August, 2009

FCC on wireless: Defining competition is task one

The FCC voted unanimously to move both of its wireless investigations to the formal Notice of Inquiry phase, but it is clear that (as usual) the body is divided along party lines regarding just what might be done.

Democrats think the industry has competitive issues and Republicans do not. Their differences seem to us to come out of the definition of “competition.” Republicans want to define it as having multiple wireless provider choices available, while Democrats define it as having relative freedom and flexibility to exercise handset and service options without being locked into a single provider.

In short, the “mobility” of customers is a concern of Democrats, and that may be a harder point to cover in a regulatory sense.

Service provider capex takes off in second half 09

Service providers are planning to increase their capital spending in the second half of the year, according to a number of financial industry and media sources. The exact percentage of increase and the way it will be distributed among vendors hasn’t been reported.

But our current data suggests providers will spend between 18% and 40% more in the second half of the year than the first, that spending will be balanced so wireless gets about 35% more than wireline, and that edge and metro networks will get a bigger boost than deeper core (in large part because the former groups were cut more in 1H09). As we’ve noted before, we expect most of the money to be spent between mid-September and the end of the year.

Internet piracy regulation: The Industrial Revolution evolution

The UK’s regulatory arm, Ofcom, is considering a set of procedures aimed at reducing online piracy, and these include shutting off the Internet services of offenders who ignore repeated warnings.

The move is the latest in a series of European initiatives, some of which have stalled (France comes to mind), and it represents in our view a combination of new pressure from content producers to protect their legitimate rights and concerns that loss of intellectual property protection could be a major threat to evolved economies that can’t rely on industrial production any longer.

How much actual lobbying people like the RIAA have done here is hard to say, but whatever is happening is working—in part because P2P sharing is a major traffic source and financial burden to operators.

Huawei’s T-Mobile LTE win shows revenue concerns

Huawei, which recently appeared to reaffirm its guidance on sales growth for the year, has won an important T-Mobile trial in Austria. The deal gives Huawei the largest LTE field trial in Europe to date and reaffirms that the Chinese equipment giant is making real strides in the important mobile market.

We think Huawei’s rise in mobile is also an indicator that operators are concerned mobile margins won’t last, perhaps due to the inevitable commoditization of services created by mobile web, smartphones and netbooks. The pricing pressure in mobile is ominous for equipment vendors overall, we think, because it shows that there is little chance that any basic infrastructure will hold margins anywhere over time. That means it’s service layer or nothing

Google and wireless regulation in the U.S.

There’s more debate on the smartphone VoIP front as both Google and T-Mobile deny there were any deliberate restrictions placed on Skype for the T-Mobile Android handsets. Google said there was no full-feature Skype implementation offered as yet for Android, and T-Mobile said it had put no pressure on Google to restrict VoIP applications.

All of this stems from the fact that Apple limited iPhone Skype to WiFi connections and blocked Google Voice (for, said Apple, reasons of lack of support for the iPhone’s distinctive GUI). We think these issues may combine with the Comcast net neutrality appeal to create some momentum for legislative intervention, though the FCC may also look into the matter. If the FCC takes action, it may help uncover just what basis the FCC will claim for regulation of net neutrality issues; the net neutrality principles published by the FCC were not part of an order and thus have no direct legal status.

FCC wireless market inquiries overdue, could affect spending

The FCC’s agenda for its August 27 meeting shows a commitment to a broad review of the wireless market, from its role in the national broadband policy to the state of competition and some wireless practices.

Both these activities are being considered for a Notice of Inquiry, which would launch a formal FCC process here. The interest in wireless is overdue. The FCC has far better data on and oversight of the wireline communications services, and yet wireless is becoming the prime mechanism for communications for a large segment of the population.

Operators hate this sort of thing; it raises the risk that the wireless cash cow will be shut off by the FCC in the form of new rules. The problem is that most U.S. operators are profitable because of wireless, and it’s not clear what would happen if the FCC were to curtail revenue/profit growth there through new regulation. The process will take time, and it’s not likely to impact 2010 budget planning, but it may keep wireless infrastructure spending plans tilted to the conservative side.

NSN’s 4G plans and strategic location for LTE center

NSN is opening a new LTE development center in Dallas, next door to the Nortel facilities, in effect, and thus able to draw on the labor pool from Nortel, much of which is willing to jump first and see how Ericsson might do second.

NSN had been an unsuccessful bidder for the Nortel wireless assets, but the move to set up its own development center might actually do the company more good by forcing it to devise a true LTE strategy of its own, integrated with its own assets and strategies.

Assimilating Nortel would not have been an easy task, in our view, and would have distracted management from the critical positioning exercises that are absolutely essential to getting a story ready for the fall planning cycle.

Fast Internet, pricing policies and the middle mile

Rogers Cable showed how different Canada and the U.S. are with its new DOCSIS 3.0-based offering. The service is 50Mb/2Mb, which is more asymmetrical than the U.S. market would typically offer, and furthermore it has a 175 GB/month usage cap.

In Canada, the notion of usage caps doesn’t generate the hysteria it does here in the U.S., but we believe that the only way caps would be avoided here would be by increasing the oversubscription levels of the middle-mile network, which would mean that users with “fast” Internet wouldn’t get proportionally higher effective speeds.

There is no way to legislate profitability or to set effective speed standards; Congress would never consider the moves, in our view. A realistic usage cap would benefit consumers by helping insure that they gained a real advantage from what’s likely to be an access speed war between cable and telcos.

Sony Ericsson pins handset hopes on new president

Sony Ericsson named a new president, the former head of Ericsson’s U.S. operation, in the hope that management changes can reverse the course of the company’s continued handset market share losses.

The venture was established with the hope of galvanizing the Ericsson handset business, but so far it hasn’t worked at all, largely because it missed the smartphone revolution. That simple truth embodies the problem that Bert Nordberg will face. You can’t rewind history simply because you change CEOs, and the smartphone space is very crowded today.

We’re of the view that it will take a major effort and a lot of missteps by competitors for Sony Ericsson to pull things out at this point.

Verizon completes LTE test, discusses plans

Verizon completed a two-city test of its LTE service to the hype and hyperbole of the press, but there are still no indications of what LTE will really mean to users because its price and performance levels are not yet announced.

While LTE is theoretically capable of much higher speeds, few in the industry expect Verizon to unleash full LTE performance, and in any event, at higher speeds, users just use up their monthly cap in fewer seconds.

In our view, the primary driver behind LTE is the need to create a wireless network that’s designed primary for smartphones and netbooks, which will be more data-heavy than today’s devices, even if stringent rate limiting and pricing levels constrain user behavior. Remember, both 100 Mbps of LTE and 3 Mbps of 3G are shared among all the users in the cell, but LTE supports more users per cell than 3G. That’s what’s critical as the number of wireless devices and data-ready devices increases.

Verizon expects to have LTE rolled out nationally some time in 2013 and its first commercial services will be available in 2010.