Many folks were anxiously waiting for the first FCC ruling after the appointment of Kevin Martin as the new Chairman, succeeding Michael Powell, to observe whether or not there would be a change in bias within the Commission. If the first ruling after Martin being named is at all a valid indicator, the FCC might become a bit more pro RBOC (albeit that UNE-P and the fiber ruling last October also benefited RBOCs).

Some VoIP providers will find it hard to digest the news that the FCC has again sided with the phone companies, issuing a controversial split-decision that they do not have to abide by state rules requiring them to sell stand-alone high speed Internet service (the final vote was 3x2 in favor of Bell South, which opposed regulation in Florida, Georgia, Kentucky and Louisiana that forbid its practice of linking DSL service to local phone service).

This will also prove to be a major challenge to “cord cutters” (i.e. a group of 20 million US residents who chose not to have local phone service and instead rely solely on cellular phones). These cord cutters that had naked DSL might now be forced to buy local phone service.

The interesting question is whether or not this will work in favor of the RBOCs, as the cord cutters were already unsatisfied with their local phone service, and certainly would not want to be in a position where they would be forced to buy that service just for the sake of having DSL. Therefore, they might consider cable (if available in their area) or maybe some broadband wireless option before, as a last option acquiring local phone service again.

As I wrote in a January note after the Cisco acquisition of Airespace, there would be many ramifications arising from that transaction, including possible partnerships between Alcatel, NEC and Nortel and WLAN vendors such as Aruba, Meru, Strix or Trapeze.  Well, one of those new partnerships was officially announced earlier this week, when Nortel and Trapeze Networks agreed to an OEM and development partnership.

Trapeze will embed its technology into some of Nortel's platforms to give wireless capabilities to things like remote access, switching and security.  The first co-developed product between both companies is expected to be introduced during the May/June timeframe.

Note: It looks like Alcatel also found a similar partnership in the WLAN space, with Aruba Networks, initially capitalizing on the latter's security and other network management products.

Interestingly enough, despite my previous post on the dismal record that M&As have had in the past, one of the biggest topics du jour that is occupying the mind of many telecom analysts is that of equipment vendor consolidation, given the similar activity that has happened on the carrier side. 

The rationale goes that because they are fewer customers and probably some reduced CAPEX spend, there will be less revenues to be had by the same number of vendors, ergo the trend is for some of the vendors to amalgamate and be bought.

Light Reading went wild with a few scenarios that could be read here.  Even in Wall Street, some analysts have been in a speculative mood lately.  For instance, CIBC World Markets mentioned in a report that Nortel could potentially beef up its enterprise division by acquiring companies such as Mitel or Inter-Tel (I really do not see either scenario happening, as there would be a lot of duplication and not enough synergies, although a Mitel sale to another vendor such as Hewlett Packard should not be discarded in the long-term future). 

But speculation keeps the world turning.  We will definitely see some M&A activity happening later this year, but certainly not as being anticipated by some telecom industry insiders. 

Gizmodo had an interesting entry about KDDI's AI-MATE (see photo to the left), a prototype which the Japanese operator is calling a "hybrid communicator", blending the functionality from a cell phone and a PDA.  The model will make its debut at the Expo 2005 in Aichi, Japan (which begins on March 25th).

On a separate note, we can add a couple more datapoints to the "Chaku-Uta Full" polyphonic tones download service that I wrote about recently.  KDDI announced earlier this month that the service surpassed the 3 million download mark on March 1st, after surpassing 2 million downloads earlier in February (on Feb. 5th).

Nortel (NYSE:NT) reported its Q3 2004 results, with a revenue tally of $2.179 billion (as opposed to the Street's consensus estimate of around $2.270 billion). Enterprise results were in line, whereas wireline were a bit lower and wireless a bit higher than expected. But the shortfall really came in the optical side, mostly attributed to "a cumulative correction of approximately $80 in the third quarter of 2004 for revenues previously recognized primarily in 2001 and 2002 relating to the delivery of future contractual post-contract support, or PCS, and other services.”

But going forward, if Nortel is to win back the full confidence from the Street, more transparency in the reporting of results will be required (as Lucent did after its own settlement with the SEC).  So, in the future, items such as the mysterious $159 million charge on the BSNL contract (that adversely impacted gross margins) need to be better explained.

Of course no sooner that I wrote about Nortel's optimism about its prospects in Asia, two things happened: one, Q3 results started being dissected over the weekend (Mark Evans had a good piece about that), and then today (Monday), there was a lot of talk on the Street about the reorganization of China Unicom.

It turns out that China Unicom is considering abandoning its dual network (CDMA/GSM) strategy, selling its GSM network to China Telecom (a wireline carrier).  That transaction could then open the way for China Unicom to align itself with another wireline service provider (China Netcom).  So what's the upshot of all this?  Well, perhaps a short term increase in 2/2.5G spend with easing demand for a 3G ramp-up, as both wireline and wireless carriers will now have 2.5G wireless offerings to concentrate on the short term.

It is expected that the Chinese government will still issue three or four new 3G licenses before the end of 2005, but the initial pace of deployment will be slower than initially anticipated.  So what's the impact to Nortel?  As one of the primary CDMA suppliers in the China Unicom account (alongside Motorola and Lucent), Nortel will benefit in the long-term, as the Chinese operator will only have to focus on the evolution of its CDMA network.  But in the short to medium term, spending will be reduced, as there is a lot of unused capacity in China Unicom's current CDMA network.

Industry sources have informed us BT will seek to select its short list of equipment vendors for the 21 CN RFP by March 31st (although some folks feel that might actually come in April, during their analyst call). There has been a lot written about BT's major next-gen network initiative, also known as the 21st Century Network (or 21 CN, for short) RFP. This ambitious undertaking calls for the building of a new network, followed by the switching off of older PSTN infrastructure by the end of decade, and is pegged at £10 billion ($18.7 billion). 

Companies in the running include Alcatel (access and Ethernet), Cisco (which might see some action involving its new CRS-1 core router and hopes to leverage its long standing relationship with BT), Fujitsu (DSLAMs), Marconi (which is a long-term supplier to BT, and one of the favorites to win a part of the VoIP buildout; there will be lots of lobbying for Marconi), and Siemens (one of BT's strategic suppliers, providing gear such as the HiPath next-gen line).  There could be also some companies which can benefit from partnerships to win a portion of this business, such as Sonus, which has a non-exclusive partnership with Marconi (if Marconi is one of the winners, it will leverage Sonus' gateway)

Nordic Wireless had an interesting post on the success of Japan's new polyphonic ring tones download service called “EZ Chaku-Uta-Full”. These polyphonic songs play 64 notes simultaneously and can be downloaded to mobile phones via 3G networks.  The service made its debut in mid-November of last year, and notched 1 million downloads within a span of 48 days: on January 5th, KDDI and Okinawa Cellular (a KDDI company) announced that milestone.  As of January, only KDDI was offering chaku-uta in Japan, with four handset models being supported and a base of 410,000 users.

What does this mean?  Can we have a future in which there will be more chaku-uta downloads on the wireless networks than i-Tunes downloads on the wired Internet?  Well, the graph below certainly suggests that, as the chaku-uta full service has had a much faster ramp-up.  One key takeaway is that for some applications, the mobile network might actually be the preferred means to get a service (particularly with the advent of HSDPA and burst data rates of up to 14.2 Mbps).  Another one is that the iPod will get more competition not only from Dell, Virgin, Creative Labs, IRiber and Archos, but also from cell phone manufacturers, which will embed mp3 functionality on their handsets and team up with service providers offering chaku-uta-like services.

Since I was at 3GSM and VON, I could not attend CTIA this past week, but a friend gave me some interesting information about 3G developments in China. There was quite a bit of chatter in both New Orleans and Cannes that the 3G licenses in China would finally be issued by the end of 2005. Apparently, China Unicom mentioned that any service provider consolidation or reorganization would be revealed by that time frame. That is why there is an expectation that the first equipment contracts will be issued the end of the year or  the start of 2006.

Nortel (NYSE:NT) was bullish about its 3G chances in China.  The company hopes to leverage their current incumbent position with China Unicom (having roughly a 20% share of the Unicom account) into an EV-DO contract once 3G licenses are issued.  Nortel was also optimistic about taking advantage of its JV with LG to win some more business in South Korea, hoping to benefit from the KTF and the SK Telecom buildouts.

Since I saw Larry Borsato mention some figures in the 99.999% availability requirement-for-VoIP-networks debate, I decided it was time for me to dust off my networking theory book and implement Erlang's formula on an Excel spreadsheet using VBA, to get a better feel for how much each "9" matters.

Here are the results that I got:

Again, in Greg Galitzine's example, a Verizon bureaucrat's two plus days delay in dispatching a technician to handle the case resulted in service availability going down from 99.999% to under 99.5%... wow! - how quickly that number can fall!

About a week ago, I wrote an entry asking how reliable VoIP should be and mentioned some research that was conducted by Professor Henning Schulzrinne and one of his students (Wenyu Jiang) at Columbia University.  The actual research on VoIP service availability in the Internet was conducted a while ago (the paper was presented at the PAM (Passive and Active Measurement) Workshop in La Jolla, CA back in April 2003.  That particular study reported that when the Internet is used as the transport network, the VoIP service availability is approximately 98 percent.  The key factors in arriving at this figure were the call success probability (on average 0.47 percent) and the outage-induced call abortion probability (i.e., the likelihood of the caller hanging up after a service interruption, found to be on average equal to 1.53 percent). Combined, the results yielded a net service availability of roughly 98 percent.

Then, I mentioned the Ofcom figure of service availability for wireless networks in the UK (running at a rate of 97 to 98 percent service availability, according to a 2002 survey).  My intent was just to talk about the social aspects of VoIP, and to speculate about how some of the technology's early adopters were willing to tolerate something in between the availability of wireless service and the "assumed" 99.999% POTS figure (I say "assumed" because of stories such as Greg Galitzine, whose Verizon service outage of more than two days took his POTS availability to less than 99.5% for the year).

Well, Om Malik jumped all over my post, believing that I was really prescribing VoIP as a POTS replacement technology at a smaller availability than the status-quo.  Of course, that was not the case at all.  I was just putting myself on the shoes of a new entrant to the marketplace, and trying to figure out how much is needed as a minimum initial threshold, until more mindshare and market share are captured, before making a higher CAPEX commitment to raise the bar of the service. 

The fact of the matter is that, on a controlled network, one can greatly improve the availability, by adding redundancy (e.g. using RAID hard drives and "hot standby" servers or by implementing a highly reliable LAN/WAN design with multiple switches and routers at the Layer 2 and Layer 3 network levels for redundant connections and call paths).  These more highly available systems require more equipment and supported communications links, thereby increasing the overall system cost.  I was just trying to ask how much each 9 is worth, and what are the tradeoffs in terms of what the investment requirements are and what the customers are willing to accept.

Of course five 9s is highly desirable, because of the possible consequences of a service outage (even as temporary as it might be).  Here, the notion of expected value takes hold - i.e. even starting with a low probability event, when factoring in the bad consequences associated with it, the expected value could be high (e.g. someone who is relying on VoIP service as a primary line and all of a sudden cannot call an ambulance due to a service interruption).  That is why I advocate adherence to this high availability target.  But Rome was not built in one day - and neither were fully redundant, highly available and controlled VoIP networks, so this will be a gradual process.

One final comment - five nines as a goal should be pursued only when VoIP is to be relied on as the only means of communication, but with the advent of data apps (IM, web collaboration, etc) and the proliferation of mobile networks (3G, WiFi, and eventually WiMax), other means of communication are becoming widely popular, which means that POTS is no longer as exclusive as it once was.  It is important to keep in mind that when the POTS network was built, the telephone was the only game in town, and that was a key consideration that had to be factored in the design of that network.

Research in Motion (Nasdaq:RIMM) shareholders were probably jumping for joy after the company announced yesterday that it reached a favorable settlement with NTP on their ongoing dispute over some intellectual property rights.  Some expected much worse than the deal that RIMM was able to arrive at, including not only an upfront cash settlement, but also a hefty ongoing royalty.  As it turned out, the company managed to settle all the damages from the previous infringement and to gain a paid-up perpetual licence for $450 million (apportioned as follows: $137 for past and $313 for future infringements). 

Now investors can forget about this issue and start focusing on the fundamentals behind the stock, and the increased competition that is looming over the horizon.  The addressable market opportunity is still a substantial one, with China providing a good upside, particularly considering a potential rollout at China Mobile.  Furthermore, the Fast100 Program (calling for a rollout of RIMM's platform at 100 small carriers on an accelerated basis) remains on track.

An insider Wall Street source called me today to let me know that a White House official hinted that Kevin Martin will be named as the new Chairman of the FCC, following the departure of Michael Powell.

Many had considered Martin to be the favorite in succeeding Powell, due to the fact that he already has considerable regulator experience (4+ years at the FCC), the fact that he worked on President Bush's campaign, and that his wife is an assistant to the President on economic policy.

It will be interesting to see what Martin brings to the table, particularly regarding the VoIP friendly stance that was adopted by Powell.  Although Martin has clashed with Powell before (on local phone competition back in 2003), he maintained the party line for the most part of his FCC tenure.

One interesting thing that happened while I was in Cannes last month at 3GSM was the frequency that I would hear the default Nokia ringtone song.  Particularly when attending press conferences of some rival equipment vendors (such as Ericsson or Siemens).  It seemed that the standard Nokia tune kept getting played and disturbing some of these events (one fellow even joked that Nokia always had someone planted in the audience with a cell phone, but it could have been just a coincidence, as attendees often forget to mute their cell phones and put them on vibrate mode).

Well, one Finnish colleague told me that the song is nothing more than just a piece by Jean Sibelius (the Finnish composer shown on the photo, who authored a piece called Finlandia, which later became the country's national anthem) simply played backwards.  I was a bit puzzled, since I never heard the story.

As it turns out, he was pulling my leg.  I did a bit of digging and found out that in fact, the tune comes from a classical guitar work called Gran Vals, which was composed by Francisco Tarrega in the 19th century.  I was also able to discover a good article detailing the history of ringtones.

Jeff Pulver was a guest speaker yesterday at a dinner event hosted by Ditech Communications, a major sponsor of Spring VON.  Ditech delivers echo cancellation and voice processing products used by wireline, wireless and VoIP service providers. 

One of the highlights of his speech was his lobbying for a wider adoption of wideband CODECs in the VoIP world.  The impressive uptake of IP phones and the imminent roll out of 3G wireless handsets have both generated a substantial opportunity to deliver better than toll-quality audio performance in the new packet-based telephone network.

This better than toll-quality sound can be obtained by using the capabilities of the data network that is not limited to 8-KHz sampling rate (about a 4-KHz pass-band) present in the existing telephone network.  Jeff's point is valid, since inexpensive DSPs can compress wide bandwidth signals for transmission over the packet network, and a slightly bigger bandwidth consumption should no longer be a major issue.  If I were a VoIP marketer, I would love to play side-by-side two clips: one with G.711 and one with G.722, and then explain that the first clip was legacy wireline sound, whereas the second really captures the essence of VoIP - being able to deliver a much better sound quality.

Much has been written about Nortel's appointment of a new COO and President on March 4th.  Gary Daichendt, who has remained pretty much on the sidelines of the telecom world since stepping down from Cisco after a six year tenure in 2000, is the newest exec to join Nortel.  Daichendt was the VP of worldwide sales at Cisco (just one of two VPs reporting directly to CEO John Chambers, with whom he worked both at IBM and Wang Laboratories). 

As a result, Nortel CEO Bill Owens will give up his title of President, while becoming Board Co-Chairman, while new CFO Peter Currie will gain the extra title of Executive Vice President.  The fact that Owens will get expanded powers as the CEO (as a co-chair in the board) and that his handpicked CFO is getting the exec VP title indicate that the Nortel Board might not be preparing to replace Owens with an executive with more industry experience, contrary to some views expressed in the blogsphere. 

However, Owens nearly impeccable reputation got a bit stained when Nortel's accounting department failed on repeated occasions to deliver SEC filings by certain deadlines promised by him.  In January, the failure to deliver at least Q3 2004 results by the end month might have resulted in the departure of Bill Kerr as the CFO, and the appointment of Peter Currie to the job.  While Mr. Kerr was planning to step down anyway, the word on Wall Street was that the switch was triggered by this latest setback in reporting results on time.  Currie became the company's sixth CFO in the past five years.

So what does Daichendt's hiring mean?  Of course, he brings a lot of intangibles to the table, including his extensive telecom background, which is particularly important when attempting to secure major carrier deals where industry know-how is sine-qua-non for understanding deal lingo.  Bringing in an IP champion in the executive suite also shows Nortel's commitment to the technology, as the market transitions from TDM-based equipment to packet switched gear.  The company certainly has been further along in incorporating IP-based technologies into its product mix.

Om Malik reported on the outages of Vonage and Lingo last weekend, and also a similar instance last year with AT&T's CallVantage service.  He wonders what the impact will be in terms of customer satisfaction, once users realize that current VoIP services will be hard pressed to deliver a service that matches the 99.999% reliability of a carrier. 

While the above mentioned service outages make one ponder on the availability of VoIP, I wonder whether the bulk of the current VoIP users really have such high expectations about the reliability of the service.  Or, even more importantly if they are able to live with less than 99%+ reliability.  The question is: is that carrier-grade reliability necessary for the current early adopters of VoIP?  Particularly when considering that with the advent of mobile communications, the end-user tolerance for noisy lines, dropped calls, etc. has gone way up.

Columbia University Computer Science Professor Henning Schulzrinne has been determining the availability of an average VoIP call as early as April 2003.  One of his findings is that when the Internet is used as the transport network, net VoIP service availability is approximately 98 percent.

Recall that VoIP service availability is defined as the likelihood of a VoIP call being successfully established on the caller’s first attempt. To put the 98 percent number in context, the PSTN runs at an availability rate of 99.99% to 99.999%, whereas mobile networks in the UK run at a rate of 97 to 98 percent service availability (according to a 2002 survey ran by Ofcom, the Office of Communications, which is the is the regulator for the UK telecom industry).

Professor Schulzrinne's findings show that the early adopters of VoIP services relying on the Internet for transport are already used to living with less than even two nines worth of availability.  So how important really is the 99.999% figure?  Perhaps all that is required for the VoIP SPs using their own networks is sufficient CAPEX to fine tune these networks to offer just enough availability.  And how much is "just enough"?  I would say somewhere in the middle between the availability of wireless and POTS services.  It would be interesting exercise to estimate how much CAPEX each 9 is worth...

The MCI sweepstakes soap opera took yet another twist this past Thursday (March 3rd), when Carlos Slim Helu (the richest man in Latin America, owner of Telmex and America Movil, and MCI's largest shareholder with a 13.7% stake) announced his opposition to the deal with Verizon.  On the other hand, he also called Qwest's offer "insufficient". Thus far, at least 26% of MCI's shareholders have voiced their opposition to the most recent offer that Verizon has put on the table.

No wonder Slim is ranked #17 at Forbes' list famous "World's Richest People" ranking.  Many believe he invested nearly $300 million in WorldCom bonds, after the IXC went into bankruptcy protection.  Those bonds were later converted into almost 43 million shares once MCI was listed on the Nasdaq, which led to his holding 13.7% of the company stock.  Another investment that made him money recently is Global Crossing.

Although Verizon's offer ($6.75 billion) is considered to be right at the fair value of MCI, Qwest's $8 billion offer is slightly better.  A further increase in Verizon's offer will definitely be gravy for MCI shareholders, but the size of the deal is small enough that a higher offer would only entail a modest decrease in the consensus Wall Street valuation of Verizon stock.  

Madison River Communications, a North Carolina telecom service provider, has been assessed a $15,000 fine by the FCC.  The company, which operates four RLECs in the Southeast and Midwest US, was engaged in "port blocking" all VoIP traffic on its networks.  Madison River was trying to impede certain types of traffic, including VoIP packets, and Vonage took notice, filing a complaint with the FCC.  Departing Chairman Michael Powell, issued the hefty fine, to be paid to the government, and issued a decree preventing Madison River from engaging in this practice for 30 months.  Apparently, Vonage is not the only VoIP carrier affected by port blocking: even smaller players such as Nuvio (a small VoIP SP from Kansas City) had its VoIP traffic blocked by a cable operator. 

Virgin Mobile launched its service in Canada earlier this week, in a truly grandiose style: Sir Richard Branson (photo), the company founder, jumped from an office building and performed a few other stunts.

Obviously, the company will go after the casual users that do not want to be bound by long-term contracts, as well as the youth segment, which is typically more cost conscious (the very same segment to which Fido used to cater to).  Of course, now that City Fido is gone, many look to Virgin as being the true disruptor in the Canadian wireless service landscape.  The truth is that not too many of the City Fido users per se will be jumping ship to Virgin (after all, these are "all you can eat" type of consumers that are seeking a cheap large volume deal, and to them, the 10-25 cent a minute pre-paid deal might prove to be a bit steep), but the casual Fido users definitely will consider flocking over to the Virgin camp.  The same holds true for Telus and Bell Mobility casual users. 

I suspect that Virgin will cause some disruption, and I welcome that.  For one thing, by charging a per-minute fee of 10 to 25 cents, Virgin can offer free features such as voice mail, call waiting, call forwarding and three-way calling.  Also, Virgin will push for wireless number portability (the CRTC has been so morose in pushing for that initiative that the Canadian Government has requested the CRTC to expedite the issue in this year's budget, but Virgin will be lobbying alongside).  Another issue that Virgin will challenge is the controversial $7 system access fee, which does not exist anywhere else in the world.

The Virgin model is about to be proven in Canada, which should prove to be a fertile ground for MVNOs, due to the oligopolistic nature of its mobile communications market.  Hopefully, consumers will win as competition returns.  For more info about Virgin and its charismatic founder (Sir Richard Branson), here is a great interview conducted by Mark Evans, the senior telecom reporter for the National Post.  Definitely, a very enjoyable read.