What's Good for Suppliers Also Good for You?

If you casually stroll past displays of PCs on the shelves of any electronics retailer, you'll see at least a few notebooks preconfigured for one brand of wireless data card access. Now, in one sense this is the same strategy used when software comes preloaded on your brand-new machine. Dial-up Internet access services, anti-virus, firewall and security, media players, browsers, games and so forth provide examples.

In the same vein, there has been an argument that the notebook screen represents real estate that a provider's icon must occupy to get more usage or attention. Up to a point there's a clear logic to such thinking.

But there's some point at which the strategy breaks down. Lots of machines sport RJ-11 connections for dial-up Internet access. I don't know how many of you think that's a "feature" instead of a "bug" anymore, but it's clearly not an important feature for many.

The point is that USB and Ethernet ports, like RJ-11 ports, are general purpose computing capabilities. They don't lock anybody into a continuing commercial relationship with any single provider. The user has choice.

Providing that a new notebook has sufficient hard disk capacity, most users probably just ignore all that preloaded software and most of the offers. Norton might disagree, of course, and that might be one of the salient exceptions. Others of us have to spend some time removing all the unwanted software from the machine or at least disabling their ability to start up automatically.

Suppliers might think otherwise, but the incremental cost of preconfiguring a PC for one flavor of 3G data card access probably outweighs everything but the revenue the manufacturer gets from the service provider for preloading the software.

Most people don't seem to have any problem buying a card when they want to use wireless broadband services. To be sure, there might be some instances where a particular buyer of a particular model actually wants to buy wireless broadband from the precise supplier whose access software is preloaded on that machine. But not very often.

Perhaps an argument can be made that the revenue gotten by the PC manufacturer from such deals helps in some small way to control the overall cost of the device. In that sense, there is a consumer benefit. So maybe this is the PC equivalent of advertising. Users might not "like" it, or "want it," but it might help lower the cost of acquiring and using something else (their PC).

Still, it's hard to imagine that preloading broadband wireless for a single provider can be done on a wide-enough scale to produce incrementally-significant customer additions.

The way this could work, though, is to do the reverse: sell a cheap device that actually is configured to use one broadband access provider. Consumers can do the math. If the value of getting a general-purpose computing device is low enough, and the price is lock in to one broadband access supplier, some buyers will do so.

YouTube, Video Site Visits Double

It isn't your imagination: more people are going to YouTube and other video sites than did a year ago. So say researchers at the Pew Internet and American Life Project.

Nearly half of online adults now say they have visited such sites. On a typical day at the end of 2007, the share of Internet users going to video sites was nearly twice as large as it had been at the end of 2006.

About 48 percent of surveyed Internet users say they have visited a video-sharing site such as YouTube. A year ago, in December 2006, 33 percent of internet users said they had ever visited such sites. So year-over-year growth was 45 percent.

About 15 percent of respondents said they had used a video-sharing site “yesterday". A year ago, just eight percent said they had visited such a site “yesterday.” So, on an average day, the number of users of video sites nearly doubled from the end of 2006 to the end of 2007.

Almost Safe for Consumers to Buy HD DVDs

Some suppliers might like format wars, at least to the extent it allows them to gain some business advantage in licensing streams. Consumers generally lose when they buy devices and software built around the losing standard.

Just days ago Warner Bros. threw its weight behind the Blu-ray standard. Now Daily Variety says Universal's commitment to backing HD DVD exclusively also has ended.

Paramount, one of the few remaining majors to release content in the rival HD DVD format, apparently has an escape clause in its HD DVD contract allowing it to release content on Blu-ray now that Warner Bros. has decided to back that format exclusively.

Retailers such as Best Buy and Blockbuster Video now will contribute to the Blu-ray trend. If retailers think Blu-ray is the future, they aren't likely to devote much shelf space to HD DVD players or content.

Even Apple will be shipping Macs with Blu-ray drives. So the good news for buyers of DVD players is that it is just about drop-dead safe to go buy a high-definition player.

You can do your own survey. Visit a Blockbuster and compare the space devoted to content in Blu-ray rather than HD DVD.

A Tip on WiMAX Direction

If analysts at In-Stat are right, and the WiMAX chipset market is driven primarily by embedded Mobile WiMAX chips in mobile PCs through 2012, we might conclude that some suppliers are betting WiMAX will be about mobile and tethered PCs, much more than dual-mode cellular/WiMAX handsets, at least for the foreseeable future.

In that view, WiMAX is, at least initially, a replacement service for cable modems, DSL and 3G data cards, rather than a platform for newer services. There's nothing wrong with approaching a possibly-new market by snagging revenues for legacy applications. What will be interesting is to see whether WiMAX can develop into something more than a 3G network with more bandwidth.

To be sure, there are several potential "disruptions" here. There is the "open networks" challenge, the possibility of disruptively-lower prices, opening up Web connections for whole new classes of devices as well as the potential creation of a mobile-Web-optmized network for the first time.

“The total WiMAX user terminal chipset market will reach almost $500 million in 2012, growing from $27 million in 2007,” says Gemma Tedesco, In-Stat analyst. “Furthermore, WiMAX base station semiconductor revenues are expected to be approximately $1.4 billion in 2012, compared to $130 million in 2007.”

Verizon Launches 7 Mbps Service

Verizon has launched a new 7 Mbps broadband access service availabe in about 400 Verizon-served communities. Prices begin at $39.99 for contract plans. Verizon will expand the program into more communities throughout the year.

Verizon Shifts to GPON

Verizon has begun installing Gigabit Passive Optical Network (GPON) optoelectronics as part of its FiOS deployments in California, Maryland, Massachusetts, New Jersey, New York, Rhode Island, Pennsylvania, Virginia and Texas. GPON will replace the former broadband passive optical network (BPON) technology Verizon has been using up to this point. Users won't notice anything different, at least at first.

In years to come, they well might. BPON delivers 622 Mbps to 32 potential users in the downstream, with a shared 155 Mbps in the upstream.
GPON supports 2.4Gbps downstream and 1.2Gbps upstream that can be shared among 32 to 64 users. Basically, that means a downstream bandwidth increase of four times and an upstream improvement of eight times.

At some level, GPON is a logical and improved enhancement to BPON technology, and its price now is closer to BPON than was the case some years ago. At another level, the move is protection against the cable industry's upcoming upgrade to Data Over Cable Service Interface Specification 3.0, which will support channel bonding and shared downstream bandwidth as high as 160 Mbps.

Depending on customer take rates, the FiOS GPON network can support much more bandwidth that DOCSIS 3.0, absent some sort of major network upgrade by a cable operator.

So long as on-demand techniques are used to deliver video, most of the additional bandwidth can be allocated for other data-focused uses. As this chart from the IEEE shows, after video, it is data demand which grows most.

Xohm: Where's the Beef?

Sprint Nextel says it will launch it Xohm WiMAX service at the end of April. Associated Press also reports that Xohm will not use subsidized handsets, will offer daily, weekly, monthly and longer-term contracts. In an attempt to differentiate itself from simple "access" services, Xohm will feature location-based services tied to advertising and search and portal services created by Google.

But Xohm will have to do more than that. As the first widespread network created expressly for broadband-based services, Xohm will be an early test of the economics of networks anchored on broadband access revenues rather than voice. And that is going to be a challenge in the early going. By definition, Xohm is soft launching service in three markets with established cable modem and Digital Subscriber Line service.

Chicago, Washington D.C and Baltimore, to be specific. Other markets are supposed to be added in April. The point is, if the offering is positioned as a terrestrial broadband substitute, how big is the opportunity? Conversely, if Xohm is positioned as a mobile broadband alternative to existing third generation services, are location services enough of a differentiating factor?

It is conceivable that customers will defect to Xohm for prosaic reasons: no-contract service or lower prices, for example.While helpful, that is hardly an objective requiring construction of an entirely-new network. Many years ago, when new blocks of spectrum were auctioned off for what was then called "personal communication services," the thinking was that the spectrum would be used to create new services, used in new ways. A prime example was a sort of quasi-cordless, quasi-cellular service that offered call handoff when the user moved at pedestrian speeds, but wouldn't be usable at freeway-driving speeds.

What happened is that all that spectrum wound up being used as the basis for CDMA and GSM-based 3G mobile networks instead. New services were created, of course, but not the ones everybody expected. People thought the access mode would be the difference. Instead, it was text messaging and mobile email that wound up driving new service revenues.

It is conceivable that some new use mode will develop for WiMAX networks, based on game platforms or media devices rather than phones, for example. The issue then will be about whether the cost of building and operating the network, and securing the spectrum, can support the revenue generated by the new use cases. It's not going to be easy.
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