SIP Trunking Help for Independent ISPs?

We never cease to be amazed at the way lots of specialized providers are able to make a living in a telecom world dominated by giants. Consider ISPs, operating in a tough business by almost anybody's estimation. Broadband Internet access offers less margin than the dial-up business broadband is replacing. And while wireless access is an option for lots of rural ISPs, there's typically less opportunity in urbanized areas, simply because the telco and cable providers do a pretty good job of providing "commodity" access.

And then there's VoIP, which many ISPs really don't want to undertake. They often don't want to become voice providers in their own right. They typically don't want to become channels for sales and installation of premises phone systems. And they typically don't want to become LAN specialists. But they do know IP-based access services. And many serve at least some business customers, so they understand special access (T1) services.

So what might be interesting is for some provider of SIP trunking services, with a national footprint and the right back office systems, to create a service allowing ISPs to sell SIP trunks just like they sell T1 connections. That way, ISPs could insert themselves into the VoIP value and revenue chain, but without becoming voice providers in their own right, becoming interconnect companies or system integrators. Somebody will figure out a way to do this, and independent ISPs then will have a VoIP value chain play, and a much more lucrative way to play in broadband access, while making some money at it.

Verizon is Right

It might be taking heat from investors for FiOS, but it is starting to look like access bandwidth could be a real strategic advantage. And the reason is what their cable competitors now are thinking. To wit, cable operators are drawing up plans to deal with what appears to be exploding user demand. They will look at the usual methods for doing so: subdividing fiber nodes, using switched digital video, channel bonding, using more complex modulation techniques, using non-traditional frequency plans and adding raw bandwidth. They even will look at building fiber-to-the-home networks and adopting PON architecture.

Which makes Verizon's FTTH plans look like the right strategic approach.

"We know there's a need for more bandwidth," says Bob McIntyre, CTO of Scientific Atlanta . "We just have to decide how to do it."

"Bandwidth consumption is definitely increasing, and the average consumption rate is definitely increasing," says Patrick Knorr, Sunflower Broadband CEO. "There's definitely a storm coming." The new bandwidth crunch is at least partly caused by a surge in high-definition TV viewing.

Watch What People Do, Not What They Say They Will Do

People often tell researchers they might do something, buy something, use something or switch something. Such responses tend to exaggerate actual changes in user behavior, as our recent experience of wireless number portability suggests. Canadian consumers, for example, suggest they are fairly likely to switch providers once number portability becomes law. History suggests they really won't change.

Wireless number portability, in fact, has not proven effective in creating more competition in the wireless market, says Analysys Research. There are few countries where more than 10 percent of mobile phone customers have taken advantage of number portability, but for the most part number portability hasn't been destabilizing.

Alastair Brydon, Analysys researcher, said that in Britain and Italy, just under 10 percent of mobile phone users had taken advantage of number portability, while in France and Germany the number of people keeping their numbers when switching carriers was negligible. In the United States, about 5 percent of cellphone users have taken their numbers to a new operator. One country that stands out is Finland, where about 55 percent of cellphone users have transferred their phone number in the four years since the service was introduced. The survey covered 25 countries.

"The concept of losing your mobile number in Finland is more painful to people because 35 percent of households do not have a fixed-line phone and 70 percent of all phone traffic is on mobiles," says Brydon.

Jon Arnold, Marc Robins Join Forces

Robins Consulting Group and J Arnold & Associates have formed a new partnership to provide an array of marketing, communications, strategy consulting and market research services to their growing roster of IP communications technology vendors and service providers. Jon says they will be jointly developing new information resources, including an electronic newsletter and related Web site, which will offer unique industry analysis, a healthy dose of opinion, provide a new platform for other industry thought leaders, and offer valuable coverage and information not readily available elsewhere about the rapidly evolving IP communications industry.

A Game Changer?

Release date pretty much dictates the financial contributions made by various movie venues, as this data from Adams Media Research suggests. There has been concern recently that DVD sales are slowing. If that continues, it will be easier to shift release dates to some sort of window where DVD release and pay per view or video on demand release dates are concurrent. That would dramatically improve the revenue earned by VOD, PPV or other forms of network delivery, at the expense of physical media. The issue here is fundamentally less cusotmer demand or technology platform, and more the prosaic issue of "when can I watch it?"

Does Vonage Compete with Cable VoIP?

Vonage's fourth quarter results won't be released until next month, when you can bet observers will be scrutinizing the company's marginal cost of acquiring new customers, compared to the marginal revenue Vonage is able to eke out. Which isn't to say Vonage has yet lost its lead in the subscriber race, according to TeleGeography. For a large part of the community, the issue is Vonage's ability to outrun its burn rate. Also, at some level there's a sense that an independent provider can't survive in a mass market dominated by the likes of Comcast, Verizon and at&t. There's truth in the observation: oing toe-to-toe with cable or dominant telcos isn't wise. But that's possibly not the point. The notoriously difficult telecom industry also is a place where specialists always have been able to carve out sustainable businesses. They might not be on the scale of a Comcast, Verizon or at&t. But it's hard to explain away the survival, and in some cases, thriving business models put together by quite indpendent specialists of all sorts.

Many observers, including this one, have been pointing out for some time that stand-alone long distance isn't a viable business model. And though the rule might correct as far as it goes, there are salient exceptions. Skype, for example. Some mobile resellers, IP-based dial-around, smaller integrators, telecom agencies, some interconnect firms and competitive local exchange carriers, some fiber-based access providers, some hosting companies and ISPs are able to make money in an environment that says they can't.

Sure, Vonage is trying to beat the odds. Providing it can carve out a niche, it will. The issue is whether it can do that. Of late, Vonage chief strategist Jeffrey Citron has been arguing that Vonage has unexpectedly left the "early adopter" and "early majority" markets and begun to target the core of the mass market. One would have to argue that cable companies are doing exactly the same thing. But it doesn't feel right. Surely the typical cable customer isn't the same customer that Vonage continues to attract, even though both would say they are selling into the core of the mass market.

To be sure, I can't put my finger on precisely why the Vonage "mass market" customer is psychographically different fromt he typical "cable voice" customer. Citron points out, and we have no reason to doubt him, that the incremental customers Vonage now is picking up have demographics of any core mass market customer. There's little doubt, though the cable companies provide no evidence for the thinking, that the typical cable customer also has pretty "normal" demographics.

It just doesn't feel right. The demographics might be similar. But there is something about a typical Vonage customer that is distinct from a typical cable customer. They are, in other words, distinct segments of the mass market. I'd bet that Vonage customers are more likely the "traveling" or "untethered" sort of worker, for example. Neither can I believe the typical Vonage customer is the same age as a typical cable customer. Vonage customers, even the mass market customers Vonage now is getting, have to skew younger, and have to be more comfortable with technology, compared to the typical cable customer.

Cable customers, in other words, likely are a "segment" of the mass market, as are Vonage's customers. If that is true, then Vonage's efforts to add other features, such as Wi-Fi support, more mobile calling features and so forth, shoudl pay off. Vonage's customers have to be more venturesome where it comes to replacing traditional calling services, even if Vonage is said to be a simple "minute stealer" service.

Is Vonage a competitor to cable voice? Most might say "yes." I don't think so. I think both are appealing to distinct customer segments within a broad "demographic" that only appears to be the same. Demographics, in other words, don't tell the story. There still is something about the psychographics of the customer bases that is distinct.

100 Gig Ethernet Coming

As WAN backbones begin to move to 10 gig Ethernet pipes, scientists already are at work on 100 gig versions of Ethernet. Demand for 100 gigabit per second Ethernet is being driven by Iternet exchanges, Carriers and high-performance computing organziations and applications. "You’re also seeing a need when you look at what’s happening with personalized content, which includes video delivery such as YouTube, IPTV and HDTV," says John D’Ambrosia, chairman of the IEEE 802.3 Higher Speed Study Group and a scientist at Force10 Networks Inc. "There’s also video on demand.

"You do have 10G Ethernet already, and if you use link aggregation you can go higher," he says. "But bandwidth needs are quickly surpassing these bandwidth limits." That means we will see new optical transport, backplane and chip technologies.

So even if higher bandwidths are needed, why not just contatenate 10 gig waves? "Depending on who you to talk to, you’ll hear that two, four or eight links can be aggregated together before you have management and troubleshooting issues," says D'Ambrosia. "Also, those cables take up precious real estate, and you have power and cooling considerations." Aggregation also ties up ports that can't be used for anything else, such as bringing in additional revenue. Basically, scaling becomes an issue.

Differentiating Downloaded Music

It migh be argued that downloaded music is a commodity. A song is a song. But broadcast radio, though skewed to large national audiences, does have specific formats that appeal to specific demographics. Then there are "talk" formats, "language" formats, "subject" formats. Then there's XM and Sirius, that slice and dice the domographics into much more granular listening segments. That being the case, whys shouldn't every form of Internet-centered media also be capable of segmentation? Keep in mind that segmentation can occur on any number of levels. Type of content, method of delivery, geographic focus, device support, storage, navigation and other elements of a user experience can be targeted.

So it is that Ruckus Network, which distributes movies and music online to colleges nationwide, now is attempting to exploit a college niche by expanding its ad-supported music download service to any user with a valid university email account.

The Herndon, Va.-based company aims to boost the rolls of college students who use its service to woo more advertisers seeking to market to young audiences. The company adopted the ad-supported business model about a year ago.

Previously, Ruckus' service was only available to students at universities that had entered into agreements with the company.

Students outside Ruckus' network of affiliated universities will not be able to download movies, but will have access to Ruckus' more than 2.1 million tracks, which they can download to their computer for free. To transfer audio files to a portable music player, however, users must pay either $5 a month or $19.99 per semester.

Previously, students at universities without an agreement with Ruckus had to pay $5.99 a month to download music from the service and couldn't move the tracks from their computer.

Infinite Storage, Bandwidth, CPU Power

In a world with infinite storage, bandwidth, and CPU power, Google could offer instant end user access to "all applications," CEO Eric Schmidt has said. "Everything can be stored and accessed from anywhere, on any device." Everything can be stored in the cloud. "Every experience and application can be customized for each user." All of which might be reason enough for Google to build a huge, private Internet. It could be "100 times better" than anything else, offering a programmable, executable, reliable experience.

50% Margins on iPhone?

Apple phone is expected to cost $600. Cingular (at&t) won't be allowed to discount it. The cost to manufacture an 8 Gbyte iPhone is estimated to be about $280. As iTunes exists to sell iPods, so now mobile service exists to sell iPhones. True, as Steve Ballmer, Microsoft CEO points out, iPhone doesn't have a keypad, so text entry might be a bit of a chore. Still, this device is going to get lots of attention, and sales, from professionals, engineers and other people who just think it is the coolest phone on the market.

Why Security Always Tops Enterprise Objections...

to new IP-based services and platforms. Flaws in Web apps boosted bug counts for 2006 by more than a third over the previous year, according to data from four major databases tracking security and bugs: the Computer Emergency Response Team Coordination Center (CERT/CC), National Vulnerability Database, Open-Source Vulnerability Database and Symantec Vulnerability Database.

Counting both public sources and private submissions directly to the CERT Coordination Center, the group logged 8,064 vulnerabilities last year, an increase of 35 per cent over the number of flaws reported in 2005.

The three other major flaw databases, the National Vulnerability Database, the Open-Source Vulnerability Database, and the Symantec Vulnerability Database, recorded jumps anywhere from 20 to 35 per cent in 2006 compared to 2005. OSVDB estimates at least 20 per cent more vulnerabilities logged in 2006 compared to 2005.

Google's New Data Center

Google is opening a $600 million data center in Lenoir, N.C., matching the size of the similar facility Google is building in The Dalles, Ore. During the second and third quarters last year, Google's capital expenditures were more than $1.2 billion. Some experts believe dominance on the Internet could eventually be determined by the size and efficiency of huge data centers. Microsoft and Yahoo are both building facilities in Washington state, up the Columbia River from Google's. Microsoft also will build a $550 million data center in Austin, Tex.

Google also has leased enough wide area network dark fiber to rival that of many carriers. All of which will stand Google in good stead as video drives Internet traffic way beyond anything engineers have designed for, or that ISPs can afford to support, truth be told. Where a typical end user now generates between one and three gigabytes of traffic a month, video downloading could drive demand to one to three gigabytes a day. That 30 times increase, an order of magnitude and then some, is going to crush many ISPs, whose business models simply won't allow them to buy additional IP transit in that quantity.

So Google conceivably could emerge as quite a savior. Basically, peering with Google, on whatever terms Google might require, might be the key to survival. Interesting, indeed.

Other Things to Do With Your Mobile

Buy stuff! The number of mobile payment users is expected to grow from just more than 100 million worldwide users in 2006 to more than 200 million in 2009 according to the Yankee Group. That translates into revenue growth from $800 million to $1.8 billion in revenue between 2006 and 2009. That growth could be increased dramatically if a revenue sharing agreement can be developed among mobile carriers, credit card associations, issuing banks and retailers/merchants. This is better than debit cards for small purchases, don't you think?

Unity Will Put Brakes on Wireline Defections

Wasting no time at all since it gained full control of Cingular, at&t is creating one of the largest communities the communications industry has ever seen, in the form of 100 million phone and wireless accounts. at&t Unity, a pricing package that allows its cellular customers to call any AT&T landline customer without incurring additional usage fees or using their wireless minutes, expands the wireless "friends and family" concept to friends, family, business partners and people you don't know."

This is the same company that has an exclusive right to sell the Apple iPhone as well. Unity is available on all wireless plans of at least $59.99 a month.

To subscribe to a at&t Unity plan, a customer would need to have at&t wireless service as well as an at&t landline plan that offered unlimited local and long-distance service. AT&T’s unlimited local and long-distance landline service starts at $40 a month if bought online.

Actions such as this are one reason why even astute cable companies and independent VoIP providers won't be able to keep ripping landline customers away from at&t at high rates forever. At some point, it was inevitable that at&t and other similarly-situated firms would bundle their wireline assets in ways that would compel customers to keep their POTS lines.

Video Pricing Sticky to the Upside

One reason service providers might like being providers of video service, among many reasons they might well not like it, is that video entertainment prices are remarkably sticky to the upside where it comes to retail prices. Virtually every other type of communications good has seen declining prices over the last 10 years. Not so with video.

U.S. Phone Penetration is Up

...after a dip after 2000. This survey by the FCC includes both wireless and wireline service, and corrects for buying of multiple wired or wireless accounts by any single household.

More Web-Activated VoIP

Looked at from one perspective, voice is not inherently a commodity. It simply has been sold that way. Jajah, for example, has been a pioneer in web-activated calling that doesn't require a client, broadband access, a terminal adapter or much else beyond Web access and a phone service of some sort that can make a phone call.

So now voip.com now is beta testing its own web-activated calling service. To use the Make a Call service, members create a free account and then add credits, using any U.S.-issued credit card. Then, members simply go to the web-based interface and enter the number they're calling from and the number they'd like to call.

It might be a niche, but that's the point. Web-activated calling is a type of voice application quite distinct from POTS replacement. It appeals to the episodic or casual call to an international location, or to some of the same needs a prepaid calling card answers, namely an ability to budget for and control global calling expense.

Voice, Data Trump Content, Advertising

In the rush to retool themselves as providers of content services, and to add ad revenue to subscriptions, carriers might want to remember that most of the money to be earned in the business comes from communication services (voice and data) rather than entertainment, as important as these new sources of revenue are. If you click the image, you'll get an expanded view of the numbers, but suffice it to note that all global ad-related revenues for mobile providers will amount to less than $3 billion by about 2011. Basic text messaging blows those numbers away.

Alltel Wireless Ports Desktop Metaphor to Mobiles

Alltel Wireless has launched Celltop, a handset navigation system that offers customers an easier way to access, manage and organize information already available on their Alltel Wireless phones. Celltop is said to be similar to the desktop on a personal computer.

Now available on select Alltel Wireless handsets, and on all new phones by late-2007, Celltop is free-of-charge and features 10 "cells" that come pre-installed or are downloadable. Each cell is a category-specific half screen comprised of graphics and text that provides shortcuts for wireless users to navigate through information and applications including: call log, weather, news, baseball, basketball, football, rodeo, stocks, text messaging inbox and ringtones.

Customization options include the ability to modify the appearance, presentation and organization of information within each cell. Similar to "widgets" on a personal computer, Celltop is open to the developer community, providing unlimited user expandability of new and unique cells.

Walking on Both Legs

One clear trend service providers in the consumer space might want to keep in mind is that advertising and end user subscriptions are important when building video-related business models. In fact, subscription revenue now exceeds advertising revenue.

Mobile Workforce Up About 10% Last 4 Years

And about 61 percent of enterprises surveyed by The Yankee Group are in the process of setting up or piloting wireless LANs as well.

Cable Begins SME Voice Assault

If 2007 is the "Year of" anything, it will be the year the cable industry began its assault on SME voice revenues. But it might not be until 2008 that cable giant Comcast makes its own move. Charter Communications, Cablevision Systems Corp. and Videotron Telecom have added voice offerings to their commercial services packages. Cox Communications has been doing so for some time.

Cablevision Systems is pitching a new multi-line VOIP product targeted to firms with fewer than 25 employees. A four-line package costs $29.95 a month for each line in the first year of service. Notably, the commercial service initially costs no more per line than the company's popular VOIP product, Optimum Voice, for consumers.

“We’re trying to break that traditional [price] line between business and consumer” service, says Joseph Varello, Cablevision VP. Comcast, Time Warner Cable, and Bresnan Communications all say they will start selling voice optimized for SMEs. In the New York area alone, Cablevision estimates that businesses spend nearly $5.9 billion a year on phone services, with SMBs accounting for $3.5 billion of that total.

Comcast estimates that businesses spend about $20 billion a year on phone services in its territories. The company aims to start offering commercial VOIP next year.

Cable experts argue that it also makes sense to expand into business telephony because it's a way to hurt the phone companies in one of their prime markets and undercut their ability to subsidize low residential phone rates.

"The telco subsidy swamp can be drained to the extent that SMB spending is diverted to cable, and even more so once telcos respond to competitive pressure by reducing their rates to SMBs and investing more in SMB customer support," writes Peter Shapiro, a principal at PDS Consulting. "Thus cable will benefit twice from the growth of its commercial business: first, by increasing top-line revenue; second, by limiting resources otherwise used by telcos to compete for cable's core residential customers."

Speaking at the Society of Cable Telecommunications Engineers' (SCTE's) Business Services Symposium in Chicago last week, cable strategists said they're targeting smaller companies because these firms are usually located either within the reach of existing cable plant or not very far away. In contrast, big companies are usually located farther away from cable's residentially-oriented plant.

David Pistacchio, executive VP and general manager of Cablevision Optimum Lightpath EVP, has urged cable executives to "price disruptively."

It's Only a Matter of Time

If asked to name the largest U.S. providers of POTS or POTS substitutes, most people in the industry could come up with the top three or four. Not many would get the top six to 10. So today's list looks something like at&t, Verizon, Qwest, Embarq (formerly Sprint), Windstream (formerly Alltel), CenturyTel and Citizens Communications.

But there's lots of activity at around the two million subs mark. Vonage and Cox Communications already have crested two million, and is pushing Citizens and Century for a spot in the rankings. Comcast will break through the two million level shortly, and the only question is how fast it will close on Qwest. Time Warner and Cablevision also have broken the million-and-half customer level. Put another way, the U.S. cable industry already is positioned right behind Embarq among larger providers of classic voice services in the U.S. market.

Global Calling: Decline Rate Stabilizing

There's good and bad news in the international calling business, according to TeleGeography. Volume continues to grow, unabated. That's the good news. But rate declines persist. That's the bad news. But there are times when "bad" news is pretty good news. And the good news for global voice providers is that the rate of decline appears to have stabilized. Providers can plan for volume incrases and declining per-unit prices, as long as the declines are predictable and moderate.

Global Voice Still Growing...

...at rates in excess of 15 percent a year, which is in line with trends over the last two decades. Data supplied by TeleGeography.

People Like to Talk: Increasingly Without Wires

The picture tells the story. In blue are mobile accounts. In red are active wirelines. Note that both are growing, on a global basis. It's just that mobile is growing faster. Data provided by TeleGeography.

Verizon Leads in LIfetime Customer Value

The average subscriber lifetime revenue per subscriber was $2,589 in the third quarter of 2006, which was approximately flat to the same period in 2005. Over the past nine quarters, the general trend for lifetime revenue per subscriber is slightly positive.

But Verizon blows away its major competitors in this category, with a lifetime revenue of $4,081 in the third quarter of 2006, 48 percent higher than Cingular, for example.

Cingular's lifetime customer value was $2,704 in the third quarter. Sprint Nextel experienced a significant drop in its subscriber lifetime revenue declining by
approximately $1,000 to $2,145. T-Mobile trails all operators in this metric and experienced slightly negative trends over the period, with subscriber
lifetime revenue of $1,733 for the third quarter of 2006, approximately 33 percent below the industry average.

Average revenue per unit, churn rates and other operating efficiencies account for the differences.

Change in Cost Structure Looms for Cable, Satellite Video

And you can credit telcos for creating the climate making further change inevitable. CBS Corp., for example, appears to be in negotiations with 20 U.S. cable TV companies about direct compensation for CBS programming distributed over those cable networks. That would be a big change. Verizon already pays CBS. CBS executives say the additional revenue could amount to "hundreds of millions" of dollars by 2009.

Historically, over-the-air broadcasters have been compensated in non-cash ways. Lower advetising rates or carriage of broadcaster-affiliated cable networks being cases in point. Highly-popular "cable only" fare such as ESPN always have been paid for on a "cents or dollars per sub" basis. That hasn't been the case for rebroadcast networks.

But as we've been noting, value chain disagreements are going to sharpen as IP business models are built.

Mobile TV Jitters

One of the issues mobile TV faces is uncertainty on the part of service providers about aggregate demand, as well as what it is that viewers actually will want. So far, about 66 to 70 percent of consumers say they want other types of custom content. Most of the likely buyers seem to be in the 18 to 35 age group.

There remains some concern about screen size, but some proponents say the concern is misplaced. "It's not a matter of screen size," says Rutton Ruttonsha, NXP SVP. "It's a matter of resolution.

"If you ask 10 people if they’d watch TV on a small screen, they’d say no," says Ruttonsha. But handed an actual high-resolution screen running content, 70 percent then say they would get one. That's not an unusual finding. Users never can judge their appetite for truly new innovations until they actually can use it.

"If you look at the research, when people complain about the issues with mobile television, 76 percent of their complaints involve quality of the video and frame data rates," says Scott Wills, HiWire COO."Only six percent of people complain about screen size."

"The quality of audio is also important," says Ruttonsha. "If the audio is perfect, you can tolerate some misses on the screen." If the audio is great, consumers think the picture is a lot better.

Business models are another area of concern, certainly. Most likely there will be several models, all following existing media practice. Some services will rely on subscription fees plus advertising. Others will take a commercial-free, paid approach.

Of course, one way to look at mobile video is the impact if a single wireless carrier were able to get 10 percent penetration of 200 million handsets. That creates a Comcast-sized video provider.

"One of the reasons it’s taken so long to get going in the United States is that everyone wants an unfair share of the $6.6 billion market they see coming," says Ruttonsha. As we have argued before, disputes among value chain participants are a sure way to delay or crush an incipient market.

Value Chain Conflict is Inevitable, Also Resolvable

Eric Lagier, Skype director of business development, hardware and mobile, says the mobile phone industry isn't ready for Skype, in particular because the industry doesn't offer high-speed mobile access cheap enough. Users could make cheap phone calls cheap if broadband data plans were cheap, Lagier says.

That might be a bit like Steve Jobs complaining that the music rights holders take too big a cut of the sale of a song.

"We don't want to be in a situation where we say 'Skype is free' and then at the end of the month the user gets this huge broadband bill," Lagier says. Lagier pointed to wireless operator 3 as an example of what
Skype would like to see. 3 offers 3G bandwidth for about $9.69 per month, supporting unlimited Skype calling.

So what would Skype like? Low-cost, flat-fee wireless broadband packages that allow users to make unlimited long distance calls. "We don't want to be in a situation where we say 'Skype is free' and then at the end of the month the user gets this huge broadband bill," Lagier says.

Lagier's comments nicely illustrate the sorts of value chain disagreements that inevitably are going to occur as new IP-based business models are created throughout the communications and entertainment industries. Tussles are inevitable because every participant in the value chain wants to maximize its position and maintain high profit margins, even at the expense of other participants. That shouldn't surprise anybody.This goes on in every industry with a complex value chain.

To be sure, European mobile executives made very bad decisions when they bought their 3G licenses. Telco executives have operated in cozy businesses with little competition and little innovation. Everybody would like lower prices for mobile broadband. But it's a bit shocking to hear an argument that essentially is a
whine. "We could offer free or really low cost calling services if other participants would simply sacrifice both their calling and next-generation network revenues." Don't get me wrong. I use Skype. I like it. I use 3G and I like that too. Mobile calling prices are too high, especially in Europe, Middle East and African markets. I
don't believe in packet blocking, including blocking of Skype packets. I don't agree with regulations that outlaw use of Skype and similar applications.

But a value chain participant won't get very far in a business that requires a great deal of "playing nice" by essentially complaining that it can't make any money because another essential partner won't agree to commit business suicide voluntarily. To be sure, wireless carriers are going to have to lower prices as markets become more competitive. And reasonable prices for broadband can provide a foundation for lots of other services that will generate profits for carriers. Wireline telcos, for example, have concluded that unless they can hang on to the consumer broadband access account they will have a tough time hanging onto voice or video accounts.

We'd agree with Lagier that the mobile industry isn't very Skype friendly. We think it should be more friendly to all sorts of innovations third parties could bring it. It just isn't helpful when one part of the value chain asks another to destroy itself so another part can prosper. Everybody has to prosper.

Web-Activated Voice for Apple iPhone

Wasting no time, Jajah says it will support the Apple iPhone, and make available mobile, web-activated calling on the device as soon as it is available to buy. "You already know we have an Mac Address Book Plugin and Jajah user Greg Smithies has recently pulled together a Mac OS X Jajah Widget, the company says.

HDTV Set Penetration at 17 Percent

Leichtman Research Group says 17 percent of U.S. households now have at least one high definition-capable TV (HDTV), an increase from about one out of every fourteen households just two years ago. Some 26 percent of homes have more than one HDTV. Some two thirds of consumers aren't aware of the digital TV transition scheduled for February 17, 2009, which will turn off the current broadcast system and convert to HDTV only.

HDTV Ownership

Annual HH Income Have an HDTV

Under $30,000 6%
$30,000 - $50,000 8%
$50,000 - $75,000 17%
$75,000 - $100,000 25%
Over $100,000 38%

Source: LRGResearch, December 2006

Hosted PBX $2 Billion by 2010

Hosted PBX and hosted Centrex style services are resonating most with smaller businesses in the 20-to-50 seat range, says In-Stat. But there's still a very long ways to go, according to separate research by Savatar. As shown in this graphic, blue shows small business managers who aren't sure which IP phone approach to adopt. Yellow shows those in favor of hosted PBX services while red shows preference for a premises switch.

Hosted PBX and hosted Centrex services will exceed $2 billion in annual revenue by 2010, the company says. In-Stat projects U.S. hosted PBX seats in service will continue to grow steadily to top three million in 2010, up from 373,000 in 2006. Cost savings remains the primary attraction to hosted business phone solutions, but the value associated with business-grade solutions is resonating more strongly among businesses that are willing to pay for them. Multi-location businesses and those with mobile or distributed employees are most attracted to hosted VoIP solutions, In-Stat says.

Amp'd Up

Amp'd Mobile ended 2006 with more than 100,000 subscribers, 89 percent of which are on postpaid contracts. Most significantly for the mobile virtual network operator, the company surpassed its own expectations for data revenues and mobile content usage.

Average content and data revenue per user exceeded $30 a month (compared to an industry average of $6.80) and total ARPU exceeded over $100 a month.

Notably, content accounts for nearly 60 percent of the $30 of data ARPU, in contrast to approximately 25% among other carriers. The results are important as a test of MVNO viability, as well as the content-centric strategy for an MVNO, in view of the shuttering of ESPN's MVNO effort.

MediaZone Goes Beta: Bandwidth Issues to Follow?

MediaZone announced a beta version of its social TV platform, allowing the creation of "linear" TV channels. MediaZone has delivered more than 2000 sports, entertainment and cultural events each year, including the Wimbledon Championships, the ING New York City Marathon and the FIBA Basketball World Championships. The company has also developed long-term exclusive content partnerships with major media brands including NBC Sports, AOL and the Shanghai Media Group.

MediaZone's latest platform introduces new features surrounding video programming, including chat with others watching the same show, ratings and comments, blog publishing, and other tools to deliver a far more comprehensive interactive platform than current video sites offer. Viewers can share their thoughts and passions while watching Social TV's numerous hard-to-find programming channels.

The platform accommodates TV producers, networks, cable outlets, media libraries and other content partners seeking to build full-time linear internet video channels, the company says.

Aside from the obvious competitive impact on existing media channels, there is a serious issue about how much bandwidth, both in the backbone and in the access network, might be chewed up if streaming video really starts to take off. If a broadband access service limits total usage to 2 Gigabytes a month, then the limit is reached in just 20 hours of standard TV viewing.

One Way of Looking at Bundling

DirecTV executives point out that a move into new services such as voice and high definition TV hasn't hurt the satellite provider's ability to keep growing, as this DirecTV graphic indicates. But there's another way to look at matters. What cable's ability to create Triple Play services has done is break the trend line of DirecTV's growth. DirecTV might have grown much more rapidly had cable not begun to flex its muscles with voice, broadband access and other services.

Vonage to Go Dual or Triple Play

Vonage Holdings Corp. is creating a subsidiary to resell EarthLink Municipal Wi-Fi access. EarthLink Wi-Fi is live in New Orleans, Philadelphia, and Anaheim and Milpitas, California. EarthLink's San Francisco network isn't operational yet, but has been approved. That will make Vonage a "dual play or quasi-triple-play" provider, moving Vonage beyond the "over the top VoIP" or "minute stealer" position it has had in the market.

Vonage now will be a provider of broadband access, VoIP and wireless VoIP, since its Wi-Fi phone will work throughout areas of the municipal Wi-Fi footprint where the signal can be received. One might question the ultimate viability of either independent mass market broadband access, VoIP or muni Wi-Fi businesses, but the move gives Vonage a chance to move in a new direction, gaining many of the benefits of "bundled" services approaches.

IPTV: China, France, United States Lead in 2011

China will have the most subscribers, France the highest penetration, the United States the greatest service provider revenue, in 2011, according to Informa Telecoms & Media.

Top 5 IPTV Markets in 2011
Ranked by Subscribers (000)
China 11,182
USA 3,429
France 3,390
Japan 3,075
Germany 2,626

Ranked by Penetration
Hong Kong 37.6%
France 14.8%
Singapore 11.9%
Norway 9.2%
Israel 9.2%

Ranked by Revenue $ Millions
U.S. 2,198
Japan 1,847
France 1,586
Italy 1,085
U.K. 810
Source: Informa Telecoms & Media

New GrandCentral Spam Filter

GrandCentral Communications announced at the International Consumer Electronics Show a new community-wide PhoneSpam Filter. The first of its kind, this free service combines a GrandCentral database of abusive callers together with a user-generated list of telemarketers to filter out unwelcome or insidious calls with a check of a box. As visitors and users report telemarketers and other unwanted callers to GrandCentral at www.grandcentral.com/stopphonespam, the numbers are confirmed and added to the PhoneSpam Filter.

Whenever one of the numbers on the list calls a GrandCentral user who has enabled the filter, those calls will be caught by GrandCentral and sent directly to the users’ Spam Voicemail folder. As more telemarketers and abusive callers are reported, the community-wide system increases in its effectiveness and provides even greater protection to GrandCentral members.

GrandCentral's addition of community or social networking features is one way new providers are adding value to voice communications by extending features in ways that go way beyond historic PSTN features. Basically, that means services become richer and more valuable as the end users create value and add knowledge. That's a big shift from the past, when a service provider essentially defined all the features.

My GrandCentral number is 303.997.1275, by the way.

TalkPlus Goes Mass Market

TalkPlus has unveiled its "multiple number, one device" service for Spint, Cingular, T-Mobile and Verizon mobile handsets. The company says mobile-centric professinals and "socially active" users are the early lead adopter targets. The service probably will appeal to people who really live by their mobiles and want to clearly separate their work and private lives, while gaining additional privacy by using virtual public numbers.

Some 15 to 17 percent of mobile phone users in North America usemore than one mobile phone, typically one phone for personal use and one for work. But some use a standard cell phone for most voice calls and have a second device, usually a BlackBerry, as their second phone.

A TalkPlus Number can be quickly created, used for temporary situations and then discarded. If a TalkPlus subscriber is selling a car online, they can get a disposable number just for the sales process, the company suggests. Using Mirror Numbers, mobile subscribers can instantly alter their caller ID to any approved phone number. TalkPlus can be activated on any of today's mobile phones in seconds and adding a new TalkPlus Number doesn't require any new hardware or changes to a subscriber's existing carrier plan, even for prepaid customers, the company says. TalkPlus doesn't require access to a computer to make calls, asking others to download software, or conducting complicated call set-up processes.

The TalkPlus Basic Plan includes:
* TalkPlus Number
* Call Screening
* Voicemail
* Web-based control center

Basic plans start at less than $9 per month. TalkPlus Pro adds:

* Multiple TalkPlus Numbers (up to 10) All numbers will have their own voicemail and call history.
* Mirror Numbers -Subscribers can clone a home or office number onto their mobile phone. This feature allows users to present an alternative caller ID when making calls. Up to 10 Mirror Numbers can be added to one mobile phone.
* Conference Calling - Subscribers can make up to 10-way conference calls.

Pro plans start at less than $17 per month.

PC to TV Will Be Big at CES

Porting Web video to TVs will be a big theme at this year's Consumer Electronics Show, it appears. Sling Media is epxected to introduce SlingCatcher, which uses the in-home Wi-Fi network. The SlingCatcher also will also be able to transmit programming on a Slingbox-connected TV to another TV set, either to one in the same house via a home network or to one in a remote location via the Internet. SlingCatcher will be available in mid-2007 for less than $200, according to Sling Media Chief Executive Blake Krikorian.

Together with other similar initiatives from Apple Computer and Microsoft, among others,this sort of capability will need to be put into place before we can gauge the actual extent of consumer receptivity to all sorts of "direct to consumer" video. So far, not that many people claim to have used or paid for legal fare. But most observers think technical impediments (not being able to easily view on a TV, in particular) keep most people from experimenting with the new formatpaid video content. All that is going to change, though, and innovations such as SlingCatcher are the necessary forerunners of such developments.

Of course, demand is half the equation. Equally important is the supply side. Television executives, for example, now are asking if future TV programming will be delivered over the Internet, bypassing today's traditional cable and satellite providers, and seem increasingly open to the idea. Chief among the obstacles is the lack of Internet connections to TV sets, bandwidth-limited video quality, lack of business models, and the challenge of navigating through thousands of video programs, otherwise known as "search and discovery."

About all we can surmise at this point is that once these obstacles are removed, there will be a potential alignment of demand and supply. The bad news for cable TV operators, broadcasters and telcos is that "over the top" delivery disintermediates today's channel partners. This is probably a five year preparation phase. After that, watch for a slugfest between over the top video and cable, telco, satellite and broadcast delivery methods.

When Dark Fiber Makes Sense

If an enterprise has requirements for four or more optical wavelengths, it makes more financial sense to lease dark fiber and light its own network, at least in Western Europe, say analysts at The Yankee Group. The savings for the dark fiber approach are 40 percent over leasing four wavelengths, Yankee Group says. The economics work for cross-border and national networks. Since such deals involved distance-sensitive pricing, however, route length and the type and number of wavelengths can affect the analysis. For four or more wavelengths, savings between 13 percent and 70 percent are potentially achievable by leasing fiber. Bigger savings occur when bandwidth has to be bumped up. The incremental cost of additional new wavelengths on a dark fiber infrastructure is only 10 percent to 15 percent of the cost of adding a new wavelength.

The Difference Between Bellheads and Netheads

The IEEE has given the effort to develop 100 Gbps Ethernet its official support. Some network equipment vendors had argued for 40Gbps, 80Gbps and 120Gbps speeds, in line with synchronous digital hierarchy. But Ethernet always has been designed around factors of 10, or an order of magnitude improvement, all the way from its first incarnation at 10 Mbps in the 1970s.

So here's the suggestive comparison. Netheads design around orders of magnitude of change, every time there's an upgrade. Bellheads tend to want increases to match the legacy base. There's nothing wrong with that. There simply are different assumptions about what "next version" of bandwidth growth should entail.

There are other parallels in life. Established businesses would be happy with incremental growth in the tens of percent. Venture capitalists won't bother with any innovation that promises anything less than an order of magnitude performance improvement over the existing state of the art.

Again, some endeavors in life are geared around incremental improvements while others are organized around at least an order of magnitude change. Not surprisingly, VC-backed efforts frequently are disruptive, specifically because that's what they aim to do. Established organizations frequently grow at 10s of percent rates, precisely because that's what they aim to do.

If Netheads and Bellheads tend to produce different results, it is at least in part because they aim to do different things. Bellheads aim for incremental change. Netheads, riding Moore's Law, aim for orders of magnitude change on a sustained basis. Which is why the global tension in the communications business isn't going away. There will be no possibility of easy stability. Not when some value chain participants live in a world of incremental change while others live in a world where an order of magnitude is the normal rate of change.

That isn't to say end users immediately see all those improvements. There are some physical constraints in the infrastructure world that make Moore's Law improvements in the access plant tough, if easier in the wide area network and relatively simple in the device arena.

CES Will See More Download Video Rollouts

The International Consumer Electronics Show is the first major U.S. trade show of the year that has direct implications for the communications and Internet apps industries. It is a logical place to launch a new "download-to-own" service or expanded Web video initiatives. We would expect some of that to happen. Sonic Solutions this week launched Qflix, a licensing and certification program approved by the studios, which will allow online retailers to sell movie downloads that can be burned onto DVDs.

CinemaNow currently sells a limited number of download-to-burn movies (using a different technology) and iTunes sells movies for viewing on iPods and PCs/laptops. Such services essentially use different distribution channels and are direct challenges to cable, satellite and upcoming telco video distributors of on-demand or pay-per-view fare, as well as to Netflix and Blockbuster Video. The key strategic change is the willingness of content owners to embrace the new channel. That's the single most important factor driving the new market.

It isn't clear yet how business models will shake out, but ad support already looks to be an important factor. In most media industries, advertising plays a significant role. Potential customers also indicate they prefer "free" ad-supported video as well, even though this preference coexists with a demonstrated to buy movie content in many forms (theatrical release, PPV, DVD, DVD rental).
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Declining ARPU Drives Thinking

Even in the robust mobility segment, growth is slowing. The decline in per minute pricing of voice calls is leading in turn to lower average revenue per unit, in North American and Europe, according to The Yankee Group. All of which makes the search for new services and revenues of all sorts mandatory, rather than optional, of course.

Nine Million VoIP Households

In-Stat says more than nine million households have at least one active VoIP user.
The top five facilities-based services used by households in the United States are Vonage (1.7 million households), Time Warner Digital Phone (1.6 million households), Comcast Digital Voice (1.3 million households), Cablevision/Optimum Voice (1.1 million households) and Cox Digital Phone (420,000 households.

The top five client-based VOIP service providers used by U.S. households are Skype (2.1 million households), MSN (1.1 million households), Yahoo Messenger with Voice (1 million households), Google Talk (658,000 households) and AOL Phoneline (266,000 households).

Price still remains the driver in the consumer market, though some marketwatchers are calling 2007 the "year of VoIP apps," at least in the enterprise space. That prediction probably will prove to be off the mark in the sense that all such "year of the..." proclamations are. In 2006 the International Consumer Electronics Show proclaimed last year "the year of the digital connected home". Guess what. So is this year.

WAN Ethernet Market to Hit $5 Billion in 2007

The global wide area Ethernet market will be something on the order of $5 billion in revenue in 2007, say Yankee Group researchers. The U.S. market for Ethernet revenue should grow at a blistering 50.3 percent cumulative annual growth rate between now and 2010, Yankee Group analysts predict.

Don't Have It, Don't Want It

One line of reasoning about broadband deployment is that carriers and government have failed to push it hard enough. There's another way of looking at matters, however. In the U.K. market, for example, respondents who don't buy broadband access services recently told researchers that they didn't want broadband, or didn't own PCs.

Some 27 percent just didn't want it, and some 22 to 23 percent don't own PCs in the home, so broadband has no value. About 15 percent said they couldn't afford it. This will change as compelling services aimed at TVs and game consoles, for example, become available.

In some cases, the ability to use mobile handsets inside the home for a flat fee each month might be so compelling that will drive broadband adoption. The point is that people buy things when they find things valuable, and many end users still haven't been persuaded.

Wireless IS Voice

This probably won't be the year that everybody agrees mobile voice is THE way to do voice. In fact, mobile might never be THE way to do voice. But there's no question that mobile handsets are becoming the convenient single device to use voice and other apps. There's no question the amount of conversation initiated and terminated on mobile devices is increasing. Nor is there much doubt that tethered devices and apps have to start offering value beyond "simple" conversation to remain highly relevant.

P2P Could Drive Architectural Change

Some trends we now are seeing in the Japanese broadband access market raise potential issues for all access network architects. Specifically, the issue is that consumer networks are designed asymmetrically, and P2P uploading requires symmetry. One might like to design a network so flexible that bandwidth can be provisioned "on demand."

The problem is that such a network typically implies an optical infrastructure with a fairly sophisticated degree of intelligence, to supply granular increases in bandwidth, on a "dial it up and it happens" basis.

And that's expensive, particularly so since the network has to be built past all potential end user locations, even when actual demand will vary widely, stranding some of the assets.

Some networks, with short access loops, might finesse the issue by deploying VDSL. Others are simply going to have to look at fiber-rich networks. Expensive stranded assets might result, in that case.