Consumer access to the Anywhere Network will boom over the next five years and the biggest growth will be in wireless lines. But the true anywhere experiences will emerge not from wireless broadband, but from devices and services that can blend ubiquity of wireless with the quality experiences of fiber.

Earlier this week, Chris Collins and I held a webinar focused around our new framework report, “Getting the Anywhere Net.” We discussed the emergence of access to the Anywhere web, how it’s being driven by consumer behavior and expectations and how the evolution of Anywhere, in turn, is transforming the consumer.

The webinar runs about an hour: audio (mps) and slides (pdf).

Following yesterday’s announcement by AT&T that they are cutting 2009 capex, we have seen a new round of stories and queries popping up wondering whether the sky is falling for the infrastructure vendor community. Particularly for mid-tier vendors such as Tellabs and Ciena, a significant cut in US capex could spell real trouble, this much is true. But how significant a cut are we talking about?  And how should the vendors react to it? Glad you asked! Let’s examine it, shall we.

AT&T announced a capex cut of 10-15% off of 2008 levels. 2008 capex was $20.3 billion, meaning that we are talking about a decrease of between two and three billion dollars. To be sure, that’s not chump change. But what’s driving the level of the cut? The answer lies in AT&T’s revenue outlook. 2008 revenue was $124 billion, which was a gain of roughly 4% on 2007. For 2009, the carrier is expecting “continued consolidated revenue growth in the low single-digit range”. Reading between the lines, this means that they’re still going to see growth, but it’s likely to be below that already-modest 4%. I’m going to take the liberty of saying that AT&T is looking at a revenue guidance of roughly $127 billion. Relatively modest growth to be sure, and it may be even overly-optimistic in light of a highly uncertain economic climate. AT&T knows this is a possibility, and therefore caution must be the order of the day.

Yankee Group has said all along that the key metric the vendor community should pay heed to is capex as a percentage of revenue. This ratio is what we believe to be informing new capital investments, and we expect it to remain fluctuating in the mid-teens, even in this difficult climate. In 2008, AT&T’s capex as a percentage of revenue was 16.4%. In 2009, we expect that to drop to 13.5-14.5%. A significant drop, but one that is absolutely understandable in today’s economy. And it is not as if capex is falling off the cliff. We would be worried if this ratio dropped into the single digits, but we are still a long way from that. We expect Verizon will experience a similar decline, with capex comprising roughly 16% of revenue (off of 17.7% in 2008). Significant, but again, not cause for vendors to start Googling “Chapter 11″.

So what does this really mean going forward? It obviously means a drop in overall US capex in 2009, as AT&T and Verizon comprise roughly two-thirds of US telco capital spend. Myself and Brian Partridge will be doing a 2009 capex overview in the coming months as a follow-on to our 2008 projections (please remember, these projections were made before the bottom fell out of the economy). In the immediate term though, what can the vendors expect? Expect existing capital intensive projects to remain fully funded. Namely, U-verse and FiOS ain’t cheap, and the planned roll outs for them aren’t going anywhere (the two carriers have said as much). And long-term plans that are central to core strategy, such as Verizon’s migration to LTE, are still on track.

What’s going to be hard is getting any new dollars out of the carriers. If you don’t have pledged budget for equipment sold to these carriers already, you are facing an uphill climb. Any new initiatives that are being pitched to the carriers must be done so with a quick return on investment in mind. Five year ROI models won’t fly. Remember, the goal has to be normalizing that ratio of capex as a percentage of revenue. So if a carrier is investing in 2009, they’ll want to see a revenue benefit by the end of 2010 at the latest. The long-term money is already pledged, so vendors with new products are fighting it out for short-term investments, and short-term investments require a short-term return. The CTO can love your value proposition with all of his or her heart, but if the CFO’s eyes don’t turn green upon seeing it, don’t count on squeezing a lot of new money out of these carriers. Or at least until the economy finds the bottom.

This week, Anywhere Consumer analysts Chris Collins, Carl Howe, and Declan Lonergan join Marketing VP Shirley Macbeth and Chief Technology Officer Jeffrey Breen to discuss our recent framework reports, Getting the Anywhere Net and Transforming Anywhere. Tune into this podcast to find out where Anywhere access is going, and how consumer behavior is transforming the Anywhere experience.

The Anywhere Consumer Framework Podcast (MP3 format)

This morning I happened to catch a bit of a BBC radio interview with Jonah Goldberg, the author of the book Liberal Fascism. Asked by the interviewer to define the concept, his explanation veered heavily towards examples of governments teaming up with big business. From there it was a short leap to calling the new U.S. administration’s efforts to stimulate the American economy as “fascistic”, including as they do activities designed in close consultation with the private sector.

Let’s set aside the potential irony of that characterization of current events, given the laissez-faire rampant in the last eight years of federal oversight of the financial sector.  Instead I’ll ask this question: what else would you have the government do? Try to re-start the economy’s stalled engine without asking its operators first what might work? Or do nothing, in the interests of ‘keeping government out of the way’?

The contrast between his cute, attention-getting label and reality was apparent later in my day, when I joined a meeting of a few dozen Boston-based technology execs with the governor of Massachusetts and his economic team. The commitment of Deval Patrick’s administration to understand where the tech sector’s various constituencies have common cause and what the state government might do to help, felt genuine. And not the least bit fascistic, which is to say coercive or domineering.

If the job of government is to help its citizens fairly enjoy a quality life, how can you also suggest that in a capitalist economy, it should stand to one side? For my part, I want to see government doing everything it can to support a complete Anywhere Network, and helping its citizens develop the skills to exploit it.

Tough time to be trying to sell that book, Jonah. Unless people need doorstops and don’t have a Yellow Page directory handy. I haven’t proposed a YG Book Club selection recently, but I have many better candidates than this one waiting on the nightstand.

As any sci-fi geek knows, ‘42′ is the answer in the comedy series The Hitchhiker’s Guide to the Galaxy to a very important question. It’s memorable just because it’s so simple-minded — when the question was the huge mind-blower ‘What is the answer to life, the universe, and everything?’

Researching technology, I’ve learned that the questions you ask can sometimes be more important than their answers. And it’s always true that the value of your answer depends on the thoughtfulness of the question you asked. As Yankee Group anticipates the emergence of ubiquitous connectivity — a revolution we call Anywhere — we’ve defined our research mission as asking one big, hairy question: How, when, and where is the Anywhere Revolution happening?

To figure out the answer, we’ve set to work on six component issues we call framework questions. Since August of last year, these six queries have formed the navigational system for our written research, our market adoption monitors and forecasts, and most recently, our continuous surveys of the detailed changes in consumer and enterprise connectivity. These framework questions deal with the supply side of the Anywhere Network, as well as the connectivity opportunities and demands from Anywhere Consumers and Anywhere Enterprises. The big idea: everything we do as a research firm now helps unravel the answer to one or more of these questions.

Today we are releasing the first two Anywhere Framework Reports - keystone research that tackles these issues head-on. Each one unpacks the question itself, mines Yankee Group’s rich database of connectivity data and other resources, and sets out the skeleton of an answer, while identifying follow-on work we’ve scheduled throughout 2009 to build on that insight.

• In Getting the Anywhere Net, Carl Howe and Chris Collins tackle How do consumers connect to the Anywhere Network wherever they are? They assert that what we really want is the ubiquity of wireless networks and the quality of a wired broadband connection. A tall order for network providers, but a strategy that will create wins for the fastest among them to transform.
• In Transforming Anywhere, Declan Lonergan looks at How will connectivity transform consumers, and how will their experiences transform the Anywhere Network? He points out the gap between the network experience that consumers seek to have and the reality of today’s connectivity offers. Declan also suggests what the most transformative experiences will be and suggests how they can be commercialized.

More to come — but I’m excited to see the intellectual firepower of Yankee Group aimed at such important topics. Ultimately we’ll have our own version of 42.

Many of you have certainly heard of Boxee by now as I (and many, many others) have been unabashedly discussing the elegance of their user interface for some. For those of you unfamiliar with Boxee simply put it is a software available for Macs, Apple TV, and recently for Windows that integrates high value content (ABC.com, Hulu, Joost) from across the web into one ten foot user interface.

Simply put, they are accomplishing what so many other digital media adapter companies have failed to do. To date, they have primarily been focused on software – with a hacked Apple TV as its primary means to reach the TV. Unfortunately, Apple TV has a small installed base and an even smaller percentage of those have hacked their Apple TV to include Boxee (I am one of those people). So the question now arises – should Boxee create their own set-top box?

Initially as I thought this over I was certain my conclusion would be No, No, No. Look at Moviebeam. Look at Vudu. Look at Apple TV even. Don’t risk entering this market. But as I pondered a bit longer and spent time using Boxee again yesterday it reminded me what a great product the company offers. In my time covering the connected home I have opined that over the top set-top boxes fail for one primary reason: they fail to offer premium free content. But Boxee has already solved that. Just this week they announced support for ABC.com which gives them some content from all the major providers.

So, in summary – yes Boxee should create their own set-top box. Focus on winning over the more cutting edge consumers, charge a reasonable price (sell one version sans HDD for $99 and another with a HDD for $199), include support for Netflix and the device will be a winner. The early adopters will drive the larger market to buy. The product is an easy sell with an identifiable value proposition that everyone can understand.

Ultimately though, I think it makes sense for one of the major CE vendors to buy Boxee and make it core to the the companies connected device experience. Some companies that would be good suitors for Boxee include:

1. Cisco. Trying to make a big splash in the connected home, already has a STB business it could leverage, and has the resources for an acquisition. This relationship has the most potential.

2. Microsoft. Adding Boxee to its already revamped XBox 360 experience would be a natural fit and further extend the reach of the console beyond gamers. With many current shows only having recent episodes available it could drive business to Microsoft’s digital download service instead of cannibalizing it.

3. Apple. Apple TV is a niche device and Boxee could help it escape that fate. Unfortunately, Apple is unlikely to bring in a third party to improve Apple TV.

4. Sony. The company is struggling. The PS3 continues to be outshined by the other consoles and the company has warned of an impending quarterly loss. Buying and incorporating Boxee onto its many multimedia (and now very much connected devices) would be a boon for Sony and make them a default choice for today’s Anywhere Consumer.

What business model works best when selling a product that relies on connectivity? There are two primary options available:

1. Bundle connectivity into the price of the hardware (i.e. Amazon Kindle, Eye-Fi SD Cards)

2. Sell a subscription service (i.e. TiVo, Peek Wireless)

To date, Peek Wireless has offered the latter model for its wireless e-mail device charging $19.95 for monthly service for its  Gadget of the year. The business model held firm until January 16th when the company opted to offer a promotional bundle of lifetime service with hardware for $300.

The interesting aspect of this bundle is twofold – it demonstrates that one business model is insufficient for all buyers, some want a subscription while others would be happy to pay for an all you can eat model up front. But more importantly it shows that Peek believes the bandwidth needs of its users will not approach or exceed the $19.95 per month they are charging. As a result, the business model can evolve.

The importance of this lesson cannot be understated. Understanding the bandwidth consumption of users and devices is integral to effectively pricing connectivity. If Peek is wrong about bandwidth consumption and users exceed the amount Peek has planned for them, the company will lose money. If they are correct and the price of data continues to decline they stand to benefit as a result (and can even add more bandwidth intense features if they desire). Either way, companies must walk a fine line between compelling subscription/device offerings and consumer behavior. TiVo had it a bit easier because it controlled its service costs. Peek and other devices akin to it do not because they are most likely buying minutes from a third party at a material cost to the company.

The question of what type of connectivity should be embedded and which business models make sense will form the basis of a document that I am currently authoring with Vince Vittore and David Vorhaus. The document will seek to understand the cost of transmitting content over various networks combined with the consumer usage. The output will be a guide for how to price connectivity based on cost of access and user behavior. Look for the Focus Report to be available later this quarter.

We love data. Data expresses and informs opinions and gives my colleagues and me ample opportunity to see numbers in action. We spend a lot of time looking at the numbers as they come in and we love to see what they tell us.
Yankee Group has three families of data product, which look at the past (Monitors), the present (Surveys) and the future (Forecasts). These little gems come from all three in December 2008. Let me know if they surprise you!

1. Europe has a reputation for leading the world in mobile. But did you know that one-third of all mobile phones are found in 4 Eastern European countries. Russia, Ukraine, Poland and Turkey. (Taken from EMEA Mobile Forecast)
2. What a growth VoIP has had! In 2003, 0.1% of US phone lines was VoIP. At the close of 2008, it’s 24%. (Taken from North America Consumer Forecast)
3. FTTH is growing at last. Surprisingly, South Korea has the biggest penetration, at 43%. (Taken from Global Consumer Forecast)
4. Mobile TV is ready for explosion: by 2012 there’ll be 299 million users worldwide. By comparison, there’ll be less than twice that number of digital TV users (576m). (Taken from Global ConnectedView Forecast)
5. More than half of US TV watchers go online at the same time. (Taken from US Entertainment Survey)
6. The most common reason people watch TV online is to catch up on missed TV episodes. 82% of internet TV watchers do this. OK, so catching up on missed TV is important, but get this: even people who own a DVR of some description are more likely to catch up online than set the DVR to record it. (Taken from US Entertainment Survey)
7. And add to that – of people who watch Internet TV, a quarter watches something every day. (Taken from US Entertainment Survey)
8. In my last blog on the economy I pointed out that the impact of the recession is yet to be too apparent in our monitor and forecast data. But still these facts astonish me taken from our wireless monitors. 96% of carriers grew subscribers since 3Q 2007 to 4Q 2007 and 93% since 2Q 2008 .73% of carriers have grown service revenue since 3Q 2007 and 83% since 2Q 2008. More than half have grown ARPU since last quarter. I can’t wait to see the 4Q results come in and will let you know if these stats continue to ignore the financial crisis.

Last week the incoming Obama administration announced their desire to delay the digital TV transition, possibly until the summer.  Why?

1. Nielsen Media Research estimates that 7.8 million households were still unprepared for the transition as of December
2. funding to support the change is “woefully inadequate” — the converter box coupon program ran out of money early last week
3. insufficient funding and education will hurt “the most vulnerable Americans”: the elderly, the poor, and the rural

Allow me to translate:

1. People procrastinate.  And somehow the cure for this is for the government to procrastinate for them.  A real concern is that the sudden economic slowdown has interfered with people’s plans to upgrade their televisions.  But you don’t need a new television — or even a converter box — if you already subscribe to basic cable (or satellite).  And study after study reveal that the cable bill is one of the last bills people stop paying during times of financial hardship; premium channels and pay-per-view add-ons may be among the first to go, but basic cable (or satellite) is here to stay.
2. Congress underestimated the demand for free money.  This is especially surprising as they have so much practice, but fortunately the fix is easy: simply appropriate more funds to the existing program (starting by recapturing funds for already-expired coupons) or change the coupon program into a rebate program.
3. If you’re old, poor, and/or live in the sticks, messing with your TV is just piling on.  Pardon me, but when politicians speak of “the most vulnerable Americans,” is it unreasonable to expect the topic at hand be more weighty than a daily dose of Dr. Phil?  We’re not talking about access to healthcare, education (sorry PBS), or the court system.  Furthermore, Nielsen’s same transition readiness survey from December found households led by adults aged 55 and older to be prepared at twice the rate of those led by adults under 35.  And as someone who used to drive through West Virginia, trust me — rural America is quite aware of satellite TV.

But what’s the harm?

There are many moving parts to the digital TV transition, with the February 17 analog cutoff mandated in the Digital Television Transition and Public Safety Act of 2005.  In preparation for this transition, television stations have been broadcasting digitally on temporary frequency assignments, mostly in the UHF band.  A delay would require these broadcasters to continue to operate and maintain their analog facilities.

700MHz bandwidth auctioned = UHF Channels 52-69

At the same time, the FCC has already sold UHF channels 52-69 to wireless carriers (primarily Verizon Wireless and AT&T) in last year’s much-publicized 700MHz. auction for their 4G deployments.  ”Falcon_77″ on the AV Science (AVS) Forum has done an amazing job compiling a complete database of U.S. TV frequency assignments including these transitional assignments.  Currently there are 335 stations broadcasting in this 700MHz block.  Of these, 141 are transitional digital stations; the other 194 are legacy existing analog stations.

We are very late in the game to throw a monkey wrench into this bandwidth handover. For not only is the auction concluded — and nearly $20 billion collected from the winners — but on January 6, the FCC even granted the licenses to use these frequencies.  And these licenses all expire on February 17, 2019, so the $20 billion dollar clock is about to start ticking.

So soon after this fall’s economic shocks, so firmly in the midst of general economic uncertainty, and so close to such an historic transition of power, now is not the time for government to erode further our confidence in its ability to provide a stable, fair, and transparent regulatory environment. With so many comparisons to the Great Depression being thrown around so casually, read The Forgotten Man by Amity Shlaes for a reminder of the grave ramifications when businesses lose faith in the government’s ability to apply regulations consistently.

The old story about the shoemaker, of course, is that he was so busy making shoes for his customers that his kids went without. Since September’s financial crisis, our focus at Yankee Group has been squarely on helping our clients adapt their connectivity plans to the new realities of a global recession. We’ve been digging through our survey data, updating forecasts and consulting intensively with client planning teams to adapt to the changed environment.

Today we’re taking a moment to adjust our own affairs in response to market conditions. Given a reduced outlook for our growth this year, we have released a small number of Yankee Group staff. This includes two analysts, Dan Taylor and Jon Edwards. We thank all of these talented people for their dedicated contributions to our vision and to our clients.

Our 100% focus on the transformations of the connectivity revolution we call Anywhere, our commitment to our 2009 Research Agenda, our choice of research categories, our expanded global data collection, and our new continuous ‘river’ consumer and enterprise connectivity survey work are all unchanged. You can view the latest quarterly update to our agenda for details here.

If you have questions, please get in touch with Mike Conley or Ajay Sule if you’re a YG client, or Shirley Macbeth if you’re in the media.

Back to making shoes for our clients: 2009 will be a watershed year for connectivity. In many ways, the economic picture is actually accelerating the world’s transformation to an Anywhere Economy, as many of those changes are lower in cost and productivity enhancing. Look for a posting here next week from Justin Neville-Rolfe highlighting some unexpected nuggets of Anywhere change exposed in our global market adoption monitors, forecasts, and surveys. Later this month, we’ll share some news around the release of a series of new publications providing strong insight on answers to our six framing Anywhere research questions.