Verizon Leads in LIfetime Customer Value

The average subscriber lifetime revenue per subscriber was $2,589 in the third quarter of 2006, which was approximately flat to the same period in 2005. Over the past nine quarters, the general trend for lifetime revenue per subscriber is slightly positive.

But Verizon blows away its major competitors in this category, with a lifetime revenue of $4,081 in the third quarter of 2006, 48 percent higher than Cingular, for example.

Cingular's lifetime customer value was $2,704 in the third quarter. Sprint Nextel experienced a significant drop in its subscriber lifetime revenue declining by
approximately $1,000 to $2,145. T-Mobile trails all operators in this metric and experienced slightly negative trends over the period, with subscriber
lifetime revenue of $1,733 for the third quarter of 2006, approximately 33 percent below the industry average.

Average revenue per unit, churn rates and other operating efficiencies account for the differences.

Change in Cost Structure Looms for Cable, Satellite Video

And you can credit telcos for creating the climate making further change inevitable. CBS Corp., for example, appears to be in negotiations with 20 U.S. cable TV companies about direct compensation for CBS programming distributed over those cable networks. That would be a big change. Verizon already pays CBS. CBS executives say the additional revenue could amount to "hundreds of millions" of dollars by 2009.

Historically, over-the-air broadcasters have been compensated in non-cash ways. Lower advetising rates or carriage of broadcaster-affiliated cable networks being cases in point. Highly-popular "cable only" fare such as ESPN always have been paid for on a "cents or dollars per sub" basis. That hasn't been the case for rebroadcast networks.

But as we've been noting, value chain disagreements are going to sharpen as IP business models are built.

Mobile TV Jitters

One of the issues mobile TV faces is uncertainty on the part of service providers about aggregate demand, as well as what it is that viewers actually will want. So far, about 66 to 70 percent of consumers say they want other types of custom content. Most of the likely buyers seem to be in the 18 to 35 age group.

There remains some concern about screen size, but some proponents say the concern is misplaced. "It's not a matter of screen size," says Rutton Ruttonsha, NXP SVP. "It's a matter of resolution.

"If you ask 10 people if they’d watch TV on a small screen, they’d say no," says Ruttonsha. But handed an actual high-resolution screen running content, 70 percent then say they would get one. That's not an unusual finding. Users never can judge their appetite for truly new innovations until they actually can use it.

"If you look at the research, when people complain about the issues with mobile television, 76 percent of their complaints involve quality of the video and frame data rates," says Scott Wills, HiWire COO."Only six percent of people complain about screen size."

"The quality of audio is also important," says Ruttonsha. "If the audio is perfect, you can tolerate some misses on the screen." If the audio is great, consumers think the picture is a lot better.

Business models are another area of concern, certainly. Most likely there will be several models, all following existing media practice. Some services will rely on subscription fees plus advertising. Others will take a commercial-free, paid approach.

Of course, one way to look at mobile video is the impact if a single wireless carrier were able to get 10 percent penetration of 200 million handsets. That creates a Comcast-sized video provider.

"One of the reasons it’s taken so long to get going in the United States is that everyone wants an unfair share of the $6.6 billion market they see coming," says Ruttonsha. As we have argued before, disputes among value chain participants are a sure way to delay or crush an incipient market.

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.