Downturn Behavior: True to Form So Far

What typically happens in an economic downturn, in the area of communications or network-based entertainment services, is that people reduce consumption of some "enhanced" features while retaining the base service.

In the cable TV segment, consumers tend to hand on their ad-supported services but skimp a bit on "premium" service. So you might see less use of fee-based video on demand, for example.

Taking a look at mobile service, Forrester Research analyst Pete Nuthall says "the economic downturn won't put a dent in the European mobile penetration rate of 84 percent, but mobile services providers are feeling the impact of reduced usage and spending as consumers review their regular outgoings."

That's confirmation that what has tended to happen in the past just might happen again. "The price of core services,  voice and SMS, is of growing importance to more mobile users, while advanced handsets and services are becoming less important to fewer mobile users than a year ago," he notes.

"Product strategy professionals are responding by de-emphasizing mobile data services and expanding the variety of SIM-only offers," he points out.

Using the same sort of logic, it is conceivable that some broadband users will downgrade their service plans. And it isn't hard to imagine some users ditching landline service, at least for the moment, so long as they can afford a mobile calling plan that covers their typical usage. 

Blyk Outsources to Nokia Siemens Networks

Blyk, a provider of  ad-supported mobile services for 16 to 24 year olds is outsourcing its Netherlands and Belgium operations to Nokia Siemens Networks. Nokia Siements will provide prepaid charging, messaging systems and device management services for Blyk in those two countries, as a hosted service. 

The move is but one example of something we are seeing lots more of: service providers and carriers are outsourcing important network operations and facilities to third parties. 

63% of U.S. Population Uses Internet

eMarketer estimates that 63.4 percent of the U.S. population uses the Web at least once per month, and that nearly seven out of 10 Americans will do so by 2013.

Some of us are shocked the numbers are that low. Once a month?

AT&T's iPhone: Serious Business Impact

It would be hard to overestimate the impact the Apple iPhone has had, as a business innovation, for AT&T, in ways that have nothing to do with device features, user interface or changes in user behavior. The iPhone seems to have a significant role in boosting AT&T's wireless market share, wireless data subscriptions, service upgrades, floor traffic, sales close rate and even sales of other smart phone devices and data plans.

When AT&T launched the iPhone 3G on July 11th, it activated 2.4 million iPhone 3G units, 40 percent of them to customers who were new to AT&T. Perhaps somebody else knows the answer to this question, but I am not aware this ever has happened before: that a single device has lead to such a gain in market share in such a short time.

It is possible, though unlikely, that some of these buyers were "first-time" mobile phone buyers. In all likelihood, however, virtually all these new buyers were defecting from another mobile provider.

The iPhone 3G helped drive two million total net adds in the quarter, 1.7 million of them post-paid, making this the best retail post-paid net add quarter in our company’s history," according to AT&T Mobility and Consumer Markets CEO Ralph De La Vega.

But AT&T executives long have expected a "halo effect." The thinking has been that some, perhaps many, prospects would be drawn in to look at the iPhone, but ultimately would choose another device. That indeed seems to have happened.

Same-store traffic was up 15 percent versus the third quarter last year and two thirds of third quarter post-paid net adds chose integrated devices (smart phones with either a qwerty or touch-screen keyboard).

More than 40 percent of customers upgrading their current plans purchased an Internet data plan for the first time, de la Vega says.

The net present value of a iPhone subscriber, is more than two times the NPV of AT&T's average post-paid subscriber. NPV is a way of accounting for total cash flows over time, discounted for the cost of borrowing or investment to create the cash flow.

The percentage of post-paid subscribers who have an integrated device doubled over the past year to reach 22 percent of all devices in use. The number of 3G devices in the base also has grown dramatically from around seven million a year ago to more than 17 million at the end of the third quarter.

The third quarter also was AT&T's best laptop connect quarter ever, and the company has more than doubled its 3G laptop connect base over the last year. AT&T now has nearly 5.9 million broadband speed laptop cards, dongles and integrated devices in service, though it does not break out the percentage of dongles and cards.

40 Gbps Gear Sales Grow 59% Annually

The 10 gigabit-per-second equipment market is big and growing fast, on target to hit nearly $9.5 billion worldwide in 2008, say researchers at Infonetics Research. At the same time, 40 G system sales are ramping rapidly, and 100 G should begin soon and take off by 2013, the company says.

“A majority of service providers we've spoken to are expecting to invest in 40 G until the 100 G market is up and running; some providers are hoping to skip the 40 G phase altogether, but we don't see that being a viable option, as growing traffic demands are outstripping current capacities and 100 G won't reach reasonable price points until about 2012 or 2013," says Michael Howard, Infonetics co-founder and principal analyst.

"When 100 G Ethernet arrives, it’ll be the next big thing and the most important, because it will last to at least 2025, solving traffic problems for a very long time," Howard says.

40G equipment revenue is forecast to increase at a fast clip, with a compound annual growth
rate of 59 percent from 2007 to 2011, Infonetics projects.

The number of 10 G, 40 G, and 100 G ports shipping on enterprise and service provider equipment will jump from over one million in 2007 to 7.4 million in 2011, with 100 G making its small debut in 2009.

AT&T Reverses DSL Slowdown

AT&T added 148,000 net wired netwwork broadband access customers, up from the 46,000 AT&T added in the second quarter of 2008. That's a far cry from the 300,000+ quarterly net adds AT&T was putting up in 2007, but the broadband access market clearly is reaching saturation.

Some of us had suggested that a shocking fall-off in broadband access net adds in the second quarter this year would be repeated in the third quarter. We'll have to wait to see reporting from Verizon and Qwest to confirm the thesis, but AT&T's results suggest marketing attention that had lapsed in the second quarter now has been sharpened. 

Wireline broadband subscribers, including both consumer and business customers, totaled 14.8 million, up 1.1 million over the past year.

Perhaps the other notable story coming out of AT&T's third quarter report was the huge increase in wireless broad band net adds. Total broadband-capable connections in service increased 2.9 million in the third quarter to reach 20.7 million. 

About 2.75 million of those net adds came on the wireless network, not the wired network. Wireless broadband connections include data  users with 3G LaptopConnect cards and broadband-speed integrated devices with

a QWERTY or touchscreen keyboard. AT&T does not provide detail on the percentage of cards or dongles and broadband handsets. 

Telco and Satellite TV Subs "More Satisfied"

Cable television customers say they are less satisfied than customers of satellite and telco TV providers, according to Parks Associates. A new study by Parks Associates suggests, as other surveys have found, that subscribers to satellite television and telco IPTV are significantly more likely to be satisfied with their services than both basic cable and digital cable subscribers.

“Cable subscribers are generally less satisfied, which creates opportunities for satellite and telco/IPTV providers to grab customers,” says Kurt Scherf, Parks Associates VP. “Although cable operators have improved service efforts, cable operators will still hemorrhage subscribers unless they are perceived as offering leading-edge features at equal or better value. In today’s economic climate, carriers cannot afford to ignore these findings.”

Cable operators have struggled in selling the value of their services, Scherf said, and framing their services as an enhanced and convenient form of entertainment will be critical in reestablishing higher satisfaction. Video on demand initiatives, particularly those aimed at delivering a “Primetime, Anytime” experience, should be key elements in this effort.

“Subscribers who actively use primetime VoD services show significantly higher satisfaction levels,” Scherf says.