In 2014, 80% of Broadband Access Will Be Mobile, says Huawei

By 2014, 80 percent of the world's two billion broadband users will be using mobile networks for their access, says Huawei. Of those two billion users, 1.5 billion will be first-time subscribers.

Predictions such as that are one reason regulators and suppliers need to be much more cognizant of how much is changing in the global communications business. Policies that relate to broadband access and deployment must reorient to reflect user behavior and supply that will be overwhelmingly mobility-based in just a few years.

Huawei also points out that voice services revenues also are steadily declining."In the past five years, the revenue for fixed voice services decreased by 15 percent, reflected by a decreasing growth rate for mobile voice services in 2009," Huawei says.

If that is a fundamental trend, as Huawei believes it is, then policies cannot be designed on the assumption that voice revenues, traditionally the underpinning for the whole global business, will continue to do so in the future.

In other words, instead of assuming service providers are powerful gatekeepers who need to be restrained, it might be more apt to view them as endangered suppliers who must replace the bulk of their revenues over the next decade or so, simply to remain in business. That certainly is not how telecom companies have been viewed in the past, but to ignore the changes could be dangerous.

U.S. regulators were so intent on introducing more competition in voice services in the early 1990s that they nearly completely missed the fact that the Internet, broadband and over-the-top applications and services were about to change the industry. Basically, the intended market result was to cause incumbents to lose market share while competitors were to gain share, precisely at the point that nearly every competitor was about to face a declining market for voice services.

It takes little insight to observe that a narrow focus on fixed broadband might likewise be dangerous at a time when usage is shifting so profoundly to mobile modes.

To use an analogy, regulators must resist the temptation to "fight the last war," rather than the different new war that is coming.

Is Verizon a "Wireless" Company as AT&T Is?

Is Verizon now a "wireless company with a wireline business"? Some might argue that is the case. Others might argue Verizon is a company with significant wireless and broadband businesses. At AT&T, it is easier to make argument that the company really now is a wireless company with wireline businesses.

Part of the reason for the difference is Verizon's decision to go to a "fiber to the home" access network, while AT&T has chosen a less-costly "fiber-to-neighborhood" approach. But those decisions are conditioned by the different potential customer bases in each telco's territory. AT&T is less dense, so FTTH is aq more expensive choice. Verizon also has more business customers, and fewer consumer customers, relatively speaking.

Analysts at Trefis, for example, estimate that mobility counts for 34 percent of Verizon's equity value, with broadband access contributing 36 percent. Services to larger businesses and organizations account for 17 percent of Verizon's equity value.

The consumer and smaller business revenue stream accounts for just 10 percent of Verizon's equity value.

At AT&T, wireless accounts for a whopping 51 percent of equity value, while Internet and television services account for 16 percent. Services to business customers, plus wholesale, accounts for 12 percent of equity value. The landline voice business accounts for 12 percent of equity value.

AT&T really is a wireless company with a wireline business.

VZW added 2.2 million net wireless subscribers in the last three months of 2009. Verizon remains the marker leader in size, quickly approaching the 100 million-sub mark with 91.2 million total mobile customers.

Total wireless service revenues remained flat quarter-over-quarter at $13.5 billion and were up only five percent year-over-year.

But wireless data revenues continued to balloon, increasing $200 million over the third quarter to $4.3 billion and 26.6 percent  year-over-year. Data now accounts for 31.9 percent of all service revenues.

Wireline service revenues fell $100 million quarter over-quarter to $11.5 billion, representing a 3.9 percent drop year-over-year. On the residential side, access line loss showed no signs of improving with Verizon posting a further 12.3 percent decline.

Verizon also is losing digital subscriber line accounts as it switches customers over to the FiOS service. Verizon lost 107,000 broadband lines, primarily DSL accounts, as its FiOS service grew by153,000 net new customers, including both broadband access and video customers.

FiOS now has 2.9 million TV subscribers (25 percent penetration) and 3.4 million Internet customers (28 percent penetration).

But wireline figures also were distorted by the addition of Alltel assets.

Wireless profit margins also are higher than wireline. Wireless had 45 percent margins in the fourth quarter of 2009, while wireline margins fell to 23 percent.

Mobile Broadband Prices: As Usage Climbs, Something's Gotta Give

Sooner or later, mobile broadband consumption patterns are going to force mobile Internet service providers to better match consumption with usage, for the simple reason that the cost of supplying end user bandwidth probably will grow faster than the cost of infrastructure, on a per-megabit-per-second basis, will drop.

That obviously affects the mobile broadband business case, especially if video comes to represent 90 percent of all bandwidth demand, as Cisco now predicts and as global backbone networks already demonstrate.

At the current average traffic levels of 500 MBytes a month, revenue per MByte outstrips delivery costs for HSPA, LTE and WiMAX at monthly retail prices starting at $20 per month, says Monica Paolini, Senza Fili Consulting president.

At $20 per month, mobile operators operate at a loss for subscribers using more than 1 GByte per month in a 3G network, or for subscribers using more than 5 GBytes per month on a 4G network, Paolini says.

At 10 GBytes per month, data subscribers do not generate any net benefit for mobile operators on a 3G network. On a 4G network 10 GBytes of usage might be a break-even proposition.

Who are the Media Gatekeepers These Days?

Media business models nearly always are a mix of end-user revenues and advertising or promotion. That likely won't be different as mobile media start to develop (click on image for larger view).

And though much attention always is directed at the role of "access providers" as key gatekeepers, that probably is not an issue in the mobile marketing and mobile media business.

Instead, it is device providers and application providers that are emerging as the key gatekeepers. Consider platforms such as the iPhone, with its App Store, or Facebook.

These days, the App Store and Facebook are emerging as distinct business ecosystems for application sales, gaming and advertising.

That is going to prove something of a shock for "service" providers, but that's just what seems to be happening.

Internet Isn't What it Used to Be

Some time ago, the Internet was "controlled" by standards groups.

These days, some think it is controlled by ISPs.

Increasingly, it is controlled and shaped by ecosystems formed about devices or key applications (Click on image to see larger view).

That means our old notions about the "open" or "neutral" Internet have changed.

To some extent, the Internet still is about the ability of any one user to reach other user. To an increasing extent, it is about domains accessible only to members, users and subscribers.

For content owners, advertising and marketing specialists, users and enablers, that means development and business models are based on discrete ecosystems, not the "Internet" in general. And while much attention is paid to the role of ISPs as "gatekeepers," there are all sorts of gatekeepers these days, and application providers or device manufacturers might be more important gatekeepers than ISPs.

YouTube "Feather" Beta Seeks Lowest-Latency Connections

YouTube, or any video content for that matter, is tough to watch on a  low-bandwidth Internet access connection or even a computer with insufficient processing power, such as some netbooks.

So YouTube is in beta testing of "Feather," a way of optmizing latency performance on limited hardware or low-bandwidth connections.  Feather is said to work by “severely limiting the features" and "making use of advanced Web techniques for reducing the total amount of bytes downloaded by the browser."

The video playback page of Youtube Feather is fully transferred after downloading 52 Kilobytes of data compared to 391 Kilobytes that the standard pages require, some note.

Youtube Feather achieves the better performance by partially by removing standard YouTube features such as posting of comments, rating videos, or viewing all comments or customizing the embedded player.

The Feather beta suggests why strict versions of "network neutrality" might hinder innovation or end user experience. Feather works by blocking some bits and features. It is an opt-in feature, and that also is part of the danger over-zealous network neutrality rules represent. Users might want to selectively tune their use of some applications, blocking some features and bits, to optimize the experience.

Earned Media to Grow Most in 2010, Survey Finds

Earned media spending will see the biggest increases in spending in 2010, a new survey of brand marketing professionals by the Society of Digital Agencies finds. "Earned media" refers to refers to favorable publicity gained through promotional efforts other than advertising, as opposed to paid media, which refers to publicity gained through advertising. Increasing use of social media accounts for much of the change.

About 81 percent of the brand executives expect an increase in digital projects in 2010, and half will be moving dollars from traditional to digital budgets. Further, more than 75 percent think the current economy will push more allocations to digital formats.

Senior marketers reported that social networks and applications were their biggest priority for 2010, for example.

“Unpaid, earned, proprietary” media spending has seen the sharpest rise, with nearly 20 percent of respondents reporting increases of more than 30 percent.

Apple iPad Will Use AT&T 3G Network

Apple's new iPad will use Wi-Fi and also AT&T's 3G wireless network. Users can opt for using Wi-Fi only, as iTouch users do, or can buy 3G service. AT&T offers a 250-megabyte plan for $15 a month, and an unlimited plan for $30, neither requiring a contract.

Those pricing levels more closely resemble an iPhone data plan than a data card subscription, which costs $60 a month, and typically requires a contract.

Some observers might say the iPad subscriptions represent a "higher-quality" or higher-margin revenue source than is typical for iPhone subscriptions, which also represent $30 a month in fees, because AT&T gets the traffic without having to factor in a subsidy for the devices.

One issue is how much data iPad users will consume. Users of the iPhone typically consume about 400 megabytes a month, where mobile PC card users tend to consumer about 2 gigabytes a month. A reasonable estimate is that iPad usage will fall somewhere between those levels.

Apple Launches iPad: What Don't We Know?

So this is the day we found out, for sure, that Apple is launching a tablet device called the iPad.

Nobody knows how big a market it might create. And that's probably the key: Apple likely intends to create a new market, not simply be " a better Kindle" or a "larger-screen iPod." 

There's no way of telling, yet, what will happen. Apple has launched products before that did not gain mass acceptance, though its iPod and iPhone launches have been revolutionary. The difference this time might be that the iPod basically took a huge existing human behavior ("listen to music" or "voice" and "using the Web") and changed the distribution or the experience. 

It is less clear which major human activity the new tablet will reshape. "TV" is one possibility. "Reading" is another. Down the road, the biggest potential innovation is a way to blend text, full-motion video, music and search in new ways. But that would take some time. Longer term, there may be a new "mobile media player" opportunity. 

Near term, a tablet does not seem to offer as clear a path to reshaping a major human activity as the iPod did for music or the iPhone did for mobile phones and mobile Internet. That might simply be my own lack of imagination. But so far, "mobile TV" hasn't proven as popular as "cheaper consumable media." To a large extent, e-book readers are popular because they offer cheaper ways to buy text content. Mobility plays some part, but it likely is "cheaper ways to read books" that supplies the greatest value.

If that turns out to be true for the tablet, it won't so much be "mobile" consumption as "cheaper prices" for content that prove compelling. Right now, it isn't clear that will be the case. 

The emergence of new multimedia formats is the likely long-term innovation, but that will take some time. At the outset, we'll have to see whether the tablet is able to reshape one or more existing applications and activities, in one or more settings. 

It isn't so clear that people will suddenly change their media consumption patterns because a new mobile display is available. PCs already can provide much of that capability, while the iPod itself and devices such as the Kindle allow mobile or cheaper reading. 

The true revolution lies in the new medium the tablet might enable. But new media requires assembling a complex ecosystem, with lots of stakeholders with much to lose. That suggests the business relationships will take some time. In the early days, the tablet likely will have to succeed based on its ability to do a superior job of satisfying some existing behavior and need. 

Is There a Need for iPad? If So, Is it a Big Need, and Big Market?

"All of us use laptops and smartphones now," says Steve Jobs, Apple CEO. "The question has arisen lately: is there room for a third category of device in the middle, something between the laptop and the smartphone?"


And that's the question users, application developers, content providers and marketers will have to answer. Is there some clear need for a third device? And if so, what is that need?


Suppliers have been trying to get the features and value right for as much as 20 years, depending on how one wants to characterize the "tablet" market. So far, nobody has proven there is a large consumer market for devices halfway between a smartphone and a notebook computer. 


We do know there is a major mass market for personal music players, personal music players with Wi-Fi access and smartphones with touchscreens that handle native Web applications very nicely. 


What Apple hopes to prove is that there are similar needs for a "device in the middle" that is an Internet-connected media player, easier to carry than a netbook or notebook, but with a relatively-large display for media consumption. 


The relative lack of apparent demand when consumer surveys are taken is not the big stumbling block. Consumer surveys would not have predicted the success of most recent Apple products. The bigger issue is simply that the device must uncover some existing, large and unsatisfied need.


We don't yet know yet whether the iPad will uncover such needs or not. But that is what Apple expects to discover. 

E-Book Readers Unlikely to Help Newspapers, Study Suggests

Portable e-readers such as the Kindle are unlikely to win readers back to the newspaper habit unless they include features such color, photographs and touch screens, according to professors of advertising Dean Krugman, Tom Reichert, and Barry Hollander, associate professor of journalism in the University of Georgia Grady College of Journalism and Mass Communication.

Young adults in particular compared the Kindle DX used in the study unfavorably to smart phones, such as the iPhone or Blackberry.

Skeptics might also suggest that changing the delivery channel for an unpopular product should not be expected to change the demand curve. An unpopular product's problem is its features and value, not its channels.

For younger adults, the Kindle fell short when compared to their smart phones, with touch screens and multiple applications, available in a single small package. The e-reader felt “old” to them, the professors say.

Older adults were overall more receptive to the concept of an e-reader. However, the Kindle failed to include aspects of the traditional newspaper they had grown fond of, such as comics and crossword puzzles.

Cost was a factor regardless of age. Nearly all respondents balked at the Kindle DX’s $489 price tag for reading a newspaper.

As a stand-alone attribute, Krugman said, the newspaper feature is likely not strong enough to sell the e-reader.

One might note that decades ago, when USA Today was launched, there was much speculation about how much a colorful, more "TV-like" presentation would change reader interest in newspapers. Despite USA Today's success, it does not seem to have had much impact on overall newspaper readership.

At this point, we might wonder why e-book readers will fare better.

Newsday Pay Wall Apparently Leads to 47% Decline in Visitors

Newsday.com, which has put unlimited access to its content behind a pay wall, is finding what most of you would have predicted: it is losing readers. But Cablevision may be banking on a business model it has used in the past: providing "no incremental cost" access for customers who buy other Cablevision products.

In December 2009, unique visitors declined 47 percent while page views fell 32 percent compared to December 2008.

In December, Newsday.com had 1.4 million unique visitors and 18.9 million page views, according to Nielsen. That was down from 2.7 million and 27.8 million, respectively, for the month in 2008.

December was the second full month where Newsday's policy of charging people $5 a week for unlimited access to the site was in effect. People who subscribe to home delivery of the paper, or receive broadband service from its parent Cablevision, do not have to pay extra.

That provides another clue to the success or failure of "pay walls." Cablevision has ways of supplying "no incremental cost" viewership in the same way that it provides "no incremental cost" access to its metro Wi-Fi network.

If a person is a subscriber to Cablevision's fixed broadband access service, then use of the Wi-Fi network is available at no extra cost.

Cablevision does not appear to expect the new pay model to "materially" impact revenues in the "near term." One reason: many people interested in the site also receive the paper at home or get Cablevision high-speed Internet service.

How Important Are App Stores?

Consumers will spend $6.2 billion in 2010 in mobile application stores while advertising revenue is
expected to generate $0.6 billion worldwide, say analysts at Gartner. But app stores might be far
more important than the simple sales revenues would suggest.

There seems little question that the success of Apple's iPhone App Store came as a surprise to just
about all observers, including Apple itself. Perhaps none of us should not have been surprised.

Apple already used iTunes to dramatically reshape music distribution, music formats and relationships within the music ecosystem.

At this point, it is reasonable to look at the similarities between iTunes and the App Store and suggest that the Apple App Store, and other application stores, and wonder if they will not have a similar impact on some key portions of the software business, and further shape the attractiveness of any particular piece of hardware.

For some, perhaps many buyers, the software library could be the factor that pushes buyers toward a particular device or family of devices.

But there might be equally-important implications for service providers as well.

Ask a telecom service provider executive why they do not move faster to introduce new applications "at Internet speed" and you very likely will be told that carriers have reputations for quality and brand equity that require them to test the reliability of any new products very thoroughly, and that necessarily slows the pace of innovation.

Others might point out that moving "at Internet speed" to create new applications now is how things often are done, and for that reason delay can be troublesome.

Perhaps app stores are the crucial missing element in allowing service providers to emphasize the quality, stability and robustness of their transmission networks, while at the same time allowing them to stay abreast of rapid application innovation.

It is possible, perhaps even likely, that users can differentiate between the quality or userfulness of a third-party application sold through a service provider supported or affilated app store.

If so, that offers a way forward for service providers rightly concerned about their reputations, yet also needing to move more quickly on the application development front.

In that sense, app stores might offer a convenient way forward. Network performance and stability can be be separated from the perhaps less robust process of making available new applications of uneven quality and value.

Mobile application stores will exceed 4.5 billion downloads in 2010, eight out of ten of which will be free to end users, Gartner analysts predict.

Gartner forecasts worldwide downloads in mobile application stores to surpass 21.6 billion by
2013. Free downloads will account for 82 percent of all downloads in 2010, and will account for 87 percent of downloads in 2013.

Something of the same argument might be made for e-book readers and other new devices whose value depends on the availability of content or applications.

Information Technology Industry Council Reaches Common Ground on Net Neutrality

The "network neutrality" debate is becoming more nuanced, with possibly greater understanding by many participants that it is important to find common ground that does not jeopartdize the Internet's future in a misguided attempt to preserve its past.

The Information Technology Industry Council, which includes Microsoft, Ebay, Intel, Apple, Qualcom, Adobe and Cisco, seems to be threading a needle, for example.

Everybody seems to agree that "certainty" is needed or innovation will be impeded. Everybody also seems to agree that innovation "at the edge of the network" likewise should not be impeded.

One way of getting there is by avoiding the temptation to write overly-detailed rules in advance of issues that could arise. That means the ITIC prefers that issues be settled on a case-by-case basis, as needed, rather than by creating new rules in advance of any conceivable set of issues that could arise.

"The FCC cannot posibly anticipate all future circumstances, and it is entirely possible that conduct that may appear to be harmful today will in fact be beneficial to consumers in light of future circumstances," the ITIC now says.

Managed services, for example, should be allowed unless it is proven that the services are "anticompetitive or harmful to consumers." That suggests a new openness to the possibility of enhanced services that take advantage of user-defined and user-requested packet prioritization features.

Quality of experience, especially during periods of congestion, almost requires that such mechanisms be available for users and applications that want to make use of such features.

Cbeyond Asks FCC for Mandatory Wholesale Optical Access

Cbeyond has the Federal Communications Commission to reverse its rules on wholesale obligations for fiber-to-customer networks. On copper access networks, competitors have rights to buy wholesale access. The FCC has ruled that on new fiber-to-customer networks, competitors have no similar rights.

Predictably, incumbents say the current rules should remain in place, which allow any voluntary wholesale deals, but do not require incumbents to offer wholesale access. The rules are consistent with rules that apply to U.S. cable companies, which likewise have no obligation to sell wholesale access to competitors.

The Telecommunications Industry Association  and the Fiber-to-the-Home (FTTH) Council have filed comments opposing the change.

The debate is an old one. Incumbents argue that the business case for FTTH is troublesome, and that they need the ability to profit from FTTH investments without being required to make those faciltities available to competitors who do not have to build expensive facilities of their own when they can simply lease capacity from others.

Though it is difficult to prove, one way or the other, the FCC has faced a dilemma. It can seek to spur competition by mandating robust wholesale access, or it can spur deployment of new optical access facilities, but might not be able to achieve both goals.

The reason is that incumbents can simply refust to upgrade their networks when they do not feel they will get an adequate financial return. There is some important evidence that incumbents are right about the ability to raise investment capital for FTTH.

Investors punished Verizon Communications for pushing ahead with its FTTH program, preferring AT&T's less-costly FTTN approach, for example. Calle and telco executives point out that all competitors are free to build their own facilities if they want, and most observers would note that in markets where there are three ubiquitous FTTH or FTTN networks, it has proven difficult to sustain business models allowing all three competitors to remain in business.

The calls for mandatory wholesale come at a time when everybody acknowledges that the business case for traditional cable TV and voice services is becoming more difficult, and that neither cable companies nor telcos can rely on their mainstay businesses (video and voice) for future growth. In fact, both types of companies are seeing steady shrinkage of those legacy businesses.

Under such circumstances, and given the shift to Internet-based applications, it might not make lots of sense to weakent he business case for robust optical access investments at a time when the financial returns for doing so are under pressure in any case.

Supporters of mandatory optical access obviously would benefit from a rule change, as they could offer optical access without incurring the expense of building new facilities. So the dilemma the FCC faces is an emphasis either on innovation or competition, in some clear sense.

Since virtually all applications now can be delivered over IP-based connections, it no longer makes as much sense as it once did to directly link "access" and "competitive" services. With or without broadband access, companies now can deliver virtually any service over the top, on any broadband connection.

Under such circumstances, robust competition occurs at the application level, not the access level. In fact, that is precisely the problem telcos face with VoIP, and that cable companies face with online video.