Wholesale Poised for More Growth?

Business end users have, for as long as I can remember, had the ability to create their own voice services as an application. We call that a phone system. What's new these days is that there are more ways enterprises of all sorts can create their own voice services. And some of those same mechanisms can be used by consumers as well. Click to talk from a web site is one example. Instant messaging integrated with Session Initiation Protocol is another example. Voice-enabled gaming is another good example.

My assumption is that calling remains most useful when any telephone number can be called, without the constraints of who is in one's community or directory, uses a compatible client or device. And that means there is a growing business for wholesale providers of voice capabilities including, but not limited to, termination services. Which leads one to wonder whether the wholesale portion of industry revenues might be poised for even more growth. How could it be otherwise?

And might that be the case even though sales of traditional products appear to be falling? At least that's what The Yankee Group suggests is happening. The problem with tracking wholesale revenues is that the category tends to include all sorts of things. Access fees paid for termination provide a good example. What is difficult to capture are wholesale sales of services to retail providers of wireless, wireline termination and orgination, whether those entities are service or application providers or large enterprises that repackage voice termination as a feature.

That especially is true when an application provider basically needs to buy only dedicated Internet access or other bandwidth in order to make the voice application available to a wholesale customer. One wonders whether falling prices are not more than balanced by increased usage, even for legacy services, to say nothing of harder to measure IP-based wholesale.

Vonage Preps Workaround

Vonage thinks it has found a workaround that avoids any of the claimed Verizon patent infringements and plans to begin implementing them shortly, says Jeffrey Citron, Vonage interim CEO says. Vonage's new technology can be installed through software downloads and shouldn't be costly to deploy, Citron says.

Joost Raises $45 Million...

From Index Ventures, Sequoia Capital, Li Ka Shing Foundation, CBS Corporation and Viacom. Viacom and CBS have also signed content deals with Joost. At launch, Joost had secured programming from CBS, Sony, Turner and Warner Brothers, as well as sports coverage of the National Hockey League and Indy car racing. The free-to-view service is funded by advertising from Coca-Cola, Nike and others.

Skype for Salesforce.com AppExchange

Skype now has been optimized for the Salesforce.com AppExchange. That means Skype can be integrated with Salesforce on-demand customer relationship management applications.

Lightspeed Capex Goes Way Up...

It used to be said that Lightspeed, at&t's fiber-thinner upgrade, was far better than FiOS, Verizon's fiber to home upgrade, because Lightspeed would require just a third of the capital. Well, guess again. at&t just revised its capital spending upwards, so that Lightspeed will cost about half of what FiOS requires.

You might argue, and many will, that half the capex still is an advantage. If it works, yes. If it scales, yes. If it offers competitive advantages over cable, yes. But keep in mind that cable isn't standing still, in the access or services areas.

Lightspeed capex now will increase from $4.6B to $6.5 billion, at&t says. at&t also says the scope of the project is being reduced from 19 million to 18 million homes.

The 41 percent increase perhaps indicates that things are not going as planned, in the transport area as well as the software area. New copper wire might be one thing. Reconditioned wire is another.

To be sure, there are scenarios one can imagine where the fiber to node approach still makes sense. Rural markets come to mind. What a provider has to do to meet conceivable demand in such markets, and the cost to do so, arguably are distinct from what at&t or Verizon must do in their core metro markets. Still, it does remain my view that Verizon has taken the wiser course.

Don't Assume Users Want All Ths Technology

No wonder adoption of VoIP and other new services by U.S. consumers has been so bifurcated: users are bifurcated, according to a new survey by the Pew Internet & American Life Project. Significant audiences exist for heavy use of the latest Web 2.0 innovations, ranging from social networking, blogs and wikis through user generated video. But there's also a much larger audience that makes relatively limited use of mobile communications, computers and the Internet. Most significantly of all, there is significant sentiment in all usage segments--heavy users, moderate users and lighter users--that all the connectivity is at best a mixed blessing.

About 31 percent of U.S. consumers are heavy users of technology and communications products, though eight percent of users in the "heavy use" group are not thrilled about being so heavily connected. So mark about 23 percent of U.S. technology users as "heavy and happy" users.

About 20 percent of users are "middle of the road," using both mobile phones, the Internet and PCs. But again, only half find all the technology a blessing. Nearly half of all U.S. consumers, though, only occasionally use mobile and Internet technologies. About 26 percent of U.S. consumers are relatively indifferent to information and communications technologies including mobile phones, PCs and the Internet.

In each of the three main "intensity of use" groups (heavy, middle of road and light users), there is significant dissatisfaction with use of technology. Add up all the dissatisfied users, in all usage intensity groups, and fully 44 percent of U.S. consumers really aren't happy with all the connectivity in their lives.

Contrary to "conventional wisdom," most people are not heavy users of most of the newest technology. Some who are heavy users aren't happy users. Nearly half of users don't even use their mobile phones, PCs or the Internet all that much. And fully half of the "middle of the road" users think all the connectivity is something of a problem, not a solution.

Add it all up and about 23 percent of all users are "heavy" communications and information technology users, and think that is a good thing. Everybody else is a moderate, light or non-user. About 44 percent of all users actually refuse to use new technology, or use it and find it creates problems as well as solving them.

Everybody Hopes to Cross the Chasm…

You probably are familiar with the notion of “eras” of technology, including the certifiably historical observation that the market leaders in the era of mainframe computing were not the leaders of the minicomputer market that followed.

The leaders of the minicomputer business were not the leaders of the era of personal computing. And just about everybody now agrees we are in transition to another era of “Web,” “network based” or some other distributed form of computing architecture.

Then look at “moving pictures.” There was the era of “three big national networks.” Then there was cable. Now something else may be stirring. Then look at advertising. First there was only “local” media. Then we had “mass media.” Then media began to fragment. And now we have Google and search. Personal video recorders. Web portals.

Information technology used to follow a predictable pattern. Invention in the universities. Then diffusion to money center banks, then to enterprises, then to service providers. Now it is more like university invention, diffusion to consumers, then to service providers and lastly to enterprises, says Cisco General Manager Dan Scheinman.

The point is that every incumbent wants to cross the chasm and lead the next era. History argues against it. Which begs the obvious question. Will the leaders of today’s business be the leaders of tomorrow’s business?

To be sure, incumbents are spending like they want to succeed in the next era. Paul Silverstein,Credit Suisse analyst, points out that U.S. telecom capital spending this year will exceed spending of the boom year of 2000. Analysts at other firms say the same thing: telecom capex is at extremely robust levels.

WalMart is creating a video download site. Not because they expect to make so much money at it, but because they cannot afford to have the name “Apple iVideo” come to mind when any consumer decides they want to buy video content and download it.

Comcast would not be investing in user generated video and download to PC capabilities if it though its linear video model was safe. Neither would studios be so anxious to embrace digital delivery is they thought the current distribution model had secure legs.

In fact, the global IT industry would not be in such a headlong rush to secure a dominant place in the consumer electronics industry if business IT was still seen as the global driver of growth.

Then there’s the voice business. By 2010, 95 percent of enterprises will have integrated communications into their business apps, says Dar Shaw, Microsoft director. So think about that. Enterprise drives the bulk of carrier profit, and close to half the gross revenues for most tier one service providers.

And in a few short years, applications themselves will originate and terminate voice and text communications. Video won’t be far behind. Aside from data connections on both fixed and mobile networks, how much former communications will have shifted to some applications-based origination and termination?

And as Dan Creed, CopperCom executive says: “The only web-based service not available online for your telco customers are your own voice services.”

All of which points out a huge challenge for service providers used to selling “voice” as a recurring service: if any service—including voice—is available on any device, any time and anywhere, how is that to be done?

One hears a great deal of fear and loathing about Google and other application providers. In fact, lots of telco executives fear Google more than any cable company. Google and Yahoo! are the competition. Those are the trusted brands for the younger generation.

And while every service provider ought to be developing new applications running on any device, on any network, at any time, there’s a sheer limit to how much innovation any single provider can generate.

Look at it another way. In an era where application development and innovation gets easier and easier every day, the “gate” or “barrier” to innovation is human ingenuity. There are fewer and fewer regulatory, technological or market structure barriers.

So how many of the world’s supply of ingenious and talented human beings work at your enterprise? How many of the smart and clever people work in your whole industry segment?

You know the answer. Most of the creative, smart, talented people, with an actual grasp of what they really want to do, work and live someplace else.

Nobody will get very far on their own internal resources. And that means carriers and service providers have to find ways to open up what they do and work with all those other people. “Fighting Google” leads to a death spiral.

And that inevitably means loosely-coupled services that embrace the Web, even if those services cross over and interoperate with fixed and wireless networks. A smart service provider might create a couple, or maybe even as many as 10 interesting and rewarding applications.

No service provider is going to create scores to hundreds of services so interesting people will pay money for them. In fact, so long as large service providers insist they must concentrate on new services bought by “70 percent of their customer base,” we can almost predict they will develop but a few successful apps.

Think about the last couple of decades. What apps are bought and used by “70 percent” of tier one service provider customers? Wireless voice and voice mail. Throw in broadband access. SMS. Mobile data. Forget about 70 percent. How about 30 percent? And that’s being charitable.

Service providers need to learn to innovate “at Google speed,” as John Lazar, MetaSwitch CEO, puts it. That doesn’t mean the innovation will be mostly home grown. It mostly will come from external developers, and mostly from Web-based sources.

So fighting “Google” won’t work. “Not invented here” is a death wish.