Indeed, a recent study by Connected Nation found that nearly one-half (44 percent) of those with no home broadband connection say "I don’t need broadband." That suggests availability is not the actual problem.

Likewise, the top barrier to computer ownership is also a perceived lack of need. Nearly two-thirds (62 percent) of those who do not own a computer say "I don’t need a computer," Connected Nation finds.

That isn't to say cost is not an issue at all. Nearly one-fourth (24 percent) of those who do not own a computer cite the up-front cost as a barrier. Similarly, nearly one-fourth of those without a home broadband connection say broadband is too expensive.

Four out of ten parents with children who are without a home computer see no need for having a computer in the home. And nearly one-third (30 percent) of parents with children who do not have a home broadband connection see no need for a broadband connection.

More than one-half (56 percent) of people with disabilities who do not own a computer see no need for having a computer in the home. Four out of ten people with disabilities who do not have a home broadband connection see no need for a broadband connection.

Predominantly, even in contexts with reliable supply of broadband, it is consumer demand for broadband that is the tallest barrier to adoption and represents America’s competitive vulnerability, Connected Nation argues.

For example, among residents with children at home but without a computer at home, 41 percent did not see a need for a computer at home and 30 percent did not see a need for a broadband connection.

So which segments are most commonly receptive to broadband and use of computers? Households with children who need Internet access for homework are a high-adopter segment. About 84 percent of households with children own a computer, compared to 74 percent computer ownership among all residents.

And 62 percent of households with children choose to subscribe to broadband services at the home, contrasting with the overall broadband adoption rate of 50 percent. Parents, therefore, generally recognize the importance of what broadband has to offer their children. However, even among these parents with children at home, 13 percent still do not own a computer and 38 percent do not have a broadband home.

According to consumers, the primary barrier to computer ownership and home broadband adoption is not expense or lack of available broadband service, but rather, a perceived lack of need. When asked why they don’t subscribe to broadband or why they don’t own a computer, consumers responded most often with, "I don’t need it."

--Gary Kim

Industry pundits say the choice of Crawford and Werbach could signal a different approach to the incumbent-friendly telecom policymaking over the past eight years at the FCC. Indeed, in March at a telecom policy conference in Hollywood, Calif., Crawford said that Internet access is a "utility."

Crawford also told Ambassador Richard Russell, the associate director on science and technology policy at the White House, that he lived in a fantasyland when he asserted that the United States' rollout of broadband is going well.

"I think it's magical thinking to imagine that we're somehow doing fine here, and I just want to make sure that we recognize that even the [International Telecommunications Union] says that between 1999 and 2006 we skipped form third to 20th place in penetration," she said. "We're not doing at all well for reasons that mostly have to do with the fact that we failed to have a U.S. industrial policy pushing forward high-speed internet access penetration, and there's been completely inadequate competition in this country for high speed Internet access."

Some would argue that rankings between countries don't mean anything because small countries are easier to wire than big countries. After all, comparisons between large countries and Iceland (with a population of 320,000) and South Korea (where everyone lives in one city) aren't very meaningful.

Furthermore, ITU statistics measure broadband by household rather than by human being. If it were the other way around, U.S. rankings would climb significantly. Also, the number of people in the workforce and retirees are not factored into the ITU's metrics, skewing the data. Nor is consumer demand.

According to a recent study by Connected Nation, for U.S. consumers the primary barrier to broadband adoption is not expense or lack of available broadband service, but a perceived lack of need (for more on this topic, see Gary Kim's web exclusive entitled, "Broadband is Demand Constrained, Not Supply Constrained).

Still, we can assume that Crawford's stance indicates that President-elect Obama's FCC will be more inclined to regulate, more inclined to enforce competition rules for smaller players, and less willing to approve mega mergers.

-- Bob Titsch

In order to be able to enable 911 capability, CLECs like Cavalier must provide certain customer information for inclusion in the 911 database. Verizon was the operator responsible for the database. The new lawsuit alleges that Verizon used the confidential information for competitive and regulatory purposes.

The FCC staff first issued a ruling in Verizon's favor, concluding that the information was not "received by Verizon for purposes of providing services." Instead, the FCC staff concluded that Verizon received the information for the purpose of transferring services away to other providers and that was not within the scope of the rules. The full FCC decision on June 23 reversed the staff and concluded that Verizon's plan was in violation.

Verizon has now taken an appeal of this FCC ruling to the U.S. Court of Appeals and briefing is underway. The FCC brief defending the agency ruling was filed on Sept. 8. The brief argues first that the FCC correctly concluded that Verizon's conduct violates the Telecom Act. They argue that the information was within the scope of "customer proprietary network information" and that the ban on use of such information applies to both a receiving carrier as well as a submitting carrier when CPNI is exchanged for number transfer purposes.

Further, the FCC brief contends that the ban on such winback efforts is not an unconstitutional limitation on Verizon's First Amendment right to freedom of speech. The brief states that the restriction applies only to commercial speech, is narrowly tailored, and necessary to achieve a substantial government interest. Oral argument has not yet occurred and a final court decision is not expected to be completed for several more months.

- Danny Adams

Charter says the global gateway will connect multiple video networks and give customers the ability to seamlessly perform business-to-business and network-to-network telepresence and videoconferencing meetings, even while groups are on different private networks. WBS Connect also will bridge disparate high-definition video conferencing sytems for customers, all from premier hardware manufacturers such as Polycom, Tandberg, Cisco and LifeSize, which are using different codecs.

"We think H.264-SVC is the superior codec," says Charter. "But we're bridging all codecs. We're the Switzerland for video conferencing."

Charter says his company's product employs motion resolution of 30 to 60 frames per second, which is greater than that of television. He adds that this makes non-verbal communications truly discernable. By way of Digital Video Enterprise's patented technology, the system's camera is hidden behind the image at eye level to preserve what Charter calls "true eye contact. You know the conferee is looking you in the eye, and not at your forehead," he says.

WBS Connect offers various large screen telepresence packages and a desktop version (called Silhouette). The company is marketing the systems through wholesale, channel and direct sales channels.

- Bob Titsch

Certainly it is the case that net new customer additions are going disproportionately to AT&T and Verizon Wireless, which together accounted for 84 percent of the net market growth so far this year. Significantly, those two carriers garnered just about 60 percent of net new customer additions in the fourth quarter of 2007, so their dominance has grown.

The broadband wireless space still is developing, as is the machine-to-machine broadband wireless market segment as well, and it remains unclear how those separate markets might develop. We should not be surprised if similar concentration develops in those markets as well. It always does.

For the moment, though, Moffat says And AT&T and Verizon Wireless will be the big winners.

"The wireless market in the U.S. is now rapidly evolving into a zero sum game, where sustained growth for AT&T and Verizon requires continued erosion at Sprint and the smaller operators," he says. "Conversely, a rebound in Sprint requires that AT&T or Verizon stumbles, and badly," Moffat argues. "There simply isn't enough growth left in the market to support all players."

Moffett notes that all carriers in the United States had achieved a combined 83.7 percent market penetration by the second quarter of this year, up from 78.8 percent in the same period in 2007. The subscriber growth rate, as measured by the trailing four quarters, has dropped steadily each quarter since the fourth quarter of 2005. In the fourth quarter of 2005, the subscriber growth rate for the U.S. industry was 15.6 percent; by the second quarter of 2008, it had fallen to 7.2 percent.

The reason we should not be surprised by this market dominance is that all markets, given enough time, develop in predictable ways. Typically, half or more of total market share is held by just a few contestants. In fact, a relatively stable rule of thumb is that the largest contestant has market share double that of the contender with the second-largest share, while the number-two contestant has market share roughly double that of player number three. In a market where the largest player has 40 percent share, one would expect to see share of 20 percent for the second-largest provider, and 10 percent share for the third-largest provider. In that case, three players have 70 percent market share.

That's pretty close to identical to what one would predict in just about any other market where the "Long Tail" operates. And, by definition, that is every market, and every segment within a market. The Pareto Principle is not popularly known as the "80/20" rule for no reason.

Over time, every market stabilizes with a highly-unequal structure. Some 70 to 80 percent of the returns are generated by 20 to 30 percent--or fewer--of the players. Wireless is no exception. For that matter, I cannot think of any markets, for any products, that did not ultimately assume the hypothesized "Pareto" distribution.

- Gary Kim

And though Dish Network and Verizon also experienced what appear to be "first ever" declines in traffic or customer additions, so far, there isn't a lot of corroborating evidence that Internet traffic volumes have changed. Level 3 Communications reports traffic growth of about 65 percent, while Global Crossing reports 140 percent traffic growth. AT&T says its own backbone traffic is growing more than 50 percent per year.

Still, observers are watching, since there are indications that Japanese ISP traffic is growing at a slower 30 percent annual rate and growth rates in Hong Kong now are in single digits, according to the Minnesota Internet Traffic Studies research effort. Between June 2007 and May 2008 Hong Kong Internet traffic growth was a bit under six percent.

Cogent Communications CEO Dave Schaeffer says the quarterly figures might be caused by "video and social networking sites that exhibited much more modest traffic growth than they previously had been exhibiting."

In fact, Cogent says it has been noticing a slowdown in growth all year. "If we look at our trends over the past year or 18 months we began to see a deceleration in the rate of traffic growth really at the very beginning of the year," Schaeffer says."While many of our competitors comment on traffic anecdotally I think a number of them have been forthright and others maybe not quite so forthright in acknowledging this slow down in traffic growth, which is supported by unique impression views on the Internet over the past year."

Schaeffer thinks the traffic slow down Cogent has seen is driven by business models that must be tweaked before another round of faster growth occurs. Cogent's competitors probably would argue the "slowdown" is a Cogent issue.

Schaeffer's argument essentially is that broadband penetration, which has reached almost 80 percent in the Western world, plus an expansion of line rates to close to 5 Mbps now are sufficient for most applications, particularly video.

"You’re not going to get an uplift from more broadband penetration or greater download speed," he says. "What you need are more applications that consumers want to use more and more." The other angle is that the current traffic base is so large that it takes a dramatic new application or change of behavior to affect bandwidth consumption in a major way.

Until there are such new applications, Schaeffer doesn't think traffic growth will accelerate much. "Today video is consumed about 4.5 minutes a day on the Internet, while video consumed on a linear basis is consumed 4.5 hours a day," he says. Until a good percentage of that traffic shifts to Internet delivery, bandwidth growth will not accelerate.

"Until there’s some shifting in that relative mix we will see slower growth and if not software as a service or email or even voice migration that will materially drive growth," says Schaeffer. "The internet is not going to decelerate. It’s not going to go away but it is going to be a bit lumpy in the way in which it reaccelerates."

"Long lead times common, and even when contracts are negotiated, they typically need longer lead times to make purchase decisions and begin buying, he says. They also are "not as likely as in commercial sector to abandon a provider before normal contract cycle ends."

There is an upside, though. "Once you are selected, and if you do a good job, you'll be there for a while," says Croasdale. And that's what XO Communications hopes to find, as it now has been selected as an approved supplier for the 28 advanced regional network organizations that are part of the non-profit Quilt.

Don MacNeil, VP of Sales Operations for XO, says his organization expected there would be some lead time before the first sale was made. "It's a marathon, not a sprint."

As you might expect, contracts in the education and government sectors typically have a "lowest cost" bias. But Quilt members do not  necessarily buy strictly based on low price. "People are looking for other things now, including a higher level of access to engineering support. "They want to cut out the first layer of support if there is a problem," says Croasdale. "They want access at a higher level, which is more important."

That means the ability to escalate trouble tickets at sufficiently high levels. "We don't like to deal with regional representatives," says Croasdale. "We want to start at the national level, or else with a senior person."

"Conversely, we want to tell our suppliers what new requirements might be," he adds. "We prefer partnerships".

Some of the network engineers actually try to test the limits of the networks. Routing issues and so forth are things they always play with. You want them to use the capacity that is outside what you might expect. You do want to test the limits. Early on there was difficulty in getting sufficient capacity on a real network, not a lab network. We don't see so much of htat now, mostly app based now.

Quilt member demand, though, is not homogenous. Supercomputing and visual applications are being tried out by some Quilt members. "High-energy physics labs just burn through bandwidth," Croasdale says. But the networks also support some kindergarten through 12th grade schools, libraries and federal agencies, which have different traffic profiles.

Summers slow down as students are away. But when school is in session, there are mission critical applications running even at 3 am or 4 am. In commercial environments that typically is a good time to take a network down for maintenance, but it is not so in a university environment.

XO hopes for a profitable relationship with the Quilt. Now let's see how they work around maintenance issues when weekends and late nights are not as quiet as enterprises typically are.

The bull case is made by Pali Research’s Rich Greenfield, who recently downgraded shares of Time Warner Cable because he thinks Verizon poses a big threat to cable, which ultimately will leverage its FiOS network to--of all things--undercut cable's triple play packages, precisely because of FiOS.

Moffat points to voice line losses and slowing broadband net additions as evidence for his thesis.

And, as someone who spent some years as an analyst comparing local loop investment using the hybrid fiber coax and fiber-to-home architectures, Moffat has a point. Cable's infrastructure tends to be cheaper.

The argument basically is that in a competitive market, the low-cost competitor wins. On that score, cable would have some advantages, not only in plant investment but in operating costs, at least for the legacy services and customers it has served. Telcos have been working on their cost structures for some time, but cable still has an advantage.

The issue for Moffat is whether telcos can continue to shed cost as they shed voice lines. And FiOS will continue to be a drag on earnings, he argues.

The alternative point of view is that the drag on earnings, tough as it has been, is a necessary investment Verizon must make to improve its competitive fortunes in the future. If broadband is the foundation service of the future, then the provider with low costs remains the winner if, and this is a big "if," when the low-cost position also matches the service suite customers want to buy.

And all of that is changing. Though cable operators historically have largely served consumers, they now are branching out into small business and some enterprise segments. That means more diversity of network technologies and more cost. Verizon comes at the market from a different perspective: it must support global enterprise, mid-market, small business and consumer customers with a mix of products increasingly driven by gobs of bandwidth.

Consider the matter of how to support not just linear multi-channel television, but the new demand for streaming or downloaded video as well. Those two applications require radically different network platforms. The first is highly asymmetrical. The second actually is much more symmetrical. On that batteground, Verizon has won itself some room for maneuver, though the financials do not yet reflect the advantages.

The issue is not just how well contestants are doing now, it is how well they are positioned for future shifts in buyer demand. In the new era, those shifts might be unpredictable. Though over-investment remains a danger, so does under-investment. In the past, consumer networks except for voice have been assumed to be highly asymmetrical. In the future, that might change. Video might become a symmetrical service. In that case, asymmetrical networks will require massive reworking. So that's the strategic context within which the FiOS decision gets made.

A reasonable enough argument can be made that, at the moment, Verizon is adding fewer video customers than it is losing voice customers to cable competitors. Given the fact that the network builds still are underway, and homes released to marketing still are growing, that might be expected. The issue is not to confuse matters today, when the network and marketing efforts are not fully geared up, with a future scenario when all that is past.

The key ultimately will be held by the provider whose network--assuming operating costs are within a reasonably close range--best is able to meet the new demands customers will have in the future market. In that regard, FiOS not only is the prime enabler, it also is the best platform Verizon could have chosen for its higher-density markets, even if other alternatives ultimately prove to be better matched to lower-density geographies.

Moffat thinks AT&T's choice of a less-fiber-rich network was the better decision. But AT&T has a less-dense subscriber footprint, overall, than does Verizon.

In the near term, any equity analyst gets paid to watch the quarterly results. And though Verizon cannot ignore such considerations, it has a bigger strategic issue to confront. Some years from now, as user demands change, will it have the right network, and the right cost structure, to serve those needs? Like any other large access provider, it has to make big bets. Verizon believes it has made the right choice, despite the criticism it has, and continues to receive in some quarters.

It will take some years before the wisdom or folly of the fiber investment can be assessed. But users and application providers ultimately will determine the outcome. If symmetrical bandwidth winds up being the platform for highly-desired applications, Verizon wins. If asymmetrical applications dominate, maybe it doesn't.

Linear video is something of an anomoly for general purpose communication networks. Voice has been symmetrical and one can argue the coming applications environment also will require symmetrical bandwidth. In fact, if the shift to on-demand video continues, even video itself will require more symmetrical bandwidth.

Building future networks on the basis of past requirements is a logical place to begin. It might not be the logical place to end. Application symmetry might be a bigger deal in the future.

RCN also plans a complete company-wide digital service over the next two years, featuring more than 100 high-definition TV channels. In Boston, for example,  RCN has 82 percent digital penetration and about 68 percent of customers take at least two products. HD DVR penetration is 28 percent.

Churn is a key metric for any mass market service, and RCN had churn of 1.9 percent in the most recent quarter, when it added 14,000 net new customers, up 5,000 sequentially. RCN now has 37,000 revenue generating units and an average revenue per customer of $109.

RCN had approximately 421,000 residential or small-medium business customers as of March 31, 2008 versus 416,000 as of December 31, 2007, and 407,000 customers as of March 31, 2007.

The percentage of customers taking RCN's triple play is steady at 38 percent. Total revenue generating units increased four percent from last year to approximately 904,000, with video, data and voice RGUs all increasing sequentially.

At quarter-end, RCN's digital video penetration rate rose to 72 percent of video customers from 60 percent in the first quarter of 2007 and 69 percent in the fourth quarter of 2007.

Of course, RCN has a significant amount of segment diversity, compared to the typical mass market triple-play "overbuilder" or a business-focused CLEC.

RCN metro revenue of $41 million increased 115 percent from $19 million in the first quarter of 2007, and 32 percent from $31 million in the fourth quarter of 2007. First quarter 2008 RCN Metro revenue increased 10 percent from last year and two percent from the prior quarter.

About 80 percent of RCN Metro's customers have monthly recurring charges of less than $10,000 per month, yet only account for slightly more than 10 percent of total monthly revenue. That means RCN Metro generates nearly 90 percent of its revenue from customers with monthly recurring charges over $10,000 per month and nearly 60 percent of its revenue from customers with MRCs over $100,000 per month.

RCN Metro generates approximately 35 percent of its revenue from telecommunications carriers, 25 percent from national wireless providers, and 25 percent from financial services enterprise customers, with the remainder from other enterprise customers. IP

 In the case of the Internet, it was e-mail and discussion boards—not Web pages—that triggered the explosion from early adoption to mainstream consumer use. SMS services drove mobile data use and they still account for the majority of mobile data revenues by carriers. So far, the big uptake in 3G-based broadband also seems to be driven by users of PC data cards, not smart phones. 

It is not surprising, therefore, that mobile carriers and mobile content providers have warmed to mobile social networking as a new opportunity to ramp mobile Internet use. In truth, some would argue, they have little choice. Carrier attempts to convince the mass market to sign up for mobile Internet have proved moderately successful, to be sure. But most of the data traffic, at least, seems to be generated by PC-based users.

That doesn't mean mobile entertainment is an insignificant market. According to February 2008 research by Informa, the global market for all current forms of paid mobile entertainment should reach $31.7 billion by 2012. Back in 2006, the same forecast optimistically predicted $42 billion by 2011.

Juniper Research published a far more bullish outlook for mobile entertainment in January 2008, projecting $64.8 billion worldwide by 2012. Earlier research by Juniper also tried to quantify the revenues associated with mobile user-generated content such as chat room services or mobile dating, predicting $5.7 billion for 2012. 

Still, communications should continue to provide most of the upside.  In the United States, for example, mobile data service revenues (predominantly message-based) reached $23 billion in 2007, according to CTIA—The Wireless Association. 

Mobile messaging, including text messaging, multimedia messagin, instant messaging and email, is expected to range between $100 billion and $200 billion by 2011. When voice traffic is included, the global mobile industry is on track for almost $1 trillion in total revenues by 2012. 

New revenues increasingly are important, make no mistake. But most revenue still will be earned by communications services and applications.

Even in Japan, long the poster child for mobile information services, the primary use for the mobile device was e-mail (57 percent of users) compared to mobile Internet access (20 percent).

It's an appropriate step for mobile carriers to vigorously explore mobile content and advertising revenues. But, as the old saw goes, don't take your eye off the ball. Most of the money to be made in the mobility area remains voice and data-based communication services. In fact, voice and data is an opportunity at least an order of magnitude larger than the content opportunity. IP

You might be surprised to learn that OnForce found computer, networking and software work yielded the lowest hourly rates. OnForce executives were not.

"We’re not at all surprised to see VoIP at the top of this list as the most expensive IT service category, given that it’s an emerging technology compared to established categories like networking and computers," OnForce VP Matt Johnston says.

"In our conversations with VARs and solution providers, this is attributed to the idea that "where there’s mystery, there’s margin," says Johnston.

Assume the 12 percent of heavier viewers are watching television shows rather than short video clips in small windows. So assume that means 700 kbps downstream speeds and standard-definition quality using a codec such as MPEG H.264.

The average U.S. viewer watches approximately eight hours of television per day, so assume PC-based viewing of two hours each day. That's going to chew up about 20 gigabytes.

TDG analysts calculate that puts a user on the Time Warner Cable entry-level plan ($30 a month) about $15 a month over their bandwidth cap, based on the current 5 Gbyte cap for such users, who pay $1 for each Gbyte over the cap (assume these users have no other Internet usage).

In this usage case some customers will owe an additional $15 a month above their $30 a month service fees, or $45. Users on the $55 a month plans wouldn't have to worry, as the cap for that service is 40 Gbytes.

If such plans become an industry norm, it will be bad for over-the-top video providers, as usage of Internet-delivered content will be depressed.

For operators such as SkyAngel and Kylin TV, which offer a niche set of broadband TV channels directly to the TV for $24.95 per month, their business model essentially falls apart, TDG says.

If someone watches all of their TV using these services (which is the intention of the iPayTV operator), TDG estimates they would consume approximately 75 Gbytes a month.

On the entry-level plan, these consumers would owe an additional $70 per month on top of their $30 a month, or about $100 total. Even with the super-user package, such users would owe an additional $35 per month on top of their $55 a month fee, or about $90 total, TDC estimates.

That wouldn't be good for Vudu, AppleTV/iTunes, Xbox 360, or streaming services such as Netflix/Roku or Amazon/TiVo, either. To download one DVD quality movie requires about two Gbytes of data.

So two downloaded or streamed movies each week, each month, represents an extra $11 above the cost of basic service.

If those movies are delivered in high definition, these same eight movies will consume 64 Gbytes and cost an additional $24 per month on the highest broadband plan, or $80.

Will this have a chilling effect on the consumption of Internet video? "Absolutely, unequivocally, certainly it will," TDG says.

But it is good for access providers. The 12 percent of consumers who watch two or more hours of TV per day on the Web and download a couple of movies a week will need to subscribe to the highest broadband package or accept overage charges, or in some cases both.

Either way, consumers will think twice before downloading a movie or watching a TV show online.

That will slow competition to walled garden, cable TV style services. It will raise average revenue per user for broadband access providers as well.

It also will lower IP transit charges for cable operators or any other telco providers who do not own their own wide area IP networks.

Of course, all that service provider "goodness" will come at the expense of over-the-top video providers. Also goodness for cable, telco and satellite video providers. The cynical will assume that is what was intended all along.

Not that there's anything wrong from an access provider's point of view in matching customer usage to required investment. Service providers know they have to remain part of the value chain for video and other services. This is one way they might ensure that state of affairs. At some point, video application providers are going to have incentive to revenue share with access providers.

More than 50 percent of value-added resellers (VARs) already sell carrier services, according to a study commissioned by Level 3 Communications and conducted by CMP.

Some 35 percent of VARs say they already refer their customer requests for wide area network connections to an agent or carrier representative.

Only 11 percent of the VARs surveyed reported having “no interest” in selling carrier services.

About half the time, referring opportunities went direct to a carrier, says Craig Schlagbaum, Level 3 VP. About half of leads were referred to a telecom agent. So think about that: a good percentage of “telecom agent” channel sales actually are driven by VARs, in addition to the sales VARs make directly.

In a separate follow-up round of interviews, CMP found that 20 percent sold access and wide area service directly, half referred those opportunities and 30 percent let customers source themselves.

From Level 3’s perspective, the volume of activity is matched only by the volume of local partners. “There are perhaps 8,000 telecom agents, but possibly 200,000 VAR type consultants and integrators,” says Schlagbaum.

And there’s obviously more. It is not a simple matter of more “feet on the street,” as important as that is. As IP communications becomes ever more prevalent, the technology quotient of virtually every solution goes up.

IP communications only work properly when the local networks have been characterized and re-engineered, if necessary, to maintain adequate bandwidth, latency, jitter and other technical parameters.

That means a more-prominent and essential role for network specialists, and a reduced role for mere marketing and sales entities.

“There are 192,000 channel partners we aren’t talking to,” says Schlagbaum. Still, “perhaps 20 percent of telecom agents now are solution providers in some way.”

To be sure, the direction is clear enough. “With telepresence and data connectivity growing, VARs play a huge role,” says Schlagbaum. “When a telecom agent is involved in a potential deal, the deal often is driven by the VAR, as a referral.”

Solutions simply are more entangled with data services these days. “Customers are wanting VAR partners to recommend the connectivity piece and provide a complete solution,” Schlagbaum says.

The solutions business customers now require—and which require carrier services—include security (81 percent), WAN migration (66 percent), storage (64 percent), as well as data center and disaster recovery, he notes.

Why are solution providers involved in carrier services? There are lots of reasons. About 40 percent sell services because customer loyalty is enhanced. VARs also can drive more sales, add more revenue and margin.

They also gain greater account control. And there are growing competitive positioning reasons as well “Carriers can sell Cisco hardware, so VARs need to compete on that level as well,” Schlagbaum says.

The “total top-line deal value can increase between 50 and 100 percent when you add carrier services,” Schlagbaum notes.

And given declining margins for simple hardware sales, there’s growing interest in higher value services, especially of the recurring sort. In 54 percent of cases, solution providers had 10 percent margin on sold services. But margins for more-complex services ranged up to 20 to 30 percent in other cases.

Consumers living in rural areas are now equally or more likely than those in urban areas to have broadband at home. In fact, Ofcom reports that 59 percent of rural households buy broadband while 57 percent of urban households buy broadband.

About eight percent of homes now rely on dial-up Internet connections.

Here’s why the findings are important: availability of broadband no longer is a barrier to customer use. If customers do not buy broadband, it is because they do not want it or find the value-price relationship unfavorable.

“Availability” no longer is the issue, as it might be for rural households in the United States, if “access” is defined as availability of a wired connection. With the exception of isolated instances where a clear view of the southern sky does not exist, even households that do not have access to any wired provider can buy satellite broadband from one or two providers.

Less than one percent of survey respondents said that lack of service availability was a reason for not having a fixed-line phone, a mobile phone, broadband or a digital TV.

Since Ofcom’s last survey in 2006, broadband take-up in England has risen by 13 percentage points to 58 percent of homes in January 2008.

Broadband take-up in England is higher than in Scotland (53%), Wales (45%) and Northern Ireland (52%).

The increase in take-up has been driven largely by consumers upgrading from narrowband dial-up connections. The largest increases are in the East of England, where take-up has grown by 20 percentage points to two-thirds of the population (67%).

The pattern is reflected across England, with the exception of the East Midlands and North West, where take-up remains similar to 2006.

The large majority of broadband customers are satisfied with the speed of their connection, but broadband customers in rural areas are less satisfied with their broadband speeds (80%) than those in urban areas (84%).

Among other findings, a growing number (12%) of adults in the UK live in a home with a mobile phone but with no fixed-line. The development is particularly noticeable in some of England’s cities and urban areas, where income is lower than average, for example: Birmingham (22%), urban areas in Yorkshire and Humber (18%), Greater Manchester (28%), the City of Manchester (19%) and Liverpool (21%).

However, in London the proportion relying on mobile telephony is lower than average (7%). Across England 12% rely on mobile telephony, similar to the figure in Scotland and Northern Ireland, but lower than in Wales (19%).

According to self-reported estimates, the average time spent online by an adult in England who uses the Internet is 12.4 hours a week, with over two-thirds of this time being spent at home. Adults who use the internet in England spend on average at least 1.3 hours more time online than those in the other nations.

Across all nations, the most common use of the internet is for communication; in the form of email, instant messaging or chat rooms, with 70% of adults in England saying they use it for this reason.

A bit more than 13 percent of adults in England said that someone in their household had made a VoIP call. Some five per cent had subsequently stopped using these services.

Use of VoIP in England is higher than in Northern Ireland (9%) and broadly similar to the other nations; current use remained stable between 2006 and 2008 at about 8%. VoIP use is highest in London (20%), the South East (20%) and rural parts of East England (18%).

Some of the lowest levels of VoIP use were reported in Manchester and Liverpool

(4% to 5%). Areas with higher broadband ownership tended to be those most likely to use VoIP services.

Thirty per cent of adults in England said they had watched TV or video content over the Internet, 46% among Internet customers and higher still (54%) among users with

broadband access.

Though the immediate change has been the creation of truly-unlimited calling plans by all the major carriers, the byproduct might be that the first quarter of 2008 was the time when the mobile Web really got going.

That is to take nothing away from the introduction of the Apple iPhone, which so far is demonstrating unprecedented rates of mobile Web use. But that is a one-carrier innovation. Unlimited calling plans are an industry phenomenon.

Still, despite fears by many in the financial industry that the new plans would simply ignite a broader price war, nothing of that sort has happened.

The carriers seem to have had a very clear view of how many “$100 or more” customers might downgrade plans, compared to how many users on lower-priced plans might decide to trade up a bit. So why might it be a turning point?

It appears there is a real chance the unlimited plans will lead to lower-cost data plans that encourage users to sample and grow accustomed to mobile Web applications. Sprint, with its Simply Everything plan, is the best example of this, but similar sorts of moves probably will start to make sense, even if packaged in different ways, for the other major carriers as well.

Sprint’s plan really “throws in the kitchen sink”. It includes unlimited voice, data, text, personal or hosted BlackBerry email, Web surfing, TV, music, GPS navigation, Direct Connect and Group Connect for $99.99 per month.

Many observers had worried that Sprint would counterattack with unlimited calling at even-steeper discounted rates. But Sprint didn’t do that. Instead, it simply put together a plan that changes the value equation, offering every service for one flat fee. If Sprint is successful, it will have changed the notion of what a “bucket” is, and what it ought to contain.

Essentially, Sprint has “changed the tables,” argues Kathryn Weldon, Current Analysis principal analyst, and William Ho, Current Analysis research director. That arguably is true in both consumer and business segments.

The Simply Everything plan, for example, offers every feature of the Verizon Wireless Nationwide Premium plan, which also includes unlimited voice, messaging, email, web access, VZ Navigator and V CAST Video. But the Verizon offer is priced at $140.

So Sprint now also has the lowest priced business email plans for BlackBerry enterprise users. BES, enterprise-grade email, is a $20 add-on. Personal email and BIS are bundled in at no additional charge.

That might make the Simply Everything plan attractive to small and medium-sized businesses as well.

And that might just wind up being the big change: by removing “cost of usage” barriers to all sorts of audio, video, Web and messaging services that have been facing uphill sledding now can start sliding downhill. Think of it as a way to encourage massive sampling. Over a period of time, users will create new habits based on that initial sampling.

The wireless industry experienced a voice price war in 2005 and really didn’t gain much. Industry executives presumably have learned from that experience.

One can argue that since relatively few users spend $100 a month, the sampling effect will be limited. And that might be the case if a slow, gradual extension of data features does not similarly find its way into new plans offered at lower price points. In fact, precisely that sort of migration is going to happen.
As it does, more users will be able to sample new services and create new habits.

“Competitors should be on the lookout for further changes in the Sprint plan portfolio to see if the carrier will do similar value up-sells at lower price points to enhance its overall image,” say Weldon and Ho.

There is another possible impact as well. The rich suite of features bundled with a Simply Everything account might be just enough to push some business users over the edge in terms of wireless substitution. IP

If you wanted an example of a good that is a complete commodity, you might point to sugar or salt. But “bandwidth” and “a minute of voice use” might be pretty close to either of those commodities.

So the issue is how a communications service provider can create an experience and a product that incorporates things like bandwidth and voice to create a product that is more personal, more customizable and therefore more valuable.

And keep in mind, it isn’t the building blocks that matter. iPods and iPhones are built of commodity plastic, chipsets, power supplies and batteries. Perfumes are built out of chemicals that arguably are difficult to distinguish from other chemicals. But a fragrance isn’t a bunch of chemicals, and an iPhone isn’t a particular arrangement of plastic and metal parts.

A fragrance can be an indicator of “identity.” An iPhone can be that, and also a “fashion” statement. And that’s key. Up to this point, service providers have had a hard time creating brands and identities that are as personal as one’s choices of perfume or golf clubs.

The iPhone, and other devices, are important because they are the closest thing service providers yet have come to offering a “product” that is bought in the same way as perfume, golf clubs or certain brands of clothing or automobiles. That is to say, products purchased because they are a statement about a user’s identity.

Exclusive mobile handset deals and cool handsets therefore are very important for a couple of reasons. They spur phone upgrades, which sometimes also create new contract terms. More important, though, is the fact that some devices create a “personal,” “affective” relationship with a service that has not been possible until now.

And that is important because it is one of the ways service providers can get out of the commodity trap. This is a very big deal, indeed.

If you are tired of running a “commodity” business, then don’t. Change the experience. iPhone and other smart phones show it can be done. That’s the good news. The bad news is that it is the applications, features and personality of the devices, not the network, that users are bonding with.

But that’s about as good as it is going to get. Better a bond created by a partner than a lack of bond that leads to a commodity business. People are showing they will bond with their devices in a way they probably never will bond with a “network.” Like it or not, devices—and the applications they support—now are the way forward.

“What we see IMS as, is a platform to roll out new services while maintaining a foot in both worlds if you have to, both Web services and communications services,” says Ed Camarena, Veraz general manager.

“Where you look is Web services,” says Camarena. “That's really where the innovation will be.”

Business models are more important as well. If more development takes place in a Web context rather than the subscription framework, then new business models one can create are essential.

“It's about voice-enabled Web services; that's where the value lies,” Camarena says. “The administration and back office is where you get the advantages.”

Fixed mobile convergence, often considered the lead candidate for popularization because of  IMS, could be done outside IMS,” Camarena says. That’s not the point.

“You don't want proprietary back office,” he says. SIP is used by IMS, but IMS adds capabilities to more effectively manage and bill and deploy for a service.

It takes care of hooks to manage and bill services and apps, Camarena says. IMS supports roaming and interconnection agreements and makes the services operator-based than PC-based.

“There is an IP purist group that wants IMS not to happen because it takes away the purity of SIP, but operators need lots more on the back end to make the business models work,” Camarena says.

In some sense, IMS is part of creating the last operations support system a service provider ever will need, perhaps.

Generally gone is a “rip and replace mentality,” says Veraz VP Dawn Hog. These days the emphasis more often is on what IMS can do to drive revenue rather than control costs, even though in principle IMS will help control costs.

“Operating cost reductions used to be seen as the justification,” she says. “These days the interconnection of legacy and IP traffic as part of one network is more the interest.”

The places where IMS also makes clear sense is where new networks must be built, in a green field environment out of territory, or where new services based on soft clients and Web portals must be implemented.

In many ways, the softswitch, and the evolution of softswitch technology, drives IMS, he says. IMS these days might be less about replacing Class 4 or Class 5switches and more about developing new multimedia services.

These days, a “softswitch” is also about interconnecting IP networks and services. “To us, the softswitch becomes a piece of session border controller in terms of interconnection. In the early days there was a very specific softswitch need, but now that function is more a part of the overall IMS solution.

The new managed services offering is based on a multi-level approach, combining firewall, intrusion detection and prevention, gateway anti-virus protection, Web site filtering, Web browsing anti-virus protection and secure access virtual private networks.

TelePacific VP Dave Zahn says the offer is a logical extension of what TelePacific already offers customers, but also avoids getting the company ensnared in "desktop" issues. Although available to small as well as medium-sized businesses and branch offices of enterprises, Zahn suspects the highest take rates ultimately will come from the medium-sized business segment, multi-site organizations or enterprise branch office customer segments.

Aside from the cost issues, small businesses often aren't as aware of the need for multi-level security, may not believe they need it or make simply buy "shrink wrapped" solutions from a local software retailer. Zahn suspects he'll get early data on the actual customer profile from his direct sales force, rather than channel partners. "That's typically what happens" when TelePacific rolls out a new service, he says.

Aside from the fact that security has become an important business imperative, and that OneSecure adds to the suite of products TelePacific can sell its business customers, the interesting angle here is how far a communications service provider of moderate size can go in providing software services to its core clientele.

As Zahn says, TelePacific does not have the people or skills to support desk top devices and end user software. On the other hand, neither does TelePacific want to miss out on the increasing role "value-added" services and applications have in the market. In many ways, the eSecurity offer addresses those issues.