680 Million Mobile Internet Subs in Brazil, Russia, India, China by 2012

Brazil, Russia, India and China—collectively known as BRIC—represent 43 percent of the world's population and will account for nearly 1.2 billion mobile phone subscribers this year, according to eMarketer.

"Mobile is not simply viewed as an extension of the Web in BRIC, as it is in the United States, Western Europe and parts of Asia-Pacific," says John du Pre Gauntt, eMarketer senior analyst.

"Mobile is the Internet," he says.

eMarketer projects that the BRIC countries will account for over 1.7 billion mobile phone subscribers by 2012. Of that amount, over 680 million subscribers will access the mobile Internet.

Over the Top or Walled Garden Video?

At the end of the day, we'll probably find that both linear multichannel video and "over the top" video will be part of the user experience on a regular basis, despite our discussions of which model is better.

In part that is because linear, walled garden TV experiences still are convenient, and because interactive features more common to Web experiences will gradually migrate into the TV experience as well.

People use multiple forms of voice and messaging products as well, for the same reason. Some formats are highly useful in some settings and for some reasons, while others retain an advantage in other settings. Most people use both tethered and mobile voice. More people are using both fixed and mobile broadband. More people also are using more over the top video. But linear subscriptions haven't dipped as the new habit takes hold.

That doesn't mean there won't be changes. There always are whenever a new medium arises. Old media are reshaped, at the very least. But it's hard to see over the top completely replacing traditional multi-channel video, any more than mobile voice completely displacing fixed, IM-based or portal-based communications.

People are going to use the tools in lots of different ways. Even in the "commodity" voice world, they already do.

More Mobile Broadband than Fixed Broadband Revenue in 2008?

The number of mobile subscriptions will increase from 3.3 billion in 2007 to 4.7 billion in 2012, representing more than two-thirds of the world’s population, say researchers at Pyramid Research.

And though voice continues to account for more than 80 percent of global mobile revenue,
revenue from global mobile data services, despite lower revenue per user, will surpass that of fixed Internet access services in 2008, Pyramid argues.

Voice Switchers or Wireless Substitution?

Wireless substitution is getting lots of attention as voice landline market share shifts and "wireless-only" households register in the low-double-digits in some surveys. Yankee Group surveys have suggested that 15 percent of respondents no longer have wireline phone service.

Indeed, switched access telephony in the United States has decreased by 17 million lines from 2005 to 2008 and is expected to continue to lose another 10 million by 2011, says Patrick Monaghan, Yankee Group senior analyst.

But Monaghan doesn't think wireless substitution explains much of the incumbent line loss. In fact, he says, residential home phone service has only experienced a two-percent year-over-year loss from 2005 to 2008.

That's something on the order of five million subscribers. His conclusion: Most consumers are not cutting the cord. They simply are choosing cable or other providers.

So what's more challenging: wireless substitution or landline market share losses?

Monaghan argues there's an opportunity for incumbent local exchange carriers to hold on to switched access lines. The issue is that customers are deserting to other providers, and ILECs have to decide how long to hold out before offering their own VoIP services, presumably at prices that match generally-prevailing prices.

To the extent that millions of consumers seem to be ditching traditional landlines for lower-cost residential phone services, the issue is how long to wait before responding.

One line of thought is to build broadband-based and wireless revenues and simply let the market share for traditional lines drift slowly lower, rather than triggering an across-the-board price cut.

The other line of thinking--more prevalent in Europe, where retail landline losses have been much more significant--is to get into the game.

So how close are we, in North American markets, to a strategic rethinking of VoIP or "digital phone" service, which seems to be gaining traction as the preferred nomenclature?

And what would drive telco executives to rethink their current positions, which generally is to hold the line on legacy voice pricing and packaging?

AT&T, Verizon and SureWest Communications now offer VoIP or digital voice. So how hard should they push it? For which customer segments?

If Monaghan is right, wireless substitution is less an issue than "cheaper digital voice." But then how to explain the 15 percent of consumers who say they have abandoned wireline?

Click "related article" below to see more posts on the MetaSwitch community site on Facebook.

Are Devices Key to Engagement?

So why don't users "love" their communication service providers? At some level, you can blame the quality of customer service. In some cases you might blame the service itself. The answer is vitally important.

Businesses and products that customers "love"--are highly emotionally involved iwth--make more money than businesses and products that users are not emotionally bonded with.

So ask yourself: does anybody you know "love" their dial tone? Does anybody you know love their bitstream?

Ask yourself a different question, then. Do you know anybody who loves their car, loves a car, loves a perfume, a set of golf clubs or a recent movie featuring four Manhattan women?

You're getting different answers, aren't you? So here's the point: at a basic level, communication service providers will make higher margins, and more sales, if they somehow can create an experience so personal that users actually create emotional bonds of the sort they have with their favorite brands, activities and pursuits.

So here's why Apple's iPhone or RIM's BlackBerry are important. They are the closest thing the communications industry has found to a service attribute that does create an emotional bond.

So think about the video entertainment business. Do you know many people, aside from those using DirecTV, who actually "love" their video provider? To the extent the service does create emotional bonds, how are those bonds created? With the actual programming, not the packager.

Igt's sort of the same problem. People might love watching a favorite movie or TV series. They will be emotionally involved with the content. It is doubtful they are so involved with the retail packager of that programming.

So far, we know one new thing: you can get customers who are passionate about their devices. To the extent that those devices require communications, service providers benefit. So pay attention to devices. They are the "hot," affective parts of your relationship with customers. The quality and terms of service are the "cool" parts. You have to do those things right, but you won't gain much loyalty by doing so.

For that, you need the passion only a user experience empowered by a device can provide. At least so far. We've got a long ways to go before an application or service really is capable of creating the sort of emotional bond that does create higher margins.

See related posts on the MetaSwitch community on Facebook (click on "Related article" below)

Should Telcos Have Gotten into IPTV?

With the news from comScore that U.S. Internet users viewed 11.5 billion online videos in March 2008, a 13-percent gain versus February and a 64-percent gain from March 2007, it probably is inevitable that some observers will question the commitment telephone companies are making to multichannel video entertainment.

In March, 135 million Internet users spent an average of 204 minutes viewing online video. That represents more than 40 percent of the U.S. population. So given the clear trend to more consumption of "over the top" video, it is perhaps inevitable that a reexamination of the video business case should occur logical to some observers.

To put matters simply, some might argue that telcos should not have gotten into entertainment video, much less IPTV, at all.

As someone who has argued that most telcos will not make much profit--if any--directly from video services, but who nevertheless sees no way for telcos to avoid getting into the linear, multichannel video business, here's the rebuttal to the "over the top" video is the way to go argument.

One might--and executives have--similarly debated the wisdom of replacing copper access infrastructure with optical fiber access as well. And the logic is quite similar.

In the access services market, telcos and cable will for some time essentially trade market share. Cable will gain voice share while telcos gain video share. Those are huge markets and the revenue attached to them likewise is huge.

To really take significant share, telcos will have to replace the copper drops with some form of optical access, whatever the "last 100-feet" or "last 5,000 feet" technology happens to be. The decision is a strategic one; not driven by the sheer "return on investment" thesis for the one new service.

In its most-basic form, the argument is just this simple: fiber investments will allow telcos to take enough video share from cable operators to offset voice line losses. It's a strategic answer to one question: "do you want to be in business in 15 years?"

The argument for most telcos (AT&T and Verizon have enough scale to support a different business case) is simply that without fiber access, incumbent telcos will not be able to trade share effectively.

Fiber also creates the foundation for better competitiveness in the broadband access business as well, as speeds continue to increase. But again, that is an "invest to support a business I already have" argument, not an "invest to create a new business" logic.

So back to IPTV. Telcos could have chosen some other delivery platform than IP to support their initial multichannel video efforts. Verizon did. But Verizon also has an optical access network supporting three distinct wavelengths already. So devoting one wavelength for linear video just makes sense.

Other providers have decided that two wavelengths makes more sense (at least for the moment). In that case, on the assumption that an all-digital, all-IP platform is used, IPTV simply becomes one more IP application in a two-wavelength network.

Of course, "IPTV" can mean lots of things. In the sense we have been discussing it, it is just a transmission protocol. Over time, the "IP" platform is important for supporting interactive applications as well, but we are some distance away from the point where "interactive" television features represent material revenue opportunities.

The exception, of course, is targeted advertising. That arguably is a greater opportunity for cable operators than for telcos, at the moment.

Still, should telcos have avoided the fiber investments that make IPTV possible, or should they simply have plumbed for some way to monetize "over the top" video? That's an even less compelling argument.

The most-recent comScore found that 80 percent of online video viewers spent fewer than three minutes viewing video per day. Compare that to the average of more than four hours of U.S. daily TV viewing per person.

And usage is not the big issue. Usage does not necessarily mean revenue for a network access provider, even if it does represent an advertising or subscription opportunity for Web-based content packagers. One might argue that telcos could have invested in their own "over the top" content efforts, but that still rests on the assumption that big pipes exist to deliver that content.

Whatever telcos decide to do in the "over the top" area, they still could not have avoided investing in optical access for other reasons, primarily because virtually all of the new service or application revenues are based on broadband connectivity.

Given that imperative, the payback for optical access in the near term rests heavily on new linear video revenues.

The multichannel video business represents well over $100 billion in annual service provider revenues, exclusive of advertising revenue. All over the top providers together do not likely make more than several hundreds of millions in current revenue.

The other rationale for offering linear video is that the payback from optical access does not rest entirely on revenue gains. Part of the return comes from avoided customer churn and partly from reduced operating costs.

The argument that telcos should never have invested in linear multichannel video can be made. It just isn't clear the revenue upside supports the case. That doesn't mean over the top video isn't a growing opportunity of some type. It simply remains the case, however, that the amount of revenue all other emerging forms of video can generate pale before what is possible by taking some share of the existing $100 billion-plus multichannel video share.

See other related posts on the MetaSwitch community site on Facebook (click on "Related article" below).

Mobile Data Market Segments

Aside from text messaging, which continues to grow, many observers would say that sales of PC cards are the second most important new mobile data revenue stream, increasing use of smart phone data plans notwithstanding.

Within the smart phone segment, "almost all of the evidence I've seen to date shows that the market is deeply divided into two groups," says Michael Mace, Rubicon Consulting principal.

When surveyed, most people in the United States and Europe say they will not pay anything extra for mobile device features other than voice and SMS, Mace argues.

"They'll use those features if you give them away for free, but as soon as you ask them to pay, about 65 percent of the population drops out," he says.

"Fortunately, the other 35 percent of the U.S. and European population is willing to pay extra for mobile data features," Mace says.

The issue is that at least four distinct market segments can be identified. There are PC card users, then three smart phone segments, including users focused on entertainment, communications and information. Different features are important to each user segment.

So there probably is no single device design that wins in all segments.