Directionally Helpful Trend

If one is a would-be provider of IP video content provider in the European market, the trend is helpful, if suggestive of the business challenges. As one might expect, few users say they have paid for downloaded or streamed video content. But the percentage of users who say they have done it, or would do so, seems to be growing. If we assume that the primary audience to this point has been younger demographics rather than mainstream video consumers, that's helpful.

How BT Got Its Voice Revenues Down

A challenge every legacy telco faces is transforming its revenues away from voice. One advantage BT has is that it is a global carrier, able to build a wholesale business, serve transnational enterprises, small and medium business as well as consumer customers. Increasing its efforts in all sorts of new and data-related services has allowed BT to reduce its reliance on voice revenues far below levels typical of other "telephone" companies. Smaller telcos will have a tough time replicating the global enterprise and wholesale parts of BT's strategy.

Email, Web, IM Top Enterprise Mobility Drivers

Email, Web and instant messaging access are the top three drivers for enterprises adding more mobility support for their workforces. Smart phones are the new black, it seems.

Build Strategy Makes a Big Difference

Verizon and at&t are fighting local franchising rules of various sorts that the carriers say are deterrents to building new broadband networks. Without fanfare, other providers such as RCN build Triple Play networks without serving the whole community, and find the going tough even without mandatory communitywide buildout requirements. The problem? The economics of competitive local networks are tough, since no single provider can reasonably expect to get much more than 20 percent of potential customers in a market with four providers, for example.

Another way of putting matters is that 80 percent of the local ports have no customers on them, and no revenue. That's not a prospect likely to make capital providers very comfortable. The fact is that some parts of every community, and some neighborhoods within every community, are more profitable than others, as indicated by Solon Management Consulting. Building in the most-profitable neighborhoods first, to get the revenue flowing, before tackling the more problematic areas is simply a business reality.

Arbitrage Won't Drive VoIP Forever

To this point, global VoIP usage has been driven by price arbitrage. But global calling rates are coming down, so that form of arbitrage will prove less interesting to end users at some point. At the same time, wireless usage continues to climb. And while there might be some room for price arbitrage in the wireless domain, it will be found precisely where arbitrage as proven most significant in wireline calling: international termination.

That probably doesn't mean price arbitrage forfeits its key role in user adoption any time soon, simply because there are other cost elements to arbitrage. The U.S. cable operators, in fact, have extended price arbitrage into the local calling realm, offering VoIP-powered services that simply mimic the PSTN, but arbitrage the recurring access revenue stream, not the minutes. Inevitably, though, at some point, VoIP simply won't be about price arbitrage any longer, because there won't be much left to arbitrage. Users will have found they are paying for services and features way beyond the ability to place or receive a call, and service and app providers will have adjusted accordingly. A "soft landing," you might say.

Piracy Part of the Business Model?

Up to this point, younger Internet users have been the most active abusers of video content rights on the Web. Much content now is pirated, according to The Yankee Group. We doubt this will continue to be so much the case as downloaded video becomes mainstream and much of the demand shifs to high definition TV fare where image quality and consistency will really be important.

There also is some precedent in the video world for a small amount of piracy to be a good thing for the overall value chain and growth of a new business. In its earlier days, the U.S. cable TV industry used filters of several types to control viewing of premium services such as Home Box Office. So piracy was a matter of securing the proper filter and inserting it between the house drop cable and the distribution cable's "tap." In this scenario, manual audits were the only way to determine whether an installed filter was legal or not. And since assigning technicians to patrol the entire plant looking at "traps" costs money, there is a cost-benefit issue.

A service provider wants to minimize theft of service, but not completely, as the cost to control then outweighs the "losses" from theft. Also, there is a subtle way that some amount of piracy actually creates more revenue, at least for the service provider. The example is subscribers who pay for basic cable access but then are able to pirate HBO. In that scenario, a cable operator might actually get a recurring revenue stream it otherwise wouldn't have gotten, while the economic loss is borne by HBO, which isn't paid. With changed technology, this particular attack is seen rarely, if ever. Also, access to HBO no longer drives cable, satellite or telco TV penetration.

The point is that some amount of piracy must be tolerated because complete eradication costs too much. And there might even be some cases in which a limited amount of piracy actually can lead to a bigger revenue stream for legal uses. Earlier in its development, productivity software suppliers realized that some amount of piracy actually would increase the base for legal sales, because users grew accustomed to the use of particular products and then would buy legal copies.

As the network-delivered video business develops, particularly as an application or service used by large numbers of people who don't want to hassle with technical details, and just want to watch content on their HDTV and other screens, we likely will see a significant decrease in piracy and an equally significant increase in legal downloads. We might even find, as we have found before, that some amount of piracy can actually stimulate the legitimate part of the business.

Both Substitution and Augmentation

The common sense expectation we all seem to have is that VoIP ultimately replaces POTS, and that's correct in a technological sense. Their respective business futures might be less certain. We mean "business" here in the sense of revenues that can be generated from services and features associated with POTS, even if the platform changes. Those of you who lived through the analog to digital switch transformation understand this. Revenues sometimes grow when a new platform displaces the old, because there are new things to sell, and costs sometimes drop at the same time, allowing a retail price to reap more margin, even on the legacy products.

And one of the things about POTS is that there are latent values beyond the switch and transport technology that might be the real reasons customers buy POTS service. If you think in terms of "user communities," the PSTN outstrips nearly anything else we've built so far, with the exception of wireless. But if wireless is seen as untethered access to the PSTN, then the PSTN community is where one wants to be.

In other words, the PSTN directory is far more developed than any directory you or I have built ourselves. A "buddy" list can be built for the small number of people you communicate with regularly. Beyond that, the PSTN still rules. That's valuable. One might argue, at least at this point, that POTS is more reliable, in just about every sense, compared to just about any VoIP alternative. That has value for end users, and might continue to, even when the infrastructure changes.

Also, the business value of the PSTN, which is voice-oriented, arguably is enhanced when integrated with instant messaging, text messaging, conferencing, Web access and other features. All of that might help explain why just half (49 percent) of residential customers who adopt VoIP say they discontinued a traditional phone service when they got their VoIP services, according to a recent survey by In-Stat. Put another way, VoIP displaces half of existing POTS line purchases, but also augments POTS half the time.

Also, in addition to "cord cutters" who rely exclusively on wireless for their personal voice communications, In-Stat finds that nearly 12 percent of respondents say their only VoIP service is based on the use of soft clients. That's further evidence of the growing importance of IM-based voice, presumably including "call out to the PSTN" capabilities.

And blurring the distinction between "business" and "consumer" uses, half of the VoIP users say they use their residential VoIP service either in part or in whole for business purposes. The trend is especially pronounced among VoIPers who are softphone-only users. More than 40 percent of such people use VoIP for business applications.

There are lots of suggestive niches here. Even in the consumer space, it appears there are augmenters, displacers, "no phone" users, "no phone" business users, IMers and maybe people who don't like "gizmos" of various sorts (probably the same people who dislike cable decoders and other CPE).