Are Telcos Losing Revenue Because of Low-Quality Voice?

Telcos are losing some voice revenue because existing voice quality is poor, says Andrew Odlyzko, University of Minnesota Digital Technology Center director. Despite growing volumes, “toll quality voice is lousy quality, especially for women’s voices," he says. Likewise, "wireless voice is horrible; it has been selected to be the lowest quality one can have that people wouldn’t reject.”

There is room for higher-quality voice as a premium service, Odlyzko maintains. As others have argued, Skype provides an example of quality "better than toll." 

The problem is that many examples of higher quality voice are hard to separate from other variables that also might illustrate what the specific value proposition is. Skype, with good microphones and on a good broadband connection, can sound better than toll. But such connections also provide other sources of value, such as the ability to talk internationally for "no incremental cost."

What cannot easily be tested is the thesis that, for this particular application, even lower quality would not reduce usage, or destroy the value of the application. In fact, if voice volumes, using Skype-style mechanisms as well as mobile and fixed line long distance, continue to grow, it is hard to argue clearly that there is an unmet consumer need. There might be. There should be. But so far, no clear test has been devised.  

“There are opportunities for higher quality voice,” he says. One suspects he is right, though it is not so clear, beyond business videoconferencing, where one can point to examples. 

Odlyzko is an original thinker, so some of his views run counter to conventional wisdom. He argues, for example, that wireless providers have erred in focusing on mobile data, where they might have used their 3G networks to provide better voice. 

I'm not sure I agree with that conclusion. And, perhaps, despite his views, neither does Odlyzko. He pointed to at least some forms of wireless data as services that provide higher value and margins. That clearly is the case for text messaging. It appears to the case for mobile Web access. 

So far, the service provider effort has been to provide IP-based equivalents of time division multiplex voice, with equivalent stability and quality, not greater quality. It might be interesting to see whether such a clean test could be market tested. 

Not many service provider executives appear to believe there is a significant market for higher-than-toll-quality voice in the consumer market, though. Users might well like it, but service providers likely are skeptical about whether consumers would pay a premium. Business users might be a different case, but not many clear examples aside from room conferencing systems can be noted. 

Service providers might be losing some revenue because of poor voice quality. They also are losing some customers for other reasons, such as a secular decline in demand for landline voice. It is unknown whether a revenue opportunity exists in the mass market for higher-quality voice. There should be an opportunity in business markets. But the thesis largely remains untested. 

That isn't to say some providers have failed to offer better-performing codecs, for example. That should provider higher-quality voice. The issue is whether consumers are willing to pay a premium for it. They might be. The problem is arranging a clear market test where some other obvious variable does not cloud the test. 

Microsoft to Sell Comcast Stake

Microsoft has decided to sell its 7.3 percent stake in Comcast. Microsoft had owned 150,935,575 Class A common stock in the cable operator.

Microsoft made its $1 billion investment in Comcast in 1997, when Microsoft had interest in becoming a major player in the cable set-top box business. Some observers familiar, even casually, with cable operator strategy would have argued even then that the effort was unlikely to bear much fruit.

As anxious as some operators might have been to gain a stamp of legitimacy in the coming wave of Internet-based or interactive content, cable executives when speaking to other cable executives would have insisted they had no intention of "letting Microsoft take our business." In those pre-Google days, it was Microsoft cable operators worried most about, in terms of digital-savvy outsiders with the skills and credibility to siphon off the leading edge of interactive attention, if not business.

Apparently Microsoft long ago realized its hoped-for strategy would not lead to success. After several years when Microsoft powered an on-screen program guide for Comcast in some of its Washington markets, Comcast stopped using the guide altogether, in favor of its alternate guide, developed with Gemstar.

In May 2007, Comcast stopped using Microsoft’s on-screen program guide for its digital cable boxes in Washington state, the only U.S. location that software feature was being used.

Microsoft has had much-better luck as a technology partner for leading U.S. wireless companies, though.

New Buyer Concerns in Undersea Market

Latency, not to overstretch too much, is becoming for some customers the first requirement for a connectivity provider, followed in very close order by physical diversity, though in some cases jitter performance might rank among the top three requirements, ranking perhaps even before bandwidth. Such concerns are paramount for many financial and media firms, as you might guess.

So a touted feature of Hibernia Atlantic's new Amsterdam and its 37 POPs in North America is latency performance. The new route completely bypasses London’s common congested terrestrial fiber routes. Latency on the new Amsterdam-to-Boston route is now 74 milliseconds, making this the fastest available route, the company says. It also offers the fastest route between Amsterdam and Dublin, Ireland.

By using its northern cable, Hibernia’s new network bypasses London’s traditional backhaul by offering a diverse express route that shaves two milliseconds off the latency on the existing London-to-Amsterdam route.

“This new route is attractive for any business that requires direct, low latency connectivity between North America and Europe at competitive rates,” states Bjarni Thorvardarson, CEO for Hibernia Atlantic. “Financial firms, movie studios, IP providers and data storage companies requiring a fast, diverse connection over the Atlantic while avoiding London are among some of the enterprise customers that can benefit from the new route, as well as global carriers.”

Rural Access: More Capacity Than One Might Think

The popular sterotype is that rural America does not have broadband and that service providers refuse to offer it. Like all stereotypes, there is a grain of truth. Rural America is a tough place to provide communications services.

But a new survey of 146 members of the National Telecommunications Cooperative Association, 100 percent reported they offer broadband access. In 2000, 58 percent of surveyed members offered broadband service, so there has been substantial progress.

That does not mean every rural cooperative or service provider now offers broadband, or offers access at all the speeds it might desire. It does indicate that rural citizens increasingly are getting broadband and other new services despite the challenges. 

Higher speeds arguably are a good thing, of course, and might benefit from some changes in the way universal service and related mechanisms are structured.  But there is some mix of "demand" and "supply" drivers in rural, as well as urban, markets. 

Also, about 93 percent of survey respondents indicated they face competition in the provision of advanced services from at least one other service provider, up from 87 percent a year ago. That includes providers of satellite TV and broadband access, cable operators, Internet service providers and wireless providers. 

To the extent that most telcos already have broadband access competitors in their markets, adoption 

Some 99 percent use digital subscriber line, but 44 percent also say they use fiber to the home or fiber to the curb, up from 32 percent last year. About 17 percent use unlicensed wireless, 16 percent use licensed wireless, 14 percent use satellite access and 10 percent offer cable modem service. 

Some 91 percent of customers can receive service at 200 kbps to 768 kbps service. About 83 percent of cusotmers can get speeds of  768 kbps to 1.5 Mbps.

About 58 percent have access to speeds ranging from 1.5 Mbps to 3 Mbps. Some 46 percent of customers can buy service at speeds between  3 Mbps and 6 Mbps, while 25 percent can buy service at speeds greater than 6 Mbps. 

On average, 11 percent of customers buy 56 kbps service. About 19 percent subscribe to service at 200 kbps to 768 kbps.

Roughly 36 percent buy service in the 768 kbps to 1.5 Mbps band. Another 10 percent buy service in the 1.5 Mbps to 3 Mbps range.

Some 11 percent buy service at 3 Mpbs to 6 Mbps. Just five percent buy service at speeds greater than 6 Mbps. Overall, dial-up take rates declined and broadband take rates rose significantly in the past year, NTCA says. 

Of those respondents with a fiber deployment strategy plan, 71 percent plan to offer fiber to the node to more than 75 percent of their customers by year-end 2009, while 74 percent plan to offer fiber to the home to at least 25 percent of their customers over the same time frame.

Some six percent of respondents currently offer VoIP, but 46 percent have plans to offer VoIP in the foreseeable future. About 68 percent of respondents offer video service to their customers.

Wholesale Business: Perception and Reality Might Not Match

At the risk of appearing foolish, I have been writing a lot recently about the need to maintain some rigor in assessing the likely impact of the recession on communications service provider revenues, growth rates and profits. There is a natural tendency to panic and over-react when virtually everyone around you "feels so bad."

The emotion is real, and strains are real. But there is some amount of evidence that consumer and small business buyers, for example, have not been reducing their buying of services. So it might be noteworthy that, at the Pacific Telecommunications Council annual conference,  Stealth Communications CEO Shrihari Pandit says neither carrier nor enterprise customers, in aggregate, have reduced spending with Stealth in 2008. In fact, revenues have grown all year. 

That isn't to say every company, every customer segment or every industry segment can say the same. It is to point out that in times when emotion tends to cloud decision making, it is more important to pay close attention to the actual numbers, rather than relying on one's own emotions, or the emotions business partners might legitimately feel. 

Though it always is possible I am wrong, I would argue from history that, when the recession is over, communications service providers will have shown absolute revenue growth, though at lower rates than in 2007 or 2008, with lower average revenue per unit. There might be segments that do less well, but the industry will emerge with net growth. 

Sprint Gives Boost to Pre-Paid: Unintended Consequences?

As it has done in the post-paid market with its "Simply Everything" package, Sprint Nextel Corp. now is attempting to create new value-price positions for itself now in the pre-paid market. The operator has said it will offer a $50 unlimited plan for its Boost Mobile service on the iDEN network. 

Keep in mind that the new plan will include a data plan bundle with unlimited data, talk, messaging, and push-to-talk service for only $50 per month. The iDEN network won't support 3G or 4G speeds, but many users will be intrigued by the value and price point. 

AT&T  and Verizon Wireless are  currently offering $100 unlimited plans, by way of comparison. 

The $50 plan might help Sprint bring some users back to the Nextel iDEN network. It also puts Sprint firmly in the ring 

with Leap Wireless International and MetroPCS  in the low-cost wireless game. But one never can discount the potential impact in other areas. 

True, it is a "Boost" product, not a "Nextel" product, so the potential impact on the broader Nextel brand might be muted. Keep in mind the drawbacks. 

Phones for the service will be from Motorola and will start at $20. Since Motorola has not kept pace in the handset space, this is a weakness. And there will not be phones from other suppliers, given the historic unwillingness the other suppliers have to supply essentially one North American customer. 

There will some speed issues for data usage as well. 

On the other hand, in a recessionary climate, some observers argue that mobility users will not stop using mobile service, but will look for better deals, so long as handset replacment costs are not steep. This is an advantage for the new Boost package, as rival plans from Metro PCS and Leap Wireless do not bundle in the unlimited data usage, push-to-talk and messaging, and generally run about $60 a month. 

Also, Leap ("Cricket") and Metro PCS are fixed-line replacement solutions more than national roaming solutions. 

So while the new offer does compete with Leap and Metro PCS, Boost will not have any regional restrictions, putting the service in more direct competition with Verizon, AT&T and T-Mobile. 

It's an interesting move. The iDen network and service has some obvious limitations at the moment. But Sprint Nextel is doing what it can, with the assets it has, to create new positions in the market using those assets. Simplicity and value are the new factors in the equation, driven by the feature bundling and new industry price point.

It is the sort of thing one might expect from Dan Hesse, Sprint Nextel CEO. He widely is credited with pioneering the "Digital One Rate" plan that changed industry pricing for use of mobile minutes. "Simply Everything" and now the new Boost plan are in the same line of thinking: change the way usage is packaged and priced. 

Some will argue it is not enough. Of course not. But Sprint has to stop its bleeding before it can do other things that change the value proposition even more.  

$6 Billion Boost for Rural Broadband?

The U.S. House of Representatives version of a stimulus plan includes $6 billion dollars in grants for broadband deployment. The Senate will have its own economic recovery package, but the Fiber to the Home Council believes that the proposal is a good indication of where Congress is headed on the issue of broadband.

 

The responsibility for awarding the broadband grants would be divided between the Agriculture Department's Rural Utilities Service and the National Telecommunications and Information Administration in the Department of Commerce.  

The RUS money ($2.825 billion) would bolster the agency's current program of grants, loans and loan-guarantees to extend broadband infrastructure into largely unserved rural areas, and would not require that the services provide connection speeds higher than what typically passes for broadband today.

 

The NTIA money (also $2.825 billion) will consist of new grant programs for the development of broadband and wireless services in unserved and underserved areas.  Of this amount, $1.825 billion would be for wireline broadband - and 75 percent of that ($1.37 billion) is directed toward "advanced broadband," which is defined in the legislation as 45 Mbps down and 15 Mbps up.

About half the money would be of obvious interest to providers of fixed broadband in rural areas, as the new funds would simply bolster existing efforts to subsidize broadband deployment in rural areas. The other half is noteworthy because, if the eligibility rules remain as now conceived, the new infrastructure will have to operate at a minimum of 45 Mbps downstream and at least 15 Mbps upstream. 

That might provide a boost for wireless-based providers, such as Clearwire, if bidding rules allow them to compete. Fixed networks would have to deploy a "deep fiber" design to allow such bandwidths, in all likelihood. There is likely to be some wrangling over the right to bid for such support. 

Some tier one providers, such as Qwest, do serve many rural communities in the western United States, though Qwest has generally been denied rural broadband support because that support is awarded on a "statewide" basis rather than on a "community" basis.