Will Sprint Unleash Nukes?

At this point, it is fairly clear to just about anyone that Sprint Nextel has to do something dramatic to reverse its sliding fortunes in the mobile services market. Sprint no longer has the luxury of time for small incremental changes that might change its fortunes "some day."

So the issue is whether Sprint will "go nuclear," unleashing some sort of market-disrupting attack it expects its competitors will not want to match. Its a risky gambit, to be sure. AT&T completely changed the basic way mobile voice minutes of use are packaged when it launched "Digital One Rate."

But the tactic has not had long-term differentiating value because all the other major carriers simply shifted their packaging to match. So Sprint has to find a proposition that is startling and compelling to end users, but not appetizing for the more dominant providers to mimic quickly.

If the attempt is to "drive sales through the roof," nothing short of a disruptive move will work. Some suggest "unlimited calling" is one such tactic. Some smaller wireless providers such as Leap Wireless have prospered by offering unlimited local mobile calling. In so doing Leap and others have carved out a definable niche in the "wireline replacement," value calling and ethnic market segments.

There is some thinking that unlimited calling on at least a continental basis might be the same sort of market-shaking move, eliminating the "what is the right bucket size?" decision every consumer has to make, and transforming what is still a service sold on the basis of "scarcity" into a service whose premise is "abundance."

In some sense, Sprint CEO Dan Hesse actually has to hope that such an assault really would drive call volumes through the roof. Because if Sprint can do so, and its relatively generous spectrum will support the additional traffic, some other key competitors--especially Verizon and at&t--might not be able to quickly turn up additional bandwidth to match the offer.

And that's the other part of the equation. The offer must shake up user perceptions of value compared to price, as did Digital One Rate. But the offer must challenge Sprint's competitors enough that they will not immediately respond.

And at some level this is a nuclear strategy in an operational sense: if Sprint moves to provoke a non-linear increase in voice usage, can it handle the load? More important, can Sprint's competitors handle increases of the same magnitude if they decide to respond to the offer.

Likewise, there is the financial angle. If competitors match Sprint's offer, what is the level of damage they sustain in average revenue per minute of use, or average revenue per user? How does Sprint price and package so a direct competitive response is too painful to contemplate?

If Verizon and at&t can't match the offer without losing more than they gain, they won't match the offer. And if they won't, Sprint gains the distinctive positioning it seeks.

"Going nuclear" is going to be dangerous. But the only thing more dangerous at this point is thinking Sprint somehow can "creep" its way to success. The issue is where "unlimited calling" is, in itself, destabilizing enough to achieve what Sprint wants.

My sense is that it would not. Leap Wireless already offers a plan that is for most users a "national unlimited calling" plan, for about $50 a month. But there are other angles.

Unlimited texting or Web access might be more attractive. If Sprint really wants to disrupt the market, it can do something about texting plans.

FMC or Wireless Substitution?

In the coming war between mobile substitution and mobile-fixed integration approaches to unifying communications, it was inevitable that the "green" argument would appear as a weapon. OnRelay argues IP desk phones sold in 2008 alone will create 47 million kilograms of waste. Calling desk phones increasingly redundant, OnRelay argues the better path is simply to reuse mobiles as office handsets, substituting mobile for landline handsets rather than integrating the two calling methods.

"We do business in an increasingly mobile environment," says Marie Wold, OnRelay president. "Fifty to 70 percent of enterprise voice minutes are already mobile."

Her conclusion? "Landline office phones are simply a waste." In fact, her argument is in some ways similar to the argument proponents of hosted services and cloud computing take: that the public and private IP networks now are robust enough and easy enough to use that remote provisioning makes more sense.

In this case, using mobile networks in place of in-building wiring is seen as a better way to provide desktop phone equipment, at the same time avoiding the expense of new IP phones and upgrades to corporate networks to handle voice.

"An enterprise deployment of 10,000 IP extensions includes a large hidden cost of LAN switches, routers, cabling and power supplies required to support the IP voice traffic," says Wold. "Of the staggering $15.8 million total cost of the IP telephony deployment, 80 percent is related to the desk phones and corresponding LAN upgrades."

Wold argues that most, if not all, employees can manage their office communications equally well or better with just their mobiles.

Which brings up an interesting question: to what extent are fixed-mobile convergence" projects less about "converging" and more about "diverging." In other words, though FMC can be pitched as a "convergence" of wireless and wireline networks, by allowing wireline access to substitute for mobile network access, in practice such "convergence" really leads to wireless substitution.

One can argue that the lower calling costs possible when a mobile handset is able to send and receive messages using a wireline-attached base station of some sort truly is a form of convergence. One might argue it is another form of substitution. The attempt is to stimulate use of mobile minutes from indoor locations, provide better quality when doing so, and decrease network-related operating and capital costs. All of those objectives are praiseworthy, but are not actually "convergence" moves. They are about mobile substitution.

Even when a "fixed line only" operator begins deploying mobile handsets to compete with mobile service providers, that s less a case of "convergence" and more a case of trying to grab some mobile market share while ensuring a continued viable role for the terrestrial broadband network.

"Fixed mobile convergence" has been touted as a way to create new services that unify experiences between wireline and wireless domains. But it seems more likely that divergence is the more likely result, so long as the focus is on calling prices and access networks.

Matters arguably are different in an enterprise scenario, where the seamless availability of applications on desk and mobile handsets, rather than calling cost or end point choices, would seem to be the driver. But as OnRelay argues, one has to integrate desk phones and mobiles only if one insists on using both types of devices on a wide scale. If one goes with a wireless tail, there isn't much need for "convergence."

FMC might be one of those significant detours the global telecom industry takes now and then, in a well-intentioned effort to create next-generation services. At some level, it makes sense to unify services across end user devices. But that makes most sense when assumes the existence of multiple classes of highly-deployed end points.

Over the longer term, it probably will happen that FMC winds up being less important as a way of "integrating desk phones and mobiles," and more important as it refers to making Web-based and server-based applications available on mobile devices. In the future, it might be more important to unify application access on all sorts of mobile and fixed "Web capable" devices than to unify mobile and fixed voice appliances.

Wi-Fi Plus Bluetooth Coming in 2009

A new standard will allow Bluetooth devices to switch to Wi-Fi for file transfers if Wi-Fi is available, according to Michael Foley, director of the Bluetooth Special Interest Group. The new features should be available in 2009.

Bluetooth also is compatible with ultra-wideband technology, but Wi-Fi now is seen as important as well. It is expected that chip vendors will start putting both Wi-Fi and Bluetooth functions onto a single chip, instead of the separate approach now popular.

The combination devices will use the regular low-power Bluetooth radios to recognize each other and establish connections. If they need to transfer a large file, they will be able to turn on their Wi-Fi radios, then turn them off to save power after finishing the transfer, Foley says.

It's just one more detail for consumers to track.

More Trouble for Cable?

Once upon a time, the cable TV industry was a struggling insurgent industry, long on hope, short on finding, basically a rural market service retransmitting urban market off-air signals to areas that couldn't receive them.

All that changed during the 1980s when major metro markets were wired, channel capacities grew into scores and independent programmers changed the business from "remote channel importation" to an "add choice" model.

By the 1990s cable gradually captured 70 percent of homes. Over the last 19 years, as video penetration saturated, cable modem and voice services emerged as the growth drivers. But cable now is an incumbent. Like the telephone companies, it faces negative growth in its legacy business, partly from satellite providers but increasingly from at&t and Verizon.

As a result, cable stocks have dropped about 35 percent since last summer. UBS analyst John Hodluk thinks more pain is coming, as consumer spending slows, broadband access additions decelerate and the telcos start to make themselves felt in video service.

Hodulik says the two telcos will double the reach of their video services this year to about 18 percent of homes passed, and will double again by the end of 2010. As a result, cable basic sub losses could triple in 2008.

On the other hand, Qwest Communications might lose nearly 10 percent of its consumer lines this year as well.

The good news for most telcos is that revenue sources have diversified quite a lot over the past decade. Consider Cincinnati Bell, an independent telco.

About 83 percent of its service revenue in 2007 was earned from areas other than the traditional consumer wireline voice traffic. In 2006, Cincinnati Bell earned about 80 percent of its total revenue from sources other than consumer landlines.

Business market revenue is part of the reason. Revenue from data center managed services increased 43 percent in 2007, for example. Wireless service revenue from business customers grew by 17 percent and business access lines were actually up almost two percent. As a reflection of this growth business markets revenue represent a 57 percent of total 2007 revenue compared with 55 percent in 2006.

Which is largely what the Federal Communications Commission forecast would happen when it decided the basic competitive framework for the U.S. market would be to encourage the telcos and cable companies to have at it. That hasn't been helpful for other would-be competitors, including competitive local exchange carriers and independent VoIP providers.

But there's reason to believe the framework is working, at least to a significant extent. A great deal of the credit, though, is because of the contributions made by Internet-based application providers. That payoff seems clearer every day.

Writers Strike Encourages YouTube Sampling

There often are unanticipated consequences in life, and it appears that the U.S. entertainment industry writers strike has given people an opportunity to sample more online video clips than ever before, comScore suggests.

Its December 2007 report suggests U.S. Internet users watched more than 10 billion videos online during the month, representing the single heaviest month for online video consumption since comScore initiated its tracking service. Google saw substantial growth and extended its video market share gains, now accounting for nearly one out of every three videos viewed online.

The issue isn't so much that online videos are a replacement for network TV shows. The issue is that online video viewing is a substitute use of time and attention. Ultimately, that is crucial for any media segment and the contestants within any segment.

Essentially, the writers strike has encouraged users to sample a new product. And sampling typically is one of the best ways to encourage users to adopt a new behavior. One of the unanticipated effects of the writers strike may be that a new group of online video viewers has been added, with a permanent change in at least some of their entertainment video habits.

“December represented a considerably strong month for online video viewing,” says Erin Hunter, comScore EVP. “With the writer’s strike keeping new TV episodes from reaching the airwaves, viewers have been seeking alternatives for fresh content. It appears that online video is stepping in to help fill that void.”

Online viewers watched an average of 3.4 hours (203 minutes) of online video during the month, representing a 34 percent gain since the beginning of 2007.

The average online video duration was 2.8 minutes and the average online video viewer consumed 72 videos.

More VoIP Patent Trouble

Verizon now is suing Charter Communications as well as Cox Communications for infringing eight VoIP patents. Included are the three patents Vonage was found guilty of infringing last year, plus several that relate to maintaining quality of service. In principle, it is not clear why every major cable company in the U.S. market is not guilty of infringement if Cox is found to be infringing, as virtually all the cable operators use the PacketCable framework.

United Online: Harvesting Cash Flow

With the latest fourth quarter and year-end reports now out from United Online, AOL and EarthLink, the expected trends continue. Dial-up Internet access, like stand-alone long distance before it, throws off cash flow, but less every year. All three leading independent Internet access providers are in the midst of transformation projects, with United Online succeeding most clearly, though it failed to pull off an initial public offering of its Classmates.com unit.

All three ISPs essentially are managing their dial-up bases to harvest cash flow and control costs, the standard prescription for managing a declining business, while seeking a new path to growth. That's the same path the independent long distance industry took as well.

Perhaps the best historical analogy is not long distance but paging. Basically, mobile phones replaced pagers, as broadband is supplanting narrowband access. But paging remains a business. It simply isn't as large a business as it once was, and is the province of specialists. That's the ultimate future for dial-up services in the medium term as well.

As this data from the Canadian Radio-television and Telecommunications Commission indicates, paging use and revenues have been declining steadily since 1998. Dial-up will be around for a while, but as a small niche within the broader range of access services.