$350 Billion to Build 100 Mbps Symmetrical Broadband Throughout U.S.

Based on an average cost per dwelling of about $2,700, including capital and operating expense (construction and so forth), the Federal Communications Commission estimates it will take about $350 billion to bring 100 Mbps service to about 111 million to 116 million U.S. homes.

Internet Users are Unique, Treat Them That Way

As this chart suggests, there are distinct Internet end user segments, some of which only require moderate bandwidth, others which require more bandwidth, better latency performance and more upstream bandwidth, if not symmetrical bandwidth.

The issue for any facilities-based service provider is that the whole network has to be built to accommodate the most advanced users, even if much, or most, of the demand is from less-demanding users.

Still, given that such investment must be made, there is increasing room to personalize and tailor broadband access and applications to individual users who actually behave in unique ways.

Though the concern expressed by many supporters of strong forms of network neutrality rightly is focused on protecting legal applications from anti-competitive behavior, there clearly are other values that conflict with the  proposed solution for discrimination, which is that no bits, from any providers, can be prioritized.

In fact, prioritizing bits represents a primary tool for personalizing end user services and applications so that those favored applications are optimized for each user. Surely there are ways to ensure non-discrimination without precluding the creation of personalized services that benefit from end-user specified preferences.

Is Mobile Broadband a Commodity?

Most industry observers tend to think and behave as though "voice" were a commodity, and there is some truth to the notion, at least on the wholesale, carrier-to-carrier or carrier-to-enterprise level. I would dispute the notion that voice, in all its permutations, actually fits the definition of a commodity, but for the moment let's look at mobile broadband.

Is mobile broadband a commodity? Can it replace a fixed broadband connection. As this chart suggests, the answer largely is "no." A mobile service easily can displace a single consumer voice line or simple Internet applications such as email. But it isn't so clear email access is what people generally mean when thinking about mobile broadband.

At the other extreme, high-quality linear entertainment video is virtually impossible to replicate in the mobile domain, so IPTV, for example, has no direction equivalent in the wireless domain. Other applications are somewhere between "mostly" substitutable and "not" substitutable.

The point is that a product probably isn't a full "commodity" if full substitution is not possible, or is possible, but without fully interchangeable value. So far, mobile broadband does not seem to be a "commodity" fully capable of replacing a fixed broadband line.

There are many reasons, including vastly different speeds, usage caps and pricing. Then there is the demographic element. It is easier to consider substitution when a single-user household is concerned, hardest when multi-member families are concerned.

The value of a fixed broadband connection grows with the degree of bandwidth sharing and total number of devices to be supported. One fixed broadband connection might make more sense than five mobile broadband connections, for example.

The other angle is that linear multi-channel entertainment video is just a discrete application delivered over a fixed broadband connection, and there is as of yet no mobile substitute. So despite outward appearances, mobile and fixed broadband are not fully-exchangeable substitutes, and hence not true commodities.

Monetizing Broadband: Something has to Give

Inevitably, Verizon Communications Chief Technology Officer Richard Lynch would get attention in mentioning that the broadband industry “will see a pricing paradigm shift” because Internet service providers “cannot continue to grow the Internet without passing the cost on to someone.”

Lynch's remarks would come as no surprise to anybody who follows revenue-per-bit trends in the broadband access business. It has been clear for some time that, as access bandwidth increases, revenue is not keeping pace.

Service providers have some room to deal with the widening gap, by adding new revenue-producing services and applications, managing cost and so forth. But there is not unlimited room to juggle cost elements.

At some point, higher bandwidth, which customers want to buy and service providers want to sell, will require investments with a more-linear payback mechanisms.

That likely means new ways of pricing bandwidth consumption. That probably doesn't mean a shift to fully-metered usage, as consumers do not like it, and such an approach undoubtedly would depress consumption and therefore stifle new applications and services.

But there are lots of other, more-palatable alternatives, namely "buckets" of usage analogous to the ways people now buy voice services or text messaging. Bigger buckets will cost more money; smaller buckets will cost less.

And if network neutrality rules are not onerous, service providers might be able to create service tiers with quality of service mechanisms, much as business customers are able to buy, though basic "best effort" plans likely would coexist.

“We are going to reach a point where we will sell packages of bytes,” Lynch says. Those packages might also offer differentiated quality of service.

Consumption at "off peak" hours might be offered at prices lower than equivalent consumption at peak hours, for example. Whether optional packages could be offered that allow end users to prioritize some applications, as businesses do, will not be clear until after new network neutrality rules are clarified. And that is going to take some time.

Video Business Model Disruption Inevitable, But Not Imminent

What will media companies look like in a couple of years? Pretty much what they look like today. But what will they look like in 10 to 15 years? Very different.

There are clear reasons why the couple of years will look an awful lot like this year,  while a decade from now the whole media business could be structured in very different ways.

First, new IP technology and broadband is in place that will drive a long cycle of innovation for challengers and economic destruction for incumbents. That almost assures vast change over a longer time frame. But the emphasis here has to be on "long" cycles.

Changes in the media can take quite a long time to mature. Gordon Crawford, The Capital Group managing director, notes that in 1972 the existing media business was quite attractive, financially. But that changed after 1995, the year of the Netscape initial public offering, which ushered in the age of Internet-based media.

Only now, 14 years later, is the impact starting to really affect the print segment of the business. And most of the video impact has yet to arrive.

Still, Crawford thinks change is inevitable. "If you go out enough years, bandwidth will be there," he says. "Storage will cost nothing and rights issues will be resolved."

"People will have access to whatever they want, whenever they want it, on any device," says Crawford.  "That is where we are going."

But one has to remember that large-scale and fundamental technological changes seem to have less impact when the trends are just beginning, but reach some inflection point, beyond which vast change happens relatively quickly. That should not be too different for the video business.

There will be less change that you expect early on, and greater change later, in other words.

There are some possible outcomes, though. If regulators were, for example, to impose an "a la carte" pricing regime on video providers, 250 of 400 cable channels will disappear overnight," says Crawford.

Peter Chernin, former News Corp. president, also agrees that fundamental change is coming. "Non-consumer-friendly business models cannot be supported anymore," he says.

"The single biggest question facing the industry is the ability of niche cable channels to survive," says Chernin. "About 60 to70 percent of media profits of big conglomerates come from there."

But people only want to watch 10 to 15 channels. "Is that sustainable?" Chernin muses.

And while most people think Hollywood ultimately will change its "release windows," that might not have as much effect on what consumers decide to rent or buy as one might think. But there could be big changes in distribution.

Chernin thinks the days of people buying DVDs are numbered because of streaming. "The DVD business is declining 15 to 20 percent a year," he says. If networks are ubiquitous, can you convince people to own content for $15 when they can stream it for lots less?

Some "70 percent of DVD purchases are for new releases," Chernin notes. Even if the delivery format changes, that is likely to remain the buying pattern.

"It’s just a matter of time" before cable networks are faced with "digital destruction," Chernin says.

There are obvious implications for satellite, cable and telco multi-channel video providers, of course. The good news is that distributors have some time to get ready for the transition. Being "too early" is about as bad for business as "being too late."

Smart phones for Play, More than Work

Though businesses only buy smart phones for their perceived productivity advantages, a new Compete survey sugggests people mostly use their smart phones for entertainment and other personal applications.

That is to say, entertainment, games, music, social networking and weather are the most popular across smart phone platforms.

More than anything else, the Compete survey results illustate the changing value proposition, application focus and business models possible in the wireless space. Communication remains fundamental. Email, microblog posts, instant and text messaging are communication formats, first and foremost.

But mobiles also are becoming entertainment devices. The survey shows that smart phone owners prefer personal and social apps to business applications.

That was not true early on, when a "smart phone" was nearly synonymous with "BlackBerry," and was bought on behalf of business users. While business users remain a key segment of the market, consumer users gradually are becoming the majority of the market.

The survey suggests that iPhone owners, more so than other smartphone users, were more likely to spend money on apps., while 83 percent of all smartphone users preferred apps $5 or below. Whether that is because first movers are different than mainstream users, or because the Apple user experience is so much easier, is hard to determine with precision at this point.

About 73 percent of Blackberry owners have downloaded five or fewer applications; in contrast, 72 percent of iPhone owners have downloaded 10 or more applications. Clearly, iPhone owners have been more receptive to customizing their devices.

Facebook is hot among iPhone owners. About 71 percent of iPhone users report accessing Facebook from their mobile device, and 37 percent listed Facebook as one of their top three most used apps. About 18 percent claim it's their favorite app.

Despite Twitter's ever-increasing mobile popularity, 85 percent of smart phone owners still prefer to access the site from the computer.

While 26 percent of iPhone users tweet from their device, only 15 percent of Palm owners and 10 percent of Blackberry users report accessing Twitter on the go.

Of the smart phone owners who do access Twitter via their phones, 41 percent use the application to keep track of what their friends are doing, 32 percent use the service to keep up with current events and 19 percent tweet from their handset to build a fan base or promote their company.

Facebook is the most heavily trafficked social networking site among smartphone owners, says the report, and iPhone users are twice as likely to use the mobile Facebook app as their Palm counterparts. In fact, iPhone owners are the most active mobile social networkers, with the highest percentage of respondents reporting mobile use of Facebook, MySpace and Twitter and from their mobile devices.

Prepaid Mobile Declining in Western Europe

In Western Europe, the prepaid share of total mobile connections varies significantly by country, but on average it was 57 percent at the end of 2008. Yankee Group is forecasting that figure to decline to 47 percent by 2013. In developing markets, prepaid dominates. For example, in Latin America prepaid accounts for 84 percent of mobile connections today. Yankee Group is predicting this percentage will remain flat during the next five years.