Global Capex Up, Video Drives It

Overall, North American telecom companies are projected to spend $70 billion on new infrastructure this year, down from the $110 billion they spent in 2000, up 67 percent from their 2003, says Infonetics Research. Global spending on new telecom gear is expected to rise to $240 billion in 2008, up 19 percent from 2005. Video is part of the reason.

While sending 100,000 emails costs a telecom company around 20 cents, transmitting 100,000 low-resolution videos costs around $15, and sending 100,000 high-definition movies costs around $10,800, says Infonetics Research.

Compared to Vonage...

Rightly or wrongly, Vonage's key marketing metrics get compared to those of cable or telco companies. Vonage's cost of acquiring a customer, its churn rate and average revenue per customer each month always are pointed to as issues. Well, compared to the best run telcos, that's true. Consider Telus, which operates largely in Western Canada. It has average revenue per unit of $64.50. Vonage is in the twenties. It has churn of 1.33 percent a month. Vonage's churn is double that. Acquisition cost is $436 a customr, which in about what Vonage spends. The issue is that Vonage's ARPU is less than half of what Telus gets, and Vonage keeps a customer half as long as Telus.

On the other hand, Vonage's costs of doing business are lower as well. Also, keep in mind that Telus is, by some measures, among the best-performing service providers in the world, and its fourth quarter 2006 results confirm that. On average, Telus keeps a customer more than six years. It is aided mightly in that regard by its wireless performance. So far, Telus and other leading wireless providers are turning in the best churn performance for virtually any consumer application one can think of.

Directionally Positive

North American fiber to home numbers still are small, but the direction is positive, says the Fiber to Home Council. The markets don't like the magnitude of investment, but telcos don't have much choice but to bet the farm.

Managerial prowess will prove important, but this bet will pay off. If IP-delivered video really does take off, in both the enterprise and consumer spaces, private networks have to be part of the solution.

And private networks will result in more revenue for access providers. To the extend that public networks are involved, it isn't clear that "all you can eat" plans can survive. Users will have to pay more for consumed bandwidth. That doesn't mean current pricing metrics necessarily are affected. But applications that chew up 1,000 times more bandwidth than voice will have to be provided at retail prices that reflect those levels of consumption. New networks will be built, no doubt.

Serious Moolah

The typical Fortune 500 company spends 3.6 percent of revenues on network services, gear and assets. Last year, more than $327 billion. The largest recurring cost is wide area network transport costs. Any wonder why enterprises are looking to switch that function to Ethernet?

EarthLink Wins Houston Wi-Fi

The City of Houston has selected EarthLink to deploy a large municipal Wi-Fi network covering 600 square miles. The network will be one of the largest in the U.S. and it will primarily serve urban and suburban sections of Metropolitan Houston. Another massive Wi-Fi rollout, in Michigan, is planned to serve urban and suburban regions as well as rural sections.

In winning the Houston contract, EarthLink adds to its list of municipal customers that include Philadelphia and New Orleans. Similar Wi-Fi deals with San Francisco and Pasadena are pending.

It remains to be seen how lucrative EarthLink's networks are. The deal also calls for the service to be made available for up to 40,000 low-income residents at $10 or less a month. There will continue to be pressure to keep the service affordable, though it may be possible to develop premium services or even advertising at some point, as The Yankee Group suggests.

And while cable companies and telcos will see this as compeitition, there may be ways even they will benefit, if some amount of traffic is offloaded from their own networks, much as offloading cellular network traffic to home broadband networks can help, even if there is a danger of some revenue cannibalization.

Cingular TV Broadcasts Start Later This Year

AT&T's Cingular Wireless unit will use the QualComm MediaFLO network to broadcast TV programs to cell phones in about 30 U.S. metro markets starting in late 2007. AT&T is QualComm's second customer for the service after Verizon. MediaFLO has arrangements in place to provide TV content from CBS, Fox and Comedy Central. It is also planning to provide information services like live stock quotes and sports scores. Nobody knows yet how popular this sort of thing will be. But it will have a couple advantages, such as not strangling the public Internet with multicast video.

Google Warns

New Internet TV services such as Joost and YouTube may bring the global network to its knees, at least one Google executive has said publicly.

At some level, of course, statements that "the Web infrastructure, and even Google's doesn't scale,” as Vincent Dureau, Google's head of TV technology says, are simple observations about the best effort nature of the Internet. It wasn’t designed for real time services. Unlike the global telecom networks, the Internet wasn’t built expressly incorporating quality of service measures.

At some level, Google saying today’s Internet is “not going to offer the quality of service that consumers expect” is simply an observation about the way the Internet now works, unaided by priority-enhancing measures or further raw bandwidth upgrades.

Google in Europe appears to be offering to work together with cable operators to combine video search and tailored advertising with the cable network access networks, which are, by design, closed and quality controlled.

That should have come as quite a comforting perspective for cable operators who have reason to feat the emergence of over the top video. At while there is great truth in what Dureau says, it may not, strictly speaking be completely true of all IP networks. Private networks can be created to ensure quality video delivery, even if will be difficult to ensure that the public network supports video using “best effort” delivery.

Compared to a voice-centric network, a video-capable network must support sustained throughput two orders of magnitude or 1,000 times greater than required for voice. That is not to say the Internet will not support video. It just might not be completely satisfactory as a means of delivering real time video. Downloaded video won’t be as big an issue.

In fact, Gartner Group analysts estimate that 60 pecent of the Internet traffic that is uploaded from computers is peer-to-peer traffic, mostly from consumers swapping films and TV shows.