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FCC Handcuffs U.S. Mobile
Written by Jim Courtney, an associate editor of Skype Journal.
Having been trained as an engineer, scientist and business person, I’m always amazed at how the U.S., the self-assumed leader of free enterprise and democracy, seems intent on stifling their own economy and innovation ecosystem through ongoing government support of special interests whose business models are challenged by technological innovation and breakthroughs.
This week brought just the latest example. FCC Chairman Kevin Martin told an audience at the CTIA Wireless Convention in Las Vegas that he was dismissing a petition from Skype that would force operators to connect any lawful device to the telephone network provided it doesn’t do harm to the network. This in a world in which Japan, Korea and Europe are providing the infrastructure that has allowed open competition, that separates the pipes from the content — Stockholm is a prime example — and that clearly provides much lower cost and higher participation communications activity for both the consumer and the enterprise.
This decision demonstrates nothing less than a failure on the part of a U.S. government agency to comprehend the technology infrastructure available to enhance business processes, build effective hardware platforms and take advantage of today’s more cost-effective rapid software development tools. And it portends for a less competitive U.S.
As for the impact on Skype’s presence on mobile platforms, it’s negligible at best. There are significant wireless data infrastructure issues that need to be addressed before there can be true VoIP over wireless with a business model that’s acceptable to carriers. Several vendors, such as iSkoot, IM+ for Skype, Fring and Mobivox, have found ways to access Skype via any carrier; they may not always have the full feature set but often having voice and chat is sufficient.
iSkoot has started to develop some carrier partnerships as they have found a way to bring both market advantages and cost savings to carriers using lessons from a SS7-type algorithm. By building on this algorithm, they also provide a means to access Skype for those smartphone owners who are on carriers with whom iSkoot does not have a direct relationship. IM+ for Skype allows you to set up calls not only for your own mobile phone but also to have them sent to other phones, such as one at the office. Mobivox simply provides access to Skype contacts from any phone handset with the help of VoxGirl and her speech recognition capabilities.
Over 80 percent of Skype users are outside the U.S. When a broader U.S. public starts to realize that the communications offerings found in Europe and the Far East are far superior to what they’re being offered, a movement will arise demanding change. It just may take a few years.
By then, with the adoption and implementation of Wi-Fi in homes and offices and the spread of dual mode GSM/Wi-Fi phones, such as any WiFi-enabled Blackberry 8×20, there will be many ways to circumvent the carrier networks. Users will start to ask about applications that they can run over Wi-Fi networks, not carrier networks. Once there is broad user demand for more openness, the politicians will respond.
The Martin recommendation, however, will limit hardware innovation over the long term. It will limit innovation in services and applications and it will put the U.S. at a competitive disadvantage for both business and consumers. But will it also drive the carriers to invest in the infrastructure required to support and match the offerings, both services and applications, available in Europe and the Far East? Will it really encourage the carriers to really open up their systems through appropriate APIs and rewarding business relationships? Should the U.S. (and Canada) be striving harder to have an infrastructure based on the Stockholm model, whereby users have fiber to the end point — effectively built as a regulated utility providing the “pipe” — pay under $20 per month for unlimited very high-speed data (100 Mbps) and have their choice of service providers?
In the meantime, the best response for current users is to go into guerilla warfare mode:
- use iSkoot or IM+ for Skype to access your Skype and SkypeOut contacts from mobile devices such as Blackberry, Nokia and other smartphones
- encourage the implementation and use of readily authenticated Wi-Fi access points at your home, office and other frequently visited locations.
- use applications such as SlingPlayer for Mobile and Qik.com on devices where it is supported and cost effective for the end user.
- show the carriers they are losing significant business.
If a broader base of users than simply “in-the-know” technical geeks start to experience these applications and services, awareness of the issues raised by the Skype petition will be spread virally, and we all know that’s the most effective marketing available. Change can be driven, if enough are aware of the issues and are ready to speak their voice. And isn’t that the American way?
Year-End Folly: Pin the Tail on the Stocks
Predictions — like a fatty snack at a New Year’s Eve party, or that last glass of champagne in the wee hours of the morning, you are almost sure to regret them, yet sometimes you just can’t help yourself.
So although I can do without the trans-fat and am willing to forgo the bubbly, this year I can’t pass up a few lingering minutes at the crystal ball. To that end, I’ve taken seven of the more interesting stocks of 2007 and ranked them according to how I think they’ll perform in 2008. They are all stocks that inspired a good deal of passionate discussion and, for the most part, a good deal of capital gains.
First, listed in order of their 2007 price gains, the seven stocks I’ll look at are:
- Research In Motion (RIMM), up 166.3 percent
- Amazon.com (AMZN), up 134.8 percent
- Apple (AAPL), up 134.7 percent
- Google (GOOG), up 50.2 percent
- Microsoft (MSFT), up 20.9 percent
- eBay (EBAY), up 10.4 percent
- Yahoo (YHOO), down 8.9 percent
Before I make my forecast, the usual disclosure: As investment advice, this list is worth exactly as much as the money I’m putting in them: zero dollars and zero cents. The only advice implied here is not to confuse a year-end parlor game with trading ideas. And as always, feel free to leave your own list or your thoughts in the comments.
Google. Time and again, it’s been a mistake to bet against this stock. It may have an off quarter now and then and it may draw bad press, but the company still rules search. A slow economy would dry up ad dollars in general, but search ads might benefit as advertisers seek out the cheapest way to get their message to consumers. And if Google Apps make an impact, 2008 could be the year when Google brings in non-search revenue.
Yahoo. Yes, good ole black-and-blue Yahoo. 2008 will be a make-or-break year for the company, but 2007 was so hard on the stock that even a moderate recovery in profits could propel it higher. Like Google, it could benefit if weakness in print and television ads end up driving more ad dollars online.
Apple. The only thing standing in the way of this company’s path to even more fortune are its own potential missteps. Notably, William Safire predicted today a “pod push-back” that could damage Apple. I don’t see it, but it is interesting to note the meme of an Apple backlash is drawing mainstream mention.
Amazon.com. The stock has always been on a rollercoaster: $5 in 2002, $60 in 2003, $25 in 2006 and $95 just last week. The pendulum-like pattern suggests a selloff in 2008, but I think it’s more likely to see a merely moderate year. For a compelling longer-term argument in favor of Amazon, see this post from Fred Wilson.
eBay. Another flat-ish year for the company, I suspect, with growing investor impatience if it continues to merely tread water. Bears have been grumbling for some time that eBay would be better off split into three. That idea could gain steam if earnings start to disappoint.
Research In Motion. I don’t have anything against the company or its outlook, but I think this is a case of solid financials distorted by speculative enthusiasm. The stock’s 3 percent drop on the last day of the year could signal that investors are ready for a pullback.
Microsoft. Despite Steve Ballmer’s success in turning around this battleship, Microsoft remains most vulnerable to a slowdown in corporate IT spending. Beyond 2008, the company will do fine, but I think there’s a risk of a setback before then.
The wild card in all this is the overall economic forecast, which is as uncertain and hard to call as it’s been in a long time. Still, even though nobody knows how bad or how long the credit crunch will hurt, so far it hasn’t come close to curbing consumer appetite for innovative tech gadgets, which is good news for companies like Apple. And as long as it doesn’t slow overseas growth, that’s good news for companies like Google.
So there’s my list. Now to make it even more interesting, I created an entirely random list to compare to my own. Similar to tossing darts at a newspaper’s stock pages, I assigned each of these seven stocks a random integer, then ranked them (as I did the two lists above) in descending order. Here’s the outcome:
- eBay
- Research In Motion
- Yahoo
- Apple
- Microsoft
- Amazon.com
As much thought as I put into my own list, I have to say the contrarian in me is rooting for the randomizer.
Here Comes Trouble: The Thin Edge of SIP
Vint Cerf’s Facebook profile includes a picture of him wearing his favorite t-shirt: it reads “IP on Everything.” Cerf co-authored the 1973 paper that led to TCP/IP being used as a means to interconnect previously incompatible computers and networks associated with the ARPANET. Increasingly, Session Initiation Protocol (SIP) is playing a similar role as the common denominator interconnecting diverse communication devices and networks. And although the protocol geeks either love or hate SIP, its rapid adoption makes it impossible to ignore.
Although Microsoft and Cisco offer competing visions of the future of communication, they both support SIP. Skype rose to fame via a proprietary protocol, but Skype utilizes SIP as the means to connect with the telephone network. Several dozen device manufacturers — from Nokia and Philips to Sony and Siemens — offer SIP-enabled devices, and virtually every other consumer electronics company on the planet plans to roll out SIP-enabled devices over the next 12 months. Ten million SIP-enabled phones have sold to enterprise customers. Avaya, Nortel and Siemens may argue over who has the best features, but they all support SIP.
The entry-level price for an SIP telephone fell to $40 in 2007 from $400 in 2002. Chip manufacturers like Texas Instruments and Broadcom already have third-generation functionality in the pipeline. Best Buy et al do not currently carry SIP phones, but web sites dedicated to SIP-enabled products (e.g. telephonydepot.com) arrived in 2007. Hundreds of companies (e.g. Betamax Group) bridge SIP calls to the traditional telephone network. Fring provides free software that turns mobile handsets into SIP clients enabling voice and IM functionality via Wi-Fi and 2G or 3G data plans.
The patent woes of SIP-based Vonage seem to have squelched the stream of SIP VoIP startups for the time being. For some 20 years, the TCP-IP protocol that Vint co-created achieved very little in the way of public awareness until the arrival of Mark Andreessen’s web browser. Cheap telephone calls represent SIP’s thin edge, but SIP still needs its web browser moment.
Solutions exist for the early obstacles encountered by SIP, such as NAT and firewall traversal. Adobe’s plans for integrating SIP into Flash may go a long way toward unleashing more creativity. SIP continues to evolve with peer-to-peer SIP arriving to challenge client-server SIP during 2008. Yet we remain in the horseless carriage phase, in which everything gets framed in terms of the old model. SIP phones do little more than replicate the features and functions of traditional telephones.
In any case, to quote Victor Hugo, “Nothing is as powerful as an idea whose time has come.” In the 100 years between 1876 and the 1980s, the painfully slow pace of innovation associated with wired telephone monopolies meant that a mere 600 million people were able to use the telephone as a means of communication. Over the next 25 years, competition between cellular carriers increased the pace of innovation enough to allow the technology to reach two billion people. Now, an even faster pace of cost performance improvements positions an infocom ecosystem of SIP devices as the solution to bring communication to four billion people. The time has come for SIP.
For Skypers, First the Party, Then the Job Cuts
Almost 10 days ago, Niklas Zennstrom, the co-founder of Skype, threw a party to remember at London’s swanky The Cuckoo Club. The nightclub, which is normally the haunt of Prince Harry and his brother and the rest of the jet set, played host to Skypers — both current and past — including co-founder Janus Friis. Unfortunately, after the party came the hangover.
It is rumored that nearly 30 Skype employees — mostly in the London office, but also some in Estonia, came back from the weekend to find pink slips waiting for them. I am told that most of the folks who were cut were from the marketing side of the business. We have emailed Skype PR to get an update/confirmation on the news of job cuts. It is cruel to say, not a very merry Christmas for those who have been nudged out.
Several senior executives had already quit the company. On Oct. 1, Zennstrom announced that he was resigning as CEO and Skype took an impairment charge of about $1.43 billion.
Skype recently made the wrong kind of headlines when it pulled a switcheroo on some of its London-based SkypeIn customers. eBay has been trying to rationalize the Skype’s operations and at the same time trying to figure out what to do with its ultra-popular but not quite profitable P2P voice service. Google was rumored to be interested in Skype, but we haven’t heard anything at all.
Wall Street stumped, surprised by Internet Cos
ANALYSIS (Q1 2007 Earnings Season): Internet companies are playing a game of stump the analysts. And they’re winning.
For the second straight quarter, the research desks on Wall Street have significantly and pretty consistently fallen short in their earnings estimates.
This is no small matter for analysts. Their job is to query the company, talk to its customers and crunch its numbers to distill it all into a single number: an EPS forecast that, if short by a penny or two is no big deal. But a forecast off by 23 cents, as happened with Apple this quarter - well, that can cost clients money. And clients hate to lose money.
Take a look at the graph below. With the exception of Yahoo - whose earnings were among the few tech giants to disappoint Wall Street this quarter - all of their net profits came in at least 9% ahead of the consensus of analyst estimates.
The biggest surprise of all - in every sense of the word - belonged to Amazon, whose 26 cents a share profit was 11 cents, or 69%, above the 15 cents the Street had been forecasting. Most analysts had given up hope that Amazon’s profit margins would ever rebound, with some arguing the company was no different from an old-fashioned bookseller.
Boy were they wrong. Amazon’s net profit more than doubled while its ever-scrutinized operating margin expanded thanks to some spending discipline. Piper Jaffray downgraded Amazon’s stock a day before its blowout earnings. Amazon’s stock rallied 40% in the next two days.
Even Microsoft, which many had assumed was aging into a steady machine of predictable profits, took the Street by surprise Thursday. All of the 34 analyst forecasts were calling for EPS in a narrow range from 45 cents to 47 cents. Microsoft’s number came in three cents ahead the highest of all those forecasts.
Nor is this parade of surprises a one-quarter aberration. In January, when the same companies were reporting earnings for the fourth-quarter of 2006, it was Yahoo who had the biggest surprise. Apple followed closely behind. All of the others had surprises that were at least 9% above the consensus.
What’s going on? Most of these companies were easier to predict a year ago, when the surprises were much more modest. Did they suddenly become harder to read?
Part of the disconnect is due to analysts, who were probably inclined to paint the tech sector with a broad brush, one that foresaw a market slowdown. A slumping housing market was expected to spill over into the economy at large. Overall profit growth this year was expected to be half the 14% rate of 2006.
Within that mindset, most analyst expected some tech giants to come up short: One or two might surprise to the upside, but surely not all of them. But companies like Amazon, Microsoft and eBay, under pressure for years to rein in spending while ensuring past spending would translate into present growth, were starting to deliver.
All of this is good for contrarians and for spectators like us in the press. Aside from Yahoo, these companies have in aggregate several tens of billions of new dollars in their stocks that weren’t there a couple of weeks ago.
But it makes life tough for analysts. Having resuscitated their reputations after the excessive antics of Blodget, Grubman et al, they are now facing a new crisis: Relevancy. If they don’t get a better handle on earnings of the biggest tech names, it won’t be hard to forecast the impact on their own income.