Where is Telco Capex Going?

As global carriers are in the midst of capital planning exercises for 2009, one key question their suppliers must grapple with is what changes might be forthcoming. Analysts at ABI Research perhaps optimistically think global carrier capex will dip just about 1.3 percent from 2008 levels, when capex grew a bit more about eight percent.

Ovum believes the most likely scenario is a generally mild impact on the telecoms industry, with growth and spending slowing but not declining. The scenarios are described in the October edition of Ovum’s Straight Talk Monthly communication to clients.

Researchers at Ovum say they aren't yet sure, but offer three possible scenarios. In the optimistic forecast, 2009 capex will be at the level of 2007, reflecting a slower 2008 spending pattern.

The most-likely outcome is slower spending through 2009, though. In a worst-case scenario,
capex could fall as much as 28 percent, a level somewhat consistent with the "nuclear winter" years after the Internet and telecom bubble just after the turn of the century.

Cox to Launch Mobility Services

Cox Communications plans to launch mobile phone service in the second half of 2009, using Sprint network facilities. But Cox also owns its own spectrum and plans to build its own third-generation wireless network, although it also says it will test Long Term Evolution as an eventual 4G platform.

Cox executives say the management and delivery of converged content is at the core of the company's wireless strategy. "Cox customers will be able to use their mobile phone to access television favorites, program their DVR, access content saved on their home computer and simplify their lives with enhanced voice features," the company says.

A reasonable way forward would be for Cox to rely on Sprint for typical wireless voice, text messaging and mobile broadband services, while using its own network for applications more focused on content services related to what it currently delivers using its wired networks.

All Cox phones will include a network address book that automatically synchronizes with home PCs, the company says.

Cox also says that subscribers will be able to watch TV shows, and possibly full-time channels, on their handsets.

The move into mobility is hardly unprecedented. Cox joined with Comcast and Tele-Communications Inc. as equity owners in Sprint PCS in 1994.

Online Video Goes Mainstream

Online video services have gotten positively mainstream over just the last six months, according to Ipsos MediaCT.

The percentage of female Internet users ages 12 and older that have streamed a video online in the past 30 days has grown from 45 percent to 54 percent, an all-time high for this demographic and nearly equal to the percentage of men (58 percent) whom have recently streamed video content online.

Moreover, the percentage of adults aged 35 to 54 that have recently streamed video online has also shot up since December 2007, rising from 49 percent to 60 percent in that time span.

In the past, such behavior disproportionately was a younger male activity.

Skype Puts Up Numbers Most Would Envy

In the third quarter this year, and for the year, eBay's Skype has posted numbers most companies would love to have. Use of Skype-out minutes increased 54 percent, which drove revenue growth of 46 percent for the quarter. 

Revenue over the past year came in at $ 521 million compared to $332 million for the comparable prior year, an annual revenue growth rate of  56.9 percent.

Registered users increased 51 percent over the prior year and Skype-to-Skype minutes increased 63 percent to 16 billion minutes. 

Also, growth seems to be accelerating. Skype recently achieved its fastest growth rate of user activity in its history, by one measure, with an additional one million more concurrent users in just 35 days. Skype tends to measure usage by the numbe of concurrent sessions occurring. 

Skype saw 63 percent annual growth rate of minutes. Not so important, you might think, since lots of Skype usage is of the free sort. But use of paid minutes (2.2 billion SkypeOut minutes) increased 54 percent. 

Skype had third quarter 2008 revenue of $143 million and is on track to reach 2008 revenue of $570 million. In a sort of worst case scenario--if a global economic sluggishness decreases Skype use, about the opposite of what some of us think will happen--and Skype revenue growth slows, it should neverthless continue to grow annual revenue above the expected 2008 level (negative growth is hard to imagine). 

The Difference Between Voice and Video Bandwidth

In a recent conversation with a financial analyst, the matter of Internet video bandwidth came up. The simple observation was that video consumes an order of magnitude (10 times) to two orders of magnitude (100 times) more bandwidth than voice does.

The implication, of course, is that if online video consumption becomes popular, it represents a network engineering and challenge potentially 10 to 100 times more complicated than was the case for access networks built for voice. 

That isn't to say costs scale precisely that way, but it suggests the dimensions of the cost problem for any network services provider charged with adding that much bandwidth. 

The cost of deploying a fiber-to-the-cabinet (fiber to the neighborhood) network in the United Kingdom, for example, has been estimated at £5.1 billion. The cost of a fiber-to-the-home network is estimated at £28.8 billion, according to the Broadband Stakeholder Group. 

The immediate difference in potential bandwidth might not be an order of magnitude. But the potential bandwidth difference ranges from an order of magnitude and up. 

Broadband: When a "Problem" Actually Isn't a Problem

Since broadband first became widely available to consumers in the late 1990s, adoption has hit the

halfway point faster than most other information and communication technologies, one easily can conclude. 

It took 18 years for the vpersonal computer to reach 50 percent of Americans, 18 years for color TV, 15 years for the cell phone, 14 years for the video cassette recorder, and 10.5 years for the compact disc player. 

It has taken about 10 years for broadband to reach 50 percent of adults in their homes.

The point is that, looking historically at the matter, there is not now, nor has there actually been, a "broadband adoption problem." One can quibble about costs, the rate at which speeds are increasing, traffic shaping or business models. 

But as a simple historical model, broadband was adopted faster than any other popular mass market service, ever. 

No SaaS Slowdown

Worldwide software-as-a-service revenue in the enterprise application markets is on pace to surpass $6.4 billion in 2008, a 27 per cent increase from 2007 revenue of $5.1 billion, according to Gartner, Inc. The market is expected to more than double with SaaS revenue reaching $14.8 billion in 2012.

Gartner analysts say the adoption of SaaS is growing and evolving within the enterprise application markets as new entrants challenge incumbents, popularity increases, and interest for platform as a service grows, despite the challenging economic climate. 

The fastest-growing markets for SaaS are office suites and digital content creation, albeit from small bases, says Sharon Mertz, Gartner research director.

Gartner estimates that the revenue attributed to SaaS within the office suites market will reach 99.2 per cent compound annual growth rate from 2007 through 2012, with a total SaaS revenue reaching $1.9 billion in 2012. 

By 2012, Gartner estimates that web-based freeware such as Google Apps, Adobe Buzzword, ThinkFree, Zoho and SaaS offerings will account for nine percent market share of total software revenue.

Gartner forecasts 96.1 percent CAGR for SaaS revenue in the digital content creation segment from 2007 through 2012.  

“DCC software is becoming increasingly important as organisations evolve toward a more Web-centric business model," she says.

The content, communications and collaboration  markets remains the largest contributor to the overall SaaS enterprise application markets with revenue exceeding $2.1 billion in 2008, and it is expected to amount to $4.7 billion in 2012. 

SaaS will represent two percent to three percent of enterprise content management and more than 70 per cent of Web conferencing in 2007.

The second largest contributor to the overall SaaS enterprise application markets is customer relationship management. In 2008, SaaS within the CRM industry is expected to exceed $1.7 billion in total software revenue. Gartner expects CRM SaaS revenue to exceed $3.2 billion in total software revenue in 2012.