I’m not going to try to think of a clever title for this entry; it’s too important not be misunderstood.

Does this happen to you? You motor along thinking something is totally obvious to everyone, and then crash! A reality collision. Turns out that the world is not in line with your assumption.

HR3458, pending legislation in the U.S. Congress modestly titled “The Internet Freedom Preservation Act of 2009,” has some ambitious goals but some nonsensical constraints embedded in it. The bill starts off in the right frame of mind:

Internet technologies and services hold the promise of advancing economic growth, fostering investment, creating jobs, and spurring technological innovation.

Couldn’t possibly argue with that: Yankee Group’s own research suggests that the value of the Anywhere Network globally will be worth trillions in economic value-add in the next ten years. And as the U.S. works to improve its broadband infrastructure, surely some of that value-add can be located on our shores too.

Moving into its argumentation, here’s another assertion I couldn’t possibly disagree with:

The national economy would be severely harmed if the ability of Internet content, service, and application providers to reach consumers was frustrated by interference from broadband telecommunications network operators.

Network operators should not discriminate against traffic on their networks. Yankee Group is on the record with that view; if you want to know more, regulatory expert Dianne Northfield’s on-going analysis sets out our perspective very clearly.

But six pages in, HR3458 makes the fantastical leap from these foundational truths to the idea that network operators should not be permitted to

impose a charge on any Internet content, service, or application provider to enable any lawful Internet content, application, or service to be offered, provided, or used through the provider’s service, beyond the end user charges associated with providing the service to such provider.

Wh..huh?!  Jonathan Banks at the U.S. Telecommunications Association showed me this, asking whether I thought the language was clear. I read it to say that, for instance, Comcast would not be legally allowed to sell its network access service to, for instance, Kodak so that Kodak could in turn sell me a picture frame that was connected to my Comcast service at home at no additional charge to me from Comcast.  That was his interpretation as well.

An Ethernet cable bundle (c) 2007 zinkwazi

There are at least two reasons why this would be a terrible mistake. The first is that it’s completely inconsistent with other industries and treats consumers like dummies. Do we really think that the ”free shipping” offers that come to us periodically from Amazon or Lands End stem from a warm-hearted UPS, just wanting nothing more than for us to be delighted with the quick receipt of a new pair of shoes? No, I would bet my paycheck that the vast majority of us would realize, if we gave it even a moment’s thought, that the commerce site is paying UPS to provide the service to us. And it’s not much of a leap from there to realize that the commerce site has factored its cost to pre-buy our shipping service into the pricing in their operation. The shipping has been bundled. There are examples of this type of bundling in industries everywhere.  How is the consumer harmed here?

The second reason that a prohibition on network operators charging service providers, rather than consumers, is wrong is that it will stymie the explosion of connected devices ready to ride the coattails of connected digital picture frames and e-readers. We will not see mass market adoption of connected devices if consumers are required to register each one on the networks they use, and pay individually for the network service they consume. I hope that the combined lobbying forces of the consumer electronics, automotive, and home appliance industries march on Capitol Hill to help explain that this ‘help’ from the government is, well, not so much help.

But if Markey et al. want to kill off the pending value-add to the U.S. and global economy of a more ubiquitous network (thus negating the valor of their opening vision) then they should absolutely tell network operators who their sources of revenue are allowed to be. Maybe then the U.S. can relax its ambitions to climb up from 19th place in the connected world order, and just drop to something even more mediocre. 

“What the hell is cloud computing?” After a year, those infamous words of Oracle CEO Larry Ellison still resonate. The definition of cloud computing is hazy at best, and many companies remain wary of the technology over concerns about infrastructure, security and regulation.

Cloud computing has unique potential to save the enterprise cost, reduce complexity and provide highly available service to the end-user or client. With such compelling benefits, companies should look to understand cloud better—what it is, what it isn’t and what it will be.

Earlier today, Agatha Poon and I hosted a webinar where we defined cloud computing, explored the capabilities and challenges of the technology and advised enterprises what cloud can do for them.

The webinar runs about an hour: audio (mp3) and slides (pdf).

To set the tone for cloud discussion, Yankee Group published a report last August to share our definition of cloud computing.  As we proceed the discussion with our enterprise clients, service providers, and technology vendors,  a few observations surface.

Although cloud computing has yet to reach mainstream popularity in the corporate world, CTOs are strategically reviewing various deployment models with great interest.  On the supply side, interviews with cloud-enabled providers reveal that there are a lot of activities already underway to support enterprises of all kinds.  What are the promises and pitfalls of existing cloud offerings?  Which business model will win the heart of enterprise customers in the near future and why?

Camille Mendler and I will be hosting a webinar named ” Pinning Down Cloud Computing” on 9/29/2009 at 11:00AM EDT to discuss these questions and more.   Stay tuned.

Maybe I have flooding on my mind because of the sad state of parts of Georgia today, mired in the overflow from the swollen Chattahoochee River.

In seeing the pile-on announcements by Best Buy, Barnes & Noble and Verizon about e-readers, I’m reminded of the classic tech product adoption curve, which goes something like this: not yet, not yet, not yet… still not yet… then, boom! Hockey stick curves are real, and sometimes the reality is even more pronounced than we analysts draw them in our forecasts.

Portable transistor radios were one such consumer product hockey stick. Wikipedia says there are over 7 billion in use today; if that’s true, then they outnumber mobile phones by a few billion still. I’m dating myself big-time, but I recall a very happy 8th birthday when I was the lucky recipient of a transistor radio the same color as my bike. I used electrical tape to lash it to my handlebars. The best part, though, may have been the snazzy patent leather strap…

Yankee Group believes that Anywhere Consumers like me will be flooded with portable products in the next few years that are connected — Anywhere devices whose functionality is enhanced and extended by the network. E-readers like the Kindle and the Sony Daily Reader are some of the first bona fide examples outside the general computing and communications world.

The one I taped to my bike was red

Why e-readers? Why now?

E-readers, like any technology product, take off in the market if and when they are definitively better than what they replace — but for modest additional expense. Consumers intuitively expect some leverage from new technology; three times as good, for instance, shouldn’t translate to three times the price.

The challenge that e-readers have had prior to this year has been that their greater value – essentially, multiple books in the space required for one – has not been enough to offset the cost to the consumer. That cost had come in two forms:  dollars, yes, but almost more importantly, hassle — requiring a connection to a PC from which they are side-loaded with a modest selection of titles.  The technology history books are full of products that were better than their predecessors — just not better enough.

So the answer to the second question is that what’s changed this year is the consumer’s cost to adopt them. The breakthough has been the on-board wireless network connection and bundled pricing for using it.

With on-board bundled connectivity becoming de facto, we can come back to the cash. Is $399 an ideal price point for a consumer device? No; in recent years mass-market volumes tend to build in the U.S. market around $199 and $99. But an opportunity that I suspect lies ahead is a differentiation in pricing based on e-book consumption.

The great news for e-reader vendors and their network partners — which should be true by definition for any connected device – is that information on how the buyers of these devices use them is essentially free on board. As marketers and carriers garner enough experience with the quantity and nature of the content that device owners buy in a year, and how they respond to embedded advertising, they should be able to adjust the bundled pricing to create some options.

Do you read fewer than 12 books a year, or are you willing to see ads, or will you pay more per e-book to move some of the network expense to the content instead of the device? Then pay just $199. Want an all-you-can-eat model, or an ad-free experience? Pay more.

Tiered pricing will help a plethora of Anywhere devices like e-readers flood our homes, cars, and backpacks. Let’s just hope the TSA doesn’t make us put each one of them in a separate bin at the airport.

Dig past the continuing business press on the challenges that network operator Sprint has experienced on the consumer side of its business in the past few years, and you might uncover a successful enterprise side of the business and the early shoots of success in its beginning roll-out of 4G capabilities.

Paget Alves, the president of Sprint’s business markets group, which handles about 40% of the firm’s total revenues, stopped by Yankee Group’s Boston offices the other day.  He’s re-formed his organization around a vertical market approach — something the firm had tried earlier, back in 2006; an effort which Yankee Group analyst Gene Signorini recalled, “was too early, but could have worked if the company hadn’t taken its foot off the gas.”

Anywhere Enterprises connect assets on the move

The contemporary version of the 2006 focus has Alves’ sales and solution engineers organized by 11 sectors, six of which they see as high-priority.  Healthcare, government, transportation, field services, retail, and construction fit three qualities that Alves and Yankee Group both agree are determining factors in the demands that enterprises place on the capabilities of the network. Data-centric sectors like government need better networks to be more efficient in their use of data — being able to store it in the cloud and provide access to it from anywhere. Sectors like transportation are at ground-zero in the convergence of fixed and mobile networks, with the majority of a firm’s most valued assets (trucks, planes, shipments) in constant motion. Retail businesses are typically widely dispersed across large geographies and fight skinny margins, making the use of mobility essential to collapsing the costs that hide in distance.

If you pair Sprint’s restored commitment to focus on the specific needs that key industry sectors have for the Anywhere Network with some of the learnings Keith Cowan shared in a keynote to a standing-room only crowd at Yankee Group’s 4G World in Chicago yesterday, you see a firm that has not only improved financial stability but the focus  to do well in the accelerating expansion of both consumer and enteprise network appetites over the coming few years. 

The company’s president of strategy (responsible for much of the deal-making that helped Sprint off-load some of the financial strain of building out its 4G capabilities in the multi-way transaction around Clearwire last fall) talked about their experiences in the past year. With bandwidth ten times the speed of some 3G networks providing what he called a “DSL-like experience”, they are beginning some customers  in their launching cities moving to wireless-only broadband. That could be a huge game-changer for enterprises in the sectors that Sprint’s business teams are prioritizing.

Cowan asked the gathering of industry insiders to raise their hands if they had done something with a network in the past month that they’d never tried before, from Facebook on a mobile to using electronic boarding passes to check in to a flight (which I just tried for the first time yesterday). Over a third raised their hands– pointing out, to Cowan’s mind, how quickly things are still changing in the emergence of network-based applications and services. “None of us should be worried about the demand side of the network anymore. Now it’s about building it out right.”

Whether you like the business risk Sprint took in getting out in front of the 4G parade, it’s clear to me that we’ll all want the network to deliver what this new architecture has to offer — whether it comes from the technology the firm chose or another. They’ve catalyzed the race to 4G — which is good news for us all.

It took slightly longer than two full sessions on femto cells at 4G World, but someone finally asked the all-important question. Paraphrasing here a little but the question went something like, “I’m already paying for 22 Mbps downstream and 5 Mbps upstream. I’ve got WiFi coverage all over my house. Why do I need to buy a femto cell so that you can have better coverage?”
Behind the question lies an even more fundamental issue for any service provider exploring the idea of using femtos to fill in those last few gaps of indoor coverage. Is the femto a consumer device or an extension of the network? As a network product operated and controlled by the service provider, femtos present a challenging business model proposition in that they’re not likely to generate enough usage to justify the current costs. As a consumer product, the challenge is even more daunting given consumers’ reticence to purchase additional boxes that don’t provide a well defined benefit. That’s to say nothing of the control issue as in who controls the femto and who gets the call when there are any issues.
Among the more interesting thoughts thrown out at this week’s show was flip flopping the entire equation by not only offering femtos for free, but providing incentives such as steeply discounted or free service to users willing to install them and open them up for usage by others. In such a scenario, the femto remains a network device controlled by the service provider but gives users the perceive benefit of additional indoor coverage.
Until service providers can resolve some of these basic issues, femtos will remain more fodder for panel discussions and less products deployed in the real world.

Making a quick trip to and from Paris for the Broadband World Forum last week, I got in a nice visit with Vivek Badrinath, EVP of Networks Carriers & Platforms, and Didier Duriez, SVP, International and Backbone Network, with France Telecom/Orange.  Between bites of orange gummi bears, we talked about operator progress in converging fixed and wireless networks — creating the Anywhere Network that Yankee Group sees as essential to a more relevant future for network providers.

Pink staplers (c) Bunny Hill Designs

“At Orange, we got the first step behind us early on — converged billing,” said Vivek. “It was a step forward from what I called Level 0 convergence — the stapler.”  I laughed and we talked about the challenges in integrating disparate billing systems. He pointed out that it’s not just integration that holds some operators back; a single bill can create some unwelcome consumer sticker shock when the customer sees the household’s entire connectivity spend in one place.

“The next thing we did was converged voicemail. Amazing how popular it’s been.” It’s not amazing to me; given how much I dislike voicemail, I’d be happy to have mine reduced to just one inbox from two. One less place to look for stuff I have to do.

But its broader popularity in the Orange network at least suggests a clear appetite for both consumers and businesses for a more seamless network experience — which is good, considering that the users of the network don’t always see the broader potential that lies ahead. So that’s pushing networks to move beyond the stapler, right?

“Sadly, some providers get tangled up in tough issues when it comes to improving the customer’s experience with converging networks. You can’t always invest in all parts of the network at the same time. So you end up with difficult questions like, ‘Should we improve our customers’ mobile broadband experience, or should we work on WiFi support?’  It can become a theological debate.”

The selfish answer for some operators to that particular question has been to focus mobile broadband, since WiFi has seemed like a threat to their business model, billing for minutes used on their proprietary networks. “At Orange we asked ourselves, ‘What’s better for the customer?’  And the answer was WiFi — they know it, have it, and like it.” The result for Orange was a big move to UMA, to enable seamless handoff of calls from the Orange mobile network to local WiFi hotspots.

There is some justice out there; turns out that doing the right thing for the customer in this case was doing the right thing for the operator, too. As mobile broadband pricing went to flat-rate in many markets to awaken latent demand, that demand dutifully exploded — so networks began needing a way to offload traffic. Voila — WiFi and UMA. With increasing numbers of handsets with UMA capability from RIM, Nokia, Samsung, and Sony Ericsson, it’s ready for prime-time. “It has been a big boost for Orange in markets like the U.K. and France,” said Vivek.

So what does this mean for other local wireless technologies like femto cells?  Another theological debate, says Vivek. “There doesn’t seem to be much of a value proposition for the consumer.”  If by offering it, the operator is admitting that the consumer’s coverage isn’t good enough, there are competitors out there who’d like win that consumer over to their network. So how do you ask the consumer to spend over $100 on the problem?  One last dig from Vivek: “Besides all that, the ones I’ve seen run pretty hot. I call them expensive seatwarmers.”

This morning there is an article doing the rounds about a South African Call Center that was so frustrated with data speeds from its carrier (Telkom SA) that it mounted a test. The company recorded a large database on a card, strapped the card to the leg of a carrier pigeon and had it fly from near Johannesburg to Durbin 80 km away. The pigeon took 68 minutes to fly to the coast and the whole data transfer took 2 hours 6 minutes and 59 seconds. In that time, only 4% of the file had been transferred using a direct data transfer.

Amusing as this is, looking below the numbers shows that this was one VERY BIG database. The transfer rate for USB 2 is 320Mbps. The pigeon was done after 68 minutes and let’s allow 5 minutes for fumble-fingered IT staff to unhook the data card, stick it in the PC and start the flow. That means the data transfer itself took 127-68-5=54 minutes at 320Mbps. That means 54 min*60 sec/min*320Mbps or 1.037Tb (by my calculation) was transferred.

So Telkom transferred 4% of that or 41.5Gb in 127 minutes. That’s an effective rate of just under 5.5Mbps. The article doesn’t say if this was over a dedicated line or over the Internet. Over the Internet, probably with a VPN and other security protocols, 5.5Mbps effective transfer rate is pretty good where I live.

And let’s not talk about the security issues associated with carrier pigeons. What if some passing hawk had decided the pigeon looked like lunch? Where is the AK protocol that says “Please send another pigeon” if that packet didn’t get through.

Let’s face it. Large data transfers will almost always be better done physically if that is possible. We frequently use USB-sticks to transfer files to a colleague’s laptop rather than sending an email. Whether data network transmission is faster depends on the speed of the data network, the size of the file, the physical distance to transit and the speed of the courier service.

In fact, having sat for long periods of time in congested highways around Johannesburg, what amazes me is not the data transfer speed but that the pigeon was able to average just under 80km per hour getting to Durbin. To me the story says more about carrier pigeons as a competition to courier services, than carrier pigeons as a competition to carrier data networks.

Apple boasts 100 million accounts at the iTunes Store

Don’t believe Apple’s “It’s Only Rock and Roll” theme for today’s announcements in San Francisco. A back-from-medical-leave Steve Jobs stole the show from rock and roll in today’s event and in the process took a lot of swipes at consumer electronics competitors.

In today’s announcements, Apple cut the price on the iPod touch to $199 and positioned it as an downloadable-app gaming competitor to the Nintendo DS and Sony Playstation Portable (PSP), to say nothing of undercutting the soon-to-arrive Microsoft Zune HD. Apple added a video camera and FM radio to the iPod nano, and used that product to take on Cisco’s Flip video recorder. Even the lowly iPod shuffle got new colors and a high-end model in polished stainless steel. Genius enhancements to the iTunes Store and new sharing features in Apple’s iTunes software just tied it all up in a bow.

As with most recent holiday seasons, Apple just positioned iPod products for every major consumer price point for the big fourth quarter season. And with 100 million credit cards already on file with the iTunes Store and consumers downloading more than 5 million applications a day, Apple intends to have a very Merry Christmas. The question is, “Will anyone else?”

It’s no secret that media and telecoms group Grupo Clarin and the ruling “First Family” of Argentina (the Fernandez-Kirchners) don’t like each other. From best buddies a couple of years ago, the relationship has soured considerably. Clarin uses its media power in print and television to criticize the government and the government uses its control of regulatory organs to “punish” Clarin whenever it can.

Clarin bought struggling cable operator Multicanal years ago and wanted to officially merge it with their own cable operations. They received agreement from the government in December 2007 (during the “best buddy” phase) but late last week the broadcasting regulator denied the merger citing duplication of licenses.

Forgive me for pointing out my prescience but in a July 2006 report entitled “Populism and Public Services” I said that the leftward shift in Latin American governments would mean more populism and intervention in regulatory decisions. The focus of that report was mobile and I can quote a long list of items in that regard especially in interconnection pricing. Television has always been heavily regulated and the cable television industry sometimes suffered — and sometimes benefited — from a lack of separation between regulation of content and regulation of carriage.

There was a time when regulators fiercely demonstrated their independence from politics. The goal was to emulate well-regarded “technical” regulators like the FCC in the US or Offcom in the UK. Osiptel in Peru and SubTel in Chile come closest to that standard. Anatel in Brazil has struggled with Ministers of Communications in the Lula government throughout its tenure. But the rest of the region’s regulators are either under the direct control of the presidential palace (Argentina, Bolivia, Colombia, Ecuador, Venezuela) or discredited and bypassed by other more politically oriented bodies (Mexico).

Grupo Clarin deserves no sympathy. When times were good, it used its relationship with the Kirchners to further its telecom agenda. Now the worm has turned.

But I don’t like the precedent and I like the tendency even less. As I said in 2006, operators must pay more attention to their public positioning — to be seen as good corporate citizens — and must beef up their lobbying capability. Technical arguments — however well developed — are necessary but not sufficient.