AT&T Will Hit 10% Video Penetration in December 2008

AT&T now says it will end the year with more than one million U-verse (multi-channel video) subscribers. The company expects to surpass that milestone in mid-December. That is important for people who track progress telcos are making in the video market, which is the mirror image of telcos losing voice customer share to cable companies.

At that level, AT&T will have surpassed 10 percent penetration within one year when we begin marketing operations. That itself is a milestone on the way to stable long-term penetration for wired network providers, which has in some other cases reached 30 percent or higher levels in a few markets where there is robust multi-channel video competition. Verizon has attained that level in some of its FiOS video markets, for example.

Most telcos probably think they will get to 20 percent in several years. Verizon already has hit about 24 percent penetration where it offers FiOS video. On average FiOS TV achieves 17 percent penetration in just 12 months and over 26 percent penetration within two years, Verizon reported in the third quarter of 2008.

Covad Certifies PBXes

Covad Communications has certified IP PBXs from TalkSwitch, Grandstream, Vertical and Epygi for its new Covad Integrated Access service.
 
IP PBXs certified by Covad include:
* TalkSwitch IP PBX equipped for VoIP (models 244/248vs, 284/288vs,  484/488vs and 844/848vs)
* Grandstream GXE502X ALL-IN-ONE IPPBX 
* Vertical Xcelerator IP
* Epygi Quadro 2x and Quadro 4x IP PBX

Mass Media Will Miss the Bottom...Again....

Count on the mass media to miss the "bottom" of the present recession: they always do. You now are seeing headlines about layoffs at larger and mid-sized companies.
Economists now say we have been in recession since December 2007. The only good news there is that one year of the recession already has passed.

So whether you think this is a garden-variety recession or a longer one, the average recession lasts 18 months. By the end of the year we'll have been in recession a full 13 months. And layoffs always are a lagging indicator.

So as you note news reports about job losses, keep one thing in mind: when we reach the peak of the job losses, the recession will have hit bottom and the recovery will have begun.

Peak job losses in the 2001 recession were 325,000, which were reported in October, the last month of that recession. Peak losses during the 1990-91 recessions—306,000—were reported in February 1991, again one month before the recession ended.

During the 1981-82 recession, peak job losses were 343,000, a figured reported four months before the end of the recession. A bottom in the labor market often indicates the near bottom of a recession, since employment is a lagging indicator.

There are implications for service providers. Though not every company is as cash rich as Cisco or Apple, opportunities to take market share or reshape a market always present themselves in a recession.

And there is clear evidence that in some customer segments, such as small business, hiring actually increased every month of 2008, says SurePayroll, a company that makes its living processing employee payroll checks (through the end of November, the last month where data is available).

Hiring tends to drive increased buying of communications products, so whatever weakness you think you will see in the enterprise segment, small business trends could well be quite different.

Small Business: Conventional Wisdom is Wrong

With all the bad news we are hearing, the conventional wisdom is that small businesses will be cutting back on hiring. As sometimes occurs, the conventional wisdom often is wrong. Keep in mind that economists now have concluded the U.S. economy has been in recession since December 2006.

So what might surprise you is that SurePayroll, a company that makes its living processing employee payroll checks, hiring in the small business segment climbed steadily through 2008.

What that means for providers of communications services to small businesses is that underlying demand in the small business segment grew all year in 2008.

After the carnage of October 2008, one might have expected, and news reports suggest, a wave of layoffs starting in November 2008. But SurePayroll says U.S. small businesses increased their staff levels by 0.26 percent in November. “It was the second lowest percentage increase this year, but it extended the run of monthly hiring increases to an impressive twenty-four months,” the company says.

The SurePayroll Hiring Index, which tracks the size of small businesses, ended the month of November at 11,249, which is 30 points higher than where the index stood in October.
For the first 11 months of 2008, when the economy was definitively in recession, small business hiring went up 3.3 percent nationwide.

Hosted IP Telephony: No Pain; No Gain

Retailers of hosted IP telephony (hosted PBX) services to small and medium-sized businesses have a problem, and it isn't the economy or other competitors.  The big problem is that most users are fairly satisfied with their current phone solutions. 

"Most users do not have problems with their current phone system," Andy Randall, MetaSwitch VP, notes. And that is a big barrier to adoption of hosted IP telephony. If there is no problem, there is no reason to buy an alternative solution.  

Essentially, the problem is that, in many cases, there is no current "problem" to fix. The "problem" essentially be created, though. If a potential customer finds out that they are "overpaying" by quite some amount for their voice and broadband access services, that becomes a problem. 

So one essential requirement here is to "create" a big enough problem that hosted IP telephony solves. Keep in mind that most smaller businesses essentially can compare any new solution to what they already are paying. And that metric typically boils down to a cost per employee per month. 

Randall  thinks providers of hosted PBX services to small and medium-sized businesses need to price at about $30 to $60 per employee per station to disrupt the value-price relationship now offered by current voice-plus-data services already bought by SMBs. 

The reason is that most SMBs today are spending from $29 to $125 per employee per month for voice and data access. At about 15 stations, hosted IP telephony generally costs $$56 to $106 per employee per month. At that rate, a new hosted IP telephony offer does not save SMBs money. And though new features are important, the biggest single objection to a sale is going to remain that the new solution, despite its benefits, does not save money. 

Since users expect hosted IP solutions to save them money, retail providers are trying to push a boulder uphill. "Where's the business driver?" Randall rhetorically asks. If a premises doesn't save an SMB money, and neither does a hosted PBX solution, there is no great incentive to change. "Disruption requires moving lower than $56 to $106, per employee, per month, for the total broadband access and voice offer, Randall argues. 

IP trunking also will be important for SMBs that really do not want to replace their current desk phones for new IP models. In part, SIP trunking can be a stealth adoption strategy. "Some people will keep their PBX for a few years," Randall says. "So sell the IP trunk today and then sell hosted voice later when the customer is ready to replace the TDM sets."

For 15 employees, a hosted IP telephony solution, plus the broadband, possibly costs $86 per employee per month, Randall says. The problem there is that it is tough to show savings from switching. And for any technology, whatsoever, the key is that the proposed new solution has to offer enough value to offset the pain level of the current solution.

The "problem" hosted IP telephony is supposed to fix is not generally perceived by the potential customer to be a "problem."  For most SMBs, the phone system they have works. There is not an obvious "crisis" that the hosted IP telephony solution can solve. 

And despite what most technologists tend to think, people don't change behaviors and adopt new technology because something about the solution is "10 times better" on some technical measure. What has to happen is that the pain a potential customer currently is experiencing can be alleviated by changing. 

At current pricing levels, lots of potential customers will not be persuaded to change because the level of pain is not so high. "The main competitor any retailer of hosted IP business voice faces is 'business as usual,' not some other competitor in the market," Randall says. 

One More Reminder: WiMAX is Not a Business Model

Clearwire CEO Benjamin Wolff says the network will built to support both WiMAX and Long Term Evolution, the "rival" standard favored by the world's GSM providers and even CDMA-based networks such as Verizon Communications.

"Our vendors will be able to deliver network infrastructure equipment to us that will enable us to operate both mobile WiMAX and LTE technologies if we decide that it makes sense to do so several years from now when LTE becomes commercially available," says Wolff.

"If LTE truly becomes established as a global standard as WiMAX has, Clearwire will be well positioned to take advantage of that opportunity," says Wolff.

Though sometimes obscured by the hype, WiMAX is broadband radio access. It is not a business model. Clearwire's willingness to use both protocols is simply further proof. If there is a new business model to be built, it will come from packaging, pricing and other elements that would create something like an open broadband wireless Internet experience, akin to what users can do today with 3G dongles for their PCs, but also including new "end user" segments, devices or applications.

Still, it is far from clear that even if Clearwire succeeds at doing those things, it will be alone. Verizon Communications has been quite vocal about opportunities for machine-to-machine applications, which would indeed open up new "end user" segments. And as we have seen time and time again, it isn't all that hard for one provider to mimic another provider's packaging, pricing or device features, if it is necessary.

Clearwire probably has something between a one-year advantage to two years worth of advantage on the "raw bandwidth" dimension. That won't provide much of a differentiator for long. To be sure, Clearwire has plans that would move it further away from the current mobile narrowband or broadband packaging model.

What remains untested is the size of the problem and the amount of "pain" users now face in the mostly-closed mobile broadband model. Technologists might experience "closed" environments as a pain point. Most users do not. More flexible, casual pricing arguably addresses a bigger pain point: the desire to occasionally use features.

Vidtel Launches Video Calling Service

Vidtel, a Sunnyvale, Calif. company lead by Scott Wharton, CEO and former BroadSoft VP, has launched its videoconferencing service, which today supports video calls between Vidtel users. In addition to video calling, users can also make and receive regular voice calls to anyone in the world with a telephone number.

In 2009, Vidtel will add the capability to call other video users around the world regardless of the service or type of device they use.

That means interoperability with Skype, iChat, Google and video-enabled mobile phones (3G and 4G mobile phones), Wharton says, arguing Vidtel will create the first interconnected video calling network, offering a standard by which all video callers can call each other, regardless of service they are using.

Vidtel uses the Grandstream GXV-3000 video phone, sold separately at a cost of $199.95 plus tax. Two service plans are offered. The "Standard" plan costs $14.95 per month or $99.95 a year. The standard plan offers unlimited video calling within the Vidtel network (Vidtel-to-Vidtel customer) using a regular 10-digit phone number.

Users also can make domestic and international phone calls in addition to video phone calls. Calls within the US, Canada and Puerto Rico are 3.9 cents per minute. Enhanced 911, a dedicated telephone number, call waiting, voicemail, caller ID and call forwarding, plus enhanced features you can’t get anywhere else like video mail.

The "Premium" plan costs $29.95 per month or $249.95 a year. The premium plan includes unlimited video calling plus unlimited telephone calls within the US, Canada and Puerto Rico. Like the Standard plan, the Premium plan includes enhanced 911, dedicated telephone number, call waiting, voicemail, caller ID, call forwarding, and video mail) and simultaneous ring.

Vidtel charges a one-time account activation fee of $19.95 and shipping and handling fee of $19.95. Vidtel monthly service packages are also charged the required federal and state taxes and 911 fees.

The video mail feature allows users to send and receive video messages from friends and family. Video messages can be retrieved on the phone or in email. Video messages can be forwarded to any email address, anywhere in the world.

At present, the service requires getting a new phone number. In 2009 uesrs will be able to transfer an existing number to Vidtel.

Billing is by credit card and users obviously require a broadband Internet connection.

Wharton says target customers include family and friends who live far away. Wharton also thinks some small or medium-sized businesses might use it as an affordable conference calling system.