Friday, November 18, 2005

Winter Reaches the Colorado Foothills

Winter has reached our corner of the Earth. I took this picture while driving down the road during our first snow. Not much accumulated though.

Please stay tuned for my next blog article on the regrouping of AT&T.

Sunday, November 13, 2005

Vonage in Exploratoratory Talks with Sprint-Nextel and T-Mobile USA

Two weeks ago the Wall Street Journal announced that Vonage is holding exploratory talks with Sprint-Nextel, T-Mobile and “traditional” phone companies. This announcement confirms my article on October 19 that recommended these two companies take a serious look at Vonage. Their moves into IMS demonstrate that they are working hard to build a case to provide all business voice services. The purchase of Vonage would be a strategic asset that would instantly give them not only a network but credibility as they roll out a converged service. The WSJ rumors that selling Vonage would yield $2 billion for its owners.

Tags: Vonage, VoIP, Sprint

They Get It

Another story last week that caught my eye was the announcement by CBS and NBC that they will offer some of their programming on-demand through Comcast and DirecTV. For a small fee consumers can watch their favorite program from these networks when they want. Premium cable channels like HBO and Starz have been providing some of their programming on-demand to subscribers for almost a year. ABC offers their hit shows for $1.99 per viewing on iPods through Apple’s iTunes. The networks and cable companies get it. Instead of restricting content ownership, the networks are offering their customers the opportunity to view their programming when they want to view it and on devices they want to view them. They are not threatening customers and disabling their computing devices with malware like the recording industry. They are providing them what they want and making more money doing it. The recording industry wants to control the entire music industry. Recording industry executives should take cue from their television counterparts and embrace this new medium for content and distribution; not fight it.

Tag: on-demand, TV, cable

The Recording Industry is Committing Suicide

Two things happened this week that will further alienate music consumers and speed the demise of the recording industry. First, the European music industry threatened several podcasters such as Adam Curry with legal sanctions for playing clips of licensed music in their shows. The European analog to ASCAP and BMI in Europe have sent “cease and desist” letters to several European podcasters like Adam Curry and Jan Polet who occasionally play short clips of popular music in their podcasts. Legally the industry does have the right to demand payments for these performances, but the podcasts are generating revenue for record companies’ back catalogs so why upset the apple cart? The industry is shooting itself in the foot by not working with these podcasters on legal uses of their intellectual (the use of intellectual is loosely defined for some of the music) property. Instead of battling the industry, these podcasters have complied by switched entirely to podsafe music totally eliminating any potential sales of music from these sources.

In the eyes of the recording industry, podcasters are stealing their property and depriving them of licensing royalties. Most podcasters do not make a dime from what they are doing. They are doing it for the love of the music they play. This myopic view will cost them in the long run because consumers will spend their dollars on podsafe music instead of the music we are fed by the record labels. The recording industry should embrace this new broadcast medium instead of alienating it. Podcasting offers the ability to time-shift programs just like TiVo. Also, it breaks the shackles of traditional broadcasting by enabling anyone with a computer, headset, and Internet connection to create a show. If the record companies have not figured it out, their infrastructure is becoming obsolete. The Cheap Revolution allows musicians to produce and distribute quality art without an expensive recording studio and equipment. Artists can sell and publicize their music through live performances and the Internet. Podcasters introduce listeners (i.e. customers) through their podcasts just like radio stations. Who needs the record companies with some podcasts reaching a million downloads? Internet music distributors will emerge much like Amazon did to provide an alternative to the traditional distribution process. More record company executives should read The Innovator’s Dilemma because their industry is about to be disrupted.

The second bone-head move of the week comes from Sony’s BMG Entertainment Group. Much has been said this week about Sony installing a rootkit on computers as a method of copy protection. It is bad enough trying to protect computing resources against viruses, worms, Trojan horses, spam, and several other threats from unknown assailants. Now a supposedly trusted source installs malicious software behind your back that allows them or any hacker unfettered access to your computer. This present is all in the name of trying to protect their intellectual property. The news quickly spread and a boycott of all Sony BMG products was initiated. In a CYA move Friday, Sony executives stated that they will stop producing the CD with the rootkit installation. The damage control was a little too late. The impact of their initial decision to install the rootkit will cost Sony sales and consumer trust. What amazes me is how could executives at a once-renowned technology company ever permit the production of these CD in the first place.

This continual trust eroding behavior by the industry is creating a measurable impact on music sales by consumers. As they keep eroding consumer confidence, consumers will look towards alternate sources for their music. The VC community is quietly funding companies that are building an alternative industry to the traditional recording industry. Big technology companies like Microsoft and Apple are investing in them as well. Podcasting is attracting the attention of advertisers. Musicians embrace a new distribution source because it offers them the chance of keeping a greater portion of the revenue from the sales of their work. The recording is not as invincible as it thinks it is. This new disruptive business model will succeed as long as the traditional recording industry keeps making anti-consumer moves like the two this week. I wish Adam Curry and the rest of them the best of luck. It is time for a change anyway.

Tag: Sony, Curry, podcast, rootkit

Sunday, November 06, 2005

The Wrong Attitude

I could not help but post another article after just posting my previous one, because it drives home my point so clearly that we should be focusing on services and content instead of the pipe.  Ed Whitacre’s comments in “Business Week” demonstrate why this country will continue to lag in broadband penetration.

Just a day or two after I finished my first draft of my previous article, Ed Whitacre, CEO of SBC Corporation, demonstrated the arrogance prevalent in the executive management of so many carriers.  Before I alienate many of my friends and colleagues in SBC and the other RBOC, there are many enlightened managers in these companies and some of the top executives get it.  I wish I could say the same for Mr. Whitacre.  I do admire how he as amassed SBC into a dominate telecommunications force when his parent company (AT&T) dwindled away due to mismanagement.  Watching it as an ex-AT&T employee broke my heart.  Also, I look forward to a new AT&T emerging from the shadows of SBC.  He needs a bit (well, maybe a ton) of enlightenment as to where the industry is now and where it is going.

Mr. Whitacre was interviewed in Business Week about AT&T and moving the new company forward.  During the interview he was asked about competitors such as Vonage, Yahoo!, Google, and Microsoft.  When asked the question, “How concerned are you about Internet upstarts like Google (GOOG), MSN, Vonage, and others?”  Mr. Whitacre responded,

“How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes? The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! (YHOO ) or Vonage or anybody to expect to use these pipes [for] free is nuts!”

He must think that he is the 800 pound gorilla.  The combined market capitalization of those four companies is 6 times that of SBC.  He will be in for a real battle if he wants to close his network to other content and service providers.  SBC is providing IP transport over DSL; no more, no less.  Any customer of SBC Yahoo! DSL knows that they rely solely on Yahoo! to deliver and support the content.  This is equivalent to selling a TV and saying to the customer that they can only watch a test pattern on channel 6.  SBC no longer has a monopoly on access.  A duopoly exists in most areas, and technology is enabling more access providers to set up shop.  Wi-Fi, EVDO, and WiMAX are enabling access technologies that offer customers alternatives to the oversubscribed, twisted-pair DSL lines of SBC.  There is nothing stopping Microsoft or Google from building their own networks with these technologies.  Google may even get a shot at building their own Wi-Fi network in San Francisco right in SBC’s backyard.  Shut down their access to their customers and watch how fast these true 800 pound gorillas find an alternative way to reach customers.

Furthermore, Mr. Whitacre wants to continue to regulate the industry to his company’s advantage.  That strategy may have worked in the past, but the landscape is changing and the content providers know how to work the government as well if not better.  His behavior is perfectly understandable based on his heritage, but the industry has changed.  Tom Evslin goes into detail about the mentality behind the old regime (link).  While he believes that he is operating in the best interest of SBC, he is missing the opportunity to get the company out of its earnings slump.

By continuing to focus on controlling the pipe, he is missing the chance to turn SBC/AT&T into a service and content powerhouse.  The company can leverage the network assets of SBC, Cingular, and AT&T and the world renowned brand of AT&T to package content and services to customers worldwide.  Instead he would rather wage war against Vonage or Google in Galena, Illinois.  With that prevailing attitude, he will relegate his company to the same future as AT&T.

Watch out Ed or Google just may buy SBC.  They know that the network is just an enabler and delivering content is where their growth lies.  The message is simple:  use your assets to deliver world-class services and content or face being extinct.

Tag: telecom, SBC, Whitacre

Saturday, November 05, 2005

Let's Retake the Lead for Broadband Services

Many of my articles have been leading up to this one: why we should focus on content and services and not the pipe. I am proposing a fundamental shift in how we view our industry. The latest broadband penetration figures from the OECD (see table on right) show that the United States has slipped to #12. Governments in countries like Japan and Korea have subsidized the building of broadband networks. In other countries, governments have stepped aside to let broadband services flourish. Why is the U.S. lagging so much? It is not because we lack the financial or technical resources. There are two reasons that are intertwined preventing our leadership in this area: government regulation and industry protectionism.

Broadband penetration numbers in OECD states

Penetration, number of lines per 100
RankCountryDSLCableOtherTotalTotal Subscribers
1Korea13.98.92.725.512 260 969
2Netherlands13.68.9022.53 642 315
3Denmark13.26.12.421.81 176 637
4Iceland21.00.30.421.763 553
5Switzerland12.77.20.420.31 515 446
6Canada9. 142 662
7Finland16. 600
8Belgium11.07.3018.21 899 652
9Norway14.82.50.918.2836 060
10Sweden11.32.72.516.51 482 843
11Japan11. 953 090
12United States5. 645 815
13United Kingdom9.73.8013.58 095 000
14France11.90.8012.87 935 900
15Austria7. 025 036
16Luxembourg10.41.3011.852 920
17Australia8. 183 300
18Germany9. 439 732
19Italy9.400.610.05 783 319
20Portugal5.14.709.91031 491
21Spain7. 949 234
22New Zealand6. 798
23Hungary2. 186
24Ireland3. 500
25Poland2. 250 000
26Czech Republic1.81.002.8284 200
27Slovak Republic1. 958
28Turkey1.1001.2862 843
29Mexico0.80.201.01 051 854
30Greece0.8000.893 287
OECD Total7.23.80.811.8136 651 000
Source: OECD
The large players in the industry have lost their entre-
preneurial spirit. Instead they are using over-
regulation of the industry to suppress competition. Divestiture, Telecom Act of 1996, FCC, state utilities commissions, and even the Supreme Court (Brand X Decision) have been the tools used to prevent the growth of broadband services and the creation of new industries in this country. Let’s face it. Our country is now a service based economy, and we need to develop new service based industries to maintain our global leadership. We could continue on this path to protect access to the customer and what rides over the networks to continue down the slippery slope or realize that there is a whole new economy out there to provide content and services.

Some of this regulation made sense for TDM-based networks, but the economics change with IP. Unfortunately telcos and MSO in the U.S are still more focused on the pipes than the services that they deliver. They know that if they can control what rides over the network then they can distribute the content which is where the real revenue and profit lies. What they are forgetting is that consumers have more choices for access these days. Companies that lock down their network are going to see customers go to networks that allow their customers choice of services. In a couple of years WiMAX will enable multiple new carriers to provide access to consumers.

Carriers should focus more on developing and packaging a superior service portfolio to consumers and less on keeping others out of their networks. The ROI would be greater than having a cadre of lawyers and lobbyists at the FCC and state utility commissions. Companies like Vonage decided that they can focus on providing consumers a better voice service and forgo worrying about the pipe. In a few short years they have attracted over one million customers worldwide. Consumers like simplicity. Vonage offers them simplicity. They have two service packages with all of the features that 90% of the consumers use. Carriers should take a cue from Vonage and act as service providers and distributors instead of bandwidth providers. The revenue is three times greater for content than providing bandwidth. This figure will only increase over time. Customers will stick with a carrier that provides a better user experience. What constitutes a better user experience? One that creates simple bundled package with video, voice, and mobility services very reliably. Providing the transport is simply a service differentiator. Carriers can still charge consumers for bandwidth transport and let subscribers purchase services from anyone ala carte, but many will chose to stick with the provider that delivers the superior user experience. An added benefit to carriers is that they may be able to offer these packages worldwide instead if just in their current operating territory; thereby, greatly increasing their addressable market.

Telcos and MSO should think more like distributors than network providers. The auto industry uses a distributor network to deliver its products. Usually the car dealerships make more profit per customer than the manufacturer. Telcos and MSO have the same opportunity before them. They know their customers, and they should be able to offer services packages better than anyone else. Do not worry about the pipe. Concentrate on delivering the services over the pipe. The cost per bit of transport will continue on its decline enabling less capital expenditure on building the network. The network should be seen as a value added part of the service offered. Consumers will still have to purchase access to the Internet, but the service they buy can be cheaper and higher quality if bundled from the carrier. Good marketing will demonstrate a better user experience. Many consumers will resonate with that message.

New service providers will still pop-up that will capture revenue of the carriers’ customers, but the carrier can turn around and provide the same or better service. Consumers then have the choice where to purchase that service. Many will come back to the carrier. Everybody wins. The secondary effect is more consumers will want to purchase more services and consume more bandwidth. This spiraling effect will drive the broadband penetration to customers. By focusing on services, carriers grow stronger and broadband penetration will increase.

Incumbent carriers and MSO along with the rest of the industry should lobby Congress to rewrite telecom legislation that will free the industry of its regulatory and statutory shackles. A minimalist position is best. Just how confused Justice Clarance Thomas was on the Brand X opinion. State utility commissions should be eliminated because this is a global industry. With the slate clean to focus on quality content and innovative services, the telecom industry in this country will flourish and we will see our prominence in broadband rankings increase as well.

Tag: telecom, VoIP, service

Ahh, to be so Young

I just activated my mobile blog so I can send blog with text and pictures from my phone. I snapped this precious moment while driving in the car today. Our daughter Madisen is sound asleep in the car enjoying the warm sun. I will use this tool to capture pictures from industry events and post my comments to them.

Excessive Oil Company Profits

I was on a roll for a while.  Jeff Pulver stopped by and I was mentioned in the Vonage Forum Digest.  I have a treasure trove of articles, but time limits what I can do.  Lately I have been engrossed in a couple of projects.  So I am taking the time this weekend to get caught up a bit.

I am going to deviate a bit from my blog topic today to mention how big government has let the oil companies reap excessive profits from the American public.  They have taken advantage of this year’s hurricane season to gouge us at the pumps.  Gas prices in Colorado are at least 10 cents higher per gallon than the national average and 30 cents higher than the mid-west.  Oil companies, one after another, report record profits for their last quarter.  Why is it when their supplies are supposedly cut and facilities damaged by hurricanes they are racking in humongous profits?  Before you flame me for being anti-business or anti-capitalist, those of you that know me know that I am far from it.  As our government intrudes further and further in our lives, they are neglecting one of their basic responsibilities:  prevent cartels from controlling any part of industry.  Like it or not, the oil industry operates as a global cartel.  Why is Congress more obsessed with Scooter Libby and Supreme Court nominations and not protecting the American people?  Because the Democrats are more intent on destroying Bush’s image than doing their jobs.  On the other hand, the Republicans are not doing much better.

At least last week Senator, Chuck Grassley, from my home state, wrote a letter to oil companies reminding them of their responsibilities, and next Wednesday two senate committees will be holding hearings on the topic.  Talks of a windfall profits tax reminiscent of the Nixon-era are floating around inside the Beltway.  In a Republican dominated Congress, I doubt whether such a tax would ever pass.  Personally I am against taxing a company just because they did exceedingly well.  That’s taxation without representation in my opinion.  What Congress should investigate whether the oil companies manipulated the supply of oil and gas to increase profits and colluded to keep prices artificially high.  If the oil companies broke any of these laws then they should go after the oil companies and have them distribute the profits to consumers through a rebate.  The punishment will have a chilling effect; thereby, lowering prices in the future.

These are short-term solutions to our energy problem.  If we don’t address the long-term problem of finding new reserves, building new refineries, conservation, and alternate energy sources, we will find ourselves with high energy costs again in a year or two.  Already oil and gas dependent industries are leaving the United States for places where they are much cheaper.  Plastics manufacturers like Dow Chemical are shutting down plants in the U.S. for more economical ones in the Middle East and Asia.  If Congress and the President does not take action now, then the recovery the U.S. telecommunications industry is enjoying will vanish shortly.

Tag: telecom, oil, profit