Last week, Google introduced its Latitude feature for Google Maps and as an iGoogle gadget on the computer. The service allows the user to see the approximate location of friends and family on their smart phone or computer. The service is opt-in, so people can only see you if you let them and you can selectively let different people know where you are. You can set your location for anywhere as well. The service is offered on Blackberry, Symbian 60, and Windows Mobile phones and will be coming to Android phones and to the iphone (via its Google Maps Application) soon. On the computer version, the user can manually set the location of friends or family too. The service also allows communication directly via SMS, Google Talk, or Gmail.

Location is always a service that is an enhancement to an application. Google has smartly added it to its Maps features to tie into its Google service - Google Talk and Gmail - giving it another differentiator. The service uses cell tower locations and satellite GPS to get locations. The service also offers communication via SMS for ubiquity. The real goal is to greater personalize your Google applications to provide stickiness, eye balls and advertising dollars. The plan effectively does this via free service, usefulness, peer driven behavior, concern over loved ones' locations, and alleviating privacy concerns. It also gives the average wireless user one more reason to buy a smart phone and a data plan. Another one of Google's indirect goals.

"User Survey Analysis: The Next-Generation Communications Consumer, United States, 2020" (11 country reports)

"Forecast: GPS-Enabled Devices, Worldwide, 2004-2012"

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Last week Verizon Wireless introduced its Verizon Hub to the consumer market. The service connects over broadband and offers a number of different services, including unlimited voice, calendaring, unlimited texting, local traffic and weather, directions, local business connections, and movie trailers. The system also works with Verizon wireless applications VZ navigator, Chaperone and V-CAST. The company has added additional content from National Geographic and E! Entertainment news. The Hub device costs $249 with a two-year contract ($199 if ordered online) and additional handsets cost $79.99. In order to subscribe to Hub services for $34.99 a month, you must be a Verizon Wireless subscriber. The service is offered nationwide.

The service being offered is a premium version of the $10 a month landline service that T-Mobile offers. The problem is that many of these services are already offered on a cellphone, or can be obtained from other means such as the internet or TV - so why pay the extra $35 to obtain these services? The service is a good idea and offers convenience to the end user, but it has to provide some tangible benefit, such as free texting to any Verizon phone, low cost voice - such as what T-Mobile has done - or a wide variety of unique applications, as in the case of the iphone.

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We finally outgrew the old blog. What with the factory incentives and the easy financing, we couldn't put off an upgrade any longer. So we traded up to the Gartner Blog Network, a shiny new vehicle with an extra row of seats and room for the whole family of Gartner bloggers. They're over there with their heads leaning out the window at 80 miles an hour, tongues a-wagging.

For more on the future of Communications, check out these analyst blogs:
o Nick Jones (Mobile Computing and Innovation)
o Lydia Leong (Cloud Computing, Internet Infrastructure, and Data Center Management)
o Eric Goodness (Managed and Professional Network Services)
And also these folks:
o John Pescatore (Network Security)
o Tom Austin (Collaboration, Social Software and Innovative Thinking)
o Mike McGuire (Media)
o Jeffrey Mann (Collaboration, Social Software)

See you over there!

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AES Eletropaulo Telecom is the telecommunications division of AES Eletropaulo - the largest power utility company in Latin America, serving 24 municipalities in the metropolitan region of Sao Paulo state, including Sao Paulo city. The region has a population of approximately 16.5 million inhabitants, an area of 4,526 square km and concentrates Brazil's most important socioeconomic region, with 5.6 million consumers.

In the last few years, AES Eletropaulo, like other power utilities in the world, has been largely investing in their fiber optic infrastructure to provide broadband access through their power lines using BPL technology - Broadband Power Line - that permits bandwidth of up to 80 MB and internet access. Their 2,000-kilometer fiber optic network covers key neighborhoods in the city, such as Moema, Pinheiros and Cerqueira Cesar, reaching 300 buildings, or 15,000 sites today. AES Eletropaulo Telecom have no plans to be a consumer service provider. Its business model is still providing backhaul or infrastructure to carriers in the region interested in using their capillarity in terms of penetration. No specific deal with any carrier is yet announced, but Eletropaulo is already running trials with 150 end users. BPL broadband is still not regulated in Brazil, but it is expected to be regulated soon, so the company is just in time with their plans to start commercial offerings to consumers in 2009.

Broadband in Brazil and especially in the main metropolitan bulks is facing inflated expectations (see "Dataquest Insight: Consumer Broadband in Brazil 2007, Where Next?"). Other carriers such as Telefonica have also implemented their own fiber optic infrastructure in other rich pocket neighborhoods of Sao Paulo city , such as Jardins. And during 2008, the mobile operators have focused their 3G technology launch offer on mobile broadband, with most of the new connections of such technology going to broadband access.

This diversity of offers will certainly drive an increase in the bandwidth-speed usage rather than reduce prices. (see "Dataquest Insight – The Future of Residential Broadband Internet Access Speeds"). The city today has Fiber Broadband connections going up to 30 Mbps; cable packages that include voice over IP and video, reaching 12 Mbps speeds; DSL packages going up to 8Mbps; and 3G Mobile broadband offering speeds between 1 and 7 Mbps - although the 80Mbps promised by BPL as a shared speed is hard to maintain consistently.

For a large country such as Brazil, this is a positive initiative, especially once several other cities and other electric energy companies can follow the example and start these types of offers. The country has 15% penetration of consumer broadband and a lot of space to growth, mainly in the rural and non metropolitan areas. BPL broadband cases throughout the world have not succeeded in other markets. If Eletropaulo succeeds on their initiative and business models with the carriers, it will make the BPL industry extremely happy.

As a reminder that broadband needs to grow hand in hand with PC availability, see "Forecast - PC Installed Base Worldwide 2004-20012". And on the topic of suitable local content and services for broadband users that are already daily connected an average of more than 4 hours and have habits of usage similar to mature markets, see "User Survey Analysis: Consumer Usage of Broadband, Internet and VoIP, Brazil, 2008".

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The largest U.S. cable operator showed surprising resilience in a number of key business areas during the 3rd quarter 2008 as consolidated revenues increased 10% to US$8.5 billion in the period, and 11% YTD to $25.5 billion. Comcast gained more subscribers for its cable broadband service - 382K customers - than both AT&T and Verizon Communications combined, which together only saw an increase of 277K new high-speed data customers. Gartner expects Comcast to keep its momentum going for net new high speed data customer gains with the addition of ultra-high-speed services at 50 Mbps, due to launch in 10 markets this year and footprint wide in 2009.

With cable speed tiers besting DSL in most markets, Comcast confirmed that approximately 66% of new cable modem customers are the result of customer defections from DSL services. But bundled pricing and promotional offers to stay competitive are eating into revenues: Average revenue per subscriber (ARPU) for cable modem customers was $41.74, down due to the effects of multi-service bundling, new lower speed tiers of service and new promotional offers. Comcast continues to gain traction with its broadband service, with 14.7 million customers and a penetration level of 30% of homes passed within its footprint.

In its telephony business, Comcast continued to gain very healthy 483K net new customers in the quarter, for a total of more than 6.1 million Comcast Digital Voice subs; revenues for its phone business grew 44%, to more than $690 million. Net adds for the quarter were down 29% year over year however, from 681K in 3Q07. As with high speed data, ARPU per voice subscriber was down 5%, due to the effects of bundling and promotional offers. Phone service has been an engine of growth for the cable operator and penetration stood at 13% of its homes passed footprint.

But the cable company continued to show weakness in its most mature business - video. Its main cable video services revenues increased 4% in the quarter and YTD, however it lost 147K basic cable subs in 3Q2008 and 342K year-to-date. Comcast executives indicated that they are seeing more competition from AT&T than from Verizon FiOS TV so far in their footprint, which is interesting. The bright spot in the video business for Comcast is the increase in net digital subscriber additions, up by 417K in the quarter, which puts digital penetration levels at almost 70% for the cable service provider. But as recent data indicate, two top U.S. telcos alone gained 465K total new video customers: AT&T with 232K and Verizon with 233K net new video additions. Comcast said that most of the churn was coming from single service video customers - those not bundled up with other services. Speaking of bundled offerings, approximately 22% of Comcast customers now subscribe to a three-service bundle, up from 15% year over year.

Capital Expenditures tell an interesting story: for the quarter, CapEx was $1.268 billion, down $160 million year-over-year; YTD CapEx was $3.877 billion, down almost $750 million year/year. Comcast said this was attributable to a number of factors, including better procurement, which has helped lower the cost per unit for the technology they are buying, as well as lower overall unit purchases. As the company has fewer net new connections due to slower overall growth in their various businesses, this translates directly to lower capital expenditures for technicians and truck rolls to homes for new service activation, the need for CSR support to handle incoming support calls, fewer set-top box and voice eMTA devices, etc., as well as less construction spending to extend their network into new housing developments. On the 3Q financial earnings conference call on Wednesday, Steve Burke, Comcast COO, said CapEx was down 16% quarter over quarter, but that Comcast would still continue to invest in their network transition to all-digital and to roll out ultra high-speed broadband (DOCSIS 3.0) technology to 20% of their footprint by year-end.

But the declining economic conditions in the U.S. are causing both service provider and vendor players in this space to issue warnings on their expectations for slower growth both in this quarter and into the first quarter of 2009. No one seems to have much clarity of vision past these two quarters and few are willing to comment further than to say they see slower growth into 2009 and that service growth (or decline) will depend on the duration and severity of the economic downturn.

Comcast's lower uptake of video services comes not only from growing competition from telcos, but also from the deteriorating economic environment and weakness in consumer spending. The company expects declining marginal increases in new customer adds in all service areas, and this will also directly affect demand for CPE devices, especially eMTAs that enable VoIP phone service, cable modems for high speed data services and digital set-top boxes with advanced features for DVR and HD. Said COO Steve Burke: "It's not that people who have our services are leaving, it's that there is less propensity to upgrade, less propensity to move and take our services when someone moves into town."

Gartner will issue updates to its reports on broadband access and other service provider infrastructure spending forecasts on a regional basis next month, which will reflect our assessment of these changing dynamics in the marketplace.

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Last week, newcomer O3b Networks announced it was launching a new global network of 16 low earth orbit (LEO) satellites, carrying 2,133 transponders and designed to offer IP and cellular backhaul for telcos and ISPs across the developing world. As was the case with a recent trans-Pacific submarine cable, most media coverage has swept past any other impact to focus on the fact that one of the new venture's backers was high-tech celebrity player Google. We don't necessarily disagree that "if Google did it, it's news," but let's look at the news on its own merit first.

Certainly, this is a significant announcement, comprising a substantial new satellite network backed by some known and unknown players - namely, Liberty Global, one of the world's largest cable operators, and HSBC, the financial giant with a history of self-provision for its IT needs. The release speaks of access to speeds up to 10 Gbps, with a total aggregate capacity of 160 Gbps. Most importantly, Gartner has learned that these will be Ka band satellites, which puts O3b's network infrastructure decision on the leading edge of the latest technology for these underserved regions. The use of Ka band has the potential to impact price, available capacity and network architecture for most of the regions announced for coverage.

Although it purports to serve "Asia, Africa, Latin America and the Middle East" and the founders speak of "the next 3 billion," it is unlikely that this will be a global network to start with. O3b quotes five satellites as needed to provide "global" coverage, but that's more likely a bare minimum to blanket the southern hemisphere. At any rate, the 16 satellites announced in this launch pale in comparison to Globalstar's 48 LEOs and Iridium's 66. We tentatively believe this "Asia, Africa, Latin America and the Middle East" network will focus its first phase on Africa. Such a focus would make sense, as this is easily the least penetrated telecom region in the world (and the fastest growing). The impact on pricing would be significant, assuming that O3b and its partners can bring the vision of a data/backhaul network to fruition on LEO-based satellites. The use of such a network for data is the key differentiator - the other incumbents may also be planning upgrades to capacity with this in mind, but only time (and perhaps the pressure brought by a successful new entrant in O3b) will tell.

With several new submarine cable projects under way for the region, which in total could dectuple the available bandwidth, satellite needed a competitive response. The immediate result for end users should be very beneficial in terms of lower prices, increased choice and access to new applications. Africa has historically been capacity-starved, and the easing of bandwidth constraints will bring not just more of the same old service to a larger base, but it will also enable the appearance of new services and applications that previously could not have been considered. Mobile VoIP is only one prominent example. Importantly, all the new cable construction has fostered growth of the open-access principle. This may finally displace the proprietary ownership and distribution of capacity by incumbent providers, with higher hopes for transparent pricing and market-based rules.

Now, back to Google. The search giant, which was rumored in recent weeks to be talking with carriers and other partners about a submarine cable, has now backed a satellite play for the world's underserved regions and populations. We believe Google's aim is largely to commoditize carrier strengths in the network, and reach users via its search portal to provide them with applications that keep them on Google's servers. Its vision is one in which folks with Internet can answer all their important needs through Google - Google has worked with carriers in the past, but overall, it seems to prefer a future in which operators don't differentiate against off-network traffic and are content to take their access fees like a good utility and stay out of the application arena. The open-access discussion we just referenced plays directly into this tactic. If Google can make even one dollar in increased ad revenues per user, using its search and location technologies to provide attractive targeting, then the population of Africa alone will make a large dent in the $100 billion target the company has set for its growth.

For more information, consult the Next Generation Satellite technology profile in "Network Service Provider Infrastructure Hype Cycle 2008".

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The switch-off of U.S. analog broadcast TV signals for all high-power television stations took place this week in the town of Wilmington, North Carolina, at noon on Monday, 8 September, and many stakeholders will be watching and waiting to see how this test case might highlight any future potential problems for the rest of the country come midnight on 17 February 2009 - the official date of the digital TV transition for the U.S. Currently, each U.S. TV station has assigned capacity for two channels - one for analog TV signals and one for digital TV signals. As of the switch-over date, all analog TV spectrum (in the 700MHz spectrum) will be returned to the Federal Communications Commission (FCC) and repurposed for other uses. The FCC has already auctioned off a good portion of this spectrum - mostly for wireless broadband communications and for public safety/first responders - netting so far approximately US$19 billion in spectrum licensing fees.

Statistics from the FCC, Nielsen and others estimate that as many as 13 million to 17 million households could be analog-only over the air (OTA). The immediate net effect of the digital TV (DTV) transition is that television viewers with analog TV sets not connected to cable, satellite or telco-based pay-TV service will need to take action before 17 February 2009 to ensure their TV sets continue to work.

This means getting a digital TV that has a digital tuner, getting connected to a pay-TV service, or connecting the analog TV to an OTA converter. The U.S. Congress-sponsored "TV Converter Box Coupon Program" allows U.S. households to obtain up to two coupons, each worth $40. These coupons can be applied toward the cost of eligible converter boxes. As of August 2008, about 150 converter boxes had been approved for the program, which is administered by the U.S. Department of Commerce's National Telecommunications and Information Administration (NTIA - see http://www.ntia.doc.gov).

Wilmington is the 135th largest television market in the U.S., with about 180,000 television households, according to Nielsen. It is located on the seacoast in the southern part of the state, and it is estimated that less than 10% of its viewers rely on OTA broadcasts to get their television programs. FCC officials reported receiving several hundred calls from local residents, many of whom did not know that the switch had taken place, while others reported trouble hooking up converters. Local news reported brisk sales of converter boxes and digital antennas at consumer electronics and big-box retailers. A bevy of officials from local, state and national organizations and media from all over the world were also on hand to witness and support the event, including:

• The FCC, the chief telecom regulator, which set up a call center
• The NTIA, an agency of the U.S. Department of Commerce that oversees the government program responsible for issuing coupons to buy digital-to-analog converters for OTA TVs
• The National Association of Broadcasters (NAB), a broadcast industry trade association that has been funding and conducting consumer workshops throughout the area to heighten the awareness of the early transition
• The Consumer Electronics Association (CEA), which represents the CE manufacturers and which sent hundreds of converter boxes to nursing homes throughout Wilmington

The switch to digital broadcasting is a phenomenon occurring worldwide; however, each country is approaching it differently. Japan is switching to all-digital in 2011, while many European countries are either already there or in the midst of planning their transition. In the U.K., for example, the transition is taking place over three years and on a regional basis, whereas in the U.S., the DTV transition happens en masse nationwide on 17 February 2009 - in part due to the way the initiative is being funded.
The NTIA is administering the government-sponsored program for digital-to-analog (DTA) converter boxes. It has allocated almost US$2 billion of the auction fees to fund the public awareness and converter program for households that get their programming OTA. Those consumers with digital TV, those with TVs connected to cable and those with digital satellite pay-TV service won't need the OTA converters.

It is expected that there will be at least some technical or operational issues associated with the DTV transition, however. Not the least of these is consumer confusion, despite massive public service campaigns by broadcasters, cable and satellite TV providers on TV, radio and other media. There is the potential for problems related to changes in digital signal strength and contour vs. analog, as well as the ability of older indoor and outdoor antennas that won't handle digital signal, even with a digital converter - among other issues. In addition, due to the way the program for converters has been set up by the NTIA, nursing home residents will not be able to apply for government-sponsored coupons for DTA converters. While the policy is under review, it could mean that nursing home residents, depending on how they obtain their TV service, could have trouble receiving the digital broadcast signals on their TV sets.

While Wilmington is the first market to go digital, some markets have FCC permission to make the transition earlier than the February deadline (as early as November), especially those in northern climates where icy roads, snow and freezing temperatures might make the technical transition too difficult in the winter, especially the repositioning of TV transmitter equipment for digital transmissions.

Wilmington, however, is the only market that volunteered for the early test transition, so it will be interesting to see what the potential technical issues and challenges will be. It was selected in part due to its location, with terrain that is relatively flat and free of aerial obstructions that could compromise signals. Some are criticizing the timing, however -right in the middle of hurricane season - as this could compromise some residents' ability to get emergency alerts, evacuation orders and news bulletins. The statewide public broadcasting station that will continue to broadcast the analog signals which should get local residents through until after hurricane season ends, which is usually the first week of November. As there are very often power outages due to hurricanes, the converter boxes approved for this market have battery backup built in.

Digital TV transition is expected to be a boon for consumer electronics manufacturers of flat-panel LCD or plasma TV sets, in addition to spurring increased uptake of pay-TV subscriptions for the cable, satellite and telco TV offerings. There were about 112 million TV households in the U.S. in 2007, with about three TVs per household on average. While shipments of DTVs are strong according to the CEA (more than 32 million are expected to sell this year alone) there are still many legacy analog TV sets relegated to spare rooms, not connected to a digital set-top box and only using either indoor or outdoor aerial antenna. So the opportunity is quite substantial for a number of stakeholders.

There are a host of issues related to the DTV transition. Look for an upcoming report that outlines in more detail the implications of this technical milestone for cable operators in particular.

Recommended reading: Digital TV technology profile in "Network Service Provider Infrastructure Hype Cycle 2008."

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As many of you might know, Qwest Communications has won the contract to provide network services to both political conventions. The Democratic National Convention finished up last night with Barack Obama's acceptance speech at Invesco Field at Mile High Stadium. By all accounts, the 6,000 voice and data lines and video equipment (see http://press.qwestapps.com/index.cfm?fa=press.view&pressReleaseId=56825) that Qwest provisioned at Mile High Stadium/Invesco Field, as well as the Pepsi Center, did not experience much, if any, issues or downtime. This should score in the win column for Qwest. But most outsiders would say that, being in Denver, which is where Qwest headquarters are located, this was expected. So Qwest was basically in a situation where it could not pull off a big-time win - just a big-time loss, which did not happen.

As we turn toward the Republican National Convention in St. Paul, Minnesota, next week, Qwest, again, will be providing voice, data and video capabilities to the Xcel Energy Center in St. Paul (see http://press.qwestapps.com/index.cfm?fa=press.view&pressReleaseId=56820). Again, since Qwest is the predominant local provider in that region, it will be expected to deliver flawless service, and it will find it tough to gain positive credibility for a job well done.

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This week, the networking industry learned about the tragic loss of Cisco's Ben Goldman. Ben was murdered while in Detroit for what was supposed to be a quick, one-day business trip - the kind of trip that many of us take for granted - it's the modern equivalent of hopping on a bus. Those of us that knew Ben are shocked and saddened by a turn of events that is difficult to make sense of.

I've had the pleasure of interacting with Ben for a number of years, and while I can't claim to be a personal friend, I had developed a great deal of respect for him. When I knew Ben was going to be involved in a call or face-to-face meeting, I knew it would be a productive one. I came to look forward to these interactions, and we both learned from them. Ben had a great passion for Cisco (he was a 16-year veteran). But he never let that passion get in the way of the issues at hand. He never took Cisco's position for granted and was always willing to listen to and learn from different points of view and debate the issues. In times when the discussion became a little more confrontational (as they can between analyst and vendor), Ben was always a voice of reason. His thoughtful, open style had a strong steadying influence on everyone.

The link provides a more complete and fitting tribute to Ben's memory: http://www.mercurynews.com/ci_10309586?IADID=Search-www.mercurynews.com-www.mercurynews.com.

While this is a loss for our industry and for his colleagues at Cisco, our thoughts must focus on the young family he leaves behind.

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This week, Virgin Mobile USA completed its takeover of Helio in a merger of mobile virtual network operators (MVNOs) from very different corners of the mature U.S. mobile market. Virgin, the second-largest MVNO specializing in young, tech-savvy but still lower-spending prepaid customers, had felt some pain in recent quarters; Helio, arguably the largest high-end service providing the latest data connectivity to the upper end of the postpaid spectrum, had been struggling toward a break-even number that was still years in its future. Both were well-known brands. Was this a simple case of bigger is better?

Helio was clearly a relative "heavyweight" in terms of its support infrastructure. In an MVNO market where many competitors provided little besides a brand name and an idea, Helio leveraged the strength of its investors SKT and EarthLink to provide its own backbone, support systems, handset distribution, retail kiosks and much more. This seemed appropriate for a company that wanted to provide bandwidth-hungry, high-cost applications and services to its customers, but the number of subscribers needed was just too high. SKT, which has consistently maintained it wants to seek growth outside its home market, is essentially trading in equity control of 85,000 Helio subscribers for a 17% share in Virgin's customer base (4.9 million as of the half-year report); that would translate to 833,000 equity subscribers, nearly a 10 times increase. Virgin, in return, gets first crack at about the same number of subscribers in Helio at one go, which is more than it earned with a year's worth of effort since the end of June 2007.

Virgin also acquires a company with the tools and infrastructure to support the immediate rollout of postpaid service. It's interesting that Helio had already dispensed with its retail stores, which certainly dragged on costs and might have pulled in a tough new direction. Because Virgin emphasizes that nearly half its customers are older, it's pretty clear that it has needed to move up the chain, and this could be a very appropriate offering. Helio, like Virgin, was "hip" and put attention on bringing connections that early adopters and high-usage customers wanted. It remains to be seen whether the new company can maintain that kind of leading-edge influence in a cost-effective fashion (and remember, Helio never proved it could turn a profit).

Overall, the U.S. mobile market remains brutally competitive, with far more failures than successes on the landscape. Virtual operators seem to have carved out a niche in several areas, showing that success is possible, at least up to a certain size (where we assume the network-based Big Four would become interested in a purchase). These success areas include:

• The low-end, prepaid customer of simple voice and messaging, with no frills and an emphasis on price (such as Tracfone)
• The interesting niche player with a special value proposition, still too small to attract MNO attention (such as kajeet)
• A well-articulated sub-brand that uses MNO capabilities while putting a different face to the market (such as Sprint's Boost)

And then there's Virgin Mobile USA. The immediate future for this company should be quite interesting - and possibly instructive about the future of the virtual operator as a stand-alone model.

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A recent report from Reuters indicates that Turkey's telecommunications regulator is considering regulations to allow mobile virtual network operators (MVNOs) to gain licenses to operate within the country by this winter. This feature of the more developed markets is now appearing in certain larger emerging markets as well, and it's interesting to note the differences. Turkey, which is perhaps a half-step behind South Africa in general terms of liberalization and advancement, is also behind in this regard, because there have been MVNOs functioning in South Africa for almost two years.

The difference is that the South African regulators have never said anything to clarify this fact, and actually forbade virtual operators as recently as four years ago. What's happened since then? I would say this is one of a number of issues where the regulator (or actually regulators, as there are several bodies with a say in telecom) has gradually fallen silent, enervated by infighting and uncertainty over the future direction of the regime. The Electronic Communications Act of recent times, in truth, does allow for licenses that can be interpreted to mean facilities-free competition. But there is quite a bit of confusion over this, as in several other areas, including self-provisioning, access to international bandwidth (regulation of submarine cable landing sites) and the ever-popular fixed-wireless technologies.

Ideally, one should handle things the way the Turkish authorities appear to be. The regulator makes a clear statement, and then the licenses come in. South Africa's "muddy waters" around regulation have competitors trying things and hoping for the best. With the World Cup 2010 on the way, I presume authorities will have the wisdom not to stand in the way of a company that is getting things done. But South Africa's heritage is facilities-based, and so I'm guessing the goodwill won't extend beyond the players that are putting in fiber, or launching new satellites, or bringing in the submarine cables. Virtual operators occupy an interesting niche, but right now, they compete in South Africa under uncertain conditions.

I call upon the South African regulators to meet behind closed doors, hammer out a consensus and then issue it for all to see. It could be that on many issues - self-provisioning of competitive players, fixed-wireless licenses, essential facilities and open access - they'd simply be repeating themselves, and possibly on others they won't be able to agree yet (in which case they should say that, and state the governing principles for review and arbitration). But the market is at a crucial point, and now's the time to establish as much clarity as possible for all concerned. I wish them well, and we'll continue to keep an eye on this emerging model telecom market.

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Traditional wireline carriers have long played on a relatively even playing field, offering such services as voice, private line, frame relay, IP and Ethernet. These larger carriers - AT&T, Verizon, BT, Orange and T-Systems - have been achieving marginal (not dominant) differentiation through the offering of more complex ICT services. Newer megacarrier services now include WAN acceleration, security, contact center, LAN management and desktop support. In comparison, the midtier players - Global Crossing, XO, Paetec and Level 3 - focus on the core network services and a limited base of ICT services.

However, the ability of the select megacarriers to offer combined wireline/wireless offerings will accelerate this differentiation. In the U.S., both AT&T and Verizon are enabling their larger customers to pool their revenue commitments across wireline/wireless services. Both Orange and T-Systems have similar potential in Europe, as does Bell Canada in Canada. Sprint also has the opportunity to exploit this trend, should it be able to inspire market confidence by shoring up its financial and management issues.

Trends toward integrated wireline/wireless contracts will put pressure on the single-play providers. Companies like Qwest, Paetec, Level 3, Global Crossing and XO may not make it to the shortlist on some RFPs. In other instances, sage buyers will focus on price and thereby reduce the margins on single-play providers.

See "Forecast: Enterprise Network Services, North America, 2006-2012" for more.

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I've been following the challenge faced by host countries as they broadcast live global sporting events such as the World Cup and Olympics, and naturally, all eyes are on China during these Olympics. China has declared its intention to present a "high-tech Olympics," and the manifestations of that have been myriad. If you were one of the gazillions who tuned into the opening ceremonies, you saw high-tech LEDs, fabrics and much more (who'd have figured the Chinese would do fireworks!). But my focus has been on the communications and broadcasting sectors, and there's been much to think about there as well.

One major theme is access to video, live and on tape, and to various end-user devices. Mobile TV continues to grow, and we have seen partnerships between host broadcaster NBC and numerous companies, from SinglePoint up to AT&T and Microsoft, bringing it to us, in any flavor you could dream up. But with all the emphasis on live video delivered to where you are, I think we're losing sight of the amazing growth in flexible, easy access to video content on the PC screen. Here in the U.S., I can access the NBC Olympics Web site and scroll through dozens of choices for video from the various arenas: Sure, it's not live, but all I have to do is delay reading the morning paper and I can still thrill to the exploits of fencers, skeet shooters, divers and beach volleyball players at any time, in high quality on my PC screen. I'm too old (and nearsighted) to want to watch sports on a two-inch mobile screen, but for the millions who do (including Chinese subscribers who are using the freshly homegrown SC-TDMA standard), you can choose from live clips to alerts and daily digests of the highlights. Does anyone out there still think an unlimited data plan is a frill?

There's been a lot of talk about the use of IPv6 at these games. China, which by some accounts will be the first country threatened by the shortage of IPv4 addresses, has certainly invested heavily in the technology, but indications are that its deployment has been exclusively in the security camera systems set up around the venues. Attendees and media in Beijing, while they can access video as well as the Internet from "e-booths" set up by China Netcom around the area, will likely not be directly experiencing any superior quality that the new standard can supply. In the end, it looks like the jury is still out on the need for the world to convert to IPv6, and we may not get conclusive results of its performance qualities out of Beijing. Meanwhile, broadcasters calling the play-by-play as well as their listeners at home will have touch-screen access to player stats and data to assist their efforts, split-screen view options, and numerous other incremental advances in technology.

As you might imagine, the traffic flows around the media and broadcast center are potentially enormous. Throw in the call centers to field multilingual inquiries on everything from directions to lost tickets, as well as the internal communications needs of the staff running the games, and you might find it easier to believe Atos Origin's staggering claim to have conducted no less than 200,000 hours of testing on the command center systems needed for these purposes.

How well will these enormous efforts translate to later venues and events? I'm somewhat skeptical that, for example, South Africa (in preparing for the World Cup in 2010) will be able to draw too close a connection between the specific offerings and technologies in Beijing and its own situation. The demographics of course are at opposite ends of the spectrum, but it might surprise you to note that the World Cup in soccer is just about the equal of the Olympics in terms of the size of the broadcasting effort. Certainly for now, the Olympics can serve as an indicator to South African regulators and service providers of what is possible — and, by inference, of the barriers to greater takeup that lie in the way at home. Imagine South African consumers trying to figure out which videos to watch online, when their accounts are capped at 3GB per month. The country has just under two years to go, and we'll be watching with great interest. For more on the effort to host the first World Cup soccer tournament in a developing nation, see "Dataquest Insight: World Cup Will Advance South Africa's Telecom Network."

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France Telecom (FT) made public its 1H08 results on 31 July. The stock exchanges welcomed the announcement. The stock price increased over 2% in one day. This appears mainly due to the predictability and stability of the group. The results are in line with the forecasts, and an interim dividend of 0.6 euro per share will be paid in September. Year over year, the actual revenue growth is at 1.5% due to a reduction of the perimeter mainly in the Netherlands and due to the negative impact of currency changes (high euro). When removing the impact of these factors, on a comparable basis (CB), the operational revenue growth is 3.9%. Yet with inflation at 4.1% in the eurozone, this translates into a contraction of the real revenue level by 2.6%. These results are positive within the current worldwide economic context, with the currency variations and the pressure existing on prices from regulators.

For 1H08, the consolidated net income after tax is at 2.996 billion euros on revenues of 26.3 billion euros, showing a net margin of 11.4%. At the gross operational margin (GOM) level, this means 9.675 billion euros (up 2.75%) and a GOM margin of 36.8% (up 0.5 percentage points). (Note: The GOM is calculated before restructuring costs and employee profit share.) The net income dropped by 17.33%, and the net income margin is now at a still healthy 11.4%, down from 14.0% a year ago. The change in net income is due mainly to higher taxes (impact -700 million euros), higher restructuring costs (-150) and lower depreciation (+200) in 1H08. On the other hand, it is also due to higher gains from disposal of assets (-400) in 1H07. Excluding the impact of disposal and exceptional deferred taxes and the free shares program for employees of 2007, net income for the group shows an improvement in 1H08 over 1H07.

For enterprise customers, the results are also rather welcome. In 1H08, the enterprise segment shows revenues of 3.840 billion euros, up 1.05% year over year in actual terms (2.92% on a comparable basis). The integration and professional services generated revenues of 637 million euros, up by a very healthy 18.4%. This segment generated a GOM of 19.4%. The profitability of the enterprise segment is well above the EBITDA margin shown for instance by BT Global Services, which is at 9.5% for the last quarter. France Telecom enterprise services activity appears to focus on margins and cautiously manages expansion. Indeed, the GOM for enterprise services increased 15.1% in actual terms (18.6% on a comparable basis).

Most of the group's growth comes from the mobile segment (called Personal), with total Personal revenue up 7% CB and 1.9% actual due to the changes in currency exchange rates and disposal of the operation in the Netherlands. Poland was up 22% CB and 11.1% actual. U.K. was up 9.7% CB and -4.4% actual. France was up 4.8%. Spain was up 2.3% CB and up 0.2% actual.

The group's strategy is to focus on value customers both in Spain and in the U.K. Connection growth in the U.K. doesn't compare so well with O2 and Vodafone, while revenue growth is better. Similarly, Telefonica and Vodafone did better in connection growth in Spain. Direct distribution is improving, with more store openings planned in the second half in Spain. Emerging markets are doing well. However, we believe there is a need for stronger marketing.

The home segment is up 1.8% actual but flat at 0.3% CB. The French domestic revenues grew 1.2% CB and 1.5% actual. The downward trend of traditional telephony is offset by broadband access and voice over IP.

The group has achieved a strong presence abroad, with France now accounting for 53% of the group's revenues. Recent new operations targeted Guinea-Bissau, Niger and Kenya, but a significant presence in some large countries is missing.

The France Telecom group offers enterprises and investors a safe company. With a market capitalization around 53.8 billion euros and net income around 6 billion euros, the return on invested capital is around 11.1% today, well above inflation in eurozone and long-term interest rates. However, compared to assets of 99 billion euros, the return is meager.

In the medium to long term, a growth below the inflation rate impacts the value of a company. We believe a stronger growth strategy will be required, involving revenue growth, synergies and profitability.

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Polycom (www.polycom.com) recently announced the Polycom Converged Management Application (CMA), designed to simplify the deployment and management of enterprise video networks and the use of desktop, group and telepresence solutions for users (see "MarketScope for Video Telepresence Solutions, 2008"). A key component of the solution is CMA Desktop, an integrated enterprise desktop video application. The new solutions provide the foundation for future, enhanced integration with Polycom strategic UC partners, including Avaya, IBM, Microsoft and Nortel.

Polycom CMA supports hardware and software endpoints (desktop, group and telepresence) and infrastructure systems (bridges, recording and streaming servers, and so on), and it is designed to seamlessly integrate with IT best practices, policies and existing directories. For example, CMA supports Active Directory and LDAP/H.350 directory services; offers integrated scheduling through Microsoft Outlook, IBM Lotus Notes or a Web interface; and supports standards-based provisioning through XML and standards-based presence through XMPP. Secure conferencing is ensured through AES media encryption and TLS certificates for secure signaling.

Polycom CMA allows Polycom video devices to share presence information as a part of user contact lists (desktop, group and telepresence) either on their endpoint or within the CMA Desktop application. Users can click on the name to launch a call. All call specifications are provisioned based on profiles previously defined by the IT administrator.

Polycom CMA Desktop is a scalable, PC-based desktop video software application that allows users to create contact lists from a corporate directory and then launch video calls by clicking on contacts. The application allows users to see presence details (such as online, offline, available and busy) for software and hardware video devices and then to connect to other users, or other standards-based videoconferencing systems, including personal, room and immersive telepresence solutions. It supports standards-based, high-quality visual communications, including support for HD video, HD voice and multimedia content (H.239 content sharing — presentations, videos and images) in full, native resolution (see "High-Definition Videoconferencing Moves to the Forefront").

Because Polycom CMA Desktop is a tightly integrated component of the Polycom CMA management application, it gives administrators increased control over desktop video on their networks. Previously, desktop video applications were often deployed as individual software clients that operated with limited management control over activity or bandwidth usage. With Polycom CMA Desktop, IT administrators can use a standard Microsoft Installer (MSI) file to deploy the client across the campus or can send it out as a simple download. This enables IT administrators to apply policy-based provisioning for desktop video as part of a common, centralized management application - just as they do for other video solutions. Polycom CMA - which includes seat licenses that can be used for endpoints, infrastructure and CMA Desktop - is planned for availability in October, with a starting manufacturer's suggested retail price of $20,000.

This is a major product announcement for Polycom, as it looks to position CMA as its video management application of the future in order to suit more open IT environments, take better advantage of new server technology, and support the evolving unified communications market. CMA offers enhancements over Polycom's existing SE200 management application, such as support for Windows Server 2003, standards-based profile provisioning, standards-based presence capability, LDAP/H.350 directory services, multiple and tiered directories, and support for up to 5,000 registered users. It will support the H.323 standard in the initial release, with plans for SIP support in 2009, and it should help Polycom boost its appeal in the video endpoint management area versus competitors like Tandberg TMS (www.tandberg.com). Polycom will also offer existing customers with current service agreements licensing and hardware incentives to move to CMA.

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On Monday July 21st, 2008 Fabio Colasanti, Director General for the Information Society and Media at the European Commission said the Commission was reluctant to impose a cap on wireless data roaming charges in Europe. He added that a cap on wholesale charges in such an emerging market could have unintended consequences. This statement must be put in the following perspective.

1) The European Commission always waits until a market has demonstrated the need for a regulation. The waiting time can easily be five to 10 years or more. Some may regret this attitude but it is also relatively wise. Europe wants stable regulation and is waiting until enough evidence can generate a broad consensus among policy makers.

2) Mobile data is indeed an immature and fast evolving market. Several technologies are used by providers, from GPRS to HSPA and later LTE (Long Term Evolution). The capacity of each generation of technology increases tremendously. The architecture of the network, in particular the future LTE, will be very different from current wireless network. In addition carriers in Europe have different levels of maturity and data rates. Hence the cost per gigabyte (GB) varies a lot. Today between a GPRS network and an HSPA network the cost per GB may vary by a factor of 10. In such a situation, regulators have difficulties identifying the exact cost and hence putting a cap on it.

3) However, there are other ways to regulate roaming prices. The main issue is not so much the domestic price of mobile data, which are coming down nicely in many cases. What irritates many companies and consumers abroad is the high cost of mobile data roaming. What could the EC do about it? Exactly what it did with European payment systems: the price for an international payment should be similar to the price of a domestic payment. How could this principle be applied for mobile data today? It seems the regulator could require mobile roaming prices to be aligned with the domestic price of the operator used abroad plus any additional transaction costs. That would also require operators to show the data cost to the users abroad as Mr. Colosanti has rightly suggested.

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On May 26, 2008, Reliance opened talks with MTN to explore the opportunity of a deal to create the world's second-largest private telecom giant, after Vodafone, with operations spread over more than 10 high-growth nations and 120 million subscribers. This interest was expressed after Bharti Airtel called off its talks with MTN, primarily because the deal would have caused Bharti to become a subsidiary of an international company and lose its identity, operational power and mission to become a globally proficient Indian telecom company.

Now after almost two months of histrionics, MTN has walked away from India, without any strategic partner or deal. Reliance Industries Limited (RIL), led by Mukesh Ambani, slapped a RoFR (Right of First Refusal) on Reliance Communications (RCom) headed by Anil Ambani, according to the non-compete agreement signed a few years ago by the brothers when distributing their father's wealth. According to the RoFR RIL would have a first right to the 66% stake ownership of RCom instead of MTN. This intervention eventually led to a failure of the talks.

The share swap would have resulted in Reliance Communications becoming a subsidiary entity under MTN (although Anil Ambani could have remained in control through stock repurchase). Strangely, when the talks ended the market capitalization of both companies had dropped; MTN by more than 20% from $38 billion to $31 billion and RCom even further, from $28 billion to $20 billion. The share prices of both companies also took a big hit, having far-reaching effects on investor expectations of a premium which would have been the obvious outcome of such a deal. Even if the reverse merger had gone through, there would have been a negative impact on the ratio of the share swap, and this would have adversely affected the stake controlled by Anil Ambani in MTN. Another obstacle would have been the South African regulators. With a track record of delayed approvals in merger deals on account of inconsistent and inflexible regulatory framework, they have caused loss of shareholder value in the past as with the case of the BCX-Telkom proposed merger, which took them 18 months to finally deny.

Had this deal clicked, would have opened up the fastest growing Indian telecom markets to the South African player and at the same time granted access to the potential high growth regions of Africa for spreading the Indian telecom footprint. Together with the cost efficiency and vast subscriber pool, MTN-Reliance could have been the forerunner of telecom leadership in the world.

MTN runs a highly complex operation and has certain extravagant strategies, making it difficult to run streamlined businesses. It does not have tight control over its capital expenditure, as indicated by higher average revenue per user (ARPU) in some of the African nations where it operates, ranging from $30 to $40. In fact it has previously backed out of several final stage talks with telcos across the world. This problem of high capital expenditure would have been lowered with the enormous experience of RCom, which has been working with leaner processes and lower capital expenditures for several years and managing to generate brilliant ARPUs from its business. Now, with the deal off, MTN might look to Chinese markets for an appropriate expansion move in order to exploit the benefits of probably the largest subscriber growth in the future, a chance that India clearly lost out on, first with Bharti and now with Reliance. There are also rumors that Vimplecom from Russia may have an interest, and several companies from the Persian Gulf region are on the list of "usual suspects."

Reliance Communications, on the other hand, was looking at the effort to get a meatier share of subscribers in the highly competitive Indian telecom space, which apart from the market leaders like Airtel and Vodafone has gradually observed increasing dominance of smaller players like BSNL, Tata and Idea (after the Spice acquisition). It was also looking for fresher resources to rollout its 3G services in the wake of intense rivalry, expensive operations and complex regulations. RCom had even delayed its GSM rollout in the hopes of benefitting from the cost effectiveness that would have emerged due to this alliance, and now it will suffer the cost of delay in its failed venture for a new arena. Reliance was clearly betting heavily on this deal as a way to bail itself out of stiff competition and complexities at home.

In India, the feud between the two Ambani brothers has to be resolved as soon as possible, probably by political parties playing a mediator's role, or else it might result in the company becoming an unattractive option for future strategic and reorganization strategies. It can also have far-reaching effects on the current legal battles between the entities with respect to the KG basin, among others, which is a national issue.

South Africa, meanwhile, has feuds of its own between regulatory agencies in the government, and thus continues to show more failures than successes to the outside world as a communications partner. The opportunity for growth, both in basic service extension and more sophisticated service and capability roll out, is there in this unique market, but time and again difficulties (primarily of a regulatory nature) have slowed moves to merge or acquire within the borders. These are hugely difficult steps to take and South Africa has unique social imperatives that have made the process even more complex. For further research on related topics see "Dataquest Insight: World Cup Will Advance South Africa's Telecom Network" and "Vanco Deal Should Bolster Reliance Globalcom's Managed Services."

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The European Commission (EC) wants to regulate the price of international SMS. This raises a number of questions:

• Should the prices be regulated? In theory, competition is the way to regulate market and prices. The theory says that competition will bring prices down to the marginal cost of production. But the economic theory and games theories have demonstrated that the lack of full competition leads to higher prices. This is precisely what happens with SMS prices today in Europe and, in particular, with international roaming prices for SMS. With price apparently up to 10 times the cost, it is hard to say that we get close to the marginal production cost.

• When competition is not playing its role or not well enough, what should be done and by whom? If market prices are going out of range, is there a case for a legal or regulatory action? It is hard to say no, because that means that you do not support competition as the foundation of the economy.

• Could self-regulation work? Well, the EC just wanted that to happen. Carriers had a lot of time to demonstrate their willingness to bring prices down. A year ago, they got a warning. After one year, very little has changed. The ball is now in the camp of the EC.

• Could the public regulator now make a price regulation in the interest of the buyers? In the case of SMS, the difference between the prices and the costs seems so high that a regulatory intervention looks very much possible. However, regulators are not perfect. They may put caps on prices that would be too low or too high and would not take into account local costs, which may depend on labor costs. We have to accept that this will proceed by trial and perhaps by errors.

• What does an international SMS price regulation mean for consumers and business? Lowering the cost of short messages and data streams will stimulate the use of mobile text communications and, from there, probably new technologies like instant messaging and possibly also picture messaging. Much more than simply controlling SMS prices, the commission is paving the way to a much more flexible wireless data future for European wireless subscribers. For businesses, the impact may be small, but it is also a step in the right direction to bring the cost of wireless data down in roaming conditions. Again, this can only boost the use of wireless data for business activities throughout the European Union. This will benefit SMBs, in particular, because they are more sensitive to costs. So this will make SMBs more able to compete outside their country market.

• What does the new EC policy mean for telecom operators and their shareholders? Operators and shareholders should keep in mind that their market position is the result of a licensing process that both opens the market and limits the number of players. In particular, the market for wireless operators is restricted by the awarded spectrum. It does not appear possible to have full competition with many operators. A maximum of three to five operators owning infrastructure and spectrum seems to work for a given territory. Carriers should anticipate regulatory actions when prices get out of range. This may lead to price caps or to more operators in the market. Companies that are exercising market dominance with 25% or 50% and more of a market should not be surprised if a public regulators start to worry. That is precisely what is happening with the initial hearings about Google's dominance in advertising. More than ever, carriers and IT companies need to go beyond cozy market shares and look for innovation that brings new customer value. For information on current regulatory issues that carriers face, see "Dataquest Insight: Telecom Policy Plans of Key Regulators" .

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Based on conversations with several operators in Asia/Pacific, we've found that there is somewhere between 2 and 3 million original iPhones that were purchased in North America, and then jailbroken, unlocked and activated so that they could be used on overseas networks. This usually involves modifying the phone's firmware using one of several tools freely available on the Internet, a process that takes only a few minutes. (Note: "Jailbreak" stands for enabling the installation of third-party applications independent of Apple; "unlock" stands for removing the SIM locking so that you can use a SIM from another carrier; and "activate" stands for enabling the unlocked phone to register itself with iTunes for music, TV and video content synchronization.)

With the introduction of Exchange ActiveSync support in version 2.0 iPhone firmware, not to mention the rapidly growing collection of applications available over the air via the iPhone's App Store client, many of these early (and presumably loyal) iPhone owners want to upgrade to version 2.0 firmware and become "legal" with the operators that they are already using.

The version 2.0 upgrade is simple - users just need to accept the offer to update the next time they synchronize their iPhones with iTunes. However, in the process, iTunes installs the latest firmware, which once again locks down and deactivates the phone. The iPhone can be activated (via iTunes) only with the assistance of an operator - and the operators I have spoken to are either unwilling to do so or are totally unaware of the problem.

Surely, the enthusiasm and potential App Store and mobile data spending power of 2 to 3 million enthusiastic but lost children are worth trying to recapture? I think so, because I am one of them!

One thing is for sure, in any market where there is more than one licensed operator, the first to offer an iPhone activation "amnesty" will instantly capture a big chunk of the installed base of original iPhones.

What do you think? Is this Apple's problem or the operators'?

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Deloitte's global organization has chosen Nortel (www.nortel.com) as a global managed services provider for telepresence, videoconferencing and associated multimedia services. Under a new managed services agreement just announced with Nortel, Deloitte's global organization and as many as 130 Deloitte member firm located around the world will be able to obtain telepresence and standards-based videoconferencing services. In addition to implementation, Nortel's services-powered telepresence solution handles the setup and operation of video meetings, allowing Deloitte professionals to walk into the conference room and focus on the meeting, rather than the mechanics.

Nortel's global infrastructure of multimedia network operations centers (MNOCs) includes proactive network monitoring and 24/7 support for carrier-grade reliability, network performance management, and concierge amenities such as assisted scheduling and conference setup. It can interoperate systems from multiple equipment providers, allowing customers to take advantage of investments in both new and existing video systems.

For a room-based telepresence solution, the service cost is likely to be several thousand dollars per month for the network connectivity and the service and support to deliver the videoconferencing equivalent of moves, adds and changes. A few telepresence vendors offer this kind of managed service directly to customers, while others deliver it via a third-party partner. In this case, Nortel is offering managed Polycom telepresence solutions (see "MarketScope for Video Telepresence Solutions, 2008"). For enterprises that regard videoconferencing as an important business tool, the need for stronger service levels, improved service features and managed services should be considered instead of further investment in in-house skills and tools. Gartner estimates that as many as 40% (and rising) of enterprises use some form of managed video service provider (MVSP; see "Managed Videoconferencing Services").

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