Fiber to Home: Density Matters

When evaluating prospects for fiber-to-home deployments, density really does matter. As recent data from the Fiber to the Home Council shows, countries with higher rates of fiber access tend to be highly dense, where a "fiber to the basement" approach is feasible. Japan is the exception. Generally speaking, fiber to the home penetration is high in countries with high density, though other factors, such as government financial support and regulatory framework, also play an important role.

50 Mbps from Comcast by 2010?

Comcast will offer customers 50 megabit-per-second service, upstream and downstream, available to half its subscribers and homes passed, by 2010, DSLPrime's Dave Burstein argues. What remains unclear is how many customers Comcast or any other cable company will be able to support at those rates, in any single neighborhood of 500 homes or so, unless a very large amount of analog video bandwidth is freed up by moving them to the digital service tiers.

Apple Inches Closer to Enterprise iPhone

Apple is convening a meeting to unveil its software development kit on March 6. For critics who have panned Apple for producing a closed device not suitable for enterprise users, Apple now will begin to prove at least some of those critics wrong. Salesforce.com, for example, already has moved to position its services for iPhone users. In fact, its own sales force demanded that this be done. And small business users, who don't have all the enterprise software issues to face, already are using the iPhone as their preferred device.

Why Netflix is Not "Toast"

On-demand video might affect the DVD rental business someday, but apparently not this year. Netflix just revised first quarter and full-year 2008 guidance. For the year, Netflix expects to have 8.9 million to 9.5 million subscribers, up from the prior forecast of 8.4 million to 8.9 million subs. It expects revenue of $1.345 billion to $1.385 billion, up from $1.3 billion to $1.35 billion. It expects unchanged GAAP net income of $75 million to $83 million. But GAAP earning per share will be higher. The new forecast calls for $1.18 to $1.30 per diluted share, up from $1.12 to $1.24 per diluted share.

On-demand viewing is convenient, to be sure. But there are countervailing values as well. On-demand purchases introduce an element of uncertainty into monthly budgeting of expenses. On-demand rentals can be cash transactions, with no later unexpected financial impact. It's an underestimated value for physical rentals rather than on-demand purchases.

Flat rate is important for many consumers. So is the "unlimited" number of titles one can buy on some Netflix plans. That adds more value. Think of how parents view texting charges. Why do so many people buy relatively large plans? Because they don't want overage charges.

On-demand viewing leads to "overage" charges. Flat-rate or "cash on demand" services eliminate that uncertainty.

Citizens Sees Slowdown in California and Arizona

It's just another small data point, but Citizens Communications says it does detect a slowdown in sales it believes is related to economic sluggishness in areas serving about 12 percent of its customers.

"We do see a slowdown in the economy in our California and Arizona markets," says Maggie Wilderotter, Citizens Communications CEO. And it seems to be housing related.

California and Arizona are "the only two markets that we have that have definitely had the housing issues," Wilderotter says.

"So, from the gross add perspective, what we have seen is a slowdown in gross adds out there, but it is not about the competition necessarily getting them," she notes.

"It is also about housing remaining vacant at the moment until inventory starts to get absorbed," Wilderotter says.

So what might be notably different about this particular dip in economic growth, compared to earlier slowdowns the telecom and cable industries have weathered, is the overhang of unsold homes whose owners might be disconnecting services.

That doesn't mean disconnection or downgrades at the primary residence, but at the second or investment homes.

So far, though, Citizens hasn't seen anything material in terms of bad debt on the small business side of its business. That's important, as small businesses represent roughly 50 percent of company revenues, and about 92 percent of our business customers.

Slowdown Coming, But It Won't Affect Us, Execs Say

Though Goldman Sachs analysts now forecasts that U.S. IT spending outlook for the remainder of 2008 will slow perhaps two points compared to 2007 levels--meaning growth will come in at fiver percent rather than seven percent--IT suppliers predictably say the slowdown won't hurt their firms.

Executives "said that while they’ve seen some small impacts from the U.S. economy with respect to IT spending, there is little to fear in the bigger picture," reports eWeek reporter Reness Boucher Ferguson.

The good news for IT suppliers is that a decline this time is simply a slowing of the rate of growth, not an actual negative downturn. The rationale is that IT spending in recent years has tracked fairly closely with gross domestic product, growing just a bit faster than GDP.

Of course, what else would you expect a CEO to say? It's a bit like running into associates in the hall at a trade show, and asking them how business is. No matter what the reality, the answer always seems to be that "business is great."

And since GDP is forecast to grow at about 3.5 percent for 2008, IT spending should come in above that rate.

IT spending is a different thing from communications spending, to be sure. There is no linear extrapolation from the one to the other. But neither are the two types of spending completely uncorrelated. A deceleration from seven percent growth to five percent growth isn't a disaster by any means.

Dish Network Reports Slower Growth

Dish Network experienced slower subscriber growth during 2007, though it is hard to separate out the impact of better performance on this score by competitors, internal issues, slower housing starts and macro economic factors. “During 2007, our subscriber base continued to grow, but at a slower pace than in previous periods,” the company says.

“We believe that our slower subscriber growth was driven in part by competitive factors including the effectiveness of certain competitors’ promotional offers, the number of markets in which competitors offer local HD channels, and their aggressive marketing of such advantages," the company says.

In part, Dish Network was hampered by a delay in the launch of new satellites to support high-definition services. The company argues that the delay lead to gains by competitors better equipped to deliver lots of HDTV signals.

Dish executives also say subscriber growth was affected by worsening economic conditions which included a slowdown in new housing starts.

But there also were "operational inefficiencies" as well, and piracy and other forms of fraud seem to have been issues as well. All of those developments "affected both the growth of new subscribers and the churn of existing customers," Dish says.

Although video entertainment traditionally has been viewed as "recession proof," that thesis might be tested this year if there in fact is an economic slowdown underway, or starting. The problem is that economists need six months worth of data to declare that a recession started, six months earlier. We might not know for sure until the summer or fall whether that is the case.

Any one of the aforementioned developments could lead to slower growth. The problem is that it isn't clear how important each of the factors was. Given the number of new HDTVs being sold, it is conceivable that relative lack of HDTV programming alone could account for slowing growth, even if the other forces were not at work.

To some extent, the satellite delay is simply bad luck. But the fraud issues ought to be largely under Dish Network's control.

Neither are housing starts under company control. The issue is that more weakness likely will follow, not because of housing starts, but because in many markets owners seem to be selling second homes bought largely as investments. In the interim, it is likely many of those locations will be disconnecting some services.

If a slowdown in growth continues, it will be tough to figure out, in retrospect, what actually caused the slowdown, as several forces are operating at once, at least at Dish Network.

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.''