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Broadband Lost in Space?
March 11, 2004
by Jim Hu

Hughes Electronics swallowed a bitter pill last year when it ended an ambitious partnership with America Online to deliver high-speed Internet access over the Hughes satellite network.

The severance of the $1.5 billion deal offered a tacit admission that the satellite industry's costly attempt to step into the broadband ring was an abysmal failure. The technology was expensive, both for the satellite companies and for consumers. And the competition was fierce, as evidenced by cable modem and DSL's (digital subscriber line) overwhelming dominance of the U.S. broadband market.

 

Now, despite ongoing technical and economic reservations, satellite companies including DirecTV-parent Hughes and refinanced start-up WildBlue are preparing risky plans to re-enter the broadband business--a reversal that signals they can't afford to sit out the race.

"It's a way for the DirecTVs of the world to fill a broadband gap to compete with cable, and to a lesser degree, with DSL," said Jim Penhune, an analyst at market research firm Strategy Analytics.

The second coming of satellite broadband underscores the increasing sway of digital technologies in the telecommunications industry and the convulsions that have come with it. Cable companies can now offer phone and Internet services along with television programming, and phone companies are working hard to deliver video to augment data and voice. Consumers are being wooed with bundles that put all of these services on the same bill.

Satellite companies have partnered with phone companies to match the cable companies for now, but they face a troubling future if they can't eventually bolster their television products with Internet, and ultimately voice, service. Although satellite broadband has a limited market for now, investments today could lead to improvements that may ultimately keep satellite services relevant in the face of a growing array of data services--including the still-undelivered promise of long-range, high-speed wireless Internet networks.

Satellite companies will begin reintroducing broadband services this summer, targeting rural customers ignored by cable and DSL providers.

Hughes plans to launch a satellite into orbit that can deliver broadcast signals more efficiently using better technology on what's called a Ka-band. The Ka-band satellite also has the ability to offer faster, two-way broadband Internet service, which Hughes plans to sell to small businesses under the moniker Spaceway.

Hughes currently sells a broadband service called Direcway to small businesses. The service is expensive, given equipment costs and monthly subscription fees. However, the company thinks Spaceway will eventually position it to offer broadband to households in a few years.

"As we move forward with Spaceway, I think we can definitely see a day down the road to attack the (broadband) marketplace with a more concerted manner," said Arunas Slekys, a spokesman for Hughes Network Systems, which runs Hughes' broadband Internet business.

In addition, satellite broadband provider WildBlue plans to put a Chapter 11 bankruptcy filing behind it and relaunch later this year with backing from investors that include John Malone's Liberty Media and Silicon Valley venture capital scion Kleiner Perkins Caufield & Byers.

WildBlue will sell two-way broadband for $49.95 a month for speeds of up to 512kbps downstream and 256kbps upstream. Installation will cost an additional few hundred dollars, according to a company representative.

Playing catch-up
There is no question that satellite broadband has a long way to go to catch up with cable and DSL leaders. Cable companies and the Baby Bells, who own the largest DSL services, have prospered in cities and suburbs where they hold strong positions in the market.

Satellite, on the other hand, wants to start over in areas where their competitors cannot reach: the rural market. These companies hope for a second chance to launch a business in their traditional power base.

"They're not looking to take over DSL or cable mass market share," said Patrick Mahoney, a research analyst at The Yankee Group. "They know it's not possible, but they know they want a strong presence in the rural market."

Last week, Hughes took one step aimed at cutting satellite broadband costs, endorsing the Internet Protocol over Satellite (IPoS) standard, which sets a common language for devices and applications to work with a satellite broadband service.

The hope is to rally support among manufacturers who make PC devices such as handhelds, Wi-Fi hubs and Net phones. If manufacturers all develop products based on those standards, then broadband satellite equipment will become cheaper, the thinking goes.

Thus far, Hughes has not announced any manufacturers who have endorsed its standard.

WildBlue is taking a different step. The company is adopting an existing standard, Data-Over-Cable Service Interface Specifications (DOCSIS), that's commonly used for cable modems. This, according to WildBlue, lets the company lower costs on its equipment, although customers will still have to buy an expensive satellite dish to use the service.

Like Hughes, WildBlue's unveiling this summer will coincide with the launch of a satellite that operates under the new Ka-band technology, which makes transmissions cheaper and faster.

Whether these renewed efforts will signal new life for satellite companies depends on the test of time. The industry believes that the problems of a few years ago are being resolved. For now, satellite companies are ready to build their broadband businesses with smaller, more realistic ambitions than before.

"Their expectations are more realistic to just target a few million subscribers rather than numbers greater than 10 million," said Steve Mather, an equity analyst at Sanders Morris Harris.

In country
Rural America has always served as a comfort zone for satellite companies, beginning in the days when they first launched their television services in the early to mid-1990s. At that time, cable was the only pay-TV business in most households, especially in cities and outlying suburbs. But for communities in more remote areas, more people began turning to satellite providers to get their premium channels.

Satellite's popularity began to spread, largely because it was able to serve more channels with arguably better picture quality than cable's analog lines. Soon, competition became fierce enough for the cable industry to take action.

In the late 1990s, the cable industry underwent an ambitious plan to upgrade analog lines to digital, spending an estimated $75 billion to rekindle its network. The upgrade allowed cable to offer not only as many channels as satellite, but it also added the advantage of offering broadband Internet, voice calls and high-definition TV on the same bill.

Throughout this process, satellite companies tried their own attempts to get into the game. Their services, however, ended up too expensive for most consumers to afford, leaving some companies such as Hughes to target only small businesses.

The difficult part will be to take another crack at households, starting in rural markets, once again.

"Satellite TV service providers feel vulnerable that they don't have an across-the-board high-speed Internet solution right now to compete with cable companies," said Strategy Analytics' Jim Penhune.

Meanwhile, prices for broadband continue to decline. In 2003, some Baby Bells introduced DSL service for less than $30 a month in some areas, just a few dollars more than dial-up ISPs such as America Online. Cable companies responded to DSL's challenge by raising their base download speeds instead of lowering prices.

Satellite companies are not worried about these trends because their target markets are places where cable and DSL have not reached. But the industry is still trying to figure out ways to lower the economics to one day offer more competitive rates should satellite broadband follow the path of television.

"The trick here is getting scale, because if you don't have the scale, you're not going be able to drive price points down enough to foster consumer adoption," said Matthew Harrigan, an equity analyst at Janco Partners.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 
R G V  N E W S L E T T E R


MARCH 2004

Welcome to the Rockbridge Global Village, Inc. Newsletter. We hope that you find information and topics within this newsletter interesting and useful.

Topics in this newsletter:

Nokia, Microsoft Want Mobile Domain Names
AT&T Makeover Includes Web Services
Broadband - Lost in Space?
Consumer Challenge FCC Antipiracy Rules
Search Upstarts Storm Google's Gates

Nokia, Microsoft Want Mobile Domain Names
March 10, 2004
By Jim Wagner

Some of the biggest names in the mobile communications industry are banding together to create a registry for Web pages built specifically for access by mobile devices.

On Monday, nine companies -- Microsoft (Quote, Chart), Nokia (Quote, Chart), Vodafone (Quote, Chart), 3, the GSM (define) Association, HP (Quote, Chart), Orange, Samsung and Sun Microsystems (Quote, Chart) -- will apply to the Internet Corporation for Assigned Names and Numbers (ICANN) for the addition of a new top-level domain (TLD).

A registry is a directory that resolves IP addresses into domain names. For example, www.internetnews.com's IP address is 63.236.73.190. So when a Web surfer types in the domain name, the .com registry, VeriSign (Quote, Chart) in this case, translates it to the IP address the Web server recognizes.

Bill Plummer, Nokia vice president of external affairs, said the new registry would be a sponsored, for-profit entity based in Iowa and open to any mobile provider or user regardless of technological or competitive differences.

A critical element of the registry company will be its ability to rely on a policy advisory group that includes representatives from diverse groups, he told internetnews.com.

"The idea is to grow as broad and consistent an end-user experience and expectation of reliability as possible," Plummer said.

As a sponsored TLD (sTLD) in a niche market, the registry would have a level of self-rule in the governance of the proposed domain extension (including new policies), with the caveat that it will need to abide by its own charter. For example, unlike unsponsored TLD (uTLD) VeriSign, the group could decide to institute its own SiteFinder or waiting-list service (WLS), two services that are hotly contested in the domain world these days.

Applicants are subjected to review by independent evaluators, who will be named by ICANN after the application process begins. According to Kieran Baker, ICANN spokesperson, the deadline for applications is Monday, the day the coalition plans to file their proposal.

If approved by ICANN, the new registry will start providing domain names in the second half of 2005. Janine Young, a Vodafone spokesperson, told internetnews.com the coalition is still in the first phase of operations -- a steering committee has been formed from representatives of all companies involved, but are only working on getting the application approved before moving forward.

She said the proposed TLD extensions are confidential, as well as other information contained in the application. ICANN, however, does provide some of that information during the application approval process at its Web site. Young said they expect a decision from ICANN in four to six months.

According to the coalition's new Web site, hosted by Nokia, the desire to dabble in the inner workings of Internet infrastructure comes from the need to give mobile users Web pages guaranteed to work within a device's limitations. Unlike the Web browsers found on desktop PCs, mobile devices have to deal with limited screen size and scaled-down functionality to effectively view Web pages.

There are some places a mobile user could visit, but Young said hosting all that information on a specific TLD will make things much easier in the longterm, for both Internet and mobile users.

"When you have a recognized area where customers know that if they go to that specific area, the content will be mobile-specific and it will be suitable for the device they are using," she said. "It's a new area where specific content and specific services and applications developed or provisioned for mobile use is located."

The need for a mobile-only Internet playground comes at a time when mobile device use is soaring. Worldwide sales of handset phones, only one part of the mobile equation, grew 20.5 percent in 2003 over 2002, according to a new IDC study. The firm expects 580 million handsets to be sold this year, with the mobile TLD coalition's Nokia holding the lion's share of the market at 34.7 percent.

According to the ICANN Web site, there are 14 TLDs in operation today, with another -- the social networking .pw extension -- expected to launch in the coming months. The others are: .com, .net, .org, .name, .pro, .aero, .biz, .coop, .edu, .gov, .info, .int, .mil and .museum.

AT&T Makeover Includes Web Services
March 10, 2004
By Colin Haley

Striving to update its products and image, AT&T (Quote, Chart) Wednesday introduced a Web services offering to help corporations and government agencies share data with suppliers, partners and customers.

AT&T WebService Connect allows different applications from different sources to communicate without time-consuming custom coding. And because it is XML-based (define), it's not tied to any one operating system or programming language.

Developed over the last year with partner Grand Central Communications, WebService Connect plays into AT&T broader strategy of evolving from a long-distance phone company to a provider of enterprise network services.

The Bedminster, N.J., company, which has seen its traditional long-distance business swoon because of increased competition, believes it can move "up the computing stack" to higher value services because of its extensive Internet protocol network and close relationships with enterprise customers.

"This takes us out of merely bits and bytes and moves us into reliable messaging infrastructure," AT&T's David Greenebaum told internetnews.com.

The service will be rolled out gradually in the coming months. It starts at about $34,000 per month, although prices could run higher depending on usage. In terms of its telecom competitors, AT&T believes it is farthest along in offering Web services (define) to its customers.

Primarily, WebService Connect will appeal to companies with a lot of inter-enterprise contact, Greenebaum said. There's very little chance these companies and their suppliers, partners and customers all work on the same computing platforms and applications.

However, large companies, especially in sectors like banking, are also grappling with different systems, making integration difficult. This need is only magnified as the financial service industry continues to contract though mergers.

An offering like WebService Connect should appeal to CIOs as a way to streamline processes and get an overall view of their operation, Greenebaum said. The first announced customer for the service is Thomson Financial, a provider of information and technology to the financial community.

A spokeswoman for the company, a subsidiary of Thomson Corp. (Quote, Chart), was not immediately available to discuss how many customers or partners are tied into the network.

In a statement, Thomson Financial CIO Jeff Scott said "customers can use our services and applications on demand -- in the format and on the systems of their choice."

The Web services concept became popular about two years ago, but its adoption has been slowed because of a paucity of standards concerning management, interoperability and security. Microsoft (Quote, Chart), IBM (Quote, Chart) are among the vendors developing specifications for the technology.

Search Upstarts Storm Google's Gates
March 11, 2004
By Stefanie Olsen

As speculation of a Google public offering hits a fever pitch, would-be rivals are combing over the company's business and technology for signs of weakness that could cut short its reign as the king of Web search.

Analysts have already forecast a protracted and difficult battle among Google and Net titans Yahoo and Microsoft, which have both carved out Web search as a key piece of their businesses.

Below the radar, Google also faces Lilliputian threats from a fast-growing group of start-ups that hope to replicate its own meteoric rise from unknown upstart to Internet powerbroker. While most of these companies are long shots, a handful have begun to garner attention from analysts and investors thanks to new technologies that expand on Google's formula and take it in entirely new directions.

At the top of the list are companies like Quigo and Industry Brains that aim to improve on search engine advertising techniques. A second group, including Mooter, Eurekster and Dipsie, are advancing ways for people to get personalized query results, something that both Google and Yahoo also are hoping to perfect. Others are developing search tools tailored to specific localities as well as visualization features to assist in better targeting search results around specific topics.

"Search is a hypergrowth area," said Alan Meckler, chief executive of Jupiter Media. "There will be lots of special smaller players that without going public will be worth between $20 million and $100 million annually."

Search engines are a hot commodity because they've shown they can make money through pay-per-click advertising programs pioneered by Yahoo subsidiary Overture Services. Search engine advertising is one of the fastest-growing segments of the rebounding Internet marketing sector and helped Yahoo's earnings grow 84 percent last year.

With recognition has come respect, and search is fast becoming a research and development priority for some of the biggest players in technology, including Microsoft and IBM. Partly as a result, some analysts now predict it's just a matter of time before Google loses its dominance to rivals in at least some areas of the search market.

Google "can't be everything to everyone," according to Charlene Li, principal analyst at Forrester Research. She recently predicted that Google is positioned to dominate consumer paid search, while Microsoft is the most situated to advance search technology on the operating system.

The money engine
Such thinking has fed hopes that a lucrative new business, if not a new king of search, could emerge from a crowd of wannabes.

Last week, Highland Capital Partners invested $5 million in Quigo, a company whose technology discerns the context or meaning of a Web page to deliver more targeted ads, similar to Google's advertising engine. Quigo already has one high-profile customer: Overture. That's a sign that Overture is trying to use more technology to deliver ads, as opposed to its traditional human-dependent system.

"Quigo's going to be a player," said Bob Davis, a Highland partner who within a year of founding Lycos in the 1990s took the company public. He is on Quigo's board.

According to Richard de Silva, a venture capitalist with Boston-based Highland, the smart investors are betting on companies that can improve search engine advertising, rather than the search technology itself, because "there's no money in it."

Start-up Industry Brains is taking a spin on search engine marketing by powering private label services for Kipplingers, BusinessWeek, Slashdot, Salary.com and around 50 others. It's seeing demand because of pitfalls of the current setup of Google and Overture, analysts say.

The common gripe of many publishers is that with the ad networks of Overture and Google, they're often lumped in with many other publishers not of the same caliber, hampering their ability to get higher rates from advertisers. Advertisers, on the other hand, complain that they can't target their text-based listings to specific sites.

Industry Brains lets computer publishers, for example, charge premiums to tech-focused advertisers, which in turn get better response from viewers, according to company CEO Eric Matlick.

"Not all clicks are equal," Matlick said. "This lets the advertiser not dilute their clicks. And instead of bidding on 100 search terms, advertisers log in to one place, bidding separately for each site."

Matlick said that his business is not targeting the roughly $4 billion search engine advertising industry this year. Rather, he pegs the premium private label industry at $100 million, and he's seeing growth of roughly 20 percent to 30 percent in sales every month. The company has drawn investments from Mike Perles, former president of Ziff-Davis who's now at Softbank, and Jeff Judge, founder of media company 24/7 Media.

Analysts believe it's a smart business, though companies like Google and Overture have yet to offer anything similar.

"As search emerges as one of the most effective means of advertising, if not the most, companies will want to own all that revenue if they can," said James Lamberti, an analyst at ComScore Networks.

Powering a personal engine
Another area of development is in personalized search, and several upstarts believe they can provide a better mousetrap to deliver it.

Newly launched search engine Eurekster is designed to take advantage of social networking to deliver results of a more personal nature. It lets people create a social network using the engine to see what others in the group find interesting. The service works like any other search engine by using keywords and algorithms to locate the most relevant Web sites for a given query. But it also ranks the results according to what interests people in a particular group.

Still, the company's engine relies on Web crawler technology from SLI Systems--a company founded by Eurekster's CEO--and advertising from Overture. NBC holds a 15 percent stake in the company.

Meanwhile, Australian search company Mooter is inciting investor attention, company CEO Liesl Capper said last week. Capper, a former teacher, launched Mooter with government funding last October, and she is thankful for the chance to advance what she calls the pitiful state of personalized search.

Mooter uses mathematical algorithms modeled on neural networking to better understand and differentiate two people searching on the term "travel Australia," for example. Does this person want data on backpacking options or luxury golf tours? With a range of techniques, Mooter will look at how people search to determine their tastes for follow-up queries within the same day or session, Liesl said.

"It hurts my head to use a lot of search engines--we're not built to process that much information," she said. "We're looking at the real themes inside the content and responding to users' implicit search patterns to deliver better results."

Another dark horse, Dipsie, is planning to launch a new search engine later this year. Though its search techniques are still under wraps, company CEO Jason Wiener said that Dipsie is indexing more of the Web, or the "deep Web," such as the billions of Web documents that originate from databases. It also will use different techniques to rank Web sites, including evaluating the semantics of a page's content. Dipsie, which has several unnamed investors, will support its service through the use of its own advertising.

Search developers Vivisimo and Groxis are working on creating tools to organize search results around specific topics. For example, a search query for "Paris Hilton" would separate results for the luxury hotel chain from the publicity-seeking heiress of the same name.

Vivisimo offers a search engine on its Web site that organizes queries into logical categories. The company last month launched an eBay search tool aimed at sorting through auction information on the e-commerce giant's site. It also won an endorsement last month from online discount Web site FatWallet, which agreed to use its technology to sort Web site results from Google. Groxis, meanwhile, has developed a Google plug-in that sorts the company's search results by topic.

Other companies are developing technology to serve the local search market, a much-hyped area of growth for many search engines and a potentially lucrative piece of the $12 billion to $18 billion local ad business in the United States. Whereonearth.com, for example, is working on a system that pinpoints the Internet Protocol addresses of the Web. Citysearch.com is positioning itself and its own search technology as the answer to finding local listings for restaurants, shops and entertainment.

Still, established search players are well at work on many of these fronts. What's different is that investors are looking for the next Google.

"The opportunity for vertical slices of the market is huge," Jupiter's Meckler said.

Rockbridge Global Village, Inc.
312 S. Main Street
Lexington, VA 24450
540-463-4451
www.rockbridge.net

 

Copyright © 2003. Rockbridge Global Village, Inc. All rights reserved.
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Piracy
 


Consumers Challenge FCC Antipiracy Rules
March 10, 2004
By John Borland

A lawsuit challenging new digital television antipiracy rules is moving ahead, with consumer groups fighting communications regulators' foray into the copyright realm.

A coalition of groups, including the American Library Association, the Consumers Union and the Electronic Frontier Foundation, is suing the Federal Communications Commission over rules adopted last year aimed at blocking digital TV piracy. Last week, they filed the first documents with the U.S. Court of Appeals in Washington, D.C., outlining their case.

In its decision, the FCC said any devices capable of receiving digital television signals must include support for a "broadcast flag," or digital marker, within a broadcast that would prevent copies from being made without some kind of copy protection being added. The consumer groups say the FCC has overstepped its mandate by getting into the copyright protection arena.

"We're saying the FCC action went beyond its jurisdiction," said Fred von Lohmann, an attorney with the Electronic Frontier Foundation. "We don't think there was enough basis to support the ruling."

The broadcast flag controversy, while far less visible than the debates over peer-to-peer networks, is one of the key issues in the passage of traditional entertainment companies into the digital world.

The Motion Picture Association of America, along with television companies, have argued that moving their content to digital television would be impossible, if people could easily make perfect digital copies of movies and other programming, and swap them online.

The broadcast flag is viewed by regulators as a way to stop online distribution of over-the-air transmissions. Cable TV and satellite customers already receive encrypted signals that are difficult to copy.

Under the rules passed last November, support for the flag must be built into all digital TV devices by July 2005. That wouldn't stop all copies from being made. Analog copies, as to a VCR, would not be blocked, and digital copies made to "approved" devices that include some level of copy protection would also be allowed. The aim is not to stop personal copying but to prevent those copies from finding their way into mass distribution, regulators said.

The consumer and civil liberties groups say this would infringe protected use of content and would disable features people have come to expect in their own property, however.

The court case may be put temporarily on hold while the FCC itself hears other objections to the ruling, a typical process for controversial issues, an FCC representative said.