It’s always great to see one of our customers get the recognition they deserve. The New York Times’ David Pogue recently wrote about Toktumi and its latest product Line2 –  an iPhone VoIP application that provides you a second telephone number. The application works over 3G, Wi-Fi or Cellular networks using the same number… an industry first.  That’s in sharp contrast to Verizon’s announcement with Skype, which will make calls on Verizon via the existing circuit switched network according to FierceVoIP. So unfortunately that call quality will only be regular cell phone quality if that’s the case.

Line2 iPhone User Guide from Toren Ajk on Vimeo.

What was nice to watch from David Pogue’s video was his recognition of Line2’s voice quality: “It sounds like she’s right there in the room!” While HD voice is something GIPS has offered its customers HD voice for donkeys years, GIPS VoiceEngine technology also deals with the less glitzy side of VoIP, which is the media processing -  solving all the inherent device, network and bandwidth issues that provide stumbling blocks to offering VoIP/HD voice.

Unfortunately, Toktumi had to pull their iPhone app this morning after some bad sport(s) attacked Line2 with an intense denial-of-service computer attack similar to what Twitter has experienced in the past. Booooooo! Well knowing Peter Sisson I’m sure Line2 will be back up soon – and then we can all go on using Line2.

I spent a good 4 hours yesterday watching my favorite football team, the Minnesota Vikings, self destruct as only they can. During the frequent commercial breaks, I noticed the over abundance of ads for mobile carriers. There were the usual pudgy Owen Wilson AT&T ads dueling with the Verizon map commercials, along with a few Sprint and Metro PCS spots mixed in. This flurry of activity sparked me to wonder aloud, “How competitive is this market?”

The perception given by all the commercials is that the market is very competitive. Each firm is making its case for why it is the best choice- largest 3G network, fastest downloads, widest selection of phones, least restrictive calling plans, etc- and furiously trying to attract as many customers away from the other providers. Yet, I couldn’t help but think that, while they have offered more services, each successive cell phone plan I have purchased over the last 8 years has only been more expensive than the previous. If this market is that competitive, shouldn’t prices be falling?

If you believe the commercials, it appears as if they are. Verizon and AT&T announced reduced rates for their voice plans. Interestingly enough, they both settled at $69.99 a month, behavior which seems remarkably coordinated. However, as Marguerite Reardon pointed out for CNET, these new plans may actually be more expensive for many users, as they impose higher fees for web and data usage for owners of mid-range phones. 

This is an incredibly complex topic, which we have touched on in the past, but it seems like, at least until now, most carriers have tried to use subsidized phones as their main differentiator. By signing exclusive deals with manufacturers, and then offering phones for reduced upfront fees, operators are able to lure customers based on those phones’ features.  What many consumers may not realize, however, is that they are probably paying more in the long run than users of the same phones in other countries. Telecommunications tends to be a naturally oligopolistic market, and the U.S. mobile market is no exception. The high barrier to entry associated with owning large networks leads to only a small number of firms owning virtually the whole market. But what is most important (and what the FCC will probably be looking into) is if this arrangement is beneficial to consumers. I don’t have an answer to this question, but I do have a nagging feeling that I should be getting more for less.

I was intrigued to read the front page banner headline of the July 7th issue of The Wall Street Journal. “Telecoms Face Antitrust Threat“. 

Apparently the Obama administration has taken an aggressive position on antitrust enforcement in a variety of industries, but the focus of this article is the telecom industry. 

The two dominant carriers in the US are AT&T and Verizon. As such, they are the primary subject of scrutiny by the Department of Justice.  That’s not surprising. Taken together, they hold about 60% of the US wireless market with 164.8M subscribers.  They also control large portions of the Internet backbone and have about 90 Million land-line subscribers. 

The DoJ is exploring whether these companies are abusing their market power in the wireless handset market. The issue at question is the practice of locking up popular smartphones through exclusivity agreements with the handset manufacturers; a practice that was wildly successful with the iPhone. You’ve got to admit, AT&T and Apple really hit one out of the park with that deal. 

The big carriers say their industry is extremely competitive and that regulating these exclusive handset deals would “harm innovation”. They go on to say that these exclusive deals enable them to take risks on these new phones and bring them to market at discounted prices.  Meanwhile, smaller carriers are complaining that they are being shut-out of the market for these hot new phones. 

Jon Muleta, a former FCC bureau chief, said that the government will have a hard time pursuing antitrust charges on these exclusive deals unless the handset manufacturers say they’re being forced into these deals.  “The equipment providers enter into these deals willingly.” Mr. Muleta said. 

Wireless industry analysts say that the handset manufacturers benefit from these exclusive agreements. Partnering with a Tier 1 carrier gives the manufacturers high visibility and a first-class marketing campaign. 

It was interesting to note that the WSJ article didn’t interview any of the handset manufacturers. I guess nobody from Apple, RIM, LG, Samsung, or Palm was near a phone on July 7^th, 2009.

According to TWICE.com, In-Stat has published a report predicting North American shipments of home “media phones” to surpass 14 million by 2013.  These multimedia devices, such as the Hub from Verizon and HomeManager from AT&T, include Internet access and unified messaging, in addition to basic phone service.

The report claims that media phones will be “complimentary” devices, and will not replace any other consumer electronics.   This seems in line with my colleague Larry’s blog about the Hub back in January, in which he discussed how, by offering advanced services, telcos can maintain home phone subscription revenue. However, it remains to be seen if people actually want another device in their home that essentially offers the same features as equipment they already have (TV, computer, phone). It seems to me that the main advantage of unifying communications and entertainment features is to reduce clutter and end up with a device that offers more than any of the originals. I think it is more likely that people would want to get rid of their home phones, for instance, if their other household appliances (TV or computer) offered calling and messaging capabilities. I know that once the iPhone exceeds 30 GB storage capacity it will become a lot more appealing to me because I can then use it as my portable music player, thereby replacing not only my current cell phone, but also my iPod.

But hold on! There is another reason to be skeptical of the prospect of media phone success. The opening sentence of the article sheds some light on how difficult it is to predict market trends, and the reliability of market research.  It reads, “North American shipments of broadband-connected residential media phones could hit almost 14.3 million units in 2013, up from zero in 2008 and up from a forecast 700,000 to 1.4 million in 2009″. Did you catch that? In-Stat doesn’t even have one year of reliable data upon which to base a prediction! These products didn’t even exist a year ago, and we only have a vague notion of how many will ship this year, yet we are going to go ahead and try to predict how many will ship 4 years from now. I am sure Verizon and AT&T have some complicated models for these things, but I find it hard to believe that a 3^rd party firm like In-Stat could make this kind of forecast with any degree of confidence. Isn’t that like trying to predict how tall your 4 month old child will be when he or she gets to be an adult? Sure, there are methods out there, but I don’t think they are terribly accurate.

In his recent GIPS blog posting, John Hermansen astutely commented that companies like Verizon must continue to innovate and provide customers with telecommunication services that offer greater value when compared to what is available today. This is the only way to combat the migration of customers to other providers such as Vonage and Comcast or abandoning of landlines all together. John concludes his blog with “I know I would be much more likely to sign up for FiOS if they offered PC-based video calling, integrated VoIP and TV applications or a combined mobile and home service. Hopefully this is Verizon’s strategy, as it will benefit VoIP developers and consumers alike.”

On Friday, Verizon took a big step towards gaining John as a customer by bringing a new value-added service to the market with the introduction of the Verizon Hub.

Surprisingly, this new option for landline service is coming for a wireless company. The Verizon Hub is being marketed to Verizon Wireless customers and is being targeted at families with active lifestyles. The multifunctional Hub utilizes existing broadband service from any carrier and integrates the services one would expect from a voice-based device with a host of new services, including unlimited SMS, real-time traffic, weather, calendars, directions, movie trailers, etc. If Verizon can successfully bridge the gap between its mobile and fixed offerings, services such as VCast will have higher utility driving greater adoption. If successful, Verizon will increase the ARPU of its traditional wireless customers, add a new revenue stream with landline service and maybe, more importantly, capture market share in regions that it currently does not offer a land line service.

Another intriguing characteristic in the Verizon press release is that they do not once mention Voice over IP. To me, this indicates a welcome departure in how Voice over IP is marketed. To Verizon and their customers Voice is simply Voice. With this announcement, we find a major telecommunications company leveraging the ability to deliver voice over an IP network to expand on their product offering and bringing greater value to their customers.

It was widely reported yesterday that Verizon will be transitioning its home phone service to all VoIP by 2016. This is great news for the industry and for developers of VoIP and IP video applications. It has been noted that Verizon is facing stiff competition from cable companies offering bundled TV, Internet and phone services, as well as from upstart VoIP providers such as Vonage.

Many have chosen to focus on the diminishing business for telcos (Verizon lost 3.7 million lines between Q3 2007 and Q3 2008) and their need to offer more competitive pricing. This is certainly the case, as the value of home phone service has dropped dramatically with the proliferation of mobile phones and the availability of VoIP. However, I prefer the slightly more hopeful angle that Andy Abramson takes as we look to the possibilities that this path opens up.

If Verizon’s only goal is to compete with Vonage by offering cheap home phone service, they might as well just give up now. No company benefits from that kind of race to the bottom. I personally derive almost no value from having a landline, and would get rid of mine if Comcast didn’t essentially force me to have one by making it more expensive for me to switch from my current ”triple play” package to a cable and Internet-only plan (the phone call in which this was explained to me was a lesson in poor customer service and could be a blog post in and of itself). However, by focusing on next-gen networks, Verizon will be able to provide additional cutting-edge services that go above and beyond what its competitors are offering. This will allow them to maintain a higher price point, while delivering services that people actually want. I know I would be much more likely to sign up for FiOS if they offered PC-based video calling, integrated VoIP and TV applications or a combined mobile and home service. Hopefully this is Verizon’s strategy, as it will benefit VoIP developers and consumers alike.