Twitter: "What's Happening," Not "What are You Doing?"

Twitter has made a refreshing, helpful and important change in the basic question our tweeting bird friend asks us.

"What are you doing?" had been the question. The new question is "What's Happening?" That makes more sense to me, corresponds to the way I use the service, and I suspect will deepen and extend the use of tweets as a broadcast, one-to-many information service.

"The fundamentally open model of Twitter created a new kind of information network and it has long outgrown the concept of personal status updates," says Twitter founder Biz Stone. "Twitter helps you share and discover what's happening now among all the things, people and events you care about."

What's interesting here is an important, if subtle shift from "you" to "the world around you." That isn't to say people will stop posting about where they are, random musing or what they are doing, as people.

It is to say that Twitter now is poised to become a more important "news" or "media" format, as it already has been becoming.  I like it.

Another Broadband Stimulus Delay

The National Telecommunications and Information Administration told the U.S. House and Senate Appropriations Committees it will start awarding grants in February 2010, another slip from the revised timetable of December 2009.

The first round of grants was supposed to be issued in June 2009. All during the year, telecom suppliers who are thought to benefit from the program have been asked about when the funding would show up in company activity. Now we know the answer: not until 2010 and probably 2011.

The delay presumably means grants or loans issued by the Rural Utilities Service might also slip into next year. Both programs have experienced delays, perhaps inevitably, given the huge increase in workload.

The NTIA and the Rural Utilities Service say they have received roughly 2,200 applications for the $4 billion worth of grants available for broadband projects in the United States that is available in the first round of funding.

The applications ask for total of about $28 billion in broadband projects, or seven times the total funds available.

The $4 billion in grants currently available to applicants is just the first part of the $7.2 billion that the government has allotted to fund broadband infrastructure investment over the next two years.

Of that money, $4.7 billion has been given to the NTIA to award grants for projects that will build out broadband infrastructure in un-served or under-served areas; to deliver broadband capabilities for public safety agencies; and to stimulate broadband demand through training and education.

The remaining $2.5 billion in broadband stimulus money has been allotted to the Department of Agriculture to make loans to companies building out broadband infrastructure in rural areas.

Barnes & Noble Runs Out of E-Book Readers, Demand Stronger than Forecast

Barnes & Noble says it has run out of available stock of the new Nook e-book reader. Customers who ordger now won't get it until the week of Jan. 4, 2010. "Preorders have exceeded our expectations," said Barnes & Noble spokeswoman Mary Ellen Keating. The company says its $259 e-book reader "continues to be the fastest-selling product at Barnes & Noble.

That has been true for Amazon's Kindle, as well, which is the leading e-book reader at the moment. Analysts have been ratcheting up their sales forecasts over the past two years as consumers exceed earlier forecasts.

Apple, meanwhile, is rumored to be preparing a tablet style device that could double as an e-book reader, and, rumor suggests, will be available early in 2010.

So there is lots of "action" in the e-book reader space, interesting for what it implies about the future economics and distribution formats to be used by the publishing and news industries, the sustainability of "single-purpose" mobile device markets over time, contrasted with "multi-purpose devices," and the associated impact on mobile service provider business models.

There doesn't seem to be much question that distribution of print content now is at the beginning of a change that music already has gone through, and that video also is undergoing. Book distributors and publishers have to be wondering whether this is all such a good thing for them.

From an end user standpoint, one of the interesting angles is whether the e-book reader remains a stand-alone, single-purpose device or whether it ultimately becomes a feature of a multi-purpose device. The answer obviously has huge ramifications for smartphone, netbook and e-book providers.

There is no single historical pattern here. TV displays, home audio systems, microwave ovens and landline phones generally have remained single-purpose devices. The iPod has been a single-purpose device, but the "touch" and now the iPhone might be changing that situation.

Smartphones are multi-purpose devices. Portable navigation devices traditionally have been single-purpose devices, but the Motorola Droid is challenging that notion.

Apple's rumored tablet would be an attempt to provider a multi-function device, and that probably is the form factor necessary for such a convergence. Though people have speculated on smartphones becoming e-book readers, the challenges of form factor (small enough to fit in purse or pocket, light enough to use as a phone, plus large enough screen size to read) seem rather implausible in a single device.

Besides Amazon and Barnes & Noble, other companies offering e-readers include Japan's Sony, Britain's Interead, and Dutch company IREX Technologies.

Forrester Research estimates that three million e-readers will be sold in the United States this year, up from a previous forecast of two million units.

Forrester said it expected 900,000 units to be sold in the upcoming holiday season alone and for e-reader sales to double to six million units in 2010, bringing cumulative sales to 10 million units.

Citi analyst Mark Mahaney thinks Amazon will sell 1.5 million Kindles in 2009, up from his previous estimate of one million. Mahaney thinks Amazon will sell 2.7 million Kindles in 2010.

“Book applications for smartphones have the potential to become a bridge to other devices such as tablet readers and netbooks,” said Mr. Weiner. “Apple, for example, could migrate the more than 500 book applications in the iTunes store to a tablet device and Google, which recently announced a browser-based e-reader, could offer applications for Android-based devices of various form factors,” he says.

Mobile Broadband Complementary to Fixed Broadband

Over the next three to five years, mobile broadband will be complementary to fixed broadband, rather than a substitute, says William Lehr, economist and research associate in the Computer Science and Artificial Intelligence Laboratory at Massachusetts Institute of Technology.

"I expect fixed and mobile broadband services to offer distinctly different sets of basic capabilities, and as a consequence, to remain distinct services that will not be perceived as close substitutes in most user and usage contexts for the foreseeable future," Lehr says.

There will be situations where it is reasonable to expect that mobile services will be perceived as substitutes, if imperfect substitutes, for fixed connections, and will therefore result in some cannibalization, he says.

Users who are more budget conscious (the young or others with limited incomes, for example) are more likely to choose one instead of both services, Lehr suggests.

Heavy users may prefer fixed broadband access, while light users (or those who live alone) may find the mobile alternative more appealing.

Also, users who place a high value on mobility are more likely to opt for mobile over fixed services. Conversely, those whose principal mode of usage is at a fixed location and who would have a high need for a large sized display, may strictly prefer fixed broadband services.

As mobile data rates increase, some users may find that for their usage profile, mobile is fast enough to meet their needs even for shared household use. That should especially be true now that MiFi devices can allow sharing of one mobile connection by as many as five devices.

On the other hand, even though mobile bandwidth is increasing, so is fixed bandwidth. So the relative value of mobile over fixed services is greater when the fixed service is less capable. In other words, a fast 4G wireless connection might be perceived as superior to a lower-speed digital subscriber line connection, compared to a fiber-to-home connection or DOCSIS 3.0 cable modem service.

What the situation might be in 10 years is likely unknowable, but it is reasonable enough to assume that if today's smartphones are simply tomorrow's phones, and if new devices continue to be developed, that mobile broadband always will be a distinctly complementary service. If you assume today's 276 million mobile phone users in the future will simply be smartphone users with broadband connections, you get the point.

In fact, it probably makes more sense to say that fixed services are not going to be substitutes for mobile broadband, than to argue that mobile will be a substitute for fixed access. Nearly every mobile device will require broadband, irrespective of what in-home or in-office devices require.

Whatever you think about mobile broadband, it is worth remembering that mobile broadband services were not available in the U.S. market until 2005. So we are at this point just five years into the product's lifecycle.

By the first quarter of 2008, 40 million or almost 16 percent of mobile subscribers were regularly accessing the Internet using mobile broadband services, according to Nielsen.

Analysts at Forrester Research use a lower figure of 34 million subscribers in 2008. That will have grown at a 52 percent rate in 2009 to 52 million, and mobile broadband will continue to exhibit double-digit growth through 2014, when 106 million users, or a full 39 percent of all wireless subscribers, will become regular mobile Internet users, Forrester now projects.

PC data cards represent about 34 percent of mobile broadband subscriptions, while smartphones rapidly have emerged as the key driver of new mobile broadband accounts.

Is Twitter Traffic Falling?

More than one recent study has suggested that Twitter traffic is declining, after leveling off in the summer of 2009. But is it really? The answer is complicated.

According to Nielsen, traffic to Twitter.com was down a dramatic 27.8 percent between September and October 2009, falling to 18.9 million unique visitors.

Research firm comScore also noted that unique visitors were down 8.1 percent in October, while Compete reported a 2.1 percent decline.

Some might suggest the traffic decline is caused by falling interest in Twitter, while others suggest the traffic simply is caused by Twitter third-party applications and mobile access.

Crowd Science, for example, in August studied traffic patterns and found 43 percent of Twitter users accessed the service through third-party applications, and 19 percent using text messaging.

Personally, I'd bet on the use of third party apps and mobility as the explanation. Nielsen says the third quarter of 2009 was the first quarter in which more than half of mobile Internet users were accessing the Web using a smartphone, and since social network updates are a huge driver of smartphone usage, it stands to reason that traffic sources are changing.

Are Recession Driven Product Substitutions Permanent?

Whatever else one might say about it, a recession is a prime opportunity for product substitution whose immediate benefit might only be seen to be “saving money,” but which then might create a satisfying habit that leads to a permanent shift in demand, not just a temporary change of provider or service level.

In the U.S. market, the issue is whether the millions of customers who have opted for prepaid mobility will keep those plans even after the recession has past. Virtually nobody thinks consumers who have cut the landline voice cord in favor of mobility are likely to reverse course.

The poster child for substitution of mobile broadband for fixed broadband, for example,  is Austria, where  almost all broadband net adds have over the last year or two been mobile connections, rather than fixed connections.

And though the market in Austria and in the United States appear to have different structural characteristics, the danger of product substitution is amply highlighted in the Austrian market, where aggressive mobile providers, high fixed broadband prices and relatively low value of entertainment video create a sort of perfect storm for mobile broadband substitution.

And though it is not certain, past recessions were linked with, though perhaps not directly contributors to, the rise of disruptive new players in media or communications ecosystems.

Google was born in 1998, in the midst of the Asian financial crisis, while Skype was born in 2003, after the dot-com implosion, for example.

Changes in industry structure and the emergence of disruptive new industry leaders will not be ascertainable for some time. But churn is going to be easier to track, as we normally get reasonable trend data from any number of public companies every three months. We largely will have to guess at how product substitution might be occurring.

Some forms of substitution are now so commonplace as to be expected: cable companies and mobile providers gaining voice customers while telcos shed them; telcos gaining video customers while cable companies shed them while online viewing grows.

Other likely product substitutions are less visible. It is not clear there is any appreciable substitution of mobile wireless broadband for fixed broadband. But logic suggests that will become a greater opportunity and danger in several years, when fourth-generation services are more widely available.

Parks Associates research, for example, finds 80 percent of broadband users in key European markets prefer traditional video viewing to online viewing. Depending on how you want to spin it, that is a glass half empty or half full.

“Broadband has transformed video viewing habits in Western Europe, where over 20 percent of broadband households have watched a film or TV program online in the past six months,” say researchers at Parks Associates.

Mobile broadband and mobile broadband modems and dongles (including embedded devices) are growing dramatically. In several major European markets, including Austria, Ireland and Sweden, as many as 15 percent to 30 percent of broadband subscriptions are now over cellular networks, up from nearly zero a year ago, the International Telecommunications Union says.

Think about that for just a moment. From zero, mobile broadband jumps to 15 to 30 percent of total broadband accounts, in a single year.

That represents some mix of additional access accounts supplemental to fixed broadband, and some substitution. But it is significant that the ITU report believes the growth shows “mobile broadband can substitute for light-usage DSL.”

So the logical question is whether mobile broadband is to fixed broadband as mobile voice was to fixed voice.

Analysys Mason notes that one of the key success factors for the rapid take-up of HSPA (3G) has been the introduction of flat-rate pricing with either unlimited usage or very large inclusive data bundles.

So at least in some markets, the recession could be leading some significant number of consumers to trade off their fixed broadband connections in favor of mobile broadband.

The longer-term issue is more important. Once they have learned to live that way, will they continue when the recession ends?

That is the big danger on a number of fronts. And it is a bigger change than simple churn, as important as that is.

If a business customer picks another provider for one or more services, the danger for the original provider is that this particular customer never returns.

If a customer switches from cable to telco or satellite for video, does the cable company ever get that customer back? And if a customer abandons all landline service, does a telco have much of a shot at getting that customer back later?

Those issues are real enough. More challenging though is a fundamental new behavior pattern that changes the size and value of an entire market segment, application or service, not simply the market share various contenders can claim.

Sure, there will be important but temporary effects during the recession. What bears closer scrutiny are permanent changes in end user demand. The recession will provide incentive to try new things. Once that happens, we might see the behavior persist even after the recession-induced driver has passed.

We won’t know precisely how important all that is for some time. What does seem clear is that lots of people are going to try new things, maybe just to save money at first. There is no way all that behavior is going to stop once the recession is a memory.

If You Wanted to Build a National 100-Mbps Access Network, Could You?

The Federal Communications Commission says it will cost $350 billion to build a single, nationally available broadband access network operating at 100 Mbps and reaching virtually every American. The FCC also says it is studying whether telcos and cable companies should be forced to offer open access to third parties that want access to their networks.

Assuming one believes that both ubiquitous access and 100 Mbps speeds are a desirable thing, and virtually everyone might agree, in principle, that that is a worthy goal, the issue becomes "how to get there."

At some fundamental level, policymakers will have to decide whether they want maximum deployment and innovation in terms of new physical facilities, or mazimum third party access. 

Some will argue this is a false choice. That is possible. There is no way to predict with certainty what will happen if robust open access policies are instituted. 

That would be especially true if cable operators, for the first time in industry history, also were forced to open up their facilities for open access. 

Many will point to mandatory open access policies existing elsewhere in the world, and argue the same sorts of benefits can accrue in the U.S. setting. Some consumer advocates say open access is one reason why Internet service is cheaper and faster in those countries. it's a complicated question to answer, however. 

In most, if not all countries where robust open access rules apply to telcos, the competitive landscape is quite different from that of the United States. Few other countries have ubiquitous cable broadband and telco broadband. 

That might not seem, at first blush, to be much of an issue. It is, and the reason is as simple as pointing out that competitive markets are distinctly different from monopoly markets. Keep in mind that a single provider of very-high-speed access, operating on an open access model, still is a monopoly. There is one network and all comers can pay to use it. 

The issue is that such a provider, or providers, as would be the case in the United States, would not be able to operate as a monopoly, because there no longer is any such thing in the U.S. broadband communications business. 

In most communities, there already exist two fixed broadband access providers in the cable and telephone company. In addition, there are places where a third fixed operator exists, or one or more fixed wireless providers.

Then there are two national satellite broadband providers, Wildblue and HughesNet.

Beyond that, there are four mobile providers with existing or partially-built mobile broadband networks, as well as Clearwire, also in the process of building its own national broadband network.

So here's the problem. Where open access broadband networks are most successful, there is not a ubiquitous cable competitor fighting head to head for customers. Assume for the sake of argument that cable providers, nationally, have about 48 percent share of the fixed market, all telcos collectively have 38 percent, and other providers have the rest. 

Assume away all the issues of changing the business models of the whole industry so that one provider in each locality is charged with building a 100-Mbps access network, and is then free to provide service to all comers, at government-mandated rates.

Assume away the problem of the actual wholesale rate, which was part of the Telecommunications Act of 1996. That Act imposed just such an open access policy on major U.S. telcos.

To simplify what happened in the aftermath, telcos violently disagreed with the wholesale rates, while competitors argued just as vociferously that the mandated rates were too high. At the same time, investment in faster broadband facilities slowed dramatically, for one simple reason. Telcos saw no advantage to investing in expensive new facilities that provided a financial return unappealing to the entities who would have to lend the money.

All of that changed when new rules were written that exempted new fiber-based facilities from the open access requirements. Keep in mind that cable companies still do not have any open access requirements of any sort, and that any new broadband policies might well require them to provide wholesale access as well, and that they might also object to the mandatory wholesale rates. 

But ignore that for the moment. Here's the investment problem. Companies have to raise $350 billion in private capital to build the network. And when they develop their financial projections, they will have to note that the new revenue from building the $350 billion network is based on the incremental difference between what typical customers now pay for broadband access, and what they will pay for 100 Mbps access.

But there are other services on the network, you might point out. That's true. But here's the problem. The new network only replicates voice and video revenue already earned on the existing networks. No smart lender is going to okay huge sums based on replicating existing revenues. They will want to know what new and additional sources of revenue will exist. 

The providers can argue that where consumers now pay $40 a month for single-digit megabits per second of access, they will pay $100 to $200 a month for 100 Mbps access. Then the providers will have to model what percentage of customers will do so. When the number turns out to be quite small, the money will not be raised.

There just aren't all that many customers willing to pay $100 to $200 a month to get 100 Mbps when they can do nicely with 20 Mbps to 40 Mbps for lots less money. Ask people. They will tell you what they'll do.

You might argue that take rates will be very high if people can buy 100 Mbps for $40 a month. And that's correct. The problem is again that $350 billion cannot be raised if the new network has no ability to pay a return, in a reasonable amount of time, on the investment. And at anything like $40 a month, no lenders are going to cooperate. 

But matters actually are more complicated than that, as if that was not a show stopper. Recall that most people who want broadband access already buy it. Recall that cable providers, with their own networks, serve about 48 percent of the customers. 

Ask any cable executive you can find whether they would be willing to stop using their own network and just buy access from the telco. Go ahead. Ask anybody you can find. Let me know when you find anybody that says they will do so. 

But ignore that. Say the local telco is charged with building the 100-Mbps access network, and that somehow lenders are convinced that large numbers of people will buy the more-expensive 100 Mbps service. How many of its own customers, and customers of other providers, will switch to buying the 100-Mbps service? 

Be generous and say 20 percent of all broadband access customers can be convinced to buy the 100-Mbps service. That means about eight percent of the telco's own retail customers will do so. 

Say 20 percent of cable customers desert. That adds another 10 percent of U.S. broadband customers. Then assume 20 percent of all the other customers likewise make the move. That adds another three percent of current broadband customers.

What that all works out to is that about one in five homes or locations the new 100-Mbps network passes will buy the higher-priced access service. So the issue is whether an adequate financial payback can be built on serving one of five locations passed with a single new service.

You might argue there also is voice and video, but the problem is that the existing networks already provide those services. Additional revenue is not created just because the network changes.  

But assume an investment of $2700 per passing to build the network. Assume the 20 percent take rate and $60 a month incremental revenue per customer ($100 a month). 

Based on those assumptions, the network costs $13,500 per customer, since only one in five homes is a buyer. At an incremental $60 a month in revenue, breakeven (even at zero interest cost) is 225 months, or 18.75 years per customer.

Nobody will lend money for a breakeven of 18.75 years, and that is assuming zero interest on borrowed money.

An open-access 100-Mbps network might be a worthy public policy goal. But it is hard to see how money can be raised to build it.