Is Business Bandwidth a Problem?

Most U.S. businesses still use low-speed, 1.5 Mbps T1 connections to run their businesses, despite the fact that consumers routinely have connections running at 20 Mbps to 30 Mbps.

But is that a problem?

That is a matter of opinion. Ignore for the moment the growing ability businesses have to buy faster services, supplied by fixed networks, mobile or even satellite providers. There is a difference between "availability" and "purchase," even in instances where the higher speeds are available. In many, if not most cases, businesses are buying the services required to support their businesses.

And in most cases, 1.5 Mbps might be sufficient for business buyers, as odd as that might sound. For starters, most smaller businesses are not often required to consume much bandwidth as part of their daily operations. Most small businesses use bandwidth in an ancillary way, unlike an Internet or applications business that might well require lots of bandwidth.

Retailers, for example, typically do not require much bandwidth to run their businesses. Office-based businesses that provide services often do need more bandwidth, but anecdotal evidence suggests such businesses generally are able to buy affordable broadband, when they need it, at least in urban areas.

It arguably remains true that many smaller businesses are not served by optical fiber facilities. As of March 2012, fiber facilities were only available to 20.5 percent of commercial buildings across Europe, and to 31.8 percent of commercial buildings in the United States, according to Vertical Systems Group.

But that doesn't automatically mean that smaller businesses cannot buy bandwidth services of 10 Mbps to 20 Mbps, for example, to support web surfing requirements. But that application typically is not mission critical in the same way that voice services or credit card authorizations are important.

In that sense, the current lack of "fiber optic" access, rather than bandwidth, is not a "problem." There are areas, especially in rural settings, where that is not true. But many smaller businesses might be able to buy the levels of bandwidth they require, without much problem.

At least in terms of anecdotal evidence, one doesn't hear of smaller businesses complaining that lack of bandwidth poses peril to their businesses.

Mediacom Consumption Caps Won't be a Problem for 98% of Users

Bandwidth caps are a contentious issue in some quarters, the argument being that it is somehow injurious to customers when "reasonable" usage quotas are a normal condition of service. 


There seems to be no such resistance to the notion that consumption of many other products, including electricity, water, gasoline, natural gas, soap, vegetables, salt, sugar or meat is consumption based. 


New consumption caps for Mediacom high-speed access customers arguably are not going to be a problem for 98 percent of Mediacom customers. Those new plans will be an issue for perhaps two percent of the highest users. 


•Mediacom Launch 150GB (3 Mbps)
•Mediacom Prime 250GB (12-15 Mbps)
•Mediacom Prime Plus 350GB (20 Mbps)
•Mediacom Ultra 999GB (50 Mbps)
•Mediacom Ultra Plus 999GB (105 Mbps)

Do UTOPIA Failures Mean Anything for Google Fiber?

It isn't easy to build a wholesale or retail fiber access business when competing with entrenched cable and telco competitors, as Google Fiber will do in Kansas City, Mo. and Kansas City, Kan. But Google Fiber at least has a couple of advantages.


Its symmetrical 1-Gbps access speed, plus free 5-Mbps service, can be differentiated from what cable and telco providers offer in the Kansas City markets. Where rival service providers cannot do that, they sometimes run into trouble. UTOPIA provides a possible case in point.


The Utah Telecommunication Open Infrastructure Agency  (UTOPIA) is building a wholesale fiber-optic network that offers its users access to high-speed video, data, and phone services. Operational mistakes aside, UTOPIA might have made a fundamental mistake, namely building a network that, although pitched as a "faster" alternative at the time, has fallen behind as cable and telco competitors have boosted their access speeds, in response. 


To be sure, UTOPIA says it offers a symmetrical 50 Mbps service costing $35 a month, far less than the 50 Mbps service offered by Comcast in Salt Lake City, for example. Still, some would argue that differentiation is less the issue than the degree of difference. At that level, UTOPIA access prices are an order of magnitude better than offered by Comcast.


All venture capitalists are familiar with the problem, namely that a new contestant challenging market leaders has to offer user experience benefits that are perhaps 10 times better than what currently is available. Those benefits can include pricing or performance improvements, but the point is that an order of magnitude better experience is necessary for an upstart to have a chance of unseating a market leader.


In part, the reason is that incumbents, faced with significant new competition, typically will boost their offers, slicing the advantage the new upstart offers, before the upstart has a chance to gain critical mass. That might be the case for Utah's UTOPIA effort.
A new audit shows the agency was unable to complete construction of the network as quickly as
planned. UTOPIA originally planned to build a broadband network in three years and to achieve a positive cash flow in five years.

“However, it has not met that schedule,” the audit says. “Instead, the cost of financing and operating the network increased before UTOPIA could provide a substantial number of
customers with service.”

As a result, revenues have not been sufficient to cover its costs. Year after year, as operating deficits have accrued and the agency has developed a large negative asset balance.

UTOPIA has issued $185 million in bonds to pay the cost of building its network, “but most of the bond proceeds have been invested in poorly utilized and partially completed sections of network,” the report says.

“As a result, the network is not generating sufficient revenue for the agency to cover its annual debt service and operating costs,” the report notes.

Worse, UTOPIA has had to use a large portion of its  bond proceeds to cover operating deficits and debt service costs. “The use of debt to cover the cost of operations and debt service is
symptomatic of an organization facing serious financial challenges,” the audit says.

Since 2003, when UTOPIA began work, only one third of the network has been  completed. Buit that might not even be the biggest problem. “One underlying challenge is that UTOPIA’s infrastructure investment is not producing sufficient revenue,” the study notes. “In most areas where construction has been completed, UTOPIA has insufficient subscribers
to cover the cost of building and operating the infrastructure.”

Though backers had expected to get adoption (penetration) rates of about 35 percent, so far the network has gotten penetration of only about 16 percent.

That has huge implications. A competitive network, facing both entrenched cable and telco suppliers, has economics that are hugely dependent on penetration rate. At 16 percent penetration, UTOPIA is getting half the revenue it had projected, and manhy would argue, as a rule of thumb, that penetration in the 20 percent to 30 percent range is probably requires for long term success, in the absence of additional revenues from voice or video entertainment services.

Among other problems, UTOPIA has used a wholesale model, and therefore has been highly dependent on its retail partners for sales success. And it turns out that many of its retail customers have defaulted on owed payments, which further puts pressure on UTOPIA revenues.

As a direct result, UTOPIA now also has switched to selling retail services directly.

Though the audit attributes much of the difficulty to management failures, and though that likely is an issue, the larger issue might simply be that customer demand for UTOPIA services is simply not as strong as expected, when there are other suppliers with a vested interest in meeting existing demand for high-speed access.

That might not be quite as big an issue for Google Fiber in Kansas City, Kan. and Kansas City, Mo., given the huge difference in access speed Google fiber is able to offer.

UTOPIA uses a “fiber to curb” network architecture that offers speeds similar to AT&T’s U-verse, but arguably less than what cable operators can offer, using DOCSIS and bonded channels.

Some might argue that UTOPIA’s market offer is not “better” than telco or cable offers, in terms of speed and experience. Venture capitalists are familiar with that problem. UTOPIA did not offer an order of magnitude better experience, when it started.


Google Fiber, on the other hand, does have that advantage, clearly, in terms of "speed," and arguably in terms of price, as well. That means Google Fiber might have a better chance of taking 30 percent share, than UTOPIA has been able to do, at least so far.

"Millennials" Now are Global, Mobile

“Millennials” now represent a mobile-oriented demographic on a global scale, not a specifically U.S. generation, says Troy Brown, one50one founder and president. “Millennials globally are nearly identical in their thoughts, habits and values, worldwide.”

The Internet, and mobile, largely are responsible for a growing “psychographic” similarity, worldwide, for “working class” youth, especially in the 21 to 29 age range, he says.

All of that puts a new “spin” on “multicultural” marketing. In the mobile realm, when dealing with Millennials anywhere in the world. Whatever their specific circumstances, “multicultural mobile users generally over-index their use of SMS, mobile web, and mobile advertising, as well as smartphone adoption, says Brown.

“We have identified three market dynamics that will impact multicultural mobile targeting in the next 18 to 24 months,” Brown says.

Two of the trends are directly related to mobile services. Brown says 4G services and devices that can use 4G, location-based services and the need for brands to “blend” all digital, social and mobile campaign elements to drive a personalized experience, are the key trends.

4G networks represent higher speeds, and will drive usage among multicultural demographics in one primary area: video sharing and streaming.

Despite the generality that global Millennials over-index in the use of their mobile devices, each individual accesses the Internet in his or her own personalized way, says Brown. Thus, brands and marketers need to cover all the bases across digital, social, and mobile domains.

AT&T Stores to get an Apple Style Feel

AT&T is planning to drastically change the way its stores look starting in the year 2013, replacing fixed point of sale terminals with use of smart phones and tablets. 


In large part, AT&T wants to create a retail experience more akin to the Apple Stores, and one has to wonder how many other retailers will decide the more-informal, check out without standing in line experience is workable as well. 


That could lead to rather large changes in the design of retail locations, some would argue, showing one more unexpected change from the shift to mobile payments technology. 

Telstra, the Australian communications services provider, also is considering a similar change in retail store format. 


After a successful test project in a Washington supermarket, Qthru is officially launching its mobile platform allowing shoppers to scan items with their smart phone as they shop to facilitate a more efficient checkout using their phone. The Qthru approach retains the traditional POS terminal locations, but speeds checkout because the scanning of products already has been done. 

"Given recent advancements in technology, consumers are realizing there is a better way to check out of a retail store without standing in a long line," Aaron Roberts, founder and CEO of QThru, says. 

Google Wallet Makes Big Change of Mobile Payments Strategy

Google has changed iits digital wallet strategy in a significant way, one might argue. In the past, Google Wallet has stayed out of the “interchange fees” part of the revenue stream, in favor of an exclusive reliance on loyalty, advertising, offers and other marketing and advertising functions.

But with the decision to support virtually all the major branded cards inside Google Wallet, a shift of revenue strategy could occur. A new cloud storage strategy does a couple of things. First, all major card brands can be accomodated, even if the resident application on a Google Wallet device is the prepaid MasterCard account.

The new approach is closer to that of PayPal than was the case for Google Wallet’s initial positioning, says Zilvinas Bareisis, Celent consultant. And the change makes Google Wallet a venture that makes money from transactions, something the older Google Wallet did not attempt to do.

The cloud-based credentials still require use of the MasterCard PayPass terminals and software loaded on each Google Wallet device. But since the MasterCard prepaid account is linked (in the cloud) to MasterCard, Visa, Amex and Discover accounts, Google Wallet users can use the wallet in much the same way as PayPal.

That would be a fundamental shift of strategy. Before, Google Wallet was not a transaction processor in the same way as PayPal functions. Now, Google Wallet will, in effect, become a transaction processor, in an indirect way.

More accurately, it has become a merchant of record. Google sits in the middle of its Wallet transactions, rather than just passing through plastic credentials to an NFC enabled smartphone.

The new approach also bypasses the need to cooperate with mobile service providers, and allows Google Wallet to be provided “over the top,” without using the mobile service provider secure elements. Card issuers might like that angle, since it means they are relieved of the obligation of paying fees to any mobile service providers who want to get a slice of transaction processing revenues.

Google Wallet becomes as a “merchant of record” for transactions. True, they won’t have to incur the extra costs of provisioning their card credentials on to secure element, but that would also rule them out from participating in other NFC ventures, such as Isis.

Now, from the merchant point of view, they are accepting a prepaid MasterCard, while it might an Amex card that actually funds the transaction. PayPal deals with it by having direct acquiring relationships with its merchants and offering them a discount rate which represents an expected blend of funding transactions, says Bareisis.

Does it also mean that Google Wallet will have to establish relationships with the acquirers to re-coup from merchants any potential differences in transaction costs? Or will it have to charge the end user for “loading” their wallet, something that other prepaid card providers do for card-based re-load transactions?

In any emerging business, it is not unusual for start-ups, even those as big as Google Wallet, to change business models in dramatic ways. Isis, the mobile service provider service, initially envisioned being a “merchant of record.” Then Isis decided to take the former Google approach, and eschew any role in transaction fees.

Google now has taken the reverse path, essentially adopting the former Isis approach. In other words, both Isis and Google Wallet now have reversed their initial positions on revenue models in the wallet space.

Verizon Will Have to Abandon Cable Marketing Deals to Get Cable Spectrum

Verizon may have to abandon its agency deals with several U.S. cable operators as a condition of gaining Department of Justice approval of $3.9 billion worth of spectrum sales by the cable operators, Reuters reports.


Those agency agreements, which allow cable operators Comcast, Time Warner Cable, Cox Communications and Bright House Networks to sell Verizon services, while Verizon can sell cable operator services, apparently are viewed as anti-competitive by DoJ lawyers, and are not, strictly speaking, a part of the deal whereby Verizon would buy mobile spectrum from the cable operators.


Sources tell Reuters that DoJ will require a halt to the agency deals wherever Verizon has network assets, essentially. That apparently would satisfy DoJ officials that neither cable nor Verizon would use the marketing deals to essentially end facilities-based competition between Verizon and cable firms. 

Justice Department officials think the marketing deal would be  amounting to an agreement "not to compete" with each other. Barring of the agency deals would require some rethinking, by the cable operators, of their wireless strategy.


Where in the past the cable operators had worked with Sprint, they had recently been hoping to work with Verizon Wireless, as part of the agency deals, to add a wireless product to their triple-play offers. If the DoJ blocks those deals, cable will have to find some other way to create a wireless strategy.