Covad and MegaPath Merge, More Activity Expected

Covad Communications Companyand MegaPath say they have agreed to a merger combining their businesses to create a larger managed services company serving business customers, though Covad's wholesale operations will continue as well.

D. Craig Young, MegaPath CEO, will take the post of Executive Chairman of the combined businesses, while Pat Bennett, CEO of Covad, who will continue as Chief Executive Officer.

Covad offers IP broadband services in more than 4,400 central offices nationwide through its commercial and wholesale distribution channels, though the bulk of revenue still comes from the wholesale side of the business, where Covad sells service to wholesale partners including AT&T, Verizon Business, and Sprint.

MegaPath sells hosted VoIP, managed security, MPLS VPNs for connecting multiple sites, and SSL VPNs to19,000 direct SMB and enterprise customers.

Consolidation in the telecommunications industry is not new, nor is consolidation in the competitive telecom industry, so the deal is not a surprise in that regard. The "roll up" is a time-tested growth strategy in the competitive communications, cable and wireless industries. . Nor is it surprising that company executives say more deals are coming.

Telecom is a scale business, and scale is doubly important when margins are under pressure, as is the case for virtually all legacy telecom products. When profit margins get squeezed, financial performance can be maintained by selling more units. And that means more scale.

The combined businesses will be owned by Platinum and MegaPath investors.

Interest in Content Marketing Grows, Especially in Mobile Context

There are two huge takeaways from Junta42's new survey of 250 marketing professionals in North America: the dramatic growth of content marketing and the upsurge of interest in mobile content (blogs, social networks, video, newsletters, white papers, webinars, podcasts, custom events, magazines and so forth).

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Approximately 10 percent of marketers already are leveraging content through mobile applications and 38 percent say mobile content is something they need to know more about. Of all content marketing areas, only mobile marketing rose year over year re: educational needs, says Junta42.

56 percent of companies plan to increase budgets for mobile marketing in 2010 and a hike of 17 percent in 2010 marketing budgets will be funded by drawing money away from traditional channels such as print.

For the third straight year, marketers are planning to spend significantly more on their content marketing efforts in 2010 and 59 percent of marketing professionals surveyed plan to increase their spending on content initiatives, compared to 56 percent in 2009 and 42 percent in 2008.

Content marketing comprises 33 percent of the total marketing budget, in fact. Smaller companies are spending more on their content marketing as a percentage of budget than larger companies. Small
companies (less than 99 employees) spend approximately 40 percent of their total budget on content initiatives.

Larger companies (100 employees or more) spend an average of 18 percent of their budget for content marketing.

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Three Things Verizon and Google Agree On

Despite differences on some other important issues, Verizon CEO Ivan Seidenberg and Eric Schmidt, Google CEO, agree on some matters related to the Federal Communications Commission's "National Broadband Plan."

In an opinion piece authored for the Wall Street Journal, the two executives say three plan elements are praiseworthy.

Not surprisingly, both agree on the plan's nod to health-care information technology, education and job training, and a smart electricity grid. All of those initiatives will tend to create opportunities for both companies.

Both agree on spurring the highest-quality broadband possible, dependent on private investment.

Both say they agree on the importance of making high-speed Internet connections available to all Americans.

The Internet has thrived in an environment of minimal regulation, they say. "While our two companies don't agree on every issue, we do agree generally as a matter of policy that the framework of minimal government involvement should continue," Schmidt and Seidenberg say.

The FCC underscores the importance of creating the right climate for private investment and market-driven innovation to advance broadband. That's the right approach and why we are encouraged to see the FCC's plan, they say.

You might argue all of these are "motherhood and apple pie" sorts of issues, which is true. But it might be significant that both can agree to support, in principle, "minimal government involvement." That doesn't mean the two firms agree on key network neutrality principles or rules. But it does seem to signal a willingness to consider approaches which allow markets to sort out issues.

As typically is the case in communications regulation, regulators will weigh what is possible and prudent, given the different interests, and take those interests into account, crafting solutions that balance the various interests, giving each side something important, while neither side gets all its wants.

That is likely to be case for network neutrality as well.

Is FiOS Slowdown Related to Possible Verizon Restructuring?

Verizon's apparent slowdown of further FiOS construction could be driven by any number of good reasons, including new skepticism about the financial return, alternate approaches to achieving the same goal, or perhaps other required uses for cash flow.

The need to start shifting free cash flow to dividend payments to minority partner Vodafone, or even a more-drastic reshuffling, such as a merger between Verizon and Vodafone, are possible drivers as well. Vodafone is a significant 45-percent minority investor in Verizon, and just about everyone has been expecting some adjustment of the relationship at some point, with the options including each company buying out the other, although a change in the majority ownership status is not inconceivable.

But a full-fledged merger also might be on the table.

"People familiar with the matter say there are three options being considered by the two sides," the Telegraph reports. The first is a full merger of Vodafone with Verizon Communications; the second would be for Verizon Communications to begin paying a dividend to Vodafone; and the third would be for both companies to sell their respective stakes in Verizon Wireless either to each other or to a third party.

It is that second possible outcome that suggests Verizon might have other needs for its free cash.

In fact, some observers have suggested Verizon Communications would prefer to buy out Vodafone's stake in Verizon Wireless. But analysts say selling the Verizon Wireless stake is not an option for Vodafone because it would result in a giant tax charge as well as deprive Vodafone of about 30 percent of its total annual revenue.

While they are “not aware of any increases in market concentration from such a merger that would raise serious antitrust issues at the U.S. Department of Justice,” a deal that is structured to give Vodafone control over all of Verizon's assets, including landline, would raise national-security questions, though.

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eBay Expects $1.5 Billion in 2010 Merchandise Sales Using Mobile Apps

Online retailer eBay is launching two iPhone apps, one for the eBay.com global marketplace and one for eBay’s new classifieds site, eBayClassifieds.com, part of its plan to sell $1.5 billion worth of merchandise directly from mobile sites.

With the new eBay Selling and eBay Classifieds mobile apps, consumers can easily photograph and list an item in 60 seconds or less, eBay says. Consumers can now list for free in eBay’s auction format, reaching 90 million active eBay users around the world, or in eBay Classifieds, to reach buyers in their local communities.

Plus, in addition to selling, buying has never been easier with eBay’s leading mobile shopping app and mobile platform and the new eBay Classifieds mobile app.

On April 3, eBay will take mobile commerce a step further, with a new version of the eBay app for iPad. The company earlier had released a mobile app for Android devices as well.

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Suddenlink Launches 107 Mbps Broadband Access Service

Suddenlink, an operator of rural and suburban cable TV systems, says it has started offering residential customers in several, suburban-Austin communities (Georgetown, Pflugerville, and Leander) its new “High Speed Internet MAX 107.0” service, featuring a download speed up to 107 megabits per second (Mbps) and an upload speed up to 5 Mbps.

The MAX 107.0 service is the result of “Project Imagine,” a new Suddenlink program that calls for approximately $350 million of capital investments nationwide through 2012, above and beyond the company’s traditional capital spending levels.

Through “Project Imagine,” the company aims to expand to substantially all Suddenlink communities: video-on-demand service; the capability for up to 200 high-definition (HD) TV channels; and industry-leading DOCSIS 3.0 technology, which enables Internet download speeds of 20, 50, and more than 100 Mbps.

Suddenlink is preparing to launch either MAX 107.0 or MAX 50.0 Internet service in a number of other communities this year, with details to be announced later. MAX 50.0 service will feature a download speed of up to 50 Mbps.

That will give Suddenlink bragging rights in the speed wars. What remains unclear, as has been the case for other providers offering 50 Mbps service, is how many customers actually will buy the fastest speeds, rather than lower-speed and medium-speed services.

So far, no U.S. provider of access at speeds ranging from 50 Mbps to 100 Mbps has been willing to say, in public, what percentage of customers buy such plans, or even the actual number of customers who buy. One suspects that is because relatively few consumers actually think they need such speeds, or that the value-price relationship is better than that of the medium-speed services.

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Tiered Mobile Broadband Pricing "Inevitable"

Tiered pricing--where higher amounts of use will result in higher prices--is inevitable, say analysts at Coda Research Consultancy, driven by U.S. mobile data consumption toward 327TB per month in 2015.

With compound annual growth rates of 117 percent, tiered pricing for mobile internet access will become unavoidable, the company predicts. Most of that increase will come from video, which is growing at a
138 percent CAGR to reach 224TB per month in 2015. At that point, mobile video will represent two thirds of mobile handset data traffic.

The key problem, though, is peak demand, at only some cell sites, as already is the case.

“As carrier networks now stand, network utilization will reach 100 percent in 2012 during peak times," says Steve Smith, Coda Research Consultancy co-founder. That is going to mean actual blocking of access during peak hours, much as users on older fixed networks once experienced occasional "fast busy" signals that indicated no circuits were available for use.

Use of pricing mechanisms will help, as it always does, by allowing consumers to make choices about their consumption. Many object that tiered pricing will face huge opposition from consumers conditioned to "unlimited" usage.

I suspect that will prove wrong. Buckets of usage already have been accepted by consumers who understand they can pay less for lower buckets of use, or more money for higher or unlimited use.

What users manifestly do not like is unpredictability; uncertainty about how high their bills will be at the end of the month. So long as consumers have accurate ways to measure their own usage, and an ability to adjust their plans as needed, without penalty, users will adapt easily to buckets of broadband usage.

In fact, consumers may well appreciate being able to decide for themselves whether they want to pay more to get more, or can simply adjust their usage at certain times of day, or at some places, or delay using some applications, in exchange for lower prices.

Mobile video users will grow at about a 34 percent CAGR, to reach 95 million users in the U.S. market in 2015. Use of mobile social networking will grow at a 21 percent CAGR to 2015.

Non-text-messaging-derived data revenues will climb at a 17 percent CAGR, and will comprise 87 percent of all data revenues in 2015, says Coda.