Skype Competitor? Carrier Voice Peering?

AT&T, in conjunction with some 10-15 incumbent telecom carriers, said to include British Telecom, Deutsche Telecom and NTT among them, is plotting to launch a Skype competitor, according to ThinkEquity analyst Anton Wahlman.

It's a speculation at this point, but note that BT has discontinued its original BT Communicator and is rolling out a new soft client on May 28, which removes free calling functionality to people who are not users of the new BT soft client, using BT broadband access.

At the very least, the move suggests an attempt to tie soft client use to BT's broadband access service, which also would be a logical move for any broader consortium of carriers. Basically, it would be a big move into voice peering.

Some observers say carriers will have a hard time creating such a venture. Others say disruption, even to such a popular application as Skype, is less a hurdle than many think.

To answer the obvioius objection that carriers will not want to cannibalize their own long distance calling revenues, the requirement to buy broadband access from one of the participating peering members is the answer. Lost revenues on global long distance hopefully are balanced by increased uptake and reduced churn for carrier broadband offerings.

TalkPlus Next for Dead Company List?

Om Malik says TalkPlus is in danger of tanking. Michael Toepel, who was the CEO, recently left after the company failed to get new investment to keep it going, Malik notes.

Cbeyond Illustrates Channel Trend

Cbeyond's experience selling Microsoft applications and BlackBerry wireless services illustrates a trend in sales of telecom-related products. As it turns out, increased product complexity, and a broader range of new products, is leading to disproportionate sales results. To be specific, most of Cbeyond's application and wireless sales are made either by its direct sales force or by more-technical solution providers, rather than by Cbeyond's other channel partners.

That matches with what most service providers report: that IP services require more technical knowledge, and possibly more technology capabilities, than has been the case in the past. That portends changes in channel partners. Namely, more reliance on value-added resellers and value-added distributors, consultants and system integrators; less reliance on other partners.

Cord Cutters Now 14% of U.S. Adult Users

About 14 percent of U.S. adults are cord-cutters, using wireless-only voice, up from about 10 percent in 2006. The percentage of adults with landline phones also has dropped slightly to 79 percent from 81 percent over the same period, according to Harris Interactive.

Vonage: Better News

Vonage's financial performance in its most-recent quarter was better than it has seen in some time. Revenue was up 15 percent year over year and up four percent sequentially. The company reported positive operating income compared to a double-digit loss in the same quarter last year. Average revenue per user was up, both year over year and sequentially.

One might still question how well Vonage will do compared to cable VoIP customers, but the market is growing. According to Harris Interactive, VoIP use has increased to 15 percent of U.S. users.

Vonage also inked a deal with Covad allowing Vonage to offer a dual-play offer including 3 Mbps or 6 Mbps digital subscriber line service in addition to voice. It isn't immediately clear how many potential customers will want to use Covad's "voice optimized" access, but that will improve user perception of voice quality.

Vonage Holdings Corp. recorded revenue in its first quarter 2008 up 15 percent from $196 million in the first quarter 2007 and up four percent sequentially, driven by an increase in subscriber lines and higher average revenue per user. Vonage also reported a GAAP net loss of $9 million, down from a loss of $72 million in the first quarter 2007.

Adjusted operating income was $8 million in the quarter, a significant improvement from an adjusted operating loss of $58 million in the year-ago quarter.

Average monthly revenue per line in the first quarter 2008 was $28.85, up from $28.31 in the year-ago quarter and $28.19 reported in the fourth quarter 2007. Average monthly telephony services revenue per line for the quarter increased to $27.87, up from $27.36 reported a year ago and up from $27.42 sequentially.

On a per line basis, average direct cost of telephony services was $7.26, down from $8.03 in the year ago quarter and up from $7.11 sequentially.

Direct cost of goods sold was $22 million, up from $13 million in the year-ago quarter and $17 million in the prior quarter as the Company utilized a large portion of its remaining inventory of higher cost CPE devices. Direct marginn remained flat year-over-year at 65 percent.

Selling, general and administrative expense was $79 million, down from $91 million in the year-ago quarter, and flat sequentially.

Marketing expense for the quarter was $61 million, or 27 percent of revenue, down sharply from $91 million, or 46 percent of revenue, a year ago, and down from $63 million, or 29 percent of revenue, sequentially.

Marketing cost per gross subscriber line addition was $216 in the first quarter 2008, down from $273 in the year-ago quarter and $223 sequentially.

The company expects SLAC to increase in the second quarter, consistent with prior year seasonal trends. Vonage expects to gradually increase marketing expenditures in the second half of 2008 to accelerate growth but continues to expect the cost of acquisition to fall within $225-$250 for the full year 2008.

Vonage added 30,000 net subscriber lines in the first quarter 2008 and finished the quarter with more than 2.6 million lines in service.

Vonage also announced a relationship with Covad whereby Vonage will offer a DSL service to both residential and small business customers. The Company expects this new service, called Vonage Broadband, to be available to customers by the end of the year.

Average monthly customer churn increased to 3.3 percent in the first quarter 2008 from three percent in the fourth quarter 2007. The company says it believes it has improved customer service enough that lower churn will result, in the second quarter.

85.9 Million U.S. Social Networkers This Year

eMarketer forecasts that mobile social networking will grow from 82 million users in 2007 to over 800 million worldwide by 2012.

"This population will comprise current online social networkers who are extending their digital lives to mobile as well as a growing number of mobile-only social networkers," says John du Pre Gauntt, eMarketer senior analyst.

In fact, mobile might be the best way to interact with social networks, if you think about it. Since much social networking is about where you are and what you are doing, it makes sense that the always-with-you mobile is going to spur more-frequent interactions. It's somewhat akin to what happened with picture taking when mobiles routinely were outfitted with cameras. People started taking more pictures.

For example, MySpace recorded over seven million unique visitors to MySpace Mobile in the United States in the six months since launch. "It wasn't until we rolled out m.myspace.com that we got a sense of how powerful demand was for MySpace on cell phones," says Brandon Lucas, MySpace senior director.

As the user base grows, marketing and sales professsionals will start to pay more attention to how to take advantage of the sharing effects.

iProvo Sells Network to Broadweave Networks

Provo, Utah's citywide fiberoptic network has been sold to Broadweave Networks, a local company that hopes to make a business out of triple-play services where Provo had not been able to do so. The network, called iProvo, was the largest municipally-owned fiber-to-the-premises network in the United States, reaching all 36,000 residences and businesses within the city.

Up to this point, Broadweave has served the Traverse Mountain planned community of 8,000 homes and 4.5 million square feet of office and retail space across 3,000 acres in Utah's technology belt. So the acquisition gives Broadweave about four times more homes passed than it currently has access to.

Broadweave will purchase the fiberoptic network for $40.6 million, which is enough to retire outstanding bonds incurred by Provo to build the system.

Under the terms of the deal, which is subject to municipal council approval, the city retains a license to use the network to connect city buildings, schools, and power infrastructure. Broadweave will operate as a retail provider, rather than as a wholesale provider of transport to third parties and says it will put more emphasis on services aimed at business customers.

One might draw several conclusions from iProvo's experience so far. Some will argue that overbuilders are going to have a tough time competing against both cable and telephone companies offering triple play services.

Others will say the sale shows municipalities really should not be running communication networks. Some will point to other fiber access networks in the Salt Lake City and Provo regions and argue that neither wholesale nor retail strategies have worked well.

The issue is what Broadweave's new management thinks it really can do to improve financial performance. One of the salient features of most networks serving entire communities is that there is an 80/20 rule for revenue. A small number of neighborhoods actually produce most of the revenue.

In fact, some studies suggest that as few as five to seven percent of neighborhoods of 500 homes or so produce half the revenue created by an entire citywide network. And the same sort of thing is true for business revenue as well. So it might not be so easy to boost revenues.

Broadweave will gain some scale benefits, though the difference between 8,000 and 44,000 might not be as large as you might think. Programming contracts won't be noticeably affected. There might still be a need for two headends. Installers can only do so many jobs a day. Some marketing and other overhead can be spread over a wider base of customers, of course.

Still, operating cost savings are unlikely to change the financial picture all that much. Only significant new sales volume is going to change the current iProvo financial model.

$10 Billion Annual Mobile Enterprise App Spending

More than 90 percent of enterprise mobile applications spending is now focused on mobile email and messaging, but the percentage of spending on mobilizing other critical enterprise applications -- many of them broadband-optimized -- will increase rapidly over the next five years, according to Pike & Fischer. The research house projects 2012 spending on mobilizing such applications as customer-relations management and sales-force automation will exceed $10 billion annually.

Add Jangl to the Dead Company List

Jangl, the Internet phone company is being closed down, after efforts to find a buyer failed. Most of the team are joining Jajah.

What Cable, Google Get from Clearwire, Sprint

Google and several cable operators got some goodies in addition to equity in the new Clearwire national WiMAX network. And the advantages do not come from WiMAX, but from the Sprint 3G network.

Briefly, Google apps (YouTube, Google Maps, Gmail) get premiere placement on some Sprint devices, while Google Web, local search and location information become the default options for Sprint data customers.

The cable operators become resellers of Sprint 3G services, including voice. So now the three operators will be able to construct quadruple play services. That is the more important development, as interesting as the Clearwire resale agreement is. In the near term, cable operators need a viable mobile voice option more than they need a future mobile broadband option.

To be sure, Google and the new cable investors will become resellers of the WiMAX network as well.

Google will partner with the new Clearwire in the development of Internet services, advertising services and applications for mobile WiMAX devices. In addition, Google will be the search provider and a preferred provider of other applications for the new Clearwire’s retail product. As an open network, anybody can "partner" with Clearwire to develop applications or supply devices. But Google is a "preferred" and "default" provider, which historically has real value in the mobile arena.

The new Clearwire will support Google’s Android operating system software in its future voice and data devices that it provides to its retail customers.

But Sprint and Google have also entered into an agreement whereby Google will become the default provider of web and local search services, both of which will be enabled with location information, for Sprint, as well.

Sprint will also preload several Google services, including Google Maps for mobile, Gmail and YouTube, on select mobile phones and provide easier access to other Google services.

Comcast, Time Warner Cable, and Bright House Networks will be resellers of Clearwire’s mobile WiMAX service. More important, over the near term, all three cable operators now will become wholesale retailers of all Sprint 3G services, including voice services.

Clearwire is getting the attention. But Sprint 3G will be where the action is.

Qwest 12 Mbps, 20 Mbps is Resonating

Of the 90,000 the net additions Qwest had for high-speed access in the most recent quarter, 13,000 (14 percent) of them were related to the new fiber-to-the-node build-out. You might think, "so what?"

Those customers were gotten in just 30 days, in the last month of the quarter, so it appears there is strong demand for a higher-speed (12 Mbps or 20 Mbps) product.

Qwest also appears to be readying an "over the top" video on demand service in conjunction with DirecTV, which already supplies Qwest linear entertainment video services. That would make perfect sense for both companies. DirecTV needs more bandwidth on the ground to serve up an effective VOD service, and Qwest has the bandwidth.

Qwest also has been an effective retail partner for DirecTV services, so the any new offer would make sense to consumers who already buy DirecTV from Qwest.

"We are hopeful to take advantage of video on demand with our DirecTV," Mueller says. Qwest is "preparing for the natural synergies between their video on demand product to launch this year and our investment in broadband capabilities."

And high-speed access prices will rise. "We will do price increases, that is our plan," says CEO Ed Mueller. The logical path is to create higher-speed tiers and then charge more for them. People understand that sort of packaging.

Qwest Report "Steady" Results

Under the current challenging circumstances, "typical" or "normal" performance is a good thing. And Qwest Communications International reported "steady operating results" for the first quarter of 2008. Adjusted EBITDA totaled $1.14 billion with adjusted EBITDA margins of 33.6 percent as data, Internet and video revenue grew by nine percent compared to the first quarter of 2007.

Broadband subscriptions were up 17 percent year-over-year while video subscribers were up 42 percent, year over year. Total data, Internet and video services revenue now represents nearly 40 percent of operating revenue.

The business market segment reported revenue of $995 million in the first quarter, up 3.1 percent year over year as data and Internet revenue grew 6.9 percent. Data and Internet revenue grew 29 percent over the same period a year ago.

Mass markets revenue was $1.48 billion in the quarter, a 0.7 percent decline compared to the prior year. Data, Internet and video revenue growth of 20.7 percent was offset by declines in both voice and wireless services.

Consumer average revenue per unit increased 7.8 percent to $55 from $51 a year ago. Qwest Broadband subscribers increased 90,000 in the quarter to reach 2.7 million, up 17.2 percent from a year ago.

Wholesale Markets reported revenue of $841 million in the quarter, down seven percent year over year largely due to long-distance revenue pricing and supplier consolidation. Data and Internet revenue was up three percent year over year.

Vodafone U.K. Lowers Data Barriers

Vodafone UK has created a new plan that aims to remove the barrier to use of mobile email and mobile Web access, allowing 500 megabytes of data use each month on plans costing GBP 25 or more.

Postpaid customers who take a GBP 40 or higher package also will be offered a choice of unlimited text messages, unlimited landline calls or unlimited Vodafone to Vodafone calls, as well.
This move essentially sweeps away the last remaining cost barriers to entry for both mobile email and the mobile Internet, helping Vodafone UK to make mobile data more applicable to the mass market, says Emma Mohr-McClune, Current Analysis principal analyst.

The new plan will encourage more users to experiment with the mobile Internet. For customers who do not want the mobile data feature, Vodafone allows a monthly discount of GBP 5.

Standalone mobile data pricing currently runs about GBP 7.50 a month, Mohr-McClune says. "This is the first time" that a U.K. operator has offered bundled mobile Web access and email across its entire pay monthly portfolio, starting at GBP 25 per month.

French Broadband at 94% of Internet Users

One of the enduring claims observers make about the state of U.S. broadband is how woeful it is compared to other nations around the world. Consider France, which deregulated its telecommunications market in 2004, leading to heavy competition. In fact, broadband now is nearly synonymous with Internet use.

In March 2008, 93.5 percent of at-home Internet users in France enjoyed a broadband connection to the Internet, down slightly from the 94.2 percent who did so in the previous year. That's significant. The primary reason consumers buy broadband access is to use the Internet. Someday that will change, but right now broadband really is a way PCs can connect to the Internet.

So 94 percent of all home users of the Internet use broadband to do so. That's serious penetration. So note that about 52.4 percent of French homes had a broadband connection in 2007. That's a bit higher than U.S. broadband penetration, which is just about at 50 percent.

The point is that France has been highly successful at getting broadband adopted by Internet users. Fully 94 percent of all Internet users have broadband.

But note that household penetration is about 52 percent. There seem to be more dial-up users in the U.S. market than in France. But the point is worth noting: household penetration might not be the best way to measure penetration.

A household that doesn't use the Internet is hardly a candidate for broadband aimed at Internet users. The more relevant measure is how far broadband has penetrated homes where the Internet actually is used.

Apple iPhone Sales to Blow Through Roof?

As reported by Silicon Alley Insider, RBC analyst Mark Abramsky thinks Apple will sell 14 million phones this year, up 40 percent from his previous prediction of 10 million and more than eight times the 1.7 million phones the company sold in the first three months of the year. He also thinks Apple will sell 24 million iPhones in 2009.

The 3G model will help. So will new carrier deals in Europe and Asia, broader consumer interest thanks to Apple's forthcoming apps platform, and broader corporate interest.

He also thinks Apple might drop or reduce exclusivity requirements in some markets. This would let people buy iPhones without being forced to use Apple's hand-picked carrier partner.

He also thinks Apple will allow carriers to subsidize pricing, and also will allow sales of unlocked phones.