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Vonage Goes Wi-Fi

For all Vonage's marketing savvy, maybe it deserves some credit for pushing the IP envelope. At the Consumer Electronics Show (CES) today in Las Vegas, it unveiled a portable Wi-Fi handset that will let users make calls anywhere there is a hot-spot. This new service/product comes “hot” on the heels of Vonage's plans for a video-over-IP telephony service.
If I understand it correctly, Vonage believes its customers – or at least some of them – will carry around a Wi-Fi handset to take advantage of hot-spots. I suspect these tech-savvy people will also tote a cellular phone and/or a Palm and/or a Blackberry. That seems to be a lot of hardware in your pocket or purse. Nevertheless, Vonage is pushing its Wi-Fi handset, which is being developed with China's UTStarcom.
Perhaps we've been under-estimating Vonage's technical capability. Maybe there is something there other than solid telephony software. On the other hand, the Wi-Fi handset is another example of Vonage's ability to capture plenty of attention. The handset may not fly but it has likely already given Vonage a huge dividend by placing the company in the spotlight yet again. It is marketing events like today that have quickly made Vonage a household name.

Carriers Keen on Wireless Data

The push by wireless carriers of their hot new devices during the holiday season points to a coming battle for the next major growth area: data services.
These non-voice services, including e-mail, text-messaging, games, ringtones, Web surfing, photographs and video sport healthy margins and boost revenue per user, a key industry metric better known as ARPU.
Mark Lowenstein, managing director with Boston-based Mobile Ecosystem, said data only accounts for 4% to 5% of wireless revenue in North America but is expected to grow annually by 20% to 25% for the next several years. A key
driver is differentiation between providers as the industry matures and consolidates.
“There is not a huge desire to go that much lower on voice pricing and compete on this subsidy versus that subsidy,” he said, adding the expansion of higher-speed networks will jump-start the data market's growth.
A good example is the interest in ringtones, which had global sales of US$3-billion last year as more customers personalized their wireless phones with unique sounds.
In the United States, the Yankee Group said wireless data revenue more than doubled to US$4-billion in 2004 from US$1.7-billion in 2003. Rogers Wireless Inc., Canada's leading player with more than five million subscribers, expects to get 10% of its sales from data this year. And Research in Motion Ltd. recently rumbled through the two-million-subscriber mark as mobile e-mail moved into the mainstream from the executive suites.
“Data is more profitable for carriers because the [network] infrastructure is already paid for,” said Kaan Yigit, president of Solutions Research Group.”In the past six to 12 months, average revenue per user has been going up. It's not because of voice calls, it's data,” Mr. Yigit said.
Whether it's video phones, BlackBerry devices, ringtones or games, Canadian consumers can expect a hard push from carriers on new devices, services and applications.
“In terms of revenue growth, wireless data is one of the key pillars of excitement for carriers,” said Ken Truffen, Bell Canada's director of wireless data and business development. “We see it as a key differentiator, which is why we are pushing the envelope when it comes to new services.”
Aside from e-mail, games and ringtones, Bell's data portfolio includes a service called MapMe, which lets wireless users determine where they are located so they can find a nearby restaurant, ATM or bank. Bell also plans to unveil a new service soon that will let customers download high-quality MP3 songs for their ringtones.
Given the size of the music/wireless market, there should be plenty of action in the sector this year. Some industry watchers expect to see new wireless phones with large enough hard drives that consumers may abandon their MP3 players. A sign of things to come is a rumoured deal in which Apple Computer Inc. will bundle its popular iTunes music service in wireless devices made by Motorola Inc.
“I don't think you will see mobile phones displace iPods, but wireless music is very viral,” Mr. Lowenstein said. “Let's say you're with friends at a cocktail party and hear a song you like — you can download it wirelessly. The other thing to recognize is more and more phones are coming withremovable storage using the same memory cards as digital cameras. These are new devices to download content and link into broader digital world.”
Looming on the wireless horizon is video. It appeals to carriers because they believe it is a service that could deliver high margins for consumers looking for streaming or downloadable news, entertainment and sports clips.
A big hurdle, however, is most networks do not have enough bandwidth yet to efficiently deliver the service.The only North American carrier to offer wireless video services is Sprint Corp., which launched its MobiTV service in late 2003. Sprint's channels include NBC, MSNBC, Fox Sports and the Discovery Channel.
The bandwidth issue will start to disappear in the next few years as carriers upgrade their networks. Bell Canada, for example, plans to spend $150-million to boost the speed of its network across the country by 2006.
Bell, Telus Mobility and Rogers have launched messaging services that let customers record 15-second video clips and send them via e-mail.
Rogers and Telus have also started to offer video on demand services using technology from QuickPlay Media, which has partnerships with CBC, CTV, CHUM Ltd. and the Soundtrack Channel.
Mark Farmer, director of strategic marketing with Toronto-based QuickPlay, said the video market is just starting to emerge as video phones make their way into the market. These devices will let consumers take advantage of existing networks and upgrades being implemented over the next five years.
“The next evolution of the whole mobile frontier is moving toward truly using mobile devices as interactive, rich multi-media tools,” he said, adding 16 million Canadians are expected to have video phones by 2008.
A quick demo of QuickPlay's technology shows a service with pretty good quality, although the service took some time to launch. Mr. Farmer said consumers can expect pay-as-you-go or subscription-based video services that would provide access to content such as sports highlights.As wireless data gains more momentum in 2005, a company that will reap the
benefits is Montreal-based Airborne Entertainment Inc., which provides many carriers in North America with a wide range of applications such as ringtones, games, screen savers and messaging services.
In 2004, the company saw revenue soar to $15-million from $3-million, and it expects sales to at least triple this year without taking into account acquisitions.
“I think this is the tipping-point year,” said Garner Bornstein, Airborne's co-founder and chief executive. “2004 was the early adopters year. I think 2005 — if you've read Geoffrey Moore's Crossing the Chasm — is the year [wireless data] moves to your mom and my mom. That is why we are so bullish this year about our revenue.”

VOIP Trends for 2005

PricewaterhouseCoopers has published an interesting list of key VOIP trends for 2005. Some of the most eye-catching issues are:
- pricing: PWC doesn't believe the market has bottomed out yet and asks the obvious question “how low can they go?”
- regulation: what kind of approach will the FCC really adopt – hands off or hands on?
- consolidation: the big telcos and cablecos will snaup up small VOIP service providers (Vonage, 8×8?)
PWC also has a list of companies to watch. This include Skype, Vonage, AT&T, Cablevision, Cisco, Nortel, Lucent, Juniper, IBM, Microsoft and SunRocket.
I'm particularly interested in some of the non-traditional VOIP players. IBM attracts attention because it puts the spotlight on the large corporate market, which has been somewhat ignored as consumer VOIP takes off. Microsoft is an interesting choice because the software giant has yet to make much of an impact in VOIP, although PWC believes the company could “make quite a splash” if and/or when it decides to make a move. SunRocket stands out because I hadn't heard of them yet. The company, which was started by some ex-MCI executives, is offering a US$199 “Annual Edition” product, which includes a year of home telephone service, two phone numbers, enhanced voice mail and 100 free minutes of international service.

Seven Days and Counting for Nortel

For anyone who still has a passing interest in the financial troubles of Nortel Networks, we're only seven days away from the “real” story. Maybe – and that's a big maybe given Nortel's recent track record – we'll actually find out some of the following next week:
1. Nortel's actual sales and profits from 2000 to 2004;
2. Why CEO Frank Dunn, CFO Doug Beatty and 10 senior financial executives were fired? And how much cash are they getting to be quiet and/or not launch wrongful dismissal suits?
3. How the lucrative bonus structure put in place actually came about. It should ge noted the bonuses were approved by Nortel's board, which included current CEO Bill Owens?
4. What prompted Nortel do re-look at its books in the first place?
5. Most important, what really happened? Is this a case of widespread, systematic fraud or over-aggressive accounting?
Some non-financial questions I'm curoius about include:
1. What's Bill Owens' personal vision for Nortel other than going after military and government contracts? – two areas he knows intimately from his days with the U.S. Navy.
2. Where is Nortel going strategically? Does it need to make acquisitions to become a more viable player in IP? If so, where are the holes?
3. Does it still intend to be everything to everybody, or will the company pare down its focus so it can be more efficient at R&D, marketing and sales?
4. Are there more job cuts on the way? What's the status of corporate headquarters in Brampton, Ont.?
5. What's Owens' future given there's already talk about a hunt for a new CEO?
6. Will Nortel actually hold an AGM this year?
Late note: the NYSE has given Nortel until March 31 to file its 2003 annual results with the SEC, or it will start de-listing procedures. Nice P.R. move by the NYSE given Nortel will probably file its 2003 results this month.

Wholesale VOIP

There has been so much written about the retail/consumer side of VOIP (Has Vonage received more fawning coverage than any start-up since the height of the dot-com days?) that some parts of the emerging market have literally been ignored.
With this in mind, I ran across an interesting article in the Denver Post looking at how the growth of Internet telephony may help Level 3 and Qwest, which provide backbone telecom services. Both companies have suffered since the telecom blow-out but they do have extensive, state-of-the-art fiber networks that are starving for traffic. As VOIP starts to become more widespread, many service providers (cablecos, telcos) will need to access high-speed networks to build out their businesses. This could – and I emphasize could – help wholesalers such as Level 3 and Qwest.
The big unknown is competition within the industry. While some wholesalers have gone out of business, many of those that suffered during the telecom meltdown went through bankruptcy protection and emerged as leaner operations with little or no debt. A good example is 360 Networks Inc, which shed tons of debt and has gone on a mini-acquisition spree. This means there is still plenty of competition for IP-based business such as VOIP so it's not like prices for network access are going to surge or margins will miraculously improve.
While the Denver Post quotes an analyst who describes the wholesalers as “arms merchants”, it is important to point out there are still many merchants in the mall so competition remains fierce.

Happy 2005!

As we head into a new year, I want to thank everyone who has visited my little blog. What started out as an experiment after deriding blogs in a column as nothing more than online diaries has become a fascinating forum to explore and discuss what's happening in the world of telecom. As more people have come to this blog, I continue to be intrigued by how people find it but I guess that's the power and beauty of the Web at work.
I'd like to thank folks such as Om Malik, David Akin, Jeff Pulver and Andy Abramson for their support along the way.
On a far more serious note, I would encourage everyone to make a donation to support the tsunami relief efforts in Asia. In Canada, the Red Cross, Unicef and Oxfam Canada make it a snap to donate online. The unimaginable tragedy in Indonesia, Sri Lanka, India and Thailand makes writing about telecom issues a trivial affair. Here's hoping people around the world can pull together to help those in Asia.