Today’s decision by the U.S. Supreme Court not to take up a copyright infringement case will look like a defeat for Hollywood studios, TV networks, Major League Baseball and the National Football League. And on the surface, it is. But today’s move also has more potential impact to reshape the living room of the future than anything cooking up in the labs of every set-top box maker or TV manufacturer.

The decision lets stand two lower court rulings that will allow Cablevision to roll out remote DVR service. At the heart of the case is whether cable companies’ storage of programming on servers that they control or “in the cloud” as some are slightly misinterpreting, constitutes a violation of copyright laws. Having already lost the battle decades again over VCRs, it’s no shock the studios and leagues didn’t prevail here. That’s even without taking into account the fact that both are already doing the same via Hulu, MLB.com, NFL.com, etc. What’s “enabling consumer choice” for content owners is “copyright violation” for the distributors.

Behind the scenes it’s nearly certain that every major cable operator already is planning their own remote DVR rollout. To reiterate a prior blog from the National Cable Show: At a panel of four leading technologists–Cablevision SVP Jim Blackley, Time Warner CTO Mike LaJoie, Rogers CSO Michael Lee and Comcast CTO Tony Werner–moderator Jim Chiddix asked if Cablevision wins its Supreme Court case and is allowed to provide NPVR would other follow suit. The silence was deafening.

Just as important, the non-ruling has the potential to open up the set-top box market like no other event. Without a requirement for hard drives for in-home storage and heavy processing power, cable operators suddenly have a plethora of inexpensive IP-based STBs to choose from. Longer term, the decision by the Supreme Court not to hear the case lends some legal cover for the more aggressive and visionary operators that try to blend the traditional viewing experience with the more on-demand fare that is gaining a greater share of viewers’ time.

Volcanoes didn’t erupt, nor did the seas boil, but it’s a Biblical event for the global telecom industry when a major operator announces that it’s pulling out of international voice. That just happened: In an estimated $1.5 billion deal, BT is outsourcing its international voice termination business to Tata Communications:

• Upward of 6 billion minutes are involved, according to my estimates: That adds neatly to Tata’s existing 24 billion;
• With 30 billion minutes under management, Tata tips the scales to become the world’s biggest international voice player;
• Tata handles BT’s international direct dial (IDD) and voice termination for all except a clutch of European countries, and becomes BT’s primary partner for UK IDD traffic.

A break with tradition. This is what I call ‘smart wholesale‘ for both BT and Tata Communications. As Yankee Group has predicted, telcos are breaking with tradition and remoulding their business model. Going forward, that may not involve direct management of commoditized services or networks.

Indeed, BT’s decision is not a sign of weakness in my view. Poor financial results have certainly triggered deep cost cutting across the group. But I believe this marks a bold assertion about BT’s strategic priorities. Managed ICT, cloud and sustainability services come to mind as prevailing core competences for the UK incumbent.

“BT wants to focus on the customer perspective; it doesn’t want to worry about how to manage the back end,” says Srinivasa Addepalli, senior VP of corporate strategy at Tata Communications. “But this is a core business for us.”

Wholesale is reborn. Bucking the recession, wholesale is on the uptick. Savvy wholesalers are set to grab a major proportion of the $145 billion that telcos will spend on outsourcing and managed services over the next five years. And BT is not the first to rethink international voice, it’s just the biggest:  KPN, Swisscom, TDC and Tele2 have already struck deals with wholesalers including Belgacom ICS, Deutsche Telekom ICSS and iBasis.

Let’s also not ignore the ongoing voice revolution in which Tata now has a forcible say. VoIP represents about a third of Tata’s originated voice traffic and almost half of the voice traffic on its backbone, and these proportions continue to rise.

Meanwhile, Tata is also eager to court mobile operators. It is much involved with industry groups seeking to improve voice and content interconnect across fixed and mobile networks. This includes the GSMA-backed IP Internetworking Alliance with its potentially disruptive IPX model.

Competition is reinvented. BT Global Services will continue to cross swords with Tata for consulting and managed services deals targeting communication service providers in other competence areas. Not least, BT will still compete with Tata in the multinational enterprise segment in India and elsewhere.

But so what? The key to success is choosing specific battles to fight, and selecting allies where most logical in order to focus on the core business, whatever that might be.

As Adepalli says, “Other telcos spending tens of millions on international voice are going to ask themselves: Why keep doing this?” Why indeed.

… and red all over?

Answer: The balance sheet of the New York Times.

I wish I could take credit for this zinger, but Jon Stewart and the Daily Show delivered this dig and many others when their cameras visited the Times last week. Carl Howe touched on how all media is struggling with changing distribution and business models in his post two weeks ago, but the decline of many of our biggest and best newspapers is the most devastating example of media’s brave new world.

Residents of Boston have had front row seats to this decline. The fate of the Boston Globe has been the focus of daily reporting in the Globe itself, the New York Times (which actually owns the Globe) and especially the Boston Herald (which is clearly enjoying the struggles of its longtime competitor). I’ve read all of these reports (online, ironically) and I have to say it’s pretty depressing stuff. One of the biggest sticking points has been the issue of guaranteed lifetime employment, which is emblematic of the belief that newspapers as an institution will survive forever, despite evidence to the contrary. (I’m not pointing fingers at either management or the union, but I think both parties were delusional to even discuss lifetime employment given current market conditions.)

Yesterday, however, there was finally something positive to report: the Globe and its union agreed to $10 million in wage and benefit cuts, “following three months of bitter labor talks that threatened to close the 137-year-old paper.” This is good news – for the city of Boston, for journalism in general, and for the employees and owners of the Globe who now at least live to fight another day. But the thing that stands out to me is the timing: the agreement was reached after three months of discussion, and that was only after both sides “retreated into nine months of silence,” despite ample evidence that immediate changes were necessary.

Contrast this with what is happening at college campuses across the country. I’m on the Board of Directors of the Heights – the student paper at Boston College, where many years ago I was an editor and columnist. (The Heights is independent, meaning it receives no school funding and has only nominal oversight by the University, so the directors – all former writers and editors, like myself – provide some modest financial and strategic oversight.) The Editor-in-Chief and Managing Editor called an emergency meeting of the board a couple months ago, because for the first time that anyone could remember, costs were outpacing revenues. Like any paper, the Heights sells advertising, and at both the national and local level, ad revenues were down. The editorial board made some simple projections and figured they could lose a lot of money if they didn’t make changes – so they immediately changed everything. They cut down the total number of pages, eliminated sections, moved some of the cut content to their website, renegotiated their printing contracts, and even struck an ad-revenue deal with Google. Without any outside prompting, the editorial board considered dozens of solutions, and then called the directors for advice and counsel.

That a little college paper run by twenty year-olds can respond faster and more appropriately to changing market conditions than a large company of seasoned professionals is actually not that surprising. In many ways, the editors and staff of college papers today have a big advantage over their counterparts at major metropolitan papers. They’ve grown up through – and are responsible for – the permanent displacement of numerous other entrenched communication tools (compact discs by digital music players, voice-centric landline phones by messaging-centric wireless devices, primetime television by timeshifting DVRs, and so on). Unlike the management and staff of the Globe, the editors and staff of the Heights can easily envision a world without printed papers. To them, the permanent displacement traditional newspapers is logical and likely, but not predestined. The editors and staff of the Heights want the paper to live on, not because of concerns about lifetime employment, but because they believe in the product. Instead of wasting time convincing themselves that “newspapers will never die,” they simply said “not on my watch” and worked hard to reverse the paper’s fortunes, if only temporarily. Sometimes it’s easier to save an institution when you don’t assume it will live on forever.

With more than 40% of respondents to Yankee Group’s consumer survey saying they are likely or very likely to buy a smartphone as their next device, device manufacturers must wonder if best of breed devices will become extinct. Their concerns are legitimate. Converged handsets offer turn by turn GPS, ever improving still and video cameras (now with on board editing!), MP3 playback, and so much more. So, will Best Buy’s shelves be overflowing with devices as consumers bolt past the GPS aisle to reach the smartphones?

In short, the answer is no. In fact, smartphone owners are MORE likely to buy best of breed devices than standard mobile phone owners as seen in the cart below.

The data shows that not only are smartphone owners likely to buy many best of breed products but they are more likely to buy them than phone owners whose devices do not offer a range of features. This data is important for CE manufacturers hoping to continue selling best of breed devices to consumers who already own a converged device.  Most devices listed, save Netbooks are mature products so even though intent to buy is low that should not scare off manufacturers. Consumers still want discrete products even after they buy do it all devices.

With an event as transformative and historically significant as the recent electoral unrest in Iran, it is only natural that many disparate elements of life and business are affected. The telecommunications industry is no exception. Yesterday, the Wall Street Journal published a provocative piece examining the control and censorship of the Internet by the Iranian government in an attempt to curtail protests. The crux of the piece is the government’s alleged use of deep packet inspection (DPI) technology acquired from Nokia Siemens Networks in this effort. It is a noble attempt to shed light on censorship and the impediments to free expression in countries such as Iran and China. And it is an unfortunate reminder that in the world of the Internet, true anonymity in personal correspondence or activity is largely a myth. The only problem with the piece is that it is largely inaccurate and misleading.

There are a few qualms that I’d like to get out of the way right off the bat:

• DPI is not what Nokia Siemens Networks actually provides.
• Nokia Siemens provided Iran with Lawful Intercept capabilities designed for voice communications, not DPI technology that is being used for censoring Internet traffic.
• Operators and governments worldwide engage in Lawful Intercept (often by regulatory mandate), which may or may not have DPI as a contributing technology.  In the case of the technology that NSN provides, it is not.
• DPI does not allow for the altering of packet content, as the article suggests, to create disinformation campaigns.
• DPI does not have to be inserted directly into the data flow if it is just engaged in monitoring activities, and even when it is, it does not create a slowdown in network traffic that would be perceptible to a large public audience.

The list could go on.

The main point I would like to make though is that DPI is mischaracterized as a “practice” or an “activity”. DPI is a technology. What the article is describing is one potential, particularly malicious, usage of the technology. Yet many things that are potentially benign can also be potentially dangerous. Just because someone can use binoculars to invade another’s privacy does not mean that they cannot also be used for bird watching. To take a more extreme analogy, just because you can get behind the wheel of a car and run someone over does not mean that cars are inherently violent. The onus is on the user of the technology, rather than on the technology itself, and this is what the article misses. The culprits are not Nokia Siemens (leaving aside that NSN does not actually provide DPI technology) or their peers. The culprits are those that would use the technology for malicious purposes. In this case, the Iranian government.

What DPI does is what it says it does: packet inspection. It is a technology used to gain Layer 3 through Layer 7 packet visibility (from the network layer through the application layer) to determine the source, destination, application type, etc of network traffic. It does not read emails. It does not alter Internet content. It does not slow down the Internet. And, directly to the point about Iran, it does not intercept or block traffic. The Iranian government can choose to take action in these regards based on the intelligence about traffic flows that DPI can provide, but again, that is independent of the technology.

This is actually a more extreme (and more politically charged) example of what got Comcast into hot water last year with how it chose to use network information. For those unfamiliar with the case, Comcast raised the ire of public interest groups and the FCC for blocking BitTorrent traffic that it deemed to be overly burdensome on its network. The FCC deemed this inappropriate not because of how Comcast obtained traffic information (using DPI), but because of what it chose to do with that information. In a similar fashion, a number of operators in the US were chastized by the House of Representatives Subcommittee on Telecommunications and the Internet for using DPI-acquired intelligence to do behavioral-based ad-targeting. This ultimately led to behavioral targeting vendor NebuAd getting dragged before Congress for a tongue-lashing, and ultimately folding in the face of public and legislative pressure. Again though, the issue was how the technology was used by NebuAd and its operator customers, not the technology itself.

The technology itself has a number of legitimate uses that are in line with the public good (and operator profits, for that matter), including security threat detection, threat mitigation, enhanced network management, enhanced quality of user experience, the ability to introduce new services, etc. Yankee Group has written a number of pieces on this issue in the past that examine how operators are using the technology today and what the potential opportunites are in the future. These often go unmentioned though when DPI is reported on, because they don’t arouse public debate the way that “Iran’s Web Spying Aided by Western Technology” does.

My goal here is not just to argue with the Wall Street Journal though (an argument I’m sure I would lose) or point out inaccuracies in the article. It is to underscore the consequences of misrepresenting something like this. In the past two years, DPI providers have run afoul of issues around privacy, net neutrality and now censorship, due to the ways in which customers have chosen to use the technology. These issues have attached a scarlet letter to a technology and companies that can provide legitimate value to operators and consumers, when used properly. Instead though, competitors have been forced to retreat from the market, the maturation of the technology has stalled, and operators have turned towards potentially less efficient solutions for network visibility, security and traffic management for fear of igniting a firestorm amongst those that would misconstrue their intentions.

It is a fine line to walk in regards to what is and is not acceptable in the world of traffic inspection, to be sure. But that’s all the more reason why the technology must be accurately understood and represented, rather than demonized off-hand.

As an analyst, it’s easy to feel overwhelmed by the flood of press releases and briefing requests that come in by the dozens. Many are small start-ups trying desperately to make a name for themselves. Today, one of those press releases caught my attention. Agito Networks, a dual mode FMC vendor out of Santa Clara, unveiled the extension of PBX and UC functionality on Blackberry handsets – over a Wifi network. It’s that last part that is interesting. Enterprises could always extend PBX / UC functionality on a Blackberry, but it had to be done over a cellular network. In fact, RIM has its own business unit that provides FMC functionality over the cellular network (MVS). The extension of PBX / UC functionality without the Wifi component has failed to capture the interest of enterprises.

It’s not surprising that RIM has shied away dual mode FMC as carriers are less than enthusiastic about removing minutes from their cellular network. RIM, having built its company on the back of carriers, hasn’t wanted to bite the hand that feeds it. However, as the balance of power between device manufactures and carriers shifts away from wireless operators – RIM is feeling its oats. The first sign was Lenovo Constant Connect. This joint Lenovo / RIM product allows Lenovo users to send e-mails from their laptop using their Blackberry cellular connection. The obvious consequence is wide area wireless broadband service becomes unnecessary for many subscribers. Uh oh….that won’t make operators happy.

Agito’s newly announced capabilities also serve to offload minutes from the cellular network. In both these instances RIM can claim to stand at arms length from the solutions. Constant Connect is only being sold through the Lenovo channel and isn’t currently available with other brands. Agito developed the Blackberry dual mode solution via the RIM Alliance developer program. While RIM offered up some of its APIs it was Agito who did the heavily lifting. However, when you open your developer program to a dual mode FMC player you have to know what’s coming down the pipe.

One such announcement could be considered an anomaly but two is a trend. What’s next – a RIM retail outlet?

As ridiculous as the headline may sound coming from anyone’s mouth, it’s certainly feasible under a bill introduced yesterday by Rep. Eric Massa (D.-NY). Under his proposed Broadband Internet Fair Act, any internet provider with more than 2 million subscribers would be required to submit any usage-based billing plans for approval to the Federal Trade Commission. Apparently not content with owning auto manufacturers, Massa now would like to get the feds into the business planning process for ISPs. Perhaps they can decide what color the raised floor tiles should be in data centers next.
Massa has moved front and center in the “outrage” over plans by Time Warner to test metered bandwidth service in Rochester.
As we’ve said in previous posts and Yankee Group reports, metered bandwidth is not inherently evil and likely inevitable for most service providers. Our argument rests on the idea that operators would set very high caps that truly would only impact those top 2% consuming the most bandwidth.
This bill comes just one day after I had a conversation with John Badal, former president of Qwest New Mexico who’s moved on become CEO of Sacred Wind Communications. Sacred Wind is using WiMax to bring broadband and basic phone to 27,000 square miles of the Navajo Nation. Though just starting to launch, Sacred Wind is starting “broadband” at 128 kbps and isn’t exactly encouraging users to move to multi-Megabit service soon because middle mile costs could cripple the operator. Despite what many in the anti-cap community would like to believe, there is an operational cost to providing high speed service.
Under Massa’s bill, ISPs’ proposed billing change also would require public hearings and impose fines for those that ignore. As expected operators and their associations including the American Cable Association have cried foul, claiming it would deny those who use only a little bit of bandwidth from paying lower rates.
That’s debatable. More concerning should be the idea that any government entity should have say over a process that belongs in the business planning department.

Yesterday’s outage of Amazon’s Elastic Compute Cloud - ironically, as I was giving a talk on cloud’s contractual perils – highlights the need to scrutinize the small print. Just as more organizations explore cloud opportunities, cloud risks may outweigh benefits.

Cloud contract terms, and crucially, service level agreements (SLAs) fail my tests for contractual risk. In my upcoming report, ‘Cloud 99.99,’ I’ll detail problems with specific contracts, suggest tools to mitigate risk and discuss how leading innovators are finding remedies. Here’s a taster:

1. What SLA? SLAs are not uniformly available, even from well-known brands, according to my vendor analysis, from Amazon to Zoho. Self-certification of ‘best efforts’ is common, but legally toothless.
2. Uptime is mediocre. Good luck finding 4, let alone 5 ‘9’s (99.999% uptime). And even if you do, unlimited maintenance events won’t be in the calculations.
3. It’s not their problem. Besides demanding full indemnity for any damages (which is typically not reciprocal), get out clauses for liability include physical service demarcation points (eg: not beyond the server farm) and network congestion.
4. They won’t pay up. Forget liquidated damages. Penalties for non-performance are usually limited to contract termination or at best service credits.  These are gated in value, and usually, it’s up to you to argue the claim (within a specific timeframe).
5. Prolonged complaints aren’t welcome. Arbitration clauses are usually missing.
6. Foreigners beware. It’s not unusual for the contract’s governing law to reflect where a vendor is incorporated. That might be thousands of kilometers away from you (eg: California when you are in the U.K.), and alien to you in legal practices. But some contracts also specifically exclude the possibility of invoking the United Nations Convention on Contracts for the International Sale of Goods. This was purposefully designed to provide a common legal lingua franca in case of disputes involving parties in different jurisdictions.
7. Terminate at your peril. So, to hell with them. But how much time have you got to extract your data from the vendor? Miss the deadline and your valuable data will be expunged.

The good news? These issues only strengthen the case for a closer relationship between cloud vendors and communication service providers (CSPs). What’s been described as a parasitic dynamic fraught with rivalry is actually symbiotic. CSPs have the know-how that many cloud vendors lack, particularly in dealing with enterprises. Cloud vendors – particularly in the SaaS realm - are creating innovative productivity tools. As I’ll argue, each needs the other badly to monetize the cloud on a volume basis.

Not least, there is an urgent need for intermediaries to broker, aggregate, secure and monitor disparate cloud services – particularly as standards, service levels and interworking remain in flux (see Deutsche Telekom’s Zimory for a compelling example). In future, I believe that enterprises will pay trusted intermediaries to act as operational integrators and SLA managers across private, public and hybrid cloud contexts. Bottom line: The view’s great from the cloud, but don’t ignore today’s earthbound concerns.

With the NFC market still as dormant as Jefferson Airplane (talked about for years, still kicking around and never sure when they’ll make another appearance), recent announcements about turning a mobile device into a credit card terminal using applications got me thinking. Will SMB’s lay the groundwork to mobile payments success? The two announcements I’m referring to are from a start-up named Innerfence and the well known developers of Quicken; Intuit. With both of these services, SMB’s will be equipped to type a credit card number, securely transmit the payment details for processing and email or SMS the receipt to a customer.

Initially, I began wondering whether SMB demand even existed for these merchant solutions. After speaking with fellow YG analyst Steve Hilton, the answer was yes and the discussion moved beyond SMB demand. Although these solutions have too many fees (interchange fees, monthly account fees, and setup fees) the fact that a field service worker does not invest in an expensive network connected payment terminal will force SMB’s to consider this solution. Assuming that these services fulfill all PCI compliance regulations, our discussion quickly evolved into one of consumer interest in this solution. While the merchants certainly would see the benefit of a portable credit card solution, would a consumer feel comfortable handling a credit card over to an electrician they found on Craigslist?

This issue of consumer acceptance will plague the usage of these solutions. Although an SMB can launch a credit card transaction service for a nominal cost (Intuit charges $59.95 setup + $19.95 monthly fee and Innerfence charges $49.99 to download the mobile application and $25 monthly fee), a large amount of consumer education is required to ease concerns about the security of these services. Although handing someone your credit card at a restaurant and having them disappear for a few minutes or having a shopkeeper without a broadband or dial-up connection take a paper imprint of your credit card has risks, consumers are conditioned that this is acceptable. It will require years to change those beliefs in the minds of consumers and will limit the acceptance of portable credit card services for the SMB channel.

When we get to NFC, which Yankee Group’s soon to be released forecast expects only 13 million NFC enabled devices in North America by 2013, NFC processes will ease some of the consumer hesitancy in handing over a credit card to a cell-phone-wielding electrician. Having an electrician type your credit card digits into his cell phone feels a lot more risky than the electrician tapping his cell phone against your credit card. Consumers will be able to tap a device against a merchants phone to pay for a service and although it will not eliminate the security concerns, it will eliminate the need to manually type credit card details.

We’ve been talking for years about the ubiquitous Anywhere network, a network to connect all of us with digital IP connections, broadband capacity, and wireless ubiquity. But a footnote to that grand vision has always been the TV networks, which in most of the world still remains an analog dinosaur compared to the rest of our shiny digital ecosystem of computers, mobile phones, and iPods.

That changes here in the U.S. tomorrow night.

When Congress postponed the digital TV transition from February 17 to June 12, it did so because it worried that consumers weren’t aware of this coming change in TV broadcast systems, and that they hadn’t had a chance to get digital converter boxes for their old TVs. Well, just like income tax extensions, that postponement simply moved the deadline from winter to midnight on Friday, June 12. Now, consumers who don’t subscribe to cable TV and have a more than two-year-old analog TV have to do something to avoid a black screen on Saturday morning.

Read the rest of this entry »