Google Does Scare Potential Competitors

Just an entertaining video.

Digital Ad Spending Exceeds Print for the First Time

U.S. advertisers are spending more in 2010 on digital media than on print, says Outsell.  Outsell's study collected data from 1,008 U.S. advertisers in December 2009.

Of the $368 billion marketers plan to spend this year, 32.5 percent will go toward digital; 30.3 percent to print. Digital spending includes e-mail, video advertising, display ads and search marketing. "It's a watershed moment," says the study's lead author, Outsell Vice President Chuck Richard.


Last year, print spending accounted for 32 percent of the total, compared with 30 percent for online.

Spending on Web sites and other digital media will rise 9.6 percent to $119.6 billion this year. Print expenditures will drop three percent to $111.5 billion while total ad spending will jump by 1.2 percent to $367.9 billion from $363.5 billion last year.

Advertisers will reduce spending on marketing for events, and on television, radio and movies this year. TV, radio and movie expenditures will drop by 3.8 percent to $84.6 billion, Outsell says.

Spending on events will decline less than one percent to $45.2 billion this year.


But the survey also suggests marketers will spend 16 percent less on mobile in 2010, compared to 2009.

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Verizon Says Average LTE Speeds Will be 5 Mbps to 12 Mbps, Peak of 40 Mbps to 50 Mbps

Verizon Wireless says its 4G Long Term Evolution network field trials in Boston and Seattle indicate the network is capable of peak download speeds of 40 to 50 megabits per second and peak upload speeds of 20 to 25 Mbps, with average data rates of 5 Mbps to 12 Mbps on the downlink and 2 Mbps to 5 Mbps on the uplink in real-world environments.

Verizon says it will have the new network up and running in 25 to 30 markets by the end of 2010 and will reach about 100 million people.

Aside from the speed advantages, what might be important for many users is better indoor reception. The new LTE network will operate in the 700-MHz frequencies, which means signals will penetrate building walls far better than signals now used in the 2-GHz range.

You can make your own decisions about whether the higher speeds make wireless a reasonable substitute for fixed connections. If a user downloads a lot of video, the answer likely is "no." But if a user is a lighter user, LTE might well be a workable solution for at least some percentage of users.

We have seen what mobility has done to demand for fixed voice connections. We should soon see whether the same thing happens in the broadband access arena.

Why and How Businesses Use Social Media

Social media marketing is a developing art form. In fact, you almost would find it odd that budgets to support social marketing and mobile social marketing are growing on a fairly widespread basis even though a majority of companies have difficulty measuring the return on investment from social media.

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In fact, according to a recent survey of marketing executives by Econsultancy, 61 percent say their organizations are “poor” (34 percent) or “very poor” (27 percent) at measuring social media ROI.

According to the Econsultancy survey, 61 percent report that they “have experimented with social media, but not done that much.”

A quarter say they are “heavily involved in social media”, while the remaining 13 percent are not engaging with social media at all.

So why are marketers using social and mobile social media? They do so for the same reasons they use other marketing channels: generation of sales and leads as well as softer objectives such as improved brand awareness and reputation.

As an intermediate objective, social media efforts often are measured by their ability to drive traffric to company Web sites. "Increased traffic to a Web site is the business goal that marketers are most likely to be trying to influence through social media marketing," says Econsultancy. Fully 74 percent of companies say they use social media to increase Web site traffic.

"Direct traffic to Web site is by far the metric most commonly used to measure the impact of offsite social media, measured by just under two-thirds of company respondents (63 percent)," says Econsultancy.

More brand recognition (64 percent) is the second most important business objective in terms of impact of social media. A similar proportion of respondents (62 percent) cite better brand reputation. And that might be a big part of the reason why social media is used.

Just over half of companies (56 percent) say that they try to achieve increased sales through social media activity. But only a quarter of companies (24 percent) use sales as a metric for measuring social media effectiveness.

User Experience Shifting to Mobile

As with just about every other Internet-mediated experience, the experience context is shifting from PC-based to mobile-based. As the way people share information changed in the shift from printed to online products, so the design and display of information and content likewise will be different as the mobile shift continues to gain traction.

People with experience in the production of text content will point out that the way headlines are written, the way text is formatted, the length of stories and distribution channels all have changed. Similar changes will happen with marketing and advertising campaigns as the mobile context becomes more important.

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Academy Awards High Stakes Standoff Ends 13 Minutes into Telecast

A high-stakes "Academy Awards" game of chicken ended 13 minutes into the telecast when Walt Disney Co. and Cablevision Systems Corp. settled their dispute over a new contract.

Disney had said it would pull the ABC feed from Cablevision if the cable operator did not negotiate a more-favorable contract, potentially affecting about 3.1 million homes in the New York area.

The drama, some might say, could have been higher only if the contract dispute had occurred in the hours and minutes leading up to the Super Bowl.

The contract dispute, and temporary programming interruption, underscores the increasing financial stress in the multi-channel video entertainment ecosystem. Both broadcasters and distributors face rising programming costs, lower profit margins and growing competition.

In past years broadcasters have struck different deals, agreeing to allow "no incremental cost" carriage of local broadcast feeds in exchange for operators agreeing to add new cable networks to their program lineups. Programmers essentially bartered "free" local station carriage in exchange for carriage of new cable networks.

But that was then, and this is now. These days, both broadcasters and distributors are trying to squeeze more profit out of their video operations. And consumer opposition to ever-increasing monthly subcription fees is a background issue, at the same time distribution alternatives are growing.

In a sense, the broadcast networks also are looking over their shoulders at the potential threat Internet distribution represents. But so are the cable operators. After watching the music industry become disrupted by online distribution, as well as the continued decline of newspapers, video content owners are trying to avoid "no incremental cost" distribution of their content.

Given those pressures, it does not seem likely this will be the last tussle threatening program carriage. Versus, for example, now is dark on DirecTV and has been for months, as those two firms have not agreed on new contract terms, either.

As content ecosystems are rearranged, disputes between partners are bound to grow. The same sort of ecosystem change is behind the network neutrality debate as well.

10 Times More Smartphone Users and App Store Sales in 4 Years?

There will be 970 million smartphone users by the end of 2013, up from 300 million in 2010, according to analysts at research2guidance, a Berlin-based market research firm. In 2009 there will only about 100 million smartphones in use.

As a result,  annual app revenues will grow from $1.94 billion in 2009 to $15.65 billion by 2013.

An order of magnitude growth (roughly 10 times) in users and app store sales in four years would be steep, indeed.

What Does 100 Mbps for 100 Million Homes Imply About Monthly Prices?

There are only two major problems with the Federal Communication Commission's upcoming National Broadband Plan, says Dan Hays, PRTM director. The aspirational goal of 100 Mbps service provided to 100 milliion U.S. homes by 2020 is a fine aspirational goal, but it isn't clear how it can be implemented, he says.

The other big initiative is in the wireless area, specificially the effort to get TV broadcasters to give up 500 megahertz worth of spectrum so that wireless service providers can use it.

And there are just two problems there: buyers and sellers. Are there willing buyers? Are there willing sellers? Hays says the broadcasters already have said they are unwilling to sell. Even if they do agree to sell, the cost to acquire that much spectrum would be quite expensive, coming at a time when service providers are straining to justify further investments in their fixed plant.

The 100-Mbps access plan likewise has just two problems: who will pay for the investments, and whether end users are willing to pay substantially more than they now do for the upgraded speeds.

Estimates of how much that might cost range from a wildly-low $25 billion up to $350 billion, says Hays.

Commercial organizations aren't terribly interested in investing now to provide speeds that high, as there is little consumer willingness to pay much more than what people pay today, Hays says.
The percentage of household income spent on communications in the United States is in line with the rest of the world today, he says. So it does not make sense to assume a step level change in spending even if much-higher speeds are made available.

Beyond that, there is a generational and cultural issue at work. A good percentage of broadband non-adopters are older than 65. But as younger users who "cannot live without broadband" move up the age cohort, that particular non-adoption issue fixes itself, says Hays.

Once upon a time one could hear many doubters about why people would buy cable TV when they could get off-air video for no incremental cost. Over time, people decided they really did need it. The same thing has been at work with mobility services and will be true of broadband as well.

None of this is to argue that, over time, access speeds will increase. But investment capital cannot be raised unless there is a plausible business case. So the catch is that investors will want to see some plausible evidence that $300 billion worth of investment will lead to a return on investment.

Assume there are 65 million U.S. households spending $40 a month, on average, for broadband. That works out to about $2.6 billion a month, or $31 billion a year.

Assume a base of about 115 million U.S. households. Assume 90 percent broadband penetration, or 104 million connected homes. That would represent about $4.2 billion in monthly spending, or about $50 billion in consumer revenue.

How much incremental revenue would an investor want to see to justify investing $300 billion? Assume a 15 percent return as a hurdle rate and 104 million customer households.

The debt service implied is $45 billion a year. Assume borrowers also want to repay the principal over a 10-year period. That would very roughly imply a need to earn an incremental $75 billion a year.

Assume 40-percent margins. That implies gross incremental revenue has to be about $187.5 billion a year, or $1630 per customer, or an additional $136 per customer, per month. That implies a monthly price of at least $175 a month.

Do you really think every broadband customer in America, at 90 percent penetration of homes, is willing to pay $175 a month for broadband access?

Of course, maybe I have blown the math here. If not, I think 100 Mbps access, using networks built with private capital, are unlikely to happen. It would require consumers to do something history and logic suggests they will not do.

Mobile Service Providers Jockey to Maintain Relevance in Value Chain

Oddly enough, mobile service providers and device manufacturers are being forced to redefine their value and roles in the mobile ecosystem they long have shaped and dominated. The reasons are not hard to fathom.

The mobile industry's center of gravity is shifting from hardware to software, from voice to data and services, and from traditional telecom stakeholders to new entrants, says Thomas Husson, Forrester Research analyst.

But it is more than that. The mobile industry is reinventing itself, and the biggest changes are the addition of new providers in the value chain. The new and independent role of handset suppliers is one example, but so are software and content providers now parts of the value chain.

In fact, "the mobile environment as we knew it at the end of the 20th century is disappearing," says Husson. Firms such as Apple and Google now are playing huge roles in the business, for example.

That creates new tension as value--and revenue--shares now also are rearranged. In fact, access providers must contend with rapidly-changing shifts in value creation. That does not necessarily mean ISPs are destined to become low-value suppliers of commodity access, though that could happen.

It does mean all the contestants now are in an extended and crucial race to secure their own roles within the value and revenue chains.

Service providers face a limited window of opportunity to reinvent their business models and become smart enablers, says Husson. In part that is because software innovation, rather than hardware, is driving the business.  Increasingly, that innovation is coming from new participants in the business, not the legacy participants.

Global growth also will center on China, India, and emerging markets, as has been the case over the last several years.

In developed markets, the issue will be selling more services and applications to a relatively fixed number of users, as children, seniors, and technology pessimists, the remaining untapped user segments, largely have been tapped. Broadband and data services are the clear focus.

The big question is how well service providers will compete with new value chain participants to create and maintain direct relationships with end users, which traditionally has been the province of service providers. These days, application and device suppliers increasingly are poised to create direct retail relationships on their own.

Global Mobile ARPU Now Depends on Broadband and Data Services

Mobile end-user average revenue per user dropped between six percent to nine percent globally, in the third quarter of 2009, says ABI Research.

In the U.S. market, overall ARPU decreased by $0.45. Average voice ARPU declined by $0.98 while the average data ARPU grew by $0.53, according to mobile analyst Chetan Sharma.

By the end of 2009, average voice ARPU was less than $10 a month while data ARPU was about $15 a month. But average blended ARPU has been flat at around $49.50 since 2003.

ABI Research estimates that ARPU decline is likely to flatten out in developed markets in Europe and North America as mobile data revenue increasingly replaces falling voice revenue, as it has in the United States.

Globally, the growth in minutes of use has also peaked, and is expected to grow at a compound annual growth rate of only 1.4 percent between 2009 and 2015, with much of this growth driven by developing markets in Africa, Asia, and the Middle East.

Minutes of use in the U.S.market are growing at about a three percent rate, says CTIA: The Wireless Association.

Whether in the U.S. market or elsewhere, broadband access and data services are the clear way forward for mobile ARPU, gross revenue and profit margin.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Canada's Telecom Market Faces Deregulation

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

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

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

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

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

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

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

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

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

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Google Personalizes Search

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

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

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

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

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

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

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

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

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Telecom Return on Investment: Implications for Broadband Policy

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

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

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

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

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

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

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

Mobile ARPU Illustrates Service Provider Issues

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

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

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

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

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50% Faster Email Performance Using Akamai and AppRiver

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

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

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

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

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

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

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

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

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

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

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

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

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

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

New York Times story

No Daily Show, Colbert for Hulu

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

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

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

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

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

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

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

No Daily Show for Hulu

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Fitch Ratings

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

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

Collaboration is More than "Communications"

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

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

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

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

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

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

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

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

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

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

What Does iTunes and App Store Behavior Indicate?

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

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

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

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

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

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

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

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

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

Eric Schmidt, Google CEO, in 1986

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

Google Adds "Nearby" Function for Search

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

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

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

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

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

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

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

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

Regulatory Pendulum Swings: But Which Way?

In the telecommunications business, the regulatory pendulum swings all the time, though slowly. So periods of relatively less-active regulation are followed by periods of relatively more active rule-making, then again followed by periods of deregulation.

It has been apparent for a couple of years that the regulatory pendulum in the the U.S. telecom arena was swinging towards more regulation.

What now is unclear, though, is whether such new rules will largely revolve around consumer protection and copyright or might extend further into fundamental business practices.

Current Federal Communications Commission inquiries into wireless handset subsidies and contract bundling, application of wireline Internet policies to service wireless providers, as well as the creation of new "network neutrality" rules are examples.

But so will the settting of a national broadband policy likely result in more regulation. And there are some voices calling for regulating broadband access, which always has been viewed as a non-regulated data service, as a common carrier service.

One example is a recent speech given by Lawrence Strickling, National Telecommunications and Information Administration assistant secretary, to the Media Institute.

He said the United States faces "an increasingly urgent set of questions regarding the roles of the commercial sector, civil society, governments, and multi-stakeholder institutions in the very dynamic evolution of the Internet."

Strickling notes that “leaving the Internet alone” has been the nation’s Internet policy since the Internet was first commercialized in the mid-1990s. The primary government imperative then was just to get out of the way to encourage its growth.

"This was the right policy for the United States in the early stages of the Internet," Strickling said. "But that was then and this is now."

Policy isues have ben growing since 2001, he argued, namely privacy, security and copyright infringement. For that reason, "I don’t think any of you in this room really believe that we should leave the Internet alone," he said.

In a clear shift away from market-based operation, Strickling said the Internet has "no natural laws to guide it."

And Strickling pointed to security, copyright, peering and packet discrimination. So government has to get involved, he said, for NTIA particilarly on issues relating to "trust" for users on the Internet.

Those issues represent relatively minor new regulatory moves. But they are illustrative of the wider shift of government thinking. Of course, the question must be asked: how stable is the climate?
Generally speaking, changes of political party at the presidential level have directly affected the climate for telecom policy frameworks. And while a year ago it might have seemed likely that telecom policy was clearly headed for a much more intrusive policy regime, all that now is unclear.

A reasonable and informed person might have argued in November 2008 that "more regulation" was going to be a trend lasting a period of at least eight years, and probably longer, possibly decades.

None of that is certain any longer. All of which means the trend towards more regulation, though on the current agenda, is itself an unstable development. One might wonder whether it is going to last much longer.

That is not to say some issues, such as copyright protection or consumer protection from identity theft. for example, might not continue to get attention in any case. But the re-regulatory drift on much-larger questions, such as whether broadband is a data or common carrier service, or whether wireless and cable operators should be common carriers, might not continue along the same path.

You can make your own decision about whether those are good or bad things. The point is that presidential elections matter, and the outcome of the 2012 election no longer is certain.

Nexus One for Verizon

The Google-specified Nexus One, released on T-Mobile USA's network in January, will launch on March 23, 2010 on Verizon Wireless, a source says.

Verizon will introduce the Nexus One on the day the International CTIA wireless show begins, Neowin reports.

Pricing and terms of use are not known but likely will be "competitive" with T-Mobile's positioning.

The Nexus One is available for T-Mobile on an unlocked basis for a price of $529. Consumers can also order the phone through T-Mobile for $179 with a two-year contract.

Palm in "Death Spiral"?

"Death spiral" is not a word any company executive ever hopes to see or hear in the same sentence as the firm name. But that's what Barron writer Eric Savitz now does. "I fear Palm has begun sliding into a death spiral," he says. "Palm is simply too small, too poor and too weak to compete in a market where some of the world's most powerful companies are vying for supremacy."

Though its competitors will not lament the potential loss of one contestant in the market, the webOS software Palm developed also is described by Savitz as "brilliant." Walt Mossberg at The Wall Street Journal in a review last summer called the Pre "potentially the strongest rival to the iPhone to date."

"There's just one problem: No one is buying the phones," he says. Palm now says revenue for its fiscal year, ending in May, will be well below its previous forecast of $1.6 billion to $1.8 billion. The problem, Palm said, is "slower than expected consumer adoption of the company's products." In other words, the Pixi and the Pre aren't selling.

Whether Palm somehow can pull off a turn-around is not clear, nor is it clear whether the company will wind up being sold to another firm. But webOS is yet another illustration of the fact that in the technology business, the "best" product does not always win.

Is UC Still Relevant and Growing?

IP-based communications often has not developed as its supporters have forecast. Suppliers thought it was an "enterprise" product, but VoIP erupted in the consumer space. That actually has been the rule, of late, not the exception.

Email, the Internet, instant messaging, text messaging, search, social networking, broadband and mobility all gained traction in the consumer space and then were forced upon enterprises.

Has unified communications now been superseded by social media and mobile devices? For many enterprise executives, that is a rhetorical question, though it might not be so rhetorical for smaller organizations or individuals.

Contact centers remain the province of enterprise-class unified communications solutions and nearly all office environments, as well as for traveling workers who need access to home office communications features.

Global businesses likewise benefit from enterprise-grade unified communications more than small, local businesses and organizations.

Since supplier organizations tend to mirror the organizations they sell to, that means many large suppliers of unified communications believe in its value because they themselves are large, far-flung organizations in best position to leverage UC and other collaboration tools.

What is not so self evidently clear is that the same level of benefit is obtained by smaller, more localized user organizations and firms.

"These customers aren’t worried about presence and a unified portal," says David Burnand, a former Siemens enterprise communications executive. In fact, "many of them run their business using mobile handsets, simple PBXs, social media, Skype and Google Voice."

Many use elements of unified communications, including single number services, video-calling and instant messaging. They just don’t call it unified communications, or use those tools because they are "unified." They use point solutions because they solve real problems.

The point, says Burnand, is that "old school" definitions of unified communications do not hold.

UC is no longer about managing a desk phone, mobile, Windows PC and many other devices. The smart phone has made that view redundant for all except the power users, he argues.

Instead, it is evolving into skinny applications for low-end users and specialist applications for power users, mixed with a dose of social media, a splash of video and a few Web-based collaboration tools.

That will be an unsettling view for many unified communications or collaboration suppliers, as it suggests the "UC market" is far smaller than many would have predicted for hoped for.

Global Voice Penetration Really is a Miracle

By the end of 2009, there were an estimated 4.6 billion mobile cellular subscriptions, corresponding to 67 per 100 inhabitants globally, says a new report from the International Telecommunications Union.

Last year, mobile cellular penetration in developing countries passed the 50 per cent mark reaching an estimated 57 per 100 inhabitants at the end of 2009. Even though this remains well below the average in developed countries, where penetration exceeds 100 per cent, the rate of progress remains remarkable.

Indeed, mobile cellular penetration in developing countries has more than doubled since 2005, when it stood at only 23 per cent.

Not many will recognize this success for the great achievement it really is. Policymakers of the 1960s, 1970s and 1980s would be, and probably are, shocked at what has happened. In days past, the thinking was that getting phone service to people who had never made a phone call would be stubbornly difficult. I do not recall anybody suggesting mobile technology would do the trick.

The broadband gap, though significant, also is showing dramatic progress, and again because of mobile networks.

There is a "problem" people and organizations who "solve problems" often have: they cannot recognize victory. Many difficult problems actually get fixed. When they do get fixed, rejoice and move on.

Getting voice services and now broadband broadly adopted throughout the world is a huge, miraculous success.

Enterprise Workers Ready to Ditch Their PCs for Smartphones?

Something rather unusual seems to be happening in the enterprise mobility space. According to a recent survey taken by iPass, 63 percent of mobile employees prefer to use a smartphone, not a laptop, as their primary mobile device, for trips of any length.

For trips of up to five days, 59 percent of respondents prefer to carry a smartphone, while 41 percent prefer a laptop. For trips lasting longer than 30 days, 64 percent prefer a smartphone to a laptop.

That likely is testament to the high value traveling workers place on voice and text communications, as well as the increased capabilities smartphones now offer, including email and Web access.

But the findings also suggest that some enterprises are over-investing in laptops and software and might need to look at scenarios where mobile or traveling workers can get along just fine with smartphones.

There is another and possibly darker view here as well. Industry suppliers have been touting mobility investments as a driver of productivity. As it now appears, enterprise workers do not even want to carry laptops with them when traveling. So what is the value of all those investments in remote access?

Granted, most enterprises likely are trying to get a better handle on mobile phone expenses, so indiscriminate replacment might not be wise. But the survey also suggests the near-universal embrace of the BlackBerry has "soft" support from users.

According to the iPass survey, while 32 percent of mobile employees ranked the BlackBerry smartphone as their mobile device of choice, 54 percent of BlackBerry smartphone users would switch to an Apple iPhone if it was supported by their enterprise.

"Mobility" also once was an issue of supporting traveling workers. Today every employee
is a potential mobile employee, iPass says. While many mobile employees have some business travel, many more are logging in from home.

About 68 percent of iPass survey respondents did not travel during the last quarter of 2009, but  45.8 percent of mobile employees logged in from home at least twice a month, and 16.8 percent logged in more than ten times a month.

Excluding home and the office, mobile employees most often log in from hotels (42.6 percent), airports (27.2 percent), retail outlets and restaurants (27 percent).

According to the iPass survey, while 32 percent of mobile employees ranked the BlackBerry smartphone as their mobile device of choice, 54 percent of BlackBerry smartphone users would switch to an Apple iPhone if it was supported by their enterprise.

Telco Choice is Not "Dumb Pipe" or "Service Enabler" or "Service Provider"

There's no question that the fundamental business underpinning of the entire global telecommunications business is undergoing a fundamental change from "voice driven" to "broadband driven," and, to a certain extent, from "services" to "access."

That leads to a fear that the future is one of "dumb pipe" access services providing modest revenue and slimmer profit margins than any existing provider can tolerate, without significant downsizing of operational cost.

Many observers suggest service providers will gradually take on more "application enabler" roles, supporting third-party business partners.

At the same time, there is debate about the degree to which any existing video or voice service provider will be able to continue doing so in the future.

But those three choices are not mutually exclusive. For better or worse, "dumb pipe" access is a permanent foundation for every telco, mobile, cable, satellite or fixed wireless provider. That is precisely what "broadband access" is; a simple "access" service.

That does not mean "only" access will be provided. There likely will be some permanent role for managed video, voice, storage, backup and other services. At some combination of value and price, users simply will prefer to buy such "services" rather than use comparable applications.

At the same time, it is likely service providers will find ways to grow the percentage of their revenue earned by supplying services to business partners. That might include billing services, location and device information, hosted processing or storage services.

"Dumb pipe" access is not the only business of the future, but it is foundational, and permanent. In addition to that, though, today's service providers necessarily will have to grow the proportion of revenue they make from "enabling" services, as they manage a likely decline of "services" such as basic voice communications or multi-channel video.

And it is not necessarily that those services decline because of a shift in user demand. The simple existence of capable competitors means market shifts will occur, irrespective of any conceivable shifts of demand. In other words, one does not have to make a definitive bet on "over the top" voice or video to plan on lower revenue from existing voice or video sources. One simply must assume that capable competitors will take some amount of market share.

In other words, at the level of discrete enterprises, cable executives have to anticipate declining video customer base and revenue contribution, while telcos have to assume declining gross voice revenue. No shift of demand to online video or VoIP need be assumed.

To be sure, those forces likely will be factors. But it is not the case that a stark choice must be made between the "dumb pipe" access provider and the "service enablement" or "service provider" roles. All three will remain parts of the overall revenue stream.

Apple Plans "Big, Bold" Steps, Says Jobs

Apple Inc. CEO Steve Jobs says Apple is holding onto $25 billion in cash to take “big, bold” risks. That should be an immediate concern for any company that competes with Apple or thinks it might have to compete with Apple.

Whatever else might be said, Apple already has reinvented itself. Apple used to be thought of as a "computer manufacturer." These days, sales of Macintosh computers probably represent about 18 percent of the company's equity value. The iPod, which not so long ago was the rising company star, now represents about three percent of the company's value.

Even the new iPad, which has just launched, represents four percent of the company's value.

These days, Apple has suddenly, dramatically, become a "mobile handset" company. Sales of the iPhone now represent about 52 percent of the company's equity value.

The iTunes and iPhone App Store represent about 5.6 percent of company equity value.

So what about Apple's purchase of Quattro, a company providing mobile advertising for Apple, Android and other smartphone devices?

Apple probably is less interested in profiting from ads than in making the iPhone the most attractive device for developers to build applications. And money might have a lot to do with that. Right now, eighty to ninely percent of app store downloads are of "free" apps. That isn't such a great business model for a software developer.

Eighty percent of the three billion downloads from Apple’s App Store are free, for example. By offering a way to sell ads, Apple can help entice developers who will have another way to make money, other than selling software.

Apple executives said recently during their quarterly earnings call that the firm had no idea whether mobile advertising would develop as an actual revenue stream for Apple or whether it would simply help reinforce its App Store operations.

"I honestly don’t know," says Peter Oppenheimer Apple CFO. "We will have to see."

App Stores Very Valuable for Handset Suppliers and Users; Maybe Not Developers

App stores have been a huge boost to smartphone perceived value. What they haven't yet proven is that they are an effective way for software developers to sell applications.

About 80 percent to 90 percent of app downloads are of the "free" rather than "paid" variety, according to AdMob.

Ironically, Low Prices are a Barrier to Mobile VoIP

SK Telecom says it has no plans to allow its smartphone subscribers access to VoIP calling, saying it will deal a blow to its revenue, reports the Korea Herald.  That's true, but also likely unsustainable. All it would take is for Korea Telecom to allow it and SK Telecom would have to relent.

Oddly enough, it appears low prices are a problem. An SK Telecom executive says that AT&T and Verizon can afford to allow VoIP because both those carries make enough money with their broadband and voice tariffs to allow cannibalization of legacy voice revenues by VoIP.

Oddly enough, this is a case where higher prices would lead to more innovation. U.S. carriers are moving about as fast as they can to create broadband-driven revenue streams so voice can be cannibalized.

Mobile VoIP is a sensitive issue for SK Telecom precisely because its tariffs are low. "Mobile VoIP will destroy our profit-making structure," Lee Soon-kun, senior vice president of SK Telecom, says. At the same time, Korean mobile providers face mounting pressure to lower tariffs on legacy calling.

Under the "per-second" scheme, which will take effect on March 1, 2010the carrier will charge for every second, instead of every 10 seconds. Under the current system, consumers have to pay for a full 10-seconds of calls, even if they have not been connected for all of that time.

The revamp is expected to lead to a tariff cut of 700 won and 800 won per subscriber on average, SK Telecom said, adding that all of its 25 million subscribers would be able to save a combined 201 billion won ($1.8 million) a year.

SK's move put its rivals KT and LG Telecom under growing pressure to follow suit.

Broadband prices that are too low--basically unable to support the entire cost of running a mobile network--would seem to be a problem for widespread mobile VoIP in the Korean market.

Not Every Telecom Market Did as Well as U.S. in 2009

The U.S. telecommunications and network-based video entertainment markets (cable, satellite, telco) grew revenue in 2009, largely on the strength of performance by the large incumbents that account for most of the industry's revenue.

That was not the case in all markets, though, as the Columbian market, for example, declined about eight percent in 2009, according to researchers at Pyramid Research.

The Columbian market also is in major deregulation shift, so new competitors are expected, especially in the wireless area. Pyramid Research does not think any such new competitors will be able to alter the current market structure, though. Incumbency has its advantages, it seems.