Telco broadband Now Shifts to Video

The telco broadband market experienced a significant downturn in new subscriber additions during 2008, according to iSuppli Corp. Of course, the reason is that the market is mature: most users who want broadband already buy it. As a result, the next several years will be about enticing customers to migrate to higher-speed tiers and enhanced services, principally IPTV.

In part, this will lead to a shift in lead product offering and a slower growth rate than broadband access had achieved. Some major telcos are pushing IPTV services more than Internet access, a product category in which there are entrenched incumbents. In the broadband access market, there were no incumbents to dislodge, so growth was not a zero-sum game. In the IPTV market, growth will come in the form of market share shifts, a tougher proposition. 

“New telco broadband subscriber growth saw a 9.1 percent decline in 2008 following double-digit gains during the prior five years,” says Steve Rago, iSuppli principal analyst. “Hardest hit was North America, with new subscriber additions in 2008 amounting to 3.1 million, down 56.1 percent from 6.5 million in 2007. 

"The world’s developed regions reached broadband saturation during 2008, while developing regions continued to grow," he says.  "Of these regions, Latin America experienced the strongest growth."

New Fiber-To-The-Home connections grew by 90 percent and new high-speed VDSL connections grew by 54 percent compared to 2007, iSuppli says. In the cable world, many European and American operators introduced DOCSIS 3.0, significantly increasing broadband access data rates.

The next round of growth therefore will not come in adding new broadband subscribers but getting them to upgrade to higher-speed and enhanced services. Analysts at iSuppli believe 2008 was a milestone in the growth of very-high-speed access networks, and expect accelerating growth in the category over the next several years.

Telco TV was a major driver of high-speed access upgrades during 2008, iSuppli says. Virtually every telephone company and competitive access supplier deployed or made plans to deploy television services during 2008, the firm says. Overall telco TV subscribers grew by 8.8 million to end 2008 at a total of 18.5 million.

Telco TV during 2008 transitioned from the early-adopter stage to the early majority stage, so sales volume should now start to ramp up significantly for several years. North American telephone companies added a net 3.3 million television subscribers in 2008, the company says.

Every Company is a Media Company

Smart businesses are beginning to produce content that’s less about their product and more about topics that their customers gravitate to, writes Rick Burnes, an inbound marketing manager at HubSpot.

Whole Foods publishes recipes and cooking videos. These companies are producing quality media, just like The New York Times or Discovery Channel.

Why? Every company, no matter what industry, is essentially gathering and distributing information, both to employees and external audiences, and trying to attract attention from prospective customers. 

Traditionally, this has been an "outbound" function using intermediaries such as media, trade shows, email blasts and direct sales, where companies reach out to potential customers.

These days, one sees use of webinars, blogs, Web site content, news feeds, videos and other efforts that invite potential customers to show up.  So every company now produces and distributes content. 

Market Doesn't Like Bank Bailout, Apparently

Judging by the plunge on the markets as Treasury Secretary Geithner spoke...

Verizon FiOS Challenges DirecTV as HDTV Leader

DirecTV continues to offer the most high-definition channels of any pay TV provider, but Verizon is catching up quickly with its FiOS TV service, according to Pike & Fischer. The firm finds that as of January 2009, DirecTV was offering as many as 104 channels in high-definition format. But that only beats Verizon's HD menu by one channel.

Comcast, the largest cable operator in the United States, has one of the smallest selections of high-definition channels, Pike & Fischer says. Comcast in some markets is offering less than 40 HDTV channels, although the company's marketing focuses on its large selection of HD movies, TV shows and other content available on demand.

Most providers examined in the study charge a premium price for HDTV service, usually less than $10 per month. But some, including Cablevision and Time Warner Cable, offer a substantial number of HD channels for free.

Qwest: Enterprise and Wholesale Drive the Business

Some will look at Qwest Communications International Inc. fourth quarter and full-year results and see trouble; others will see improvement. Irrespective of those judgments, it should be noted that for Qwest, business markets and wholesale are the majority of the business. 

Mass markets, which includes both consumer and small business revenue, represented about $1.4 billion worth of fourth-quarter revenue (and some portion of that is small business). 

Wholesale markets contributed $789 million. Business markets represented $1.1 billion.  In other words, Qwest one of these days relatively soon will be earning more money from wholesale and business customers than from consumers, as important as consumer markets may remain.  

Furthermore, revenue in business markets grew year over year, while mass market and wholesale revenue declined, with those declines attributable to voice services. 

In the fourth quarter of 2008, net income was $185 million, or 11 cents per diluted share, compared to $366 million, or 20 cents per diluted share, for the fourth quarter of 2007. Bad, eh?

Not if one considers the adjustments. The results include severance charges of $19 million, or one cent per diluted share, in the fourth quarter of 2008. More important, though, the earnings per share calculations reflect higher pretax income compared to the fourth quarter of 2007, offset by increased tax expense as the company recorded normal effective tax rates beginning in 2008. 

Income before income taxes in the fourth quarter increased 17 percent compared to the fourth quarter of 2007.

Revenue in the quarter was $3.3 billion, a decline of three percent compared to $3.4 billion

in the fourth quarter of 2007 and a decline of two percent compared to the third quarter of

2008. 

Adjusted EBITDA for the quarter was $1.18 billion, a four percent increase compared to $1.14 billion in the year-ago period and a nine percent increase compared to $1.08 billion in the third quarter. Adjusted EBITDA margin was 35.6 percent compared to 33.1 percent in the fourth quarter of 2007 and 32.1 percent in the third quarter. 

For the full year, net income was $681 million, or 39 cents per diluted share, compared

to $2.9 billion, or $1.52 per diluted share, in 2007. Full-year results reflect the same normal effective tax rate dynamics as the fourth quarter. 

Earnings per share results include net special charges of three cents per diluted share in 2008 and 20 cents per diluted share in 2007. Income before income taxes was up 13 percent after adjusting for onetime

items.

Total revenue for the fourth quarter of $3.3 billion reflects an eight percent year-over-year growth in data, Internet and video revenues, which was offset by a decline of nine percent in voice revenue and a 33 percent decrease in wireless revenues.

As Qwest tells the story, income before income taxes increased 17 percent year over year while EBITDA increased four percent. Enterprise data and IP revenue was up nine percent year-over-year.

Data, Internet and video revenue now 25 percent of mass markets revenue, a key measure of how well Qwest is replacing declining landline voice revenues with new and alternative revenues. Qwest's consumer broadband subscriber base increased nine percent year over year. 

Brighter Prospects for SaaS?

Historically, the transmission belt for new applications and communications technology has been that university researchers would come up with something new, suppliers would sell those innovation into the enterprise market, and then at some point the tools move into the mid-market, then finally into the smaller business entities, finally winding up as consumer tools in the final stage.

These days, there are different avenues. In many cases, innovations come out of universities, then go straight to the consumer market and then fairly quickly into the small business market, with enterprises and mid-market customers becoming aware of the trends only as individual "lead users" start to make use of the tools in their work roles. 

Of late, in fact, it is hard to point to any significant innovations that went enterprise first, with the exception of mobile email, which was driven by enterprise users. Everything else pretty much developed first in a consumer context, including instant messaging, text messaging, any-to-any email, social networking, blogging and wikis. One might get an argument about wikis, but some of us would consider wikis to have been popularized in the consumer space. 

So it is with software as a service, which most observers will say has gotten most traction in the small business and consumer spaces, and only now is being considered in the enterprise and mid-market spaces.

One has to assume the opportunities for such changes are enhanced by the challenges businesses and organizations now face, as potential buyers now are facing new questions about how they ought to be doing things. 

Are Telcos Toast?

There is a sentiment in some quarters that the telecommunications industry is too inflexible, slow moving and unimaginative to transform itself. Those criticisms are well taken. They could be right. But look at matters a different way. If executives know what business they really are in, they won't make the proverbial mistake the railroad industry made: thinking it was in the "railroad" business instead of the "transportation" business. 

In fact, a quick review of technology underpinnings of the communication industry should tell the story. AT&T once meant "American Telephone & Telegraph."

The telegraph, and the business it created was an 1840s invention. The telephone was a 1870s invention. AT&T made the transition. Wireless was invented in the 1890s. And though they were slow to enter the business, large "landline" providers now lead the wireless business. 

Radio broadcasting was invented in the 1920s, television in the 1950s. Telcos and cable companies now are distributors of audio and television programming, on both a "tethered" and "mobile" basis, and this role will grow. The geostationary satellite industry was created in the 1960s. AT&T remains a big player in the satellite communications busines.s 

Computer communications began in the 1970s. Large telcos pretty much failed at their first efforts to enter the "computing" industry. But in different ways, they now are re-entering the computing services market, as integrators, content delivery networks and, someday, players in "cloud computing" infrastructure.

Optical communications began in the 1980s and telcos and cable companies are major end users of optical communications.

The Internet originated in the 1990s and now Internet access is almost a "legacy" product for telcos and cable companies. The next wave of IP-enabled next generation networks has barely begun. But I am hard pressed, looking at history, to worry too much about ability to finesse the latest waves of technology advance.