Value Chain Conflict is Inevitable, Also Resolvable

Eric Lagier, Skype director of business development, hardware and mobile, says the mobile phone industry isn't ready for Skype, in particular because the industry doesn't offer high-speed mobile access cheap enough. Users could make cheap phone calls cheap if broadband data plans were cheap, Lagier says.

That might be a bit like Steve Jobs complaining that the music rights holders take too big a cut of the sale of a song.

"We don't want to be in a situation where we say 'Skype is free' and then at the end of the month the user gets this huge broadband bill," Lagier says. Lagier pointed to wireless operator 3 as an example of what
Skype would like to see. 3 offers 3G bandwidth for about $9.69 per month, supporting unlimited Skype calling.

So what would Skype like? Low-cost, flat-fee wireless broadband packages that allow users to make unlimited long distance calls. "We don't want to be in a situation where we say 'Skype is free' and then at the end of the month the user gets this huge broadband bill," Lagier says.

Lagier's comments nicely illustrate the sorts of value chain disagreements that inevitably are going to occur as new IP-based business models are created throughout the communications and entertainment industries. Tussles are inevitable because every participant in the value chain wants to maximize its position and maintain high profit margins, even at the expense of other participants. That shouldn't surprise anybody.This goes on in every industry with a complex value chain.

To be sure, European mobile executives made very bad decisions when they bought their 3G licenses. Telco executives have operated in cozy businesses with little competition and little innovation. Everybody would like lower prices for mobile broadband. But it's a bit shocking to hear an argument that essentially is a
whine. "We could offer free or really low cost calling services if other participants would simply sacrifice both their calling and next-generation network revenues." Don't get me wrong. I use Skype. I like it. I use 3G and I like that too. Mobile calling prices are too high, especially in Europe, Middle East and African markets. I
don't believe in packet blocking, including blocking of Skype packets. I don't agree with regulations that outlaw use of Skype and similar applications.

But a value chain participant won't get very far in a business that requires a great deal of "playing nice" by essentially complaining that it can't make any money because another essential partner won't agree to commit business suicide voluntarily. To be sure, wireless carriers are going to have to lower prices as markets become more competitive. And reasonable prices for broadband can provide a foundation for lots of other services that will generate profits for carriers. Wireline telcos, for example, have concluded that unless they can hang on to the consumer broadband access account they will have a tough time hanging onto voice or video accounts.

We'd agree with Lagier that the mobile industry isn't very Skype friendly. We think it should be more friendly to all sorts of innovations third parties could bring it. It just isn't helpful when one part of the value chain asks another to destroy itself so another part can prosper. Everybody has to prosper.

Web-Activated Voice for Apple iPhone

Wasting no time, Jajah says it will support the Apple iPhone, and make available mobile, web-activated calling on the device as soon as it is available to buy. "You already know we have an Mac Address Book Plugin and Jajah user Greg Smithies has recently pulled together a Mac OS X Jajah Widget, the company says.

HDTV Set Penetration at 17 Percent

Leichtman Research Group says 17 percent of U.S. households now have at least one high definition-capable TV (HDTV), an increase from about one out of every fourteen households just two years ago. Some 26 percent of homes have more than one HDTV. Some two thirds of consumers aren't aware of the digital TV transition scheduled for February 17, 2009, which will turn off the current broadcast system and convert to HDTV only.

HDTV Ownership

Annual HH Income Have an HDTV

Under $30,000 6%
$30,000 - $50,000 8%
$50,000 - $75,000 17%
$75,000 - $100,000 25%
Over $100,000 38%

Source: LRGResearch, December 2006

Hosted PBX $2 Billion by 2010

Hosted PBX and hosted Centrex style services are resonating most with smaller businesses in the 20-to-50 seat range, says In-Stat. But there's still a very long ways to go, according to separate research by Savatar. As shown in this graphic, blue shows small business managers who aren't sure which IP phone approach to adopt. Yellow shows those in favor of hosted PBX services while red shows preference for a premises switch.

Hosted PBX and hosted Centrex services will exceed $2 billion in annual revenue by 2010, the company says. In-Stat projects U.S. hosted PBX seats in service will continue to grow steadily to top three million in 2010, up from 373,000 in 2006. Cost savings remains the primary attraction to hosted business phone solutions, but the value associated with business-grade solutions is resonating more strongly among businesses that are willing to pay for them. Multi-location businesses and those with mobile or distributed employees are most attracted to hosted VoIP solutions, In-Stat says.

Amp'd Up

Amp'd Mobile ended 2006 with more than 100,000 subscribers, 89 percent of which are on postpaid contracts. Most significantly for the mobile virtual network operator, the company surpassed its own expectations for data revenues and mobile content usage.

Average content and data revenue per user exceeded $30 a month (compared to an industry average of $6.80) and total ARPU exceeded over $100 a month.

Notably, content accounts for nearly 60 percent of the $30 of data ARPU, in contrast to approximately 25% among other carriers. The results are important as a test of MVNO viability, as well as the content-centric strategy for an MVNO, in view of the shuttering of ESPN's MVNO effort.

MediaZone Goes Beta: Bandwidth Issues to Follow?

MediaZone announced a beta version of its social TV platform, allowing the creation of "linear" TV channels. MediaZone has delivered more than 2000 sports, entertainment and cultural events each year, including the Wimbledon Championships, the ING New York City Marathon and the FIBA Basketball World Championships. The company has also developed long-term exclusive content partnerships with major media brands including NBC Sports, AOL and the Shanghai Media Group.

MediaZone's latest platform introduces new features surrounding video programming, including chat with others watching the same show, ratings and comments, blog publishing, and other tools to deliver a far more comprehensive interactive platform than current video sites offer. Viewers can share their thoughts and passions while watching Social TV's numerous hard-to-find programming channels.

The platform accommodates TV producers, networks, cable outlets, media libraries and other content partners seeking to build full-time linear internet video channels, the company says.

Aside from the obvious competitive impact on existing media channels, there is a serious issue about how much bandwidth, both in the backbone and in the access network, might be chewed up if streaming video really starts to take off. If a broadband access service limits total usage to 2 Gigabytes a month, then the limit is reached in just 20 hours of standard TV viewing.

One Way of Looking at Bundling

DirecTV executives point out that a move into new services such as voice and high definition TV hasn't hurt the satellite provider's ability to keep growing, as this DirecTV graphic indicates. But there's another way to look at matters. What cable's ability to create Triple Play services has done is break the trend line of DirecTV's growth. DirecTV might have grown much more rapidly had cable not begun to flex its muscles with voice, broadband access and other services.