It's Only a Matter of Time

If asked to name the largest U.S. providers of POTS or POTS substitutes, most people in the industry could come up with the top three or four. Not many would get the top six to 10. So today's list looks something like at&t, Verizon, Qwest, Embarq (formerly Sprint), Windstream (formerly Alltel), CenturyTel and Citizens Communications.

But there's lots of activity at around the two million subs mark. Vonage and Cox Communications already have crested two million, and is pushing Citizens and Century for a spot in the rankings. Comcast will break through the two million level shortly, and the only question is how fast it will close on Qwest. Time Warner and Cablevision also have broken the million-and-half customer level. Put another way, the U.S. cable industry already is positioned right behind Embarq among larger providers of classic voice services in the U.S. market.

Global Calling: Decline Rate Stabilizing

There's good and bad news in the international calling business, according to TeleGeography. Volume continues to grow, unabated. That's the good news. But rate declines persist. That's the bad news. But there are times when "bad" news is pretty good news. And the good news for global voice providers is that the rate of decline appears to have stabilized. Providers can plan for volume incrases and declining per-unit prices, as long as the declines are predictable and moderate.

Global Voice Still Growing...

...at rates in excess of 15 percent a year, which is in line with trends over the last two decades. Data supplied by TeleGeography.

People Like to Talk: Increasingly Without Wires

The picture tells the story. In blue are mobile accounts. In red are active wirelines. Note that both are growing, on a global basis. It's just that mobile is growing faster. Data provided by TeleGeography.

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.