Healthy SME Communications Spending Forecast

The typically highly reliable Knecko Burney, owner of Compass Intelligence, predicts that U.S. spending for nearly every category of small and mid-sized business spending for information technology and communications will be headed north for the next five years. About the only things SMEs will be spending less on are PCs, truly a commodity, as well as personnel. Software, communications, network infrastructure and support all are headed north at about an eight to 10 percent rate over the forecast period.

(By the way, you can just click on any image in any post on this site and the larger version of the graphic will appear...just in case you are reaching for your magnifying glass to read the numbers!)

Ad Supported Wi-Fi?

Nobody knows whether ad support for municipal Wi-Fi services will work, though most seem to have given up on the notion that a network can be supported solely by advertising. Perhaps the more germane question at this point is how much ad-support models will complement subscription and municipal underwriting models (where a government entity becomes an anchor tenant).

Microsoft's own polling on the subject suggests a combination of free and subscription is viable. Penetration for a fee-based service might range from five to eight percent, while a "free" service might be used, some times, by 21 percent of people. Offer free and fee service and overall penetration could rise to about 26 percent.

Of course, the issue is whether an operator can get any significant amount of ad support. And as others in the field now have found, user potential in dense urban areas might be four times more than in a suburban area. All of which suggests muni Wi-Fi will be a supplemental form of access, useful at times but with single-digit subscriber potential. That's not shabby. Even independent WiMAX providers can't expect to do much better than that.

Significant capture of most of the access market by telcos and cable companies is part of the answer. But increasing use of 3G and 4G services by mobile users will be a significant factor as well.

If independent providers of mobile WiMAX can offer service cheap enough, they might yet carve out a niche in the "connected personal devices" space. The issue is competition from the likes of Sprint Nextel or others who may adopt mobile WiMAX as their 4G platform.

If the equivalent of "multi-user" plans were to be offered aggressively by a mobile carrier, with reasonable broadband plans plus significant discounts for plan member use of additional devices (gaming consoles, PDAs, cameras), that will prove attractive for much of the market.

Mobile voice and broadband to a "mobile phone", plus PC data card, plus connections for other devices from a single provider offering price discounts for each additional unit. That's especially true if the user-perceived value of connectivity for things like cameras is seen as low. A mobile carrier can afford to price such connectivity at low levels if it is capturing reasonable value from 3G phones and PC cards from a single customer.

But tethered PC connections used by the mass market will be dominated by cable and telco providers. Broadband for mobile "phones" will be dominated by the wireless carriers. What remains uncertain is how the "connected personal devices" segment might develop (cameras, iPods and MP3 players, game players, PDAs). There will be niches. The issue is how big any of those niches will be, and whether providers can operate at costs low enough to serve those niches.

This Explains It...

Not to pick on Marriott, but if you travel, you know that hotel Internet access can be spotty and troublesome. Unexpected guest demand for video bandwidth turns out to be an issue. Neil Schubert, Marriott International VP says the Courtyard segment ran ads announcing "free access" and showing a guest using that connection for video telephony. Courtyard then experienced a four-fold increase in bandwidth consumption.

“This ad came out before we knew about it,” Schubert says. So why was this a problem? Courtyard typically was allocating a single Digital Subscriber Line circuit for 160 customers. "It didn’t work real well at first,” Schubert says.

Slingbox was a factor, apparently. It seems more and more travelers are toting their Slingboxes around with them. So the next time you see a forecast for at-home video consumption (such as this one from Telecom Futures originally created in 2001), remember that users consuming that bandwidth at home are going to keep some of the same behaviors when they are not at home. We're going to need more bandwidth, at more locations, than just office and home.

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.