Commoditizing SMS?

Given that short message service is a high margin product delivering between a third and half of most mobile operators’ profits, STL Partners wonders what threat third party providers might represent. Alternative services allow users to connect to a third party gateway over the Internet (using GPRS, 3G, or Wi-Fi) and send text messages affordably.

Service provider execs who remain optimistic about keeping the business say users are too lazy or indifferent to the cost of SMS to switch. A general shift towards IM features will moderate costs and provide a richer alternative. There will be spam and privacy issues. And service providers will just drop prices if they have to.

Executives seeing a larger threat suggested that messaging will be embedded in third party applications, notably social networking services, and that operators will lose control of the context from which messages are initiated — as well as the revenue.

The STL graphic shows the percentage of business lost to third party providers in five years.

Iotum and Jajah Partner

The Iotum Talk Now application, a presence manager running on Research in Motion's BlackBerry, now has been integrated with Jajah, the Web-enabled calling application. ah is integrated into the iotum application. Very nice. Of course, now I am having an even harder time weighing two crucial device decisions. Do I ditch Windows and go Mac? And do I ditch BlackBerry and go iPhone?

As a former Mac fanatic, I finally had to switch to Windows because all my trading partners were on that platform, and at that time the Web really wasn't available to mediate most communications and applications. It is safe to say I've never enjoyed or really liked Windows. The big issue now is how many of the applications I get asked to test, or actually use, will be available on the Apple OS. Don't know yet, but this probably is the decision hinge.

Push email was a huge innovation when I first got it. But I'd have to say push email isn't a compelling reason to keep my BlackBerry any longer. Lots of devices do that. And when I focus on BlackBerry's interface and ease of use, it falls down. Right now, Iotum is the reason I'd be reluctant to switch. And Jajah integration is an even bigger plus.

If you wonder whether applications make a difference in device choices, I'll tell you this: in my case Iotum and Jajah now stand between iPhone and a new service provider.

The PC decision is more complex, since there are multiple apps I wouldn't want to risk messing with, and others that will show up, even if the hassle and irritation factor is very high.

Vonage Wins Permanent Stay

The U.S. Court of Appeals for the Federal Circuit in Washington D.C. has issued Vonage a permanent stay of a previous court's injunction that would have barred it from signing up new customers.

Vonage sought the stay following an April 6th decision by the U.S. District Court in Alexandria, Va. enjoining the company from using certain VoIP technology to add new customers. The permanent stay enables Vonage to continue adding new customers as it pursues an appeal of the patent infringement ruling.

Vonage will however continue to pay into escrow a quarterly royalty of 5.5 percent throughout the appeals process and also will post a $66 million bond as required by the court.

"We believe the original verdict was based on an erroneous claim construction -- meaning the patents in this case were defined in an overly broad and legally unprecedented way," says Sharon O'Leary,Vonage EVP and chief legal officer. "We believe the district court's decisions repeatedly neglected well-established law on claim construction and, as a result, artificially expanded the coverage of Verizon's patents well beyond what was intended by the patent trademark process."

Wireless Rules

At the end of last year there were 233 million wireless accounts in service in the U.S. market. Access lines in service at the largest eight U.S. wireline carriers amounted to 139.2 million (at&T, Verizon, Qwest, Embarq, Windstream, Century Telephone, Citizens and Cincinnati Bell). Not to mention the directional change: wireless is still climbing, wireline still dropping. Of course, one has to add back in three million cable industry voice customers. But you get the point. Wireless increasingly is the way the mass market does voice.

Communications as Consumer Electronics

As more and more mass market communications gear becomes an extension of the consumer electronics business, more of the rules of that business start to apply. Among the key rules are: keep the price low, make it simple to use, address a real need, design attractively, build retailer relationships and adhere to standards because one requires volume. Every January, hundreds of new products are shown at the Consumer Electronics Show, and most of them fail.

So consider MobiGater, a USB device that transfers Skype calls to a mobile phone without using SkypeOut credits. The €270 ($370) box works like any other plug-and-play USB device. Once connected to your desktop computer, all Skype calls are redirected to a mobile. Heavy mobile users in markets with high costs might find the gizmo worth buying and using. But there will be issues. It always is tough to sell a peripheral that costs as much as the processor the peripheral is supposed to be used with.

The user requires an additional SIM card for the MobiGator, so while the Skype call might be free, there's the cost of the mobile SIM cards to deal with. The historic tipping point number for a popular consumer electronics device used to be $300, so MobiGater remains just a bit on the high side. On the other hand, recent sales of high definition flat panel TV displays have broken clear of the $300 mark.

The longer term problem is simply that the cost of calling, and the effort one has to put into reducing those charges using Skype and MobiGater, simply don't solve a big enough problem to drive mass adoption in many markets and customer segments. VoSky has a similar product aimeda the home and small office user. VoSky's Internet Phone Wizard allows users to make Skype calls from anywhere with a cordless or regular phone instead of the computer speakers.

The Internet Phone Wizard also supports outbound Skype calling from the regular handset. PSTN is the default. A couple of key taps switches the phone to Skype mode. The device also can be used to create a virtual second line.

Still, the consumer electronics market is brutal. Most products fail, or succeed only quite modestly, in some niches. To really change end user behavior requires a huge carrot in terms of advantage. There's no question the MobiGater and VoSky devices are useful to some people with high calling costs and heavy mobile use. It just isn't so clear there's a mass market for either.

Time Warner Cable to Work with Fon

Sometimes a service provider simply has to cooperate with what might be seen as a direct competitor. So it is that Time Warner Cable is going to allow its users to create publicly accessible hotspots in cooperation with Fon, the company building a network of private Wi-Fi connections. Time Warner will allow its home broadband customers to turn their connections into public wireless hotspots, a practice U.S. ISPs generally have said is outside "fair use" policies. Verizon Communications Inc., for example, can terminate contracts if it finds an ad-hoc hotspot.

Fon and Time Warner will split the proceeds from use of Fon hotspots by non-members. That is expected to be $2 to $3 a day. Fon network users can offer free access to all other Foneros in exchange for reciprocal privileges, or can offer for-fee access.

The Fon wireless router splits a Wi-Fi connection in two: an encrypted channel for the Fonero and a public one for neighbors or other casual users. Foneros can decide how much of their bandwidth to share with the public and can log on to any Fon router without charge, in return. "Aliens," as Fon calls nonmembers, can register on a Web page and pay a modest $2 or $3 for 24 hours of access.

Fon has about 60,000 Foneros in the U.S.

Time Warner may be looking ahead to the not-so-distant future when some of the 300 or so municipal wireless projects featuring free or inexpensive broadband are available, as it operates systems in large cities where such muni Wi-Fi efforts are most pronounced.

So Maybe It's the Lead Offer...

...not the only offer. Most Western European consumers still buy Internet access separately from other services like fixed voice, VoIP, TV, or mobile, says Lars Godell, Forrester Research analyst. "Very few Europeans get either triple or quadruple play delivered in one integrated package," he says. U.S. bundle buyers might be more commonly found, but even in the U.S. market it is far more common to find dual play buyers than triple play.

Researchersa at The Yankee Group recently found that 41 percent of buyers chose a dual play package, compared with 23 percent for a triple play bundle.

Of course, it always takes some time before mass market buyers warm up to some new services and packaging techniques. Digital cable and satellite didn't reach their current penetration levels in a year or two. Also, promotions for triple play packages seem to alternate with "add voice" or "add video" or "add high speed Internet access" offers from either cable or telco providers. The thought, of course, is that there is less resistance to making a single change rather than changing two or three things at once.

Triple and Quad Play bundles may not be the most heavily purchased packages yet. But they are destined to remain the lead offers. Carrier need to drive higher average revenue per user and cement customers in place will take care of that.