It's Hard to Do Any Better Than This

Verizon added more than a million new wireless customers in the first quarter, outpacing at&t. And its churn remains astonishingly low. Millions of households move every year, and the propensity to move is much much higher for younger mobile users, who might arguably represent the highest churn demographic. A household churn rate of just one percent a month (people moving) would still generate 900,000 switchers in a quarter. Of course, mobile providers have one advantage wireline providers do not. When somebody moves out of state, the mobile account doesn't necessarily have to change. The landline voice, broadband access and video account might well have to. So wireline services always face an uphill battle to get churn down to just one percent a month.

It's All About ARPU and Churn

How bundling is good, or whether bundling is good for customers might be debated. There isn't much question about whether it is good for service providers. "When you look at consumer customers from a bundled standpoint, customers that are stand-alone voice customers have ARPUs in the low $40 range," says at&t CFO Rick Lindner. "As they begin to bundle and as we move them upwards to a full-quad bundle where they have got voice, data, video and wireless from us, all of a sudden that customer moves to a $250, $260 kind of monthly customer"

"At the same time, the churn rates are cut by two thirds when you move from that stand-alone voice customer to a full-quad bundled customer," he says.

At the end of the day, this is about supplier push more than end user demand. It isn't the "bundle" users want, it's the monetary savings. Innovations will occur, neverthless. So in the end, bundles will lead to something besides higher ARPU for providers.

Specter Haunting Cable Companies?

“It’s all clicking, our business is on fire,” says Comcast CEO Brian Roberts. Maybe so. But we sometimes forget that the cable industry is in the same position as the telephone industry. Namely: its core business is under fire and will not drive growth in the future. So each industry is racing to create new business models where legacy revenue is half or less of total revenue in a few years.

About half of Comcast's subscribers will also use its phone and broadband services by 2010, Roberts says. Roberts believes that within two to three years, half of the company’s customer units will not be cable TV, but instead will come from Internet access, telephony and other services. At that point, he says, “half of Comcast is no longer just a TV company.”

With the caveat that a stock price isn't a complete proxy for the anticipated fortunes of a company or industry sector, U.S. cable operator prices have sagged of late. In Comcast's case, it is a bit hard to know why. Comcast added 75,000 basic cable subscribers in the quarter, 644,000 digital subscribers, 563,000 cable modem customers and 571,000 VoIP customers.

With 2.5 million VoIP subscribers, the company may now be bigger in Internet telephony than Vonage, which had 2.2 million customers as of the end of December.

The company repeated previous guidance that 2007 cable revenue growth will be at least 12 percent, with cable operating cash flow growth of at at least 14 percent.

To be sure, free cash flow is down. Comcast generated $442 million, versus $807 million a year ago.

So maybe investors are spooked by higher capital spending trends. Or maybe it is something else. Maybe the threat of over-the-top video finally is starting to register as another threat to the legacy cable business. Sometimes we all forget that cable is an incumbent. It has a legacy business that has gone into reverse after decades of sheer growth. And it also faces competitors able to innovate at Google speed. And might we add, Apple speed.

Viral Adoption for Enterprise

The integration of the Iotum Talk-Now presence app with Jajah for calling on BlackBerrys illustrates a new approach software distributors can take to penetrate enterprise accounts. You know the old way: direct sales teams target "C" title executives. Key decision makers then are identified and the account is "worked."

There's another model. Harken back to the days when computing was centralized, lived in a "glass house" and terminals were dumb. If you wanted to sell a personal computer or a local area network to connect them, what would you do? You weren't going to get the glass house shut down, so the top down, rip out the mainframe, forklift route wasn't promising.

Instead, you targeted individuals. Lead users. Power users. You flew under the radar. You kept the upfront cost low. You didn't require a change of enterprise computing architecture. And then you let interest spread virally.

Lead users, work groups and then departments. That was the adoption approach. One person brings the application into their environment, and invites their circle of business colleagues to participate, setting off a wave of adoption within a specific business or social network.

And that is what Iotum and Jajah hope will happen.

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."