Google Wants The Best Answer

"Back in 2001, Eric asked for a brainstorm of a few "splashy" ideas in search," says Marissa Mayer, Google VP. "I made a few mockups, one of which was for "universal search," she says. "It was a sample search results page for Britney Spears that, in addition to web results, also had news, images, and groups results right on the same page."

"Even then, we could see that people could easily become overwhelmed with the number of different search tools available on Google, let alone those that would be created over the next few years," Meyer says. "This proliferation of tools, while useful, has outgrown the old model of search," says Meyer. "We want to help you find the very best answer, even if you don't know where to look."

That mockup and early observations were the motivation behind the universal search effort Google expects will break down silos of information that exist on the Web. Google's vision for universal search is to ultimately search across all its content sources, compare and rank all the information in real time, and deliver a single, integrated set of search results that offers users precisely what they are looking for. Google already is incorporating information from a variety of previously separate sources – including videos, images, news, maps, books, and websites – into a single set of results.

In principle, the new approach means that searches on a single key word or phrase will return unified results that might previously have required separate searches in "Web," "news," "video," "image," "people" and "maps" engines.

Google also is deploying a new technical infrastructure that will enable the search engine to handle the computationally intensive tasks required to produce universal search results and releasing the first stage of an upgraded ranking mechanism that automatically and objectively compares different types of information.

New dynamically generated navigation links have been added above the search results to suggest additional information that is relevant to a user's query. For example, a search for "python" will now generate links to Google Blog Search™, Google Book Search™, Google Groups™, and Google Code™, to let the user know there is additional information on his or her query in each of those areas.

As a result, users can find a wider array of information on their topic, including data types they might not have initially considered.

Google's homepage and a number of applications have also been updated with a new navigation bar to provide easier access to popular Google products. Now, instead of having links above the Google.com homepage search box, users will see a navigation bar on the top left side of the page with various Google search properties and popular products including Gmail™, Google Calendar™, Google Docs & Spreadsheets, and Picasa Web Albums.

Google also announced a new experimental version of its popular search service called Google Experimental, available on Google Labs. This new test site provides users an opportunity to try out some of the latest search experiments and innovations and provide Google with feedback.

One of the first experiments to be featured on the site enables users to view their search results on a map or timeline. For instance, when someone searches for "Albert Einstein" on Google Experimental, they can choose to view the search results on a map that shows locations mentioned within web pages about Albert Einstein or on a timeline that illustrates the history of Albert Einstein's life.

Skype 2.6 for Mac Now Available

Skype has released Skype for Mac 2.6, the latest version of its communication software for Mac users. For the first time, Mac users will be able to enjoy a new Skype feature before it's available to Windows users.

Specifically, Mac 2.6 offers a new call-transfer feature that is exclusive to the Mac platform. Users can now select More > Call Transfer to transfer an ongoing call to another Skype user on their contact list. It is obvious how this will appeal to small business users, especially lone eagles and remote personnel.

Beyond the exclusive call-transfer feature, Skype for Mac 2.6 incorporates a number of nice Skype features that were previously only available on other platforms.

Mac users now can join public chats. There is a chat typing indicator. Skype Prime offers the ability to call a premium-service provider and pay for their advice and knowledge with Skype credit.

Automatic updates are automatically pushed to end users and DTMF tones for automatic answering services are available during Skype-to-Skype calls.

Past Early Adopters?

Wal-Mart is offering Skype certified hardware in 1,800 of its stores throughout the United States, including headsets, webcams and handsets, as well as the first prepaid cards for Skype available in the U.S. Either Skype and Wal-Mart think Skype is way past the early adopter phase, or else both believe early adopters shop at Wal-Mart. We think the latter might be closer to the truth.

"Free is Going to Win..."

The paid video download market is ultimately a dead end, argues Forrester Research analyst James McQuivey. "Free is going to win."

Online video sites that sell shows and movies such as Apple Inc.'s iTunes will likely peak this year as more programming is made available on free outlets supported by advertising. Sales of movies and television shows are expected to almost triple to $279 million in 2007 from an estimated $98 million last year.

"In the video space, iTunes is just a temporary flash while consumers wait for better ways to get video. They're already coming," says McQuivey, who says the paid download video market a "dead end."

That's certainly the developing conventional wisdom, but might not be entirely accurate. Most video watched today is partly ad supported, and partly subscription based. U.S. Cable TV revenues of $74.7 billion include $33.6 billion of basic cable (ad-supported channels) and $6.5 billion in commercial-free premium channels. Cable advertising is about $5 billion annually. So for linear video, ad support is crucial for most channels.

But "pay to own" or "pay to watch" models also are well established. The "pay to own" market includes $16 billion of annual movie and DVD sales. The "pay to watch" segment includes $8 billion in rental revenue. None of that is likely to change simply because a new distribution method is added to the legacy mix. In other words, "pay per view" or "on demand" always has been a smaller portion of overall video consumption.

So the conventional wisdom probably is right: ad support will drive most online video viewing. But not all. There still will be some appetite for downloading to own, just as people now watch ad-supported video and buy DVDs.

Need Engineers? Buy a Company

Google buys a start-up once every few days, or around one a week, says Google CEO Eric Schmidt. "In the past, we would buy businesses in lieu of (hiring) engineers." That's why they call it "Google speed."

Bye Bye Walled Garden

Whatever else it may do, the iPhone probably has killed any hopes mobile carriers might have harbored that they could create and control musice downloading walled gardens. Alltel, for example, is launching Jump Music , free of digital rights management and supporting side loading, so users can upload music they already own into their handsets.

Jump Music allows transfer of existing owned music to phones including the LG AX8600, MOTOKRZR K1m, MOTORAZR V3m, The Wafer by Samsung and the aforementioned u520. We also note that Sprint Nextel has realized the market price for a song is 99 cents, not $2.99.

Wholesale Poised for More Growth?

Business end users have, for as long as I can remember, had the ability to create their own voice services as an application. We call that a phone system. What's new these days is that there are more ways enterprises of all sorts can create their own voice services. And some of those same mechanisms can be used by consumers as well. Click to talk from a web site is one example. Instant messaging integrated with Session Initiation Protocol is another example. Voice-enabled gaming is another good example.

My assumption is that calling remains most useful when any telephone number can be called, without the constraints of who is in one's community or directory, uses a compatible client or device. And that means there is a growing business for wholesale providers of voice capabilities including, but not limited to, termination services. Which leads one to wonder whether the wholesale portion of industry revenues might be poised for even more growth. How could it be otherwise?

And might that be the case even though sales of traditional products appear to be falling? At least that's what The Yankee Group suggests is happening. The problem with tracking wholesale revenues is that the category tends to include all sorts of things. Access fees paid for termination provide a good example. What is difficult to capture are wholesale sales of services to retail providers of wireless, wireline termination and orgination, whether those entities are service or application providers or large enterprises that repackage voice termination as a feature.

That especially is true when an application provider basically needs to buy only dedicated Internet access or other bandwidth in order to make the voice application available to a wholesale customer. One wonders whether falling prices are not more than balanced by increased usage, even for legacy services, to say nothing of harder to measure IP-based wholesale.

Vonage Preps Workaround

Vonage thinks it has found a workaround that avoids any of the claimed Verizon patent infringements and plans to begin implementing them shortly, says Jeffrey Citron, Vonage interim CEO says. Vonage's new technology can be installed through software downloads and shouldn't be costly to deploy, Citron says.

Joost Raises $45 Million...

From Index Ventures, Sequoia Capital, Li Ka Shing Foundation, CBS Corporation and Viacom. Viacom and CBS have also signed content deals with Joost. At launch, Joost had secured programming from CBS, Sony, Turner and Warner Brothers, as well as sports coverage of the National Hockey League and Indy car racing. The free-to-view service is funded by advertising from Coca-Cola, Nike and others.

Skype for Salesforce.com AppExchange

Skype now has been optimized for the Salesforce.com AppExchange. That means Skype can be integrated with Salesforce on-demand customer relationship management applications.

Lightspeed Capex Goes Way Up...

It used to be said that Lightspeed, at&t's fiber-thinner upgrade, was far better than FiOS, Verizon's fiber to home upgrade, because Lightspeed would require just a third of the capital. Well, guess again. at&t just revised its capital spending upwards, so that Lightspeed will cost about half of what FiOS requires.

You might argue, and many will, that half the capex still is an advantage. If it works, yes. If it scales, yes. If it offers competitive advantages over cable, yes. But keep in mind that cable isn't standing still, in the access or services areas.

Lightspeed capex now will increase from $4.6B to $6.5 billion, at&t says. at&t also says the scope of the project is being reduced from 19 million to 18 million homes.

The 41 percent increase perhaps indicates that things are not going as planned, in the transport area as well as the software area. New copper wire might be one thing. Reconditioned wire is another.

To be sure, there are scenarios one can imagine where the fiber to node approach still makes sense. Rural markets come to mind. What a provider has to do to meet conceivable demand in such markets, and the cost to do so, arguably are distinct from what at&t or Verizon must do in their core metro markets. Still, it does remain my view that Verizon has taken the wiser course.

Don't Assume Users Want All Ths Technology

No wonder adoption of VoIP and other new services by U.S. consumers has been so bifurcated: users are bifurcated, according to a new survey by the Pew Internet & American Life Project. Significant audiences exist for heavy use of the latest Web 2.0 innovations, ranging from social networking, blogs and wikis through user generated video. But there's also a much larger audience that makes relatively limited use of mobile communications, computers and the Internet. Most significantly of all, there is significant sentiment in all usage segments--heavy users, moderate users and lighter users--that all the connectivity is at best a mixed blessing.

About 31 percent of U.S. consumers are heavy users of technology and communications products, though eight percent of users in the "heavy use" group are not thrilled about being so heavily connected. So mark about 23 percent of U.S. technology users as "heavy and happy" users.

About 20 percent of users are "middle of the road," using both mobile phones, the Internet and PCs. But again, only half find all the technology a blessing. Nearly half of all U.S. consumers, though, only occasionally use mobile and Internet technologies. About 26 percent of U.S. consumers are relatively indifferent to information and communications technologies including mobile phones, PCs and the Internet.

In each of the three main "intensity of use" groups (heavy, middle of road and light users), there is significant dissatisfaction with use of technology. Add up all the dissatisfied users, in all usage intensity groups, and fully 44 percent of U.S. consumers really aren't happy with all the connectivity in their lives.

Contrary to "conventional wisdom," most people are not heavy users of most of the newest technology. Some who are heavy users aren't happy users. Nearly half of users don't even use their mobile phones, PCs or the Internet all that much. And fully half of the "middle of the road" users think all the connectivity is something of a problem, not a solution.

Add it all up and about 23 percent of all users are "heavy" communications and information technology users, and think that is a good thing. Everybody else is a moderate, light or non-user. About 44 percent of all users actually refuse to use new technology, or use it and find it creates problems as well as solving them.

Everybody Hopes to Cross the Chasm…

You probably are familiar with the notion of “eras” of technology, including the certifiably historical observation that the market leaders in the era of mainframe computing were not the leaders of the minicomputer market that followed.

The leaders of the minicomputer business were not the leaders of the era of personal computing. And just about everybody now agrees we are in transition to another era of “Web,” “network based” or some other distributed form of computing architecture.

Then look at “moving pictures.” There was the era of “three big national networks.” Then there was cable. Now something else may be stirring. Then look at advertising. First there was only “local” media. Then we had “mass media.” Then media began to fragment. And now we have Google and search. Personal video recorders. Web portals.

Information technology used to follow a predictable pattern. Invention in the universities. Then diffusion to money center banks, then to enterprises, then to service providers. Now it is more like university invention, diffusion to consumers, then to service providers and lastly to enterprises, says Cisco General Manager Dan Scheinman.

The point is that every incumbent wants to cross the chasm and lead the next era. History argues against it. Which begs the obvious question. Will the leaders of today’s business be the leaders of tomorrow’s business?

To be sure, incumbents are spending like they want to succeed in the next era. Paul Silverstein,Credit Suisse analyst, points out that U.S. telecom capital spending this year will exceed spending of the boom year of 2000. Analysts at other firms say the same thing: telecom capex is at extremely robust levels.

WalMart is creating a video download site. Not because they expect to make so much money at it, but because they cannot afford to have the name “Apple iVideo” come to mind when any consumer decides they want to buy video content and download it.

Comcast would not be investing in user generated video and download to PC capabilities if it though its linear video model was safe. Neither would studios be so anxious to embrace digital delivery is they thought the current distribution model had secure legs.

In fact, the global IT industry would not be in such a headlong rush to secure a dominant place in the consumer electronics industry if business IT was still seen as the global driver of growth.

Then there’s the voice business. By 2010, 95 percent of enterprises will have integrated communications into their business apps, says Dar Shaw, Microsoft director. So think about that. Enterprise drives the bulk of carrier profit, and close to half the gross revenues for most tier one service providers.

And in a few short years, applications themselves will originate and terminate voice and text communications. Video won’t be far behind. Aside from data connections on both fixed and mobile networks, how much former communications will have shifted to some applications-based origination and termination?

And as Dan Creed, CopperCom executive says: “The only web-based service not available online for your telco customers are your own voice services.”

All of which points out a huge challenge for service providers used to selling “voice” as a recurring service: if any service—including voice—is available on any device, any time and anywhere, how is that to be done?

One hears a great deal of fear and loathing about Google and other application providers. In fact, lots of telco executives fear Google more than any cable company. Google and Yahoo! are the competition. Those are the trusted brands for the younger generation.

And while every service provider ought to be developing new applications running on any device, on any network, at any time, there’s a sheer limit to how much innovation any single provider can generate.

Look at it another way. In an era where application development and innovation gets easier and easier every day, the “gate” or “barrier” to innovation is human ingenuity. There are fewer and fewer regulatory, technological or market structure barriers.

So how many of the world’s supply of ingenious and talented human beings work at your enterprise? How many of the smart and clever people work in your whole industry segment?

You know the answer. Most of the creative, smart, talented people, with an actual grasp of what they really want to do, work and live someplace else.

Nobody will get very far on their own internal resources. And that means carriers and service providers have to find ways to open up what they do and work with all those other people. “Fighting Google” leads to a death spiral.

And that inevitably means loosely-coupled services that embrace the Web, even if those services cross over and interoperate with fixed and wireless networks. A smart service provider might create a couple, or maybe even as many as 10 interesting and rewarding applications.

No service provider is going to create scores to hundreds of services so interesting people will pay money for them. In fact, so long as large service providers insist they must concentrate on new services bought by “70 percent of their customer base,” we can almost predict they will develop but a few successful apps.

Think about the last couple of decades. What apps are bought and used by “70 percent” of tier one service provider customers? Wireless voice and voice mail. Throw in broadband access. SMS. Mobile data. Forget about 70 percent. How about 30 percent? And that’s being charitable.

Service providers need to learn to innovate “at Google speed,” as John Lazar, MetaSwitch CEO, puts it. That doesn’t mean the innovation will be mostly home grown. It mostly will come from external developers, and mostly from Web-based sources.

So fighting “Google” won’t work. “Not invented here” is a death wish.

BT Readies for a Custom World

It's easy to be critical of large scale corporate reorganizations. Not many seem to produce measurable results. So BT's new reorganization into two primary business units, BT Design and BT Operate, might not ultimately provide all BT now hopes it will. But you can't fault the company for pushing really hard to create a more unified way of creating new services. Because of the old "silo" or "bucket" form of organization, many telcos and software firms find they have warring business units fighting solve customer problems in different ways. BT would like to avoid that.

The point is that development of new services in many cases requires interworking of applications and features across networks and devices, especially the networks and devices any single provider operates. So the new organization aims to coordinate IP product development and deployment across BT's four businesses: retail, wholesale, global services, and Openreach.

The expectation is that it will be much easier and quicker to create and launch new products. It also is expected to generate significant cost savings, which BT will outline alongside next month's financial results.

BT Openreach's position as a provider of highly regulated broadband and phone products to BT's rivals remains unchanged. But the other three BT divisions - retail, wholesale and its global services IT unit - will become focused sales and marketing units. When the units want to create new products they will call on BT Design and the installation will be run by BT Operate.

The changes acknowledge the firm's increasing reliance on software and IP services by creating a new strategy unit to oversee the existing retail, global services, wholesale, and Openreach divisions as well. As CEO of group strategy and operations, Andy Green will be responsible for better coordinating new products and services across the divisions through two new business units.

In part, the new organizational architecture might have drawn inspiration from the success of BT's Global Services unit, which has been operating more as a system integrator of late, with the need to customize solutions for virtually every customer. So the expectation seems to be that a similar organization will benefit development of products aimed at mass markets, small business customers, other carriers and wholesale customers as well.

At the same time, the older organization wasn't so successful at creating and marketing new services, and BT isn't the only tier one carrier to find this a recent problem. Deutsche Telekom, to cite just one example, had to shut down its fixed mobile convergence service for lack of demand.

In fact, despite rather massive publicity, three flagship BT products—BT Fusion, BT Movio and BT Vision—have scant customer penetration to show for their efforts. BT Fusion, the fixed wireless convergence product, had just 40,000 customers 15 months after launch.

Similarly, BT Movio, the company's flagship mobile TV product has failed to make an impact in the market. Virgin Mobile, the sole licensee

of the product, disclosed in January 2007 that customer numbers remained painfully low. Limited choice of handsets seems to be an issue. Also, there is a standards issue. The European mobile industry might adopt a rival digital video broadcasting handheld (DVB-H), means other U.K. mobile operators are reluctant to embrace the service.

BT Vision, the company's IPTV service, hasn't done better. BT says it signed up just 2,400 non-BT-employee customers in four months.

Recent experience in the U.S. market reinforces the notion that it will be devilishly hard to create new services with the particular

attributes buyers want. Just about everybody in the VoIP business who has really pushed hard at bringing new features to market reports weak adoption of really new services. About the only thing that consistently works, in the mass market or small business segment, is POTS replacement. In some cases, it appears that something as elemental as "handset choice" is enough to doom a service.

Is it not abundantly clear already that the handset business requires lots of choice, rapid replenishing of models and features, and other attributes more commonly thought essential in the fashion business, where product lines are renewed every quarter? In other words, carriers cannot bring an "industrial" model to a mass market which already has shifted to the "fashion" model.

BT hopes its new focus will bring some of that needed speed and creativity to its product development efforts.

Call Your Mom, It's Free

Skype users can call their mothers, or anybody with a telephone number, all day on Mother's Day, May 13. So call your mom.

Google: Mobile, Mobile, Mobile

Nobody outside Google seems to know precisely what Google is up to in the wireless domain, aside from deals to preload Google on mobile handsets. Maybe it has developed a Google phone, as a proof of concept, but has to plans to bring it to market. It certainly is working on software that allows users without PC access to use Google applications.

Google clearly is up to something. When Eric Schmidt, Google Chief Executive, was asked about intriguing technologies, he answered, "mobile, mobile, mobile."

Another Run at Yahoo?

It looks like Microsoft is pondering another run at acquiring Yahoo! It would rank as the largest acquisition Microsoft ever has made, at about $50 billion, and observers question how easy it might be to meld the two cultures. Still, the speculation points out how important it is for Microsoft to catch up with Google in the advertising-supported business model arena. There's a clear logic, despite the difficulties. Microsoft admits it was late to "get" the Internet. It hasn't punched through to the top in the portal space. It is an also ran in search.

For those of you who follow technology industry history, you know the leaders in any era of computing have not lead the next era. The mainframe leaders did not lead during the minicomputer era and those leaders fell as the PC era took shape. The issue is who leads when the next era, for which we don't have a universally accepted name, but might be called the "network" era of computing.

History is against Microsoft and Cisco, though both are striving mightily to cross the chasm of era leadership. Cisco tells the better story, in that regard.

3G Data is About Moving Photos

The single most important 3G mobile data application is sending photos from one mobile to other users.

U.K. Mobile Calls Drop for the First Time

U.K.mobile phone call volumes have dropped for the first time in 10 years, according to the annual JD Power survey. The survey, of nearly 3,000 U.K. mobile phone users, found that prepaid customers are making an average of 10 calls a week, falling from 14 last year, for example.

Contract customers average 27, down from 35 in 2006, but those customers are now sending 46 text messages every week, up from 32.
Wider adoption of text messaging for communications now is having the same effect on mobile call volumes as email has had on voice communications. Worse, from a mobile provider perspective, is that as text replaces voice, revenues are dropping.

Prepaid customers now spend an average of £12.35 per month, down from £19.29 last year, and even contract customers have seen a 20 per cent drop in their bill (from £40.44 to £32.45).

It's All About the Handset

Features and form factor are the primary motivators of American consumer phone purchases, with flip-phones continuing as a favored phone type, says The NPD Group. But brand was the third most important reason.

“With few exceptions, buyers have ranked these two criteria highest (roughly 40 percent) over the past seven quarters,” says Ross Rubin, director of industry analysis for The NPD Group.

Age can play a role as well in the purchase of a handset. Buyers 18 to 24 chose “it’s a cool phone” as their top motivator for buying a handset during the past year. Those 25 to 44 most often chose “had the capabilities I wanted.” And consumers 45 and older, chose “flip phone / can be closed” as their top criterion for purchase.

The youngest buyers seek a device that reeks of “cool” (design is key, but the phone has to deliver on functionality, too). Young to middle-aged buyers want a wide range of capabilities. Getting just the right combination is the trick.

For people just past middle age and the older crowd, a solid flip phone with basic capabilities will do, though the brand is still important, says NPD. Judging by those responses, Apple's iPhone has a shot at serious traction, as it seems to hit on all the key criteria for buyers below age 45.

Harris Interactive recently took found that 47 percent of respondents were aware of the product and a full 17 percent expressed interest in purchasing it, which makes for a pretty loud buzz from consumers for a product that isn’t yet available.

Perhaps a more interesting question to ask is when U.S. adults would buy this product. Of those expressing interest to purchase, nine percent say they would buy at product launch and another eight percent would buy before their current wireless service contract expired. About 17 percent say they would wait for their current wireless contract to expire before purchasing and 25 percent would purchase it - when their existing wireless carrier offers the iPhone. Finally, a full 40 percent of buyers intend to wait for the price to come down.

Survey results show the hottest iPhone feature was its large storage capacity (37%). This is followed by iPhone quad band worldwide capabilities (36%) and its easy to use/drop dead cool user interface (31%). Overall, high powered multi-functional mobile devices like the iPhone have strong appeal (or Apple-al) to about 31 percent of the marketplace.

This Might be Good for Vonage

In a decision issued April 30, the U.S. Supreme Court reinvigorated the "obviousness test" used to determine whether a patent should be issued. Ruling in the case of KSR v. Teleflex, the Court found that the US Court of Appeals for the Federal Circuit, which handles patent appeals, had not been using a stringent-enough standard to determine whether a patent was infringing.

At issue in KSR v. Teleflex is a gas pedal manufactured by KSR. The pedal has an electronic sensor that automatically adjusts its height to the height of the driver. Teleflex claimed that KSR's products infringed on a patent it held. KSR said that Teleflex's patent combining a sensor and a gas pedal was one that failed the obviousness test, and as such, should not have been granted.

Since 1952, legislation has mandated that an invention can not be patented if a "person having ordinary skill in the art" would consider it obvious. Many observers think Verizon's patents are overly broad. Basic mechanisms for connecting calls between the public switched telephone network and IP networks might be a similar sort of thing.

KSR argued that the US Patent and Trademark Office should have denied Teleflex's patent, as it only combines components performing functions they were previously known to do.

The Supreme Court ruled that the Federal Circuit had failed to apply the obviousness test. "The results of ordinary innovation are not the subject of exclusive rights under the patent laws," Justice Anthony Kennedy wrote for the Court. "Were it otherwise, patents might stifle rather than promote the progress of useful arts."

The Supreme Court also said that the Federal Circuit's conception of a patent's obviousness was too narrow. "The Circuit first erred in holding that courts and patent examiners should look only to the problem the patentee was trying to solve," according to Justice Kennedy's opinion. "Second, the appeals court erred in assuming that a person of ordinary skill in the art attempting to solve a problem will be led only to those prior art elements designed to solve the same problem."

So Teleflex's patent has been invalidated and more importantly, the Federal Circuit will now have to pay closer attention to a patent's obviousness. That may be good news for Vonage.

EarthLink Not So Sure About Muni Wi-Fi

EarthLink says it is studying the financial performance of its municipal wireless Internet networks in four cities--Philadelphia, New Orleans and California's Anaheim and Milpitas--before deciding how to move forward with similar Wi-Fi networks elsewhere.

While more cities are expressing interest in striking deals with the company, EarthLink is "not yet able to establish that comfort level" that the investments are really profitable, says Kevin Dotts, EarthLink's chief financial officer.

That's sort of the whole problem with Wi-Fi. It is a fabulously useful local access tool. It just never is quite so clear that it is a business, or a good business. Indoors is one story. Outdoors is quite another. As useful as Wi-Fi is indoors, muni Wi-Fi suffers in that respect. Sure, handhelds capable of doing something useful with outdoor Wi-Fi are getting to be more common. But they aren't yet real common. And I don't know about you, but I never use my notebook outdoors. My mobiles don't have Wi-Fi access. And I'm not really interested in downloading music to my iPods using Wi-Fi. Other people might want to do these things. The issue is whether there are enough of them.

It's Hard to Do Any Better Than This

Verizon added more than a million new wireless customers in the first quarter, outpacing at&t. And its churn remains astonishingly low. Millions of households move every year, and the propensity to move is much much higher for younger mobile users, who might arguably represent the highest churn demographic. A household churn rate of just one percent a month (people moving) would still generate 900,000 switchers in a quarter. Of course, mobile providers have one advantage wireline providers do not. When somebody moves out of state, the mobile account doesn't necessarily have to change. The landline voice, broadband access and video account might well have to. So wireline services always face an uphill battle to get churn down to just one percent a month.

It's All About ARPU and Churn

How bundling is good, or whether bundling is good for customers might be debated. There isn't much question about whether it is good for service providers. "When you look at consumer customers from a bundled standpoint, customers that are stand-alone voice customers have ARPUs in the low $40 range," says at&t CFO Rick Lindner. "As they begin to bundle and as we move them upwards to a full-quad bundle where they have got voice, data, video and wireless from us, all of a sudden that customer moves to a $250, $260 kind of monthly customer"

"At the same time, the churn rates are cut by two thirds when you move from that stand-alone voice customer to a full-quad bundled customer," he says.

At the end of the day, this is about supplier push more than end user demand. It isn't the "bundle" users want, it's the monetary savings. Innovations will occur, neverthless. So in the end, bundles will lead to something besides higher ARPU for providers.

Specter Haunting Cable Companies?

“It’s all clicking, our business is on fire,” says Comcast CEO Brian Roberts. Maybe so. But we sometimes forget that the cable industry is in the same position as the telephone industry. Namely: its core business is under fire and will not drive growth in the future. So each industry is racing to create new business models where legacy revenue is half or less of total revenue in a few years.

About half of Comcast's subscribers will also use its phone and broadband services by 2010, Roberts says. Roberts believes that within two to three years, half of the company’s customer units will not be cable TV, but instead will come from Internet access, telephony and other services. At that point, he says, “half of Comcast is no longer just a TV company.”

With the caveat that a stock price isn't a complete proxy for the anticipated fortunes of a company or industry sector, U.S. cable operator prices have sagged of late. In Comcast's case, it is a bit hard to know why. Comcast added 75,000 basic cable subscribers in the quarter, 644,000 digital subscribers, 563,000 cable modem customers and 571,000 VoIP customers.

With 2.5 million VoIP subscribers, the company may now be bigger in Internet telephony than Vonage, which had 2.2 million customers as of the end of December.

The company repeated previous guidance that 2007 cable revenue growth will be at least 12 percent, with cable operating cash flow growth of at at least 14 percent.

To be sure, free cash flow is down. Comcast generated $442 million, versus $807 million a year ago.

So maybe investors are spooked by higher capital spending trends. Or maybe it is something else. Maybe the threat of over-the-top video finally is starting to register as another threat to the legacy cable business. Sometimes we all forget that cable is an incumbent. It has a legacy business that has gone into reverse after decades of sheer growth. And it also faces competitors able to innovate at Google speed. And might we add, Apple speed.

Viral Adoption for Enterprise

The integration of the Iotum Talk-Now presence app with Jajah for calling on BlackBerrys illustrates a new approach software distributors can take to penetrate enterprise accounts. You know the old way: direct sales teams target "C" title executives. Key decision makers then are identified and the account is "worked."

There's another model. Harken back to the days when computing was centralized, lived in a "glass house" and terminals were dumb. If you wanted to sell a personal computer or a local area network to connect them, what would you do? You weren't going to get the glass house shut down, so the top down, rip out the mainframe, forklift route wasn't promising.

Instead, you targeted individuals. Lead users. Power users. You flew under the radar. You kept the upfront cost low. You didn't require a change of enterprise computing architecture. And then you let interest spread virally.

Lead users, work groups and then departments. That was the adoption approach. One person brings the application into their environment, and invites their circle of business colleagues to participate, setting off a wave of adoption within a specific business or social network.

And that is what Iotum and Jajah hope will happen.

Commoditizing SMS?

Given that short message service is a high margin product delivering between a third and half of most mobile operators’ profits, STL Partners wonders what threat third party providers might represent. Alternative services allow users to connect to a third party gateway over the Internet (using GPRS, 3G, or Wi-Fi) and send text messages affordably.

Service provider execs who remain optimistic about keeping the business say users are too lazy or indifferent to the cost of SMS to switch. A general shift towards IM features will moderate costs and provide a richer alternative. There will be spam and privacy issues. And service providers will just drop prices if they have to.

Executives seeing a larger threat suggested that messaging will be embedded in third party applications, notably social networking services, and that operators will lose control of the context from which messages are initiated — as well as the revenue.

The STL graphic shows the percentage of business lost to third party providers in five years.

Iotum and Jajah Partner

The Iotum Talk Now application, a presence manager running on Research in Motion's BlackBerry, now has been integrated with Jajah, the Web-enabled calling application. ah is integrated into the iotum application. Very nice. Of course, now I am having an even harder time weighing two crucial device decisions. Do I ditch Windows and go Mac? And do I ditch BlackBerry and go iPhone?

As a former Mac fanatic, I finally had to switch to Windows because all my trading partners were on that platform, and at that time the Web really wasn't available to mediate most communications and applications. It is safe to say I've never enjoyed or really liked Windows. The big issue now is how many of the applications I get asked to test, or actually use, will be available on the Apple OS. Don't know yet, but this probably is the decision hinge.

Push email was a huge innovation when I first got it. But I'd have to say push email isn't a compelling reason to keep my BlackBerry any longer. Lots of devices do that. And when I focus on BlackBerry's interface and ease of use, it falls down. Right now, Iotum is the reason I'd be reluctant to switch. And Jajah integration is an even bigger plus.

If you wonder whether applications make a difference in device choices, I'll tell you this: in my case Iotum and Jajah now stand between iPhone and a new service provider.

The PC decision is more complex, since there are multiple apps I wouldn't want to risk messing with, and others that will show up, even if the hassle and irritation factor is very high.

Vonage Wins Permanent Stay

The U.S. Court of Appeals for the Federal Circuit in Washington D.C. has issued Vonage a permanent stay of a previous court's injunction that would have barred it from signing up new customers.

Vonage sought the stay following an April 6th decision by the U.S. District Court in Alexandria, Va. enjoining the company from using certain VoIP technology to add new customers. The permanent stay enables Vonage to continue adding new customers as it pursues an appeal of the patent infringement ruling.

Vonage will however continue to pay into escrow a quarterly royalty of 5.5 percent throughout the appeals process and also will post a $66 million bond as required by the court.

"We believe the original verdict was based on an erroneous claim construction -- meaning the patents in this case were defined in an overly broad and legally unprecedented way," says Sharon O'Leary,Vonage EVP and chief legal officer. "We believe the district court's decisions repeatedly neglected well-established law on claim construction and, as a result, artificially expanded the coverage of Verizon's patents well beyond what was intended by the patent trademark process."

Wireless Rules

At the end of last year there were 233 million wireless accounts in service in the U.S. market. Access lines in service at the largest eight U.S. wireline carriers amounted to 139.2 million (at&T, Verizon, Qwest, Embarq, Windstream, Century Telephone, Citizens and Cincinnati Bell). Not to mention the directional change: wireless is still climbing, wireline still dropping. Of course, one has to add back in three million cable industry voice customers. But you get the point. Wireless increasingly is the way the mass market does voice.

Communications as Consumer Electronics

As more and more mass market communications gear becomes an extension of the consumer electronics business, more of the rules of that business start to apply. Among the key rules are: keep the price low, make it simple to use, address a real need, design attractively, build retailer relationships and adhere to standards because one requires volume. Every January, hundreds of new products are shown at the Consumer Electronics Show, and most of them fail.

So consider MobiGater, a USB device that transfers Skype calls to a mobile phone without using SkypeOut credits. The €270 ($370) box works like any other plug-and-play USB device. Once connected to your desktop computer, all Skype calls are redirected to a mobile. Heavy mobile users in markets with high costs might find the gizmo worth buying and using. But there will be issues. It always is tough to sell a peripheral that costs as much as the processor the peripheral is supposed to be used with.

The user requires an additional SIM card for the MobiGator, so while the Skype call might be free, there's the cost of the mobile SIM cards to deal with. The historic tipping point number for a popular consumer electronics device used to be $300, so MobiGater remains just a bit on the high side. On the other hand, recent sales of high definition flat panel TV displays have broken clear of the $300 mark.

The longer term problem is simply that the cost of calling, and the effort one has to put into reducing those charges using Skype and MobiGater, simply don't solve a big enough problem to drive mass adoption in many markets and customer segments. VoSky has a similar product aimeda the home and small office user. VoSky's Internet Phone Wizard allows users to make Skype calls from anywhere with a cordless or regular phone instead of the computer speakers.

The Internet Phone Wizard also supports outbound Skype calling from the regular handset. PSTN is the default. A couple of key taps switches the phone to Skype mode. The device also can be used to create a virtual second line.

Still, the consumer electronics market is brutal. Most products fail, or succeed only quite modestly, in some niches. To really change end user behavior requires a huge carrot in terms of advantage. There's no question the MobiGater and VoSky devices are useful to some people with high calling costs and heavy mobile use. It just isn't so clear there's a mass market for either.

Time Warner Cable to Work with Fon

Sometimes a service provider simply has to cooperate with what might be seen as a direct competitor. So it is that Time Warner Cable is going to allow its users to create publicly accessible hotspots in cooperation with Fon, the company building a network of private Wi-Fi connections. Time Warner will allow its home broadband customers to turn their connections into public wireless hotspots, a practice U.S. ISPs generally have said is outside "fair use" policies. Verizon Communications Inc., for example, can terminate contracts if it finds an ad-hoc hotspot.

Fon and Time Warner will split the proceeds from use of Fon hotspots by non-members. That is expected to be $2 to $3 a day. Fon network users can offer free access to all other Foneros in exchange for reciprocal privileges, or can offer for-fee access.

The Fon wireless router splits a Wi-Fi connection in two: an encrypted channel for the Fonero and a public one for neighbors or other casual users. Foneros can decide how much of their bandwidth to share with the public and can log on to any Fon router without charge, in return. "Aliens," as Fon calls nonmembers, can register on a Web page and pay a modest $2 or $3 for 24 hours of access.

Fon has about 60,000 Foneros in the U.S.

Time Warner may be looking ahead to the not-so-distant future when some of the 300 or so municipal wireless projects featuring free or inexpensive broadband are available, as it operates systems in large cities where such muni Wi-Fi efforts are most pronounced.

So Maybe It's the Lead Offer...

...not the only offer. Most Western European consumers still buy Internet access separately from other services like fixed voice, VoIP, TV, or mobile, says Lars Godell, Forrester Research analyst. "Very few Europeans get either triple or quadruple play delivered in one integrated package," he says. U.S. bundle buyers might be more commonly found, but even in the U.S. market it is far more common to find dual play buyers than triple play.

Researchersa at The Yankee Group recently found that 41 percent of buyers chose a dual play package, compared with 23 percent for a triple play bundle.

Of course, it always takes some time before mass market buyers warm up to some new services and packaging techniques. Digital cable and satellite didn't reach their current penetration levels in a year or two. Also, promotions for triple play packages seem to alternate with "add voice" or "add video" or "add high speed Internet access" offers from either cable or telco providers. The thought, of course, is that there is less resistance to making a single change rather than changing two or three things at once.

Triple and Quad Play bundles may not be the most heavily purchased packages yet. But they are destined to remain the lead offers. Carrier need to drive higher average revenue per user and cement customers in place will take care of that.

Business Broadband is a Big Deal

If we read these forecasts correctly, wired broadband access sold to business customers, not including voice, represents almost the same amount of revenue as all wireless services do in 2011. This forecast doesn't include voice revenues. Of course, we'd also note that the relative importance of wireless is growing.

Words to Live By

Asked about Google's revenue per employee, Google CEO Eric Schmidt says the company doesn't focus on it. "It is more important to focus on end user happiness," says Schmidt. If that sounds ethereal, it isn't. The media business always is based on some equivalent of "aggregating eyeballs." So Google's business depends on attracting engaged users. "If we could bring out a product that will cause people to use Google and its various applications that much more and they spend more and more of their day using Google services, that allows us to eventually monetize that," Schmidt says.

Will Users Pay for Features?

Alec Saunders and David Beckemeyer are consistently worth listening to. This from David, who asks really good questions:

Fring is technically impressive, but I'm still wondering about its utility

I have mentioned Fring a few times before. The most recent post left it that I had not been able to complete the setup because I never received the SMS from Fring on my phone.

I sat down with Boaz Zilberman of Fring at VON and he was able to solve whatever glitch was happening at Fring that was preventing the SMS and I was able to get Fring 2.0 installed on my phone.

Luca Filigheddu calls Fring "the most complete multi-protocol IM VOIP client for mobile phones" and I would have to agree. That said, I still find myself asking, is it useful?

Like many other cell phone users in the US, I have GPRS data service rather than a true 3G data service with my carrier. My first experiences with Fring over GPRS were not very good. More recently, I have had much more acceptable call quality on Fring GPRS-based calls. It probably depends a great deal on signal strength - while one may be able to make a standard GSM call on a weak signal, it doesn't look like one has any chance of doing a GPRS Fring call unless the GPRS signal is very strong.

This is understandable, at least to anybody that knows the technology. I am amazed that Fring works at all over GPRS and the fact that it's possible to have a decent quality call using it is an amazing technical achievement by the Fring folks.

The entire Fring application is really well done, clean, and slick, also a nifty technical achievement.

At the same time, most customers don't care about technical achievements. They want to solve problems.

Fring is cool and the SIP support works with PhoneGnome so I will use it sometimes, but now that I have it, including SIP support (thanks Fring!), I'm still left wondering, does it really have value, not just to me, but to casual phone users?

For US calls, I already stay within my minutes so there is no cost savings opportunity to place the call via VoIP and, therefore, dialing the old-fashioned way is both more convenient and more reliable for those calls. That reliability factor is a big one, as echoed by many comments to an earlier post on the subject. Perhaps consistent is a better word. Unless I'm calling another VoIP freak, the risk of the call not working isn't worth the benefit (what benefit again?) in most cases. The situation may be different for others, say those outside the US without such a minute bundle model, or if I were making a lot of international calls. Even if that were the case, however, it would still depend on the cost of my data plan. If I'm on a data plan that charges by the Kilobyte, a VoIP call could well cost more than a GSM call. I can already make single-stage international calls using national minutes with a free phone application and my PhoneGnome (or two-stage calls with something like AllFreeCalls.net if it comes back on-line).

If I'm roaming, this is even worse (I think). Roaming fees are so complicated I'm in constant fear of accidentilly using the data channel when traveling. I always shut down any apps that use the data channel (including Fring) due to this concern. So if I'm outside my service, say in Europe, there's no way I'm going to gamble with the mobile data roaming fees and use Fring (again, the VoIP call over the data channel costs more than the same call over the voice channel). The exception would be Wi-fi, assuming I can find a cheap enough hotspot and I have a dual-mode phone (and can figure out how to work it, see this post on theN80i.

That brings up an interesting question. If a VoIP call does cost more than a plain GSM call, are some people actually willing to pay MORE to place a Skype or Fring call because of an added benefit, in particular, presence? I'm not a big Skype user myself (I'm one of those that just never had a good experience using it) and I seldom find my Fring buddies online, so I have not yet seen this to be a big advantage fo rme. However, I can see it being something to look into. That would be an interesting case. So how about it? We've always thought of VoIP as a way to save money, but might you get so much value out of knowing the party is there to take your call that you would actually PAY MORE to place a Skype or Fring call (because of the mobile data rates) because of that added value?

I know in my case, I'm more likely to place a call on my cell using VoIP to access an added capability (say like the call recording feature of PhoneGnome) than I am to use VoIP on the mobile just to save money.

BT to Expose Itself

Project Web21C BETA software developer kit will expose network capabilities to developers working in the .NET Visual Studio, Java, PHP and Python environments. Initially the thinking seems to be to provide developers a way to add communications and global positioning satellite features to applications. The Web21C SDK abstracts the services interface and serialization classes by providing the developer with a simple object model to interact with.

The Web21C SDK provides the ability to embed Short Message Service into an application, for example. It also allows applications to make phone calls, conference calls, presence information, authentication, a way to store and retrieve data about an individual and location information.

A somewhat parallel effort, the BT Applications Marketplace, aims to give developers a way to market apps to the BT customer base.

BlackBerry Outage Disrupts Enterprise Ops

In a webinar poll conducted April 18 by ProfitIine, 81 percent of responding large enterprise IT and telecom professionals reported disruption to operations from the BlackBerry outage. Some 44.5 percent reported "moderate or substantial" impact to enterprise productivity. Only 18.2 percent reported no impact from the outage.

Engagement Might be The Issue

A recent Forrester Research survey suggests that mobile data apps are moving into the mainstream. More than one-third of mobile subscribers use text messaging, and 18 percent send or receive picture messages, but adoption of the mobile Internet lags, with only 11 percent using it.

As you might expect, data users are not only younger, but their attitudes also expose a deeper engagement with their mobile phone and service, and they are more satisfied with all aspects of their mobile experience than are those who only use voice.

Which raises an issue: even as wireline providers are able to leverage IP to provide richer directory and call log features, as well as click to call, will those new attributes put a brake on user engagement with their mobiles?

Certainly Embarq believes that offering wireline call logs, directory services and click to call are going to enhance the value of wireline voice, says Bill Blessing, Embarq SVP. He's undoubtedly right about that.

The issue is that end user involvement with their mobiles seems to be increasing. Mobiles are personal. Landlines are tethered to places. Mobiles inherently are "mine." Landlines are "ours" or "yours." You might use a landline. It is not "you."

Don't Have It, Don't Want It

Some 29 percent of U.S. homes do not buy any form of Internet access, and 44 percent of the "resisters" says they don't buy service because they are not interested in anything on the Internet. About 22 percent say they don't buy because they do not own a PC. The 31 million U.S. Internet "resister" homes also say they don't plan to buy access for the next year either, says a Parks Associates study. Parks researchers also find that most new broadband access subscriptions are coming from dial-up customers who are upgrading, not "newbies."

MetroPCS: More Evidence Voice is Not a Commodity

MetroPCS provides more evidence that even mass market mobile phone service is not a commodity, in the strict sense. MetroPCS offers flat rate local and domestic U.S. calling in Miami, Tampa, Sarasota, Atlanta, San Francisco, Dallas, Detroit and the Sacramento metropolitan areas to more than three million customers at the moment.

It might be said to specialize in a several market segments: people who want flat rate wireline pricing plus mobility; people who have problems qualifying for prepaid plans; immigrant communities; people who don't like contracts; people who don't like credit checks or deposits; younger users and first time users.

MetroPCS offers a $30 per month service plan offering unlimited calling. For an additional $5 to $20 per month, ssubscribers can add nationwide long distance calling, unlimited text messaging (domestic and international), voicemail, caller ID, call waiting, picture and multimedia messaging, mobile Internet browsing, push e-mail, data and other a la carte options on a prepaid basis.

The company's most-popular service plans are the unlimited $40 and $45 rate plans which offer unlimited local and long distance calling, text and picture messaging, enhanced voice mail, caller ID, call waiting and 3-way calling. Those plans are purchased by more than 85 percent of MetroPCS customers.

On February 22, 2007 the company introduced a new $50 service plan which includes unlimited mobile Internet browsing and push e-mail in addition to the services included in our $45 service plan.

MetroPCS customers in all metropolitan areas averaged approximately 2,000 minutes of use per month, compared to approximately 875 minutes per month for customers of the national wireless carriers. Average usage at thsoe levels suggests that a substantial number of customers use MetroPCS as their primary telecommunications service. Approximately 65 percent are first time wireless users.

Though cable and tier one telecom providers clearly have bet their futures on triple and quadruple play strategies, MetroPCS (and Leap Wireless) show that a targeted wireless pure play is possible, if a provider is willing to segment. And note that the company's average revenue per user does not appear to different than that of the market leading companies.

Talking, generally considered to be a commodity, does not appear to be such a thing if one looks at the matter closely.

Satellite Gains at Cable's Expense?

According to a survey taken early to mid March, there's evidence some households are about to make a move to satellite TV, especially DirecTV. While Comcast remains the current leader among U.S. and Canadian TV service providers, DirecTV shows the most market share momentum, says the Changewave Alliance, after a survey of nearly 3700 members.

And though customer satisfaction does not reliably translate into loyalty, it appears that satellite video services rank well on that score. Satellite customers say they are much more satisfied than cable customers. "Moreover, Satellite satisfaction ratings have improved four points since our previous survey, while cable satisfaction rates have declined two points, Changewave says.

DirecTV now is the industry leader in terms of customer satisfaction and has also experienced the biggest improvement since November. Comcast has experienced the biggest decline.

Most significantly, satellite s about to gain at cable's expense, Changewave says. "A total of 13 percent of our survey respondents say they plan to switch providers in the next six months and nearly half of these (48 percent) say they’ll switch to satellite.

Amazon: Compute in the Cloud

Amazon's Simple Storage Service (S3) and Elastic Compute Cloud (EC2) appear to be getting traction. The whole idea is to provide easy to use computing and storage "in the cloud." S3 recently had a peak day with 921 million requests, says Jeff Bezos, CEO of Amazon. At the peak second for the service, there were 16,600 requests. A year ago Amazon had 800,000 "objects" on the service. Now there are over five billion. S3 and EC2 are just a couple of reasons why the pace of Web application development has gotten so blistering.

Time Warner Cable Heading for the Doors?

When a major player in the content business starts thinking that maybe it doesn't need to control distribution to the extent it once did, watch out. It is an indication that the strategic value of distribution networks could be changing. That might be just what is happening at Time Warner, which has generated significant profits from its cable system ownership. The latest thinking is but the latest iteration of a constant theme in the video entertainment business: the relative strategic value of distribution and content assets. Though the mantra of late has been that "content is king," distribution always plays an important role. Sometimes it is the key role. Satellite radio wouldn't be much without the creation of new distribution networks. But movie studios are barred by law from owning theater chains.

Once upon a time a company had to build an operate its own network to deliver voice services. And cable TV wouldn't exist without the cable network. And the same might have been said for the terrestrial TV and radio businesses as well. But there are other media models that show how content businesses can flourish without any ownership of distribution networks. Newspapers and magazines provide a prime example. Grocery stores, kiosks and the postal service provide distribution.

Senior executives at Time Warner are considering whether the media company should substantially reduce its cable holdings over time, says Wall Street Journal reporter Matthew Karnitschnig.

Cable has been a core part of the company and its precursors for decades and is now the biggest contributor to profits. But the long-term future of cable, as the Internet emerges as a viable venue for watching TV, is murky, says Kartnitschnig. Some within Time Warner wonder whether the company wouldn't be better off if it were to get out of cable and double down on the Web, where it already owns AOL.

Getting rid of a big chunk of its cable holdings would transform the nature of Time Warner, making it more reliant on its role as a provider of filmed entertainment and print and Web content. For years, Time Warner has believed in wedding its movies and television programs to powerful distribution networks, primarily its cable operation, as a way to ensure that their content wouldn't be blocked by rivals. But with the Internet increasingly serving as a home for TV and film offerings, content companies may feel they no longer need to control old-style distribution networks such as cable or satellite TV.

The issue will be put before the board at a meeting next month, part of an annual strategic review, say people familiar with the situation. Time Warner management will present several alternatives for future ownership of Time Warner Cable.

The fact that Time Warner is even willing to think about a major reduction of its cable holdings is a sign of how much attitudes toward the cable industry are shifting. Despite cable's recent streak on Wall Street and its success in attracting customers to its bundled offering of Internet, telephone and television service, this is a business some analysts believe will become increasingly commoditized, squeezing profit margins.

News Corp. already has sold its stake in DirecTV Group Inc. to Liberty Media Corp., which continues to believe in the value of distribution networks.

The obvious issue for telecommunications companies active in the access market is precisely this issue of the strategic value of video entertainment, and the effort and expense that requires. One might argue that telcos are getting into a mature business just as key players are getting out. On the other hand, one might also argue that telcos will share immediately in a signficant chunk of the walled garden video business, but would have to create a new role in the as yet unproven Web video market, where control of distribution, by definition, isn't a key strategic imperative.

What Else Would Vonage Say?

Vonage says it has no "workaround" in hand to sidestep Verizon's patented Internet phone technology. That would simply stand to reason. It obviously would take time to circumvent a broad patent covering interconnection of public and IP networks.

This is precisely what one would argue if angling for a permanent stay of an order that would shut one's company down, while an appeal winds its way through the courts.

More to the point, though, Vonage says isn't sure that such a plan is even "feasible," given the expansiveness of Verizon's patents, which set out methods for passing calls between the Web and conventional phone networks. Friday the 13th, indeed.

A federal court recently ruled that Vonage had infringed on Verizon's patented technology. As punishment, Vonage was barred from using the disputed technology to support new customers. Vonage has gotten a temporary stay, but has petitioned for a permanent stay until the appeals process is finished.

Vonage told investors and customers not to worry because a "workaround" was in development. That does not necessarily contradict the fact that "Vonage currently has no workarounds that moot the need for a stay."

"While Vonage has studied methods for designing around the patents, removal of the allegedly infringing technology, if even feasible, could take many months to fully study and implement," Vonage has said in a document filed with a federal court, USA Today reporter Leslie Cauley says.

We wouldn't think the filing necessarily reveals much, other than the strongest-possible argument to a judge that a permanent stay is urgently needed.

IPTV: Tough Going in Western Europe

It's a good thing U.S. consumers like television quite a lot. Because IPTV results so far from Western Europe are sobering. While 11 Western European incumbent telcos have launched IPTV services, Forrester Research’s says consumer interest remains low, and revenue potential remains modest. Forrester predicts 25 percent of European xDSL/fiber broadband subscribers will have IPTV within 10 years. In the U.K. market Forrester expects 13 percent penetration in a decade. In France, Forrester expects 33 percent penetration in year 10.

Lars Godell, Forrester Research principal analyst says “Europeans are generally unwilling to pay much for TV content, and a discount scheme is needed to entice them to buy triple play."

In a mature TV market, this means incumbents will need to price IPTV below competing cable and satellite TV services. Assuming the typical provider gets a third of the market, annual IPTV revenue will work out to about €11.24 in net annual IPTV revenues. Remember that 50 percent or more of the actual gross retail value has to be given directly to the content owners and packagers.

At the end of June 2006, Belgacom, FT, and Telefónica had only achieved 1.7 percent, 1.2 percent and 1.8 percent IPTV household penetration, respectively. Telefónica has been the most successful in tapping into its retail broadband subscriber base, with 8.3 percent IPTV penetration among broadband customers.

DT wants to get to one million IPTV subscribers, representing 2.5 percent of German households, by the end of 2007.

Forrester estimates that IPTV investments will generate a cumulative €3,742 in losses for an average broadband subscriber over a 10-year period.

That is not to say telcos should nix the construction of fiber deep access networks or entering the video entertainment market. It is simply to point out that such efforts are fundamentally strategic matters, not revenue generators per se.

4G Has to be Taken Into Consideration....

One thing about the access business. It isn't as though the cable and telco contestants can rivet their attention on each other, and ignore everybody else. 4G wireless, for example, sometimes is defined as an access featuring 1 Gbps for stationary users and 100 Mbps to mobile users. The cable industry's DOCSIS 3.0 specification, for example, will bond channels to provide downstream speeds up to 120 Mbps and upstream bandwidth in the neighborhood of 80 Mpbs, at least in the lab. In the real world, physical impairments of various types and the need to share that bandwidth across a base of users will, in practice, reduce the actual bandwidth any single user might be able to pay for. We would note that at least one U.S. telco, SureWest Communications, offers a 50 Mbps symmetrical bandwidth service today for any customer that will purchase SureWest's most-expensive bundle, including every video service, wireless, fixed line voice and Internet access.

"Why Vonage?" Jon Arnold Wants to Know...

Bloggers Jon Arnold and Daniel Berninger want to know why Verizon went after Vonage on the patent front. Why not some other company? The answer is that the dominant telcos want some competition, but not effective competition. The reason is simple enough. It is quite beneficial to show regulators that there is effective competition in their markets. But what happens is that there's a threshold. Below a certain level of success, we leave you alone. Cross the line, and we have to deal with you.

That's why some competitive local exchange carriers actually were encouraged to take share away from certain large tier one incumbent telcos. Helped, actually. All to demonstrate that there is effective competition in the market. Not every CLEC got that sort of material help. And not every CLEC found itself so favored once the legislative and regulatory battles requiring proof of effective competition drew to an end.

Vonage gets attacked because it frankly doesn't help to attack SunRocket or Packet8. Vonage is the one company that crossed the threshold, as all the leading cable companies have done. And that is my take on "why Vonage?".

Vonage Starts Cutting

Vonage says its quarterly results for the period ended March 31, 2007 will show $195 million revenue, 332,000 gross customer adds and 166,000 net adds. That would bring Vonage in flat with net adds for the fourth quarter of 2006, when it added 166,000 net customers.

Marketing cost for each gross customer addition, though, backed down to $275, towards the more historic range of $239 in the second quarter of 2006, $306 in the fourth quarter 2006, $254 in the third quarter and $239 in the second quarter last year.

Quarterly revenue of $195 million was stronger than the $180 million Vonage reported for the fourth quarter 2006. Monthly ARPU was $28.17.

But Vonage also expects to boost operating results by cutting $110 million in marketing expense, possibly a quarter of what it originally though it would spend this year. Vonage now expects to spend $310 million for 2007 marketing, instead of $400 million to $425 million.

A 10 percent force reduction also will slash SG&A costs of about $20 million in 2007. Planned cuts in other SG&A expenses are expected to generate an additional $10 million in savings.

Collectively, the moves will get Vonage very close to positive operating income, though not profitability.

Carriers Innovate Because They Have To

I wasn't the only one at the Voice Peering Forum recently who was struck by the sudden lead some European telcos have taken in their transformation efforts. BT actually is growing customer counts and revenue in its tough mass markets segment, for example. To be sure, some of the progress is born of necessity. As Carlos Dasilva, France Telecom Americas region marketing director notes, "we had to move aggressively because the regulators are killing our business." And though she didn't specifically make the same point, BT has had to strike out on some very innovative paths precisely because it was forced to do so. But a significant turn in the direction of flexibility (an internal requirement, perhaps) and openness (more important for third party application providers) is going to pay dividends for end users, who "aren’t waiting" for regulators to set rules and service providers to start giving them what they want, Anna Boukovskaia, BT head of market development, said.

Which isn't to say regulatory action is inconsequential. Quite to the contrary, regulatory ground rules always always always create the preconditions for all revenue generating activities in the public and private network spaces. Deutsche Telekom and Telstra, for example, find regulatory demands so onerous they simply have refused to build new optical networks, because they aren't sure they will earn a return on the investments. Credit aggressive wholesale requirements for the concern.

Paradoxically, hammering by regulators is largely responsible for the innovation now being shown by the likes of BT and France Telecom (Orange). But the changes come at a serious price. France Telecom is laying off 20,000 people. If you know France, you know how unusual that is, and how powerful the need for change therefore is. Keep in mind there are multiple forces at work here.

Regulators, technology and capital markets normally work in tandem to create markets. They also can work in tandem to change them. What less often occurs is that end users change the markets. But that is precisely what is happening now.

To be sure, the legacy markets were going to change, in any case, because of regulatory shifts, technology advances and capital availability. What is highly unusual is the impact actual consumer preferences now are having. Text messaging was an accidental success. Nobody really claims to have "always believed" that short message service would be such a big revenue driver. Carriers and service providers did not create this market: end users did. So Boukovskaia flatly says "we don't know what the next killer app is going to be."

Notable is BT’s commitment to take all voice and data services at the edge and deal with everything as IP and Ethernet. Every voice line is converted to VoIP right where the copper pair is terminated. All 30 million of them. DSL services are provided from the same linecard. There’s no separate DSLAM, POTS termination, SONET/SDH Add Drop Mux.

Fractional TDM based Frame Relay and IP services are packetized and bundled right at the POP. If it isn’t TDM leased line (E1 or bigger), it gets packetized and sent through the core using MPLS.

A dramatically simplified network results.

Going forward, TDM as an enterprise access technology is over in the United Kingdom, at least as far as BT is concerned. BT embeds the VoIP functionality as close to the customer as possible. This has the effect of reducing network elements.