Private Line Market Starts Decline

After years of steady growth, the $34 billion private line services market is entering a period of declining revenue, says Insight Research. It could hardly be otherwise. Just as IP-based services are displacing TDM-based voice, so IP-based and Ethernet-based bandwidth services are displacing SONET bandwidth services, frame relay and ATM services.

U..S enterprises and consumers are expected to spend more than $27 billion over the next five years on Ethernet services provided by carriers, Insight Research predicts. With metro-area and wide-area Ethernet services now available from virtually all major data service providers, the market is expected to grow at a compounded rate of over 25 percent, increasing from $2.4 billion in 2009 to reach nearly $7.8 billion by 2014.

The decline in revenue will continue from 2009 to 2012. But Insight Research also believes private line revenues will tick up a bit after 2012, presumably as additional applications drive demand for more bandwidth. Why the growth would not come in the form of alternative IP bandwidth is not precisely clear, though.

Insight believes additional demand for wireless backhaul and video will lead to more buying of SONET products. Some of us would disagree, but we shall see.

"The transition away from frame and ATM will put a break on overall private line industry revenue growth for a couple of years," says Robert Rosenberg, company president . "However, private line demand remains strong for wireless backhaul, local bandwidth for caching IPTV video services, and for facilitating VoIP."

Google Nexus One for AT&T?

A device that's almost certainly an AT&T-compatible version of the Google Nexus One has been approved by the Federal Communications Commission. The version now sold by Google works on all T-Mobile USA 3G spectrum. but not on all AT&T 3G bands.

Versions running on Verizon's CDMA air interface and also for Vodafone are expected at some point.

Both the Nexus One and the newly-approved phone are being made by HTC. And while the name of the product in question isn't given, its model number is: 99110. The model number for the current version of Google's smartphone is 99100. These are so close its seems very likely they are from the same series.

Fundamental Changes to PSTN: What Would You Do?

Legacy regulation doesn't make much sense in a non-legacy new "public switched network" context. Nor do legacy concepts work very well for a communications market that changes faster than regulators can keep pace with, both in terms of technology and the more-important changes of business model.

In a world of loosely-coupled applications, old common carrier rules don't make much as much sense. Nor is it easy to craft durable rules when rapid changes in perceived end user value, which relate directly to revenue streams, are anything but stable.

Consider the public policy goal of ensuring a ubiquitous, broadband networking capability using a competitive framework, to promote the fastest rate of application creation and development, under circumstances where the government has neither the financial resources nor ability to do so.

The typical way one might approach the problem is regulate intramodally, looking at wired access providers as the domain. The other way might be to regulate intermodally, comparing all broadband access providers, irrespective of the network technology.

Then consider how a major broadband provider might look at the same problem. No wired services provider, as a practical matter, is allowed for reasons of antitrust to serve more than about 30 percent of total potential U.S. customers. Mobile providers are allowed, indeed encouraged, to serve 100 percent of potential customers, if possible.

Would a provider rationally want to invest to compete for 30 percent of customers on a landline basis, or 100 percent, using wireless?

Ignoring for the moment the historically different regulatory treatment of wired networks and wireless networks, in the new historical context, is it rational to spend too much effort and investment capital chasing a 30-percent market opportunity, or is it more rational to chase a 100-percent market opportunity?

Granted, network platforms are not "equal." Satellite broadband networks have some limitations, both in terms of potential bandwidth and network architecture, compared to wired networks.
Mobile networks have some advantages and disadvantages compared to fixed networks. Mobility is the upside, spectrum limitations impose some bandwidth issues. But fourth-generation networks can deliver sufficient bandwidth to compete as functional substitutes for many fixed applications.

Verizon has already stated that they're going to launch LTE at somewhere between 5 and 12 Mbps downstream. LTE theoretically is capable of speeds up to 80 Mbps, but that assumes lower subscriber demand and also low distance from towers.

The point is simply that discussions about national broadband frameworks will have to open some cans of worms. It is a legitimate national policy goal to foster ubiquitous, high-quality broadband access.

It may not be equally obvious that the best way to do so is to impose "legacy" style regulations that impede robust mobile capital investment and business strategies. That isn't to discount the value of fixed broadband connections. Indeed, broadband offload to the fixed network could play an invaluable role for mobile providers.

Still, aligning policy, capital investment and business strategy will be somewhat tricky.

Apple is Now a Mobile Company

The iPhone now is Apple's biggest business, and it was a "zero" revenue contributor three years ago. Where Apple had fourth-quarter 2009 Mac revenue of $4.5 billiion, it had iPhone revenue of $5.6 billion, up 90 percent year over year. The iPod contributed $3.4 billion in revenue.

Even if one assumes no Mac revenue is attributable to portable devices, iPhone and iPod revenue from fully mobile devices amounts to $9 billion out of a total $13.5 billion in quarterly revenue, or two thirds of total.

Voice as a "Spice"

Consultant Thomas Howe describes the way voice can work in a new context by calling it the equivalent of "spice." In other words, it might often be the case that, within the context of an enterprise application, voice is a feature used to enhance a process, rather than a stand-alone function or application.

In that sense, click-to-call is an example. Most people would agree that is the case. What remains unclear, at least for service providers who will continue to make signficant revenue selling voice as a stand-alone service, is whether "spice" is a business for them, or not. In some cases, it will be; but in other cases it will not.

To the extent that spice can be an interesting revenue stream for service providers is whether they can figure out ways to combine traditional calling functions with enteprise application features that integrate "calling" with information relevant to the call, that is valuable to the enterprise and is worth paying for, from the corporation’s point of view.

Monetizing such "hard to replicate" data by combining it with voice is where telcos have a great opportunity to grow, says Howe. There are many areas where only telcos can deliver voice and have the information that will add value to the call, such as authentication, location, even availability.

The issue is that many other providers in the business ecosystem also have the ability to integrate such functions in new ways. Google and Apple, for example, may well be able to leverage "location" information without needing the assistance or permission of the service provider.

Still, it should be possible to create services that confirm a person is home to receive a delivery, or to assist in scheduling at-home or at-office appointments.

Identity authentication, more than simply location or "phone number" identity, might be useful for transactions as well.

Few Takers for 50 Mbps Access

Time Warner Cable has about nine million high-speed access customers. It has about 20,000 customers for its fastest DOCSIS 3.0 service, which depending on configuration can support speeds up to about 43 Mbps per 6 MHz channel in the downstream direction, or more, if more bandwidth is made available.

All that means is that few customers are willing to pay $100 a month or more to get really-fast broadband access running at speeds of about 50 Mbps maximum.

How Important is AT&T's U-Verse?

AT&T books something on the order of $124 billion a year worth of revenue. In the fourth quarter of 2009, AT&T booked U-verse revenues representing an annualized $3 billion. Some will note that this represents about three percent of AT&T's annual revenues.

By way of contrast, wireless already contributes about $56 billion annually. For the quarter, wireless revenues were $12.6 billion and wireless data was about $3.9 billion.

A rational observer might note that U-verse, AT&T's broadband and TV services effort, represents less revenue annually than mobile data does in one quarter. One might also argue that U-verse is not a revenue contributor that really "moves the needle" in terms of overall AT&T revenue performance.

One might also infer that a rational AT&T executive would not spend nearly the time on fiber-to-customer services that he or she would spend on wireless services, given the relatively small contribution U-verse can make to the overall bottom line, even if such broadband services represent the future of the fixed access business.

On the other hand, U-verse services have a much-higher growth profile, growing at about a 32-percent rate in the fourth quarter, where mobile revenues grew at about a nine-percent rate. Wireless data is growing at about a 26-percent rate.

Still, a rational executive might conclude that the gross revenue implications of high wireless data growth rates are vastly more signficant than equally-high growth rates for U-verse broadband services.

Some U-verse growth cannibalizes digital subscriber line revenue. And though video services have room to continue growing, that revenue source is fundamentally bounded by the total size of the U.S. multi-channel video business, where AT&T essentially takes existing revenue and market share away from cable competitors.

The wireline data business essentially can aim to grow to nearly 100 percent of the existing base of AT&T's existing huge installed base of wireless voice customers. AT&T has more than 85 million mobile voice customers.

The entire U.S. cable customer base is about 62.6 million accounts, and AT&T does not have a universal U.S. footprint. AT&T ultimately might cover 30 million U.S. homes out of 115 million total with its U-verse network.

If AT&T often appears to be a wireless company first and foremost, there is a good reason.