Surprise, surprise: rural broadband does not automatically lead to measurable job growth or other economic benefits. That doesn't mean we shouldn't provide it. But it likely is not ever going to provide a financial return for the companies that install it.
Aside from that, assume $5,000 investment per home passed. Assume a 60-percent subscribe rate, at $50 a month retail prices. Assume a 30-percent profit margin on such accounts.
The per-subscriber cost of installing broadband is $8333.00. Recovery of the investment cost, without factoring in the cost of capital or time value of money is about 14 years. If one assumes the useful life of the plant is 20 years, a company never actually makes money on such investments.
Worth noting: AT&T CFO Rick Lindner says "our stand-alone DSL product which about 50 percent of the time is bundled with wireless has been very strong for us."
You might suspect there has been some recent promotional activity to encourage such behavior but that is not the case. "We haven’t been running any significant promotional activities I think in the last few quarters," Lindner says.
The implication: high-speed Internet access and wireless are the two foundation communications services.
The rate of growth for online products plummeted from 24 percent in early 2006 to nine percent in early 2008, while the rate of growth for products bought at retail locations dropped from nine to five percent over the same period.
One can think of lots of reasons why this might be the case. A more mature business grows more slowly.
There's less novelty effect. Perhaps it is just the impact of the recession, and more staples are bought at physical locations.
The issue is what happens after the recession ends. There's a line of thinking that with serious deleveraging happening throughout the economy, consumer spending will not return to its pre-recession level.
Off the top of my head, it's hard to see why this line of thinking is wrong, though it is worth noting that consumer behavior often surprises researchers.
I estimate that direct response advertising accounts for about 80 percent of all ad dollars spent online, while in traditional media the situation is reversed," says Gian Fulgoni is chairman and co-founder of comScore. "There, branding dollars are estimated to make up about 75 percent of the market."
Why the disparity? "I believe that the very nature of the speed of the Internet and the young technical minds that first created online advertising both led to a focus on immediate response," he says. "The click metric is a good example of that."
“Time to purchase” is different for direct response ads, which aim at closing a sale or a transaction right here and now, and branding that builds brand equity that pays off over time.
Fulgoni thinks both are required. "For direct response ads to work well, it’s important that a brand’s equity have been communicated in advance of the consumer’s purchase decision," he says.
How do Internet media do brand building? "I believe it’s vital to take into account all of the marketing stimuli that affect consumer purchase behavior, not just that which occurred just prior to purchase."
"We should be wary of attributing 100 percent of the credit for a purchase to a click on a search ad," he says. Search might well have closed the deal, so to speak, but there is often a lot of other marketing activity that led the consumer down the path to purchase and, without which, closure might not have occurred.
The Atlas Institute, Microsoft Advertising’s research division, says “users exposed to both search and display ads convert at a higher rate: an average of 22 percent better than search alone."
Apple sold 3.79 million iPhones in its second quarter and 11 million iPods. No problem blowing past analyst revenue forecasts. Other smart phone manufacturers might be under pressure. Not Apple.
Despite understanable teeth gnashing over T-Mobile's blocking of Skype when using the 3G network, T-Mobile ultimately will allow it, either because customer pressure forces them to do so, or because European Union regulators do so.
If you are looking for some idea of what a cable-centric wireless service might look like, consider what Cablevision Systems Corp. is doing. After putting into place an extensive metro Wi-Fi network, it is launching a mobile version of its Optimum.net Web portal that's designed for all forms of cellular handsets but tailored for the company's 2.5 million cable modem subscribers.
The new mobile platform, accessible to handset browsers at m.optimum.net, is starting off with features including email, local traffic, weather, movie theater info, and access to Cablevision's digital TV lineup, but a remote DVR scheduler is on the roadmap.
