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Can Optic Cables Predict Economic Shifts?
Having followed the optical network business for over a decade, one thing I have learned is that the boom and bust cycles of the business often mask patterns that have long-term implications. The overbuilding of U.S. networks in the 1990s foretold a bust in the telecom industry. The buying up of bankrupt carriers’ assets indicated the rise of new players including Google, which has built a fearsome infrastructure. These days, all the excitement in the optical business is around new undersea cables being laid (or planned), bridging previously unconnected parts of the world. These cables are, in fact, the early warning signs of a pending economic boom.
Let me explain. In the 1990s, we saw a grotesque number of cables laid under the Atlantic and Pacific, connecting the United States with Japan, parts of Asia Pacific and Europe.
Those three regions went through an unprecedented boom, much of it inspired by technological changes that had millions turning to the Internet. The boom, also inspired by deregulation of the telecom infrastructures in those countries, led to further spending on communications such as wireless phone calls and high-speed Internet. Unfortunately, the demand (captured quite well by bandwidth provider Global Crossing in early days) led to overbuilding, oversupply and eventually a bust.
Growing Fibers In Asia
A similar scenario is now playing out in the Trans-Pacific region where cables are being built rapidly, and the bandwidth capacity on pre-existing cables is being doubled. Many more cables under construction are connecting with India and China, both of which are going through their own economic booms. According to the World Bank, China is the world’s second largest economy, and India claims the fourth spot. These countries have become economic hubs — not only buying but also selling to the outside world. And a key ingredient of trade is the ability to communicate, which in turn requires the large amount of capacity that can only come with undersea fiber cables.
The latest such effort is SEACOM, a $650 million, 15,000-kilometer cable connecting East Africa with Asia and Europe that is expected to be completed in June 2009 and provide 1.28 Terabits per second of network capacity. This is just tip of the iceberg.
According to TeleGeography, a research firm that tracks the global broadband business, there are about 12 cables either in planning stages or under construction that will connect Africa to the rest of the planet. Those connections will have a theoretical capacity of over 13 Terabits per second, and construction is estimated to cost more than $3 billion.
In Africa, Mobiles Drive Bandwidth Demand
Why so much connectivity? After all, PC penetration is abysmally low in Africa. The answer is cell phones. At the beginning of 2008, there were a quarter of a billion mobile subscribers on the continent, according to International Telecommunications Union, and Portio Research estimates the number will increase to 378 million by 2011. Local companies are furiously building out networks, and by all indications, the overall market penetration is going to increase from the 28 percent mark reported at the start of this year. Cell phones need networks to transfer calls between countries, so there is a need for networks to circle the continent — or at least countries like Kenya, Nigeria and South Africa, which have the most critical demand.
In the recent past, India went through a similar cycle, where a spurt in mobile sales acted as a catalyst for the overall economy. Phone calls provide the vital connections for trade to flourish in areas hitherto unconnected. Something similar is happening in Africa, where mobile banking has emerged as a facilitator of cross-border trade.
You can see a similar scenario set to play out in other parts of the world. There are about five cables on the drawing board or under construction that would connect Cambodia, Bangladesh, Vietnam and some of the smaller countries in Asia. All these countries are going through an economic upsurge and are becoming part of the global economic system.
This leads me to my conclusion: Building new cables is the equivalent of adding new roads, new shipping lanes or flights. The undersea fibers of today are what sea trading routes were in the past — an indicator of future economic activity and the subsequent boom.
This article first appeared on BusinessWeek.com
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Tough Times Ahead for U.S. Phone Companies?
The second-quarter 2008 financial reports are in –- and the tea leaves aren’t showing a sunny future for phone companies. While their financials today look bearable, economic and demographic trends are acting as gale-force headwinds for the future. Here are some of the major issues they’re facing:
- A slowing economy means people are choosing wireless phones over landlines, resulting in increased access line losses. That, in turn, is reducing the number of people the phone companies can convince to switch to their higher-speed networks and video services.
- Cable’s triple-play bundles, which include higher speeds and voice, are starting to resonate with the residential customers, leading to further landline losses.
- Phone companies’ own higher-speed services are starting to cannibalize their installed base instead of luring customers away from cable companies.
In broadband, cable rules for now
According to Leichtman Research, there were 65.1 million U.S. broadband subscribers at the end of the second quarter of 2008, with cable companies getting a larger share of the total –- 35.3 million subscribers. In comparison, phone companies have 29.7 million subscribers.
The two big cable operators, Comcast and Time Warner Cable, continue to add broadband subscribers at a furious pace, though their growth rate is starting to lose speed. In contrast, phone companies are having trouble adding subscribers, even as they roll out video and faster networks.
Phone companies’ broadband offerings are taking the shine off their DSL services. AT&T, for example, added 46,000 new subscribers (down from 491,000 last quarter) and 170,000 U-verse subscribers. John Hodulik of UBS Research suggests that when taken together, it lost around 124,000 DSL subscribers.
Verizon is experiencing similar issues. It added 187,000 FiOS Internet subscribers, but the total broadband tally came in at just 54,000 net additions for the quarter — a loss of 133,000 DSL lines, using the UBS method.
It shouldn’t come as a surprise. Once you hear about a much higher speed Verizon FiOS connection in your neighborhood, why would you want DSL? Cable companies have used this “more is better” mantra to their advantage, offering up all sorts of geewgaws, like Comcast’s Powerboost.
An AT&T spokesman told the Wall Street Journal that speed is only one component of a broadband service and offered up other arguments such as shared capacity and other technical mumbo jumbo to justify that their DSL connections are better. “We offer the best broadband for the price,” he told the Journal.
I was amused, because when you sell broadband, speed is the most critical component — and all these points made by the phone company guys don’t translate too well in the winner-take-all world of consumer marketing.
The divergence between U.S. cable and telephone companies can be easily explained: Cable companies added phone service and offered triple-play service, stealing voice customers from the phone companies. Phone companies are responding to the triple-play threat by rolling out their own video networks, but it is early days and really slow going. Since voice networks are easy to roll out compared with big video networks, phone companies are finding themselves on the losing end of the equation.
Where did my lines go?
As I’ve said before, the biggest problem for phone companies is that they’re losing voice customers at a rapid clip -– either to cable operators or to wireless. Many believe that uncertainty regarding the economy is making people pick a wireless-only option — a theory supported by robust growth in the wireless additions at Verizon (1.5 million net new subscribers) and AT&T Wireless (1.3 million net new subscribers).
This continuous line loss reduces the pool of potential switchers to video and higher-speed broadband services. You want to know how bad it is? Here’s a quick rundown of second-quarter losses: Qwest saw a 10.2 percent decline in residential lines; AT&T an 8.7 percent drop; Verizon lost 8.5 percent (1.4 percent decline in residential switched access lines), and Embarq lines dropped 7.8 percent. All four percentage losses were higher than in the previous quarter.
What phone companies should do
I think between the bluster and hype, the reality is that phone companies are facing an uncomfortable today and an uncertain tomorrow.
Big phone companies should take a cue from Roseville, Calif.-based Surewest Communications, a smaller player that’s been very aggressive about offering broadband at competitive prices, offering higher speeds and, in general, meeting consumer demands. It reported a 1 percent sequential decline in voice lines for the quarter and a 2 percent jump in broadband subscribers. It’s trying hard to compensate for access line losses with VoIP services. The company said that “over 82 percent of existing data subscribers who signed up for VoIP increased their Internet speeds to enhance the overall experience.”
Maybe it’s time for the big boys to let go of their legacy and fully embrace the future — including offering better broadband, advanced services and new voice at prices that are much lower than cable. At least that way they can start to stem the tide of losses.
Verizon’s Crazy Broadband Strigl Theory
Verizon President and Chief Operating Officer Dennis Strigl made a big splash at NXTcomm 08 yesterday when he announced that the entire Verizon FiOS footprint could now get speeds of 50 megabits per second. Typically such bandwidth news wouldn’t cause that much of a furor, but there wasn’t much to write home about from the show, which was held in Las Vegas this week.
In his speech, Strigl pointed out that the U.S. has the highest number of broadband users when compared with other countries, in particular that broadband is available in every U.S. zip code. Good point — and one that I’ve made in the past myself — except that it’s no longer true. By that metric, China now leads. Yes, the FCC used to defined broadband as a service that offered, at a minimum, 200 kbps downloads, but it’s since changed that requirement to 768 kbps.
But where Strigl went too far was when he suggested that three-quarters of American households have two providers to choose from — aka a duopoly, which is not my idea of a competitive marketplace. If you factor in wireless and satellite, he said, there are actually six or seven competitors. Talk about twisting the facts to fit one version of the truth! This part of his speech, however, had me choking on my breakfast cereal.
“Massachusetts and New Jersey have similar population density to Korea and Japan and similar broadband penetration. Unlike other countries, what we have accomplished has come not through [government] policy but through private investment.
How telling. So subverting government policy via lobbyists and highly biased friends at the FCC to ensure a future monopoly is all part of good, capitalistic, private investment theory? Maybe Harvard can include that in its future MBA curriculum.
Regardless, I thought it would be fun to see how Massachusetts and New Jersey really square up against South Korea and Japan when it comes to the price of a broadband connection:
Average broadband speeds in South Korea and Japan are 49.5 megabits per second and 63.6 megabits per second, respectively. The average U.S. speed is about 4.9 megabits per second, making it the 14th-fastest country in the world. The average price in South Korea and Japan is about 83 cents per megabit. In the U.S, it’s about $2.83.
But since it would be unfair to use average U.S. stats, I went with Verizon’s prices, the ones it’s going to offer in Massachusetts and New Jersey. On Verizon’s FiOS network, a 50 Mbps connection costs $140 a month — or about $2.80 a megabit. In fact, if you went with Verizon’s 20 Mbps service, you would be paying $3.25 per megabit. (To be fair, Verizon’s price-per-megabit is still cheaper than the $5.25 Qwest charges for its 20 Mbps connection, which costs $105 a month.)
In other words, not until Verizon starts selling a 50 Mbps connection for $41.50 a month and 20 Mbps fiber connection for $16.60 a month can Strigl get away with comparing U.S. broadband with that of the rest of the world.
Cellular Biz & Its $99 Problem
I’ve been watching the mobile industry commit hara-kari over the past few days. US Cellular is the latest to join this mad dash to the bottom. Their new $99 unlimited calling plans make me wonder if they have actually thought through this move and its long-term implications.
A friend of mine, a veteran of the long-distance wars who’s worked with the phone companies, both the wired and the wireless kind, described the big three mobile carriers — Verizon, AT&T, and T-Mobile — as dumb, dumber and dumbest.
These moves remind him of the crazy 1990s, when Sprint, MCI and AT&T fought over long-distance minutes by offering lower prices and thus slowly destroying their ability to make money to support their bloated infrastructure. It’s pretty much the same situation here — but the pain is going to be felt much sooner.
Here is why: I am one of the high-end customers of AT&T, locked into a 2-year contract for my iPhone. I’ve been paying $99 a month (plus about $40 for data and messaging) for 2,000 rollover minutes, free weekends and evenings.
It’s never been tough for me to go over the 2,000 minute-limit, since my mobile is my primary phone. Result: I end up paying between $25 to $150 in overages, depending on the amount time I spend on the phone. I am the perfect customer, the kind that makes up for the ones at the bottom of the pile who either don’t spend enough money or didn’t care to get big buckets of minutes.
But now I am going to get an unlimited plan. And that is the big question: Why would you as a company limit the amount of money spent by some of your best (and I mean high-spending) customers? I suspect most of the people who are going to sign up for these $99-a-month plans are going to be folks like me — existing customers who are looking to bring their wireless bills under control.
These are particularly attractive options for small biz, startups and web workers. Now your communication costs are pre-determined, which is a good way to budget. I am asking the GigaTEAM to switch to a $99 plan (on offer from whatever mobile operator they use) and also putting the PBX-land line option on hold…forever.
AT&T, Verizon…We Are All Open
Ever since Verizon announced that it was going “open,” OPEN has become the new buzzword. For instance, this morning USA Today ran a story on AT&T being open, with extensive commentary from AT&T Wireless CEO & President Ralph de la Vega. The headline, “AT&T flings cellphone network wide open,” made it seem that AT&T was doing something new.
It isn’t a pretty sight to get up in the morning and find such a major development on your beat and not know a thing about it. But after reading through the piece, it was much ado about nothing. After all even today, once your contract expires, you can continue to use the AT&T network on a month-to-month basis. You can use any unlocked device which you can buy from anywhere, as long as it’s a GSM device and supports the frequencies used by AT&T. The phone can use any operating system — Windows Mobile, Symbian, Linux or whatever.
When I spoke with de la Vega following the Google Android announcement , he made precisely the same statements and said that AT&T (T) was already doing what Verizon (VZ) was announcing. He said pretty much the same thing in an interview with Ryan Block of Engadget a few weeks ago. I think the most recent story overstates the case. Just to make sure that I wasn’t missing something, I spoke to an AT&T spokesperson, and basically was told what de la Vega had said previously.
I think the bigger issue here is that we really need to get companies to define what they mean by OPEN. Open handsets, open networks, open applications, open operating systems — some combination of those, or all of them? Otherwise, I might have to start translating OPEN to “We’re Scared of Google.”
Harsh Reality Of Verizon’s Open Network
Consider the recently unveiled “any app, any device” initiative by Verizon Wireless in the context of the company’s latest quarterly results.
The wireless unit of Verizon (VZ) reported year-over-year subscriber growth of 12 percent, but a mere 5 percent rise in voice revenues. Data revenue saved the day, surging 63 percent and lifting the company to 15 percent revenue growth overall. Data revenue per user increased 43 percent, while voice revenue per user declined 5 percent — pushing data to 20 percent of revenues from 14 percent.
The same report revealed a 10 percent decline in residential access lines. The voice business of Verizon Wireless, in other words, seems to have entered the same cycle of contraction suffered by Verizon’s wireline business in recent years. Joining the open access bandwagon promises to keep data revenues growing strongly, but CEO Lowell McAdam faces some mighty difficult choices as the 80:20 ratio of voice to data revenues reverses. The legacy pricing model incorporates price discrimination that will prove awkward to preserve.
Consider the lucrative SMS business of shipping 160 character messages for 10 cents each, or roughly $1,000 per megabyte. What happens when all devices cleanly incorporate instant messaging? “Any app, any device” means VoIP-capable devices that transparently support voice and web browsing via data plans. Why would someone pay Verizon an extra $40 per month for voice services? Any data plan that makes video affordable makes voice essentially free.
Does Verizon really have enough conviction to price without discrimination by application type? McAdam said pricing for the bring-your-own-device crowd will be “competitive” and “usage-based.” Even assuming other carriers follow Verizon’s lead to create competition, does “usage” refer to bit volume or application type?
“Any app, any device” sounds like it eliminates the long list of acceptable use prohibitions associated with existing data plans — quite a change of heart for the company. Verizon only recently settled a lawsuit brought by New York Attorney General Cuomo for terminating the accounts of customers with so-called “unlimited” Internet plans for unwittingly violating the plans through activities such as downloading movies.
It may already be too late for Verizon to back away from the edge. Anything short of a fully open network, neutral to bit type, seems likely to turn the PR love fest into user backlash. In any case, no one expects Verizon to embrace the “faster, cheaper” mantra necessary to fully earn induction into the infocom future.
We can suspend our disbelief until the pricing details arrive in January, but the unintended consequences of the announcement likely represent the best hope for progress. Verizon’s vision of the future may not have changed much. It just gets easier to read the writing on the wall when your back is up against it.
Forbearance Can Impact Telecom Choices
Its been almost eleven years when the Telecom Act of 1996 was announced with much fanfare. It promised a telecom revolution, and instead it got a Bubble, Broadbandits and a battle of the lobbyists. And as they years passed, incumbents neutered it beyond recognition, leaving it toothless and lifeless, much like the royal family of a fallen colonial power. Sure there were some things that microscopically-tilted in favor of the small, independent carriers, but even those are at risk now.
Verizon has petitioned FCC to give it forbearance relief in six major markets from certain wholesale requirements, specifically “unbundled network element” (UNE) discounts it must still provide to competitive local exchange carriers (CLECs). What this means is that Verizon wants to stop selling high-capacity DS-1 and DS-3 connections because it feels competitors are using Verizon’s infrastructure to compete for the enterprise customers.
According to FCC, under the Telecom Act of 1996, “the Commission is required to forbear from any statutory provision or regulation if it determines that the regulation is not needed to protect consumers or to ensure just and reasonable rates and practices by carriers.” Verizon wants FCC to stop applying UNE rules in major metros like New York, Philadelphia and Boston. Verizon has been fighting UNE for sometime. UNE allows competitors to buy “network elements” on a cost-basis. FCC is supposed to decide on this on December 5th.
If FCC approves Verizon’s petition, then basically the competition in local loop in those six regions is going to be decline sharply and that is bad news for smaller CLECs such as Covad and XO Communications. These companies rely on UNE to provide alternative broadband and phone service options.
CLECs are worried that Verizon is going to use any gains from this petition and stamp out competition in other regions such as California and Texas. CLECs have set-up a website, FreeToCompete. Blair Levin, an analyst with Stifel Nicolaus, an investment bank, and an expert on FCC doesn’t believe that Verizon is going to get what it is wishing for and only small parts of Verizon’s petitions might be granted.
So Google Will Bid For Spectrum. Will It Play To Win?
For the past few months, Google CEO Eric Schmidt has hinted at every opportunity that Google (GOOG) will bid for the auction of the 700 MHz spectrum. So it shouldn’t come as a surprise that they issued a press release today and confirmed that they will bid on the so-called C-block of the 700 MHz spectrum.Big deal — because Google is not in it to win it. Like in an opening move in a game of high-stakes poker, Google will place an opening bet, but is unlikely to raise it.Google CEO Eric Schmidt in the press release said:
No matter which bidder ultimately prevails, the real winners of this auction are American consumers who likely will see more choices than ever before in how they access the Internet.
Excuse me, that ain’t the language of a winner. Chris Sacca, Google’s head of special initiatives, in a blog post continues this “consumer-a-winner” theme, though clearly if Google did win this one, it is the winner first, and maybe…just maybe consumers. [Paint me cynical, but I like this change-the-world-consumer-first drivel from presidential candidates, not from for-profit companies with lofty valuations to protect.]
As I had pointed out earlier, FCC Chairman Kevin Martin included some of the Google proposals as part of the rules for this auction, hoping that would attract Google to the bidding process, and help drive up the prices of the spectrum being auctioned.The other companies playing with some seriousness here are AT&T, Verizon and a bunch of others. AT&T CEO Randall Stephenson confirmed his intentions at a Churchill Club event, while Verizon has been doing its best to ensure its win.
In case you want to know what the whole 700 MHz fuss is all about, here are two posts that tell you everything about 700 MHz.
Will iPhone spark wireless wars?
Roy, a doorman for my apartment building, stopped me this morning to chit chat. Knowing my affection for all new mobile phones, I wasn’t surprised that he asked to play around with my Nokia N95. “Are you going to buy the iPhone?” he asked, seeking a second opinion since he has already made up his mind and is going to buy an iPhone.
Though he doesn’t have an iPod right now, he thinks an iPhone would give him two devices in one, despite the high price tag. He is seemingly undeterred by the questionable battery life. (One of the reasons why I have a more wait-and-see attitude towards this Apple device.) He isn’t the only one - as the interest in iPhone seems to be on an upswing.
Even if you disregard the rumors and fan sites - the population at large seems to have a considerable interest in the iPhone, indicated by the total search volume for keyword “iPhone.” According to Hitwise, a research group that tracks Internet traffic trends, iPhone related searches represent over 0.002% of total Internet searches per week for past three weeks, with iPhone release date and price being the specific information folks are looking for. (In comparison, MySpace was the #1 query and had 1.16% of the total search volume.) Just as an unscientific indicator the search volume is a good indicator of increasing commercial appeal of the device.
The big question, however, is how does iPhone impact the wireless market at large — and whether it will result in a market share shift, putting AT&T at an advantage.
AT&T is betting big on this device and is hoping to pull ahead of its rivals by riding the iPhone express. AT&T and Apple are going to be launching a big media blitz to promote the iPhone, and according to UBS Research, it will be a major reason why AT&T will be able to add approximately 2.8 million gross postpaid subscribers in the third and fourth quarters of 2007.
If Apple’s guidance of 10 million units in 18 months hits the target, UBS estimates that 2 million iPhones will be sold in the U.S. in the first six months of the launch. That works out to about 18% of AT&T’s post-paid additions and upgrades, UBS estimates. But these 2 million will have to come from somewhere - probably switchers from other wireless services.
At the end of Q1 2007, there were about 170 million postpaid wireless subscribers in the U.S., with Verizon the largest carrier (56 million) with AT&T at #2 with about 51 million, followed by Sprint (41 million) and T-Mobile bringing up the rear at 22 million. (These numbers don’t reflect wholesale and prepaid customers.)
So 2 million units don’t mean much in market share — a little 1.1% market share gain for AT&T in the first six months, but it is the residual impact that might cause the big upheaval in the wireless market.
There are some who believe that since iPhone isn’t going to get as much subsidy as other devices, AT&T can pass those subsidies to even further subsidize non-Apple phones, and making its service more attractive. That would be one way to capture the increased foot traffic to AT&T stores.
Will Verizon and Sprint take this lying down? Of course not, and will launch their own price subsidies, discount plans or whatever it takes to hang on to their subscribers. And whatever happens, consumers will come out ahead — nothing wrong with that. And even if Roy doesn’t end up buying the iPhone, he still might get a good deal somewhere else.
Photos by Niall Kennedy via Flickr.
Doubts raised over Verizon VoIP patents
There might be a silver lining (albeit faint) for Vonage, the Holmdel, NJ-based company currently enveloped in clouds of doom. The independent VoIP provider, which lost a patent case to Verizon Communications, today acknowledged that it doesn’t have a way of avoiding infringing on Verizon’s patents.
Now, in a note published to his clients, Tier 1 Research analyst Daniel Berninger (also a guest columnist for GigaOM) argues that the legitimacy of Verizon’s two key ‘name translation’ patents (6,104,711 filed on March 6, 1997; 6,282,574-filed February 24, 2000) are themselves subject to scrutiny.
In his note, Berninger writes that the Verizon patent applications authored by Eric Voit reflect contributions made by VocalTec Communications and were discussed at the VoIP Forum in 1996. Some of VocalTec’s technical claims were also formally published in an independent document in January 1997.
Moreover, the published document included contributions from Cisco Systems, Microsoft, IBM, Nortel, Intel and several other prominent technology companies. (See documents at the end of this report.) Records indicate that Verizon filed for its own patents in March 1997 and February 2000. Beringer’s note goes on to say:
The claims in both patents were anticipated by open standards assembled by the VoIP Forum in 1996 and published in January 1997 with the participation of members from Cisco Systems, Microsoft, IBM, Nortel, Intel, Motorola, Lucent, and Vocaltec Communications, among others. The work of the VoIP Forum, publication plans, and disclosure requirements were noted in a correspondence between the VoIP Forum and the ITU Telecommunications Standardization Sector. Verizon filed another patent application (6,298,062) in the same time period that does reference the Kahane-Petrack paper of January 1997.
We have contacted Verizon and seeking their response to the note. We will update the story to reflect their response.
See claims and links to patents.
Footnotes:
1. O. Kahane and S. Petrack, “Call Management Agent System: Requirements, Function, Architecture, and Protocol,” IMTC VoIP Forum, Seattle, Washington, January, 1997, 44 pages. PDF
2. IMTC Voice over IP Forum Technical Committee, “Service Interoperability Implementation Agreement”, January 13, 1997. (PDF)
3. Minutes of the VoIP Forum meeting. (PDF)
Why do we have a VoIP patent mess?
Verizon’s lawsuit against Vonage is the VoIP version of showdown at Ok Corral!
The weary entrepreneurs have gone from fighting the regulatory morass to fighting the patent morass. The ability of Verizon et al to play the dimensions of uncertainty associated with patents makes one nostalgic for the ability of Verizon et al to play the dimensions of uncertainty associated with the regulatory pronouncements of the FCC. Anyone not attracting a patent lawsuit should feel a bit embarrassed. All the companies with some claim to success will get their turn before Verizon exhausts its legal budget.
Lost among the legal theories, predictions of Vonage’s demise, and the wishful claims Vonage’s troubles are unique is the fact that the future of the VoIP industry depends on challenging vague, generic, overly broad patents. The hope for low cost communications, cool applications, and connected devices has been lost in a patent system gone wild, where companies file patents, just as telemarketer dial for dollars.
The birth of the VoIP industry happens to coincide with the greenlight on “method patents” aka software patents. The framing of Verizon’s patents as “technology innovations” reflects a press release version of reality. Verizon’s patents address methods of communication between network elements.
They would have been unpatentable as little more than mathematical algorithms until lawsuits overruled the patent office’s distaste for method patents in 1999. Efforts to establish the quality of method patents represents a particular challenge, because applying companies pursue an application fatigue strategy. Companies make a long list of broad claims and await rejection. They use information in the rejection to refine the claims and repeat the process.
Method patents remain in dispute and Congress appears ready to pursue reform, but the VoIP industry seems unlikely to survive long enough to benefit from a cure. The need for a better means of vetting software patents motivated IBM, Microsoft, GE and others to assembled a public peer review process in conjunction with the patent office, but other priorities and a slow start mean the project does not offer a near term solution for the VoIP industry.
Participants in the VoIP industry will need to quit cowering in the corner and initiate their own efforts to move the patent process back toward meritocracy. The three surviving patents Verizon claims Vonage infringes represent a good place to start. They look like the prototypical “garbage patent” clogging the system.
Five years of graduate engineering education, five years at Bell Labs, and five years working on VoIP startups should equip me to appreciate the innovation content of Verizon patents. In fact, as the Project Director for Vocaltec Communications, I was the senior technical person responsible for implementing Verizon’s first VoIP pilot in 1997. Reading and re-reading the patents leaves me at a loss as to their innovation content.
Extensive scrutiny of patent claims represents the only way forward. The Internet that sparked several million articles associated with Wikipedia can cope with due diligence on 2200 VoIP patents. AT&T successfully prosecuted 600 patent infringement cases between 1876 and the expiration of the telephone patent in 1891. This time around there is no patent on the basic innovation underlying VoIP.
Verizon can’t make the Internet go away with a patent lawsuit. Vonage’s poor showing in court does not prove patents on implementation issues and features will ultimately sink the VoIP industry. Verizon’s success reflect genius in applying for and defending patents, not genius in innovations protected by patents.
I don’t begrudge Verizon’s right to pursue all legal means to preserve the status quo, but three generic and ambiguous patents seem a thin reed for a $90 billion company. If patent disputes ultimately undermine the VoIP industry, it will owe to the self-inflicted wounds of inertia, not patents. The industry need not sit idle for the next 15 years waiting for patents to expire. Take a look and judge for yourself.
Click here for our previous Vonage-Verizon patent dispute coverage.
Inside the 700 MHz spectrum land grab
Like a fresh spring breeze, new radio-frequency spectrum is in the air. It is so close that you can almost smell it – and seek to keep others away from it.
The next big spectrum land grab is over 700 Megahertz (MHz.) It’s the promised land of “beachfront property” that broadcasters are set to vacate on February 19, 2009, when the transition to digital television is supposed to be complete. Lots of folks are jockeying now to lock up these airwaves.
Besting the television broadcasters was the battle back in 2005. The high-tech industry teamed up with wireless carriers, and with the public safety officials, to push for DTV legislation forcing broadcasters out of the 700 MHz band.
The gizmo-makers have sought the frequencies for more than a decade. Same with spectrum-poor wireless carriers like T-Mobile. They joined up with Cisco, Dell, Intel and Microsoft to form the High-Tech DTV Coalition in 2005.
They struck a pact with public safety officials, who were also motivated against the broadcasters. Congress had promised public safety 24 of the 108 megahertz once the DTV transition was complete.
With the February 2006 passage of the DTV legislation, 60 of those 108 megahertz will be opened at auction by January 2008. Police and firefighters will get their due. The additional 24 megahertz within the band is already owned by Access Spectrum, Aloha Partners, Pegasus Communications and Qualcomm.
So how will those 60 megahertz get sliced up? Verizon Wireless has been rumored to bid for up to 30, half of what’s available. Other players, including DirecTV, Echostar, Google, Intel, Skype and Yahoo!, have joined a push to ensure that the wireless licenses will be nationwide– and to potentially compete with the incumbents.
But if you don’t want to actually pay for the best frequencies, there’s always the good old-fashioned way: convince politicians to give it to you. Morgan O’Brien has perfected this strategy. He used it in 1990 to convert his radio-dispatcher frequencies into cell-phone licenses and jump start cellular carrier FleetCall.
In 2002, his company, then called Nextel, did it again. With the help of Rudy Giuliani and his Giuliani Partners lobbying firm, Nextel partnered with public safety. It eventually persuaded the FCC to agree to its plan swapping a disjoined band of frequencies for a contiguous 10-megahertz national license.
“If there were a Nobel Prize for lobbying, I would give it to Nextel and Morgan O’Brien,” said J.H. Snider, research director of the New America Foundation’s Wireless Future Program.
But O’Brien’s third attempt, a company called Cyren Call, is turning into a dud. Again, he’s rallied public safety officials, who say that 24 megahertz is not enough for interoperable communications. Cyren Call wants to devote 30 of those 60 megahertz and to a Public Safety Broadband Trust. Conveniently, O’Brien’s company would manage the spectrum. And during down-times (i.e., when there are not wide-scale emergencies), Cyren Call would resell commercial service over the airwaves.
This dual commercial/public safety use would allow Cyren Call to make more efficient use of the spectrum than traditionally done by public safety. But it would also take spectrum off the market. In December, the FCC rejected the Cyren Call, saying: 24 megahertz was enough for public safety.
Those eager to bid on the new airwaves didn’t want to take any chances. That was particularly so after Sen. John McCain, R-Ariz., a champion of the DTV transition, appeared to favor Cyren Call in a January press release.
“Morgan O’Brien’s plan was such a sword of Damocles: half of all the spectrum that they were counting on buying would go away,” said Jerry Brito, senior research fellow at George Mason University’s Mercatus Center (link to http://www.mercatus.org/), who has researched the interoperability dilemma.
The techies resurrected their old DTV coalition. But this time, they went after public safety. Janice Obuchowski, who had been the executive director of the coalition, joined former FCC Chairman Reed Hundt to float an alternative, Frontline Wireless, which would gobble only 10 additional megahertz for public safety. And the coalition funded an attack on Cyren Call, which they said would disrupt the DTV transition and harm consumer welfare.
This time around, Verizon Wireless is an eager participant in the DTV coalition. “Cyren Call’s leaders are the same people who, while at Nextel, created the 800 MHz rebanding scheme,” a reference to the spectrum swap by lobbyists for Verizon, who bitterly opposed the swap.
“Cyren Call is dead,” said a telecommunications industry lobbyist. But when will public safety realize that? It isn’t clear yet whether they will gravitate toward Frontline, a kind of Cyren Call-lite. At least Frontline agrees to bid on the special 10 megahertz they’re seeking.
GSA rings Sprint with bad news
Earlier this week, the US government announced that it had selected three former Bell Companies - AT&T, Qwest and Verizon - to be the only ones who can bid for the individual federal contracts over next ten years. The total value of these contracts will be at least $20 billion, and according to some estimates could be as high as $48 billion.
This is clearly good news for Qwest, the weakest of the three Bells, but it is bad news for Sprint which was amongst the initial bidders but was left out in the end. Sprint’s government business is about a billion dollars. Sprint is going through a tumultuous period and has been one of the big losers in the mobile phone business in recent months.
The contract called Networx Universal (Jeez!) covers individual contracts from 135 agencies. The bidding process cost hundreds of millions of dollars and took the participants nearly four years to get their documents & proposals together.
GSA’s decision is highly curious, and makes us wonder if the US government authorities like GSA even believe in keeping the independent telecoms around, even for the sake of pretension. The Washington Post notes that there will be another smaller contract where smaller companies can participate and will have less rigid conditions. Its not like Sprint doesn’t have experience with working with the government… so what gives? How does Qwest qualify, after all it doesn’t really have any meaningful footprint in government contracts?
“It’s more of an embarrassment than a revenue hit. It’s a total black eye to be completely ignored by the United States government, especially as an incumbent,” said Patrick Comack, an analyst with Zachary Investment Research in Miami. (The Washington Post)
The company is going to be seeking an audience with GSA officials for a debriefing, which is Beltway speak for WTF!