Xohm: One Has to Start Somewhere

You have to start somewhere: Sprint's "Xohm"  business recently unveiled a number of co-marketing agreements with Lenovo and Acer that will have each of the PC vendors introducing a number of notebooks for enterprise and small business buyers. The ultimate goal, of course, is to have WiMAX capability embedded in new classes of devices such as cameras or MP-3 players. For the moment, though, Xohm seems to be positioning as a "metro-wide Wi-Fi" experience.

That means making it marginally easier for mobile PC users to buy what others might consider a "mobile broadband access" experience using dongles or PC cards. Xohm promises more bandwidth of course, and that is the key distinction for the moment, aside from the ability to buy service at lower prices and without contracts. Users who are mobile in many cities across the United States will have to make judgments about where they actually need wireless broadband access and whether Xohm will have coverage in those locations. 

Where Xohm is today is not where it would like to be in the future, of course, but for the moment it will have to rely on lower pricing and higher bandwidth as the differentiator with existing 3G mobile broadband offered by Sprint, Verizon and AT&T. In due course, more unusual options should be available, and the issues with nationwide roaming should clear up. 

Still, it must be said: as a user of mobile broadband service who is mobile beyond a single metro area, coverage trumps bandwidth or price. Lower prices are nice and higher speeds ultimately will be important. But coverage is king if one has to roam on a continental basis.

Not every use case has that requirement, though. Users who will not require roaming outside their home city will find $45 per month for a Xohm service, without a contract, and featuring 2 Mbps to 4 Mbps throughput, more attractive than $65 a month for 1 Mbps or less and a two-year contract. The issue is what percentage of the mobile PC access market is in the "national roaming" compared to the "metro roaming" category. 

I have used "metro" roaming broadband access, and it is useful as an alternative to Wi-Fi hot spots. It does not fare well when the use case is national roaming, though. 

Lenovo plans to offer five ThinkPad laptops with WiMax, while Acer will roll out two Aspire notebooks for small businesses that have the WiMax technology.

The Lenovo ThinkPad notebooks that offer Intel’s Centrino 2 platform with the optional WiMax technology include the new ThinkPad X301 as well as the ThinkPad W500, W700, SL400 and X200. A consumer notebook, the Lenovo IdeaPad Y530 laptop, is expected to follow later in 2008.

In addition to Lenovo, Acer is also preparing to roll out two notebooks – the Aspire 4930-6862 and the Aspire 6930-6771 – that offer the updated Intel Centrino 2 platform and the WiMax feature. While the Acer Aspire series is geared more toward consumers, these notebooks have found a place within the small business market.

The point is that one cannot yet assess how well WiMAX will fare in its intended markets. The footprint remains limited and device support is limited as well. But one has to start somewhere. 

Broadband: Rubber Meets Road

Comcast says it will have 20 percent of its markets upgraded with faster DOCSIS 3.0 50 Mbps speeds by the end of the year, and all customers will be upgraded by the end of 2010. Which will provide an interesting test of end user demand. Other service providers who provide speeds that fast have been reluctant in the extreme to say anything in public about take rates for services offering that sort of speed.

I think the clear implication is that really-fast broadband remains a bit of a niche. In Minneapolis/St. Paul users can buy a 50 Mbps downstream/5 Mbps upstream connection for $150 per month. What isn't so clear is how many customers are willing to do so.

What would seem obvious is that a good percentage of the potential market at this point is buyers who have some business justification for such bandwidth, either to support a home-based business or work-at-home operations with a fairly high video conferencing requirement. 

Verizon's 20 Mbps FiOS offering costs $52.99 a month when bundled with a Verizon phone service and $57.99 a month without, so that roughly sets expectations for market pricing. 

Verizon's 50 Mbps downstream, 20 Mbps upstream service costs $139.95 a month with phone service and $144.95 a month without a bundled phone line. 

That is worth keeping in mind as nominal speeds keep climbing. So far, it appears uptake for the highest-end offerings is relatively modest, whatever it may be worth as a marketing platform. 

What observers always seem to miss about the mass market is its price sensitivity. Consumers can become accustomed to services and features that once seemed to be luxuries--broadband access, cable TV, multiple PCs in a home and mobile service being prime examples. But it takes time for the value to be understood and the pricing to become acceptable for the value received. 

By some estimates it has taken the better part of a decade for the Internet access habit to be created and then to be recast as a "broadband" Internet access "need." It might take a similar amount of time before 50 Mbps access tiers are seen as the "typical" way to satisfy the access need.

People don't generally buy "technology'; they buy value. It will take some time to convince most people that 50 Mbps for such prices are valuable enough to pay for them. 

Consumers Say They Are Reducing Spending

The latest ChangeWave consumer survey, conducted in late September 2008, shows another major leg downward for U.S. consumer spending. At the same time, confidence in the economy has dropped to exceptionally low levels and looks to stay that way for three months, ChangeWave says. 

Of course, consumer spending has been trending lower for about 15 months. More than half of  4,067 respondents  (52 percent) now say they'll spend less money over the next 90 days, for example. About 18 percent say they'll spend more. 

More respondents say they are spending less because they are paying down debt (29 percent) or saving more (26 percent). Generally higher prices and higher energy costs get top blame for reduced spending. 

Liquidity Impact on Service Providers?

Just about the only thing most people seemed to want to talk about, at some meetings during the recent Comptel convention, heavy with providers of wholesale communications capacity and retail service providers, was the possible impact of the banking crisis on the telecom business. It's a fair enough question.

For the most part, it is not good news. In a capital-intensive business, capital stringency is never a good thing. Some acquisitions will not happen, which means some asset sellers and buyers will be unhappy. 

Embarq, the fourth-largest U.S. phone company, has been trying to sell itself for weeks, the Wall Street Journal reports. But those plans are tabled for now because potential partners haven't been able to raise capital for a deal. That probably is going to be an issue for any would-be buyers of Nextel as well. 

Some network expansions will be put on hold, while others will be slowed, the reason being that available cash has to be funneled to operations, debt service, dividend payments and other uses when borrowing and credit are not easy options. 

On the retail side of the market, one would have to expect some organizations will delay planned purchases of new phone or other premises equipment, delay opening new branches or take other "headcount-related" moves that typically spur the purchase of new communications services and equipment. There are, for example, some indications that wireless "phone replacement" services offered by MetroPCS and Cricket Communications gained ground in the third quarter of 2008. 

MetroPCS Communications "pre-announced" an 82 percent rise in third quarter 2008 profit on a 41 percent increase in total revenue. The company added 249,000 net subscribers in the third quarter, a development MetroPCS believes shows it is benefiting from customers cutting their land lines. 

Executives at firms supplying bandwidth products say it will be a quarter or two before it is possible to assess any economy-related impact on Ethernet or bandwidth products. Some particular markets, such as New York City, might see a drop-off from financial sector customers, for example. 

On the other hand, providers of core IP bandwidth should see a largely neutral environment as far as aggregate demand, though there could be some pricing pressure, as broadband mobile services and consumption of video continue to grow. 

Nobody is buying capacity "on spec," and nobody has done so since perhaps 2001, so there is not much potential damage on that front. The fundamental price-per-megabit trends seem intact, and consumption of bandwidth likewise seems still to be in line with recent years. Capacity providers, unlike most in the business, are used to steady, relatively predictable price declines and demand growth of roughly 60 percent a year. 

And then there are the inevitable winners: companies that can tap credit to remove competitors from the market, grow service footprints and product lines, acquire human and other resources they might not have been able to afford recently.  So far, though, there is little firm evidence one way or the other about the potential impact of the liquidity problem. 

iPhone Probably Worth 7 Share Points

About 30 percent of U.S. consumers who purchased Apple’s new iPhone 3G from June through August 2008 switched from other mobile carriers to join AT&T, a new study by NPD Group finds. About 23 percent of consumers, on average, switched carriers between June and August 2008.

By some measures, then, AT&T got a seven-percent share boost from the iPhone.

Nearly half (47 percent) of new AT&T iPhone customers that switched carriers switched from Verizon Wireless, another 24 percent switched from T-Mobile, and 19 percent switched from Sprint.

Before the launch of the iPhone 3G, iPhone sales represented 11 percent of the consumer market for smart phones (January through May 2008); however, after the launch of iPhone 3G, Apple commanded 17 percent of the smartphone market (January through August 2008).

The average price of a subsidized smart phone sold between June and August 2008 was $174, down 26 percent from $236 during the same period last year.

Cox Not Infringing Verizon VoIP Patents, Jury Finds

Verizon Communications has lost its VoIP patent infringement case against Cox Communications Inc, the Wall Street Journal reports. Verizon filed papers in Eastern District Court of Virginia on Jan. 11, 2008 alleging that Cox violated eight patents related to the technology used for completing IP voice calls. The lawsuit came after Verizon had successfully argued that Vonage was infringing its patents. 

Verizon included in the lawsuit claims of infringement of  four patents Vonage was found to have violated in an earlier case. Verizon was awarded $120 million in damages in that case. But the jury in the Eastern District of Virginia ruled that Cox Communications did not infringe on six Verizon patents.

In addtion to Cox Communications, other leading cable operators perhaps most relieved of all, as it might be hard to defend the notion that any of the leading cable providers were innocent, had Cox been found to be infringing. But other indpendent VoIP providers also have to be breathing a little easier as well. 

Had Cox been found to be infringing, it isn't so clear how any other cable company might have escaped litigation, cable or independent VoIP providers alike. 

Verizon apparently has recently reached a deal with Comcast in which both companies agreed not to sue each other over patent issues for five years. A Verizon lawsuit against Charter Communications for VoIP patent infringement is still pending.

Netflix Warns of Slowdown

Netflix says its third quarter revenue and earnings per share will fall within prior guidance but that subscriber numbers will fall “just below” the low end of guidance.

“Net subscriber growth in July was in line with expectations but August was unusually weak”, says CFO Barry McCarthy. 

There could be lots of reasons for a single-month slowdown. It is possible potential new subscribers were distracted by the Olympics or the Presidential election. But some quickly will jump to the conclusion that economic stringency is pinching Netflix the way some expect a sluggish performance for premium cable channels or perhaps video on demand.