Yesterday, I participated in an Emerging Issues Forum at the Federal Reserve Board of Governors—they called it “Protecting Consumers in a Mobile Finance World”. Easier said then done. Granted,  the Federal Reserve is trying to focus on the future technological trends impacting consumers, and not just the current issues we face on a daily basis. They are looking for the balance to ensure consumer protection while not stifling innovation—a lofty goal. Let’s hope they are up to the challenge.

While the day was primarily focused on identifying ways to ensure that consumer protection must keep pace with technological change, I wanted to share some interesting data points presented throughout the day.
•    USAA: A strong 14% mobile banking adoption from its 7.4M members which is considerably higher than the largest US banks; $250M deposited through their Remote Deposit Capture application between August 2009 and Jan 1, 2010.
•    E-Bay: $600M processed over the mobile channel in 2009 showing the great opportunity to come from mobile payments
•    Telekom Austria Group: 50% of parking meters are paid in Austria using the mobile channel, 1,700 merchants accept the A1 payments brand run by a consortium of mobile operators
•    Center for Financial Services Innovation: 21M Americans are underbanked according to a 2009 FDIC survey, 64% of underbanked consumers rate location “extremely important” when choosing a financial institution

These statistics highlight the growing presence of mobile banking and payments as well as the opportunity to expand financial services to more segments of the US population.

But the key question of the day was “What should policy makers look for?”

My answer:
Consumers cannot be left unprotected when we are seeing hockey stick growth in mobile banking, and mounting expectations for mobile payments over the next few years. Not only will security and phishing concerns exist, unscrupulous people will try to steal personal information from consumers. All of this points to the need for consumer regulatory protections.

Past experiences in the prepaid card world and the limitations of Reg E and Reg Z have taught policy makers valuable lessons.  In the vain of a great boxer that bobs and weaves, they must be nimble enough to update regulations quickly on both sides of the innovation versus consumer protection equation. Although Washington is not always known for moving quickly, the Federal Reserve should first tackle authentication and security concerns. Regulators should also start by simplifying the state by state licensing requirements, which create difficult environments for start-ups to launch nationwide services and take advantage of economies of scale.

While researching my new book ANYWHERE: How Global Connectivity is Revolutionizing the Way We Do Business, I had the good fortune to speak with over 50 connectivity thought leaders. I’m using my blog to periodically share some of the insight that didn’t fit into the book.

In this excerpt from my interview with Paul Sagan, president and CEO of Akamai Technologies, which provides managed services to power the performance and delivery of rich media online, dynamic transactions and enterprise applications over the Internet, we discuss the path to ubiquitous connectivity, obstacles to its growth, and how connectivity is accelerating human evolution.

Paul Sagan, President & CEO of Akamai Technologies (c) W. Marc Bernsau

How is connectivity changing over the next five to 10 years? What’s happening to the network from where you sit?

This is a consumer answer to your question, but I do believe this change will help power business things, too. We’re starting to see the Internet becoming television, replacing the giant gorilla in the home. Call it the HD Web, if you will. You will be able to get competitive quality, variety and control over your ‘IP television’ (that’s an incomplete term, but I don’t yet know what to call it) better than you get with conventional TV today. At Akamai, we are starting to deliver live TV streams of HD-type quality, using the term “HD” loosely. A majority of viewers are now selecting the higher-quality video streams over the lower-quality ones.

We handled the NCAA March Madness [U.S. college basketball playoffs] on the Web for CBS this year, as we have for some years now. This wasn’t the first year that they had cable-network-size audiences. We served hundreds of thousands of live simultaneous viewers, but for the first time, a majority of those viewers selected video streams of 1 Mbps bandwidth or greater. That’s a stunning milestone. And that’s in the U.S., where the potential audience has very low penetration of FiOS-quality broadband to the home.

You could argue that’s not ‘true’ HD, not Blu-Ray quality, but it’s more than watchable—after two beers, you can’t tell the difference, and maybe that’s always how college basketball is watched. ‘Two-beer HD,’ maybe we should call it.

What that means to me is that the Internet is now a challenge to TV. If you extend broadband growth out three, five or even 10 years, it’s still a pretty short horizon. TV gets fundamentally changed, and from there, so does gaming and all home entertainment. That is a sea change in the economy. All of home entertainment was completely analog until not that long ago! That affects all sorts of businesses.

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When researching my new book, ANYWHERE: How Global Connectivity is Revolutionizing the Way We Do Business, I was fortunate to interview more than 50 thought leaders in connectivity. Their input was invaluable, and their ideas, advice and examples provide very rich context for the Anywhere vision.

I wish we’d had room to incorporate more of our interviews in the book — but with the infinite capacity of the Web, I’m sharing some of them here.

In this excerpt from my interview with Dr. Robert Metcalfe, co-inventor of Ethernet, founder of 3Com and general partner of Polaris Venture Partners, we discuss the path to ubiquitous connectivity, obstacles to its growth, and how connectivity is accelerating human evolution.

Bob Metcalfe (c) Marcin Wichary

Universal, ubiquitous connectivity—yes or no?

Of course it will become universal. The only exception is the normal one.

What’s that?

Well, if you look at that famous picture of the Earth at night, you’ll see huge swaths of black—for instance, most of Africa.

That’s a pretty big exception.

Right. So it’s a question of time. Impatient people say the digital divide is a condemnation of technology—that it’s nothing short of criminal that we haven’t reached everyone yet. I say, ‘Au contraire. Don’t blame me for not getting them connectivity yet when you haven’t gotten them electricity, roads and clean water.’

You sound like you take it personally.

Sure. You can’t talk about connectivity without talking about Metcalfe’s Law, so how much more personal can it get? It’s not my fault there will be tribes that don’t get connected.

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The economic crisis proved a major obstacle for consumers, enterprises and network builders, and each has had to evolve to survive. The changes from 2009 will create new opportunities in the Anywhere ecosystem, especially in the areas of cord-cutting, devices, cloud computing and network innovation.

Earlier today, I was joined by my colleagues Jon Paisner, Camille Mendler and Josh Holbrook to unveil Yankee Group’s top predictions for the 2010 communications industry. We discussed six of our eleven published predictions and took questions live from the audience. Check out the webinar replay below. You can also register as a Guest on the Yankee Group Web site to get the full report for free.

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

The ghosts of network neutrality?

How’s your Latin? “First, do no harm.” That’s the powerful adage new medical students learn as a precaution against jumping into curing illness before understanding the potential negative consequences of what they do. 

Talking with Akamai CEO Paul Sagan a few months ago for our upcoming book (more on that in a week or so), I asked him how he felt about the government’s involvement in the development of the network. “We need to find ways to encourage the fastest possible growth of broadband, particularly in the U.S. To do that we need to think about what the government can do, and to be very wary of what it shouldn’t to do retard growth.”

Well put. The regulatory mood in the U.S. has shifted following the financial crisis; we want government to do more to protect our society from excessive financial risk. With the appointment of a new chairman of the FCC and new rulemakings about the hot potato topic network neutrality on the horizon, it’s worth asking, is the U.S. government first doing no harm? 

Yankee Group regulatory expert Dianne Northfield is encouraged. “Genachowski is doing an effective job in changing the complexion of the Commission and there is a true sense of constructive dialog among the Commissioners. It’s refreshing.”

How does she regard the FCC’s latest efforts on net neutrality?  As much as network operators might hope the topic would just vaporize entirely, she says the most recent rulemaking the FCC has proposed is reasoned. It doesn’t suggest a blanket solution, and it recognizes that all 6 of the proposals it makes about neutrality should be subject to reasonable network management. The Commission also recognizes that its rules may apply differently to different types of networks, asking for comments on how and when its rules might apply to wired versus wireless networks, for instance. It’s also looking to understand appropriate exceptions from the rules. Finally, it has prudently set an unusually long time frame for comments, signalling that it does not intend to act without a thorough and detailed deliberation process. (For more, Yankee Group clients can see Dianne’s most recent report on network neutrality worldwide here.)

I believe the specter of unreasonable regulation has curtailed network investment in the U.S. as well as more efficient use of existing network capacity; operators have been frightened of courting more litigation or legislation from the application of very useful tools for managing their networks and creating differentiated pricing based on customer needs.

A thoughtful process to replace uncertainty about network neutrality with fair clarity will help the Anywhere Network grow.

Score-keeping in Boston's Fenway Park

Following a weekend when my baseball team eliminated itself from contention for the World Series (and here I prefer the active, responsibility-taking “eliminated itself” versus the passive, we-got-beaten mentality of “was eliminated”), I’m thinking about scoring.

What’s the score in the Anywhere Revolution — the transformation of our world into one that is ubiquitously connected? Here are some milestones I’ve noted in past weeks:

• Score +1 for more Anywhere Devices. I like to look for the appearance of connectivity in new types of consumer and enterprise devices. One I spotted in early holiday advertising this weekend: a Fisher-Price sit-on toy pony for toddlers that can interact wirelessly with the TV.  This is what we expect to see a lot more of: devices that incorporate connectivity not as some bolt-on gimmick, but as a natural way of threading together experiences across multiple devices and activities.
• Score +5 for the FCC’s new stance on expanding U.S. airwaves for wireless networks. The new FCC chairman’s keynote at a big wireless show in San Diego last week made it clear: the regulatory organization will add U.S. airwaves. “Spectrum is the oxygen for mobile broadband networks,” said Genachowski, and promised to accelerate the re-allocation of unused spectrum and free up more spectrum for use in unlicensed applications. I hope it means that startup M2Z Networks might be able to get its free, ad-supported mobile broadband network off the ground despite the lobbyist wrangling from incumbent wireless network operators.

But advances occur amid setbacks. Several I see:

• Economy delays western Europe in reaching the Anywhere Tipping Point. Yankee Group’s Anywhere Index tracks the rate at which the world’s broadband network is expanding. The Anywhere Tipping Point (ATP) for any region is when the number of broadband lines (wired or wireless) match that region’s population. This matters because  when enough people have access, Metcalfe’s Law takes over and exponential change atop the network accelerates. Our forecasts examine this index quarterly; our latest figures suggest that many European countries, well on their way to the ATP in 2008, took a delay of game in 2009 because of the economy. Stay tuned for an update in a few weeks on our latest outlook for Anywhere Economies in 2010.
• French socialism pulls France Telecom back from Anywhere Network transformation. I don’t call Anywhere a revolution for nothing; change of this magnitude is painful. As YG analyst Benoit Felten points out so thoughtfully in his post last week, suicides of FT workers have absorbed the media and the French government, leading to the resignation of an FT executive and the likely slowing of change within FT, as it wrestles with excessive manpower in a new age of networks that can and must be lean and mean to compete.

One week doesn’t make a season. On balance it’s clear the world’s networks continue to expand. With my baseball season over this year, I will concentrate my leftover energy on tracking this progress rather than that of the Boston Red Sox.

Earlier this week, French regulator ARCEP released the most recent NGA numbers it has collected from the various players in the market. France currently has 50.000 homes subscribing to FTTH services and 180.000 homes subscribing to a HFC cable offer. The progression from six months ago is not insignificant, but the success rate compared to the announced 650.000 homes passed for FTTH alone is not good, to say the least.

There is, however an ambiguity in this homes passed figure. The French terminology in the ARCEP report (foyers raccordables) suggests that these homes can subscribe to the service when in fact, for the most part, they can’t. This is due to the way the service providers report these figures, describing not the homes they have physically connected but the buildings they pass. This, at least, is what the service providers themselves tell me.

The issue that remains crucial in the French market is therefore that of fibering up the buildings, and while the regulatory framework for that has been laid out for comment by ARCEP and recently endorsed by the competition authorities, France Telecom had, until recently, protested that this framework killed their business model and seemed to be lobbying strongly against it, having even threatened to pull out of fiber deployment altogether. But it looks now like their official position at least is changing. It looks like the way is paved for a law to now be passed making that framework official (meanwhile, France Telecom is protesting about the deployment model for Tier 2 cities, but that’s a story for another day).

Right now though, what we are looking at is a very low take-up rate for deployed infrastructure as a consequence of this issue with in-building deployment. The disagreements on the legal framework may in part explain this slowness, but I’m convinced that it’s not by far the only reason.

The main issue in my opinion is that FTTH operators have seen landlords and building managers (syndics) as a hurdle, not as part of the ecosystem.

When I was in Sweden last week, the vital role of landlord associations in shaping the FTTH market struck me once again. More than perhaps any other player in the market, regulator and service providers included, they were instrumental in establishing the service delivery model. They did this by understanding the benefits they would derive from fiber deployment (avoiding customer lock-in, higher rents, building management opportunities…) and by acting collectively. They decided to take some of the costs of vertical deployment upon themselves in exchange for an increased control on shaping the service delivery model (and avoiding a legacy model that had caused them only pain…)

The landlords and building managers in France are a lot less united, that’s for sure. But they also haven’t been addressed by service providers as entities who could benefit from the fiber deployment, just as someone who needed to give their go-ahead (and perhaps would ask for a well-padded envelope in exchange.)

As a consequence, I’m not convinced that the new legal framework will really accelerate things unless Orange is serious about its change of minds on the framework. Orange, like all incumbents, has a clear advantage in dealing with in-building issues: they have been delivering copper services to these buildings forever. They know who the decision makers are, they probably have huge databases of buildings in France and who you need to speak to to get things done.

If they act upon it, then all three operators could be present in Paris quite fast. If they don’t, Free and SFR are going to struggle in clearing this jungle for a good while before anything happens. Unless they can come up with something that the landlords and building managers want.

More generally, I see very few service providers taking an ecosystem view to their deployments and trying to understand what the benefits are to all of the players involved and not just to themselves and the end-customer. I think if FTTH is going to accelerate its deployment, this 360 view needs to happen, and it needs to happen fast.

This post has been cross-posted to www.fiberevolution.com.

Today is a proud moment for Yankee Group—one that validates our company’s influence on a national scale. David Vorhaus, a senior analyst here at Yankee Group, is taking a leave of absence to join the National Broadband Task Force at the FCC. The mission of the task force is to research and write the National Broadband Plan, which defines how broadband will be adopted across the country, to establish benchmarks for the plan and to help inform how broadband stimulus dollars should be invested.

It’s no surprise that a Yankee Group analyst has been tapped for such an important post. Yankee Group’s depth of expertise on broadband and regulatory issues is unmatched in the industry, and in addition to David, several other Yankee Group analysts—including  Dianne Northfield, Vince Vittore and Benoît Felten—have devoted numerous reports, webinars, podcasts and client projects to the topic throughout the year.

Those reports, including “What the U.S. Must Do for Broadband,” “Ubiquitous U.S. Broadband Will Cost At Least Triple the Current Stimulus Package” and “Memo to President Obama: We Need Anywhere for America,” underscore Yankee Group’s commitment to broadband reform and spotlight the importance of connectivity and the development of the Anywhere Network to the broader economic recovery.

It’s clear that Yankee Group has our finger on the pulse of broadband reform. Not only has David been tapped for this prestigious post, but our open letter to President Obama—sent during Obama’s first week in office—has also garnered results. The letter addressed a number of broadband-related issues, including the need to recommit to building a public safety broadband network and fund the USDA’s Rural Utilities Service (RUS) broadband program. Yankee Group received feedback from Michael Copps, the acting commissioner of the FCC, and our suggestion about funding the RUS has been incorporated into the federal stimulus package. And Yankee Group continues to influence the larger broadband discussion, as our own Benoît Felten was recently invited to present on fiber to the home (FTTH) at the FCC.

It’s an exciting and natural step that one of our very own was invited to step up to the national stage. Please join me in congratulating David.

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. 

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.