IP Capsule E-Newsletter, December 15, 2006

IPso Facto…

Show me the money
Skype is going to start charging its users $29.95 a year to connect with landlines and mobile phones. That service had been free since it was introduced last spring.

Remember back in, oh, around 1998, 1999, the Internet changed the way business was conducted? New web-based companies were blowing $millions on Super Bowl ads, throwing great parties, and giving stuff away, and it was all great, despite the tedious mewling of all those old fogies who insisted on passé notions such as "return on investment" and "revenue." Man, those people just didn't get it.

Companies were giving away free mouse pads, T-shirts, books, CDs, food. It was like the old National Show, except any schlub with a modem could get in. (Speaking of show freebies, I loved the corkscrew, but the TSA folks at my gate were not as appreciative and confiscated it. But I digress.) The Web in the late '90s was a smorgasbord, I tell you.

Most of those companies either learned how to conduct business by the old rules, or they folded. A lot folded.

Nowadays it's pretty tough to find any items of value for free on the Web, but free services, like e-mail and Web hosting, still abound.

These days, getting free stuff on the Web isn't quite as fun.

Companies can get away with offering free services by underwriting them with advertising, a model that goes back to the first days of radio. But there are some companies who offer free services who insist on trying to skate by on just-don't-get-it, Internet-bubble economics.

It looked like Skype knew better than that. Not charging users to connect to landlines or mobiles had from the beginning been called promotional. Thirty dollars a year is about as nominal a fee as Skype could charge for connections to phones (calls from one computer to another have been and will continue to be free). Calls cost pennies, but with over 136 million users, pennies add up.

As a consumer, I am very much in favor of free stuff. That doesn't mean I don't wonder how eBay ever expects to make back the $2.5 billion it spent on Skype a year ago. At $30 a pop, that would require 86 million customers next year to agree to pay for a service that was free. That seems a little unrealistic.

Skype is scheduled to roll out some services with Google and Yahoo next year. The idea is that a user conducts a search for a business. Skype will make it possible for that user to click a single button and call the desired company.

I would not have imagined that there was much of a business in providing ringtones for cellular phones, and that is why I am not and probably never will be rich. Nonetheless, I'm going to stick my neck out and say that I don't expect there to be big money in Skype's click-to-call scheme with Yahoo and Google. Can Skype continue offering a free service? Yes. Can it justify the $2.5 billion eBay spent on it while continuing to offer a free service? Skepticism remains merited.

—Brian Santo, IP Capsule Editor, and CED Magazine Senior Editor

IPTV fueling boom in headend equipment
Telcos either expanding their IPTV offerings or jumping in to the video market are generating a boom in demand for headend systems that has already begun and which should persist through at least the next four years, according to a new report from In-Stat.

Over the last two years, several telcos have already built a large number of headends, creating a market for and driving down the cost of H.264 compression equipment, which has prompted telcos that were waiting to move forward with deployment plans, according to In-Stat.

The research firm expects up to 800 headends to be built between 2005 and 2010. Upgrades to take advantage of technology advances will further fuel the boom. The total telco TV headend revenue opportunity will reach $869 million in 2010.

"Much of the near-term upgrade revenue will come from telcos that are adding HD channels to their existing SD channel lineup," says Michelle Abraham, In-Stat analyst. "In 2009 and 2010, we expect telcos to replace equipment that is 4-5 years old, as compression algorithms will have improved to make the bandwidth savings worth spending the money."

In-Stat said headends are built today mainly to pass through video streams, but that will change as telcos deploy technology that will allow them to perform personalizing functions such as ad insertion.

Hargray uses Ciena DWDM system to expand capacity
Hargray Communications has installed a DWDM system from Ciena Corp. to increases its network capacity for IPTV, VOD, HDTV, metro Ethernet and other high-bandwidth services on its OC-48 Sonet network, which the company said is nearing capacity.

Hagray began using the expanded capacity to carry some of the existing SONET traffic, and is now using it to carry video services over dedicated Gigabit Ethernet connections.

Hargray, which provides service in South Carolina and Georgia, offers a portfolio of residential and business services, including local and long distance voice, Ethernet LAN, wireless, high-speed data (DSL and cable modem), and cable TV over both IPTV and HFC networks.

SingTel reveals vendors in IPTV trial
The suppliers involved in Singapore Telecommunications's (SingTel) IPTV trial identified themselves. Alcatel-Lucent is performing system integration.

System components include HP ProLiant servers, Microsoft TV's IPTV edition software, and Harmonic Inc.'s MPEG-4 AVC (H.264) DiviCom Electra video encoders, CLEARcut offline storage encoding solution, and NMX Digital Service Manager.

Harmonic said the SingTel IPTV technical trial represents the first use of offline encoding for on-demand services in a Microsoft environment. That aspect of the trial is dependent on integration of the Microsoft software with Harmonic's CLEARcut storage encoding.

The trial began in October with broadcast TV and video on demand (VoD), including high-def content. The service will also feature PVR functionality.

In addition to leading the project, Alcatel-Lucent is working directly with SingTel to develop applications including audio support in different languages, music-on-demand, karaoke-on-demand, customer self-service, and bill viewing.

The two companies have worked together before. In June, SingTel selected Alcatel-Lucent to conduct a trial of gigabit passive optical networking (GPON) technology, and to install a residential Metro Ethernet trial in Singapore.

Hawaiian Tel goes with Alcatel-Lucent for IP network
Alcatel-Lucent has been tapped to upgrade the network of Hawaiian Telcom, the incumbent local exchange carrier in Hawaii. Hawaiian Telcom will deploy Alcatel-Lucent's access and IP routing solutions to replace its current high-speed Internet infrastructure, which will subsequently allow the carrier to deliver IPTV, advanced and interactive Internet and premium Ethernet and IP VPN services. Hawaiian Telcom will install equipment to support a fiber-to-the-home network.

FiOS TV picks up another 2 franchises in Tampa area
The cities of Port Richey and Zephyrhills voted to grant Verizon a video franchise. They are the 10th and 11th communities in Florida to give Verizon a franchise for FiOS TV. Both towns are suburbs of Tampa, an area where Verizon has secured most of its Florida franchises. Zephyrhills has over 12,000 residents; Port Richey has 3,000. Verizon says the total population now covered in the area is 1.9 million. Separately, Verizon has begun delivering FiOS TV in Richmond, Va.

mPhase names exec to expand IPTV business
mPhase Technologies has named J. Connon Samuel vice president business development responsible for growing the company's IPTV software business. Samuel has a varied resume that includes staff and consulting jobs with Redback Networks, Universal Studios Florida, and Walt Disney World.

Three throw in with Acme Packet
Three companies have allied with Acme Packet, which provides session border control products. O1 Communications, Stealth Communications and XConnect have joined Acme Packet's Connected Universe program, designed to accelerate the implementation of IP interconnects between service providers for voice over IP (VoIP) and other end-to-end IP interactive communication services.

The program, launched last month, helps Acme Packet-enabled service providers quickly find potential IP interconnect and peering arrangements and build business relationships with other Acme Packet-experienced service providers. The three new members are "Constellation" members – service providers using Acme Packets equipment to offer IP interconnect-based services to other service providers.

Cox expanding phone tools
Cox Communications said it will make its Phone Tools available to its entire universe of 2 million Cox Digital Telephone customers by the end of the first half of 2007. Phone Tools allows customers to listen to voice mails online, manage call forwarding and other calling features, view their call history of incoming and outgoing calls and automatically forward copies of new voice mails to their email box. Next up: Cox intends to test market the ability to display caller ID data on TV screens before the end of the year.

Cedar Point lands VoIP deployment in Belgium
A communications services provider in Belgium has purchased VoIP systems from Cedar Point Communications. VOO, a joint venture of Brutele and ALE Teledis, will use CedarPoint's SAFARI C³ to deliver competitive residential and business telephone services to their 700,000 cable and Internet customers. B.A.S.E. Technologies, recently identified as a Cedar Point reseller and support partner for the European market, assisted Cedar Point in the completion of the agreement.

BandTel, Cantata team to enable SIP-based VoIP
BandTel and Cantata Technology have entered into a strategic partnership to co-market their combination of VoIP services and technology to high-volume service providers, such as ISPs and long distance and domestic carriers. BandTel operates a fail-safe ITSP network; Cantata contributes its Integrated Media and Signaling Gateway 1010. Together, the two say they can help carriers and ISPs to migrate to a SIP-based IP telephony service.

Study: Fiber service costs catching up
The average cost of fiber-fed Internet services have dropped below that of cable for the first time, according to new data from Point Topic, a firm that happens to produce reports and data for the DSL Forum.

The study tabulates global data through Sept. 30, 2006, and notes that FTTx tariffs dipped 12 percent to $28.1, 3 percent lower than the average monthly rental for cable modem services.

While pricing on FTTx services appear to be in a relative freefall, the average monthly nut for DSL and cable modem services have dipped just 2.5 percent and 2.1 percent, respectively, according to Point Topic.

"If the decline continues, it is very likely that FTTx will overtake cable modem to one of the main players in high-speed broadband services in the future," said Point Topic Analyst Vince Chook, in a statement.

DSL pricing, meanwhile, averaged just under $25 per month, $4.50 less than the average for cable modem services.

"DSL rentals had been undergoing major price reductions since the beginning of 2006. But with such a small drop over the quarter, cable modem is certainly losing its price competitiveness," Chook warns.

With DirecTV and EchoStar on board, WildBlue launches satellite
WildBlue Communications' new Ka-band spot beam satellite, WildBlue-1, was launched on Dec. 8. The satellite is expected to be ready for commercial operation in early March.

WildBlue offers Internet access service at download/upload maximums of 1.5 Mbps/256 kbps to customers in the contiguous United States. The company says it currently has about 100,000 subscribers. With its current satellite, WildBlue could accommodate approximately 150,000 additional customers.

The new satellite will automatically triple WildBlue's customer capacity to about 750,000. The increase in capacity anticipates an increase in demand likely to ensue following the 5-year distribution deals WildBlue signed in June with both DirecTV and EchoStar.

WildBlue said the new satellite is expected to handle customer growth into 2008 and beyond.

Worldwide, DSL snagging two-thirds of all new broadband subs
DSL's subscriber base increased to more than 173 million through the end of the third quarter. The number of all broadband subscribers exceeded 263 million, according to the DSL Forum, which relied on data compiled by Point Topic.

The number of new broadband subscribers in the quarter was 65 million, two-thirds of them choosing DSL. That result is unsurprising, given the greater popularity of DSL outside the U.S., a trend that has its roots in the traditionally limited footprint of cable in the rest f the world.

DSL is now up to a 65.6% market share worldwide. FTTx has grown to take a 10% share; broadband delivered by satellite represents less than 1%. The balance, about 24%, belongs to cable.

In terms of straight numbers (in contrast to penetration rates), the largest broadband market in the world is the U.S. with more than 55.5 million broadband subscribers, followed by China at 48.5 million, and Japan with almost 26 million.

Michael Brusca, president of the DSL Forum said: "Even though DSL is the predominant delivery technology in the world, the DSL Forum is working to extend the benefits of our own specifications to be equally applicable for other network technologies and to address the service delivery needs of the ever-growing range of multimedia devices and applications that depend on broadband for their success."

The DSL Forum is developing a set of specifications for service interoperability. Its BroadbandSuite specifications cover an access and management platform responsive to devices beyond the customer gateway as well as the distribution network. The goal is to minimize provisioning and maintenance issues for service and application providers – ideally of any type – who must support vast and growing requirements of new applications and hardware.

The Oregonian reports on the free, ad-supported municipal wireless service recently switched on in Portland, Ore., by MetroFi Inc. Coverage is said to be somewhat spotty, and signals aren't strong enough at the moment for home users to tap into without an extra antenna, but when a connection is made, it can be pretty good. Read the story here.