After years of negotiations, a group of bandwidth providers that includes AT&T, Comcast, and Verizon are closer than ever to striking a deal with media and entertainment companies that would call for them to establish new and tougher punishments for customers who refuse to stop using their networks to pirate films, music and other intellectual property, multiple sources told CNET.

The sources cautioned that a final agreement has yet to be signed and that the partnership could still unravel but added that at this point a deal is within reach and is on track to be unveiled sometime next month.

Image: Ryan Ruppe

This has been in the works a long time. The Recording Industry Association of America (RIAA) and Motion Picture Association of America (MPAA), the respective trade groups for the four major record companies and six top Hollywood film studios, have labored for years to persuade ISPs to take a tougher antipiracy position. Under the proposed plan, participating bandwidth providers would adopt a “graduated response” to subscribers who repeatedly infringe copyrights. ISPs would first issue written warnings, called Copyright Alerts, to customers accused by copyright owners of downloading materials illegally via peer-to-peer sites, the sources said. Should a subscriber fail to heed the warning, an ISP could choose to send numerous follow-up notices. Eventually, the plan requires ISPs to take more serious action.-C

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Last week AT&T told America that one plus one equals three, and that spending $3.8 billion to expand and improve its network costs more than paying $39 billion to take over T-Mobile. Before that it said that reducing wireless investment by $10 billion equals increasing it by $8 billion, and that putting nearly 20,000 Americans out of work equals creating 96,000 new jobs. Now it is telling us that forcing customers to pay double for text-messaging plans is a better value. Apparently AT&T’s good at math only when it is multiplying its profits, subtracting jobs and exponentially raising prices.
Free Text Messaging Is Costing Telcos Huge

The use of data network-based text messaging allows users to avoid text messaging fees, and it is costing telcos a lot of money:

Alan Clendenning via AP

The London-based Ovum research firm estimates telecommunications companies lost nearly $14 billion last year in text-messaging revenue as consumers migrated to applications allowing them to send messages over cell phone data networks.

Ovum said the companies still took in an estimated $153 billion, but that was down 9 percent from a year earlier.

And where’s the bottom?

Fred Wilson:

These are two very different models but in one way they are converging. The last mile telcos and cable companies have taken over the internet access (last mile) market by virtue of the move from dial-up to broadband and today there is a duopoly in most local markets. It is very possible that these internet access providers could evolve the internet industry to the cable model.

Don’t forget the wireless carriers in all this (Fred mentions them farther down). My sense is that they ultimately end up as the ones who own it all. Cabled internet access is just a transition until we’re all using wireless 100% of the time. I’m not sure how long it will take, but it seems inevitable.

And the same issues exist there if we don’t get net neutrality in place…

To understand their logic, consider this thought experiment: Imagine that you own a freeway — say, Highway 101 through Silicon Valley — and you had the power to pluck a car from a traffic jam with a helicopter and deposit it on a clear stretch of the road. Naturally, drivers who could afford the service would be happy to sign up.

"That highway is like the Internet, and the individual cars are the packets of data. The ISP is essentially the gatekeeper that controls the flow of cars on the highway. If the ISP is allowed to snatch any car from the back of a very long line and put it in front of everybody else when the driver of the car pays a priority delivery fee, would the ISP have an incentive to keep the road congested or to expand the road capacity?" they wrote.

Can Telcos Buy their Way Into the Cloud or is this Deja Vu?

2011 has thus far produced a bevy of acquisitions in the cloud computing sector. The epic buzz around cloud has driven many Telcos to revisit build vs. buy calculations with a renewed appreciation for the economics of buying their way to cloud relevance. Apparently the carriers have realized that the time to market and customer acquisition benefits of purchasing colocation companies (who operate a cloud) outweigh the economic impacts. As a result we saw three significant acquisitions in the first quarter including Terremark purchased by Verizon, NaviSite by Time Warner Cable and most recently Savvis gobbled up by CenturyLink/Qwest. 

Okay, what gives? Didn’t we just suffer through two setbacks in the adoption of cloud computing? Yes. Last month AWS had a prolonged outage as result of problems with their Elastic Block Storage systems. Sony Online also took a big hit as two separate phishing attacks compromised over 100 million users’ confidential data. So clearly uptime and security will continue to plague the adoption of cloud-based services by the enterprise, yes?

Well no, not according to the analysts. Recent studies point towards the continued adoption of cloud by business users. In fact Gartner projected global revenues for cloud computing to reach almost $150 billion by 2014. (The 2011 market is already estimated at ~ $68 billion globally).

Despite some perception hiccups thanks to AWS and Sony, enterprise IT is drawn to the efficiency and economic benefits of cloud. Flexibility and pay-for-use models are particularly appreciable given the uncertainty of the global financial system the last few years. The carriers are looking to capitalize on this shift in enterprise IT while leveraging their existing assets and personnel. At Silent Partner we find this wave of acquisitions reminiscent of the late 1990s / early 2000s when AT&T, Qwest, Sprint and others scrambled to build an application service provider (ASP) strategy.

At a high level, there are some obvious commonalities between the ASP boom of the previous decade and the current cloud computing frenzy. In a client-server world, the appeal of outsourcing your IT requirements is the same for software functionality (ASP) as it is for computational and storage needs (cloud). Thus we find cloud computing companies built in a similar fashion as their ASP predecessors:

  • ASP/Cloud providers own and operate the software application(s) 
  • ASP/Cloud providers own, operate and maintain the underlying equipment (servers, routers, switches, firewalls, load balancers, etc)
  • ASP/Cloud providers make services available to customers via the Internet
  • ASP/Cloud providers bill on a “per-use” basis 

In addition, many of those looking to jump on the cloud bandwagon are the same folks who tried their hand in the ASP market during the dot-com boom. These include telecom companies like Verizon, Qwest and AT&T; software companies like Microsoft and Google; and of course hardware manufacturers such as HP, Dell and IBM.

So, what happened to the ASP market during the previous decade? Didn’t things end badly? Yes, they did and carriers would be wise to revisit their history to make sure they don’t make the same mistakes. There are numerous examples:

Qwest spent heavily to build datacenters and launch its CyberSolutions brand in 1999/2000. The idea was to host ASPs in their facilities as well as offer their own ASP service. After seeing their stock fall by more than 50% in 2002, Qwest sold this division to Corio for a mere $15 million. By 2005, struggling Corio was swallowed up by IBM.

Then there’s the confusing tale of GTE. At one time the largest independent phone company outside of the Bell System, GTE agreed to join ‘em by merging with Bell Atlantic in 2000. Of course, this union produced Verizon and much later the dreaded “can you hear me now” guy. In 2000, GTE Internetworking was re-branded as Genuity. With much fanfare (and a $20 million marketing budget) Genuity launched their Black Rocket managed hosting or ASP platform. By 2002, Genuity struggled to service a massive $2 billion line of credit and as a result filed for bankruptcy protection in November. Level3 ended up acquiring their network and assets for $242 million later that same year.

We could go on with stories of Global Crossing, Cable and Wireless and others but you get the point. 

Luckily quite a bit has changed over the years in order to create a better environment for the carriers. As mentioned above enterprise demand for cloud is there and it’s getting stronger. The “build it and they will come” mentality of the last decade seems to have burst along with the dot-com bubble. Furthermore technological advances in networking, processor speeds and datacenter technologies make for a more viable proposition when it comes to outsourcing your IT requirements. The economics are better but so is the overall level of functionality (security and uptime not necessarily withstanding).

Finally, those carriers making acquisitions are in pretty good financial standing. This means strong balance sheets with low debt ratios and cash reserves. That being said Telcos are also being realistic about the state of affairs in their legacy product suites. After all, competition is fierce for IP services and the price points have been significantly eroded over the last two years. Adding to this problem is the saturation of the residential markets and the continued disconnection of landlines as more people use only cell phones. In summary the major carriers have realized that they must build for the future even if this means through acquisition. To remain relevant and financially viable long-term means you must have a cloud strategy. Here’s a quote from Adam Lowell, Verizon’s COO:

“Every time we see a paradigm shift in computing, we see the number of users go up by a factor of 10. The global presence positions us to be a big player in the next generation of computing, as well. And where everything we do—media, communications, personal data, network intelligence, security protocols and many more—will be stored in the cloud and then delivered around the globe.”

There is still a long road ahead of the Telcos since integrating acquired assets is never an easy task. Recent history has also shown that providing outsourced IT services to the enterprise can be too far removed from the carrier sweet spot. Still the conditions are favorable for cloud and legacy telecom companies must change in order to remain viable in the face of shrinking core revenues.

Recent Stories Round-Up: Telcos in Myanmar; InMobi, Snapdeal, Facebook in India

Recent Stories Round-Up: Telcos in Myanmar; InMobi, Snapdeal, Facebook in India

It’s been a busy week or so.

Here are links to some recent stories I’ve worked on with colleagues, both here in Singapore and in India.

Myanmar Tests Foreign Telecom Entrants (March 10):

YANGON, Myanmar—When Myanmar’s first foreign telecommunications companies, Qatar’s Ooredoo QSC and Norway’s Telenor ASA, arrived last year, customers lined up for blocks to buy their inexpensive services,…

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Bridge Alliance y Ericsson se unen para impulsar IoT

Bridge Alliance y Ericsson se unen para impulsar IoT

Ericsson desplegará su “Device Connection Platform” como una plataforma única para gerenciar IoT en los 36 operadores móviles que conforman Bridge Alliance. La solución reduce la barreras para el desarrollo de IoT, manteniendo el costo total de propiedad bajo y maximizando la calidad de servicio.

Bridge Alliance está compuesta por 36 operadores de Asia-Pacífico, Medio Oriente y África.


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Australian HTC One M9 smartphone launch details revealed as telcos dangle free data and goodies

Australian HTC One M9 smartphone launch details revealed as telcos dangle free data and goodies

Australian telcos have come out in force with pre-order special offers for the new HTC flagship smartphone, the HTC One M9, due to hit stores on Tuesday.

Those looking to buy an unlocked handset outright will be looking at a pricy $1099, but there’s plenty on offer from telcos to satisfy consumers’ increasing hunger for content

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Canadian Telcos Still Not Transparent Enough, Latest Report Shows

Canadian Telcos Still Not Transparent Enough, Latest Report Shows At, the privacy of our visitors is of extreme importance to us (See this article to learn more about Privacy Policies.). This privacy policy document outlines the types of personal information is received and collected by and how it is used.
Log FilesLike many other…

Mobile Internet Costs Around The World

anybody want to guess where the highest monthly cost for 2GB of data is? that’s right - the US. ($40+ on Verizon’s 4G LTE network). the cheapest? Japan, at around $10 on an identical 4G LTE network. Anybody want to ask Verizon how they can justify pricing that is 3-4x that of Japan or Sweden? oh, that’s right - they don’t have to justify it, because they have neither competition to force prices down, nor regulation to encourage such competition.