How About 3D TV without the Funny Glasses?

Now, this is interesting.

For the latest state-of-the-art TV viewing, let's go back a few decades when 3-D was the rage -- or at least something to draw folks into movie theaters.

In the "what is old is new again" column, Philips 3-D TVs are using tiny lenses over every subpixel to create a 3-D effect without the need for viewers to wear those funny glasses.

Spy Kids 3D anyone?

Philips is initially marketing the product to retailers who will create 3-D ads to get the attention of passing consumers, presumably a neat retail trick.

Get the full story in Wired, including the first-person report of the sensory sensation ...

If you can't wait, check out the 3D fun at DeepVision 3D.

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Written by VoIP & Gadgets Blog on August 24th, 2006 with no comments.
Read more articles on Wired and Video Hardware & Software.

FLAG To Sell 180 GBPS To Deutsche Telekom

Flag Telecom, a company owned by India’s ADA Group that also owns Reliance Communications, said it has signed a contract with T-Com, Deutsche Telekom AG’s broadband and fixed line business, to provide 180 gigabits of additional broadband connectivity between Europe and the U.S.

The additional capacity will enable Deutsche Telekom to enhance scalability and reliability of service to its customers. Demand for voice, data, and Internet between these the U.S. and Europe has been growing rapidly and the total used capacity on the. route has grown at around 48% year-on-year between 2002 and 2006, the company said in a press release. Demand is expected to grow at a higher or similar rate in the coming years.

“We have worked closely with Deutsche Telekom to understand their needs, while designing this flexible, scalable and high quality solution. The solution exacting to Deutsche Telekom’s customer service offers them excellent value for money,” said Gary Adey, Flag Telecom’s Vice President Europe.

Written by Om Malik on August 8th, 2006 with no comments.
Read more articles on Uncategorized and Wired and India Telecom.

Free … Too much of a good thing?

It is nice to hear a CEO admit to the fact that he might have over-hyped his offerings a bit too much, and without sweating the details. Charles Dunstone, the maverick CEO of UK-retailer Carphone Warehouse confessed to The Sunday Times of London that his company was struggling to meet the demand for free broadband, the company had launched in April 2006. Nearly 400,000 have signed up for the service.

“Free is such a powerful word,” said Dunstone. “It’s a £250-a-year saving for most people. In hindsight, maybe I should have anticipated that a bit more.

Well, that might be only partially right. James Enck, a man who marries the American forthrightness with British understatement writes, “Beneath the media hype about free broadband in the UK lies a sordid underbelly of broken promises and frustrated customers. In the latest example, one of my colleagues has suffered from a complete lack of connectivity on TalkTalk broadband for the past 36 hours (the line is working fine for voice.)”

Dunstone’s good intentions aside, there is a bit of a broadband brouhaha brewing in UK. Rupert Murdoch’s BSkyB has now offering aown free 2MB/s broadband connection to its existing television customers. Murdoch’s plan - make the profit on TV service. Dunstone wants to make money on voice and wireless services - two businesses that are well, under price pressure.

Written by Om Malik on July 31st, 2006 with no comments.
Read more articles on Wired and VoIP and DSL.

Open Source Router Launched

Vyatta, a San Mateo, Calif.-based start-up is close to releasing an open source router platform, that runs on standard x86 hardware and can perform equally well as some of the more commercial products. Vyatta plans to target the corporate market with its own devices, but anyone can download the software, officially called, the Vyatta Open Flexible Router (OFR), and roll their own … router.

“Open source has had a tremendous impact on other markets, and if Vyatta’s community gains traction, the same could happen in networking.,” says Matthias Machowinski, Directing Analyst of Enterprise Voice and Data for Infonetics Research.

Vyatta’s software and platform could prove to be attractive to small and medium sized enterprises. Even smaller ISPs could find the offerings more affordable than some of the other products on the market. Vyatta officials say their biggest competitor will be Cisco Systems, currently the 800-pound gorilla in the $8 billion a year enterprise router market.

Vyatta is amongst many telecom and networking companies that are taking the open source route to up-end the existing players. I have previously written about Vyatta for Business 2.0. While researching that story, I saw the parallels between early open source telecom software and Linux. They both started at the bottom, and are now inching higher-up the food chain.

Asterisk has had a perceptible impact on the PBX market. Other open source products are having an impact in firewall, DNS devices and many other product categories. (Details are here.) IBM has built a fault tolerant version of the Asterisk PBX System as well. Since then, I have learnt about many more open source projects. Sangoma Technologies backed Yate, for example. Last week, we reported that an Open Source Wireless Mesh project had received financial backing from the National Science Foundation.

Networking Pipeline reports that a new project dubbed Freeswitch is planning to build a highly scalable switching platform that is meant to meet the needs of carriers. The telecom open source is likely to gather more momentum in the emerging telecom markets where money is tight but desire to build broadband networks is high. Open source can fill in those gaps … perhaps!

Written by Om Malik on July 23rd, 2006 with no comments.
Read more articles on Wired and Start-Ups and Vyatta.

For Telcos, Old Fashioned Triple Play

The IPTV bet, in words of Fortune writer Stephanie Mehta is a “pipe dream” for the phone companies. She points to a survey by Accenture that says that only “4% of telecom, broadcasting and media executives think IPTV will generate significant revenue in the coming year.” That is a chilling statistic.

And it also explains the old-fashioned triple play packages the phone companies have started to push. AT&T for example is pushing a bundle of satellite TV, DSL and phone service it calls HomeZone for between $80 and $140 a month. (Good package actually if you can get the satellite dish up on your roof! Of course it is available only in San Antonio and Ohio, though more cities are two follow.)

It doesn’t have the latest or the greatest, but AT&T says more content will come from its partners like Yahoo soon. (Point to note - the new offering doesn’t have Akimbo packaged into its version of their service as yet. Akimbo functionality rolls out on Homezone in the fall software update. Akimbo, you might remember just got funding from AT&T)

BellSouth, which is in the process of being acquired by AT&T, is now offering a $99 a month voice, DSL and Direct TV package. Or you can swap the satellite TV service for Cingular Wireless. These two packages are part of a new reality for the phone companies which are losing customers to the cable providers quite rapidly. Despite the IPTV lip-service, they need to shore up the losses as quickly as possible.

Here is another reality check, also from Fortune article:

A separate Accenture survey of 6,000 consumers worldwide asked respondents if they knew what “IPTV” was. Some 4% said they thought IPTV was a reality television show.

Written by Om Malik on July 19th, 2006 with no comments.
Read more articles on Wired.

Current Co. Eyes Wireless Spectrum

Today is the deadline for updating applications for the upcoming wireless spectrum auction, but we thought we’d dig through some more spectrum documents. One bidding team caught our eye. Telecom investor Willian Berkman couldn’t let Paul Allen get all the wireless action without a fight.

According to FCC filings a consortium backed by William Berkman, and the broadband over power lines company Current Communications Group that he co-founded and is Chairman, and including Current investors Goldman Sachs and TXU Utility Services, is looking to bid in the upcoming wireless spectrum in August. As you might remember, Current is also backed by companies interested in wireless–Google and Earthlink.

While Google’s and Earthlink’s individual investments are not disclosed Current has raised over a hundred million in capital to build its BPL network. There was a lot of speculation over Google joining the spectrum auction–this seems as close as the company was willing to get.

While Current refused our requests for the details on their wireless plans, wireless is already being used in conjunction with broadband over powerlines by companies like Motorola and Communication Technologies Inc (ComTek). BPL runs over electrical outlets and is touted for its ease-of-access, though has few deployments to date.

Wireless could help extend those deployments. ComTek’s VP for Broadband, Walt Adams, said in a few cases the company is already powering WiFi hotspots with BPL, and that the company is planning to grow its wireless offering later this year. So if Berkman and Current buy some wireless spectrum, the company’s slow-moving BPL plans could get a real boost.

For now how the consortium plans to use any wireless spectrum in tandem with their BPL plans remains unclear. The application is officially incomplete but the company has until 6PM today to update the filing.

Written by Katie Fehrenbacher on July 18th, 2006 with no comments.
Read more articles on Unwired and Wired and Google and Earthlink and Wireless Broadband and spectrum and broadband over powerline.

Akamai Sues Limelight Networks

In the words of Yogi Berra, its like déjà vu all over again. Back in the first Internet bubble, we were all entertained and amused by legal wranglings of various content delivery networks. For a while it was all quiet, but the fireworks are starting again. Limelight Networks, a Tempe, AZ.-based start-up that is quite the buzz amongst digital content players has been sued by old dog, Akamai Technologies and the Massachusetts Institute of Technology for patent infringements.

Chief executives of both companies, Paul Sagan Akamai and Bill Rinehart of Limelight have been contacted and we are waiting to hear from them about these lawsuits. Nevertheless, court documents show that, the lawsuit was filed in the US District Court in the State of Massachusetts in late June 2006. MIT and Akamai allege that Limelight is infringing on Patent # 6,108,703 and patent # 6,553,413. Both patents were issued to MIT and are licensed exclusively to Akamai.

The lawsuit comes at an awkward time for Limelight Networks, which is the CDN for hot young start-ups such as You Tube among its 500 customers. Other notable customers include Brightcove, and CBS Sportsline. Well-placed technology sources say that Limelight is in the process of raising a monster round of financing, which would value the company well in excess of $200 million. Goldman Sachs’ private equity arm is said to be the driving force behind the round, and we will report more details as they become available, but at this point consider this reports as “highly rumored.”

Still, the word of this monster round should not come as a surprise. Limelight has been one of the few beneficiaries of the digital content boom. Their customers, swear by the company’s technical capabilities. In a press release, the company claimed that its first quarter (2006) revenues had reached $10 million, up 40% compared to the fourth quarter of 2005. Limelight says that first quarter was its 10th consecutive quarter of net income profitability and monthly revenues exceeded $4 million for the first time in March 2006.

In the past, Akamai and MIT have aggressively protected these patents. The two sides were locked in a legal wrestling match with Cable & Wireless. Akamai had also sued Speedera, another CDN, but in the end bought the rival company. We have said in the past, the eyeballs are back, and so are the CDN lawsuits. Let the fireworks begin.

Written by Om Malik on July 11th, 2006 with no comments.
Read more articles on Wired and Start-Ups.

Tech IPOs Are NoGo’s

Clearwire pulled back its IPO plans yesterday, and turned to the more generous and less demanding private sector, scoring more than double what it planned to raise from the public markets. It was a smart move in the light of the sorry state of tech IPOs.

Despite a sense that tech IPOs are returning in certain sectors, the public markets are still tepid for the most part. Everyone knows the Vonage story. Likewise Omniture, a web analytics firm inched down on its first day in the public markets, and network processing comany Wintegra pulled its IPO plans in the final hour last month. Yesterday telecom hardware maker ECI Telecom, a substantial company with big revenues, withdrew its IPO. It makes you wonder about the prospects for companies like Acme Packet, which has filed to go public as well. What about Optium?

According to a report released yesterday by the National Venture Capital Association, tech IPOs rose significantly in the second quarter of the year, but are still pretty tepid. NVCA President Mark Heesan, puts it as, “The growth in tech IPOs is encouraging, but we are certainly not out of the woods yet. We will need to see those levels increase throughout the rest of the year to characterize the U.S. public markets as available to venture backed companies.”

There are quite a few stellar technology companies waiting in the wings for the IPO window to open up. Force 10 Networks and Infinera come to mind. Tell Me Networks is another mature company that could tap the IPO pump. But if Clearwire is any indication, they will all have to wait.

Written by Katie Fehrenbacher on July 6th, 2006 with no comments.
Read more articles on Vonage and Wired and Start-Ups and Clearwire.

Cisco Bug hits Verio UK

A mysterious bug is affecting websites hosted by Verio, awholly owned subsidiary of Japan’s NTT. It has become a recurring problem for nearly 48 hours, and as a consequence, Internet users accessing the Net using British Telecom’s ADSL offering and some that connect few via Deutsche Telekom’s network, T-Online, were temporarily unable to access sites hosted by Verio UK.

Reports vary as to how long it took Verio to identify the problem initially. Our sources claim the first problem lasted from approximately midnight to 4 pm the next day on Friday 30th June. It certainly does appear that the problem emerged during overnight routine maintenance. According to Verio’s vice president of operations, Craig Pennington, the mysterious bug appeared within the company’s Cisco 6500 series routers which were showing everything to be fine, while denying access to specific British Internet users.

Verio now says … “We have seen a recurrence of the recent connectivity issue in the Verio’s London Datacenter. At this time, the vast majority of users are able to connect to the facility as normal - it appears that the issue is affecting a small subset of users primarily originating from British Telecom ADSL.”

Pennington implied that the fault lay within the Cisco OS employed by Verio’s core routers. Subsequently Verio has stated that its “core routers were rebooted in serial; whilst this helped mitigate the problem temporarily, it did not fix it. We are working with Cisco to resolve the problem, and are currently working to roll out an emergency upgrade to the Cisco IOS operating system on the core routers.” Pennington conceded that Verio was looking at the standard SLAs (Service Level Agreements) signed with major customers and predicted that there may have to be some payments made as a consequence. The company offers a 99 percent uptime guarantee.

The frustrating aspect for Verio’s customers has been a lack of information. Some sites weren’t aware anything was awry until Verio sent an email out at 4.30 p.m. last Friday announcing that the problem had been dealt with. These sites had been advising their own customers that the problem probably lay with the surfer’s browser. Today, those same sites appeared blissfully unaware the situation had re-occurred.

Written by Tony Dennis on July 6th, 2006 with no comments.
Read more articles on Wired and Cisco.

Optium, Another Optical IPO Candidate

Infinera might not be the first optical IPO after all. It might be pipped to the post by Optium Corporation, a Chalfont, PA-based companies that makes a variety of optical components and other transmission modules. Morgan Stanley and CSFB are running the book. Jeffries & Co, and Cowen & Co., are also underwriting this offering.

In particular, we provide high-performance optical networking products to network systems vendors servicing carriers. The products include transceivers and transmitters usable in FTTH networks and transmitters usable in hybrid fiber coaxial, or HFC, networks.

The company’s gear is used primarily for RF-over-fiber and CATV networks. The company’s management team is mostly ex-JDSU. Optium, started in September 2000, seems to have benefitted in the big network makeover undertaken by cable companies. It has products that are used in the FTTH networks as well, which indicates future demand for its products.

Optium counts Alcatel, Cisco Systems, Lucent Technologies, Marconi, Scientific-Atlanta, Siemens and Tellabs as its main customers. Its two major customers are Scientific Atlanta which accounts for 18.8 % of its total sales and Ericsson/Marconi which accounts for 13.2% of its sales. Tellabs, for instance is one of the major suppliers to Verizon’s FiOS network project.

Optium has filed an S-1, which shows that they had sales of $37 million in FY 2005, and a net loss of $1.5 million for that same period. In Q1 2006, they scored $48 million in sales and lost about $9.3 million. That loss might be because of a big acquisition they made - Engana, a Sydney, Australia-based wavelength modules maker.

The company raised nearly $65.9 million in four rounds of financing from four venture firms - Battery Ventures (which owns 34.9% of the company, KPLJ Ventures (15.7%), TL Ventures (5.4%) and TPG Ventures (7.3%). [ via ]

Written by Om Malik on July 4th, 2006 with no comments.
Read more articles on Wired and Start-Ups and Fiber Networks.

An Optical IPO, Really?

When the telecom bubble of the late 1990s popped, it took down with it the aspirations of hundreds of optical start-ups, not to mention billions of venture capital investment. And just when things couldn’t get any worse, an optical start-up, Infinera, was liberally funded by some of the savviest investors in Silicon Valley. The investors including optical rainmaker and former Kleiner Perkins Caufield and Byers general partner Vinod Khosla, played yet another hand, betting on the co-founders - Jagdeep Singh, Drew Perkins and David Welch.

The company has developed interesting technology that lowers the cost of fiber networks drastically. It has found buyers - from upstart carriers in Asia to large backbone providers such as Level 3 Communications. It has launched a new foray into the cable markets, and well, it has done what the three co-founders had promised to do when I wrote about them back in the (old) Red Herring.

Now, a news report in Telephony suggests that Infinera might be headed to the public markets. They are taking their cue from the appointment of a new chief financial officer, Duston Williams, who comes to Infinera from Maxtor, a company that recently merged with Seagate Technology. With nearly 400 employees, and $100 million (plus) in revenues, Infinera is a definite IPO candidate.

Still, it is hard to say if the markets are ready for an optical-only public offering. Technology IPOs (Vonage for instance) haven’t really performed well. Last week, Wintegra, a network processor maker pulled its IPO at the proverbial last minute, after the market showed luke warm interest in the company’s offering. Wintegra had $20 million in sales and about $194,000 in profit for the first quarter of 2006.

In light of that deal, there is a good chance Infinera team and their backers would wait a bit, and show some more growth and higher profitability. Infinera, and to some extent Force 10 Networks are two Silicon Valley start-ups that are doing well enough to reignite the demand for telecom/networking stocks. When that happens, is anyone’s guess!

Written by Om Malik on July 3rd, 2006 with no comments.
Read more articles on Wired and Start-Ups and Fiber Networks and Infinera.

The 100 Megabit FIOS Router… Why?

I am often amazed at folks who buy fancy scream machines such as Ferrari and continue to live in cities such as London, or Bombay where driving at over 25 miles an hour is a challenge. I can understand the desire to own something that sleek, expensive and fast. But you certainly almost never get a chance to live the speed.

I feel the same way about the much ballyhooed Verizon FiOS router which can shunt data at 100 megabits per second. After all VZ is still selling speeds of 15-to-30 megabits to a small number of its customers. The 100 MB/s connections are a myth, and will remain so, at least for near foreseeable future.

Of course you have a need for speed, you could always opt for many of the current options - Netgear, Linksys and Ruckus Wireless all have something to offer. Previously, Robert Young had pointed out that the bandwidth demand inside the home is going to explode, and the WAN access will have no bearing on it. (My article from Business 2.0 on this very topic is here!)

Written by Om Malik on June 29th, 2006 with no comments.
Read more articles on Wired.

Nokia, Siemens and Juniper’s Future

This news about Nokia and Siemens merging their telecom carrier equipment businesses to form a new $30 billion joint venture company, made me think about two things: the low cost competition from China has everyone spooked, and more importantly, where does this leave Juniper Networks, which is dealing with what could be a problematic options-scandal related inquiry.

Siemens’ has been a key Juniper partner and reseller, just like Ericsson. Now if the new Nokia+Siemens is going to compete with Ericsson, then Juniper will be selling to both. It is also reselling its routers via Alcatel-Lucent combined company (though who knows what happens there.) Interesting turn of events: on one hand it could turn into a massive opportunity for Juniper, or well…

The news of the announcement did not surprise me at all. Talking about the low cost competition - Europe telecom vendors have been more severely impacted by the rise of Huawei and ZTE, so we in the United States are not realizing and panicking over these guys… yet.

Written by Om Malik on June 19th, 2006 with no comments.
Read more articles on Unwired and Wired.

221 Million Broadband Users

Telegeography estimates that there were 221 million broadband lines worldwide at the end of 2005, and that number will reach 286 million by end of 2006, and 448 million by 2010. (Of course, this doesn’t include those who will be using 3G and other wireless technologies to access the Net at high speeds.)

Asia-Pacific 89,573,436
Europe 63,455,527
U.S. & Canada 53,270,000
Global total 221,818,261

Written by Om Malik on May 25th, 2006 with no comments.
Read more articles on Wired.

Tony Li Joins Vyatta Board

Router guru and networking industry veteran, Tony Li, has joined the board of advisors of Vyatta, an open source router company I had written about earlier, here and for Business 2.0 magazine. This is quite a coup for the tiny company, since Li is widely regarded as one of the smartest guys in routing, having worked at Cisco and Juniper Networks. He was working on his own start-up, Portola Networks alongside former Procket executive Vito Palermo, but now his bio says he is working as Software Architect for Tropos Networks. Whatever happened to Portola?

Written by Om Malik on May 24th, 2006 with no comments.
Read more articles on Wired.

Of Online Gaming & Broadband

At E3, the game confab in Los Angeles, the big news this week was new consoles and online gaming. In this week’s PodSession, we look the impact of online gaming on broadband, and demand for high-speed connections. We also talk about the current state of the video game industry as well as the new demand created for servers, networking gear, software, and home connectivity as new devices make their way into the home. The new consoles are increasing demand for high definition televisions and always-on broadband connections. We also look at how the WiFi connected portable devices will impact the future in this week’s PodSession.

Written by Om Malik on May 14th, 2006 with no comments.
Read more articles on Wired and Podcasts.

Video Franchise Battles - First Local, Then National

It is time to add coverage of the hyper local problems of broadband, video franchising, and other issues such as problems faced by municipalities. Patrick Hynes focuses on the battle between Cablevision and Verizon in the New York’s Long Island region. And if somewhere along the way, we find a success story, brilliant. Since I cannot be everywhere, it would need some help from the readers/community. If you are a citizen reporter, and can shed light to the issues involved, drop me a line, or a link. Any suggestions on how best to track it all would be welcome. - Om

By Patrick Hynes

While America loves an underdog, there is no real underdog in the telcos v. cable battles raging across the country and in Washington, DC. Nevertheless, it is hard not to cheer for the telcos. The cable companies have so abused their position in the market place over the years, many Americans are just fed up. I have likened the battle to a political campaign. The cable companies represent the incumbent and the telcos represent the challenger, albeit a well-funded one. In New York, the incumbent is getting nasty. Cablevision launched an aggressive, some would say dirty, campaign to keep Verizon out of Hempstead, a Long Island community of over 700,000 residents. Consistent with my political analogy, this battle featured a much-publicized negative ad.

Cablevision helped finance a television ad and a direct mail campaign that cleverly hinted that Verizon had “red lined” the map of Hempstead while deploying its FiOS product. (Cablevision didn’t actually say Verizon “red lined” for that would have been a crime.) In an editorial, Newsday said the smear campaign was” poisoning the debate” and the maps submitted to the city by Verizon “gutted their argument.” In the end, the city of Hempstead granted Verizon a franchise to compete for customers. As consultant Jeff Kagan told The New York Times:

What’s happening there in New York is an early curve of what’s going to be happening around the country in the next few years. … This is a new wave of competition. Basically the telephone and cable television companies are both rushing to offer the same bundle of services: television, phone, Internet and wireless. The sooner they do, the sooner prices will come down for all the customers.

And prices have already come down in the few California communities that have opened the door to video competition. University of California Professor Yale Braunstein released a study earlier this month in which he found “prices in the California cable TV market dropped 15 to 22 percent when the Cable giants competed with wireline paid- TV providers such as Verizon and AT&T.” The study was financed by AT&T, it should be noted, so take it with a pinch of salt.   The traveling road show now heads to New Jersey. Meanwhile, Verizon continues to lay fiber in Massachusetts, Maryland, and Pennsylvania.

What’s the end game? These local battles seem to be the proving ground for the war in Congress over national franchising. There is a mark up on the national franchise bill which risks being stymied by otherwise ancillary issues. These aren’t irrelevant or inconsequential concerns. But it is time Congress thinks about the consumers for once, and not the big industry players.

Patrick Hynes is a freelance writer from New Hampshire. He runs the blog the Channel changer

Written by Om Malik on May 10th, 2006 with no comments.
Read more articles on Wired and IPTV.

Why Even Bells Need Net Neutrality

By Daniel Berninger Definition: Net Neutrality - Internet access without discrimination by use or user except as required for network management purposes.

The FCC’s decision to relieve AT&T and Verizon of net neutrality requirements in August 2005 definitively broke the chain of events the companies use to assert right-of-way privileges. The Bells claim privileges based on over 100 years of practice that may or may not coincide with the intent and limits of the original deals, but the resulting laws explicitly require a public purpose in exchange for the right-of-way concessions.

The obligations established on a state by state basis sometimes include build-out requirements or other compensation, but they all specify that access to state right-of-way at largely no cost or limit requires common carrier status (aka net neutrality.) The loss of common carrier status invalidates the contracts. The Bell companies have no access to state right-of-way for deployment of private, closed, non-neutral, non-common carrier network deployments.

There may exist many unfulfilled obligations in the century old details of these arrangements, but there exists no doubt right-of-way access requires common carrier status. Maryland represents a typical case. The terms of right-of-way obtained by the Chesapeake and Potomac Telephone Company (now a unit of Verizon) after its founding in 1883 persist in the Maryland Code section covering public utility companies. Title 1-101 defines a telephone company as “a public service company that owns telephone lines to receive or transmit telephone communications.”

The same section defines a public service company as a “common carrier” company. Title 8-103 “Construction of lines and fixtures” defines the right-of-way available to the public service telephone company. The authority of Maryland to regulate telephone companies shows up in the Maryland Constitution Article 12 titled “Public Works” noting among other things that “the Directors of all said Public Works guard the public interest, and prevent the establishment of tolls which shall discriminate against the interest of the citizens or products of this State.”

Another interpretation to the plain language requiring a public purpose for right-of-way concessions does not exist. Does anyone believe government should grant public assets to private entities for private purposes? The loss of net neutrality changes the terms under which the Bells enjoy access to right-of-way. The non-neutral private network deployments associated with the Bell company broadband offers look like the non-common carrier networks of the cable companies.

Cable companies do not enjoy the same no cost access to right-of-way and pay franchise fees that typically equal 5% of gross revenues or $30 billion over the last ten years. The assertion that property rights convey an ability to leverage any business model regarding the Internet seems ironic given the telephone companies own less than 2% of the property where they deploy infrastructure. The real estate Verizon owns directly represents less than 3% of the value claimed for equipment and infrastructure.

The exposure to litigation for private use of public right-of-ways already exists. Verizon deployed FiOS as a entirely non-common carrier private network. Scrutiny of right-of-way arrangements could change the balance of power in the battle between the Bells and municipal wireless projects. Ed Whitacre and Ivan Seidenberg might regret their push to remove government oversight.

The regulatory sphere offers cozy warmth compared the to risks that await their plans to extract increasing private returns from public assets and government granted monopoly. Regulation has proven a potent defense from antitrust litigation while still allowing price increases, industry consolidation, and the use of the risk free returns from local telephone monopoly to subsidize expansion in new markets like wireless and broadband. The tariffed rate doctrine has long protected the Bells from pricing litigation. Verizon does not report R&D as a separate expense on income statements like Intel, Microsoft, or Google, because lobbying and litigation rather than technology dominates spending.

The Bells want Congress to believe ignoring net neutrality requirements will incent investment in broadband networks, but their idea of return on investment means monopoly rents. The Bells only invest in more monoply which usually means buying each other. The track record shows steadily lower spending on networks to increase free cash flow for acquisitions. The $140 billion SBC spent acquiring Ameritech, PacBell, SNET, AT&T Wireless, and AT&T lifted the company’s market cap by only $40 billion. The fact that $100 billion disappeared might suggest the need for a different strategy, but the new AT&T seeks government approval to spend $67 billion to acquire BellSouth. SBC missed an opportunity as $140 billion happens to be about what it would cost to run fiber to every home in America.

The Bells fund think tanks to explain why private organizations need to privatize a public asset, but the decision process in Congress should consider the public’s return on investment from the previous 100 years of access to right-of-way. It hardly qualifies as a public good that the Bells trimmed the number of people they employ by 40% and doubled the price of local service since 1984. The $200 billion in profit generated by Bells over the period did not even benefit investors as their chosen investments left equity values relatively unchanged.

Ed Whitacre might want to pay fair value for the public and private property utilized by the telephone network, before asking “…why should they be allowed to use my pipes…” when explaining to a Business Week reporter why Google, Yahoo, and Vonage should pay new usage based fees. There will be arguments Internet access represents an “incidental use” allowed by state laws, but these arguments will succeed only at the cost of the Bell’s much promised transformation plans. The desire to extinguish net neutrality does not arise from worries about incidental use.

The Bell companies need to stop the neutral Internet from erasing the legacy telephone network’s voice revenues. Price discrimination enables metering of Internet access by keeping per bit price of low bandwidth voice relatively high while offering relatively lower per bit prices to initiate a video revenue stream. Net neutrality stands in the way of their becoming digital economy toll collectors.

Daniel Berninger is a senior analyst at at Tier1 Research.

Written by Om Malik on May 9th, 2006 with no comments.
Read more articles on Wired.

CableCos Vs Bells & The Line Losses

“While the phone companies are only just starting to dig up your yard, cable is already in your house,” Dick Parsons, CEO of Time Warner laying down the smack on the phone companies. He has a point…

On the data side, phone companies added 1.513 million broadband connections, while cable companies added 909,000 connections so far, with Cox and Cablevision yet to weigh in .. my guess is that the quarter will be a tie for the two companies.But cable companies are hitting phone guys where it hurts the most…the voice business.

• BellSouth - total access line declined 6.1% (238,000), residential lines declined 8.8% (120,000) to bring down the total access lines were 19.8 million.
• AT&T saw 6% (600,000) drop in access lines to bring down the total to 48.8 million
• Verizon lost 7% (830,000) access lines to bring the total down to 47.97 million
• Qwest lost 5.2% of total access lines.

That works out to about nearly 1.75 million lines. I suspect some portion of it is going to wireless providers (which are mostly Bells without wires…) because people just want a cell phone. Still, in comparison to phone companies, cable guys added 550,000 voice customers. Cox/Cablevision are yet to report.

• Time Warner Cable added 270,000 VoIP customers.
• Comcast added 211,000 (lost about 70,000 old voice connections bringing the total net new adds is 141,000)
• Charter added about 69,600 Voice customers.
• Vonage added 283,000 new customers.

Hat Tip, Keith

Written by Om Malik on May 3rd, 2006 with no comments.
Read more articles on VoIP (the New Phone) and Wired and DSL and Cable Broadband.

Tim Berners-Lee On Network Neutrality

Tim Berners-Lee, the father of the web, so to speak, weighs in on Net Neutrality.

When, seventeen years ago, I designed the Web, I did not have to ask anyone’s permission. [3]. The new application rolled out over the existing Internet without modifying it. I tried then, and many people still work very hard still, to make the Web technology, in turn, a universal, neutral, platform. It must not discriminate against particular hardware, software, underlying network, language, culture, disability, or against particular types of data. The Internet is increasingly becoming the dominant medium binding us. The neutral communications medium is essential to our society. It is the basis of a fair competitive market economy.

More than anyone, I think it is time for start-ups and their backers to take stock of what the loss of network neutrality would mean to their business. Win or lose, this one has business implications, more so for many of the smaller corporate citizens.

Written by Om Malik on May 2nd, 2006 with no comments.
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Save The Internet. Why? And For Whom?

Net activists have launched a Save the Internet campaign, hoping to build a grass roots groundswell in order to maintain the status quo over network neutrality.

You can read about the reasons in great detail here or simply watch a two minute video here to get a sense of why network neutrality effects everyone.

I admire the work being done by the activists, but I have some what will be unpopular observations. For instance, the campaign has a very US centric view of the Internet, especially at a time when the global Internet is becoming bigger and bigger. Shouldn’t the campaign be, Save The US Internet – after all most of the problems are very US centric.

While the campaign tries to reach out to Joe & Jane Citizen, the leading web companies are not taking the issue seriously. In reality they should be reaching out to Silicon Valley. Everytime I have a chat with folks in the Valley, there seems to be little awareness of this issue.

Similarly, the start-ups that are most likely to affected seem to be in the dark as well. Niall and I have discussed this time and again in our pod sessions. And its the big web companies who have to step up and state their position on this issue, and not just pay lip service.

Word from sources in Congress say that the major companies arguing for network neutrality have failed so far to demonstrate they are seriously committed to seeing legislation passed. While the CEO’s from the Bell companies, we were told, glad-handed members of Congress, leading online companies have been largely MIA. [ from Jeff Chester’s Democratic Media]

These companies are fighting a battle against highly organized phone companies, who use their immense knowledge of legislative procedure as a competitive strategy. The real innovation, for oligopolies is lobbying. The big web companies it seems are busy fighting the petty battles, when they stand to lose the war.

I cannot but agree with Jeff Chester, the author of this essay:

“Yahoo! and Microsoft also have deals with many of the phone and cable companies. They and other online giants will need favorable access to their broadband lines, network neutrality or not. Perhaps it’s concern over their business relationships that have contributed to their political timidity.”

One can argue that they are doing right by their shareholders, just like the phone and cable companies. And they should, after all that is capitalism 101. Given that they have a big cash hoard, maybe vanishing network neutrality would also help get rid of competition.

Any even as your listen to the messages from the net activists, it would also be wise to pay heed to words of former FCC chairman Michael Powell.

It is too facile to say the Internet belongs to the public. People are married to the metaphor of the public space, but they run into trouble when it comes to who should pay for this stuff. They think it should be the government. That’s not going to happen. The government is broke, It’s going to stay broke.

What do you folks think?

Written by Om Malik on April 24th, 2006 with no comments.
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Optical LANs Are Coming

Given how expensive optical equipment is these days, it is laughable to even suggest that we will have local area networks based on optical networking technologies. But in not so near distant future it is going to be a distinct reality.

Japanese giants Fujitsu and Mitsui have formed a new start-up, QD Laser, ,to explore opportunities in quantum dot lasers. The technology was developed by Fujitsu Ltd., Fujitsu Laboratories, and Professor Yasuhiko Arakawa’s laboratory at the University of Tokyo.

Quantum dots are a “single nanometer” semiconductor particles, and can be used as the basis of Quantum Dot Lasers, which are said to be far superior to conventional lasers. They have the ability to work over longer distances and can also support higher speeds. The Japanese companies contend that the QDLs will become light sources for optical networks, and will eventually find their way into optical access and local area networks. What really is strange about this deal is that the companies are investing about 290 million yen, which works out to about $2.5 million.

Written by Om Malik on April 21st, 2006 with no comments.
Read more articles on Wired.

Motorola-Siemens In Talks?

Siemens, which sold off its mobile handset business to BenQ is said to be exploring the sale of its communications business, aka Siemens Communications, according to a German news daily. Frankfurter Allgemeine Sonntagszeitung reports on rumors of talks between Siemens and Motorola.

It was reported earlier that company might consider breaking up parts of its business and selling them off on piece meal basis. German publication Manager Magazin reported that there were talks between Siemens an Nokia.

All this is simple speculation, but one cannot deny that the telecom equipment industry is going through a serious realignment largely because of shrinking service provider base, and competition from low-cost suppliers from China.

The networks themselves are going through a change, creating new opportunities for some, and snatching away business from others. Lucent-Alcatel merger is only the beginning of an industry wide consolidation, many predict.

Written by Om Malik on April 18th, 2006 with no comments.
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Iceland, Broadband’s New King

Iceland has replaced South Korea with the highest broadband penetration, according to 2005 broadband statistics released by OECD. Iceland now has 26.7 subscribers per 100 inhabitants, ahead of Korea with 25.4, and Netherlands with 25.3. US has 16.8 broadband connections per 100 subscribers.

Actually in sheer numbers Iceland has 78017 subscribers while Korea has 12.19 million subscribers. US has 49.39 million broadband subscribers, and represent 31% of all broadband connections in the OECD.

Korea, is getting ready for fiber band it seems. In Korea, fibre-based broadband connections grew 52.4% during 2005, OECD data shows, while there was a net loss of DSL (-3.3%) and cable (-1.7%) subscribers during the year.

Written by Om Malik on April 11th, 2006 with no comments.
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Wanted Cheap, Not Faster Broadband

Forrester Research just released a new report, The State Of Internet Access, based on a survey of more than 4,500 US households and here are some of the key findings.

• More than 50% of online US households are using broadband.
• DSL is gaining ground on cable.
• Consumers are still more interested in price than speed.
• Broadband users show little desire to switch providers.
• ISPs will have to re-orient their marketing programs to simpler pricing, product offerings, and distribution in order to attract less tech-savvy mainstream consumers.

The report indicates that when it comes to broadband, we are moving towards the base of the pyramid and making money is going to be tougher, and both the phone and cable companies will have to come-up with a simpler way of selling broadband. In addition, the burden of sale is going to fall on cable guys who frankly have not done a good job of selling a cut-rate service.

Take for instance, Cox which is selling a lame 256 Kbps synchronous link for $24.95 per month in middle Georgia. Why would you buy that when DSL is cheaper! If cable cos don’t start pushing the budget offerings don’t, then perhaps they will lose the chance of stealing customers from the Bells. For the Bells, well, another sign, that despite all the talk about cool technology, the IPTV thing is not going to be that easy.

Written by Om Malik on April 11th, 2006 with no comments.
Read more articles on Wired and DSL and Cable Broadband.

No Politics For Network Neutrality

Freedom 2 Connect conference organized by David Isenberg is proving to be a network neutrality lovefest. I was scheduled to attend, but work commitments prevented me from going. Filling in admirably is my colleague Erick Schonfeld who is blogging up a storm on Business2blog. He writes about Michael Powell’s speech. Former FCC commish was pretty blunt in saying that legislating network neutrality is not going to happen, and it is a bad idea anyway.

“It is too facile to say the Internet belongs to the public. People are married to the metaphor of the public space, but they run into trouble when it comes to who should pay for this stuff. They think it should be the government. That’s not going to happen. The government is broke, It’s going to stay broke.”

Powell’s thoughts were matched by Martin Geddes, one of my favorite broadband pundits. “Network neutrality can’t be made to stick. Telcos will evade whatever definition you put up; it’s easier than fighting UNE-P unbundling rules. It’s easy to create atilted playing field,” he said in his speech today. Martin, makes a lot of sense, and offers a very coherent reasons why getting politics involved in NN is going to create one messy situation.

Written by Om Malik on April 3rd, 2006 with no comments.
Read more articles on Wired.

LuLa Bad News for Juniper?

Lucent (LU) and Alcatel (ALA) merger might just ruin Juniper’s Monday (and days to follow) according to some analysts. Lucent has been a major OEM partner for Juniper, and has been selling a lot of routers for the #2 router maker. Lucent helped Juniper win contracts at China Telecom, Sprint, Vodaphone Australia and KPN in the Netherlands.

Lucent now accounts for about 8% of total Juniper sales, according to Mark Sue of RBC Capital Markets. That is at risk he says, and in a note to his clients writes, “With the availability of Alcatel’s routers however we believe Lucent is increasingly likely to promote Alcatel’s routers versus Juniper’s routers. Alcatel’s family of routers has thus far won significant customers both here and abroad.”

Ovum-RHK had reported that Alcatel router revenues were up 45% in 2005. So what will Juniper do? If you believe this report, Juniper might actually go out and buy Huawei-3Com combo. Given that the report emerged out of China, I am not putting too much credence in it - at least for now.

PS: Going forward, I am referring the combo Lucent-Alcatel as LuLa (LU+ALA). PS2: Check out the transcript of LULA announcement here.

Written by Om Malik on April 3rd, 2006 with no comments.
Read more articles on Wired.

What’s Up With Optical Stocks?

All talk of broadband proliferation, IPTV, and consolidation in the telecom hardware business is lifting optical stocks. Mind you, they are still a very pale self of their former bubblicious self. These stocks used to trade in triple digits, but nose-dived once the telecom bubble burst. TheStreet.com noticed that as well. Actually the entire telecom ecosystem is trading at near 12-month highs. Check out Qwest, Level 3, Ciena, Tellabs and JDS Uniphase! If you get a chance, read my story on the telecom turnaround from CNN Money. Here is Real Money’s take.

Written by Om Malik on April 2nd, 2006 with no comments.
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Lucent-Alcatel Say - I Do!

Alcatel and Lucent Technologies have finally decided to tie the knot and merge their two companies, in what amounts to be a gigantic first step in the telecom hardware consolidation. The combined company will have a market capitalization of $36 billion, and will have sales of around $25 billion and will have 88,000 employees. This is not really a merger of equals, and if you read the terms of the deal, its Alcatel swallowing Lucent.

Under the terms of the agreement, Lucent shareowners will receive 0.1952 of an ADS (American Depositary Share) representing ordinary shares of Alcatel (as the combined company) for every common share of Lucent that they currently hold. Upon completion of the merger, Alcatel shareholders will own approximately 60 percent of the combined company and Lucent shareholders will own approximately 40 percent of the combined company.

For more on this deal, here are links from previous posts.

• Telecom Feeding Frenzy
• Life After Lucent: Telecom Feeding Frenzy
• Telecom Gear Mergers Ahead Serge Tchuruk, chairman and CEO of Alcatel who will become non-executive chairman of the combined company and Patricia Russo, the chair(wo)man and CEO of Lucent will become CEO of the combined company. There are two compelling reasons for this deal - the carriers desire for IMS, the technology that would let them merge the wireline and wireless networks. Lucent has done great work in that space, and the combined company will do well because of that. In addition, it solves Tchuruk’s transition dilemma. He did not have a #2 and with his time was running out - well you know how it is!

Written by Om Malik on April 2nd, 2006 with no comments.
Read more articles on Wired.

Of Free Movies & Broadband

Hong Kong Broadband Network, a division of Citi Telecom of Hong Kong has launched a free legal movie download platform. This service allows any user in Hong Kong, irrespective of their Internet Service Provider, to legally download five exciting movies for free. Here is the catch - there is an 18-minute download time out, which means if you are using DSL services sold by HKBN’s rivals, you are not going to get too far.

On the other hand, if you have HKBN’s Metro Ethernet bb100 (symmetric 100 Mbps) service, then you can download a 4GB DVD format movie in less than 7 minutes. Okay, that’s a creative way to get people to switch to their service. HKBN has been doing these seemingly crazy things, as it competes with deeper pocketed rivals such as PCCW, iCable and HGC Telecom. I wrote about these guys earlier in the year. (See: Business 2.0, Broadband Utility Player.)

Written by Om Malik on March 29th, 2006 with no comments.
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France’s Broadband Miracle

Readers here shouldn’t be surprised about the broadband miracle in France, for we have written about it again and again and again. But it is good to see the Wall Street Journal write about how France went from a laggard to a broadband leader, mostly because of a quasi-socialist government that pushed sharing of networks as a concept. You know the same concept that was supposed to take root after 1996 Telecom Act.

WSJ writes about Iliad, that has 1.1 million customers, and charges $36 a month for 81 TV channels, unlimited phone calls within France and to 14 countries, and a high-speed connection. And they are not alone. It is one aggressive market, and despite all the challenges, even France Telecom is doing well, mostly because it has adopted the “broadband mantra.” There are others, and you can get the complete lowdown on the France Page on the Broadband Wiki. [It also reminds me, if anyone can help me translate this, I can bring the numbers up to date.]

Written by Om Malik on March 27th, 2006 with no comments.
Read more articles on Wired and DSL.

Vanishing Voice Revenues

The incumbents world wide are facing a difficult time, according to research firms, Gartner and In-Stat. They are caught between a rock and a hard place. A whole generation is leaving behind wireline voice and switching to a wireless only lifestyle. On the other hand, VoIP is having a deflationary effect on prices, and is siphoning off dollars from the wireline revenues.

In-Stat predicts that the US wireline revenues are going to decline 3.3% annually up through 2009, and even the broadband sales may not be enough to make up for the losses in the consumer wireline voice revenues. “Voice services, which have experienced persistent pressure from wireless alternatives, are increasingly being challenged by VoIP solutions,” says David Lemelin, In-Stat analyst.

I am not sure, if entirely agree with these conclusions, because right now Bells are selling low-cost plans. They can increase prices, which they might when they have premium speed offerings. There is enough evidence that the consumers are happy to happy for higher speeds. And with the most recent wave of consolidation in the US service provider industry, the Bells will come out even, because of their wireless holdings.

The big x-factor in this whole equation is cable - which is doing a good job of their triple play offerings. Of course, they never complain about Skype and other VoIP plays, because ultimately those offerings siphon off voice dollars from the Bells, and also attract customers to their higher capacity (and higher margin) broadband access offerings.

Written by Om Malik on March 27th, 2006 with no comments.
Read more articles on VoIP (the New Phone) and Wired.

Germany versus EU Broadband

James Enck, while visiting San Francisco, was unabashedly enthusiastic about many European countries moving aggressively towards what he thinks is a “municipal fiber revolution.” Ireland, for example is building 120 metro area networks (aka rings around the cities, not last mile connections), while France has similar fiber ambitions. In addition, Muniwireless says that the European regulators are forcing the incumbents to give open access to rivals, hoping that this is going to get the broadband penetration numbers up dramatically, which are lagging when compared to Asia.

Broadband ‘take-up’ or ‘penetration’ rate is measured as the number of lines per 100 of population. In January 2006, broadband reached almost 60 million subscriber lines in the EU25 and a penetration rate of about 25% of households. (EU view of the broadband penetration and subscriber data.)

Netherlands is being the most aggressive and is jump starting Muni deployments along with forcing incumbents to toe the line, and give open access to competitors. (Netherlands stats from Broadband Wiki)

Now compare this with Germany, where Deutsche Telekom is asking the regulators for “regulatory holidays” so it can build out its fiber networks, and not share them with their competitors. Just like US. “We want the same competition rules as in the U.S.,” Peter Heinacher, who oversees regulatory affairs at Deutsche Telekom told the Wall Street Journal last week. The company has been threatening that it will layoff workers, stop spending on the networks and basically do everything to scare the hell out of politicians. The German government, which owns a large minority position in DT is thinking about getting rid of the line-sharing rules. Much like our FCC! (Germany stats from Broadband Wiki)

I wonder if DT is cutting its nose to spite the face? According to a study (download PDF) by the German Ministry for Economics and Technology and the German IT industry, a 14% decline in prices increases the broadband coverage by 8 percentage points by 2010, while broadband take up continues to increase at an annual 15-25% rate.

This will spill over to the whole economy and generate a virtuous growth-productivity and employment cycle, leading to an increase of GDP by € 46 billion between 2004 and 2010 and to the creation of 265.000 jobs.

When there is no competition, the incumbents almost never cut prices, but instead figure out ways to dip into your pocket a little bit more. Anyway we shall be following this Berlin versus Brussels drama closely and see how it shakes out. Because if DT gets its way, then expect other incumbents jump-up and down to make similar demands.

Written by Om Malik on March 27th, 2006 with no comments.
Read more articles on Wired.

Telecom Feeding Frenzy

The $34 billion merger of Lucent and Alcatel, if approved, will unleash a wave of mergers in the telecom equipment sector. Will Cisco merge with Motorola? What will happen to a host of smaller companies? This and more issues are covered in my story, Life after Lucent: telecom feeding frenzy, which is up on CNN Money website.

“This proposed deal is reflection of the resugence of the incumbents not only in the U.S., but worldwide,” says Muayyad al-Chalabi, principal at Boston-based telecom consulting firm Adventis. “This (Lucent-Alcatel merger) could create a domino affect and I hope it does,” says Pip Coburn, chief strategist and principal at Coburn Ventures, a telecom research firm.

The analysts say that Cisco will have to make a move, and going after wireless, by merging with Motorola might be its best bet.

Ericsson, Nokia, and even Nortel are in better shape than ever for making acquisitions, says Coburn. Nortel’s new CEO, Mike Zafirovski, until recently the No. 2 executive at Motorola, could be looking to bulk up his company’s offerings. On his menu could be names like Juniper, Ciena, Tellabs, Sonus Networks and Foundry Systems.

Written by Om Malik on March 26th, 2006 with no comments.
Read more articles on Articles and Wired.

Telecom Gear Mergers Ahead

With the telecom service providers contracting faster than a bride’s waist in weeks leading up to a wedding, it should come as no surprise to anyone that Lucent and Alcatel are entertaining thoughts of a $33 billion merger, that would combine two of the biggest equipment suppliers to the “phone companies.”

The same rumor had surfaced five years ago, but this time, according to The Wall Street Journal, talks are pretty serious, and are at an advanced stage. Lucent Technologies chief executive Patricia Russo will become the chief executive of the combined company, the WSJ reports.

“We can confirm that Lucent and Alcatel are engaged in discussion about a merger of equals that is intended to be priced at market. There can be no assurances that any agreement will be reached or that a transaction will be consummated. We will have no further comment until an agreement is reached or the discussions are terminated.”

With Lucent’s market cap at around $12 billion and Alcatel being valued at $21 billion, I am not sure what they really mean by “merger of equals.” It must be lost in translation!

The deal between the two companies should come as no surprise to anyone. For most of the post-1984 split years, Lucent was the biggest supplier to the phone companies. However, the vendor financing, the Broadbandits and the telecom crash crushed Lucent.

Meanwhile, Alcatel, an also-ran in the telecom equipment market on the other hand hadn’t gone overboard with vendor financing and did a couple of things right: like hitch its wagon to DSL broadband technology. It slowly increased its presence, and market share. (Read my piece, Gorilla In The Mist, from 2003 on Alcatel, which first appeared in Red Herring. They indeed do some of the things that were suggested in the story, like focus on the edge of the network.)

As Bells have consolidated, the Alcatel’s gear is now powering most of the broadband networks, and future triple play projects like Project Light Speed. Lucent, meanwhile has seen its role shrink, but still has managed to hang on to the wireless business from the Bells. The two companies, have a good share of the Bell cap-ex. Together, they have a lot of things going for them. Here is a list of where together they will be #1 in installed base. Such as dying but still money generating Class 4 and Class 5 switches, Frame Relay and ATM (The old Cascade/Ascend and Newbridge) and of course, DSL.

Alcatel has a decent routing portfolio, and it has been winning market share in new broadband networks, with some of its new edge routers. Alcatel, still has some decent enterprise offerings. Beyond that, the two companies have a product portfolio that could make a good complimentary fit. Alcatel is strong in optical gear (SONET and WDM), and the Digital Loop Carrier equipment space. CDMA Wireless, where Alcatel is weak, Lucent is strong in CDMA.

But its not all hunky dory. The cultural challenges of integration, the control of French government over Alcatel affairs, and possibility of significant layoffs could be a big problem for the deal going forward.

The best thing these two companies could do is buy Juniper and become a serious headache for Cisco, but that’s in the future. But this will not be the first merger. Expect some really radical movements - Cisco and Nortel; Cisco and anyone; Siemens + Ericsson + Juniper … on and on. You know who wins in this - investment banks. Phat Phees Baby! Or as they say on Wall Street, Good Times are back.

Written by Om Malik on March 24th, 2006 with no comments.
Read more articles on Wired and Broadbandits.

How To Fix Time Warner?

When Carl Icahn was needlessly hounding the Time Warner management (my employers), I urged caution and asked them to stay the course. A few weeks ago, a chart in The Economist showed that despite a checkered past, there is web life in this conglomerate called Time Warner.

It needs some work, according to my colleague Erick Schonfeld who has just published a piece, Five Ways To Fix Time Warner. It is a very Web 2.0 centric “quick-fix” recipe, and while I agree with the overall premise, I disagree with Erick’s contention –dump the distribution.

Time Warner should dump its capital-hungry distribution businesses — its cable operations and the dial-up part of America Online — and become a pure content company.

I tend to believe more in pipes and networks than in the new new mantras that preach that content and distribution should be independent of each other.

I think we have to be very careful about preaching radical change without taking into account the fact that we are living with an effective duopoly when it comes to the Internet access in the US. Time Warner Cable is one half of that duopoly, which puts it at an advantage. Giving up on distribution is giving up on a good thing.

Let me explain why. Given that about 70 odd analog channels bring in around $50 a month, the per-channel value is pretty low. However, that very same channel when used for broadband brings in about $40 a month. On an average, the cost of offering broadband is about $10 a month per subscriber.

Compared to the cost of content creation in a TV channel, and what Time Warner has to pay to say MTV or whomever; broadband is the cheapest and most effective use of spectrum available inside the cable system. Add voice to the mix, and the revenues increase to about $80 a month. Distribution, aka pipes, is a pretty good business. Even AOL dial-up makes money. AOL sells dial-up for $25 a month, but since the whole modem banks and management of the whole network is outsourced to Level 3, it really costs about $8 a month. Do that math: it may be dying a slow death, but dial-up is still cash money. It helps pay down the debt.

The problem with Web 2.0 is the one dimensional thinking. It only thinks about the web. The world has transformed - on one network rides voice, video, data and mobile. They are not discreet networks, but instead part of an big IP-mash-up. Any company which plans to remain relevant in the future has to treat these as features of a big network. And content is the glue that brings them together. Voice, for instance is the cheapest and unending user generated content, that only enhances the value of that “one network.”

Viacom is making all these herky-jerky digital moves because it doesn’t have the pipes. Similarly, News Corp. has that very same problem. TW on the other hand is not that much of a problem. With network neutrality in bit of a jeopardy, TW Cable can ensure that the company is first among equals - Comcast, AT&T, Verizon and Qwest. That pipe is going to ensure that rest of Erick’s suggestions actually get to see the light of the day. I could go on about this, but I will stop. Still, what is Erick’s best suggestion?

Meanwhile, the remaining AOL.com content business — which includes such underutilized assets as AOL Instant Messenger and MapQuest — should relocate from Dulles, Va., to Silicon Valley. That way it can cross-pollinate with the true innovators of the Web and possibly pick up some entrepreneurial zip that it has sorely lacked.

Written by Om Malik on March 23rd, 2006 with no comments.
Read more articles on VoIP (the New Phone) and Wired and Cable Broadband.

Verizon, Q in Talks?

Light Reading reports that Qwest and Verizon might be takeover talks. Nothing except innuendo etc in the story. Take it with a grain of salt. It, would however, be too funny, given the bitter fight over MCI between the two companies.

A source here at the VON show said a New York-based broker had told clients that discussions are under way between the two carriers, and that Verizon would soon tender an offer. Verizon, of course, is saying nothing about the situation. “No comment on that,” Verizon director of technology policy David Young said with a smile in the hallway here at VON.

Written by Om Malik on March 17th, 2006 with no comments.
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The Myth of ala Carte Cable?

Legislators are busy crafting together a bill that will allow consumers to get ala carte cable - which is to say they can pick and choose what cable channels they want. Cynthia Brumfield has a good overview of the situation and points to two studies, one by the NCTA (download pdf file) and one by Disney. I can try and decode the reports: these two parties with vested interests are saying, well FCC blew it, and the consumers don’t want anything to do with ala carte cable.

Ironically, these unbiased interests might actually be speaking the truth, though I bet that wasn’t their original intention. Leichtman Research Group, did a survey and found that 40% of consumers are initially very interested in being able to choose and pay only for individual channels from cable and satellite TV companies. However when told the whole truth - that is the total number of channels they are likely to get and the equipment requirements of the service - you know the fine print kinda stuff, the interest level dipped to 17%. (Read the research methodology and decide for yourself, if this makes sense.)

“When consumers are informed of the requirements and consequences of receiving a la carte, we find that about one out-of-six consumers are very interested in a la carte as it would appear in reality,” says Bruce Leichtman, the principal at the research firm. Why the dip? “They are in favor when it is asked in an incorrect (biased) fashion, and without the implications,” he wrote back in an email, when I asked him the question.

Written by Om Malik on March 17th, 2006 with no comments.
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Earthlink Needs To Be More Aggressive

Earthlink is adding eight more cities where it will now sell line-powered voice and 8 megabits per second DSL connections. Good news for Covad, as well. EarthLink has agreed to provide Covad with $50 million in debt and equity financing to fund additional network build-outs. Big question… why not just by Covad? At $467 million in market cap, an all stock deal is still going to be cheaper… in the long run. They did about $440 million in sales last year, and lost about $15 million. And while they are at it, why not just scoop up some of the smaller DSL players. Like Speakeasy. Time to be aggressive Earthlink? -

Written by Om Malik on March 16th, 2006 with no comments.
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The FTTH Update & IPTV Numbers

Mark Sue, an analyst at RBC Capital Markets has put together a great overview of the state of the fiber to the home market, and has thrown in a nice update on the IPTV deployments as well. In his estimate, there are about 6 million fiber-connected homes worldwide, up 140% from last year, and a majority are in Japan. James Enck, who is in town for VoN explained that is because NTT has adopted a scorch earth philosophy and is using fiber to snuff out pesky upstarts like Softbank.

Most of the other deployments, however are in the early stages. In China, China Telecom and China Netcom are conducting FTTH trials while in Hong Kong, Hong Kong Broadband, a company I have written about in the past is passing through nearly 1/3 of total homes with fiber. Only telcos in the Scandinavian countries, as well as the Netherlands and Magnet Networks in Ireland are building-out large FTTH networks. Instead, we are seeing a lot more action from the municipalities which are sinking fiber in the ground.

Back in North America, things are only getting started. Verizon is building-out an all fiber network. AT&T will use a combination of FTTN for overbuilds and FTTP for new builds, while BellSouth is building-out an FTTC network. Bell Canada is deploying a FTTN network and supplementing it with VDSL and ADSL2+ over the last 3,000 feet. Still, like Europe, North American action is around smaller telecoms, and munis, which are being aggressive in rolling out Fiber networks.

Since I have written about Asian IPTV numbers before, I am not going to go over that. Sue has sent me an update on the European IPTV deployments - which stand at about one million, and will grow to 4 million by 2008. Believe it or not, this damn IPTV thing is going to take a lot longer than people realize.

France Telecom has over 210,000 subscribers and Neuf has over 100,000 subscribers. In Italy, FastWeb currently has the largest subscriber base in Europe with ~350,000 subscribers. In Germany, DT is looking to have preliminary IPTV services up and running for the World Cup. In the UK, Video Networks already provides IPTV services to ~20,000 subscribers, while BT’s video launch will be available in the fall 2006. Elsewhere in Europe, Telefonica Spain is offering its Imagenio TV service and has about 220,000 subscribers according to our estimates. Austria Telekom just launched IPTV services in and around the Vienna area, while Swisscom’s Bluewin offering was delayed until summer 2006. Belgacom offers IPTV services to ~25,000 subscribers.

Written by Om Malik on March 16th, 2006 with no comments.
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Ericsson Buying Juniper?

Not that you can take it to the bank, but the word from Sweden is that Juniper is going to be taken over by Ericsson. It is hard to imagine why Juniper, despite its recent problems, will be willing to sell out? Juniper has a market capitalization of around $11.4 billion, while Ericsson commands about $55 billion in market valuation. You can read the AFX news report (via Forbes) on this whole rumor - right here. Any thoughts?

Update: Picking through my sources, I have been manage to piece together that all this just might be talk. Given the current issues with Juniper, their management turnover, Juniper is risky buy. In addition, the cost of a deal would be highly dilutive for Ericsson. The impact on Ericsson stock could be huge. Wall Streets believe Ericsson however might be going IP shopping. So why the rumors? Apparently, Juniper is getting a big win in China, but under the cover of Ericsson. In case you missed it - Juniper won a $120 million contract from Microsoft (over two years.) On good news front, Juniper has dropped its lawsuit against messageboard posters.

Update #2: Juniper doesn’t fit the bill in terms of production profile, market capitalization or valuation, says Dresdner Kleinwort Wasserstein.

Written by Om Malik on March 15th, 2006 with no comments.
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Nortel… Oops I did it again

Back in the day, when satellite television was a new new thing for rest of the planet, I used to watch The Bold & The Beautiful. It was a guilty pleasure for some months, but then I quickly lost interest. The story did not change much, though the faces did change. Some characters became more beautiful, and others became less bold. Its been a few years I have even thought about the show, and the reason I did today, well because of Nortel Networks’ latest announcement that it will restate results… again.

How many times have we heard the same story from the same company? “This revenue is real — it was recognized in the wrong periods. The restatements do not affect the company’s cash position,” said a statement from CEO and President Mike Zafirovski. Oh come on now, you are no Chinese economy, that you can’t figure out what the hell is going on. A big NYSE company cannot keep its books properly?

“This time, it’s focused on contracts signed last year. And although the company insists it isn’t material, the perception that Nortel is still trying to resolve its accounting scandal is troubling. At some point, Nortel needs to have a clean slate so it can move forward strategically,” writes Mark Evans.

On a more recent tip, it seems the company is doing well - or that is it decides to re-state its results … In the fourth quarter 2005 company lost $2.21 billion, or 51 cents a share which seems terrible when compared to a net loss of $107 million, or 2 cents a share in the fourth quarter 2004. Since, this net loss includes a one-time special item - $2.5 billion or 57 cents a share to settle a shareholder class action litigation, the company actually earned 6 cents a share in the 4Q 2005, about two pennies better than what analysts were expecting.

Written by Om Malik on March 10th, 2006 with no comments.
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Return of Ma Bell

AT&T chief executive Ed Whitacre, affectionately referred to as “King Ed” by me, and “Mr. T” by others has always been of the school of thought that breaking up Ma Bell back in 1984 was a mistake. He has done his best to rectify that by gobbling up three out of seven Baby Bells - Ameritech, Pacific Bell, and more recently BellSouth - and merging them with his SBC. Of course along the way he picked up the remnants of a proud company called AT&T. His splashiest move came last move when Mr. T bought BellSouth for $67 billion in cash, and about $22 billion in proportionate debt. Result, a giant phone company, the biggest in the world with over 71 million access lines, 54 million wireless customers, 9.5 million broadband lines and over $98 billion in sales.

I got together with Niall earlier this week and tried to do an analysis of the deal, its impact on Verizon and cable providers. Of course there are implications for start-ups, especially those in the telecom space. What it means for network neutrality, Yahoo and Google. Hopefully you can tune in.

This week’s PodSession, Return of Ma Bell is 21 minutes long. You can download it here. PS: guys there is a big surprise at the end of the podcast!

Written by Om Malik on March 8th, 2006 with no comments.
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AT&T-BellSouth Deal - Winners & Losers

In the blink of an eye, everything changes in telecom. The BellSouth-AT&T deal will cause some serious realignment in the services sector, but it will also have a big impact on the equipment maker. In my previous post, and my story for CNN Money, I tried to gauge the overall impact, but now with help of some of the smartest brains on Wall Street, here are some specifics.

Susan Kalla, of Carris & Company thinks that the merger will slow spending on wireline side but, will be good for wireless gear makers, such as Motorola, Nokia, RIM and Qualcomm. In directly, she thinks wireless chip maker, Texas Instruments could do well. In a research note to her clients, Kalla writes, “Over the near term, the equipment suppliers are likely to see a short term spending freeze as the operators reevaluate their network needs and consolidate network operating centers.” She thinks losers in this deal could be Lucent, Nortel, and Tellabs.

Joe Chiasson of Susquehanna Financial Group believes that Alcatel could be a big winner since it is a critical component of the Project Lightspeed, and already has a large presence in AT&T’s access networks. “Assuming that one-half (a percentage comparable to AT&T) of BellSouth’s residential customer base is eventually targeted for a Lightspeed upgrade, Alcatel just picked up roughly 6 million lines of IPTV business assuming it doesn’t drop the ball,” he wrote in a note today. Similarly he thinks Adtran, a key supplier to AT&T could see some upside mostly because of its optical products.

No such good news for Redback Neworks, which has been supplying DSL aggregation devices to both BellSouth and AT&T, each one accounting for over 10% of reenues. There was consensus that Redback would get a bigger piece of the action from BellSouth, as BLS rolled out its IPTV networks. AT&T has a different approach to IPTV (i.e. no B-RAS) aka distributed IPTV edge architecture, and Alcatel’s status as the preferred supplier, Redback’s could have limited gains.

And that brings us to Juniper, which is not going to see any gains. Chiasson points out that both BellSouth and AT&T are working with Cisco for their core and edge router needs. “The merger is potentially negative from the standpoint there is one less major service provider (BellSouth) deploying the centralized (B-RAS centric) IPTV architecture, and thus one less potential customer for the E320,” he says.

Potential good news could be in the offering for Ciena. “CIEN would benefit to a certain degree if T (SBC) were to extend its Coredirector ..long haul upgrade into BLS territory. ADTN would likely benefit slightly as it has a stronger relationship w/ SBC vs. BLS,” writes Nikos Theodosopoulos, telecom equipment analyst with UBS.

Written by Om Malik on March 7th, 2006 with no comments.
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MaBell Reborn

The merger of BellSouth and AT&T would create a near facsimile of the old Ma Bell, and it will have tremendous powers. And that may not be such good news for some start-ups, and equipment suppliers.

“It is ironic that market forces are putting back together what the Justice Department broke up with the Judge Greene consent decree (in 1984),” says Sanjay Subhedar, a telecom veteran and now a general partner with Palo Alto-based (and telecom focused) venture capital firm, Storm Ventures.

“This enhanced ability to drive a hard bargain would affect pretty much any company that AT&T-BellSouth does business with, particularly hardware and technology suppliers,” says Cynthia Brumfield of Emerging Media Dynamics. While the consolidation of customers means more buying power, it also means more spending and bigger budgets for new technology architectures. Industry experts believe that the suppliers of new-fangled metro-ethernet gear will come out ahead as a result of this merger.

To read my full story, visit CNN Money. Read all about the possible impact on how the industry will shakeout in months to come, and how Verizon is going to react.

Also, AT&T To Buy BellSouth

Written by Om Malik on March 6th, 2006 with no comments.
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AT&T To Buy BellSouth

Update: AT&T, BellSouth confirm the merger. “This merger is a logical next step that creates substantial value for customers and stockholders of both AT&T and BellSouth,” said AT&T Chairman and CEO Edward E. Whitacre Jr in a statement. “It will benefit customers through new services and expanded service capabilities. It will strengthen Cingular through unified ownership and a single brand.” In other words, Cingular will soon be back as “AT&T Wireless.”

Mr. Whitacre will serve as chairman, CEO and a member of the board of directors of the combined company. Mr. Ackerman will serve as chairman and CEO of BellSouth operations for a transition period following the merger. Additionally, three members of BellSouth’s board of directors will join the AT&T board. The corporate headquarters for the combined company will remain in San Antonio. Cingular’s headquarters will remain in Atlanta, as will the combined company’s Southeast regional telephone company headquarters.

The merger will likely get a lot of opposition from the consumer groups. Gigi B. Sohn, president of Public Knowledge, in a statement today noted that, we need to make sure that Net Neutrality is part of the approval process. “Both AT&T and BellSouth have been forthright in their statements about their desire to exert greater control over the Internet. It is up to those who make public policy to make certain that the principles of an open Internet continue through this greater consolidation of the telecommunications industry. It is vitally important that the Internet remains open and accessible to consumers and to service providers and remains the source of innovation it has been over the past two decades.”

Ben Silverman, a telecom analyst with independent investment newsletter FindProfit.com says that, “The deal will raise fears that Verizon is left with no option but to acquire Qwest, causing further regulatory issues. Qwest will need to find a suitor, which could include Verizon or Sprint’s new local unit, Embarq. Valor Communications, which acquired Alltel’s landline business, could also be a suitor. An AT&T-BellSouth deal would put pressure on Verizon to acquire the 45% stake of Verizon Wireless that Vodafone owns. Vodafone has already said that it is in talks to sell its Japan unit, meaning that the company now has even more leverage over Verizon to extract a serious premium for its stake in Verizon Wireless. “

Meanwhile Kristen Osalind thinks King Ed rules.

Holy smokes… King Ed (Whitacre) is really going to be the king of telecom. The Wall Street Journal is reporting that AT&T is in talks to buy BellSouth for about $65 billion. The news should not surprise anyone, since it was a foregone conclusion that BellSouth would eventually end-up with SBC/AT&T. The prime driver behind this deal has to be Cingular, the wireless joint venture between the two companies which has become an awesome money machine.

Put together, the SBC territory would extend from California to Florida, north to Illinois and south to Texas. Combining the two companies’ current market capitalizations, AT&T would have a market value approaching $150 billion, over 50% greater than Verizon.

This basically makes it Verizon versus AT&T in the US telecom space. So its pretty much back to the future. I think this could prompt another round of mergers. Qwest and Sprint Local could make good partners. Of course, Verizon could make some moves of its own, and snap-up someone like Alltel.

The wave of mergers has dramatically reshaped the telecom industry, and a purchase of BellSouth would further cement the recreation of the old Ma Bell, which the government pushed to break up in 1984. The management of AT&T, which has apparently briefed key senior government officials late last week, appears to be betting that the Bush administration and a Bell-friendly Federal Communications Commission won’t raise too many obstacles for such a deal.

Bell-Friendly is a euphemism for ‘FCC does whatever bells ask them to do.’ The long term implications of this deal, and its impact on the whole network neutrality debate is going to be huge. I wonder how it will impact the broadband prices. I have not had a chance to fully digest this information, but will update the post, in the morning.

Written by Om Malik on March 5th, 2006 with no comments.
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Juniper Exec Lands at RGB

Remember Jef Graham, the Peribit Networks chief executive who ended up at Juniper Networks, and quit a few weeks ago in a management shakeout. Well he has now landed as the chairman and CEO of San Mateo-based RGB Networks, a company that makes video processing chips like their Simulcast Edge Processor.

Written by Om Malik on March 2nd, 2006 with no comments.
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Broadband 2005, What a Year for DSL

Leichtman Research Group just released their 2005 broadband data, and according to their research 9.6 million new broadband subscribers signed up for high speed connections in 2005, bringing the total to about 42.9 million. It was an exceptional year for DSL providers, mostly because of their low cost offerings.

1. The top DSL providers netted 53% of the broadband additions in 2005
2. DSL providers added over 5.2 million broadband subscribers in 2005 – about 1 million more than in 2004.
3. The fourth quarter of 2005 was the best quarter ever for DSL providers, adding 1.5 million net additional DSL subscribers.

The data shows that everyone - big and small - benefitted from the booming demand for broadband. Cable providers still have 57% of the total market, and are doing well to hang on to their market share. Bruce Leichtman, president and principal analyst for Leichtman Research Group says, “Cable operators have added virtually the same number of broadband subscribers in each of the past three years, while DSL providers have grown the market primarily by offering lower priced services.” Smaller companies are also finding equal growth opportunities.

The big surge in 2005, however, does make you wonder how long can this party last. I am pretty certain now selling broadband is going to be a much more of a marketing effort, and need more dollars. Verizon for instance is launching a new marketing campaign targeting specific ethnic groups in their own vernacular.

Written by Om Malik on March 2nd, 2006 with no comments.
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T-Trouble

T-Online, the ISP arm of German incumbent phone company, Deutsche Telekom is taking it on the chin from rival broadband service providers. A price war between T-Online, Freenet.de and Vodafone’s Arcor fixed line subsidiary pushed T-Online’s profits down 82% in the fourth quarter. In the fourth quarter this year they made about $13 million in profits, versus last year. Sales were up, a miniscule 2.5%.

The good news, (I guess), all these price cuts helped T-Online add 1.5 million new DSL customers. But this good news is going to last only for so long - most of the companies are thinking/planning transition to fiber and we can expect the ’speed-wars’ in that market. More on the German market @ Broadband Wiki.

PS: If you are a reader based in Germany, and would like to contribute to GigaOM on the latest developments in Germany, drop me a note with “contributor” in the subject line.

Written by Om Malik on March 1st, 2006 with no comments.
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DSL Lifting Small Telecoms As Well

Sure, the big cable companies and Bells are raking in the broadband bonanza, but its good to see the smaller players are enjoying the party as well. This morning, Dallas-based Commonwealth Telephone announced that it had added 10,650 DSL customers in 2005, to take its total to 29,262. CT is the eighth largest publicly held independent local exchange carrier in the US.

Earlier, Citizens Communications, a rural exchange carrier said that strong demand for its high-speed Internet service helped boost its results. The company added 99,000 DSL subscribers in 2005, taking its total to 311,400. Of the total, 21,200 DSL subscribers signed up in the fourth quarter of 2005. Century Tel, another small telco added 29,000 high-speed Internet subscribers during the fourth quarter and more than 106,000 for the full year 2005, an increase of nearly 75% since year end 2004. Cincinnati Bell, an Ohio-based local player added 9,000 DSL lines in the fourth quarter, and ended the year with 163,000.

Are these trends the ultimate proof that Broadband has gone mainstream?

Written by Om Malik on February 28th, 2006 with no comments.
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