USTA Telecom 2003
By James Sneeringer
Wave Issue 0336 11/7/03
October 11-15
Las Vegas, NV
This is a conference on the move. With more than double the number of
attendees from last year, the USTA's Telecom '03 conference was relocated
to Las Vegas after outgrowing its originally planned venue in California.
Even after moving to Vegas, the exhibit floor space was expanded several
times to accommodate more booths. With so many conferences struggling
lately, the continuing success of this conference must point to something.
The USTA has tapped into two energizing topics--regulation and the triple
play. A large number of the sessions, including every keynote, focused
on the regulatory environment and what can be done to change it. The
Association is well funded by its members, and its President, Walter
McCormick Jr., is seen by many to be one of the more connected and influential
lobbyists in Washington--he succeeded in landing FCC Chairman Michael
Powell for the conference keynote this year. Last year at the conference,
incoming Association Chair Margaret Greene of BellSouth challenged the
members to come together as allies to fight the perceived regulatory
inequities of the current FCC interpretation of the Telecommunications
Act of 1996. If the attendance at this year's regulatory sessions is
an indication, they are responding.
Of particular (and new) concern this year are the consumer VoIP offerings,
of which Vonage may be the best known, but also include Pulver.com's
Free World Dialup and Skype--the new VoIP offering from the founders
of P2P file sharing system Kazaa. These companies served a dual role
at the conference. On the one hand, they are feared and vilified by incumbent
carriers, as they currently are unregulated and untaxed, and inexpensive
and in some cases completely free to use. Incumbent telcos feel that
they are being held responsible for all the telecom burdens, such as
universal service contributions, competitive access via unbundling, and
law-enforcement and emergency compliance, while VoIP carriers are getting
a free lunch.
On the other hand, the VoIP offerings are held up as a model of the
market possibilities if only telecommunications were de-regulated. With
VoIP available over any IP transport, the argument goes, why should the
FCC discriminate between wireline telecom and any other data communication
service--such as cable. Rather than focus on competition within the telecommunication
category, the ILECs would rather the Commission satisfy their need for
competition by looking cross-platform at access technologies such as
cable, fixed wireless, satellite, or perhaps even 3G or Wi-Fi.
On the exhibit floor and the remainder of the sessions, the triple play
was clearly the other draw for this conference. Over half the exhibit
floor was given over to equipment vendors, service providers, and integrators
focused on providing video over telco transport such as ADSL, VDSL, or
fiber. Yet what was missing was a focus on more than the technology.
Video is outside the core competencies of the major RBOCs, but many small
and some medium-size ILECs already have video services available, either
over HFC plant as the local cable franchise, or in some cases over DSL.
There were several sessions given by some of these companies devoted
to understanding and implementing video, as well as an entire co-hosted
conference (the Viodi Video Conference).
In some of the sessions, small and medium ILECs presented data that
showed that they had successfully gained market share in video with their
offerings. And perhaps more importantly, offering video as part of a
bundle seemed to have a strong effect of reducing churn. In the zero-sum
game of consumer spending, the best offense may simply be a good defense.
With wireline telephone revenues continuing to slide, telcos are looking
for any way to hold onto customers.
Yet, what was missing was any step beyond the me-too of offering cable
channels over DSL. Only one company on the exhibit floor seemed to address
the consumer home directly--Motorola. Home networking is seen by carriers
as a way to reduce churn in data services, but to this point it has been
focused on Wi-Fi and networking computers. Motorola's solution obviates
the computer and reduces data networking to an up-sell. The key is providing
valuable services to consumers in a reliable and simple way.
US Telecom Association
USTA is a trade association representing service
providers and suppliers for the telecom industry. Services offered
by USTA’s 1,200 member
companies include local exchange, long distance, wireless, Internet and
cable television service. The vast majority of the membership is made
up of ILECs, mostly small to medium sized, although all four major RBOCs
are members as well. There are a few CLECs, and some of the smaller ILECs
operate CLEC subsidiaries outside their incumbent areas. Some ILECs also
operate cable franchises.
The USTA regulatory position, as expressed by its President Walter McCormick,
is:
The purpose of regulation is to protect consumer interests in the absence
of choice (in a monopoly). Since the consumer now has multiple choices
for connectivity, there is no longer any reason for regulation.
This is to support the elimination of UNE-P regulations altogether.
The compromise solution of the FCC recently published is not considered
acceptable, and the USTA looks to continue the fight.
Outgoing Association Chair Margaret Greene of BellSouth made the case
for deregulation in her remarks opening the conference:
What can we not change? The forward march of technology. The past, however
comfortable, is not an option. So company after company is embracing
the future--expanding in wireless, exploring VoIP for ourselves, moving
into flat-rate pricing and bundling, and investing in fatter pipes.
What can we change? The man-made impediments to what
should be a thriving, innovative, and prosperous communications
marketplace today. When human
error is to blame, we have to have the courage not merely to point
the finger, but to demand and ultimately secure fundamental reform…reform
that will place the fate of our companies in our own hands and in
the hands of the American consumer, rather than with regulators who
refuse
to acknowledge that the world is a different place.
The View from the U.S. Congress
In the opening session, U.S. Representative Joe Barton
(R-Texas) discussed the feelings in Congress regarding the mess that
is telecom regulation.
Rep. Barton highlighted 3 major issues on the minds of the Congress:
- Universal
Service--what is its place in the new world of communications?
It was needed earlier in the development of the country,
but is it needed
now? Who should fund it?
- Local loop competition--the goal was always
facilities-based competition. Many in Congress feel that the FCC
interpreted the 1996 Telecom Act
poorly in implementing this.
- Broadband Penetration--we are still not
there yet.
What can be done? Speaking directly to the Association,
Rep. Barton made two clear points.
- Many members of Congress feel that
the 1996 act is just
not working well. It will likely take a legislative solution to clear
up the mess.
- BUT, this is a presidential election year and
the second term of a congressional term...there will be no congressional
action
on telecom
whatsoever until both are over. Rep. Barton stated that this should
be considered a "ground work" year for the USTA's efforts. "Get
to know your Congressman now."
Keynote Lunch--FCC Chairman Michael Powell
At lunch on Tuesday, Powell held forth to a packed room, including an
overflow room that received the video and sound feed.
Powell led off with an interminable metaphor, comparing communications
technology to a girl, and regulations to her clothes. "We can
either send her out into the world wearing old hand-me downs of legacy
regulations from decades ago, or we can make her a new set of clothes
that fit her perfectly--a new regulatory paradigm designed to let her
move easily and look good." And so on. The important point was
that she is going out no matter what we do, and what she is wearing
is up to us. And a lot of other girls (countries) have nice new clothes,
and they are getting all the boys (investment), etc.
What worries Powell most? We are falling into regulation of new technologies
by accident, applying old regulations as we go and "tripping" into
Internet regulation. More comments:
Technology will not stop. Even as the Internet bubble burst, then telecom,
and the economy has slowed, Moore's Law has not stumbled, capacity and
storage continues on their trend increases, etc. This unstoppable trend
has to be embraced fully by regulators and industry as they plan for
tomorrow. This vision is important now more than ever, and the public
has to be won over to understanding it.
We do not have a telecommunications act of this world--we are stuck
with an act from the old world. 7 years ago is an eternity. The statute
is failing, and one day it will break completely, and only Congress
will be able to fix it.
In the short term, the FCC can either: 1) try to look at communications
with the cleanest possible slate, or 2) look at communications through
the lens of legacy technology and regulations. In the end, both may
end up at the same place, but 1) is a shorter, cleaner path.
Universal service is important social policy and it is important to
keep its goals in mind. That said, it is distorting the market currently,
because decisions are being made for the purpose of arbitrage advantage,
rather than technology or market advantage. Keeping the goals in mind,
it needs to be looked at again. But remember that government does not
come without strings attached. If we offer an advantage, we will ask
for something in return.
State regulators are trying to do their job and advocate for their
state. But a bit that travels through 5 states on its path should not
have to deal with 70+ local and state regulations and taxes along the
way. It makes no more sense than trying to apply them to an airplane
that flies overhead. National and international services cannot be
controlled by artificial, politically imposed local boundaries. The
Constitution includes the interstate commerce clause for a reason.
But it is not a power issue--i.e. "run them over." That
would just lead to massive litigation. We need to engage them in
discussion,
and encourage them to look at the Internet as a business opportunity.
The key question is--what will they do to attract technology money
to their area? But it will likely continue to be an issue and at
some point we will have to call on the federal legislature to solve
it.
Federal vs. state battles are not about technology--they are about
revenue. We need to not confuse the two, by contorting technological
definitions to achieve the revenue goals. Let's keep the two separate
and talk about them both.
The recent 9th circuit court ruling (saying cable modems have a telecom
aspect) was just wrong. The court does not understand the technology
issues and the consequences of their decision. They did not rule on
our regulations. Rather they claimed they were bound by language from
7 years ago. This is nothing yet--just one judge offering his opinion.
However if it is affirmed it will set in stone a way of thinking that
is 7 years old--an eternity. If that happens we will have to rev our
lobbying into high gear to get the legislature to change the statute.
It's in vogue to think of things as regulation vs. deregulation.
Wrong. I believe in the market, because the market is America. It
has provided
us with all the advantages and made us the country we have today.
The key is that technology moves forward whether we like it or not.
As
regulators we have to have humility and realize that we are always
just chasing change. I remember a quote from John Chambers: "If
you want to be a CEO, you better get used to declining price and market
change FOREVER." There is no more slow, monopoly regulation.
Now we are dealing with ever faster change.
After the speech the WAVE caught up to Powell and asked him:
You said a lot about Congress taking action in your remarks.
Where is the commitment to communications technology from the top of
the executive
branch as well?
Answer:
Yes we need it, absolutely. This stuff is a lot more powerful coming
out of the President's mouth than mine. But these guys just do not understand
any of this. It would be a mistake to ask them to try to say anything
detailed. But a general commitment, yes I think we need that. But you
have to understand that politics are very shallow--a mile wide but only
an inch deep. It's up to YOU guys (points at people gathered to talk
to him) to put the pressure on. And you have to talk their language--jobs,
economy, and keeping up with other nations technologically.
AOL Voice Services
The AOL session was blockbuster. Jim Tobin, a VP, spoke about their
moves into the voice and mobile markets. They now offer a USB VoIP phone
that looks exactly like a basic handset and cradle. It integrates with
AIM and the user can go to voice at the click of a button. Voice quality
is not great but it is good enough. They now have about 1 million members
using voice services.
Other voice services include CallAlert, which detects an incoming call
with caller ID and lets the user take it or kick to voice mail. Yet
another voice service is VoiceMail, which integrates voice and e-mail--"unified
messaging." Voice messages can be listened to from within the
e-mail screen, and e-mail text can be listened to over the phone.
In the mobile space, AIM now completely integrates with SMS from major
carriers. That is, AIM messages show up as SMS on mobile phones, and
SMS messages sent in reply are routed back to the AIM browser--transparent
to the user. Previously AIM could use SMS for transport, but an AIM
client was required on the handset. Not any more. AOL is also developing
AOL premium service packages for mobile data phones. Applications include
Moviephone (ordering movies tickets from the cell phone screen), or
You've Got Pictures (AOL picture e-mail, from camera phones).
The WAVE asked--do these announcements mean you are looking beyond
the PC platform?
Answer:
Yes, definitely. We expect that the proliferation of
connected devices will be orders beyond the PC, whose market is slowing.
Plus,
Microsoft
continues to dominate the PC and we have to ride on top of their
operating system--which we don't like. We never know how it will develop.
On
the mobile space, there are number of operating systems and environments--we
like this much better. The key is to learn how to slice and dice
the products to simplify for the new platforms. AOL is committed to
moving beyond the PC.
Every time Jim discussed AOL call center activities,
he mentioned
the cost associated with having such highly-trained service people.
This
highly level of training is necessary because of the number of
calls that revolve around Microsoft OS issues. The people cannot get
through
to MS and so call AOL. It's not AOL's product but they have to
solve it anyway, because bottom line is that the AOL service is not
working.
He stated several times that this causes their service costs to
be very high.
Broadband--Capturing the Home
This was a panel on capturing consumer spending by winning the home.
Speakers were from Motorola, Linksys, MS Xbox Live, and SureWest--a CA
ILEC that is offering the triple play.
The Linksys presentation by Matt McRae was full of insights into home
networking:
28% of homes have broadband according to Gartner as of October 3, 2003.
53% of those homes have a home network according to Parks Associates.
We got our start in retail and we have had great success there. But,
now it is time to move beyond early adopters and into the mass market,
and retail is not the way to do it. A customer walks into a store and
sees 50 home networking products and they don't even know what their
operating system is--they are not going to buy anything.
Home networking will only work in the mass market if it is offered
as a service. Attach rates jump 2-3 times when a service provider offers
home networking as a service offering, including leased equipment in
some cases, rather than simply reselling the equipment.
Just changing the name from "home networking" to "broadband
sharing" increases the take rate 3 times.
We need to sell through carriers and service providers. This is where
the Cisco acquisition is so important. Now we can go to a carrier and
offer both sides of the equation--carrier equipment and CPE. We are
working now on integrating the offerings even more.
We can tell we are beginning to hit the mass market because of the
tech support calls. One memorable one began with a conversation revolving
around taking the shrink wrap off--the customer needed encouragement
just to do that. As we move into this market we are taking a very careful
look at ease of use, all the way down to the box design.
Linksys displayed a slide with 4 examples of actual deployments, with
attach rates, although the service provider names were withheld. When
home networking equipment was simply resold by the carrier, the attach
rate was 6% and churn was reduced by 15-20%. When another provider
offered the equipment leased for a monthly rate, the attach rate was
20% and churn was reduced by 25-30%. The attach rate was 100% when
it was offered by another provider as a free add-on to service with
$99 install fee. There was no data on the impact on churn for that
provider.
SureWest, a medium-size ILEC in California, offered details of their
triple play. The presentation was by COO Fred Arcuri.
SureWest began offering their triple play in July 2002. The system consists
of video over HFC (hybrid fiber/coaxial), and data and voice over fiber.
They predict the network will be all-fiber by early 2004. Most cables
are aerial as opposed to buried.
They currently have 65,000 triple play subscribers and expect to go
to 150,000 by 2006. Over 50% of their customers take the triple play
when it is offered to them, and over 80% take a bundle of two services.
The primary selling point has been one bill for services. But, there
was often sticker shock when that one bill came. Most people do not add
up how much they pay per month for all those services. SureWest built
a sales tool that allows customers to compare the one price for the triple
play, to the aggregate of what they were paying. Before that tool, sales
pitches were 50% less effective.
SureWest also currently offers a VOD program to their
video subscribers. A memorable moment was when, in response to a
question, Fred admitted
that the only reason they are able to offer VOD was that they had bought
the fully developed system from a bankrupt company at pennies on the
dollar. "I don't think the business case works any other way.
I don't know what these guys (the failed company) were thinking when
they
started."
The challenges for SureWest have been: driving consumer
adoption, navigating the maze of local regulations, and managing the
technologies. But it
is worth it. ARPU (average revenue per user) is at $105 per month and
they believe that they can drive it to $120 per month through VOD fees
and enhanced channel packages. Fred stated that they are closing about
70% of the homes they pitch.
On the Floor
Motorola plus Next Level. Siemens plus Efficient Networks. Cisco plus
Linksys. The battle for the consumer home is being shifted from the retail
outlets to the carriers. Cisco, Motorola, and Siemens, all traditionally
strong on carrier-class equipment, have added consumer divisions via
acquisition, for the express purpose of offering end-to-end solutions
to carriers. All three companies were on the show floor at Telecom '03.
Motorola
Motorola appeared to be the only company on the floor directly addressing
the consumer home. Their entire booth was a mock-up of a consumer living
room and den complete with a couch and video game system. The Motorola
video system, based on a set-top box, can provision separate video streams
to three sets throughout the house using wires or wireless, as well as
provision data networking and phone services such as caller ID.
The WAVE asked--this looks like home networking...where is the PC?
Answer
Who needs a PC? Our residential gateway is a DSL modem,
router, MPEG2 decoder (actually 3 of them in one box, to support 3
TVs), and caller
ID box. In this scenario the customer buys voice and video from
the carrier, and data is an upsell if the customer has a PC. The box
can provision 3 separate TVs in the home via either Ethernet wires
or
802.11g.
Carriers install the box--it is an opportunity to train the customer,
and to upsell services such as caller ID. Caller ID is handled
in the gateway, and the interface is via the TV. This drives the caller
ID
take rate to over 80%.
The whole Motorola offering is end-to-end
from the carrier CO to
the home network. This is in part based on Next Level Communications,
which
Motorola acquired last year. The key twist is the upsell--data
networking. The consumer services are first and foremost offered as
video and
data. The customer need never hear the word DSL.
Cisco
The Cisco booth was the opposite of Motorola--dominated by racks full
of blinking lights and an enterprise phone system. Yet conspicuously
on display was a table and banner from Linksys. We spoke with the only
person there with a Linksys shirt on. Some details from the conversation:
Sales through carriers are very important, especially as we start to
hit the mass market. Next year, Linksys will begin to be resold through
a major provider--name withheld.
Linksys was already pursuing service provider sales
when we were acquired by Cisco. I was brought into Linksys before
the merger to help develop
those sales channels. Today we sometimes go into service provider sales
with Cisco reps, sometimes without. Certainly, though, Cisco has opened
some doors for us. They have opened a "controlled explosion" in
our carrier sales.
Linksys is active in cable as well as DSL. We are DOCSIS 2.0 certified.
But, I'm not so sure about DSL Home (the DSL Forum's managed home networking
initiative). The 4 big ILECs each have their own labs, and even with
a standard, I suspect there would always be something more each lab wanted.
Standards-based only gets you in the door--you still have to satisfy
each ILEC individually.
Siemens
Siemens had the smallest booth of the three but hosted several events.
The company has changed the name of their Efficient Networks group to
Siemens Subscriber Networks. The booth was focused on carrier-class equipment
but we managed a short conversation with Nicki Korjenek, Director of
Sales, Key Accounts, about carriers and the consumer market.
Siemens Carrier Equipment has a very different sales model from Efficient
Networks. Carrier equipment is all direct sales, but Efficient Networks
is mostly sold through distributors, resellers, etc.
But, we can sign one contract for both. Sometimes we do go into carrier
sales with our counterparts at Efficient Networks. The contract will
cover both; the fulfillment is just through different channels.
Carriers are definitely looking at home networking as an important part
of their strategy. They need anything that will help them get new customers
and hold on to existing subscribers. This is one reason we bought Efficient
Networks, and now the name change is to signify their integration into
the range of products available to carriers.
DSL Forum
What is the status of DSL Home? At Supercomm we reported the launch
of this initiative by the DSL Forum to develop a standard approach to
managed home networking--similar to Cable Labs' Cablehome standard. At
Telecom '03 we stopped by the booth to check up.
The DSL Forum is currently in marketing mode, working with 12 other
organizations. They are planning a big presence at upcoming shows including
CES, ExpoCom Mexico, Supercomm 2004, and the Broadband World Forum in
Italy. In addition there will be a spread in BusinessWeek in November
and DSL Home will have a presence in there. On October 7, the DSL Forum
officially launched the DSL Home Media Campaign.
Three profiles are currently being developed, that the standards will
support. These are profiles of home gateways, for home theater, home
office, and automated home control. These will demo at Supercomm 2004
in June.
In August, major service providers announced their support for DSL Home.
These include BellSouth, SBC, Verizon, and Bell Canada.
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