Verizon: 2.7% Consumer Wireline Revenue Gain

In football, they'd call his "tough yards on the ground." Verizon's four percent increase in fourth-quarter profit came primarily from the mobile business, as traditional land-line metrics continue to drift lower, despite gains in FiOS broadband access, Digital Subscriber Line sales and FiOS TV services.

Still, quarterly revenue in the consumer segment was up 2.7 percent, a significant achievement against a backdrop of share losses in the legacy consumer wireline voice business.

Verizon added about two million net wireless customers in the quarter, offsetting wireless declines of about 616,000 lines. For the full year 2007, Verizon lost about three million residential lines, or 10.6 percent of total, while business lines dropped 3.7 percent.

In essence, Verizon is getting higher average revenue per unit in its wireline business, even as the total number of customers is dropping. If you wanted any proof about the revenue impact product bundling has, Verizon is providing the evidence.

Though there are important churn reduction effects, the primary reason dual play, triple play and quadruple play offers work is that they raise ARPU dramatically, allowing service providers to build businesses based on scope (selling more things to customers) rather than scale (selling the same thing to more customers).

The company added 245,000 net FiOS broadband access customers as well as another 226,000 net FiOS TV customers in the most recent quarter.

Communications-Enabled CRM

C3IP Communications, a privately-held VoIP provider based in Scottsdale, Ariz., has integrated its communications functions with the Act! customer relations management software. As a result, C3IP clients using Act! have access to customer histories, account information and other resources whenever customers call in.

These days we might call the availability of communication features inside an application a "mashup." Decades ago we would have called this an example of computer-telephony integration. By either name, the idea is roughly the same: embed communications inside a business process.

Verizon FiOS TV up 356% Year Over Year

Verizon has broken the one million TV customer mark for the first time, growing its subscriber base 356 percent in 2007. Clearly, Verizon's network construction and video franchising phase now is yielding to the marketing phase. The next couple of years will provide us with a better handle on just how well Verizon will do as a provider of video entertainment services, but FiOS TV does not appear to have suffered the technology or performance challenges that have beset at&t's U-verse offering in the past.

So the issue now is how well Verizon will do in the market share battle with cable companies, as each swaps share in their legacy businesses while trying to gain the upper hand in the broadband access business. Up to this point cable has had the advantage, gaining more voice customers than Verizon and at&t have gained video customers.

Depending on whose data one wished to cite, telcos either have closed the gap with cable or are taking more new share in the broadband access business than cable companies are. The installed base generally is seen as reflecting a lead for cable, but the installed base gap is expected to close over the next couple of years, by most estimates.

Packet 8 Grew Customer Base 66% Last Year

It appears 8x8's Packet 8 hosted VoIP service for businesses gained about 4,000 net customers last year. In December 2007 the company reported having 10,000 customers. In December 2006 it had about 6,000.

FiOS, FTTN as Marketing Platforms

BT plans to launch its 24 Mbps service in April 2008 with available coverage reaching in excess of 50 percent of the U.K. market by April 2009. It will be using a fiber-to-node network very similar to at&t's FTTN network, with copper drops. Both BT and at&t believe that is sufficient bandwidth for anticipated customer demand. In at&t's case that also includes IPTV and HDTV services.

They might be right. But there is something more than bandwidth at issue here, and that is the marketing platform. If you have Millenial children, ask yourself what their preferences are in the area of broadband and video entertainment providers (You know they all rely on their mobiles).

Up to this point, though, it has been the common pattern to buy both video and broadband from the cable company. What we need to watch is what happens when services such as Verizon's FiOS fiber to home service are available. The issue is not just how much bandwidth they need or will pay for.

The issue is whether FiOS or fiber to home services are a more compelling product than cable modem services.

TowerStream: 8 Mbps for $1,000 a Month

Wireless has been the perennial favorite for believers in facilities-based access competition to the entrenched telephone and cable companies. Some 25 years ago, proponents argued that Multichannel Multipoint Distribution Systems (MMDS) based on 2.5 GHz spectrum were going to be the way new video entertainment providers would gain a foothold.

That effort failed. Similar spectrum then was touted by the likes of Winstar, Teligent and others as a solution for high-speed access in the business market. The effort failed.

Much spectrum then was acquired by firms such as Sprint Nextel, BellSouth and MCI and spend years essentially languishing. Now Clearwire and Sprint say the former MMDS spectrum will be the foundation for WiMAX.

We shall see. A smaller new company, Towerstream Corp., is selling 8 Mbps broadband connections for $1,000 a month in eight markets, and currently plans to operate in 20 cities within two years.

In its Seattle market, starting February 1, new customers will be able to buy 3 Mbps connections bandwidth for $499 a month, with free installation. Towerstream offers businesses a range of bandwidth options including T1, T3, 100 and 1000 Mbps connections

The company has established networks in Los Angeles, Miami, Chicago, Seattle, the San Francisco Bay Area, and the greater Boston, Providence and Newport, R.I.

Using WiMAX technology, the company can “light" a city with just a few antennas. Its New York City network uses four antennas, including one on the Empire State Building.

TowerStream undercuts competitor prices for a T1 line by 50 percent or better. The small antennas that the company locates at the customers’ premises are installed by contract DISH or DirecTV installers.

Provisioning intervals normally are two or three days, compared with three to six weeks for a T1 line from a telephone company or competitive local exchange carrier.

Mid-band speeds in the 8 Mbps to 10 Mbps range seem to be the "sweet spot."

TowerStream appears to be using both telesales and direct sales approaches. It is said to have a 180-seat telemarketing center and is in the midst of expanding its sales force to 160 people, according to Morgan Joseph analysts, who say the company won 27 contracts in eight days, on the strength of 58 proposals. The company appears to have 100 or so direct sales reps trained and ready to call on prospects.

If history is any guide the company should enjoy at least modest success. By avoiding the mass market, it stays out of the way of 3G and other 4G networks aimed at consumers and small business. That's a strategy that lots of other wireless access providers also use.

So far, however, no single entity has managed to build a big business on the backs of fixed wireless broadband in the small business, medium-sized business or enterprise markets. And it may be that the path to success is precisely to operate as a niche provider, in high-density markets, without getting grandiose. That's typically where operators have stumbled in the past. But we'll have to watch and see.

In many cases the business case rests on prosaic concerns. LMDS operators found they had trouble getting access to rooftops once landlords decided they were sitting on a gold mine. It wasn't, but the incremental real estate access charges were enough to kill the business case.

Then there is the availability of riser and conduit space, access to it and the cost of new cabling. Assuming those sorts of issues can be managed, TowerStream might have a shot, at least in some markets, such as New York.

Bandwidth in the 8 Mbps to 10 Mbps range is a bit more than the 4 Mbps to 6 Mbps mid-band Ethernet service some other providers are finding attractive.

"Year of the..."

Be careful when anybody declares this or next year the "year of X." Such predictions inevitably are wrong. That doesn't mean the direction of a trend is wrong, just the timing.

So when Google CEO Eric Schmidt says the recreation of the PC and Internet stories are before us, he's right about the direction. When he says it is "very likely it will happen in the next year," he's most likely wrong about the timing.

The mobile Web will be a "huge revolution", as Schmidt argues. But it isn't going to reach the tipping point next year. Proclamations of the "year of the anything" are universally incorrect.

BlackBerry Consumer Push

Research In Motion's move into the retail consumer market, including lifestyle features such as television, music players, cameras and Facebook social-networking software, is a good thing for consumers. That that includes a goodly number of professionals and workers who use email a lot for work.

Obviously a consumer device has to be priced lower than a "business class" device. But one thing I do notice, as a "business" BlackBerry user, is that the keyboards being supplied on devices such as the Pearl and Curve have a distinctly unpleasant feel. RIM might be doing this on purpose, but the feel of the keyboard is as important to this user as the keyboard is on a PC.

Every other element of the experience is outweighed by this one fact. Again, RIM might be doing that on purpose, to differentiate the market segments each device appeals to. If so, it's working. The 8800 class of devices are the only ones with a tactile experience I can tolerate. That's one way to create differentiation of user experience, I will say.

The omission of cameras and so forth also are design features intended to make the 8800 appeal to enterprises. But sometimes it comes down to other simple features. Like the feel of a keyboard.

What Future for Downloading, Streaming Video?

The conventional wisdom now is that movie downloading will replace DVD sales and rentals, and that this replacement is only a matter of time. The conventional wisdom may well be correct, up to a point. On-demand viewing, in one form or another, has been increasingly for decades.

To some extent, the rise of the cable industry was an early and crude form of on-demand viewing, to the extent that viewers began to break away from the "three networks" experience, starting a process of audience fragmentation that continues today in much more diverse forms.

But movie downloading isn't the only future. In fact, the way new visual media are being used suggests that consumers are taking an "all of the above" approach to media.

People might continue to rent DVDs as well. But maybe not in the same way. "Unless video stores are reinvented, it may be that in five years, there are tens of thousands of kiosks, millions of online DVD renters and very few video stores," says Reed Hastings, Netflix CEO.

If you look at any sort of DVD media as an example of "sideloading," as people sideload music onto their iPods and MP3 players, you get the idea. People download songs. But they also may stream or sideload. And though one often thinks online delivery is the only viable business format, one can imagine other ways to do things.

Price, for example, might be one way to differentiate the market. Online or to-the-TV downloads or streaming will have a higher price point, with a more "immediate" delivery format. But mailed DVDs will have a much-lower price point, with less immediate delivery. But the point is that the delivery time might not matter.

On the Netflix unlimited three DVD plan, can have as many as three movies "checked out" at any one time. And if a person is busy enough, viewing of those movies only happens on weekends. So "immediate" availability isn't required. The three selections have to be available on the weekend.

Release windows still are a factor as well. If you want to see a movie, and missed it in the theaters, you can view it about a month to 45 days sooner than any "on demand" outlet has the content, if you watch on a DVD. On an unlimited rental plan, the cost of any viewing is arbitrary.

Cable and Internet VOD costs something on the order of $4.00 per movie, and the content has to be viewed within a certain period of time, sometimes within 24 hours.

Selection probably will be an issue as well. It is hard to imagine an equivalent lineup of online titles as the Netflix catalog represents, especially in the "long tail" area of niche content.

"Despite the growth of VOD over the last five years, DVD rental has been stable, with online rental and kiosk rental making up for store losses," says Hastings. "In the United States, DVD spending, including purchase, is still approximately 20 times larger than cable and Internet VoD combined, according to Adams Media Research."

Just about everybody thinks this will change, at some point. The issue is whether online delivery is the only choice, or whether other delivery methods still will remain a significant part of the mix. Price, release windows, immediacy, and depth of catalog suggest there is room for multiple consumption modes.

Mobile Search is Different

Google OneBox is an example of how search will change as mobile queries increase. In an enterprise setting, OneBox delivers real-time information from enterprise sources, such as CRM, ERP and business intelligence systems, based on a user's search query. In a consumer application, entering a movie title might yield a top result showing screening times for that movie at the closest theater.

The search algorithms have to anticipate what need a user has for a particular bit of information based in part on what device is used to make a query. In a mobile setting, it is a fair bet that a query for any type of product is related to some immediate need for using that product. Starbucks coffee, Italian food or bagel, perhaps.

So adapting applications such as search for a mobile use case requires more than adapting the display for a smaller screen, oriented in a different horizontal-vertical dimension and often with limited navigation tools and less bandwidth than a wired environment provides.

The reason for queries, as well as the types of queries, arguably are different in a mobile context. One is more likely to be querying a customer or inventory database in the office. One is more likely to be looking for someplace to eat when out of the office.

And then there's there the time of day, day of week dimension. People will be asking different questions on weekends than weekdays. They'll be seeking different answers after 5 p.m. or 7 p.m. than at 10 a.m.

All of which increases the value of locational knowledge and mapping. But you probably already had that figured out.

Video Delivery: Some Ways Better Than Others

At some point, as much more video starts to be delivered using IP networks, network marketers and engineers are going to have to come up with ways to entice people to use alternate means of delivery, when it is feasible to do so. At some point, it simply will not make sense to chew up valuable voice and interactive data bandwidth for relatively low value YouTube clips, as entertaining as they might be.

Consider for example what Qwest is doing: it has esentially decided to keep all traditional linear video programming, including high definition TV and on-demand programming intended for TV screen viewing, off its IP pipe. It is doing so by delivering linear TV in the most bandwidth efficient means possible, namely by satellite, streaming point-to-multipoint.

As would be the case for IP multicasting, the idea is simple" launch one single copy of each program to a virtually unlimited number of users who can view the stream at the same time or on a store-and-watch-later basis (TiVo or another digital video recorder).

That will reserve the IP connection for unicast video and other interactive applications. The same sort of "offloading" principle is used by Netflix with its "DVD in the mail" approach. The point is that we do not have to force everybody to use IP bandwidth for watching unicast video when multicasting, sideloading, satellite, physical media or some other approach, including time-shifted delivery, might work just as well.

The baleful alternatives will find service providers unable to meet customer demand for bandwidth because there no longer is any money to be made; a dramatic increase in monthly prices; or both. Consumers are smart. Given a reasonable set of different ways to get video, at discrete prices for different delivery times and media, they'll make choices that relieve pressure on access bandwidth bottlenecks.

Dell, Fonality Target SME Market

Some things never seem to change. For several decades, competitive providers of communications services, not to mention value added resellers, interconnect companies that install business phone systems, Internet access providers and broadband services providers have found that the small and medium-sized business segment has been the sweet spot for competing successfully with large incumbents. Cable companies now are preparing their own assault on the lower end of the market as well.

The news that Dell now will be selling the Fonality VoIP Phone System through its global SME sales organization, as well as its channel is simply more confirmation of the trend.

At the same time, there is abundant evidence that not all providers are equally advantaged in the SME space as the technological complexity of services intensifies. Some providers used to selling connectivity services with a clear network demarcation are going to find the going much tougher as the demarc moves to the desktop and the handset.

VoIP, in particular, requires more active assessment, management, monitoring and installation activity and support. And that's just at the network layer. As voice and communications become more embedded in actual end user applications, the level of complexity will take another leap. So, going forward, every provider inevitably will wind up more involved than perhaps desired in all sorts of implementation, optimization and management activities.

More skill and more cost are the inevitable result.

Four More VoIP Patent Infringement Suits

As many of us had feared, if Vonage is infringing patents, why aren't other independent VoIP providers doing so as well? Well, we now have a possible answer. Sprint Nextel Corp. is suing four competitive VoIP providers for the same patent infringements Vonage has been found to infringe. Sprint has sued NuVox Communications, Broadvox Holdings Paetec and Big River Telephone Co.

On the heels of Verizon's new lawsuit against Cox Enterprises for VoIP patent infringement, we might be seeing the materialization of the threat. Executives in the competitive VoIP community have privately worried about just such a turn of events for some time. It now looks as though those fears are justified.

Justin McLain, Endeavor Telecom CEO, partly in jest (but only partly) recently said at a panel at the Internet Telephony Expo that any independent, "over the top" VoIP provider had better have all the funding they need for 24 months, because if not, the companies will fold within that period. "You might want to look for another job," McLain said, again partly in jest, but only partly.

Competing against well-established providers who own their own access facilities and have huge customer bases, plus the ability to bundle entertainment video and broadband access or mobile services simply is going to be too tough, at least in the consumer market segment.

"No bring your own broadband provider really is successful," McLain said. In fact, a good part of any independent provider's success in the consumer market is driven to a large extent by customers who recently have immigrated to the United States and have high needs for international calling back to their home countries, McLain says.

Some other part of the market is composed of price-conscious callers, but the problem is that the average revenue per user a provider can generate from that segment is not enough to support a business, says Sanford McMurtree, RNK Communications VP.

Among the other possible changes in strategy are a shift to multi-level marketing on the Amway pattern, says Gary Coben, deltathree director. "For all the money spent marketing VoIP services, there aren't that many customers," Coben says. "That means people aren't comfortable buying."

It looks to be a tough year for independent VoIP providers who cannot reposition from a consumer focus to serve smaller business customers.

DoCoMo Gets Moving on Android

Not to count chickens before they hatch, but Japan's DoCoMo says it has begun a process leading to Android-powered devices being offered to customers, according to reporting by InfoWorld writer Martyn Williams. "We are starting discussions to offer handsets that will have the Android operating system," says Takeshi Natsuno, NTT DoCoMo managing director.

The talks include getting support for I-mode, DoCoMo's hit mobile Internet service, on the Android platform. Nearly 48 million of DoCoMo's 53 million customers subscribe to I-mode, so having it on Android will be key to the Google platform's success in Japan.

The availability of Android-powered phones on the DoCoMo network of course was expected. The point is that tangible steps now are being taken to make that a reality. Since nobody is going to be able to assess how important Android might be until people actually get to use devices running the new operating system, it's an important step.

UM to UC to CEBP

It isn't clear how much actually has changed except the semantics, but application providers finally are getting better at explaining the benefits to be gained from IP-based communications capabilities. Several years ago the buzzword was "unified messaging." Last year it was "unified communications." This year it is "communications-enabled business processes.

However meaningful the change, it seems fairly clear that the terrain now is shifting in a subtle way. In the old days "telephone service" "dial tone" or even "messaging" was a discrete point solution, not requiring understanding of what the end user actually was doing at the use site, Martin Suter, Objectword president says.

By definition, a supplier has to understand much more about what a user or organization actually has to accomplish at a site, and what software is used to support those tasks, to "communications enable" those processes.

Almost by definition, value added resellers and other technology support organizations have had to know more about what users wanted to accomplish, compared to retailers of "voice" services. And that probably will be telling over the next several years as the CEBP or "next acronym" business moves forward.

In the meantime, expect to hear lots more about how communications can affect everyday business or organizational processes, ranging from safety to inventory management and customer management. It isn't "old wine in new bottles," though some will rush to try that. It's a new role for communications: enabler of better software.

More Changes at Sprint Nextel

Sprint Nextel faces big problems. New CEO Dan Hesse is wasting no time "doing something." First Sprint announced significant headcount reductions (4,000) and closing of a number of retail operations (125 stores and 4,000 retail partners) Now Sprint says CFO Paul Saleh, Chief Marketing Officer Tim Kelly and Mark Angelino, president of sales and distribution, are leaving the company.

The executive changes involve officials most responsible for building the telecom company's brand and customer base, or more accurately, a declining customer base. The earlier set of moves will help Sprint reduce its overall and cost structure. The resignations allow Hesse to bring in a new team to change course. The issue now is what course Sprint Nextel will take.

IMS Realism

IP Multimedia Subsystem seems to be moving from concept to deployment, if recent observations by Manuel Vexler, IMS Forum VP, are any indication.

For starters, billing and operations support software firms are starting to be more active. That suggests their carrier customers finally are thinking about generating revenue from deploying IMS features (IMS is a platform allowing services providers to rapidly and cheaply create new services, test and then deploy them).

Carrier chief financial officers also seem to be asking tougher questions, which suggests carrier technologists are asking for authority to buy platforms. Many of the questions seem to be of the "you bought ATM 10 years ago, soft switches five years ago and now you want to buy IMS?"

IMS backers also now seem to be more aware that it really is infrastructure, and that the search for services will have to follow. "You don't have Google until you have the Internet," Vexler notes. Up to this point some have worried about identifying some "killer app" that would justify IMS deployment. Now there may be more awareness that until the platform is in place we won't really know what apps will resonate.

It probably still is a fair bet that wireless apps will be early candidates, as IMS originally was created by mobile carriers.

at&t 4Q: Guidance More Important Than Results

What's important about at&t's fourth quarter results is less the robust wireless and broadband services gains; or the matching financial performance. The fourth quarter included growth contributed by the purchase of BellSouth, so comparisons to the same quarter of 2006 do not mean much. More important is the guidance at&t offers about its 2008 performance, as that will reflect more directly--but not exclusively-- internal or organic growth, rather than growth by acquisition.

The company says it is confident about sustained double-digit growth in adjusted earnings per share in 2008. Some of that will be delivered by merger synergies or other cost cuts, as revenue will be growing at a mid-single-digit range in 2008. Growth in 2009 and subsequent years is expected at about that same rate: at mid-single-digits, possibly better.

Mid-teens wireless service revenue growth is expected in 2008, but again that partially is driven by the acquisition of Dobson Communications.

Enterprise revenue growth is expected to be in the mid-single-digit range by 2010. In-region consumer revenues will "be positive." In-region business services will grow in the mid-single-digit range as well.

So the company says it is "confident" it has the ability to deliver sustained double-digit growth in adjusted earnings per share and strong growth in free cash flow in 2008 and on an ongoing basis.

Some of that performance is driven by cost savings over the next few years because of the BellSouth merger. Company executives say they wrung about $2 billion in cost out of the company in 2007 and will save $5.9 billion in 2008 as well. Savings will grow to "more than $7.0 billion in 2010."

The forward-looking guidance arguably is more important than the fourth-quarter results themselves, which obviously were driven by acquisition-inflated numbers.

The company's net gain of 2.7 million wireless subscribers was the highest quarterly subscriber increase ever for any U.S. wireless provider, up 13.5 percent from 2.4 million net adds in the year-earlier fourth quarter.

But that performance includes the impact of the acquisition of Dobson Communications, which added 1.7 million subscribers.

That's not to denigrate at&t's performance. It was a good quarter. The point is that we all need to separate out organic rates of change from those wrought by the impact of acquisitions. Lots of companies in communications hide slow or lagging internal growth by buying other companies, with a predictable growth in revenue or customer base. That sometimes is a sign of weakness, not strength.

BroadSoft for Act!

Forget the hype about "voice mashups," the integration of communications capabilities with applications. The idea is about as simple as mating the BroadSoft call control and feature set with the Act! customer management application.

The VoIP AddOn developed by C3IP seamlessly integrates ACT! with BroadSoft’s BroadWorks platform Basically, BroadWorks users now can access those features directly from Act!

That means the ability to "click to dial" from the database, automatic logging of calls and screen pops on inbound calls, for example. So far, voice mashups largely have been developed as a way to improve the efficiency or effectiveness of current business processes.

That's just the way such innovations are introduced, because in a business context there has to be some measurable benefit on either cost or revenue fronts. The easiest way to demonstrate such effects is to "save money" or "save time" doing things that already must be done.

It will be a while before people start to redesign whole processes in light of ubiquitous communications embedded inside the applications themselves.

EarthCaller: Free U.S. Calling

EarthCaller (http://earthcaller.com), a new PC-to-phone service developed by Jaduka that allows its users to call any landline in the U.S. market for free, has been launched.

EarthCaller is said to run the calls over the Public Switched Telephone Network, with obvious call quality benefits. That's really a teaser for international calling, offered on a prepaid basis.

EarthCaller currently is PC-compatible at the moment.

Service Providers Don't Know Much About Customers

About 62 percent of global network service providers (telcos) say they do not today have enough information about how their customers behave, according to a new study commissioned by Apertio.

About 76 percent of respondents say customer profiling is important, closely followed by identity management. (64 percent of respondents say that is important. That sort of knowledge is important since 67 percent of respondents say "personalization of services" is a key revenue opportunity for IP and data services

The situation won't be too surprising to anybody who has been in the service provider industry long enough. The problem arguably is easier to deal with in the IP realm, but even there network service providers might not have access to as much granular data as IP application providers do.

Some observers continue to think that demographic information is helpful, and it is, up to a point. More significant, others think, is actual user behavior expressed in application use, and what users do inside those applications. Since telcos and cable companies don't have much useful information on their customer demographic profiles, ability to capture clickstreams, when legal, is much more useful.

That's another reason why the drive to capture Internet access account is so important. It isn't simply that broadband access is becoming the foundation service for a landline services provider, it is that the ability to personalize a user experience comes from knowledge about clickstreams, not calling patterns or street addresses.

Auction Starts Jan. 24

Bidding begins Jan. 24 for the 700-MHz spectrum that will, among other things, allow creation of a new broadband network with significant open access requirements for devices and applications. The auction also will allow some regional players to acquire new spectrum on a local basis, either to fill in a national footprint or to serve some new local need. The biggest unknown is whether Google will place an initial minimum bid only, and then watch other bidders increase their bids to win the auction, or make some move to try to win the spectrum.

Under FCC rules, the identities of daily bidders will be kept secret although bid amounts will be posted on the agency's Web site on a daily basis. So we'll know soon enough.

Most observers saay the requirement to support any technically compliant device on the C block national network, as well as any lawful applications, has contributed to a recent "embrace" by Verizon and at&t Wireless of open-network policies even on the existing mobile networks.

At least so far, many observers say Verizon Wireless is the most motivated bidder as it needs additional spectrum more than at&t, for example. Some think at&t will look to the regional allotments in other blocks as a way of filling in its footprint.

at&t launches VoIP in Detroit

At&t says it will soon launch VoIP for U-verse customers. The service has been launched in the Detroit market. The service is a replacement for traditional landline service and is priced accordingly.

A $40 monthly fee provides unlimited domestic calling while a $20 a month plan provides 1,000 long distance minutes. The service includes an online call manager portal, unified messaging, click to call from the TV, and simultaneous ring of up to four separate telephone numbers.

So the long march towards VoIP by dominant telcos begins. As just about everybody now recognizes, VoIP will in some cases represent an incremental change in user behavior, in some cases a replacement for traditional calling and in some cases a better way to do traditional calling with a better user experience.

Pretty soon we'll start to get some insight into the ways VoIP helps traditional telcos, in addition to representing a threat to established revenue streams. Without widespread fiber-to-customer networks and a complete shut-off of traditional time division multiplex infrastructure, it will be hard to say for certain.

But Verizon executives think they will save operating expense when they are able to shut off the TDM voice network and shift everything over to IP.

Employees Spend $693.50 Calling and Texting When Abroad

Global U.S. enterprise travelers spend about $693.50 on an 11-day trip, about 12 times more than the average monthly wireless bill, according to a new survey conduced by Harris Interactive and sponsore dby Brightroam.

“The study shows that 15 percent of employees make at least one international trip per year, which translates into costs of more than $950,000 annually per 10,000 employees," says Jeff Wilson, Brightroam general managers. Voice accounts for about 80 percent of the charges while data charges for Web browsing or testing represent 20 percent of total roaming charges.

About 62 percent of calls are made directly for business purposes while the balance of calls are personal, at 38 percent. Cell phones account for half of the devices being used to make those calls while 29 percent are originated from landlines.

The average number of calls is nine to 10 calls a day. About half of business users have smart phones rather than traditional wireless phones, the survey finds.

About four out of five companies surveyed say cell phones or smartphones are the primary communication tool used when employees travel internationally and 57 percent of all calls made on a trip are made on these devices. Users also are more likely to use a cell phone rather than a land line phone whether they are calling locally, to another country or calling back to the United States from abroad, the survey finds. If not using their cell phone, 60 percent will use a calling card and half will use the hotel phone.

Half of calls are placed back to the United States while 40 percent are local calls within the country traveled to.

Wireless Open Access Watch

With a change of presidential administration, and the high possibility that the White House will be occupied by a Democrat, all bets are off where it comes to the composition, leadership and therefore direction of Federal Communications Commission policy. But it is fair to say that a more heavily regulated approach is likely if Democrats win the White House. Incumbent tier one U.S. telcos won't like that. For other reasons, cable industry leaders will be happy as well. Competitive providers might well think their chances improve as well.

So it might be all that significant that Commissioner Michael Copps, a Democratic member of the FCC, seems to want to give incumbent wireless providers a bit of time to make good on their recent pledges to move towards more open networks, allowing any devices or applications compliant with their networks to be used.

That's an obvious counterweight to any thinking by an eventual owner of a new national broadband network that construction and activation of that similarly open network should be built as slowly as legally possible, essentially "warehousing" spectrum as long as possible. The motivation obviously is to extend the life of current revenue models as long as possible.

Pressure to keep those promises about openness on the Verizon and at&t Wireless networks will remain high if Democrats win the White House. In fact, pressure to open up wireless networks more than before is likely unstoppable if Republicans retain the White House as well. The 700-MHz auction rules about openness were pushed through by a Republican FCC chairman and the market seems to be shifting inevitably in the direction of open devices because of the market force exerted by the Apple iPhone and Google, in any case.

Dominant wireless carriers really would prefer not to deal with more openness. But it appears they no longer have a choice. That's going to be good for some new handset providers, application developers and end users, both consumer and business.

Bidden or unbidden, openness is coming.

Who Buys Sprint?

With its stock price now so low, it is inevitable that speculation will grow about the fate of Sprint Nextel as an independent company. There has always been some level of speculation about Comcast's possible interest in Sprint. Most likely there also will be talk of what Google might want to do with those assets. There are lots of plusses and minuses for either company.

Given the growing importance of product bundling, as well as wireless, it might make sense for Comcast to have its own wireless assets, it is argued. Comcast is a part owner of some wireless spectrum through SpectrumCo and also uses the "Pivot" offering developed by Sprint to offer a branded wireless service to cable customers.

Then there is the fourth-generation WiMAX asset Sprint could provide. But there are lots of arguments why Comcast can't, or shouldn't consider buying Sprint. Start with the WiMAX network, which obviously would operate outside Comcast's cable franchise territory. There is one big unstated "no no" among leading cable operators, and that is that one never competes with another cable operator. "I have mine, you have yours" has been the rule since the industry began in the late 1940s. Comcast would not likely want to be first to break the taboo.

Comcast shareholders also seem to be terrified that Comcast might embark on just such an expensive acquistion. The last time Comcast tried, attempting to buy Disney, the stock was pounded. Any Sprint acquisition would likely have the same effect this time, and Comcast's stock price already is beaten way down.

Comcast also says it continually monitors what is happening in the wireless industry, and one could make the observation that as crucial as wireless has been as a revenue growth engine, slowing has to occur as the market reaches complete saturation in just a few years. Nor is it clear that cable customers see wireless as a "natural" part of a bundle. That's arguably not the case for buyers of "phone service," who may well see a wireless-broadband-voice bundle as "natural" and "logical."

Google, on the other hand, might also be seen as a logical consolidator. It clearly wants mass in the wireless market, and control of Sprint's customer base would be helpful. The price tag is really low. The 4G network makes much more sense for Google than it does for Comcast, and the cost of the spectrum is already baked into Sprint's share price.

On the other hand, Google wants to work with all the major wireless carriers, and becoming a competitor doesn't help. Nor will Google want to mess with operation of three networks or Sprint's marketing challenges. Still, to the extent that ownership of a national broadband wireless network might be helpful, and if the eventual owner of the 700 MHz C block spectrum is a company like at&t or Verizon, who might drag their feet putting that spectrum into service, Google and other supporters of a mobile Web approach untethered from legacy considerations about voice might want a chance to move ahead with WiMAX using a new business model.

Perhaps Google could even work out a pre-planned buy of all of Sprint, and then immediately spin off the non-WiMAX assets, to avoid becoming a competitor to at&t and Verizon. Other scenarios obviously will make sense to people if Sprint's share price doesn't climb soon.

Easier BlackBerry Use

It's going to be easier to read and respond to text, attachments and image-formatted documents on Research in Motion BlackBerries sometime later this year. RIM says it will upgrade its software so users can edit documents directly from the device and to view messages in their original formatting. That sort of functionality is obvious on Windows Mobile devices, so RIM has to keep pace. Apple's growing presence and market share also might be an issue, as the "easy to use, the whole Web" philosophy has got to be changing user expectations about what they ought to be able to do, and how, on their smart phones.

In the third quarter of 2007, Apple captured 20 percent of all U.S. smart phone shipments, Gartner Inc. says. RIM got 39 percent.

Enterprise iPhone

Enterprise iPhone users now have a specific set of plans and a financial inducement to sign up for a minimum two-year enterprise iPhone plan. The inducement is a $25 a month discount through December 2008 for new accounts. Users can sign up for the typical voice plans, and then pay a new enterprise data fee. At least that appears to be the case. The Web site isn't crystal clear about the matter.

The enterprise data plans include visual voice mail, unlimited data with both email and Web inside the United States, plus a bucket of text messages.

Data plans range from $45 to $65 a month. For users requiring data access outside the United States, at&t also offers data global roaming plans costing $24.99 a month with 20 megabytes of global data access, and a $59.99 a month plan offering 50 Mbytes of data access in 29 countries outside the United States.

It will be interesting to see how user perception of the value of a smart phone changes over time. Up to this point, the Web browser, though seen as useful, as been of the "nice to have" rather than "must have" feature, as this survey data from InfoTech suggests. So far, though, Web browser use and mobile searches by iPhone users have been significantly higher than is the case for a typical smart phone user.

As the developing trend of use of Web-enabled enterprise software continues to grow, the browser obviously will assume new importance.

Thailand, SE Asia iPhone Deal?

It doesn't appear to be a done deal. In fact, it might be premature to say the deal will get done, but Thailand’s Advanced Info Services is collaborating with shareholder Singapore Telecom and Australia’s Optus to win the right to bring Apple’s iPhone to Thailand and the southeast Asia-Pacific region.

AIS Chief Marketing Officer Sanchai Thiewprasertkul says " up to 60,000 iPhones have been smuggled into Thailand so far," according to TeleGeography.

Wireless Substitution: in China

China Telecom, the nation's largest fixed line company, reported a decline of 2.7 million local access lines in 2007, as a result of great competition from wireless carriers. The number of fixed line subscriptions fell by 1.48 million in December, its fifth consecutive monthly loss, to takes China Telecom’s total to 220.3 million.

China Mobile added 68.1 million users in 2007 to take its total to 369.3 million, while Unicom added 18 million subscribers to reach 160.3 million subs.

Fixed line substitution isn't just a problem occurring in North America and Europe, apparently.

iPhone Drives Learning About Contextual Search

If engineers, analysts and marketers at Google are smart, and we would agree they are smart, lots of really important data is being gathered about what it is that mobile Web users do on their mobile browsers. The reason is that the preliminary data suggests that iPhone users are much more heavy browser users than users of other makes and models of mobile devices.

That sort of information is going to be really important as software designers at Google and elsewhere try to unravel the secrets of mobile search. So far, everybody seems to think there are contextual factors to mobile search that make it different from desktop PC search. In other words, people probably are going to be asking different questions and trying to do different things when initiating a mobile Web search. Directions have to be right at the top.

My own usage tends to be "what's the address of the place I am going to" and "where can I find the closest book store." Another favorite: "where can I find good Thai food close to where I am?"

Everything beyond that remains to be discovered.

Free Muni Wi-Fi in Colorado Town: But It's Bad News

Residents of Longmont, Colo. temporary have free access to the municipal Wi-Fi network operated there by Gobility. Access is free because Gobility lost its billing contract and literally can't bill for access. It's bad news because the network is for sale, Gobility apparently finding it cannot raise additional funds to keep the network in operation.

Kite Networks, owned by Texas-based Gobility, provides wireless broadband service in Longmont and to approximately 17,000 customers across 21 markets.That works out to about 809 customers per market. So it is probably no surprise that Gobility is finding the business a really tough proposition.

Longmont’s city council is taking a look at whether the city itself could buy and run the network. But Longmont has Digital Subscriber Line service available from Qwest starting at about $20 a month and Comcast offers cable modem service for about $40 as a stand-alone service. There are no particular signal coverage limitations that prevent use of wireless broadband from the major national suppliers and perhaps a dozen third party ISPs offer DSL service as well. It just isn't clear that a municipal Wi-Fi network is needed or that paying customers exist in sufficient numbers to sustain a business, even if operated by the city.

A vote of Longmont residents would be required before Longmont could consider a bid.

700 MHz Auction: Not the Best, Not the Worst

For many observers anticipating the soon-to-begin auction of valuable 700-MHz wireless spectrum in the U.S. market, there is some combination of great hope and fear that it will all be business as usual and that nothing much will change.

The great hope scenario calls for some new entrant to win the C block and create a national, open, Internet style broadband wireless network. The great fear is that at&t or Verizon will be the big winner, stifling innovation once again.

For mobile industry service providers, you can reverse the hope and fear positions. Incumbents hope at&t or Verizon will win, precisely to prevent the emergence of an open national broadband mobile network. They fear an outsider could snatch the spectrum away and actually do that.

In the end, he outcome will not be so wildly good for innovation, but not stultifying either, even if an at&t or Verizon wins the spectrum. Change is coming simply because the mobile Web is coming, and no contestant can stop that. Innovation will continue to flourish on the Web side of the business, no matter what is done on the walled garden sides of the business.

Consider the mobile music business. We are far from knowing how the use cases and business models play out. But we already can point to some facts. Walled garden services featuring downloads or rental have been seen as the logical evolution, and that certainly is where early efforts have focused.

Over time, users might do other things. They might sideload their music, then share with their friends using Bluetooth, Wi-Fi, 3G or 4G. You might say this is a laborious process, and you would be right, if all we have is today's tools. That will change. Somebody will author an elegant program for syncing sideloaded music with other handsets. It might not be iTunes that drives this, since iTunes is quite sharing-unfriendly by design.

But somebody will do so. And then the business might shift as it grows. Online downloads and sideloading will increase. But then sharing will kick in. Then it might turn out that walled garden download services aren't as big a deal as we once thought, but open download services are. Maybe the sharing software is simple enough that users can see each others' playlists and trade songs, one for one.

Maybe there's even some monetization scheme possible where songs are traded or shared. Most people don't seem to mind paying a fair price to get a song they like. Maybe they won't mind paying some amount to share songs with friends or even bystanders.

The point is that walled gardens might be the logical way a service provider approaches building a new business. That doesn't mean other ways are precluded, especially when the mobile Web really gets to be popular.

In a sense, the very existence of the mobile Web ensures that innovation will happen. Some might argue a better way to approach things is structural separation, where transport and access are separated from the retail side of the business. Others will argue that it is more feasible simply to "functionally" or "operationally" separate wholesale transport and access from retail operations.

Even in the absence of those mechanisms, the mobile Web is going to allow innovators to do things "without asking permission" of the retail wireless operators. The Federal Communications Commission's rules on open network attachment for the C block will help ensure that regime, as the operator of the C block network will not be able to block the use of "open" or "third party" devices.

The likely outcome of the C block auction is that either at&t or Verizon wins it. Whichever contestant does not win the C block will pick up A and B block spectrum where it is needed to reinforce existing operations or extend the current service footprint.

Verizon and at&t simply have the business motivation to win the auction. Sprint won't be bidding and T-Mobile arguably can't afford to bid. Still, it won't halt innovation, though we won't see as much change as if an outsider with no vested interest in today's revenue models were to win the auction.

But the mobile networks are going open in some significant ways, even if the basic business model doesn't change as fast. But T-Mobile already offers a "data-only" service plan, with no need to buy voice to get the data. In principle, it should be possible for this to happen on a much-wider scale, and then users can draw their services entirely from the mobile Web, rather than using walled garden services.

The auctions probably won't be as good as some hope, but certainly not as bad as feared. And that might be case no matter which viewpoint one has. Those who want change will see measurable "goodness." Those who have reason to fear the coming changes will have time and resources to adjust and embrace the change.

When all is said and done, the auctions will neither be a disaster nor a revolution. Neither will they honestly be anything other than another important step towards more openness and choice, however. It's coming.

New Verizon FiOS Offers Will Cannibalize Data T1s

Verizon now is selling symmetrical FiOS connections aimed at small and mid-sized businesses at speeds of up to 20 Mbps as well as 50 Mbps downstream with a 20 Mbps upstream. The new offerings will put pressure on data T1 sales, but not necessarily integrated T1s used to support both data and voice, in all likelihood.

In some states (Connecticut, Florida, Massachusetts, New Jersey, New York and Rhode Island) small- and medium-sized business customers can subscribe to 20M/20M service with a dynamic IP address for $99.99 per month; or with a static IP address, the 20M/20M service is $139.99 per month -- both with a two-year term agreement.

The fastest speed available in these states is now 50M/20M for $199.99 per month with a dynamic IP address, or $239.99 per month with a static IP address -- both with a two-year term agreement.

In other states (California, Delaware, Indiana, Maryland, Maine, New Hampshire, Oregon, Pennsylvania, South Carolina, Texas, Virginia and
Washington) small- and medium-sized business customers can subscribe to 15M/15M service with a dynamic IP address for $99.99 per month, or with a
static IP address, the 15M/15M service is $139.99 per month both with a two-year term agreement.

The fastest speed available -- 35M/5M with a dynamic IP address -- has been increased to 30M/15M for $199.99 per month, or $239.99 per month with a static IP address both with a two-year term agreement.

The plans are also available with 12-month agreements at higher prices.

Along with the introduction of FiOS Internet service at symmetrical speeds of 20 Mbps or 15 Mbps, the company has also increased the speed on its fastest business Internet plans and lowered prices by as much as 35 percent.

Verizon FiOS Internet Service for Business allows business owners to choose either a dynamic Internet protocol (IP) address or a static IP address.

FiOS Internet service for small businesses is available as part of a bundle including local and long-distance calling services from Verizon, or as
a stand-alone Internet access service.

Why Video Isn't Like Voice and Data

The entertainment business--music, concerts, TV, movies, downloads, streaming, mobile, magazines, audio broadcasting, CDs, DVDs and other display devices--is fundamentally different from the voice, text and visual communications business in one really important way.

Entertainment is all about the "content" or "stuff" anybody wants to watch, listen to or interact with. For communications, you and I supply our own content, so all we need are compliant networks and devices. Other humans or in some cases machines are the "content."

Everything else about the value chain--discovery, delivery, navigation, display, audio, format, business model, pricing and packaging--is subsidiary to the availability of content one wants to view, hear or interact with. Unlike the communications business, then, it is not possible to "disrupt" or "disintermediate" any parts of the value chain without the willing cooperation of the entities that own the content people want to access.

That's really different from communications, where people can build whole networks to disintermediate or disrupt the dominant providers. You might need permission for rights of way, or a license, or an operating permit. But you don't need the permission of the dominant provider to do so.

And that is what makes video a harder business to "disrupt," even if all one wished to do is create a new distribution channel. Content owners are well aware of how they make most of their money and even how they make that last incremental five percent of their money.

So they are not going to give you access to the best content before they have wrung the expected profit out of that content using the current distribution methods. Of course, that doesn't apply to user-generated content, but the point is that most people still watch commercial video most of the time, despite UGC growth.

That makes it tough for any new distribution platform, much less any new contestant using a new platform, to get access to the "really good and highly-viewed stuff" until it is proven that the new distribution method produces more revenue for copyright holders than the older methods.

The other problem is that "when" a provider gets access is as important as "what" a distributor gets access to. This is a sheer matter of exposure. By the time a popular movie or TV show gets to online or on-demand distribution, people have had a chance to watch in movie theaters, in hotels, on airplanes, on DVDs, on premium cable channels or cable or satellite TV. Not to mention illegal viewing along the way, as well.

By definition, people have had lots of chances to see something before it is made available to emerging distribution channels such as online and streaming services. All of that limits the actual market for online or streaming delivery of content.

In principal, downloads can replace DVD rentals and sales, but only once those older formats generate less than, or equivalent amounts of money as online sales do. And that is going to take some time.

So we shouldn't be too surprised that early forays into online or streaming services face a tough, uphill battle.

Any distributor needs access to the popular content, soon enough to capture some volume, on devices with high penetration of users, in a very easy and convenient way, at prices that make sense to people.

Google has stumbled, Joost might not be doing much, Wal-Mart has folded and even Apple has had to reposition and relaunch its Apple TV service from a "buy" to "rent" model.

Video won't be as easy to disrupt as voice or data.

Uh Oh. Verizon Sues Cox Communications

Verizon Communications has sued Cox Communications Inc., claiming infringement of eight patents for providing telephone services on a data network. So far, only Vonage has had to face lawsuits over VoIP intellectual property. What isn't clear is what happens if Verizon wins the lawsuit, either outright or through a negotiated settlement.

After Vonage was found to infringe patents Verizon, Sprint, Nortel and at&t, many of us have wondered whether lots of other service providers might be found to infringe the same patents. Many independent VoIP providers and even some technology suppliers apparently have wondered the same thing, even if they won't say so in public.

Apparently we might find out relatively soon. The wider implications are pretty clear: it is not clear what Cox might be doing that any other cable company affiliated with Cable Television Laboratories is not doing. So the damage conceivably would not be limited to independent providers of VoIP services but possibly every leading cable company operating in the U.S. market.

And since Cox does not create its own technology but buys it from the same suppliers thouse other cable operators are using, one has to wonder whether there might not be exposure even on the supplier side of the business, though it is extremely unlikely Verizon or other telcos would bother their own suppliers.

Granted, any damage would be annoying, not a grave danger to any leading U.S. cable company. It isn't so clear what the damage might be at a smaller cable company, though arguably the potential size of the infringing revenues wouldn't be that great, so the penalties would be commensurate.

Atlanta-based Cox, the third-largest U.S. cable TV company, should be ordered to pay cash compensation for using the inventions, Verizon says in a complaint filed in federal court in Norfolk, Va.

Vonage's troubles, it appears, might not be confined there alone.

Google 700 MHz Auction: "Bid to Lose"?

Perhaps nobody outside Google really knows how serious the search giant will be in the auction for C block spectrum in the 700 MHz range. There remains some thinking that Google's primary objectives--getting more openness in wireless networks--are well on the way to being satisfied.

Using that line of thinking, Google will submit the minimum required bid, but nothing more, essentially "bidding to lose."

But one never knows. Given the current economic climate, and the failure of any takers for a smaller segment of spectrum that carried a requirement for public service services, the final auction price might not be as high as some had forecast just a year ago. If it appears prices might be low enough, even Google might decide it is worthwhile to play a while longer.

The 700 MHz spectrum is attractive for any number of reasons. It is the last chunk of spectrum likely to be made available for mobile use. And it's nice spectrum, with greater range than the 2.5 GHz spectrum used for much of today's mobile service. The signals also have greater ability to penetrate walls and buildings, a big advantage, as anybody who uses a mobile phone inside a building can attest.

Those signal propagation characteristics also might mean lower costs to construct the network. True, it can be argued that Google doesn't need to own that, or any other spectrum, to accomplish its mobile Web and mobile advertising objectives. But you never know. The auction might not require as much capital as many had thought just a short while ago. An opportunistic buy always is possible.

Fuzzy Thinking on Network Neutrality

With the caveat that "network neutrality" means different things to different people, it is striking that some observers think bandwidth caps for excessive use have anything whatsoever to do with network neutrality.

That's a little like arguing bigger or smaller buckets of mobile voice or text usage constitute some sort of "neutrality" issue. It's a business issue, nothing more.

The discussion is sparked by news that Time Warner is testing usage-based pricing for broadband access in a few markets, for new customers. The idea undoubtedly is that the new plans will be price neutral for 95 percent of customers, and affect only "extreme" downloaders or really-heavy peer to peer customers.

Once the test starts, new customers will be offered a choice of four plans that allow them to download set amounts each month--5, 10, 20 or 40 gigabytes. The typical user now consumes something on the order of three gigabytes a month.

Grande in Play

Grande Communications appears to be in play. Its board of directors has authorized management to "explore strategic alternatives to enhance shareholder value." That's a "for sale" sign posted by one of the largest "overbuilders" in the U.S. market.

Grande has retained Waller Capital to assist the board and management in exploring strategic alternatives.

Grande is in the process of building a deep-fiber broadband network to homes and businesses in portions of Austin, Corpus Christi, suburban northwest Dallas, Midland, Odessa, San Antonio, San Marcos and Waco. The San Marcos-based company offers high-speed Internet, local and long-distance telephone and digital cable.

Sprint Shares Whacked on Downgrade

Sprint shares lost about 25 percent of their value Jan. 18 as Fitch Ratings lowered its credit rating. The Fitch downgrades reflect the ongoing concerns over Sprint Nextel's financial and operating results and the lack of visibility as to the company's performance going forward.

Fitch now believes credit metrics will experience greater near-term deterioration with leverage worsening. Sprint's difficulties with stabilizing its core operations and improving the company's competitive position were cited as evidence for the downgrade.

Fitch believes Sprint will experience difficulties in increasing its mix of prime subscribers given the high industry penetration rates, the low postpaid churn rates of its national competitors, the slowing economy and its competitive position. Of course, Sprint has had a churn problem for a couple of years now.

On the other hand, Sprint's continues to hold a good liquidity position and balance sheet. Cash was $2.2 billion at the end of the third quarter of 2007. Free cash flow (FCF) for the last twelve months was $2.2 billion.

The problem is that Fitch expects material free cash flow erosion during 2008.

Still, Fitch sees no issue with ability to service debt obligations. With manageable maturities over the next two years of $1.3 billion coming due in November 2008 and $600 million in May 2009, Sprint Nextel has more than sufficient liquidity through its cash position and bank lines to finance its current maturities and current commercial paper levels.

Considering Sprint Nextel's other strategic initiatives such as and including the share repurchase program and WiMAX deployment, Fitch expects Sprint Nextel to conserve liquidity and conservatively finance those initiatives.

Fitch's negative outlook is an indicator of weaker operating trends and the potential that further erosion could occur to Sprint's operations if the company remains unsuccessful in stabilizing its business.

Mobile Web: Falling Walls

The Internet has proven problematic for communications providers in any number of ways. Aside from mobility, the Internet and private IP services provide the foundation for most growth initiatives. Without it, there would be no demand for broadband access services, music downloads, video downloads and streaming, videoconferencing or Web services.

On the other hand, IP-based services also allow creation of services outside the traditional service provider walled gardens, creating competition for captive provider services. As a rule, IP also lowers the cost, and therefore the retail price, of just about any communications, content or information service.

So it is no surprise that wireless providers have mixed feelings about wider use of mobile instant messaging services that compete, at least in part, with lucrative text messaging services.

By the end of 2013, as many as 24 percent of mobile consumers will be using mobile IM services, say researchers at Forrester Research. That likely will cannibalize some amount of text messaging and shift brand awareness towards the IM providers (Microsoft, Google, Yahoo, AOL) rather than mobile carriers.

Sweden to Separate Networks

It looks like Sweden will join the ranks of countries believing that creating a separate wholesale broadband access entity will spur innovation in domestic telecom markets. A law giving Sweden’s telecoms regulator, the PTA, powers to impose a separation of network operations and retail services on TeliaSonera or any other infrastructure-based telco deemed to have significant market power now is under review.

But TeliaSonera has seen the writing on the wall and preempatively launched a wholesale unit on its own. TeliaSonera Skanova Access now offers equal wholesale terms to rivals and its own retail operations.

If approved, the new law will emulate BT’s "functional" separation. Swedish regulators say they will wait to adopt the new rules when the EU has formalized its own rules on functional separation.

There's a key challenge for North American regulators here. The grave potential danger of such structural or functional separation moves is that it will scare off investors who must provide the investment capital to build robust new optical access networks. As the trend continues to grow, not simply in Europe but in the Asia-Pacific region as well, we will accumulate a track record demonstrating whether, in fact, a capital strike is a realistic fear.

If functional separation can be made to work, if it continues to provide an attractive basis for investing capital in networks, pressure might mount on North American regulators to make similar moves. That will be especially true if market abuse were perceived to be occurring under the current "inter-modal" competitive regime that now prevails, under which competition between cable companies and telcos is expected to provide competitive benefits.

Sprint Loses Customers

It's not wonder Sprint is axing 4,000 employees, closing stores and halting distribution agreements with some partners. In the fourth quarter Sprint Nextel reported yet another quarter in which it lost more customers than it gained.

True, Sprint reported a "net gain" of 500,000 subscribers through wholesale channels, growth of 256,000 Boost Unlimited users and net additions of 20,000 subscribers within affiliate channels.

Bu those gains were offset by "net losses" of 683,000 post-paid subscribers and 202,000 traditional pre-paid users. In other words, Sprint lost 885,000 customers in the quarter and gained 776,000.

In other words, Sprint had a net loss of 109,000 customers.

In the churn area, where Sprint has arguably its single greatest challenge, post-paid churn (customers billed monthly) was 2.3 percent, slightly better performance than the previous quarter, and within striking distance of the slightly less than two percent range Verizon and at&t now have.

Unfortunately, Sprint Nextel's rate of involuntary churn, where it has to cut off service to a customer, rose over the prior quarter.

At the end of 2007, Sprint Nextel served a total subscriber base of 53.8 million subscribers including 40.8 million post-paid, 4.1 million traditional pre-paid, 500,000 Boost Unlimited, 7.7 million wholesale and 850,000 subscribers through affiliates.

As this chart from Bear Stearns shows, churn creates a couple problems. First, it directly reduces the number of revenue-generating units a company has. Secondly, it almost always raises the cost of acquiring new customers as well. The former hits revenue, the latter costs.

Orange iPhone Sales Stronger than Expected

Apple's iPhone is selling better than mobile carrier Orange (France Telecom) expected, Didier Lombard, Orange CEO, says. Orange expected sales to slow after the start of the new year, but that hasn't happened, Associated Press reports.

Orange had sold 30,000 iPhones in the five days after it went on sale in France, and planned to sell a total of 100,000 of the handsets by the end of 2007.

It doesn't appear too many customers are anxious to buy the unlocked iPhone, sold without a service contract and therefore for a significantly higher price.

Orange has sold "very, very few" iPhones without a contract, Lombard says.

Carphone Warehouse Now Major DSL Channel

The Carphone Warehouse Group (U.K. market), which might formerly have been thought of as an electronics retailer, now points out how much communications service distribution channels can change.

Carphone Warehouse now has 2.6 million Digital Subscriber Line customers. It is by no means certain that mass market retailers in other markets will do as well, but both Best Buy, Office Depot and Circuit City, for example, are distribution channels in the U.S. market, with differing degrees of active involvement in the integration and broadband access businesses. In the U.S. market, Best Buy has taken the boldest steps by buying Speakeasy, a national provider of DSL connections.

Brazil, Russia, India and China Driving Growth

In 2007, Hewlett Packard earned 67 percent of its total revenue outside the U.S. market. In the fourth quarter along, Asia-Pacific grew by 20 percent, Europe, Middle East and Africa by 19 percent and the Americas region was up by 10 percent. The Brazil, Russia, India and China group grew 37 percent year over year in the fourth quarter. Growth rates of that sort are one reason new submarine cables are being laid between North America and the Far East, and being planned or talked about between Europe and India. Add mobile phones to the growth of PC and associated electronics and it is clear Asia, the Middle East and Africa is where the growth is, at least in terms of mobile and other sorts of communications.

Of course, there are other reasons for laying additional cables across the Pacific. Earthquakes are capable of taking out multiple cables and routes in an instant, so carriers logically want more redundancy on trans-Pacific routes than has been the case up to this point.

Ads: $5 Million a Day Shifts to Online

One way to look at current trends in where advertising is being bought is to note that "ad dollars are leaving the cable, broadcast TV and the newspaper business at a rate of roughly $5 million per day, says Paul Woidke, Comcast Spotlight VP.

Time of Day Pricing

As exemplified by this chart showing how utilities price usage by time to day to discourage use during periods of peak load, one theoretically could price broadband access, voice or virtually any other communications good based on time of day or day of week. Long distance pricing used to do so, in fact.

Of course, what we now know is that users vastly prefer flat rates, often because it is a way to avoid steep "overage" charges, and even when the actual price for usage is much higher than one might think. Based on what one did in a single billing period, for example, average prices for wireless calling might range from two cents a minute to eight cents or more. When one is on vacation, per-minute pricing might be as high as 20 to 25 cents a minute for the actual minutes used.

Most U.S. consumers probably don't worry about "per minute" pricing for domestic calling. They pay a flat rate for a certain number of minutes in a bucket, and that's about as far as one normally thinks about the matter.

Not so long ago, though, wireless calling and wired network calling routinely used time of day pricing. In principle, broadband access could be priced the same way. It is doubtful the potential benefits are worth the effort. Customers clearly prefer buckets and flat rate pricing. Also, there are costs associated with tracking usage so closely, so in most cases it might not be worth the effort.

The other issue is that pricing by the value of an application makes more sense than tracking raw bandwidth usage. The value of a text message or voice bit is quite high on a price-per-bit basis. On the other hand, the value of high-quality video video or audio bits is not determined so much by price-per-bit as by quality of the streams.

One movie might be "worth" the $3 or $4 a user pays for the stream. But the value will be determined by the quality of the delivered images. Two hours of continuous talking might be valued just as highly, even if the perceived price is $2.40 (two cents a minute for 120 minutes).

Time of day pricing also arguably makes less sense for broadband because network load tends to balance out, if one includes business broadband and consumer broadband load. Business load is high from 8 a.m. until perhaps 4 p.m. while consumer usage peaks in the evening. Average load therefore tends to balance on any given network from 8 a.m. to 11 p.m. local time, though usage obviously is lighter from midnight to 6 a.m.

Usage-Based Pricing Not Unusual

At some point, as more Internet service providers begin to adopt "buckets" of use as the dominant subscription model, there will be outcries about whether this is fair, since most users in the U.S. market have come to expect flat fee pricing for "unlimited" use.

That has not been the dominant model in Europe, for example, and though there might be some incremental impact in usage patterns, I don't think anybody would argue that metered usage is terribly and inherently unfriendly.

It also is highly unlikely to the point of implausibility that ISPs in the U.S. market will move to a strict metered usage regime. The reason is simply that the objective--matching consumption to the cost of providing access--can be addressed more simply and palatably by using the "bucket" model, much as mobile calling or texting plans can be purchased based on expected usage.

In that regard, it might be helpful to recall that consumer pricing has used any number of models. Pay-as-you-go had been the dominant packaging and pricing model for all long distance plans, mobile and fixed, until at&t introduced "Digital One Rate." Local calling, on the other hand, has used a "fixed fee, all you can eat" model.

Cable TV has used a mixed model: essentially "flat fee, all you can eat" for ad-supported video and movie channels, but usage-based pricing for on-demand pricing.

The model used for Internet access started at the other end of the continuum: unlimited use (subject to some acceptable use policies) for a flat fee. Only recently have some voice providers moved to that model.

Of late, though, there has been a bigger move to "buckets" that match usage to price. There's no particular reason to believe a move in that direction will affect the vast majority of users. Most customers have usage patterns that fall within a reasonable zone, and won't, in practice, notice anything different even if usage-based pricing becomes more prevalent.

Providers obviously will want to minimize disruption, and there's no question but that lower prices have driven high demand. Nobody will want to jeopardize their market share by raising prices for most customers other than the small percentage who consume a disproportionate share of bandwidth.

Over time, more attention will have to be paid to the relationship between retail pricing and usage as video starts to change usage patterns, though.

Apple, Netflix ramp up Online Video Efforts

There are many reasons lots of people ought to be paying attention to streaming and downloaded video. Lots of people work for companies making a living delivering video products and everybody watches video in its various forms. Lots of companies are making expensive bets about what people want to watch, how and where they want to watch, what features are required and how much they will watch. The two mid-January developments in the area of particular note are the Netflix "unlimited online viewing" offer and Apple's launch of a video download service.

Up to this point Netflix has allowed its subscribers to watch online movies on a limited basis, corresponding to their monthly plans. Basically, hours of online viewing roughly correlated to the monthly subscription price. The big change is that Netflix now allows users on unlimited rental plans starting at $8.99 a month to stream as many movies and TV episodes as they want on their PCs, choosing from a library of over 6,000 familiar movies and TV episodes.


Now, subscribers on unlimited plans can stream as many movies and TV episodes as they want from the smaller instant watching library, unconstrained by any hourly limits. The move widely is viewed as a preemptive response to Apple's launching of its own video download service, using a rental model rather than "download to own" approach. Up to this point Apple has seen modest success with an approach based on Apple TV hardware and content from two studios, Disney and Paramount.

All major Hollywood studios have agreed to make their content available as part of the new Apple service. They include Paramount, Universal, Walt Disney, Warner Bros, Sony Pictures, Metro-Goldwyn-Mayer, Lionsgate, New Line and News Corp's Fox.

Using Apple's iTunes online store, US consumers will be able to hire new-release movies at $3.99 for 30 days. Older titles are priced at $2.99 for the same duration.

These movies can be viewed on iPhones, iPods and television. One can debate the impact of Apple's more-aggressive move into online downloads and streaming. In fact, one can argue that the streaming business is a different segment from the "download to own" market or the "rent by downloading" segment.

One also can debate who wins and loses in the video rental business: Netflix, Blockbuster, Amazon.com, Joost, iTunes or others. Even the impact on Netflix is debatable. If consumer use of the streaming feature increases, Netflix will pay more money in licensing fees to the studios who own the content. It also will incur more bandwidth charges. On the other hand, Netflix might spend less money on postal charges, shipping and handling of physical DVDs.

Probably more important is the strategic impact: Netflix's ability to retain existing market share as new competitors enter the market.

The other issue is which market is affected. To some extent the "view on PC" segment is where Apple, Netflix and others compete head to head. There are other segments, such as the "watch on my iPod" market, where Netflix and others delivering to the PC do not play.


Also, one might debate whether a subscription service is different from a pay-per-view model. Heavier users arguably will prefer a subscription model. Lighter users might well prefer the "pay as you go" model. Also, there is little question but that mobile, iPod, PC and TV viewing segments will emerge as full-fledged markets at some point, irrespective of the payment model.

Business motivations also are different. Apple sells content at prices as low as possible so it can create a market for its devices. Its market is rNetazors (devices) not razor blades (recurring revenue). Netflix has the opposite business model: it only cares about devices as platforms to sell content on a recurring basis.

To some extent, then, Netflix and iTunes ultimately compete with telco, wireless and cable on-demand programming offerings, in addition to competing with each other to some extent. Netflix and iTunes now are in the video on demand business, not the "DVD rental" business.

Telcos and cable companies investing heavily in broadband access networks play in the linear TV space as well as the on-demand video space. They compete directly with each other and satellite providers. But over time each of the three main linear programming providers also competes in the on-demand entertainment market, especially as such viewing can be supported on TV screens at some point.