels of service, correct bills, prompt resolution of issues and other "use" experiences that confirm they have made a wise choice.

So higher churn, in and of itself, will not mean economic softness is the culprit, at least for firms expanding rapidly into new markets and adding new services.

Over the next couple of quarters, all observers are going to remain watchful for any signs economic issues are coming into play. So far there are signs--not conclusive by any means--of increased pressure in some consumer and SME segments. But so far it is hard to isolate economic issues from other background factors.

Slowdown? "Not Yet" Says Siemens

Siemens AG, Europe's biggest engineering company, probably will meet its 2008 sales and profit goals, and sees no sign that a global economic slowdown is affecting business, Chief Executive Officer Peter Loescher says.

That despite the statement that "it's clear that we're entering a phase of slowdown in the world,'' Loescher says. ``The impact for us as a company, we don't see it yet.''

Mobile Revenue Surpasses Landline in 2009

"Mobile service revenues will pass landline in 2009," says Arthur Gruen of Wilkofsky Gruen Associates, reporting on the latest Telecommunications Industry Association expectations for U.S. communications revenues. "It now is primary line erosion, as second lines erosion was finished some time ago."

That means there will be 150 million landlines in service by 2011, where there once were 286,000 in service in 2004.

About 82 percent of consumer voice subscriptions are sold as part of a bundle, up from 14 percent in 2005 and 40 percent in 2007.

Wireless growth slowed to single digits in 2007 for the first time, however. Still wireless revenue of $200 billion in 2011 will exceed wireline revenue by 26 percent.

About 84 percent of wireless service revenue growth comes from data and data will be 35 percent of total revenue in 2011, up from 16 percent in 2007 and six percent in 2005.

Overall wireless penetration will hit 90 percent in 2011, up from 79 percent in 2007.

In 2011, Gruen also predicts VoIP will represent 37 percent of landlines, serving 33 million subscribers.

EU Approves UK Broadband Deregulation

The European Union Telecoms Commission has approved an Ofcom proposal to deregulate the U.K. broadband market UK broadband market where there are four or more actual or potential providers serving areas with more than 10,000 homes and businesses.

In practice, that means deregulation for areas covering around 65 percent of all homes and businesses.

T-Mobile USA Continues Fixed-Mobile Trial

T-Mobile USA continues to test a Wi-Fi-based, dual-mode phone approach to fixed-mobile integration, allowing users to send and receive calls and messages using their in-home broadband network and a Wi-Fi router instead of sending and receiving messages and calls over the mobile network. The user advantage is that the airtime plan isn't decreased when using the Wi-Fi connection.

The tests began last June in Seattle and now is providing service in Seattle and Dallas.

The additional monthly cost is $10 for the "Hotspot at Home" feature, which isn't much of an issue. The issue is that the service only works with two phone models, the BlackBerry Curve and the Samsung T409.

Someday handset limitations won't be so big a deal, as more devices come natively equipped with Wi-Fi, and when operators stop disabling the function. But right now, the limitation to just two devices is an issue that will limit adoption.

TA 96, Digital One Rate: Which was More Important?

Though the subscriber stats don't paint the picture quite so clearly, wireless minutes of use exploded after 1998, when AT&T Wireless Services introduced "Digital One Rate," a new plan that eliminated the difference between local and long distance services, and used a "bucket" of minutes packaging approach.

U.S. competitive local exchange carrier lines in service, on the other other hand, ramped up through about 2004, and then began to decline, even as more telephone and cable companies themselves became "CLECs" for purposes of providing services outside their historic service territories.

In 1998, when Digital One Rate was introduced, mobile subscribers numbered about 69 million. By the middle of 2007, mobile subscribers numbered more than 243 million. At this point, the time is long past when wired lines exceeded wireless lines. These days, wireless accounts far outnumber wired accounts.

In many respects, and without belittling the Telecommunications Act of 1996, Digital One Rate has had far more impact than anything that has happened on the wired side of the business.

VoIP Markets: Is Europe the Future?

Though those of us in the U.S. community tend to overlook the fact at times, the consumer VoIP market in Europe is quite different. In Western Europe there were 21.7 million VoIP customers at mid-year 2007, up from 15.6 million only six months earlier.

TeleGeography estimates that the ranks of European VoIP subscribers had grown to 28.9 million by year-end 2007.

While VoIP is often associated with competitive carriers and cable companies, many European incumbents have counterattacked by launching their own VoIP services. France Telecom has emerged as by far the largest consumer VoIP provider in Europe, while BT, Telecom Italia, and KPN all rank among the top ten European VoIP operators.

The European consumer VoIP market remains fragmented and highly diverse, featuring a wide range of provider types and business models, says Stephan Beckert, Telegeography analyst.

In some countries, incumbents dominate. In others, competitive carriers have gained the advantage. VoIP adoption also differs widely across nations. For example, 34 percent of all French households subscribe to VoIP, compared to only 11 percent in Germany.

At some point, the U.S. markets are going to start resembling the European market. At some point incumbent carriers are going to start pushing VoIP services actively. Recall the pattern set by Digital Subscriber Line services. The technology was available for quite some time. But telcos didn't have a business driver to deploy it aggressively (they feared cannibalization of T1 lines) until the cable operators forced their hand by launching rival cable modem services.

To be sure, an argument can be made that revenue is better managed by allowing traditional phone line sales to shrink gradually, rather than massively converting to VoIP, with the attendant cost and reduced revenue across the board. At some logical point, the benefits will be close to the costs, and the switch will happen.

Verizon Has 0.5 Percent Exposure to Unlimited Calling Plan Downgrades

Verizon Communications has 305,000 single-line Nationwide Unlimited Anytime customers with monthly voice price plans in excess of $99.99 per month. That's important as the investment community now is nervous the introduction of new plans costs about $100 a month will cause those sorts of customers, paying $125 to $135 a month, will downgrade to the $100 a month plan.

Keep in mind that customers paying more than $100 a month for a single line represent just 0.5 percent of Verizon's customer base.

Verizon believes that the reduced revenue from the $100+ customers will be more than offset by other customers on lower-priced plans moving up to the $100 a month plans. The exposure to the downside isn't that high--possibly $109 million or so.

On the other hand, assume just 300,000 customers upgrade their plans to the unlimited plan, out of the base of total 65.7 million users, and that the incremental revenue is $30 a month.

Despite some momentary imbalance, it seems more logical that the upgraders outnumber the downgraders by as much as two orders of magnitude.

Dan Hesse, Digital One Rate

Dan Hesse, Sprint Nextel CEO, was CEO of AT&T Wireless Services back in 1998, not many will recall. That was the month Hesse was able to act on a vision he had strenuously to sell to his superiors: that wireline minutes of use could be shifted to wireless, saving at&t money on access fees by doing so.

The Digital One Rate Plan was not primarily aimed against other wireless carriers at all, but rather at reducing a significant cost of doing business on the AT&T long distance side of the house.

At the time, Hesse pointed out that "we're taking a chunk out of revenue usually going to our competitors," meaning by that the Regional Bell Operating Companies that at&t had to pay access fees to.

The point is that major packaging initiatives can have unanticipated consequences. Digital One Rate was just a way to save AT&T long distance operations money on terminating traffic charges paid out to local carriers.

So make no mistake: Hesse is used to launching unusual packaging programs for non-intuitive reasons. But not even Hesse was able to fathom that Digital One Rate would change the way the entire industry packaged its basic product.

If Sprint does launch some sort of "nuclear" strategy to try and shake things up, you can bet Hesse isn't going to choose some sort of simple copycat unlimited calling plan.

Dan Hesse is the guy who got the whole "buckets of minutes" train rolling, and wiped out the difference between local and long distance calling in the U.S. domestic market.

He's the guy who triggered an explosion of mobile adoption and a sharp increase in usage of mobile minutes.

Financial analysts seem to be riveted on what a $60 unlimited calling plan might mean for the fortunes of all leading wireless providers. I don't think that is what they ought to be focusing on. Digital One Rate was about moving "long distance" minutes from the landline network to the wireless network.

That's what "unlimited" mobile calling plans do. That's why Sprint is testing femtocell technology in Denver: figuring out the operational and marketing issues around small in-home transmitters that improve wireless signal quality and also create a marketing opportunity for "home zone" services where a wireless handset can replace a landline handset and service.

Nobody should be surprised if Sprint Nextel comes out with a program of its own in the "unlimited" calling area. But nobody should expect Hesse to confine his initiatives there. At this point, rolling out its own unlimited-calling plan is nothing more than a tactical response to prevailing market conditions on the packaging front.

It isn't the sort of industry-transforming plan Digital One Rate was. But we also need to keep in mind that industry transformation was not what AT&T had in mind in launching Digital One Rate.

Watch out for the unintended consequences.