International LD Gets More Mobile

At least where it comes to international long distance, sometime in 2009 it is conceivable that more calls will terminate on mobiles than on fixed lines, according to researchers at TeleGeography.

That doesn't mean most international calls will originate on mobiles, though. One of the dominant patterns will be landline origination, mobile termination.

The reason users and service providers will care about such trends is that retail prices and intercarrier compensation rates are based at least in part on what sort of network terminates a call. So changes in termination patterns directly will affect revenues that accrue to various providers of terminating service.

If You Build Will They Come?

Though it now is apparent communications service providers will have to become managed service providers over the long term, the way the need for viable applications is discovered, thrid party applications can be developed and sold remains a thorny problem. 

And the problem is measurably harder on the mobile side of the business, if only because applications have be tweaked for every handset the apps are supposed to run on. For this reason, some developers may well find it is easier to work with fixed line providers, as crazy as that might sound. 

Nor is it going to be especially easy for independent developers to get business deals done. "For two guys in a garage to make five different code applications, it's very hard," says Mark Kvamme, Sequoia Capital principal. 

The dream is to have any application run on any device and over any network. Ideally that allows developers to concentrate on what engages end users, instead of how to develop and deliver the apps. Platforms with large user  bases will help. The Apple iPhone is the best current example, though many have hopes for Google's Android OS as well. 

But business models remain a challenge as well, as it is doutbtful advertising will support most of the new apps developers expect to make available. That means subscriptions, which in turns means a really-compelling value proposition and serious willingness to pay. Few apps so far have that sort of status. 

For that reason along, a focus on business apps would seem to make sense, though the thought probably is unappetizing for many developers. 

All of which suggests the managed services business has a rather large opportunity before it, if some of these obstacles can be surmounted. Namely, make the process of aggregating demand, then authoring and delivering services--with huge scale--and simply. 

How Should VARs Sell Carrier Services?

Many solution providers these days would at least consider adding carrier sales to their product mix, providing the business case makes sense. But the actual sales model any particular solution provider should—or can—take will depend on several factors, say executives at Level 3 Communications, including:

• The current size of a solution provider’s customer base

• Rate of new customer growth

• Typical customer requirement for support at one or multiple locations

• Geographic scope of a solution provider’s operations

• Alignment to current solution provider strategy and focus

In broad outline, the “go to market” strategy will have smaller local VARs profiting from a “referral” or “assisted sale” fee arrangement. Some solution providers will consider becoming sub-agents. Solution providers serving multi-location enterprises will become carrier sales agencies

The new sales operations to sell carrier services can take several forms, Level 3 says.  If the agency route is selected, smaller organizations will train existing staff. Larger organizations may hire personnel with carrier sales experience. 

If a solution provider decides to take a less-extensive role, solution providers may choose simply to make referrals. In a more-substantial role, solution providers might become sub-agencies affiliated with a master agency.

There is no single business arrangement that makes equal sense for every solution provider. The typical smaller value added reseller with perhaps a dozen employees or less, working in a single metropolitan market, may not generally find that a feasible route, and might well opt for a referral fees model.

Broadband Stimulus Coming?

The Telecommunications Industry Association and Communications Workers of America have sent U.S. congressional leaders the outlines of a broadband deployment incentives program which they suggest be made part of any economic stimulus package passed by Congress early in the new year.

The proposal emphasizes tax incentives and direct grant. Specifically, the groups suggest allowing wireless broadband deployments to expense 75 percent of investments. Alternatively, the groups suggest a 15 percent investment tax credit for networks capable of 1.5 Mbps downstream/384 kbps upstream.

They suggest and 100 percent expensing or a 20 percent investment tax credit for new infrastructure capable of 3 Mbps downstream/1 Mbps upstream. the groups also recommend a 40 percent investment credit for a network providing 5 Mbps downstream/1 Mbps upstream.

For fixed broadband infrastructure, the groups suggest 50 percent expensing or a 10 percent investment tax credit for networks capable of 3 Mbps downstream/1 Mbps upstream, 75 percent expensing or a 15 percent tax credit for 25 Mbps downstream/5 Mbps upstream, or 100 percent expensing or a 20 percent tax credit for 50 Mbps downstream/20 Mbps upstream infrastructure.

They further propose a 40 percent investment tax credit for a network providing 100 Mbps downstream/20 Mbps upstream.

For satellite broadband infrastructure, which plays a special role in national broadband deployment, tax benefits associated with particular service capabilities remain to be determined, the groups now say.

The groups argue for investment in four segments: fixed broadband, wireless broadband, satellite broadband and broadband core and backbone transport.

The proposal also suggests “direct grants” for rural broadband deployments. TIA suggests a $25 billion grant program for deployment of broadband infrastructure in unserved areas.

Consumer Recession Behavior Still Consistent

In some ways, consumer behavior is similar to past behavior in recessions, a Parks Associates survey finds. What is similar is the greater--not lesser--reliance on multi-channel video services.

What is different is the bigger role for video on demand, especially of the "free" or "subscription" variety.

One suspects, though data is not yet available, that roughly the same sort of trend will be seen in the mobile and broadband access areas as well. People aren't going to disconnect. But they might shift buying a bit, delaying upgrades or purchases of advanced features and services.

Viral Works

Social media marketing might be more effective than just putting ads on social networks, according to SheSpeaks. The reason? Though women are active social networkers, a substantial percentage ignore ads or are annoyed by them. About 26 percent of respondents to a recent SheSpeaks-sponsored survey actively ignored most online ads and 20 percent were annoyed by ads on social networking sites.

For that reason, SheSpeaks argues that social media marketing—not just ads on social networks—could be especially effective among women for spreading word-of-mouth information.

About 46 percent of all women surveyed by SheSpeaks now use social networks. And since most observers note that Internet use and social networking are more common among younger users than older users, it probably is noteworthy tht more than 40 percent of women in their 40s have a social networking profile, and women with children seem to be active social networkers.

More than 70 percent of women with children ages 13 to 17 had talked about products on social networks, compared with 62 percent of all responding women.

“40-somethings are active users and members of online social networks,” says Aliza Freud, CEO of SheSpeaks, in a statement. “These women have started to use the Web and social networks in ways that mirror the rest of their lives—from finding out about a product to shopping or monitoring their children’s activities.”

Female Internet users ages 45 to 54 are a larger audience than male Internet users of the same age, according to comScore Media Metrix. There are also far more female Internet users ages 45 to 54 than there are ages 55 to 64.

When Bad People Use Good Technology

Technology now plays a key role in enabling terrorists, says New York Times reporter Jeremy Kahn. The attackers studied satellite images of the city online, navigated using the global positioning system, used a satellite phone and VoIP. In fact, VoIP was used during the Mumbai hotel attacks during the occupation of at least one hotel to keep terrorists aprised of security force movements, Kahn notes.

Indian security forces surrounding the buildings were able to monitor the terrorists’ outgoing calls by intercepting their cellphone signals. But Indian police officials said those directing the attacks, believed to be in Pakistan, were using a VoIP phone service that has complicated efforts to determine their whereabouts and identities.

In mid-October, a draft United States Army intelligence report highlighted the growing interest of Islamic militants in using VoIP, noting recent news reports of Taliban insurgents using Skype to communicate. 

Some people reflexively complain about electronic surveillance and privacy, which are reasonable concerns. Despite being unable to name a single instance when a a lawful U.S. citizen's use of technology has proven to be a problem, those same people would deny intelligence agencies the tools they need to prevent attacks or catch perpetrators. 

Several hundred innocent people are dead. A bit of balance would be nice. 

Recession ARPU Impact: This is Why

Alan Weinkrantz over at 3Screens.com makes a point that illustrates the likely impact of the current recession on retailers of voice, data an video services to consumer customers: average revenue per unit is going to be under pressure. Weinkrantz points out that he reduced his triple play billing from $164 to $94 per month by threatening to churn to another provider. 

"You just have to call 800-288-2020 and ask for a discount by telling them you are thinking of switching to your local cable or satellite provider," he says, saying that his U-verse Voice service pricing went from $35 to $25; U-verse 400 went from $99 to $59 and 

Broadband Elite went from $30 to $10. The discount is good for six months. 

"I told them to note it on my record that I was going to call back in May to ask for the same thing again," he says. 

53% of American Adults are "Gamers"

Some 53 percent of American adults age 18 and older play video games and about one in five adults (21 percent) play everyday or almost everyday. While the number of video gamers among adults is substantial, it is still well under the number of teens who play. Fully 97 percent of teens play video games.

Younger adults are considerably more likely than older adults to play games, and the likelihood that an adult is a video gamer decreases significantly with age.

Fully 81 percent of respondents18-29 years old play games, while only 23 percent of respondents 65 years old and older report playing games, according to to a recent Pew Internet & American Life Project poll.

Overall, men (55 percent) are slightly more likely than women (50 percent), and urbanites (56 percent) are a bit more likely than rural-dwellers (47 percent) to play any kind of digital game. There is no significant difference in game playing across income groups or between suburbanites and adults from other locales.

A person’s education level is another predictor of video game play. Some 57 percent of respondents with at least some college education play games, significantly more than high school graduates (51 percent) and those who have less than a high school education (40 percent).
Current students who are 18 or older are also avid players. Notably, 76 percent of students (82 percent of full-time and 69 percent of part-time students) report playing games, compared with 49 percent of non-students.

AT&T Will Hit 10% Video Penetration in December 2008

AT&T now says it will end the year with more than one million U-verse (multi-channel video) subscribers. The company expects to surpass that milestone in mid-December. That is important for people who track progress telcos are making in the video market, which is the mirror image of telcos losing voice customer share to cable companies.

At that level, AT&T will have surpassed 10 percent penetration within one year when we begin marketing operations. That itself is a milestone on the way to stable long-term penetration for wired network providers, which has in some other cases reached 30 percent or higher levels in a few markets where there is robust multi-channel video competition. Verizon has attained that level in some of its FiOS video markets, for example.

Most telcos probably think they will get to 20 percent in several years. Verizon already has hit about 24 percent penetration where it offers FiOS video. On average FiOS TV achieves 17 percent penetration in just 12 months and over 26 percent penetration within two years, Verizon reported in the third quarter of 2008.

Covad Certifies PBXes

Covad Communications has certified IP PBXs from TalkSwitch, Grandstream, Vertical and Epygi for its new Covad Integrated Access service.
 
IP PBXs certified by Covad include:
* TalkSwitch IP PBX equipped for VoIP (models 244/248vs, 284/288vs,  484/488vs and 844/848vs)
* Grandstream GXE502X ALL-IN-ONE IPPBX 
* Vertical Xcelerator IP
* Epygi Quadro 2x and Quadro 4x IP PBX

Mass Media Will Miss the Bottom...Again....

Count on the mass media to miss the "bottom" of the present recession: they always do. You now are seeing headlines about layoffs at larger and mid-sized companies.
Economists now say we have been in recession since December 2007. The only good news there is that one year of the recession already has passed.

So whether you think this is a garden-variety recession or a longer one, the average recession lasts 18 months. By the end of the year we'll have been in recession a full 13 months. And layoffs always are a lagging indicator.

So as you note news reports about job losses, keep one thing in mind: when we reach the peak of the job losses, the recession will have hit bottom and the recovery will have begun.

Peak job losses in the 2001 recession were 325,000, which were reported in October, the last month of that recession. Peak losses during the 1990-91 recessions—306,000—were reported in February 1991, again one month before the recession ended.

During the 1981-82 recession, peak job losses were 343,000, a figured reported four months before the end of the recession. A bottom in the labor market often indicates the near bottom of a recession, since employment is a lagging indicator.

There are implications for service providers. Though not every company is as cash rich as Cisco or Apple, opportunities to take market share or reshape a market always present themselves in a recession.

And there is clear evidence that in some customer segments, such as small business, hiring actually increased every month of 2008, says SurePayroll, a company that makes its living processing employee payroll checks (through the end of November, the last month where data is available).

Hiring tends to drive increased buying of communications products, so whatever weakness you think you will see in the enterprise segment, small business trends could well be quite different.

Small Business: Conventional Wisdom is Wrong

With all the bad news we are hearing, the conventional wisdom is that small businesses will be cutting back on hiring. As sometimes occurs, the conventional wisdom often is wrong. Keep in mind that economists now have concluded the U.S. economy has been in recession since December 2006.

So what might surprise you is that SurePayroll, a company that makes its living processing employee payroll checks, hiring in the small business segment climbed steadily through 2008.

What that means for providers of communications services to small businesses is that underlying demand in the small business segment grew all year in 2008.

After the carnage of October 2008, one might have expected, and news reports suggest, a wave of layoffs starting in November 2008. But SurePayroll says U.S. small businesses increased their staff levels by 0.26 percent in November. “It was the second lowest percentage increase this year, but it extended the run of monthly hiring increases to an impressive twenty-four months,” the company says.

The SurePayroll Hiring Index, which tracks the size of small businesses, ended the month of November at 11,249, which is 30 points higher than where the index stood in October.
For the first 11 months of 2008, when the economy was definitively in recession, small business hiring went up 3.3 percent nationwide.

Hosted IP Telephony: No Pain; No Gain

Retailers of hosted IP telephony (hosted PBX) services to small and medium-sized businesses have a problem, and it isn't the economy or other competitors.  The big problem is that most users are fairly satisfied with their current phone solutions. 

"Most users do not have problems with their current phone system," Andy Randall, MetaSwitch VP, notes. And that is a big barrier to adoption of hosted IP telephony. If there is no problem, there is no reason to buy an alternative solution.  

Essentially, the problem is that, in many cases, there is no current "problem" to fix. The "problem" essentially be created, though. If a potential customer finds out that they are "overpaying" by quite some amount for their voice and broadband access services, that becomes a problem. 

So one essential requirement here is to "create" a big enough problem that hosted IP telephony solves. Keep in mind that most smaller businesses essentially can compare any new solution to what they already are paying. And that metric typically boils down to a cost per employee per month. 

Randall  thinks providers of hosted PBX services to small and medium-sized businesses need to price at about $30 to $60 per employee per station to disrupt the value-price relationship now offered by current voice-plus-data services already bought by SMBs. 

The reason is that most SMBs today are spending from $29 to $125 per employee per month for voice and data access. At about 15 stations, hosted IP telephony generally costs $$56 to $106 per employee per month. At that rate, a new hosted IP telephony offer does not save SMBs money. And though new features are important, the biggest single objection to a sale is going to remain that the new solution, despite its benefits, does not save money. 

Since users expect hosted IP solutions to save them money, retail providers are trying to push a boulder uphill. "Where's the business driver?" Randall rhetorically asks. If a premises doesn't save an SMB money, and neither does a hosted PBX solution, there is no great incentive to change. "Disruption requires moving lower than $56 to $106, per employee, per month, for the total broadband access and voice offer, Randall argues. 

IP trunking also will be important for SMBs that really do not want to replace their current desk phones for new IP models. In part, SIP trunking can be a stealth adoption strategy. "Some people will keep their PBX for a few years," Randall says. "So sell the IP trunk today and then sell hosted voice later when the customer is ready to replace the TDM sets."

For 15 employees, a hosted IP telephony solution, plus the broadband, possibly costs $86 per employee per month, Randall says. The problem there is that it is tough to show savings from switching. And for any technology, whatsoever, the key is that the proposed new solution has to offer enough value to offset the pain level of the current solution.

The "problem" hosted IP telephony is supposed to fix is not generally perceived by the potential customer to be a "problem."  For most SMBs, the phone system they have works. There is not an obvious "crisis" that the hosted IP telephony solution can solve. 

And despite what most technologists tend to think, people don't change behaviors and adopt new technology because something about the solution is "10 times better" on some technical measure. What has to happen is that the pain a potential customer currently is experiencing can be alleviated by changing. 

At current pricing levels, lots of potential customers will not be persuaded to change because the level of pain is not so high. "The main competitor any retailer of hosted IP business voice faces is 'business as usual,' not some other competitor in the market," Randall says. 

One More Reminder: WiMAX is Not a Business Model

Clearwire CEO Benjamin Wolff says the network will built to support both WiMAX and Long Term Evolution, the "rival" standard favored by the world's GSM providers and even CDMA-based networks such as Verizon Communications.

"Our vendors will be able to deliver network infrastructure equipment to us that will enable us to operate both mobile WiMAX and LTE technologies if we decide that it makes sense to do so several years from now when LTE becomes commercially available," says Wolff.

"If LTE truly becomes established as a global standard as WiMAX has, Clearwire will be well positioned to take advantage of that opportunity," says Wolff.

Though sometimes obscured by the hype, WiMAX is broadband radio access. It is not a business model. Clearwire's willingness to use both protocols is simply further proof. If there is a new business model to be built, it will come from packaging, pricing and other elements that would create something like an open broadband wireless Internet experience, akin to what users can do today with 3G dongles for their PCs, but also including new "end user" segments, devices or applications.

Still, it is far from clear that even if Clearwire succeeds at doing those things, it will be alone. Verizon Communications has been quite vocal about opportunities for machine-to-machine applications, which would indeed open up new "end user" segments. And as we have seen time and time again, it isn't all that hard for one provider to mimic another provider's packaging, pricing or device features, if it is necessary.

Clearwire probably has something between a one-year advantage to two years worth of advantage on the "raw bandwidth" dimension. That won't provide much of a differentiator for long. To be sure, Clearwire has plans that would move it further away from the current mobile narrowband or broadband packaging model.

What remains untested is the size of the problem and the amount of "pain" users now face in the mostly-closed mobile broadband model. Technologists might experience "closed" environments as a pain point. Most users do not. More flexible, casual pricing arguably addresses a bigger pain point: the desire to occasionally use features.