Just like AT&T

All media, not just all communications, are being forced to change because of IP and the Web. You all know that. Believe me, it is something we grapple with all the time as a "print publisher." We all know a transition to online and Web-delivered content is inevitable. How well we succeed will be measured by how fast any Web-based portion of our business grows, compared to the inevitable rate of decline for anything we do in print form. Oddly enough, we are in the same position the old AT&T was in. Our legacy business probably cannot be expected to do anything more than decline at fairly predictable rate.

Time Warner CEO Dick Parsons argues that the company's "publishing" operation can be successful, and grow at eight to 10 percent a year, "for a long time, if we successfully make this transition to digital.”

So that's the issue, isn't it? Cost controls only get any of us so far. And digital revenues have to grow fast, from a small base, to make any significant contribution to overall revenue. And one thing is certain: no matter what publication we are talking about, over the long term, the economics of the business are changing enough that tweaking through cost controls will be exhausted.

At some point, quality will have to be diminished, as painful as that will be for any entity that prides itself on such things. That doesn't mean "poor" quality: simply "uneven" quality. More and more of what we and others do will be like the Web itself: some really good stuff; some useful stuff; lots of irrelevant or shabby stuff.

Like most communications service providers, media will have to make hard choices. Free, cheap, more costly options will surface. Quality is going to get more uneven as a result. Still, we are just at the front end of the process. Change has been largely incremental up to this point. It won't stay that way for much longer.

Apple and RIM Offer a Model

According to Charles Dunstone, CEO of Carphone Warehouse, in order for the iPhone to function correctly there is a requirement for Apple servers to be placed deep in the operator's network. One might argue that something along the same lines is required for BlackBerry service to work (we will for the moment ignore the argument about whether app servers are "edge" or "core" devices: logical experience rather than physical placement is the issue).

Logically such servers will be used for authentication and email services--just as Research in Motion might. The point is that when an application provider can provide functionality which resembles a "network service," it can justify a share of the ongoing revenues.

This might be significant, as it suggests a broad model under which network access and transport providers can work with application providers to create a mutually-beneficial revenue-sharing arrangement. The point isn't so much where the servers physically reside but that BlackBerry and iPhone both are devices featuring applications that require the cooperation of a network services provider to provide an optimal experience. Not to mention that the way both applications work provides some "walled garden" features carriers prefer.

The point is that here are two devices and application providers that operate neither in complete "walled garden" or "over the top" fashion. It is a hybrid model where the transport services provider is centrally involved, and both application and access/transport providers are sharing revenue.

So the point might be: what other applications have relatively broad appeal, can be embodied in a physical device and require some degree of authentication? Where are other examples of applications that are neither "over the top" or "closed," but someplace in-between?

Verizon Votes for Broadband

Verizon CEO Ivan Seidenberg, asked whether wireless or broadband represents the stronger driver of revenue over the next several years, says that at the end of the day "broadband" is how Verizon sees its growth drivers, whether in the wireless or wired domains. That's a sharp contrast with at&t CEO Randall Stephenson, who says "wireless" is the growth driver.

Granted, both wired and wireless networks are important for both companies. But the linguistic accents are illustrative. FiOS is a huge bet for Verizon, and Verizon's 3G wireless network outperforms at&t's wireless network, most observers say. at&t, on the other hand, has deliberately chosen a less fiber rich approach to its landline upgrade. at&t also has shown a much different strategy overall, growing more through acquisition than through organic growth. Verizon leans the other way.

"Common history; uncommon future" is one way to look at matters. Global tier one carrier strategies are diverging.

Volpi Joins Joost

Joost has named Mike Volpi CEO. The ex-Cisco executive says "traditional television as we know it is gradually going to go away.” Separately, Apple TV now supports the display of YouTube video. In principle, there is no reason why Joost software could not be embedded into a TV set top decoder, into a TV itself, a mobile phone or personal digital assistant. Given the early support provided by Time Warner and Viacom, it appears video content owners have gotten the message the music industry did not: the Web is a new distribution medium.

To this point, most telecom executives have taken an approach to IP-based and Web-based services more akin to the music industry than the video industry. To wit, they've seen more threat than opportunity. That will change, at some point, just as every content, advertising or media business will have to adapt as well.

Not to Minimize Broadband, But...

New at&t CEO Randall Stephenson views wireless as the growth driver for the next three to five years. "The conversation about winning the race for consumers' homes starts and ends with wireless," he says.

Here's a Metric

Blogger Don Dodge (on The Next Big Thing)cites a statistic provided by David Skok, a venture capitalist with Matrix Partners. On average about three percent of all open source software users pay for a support contract, and most of them are business users, as you would guess.

Since the three percent paying for maintenance, support, training, and consulting will spread their buying across the entire ecosystem of providers, it is obvious that high volume adoption is needed to support many such companies. In the mass market, it is a surer route to sell hardware or software add-ons.

The conversion or "upsell" rate would strike many in the direct mail business as "par for the course. Conversion rates for targeted mass mailings, even when one has the right audience, the right product and the right timing, tend to hover in the three percent range.

Structural Separation?

New Zealand Telecom is in the midst of discussions with regulators about breaking itself up into three distinct companies: retail, wholesale and networks. In India, wireless carriers are setting up an independent infrastructure company so two different service providers can concentrate on selling. BT, obviously, has taken the structural separation route. And here in the United States, the old Rochester Telephone Co. agreed to structural separation in exchange for more freedom to operate unregulated lines of business.

While there have been calls for structural separation as a way of enhancing local loop competition, the success of such a policy hinges on the cooperation and willingness of the asset owner to go along. No such cooperation is likely on the part of major U.S. carriers.

The point is that we might agree or disagree about the merits of structural separation as a way of spurring more competition and goodness in communications services, but it simply cannot occur without the cooperation of the asset owners. The idea will resurface again. It always does.