Half of Mobile VoIP Accounts will be Over the Top, 45% Supplied by Carriers in 2013

Over half of all the world's 288 million mobile VoIP users in 2013 will be using over-the-top mobile VoIP applications, about 45 percent will use mobile VoIP provided by mobile operators, according to researchers at In-Stat.

Not everybody agrees with that forecast. Disruptive Analysis in the past has argued that a majority of VoIP offers would be supplied directly by mobile operators or in partnership with third parties.

That basically illustrates the issue VoIP poses for fixed and mobile service providers. On one hand, VoIP is the future of voice. On the other hand, voice no longer will be a monopoly, high-margin revenue source for today's service providers.

That isn't to say voice is destined to become a complete "no incremental cost" application. Many providers will make some continuing revenue on voice, for quite some time.

It is just that VoIP represents a mixed blessing. It clearly is the future for voice. But the future of voice is that of an experience that sometimes does not require incremental fees, sometimes does; sometimes is bought as a service and often is used as an application.

On a geographic basis, mobile VoIP will be heavily biased towards the Asia Pacific region, particularly among the online mobile VoIP services.

“The near-term opportunity for mobile VoIP is closely linked with the growing success of dual-mode phones and other Wi-Fi connected devices,” says Frank Dickson, In-Stat analyst. “However, mobile VoIP still poses a direct threat to operator voice revenue and operators are navigating how to balance new opportunity with the threat.”

Net Neutrality Would Increase Likelihood of Content Discrimination, Phoenix Center Says

"Net neutrality regulation is motivated fundamentally by the belief that broadband service providers will,
at some future date, seek to extract profits from the content segment of the Internet marketplace, and
net neutrality aims to stop it," says a new white paper issued by George S. Ford, Phoenix Center for
Advanced Legal and Economic Public Policy Studies chief economist, and Michael Stern, Assistant
Professor of Economics at Auburn University.

Net neutrality supporters that fear surplus profit extraction will take the form of “exclusionary” practices
such as unfair or discriminatory access prices, “fast lanes” and “slow lanes” where preferential delivery is given to content firms willing and able to pay more, or outright monopolization of content, the authors say.

Such concerns about business advantage, whether "unfair" or not, are different from the separate issue of whether currently-envisioned network neutrality rules actually provide incentives to engage in such behavior, the authors say.

Some observers might be shocked to learn that net neutrality rules could actually encourage such
business behavior, not restrain it.

In fact, the latest Phoenix Center analysis suggests that net neutrality regulation actually increases
incentives to engage in exclusionary conduct in the content sector.

"Firms always have an incentive to take those steps, which increase their profits," the authors say.
"Ironically, net neutrality rules, which are supposed to suppress privately profitable exclusionary conduct,
will actually have an effect opposite of what is intended."

Because net neutrality regulations now under consideration will not reduce the profits associated with monopolization of content, but only those associated with the participation in a competitive content market, the proposed rule encourages broadband service providers to take steps to reduce the diversity of voices on the Internet to the detriment of the public interest, Ford and Stern argue.

The point is that network neutrality rules impose pricing rules, and the issue is whether such
pricing rules are likely to encourage or discourage business policies that increase or restrict content
options.

An important question is whether or not the proposed price regulations “promote consumer
choice and competition among providers of lawful content, applications, and services” by
addressing an ISP’s alleged motivation “to exclude independent producers of applications,
content, or portals from their networks.”

The answer is “no,” the authors say. "Net neutrality rules of the type proposed by the FCC and the
Markey-Eshoo Bill encourage exclusionary behavior rather than impede it."

The policy implications of this analysis are numerous, but can be summarized at a very
high level as follows: the analytical foundation for net neutrality remains in its infancy and the
concept needs more time to evolve, the authors argue.

Since even the advocates of net neutrality regulation admit that there exists a “de facto net neutrality
regime” today, there seems to be little reason for a headlong rush into bright-line regulatory
rules when so little is known about the issue.

The rules proposed by both the FCC and Congress create incentives that may not even exist absent the regulation, and increase whatever incentives do exist for ISPs to behave badly in the content market.

Most troubling about the proposed rules is that net neutrality, it now appears, has become little
more than a quibble over profits between providers, a far cry from the origins of the concept wherein the focus was on the freedom to distribute and consume information without undue interference.

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Canada's Telecom Market Faces Deregulation

Canada's telecom market looks to  be on the cusp of a major wave of market restructuring as national government authorities now appear committed to liberalizing the Canadian telecom market by allowing investment by foreign interests above the current 46 percent cap on foreign investment in any Canadian provider.

That could potentially allow majority control by foreign investors. Observers say that if the liberalization moves succeed, it likely will drive a major wave of consolidation among Canadian providers, driven in part by the need to bulk up in advance of an expected wave of new entrants, many of whom will have significant resources.

The Canadian telecom business is about a $40 billion a year business and only recently allowed Egyptian-backed Globalive Communications Corp. into the mobility market.

Some speculate that any new rules would cap such control to firms controlling about 10 percent of the total Canadian market. One logically would expect the major interest to be in wireless assets, as wireless is the segment of the business with the strongest growth prospects.

Canada's leading service providers, such as Rogers Communications, BCE and Telus have criticized the Globalive decision.

Some financial analysts are not so sure there will be too much interest, though. "Even if foreign ownership restrictions were lifted today, we do not see much foreign strategic interest in Canadian incumbents," says Dvai Ghose, Genuity Capital Markets analyst.

AT&T, Verizon and Comcast still seem focused on domestic operations. In addition, Canadian telcos and cable companies currently trade at significant premiums to U.S. and European peers.

Still, mobile challengers are likely to attract some interest. That likely means more cap[ital will be available for mobile upstarts Wind, Public Mobile and Dave. Incumbents are likely to consider mergers as a defensive move, says Jeff Fan of Scotia Capital.

"We believe opening the doors to foreign investment in Canada will benefit the new wireless entrants in the near term by providing them with greater access to capital and allowing them to simplify their business structures," says  Phillip Huang, UBS Securities Canada analyst.

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Google Personalizes Search

Google personalizes as much as 20 per cent of a user's web searches, based on location, Web history, or online contacts, according Google software engineer Bryan Horling.

In addition to that, searches automatically are tailored based on what a user is looking for in a particular country, and has been doing so forr years.

The difference now is that Google is tweaking results based on the individual user's behavior. Horling says many of these changes are rather subtle. "When these techniques fire, the changes tend to relatively minor," he says. "We're moving a few results. We might be moving a few down. We're generally not changing the entire character of the page."

In early December of 2009, Google also began personalizing based on the cookies stored on any particular machine.

Google is also tailoring results to the user's particular metropolitan area or local region. Basically, the idea is provider greater granularity of results, based on as many behavioral and locational clues as possible.

Apparently, Google also is using contact information mined from Gmail and Google Chat or Buzz in its search results.

There are likely some implications for search optimization, as each user, in each place, on discrete machines, with discrete social networks, will see slightly different results when using the exact same search term.

That probably will defeat some amount of search optimization. That might not be such a bad thing for users, though some optimizers will not like it.

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Telecom Return on Investment: Implications for Broadband Policy

Return on investment for major U.S. communications service providers has been falling for about a decade, which means it is a clear trend.

In business terms, that means the largest, best-financed U.S. communications providers face a worsening situation, not a rosy and growing market.

Unless a person believes the U.S. government has access to enough capital to reinvent 90 percent to 95 percent of the nation's infrastructure, something that might cost $300 billion or more, policymakers are going to have to rely on the private sector to do the heavy lifting.

Though we are yet weeks away from knowing what the Federal Communications Commission actually will attempt to achieve as a "national broadband policy," we are years away from knowing how it all will work out.

The reason is that sweeping changes of this sort always result in years of litigation, even once rules are set.

It seems fairly safe to argue that, whatever emerges, the rules will not be as bad as service providers fear, nor as good as some policy proponents would like. So long as the nation requires private firms and private capital to do the vast proportion of the work, policies that negatively affect investment will doom the effort.

Nobody will be completely happy when the rules are announced, or modified and litigated. But rational policymakers will not kill the golden goose. And service providers likely will face some changes they would rather not have to confront. That's just the way these things work.

Mobile ARPU Illustrates Service Provider Issues

U.S. mobile service provider average revenue per user decreased by $0.45 over the last year, says analyst Chetan Sharma.

Average voice ARPU declined by $0.98 while the average data ARPU grew by $0.53.

Therein lies the problem: mobile service providers are growing data revenues, but losing voice revenue faster than they are able to replace the lost revenues.

That isn't to say they will not ultimately succeed in replacing the lion's share of lost voice revenue. But few executives likely believe the substitution will be one-for-one, or greater, at least in terms of broadband access replacing core voice revenues.

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50% Faster Email Performance Using Akamai and AppRiver

The amount of time it takes users to connect and sync with Exchange was reduced by half when using an Akamai-enabled AppRiver Secure Hosted Exchange solution, reports Compuware Gomez.

In other words, not all email services are created equal. Some can use optimization techniques such as Akamai to improve performance.

"AppRiver's relationship with Akamai is an excellent example of how network optimization can create a differentiated and improved IT service, in this case hosted Exchange," says Peter Christy, Internet Research Group principal analyst.

The enhanced performance also is an example of why overly-strict "network neutrality" rules that do not allow any forms of bit prioritization are problematic. There are lots of reasons to allow users, application and service providers to differentiate services and features, and better performance is foremost among them.

The AppRiver service offers a "one-of-a-kind, optimized hosted Exchange" service. The AppRiver and Akamai service essentially "privatizes" the connection between the user and the Exchange servers in order to create a high-speed virtual private network for AppRiver customers.

"By implementing Akamai's IP Application Accelerator service, AppRiver securely provides fast and reliable hosted e-mail for both wireline and mobile users," said . "Akamai improves the overall global experience for mobile device users by optimizing the Internet and minimizing the impact introduced by oversubscribed wireless networks," says Willie Tejada, Akamai VP.

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AT&T Will Use Yahoo as Default Search Engine on Motorola's Android-Based Backflip

AT&T apparently will launch the Motorola Backflip, its first Android device, pre-loaded with Yahoo, not Google, as the default search engine. The move is one more example of the growing complexity of value chains in the communications business, where access provider, handset manufacturer and application providers have distinct interests.

In a less-direct sense, the moves also are evidence that the days of the old Internet have changed. These days, there are lots of business deals and arrangements that shape user access to experiences on the Internet and World Wide Web, and which demonstrate that there are numerous "gatekeeper" roles now being played by a variety of participants.

Other Google apps, such as Gmail, Google Maps, Google Talk, Android Market and YouTube, remain.

It’s unclear if T-Mobile will ever have to do the same. It’s been about two years since T-Mobile USA launched its first Google phone, and it has yet to replace Google’s search on Android devces with Yahoo, despite having a similar exclusive partnership with Yahoo.

Last year, Microsoft got exclusive right to manage mobile search and advertising on Verizon’s handsets.

While Bing has been installed on several phones, including BlackBerry devices, Verizon’s Motorola Droid and HTC Droid Eris, come pre-loaded with Google’s search as the default.

Default settings still are seen as valuable because many users do not customize their application profiles on smartphones.

New York Times story

No Daily Show, Colbert for Hulu

Viacom will remove “The Daily Show with Jon Stewart” and other Comedy Central television shows from Hulu the week of March 8, 2010, apparently unhappy with the incremental ad revenue the Hulu viewings generate, or other terms of the deal.

You might say it is a skirmish in the wider war over content pay walls and other ways content owners want to preserve the value of their copyrights in the online ecosystem.

Consider the move a vote to protect and preserve the value of multi-channel video distribution. that isn't to say content owners are averse to extended online distribution, only to note that, at the moment, the value of multi-channel revenue streams vastly outweighs what Viacom has been able to realize from Hulu distribution.

Comedy Central apparently will continue to stream full episodes of the shows on TheDailyShow.com and ColbertNation.com, where Viacom might believe it can better profit from restricting the content to its own sites.

Hulu executives say revenue for both “The Daily Show” and “The Colbert Report” had been growing. “In the past 21 months, we’ve had very strong results for both Hulu and Comedy Central, in terms of the views and revenue we’ve generated,” says Andy Forssell, Hulu SVP.

Three of the broadcast networks, ABC, NBC and Fox, own stakes in Hulu. Viacom’s decision may suggest that the economics of Hulu make less sense for content providers that lack equity in the Web site.

It isn't as though online availability now will cease. It is simply that viewers will have to navigate to the Viacom-owned sites.

No Daily Show for Hulu

2009 Was Tough for Cable and Telcos, 2010 Will Be a Bit Better

Fitch Ratings analysts say 2010 will be a better year for telcos and cable providers. There are challenges, to be sure. But the biggest question is whether cable and telco companies will be able to keep finding new revenue sources to replace those being lost.

European telcos face further stagnation of top-line revenues and likely have further to go in the process of cutting operating expenses, say analysts at Fitch Ratings.

The weak economic recovery, continued regulatory pressures, maturing service penetration and strong competition, are some of the key forces putting pressure on cash flow and profit margins.

At the same time, service providers are forced to continually invest in mobile and fixed network upgrades  to keep abreast of burgeoning data traffic demands, Fitch says.

To be sure, operators are introducing new services to replace declining revenue sources. But it "looks unlikely that the network operators will benefit from new service revenues in the way they did from SMS data," Fitch says.

Incumbent cable and telco providers in the United States will face many of the same pressures, including increased amounts of competition, wireless substitution and a sluggish economy.
Traditionally, U.S. telecommunications and cable service demand has lagged economic recoveries, and high unemployment, despite the recovery, as well as pressure in the housing sector will put pressure on 2010 financial results.

Fitch expects this lagging trend to continue and any U.S. economic improvement in 2010 will likely not be reflected in telecommunications and cable results until 2011.

"Although the telecom and cable industry has maintained strong liquidity and free cash flow, macroeconomic woes including unemployment rates and a struggling housing market will continue to limit financial growth for the sector," says Michael Weaver, Managing Director at Fitch.

Fitch estimates that aggregate access line losses for 2009 will be approximately 10.5 percent for retail local telecommunications providers. There was a bit of a change in 2009 as slower losses to cable voice providers was offset by higher business access line losses.
Business and residential access line losses should stabilize in 2010 and continue in the range of 3 million to 3.2 million each quarter, which would represent a yearly loss of approximately 12 percent, says Fitch. There is a statistical artifact here.

As the base of voice lines declines, a fixed number of lost lines represents a larger percentage change than it used to. So although it appears at first glance that line loss is accelerating, that is not the case. The decline is steady, but larger in percentage terms.

The loss of legacy revenue of course heightens the importance of new revenue sources for fixed network operators. Broadband access had been such a driver in the 1990s and early 2000s, but is less significant now that the market is saturated or nearly saturated. Fitch estimates that high-speed access subscriber growth slowed in 2009 to 1.7 million net subscriber additions.

In 2010, net new additions should slow further to 1.4 million accounts. But make note: Fitch believes wireless broadband substitution now is poised to become a material factor in line growth.
Multi-channel video likewise has been a growth driver for Verizon and AT&T, but also is slowing. Fitch estimates that net new video customers will grow by two million subscribers in 2009, slowing in 2010 to approximately 1.5 million.
Commercial service revenue will face a roughly flat situation in 2010 after 2009 declines over six percent for wireline companies. In 2010, commercial revenue will grow about one percent.

In total, Fitch estimates that aggregate wireline revenues will decline in 2010 near the mid-single-digit range, a modest improvement over 2009. EBITDA will similarly fall in aggregate by a low- to mid-single-digit range for the industry as benefits from headcount reductions offset losses of high-margin legacy services.

Cable operators also saw accelerating video subscriber losses in 2009 with a reduction of approximately 2.75 percent. Subscriber losses are the result of weak new home growth, but more important, they are the result of competitive erosion from direct broadcast satellite and telco video offerings.

The cable basic subscriber erosion rate will accelerate in 2010 as competitive pressure remains fairly constant, but there will not be the lift from digital television conversion that boosted cable performance in the first and second quarter of 2009.

Fitch estimates that basic subscriber erosion will increase to approximately 3.5 percent in 2010. High=speed access additions also slowed materially for cable  operators in 2009, and Fitch expects subscriber growth of approximately 1.7 million in 2010.
New DOCSIS 3.0 services should help cable operators in the commercial space, though.

Cable telephony subscriber growth rates fell rapidly in 2009 with a reduction of over 40 percent, but with operators still adding two million net subscribers. Fitch estimates that cable telephony net additions will fall to 1.4 million in 2010 as wireless substitution and weak housing-starts affect results.

Cable operators successfully increased their share of the small business and home office market in 2009. Fitch estimates that commercial service revenue increased by approximately 25 percent for cable companies in 2009.

In 2010, operators will start to move up to the mid-size business customer segment in 2010. Fitch estimates that cable revenues will increase in the three percent to five percent range in 2010 and that firm margins will lead to a similar level of EBITDA growth.

Fitch estimates that the total wireless subscriber base grew by about five percent in 2009 andwill slow to four percent in 2010.

Post-paid net additions declining by 42 percent for 2009 compared to a 36 percent decline in 2008. However, data services and advanced devices such as smartphones, netbooks and aircards kept post-paid gross additions relatively flat in 2009. That might not be too comforting, as it shows churn rates are greater than new customer acquisition.
Fitch estimates that prepaid net additions will increase by nearly nine million in 2009 compared to approximately five million for post-paid. Fitch expects that pre-paid additions will again achieve in 2010 a level similar to 2009.

Voice average revenue per user (ARPU) continues to erode at a growing pace approaching double digits in 2009 in part due to lower roaming revenue. This trend will continue in 2010 and at a level equal to or even higher than 2009.

Data ARPU growth has limited the impact of voice ARPU erosion on total ARPU, which has remained relatively steady. Fitch continues to believe that strong data growth will again be achieved in 2010.

In aggregate, Fitch forecasts that wireless revenue will increase in the mid- to high-single-digit range in 2010 and that margins may erode slightly because of higher marketing and retention costs and the success of unlimited prepaid plans.

Fitch expects that capital expenditure will be flat in 2010. Free cash flow increased by 20 percent in 2009 as companies materially reduced capital expenditures.

Fitch believes that FCF will again increase in 2010 by approximately 10 percent due to modestly higher aggregate EBITDA and continued low levels of capital expenditure.


Fitch Ratings

Do People Pay for "Access" When "Buying Content"?

James McQuirvey, Forrester Research VP, thinks people often pay for "access" when they "buy content." It's a complicated idea, in some ways. The point is that "access" still provides lots of ecosystem value. 

Collaboration is More than "Communications"

Collaboration is much more than communications, as Dave Michels points out. That is an area of fuzziness when we now speak of "unified communications and collaboration."

Communications is supposed to aid and foster collaboration. "Unified" approaches are supposed to help.  Sometimes they do. But not always.

Some of us are unfortunately old enough to remember when new investments in local area networks and related technology were supposed to improve productivity. Then we went for a decade without seeing measurable productivity gains people could agree on.

Then we had a decade when those investments finally seemed to pay off. The point here is that productivity gains sometimes require retraining people, so processes can be redesigned. And that can take a while. More than just a couple of years, as it turns out.

That does not mean IP communications will fail to deliver meaningful productivity gains. It does mean we often overestimate what is possible in the near term. But we also tend to underestimate what is possible longer term.

Somebody recently reminded me that some of us can remember a world before "Carterfone." Others just "heard about it." Of course, the Carterfone decision happened about 42 years ago. The issue then was simply the legal right to attach a modem to the public switched telephone network.

Where we are today began with Carterfone, but has far outstripped what anybody might have believed was possible. One suspects the world will be affected far beyond what anybody now can imagine in another 40 years.

We are likely then to face incredulous looks when people are told how work and play was mediated by networks in 2010. "That's all you could do?" is likely to be their response. Of course, in 2050 we will be about as far from Carterfone as Carterfone was from the invention of the telephone.

We will get further than any of us can now imagine. But we can go a decade or so before any important innovation has time to really change the way people live and work.

And some innovations just never have too much long-lasting impact. ISDN, ATM, and OSI come to mind. Don't worry, in some ways they are just like Carterfone: steps on a long journey.

What Does iTunes and App Store Behavior Indicate?

About 75 percent of iTunes digital music buyers are 25 or older, says Forester Research analyst Mark Mulligan. I admit I haven't been paying any attention to the demographics of iTunes downloaders, so that comes as a surprise to me.

Apple iPhone app "for fee" downloads, on the other hand, seem to be growing at a faster rate than iTunes songs did. I haven't seen age demographics on iPhone downloads, but it stands to reason that users 25 and older are the dominant iPhone demographic. In 2008 and 2009 it appears that about 30 percent of iPhone buyers were younger than 25.

What might all that mean? Mulligan argues that music products are not as interesting to buyers as applications are. He also argues that music is not as important to buyers under 25 as it seems to be among users older than 25.

The implication there is that iTunes and music downloads have not quite caught on with younger users as one might casually assume is the case. One might note that music purchases might be more common among users with higher disposable income, which would skew to older demographics.

One might argue that music is just as important to younger users as older users, but that sideloading or illegal downloads are the dominant acquisition method.

Mulligan's observation is that the music industry still has not found a way to increase the attractiveness of its product among the upcoming generations of consumers.

I'm not entirely convinced that conclusion is completely warranted. It might be the case that downloads are driven by users 25 and older, just as music downloads seem to be.

On the other hand, one has to note that gaming applications are arguably more popular with iPod "touch" users, use of which definitely skews to the teen market segment. I'm not sure how downloading of paid apps stacks up in that demographic.

One might argue that what iTunes and the App Store have shown is a clear value for users as a means of content and application distribution channel, irrespective of age. So far, "free" apps seem to constitute 85 to 90 percent of all downloads from the App Store.

Eric Schmidt, Google CEO, in 1986

Google CEO Eric Schmidt in 1986. Times do change! Kind of like looking at your high school yearbook, eh?

Google Adds "Nearby" Function for Search

Location has become an important part of the way we search, the Google Blog says, in something of an understatement.

"Simply put, location changes everything," Wired technology writer Mat Honan has said. That might be an exaggeration, but one intuitively can sense the potential to change behavior in the real world, if people easily can ascertain what is around them.

The key for marketers is to understand what kinds of information people want when they're tied to a certain place. One analogy might be that search solved the "what is" problem. Social networking provides a "who" context filter. Location awareness changes the "where" context.

In the early going, people are going to experiment with retail location offers. just as in the early days of the World Wide Web companies put up brochures online. But as the Web moved from static to active, interactive and real-time applications, so will the use of "location" features.

One might say the shift is from manually searching for "what is around me" to having that information show up automatically, without having to ask. Promotions and advertising will be important, but so will new applications that relate to where a person is, right now.

That might mean on-the-spot offers for travelers waiting to board a flight, missed connection options, or seat upgrade information.

"If you're a foodie looking for restaurant details, food blogs or the closest farmer's market, location can be vital to helping you find the right information," Google says. "Starting today, we've added the ability to refine your searches with the 'Nearby' tool in the 'Search Options' panel.

The search process also has been revised, Google says. If "Minneapolis" is the query, results will be returned for "St. Paul" or "Twin Cities," as well as "Minneapolis."