Telecom Trends

At a family function this past weekend, I saw some friends for the first time in 30 years. We had a chance to speak about the challenges of staying in touch in the good old days.

There was a time, in the not so distant past, that long distance calls were a 'big deal.' Sunday afternoons included the weekly ritual of phone calls to our grandparents on the east coast. Play time was punctuated by shouting to come in quickly: "It's long distance."

In my college days, calls to/from home were timed for 11:01 pm - those big discount periods were worth waiting for. And international long distance? You would have to choose between a nice dinner and a 3 minute call to Europe.

Now, we pick up the phone and call when we want. Most countries in the world are less than a nickel a minute, any time of day. In our house, we don't stop to think about making a long distance call from a wired phone, especially when you consider that an hour long call is about the same price as a cup of coffee.

I wrote yesterday of the continued trend for people to cancel their residential phone service. For mobile to be a complete substitute, there is still work to be done. Most service providers offer North America calling, sold in buckets of minutes. But absent a monthly plan, mobile long distance calling in Canada or the US attracts rates reminiscent of the wired world of 20 years ago. And overseas? Don't think about it.

This is not just a Canadian phenomenon. My US cell phone charges 5 times as much to call Canada compared to US nationwide rates. As a result, mobile phones preserve a profitable business for prepaid calling cards.

Which mobile carriers will be first to recognize the opportunity of enabling 10-10 dial access? With growing adoption of mobile substitution for residential phone service, will incumbents wait for the new mobile entrants or try a preemptive launch of more affordable global calling?

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long distance

Public Works recently commissioned a study to look at households that have cut the umbilical to become 'mobile-only.' There were a number of news reports [eg. here].

There were some interesting numbers in the reports. For now, I'll focus on the geographic variability: the trend is more noticeable in British Columbia - TELUS territory - with 10.2 percent of all households now relying exclusively on mobile telephony. Alberta had 7.7%, while in Bell Canada's home base, Ontario (5.3%) and Quebec (6.3%) fared significantly better.

Despite the possibility that an ILEC's wireless operations might retain the customers, about half of all wireless customers go to one of the 'other companies' in any given ILEC territory.

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Bell, TELUS

At Ericsson's analyst conference, Lenovo spoke of various PC manufacturers rolling out $200-250 'netbook' computers, equipped with 7-10" screens, high speed wireless and optimized for mobile internet centric applications with long battery life.

You may not load a full version of Microsoft Office onto these machines for content creation, but the idea is to create a cross-over device - a bigger screen than smart phones.

We recently saw that Portugal is placing 500,000 such devices into its schools. Will commercial netbooks such as these supplant or supplement the one-laptop per child project?

Users may not want to activate a monthly HSPA service plan but might be interested in daily rates when travelling. Will HSPA service providers offer pay-as-you-go pricing (per day, per hour) to leverage the trend toward pervasive embedded wireless modules?

And while we are looking at alternate business models for mobile broadband, you might ponder if affordable mobile data pricing might lead to consumer electronics companies installing mobile gaming and streaming video in the backseats of our family fun wagons. Does DAVE's affiliation with XM Canada give it a leg up in automotive distribution models?

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Ericsson, Lenovo

A basic tenet of regulation is to be technology neutral. As TV migrates to personal, on-demand platforms, including over-the-top program delivery, there may be a challenge in maintaining such an agnostic philosophy.

How does regulation of traditional broadcasters evolve with an inevitable future of off-shore IPTV programming.

What do bandwidth caps mean for the evolution of video delivery alternatives? How do operators generate alternative revenue sources to deliver bandwidth enhancements, whether fixed or mobile?

Over the summer, the CRTC held a consultation on the scope of a future proceeding on Canadian broadcasting in new media. As part of that process, the CRTC commissioned a report by Two Solitudes consulting called "Changing Channels: Alternate distribution of television content." You should read it [html].

What is the role of regulation as the market for video content evolves?

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new media

Do we learn enough from past mistakes? Technology bubbles, real estate bubbles, oil price bubbles. A story on the wires refers to spiking farm prices as a "dot corn" bubble.

Let's stick with telecom and take a moment to think back to the CLEC bubble of a decade ago.

I seem to recall that virtually every new entrant business plan said that their competitive edge was a lower cost structure based upon "next generation network architectures." CLECs promised to compete with lower prices than incumbents could handle with those "legacy networks" and "inflexible business support systems".

When one of the Canadian competitors introduced flat rate national long distance, they didn't expect a nimble response from the big guys.

Surprise! The incumbents were able to lower their prices overnight because their billing systems weren't quite as antiquated as the CLECs thought.

I suspect there was a fundamental confusion between the cost of delivering a service and the prices charged. Just because legacy network service providers charged more didn't mean that their costs were higher.

Are there lessons for new entrant wireless providers?

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bubble

The problem with gazing out from the ivory towers of academia is that the real world is often out of focus, far beneath the gaze of the theoreticians.

Such is the case with some analyses of net neutrality. Andrew Odlyzko, of the School of Mathematics at University of Minnesota recently wrote a paper [ pdf] that started with a faulty premise:

What if you build it and they don’t come? That is what happened with the landline and underwater cables of the telecom bubble of a decade ago, and many other seemingly promising technologies. And that is almost bound to happen if net neutrality is blocked, and service providers do what they have been promising, namely build special facilities into their networks for streaming movies.

Internet video is nothing like the technology bubble of a decade ago. Building it and hoping they will come isn't the problem here. Video traffic on the 'net has already arrived.

Oh yeah.

Remember, the fact that traffic is already overwhelming some of the networks is the whole issue. The traffic on internet access and backbone networks has been growing, thanks to streaming media and file sharing and gaming, etc. This isn't building a stadium in Iowa and hoping they will come. The league is a success; the stadium can't handle all the fans and more games and concerts are getting booked and tickets keep getting getting printed. And there is a genuine shortage of real-time needs like food, beer and washrooms [your contributions to the metaphor are welcome].

Service providers are looking for ways to manage the quality of the user experience for all the wonderful applications and more that we haven't even heard about yet.

Even the abstract for the paper seems fundamentally flawed.

What service providers publicly promise to do, if they are given complete control of their networks, is to build special facilities for streaming movies. But there are two fatal defects to that promise. One is that movies are unlikely to offer all that much revenue. The other is that delivering movies in real-time streaming mode is the wrong solution, expensive and unnecessary.

I could start with his suggestion that service providers don't already have complete control of their networks, but I'll let that comment go for today.

Real-time streaming may or may not may not be the right way to deliver movies, but it is hard to imagine another way to effectively deliver live action events like sports. Imagine, if you will, the appeal of each of us being able to choose which of the hundreds of cameras we want to follow at any given time from the Olympics. Sounds to me like a call for real time streaming.

The paper advocates use of "faster than real-time" techniques for video, suggesting that YouTube is a counter example for a statement attributed to John Chambers that transmitting video over the internet is "really, really, really difficult." YouTube quality isn't going to cut it for most of the content I want to see.

The key problem I have with his premise ("that delivering movies in real-time streaming mode is the wrong solution") is that neither service providers nor academics will get to choose what the right solution is for delivering movies over the internet.

Users and entrepreneurs, small time innovators and the market-place will decide based on all sorts of factors. For someone advocating net neutrality, it is surprising to see Odlyzko suggesting that there should be a "right solution" for video delivery. Every solution that customers choose will be a right solution.

That perspective shows an affinity for centralized control of internet applications - which is antithetical to the concept of the internet's open innovation.

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Andrew Odlyzko, net neutrality

AT&T is offering rewards of $10,000 to target thieves of its cable. We aren't talking about stealing TV programming services.

We're talking about copper.

Perhaps a sign of the state of the economy; perhaps more a reflection of higher commodity prices, theft of copper and other metals has skyrocketed in recent years. The theft of utility copper is a significant issue for carriers, beyond the loss of material and cost of repairs.

Theft of utility copper often results in service disruption to customers including access to emergency services. In some cases, even manhole covers have been targeted.

Toronto City Council recently looked at theft of materials from blue boxes. Tyler Hamilton wrote about the impact on Canadian carriers and utilities in The Star last April.

It seems to me that going after copper on live electric lines is high risk - mistakes are punishable by death.

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copper

Before the dust settled on the results of the $4.25B AWS auction, Industry Minister Prentice said that we'll be gearing up for the next auction - the release of the 700 MHz band for mobile services.

How will the spectrum be divided?

Despite the designation of this summer's auction feature as "AWS" (for 'advanced wireless services'), it was interesting that the spectrum was auctioned in 10 Mhz and 20 MHz blocks, block sizes that might be better suited for voice.

Do we need more spectrum for voice in the future 700 MHz auction? Will Industry Canada structure the auction design to better target mobile broadband with wider channels?

Other issues will also arise, such as:

• what is the size and shape of the geographic tiers. that is, will Industry Canada separate the urban core from the suburban donut to promote niche rural competitors?
  
• is a new entrant set-aside appropriate?
  
• if there is a set-aside, can the auction be run in a manner that avoids gaming by parking points?

We'll be watching for Industry Canada's call for comments.

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Industry Canada, 700 MHz

Some people express concern that market forces aren't working for residential broadband because there isn't sufficient competition for DSL and cable modem service.

Following up on yesterday's posting, I'll suggest that a 'third' choice for residential broadband will arrive with the launch of new entrants in Canada's wireless marketplace.

Years ago, we looked at a cross-over point defined as having more mobile voice subscriptions than wireline voice. Mobile has not only caught up, but blown past wireline. Globally, there are more than 3 times the number of mobile lines compared to fixed.

We are now approaching a new cross-over point. This will be achieved when mobile broadband exceeds fixed broadband.

What role will new entrant wireless operators, fixed and mobile, play as enablers of increased consumer choice for broadband?

I suspect that as new entrants deploy mobile broadband networks, competition from mobile operators, especially those that are not aligned with local telcos or cablecos, may help drive faster bit rates from fixed line operators. The new wireless carriers will be looking to quickly attract revenues to pay for that expensive spectrum purchased earlier this summer.

To compete and differentiate, cable and telephone companies will need to roll-out even faster speeds and expanded services, such as higher bandwidth caps.

It is worthwhile pondering the implications of wireless alternatives for residential broadband.

Regulators and policy makers need to be cautious in managing broadband subsidies in order to be consistent with principles of technical neutrality. Wireless, both fixed and mobile, offers credible options for residential broadband delivery.

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mobile broadband

I was in Boston earlier this week, attending Ericsson's annual analyst forum. Over the coming days, I'll provide some thoughts arising from those sessions.

One of the more interesting discussions I had was looking at the use of HSPA to deliver residential broadband. Mobile broadband technology being used for fixed applications and not just for under developed economies.

For example, among countries with existing advanced telecom infrastructure, Ericsson is citing experience with incumbent telco KPN in the Netherlands and Hutchison's 3 in Sweden, that have enjoyed substantial levels of market success with their mobile broadband technology used for fixed applications.

Both countries have witnessed strong consumer demand for broadband extending beyond the reach of traditional fixed-line DSL. For the non-ILEC, wireless allows the service provider to avoid out-payments for ILEC unbundled network elements, delivering residential voice and high-speed internet to complement the mobile service revenues.

Further, Ericsson claims that provisioning HSPA is simpler, resulting in lower capital expenditures and ongoing operating expense than the network operations traditional fixed line broadband solutions.

Will Canada's new entrant carriers go after a fixed broadband market? Such service bundles, competing with incumbent DSL and cable modem service, may significantly enhance their business plans and help accelerate network build-outs.

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Ericsson, HSPA

Monday was a clean-up the files day for the CRTC, issuing three regulatory policy decisions: on maintaining the requirement for international licenses, getting rid of the registration process for sharing groups and maintaining various obligations for CLEC's and municipal 9-1-1 bureaus.

In each case, the Commission focussed on whether market forces could replace the regulatory burden.

In respect of international licensing, it came down to whether filing an affidavit once every 10 years was particularly onerous, balanced against the ability to guard against anti-competitive conduct.

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CRTC, regulatory policy

According to a media release on Sunday, the FCC tested white space detection devices during Friday's Buffalo versus Washington football game.

According to Shure Inc, one of the world's leading microphone suppliers, the test failed to "consistently identify operating wireless microphones or distinguish occupied from unoccupied TV channels."

The FCC’s tests of prototype white space devices at FedEx field prior to Saturday’s game between the Redskins and the Bills conclusively show that spectrum sensing white space devices will cause harmful interference to wireless microphones during live events.

As I wrote last October, there has been a coalition of technology companies driving the discussion of white space technology in the US including Microsoft, Google, Dell, HP and Intel. Their objective is to get FCC approval for a generic device that will detect unused spectrum to be made available for broadband internet.

We'll continue watching this issue.

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White Space, Shure, FCC

The CRTC issued joint decisions on Friday, out of the Telecom and Broadcast groups dealing with Shaw's complaint about obtaining access to several buildings in the Cooper's Quay development. The decision is issued under Telecom Decision CRTC 2008-69 and Broadcasting Decision CRTC 2008-166.

At issue was Shaw's inability to reach a building access agreement during the construction phase with Concord Pacific, the property developer. Shaw argued that Novus, a facilities-based service provider related to the developer, had received undue preference in gaining access to the buildings.

Interestingly, TELUS indicated that it was able to secure access to the site, although the record indicates that Novus does not yet offer competing local phone service.

The Commission found that merely receiving a benefit from undue preference is not a violation of the Telecom Act:

Based on the record of this proceeding, the Commission finds that even if Novus has benefited from an undue preference given to it by Concord, Novus did not act in violation of subsection 27(2) of the Act by merely receiving such benefit.

Contrast the Commission's findings with what it said last year, in a decision coincidentally numbered 2007-69.

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CRTC, Shaw, Novus

Vonage released its quarterly results yesterday, beating Wall Street estimates, but adding only 2,000 customers in the quarter, on a base of 2.6 million - less than .1% growth.

Vonage began scaling back marketing expenses a year ago. As recently as the first quarter of 2007, it had added 166,000 customers in a quarter. Two years ago, it reported net additions of more than a quarter million in 2Q06.

What does this mean for VoIP as a category? Do customers buy VoIP or are they buying services built with VoIP?

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Vonage