TW Telecom Sees Some Weakness

TW Telecom hasn't yet reported its quarterly results, but has warned that although it continues to experience strong sales, it has experienced pressure on its revenue growth in the first half of the year, caused by disconnects by customers in the mortgage industry and from very small customers, as well as economy-related pressure in its Midwest region. 

"These pressures continue," the company says. TW Telecom says it also is seeing potential extension of the impact of the slowing economy into its Southeast region and certain individual markets in other regions, based on results to date for the quarter. 

In addition, the company warns it may experience an increase in very small business customer churn in the third quarter due to the  disconnecting non-paying customers.

TW Telecom  expects continued long term revenue growth, but with possible further downward pressure in the near term. 

Business Transformation Now Crucial, Says IBM

The challenges communications service providers face also seem to be seen as crucial by midmarket CEOs. Recent surveys of telecom industry executives have found them focusing top attention on changing business models. It now appears that sentiment is widely shared.

In a global marketplace, it's all about change, say midmarket CEOs recently surveyed by IBM. About 74 percent of midmarket CEOs "plan to substantially change their business models over the next three years, versus 69 percent of the overall sample," IBM says. The big takeaway? Nearly 70 percent of CEOs say they have to change their business models. 

"They told us that this is partly because they are finding it increasingly difficult to differentiate their companies through products

and services alone, and partly because technological advances have given them many more options," IBM says. 

Of those executives that plan to substantially change their business models, 33 percent are focusing on enterprise model innovation,   addressing new markets and customer segments. 

Another 22 percent of midmarket CEOs are engaging in revenue model innovation. One respondent, for example, is focusing on “new services to existing customers” and “new ways to sell and price,” while a second aims to shift from a “transaction-based” pricing regime to a “fee-for-service” model that is “more value-based.”

Similarly, 23 percent are undertaking industry model innovations. The vast majority of these respondents plan to redefine the industry

in which their companies are operating. Surprisingly, however, 39 percent of this group aims to create entirely new industries, IBM says. 

Mid-market CEOs also say they are struggling to keep up with an environment where consumers are now dictating the pace of change, where formerly they were the ones in control. “Change in the organization is not happening fast enough. The gap is widening,” one Dutch midmarket CEO told IBM researchers. 

In 2004, market factors (such as variations in customer purchasing patterns, growing competition and industry consolidation)

dominated the boardroom agenda. Today, however, midmarket CEOs have to focus on a much broader range of concerns, IBM says. 

Market factors remain their top priority, but access to people with the skills they need, regulatory compliance, technological factors and globalization also weigh heavily on their minds. Regulation is a source of particular anxiety. About 37 percent of midmarket CEOs think it will bring major changes, compared with just 30 percent of the total survey population.

Globalization is creating many more challenges for mid-market enterprise executives. Rather than being able to concentrate their efforts on a few specific issues, midmarket CEOs must now cover a much wider front and cope with much greater uncertainty. They must “master complexity,” as one respondent put it.

Mid-market CEOs plan to channel more than 22 percent of their budgets into meeting the needs of information omnivores. Most companies are focusing on the development of “the next generation of products” and services, and “how to attract” these customers, as one respondent put it.

Markets Have Changed; Regulatory Tasks Must Follow, FCC Says

Predictably, the Federal Communications Commission's decision to remove some mandatory reporting by some leading telcos (AT&T, Verizon, Qwest, Frontier and Embarq) is seen by some public policy advocates as a blow to consumer welfare. Under new rules, and after a two-year phase-in, those carriers can stop reporting network reliability, customer satisfaction and infrastructure investment data. 

AT&T, Verizon and Qwest will continue to file price, revenue, and total cost information necessary to achieve the goals of price cap regulation, though. But the FCC argues that some data, used in a monopoly environment to monitor customer welfare, are not needed in competitive markets, especially when the rules are not applied universally, on cable operators, for example. 

Though one can disagree about the thesis that competition itself forces contestants to maintain and improve the quality of their offerings and the quality of their customer service, market forces arguably already have forced all contestants to ramp up the quality of their service. Consumers have choice, and are exercising their freedom to abandon providers and choose others. 

That is not to say markets now are perfectly competitive. Nor can one argue that markets always will remain robustly competitive. The outcome of competitive markets is that winners get stronger and losers go out of business. Over time, the inevitable logic of competition is therefore less competition. So the need for oversight does not disappear. 

But it does not make sense to burden competitors with reporting requirements that have real costs, when monopoly markets no longer exist, and the abuses that the rules originally were intended to prevent, are prevented by consumers with choice.

Reporting imposes real costs on businesses. Many smaller firms, with no market power, report that their annual reporting costs for Sarbanes-Oxley compliance alone cost between three quarters of a million and a million dollars a year. That isn't to say Sarbanes-Oxely was anything but a well-intentioned attempt to prevent abuses. Still, burdening companies with compliance costs is not an unalloyed good thing. It raises costs of doing business at a time when costs are a major concern in the communications business, precisely because of intense competition. 

U.S. Government Now on IPv6

Lots of entities, despite the inevitability, have incentives to drag their feet on a transition to Internet Protocol version six (IPv6) as long as possible, the simple reason being the need to replace virtually 100 percent of their existing router infrastructure. At the beginning of June 2008, all U.S. government networks were required to migrate to IPv6, however. 

Many observers have expected U.S. government conversion to prime the pump for U.S. adoption of the new standard, which provides virtually unlimited address space, compared to the IPv4 standard now in widespread use. 

Created by the Internet Engineering Task Force in 1998, IPv6 replaces IPv4, which supports 4.3 billion individually addressed devices on the network. Under a White House policy directive issued in August 2005, all federal agencies had to demonstrate the

ability to pass IPv6 packets across their backbone networks by the June 30 deadline.

It wouldn't be the first time the U.S. government has primed the pump for the Internet. Without the U.S. government, there might not have been an Internet, it can be argued. 

Ouch! "DSL is the New Dial Up"

Ouch! "We are starting to see DSL become the new dial up," say analysts at Strategy Analytics. "The telcos' core DSL offerings are unable to compete effectively with cable; they must step up their already frenetic fiber roll out to stay in the game, says Ben Piper, Strategy Analytics director.

That might be overstating the case, but there is no doubt that a dismal second quarter broadband access performance is very troubling for the major DSL providers in the U.S. market. It was not an easy quarter, by any means, but new broadband accounts have been decelerating for at least a year, as the market starts to saturate. 

Broadband access providers collectibvely added only one million net additional subscriptions in the second quarter, compared to over two million in the first quarter, says Piper.

"The dramatic downturn in the quarter is largely attributable to a slowdown of `new connects,' as well as consumer migration from DSL to cable," says John Lee, Strategy Analytics analyst. "As users become more accustomed to high speeds at the office or elsewhere, they are less willing to tolerate slow performance in the home."

If it turns out that is the case, it would be very bad news for the major telcos indeed. But I doubt that is the case. One doesn't typically see a major shift in demand (an order of magnitude shift) in a single quarter. That suggests to me something other than a demand shift has occurred. Marketing inattention, or inadquate attention to the value proposition seem more likely culprits. I could very well be quite wrong about this, of course. 

Maybe something I've never seen before has happened. Maybe a radical, sudden shift in end user demand has occurred. It just doesn't seem like the most-likely explanation, and I'll stick with Occam's Razor: "All other things being equal, the simplest solution is the best."

And the simplest solution is that marketing staffs took their eye off the ball. 

3 of 4 Presidential or VP Candidates Generate Twitter Traffic

It is a commonplace and probably largely accurate observation that younger users avail themselves of Twitter more than older users. Most people might therefore make the assumption that backers of Barack Obama twitter more than backers of John McCain. 

That probably is true as well. But if an analysis of Twitter messages during the recent Democratic and Republican conventions is correct, there must have been lots of younger viewers.

Except for when Joe Biden was speaking, John McCain, Sarah Palin and Barack Obama generated fairly high and comparable levels of activity, according to Twitter. 

That implies nothing about "support" or anything else, simply interest (or "outrage" or whatever you want to imply about what you think people were saying). 

Forecast Error is a Fact of Life

Having spent some time doing market research and making forecasts about how much money is going to be spent, on what, in the future, one learns humility. Sometimes forecasters underestimate a growth trend, but that is fairly rare. The biggest misses I can recall in my professional career were in the early days of the Internet, where I think it is fair to say nearly everybody underestimated growth, usage and revenue potential. 

These days we have the more-typical problem, which is overestimating growth. Most of the time, forecasters are wrong about the magnitude of change, even when the basic trend is correct. Sometimes we get the trend wrong, as well, but the big variances normally are on the "magnitude of change" dimension. 

There are lots of reasons for this apparent built-in bias. In economics, a discipline too few of us pay serious attention to, statements are formally or implicitly made "ceteris paribus" (all other things being equal). In the real world, almost nothing is every really going to remain equal. 

Forecasters cannot account for the timing of economic expansions and slowdowns, wars, oil shocks, technological or business breakthroughs and other exogenous variables that shape real-world trends. And as basic as our spreadsheets have become, we can't really model more than two dimensions of change. 

I have long suspected that there is another bias working, though. Some people fund and buy research because they really want to know what might, or will, happen. It tends to be my experience, though, that many research buyers spend money for other reasons. Sometimes a forecast is a useful way of "covering your ---" when a decision already has been made. 

Often, it is an argument for pursing one avenue of investment versus others that have competing stakeholders. In such cases, more robust numbers are better. The sets of stakeholders will look for validation that their approach offers the bigger financial return. 

In some cases, robust growth statistics are needed to attract or retain capital investments. Small number do not help in that case. I'm not saying numbers routinely are "cooked." But when a client clearly wants to hear good news, one always can make reasonable assumptions at the upper end of reasonable bounds, rather than the lowest or median reasonable assumptions.

The other issue is that most forecasts cannot take into account other competing demands on resources. A given product or service could reasonably be expected to grow at certain rates if it proves popular with buyers. What cannot typically be modeled is the impact of alternate products or services that real-world buyers spend money on. 

Appetites are infinite. Budgets are not. If all growth forecasts for all products and services are tallied at one time, the result typically is that projected demand that far outstrips reality. Not all the goods and services everyone models can be bought at the predicted levels because there isn't that much aggregate demand in the whole economy. 

About all one can say is that, providing these competing claimants for spending do not "suck up all the oxygen in the room," demand for a particular product, over a specific time frame, could reach certain levels.

It appears a garden variety "ceteris paribus" explanation is at work with Internet advertising forecasts that researchers now are suddenly revising in a lower direction. Without explaining why, researchers at SNL Kagan recently downgraded U.S. cable industry advertising growth rates for 2009, but then assume growth at the former rates after 2010. 

Likewise, JP Morgan analyst Imran Khan now sees domestic online display advertising growing only 14 percent to $8.2 billion in 2008 (compared with his prior forecast of 20 percent growth to $8.6 billion), and growing 16 percent to $10 billion in 2009. Search ad spending also will grow at a slower 27 percent rate, down from an originally forecast 32 percent. International online ad-spending rates also have been similarly lowered.

Nobody can adequately incorporate macroeconomic variables, or demand shifts, into forecasts. Should forecasters permanently lower uptake expectations? No. The shift will continue, away from legacy formats and towards "targeted" and quantifiable online subsitututes. But one cannot adequately take into account unplanned real-world events, especially of the growth-stunting sort. It's simply a hazard of the business.