Penny Wise, Pound Foolish Complaining About Communications?

Lots of people enjoy complaining about how bad their mobile service is, how expensive and slow their broadband is or how useless their landline voice service is. It isn't that the complaints have no foundation.

And even if unfounded, consumers are under no obligation to be "happy" about products they believe do not offer proper value-price-quality relationships.

Oddly enough, people are less happy when change is occurring. Students of revolution often have made that observation: that unhappiness is highest when there is hope for change, compared to situations where there is no hope of change.

The simple way of maintaining perspective is to ask oneself how much one was paying for such services--compared to the value one was getting--for any services as they existed in 1980s or in 1995. Then evaluate what one now gets, compared to the price, compared to when one first began using any new service (mobility or broadband or the Web).

The less conducted exercise is to compare how much complaining gets directed at all communication services as a whole, compared to what one spends for fuel on one's automobile. As it turns out, U.S. consumers spend 2.2 percent to 2.5 percent of disposable income on all communication services they use and buy.

Of late, they have been spending 2.5 percent to four percent of disposable income on fuel for autos and about 11 percent on transporation overall.

Of course, most people likely feel there is only so much they can do about spending on fuel or transportation, but considering that people spend more on fuel than all of their communications, and perhaps four to five times more on transportation, one wonders if people are not being "penny wise, pound foolish."

In other words, people seem to worry lots about a smaller amount of spending, but seemingly worry less about larger amounts of spending.

Small Business Optimism Plunges in July: Government is the Reason

Small businesses create 80 percent of new jobs, virtually all observers agree. So what's happening with small business hiring? The good news: year-to-date small business hiring, as measured by changes in the average size of a U.S. small business, is up 1.7 percent in 2009. The bad news: Salaries, on the other hand, have consistently been trending in the opposite direction. Year to date, the average small business salary has dropped 5.1 percent, says SurePayroll, which handles payroll functions for U.S. small businesses.

Year to date, salaries have dropped 5.1 percent. The average small business annual paycheck in the United States now is $29,995. One year ago, in July 2008, it was $32,290. The last time the average small business paycheck dipped under $30,000 was March 2006. Since we began the Small Business Scorecard in January 2004, the lowest average small business paycheck was $28,589 in August 2005.

The other potential worrisome finding is that, although optimism is growing on the job front, small business owner optimism has plummeted lately. To the extent that optimism is an underpinning for more hiring, that is troubling.

"For July 2009, we saw a substantial decrease in business owner optimism levels," SurePayroll says.

"In response to a survey we conducted at the end of July, only 56 percent of responding small business owners indicated that they were optimistic about the small business economy," SurePayroll says.

"That represents a big drop in optimism from June 2009 when 79 percent of respondents indicated they were optimistic about the small business economy. In May 2009, 73 percent of respondents were optimistic," the firm says.

It may seem odd that optimism is dropping at the same time that there are many reports about how the economy appears to have turned the corner toward recovery.

But many respondents indicated that their pessimism is powered primarily by increased government spending and concerns about the costs of health care reform. That should be a big warning signal for government policymakers who claim to want a fast return to higher employment.

Shocking Change in Video Behavior?

Is linear video about to take an unprecedented hit? A stunning new poll suggests it is possible, even if the results are shockingly different from any others taken so far.

Nobody ever seems surprised by surveys or polls suggesting younger users consume media differently than older users.

A new survey of 1,660 ChangeWave members suggests the changes in media consumption--though not a substitution of online video for linear video--are spreading to users between the ages of 45 and 63 as well.

The Baby Boomers surveyed now spend more free time online han they do watching traditional TV. Where they use the Internet 12.9 hours a week, they use TV 11.8 hours a week.

So what about substitution of online video for linear video? The results do not suggest users are switching video viewing to online mechanisms: they simply are watching less TV.

By a five-to-one margin, respondents say they are watching less traditional television than they did a year ago.

Among this group, 62 percent say it’s because they’re not as interested in what's on TV these days, and another 26 percent say they’re spending more time surfing the Web.

The big question is whether the linear video business model will face pressure as a result, not because users are watching online, but because TV itself is not as interesting. That might be the case.

Among traditional TV viewers, 20 percent say they’re likely to downgrade or cancel their current TV service package in the next six months. That is a bombshell. No other survey I am aware of has suggested anything like this level of dissatisfaction with linear video subscriptions.

The likelihood of canceling is highest among cable and satellite subscribers, 22 percent of whom say they are likely to do so, while just seven percent of fiber-optic TV subscribers say they are likely to do so.

Respondents delivered bombshell results on another question as well. When asked which one paid subscription they’d be most willing to give up, 44 percent said their video subscriptions. In virtually all other surveys I am aware of, TV has been least likely to be dropped.

So radically do these findings differ that one suspects there is sampling bias. But if there is something changing out there among the "Boomer" demographic, we ought to know soon enough. Though I cannot imagine shifts of this magnitude, we ought to see softening of cable and satellite video subscriptions within a year or so.

This bears watching. Because the results are so divergent from all others, there is risk of sampling error: the self-selected respondents might not be typical of the wider population. But it also is possible the survey is detecting a radical shift of sentiment that has not occurred before.

The results are unprecedented, and shocking.

Small, Mid-Sized Businesses Have Embraced Online Advertising

Small and medium-sized businesses in the United States are more likely to advertise online than through traditional media, but spend less on online than traditional media.

In August 2009, 77 percent of U.S. SMBs used online for advertising, compared to 69 percent that used traditional media, according to The Kelsey Group and ConStat.

The groups say the August figures represent the first time penetration of online advertising surpassed traditional.

“We have been tracking the trend of digital/online media replacing traditional media over four waves of the Local Commerce Monitor study,” said Steve Marshall, director of research at The Kelsey Group. “The milestone of digital/online surpassing traditional media among SMBs is an indicator of the broad shift to online platforms.”

Note, however, that spending does not necessarily track penetration. Though more SMBs used digital advertising, the majority of their budgets still went to traditional channels. In August 2009, The Kelsey Group found 36.8% of SMBs’ advertising budgets went toward online. That was up more than 14 percentage points over the prior year.

Total annual ad spending among SMBs was down, from an average of $2,734 in August 2008 to $2,092 in August 2009. Spending on Websites and online profile pages, however, was up more than 26% to $769.

New Cables Mean 72% Drop in Long Haul Bandwidth to Africa

What will 12 new undersea cables to Africa mean? Broadband prices on the long-haul networks will drop as much as 72 percent over the next three years, says Pyramid Research. But demand for capacity will grow at 28 percent through 2013 as well.

Click on the image to enlarge it.

The cables will increase Africa’s total international bandwidth from about 6 Tbps to as much as 34 Tbps and will reduce the number of coastal countries without any cable access from 19 to one.

AT&T Gets Unwanted Attention Over iPhone

No mobile service provider wants the attention AT&T is getting about how unhappy iPhone users are about their ability to use their devices, and the industry as a whole does not need such attention at a time when it faces possibly major reregulation by the Federal Communications Commission that could affect industry revenues right at the point that the industry is racing to upgrade its broadband capabiltiies.

One can argue one way or the other about the state of AT&T's 3G network, but there seems little question that Apple iPhone user behavior is so strikingly different from that of other smart phone users that every carrier has to be concerned about what happens as more devices like the iPhone are sold to end users. If most of them start to behave like iPhone users, carriers are likely going to have serious bandwidth problems.

Apple iPhone users consume two to four times as much network data volume as other smart phone users, according to traffic measurement company Comscore. And it also appears that users of the 3G version use 100 percent more data than iPhone users on the 2.5G networks.

So the business problem is fairly clear. An AT&T data plan of $30 a month for just about any smart phone has dramtically different revenue implications. Most smart phone users put light loads on the network for that $30, while Apple iPhone users put heavy load on the network, for that same $30.

Some think the mere expedient of building new 4G networks will solve the problem. It will help--a lot. But even that is not a permanent solution, in and of itself, if other smart phone users start to behave as iPhone users do, and all of them start consuming more video.

Alcatel-Lucent studies show that Web browsing consumes 32 percent of data-related airtime but 69 percent of bandwidth, while email uses 30 percent of airtime but only four percent of bandwidth.

One suspects this situation cannot continue. Either there will be changes to unlimited data plans, such as higher prices, as well as other ways of better matching network load to service provider revenue. Customers won't be happy about that.

But carriers might have to resort to plans that differentiate between the load different applications--especially video--place on the network and charge accordingly. Mobile networks simply do not have the ability to supply the same amount of bandwidth that wired networks do.

As more users switch to smart phones, and start to consume video and Web applications more intensively, push will come to shove. Some observers think many users will start to use their smart phones more than their wireline-tethered PCs for Web application access. Something has to give here.

And one way things could change is if significant shifts of market share were to occur, spreading the iPhone demand over more networks than AT&T's. All the carriers will keep investing in their networks, and all will be under competitive pressure to keep access costs as low as possible. Despite all that, demand might outstrip supply. So change is inevitable.

http://www.nytimes.com/2009/09/03/technology/companies/03att.html?_r=1&hp

Qwest Upgrades to 100 Gbps, But Worries About Future Price Impact

Qwest Communications is enhancing its nationwide network to deliver speeds of up to 100 Gigabits per second to its customer edge sites. This build-out has begun on Qwest’s network and is planned through 2010, though no further details are publicly available at the moment. But potential customers can expect that 100 Gbps local access to the backbone will be available in markets where Qwest already offers Ethernet-based "iQ Networking" and "QWave" data networking services.

But Pieter Poll, Qwest CTO, says he is concerned that, after a few years, optical component limitations could impair its ability to keep its cost per bit in line with customer expectations. The basic issue is that customers consume 40 percent more bandwidth every year and expect prices to remain flat.

That means Qwest has to continue reducing its cost per bit by more than 40 percent every year to keep up, Poll told Telephony Online. And Poll worries that Moore's Law, which generally governs development in the electrical domain, will not be possible in the optical domain.

“In the optical environment, you have basic physics issues in how you can integrate to bring costs down," he says. "There is no Moore’s Law in the optical world."

If that observation proves correct, Qwest wil have to look for cost reductions elsewhere. Operations, marketing, overhead, sales and other costs might have to be cut if the gains cannot be made in linear fashion on the optical network element front.

One suspects optical suppliers will do better than Poll now forecasts, but the challenge appears to be real.