Smart Phones, Broadband: Less and More, Respectively

One never should mistake media hype for end user reality. At the moment, perhaps 10 percent to 11 percent of U.S. adults actually use an iPhone, a BlackBerry or any other "smart phone." Most of the market has yet to adopt any smart phone.

Conversely, the mass media, and some within the specialized communications media, continue to insist that there is a major problem with broadband access. There are isolated issues, to be sure. But 70 percent of U.S. adults now use the Internet. Average household size is about 2.59 per home. About 74 percent are 18 or older. So adjust the household stats to 1.9 adults 18 or older per home.

Assume those 1.9 adults share a single fixed broadband connection at each location. In other words, a 70-percent "per capita" use of fixed broadband does not directly translate to "70 percent household penetration."

Conversely, 30 percent of U.S. adults do not use the Internet, according to Rubicon Consulting. Assuming those non-Internet-using households have the same average size as Internet-using homes, one might roughly assume that broadband penetration of U.S. adults is less than 70 percent, as studies suggest perhaps six to 10 percent of Internet users use dial-up connections.

Assume dial-up households also have the same size characteristics as Internet-using and no-Internet households. Then we might argue that between 60 percent and 64 percent of U.S. households now buy fixed broadband service. But those 60 percent to 64 percent of U.S. homes represent more than 90 percent of all Internet users.

In fact, if one adds users who use broadband at work, at libraries, using public Wi-Fi or mobile broadband, it is likely that more than 95 percent of all Internet users in the U.S. market already use broadband access the way they would prefer, given all their other buying choices.

The point is simply to keep in imind that what people talk about in the media is not necessarily fully reflective of reality.

Smart Phones Start to Differentiate, Because Users Do

Smart phone uses are starting to self sort themselves by lead application, it now appears. Though much could change as adoption becomes more mainstream, it now appears that Apple iPhone users value Web access while RIM BlackBerry users value email. To a lesser extent, Palm users favor calendar apps.

Patterns for users or Microsoft and Android operating system devices are less distinct. But that might be one reason new sales of Microsoft-OS devices are declining, relative to others. To the extent there is any distinction, Google G1 users put heavier emphasis on maps.

The clearest example that users are segmenting themselves by applications is that "the best-selling smartphones are the ones that most strongly associate with one or two particular features," says Michael Mace, Rubicon Consulting principal.

BlackBerry and iPhone each have one or two standout features that more than half their users rank as extremely important, he says. As you would expect, email access is unusually important for BlackBerry users.

BlackBerry users are also much more interested than average phone users in web browsing and calendar. Blackberry users are substantially less interested in price, size of the phone, and address book management.

The priorities of iPhone users are dramatically different from either typical mobile phone users or RIM users, says Mace. Browsing was the iPhone users’ top feature, followed closely by email.

But iPhone users were much more interested than RIM users in music, maps, 3G, and the ability to add new software.

The Windows Mobile user profile is similar to that of the BlackBerry, but less distinctive, says Mace.

The priorities of Windows Mobile users are similar to Blackberry users, with the exception that Windows Mobile users are a bit less focused on email and more interested in adding new software and using maps. But no single feature was noted by more than 40 percent of Windows Mobile users, indicating that it doesn’t have a very distinct feature identity in the market.

Palm users were also somewhat similar to RIM users, with the exception that they were quite a bit more focused on calendar functions, which was cited as the number one feature. But compared to Microsoft users, email and browsing were ranked less hihgly.

"It appears that RIM and Apple are siphoning off most of the people who care the most strongly about browsing and mail," says Mace.

"Calendar scored higher among Palm users than among any other platform, which probably fits with Palm’s roots as a PDA company," he notes.

But Palm application patterns do not have as distinct an identity as Blackberry and iPhone do.

Compared to all the other smartphones, the Google G1 “GPhone” has the least distinctive feature profile. It is cited for maps more than any other phone, but only 30 percentof users call that a top four feature. Relatively few G1 users said browsing is a high priority. Instead, browsing ranked far below iPhone, and on a par with RIM.

That may indicate that the marketplace has not yet decided what an Android device "is." BlackBerry is email, iPhone is Web browsing. Neither Palm, Microsoft nor Android seem yet to have grabbed a clear and distinct niche within the smart phone market.

These findings are important for very broad reasons. I have long argued that voice is, in fact, not a "commodity." The latest Rubicon findings suggest that mobile phones and smart phones likely are not true commodities either. At least in the case of the BlackBerry and iPhone, users have self selected themselves based on behavioral differences.

If that is true, it also should be true that service plans, application optimization and other ways of appealing to a distinct market niche are possible. The Rubicon findings also suggest it is important for Microsoft, Palm and Android to find and cultivate a distinct market niche. So far, none of them seems to have succeeded to the degree Apple and RIM have.

In other words, there is no such thing as the "best smart phone" for every user. That decision depends on what one wants to do most. Smart phones are becoming more like automobiles, in that sense, then has been the case in the past. Roadsters, vans, trucks, subcompacts, SUVs and full-size passenger vehicles have different "lead" applications. So, increasingly, do smart phones.

The key insight here is that communications products and services are less commoditized than most of us typically assume. It might be hard work to differentiate, but it can be done.

Perhaps the worst case scenario would be for most smart phones to ultimately be seen as general purpose mobile PCs. That would destroy the ability to differentiate.

June Online Video Viewing Up: Unusual News Events the Reason

Summer normally is a time of reduced video viewing, as users are out and about. But online video viewing was up 14 percent year over year in June, according to The Nielsen Co.

But it appears unusual news events, not a permanenet change in behavior, account for the upsurge. Unusual media events, including the memorial service for Michael Jackson and the civil unrest in Iran, likely were driving the heavier usage, comScore says.

Is there a business model for mobile TV?

The number of mobile TV users continues to grow but there is still no proven business model so far to market the service, researchers at Infocom say.

"Japan, South Korea and Italy are the leading markets for broadcast-based mobile TV services but mobile TV subscriber growth in these markets is driven mainly by free or partly-free access and rather large handset availability, Infocom says.

Much could change with time, but there are some features and services for which there is in fact no apparent stand alone business model. Consider the Wi-Fi hotspot business. For an increasing number of service providers, the business model is fixed broadband, and Wi-Fi access is simply an added feature of the broadband service.

The same thing appears to be happening in the multi-channel video business, as service providers test the idea of "TV Everywhere," where paying for a fixed video subscription also allows access to video from PCs and mobile phones.

Advertising might help, but possibly not as much as people suppose. At this point, it appears possible that the mobile TV business model is fixed network multi-channel video, much as Wi-Fi now is a feature available to broadband access subscribers.

Can Open Access FTTH Work?

Open access can work for fiber to home access, says Yankee Group analyst Benoît Felten.

Most observers might tend to agree that the thesis works better in countries without robust cable TV broadband penetration, where construction costs are high and where regulators allow a reasonable rate of return on wholesale activities.

Felton argues a wholesale approach does not reduce overall take rates or average revenue per user for the network owne, an assumption that obviously makes better sense where virtually all retailers use a single access network.

"When DSL networks started opening in Europe in 2002 to 2005, although there was often a small impact on the incumbent’s ARPU in the early stages, that ARPU climbed back to its pre-unbundling levels within a few years due to offer differentiation and the development of value-added services.

Incumbent retail market share of course drops. Felton notes that very few incumbents in Europe currently have less than 50 percent market share of broadband, and there is little reason to think that opening the DSL network has impacted their ARPU or penetration negatively.

What is different about U.S. markets, however, is that cable competitors have their own, ubiquitous networks, with a majority of market share for video and broadband access services, with growing voice share. For this reason, U.S. incumbent telcos cannot hope to serve perhaps half of all retail broadband or video providers, and perhaps 20 percent to 25 percent of all voice retailers.

"What we are saying is that our economic analysis suggests that having more than one fiber infrastructure in the ground is hard to sustain," says Felton.

Social Networking Now Nearly Universal

More than 80 percent of online Americans are active in either creating, participating in, or reading some form of social content at least once a month, say researchers at Forrester Research.

About 24 percent of online users create content, while 37 percent post responses. About 21 percent use real simple syndication. Some 51 percent maintain personal profiles. Fully 73 percent of online users read blogs, watch online videos or listen to podcasts.

Among online users 35 or younger, social networking is nearly universal, with 90 percent participating in some way. Among those 55 and over, about 66 percent now are participating.

AT&T will Mandate Smart Phone Data Plans Sept. 6, 2009

Beginning September 6, 2009, AT&T will mandate subscribers who activate or upgrade to a smartphone to also pick up a data plan. One might argue that a smart phone without a data plan is about as useful as a PC without an Internet connection, or a TV without access to a multi-channel video plan.

Beyond that, as the mobile industry transitions to a revenue model based on data plans, not voice, the move is to be expected. There is no inherent reason why the cost of access to the global network, which increasingly includes Web services, should be based on use of voice applications.

On the other hand, users who simply want access to voice or text messaging only need phones with that basic level of functionality.

Will AT&T Wireless Support VoIP?

For Apple and Google, the recent inquiry by the Federal Communications Commission into VoIP blocking on iPhones and Android devices is a reminder that the communications business is rather more suscepible to political pressure than the software business.

For AT&T the inquiries are just part of the background of doing business, but AT&T's response to the FCC inquiry suggests that what typically happens, will happen again. Namely, when regulators decide it is time to do something, market contestants typically try to head off more onerous rules by making voluntary business decisions that reduce the need for such rules.

So it is that AT&T now says "we plan to take a fresh look at possibly authorizing VoIP capabilities on the iPhone for use on AT&T’s 3G network," says Jim Cicconi AT&T Services senior EVP.

That doesn't guarantee clearance for unlimited VoIP use on AT&T mobiles, but it is a sure sign AT&T does not want to regulated into such a position.

Google Voice for Active Duty Military Now Available

Any active U.S. service member with a .mil email address can sign up for a Google Voice account at and start using the free service within a day. It's a good thing.

Google Says Skype Not Blocked on Android Phones

As Apple now it admits it alone was responsible for the initial rejection of the Google Voice app for the iPhone, and AT&T reaffirms that it had no say in the decision, Google has found itself in a bit of the same position as Apple, as Android mobiles are alleged to use a "less than fully functional" version of Skype on Android devices.

Some have suggested that Skype had been similarly blocked from Android phones, but the issue really is the functionality of Skype on Android devices. Google says on its blog that the Android operating system did not, at first release, support any full-featured VoIP applications.

That now has been rectified, Google says. That said, both Apple and Android devices are subject to any existing carrier policies on use of VoIP over their mobile networks, though it does not appear any such policies are involved either in the initial attempt to make Google Voice available on the iPhone, or the initial attempt to get a full-fledged version of Skype running on Android devices.

Apple, Not AT&T, was Behind iPhone Google Voice Rejection

So it turns out AT&T was telling the truth all along: it had nothing to do with Apple's rejection of the Google Voice application for the iPhone.

"Apple is acting alone and has not consulted with AT&T about whether or not to approve the Google Voice application," Apple says on its Web site. "No contractual conditions or non-contractual understandings with AT&T have been a factor in Apple’s decision-making process in this matter."

AT&T has been insistent on this from the start of the controversy. "Let me state unequivocally, AT&T had no role in any decision by Apple to not accept the Google Voice application for inclusion in the Apple App Store," says Jim Cicconi, AT&T senior executive vice president for external and legislative affairs.

To be sure, Apple claims the rejection of the application was because of user interface implications, not a blanket rejection of VoIP or Google's approach to providing services, which is better described as Web activated than VoIP.

Apple says it has not rejected the Google Voice application, and continues to study it. The application has not been approved because, "as submitted for review, it appears to alter the iPhone’s distinctive user experience by replacing the iPhone’s core mobile telephone functionality and Apple user interface with its own user interface for telephone calls, text messaging and voicemail," Apple says.

"AT&T was not asked about the matter by Apple at any time, nor did we offer any view one way or the other," Cicconi said in a statement, accompanying a response to a regulatory inquiry into the rejection of Google's voice application by Apple.

On an iPhone, the “Phone” icon that is always shown at the bottom of the Home Screen launches Apple’s mobile telephone application, providing access to Favorites, Recents, Contacts, a Keypad, and Visual Voicemail.

The Google Voice application replaces Apple’s Visual Voicemail by routing calls through a separate Google Voice telephone number that stores any voicemail, preventing voicemail from being stored on the iPhone, Apple says.

"In addition, the iPhone user’s entire 'Contacts' database is transferred to Google’s servers, and we have yet to obtain any assurances from Google that this data will only be used in appropriate ways," Apple says.

AT&T, Apple and Google have been asked by the Federal Communications Commission for clarification of the issue.

What is interesting is that most observers seemed to think AT&T was behind the ban, attempting to protect its mobile voice business. Some suggested Apple was developing its own voice service.

To be sure, the wording of the Apple statement seems to imply that if the user interface issues and data privacy issues can be worked out, that the Google Voice app would be reconsidered.

In fairness to Apple, its stated reasons for rejecting Google Voice--user interface and functionality--are things the company tends to be meticulous about. Given Apple's past fastidiousness on that score, the initial rejection is not unusual.

What remains to be seen is whether Google Voice can be reconfigured to Google's satisfaction, as well as to Apple's. The big news is that AT&T was not involved in the decision.

Smart Phone Sales Soar, Feature Phones Narrow Gap

Feature phone sales fell five percentage points to 72 percent of new handset sales in the second quarter of 2009, while sales of new smartphones reached 28 percent of overall consumer purchases, a 47 percent increase in the category’s share since last year, according to The NPD Group.

Lower prices appear to be the reason. “Despite their ties to pricey data plans, the rich Internet access capabilities of smart phones are attracting consumers wooed by lower device prices,” says Ross Rubin, NPD Group director of industry analysis.

Overall handset sales volume in the U.S. grew 14 percent year over year in the second quarter, as sales revenue increased 18 percent.

The average selling price of all mobile phones increased four percent year over year, reaching $87.

Wi-Fi capability increased three-fold since last year, with 20 percent of all new handsets equipped with this capability. Touch screens on both feature phones and smartphones grew to 26 percent of all new handsets purchased in the quarter.

QWERTY keyboards were available in 35 percent of handsets sold.

In some ways, the differences between feature phones and smart phones are decreasing, NPD Group says.

“Feature phones are taking on more of the physical characteristics of smartphones, and often offer greater exposure to carrier services,” Rubin says. “Although their user interfaces continue to improve, the depth of their applications generally lags behind those of smartphones. With the price gap between smartphones and feature phones narrowing, to remain competitive feature phones need to develop a better Web experience, drive utility via widgets, and sidestep the applications arms race.”

VoIP Pioneer Elon Ganor Starts New Firm

Former VocalTec CEO Elon Ganor has started a new company, Nucleix, in the life sciences area. You might say it is a case of an entrepreneur doing wht entrepreneurs do: start new companies.

Though anecdotal, you might also conclude something else: venture capital is looking at life sciences more than VoIP, and entrepreneurs are responding to what they see as higher-growth, more-lucrative fields.

It's anecdotal, but possibly telling. Lots of others are focusing on micro-blogging or wireless, especially mobility applications.

Rural Broadband Penetration Close to 100% of Internet Users?

Use of broadbnd in rural areas now is close to 100 percent of Internet users, new data from comScore suggests. In 2007 the U.S. Department of Agriculture Economic Research Service estimated that 63 percent of all rural households had at least one member access the Internet.

If rural broadband penetration now is up to 75 percent, as comScore indicates, that would imply that Internet usage is at least that high, allowing for some households that continue to use dial-up access.

That would seem to have implications both for setting of national broadband policy and policy in rural areas. For starters, the new data suggest that rural broadband is growing robustly, without any additional government activity.

Some might argue that broadband usage remains lower in rural areas than in metro areas, and that remains true. Metro broadband penetration is at 89 percent. But virtually every study has shown that Internet usage also is lower in rural areas.

Broadband pentration in U.S. rural areas increased 16 percent from 2007 to 2009, while metro area broadband penetration grew 11 percent, according to comScore.

In part, that is because rural markets have more room to grow. The analogy is wireless voice growth, which is highest in places such as India, China and Africa, where penetration is lowest.

“With low-speed DSL priced at about the same level as dial-up in many areas, there is little incentive for households to remain on dial-up,” says Brian urutka, comScore VP.

Rural markets with a population less than 10,000 grew broadband penetration by 16 percentage points. Areas with population between 10,000-50,000 grew penetration 14 percentage points while metropolitan areas with populations of 50,000 or more grew penetration by 11 percentage points.

Critics sometimes say that even if access is not a problem, access speeds are, and that is an argument that makes more sense. The issue there, though, quite often is the "middle mile" trunking between major points of presence and the actual rural communities.

Basically, the problem is not the Internet backbones, and not even so much the local access networks, as it is the trunking network to backhaul traffic to the Internet PoPs. Many rural ISPs find, for example, that they have access to a T1 or two T1s in the middle milde. That makes it tough to deliver faster broadband access to customers on the local access networks, for obvious reasons.

The Internet backbone is a firehouse. So are the access networks, for the most part. But the middle mile is a straw.

That isn't to say there are no communities or isolated locations without broadband access availability from at least one terrestrial provider, and two satellite providers. It is to point out that the "problems" often have more to do with trunking facilities than local access, and that any gaps between urban and rural use of the Internet and broadband are rapidly closing.

Cost to Acquire, Sustain, Retain Customers Rising, Execs Say

There is fairly broad agreement among chief marketing officers at global telco, cable, wireless, satellite, Internet service provider and long distance carrier firms that competition is having a huge effect on customer retention, acquisition and broad company strategies, primarily affecting product pricing and customer retention.

Over 84 percent of respondents to a survey conducted by the CMO Council report increases in the cost of acquiring and sustaining customer relationships and, not surprisingly, 63 percent are seeing higher rates of customer churn and attrition.

The new global study by the Customer Experience Board of the Chief Marketing Officer Council also shows that price competition, for example, now is a chief issue. According to 55 percent of respondents, emerging competitors and market disrupters are undercutting or discounting prices, with an additional 37 percent indicating these contenders often target the most lucrative customers.

So there's a new focus on customer experience, as satisfying and retaining current customers is three to 10 times cheaper than acquiring new customers, and a typical company receives around 65 percent of its business from existing customers.

A five percent reduction in the customer defection rate can increase profits by 25 to 80

percent, McKinsey analysts say.

Also, seven out of 10 customers who switch to a competitor do so because of poor

service, McKinsey says. And the small number of customers a firm normally hears from are typically just the tip of the iceberg.

A typical business only hears from four percent of its dissatisfi ed customers, while the other 96

percent leave quietly. Of that 96 percent, 68 percent never reveal their dissatisfaction

because they perceive an attitude of indiff erence in the owner, manager or employee, researchers at the University of Pennsylvania.

In a more-crowded and competitive environment, 56 percent of respondents also say they are finding the task of creating brand preference more difficult. In fact, creating a differentiated presence in the marketplace was seen as the top challenge, overall.

But 55 percent of respondents also say the need for innovation, price pressures and competition from new and adjacent competitors is among the top-five challenges.

About 47 percent of surveyed executives say the need to rapidly develop new services and applications was a top concern as well. Churn likewise was seen as a top issue by 40 percent of executives. Also, 66 percent of executives say churn rates are increasing.

One major trend of key importance for operators of wired networks is a shift to increased wireless dependence, as 36 percent of marketers see a growing shift to wireless-only households and 32 percent see a trend towards wireless dependence for life, work and community tasks.