VoIP Markets: Is Europe the Future?

Though those of us in the U.S. community tend to overlook the fact at times, the consumer VoIP market in Europe is quite different. In Western Europe there were 21.7 million VoIP customers at mid-year 2007, up from 15.6 million only six months earlier.

TeleGeography estimates that the ranks of European VoIP subscribers had grown to 28.9 million by year-end 2007.

While VoIP is often associated with competitive carriers and cable companies, many European incumbents have counterattacked by launching their own VoIP services. France Telecom has emerged as by far the largest consumer VoIP provider in Europe, while BT, Telecom Italia, and KPN all rank among the top ten European VoIP operators.

The European consumer VoIP market remains fragmented and highly diverse, featuring a wide range of provider types and business models, says Stephan Beckert, Telegeography analyst.

In some countries, incumbents dominate. In others, competitive carriers have gained the advantage. VoIP adoption also differs widely across nations. For example, 34 percent of all French households subscribe to VoIP, compared to only 11 percent in Germany.

At some point, the U.S. markets are going to start resembling the European market. At some point incumbent carriers are going to start pushing VoIP services actively. Recall the pattern set by Digital Subscriber Line services. The technology was available for quite some time. But telcos didn't have a business driver to deploy it aggressively (they feared cannibalization of T1 lines) until the cable operators forced their hand by launching rival cable modem services.

To be sure, an argument can be made that revenue is better managed by allowing traditional phone line sales to shrink gradually, rather than massively converting to VoIP, with the attendant cost and reduced revenue across the board. At some logical point, the benefits will be close to the costs, and the switch will happen.

Verizon Has 0.5 Percent Exposure to Unlimited Calling Plan Downgrades

Verizon Communications has 305,000 single-line Nationwide Unlimited Anytime customers with monthly voice price plans in excess of $99.99 per month. That's important as the investment community now is nervous the introduction of new plans costs about $100 a month will cause those sorts of customers, paying $125 to $135 a month, will downgrade to the $100 a month plan.

Keep in mind that customers paying more than $100 a month for a single line represent just 0.5 percent of Verizon's customer base.

Verizon believes that the reduced revenue from the $100+ customers will be more than offset by other customers on lower-priced plans moving up to the $100 a month plans. The exposure to the downside isn't that high--possibly $109 million or so.

On the other hand, assume just 300,000 customers upgrade their plans to the unlimited plan, out of the base of total 65.7 million users, and that the incremental revenue is $30 a month.

Despite some momentary imbalance, it seems more logical that the upgraders outnumber the downgraders by as much as two orders of magnitude.

Dan Hesse, Digital One Rate

Dan Hesse, Sprint Nextel CEO, was CEO of AT&T Wireless Services back in 1998, not many will recall. That was the month Hesse was able to act on a vision he had strenuously to sell to his superiors: that wireline minutes of use could be shifted to wireless, saving at&t money on access fees by doing so.

The Digital One Rate Plan was not primarily aimed against other wireless carriers at all, but rather at reducing a significant cost of doing business on the AT&T long distance side of the house.

At the time, Hesse pointed out that "we're taking a chunk out of revenue usually going to our competitors," meaning by that the Regional Bell Operating Companies that at&t had to pay access fees to.

The point is that major packaging initiatives can have unanticipated consequences. Digital One Rate was just a way to save AT&T long distance operations money on terminating traffic charges paid out to local carriers.

So make no mistake: Hesse is used to launching unusual packaging programs for non-intuitive reasons. But not even Hesse was able to fathom that Digital One Rate would change the way the entire industry packaged its basic product.

If Sprint does launch some sort of "nuclear" strategy to try and shake things up, you can bet Hesse isn't going to choose some sort of simple copycat unlimited calling plan.

Dan Hesse is the guy who got the whole "buckets of minutes" train rolling, and wiped out the difference between local and long distance calling in the U.S. domestic market.

He's the guy who triggered an explosion of mobile adoption and a sharp increase in usage of mobile minutes.

Financial analysts seem to be riveted on what a $60 unlimited calling plan might mean for the fortunes of all leading wireless providers. I don't think that is what they ought to be focusing on. Digital One Rate was about moving "long distance" minutes from the landline network to the wireless network.

That's what "unlimited" mobile calling plans do. That's why Sprint is testing femtocell technology in Denver: figuring out the operational and marketing issues around small in-home transmitters that improve wireless signal quality and also create a marketing opportunity for "home zone" services where a wireless handset can replace a landline handset and service.

Nobody should be surprised if Sprint Nextel comes out with a program of its own in the "unlimited" calling area. But nobody should expect Hesse to confine his initiatives there. At this point, rolling out its own unlimited-calling plan is nothing more than a tactical response to prevailing market conditions on the packaging front.

It isn't the sort of industry-transforming plan Digital One Rate was. But we also need to keep in mind that industry transformation was not what AT&T had in mind in launching Digital One Rate.

Watch out for the unintended consequences.

What if Sprint "Goes Nuclear"?

There now is speculation Sprint Nextel is considering an unlimited calling plan costing as little as $60 a month. Aside from disrupting nearly all pricing plans in the U.S. mobile business, one has to wonder what that does for wireless substitution and consumer VoIP as well.

If one can get unlimited calling for that sort of price point, most people who use mobiles and also live in single person, or households of unrelated people, are going to have huge incentives just to go "wireless only."

To the extent that consumer VoIP is mostly about cheap calling, mobile is going to be hugely competitive in a new way, in the event of "nuclear" conflict.

CLEC Precedent for VoIP Companies

Birch, a competitive local exchange carrier that declared bankruptcy twice, has been sold to Access Integrated Networks. The combined company is based in Atlanta, has about 400 employees and will have revenue of $200 million to $210 million a year. The combination is but the latest in a continuing wave of consolidation in the independent CLEC segment, which like most other parts of the telecom business requires scale.

In many ways the VoIP business already has taken a path similar to that pioneered earlier by the "CLEC" business. The CLEC business was lead, in terms of market share, by just two companies: AT&T and MCI. There were lots of independent CLECs, but most had fairly small market share and sales.

Both AT&T and MCI were absorbed into SBC Corp. and Verizon, respectively, leaving the CLEC industry essentially "headless" in terms of national regulatory clout.

The experience of VoIP providers is analogous in many ways. Though the business was pioneered by independents, as was the CLEC business, it now is "lead" by U.S. cable operators, who might be seen as the AT&T and Verizon to the rest of the small independents.

Cable companies have distinct regulatory interests distinct from those of independent VoIP providers, for the most part, and compete directly with VoIP providers in a commercial sense.

One might argue that the independent VoIP providers now also will start consolidating, for VoIP also is a scale business. And some of the more interesting pairing will be of business-focused VoIP providers with business-focused CLECs.

Mobile Price War Impact?

Though the impact might be quite overblown, at least some investment analysts think the recent adoption of unlimited calling plans by three of the four largest U.S. mobile providers is going to hammer their revenues.

Credit Suisse telecom analyst Christopher Larsen, for example, has reduced his rating on at&t, Verizon, Qwest and Sprint Nextel.

He worries that unlimited calling plans will trigger “a wireless price war.”

UBS telecom analyst John Hodulik thinks the potential impact will affect Verizon and at&t, at least at this point.

Hodulik says Sprint is likely to launch an unlimited voice plan in the next few weeks is considering pricing at $60-$80 a month. If Sprint gets traction, that logically would compel Verizon and at&t to reduce their prices to match.

I am not so sure about that. Each of the carriers might see some lost "overage" revenue from heavy users. But each should gain some customers who upgrade from lower-priced plans, as well as some customers upgrading because they are substituting wireless for wireline service.

It is possible higher subscription revenue will compensate for the loss of "overage" revenue.

Euro Managed Services Sales Slowing?

Managed IP PBX contracts won by European telecom service providers declined by an order of magnitude during the first half of 2007, says Phil Sayer, Forrester Research analyst.

The number of IP PBX managed services deals fell to three percent of deals, where in the first half of 2006 managed IP PBX deals were part of 39 percent of new contracts.

Forrester says there was an equally massive drop in the number of deals involving managed security services as well. The only IT service that recorded any increase was the provision of help desks.

Overall telco IT services sales with an IT services component was down from 31 percent to 22 percent.

It isn't yet clear whether that trend was seen in other regions, whether it continued through the balance of 2007, or what it means, if indeed the trend did continue.

Most likely, the data suggest a shift of buying to other channels, rather than a decline in aggregate purchasing. The survey suggests that most of the service provider sales were of the small sort. It is most likely the case that value added resellers and other providers now are increasingly active in that market with services that compete directly with service provider offerings.

The total number of managed services contracts signed in the first half of 2007 by European telecom service providers also showed a decline in the number of deals, compared to the first half of 2006, with slight less contract value.

Where 188 deals were reported by the participating carriers in the first half of 2006, with a contract value of €1.6 billion, contract value in the first half of 2007 was roughly flat at €1.5 billion.

The majority of deals continued to be small, but the increase in the average deal size was the result of a small number of very large contracts.

T-Mobile Adds $100 Unlimited Plan

T-Mobile USA will offer consumers an unlimited calling plan including unlimited ationwide text messaging for $99.99 per month. This offer will be available beginning Feb. 21.

Note that the T-Mobile offer includes unlimited text messaging (SMS), picture messages (MMS) and instant messages (IM). Full details of the at&t Wireless offer are not yet available, but it wasn't immediately clear whether at&t Wireless would include unlimited text messaging as part of the $100 a month unlimited voice plan.

$100 Unlimited Plans Spread

Wasting no time responding to a major new Verizon Wireless offer, at&t Wireless has unveiled its own $100 ($99.99)a month plan for unlimited mobile calling. The plans will be available to new and existing wireless subscribers Feb. 22. Existing customers can buy the plan without extending their current contracts.

New customers can buy on a month-to-month, 12 month or 24 month contract.

Sprint has been offering unlimited calling plans in four markets at about $119.

More Funding for U.S. WiMAX?

Sprint Nextel and Clearwire are close to announcing the formation of a WiMax joint venture funded in part by a $2 billion injection from Intel Capital, the Street.com reports. As currently rumored, the deal would create a new company that pools Sprint and Clearwire licenses in the 2.5-gigahertz wireless spectrum. Additional financing also is expected from other firms.

An earlier partnership between Sprint and Clearwire died last November, when the two parties could not reach agreement on terms of the partnership.

Through a joint venture with Clearwire and a big investment from Intel, Sprint can move the expenses off its books and yet still continue to build a fourth generation network. Intel's interest in WiMAX is creating a new market for chipsets supporting WiMAX devices, including mobile PCs and handsets.

The unusually large investment by Intel Capital, which hasn't invested so much in any single company before, seems to be a signal that Intel worries about the U.S. WiMAX market. Though at one point it might have been conceivable that large incumbent wireless carriers might move to WiMAX on a wider scale, at&t Wireless and Verizon Communications now say they will back Long Term Evolution as the basis for their fourth-generation networks.

The issue is that WiMAX and LTE are different ways of creating capabilities seen as integral for 4G networks, so if Verizon and at&t aren't going to be creating WiMAX networks, Intel has to look elsewhere. T-Mobile USA, the fourth-largest U.S. mobile provider, is a logical candidate to go with LTE as well, as most of the GSM-based network providers seem to prefer that approach.

Aside from that strategic consideration, Clearwire 's part, the deal would provide cash it needs to continue operating and building its network.
Clearwire had about $1 billion in cash and investments at the end of the September quarter, but burned through about $400 million in cash to fund operations in that quarter, according to the company's most recent quarterly filing.

Verizon Wireless to Launch Unlimited Calling?

Starting Tuesday February 19, Verizon Wireless will roll out new "unlimited calling" plans of the sort Sprint Nextel has been testing in several markets and which Sprint is said to have been considering for national availability. According to Engadget, the new plans include $100 national unlimited voice.

Other plans include a $120 plan with unlimited texting and voice; $140 for plans that add email and VCast content services. For $150 users can get unlimited data, voice and texting.

A $170 plan adds international data capabilities. A $200 family plan reportedly will be limited to additional two lines, priced at $100 per additional line.

It appears there will be no caps on data sent or received.

In one sense the new pricing plans represent an attempt to change the nature of mobile service pricing, making pricing a lot more like VoIP, or wired calling with unlimited, flat rate long distance within the continental United States.

And that might be the thing to watch: not so much a redefinition of mobile pricing as a new rationale for going "wireless only." Assuming a landline costs in the neighborhood of $50 a month, a user might rationally conclude that he or she is no worse off, and marginally better off, ditching a landline and using the mobile for all calling.

U.K. Internet Penetration Tops 60%

According to the most-recent data from emarketer, U.K. Internet penetration now tops 60 percent, and broadband penetration accounts for virtually all of that usage, as broadband penetration is nearly 55 percent.

Slight Skews to Google, Yahoo Search User Demographics

The Yahoo search engine is slightly more often to be used by younger users; Google slightly more often is used by older users. But the overall patterns are pretty similar.

The real difference is that Google accounted for 65.98 percent of all U.S. searches in the four weeks ending January 26, 2008. Yahoo! Search, MSN Search and Ask.com each received 20.94, 6.90 and 4.21 percent respectively. The remaining 48 search engines in the Hitwise Search Engine Analysis Tool accounted for 1.97 percent of U.S. searches.

Patent Troll Seeks Cable Operator Toll

Yikes. Rembrandt IP Management, a suburban Philadelphia firm whose sole business is to buy up technology patents, and whose business model is based on patent royalties derived from those assets, has filed numerous lawsuits in numerous venues to force large cable operators and major broadcasters to pay substantial license fees on the transmission of digital TV signals and Internet services. Rembrandt seeks royalties for use of intellectual property related to cable modem services as well as digital TV broadcasts.

Comcast, Time Warner Cable, Charter Communications, Cox Communications and Cablevision Systems are named as patent infringers.

iPhone 2nd Best Selling Smart phone in Q4

Smart mobile device shipments hit 118 million in 2007, up 53 percent over 2006, reports Canalys. In the fourth quarter, newcomer Apple shipped the third most devices globally. Nokia remained the global market leader, shipping 60.5 million smart phones.

Research in Motion shipments grew 112 percent year-over-year to 12.2 million, to take second place.

Symbian remains the operating system leader, with 67 percent share, followed by Microsoft with 13 percent, with RIM on 10 percent. Apple garnered seven percent while Linux had five percent share.

High-end devices represented around 10 percent of the global mobile phone market by units in 2007, with annual growth of 60 percent.

Apple’s entry into this market in 2007 with the iPhone sparked a lot of media attention and speculation about how much it could disrupt the status quo and take share away from companies such as Nokia, RIM, Palm and Motorola. “When you consider that it launched part way through the year, with limited operator and country coverage, and essentially just one product, Apple has shown very clearly that it can make a difference and has sent a wakeup call to the market leaders,” said Pete Cunningham, Canalys senior analyst. “What it must demonstrate now is that it can build a sustainable business in the converged device space, expanding its coverage and product portfolio. It will also need to ensure that the exclusive relationships that got it so far so quickly do not prove to be a limit on what it can achieve. Apple’s innovation in its mobile phone user interface has prompted a lot of design activity among competitors. We saw the beginnings of that in 2007, but we will see a lot more in 2008 as other smart phone vendors try to catch up and then get back in front. Experience shows that a vendor with only one smart phone design, no matter how good that design is, will soon struggle. A broad, continually refreshed portfolio is needed to retain and grow share in this dynamic market. This race is a marathon, but you pretty much have to sprint every lap.”

Canalys estimates that Apple took 28% share of the fast growing US converged device market in Q4 2007, behind RIM’s 41%, but a long way ahead of third placed Palm on 9%. This was also enough to put Apple ahead of all Windows Mobile device vendors combined, whose share was 21% in the quarter according to Canalys figures. In EMEA, where the iPhone officially launched part way through the quarter in only three countries, Apple took fifth spot behind Nokia, RIM, HTC and Motorola, but ahead of several established smart phone providers such as Sony Ericsson, Samsung and Palm.

For the full year 2007, as in 2006, the Asia Pacific region was the biggest in volume terms for converged device shipments. Apple has of course not yet launched the iPhone in the region, and many vendors who are successful in other parts of the world, such as RIM and Palm, have also made relatively little impact there so far. Nokia continues to lead in the region, with more than 50% share in converged devices, ahead of Japanese smart phone vendors Sharp and Fujitsu. Motorola, despite enjoying fourth place, has seen its Linux-based smart phone shipments in the region fall 28% from their high in 2006.

Symbian led in the Asia-Pacific (85 percent) and Europe-Middle East-Africa regions (80 percent) while in North America RIM was the clear leader on 42 percent smart phone share, ahead of Apple at 27 percent and Microsoft at 21 percent.

What's a Google Phone?

Apparently, just about any smart phone with broadband access, according to Financial Times reporters Maija Palmer and Paul Taylor. Google head of mobile operations Vic Gundotra says "it had seen 50 times more searches on Apple‘s iPhone than any other mobile handset."

“We thought it was a mistake and made our engineers check the logs again,” Gundotra says. "If the trend continues and other handset manufacturers follow Apple’s lead in making web access easy, the number of mobile searches will overtake fixed internet searches “within the next several years."

More mobile searches than fixed! I don't know about you, but my sense is that if that volume of activity can happen on most broadband-connected smart phones, Google won't have to worry much about creating a "Google phone," any more than it has to worry about a "Google PC."

Google has never separated out its mobile revenues but Gundotra says the business was growing “above expectations”, both in terms of usage and revenues.

Executives at at&t Wireless have said average revenue per user for iPhone users was nearly double the average, because iPhone plans come with capacious data plans.

Sprint Won't Reach Xohm Goal by 2009

No kidding. Sprint originally expected to have 100 million subscribers for its Xohm WiMAX service by the end of 2009. It now says it won't make that goal, and nobody is surprised.

Xohm, slated to deliver mobile broadband services of 2 Mbps to 4Mbps, for $40 to $50 a month, is slated to launch on a more or less full deployment basis in three cities this spring (Baltimore, Chicago, and Washington, D.C.). There's no conceivable way any new service of this sort, selling into a nearly-saturated broadband access market, is going to get that kind of traction so fast.

VoIP, Broadband Growth is Slowing

One of the tentative conclusions we might reach from Comcast's fourth-quarter results is that the broadband access market is approaching a saturation point, with slowing net additions. Comcast added about 331,000 broadband subscribers in the three months ending Dec. 31, 2007, down 26 percent from the 450,000 subscribers it added in the third quarter. That's congruent with net adds from telcos as well, and has perhaps a little to do with the economy and slower housing starts. But mostly it is simply that we are approaching the point where nearly every potential customer for broadband already has become one.

VoIP net adds are slowing as well, again confirming a broader trend seen in the consuemr segment of the VoIP business overall. Basically, significant numbers of people who are persuaded VoIP makes sense for them right now have become customers.

After adding 662,000 new subscribers in the third quarter, Comcast’s total net new voice additions dropped to 604,000 in the fourth quarter. None of this is unexpected.

T-Mobile 3G This Summer

T-Mobile USA will launch commercial 3G services this summer, finally. The company blames spectrum issues for the delay (3G was supposed to launch mid-2007). T-Mobile invested $4.2 billion in 2006 to more than double its spectrum holding in the top 100 U.S. cities it serves.

Those of you who have had to live with EDGE access speeds (just like most iPhone users) will be happy. Up to this point, EDGE access has felt remarkably like "dial up" access. And how many of you can imagine doing important work, or trying to get any of the normal sorts of information you look for in a day, over a dial-up connection?

People don't use the mobile Web much because it's too painful, even if there were interesting applications.

Cut Prices or Else: EU to Carriers

EU telecomumunications Commissioner Viviane Reding has given the mobile phone industry until July 1 to cut the price charged to people for sending text messages or surfing the Web on their laptops while outside their home nation in the EU region.

Hoping to head off mandatory pricing and regulation Vodafone, Deutsche Telekom and KPN also have announced cuts in their data roaming prices.

As many in the computing and Web worlds are starting to discover, governments and regulators have much to say about which services and companies can succeed in the communications business, and even affect the amount of profits any contestant can make.

Any mandatory EU intervention to cut the price of sending text messages or using the Internet while traveling outside one's home country would be limited to the wholesale level. In other words, the EU would regulate the prices carriers can charge other carriers for roaming access, but leave service providers free to set their own retail prices.

Telecom Italia: Functional Separation of Access Network

It's official: Telecom Italia is creating a separate wholesale access operation clearly separated from Telecom Italia retail operations. When the new change takes effect, Telecom Italia retail and all other competitors will buy access services from the wholesale business.

Open Access will develop and maintain the access network infrastructure and manage activation and other processes.

The move is the latest example of ways different service providers in different countries are adapting to differing regulatory regimes and competitive "facts on the ground."

While there have been discussions of structural separation in the U.S. market, there never has been any political will to change the regulatory regime strongly in that direction, though aggressive wholesale discounts were the rule, for a period after 1996, and began heading the other way after about 2004.

Markets where functional separation has been adopted tend to be characterized by weak ability on the part of cable operators to provide meaningful competition in voice and high-speed Internet access services.

That isn't the case in the U.S. market, where regulators basically have decided that a competitive duopoly where cable and telco incumbents battle it out will lead to the greatest consumer gains, in the shortest amount of time. As a practical matter regulators probably got this one right.

Given the current state of capital markets over the past four or five years, it is virtually impossible to raise enough money to build a third, widespread broadband terrestrial network. Aggressive wholesale requirements meanwhile were all the excuse the large telcos needed to drag their feet on rapid broadband upgrades.

It is no coincidence that Project Lightspeed and Verizon FiOS really cranked up after it was clear the aggressive wholesale requirements would not stand.

That said, nothing in the telecom world ever is completely stable. What the government gives, the government takes away. At some point, the rules will begin to change again. As always in the U.S. market, the issue is whether the problem is too much freedom or not enough.

Vonage Churn: Not an Issue if it Survives

Should Vonage survive, it might be able to get its churn rates under three percent a month. But it would be a surprise if, even under the best of circumstances, it got churn below two percent a month.

That's a big "if," but history suggests lower churn is possible, if not easy. The reason is that, over time, customers learn the value of a new type of service or application, and gradually come to have a better understanding of why it is they actually need and use a service. There always is lots of churn at first.

The U.S. cable industry struggled precisely with churn at the same levels Vonage grapples with, in the late 1980s and 1990s. Today's churn levels are far below that, but not much below two percent a month. And there's a reason even for that level of churn.

People move. That's called "uncontrollable" churn because there isn't a heck of a lot most providers (except those with a huge footprint) can do about people moving. Wireless providers used to have three percent a month churn as well. These days, most save Sprint Nextel are down just a hair under two percent a month.

They don't necessarily have the "customer is moving" problem so much with the advent of continental U.S. calling buckets that mean local calls cost the same as long distance. A new dwelling in a new area doesn't necessarily mean any change in calling rates and charges, so there is less "uncontrollable" churn.

Still, even the largest of the wireless carriers have just a bit under two percent a month churn. So far, in the consumer markets, that's about as good as it gets.

In the commercial markets, guess what the monthly churn rate is for many smaller independent service providers? Three percent.

That's not great, but the point is that it is hardly unusual, especially for new services, smaller providers and any service tethered to a location. The good news for Vonage is that, like a mobile provider, its service is not tied to a physical location. Over time, and should it survive, it can expect, with diligence and the passage of time, to get its churn down to about two percent a month.

The issue is simply to stay in business long enough for the learning effects to kick in.

Broadband Adoption: Under Par for the Course

Since broadband first became widely available to consumers in the late 1990s, adoption has hit the
halfway point faster than most other information and communication technologies.

It took 18 years for the personal computer to be used by 50 percent of Americans at home and 18 years for color TV to reach half of homes.

Mobile phone penetration took 15 years to reach the "half of homes" point. It took 14 years for the video cassette recorder, and 10 and one half years for the compact disc player to reach the same level of penetration.

It has taken about 10 years for broadband to reach 50 percent of homes. We can argue about the price of broadband, the definition of broadband, the quality or terms of service under which broadband can be purchased.

But it continues to surprise me that some observers still think there is some sort of crisis or problem here. Over the last year bandwidths have been leaping, not just incrementally increasing. There's more third generation wireless access, more WiMAX, more Wi-Fi. With a new SpaceWay satellite in orbit, there's much more satellite broadband capacity coming online as well.

And the last time I checked, some 98 percent of U.S. homes had access to at least one wireline broadband provider, and depending on where the location is, one or two satellite providers. Again, depending on location, users have access to one to three broadband mobile networks as well.

Few countries save Japan have prices-per-megabit lower than U.S. consumers do. By all means let us solve problems. But it doesn't do much good to keep trying to "solve" problems that already are in the process of being fixed.

And by any historical standard broadband access is a product being adopted by U.S. consumers at a faster rate than other highly-popular innovations have. In fact, one would be hard pressed to name another popular innovation that has penetrated the market so quickly.

More Price Regulation Coming?

Though European Union regulators are putting strong pressure on Europe's service providers to dramatically lower data and voice roaming costs, that isn't likely to happen anytime soon in Asian markets, says Rosemary Sinclair, International Telecommunications Users Group external relations officer, and reported by CommsDay.

“The significance to me of what has happened in the EU is that it indicates to us that the cost structure of delivering these calls is much, much lower than the retail prices,” Sinclair says. “The operators know exactly what the costs of services are,
but they are not prepared, without regulatory oversight, encouragement,
or if necessary, intervention, to do something about it."

"At the moment, as far as I can see, the only thing that would fix this is regulatory action," she says.

Service providers take notice: a re-regulatory wind is blowing around the world, though it isn't as windy everywhere. Telstra seems to be in a different situation than EU carriers. U.S. carriers have enjoyed a decade of less intense regulation. But there's one thing you can be sure of: it the telecom business, no set of rules, and no climate, lasts forever. The next swing will be back the other way.

Vonage Shifts Tactics

In its efforts to control marketing cost, Vonage has been targeting geographic regions where it has a greater chance of signing up customers with high need to call international destinations. For the most part that means urban areas with large immigrant populations.

So although Vonage's marketing up to this point has been able replacing other landline services, the new value pitch is more nearly the "cheaper long distance" segment whose buyers might otherwise be looking at calling cards, dial-around or other ways of calling globally for less money.

The move highlights a perhaps under-appreciated aspect of the voice communications business. Though most executives think "voice is a commodity," and are right in most respects, an argument can be made that voice is not actually a "commodity" in a classic set, but rather a set of "commodities," or perhaps not a classic commodity at all.

Sugar, salt and flour generally are classic commodities. But sugar is not a substitute for salt or flour. In that sense, mobile communications is not generally a substitute for landline voice, a business phone system, PC-to-PC communications or texting, though in some ways each of these modes is partially a substitute for each of the others.

Even email, surely something most people would say is a commodity, is not completely so. Mobile email is a different product than Gmail, or else everybody would be using mobile email. The point is that the mode of consumption, the cost of consumption, the places and time where consumption occurs, as well as the essential required features for successful use, are not so substitutable as to make all of them fully interchangeable commodities.

And the point of that observation is that industry proponents sometimes do not work hard enough at understanding the real differences that make each of these modes and use cases "different products." Which is to say, no commonly interchangeable commodities.

The point at hand is Vonage's new marketing pitch. True, for some users Vonage is a substitute for legacy wired voice service. For others, it is a substitute for long distance calling, calling cards, callback service or dial-around.

To say voice is a scale or volume business, a low-margin business or even a "bulk" business is one thing. To say it is a "commodity" business might be more correct within a single segment or use case. It is wildly incorrect across the full range of use cases that "voice" now represents.

Some might point out that short message service (text messaging) is a distinct business. Others will say it is part of the mobile voice business. Some might say it sometimes is part of the mobile business, and sometimes a "PC-initiated" and "mobile terminated" business.

If such opinions can exist, it is confirmation of the "non-commodity" (in the sense of non-interchangeability) nature of the business.

That isn't to say differentiate is easy. It is hard. But to argue it cannot be done, because voice is a commodity, is off the mark. That isn't to say it is easy to differentiate without obtaining scale. Providers might rationally choose not to differentiate. But that is different from arguing "they cannot."

Android, iPhone: Finding the New in the Old

Sometimes the insight that leads to an assault on a new market is to discover the new market hidden in the weeds of an older and established market. Incumbents in the mobile phone market have dismissed the Apple iPhone simply because the volumes of devices shipped by the leading players is so overwhelming.

Though it is less often said, the same sort of dismissal could be aimed at Android, the open-source operating system under development by Google and 30 or so other partners.

And it's hard to argue with that perspective. Unless you dig in the weeds and reimagine a market. If one looks at smart phone (perhaps more aptly described as mobile PC or mobile Web device)penetration, it is still quite low.

Looking just at smart phones, which have low penetration, the market volume to be shared by all players is still quite small, so the market share doesn't have nearly the same meaning it would in a large volume market.

"Smart phones" or "mobile Web" devices or "conference in a pocket phones" or "email in a pocket" phones remain a developing market, not a saturated market. So new players still have a shot of ultimately achieving significant influence and share, no matter how small their efforts might appear if the market is defined as "mobile phones."

Hughes de la Vergne, Gartner analyst, estimates that even powerful Symbian has just two to three percent share of the U.S. smart phone operating system market, for example.

But that's just the U.S. market. The numbers certainly look daunting just about everywhere else.

SMEs Ripe for IP Managed Services, Says Nortel

Fifty percent of SMBs surveyed have voice networks three or more years old, and despite the fact that nearly half characterize themselves as "early adopters" or "on the leading edge of new telecommunications technology," only 40 percent have actually implemented VoIP or any IP-based mobile convergence solution.

"The research clearly indicates a great opportunity for service providers to target SMEs," says Alf deCardenas, Nortel general manager.

The research conducted by Ronin Corporation involved surveys of some 900 SME and enterprise decision makers across the United States, France and the United Kingdom.

Among other findings, the research found that SMEs are more likely to go to service providers than resellers for voice hardware and Internet services. The ability to make phone calls over WiFi and cellular networks using a dual-mode phone is the service SMBs are most likely to consider for implementation, followed by Web services like click-to-connect and converged desktop applications that allow them to easily control calls from any cellular phone using a laptop application.

Slow Email? BlackBerry Outage

Research In Motion Ltd. says an outage left users in North America without access to their BlackBerry email service on Monday, beginning about 3:30 p.m. Eastern Standard time and lasting about three hours.

RIM says no messages were lost during the incident, which caused intermittent delivery delays. No explanation for the outage has been given.

Outages of this sort are the reason many of us are giving more thought to backup and redundancy strategies. On a recent business trip, for the first time in my life, I accidentally left my laptop at home, and was going to be gone for 14 days. True, I had the BlackBerry and another mobile as well.

But in my line of work access to the Web is arguably more important than either of those two sorts of devices, as important as they are. Because of Google Documents & Spreadsheets and Google Broswer Sync, I was able to keep working using public terminals and loaned machines, with access to Microsoft Office.

I also learned to live without access to Outlook for a bit. The BlackBerry helped, of course. The lasting change so far is that I have kept using Google Documents more than I have in the past. That's why sampling is so important. Behavior can change.

HD DVD War is Over

Consumers baffled by the competing high-definition digital video recorder standards soon will be able to go ahead and buy without concern they have backed the wrong horse in the race. Blu-ray has won.

One more sign: Netflix is going to stop carrying titles in the HD DVD format.
Netflix has stocked both Blu Ray and HD DVD titles since 2006. But all HD DVD discs will be cut from their inventory by the end of the year. Netflix also has stopped adding new HD DVD titles to its inventory.

Blockbuster last summer had made a similar decision.

The format victory is a surprisingly rare event for Sony, which developed and has pushed for Blu-ray. In prior format wars it has lost, fairly consistently. It backed Betamax, but lost to VHS.

So go ahead and buy a Blu-ray HD DVR. It's the winner.

Belgian Mobile Operator Wants to Kill Fixed Line

Belgian mobile operator Mobistar is intensifying its efforts to take market share from landline provider Belgacom by aggressively targeting its larger rival's fixed line subscribers. The Mobistar AtHome product allows users 40 hours of mobile calls from the home for 10 Euros a month.

About 35 percent of Belgian households no longer possess a fixed line telephone and another 28 percent are prepared to give theirs up if there is a good alternative, some researchers have found.

LA Will Try to Tax VoIP

Los Angeles voters have voted to extend the telephone tax to include VoIP and other Internet IP communications.

The measure was cleverly worded, saying it would lower the telephone tax rate from 10 percent to nine percent, but extend it to "a wider range of telephone-like technology and allows the city to tax the routing of voice, audio, video, data or other communication information transmitted through fiber-optic coaxial cables, power lines, broadband, DSL or wireless systems.”

The city has been taxing local access services since 1967. Further legal challenges are likely.

What does "Communications-Enabled Business Transformation" Mean?

A recent survey by analysts at In-Stat finds that 54 percent of U.S. companies that have adopted IP communications have integrated it into their operations in a way that has "changed business procedures and processes."

"Change," in this case, might not be anything like the notion of "transformation." The reason is that adoption still is driven by traditional buying decision triggers, such as equipment end-of-life, lack of capacity, business partnerships, and internal IT initiatives, In-Stat says.

The issue is whether adoption of unified communications necessarily entails "transformation" or whether it merely leads to "change," albeit changes that lead to more efficiency.

And some survey findings suggest there is less transformation going on than one would think, though efficiency arguably is higher. Less than 33 percent of businesses using IP communications currently use unified collaboration and unified messaging applications, In-Stat says.


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Opera Mini, 35 Million Users

In the two years since its worldwide launch, Opera Mini has achieved more than 35 million cumulative users, with 100,000 downloads a day of the mobile phone browser.

Nokia Unveils N96

As its name implies, the N96 is the successor to the N95, Nokia's former high-end device. The dual slider device comes with 16 gigabytes of internal storage, plus a microSD slot, something the N95 8GB lacks. Like the N95, the N96 retains the
5-megapixel autofocus camera with Carl Zeiss Tessar lens.

But "flash" support is improved by the use of two LEDs to provide lighting. There is an integrated DVB-H mobile TV tuner. As audio support on the N95 was robust, we would expect the same from the N96.

On such a device one would expect Wi-Fi support and global positioning satellite capabilities, and both are included. The N96 is supposed to launch in Europe in the third quarter this year.

Microsoft Buys Danger

Microsoft is acquiring Danger Inc., a provider of social-oriented messaging software and services. Danger provides real-time mobile messaging, social networking services and other applications that historically have proven popular with younger users.

The acquisition further reinforces the importance Microsoft attaches to the mobile computing space.

Nokia Launches Mobile Ad Network

Nokia today announced the launch of the Nokia Media Network, a premium advertising network including over 70 properties including AccuWeather, Discovery, Hearst, Reuters, and Sprint.

Nokia touts the venture as the first global mobile ad network of top tier publishers. There is no doubt a story here: First, that advertising is becoming part of the revenue model for the mobile business. Second, that handset providers are carving out new space for themselves in the value chain. Third, that mobile handset manufacturers and service providers now are in the media business.

Google isn't going to have this market to itself.

Starbucks Chooses at&t for Wi-Fi

If you are a T-Mobile Hotspot user, don't panic. Your service will still work at Starbucks. But if you are anybody else, Starbucks and at&t are serving up something even more tasty.

Namely, two free hours a day of Wi-Fi access at Starbucks. Additional hours will cost $3.99 for additional two-hour chunks of time.

Under the earlier plan with T-Mobile, Starbucks customers needed a paid subscription to access the in-store Wi-Fi service.

Users also will have a choice of monthly subscriptions costing $19.99 that will enable access to other AT&T hot-spot locations in addition to Starbucks.

At&t broadband customers will be able to surf at the more than 7,000 Starbucks locations in the U.S. for free, as well. The new Wi-Fi partnership is expected to be introduced gradually at Starbucks locations this spring.

So seating is going to be harder to get, and access more congested. It's still a great deal.

Sony Ericsson Embraces Windows Mobile

Sony Ericsson will drop its own Symbian-powered operating system in preference for Windows Mobile 6 for a new high-end Web-capable smart phone. The move does not mean Sony Ericsson is abandoning Symbian for other devices, but does suggest that as mobile Web devices become more prevalent and important, a "PC-like" experience might be growing in importance. The move also suggests growing acceptance of Windows Mobile as an mobile operating system.

The Xperia X1, which it says is the first new brand to come from within Sony Ericsson, is the first device to use Windows Mobile 6.

The X1 handset is designed around media player applications and Web browsing and features a full QWERTY keyboard.

How Much Bandwidth is Enough?

Nobody yet knows how much Internet access bandwidth a typical user will need in the future, at peak times (average usage doesn't much matter). It is easier in many ways to model bandwidth requirements for entertainment video services. 

If a provider uses a "broadband" approach(in the sense of all linear channels being delivered to the user, whether or not the user is watching), it is a simple matter of ascertaining how many discrete video feeds one wishes to deliver, how much bandwidth each feed requires, and then doing some simple multiplication. 

 If one then decides to deliver all on-demand programming, one needs a switching infrastructure, and then must make some assumptions about simultaneous peak viewing. Will a typical user, at the peak viewing hour, want to watch one feed, two feeds or three, keeping in mind that one of the feeds might be recorded for later viewing while a second is actively watched. 

The Internet access portion of the planning exercise is more murky, but still hinges on video behavior. If business logic allows it, users might be able to stream video, even HDTV video, over IP connections. Whether this bandwidth is of the "public Internet" type or the "walled garden" type is less important, in some sense. 

 Assuming there is a revenue model, how much bandwidth must a service provider be able to provide? Whatever end users may think, a service provider will deliver bandwidth in amounts that allow it to make money, and no more. 

 So asking how much bandwidth users may want is probably less important than how much they are willing to pay to get that level of bandwidth. 

And so far, few users seem to have shown a willingness to spend hundreds of dollars to get symmetrical bandwidth, whether that is a T1 connection or a 50 Mbps symmetrical service from SureWest Communications. To use the old but useful analogy, all of us might enjoy driving a Lexus. But not all of us do. We solve our transportation problems, but not always with a Lexus. In principle bandwidth ultimately will represent that sort of choice as well. 

Just about anybody can buy a T1 connection today. But not all businesses do so, and few consumers do so. Granted, the bulk of consumer bandwidth requirements still will remain of the asymmetrical sort (barring a massive switch to peer-to-peer), so symmetrical bandwidth might not be the best analogy. Still, the question remains: how much bandwidth will consumers pay for? "Need" is it that sense a subsidiary question. 

There's no question typical consumers are showing a clear preference for paying more for higher bandwidth. The issue is the elasticity of that demand as service providers start to move into the "scores of megabits" range, and then contemplate bandwidths an order of magnitude higher than that (100 Mbps or more). 

 If one looks simply at the price-per-megabit, users have shown a wide willingness to pay $50 to $100 a month for unrestricted use of 200 Mbps to 500 Mbps of linear video (with implicit quality of service assurances). 

 They likewise have shown high willingness to pay $50 a month for a few megabits to several megabits per second of interactive Internet access bandwidth in the downstream direction, with no quality of service assurances. 

 Assume that most also have been willing to pay $50 a month or so for a wireline voice connection and you are looking at $150 to $200 worth of monthly revenue for services offering several hundred megabits-per-second of downstream bandwidth, plus services on top, using a highly asymmetrical network. 

That does not leave lots of headroom for networks that deliver more symmetrical bandwidth (scores of megabits per second in the upstream and hundreds of megabits per second for linear and on-demand video plus 100 Mbps for interactive applications). 

 In the consumer markets, the rule of thumb has been that $10 a month of incremental spending is a big deal. Still, shown a value proposition high enough, even $50 a month in incremental spending now has become fairly commonplace. 

So the issue might be more "how much will consumers pay?" rather than "how much bandwidth will they need?", as important as that question remains. 

There always are trade-offs engineers can make: bandwidth versus processing, processing versus storage, non-real-time versus real time, bandwidth versus image quality and so forth. Ultimately, consumers are going to drive access bandwidth with their wallets.

Will Sprint Unleash Nukes?

At this point, it is fairly clear to just about anyone that Sprint Nextel has to do something dramatic to reverse its sliding fortunes in the mobile services market. Sprint no longer has the luxury of time for small incremental changes that might change its fortunes "some day."

So the issue is whether Sprint will "go nuclear," unleashing some sort of market-disrupting attack it expects its competitors will not want to match. Its a risky gambit, to be sure. AT&T completely changed the basic way mobile voice minutes of use are packaged when it launched "Digital One Rate."

But the tactic has not had long-term differentiating value because all the other major carriers simply shifted their packaging to match. So Sprint has to find a proposition that is startling and compelling to end users, but not appetizing for the more dominant providers to mimic quickly.

If the attempt is to "drive sales through the roof," nothing short of a disruptive move will work. Some suggest "unlimited calling" is one such tactic. Some smaller wireless providers such as Leap Wireless have prospered by offering unlimited local mobile calling. In so doing Leap and others have carved out a definable niche in the "wireline replacement," value calling and ethnic market segments.

There is some thinking that unlimited calling on at least a continental basis might be the same sort of market-shaking move, eliminating the "what is the right bucket size?" decision every consumer has to make, and transforming what is still a service sold on the basis of "scarcity" into a service whose premise is "abundance."

In some sense, Sprint CEO Dan Hesse actually has to hope that such an assault really would drive call volumes through the roof. Because if Sprint can do so, and its relatively generous spectrum will support the additional traffic, some other key competitors--especially Verizon and at&t--might not be able to quickly turn up additional bandwidth to match the offer.

And that's the other part of the equation. The offer must shake up user perceptions of value compared to price, as did Digital One Rate. But the offer must challenge Sprint's competitors enough that they will not immediately respond.

And at some level this is a nuclear strategy in an operational sense: if Sprint moves to provoke a non-linear increase in voice usage, can it handle the load? More important, can Sprint's competitors handle increases of the same magnitude if they decide to respond to the offer.

Likewise, there is the financial angle. If competitors match Sprint's offer, what is the level of damage they sustain in average revenue per minute of use, or average revenue per user? How does Sprint price and package so a direct competitive response is too painful to contemplate?

If Verizon and at&t can't match the offer without losing more than they gain, they won't match the offer. And if they won't, Sprint gains the distinctive positioning it seeks.

"Going nuclear" is going to be dangerous. But the only thing more dangerous at this point is thinking Sprint somehow can "creep" its way to success. The issue is where "unlimited calling" is, in itself, destabilizing enough to achieve what Sprint wants.

My sense is that it would not. Leap Wireless already offers a plan that is for most users a "national unlimited calling" plan, for about $50 a month. But there are other angles.

Unlimited texting or Web access might be more attractive. If Sprint really wants to disrupt the market, it can do something about texting plans.

FMC or Wireless Substitution?

In the coming war between mobile substitution and mobile-fixed integration approaches to unifying communications, it was inevitable that the "green" argument would appear as a weapon. OnRelay argues IP desk phones sold in 2008 alone will create 47 million kilograms of waste. Calling desk phones increasingly redundant, OnRelay argues the better path is simply to reuse mobiles as office handsets, substituting mobile for landline handsets rather than integrating the two calling methods.

"We do business in an increasingly mobile environment," says Marie Wold, OnRelay president. "Fifty to 70 percent of enterprise voice minutes are already mobile."

Her conclusion? "Landline office phones are simply a waste." In fact, her argument is in some ways similar to the argument proponents of hosted services and cloud computing take: that the public and private IP networks now are robust enough and easy enough to use that remote provisioning makes more sense.

In this case, using mobile networks in place of in-building wiring is seen as a better way to provide desktop phone equipment, at the same time avoiding the expense of new IP phones and upgrades to corporate networks to handle voice.

"An enterprise deployment of 10,000 IP extensions includes a large hidden cost of LAN switches, routers, cabling and power supplies required to support the IP voice traffic," says Wold. "Of the staggering $15.8 million total cost of the IP telephony deployment, 80 percent is related to the desk phones and corresponding LAN upgrades."

Wold argues that most, if not all, employees can manage their office communications equally well or better with just their mobiles.

Which brings up an interesting question: to what extent are fixed-mobile convergence" projects less about "converging" and more about "diverging." In other words, though FMC can be pitched as a "convergence" of wireless and wireline networks, by allowing wireline access to substitute for mobile network access, in practice such "convergence" really leads to wireless substitution.

One can argue that the lower calling costs possible when a mobile handset is able to send and receive messages using a wireline-attached base station of some sort truly is a form of convergence. One might argue it is another form of substitution. The attempt is to stimulate use of mobile minutes from indoor locations, provide better quality when doing so, and decrease network-related operating and capital costs. All of those objectives are praiseworthy, but are not actually "convergence" moves. They are about mobile substitution.

Even when a "fixed line only" operator begins deploying mobile handsets to compete with mobile service providers, that s less a case of "convergence" and more a case of trying to grab some mobile market share while ensuring a continued viable role for the terrestrial broadband network.

"Fixed mobile convergence" has been touted as a way to create new services that unify experiences between wireline and wireless domains. But it seems more likely that divergence is the more likely result, so long as the focus is on calling prices and access networks.

Matters arguably are different in an enterprise scenario, where the seamless availability of applications on desk and mobile handsets, rather than calling cost or end point choices, would seem to be the driver. But as OnRelay argues, one has to integrate desk phones and mobiles only if one insists on using both types of devices on a wide scale. If one goes with a wireless tail, there isn't much need for "convergence."

FMC might be one of those significant detours the global telecom industry takes now and then, in a well-intentioned effort to create next-generation services. At some level, it makes sense to unify services across end user devices. But that makes most sense when assumes the existence of multiple classes of highly-deployed end points.

Over the longer term, it probably will happen that FMC winds up being less important as a way of "integrating desk phones and mobiles," and more important as it refers to making Web-based and server-based applications available on mobile devices. In the future, it might be more important to unify application access on all sorts of mobile and fixed "Web capable" devices than to unify mobile and fixed voice appliances.

Wi-Fi Plus Bluetooth Coming in 2009

A new standard will allow Bluetooth devices to switch to Wi-Fi for file transfers if Wi-Fi is available, according to Michael Foley, director of the Bluetooth Special Interest Group. The new features should be available in 2009.

Bluetooth also is compatible with ultra-wideband technology, but Wi-Fi now is seen as important as well. It is expected that chip vendors will start putting both Wi-Fi and Bluetooth functions onto a single chip, instead of the separate approach now popular.

The combination devices will use the regular low-power Bluetooth radios to recognize each other and establish connections. If they need to transfer a large file, they will be able to turn on their Wi-Fi radios, then turn them off to save power after finishing the transfer, Foley says.

It's just one more detail for consumers to track.

More Trouble for Cable?

Once upon a time, the cable TV industry was a struggling insurgent industry, long on hope, short on finding, basically a rural market service retransmitting urban market off-air signals to areas that couldn't receive them.

All that changed during the 1980s when major metro markets were wired, channel capacities grew into scores and independent programmers changed the business from "remote channel importation" to an "add choice" model.

By the 1990s cable gradually captured 70 percent of homes. Over the last 19 years, as video penetration saturated, cable modem and voice services emerged as the growth drivers. But cable now is an incumbent. Like the telephone companies, it faces negative growth in its legacy business, partly from satellite providers but increasingly from at&t and Verizon.

As a result, cable stocks have dropped about 35 percent since last summer. UBS analyst John Hodluk thinks more pain is coming, as consumer spending slows, broadband access additions decelerate and the telcos start to make themselves felt in video service.

Hodulik says the two telcos will double the reach of their video services this year to about 18 percent of homes passed, and will double again by the end of 2010. As a result, cable basic sub losses could triple in 2008.

On the other hand, Qwest Communications might lose nearly 10 percent of its consumer lines this year as well.

The good news for most telcos is that revenue sources have diversified quite a lot over the past decade. Consider Cincinnati Bell, an independent telco.

About 83 percent of its service revenue in 2007 was earned from areas other than the traditional consumer wireline voice traffic. In 2006, Cincinnati Bell earned about 80 percent of its total revenue from sources other than consumer landlines.

Business market revenue is part of the reason. Revenue from data center managed services increased 43 percent in 2007, for example. Wireless service revenue from business customers grew by 17 percent and business access lines were actually up almost two percent. As a reflection of this growth business markets revenue represent a 57 percent of total 2007 revenue compared with 55 percent in 2006.

Which is largely what the Federal Communications Commission forecast would happen when it decided the basic competitive framework for the U.S. market would be to encourage the telcos and cable companies to have at it. That hasn't been helpful for other would-be competitors, including competitive local exchange carriers and independent VoIP providers.

But there's reason to believe the framework is working, at least to a significant extent. A great deal of the credit, though, is because of the contributions made by Internet-based application providers. That payoff seems clearer every day.

Writers Strike Encourages YouTube Sampling

There often are unanticipated consequences in life, and it appears that the U.S. entertainment industry writers strike has given people an opportunity to sample more online video clips than ever before, comScore suggests.

Its December 2007 report suggests U.S. Internet users watched more than 10 billion videos online during the month, representing the single heaviest month for online video consumption since comScore initiated its tracking service. Google saw substantial growth and extended its video market share gains, now accounting for nearly one out of every three videos viewed online.

The issue isn't so much that online videos are a replacement for network TV shows. The issue is that online video viewing is a substitute use of time and attention. Ultimately, that is crucial for any media segment and the contestants within any segment.

Essentially, the writers strike has encouraged users to sample a new product. And sampling typically is one of the best ways to encourage users to adopt a new behavior. One of the unanticipated effects of the writers strike may be that a new group of online video viewers has been added, with a permanent change in at least some of their entertainment video habits.

“December represented a considerably strong month for online video viewing,” says Erin Hunter, comScore EVP. “With the writer’s strike keeping new TV episodes from reaching the airwaves, viewers have been seeking alternatives for fresh content. It appears that online video is stepping in to help fill that void.”

Online viewers watched an average of 3.4 hours (203 minutes) of online video during the month, representing a 34 percent gain since the beginning of 2007.

The average online video duration was 2.8 minutes and the average online video viewer consumed 72 videos.

More VoIP Patent Trouble

Verizon now is suing Charter Communications as well as Cox Communications for infringing eight VoIP patents. Included are the three patents Vonage was found guilty of infringing last year, plus several that relate to maintaining quality of service. In principle, it is not clear why every major cable company in the U.S. market is not guilty of infringement if Cox is found to be infringing, as virtually all the cable operators use the PacketCable framework.

United Online: Harvesting Cash Flow

With the latest fourth quarter and year-end reports now out from United Online, AOL and EarthLink, the expected trends continue. Dial-up Internet access, like stand-alone long distance before it, throws off cash flow, but less every year. All three leading independent Internet access providers are in the midst of transformation projects, with United Online succeeding most clearly, though it failed to pull off an initial public offering of its Classmates.com unit.

All three ISPs essentially are managing their dial-up bases to harvest cash flow and control costs, the standard prescription for managing a declining business, while seeking a new path to growth. That's the same path the independent long distance industry took as well.

Perhaps the best historical analogy is not long distance but paging. Basically, mobile phones replaced pagers, as broadband is supplanting narrowband access. But paging remains a business. It simply isn't as large a business as it once was, and is the province of specialists. That's the ultimate future for dial-up services in the medium term as well.

As this data from the Canadian Radio-television and Telecommunications Commission indicates, paging use and revenues have been declining steadily since 1998. Dial-up will be around for a while, but as a small niche within the broader range of access services.

VoIP Inc. Gets Out

VoIP, Inc. has gotten out of the independent VoIP business as a provider of services that replace standard phone line service. It has decided instead to recast itself as a provider of "click-to-call" applications. The Company therefore has suspended all of its telecommunications network operations including all current revenue generating operations.

The company also reduced its workforce by 25 persons, eliminating most of its network operations and software engineering staff.

Some participants in the U.S. VoIP marketplace think the next two years will see the demise of most of the independent U.S. providers who do not own their own access networks. The average revenue per user is simply too low, the profit margin too thin and the volumes too low.

Hoping is not a business plan.

Content, TV Display Key to Online Success

The most-important things online movie download services can do to succeed is offer a broad selection of content and make it possible to view that content on TVs, which is the expectation users now have for movie content. That's because the single most important ingredient for success for any video offering is the content.

That isn't to say content pitched to mobiles or PCs can't find a niche. It is to say that the broad mass market for online-delivered movie viewing won't become a mass phenomenon until user behavior is consistent with what consumers expect today.

"When it comes to movie rentals and purchases, the quality of content matters," say analysts at The Diffusion Group. The second crucial element is that "getting video downloads to the TV is absolutely imperative."

The ability to view movie downloads on any TV in the home is of critical importance, both to those that have used online movie download services and those likely to do so soon, The Diffusion Group says.

The use of mobile phones for video viewing is not considered sufficiently desirable to justify using an online movie download service, Diffusion Group researchers find. "As such, cell phone video viewing will not in-and-of-itself be a compelling attribute for an online movie download service, especially of full-length movies.

And there's a difference between users and proponents. Proponents emphasize the interactive capabilities online content enables. But users don't seem especially enamored of those sorts of features, as fond of them as interactive proponents are.

Adult broadband users don't agree. "Only 28 percent rank this attribute positively and 42.3 percent rank it unimportant," Diffusion Group researchers say.

Price Per Megabit: Japan and France Lead

When observers talk about places where broadband access is both fast and affordable, Japan is certain to come up. Maybe they should talk about France. As this chart created by the Wall Street Journal shows, French users can buy broadband at prices per megabit that are quite close to what users in Japan are able to do.

Also, despite all the whining about how far behind the rest of the world the U.S. providers are, it doesn't really appear such sentiments necessarily are based in fact. Over the last year, cable and telephone companies have been boosting capacity while holding prices steady. And that provides a much better "price per megabit" relationship.

Wireless Overtakes Wireline This Summer

Mobile voice volume will overtake fixed in Western Europe by mid-year, researchers at Analysys now predict. The proportion of call minutes made from mobiles has increased by 1.4 percentage points each quarter over the last year.

In the United Kingdom, where patterns of consumption are close to the European average, mobile voice usage should overtake fixed voice in the second quarter of 2008.

In France, mobile voice usage has already surpassed that of fixed voice, and keeps growing despite the widespread availability of practically free voice over broadband.

On the other hand, mobile voice is not expected to overtake fixed voice in the Italian market until the first quarter of 2009. The German market will not experience this phenomenon for about two years.

Portugal, having the lowest voice consumption in Western Europe, was the first country in which mobile overtook fixed, while Sweden, which has one of the highest, will be among the last to change, Analysys researchers say.

For mobile providers, price is the trick. Once wireless calling costs are low enough, users seem well able to act on the relative value-price perceptions wired voice and wireless represent. In many cases, those users show a strong preference for mobility.