Metro Ethernet Getting to be a Bigger Deal

As wider adoption of IP phone systems spurs buying of SIP trunks, so IP itself drives demand for Ethernet access. The Yankee Group sees spending by enterprises in the Asia-Pacific markets doubling in four years, for example. "Year over year we see metro Ethernet becoming a greater percentage of our sales," says David Rusin, American Fiber Systems CEO.

The demand is "steady" at about 40 percent growth this year, Rusin says. And Rusin is very clear about how this market needs to be attacked. "After 10 years and billions of dollars of wasted capital we now know you must have your own network."

Needless to say, Rusin isn't a big fan of mandated wholesale access to high-bandwidth facilities. In the U.S. market, mandatory unbundled network element access should go away, maybe over a five-year period. If all competitors understand that they must have their own facilities to compete in the access market, that is what they will do, or they will do something else. "Then capital will come back in to the market," Rusin says. "The incentives need to be there."

In a market as competitive as the metro Ethernet space, how does Rusin answer the objection that there already is too much competition? Simple. "We don't build where there already is capacity," he says. In other words, if there is any existing fiber or capacity in place, AFS simply leases the capacity. The only time it will swing an optical lateral is when there is no other alternative. "If you aren't operating off your own network, IRU or capacity, I don't see how in the long run that's a sustainable business," he simply says. Lots of other providers would say the same thing.

Mobility is Key for Business Unified Communications

There's a really simple reason why mobile devices are destined to play a key, perhaps the key role, as unified communications develops. At least 41 percent of the workforce already is mobile, and just about every employee is a mobile user in their personal roles. So to the extent unified communications almost always the ability to send and receive communications on mobile and desktop devices, mobility is a virtual requirement, even for workers who are not "mobile" in the normal course of their work day.

"There are lots of ways people communicate now," notes Sphere Communications SVP Todd Landry. "What does it mean to unify all that?" Some might say it means different media types can be more tightly integrated with other forms, Landry says. "At the lowest level, you want multiple forms of communications unified, plus mobile and desktop integration. "At another level, it might mean availability of presence state and text messaging, voice and video, so calls are handled differently depending on what you are doing," Landry says. "At a still higher level, it is communications integrated with business processes."

"Traversing between work and personal roles, your presence and control might move between domains," he says. "So the mobile phone is probably the most important device to support." First of all it is ubiquitous. And it will become a more important tool for business users, simply because device power is growing so fast. Mobile devices now allow users to do "the same sorts of things you do on your PC, and yet we call one a "phone" and the other a "PC," Landry notes.

Appetite for "Bundles" Varies

With service providers spending so much attention on creating sticky bundles of services, and with so many suppliers seeking to "move up the value chain" or "add more value" to their existing product lines, it is interesting that businesses of various sizes have apparently distinct appetites for the "one throat to choke" principle that drives buyers to consolidate their buying and use fewer vendors. Very small businesses just don't seem to have the immediately compelling desire to consolidate suppliers. Well over 55 percent of very small businesses don't see the advantage of consolidating their buying of voice, Internet and mobile services.

This seems odd, if the Triple Play is seen as viable for small businesses as well as consumers. In contrast, well over 65 percent of enterprises with 250 to 10,000 or more employees prefer to consolidate their buying. Still, 40 to 50 percent of small businesses with two to 49 employees say they prefer the bundled approach for voice, Internet and mobile services.

So Far, Short Form Rules

About five percent of North American users who watch video on the Internet, and polled by ABI Research, say they have rented or purchased a digital movie download, a lower overall number than indicate they have downloaded a movie free from a peer to peer sharing site. Movie downloads, both legal and illegal, remain the least watched genre of online video on the Internet, where short-form content such as sports and news clips is watched by nearly 7 in 10 of those that watch Internet video.

"The vast majority of those watching content online are watching short-form content such as news and sports clips," says ABI research director Michael Wolf. "Older users in particular watch primarily news and sports, while younger users are watching more entertainment content, including viral media provided by sites such as YouTube."

You probably aren't surprised by this finding. For starters, movie downloads are something of a nuisance at the moment. First of all, the whole catalog you might be interested in is never in one place. So there are search "costs," paid in your time. Second, there's still some hassle involved for downloading, depending on the actual bandwidth one has available. It isn't just the time it takes to download a movie, but the other stuff one can't, or doesn't want to do on a PC, while a download is in progress. A user's time, in other words, represents a real cost, even if it isn't a directly measurable financial cost. Finally, there are product substitutes, and many of them are arguably better substitutes, at least for the moment.

When ABI Research asked consumers why they chose not to watch movies downloaded or streamed from the Internet, the biggest reason was satisfaction with existing cable and satellite services as well as DVDs. About 48 percent of respondents indicated they would never purchase a movie online for download because they were satisfied with their current providers and the rental market. We do think that will change, with time, but the fact remains that there are lots of viewing niches even within the market for "movie viewing."

Most people will watch most movies once. Some users will watch some movies twice. Children will watch the same movie lots of times. So the market segment "movies my children really like" is better served by a prerecorded DVD with no usage restrictions. The market segment "relatively current release we only want to see once" is quite a different market, in terms of delivery mode. Downloading makes sense for the latter. It almost never makes sense for the former.

Downloading to a notebook PC by a user who has no other family members who will want to view the movie is a different value proposition than downloading of a movie when most of the family, or at least two members, want to watch it. PC viewing often is suitable for the former. PC viewing normally is objectionable in some ways in the latter case. And end uses tend to say they are much more likely to download content if they can view it on a TV.

"Despite the growing interest in the pay market for Internet-delivered video, perhaps the biggest remaining hurdle to widespread adoption is that the status quo usually gives consumers a vastly superior, and often less expensive experience than Internet-delivered content," says Wolf. "The industry needs to develop reasons and business models that increase overall consumer interest in Internet delivered video, including allowing for easy transfer and better viewing on the large screen."

No Doubt About It

Regular weekly usage of new media is growing at high double digit rates, while regular usage of legacy media is dropping, albeit only at single digit rates, with the exception of magazines, which are dropping at about a 12 percent rate. All of the growing formats have a network delivery or core communications element to them.

Percentage Growth of Regular Weekly Media
Medium Regular Weekly Usage
TiVo/Replay TV 88.1%
Satellite Radio 79.9%
IPOD/MP3 Player 72.1%
Blogs 63.2%
Picture/Video Phone 59.2%
Text Messaging 58.8%
PDA 14.0%
Traditional Media
Magazines -11.7%
Newspaper -7.1%
Radio -5.7%
TV -5.2%
Source: BIGresearch, December 2006

Mutliple Wars Raging

Scoff if you like about the ultimate business models that might develop around user generated video content, but the trend will intensify competitor triangulation in the coming market share wars that are ranging at multiple levels. The access battle has telcos and cablecos, plus specialized wireless and other players competing for "lines." The "services" battle is being waged between portals and between portals and the access providers.

In some respects the "access" providers will bundle and tweak their walled garden and possibly some Internet applications so they work better, experience-wise. The portal and app providers will seek to create interesting community interaction or portal content experiences so users can be enticed to use other features. The key here is that rich communications and entertainment will be primary forms of "bait" to entice users to show up and stick around. So far, the main battle has been between the major "access" providers. At some point, though, compeitition at the other layers (intra-portal; portal versus access; service versus app) will emerge.

Smaller developments, such as the user generated video trend, as shown here by analysts at The Yankee Group, are laying the foundations for the next phase of competition.

SME Business VoIP Uptick

SMEs seem, at least according to one projection by Infotech, to be getting the message on hosted and premises-based business phone services. Adoption rates are tracking large enterprise deployments pretty closely, after initially trailing. There's growing evidence that prices also are getting more interesting as well, in large part because premises-based systems are becoming more affordable, thanks to Asterisk and other open source platforms, as well as suppliers such as Samsung staking out new price point terrain.