Another Shift in How Things Get Counted

There are times when the way things get counted tells you something about where products are growing, how companies want their growth measured and how revenue growth metrics are changing.

That seems to be the growing case for video entertainment. Until recently, "basic subscribers" have been a fairly reasonable way to evaluate how well a video provider is doing. Two decades ago, that might have been a reasonable way to evaluate how well a telco was doing. But markets are changing, and so are the "counting" mechanisms.

This data from the Cable and Telecommunications Association for Marketing track "digital video" in addition to basic subscribers. At some point, we might well find that digital video subscriptions are a better indicator of performance than "basic" subscriber units, where in the past the delivery protocols haven't mattered as much (satellite subscribers are, by definition, digital customers).

These days, "revenue generating units" make more sense as a way of describing either cable or telco growth. About a decade ago, "voice grade equivalents" began making more sense than "access lines" as a way of describing and measuring performance.

It looks like we are just on the cusp of a time when digital video units are a better growth metric than "basic" and "enhanced" or "digital cable" subscriptions.

1/3 of Vista PCs Downgraded to XP, Survey Suggests

In a survey of more than 3,000 computers, performance testing software developer Devil Mountain Software estimated that more than one in three new machines had either been downgraded by vendors such as Dell, or by customers once they bought the PC.

For whatever reason, large numbers of users still seem to be expressing a preference for XP.

Phweet Escalates Twitter to Voice

Phweet, a new application that allows Twitter exchanges to escalated to voice, now is in public alpha. One of the more unusual features is the ability to create on-the-fly, unscheduled conference calls. Basically the app works using shortURLs. A signed-in Twitter user can ping other Twitter user and request escalation to voice. The other user receives a shortURL. When clicked, a voice session is created using a simple click-to-talk operation.

Twitter addicts may like this.

Falling off a Cliff

For all the other good things executives at AT&T, Verizon or Qwest might talk about, these figures are the one thing you find not being talked about.

Analyst Sees Trouble for Emerging Telecom Cos.

Oppenheimer analyst Timothy Horan this morning turned cautious on the “emerging telecom sector," cutting his ratings on both Level 3 and Cogent Communications to "underperform" from "perform," while chopping TW Telecom to "perform" from "outperform," according to Barron's writer Eric Savitz.

Horan says slowing demand and decreases in pricing power at Cogent and Paetec Holding are evident. Horan says that while the sector has already been under pressure, the companies are heading for a “difficult six to nine month period.” Slowing or sluggish economic growth tends to lead to slackened demand for communication services, an increase in churn, pricing pressure, slower volume growth and limited access to capital as well.

Horan adds that he thinks estimates are too high for all three companies he downgraded today. “These business models have high operating leverage and a slight slowdown in revenues will have a very negative impact on EBITDA,” he writes. “We expect some of the smaller, private CLECs to go bankrupt, which could pressure valuations in the sector.”

Of course, some of us would say we can't recall a year in the past eight when the "emerging" telecom sector was not "under pressure." Pressure is just a way of life in the competitive segment of the business. Indeed, in every segment of the business.

Business VoIP Explodes

Worldwide revenue from hosted VoIP and managed IP PBX services jumped 52 percent to $24 billion in 2007 after surging 66 percent in 2006, and is expected to grow in the strong double-digits through at least 2011, say researchers at Infonetics Research.

The number of worldwide residential and SOHO VoIP subscribers grew 60 percent between 2006 and 2007, to over 75 million, with the largest gains in North America and Europe, the Middle East, and Africa, although Asia Pacific still leads.

Business customer share of worldwide hosted VoIP service revenue will increase from 26 percent in 2007 to 41 percent in 2011, Infonetics says.

Comcast is North America’s largest consumer VoIP service provider, with 20 percent subscriber market share, while France Télécom leads in the EMEA region. Softbank leads in Asia Pacific, and Cableco and Vono Brazil are neck and neck in Central and South America.

“While VoIP services are being embraced by consumers worldwide, businesses have been comparatively slower in their adoption due to various roadblocks," says Matthias Machowinski, Infonetics Research directing analyst. All that is about to change, though, as Session Initiation Protocol interfaces and SIP trunking services now are available.

Growth Anomalies: Trend or Blip?

It is way too early to determine an actual trend, but there have been some anomalies this quarter. Dish Network, Cogent Communications and Verizon experienced what appear to be "first ever" declines in traffic or customer additions. If market share shifts are all that is involved, that's one thing. If something else is going on, that might be more worrisome.

It's one thing for market share to shift among competitors in a given segment. It would be quite something else again if aggregate demand in a market is slowing. And that might be happening. It just is too early to say.

Cogent Communications, for example, experienced a first-time, three orders of magnitude shift in traffic growth for the months of April and May. Where Cogent traditionally has seen growth rates over the past five years of about 120 percent a quarter, it saw in the second quarter negative growth of one percent.

Cogent CEO Dave Schaeffer says the industry might now be at a point where traffic no longer can be driven by either broadband access penetration growth or even faster access speeds.

"We’ve seen a proliferation of broadband connectivity where we now have almost 80 percent broadband penetration in the Western world," says Dave Schaeffer, Cogent CEO. Line rates on those mass mile connections have increased to close to five megabits of download speed which is sufficient for most applications particularly video"

"You’re not going to get an uplift from more broadband penetration or greater download speed," he says. "What you need are more applications that consumers want to use more and more."

"Many applications that people point to could migrate to the Internet or increase and not materially move the needle because the base is large," he says. So what about video? Sure, video is driving traffic, he says.

There are applications that will drive growth and we’ve been pretty clear that this is really video we see that with a number of customers and we see that trend continuing. "But we have not seen the massive migration of video consumption over the Internet, he says.

"Today video is consumed about 4.5 minutes a day on the Internet and television, which is traditionally delivered by a broadcast satellite, cable or DVD, is consumed 4.5 hours a day," Schaeffer says. Until that viewership pattern changes, "we will see slower growth," he adds.

"The Internet is not going to decelerate, it’s not going to go away but it is going to be a bit lumpy in the way in which it reaccelerates," he says.

There were some anamolies in the data this quarter. It bears watching.