Can the Internet really compete with cable TV?

As an expected Federal Communications Commission vote for more cable regulations nears, Washington wonders whether competition from Hulu, iTunes, Verizon's Fios, and so on should justify less regulation.

As an expected Federal Communications Commission vote for more cable regulations nears, Washington wonders whether competition from Hulu, iTunes, Verizon's Fios, and so on should justify less regulation.

  • BBC's Bill Thompson Hates Being Fingered As a Fraud

    Daniel Eran DilgerIn response to the article "BBC Prints Irresponsible Rubbish on Apple," Bill Thompson wrote me explaining that he didn't like being called out on his errors. However, he failed to explain how he was accurate in his rambling diatribe assailing Apple as equal to Microsoft in anticompetitive, market monopolizing behavior.Instead, Thompson referred to me--in the plural--as "excitable Apple Zealots," as he republished my article in his blog with more of his own comments. “I don't want to sign up to your forum, however nice your art projects may be,� he wrote me in an email. “I'll be posting this on my blog shortly, but you may like to post it too.�According to readers, Thompson commonly doesn't post the comments they leave on his blog. At his main pulpit, there's not even a pretense of allowing readers feedback. As reader Thomas Olson noted, "What irks even more about the swill he [Bill Thompson] publishes on the BBC website, is that there is no place for public feedback, so us common folk can call BS on his rant in real time for the world to witness. BBC is still a delusional, vertical content gatekeeper, who believes they're somehow 'in tune' because they happen to have a website."Thompson is Still Wrong.I wrote Thompson back, noting that "while I don't agree in key areas, I do admire and respect your willingness to debate, and I don't intend my criticism to to come across as a personal attack."I'm not advocating an "easy ride" for other companies, including Apple. What I stated was that Thompson provided no proof for his wild assertion that Apple was as bad as Microsoft. I indicated the history of Microsoft's troubles with the EU dated back into the 90s, and even earlier in the US. Microsoft has been found guilty repeatedly, internationally; Apple has not. That should factor into Thompson's "just as bad" rhetoric.It's great that Thompson doesn't share the BBC's position on iPlayer, but my article was as much castigating the BBC as it was his article specifically. Thompson didn't even make the headline. So when I talk about the problems of the BBC, he can't take it personally. However, using the BBC as his mouthpiece, and the BBC using him as a way to deliver the message that Microsoft's problems are really common and nothing out of the ordinary and that Apple is doing deceptive, anticompetitive things... are both still examples of hypocrisy. It's a bit like hearing from FOX News that other countries terrorize their citizens and propagandize fascism.The iPod Changes That Break the Third Party Apps.Apple doesn't publish a third party API for the iPod's file system details, nor does it describe the iPod as an open platform. Windows does, yet Microsoft breaks third parties' software to establish its own dominance in new markets. This happened with Office apps, web browsers, media players, developer tools, etc. This is not the same thing as Apple being popular with the iPod. Pretending there is an open market and yet running it as a monopoly is not the same thing as selling a unique, closed product that may be popular.If BMW refined their vehicles in a way that required aftermarket car stereo companies to adapt their products to fit its new cars, you'd have a situation similar to Apple's iPod change for Linux. However, if one company owned the entire market for all vehicles on the road, and decided to destroy the market for car stereos and take that over itself, you'd have Microsoft. There is no similarity here.This Depends On How You See Lock-In.Thompson wrote, "This depends on how you see lock-in: if I can't play music I buy from iTMS, something I'm encouraged to do at many points in my use of iTunes, on any other player, or use any other jukebox than ITunes with my iPod, then once I've made my initial choice to have an iPod I am in an Apple ecoystem that I can only extract myself from with some effort. It's not absolute - IBM mainframe users also had a choice back in the 70's. It just wasn't a realistic chouce. [sic]"Wrong again. You can play purchased music by burning a CD, or directly using iTunes Plus non-DRM music. The problem with DRM is a issue of the music labels, not an iTunes lock in issue. Thompson is again repeating a myth. Jobs railed against DRM, then fought for weak restrictions to appease labels, and is now pushing labels to make music downloads as easy to use as CDs with DRM-free downloads.Thompson doesn't understand what's involved, and ended up making false comparisons. What other source for open music is there? WMA is locked down Windows-only tight (like the BBC's iPlayer), MP3 music is only available from indie labels. You can't get open music downloads from any of the big labels representing popular music apart from EMI's iTunes Plus. By repeating false information, Thompson only serves to cloud reality and turn back the clock.[Top Myths of 2006 - Myth 4: The iTunes Monopoly Myth]I Am Not A Crook!Thompson wrote, "I don't like being accused of being a liar, and that sort of comment undermines any other points you may be trying to make." Well then, he shouldn't represent himself as an expert, while publishing web rumors he doesn't really understand. It's not my fault he is misrepresenting the truth. That's what a lie is. If the truth "undermines points I make," doesn't he understand that lying undermines points he may be trying to make?In weeping over being called on his false comment, Thompson neglected to answer the fact that purchased tracks from iTunes can be effortlessly burned to CD for use on other players, following the most liberal and open fair use rights in the industry. Incidentally, feigning outrage is no way to answer criticism unless your position is indefensibly wrong.What about the supposed iPod accessory lock-in? Apple's dock connector isn't an ISO standard, but there isn't an ISO standard for a connector that pairs USB, Firewire, audio and video on the same cable. At the same time, the dock connector cable is standardized and documented, it does not change with every model, and there is no DRM on it that prevents anyone from building compatible cables. So he's wrong, there's no lock in involved.The Ringtones Monopoly.Thompson suggested I was being hypocritical for noting that "Apple sells ringtones and doesn't support homebrew attempts to copy ringtones to the iPhone. Yes, this is unfortunate. Users shouldn't face limitations from using their own song clips, and they shouldn't have to pay extra to carve out a ringtone from songs they purchased or already own. However, this isn't entirely Apple's decision because it has to answer to the labels. It's also not illegal, and it has nothing to do with anticompetitive monopoly dominance of the music industry."A contradiction? I agree that ringtones are an unnecessarily complex legal issue, and that customers are being held up by the labels' overbearing demands. But Thompson calling Apple's move anticompetitive or an establishment of a monopoly is uninformed sensationalism. Apple's ringtone prices are a fraction of any other providers, and while Apple did cave to their demands over preventing users from easily copying over their own, it did so to win a more significant battle to open up music, not to limit the market or establish more control.Thompson misrepresented ringtones as being something similar to Internet Explorer or Windows Media Player, as if Apple is muscling into a new market to dominate it using an existing monopoly. The assertion is silly and uninformed. Apple doesn't make significant profits on its music sales, including ringtones. Further, Apple isn't in the ringtone making business, and has no obligation to facilitate this for users, just as it has no good reason to lose a fight with movie studios over the overbearing laws that prevent legal ripping of DVDs.[Apple's iTunes Ringtones and the Complex World of Copyright Law]Bundling, Price Fixing, and Monopoly Tying.Thompson can criticize Apple's business model, but calling it a way to expand market dominance is an error of simpleton logic. It's really the opposite: an opportunity for rivals to compete against the iPhone by offering a nicer way to play "My Humps" when their phones ring. So far, the US ringtone industry revolves around $2.50 - $3.00 clips that expire after several months.Thompson suggested I forward this defense to Microsoft for its Windows Media Player bundling. How does he not understand this? Apple competes against other mobile makers and other mobile providers in an open market. Microsoft does not compete in an open market. It holds a monopoly in PC operating systems acquired illegally using anticompetitive and anti-consumer tactics. It is now using its monopolies to expand into new markets. Apple is not. Apple has not created a monopoly in MP3 players any more than Symbian has a monopoly in mobile phone software. There is a functioning market for both; so if Apple does something consumers don't like--such as charging 99 cents for a ringtone, competitors can go elsewhere... but they'll have to pay $3 for one that expires after a year from Verizon, or roll their own solution. Or set their iPhone to vibrate.Windows Media Player does not compete in an open market; it's tied to a monopoly product that exercises complete control over the PC desktop. There are no options for most users. Linux isn't a viable option for the majority of desktop users because of the Office monopoly and file incompatibilities, and the exclusive OEM contracts with PC makers Microsoft uses to support its Windows monopoly.Ringtones are a consumer feature, not a significant, competitive industrial market being threatened with monopolistic takeover, as is the case with media playback and servers, or web browsing and servers, or office productivity application software. Fantasies of Cheap Cables and iTunes on Linux.Thompson wrote, "just as I can go into Game and buy a cheaper third party Xbox cable or controller that has not been authorised by Microsoft so I expect to be able to buy less expensive iPod accessories and if I can't then I see an indication of an attitude towards the market that worries me."But that's wrong; you can buy iPod accessories at any price from a variety of vendors, even no name ones. Compare the price of Xbox cables to what Apple itself sells, then go find even cheaper stuff. There's no monopoly position in iPod accessories because there is no real barrier for competition, as there very much is on the Windows PC desktop. Again, cable manufacturing isn't similar to the media broadcasting industry or the office software market.He suggests freeware alternatives to iTunes might solve world peace or help one achieve Nirvana, but that's irrelevant. Apple doesn't owe anyone a free ride because there is not a free market around "iPod player jukebox software," just as there is no free market surrounding "engines in BMWs" or other component parts of products. I can't go buy a new BMW with whatever third party engine I want, even if I think I want one that does things that BMW's wouldn't offer.In contrast, Microsoft claimed all along that Windows was an open platform, and PCs were sold as an open market for software. That's very different. If Microsoft faced real competition on the desktop, it could bundle anything it wanted to. But it does not, so it can’t.You can't say, 'if Microsoft can't bundle WMP, that must mean Apple can't offer iTunes either;" it's a false comparison because Apple didn't kill off competitors with twenty years of backstabbing and anticompetitive practices, and does not operate a monopoly. You can buy alternatives to the iPod from Creative, Sony, Microsoft, HP, SanDisk and lots of others. You can not effectively buy commercial alternatives to Windows due a variety of barriers in the market.Thompson Advocates Real Network's DRM.Defending his comment that "when it comes to music downloads it [Apple] is just as bad as Microsoft on servers," Thompson wrote, "the behaviour towards Real was appalling and remains indefensible. They [Apple] broke Harmony [Real's Helix DRM] because they could and because they wanted to lock competitors out - what other spin can you put on it?"There is no open market for selling iPod DRM content. Apple said some silly things in the Real squabble ("tactics of a hacker" was particularly stupid) but Real had no right to sell DRM music for the iPod. Apple only forced them to sell open content, and anyone can still sell open content that plays on the iPod, as eMusic does. Defending Real's DRM is just another example of Thompson not getting it.Paul Thurrott is similarly upset that Apple can't be forced to license Windows Media DRM, allowing Microsoft a free ride on the iPod in its efforts to spread its own viciously anti-consumer media software platform. Apple doesn't have to serve the whims of two companies that failed in the marketplace because they tried to exploit consumers and found that their user base ran off to greener pastures.The EU Courts and IP.The EU certainly should fix the problems of the music business in its countries, and demand fair use provisions from music and media providers as I noted. However, trying to spin the complex situation off as proof that Apple is anything like Microsoft is not only disingenuous, it's an outright lie. Using a bunch of half-baked, ignorant web rumors to support a position that Apple should just allow anything and everything is also dishonest.Thompson maintains that's not what he said, writing, "I want Apple to play fair (get the joke?), to be open about interfaces and file structures and to compete in an open market for music players and jukeboxes, because I actually think we will all benefit and even Apple will end up making better, sharper products and making more money."It's fine to criticize Apple over an open source ideology, but Thompson needs to accurately represent himself as a Cory Doctorow waving a communism flag; don't pretend to be defending free markets and attacking monopolization while at the same time insisting that Apple hand away all of its intellectual property to competitors and write anti-iTunes software for the community. Thompson pretends to celebrate the success of an innovative company whilst inciting a communist revolution against it, using the jingoism of busting the trust of monopoly powers that don’t exist. What do you think? I really like to hear from readers. Comment in the Forum or email me with your ideas. Like reading RoughlyDrafted? Share articles with your friends, link from your blog, and subscribe to my podcast! Submit to Reddit or Slashdot, or consider making a small donation supporting this site. Thanks!

  • BBC Prints Irresponsible Rubbish on Apple

    Daniel Eran DilgerThe BBC has joined the London tabloid press in printing a series of articles skewering Apple over invented suppositions based entirely upon misinformed speculation and some outright lies. The worst part is that the BBC is being grossly hypocritical in its misinformation campaign against Apple, because the company is up to its eyeballs in the Microsoft-encrusted scandal surrounding its proprietary, Windows-only iPlayer imbroglio.[UK Tabloids Pick Up Zoon Awards for Technical Incompetence]Beyond Spin: Bill Thompson Wades Through BBC Hypocrisy to Spread False Information.It's bad enough that the BBC needs to bend facts to support fear, uncertainty and doubt about the iPhone. Now consider that the BBC--as a public corporation funded by British TV license taxes--is building its web video strategy on failed, proprietary technology propped up by an internationally convicted monopolist. At the same time, its publishing a uninformed rant based on speculation and conjecture that accuses Apple of doing things that approach the gravity of its own activities.This hypocrisy slows from the words of Bill Thompson, who followed the crowd in reporting that Microsoft's failed appeal in its EU monopoly case says less about Microsoft's established, anticompetitive practices spanning the last thirty years than it does about Apple's iPod popularity over the last five. Thompson weeps for Microsoft because "its every move is examined for evidence that it might be making life difficult for its rivals," while noting that "some of its competitors seem to get a very easy ride." One might expect the BBC to make excuses for the crimes of its iPlayer partner as it giggly walks lockstep with Microsoft in using the company’s proprietary and Windows-only DRM for video distribution of its publicly funded content.[BBC's iPlayer's Prospects Looking Bleak - Slashdot]Thompson's Specious Attack on Apple."The best example of this [easy ride] is Apple," Thompson announced, because the company got so much coverage for the iPhone despite it being "closed, locked down and restricted." Actually that's not a good example at all, because Apple doesn't have a market monopoly in mobiles. Apple has also never been convicted of monopolistic behaviors in the UK, the EU, or the US because it doesn't have a monopoly and doesn’t act to stop competition the way Microsoft has. Thompson admits that the iPhone doesn't leverage monopoly control among mobiles, but says "the situation is very different" in the area of music players and music downloads. What is this very different situation?"Apple has spent much time trying to ensure that anyone who buys an iPod is completely locked in to an Apple-centred world," Thompson wrote, "in which they use iTunes, buy from the iTunes Music Store, purchase only Apple-certified iPod accessories and, ideally, abandon their plans to migrate from Windows XP to Vista and instead purchase a shiny new iMac." Yes, Apple does want to sell Macs and serve its customers. However, it's simply a lie to say that iPod users are "locked into" anything, let alone being harmed by not being able to migrate to Vista, which Apple actually supports on the iPod and iTunes.Users are not locked into iTunes Music Store purchases; recall that the wags like to point out that a tiny minority of the music on iPods is purchased from iTunes and the vast majority comes from ripped CDs. Purchased tracks from iTunes can also be effortlessly burned to CD for use other other players, following the most liberal and open fair use rights in the industry. Thompson simply lied.
Saying that iPod users are locked into Apple-certified iPod accessories is also not true at all. Apple tries to earn licensing revenue from putting a "made for iPod" logo on devices in the same way Nintendo puts its "seal of approval" on its games, but anyone can deliver iPod accessories, and there's no way for Apple to stop headphones and boomboxes from working with the iPod. Thompson lied again.
His first idea was that iPod users are locked into iTunes. Yes, Apple sets up a system that's easy to use out of the box, but users aren't forced to use it. The iPod can be used with a variety of other applications, or even wiped clean and used with completely alternative firmware like RockBox. Again, Thompson just lied.[Time for Apple to face the music? - BBC NEWS]Thompson Lies Some More: Ringtones.In order to jump from lying about the iPod with generalities and get into specifics, Thompson announced, "the recent launch of the new range of iPods, including the video Nano and the iPod Touch, has shown just how far Apple is willing to go to make life difficult for its users in order to shore up its dominant position in the market for music players and downloads." He backed up his claim by browsing for some sensationalist headlines, doing zero fact checking, and then printing his findings with an enraptured spin that is simply shameful hypocrisy coming from anyone working for the BBC.First, Thompson complains, Apple now sells ringtones and doesn't support homebrew attempts to copy ringtones to the iPhone. Yes, this is unfortunate. Users shouldn't face limitations from using their own song clips, and they shouldn't have to pay extra to carve out a ringtone from songs they purchased or already own. However, this isn't entirely Apple's decision because it has to answer to the labels. It's not illegal, and it has nothing to do with anticompetitive monopoly dominance of the music industry. It's really the opposite: an opportunity for rivals to compete against the iPhone by offering a nicer way to play "My Humps" when their phones ring. So far, the US ringtone industry revolves around $2.50 - $3.00 clips that expire after several months. Thompson lied with a half story and a false premise that do nothing to support the idea that Apple has a monopoly.[Apple's iTunes Ringtones and the Complex World of Copyright Law]Thompsons Lies Some More: Video Output.His second proof that Apple is "shoring up its dominant position" is that "it seems that the new generation of iPods will not output video through cables or docks that aren't Apple authorized and have a specific 'authentication' chip." It seems? Why doesn't Thompson point out that he read some high pitched conspiracy theory about why older cables and docks don't work with the new models, and is presenting it as a proof of anticompetitive, monopolist behavior without even checking the claim out?The reality is that all the new iPods continue to support the same docks as they did, but their video output has changed due to using different hardware. The Nano and Classic continue to work with old docks and cables, while the Touch and the iPhone will require a new dock connector cable because they now output both composite and component video. They work differently; no conspiracy, no spy authentication chips. The iPhone and the latest generation of iPods will work via a dock connector cable without a dock unit, so there's no chip involved. Even if there were, it would not be illegal for Apple to sell proprietary cables such as those that come with the Xbox, the Zune, the Palm Pilot, and most every music player and mobile phone on the market. The only difference is that Apple has kept its dock connector the same over the last several years so that iPod customers can reuse their old cables. Even if Thompson doesn't understand the issues and didn't bother to look into it, presenting false information as facts to support an idea that they do not support is still a lie. [An in-depth iPod Touch review: Video output differences - AppleInsider]Thompsons Lies Some More: Linux Music Management."The nastiest little change is to the iTunes library itself," Thompson wrote. Apple made minor changes to the metadata database used on the iPod. When this change broke unauthorized music management software, some Linux advocates announced press releases saying Apple was persecuting them and trampling their rights to use the iPod. It turned out that the outcry was simply overwrought, and that a fix was easy to deliver. What Apple had really done was improve how the iPod stores its data so that it would be less susceptible to file corruption. Apple doesn't officially support the small minority of people who use the iPod with Linux or alternatives to iTunes on other platforms, so it bears no accountability for fixing their homebrew software when it makes changes to its products. It might be valid to complain that Apple should offer such support, but ignoring Linux has no relationship to establishing a monopoly or market dominance. If Apple was offering a locked in, anti-consumer product, it wouldn't have open source users buying its product in the first place. Unlike the Xbox and Zune, Apple doesn't stop users from installing Linux or RockBox on their iPods, a difference Thompson can’t seem to grasp. Thompson admitted that Apple "will not limit copying or restrict attempts to strip digital rights management code from tracks" and "will not stop people adding non-DRM files they have downloaded from the internet to their library," but then jumped at the opportunity to speculate that Apple is shutting out Linux users, as if Apple would prefer Linux users to either install Windows or buy a music player elsewhere. Which scenario helps Apple "maintain music dominance?" It's an inane argument.Irresponsible Open Source Mouths.Remember when the EFF irresponsibly announced its speculation that Apple was stuffing megabytes of personal information into iTunes tracks? It later recanted, but didn't apologize for the false accusation. The fact that open source advocates are quick to fire out accusations but commonly shrug off any accountability for what they say makes their comments very hard to take seriously. Thompson's uncritical, uninformed parroting of such accusations is not only stomach churning, but egregious given the BBC's wholehearted support for a video distribution system that unilaterally forces people to use Windows to access content that is not available elsewhere, as iTunes music is.Thompson keeps going, castigating Apple for stopping Real from selling its own flavor of DRM that promised support for the iPod, and impugning Apple for supposedly having "business practices do not stand up to scrutiny." Thompson added, "when it comes to music downloads it [Apple] is just as bad as Microsoft on servers."Oh really? Do you have to pay Apple client access licenses for the right to connect your iPod to iTunes or to access the Music Store? Does your music die after three plays or three days? Do you have no choice in the market for MP3 players apart from devices that run the iPod firmware or use Apple’s iTunes software? Equating Apple with Microsoft would be foolish for anyone to do, let alone some misinformed, generalizing, sensationalist wag writing for a public corporation that ties its video downloads to Microsoft's Windows-only DRM.Thompson's Faulty Conclusion to a Shoddy Article.The great model of interoperability, Thompson points out, is Microsoft's PowerPoint. That's because Apple was able to deliver Keynote with PowerPoint compatibility. "Apple can sell Keynote because it took PowerPoint apart and figured out how the files work," Thompson explained.Perhaps Thompson doesn't get it: Apple's ability to maintain compatibility with PowerPoint is just as tenuous as Linux users' ability to make iTunes-compatible song management software for the iPod. Microsoft doesn't support standards in PowerPoint. It uses a crufty, weird, undocumented, proprietary format that changes with every release. That's why the industry is aligning behind Open Document as an international standard, and why Microsoft stuffed ballots in Cuba, Azerbaijan, and Sweden to fast track the establishment of its own proprietary formats as a false "standard" without having to answer the concerns of worldwide standards organizations who overwhelmingly determined that Microsoft's OOXML format was problematic and technically inferior.Oblivious to all this, Thompson announced, "had Apple been unable to do so [reverse engineer the proprietary PowerPoint format], or found that every time it figured out what was happening Microsoft changed the format, it would have complained loudly." Apparently Thompson has been paying no attention to technology over the last two decades as the world community has complained about Microsoft's doing just that.[Office Wars 3 - How Microsoft Got Its Office Monopoly][Office Wars 4 - Microsoft’s Assault on Lotus, IBM][Myth 4: The iTunes Monopoly Myth]The reason Microsoft was on trial in the EU dates back to complaints filed in 1998. The independent US monopoly trial followed up on earlier complaints from the FTC and Department of Justice. Similar complaints haven't ever been filed about Apple's iPod business, but rather only about the arcane, territorial pricing of music established by the big labels, most of whom are owned and managed by European companies.The EU certainly should fix the problems of the music business in its countries, and demand fair use provisions from music and media providers. However, trying to spin the complex situation off as proof that Apple is anything like Microsoft is not only disingenuous, it's an outright lie. Using a bunch of half-baked, ignorant web rumors to support a position that Apple should just allow anything and everything is also dishonest. Doing all of this speciously false complaining while standing on the Microsoft-enamored soapbox of the BBC just makes Thompson look even more incompetent and clueless about the reality around him. What do you think? I really like to hear from readers. Comment in the Forum or email me with your ideas. Like reading RoughlyDrafted? Share articles with your friends, link from your blog, and subscribe to my podcast! Submit to Reddit or Slashdot, or consider making a small donation supporting this site. Thanks!

  • How Bandwidth Caps Hurt Your Mac & What Apple Can Do About It

    As a responsible Mac user, I usually feel immune from most Internet threats…except for one. Using my Mac exactly as Apple intends it to be used sometimes renders my Internet connection virtually unusable for up to a month, and costs money to fix. Could this happen to you? It depends on whether your Internet provider has a bandwidth “metering” policy (or “cap”). These caps are one of the most controversial topics for Internet users in 2009, and can put a significant crimp in your Internet use. Recently, Congressman Eric Massa (D-NY), who represents the Rochester area, introduced the “Broadband Internet Fairness Act” (H.R. 2902) (PDF). Massa got involved soon after Time Warner Cable unsuccessfully used Rochester as a test market for metering. Under this bill, the FTC would have veto power over such caps and thus allow them only under certain agreed-upon scenarios. In my hometown of Lawrence, Kansas, the standard level of cable Internet service has a limit of 3GB of bandwidth per month. Overage is charged $2 per GB. Downloading a single movie from the iTunes store will blow through an entire monthly limit, and even the cable company's most expensive “premium” service only allows 50GB of bandwidth. In 2009, that's not really much bandwidth at all. Once you've hit your limit, you have to severely restrict usage until the next month, or face a large bill. Your Apple TV remains stale without its new content, your iMac stops downloading podcasts, and your iPod weeps because it's sick of the same old music you had last month. Apple is the leader in multimedia content creation; new Mac users are always pleasantly surprised by how easy it is to buy from the iTunes store, or create their own content. A common question we get in our local user group is “I'm not sure what I did wrong, but all of a sudden I have a substantial overage bill from my cable company.” Of course, the user did nothing wrong, other than subscribe to a few podcasts, and perhaps download a new Apple software update and buy some shows with iTunes! The Mac is also blessed with great online backup services like MobileMe, yet when our user group did a presentation on backup strategy, I had to warn novice users to be careful lest their backups end up costing them an arm and a leg in bandwidth overage fees! While on the surface this appears to be an isolated issue with a few providers, it is not. Bandwidth metering is a growing threat to cable Internet users in many cities. The American Cable Association (ACA) has come out in support of bandwidth caps, and the former chair of the ACA, Patrick Knorr, who implemented bandwidth caps in Lawrence, stated in multiple interviews that flat-rate Internet pricing is an “unsustainable” business model. Unfortunately, using the Internet normally with bandwidth metering is also unsustainable. When Mac owners are worried about downloading movies, doing backups or performing system updates, that hurts the Apple brand. Apple is continually innovating new ways to make the Mac OS the best Internet operating system, creating a whole ecosystem with iTunes, MobileMe and iLife. All of these great products rely on the ubiquity of the Internet. When Internet providers start making normal Internet use an expensive proposition, Mac users lose. Apple should lead the way and come out against bandwidth caps. Given that many of the offerings on the iTunes store actually compete with cable TV, Apple should be vigilant that cable companies do not use bandwidth metering as a way to stifle alternative ways of viewing content. Additionally, Apple should add a bandwidth meter to the Airport routers; that way the bandwidth use of entire households can be tracked. If bandwidth caps are inevitable, Apple can arm the consumer with data to monitor their usage and dispute discrepancies with their ISP. Apple could be an ally for consumers (even the “PC guy” in the commercials would be helped!), while at the same time standing up for its own brand and vision of consumer Internet use. If you disagree with the idea of bandwidth metering, make sure your voice is heard by giving customer feedback to your own Internet provider and writing your member of Congress. I had better end this article now…bytes and bits equal dollars and cents for me, unfortunately!

  • Wall Street Breakfast: Must-Know News

    Six banks fall short on capital. As news of the preliminary stress test results continues to leak out, sources say at least 6 of the nineteen largest U.S. banks will need additional capital. Some may get extra money from the government, but most of the capital will likely come from the conversion of preferred shares to common equity. The Federal Reserve is in the process of hearing appeals from banks (including Citigroup (C) and Bank of America (BAC)) that were told they need a larger capital cushion. Final test results are due to be released next week. Citigroup tries to plug capital hole. Citigroup (C) is trying to convince the government that the bank doesn't need more capital beyond recent plans to shore up its balance sheet and cut costs. However, executives have also told regulators that a capital shortfall identified in the stress tests could be filled by selling large businesses (potentially including core business units), further reducing its balance sheet or asking more investors to convert preferred shares into common stock. In short, anything but accepting additional government aid. Separately, Citigroup has reportedly asked the Treasury for permission to pay bonuses to many key employees. Shares +6.6% premarket (7:00 ET). Lewis on the line. Bank of America (BAC) holds its annual meeting today, and shareholders will vote on whether CEO Ken Lewis should be re-elected as the company's chairman of the board. Though Lewis is likely to win re-election to the board by a wide margin, a separate shareholder proposal forcing Lewis to give up his position as chairman is still too close to call. The votes come amid news that the company could require up to $70B in extra capital as a result of the government's stress tests. Shares +3.9% premarket (7:00 ET). New mortgage mod rules. The White House unveiled new guidelines in its foreclosure-prevention program to address borrowers with home-equity loans and other second mortgages. The original plan didn't address this group of borrowers, despite the fact that roughly half of seriously delinquent borrowers have a second mortgage. Under the revised plan, companies participating in the loan modification program must automatically modify the second mortgage when the first is reworked. The government will share in the cost of reducing the interest rate on second mortgages for five years. Chrysler reaches debt deal. Chrysler's largest lenders and the government reached a major breakthrough on debt reduction, agreeing to write down $6.9B in debt to just $2B ahead of Chrysler's bankruptcy deadline tomorrow. Despite the progress, "there is still some way to go in the negotiations," said a White House spokesman, "so I wouldn't rule anything in or out." SEC's fraud-fighting team. After a series of high-profile failings, the SEC is creating a team of specialists to focus on fighting fraud and to make the agency "more smart, more swift and more successful." The idea is a major shift for the SEC, which traditionally has relied on enforcement personnel who were generalists. Details of the new plan are not yet finalized. AIG tries to lower default risk. Less than a month after resigning, senior AIG (AIG) executive James Shephard has reportedly decided to stay on as the deputy chief of Paris-based Banque AIG. Insiders say Shephard was pressed to stay in order to help stave off the risk of default on $234B of derivatives; his continued presence at the unit will likely deter several European banks that bought derivatives from taking legal action to force AIG to repay them. Verizon, MSFT team up on iPhone rival. Verizon (VZ) is said to be holding talks with Microsoft (MSFT) over a touch-screen music-playing mobile phone that could compete with Apple's (AAPL) iPhone. Talks are still in the early stages, but a phone could be introduced next year. Verizon is also reportedly in talks with Apple about selling a version of the iPhone. Falling demand, prices hurt ArcelorMittal. ArcelorMittal (MT) posted a wider-than-expected quarterly loss (see details below) as demand slumped and falling metals prices forced the company to lower the value of its inventories. Steel consumption is expected to drop another 15% in 2009, and the company is bracing for market conditions to 'remain challenging.' Shares -2.0% premarket (7:00 ET). Dendreon shares yo-yo on prostate drug. Dendreon's (DNDN) shares plunged dramatically yesterday, falling 45% before trading was halted. The sudden drop was in advance of a meeting at which the company presented data on prostate cancer drug Provenge. As it turns out, Dendreon executives reported that Provenge extended the median survival of prostate cancer patients by 4.1 months and improved 3-year survival by 38%. The findings raise fresh expectations of FDA approval, and sent the stock soaring in premarket trading (+127% at 7:00 ET). IBM boosts dividend. IBM (IBM) raised its dividend by 10%, and authorized another $3B in stock buybacks. Despite losing Sun Microsystems (JAVA) to Oracle (ORCL), IBM executives said the company absolutely still has the flexibility to make a major acquisition. Retail sales. Retail chain store sales fell 0.7% from a week ago, ICSC reported, and dropped 1.7% Y/Y. Consumer traffic fell for most segments, including grocery, drug, department stores and discounters. Redbook recorded that chain store sales gained 1.6% in the first three weeks of April, better than the 1.3% rise expected. Strong seasonal sales drove the improvement. Home prices fall (.pdf). S&P/Case-Shiller's 20-city home price index fell 18.6% in February from a year ago, slightly better than the 19% drop seen last month. All 20 areas were still lower from a month ago, but 16 of the 20 saw an improvement in their annual returns. It's the first time since Oct. 2007 that the index didn't post a record annual decline. Confidence ticks up. Conference Board's Consumer Confidence Index improved considerably in April, rising to 39.2 from March's 26.9. Expectations rose to 49.5 from 30.2. "The sharp increase in the Expectations Index suggests that consumers believe the economy is nearing a bottom, however, this Index still remains well below levels associated with strong economic growth." Mfg contraction slows. The Richmond Fed's Manufacturing Index contracted more slowly in April, rising to -9 from March's -20. Shipments gained twelve points to -3, new orders rose eighteen points to -2, and the jobs index edged up two points to -26. Mortgage apps fall. Mortgage applications fell 18.1% from a week ago, MBA reported. The average interest rate on 30-year fixed-rate mortgages inched down to 4.62% from 4.73%. Earnings: Wednesday Before Open Aetna (AET): Q1 EPS of $0.96 beats by $0.03. Revenue of $8.6B (+10.5%) vs. $8.5B. Reaffirms FY '09 EPS guidance of $3.85-$3.95. (PR) American Tower (AMT): Q1 EPS of $0.15 beats by $0.01. Revenue of $409M (+6.9%) vs. $408M. Issues in-line guidance for FY '09, see revenue of $1.64-$1.77B vs. $1.68B consensus. (PR) ArcelorMittal (MT): Q1 EPS of -$0.78 misses by $0.39. Revenue of $15.1B (-49.3%) vs. $15.9B. (PR) Baker Hughes (BHI): Q1 EPS of $0.82 beats by $0.06. Revenue of $2.7B (-0.1%) vs. $2.6B. (PR) Burger King (BKC): FQ3 EPS of $0.34 in-line. Revenue of $600M (+1.0%) vs. $607M. Sees FY '09 EPS of $1.39-$1.42. (PR) Endo Pharmaceuticals (ENDP): Q1 EPS of $0.67 beats by $0.04. Revenue of $335M (+15.5%) vs. $338M. (PR) FTI Consulting (FCN): Q1 EPS of $0.60 beats by $0.08. Revenue of $348M (+13.3%) vs. $341M. (PR) General Dynamics (GD): Q1 EPS of $1.54 beats by $0.08. Revenue of $8.3B (+18%) vs. $7.8B. (PR) Hess (HES): Q1 EPS of -$0.18 beats by $0.09. Revenue of $6.9B (-35.8%) vs. $5.6B. (PR) IAC/InterActiveCorp (IACI): Q1 EPS of -$0.02 misses by $0.02. Revenue of $332M (-10.4%) vs. $330M. (PR) Jones Apparel Group (JNY): Q1 EPS of $0.28 beats by $0.18. Revenue of $891M (-8.6%) vs. $875M. (PR) MeadWestvaco (MWV): Q1 EPS of -$0.46 misses by $0.22. Revenue of $1.35B (-10.8%) vs. $1.44B. (PR) MedcoHealth Solutions (MHS): Q1 EPS of $0.63 in-line. Revenue of $14.8B (+14.4%) vs. $13.7B. Sees FY '09 EPS of $2.67-$2.77 vs. $2.73 consensus. (PR) MGIC Investment (MTG): Q1 EPS of -$1.49 misses by $0.12. Revenue of $435M (+2.7%) vs. $436M. (PR) Moody's (MCO): Q1 EPS of $0.41 beats by $0.07. Revenue of $409M (-5.1%) vs. $393M. Declares a quarterly dividend of $0.10/share. (PR) PepsiAmericas (PAS): Q1 EPS of $0.20 beats by $0.04. Revenue of $1.1B (-3.7%) in-line. Issues upside guidance for FY '09, sees EPS of $1.83-$1.90 vs. $1.80 consensus. (PR) Praxair (PX): Q1 EPS of $0.93 beats by $0.01. Revenue of $2.1B (-20.3%) vs. $2.4B. Sees FY '09 EPS of $3.85-$4.15, revenue of around $9B. (PR) Qwest Communications International (Q): Q1 EPS of $0.12 beats by $0.04. Revenue of $3.2B (-6.6%) in-line. (PR) Reynolds American (RAI): Q1 EPS of $1.00 beats by $0.05. Revenue of $1.92B (-6.6%) vs. $1.97B. Sees FY '09 EPS guidance of $4.15-$4.45. (PR) Rockwell Automation (ROK): FQ2 EPS of $0.29 in-line. Revenue of $1.1B (-24.8%) in-line. (PR) Royal Dutch Shell (RDS.A): Q1 EPS of $0.54 misses by $0.54. Revenue of $58.2B vs. $55.2B. Q1 dividend +5% to $0.42/share. "Industry conditions remain challenging, and our focus is on capital discipline and costs." (PR) SAP AG (SAP): Q1 EPS of $0.22 misses by $0.07. Revenue of $2.4B (-4%) vs. $2.6B. (PR) Sealed Air (SEE): Q1 EPS of $0.33 beats by $0.05. Revenue of $988M (-16.3%) vs. $1.03B. (PR) Siliconware Precision Industries (SPIL): Q1 EPS of $0.01 beats by $0.01. (PR) Southern Company (SO): Q1 EPS of $0.42 beats by $0.01. Revenue of $3.7B (-0.3%) vs. $3.5B. (PR) SPX (SPW): Q1 EPS of $0.81 beats by $0.06. Revenue of $1.2B (-13.9%) in-line. (PR) Talisman Energy (TLM): Q1 EPS of $0.30 beats by $0.16. Revenue of $1.8B (-21.5%) vs. $1.7B. (PR) Time Warner (TWX): Q1 EPS of $0.45 beats by $0.07. Revenue of $6.9B (-7%) vs. $6.8B. Reaffirms FY '09 guidance of $1.98 EPS. (PR) Time Warner Cable (TWC): Q1 EPS of $0.75 beats by $0.14. Revenue of $4.4B (+4.9%) in-line. (PR) Tyco Electronics (TEL): FQ2 EPS of $0.14 beats by $0.10. Revenue of $2.5B (-32.9%) vs. $2.4B. Sees FQ3 EPS of $0.01-$0.06, revenue of $2.35B-$2.45B. (PR) United Microelectronics (UMC): Q1 EPS of -$0.09 beats by $0.04. Revenue of $319M (-59.6%) vs. $337.5M. (PR) ViroPharma (VPHM): Q1 EPS of -$0.77 misses by $0.93. Revenue of $60M (+18.2%) vs. $65M. (PR) Waste Management (WMI): Q1 EPS of $0.42 beats by $0.01. Revenue of $2.8B (-14.1%) vs. $3.0B. (PR) Wyeth (WYE): Q1 EPS of $0.89 beats by $0.01. Revenue of $5.4B (-5.8%) vs. $5.5B. Reaffirms FY '09 guidance, sees EPS of $3.33-$3.53 vs. $3.50 consensus. (PR) Wyndham Worldwide (WYN): Q1 EPS of $0.41 beats by $0.06. Revenue of $901M (-11%) vs. $839M. Reaffirms FY '09 EPS guidance of $1.61-$1.85, FY '09 revenue of $3.5-$3.9B. (PR) Earnings: Tuesday After Close Ace Ltd. (ACE): Q1 EPS of $1.99 beats by $0.03. Shares flat AH. (PR) Buffalo Wild Wings (BWLD): Q1 EPS of $0.47 beats by $0.01. Revenue of $131.6M (+35.3%) vs. $129.1M. Shares -11.1% AH. (PR) Cabot Oil & Gas (COG): Q1 EPS of $0.41 beats by $0.03. Revenue of $234M (+6.5%) vs. $213M. Shares +4% AH. (PR) Carter's (CRI): Q1 EPS of $0.19 beats by $0.03. Revenue of $357M (+33.6%) vs. $335M. Sees Q2 EPS of $0.07-0.10 vs. $0.10. Shares -5.3% AH. (PR) Cemex (CX): Q1 operating income of $36M (-29%). Revenue of $3.7B (-32%) vs. $4.03B consensus. (PR)Dreamworks Animation SKG (DWA): Q1 EPS of $0.68 beats by $0.23. Revenue of $263.5M (+67.6%) vs. $211.5M. Shares +14.6% AH. (PR) Cerner (CERN): Q1 EPS of $0.52 beats by $0.01. Revenue of $392M (+1.9%) vs. $418M. Full-year guidance in-line. Shares -3.5% AH. (PR) Chicago Bridge & Iron (CBI): Q1 EPS of $0.51 beats by $0.06. Revenue of $1.3B (-10%) vs. $1.25B. Shares +17.9% AH. (PR) CommScope (CTV): Q1 EPS of $0.14 beats by $0.04. Revenue of $742M (-26.1%) vs. $753M. Q2 revenue guidance in-line. Shares +3.8% AH. (PR) E*TRADE Financial (ETFC): Q1 EPS of -$0.41 misses by $0.01. Revenue of $497M (+6%) in-line. Allowance for loan losses increased $120M to $1.2B. Says it will need to further boost its capital position, through selling shares and/or a private cash injection. Shares -27.6% AH. (PR) Hertz Global (HTZ): Q1 EPS of -$0.25 misses by $0.03. Revenue of $1.56B (-23.3%) vs. $1.8B. (PR) Jones Lang LaSalle (JLL): Q1 EPS of -$0.47 misses by $0.40. Revenue of $494M (-12.4%) vs. $541M. Decreases semi-annual dividend to $0.10 from $0.25. Assets under management fell 11% to $41B. Shares flat AH. (PR) Life Technologies (LIFE): Q1 EPS of $0.72 beats by $0.15. Revenue of $785M (+124.1%) vs. $749M. Shares -0.7% AH. (PR) Massey Energy Company (MEE): Q1 EPS of $0.51 misses by $0.02. Revenue of $768M (+19.2%) vs. $739M. Says it has taken meaningful action to cut costs, and expects positive cash flow this year. Shares +0.6% AH. (PR) Nalco (NLC): Q1 EPS of $0.17 misses by $0.02. Revenue of $868M (-13.1%) vs. $933M. "We are pushing aggressively on productivity to help offset the impacts of weaker end markets." Shares flat AH. (PR) Psychiatric Solutions (PSYS): Q1 EPS of $0.50 beats by $0.01. Revenue of $450M (+6.3%) in-line. Sees full-year EPS of $2.24-2.32 vs. $2.21. Shares +8.5% AH. (PR) RF Micro Devices (RFMD): FQ4 EPS of -$0.10 misses by $0.05. Revenue of $172.3M (-21.9%) vs. $166.1M. Sees FQ1 EPS of flat vs. consensus of -$0.02. Shares -4.15% AH. (PR) Stericycle (SRCL): Q1 EPS of $0.47 beats by $0.01. Revenue of $277M (+8.8%) in-line. Shares flat AH. (PR) Sun Microsystems (JAVA): FQ3 EPS of -$0.07 beats by $0.12. Revenue of $2.61B (-20%) vs. $2.86B. Shares -0.2% AH (company is being acquired by Oracle (ORCL)). (PR) Superior Energy Services (SPN): Q1 EPS of $0.72 beats by $0.04. Revenue of $437M (-1%) vs. $418M. Shares +1.7% AH. (PR) Textron (TXT): Q1 EPS of $0.26 beats by $0.25. Revenue of $2.53B (-23.6%) vs. $2.78B. Sees full-year EPS of $0.45-0.75 vs. $0.97 consensus, and revenue of $11B vs. $11.8B. Launches sale of 19M shares, and $300M in convertible senior notes. Shares -5% premarket. (PR I, II) Total System Services (TSS): Q1 EPS of $0.26 misses by $0.04. Revenue of $409M (-2.6%) vs. $474M. Sees full-year revenue of $1.63-1.66B vs. $1.95B consensus. Sees net income down 11-13% vs. a previous 0-3%. Cardholder transaction volume was down 4.3%. Shares -8.3% AH. (PR) Trimble Navigation (TRMB): Q1 EPS of $0.28 beats by $0.02. Revenue of $289M (-18.7%) vs. $297M. Sees Q2 EOS of $0.32 vs. $0.35 and revenue of $285-315M vs. $320M. Shares -3.6% AH. (PR) Trustmark (TRMK): Q1 EPS of $0.41 beats by $0.12. (PR) V.F. Corp. (VFC): Q1 EPS of $0.91 misses by $0.03. Revenue of $1.72B in-line. Sees full-year EPS of $4.70-5.00 vs. consensus of $5.31. Shares -8.2% AH. (PR) Today's MarketsOverseas markets were broadly higher Wednesday, fueling gains in overnight futures trading.

  • Game Over

    The question we were left with two weeks ago was "Why has America lost its broadband leadership?" but it really ought to have been "Whatever happened to the Information Superhighway?" It died. This column has been around long enough that I actually covered terms like "Information Superhighway" and "National Information Infrastructure" back when they were commonly in use and may actually have meant something. That was pre-2000, I'd say, because once the Internet bubble began to burst, followed of course by the 9/11 terrorist attacks, people simply got interested in different things. And just when the population as a whole gets interested in different things is when -- at least in American culture -- a lot of shady business begins to happen. What we are talking about here is the Telecommunications Act of 1996, the first real rewrite of the Communications Act of 1934 that established the Federal Communications Commission (FCC) in the first place. The 1996 Act was primarily the work of Senator and then Vice President Al Gore, who may not have invented the Internet but sure helped push it into commercial operation. The Telecommunications Act of 1996 was intended to open up communication services to broad competition on the most basic level, so of course the nation has since 1996 gone from 15 national broadband ISPs to five and a dozen big landline telephone companies to three. When it comes to government policy things hardly ever work out the way you expect them to. In 1996 I had 384-kilobit-per-second (kbps) symmetrical DSL while my TV production partners in the UK had nothing at home and 128-kbps ISDN at the office. America was the top broadband country in the world. But now we're in the middle of the pack among developed countries and there are nine DEVELOPING countries that have more and better broadband service than does America according to the Organisation for Economic Co-operation and Development (OECD). To those who say this is BS and that we're actually ahead of the world if you control for rural populations, family size, the effect of Wi-Fi hotspots, etc., I say that is simply wrong: we are behind and losing ground. And the countries ahead of us, a diverse lot including France, Iceland, Japan, Korea, Switzerland, the UK, and even Canada, are for the most part growing faster than we are in large part because of this IT advantage. There are many reasons for this change of circumstance, but much of it comes down to government policy or lack of it and some of it comes down to pure luck. In large part we've been locked in our own little world where government and business feed on each other in ways that are always symbiotic and often destructive, but this time the rest of the world just passed us by while we were distracted by other things. Two weeks ago I mentioned, for example, that my friend Ira in Yokohama, Japan pays less than $30 per month for 100-megabit-per-second fiber-to-the-home Internet service. Well it turns out that in Japan such plans can cost as little as $10 per month, which is less than what our telephone companies claim it costs simply to maintain their billing infrastructure. If it costs $10 per month per subscriber for our telephone companies to stay in business without even pushing electrons over the wires, how can they charge that little for 100-mbps Internet service in Japan? What do they know that we don't know? Japan is an instance where I believe luck was actually a factor in the country's broadband success. Most things cost more in Japan than they do in the U.S., not less. The country's export-based economy was built on selling the same goods for more in the country where they were made than they sold for in Peoria. Sometimes this price differential was absurd, too. In the mid-1990s I had an Internet start-up (it later failed) and wanted to place one of my PC-based servers in Japan. So I went to NTT, the big Japanese phone company, and asked for space in one of its data centers where the company then maintained most of Japan's Internet resources. It was reasonable for me to do this because NTT was an investor in my company. But they told me that while they would love to host my little server (I was building a content distribution network with features that have still not been matched by any subsequent service), as a regulated monopoly they would have to charge me the full retail price for rack space and bandwidth -- $75,000 per month! What changed for Japan was a new government policy fostering competition in a very similar manner to our own Telecommunications Act of 1996. In fact the Japanese policy was inspired by the U.S. law. But this policy would have been meaningless in Japan, a country even more corrupt than the U.S., had not one ISP decided to push the new rules to their limit. SoftBank BB took a multi-billion dollar risk and began offering broadband service in Japan at ridiculously low prices using the NTT infrastructure. The company was literally throwing money away, which a regulated monopoly could never do but SoftBank could, selling most of its U.S. operations along the way to support this expensive habit. For 2-3 years the company was so stretched by the service that simply paying to NTT the disconnect fees for getting out of the business would have been enough to throw SoftBank into bankruptcy. It was simply luck that SoftBank's broadband ISP turned to profitability before the company was completely broke. And once it was profitable, SoftBank BB suddenly had lots of competitors. Ira has his choice of nearly 20 ISPs willing to pump photons into his apartment in Yokohama. These services are NOT run at a loss. SoftBank BB and Japan set a standard that has been replicated in most of the countries that have better broadband penetration and service than the U.S. The model is a single connection to the home managed by a utility but with Internet bandwidth and services provided over that connection by any of a number of competitors. We had that, too, for a while in the 1990s but the big telcos, the incumbent local exchange carriers (ILECs), hated it and worked to undermine their new competitors, the Competitive Local Exchange Carriers (CLECs). And none of those competitors had the deep pockets or the willingness to assume risk of a SoftBank BB, which literally broke the Japanese monopoly. Part of the reason why we didn't stay on a similar path is because of the highly developed U.S. cable TV industry, which is unique in its scale. The telephone companies generally didn't care about the cable companies because they were in different businesses. Until one day the cable folks started installing DOCSIS cable modems and suddenly they were in the same business, which the telcos hated, but it was too late. Worse still, by then the cable companies had as much clout with the government as the telephone companies did and maybe more because cable companies had relations with every city and town government as well as with states and the FCC. The cable companies weren't going away, their eyes locked on stealing voice service from the local phone companies. The way the U.S. has embraced ISP diversity is different than in most of the rest of the world. Where the 14 OECD countries ahead of us on the list generally use telco infrastructure to provide Internet bandwidth, we use a combination of telco and cable. There's a problem with that from an efficiency standpoint. In the U.S. we're supporting two completely separate and different technical infrastructures, two billing systems, two service departments, two head offices, two corporate jets. There are economies of scale as our cable and telephone companies consolidate, sure, but they'll never become one and the prospect that the telcos would continue to be forced to share their infrastructure with competitors is being removed by the transition to fiber, because those advanced pipes are exempt from sharing under a subsequent revision of the Telecommunications Act. It is very doubtful, almost impossible, that we'll catch up to those countries ahead of us in broadband penetration. They are too far ahead and our native demand is simply less because our Internet economies are developing more slowly. Absent some miracle, the game is already over. As I wrote two weeks ago, the situation is likely to improve somewhat over the next year or two as the telephone companies sacrifice a little to lock us in before we switch to DOCSIS 3 cable modems and the cable companies, in turn, offer incentives to jump to their voice products. But these companies don't think at all in international terms and they simply don't care about international competitiveness or the growth of our economy. They should, but they don't. And they don't because they have never had to. Though they are required to operate in the public interest and to provide public services, these monopolies have never been forced to consider our place in the world. If there's a solution to this problem it isn't wireless. U.S. mobile carriers are as far behind their foreign counterparts as U.S. ISPs are generally. For all the companies' talk of unlimited mobile broadband, three Slingboxes can take down an EVDO cell. What would happen if AT&T gave every iPhone as much bandwidth as it could easily use? Gridlock. And WiMax is effectively useless too, because the sweet spot in cell size is so large that no ISP can provision enough bandwidth to serve even a quarter of the people who might potentially sign up. They could do it with smaller cells, but then the companies wouldn't make money. These are moving targets of course, but nothing is going to change without a dramatic new policy or the entry of a deep-pocketed competitor with a death wish like SoftBank, and I don't see even them ever doing it again.

  • ★ The Fear

    The NDA is dead, yes, and good riddance, but there remain serious problems with the way Apple is managing the App Store. It boggles my mind that there remain so many people who don’t see this. This piece by Dan Kimerling at TechCrunch is one example; various of the reader comments on Jason Snell’s piece for Macworld last week are another.1 One factor, perhaps, is the tendency to see everything in terms of extremes. Black or white, good or bad. But this debate is not about wanting Apple to make radical changes, such as, say, changing the iPhone from a closed platform to a more open platform a la Android. There are reasonable arguments to be made that a more open iPhone platform would be good not just for iPhone developers, but for Apple and its shareholders. But those arguments aren’t what this debate is about. This debate is about wanting Apple to make minor changes — a slight but very significant course correction. Put another way, this is not about the big picture scope of what kind of hypothetical App Store (or Stores, plural) Apple should have created. That train left the station long ago. This is about the specific details of the App Store that actually exists, and the rules that govern it. I believe that a closed, controlled App Store can work, but by definition that requires developers to place trust in Apple. The problem is that Apple is managing the App Store in certain untrustworthy ways. And I mean trust more in the sense of stability than honesty — like in the way you need to trust a ladder before you’ll climb it. Here is a complete list of what Apple must do to increase developers’ trust in the App Store system: State the rules. Follow the rules. That’s it. This is so clear that even those who are arguing the other side — that Apple’s App Store stewardship is just fine as it stands today — have jumped through hoops in an attempt to argue that Apple’s exclusion of Podcaster was in fact in accordance with the iPhone SDK Guidelines. Kimerling, in his “Stop Complaining About Apple and the App Store” piece, writes: When you create the platform, you set the rules. If Apple wants to restrict iPhone applications to those that do not compete with features built into the iPhone, well, they can go right ahead and do so. It is right in the SDK’s user agreement. That’s just not true. The iPhone SDK Agreement, at least by the standards of legal contracts, is written in clear, straightforward English. (Apple’s lawyers, in the opinion of yours truly at least, are good writers.) The rules it lays down are clear. And Podcaster doesn’t break any of them. Given any set of rules, there will always be edge cases. Judgment must be rendered, and, inevitably, some will feel edge cases were judged the wrong way. But the reason iPhone developers (and prospective iPhone developers) are appalled by Apple’s rejection of Podcaster and MailWrangler is that neither app was near any edge defined in the SDK guidelines. Podcaster was rejected for duplicating the podcast features in iTunes and the iPhone “iPod” app. MailWrangler was rejected on the following grounds: Your application duplicates the functionality of the built-in iPhone application Mail without providing sufficient differentiation or added functionality, which will lead to user confusion. The word “duplicate”, in any conjugation, does not appear in the iPhone SDK Agreement. Not a word about it. And there is clearly no general rule about third-party apps duplicating the functionality of the iPhone’s built-in apps. PCalc, along with a handful of other calculator apps, duplicates every single feature of the built-in Calculator app. There are dozens of note-taking apps that compete with Notes; MagicPad goes so far as to use the same icon as Apple’s Notes app, just with different colors. There is an entirely category in the App Store — an entire category — for weather apps, several of which “duplicate” the entire functionality of the built-in Weather app. So, not only judging by the rules set forth in the iPhone SDK Agreement, but also by the existence proof of hundreds of apps currently published in the App Store that duplicate (which is really to say compete with) built-in iPhone apps, no reasonable person would have expected Podcaster or MailWrangler to be rejected. So their rejection is problematic on three fronts. First, the submission process is such that an app rejected at the conceptual level — one that cannot be tweaked or fixed to gain entry upon resubmission, but whose fundamental premise is rejected by Apple — such an app is only rejected after it has been written. The developer does all of the work to produce the app and only then finds out it was all for naught. Second, there are clearly rules which are not listed in the SDK guidelines. Third, in its explanations for the rejections, Apple is not stating what these actual unpublished rules are, and is instead offering as the reason this “it duplicates a built-in app” rule which, given all the aforementioned counterexamples that have been accepted into the App Store, isn’t actually a rule at all. The explanation is clearly false. Taken together, these three factors lead to The Fear, which is that developers cannot trust the App Store process. You can spend all of the time and effort it takes to build an app, follow every known rule, and still get rejected. From Apple’s perspective, especially, say, in upper management, it may be all too easy to look at what’s going on with the store — thousands of published apps, a ton of money changing hands — and not see the problem. In the big picture, from both a technical and marketing perspective, the App Store is a grand success. The problem is that the apps that are the most interesting, the most important, are the ones that take the most work to create. And the apps that take the most work to create are the ones that are most likely not even to be made in this environment, because the risk is greater. The more work it takes to create an app, the more you lose if Apple rejects it. Going back to the ladder analogy, the higher you’re trying to climb, the more you need to trust the ladder before you start. It’s not about a handful of developers who’ve had their apps rejected. It’s about all the other developers who are now spooked, and that the ones who are the most spooked are the ones who harbor the grandest, boldest, most innovative ideas. Interpolation Regarding a Theory on Which Apps Apple Won’t Allow Developers to Compete With In the absence of revised iPhone SDK Agreement from Apple, we can attempt to guess what the unpublished rules are. With Podcaster, for example, the “follow the money” rule of thumb leads to the conclusion that Apple will not allow any competition with iTunes, because iTunes is a profit source. This is why MailWrangler’s rejection is the one that puts The Fear in my heart. As unjust as the Podcaster rejection appears, if Apple really wants to prohibit competition with iTunes, even anti-competitively, you can at least see the thinking behind the decision. It’s foolish and unnecessary — the fact that iTunes is wide open to total competition on both Mac OS X and Windows hasn’t hurt it at all — and it also quite possibly invites some sort of legal challenge, but at least there is a logical idea behind it. But Mail? Why on earth should Apple care if some third-party email client for the iPhone becomes wildly popular? It makes no sense. iPhone users who use the built-in Mail app don’t pay extra to do so. Mail doesn’t tie users to Apple’s own MobileMe service. In fact, Mail offers specific setup help to work with Gmail, the service MailWrangler is optimized for. If you can make a replacement for Notes and Weather and Calendar, why not Mail? I have a theory. It is more, well, emotional than logical. But it’s the only theory I can think of that makes any sense at all and fits the available evidence. The theory is that there is an unpublished rule that Apple — and in this case, where by “Apple” I really mean “Steven P. Jobs” — will not publish third-party apps that compete with or replace any of the four apps in the iPhone’s default “dock”: Phone, Mail, Safari, and iPod. Go back to Jobs’s original iPhone introduction at Macworld Expo 2007. It was a masterful presentation. Carmine Gallo, writing for BusinessWeek, calls it Jobs’s greatest presentation; I agree. Gallo describes the moment it was unveiled: After laying the groundwork, Jobs builds up to the new device by teasing the audience: “Today, we are introducing three revolutionary products. The first is a wide-screen iPod with touch controls. The second is a revolutionary new mobile phone. And the third is a breakthrough Internet communications device.” Jobs continues to build tension. He repeats the three devices several times then says, “Are you getting it? These are not three separate devices. This is one device … today Apple is going to reinvent the phone!” The crowd goes wild. This “three revolutionary products” pitch was inordinately effective. For one thing, live, in the hall, Jobs completely fooled the crowd, yours truly included. But then as he repeated the three product ideas over and over, while icons representing the three products rotated behind him on screen, faster and faster, it started dawning on us how we’d been tricked. By the time Jobs came out and said that it was just one device that encompassed all three products, everyone in Moscone West had come to that conclusion on their own — a nifty little way of making the crowd feel clever, as though we’d figured out a riddle. But this pitch also worked because it was true. All three of those products sound good on their own. All three in one device sounds insanely great. Jobs was introducing the iPhone simply by describing precisely what it was. A phone, a widescreen video iPod, and a breakthrough Internet communicator. The icons in the iPhone’s default dock represent the core functionality of the device. Phone, Email, Web, iPod. With nothing other than those four apps, the iPhone still would have been a hit. Not as great, but, still, great. Everything else the iPhone’s built-in apps do could be done, to some extent, through Safari: notes, calendars, weather, maps, stocks. There are a few minor exceptions. SMS is one example, but that’s really just an adjunct to the Phone app. Anything that relates to the phone network — voice or SMS — is unavailable through the third-party iPhone SDK anyway. You couldn’t write your own SMS app even if you wanted to. (Apple clearly has no problem with competing chat apps — there are several IM clients available in the App Store. That’s the same basic concept as SMS, but using IP networking.) And so my guess is that while there may not be any logic, there’s at least a notion, if only in Jobs’s mind, that these four apps are sacrosanct because they define the iPhone. Everything else, both from Apple and from App Store developers, is piffle, secondary to those four apps. Harry McCracken’s recent iPhone user survey indicates that iPhone users agree that those four apps comprise the most-used features of the iPhone. But the least essential of the four is Mail. You cannot place phone calls or play music and video from your personal iTunes library using a web browser, but can read and send email through it.2 Millions of people do just that every day, including, I’m sure, many of you reading this essay. And Google’s iPhone-optimized version of Gmail shows just how well it can be done. It’s not just good for web-based mail, it’s just good, period. And so this idea that Apple seems to have that Mail is particularly special is misguided. The Phone and iPod apps are special, because at a fundamental level they perform tasks that cannot be duplicated in a web app. But there’s nothing any more special about Mail than there is about, say, Calendar. Calendar, if anything, is more closely tied to Apple’s proprietary and commercial MobileMe service — Mail works great with any IMAP server, including Gmail, but Calendar only works for online syncing with MobileMe or Exchange. But Apple doesn’t seem to have any problem allowing Calendar competitors into the App Store. Notes Calendar is a $3 Lotus Notes calendaring client. Exchange Remote Calendar is a $10 is a $10 calendaring client for Exchange. If these are OK, why not a dedicated Gmail email client? The only explanation is that Mail is deemed untouchable and Calendar is not. The real test would be for someone to write a dedicated Google Calendar iPhone app — but given what happened to MailWrangler, it might be hard to find someone willing to try it. In short, my theory is that Mail is on the do-not-compete list not because there’s any strategic reason for Apple to do so, but simply because of a vague notion that Mail is one of the iPhone’s defining apps. This notion is wrong. Mail is important, but there’s nothing about it that needs to be protected from competition. End of Interpolation, Back to the Three Problems, Which, Due to the Grotesque Length of the Above Interpolation, I Will Remind You Are: (1) App Ideas Are Rejected Only After the Apps Are Actually Built; (2) There Exist Secret Unpublished Rules Regarding What Is Allowed; and (3) When Apps Are Rejected for Violating the Unpublished Rules, Apple Refuses to State Just What These Rules Are One thing that would make a difference would be a submission process whereby developers could submit their application ideas to Apple in advance, to find out if they’re OK. That’s how it works on game platforms from Nintendo, Sony, and Microsoft — developers submit a detailed proposal and wait until they get the green light before actually building the game. That sounds good, but there are problems with the idea. For developers, it would require an additional level of trust in Apple. Ideas are less valuable than actual implementations, but the more original an idea is, the less comfortable you are to share it. And for Apple, it would require significantly more work. They’d still need to examine and approve the actual shipping applications, but now they’d also have to examine and consider application proposals. The world’s hard drives are littered with abandoned unfinished software projects — there would surely be far more proposals submitted for consideration than there are actual iPhone applications. As it stands today, Apple is already struggling mightily to keep up with the work of approving new and updated application submissions — the typical turnaround time is between one to two weeks. Perhaps Apple could offer this as a service limited to ADC Select ($499) or even Premier ($3,499) members. The service is needed most by the developers who are considering the biggest apps, most of whom either are already paid ADC members or wouldn’t bat an eyelash at the cost of joining. It wouldn’t be democratic, but it might make it feasible. Platforms like Wii and Xbox ship maybe a few dozen titles a month, tops. The App Store has published 3,500 titles in just three months. (And it costs far more to join the developer programs for gaming consoles than the $100 iPhone SDK fee.) More important, though, is for Apple to address problems 2 and 3, by publishing in the iPhone SDK Agreement all of the rules they’re using to evaluate applications. If we’re not allowed to write email or podcast clients, say so. If something unforeseen comes up, Apple should make a decision, and then publish the new rule. Rules you disagree with are frustrating. Rules you don’t know about are scary. I will also note that, to my knowledge, not a single published iPhone developer has spoken out in favor of the App Store’s current rejection policies. Those developers who have spoken are against it. Those who see no problem are not themselves iPhone developers. ↩ Even if Apple were to come to its senses and allow third-party developers to write competing email clients, the built-in Mail app would hold one significant technical advantage, which is that it runs in the background. In fact, background processing is the one factor that unites the four dock apps. Phone, Mail, Safari, and iPod all continue running the background; no other apps, including those from Apple, do. ↩

  • When Elephants Dance

    My friend Ira, who lives in Yokohama, Japan, has 100-megabit-per-second fiber-optic Internet service in his home. This costs Ira less than $30 per month. What the heck is up with that? Ten years ago, the United States had the fastest and cheapest residential Internet service in the world. Today U.S. residential Internet service, especially broadband, is among the slowest and most expensive. I'll explain next week how I believe we came to be in this bandwidth mess, but this week I get to predict that the situation may (finally) be changing. Get ready for a substantially faster and somewhat cheaper Internet. While your broadband service may be labeled as faster than it used to be, there has been very little that is really new happening in Layer 2 Internet services. Cellular G3 data has been dormant. For all the talk of G4, G2.5 is still the standard. Cable modems with Data Over Cable Service Interface Specifications version 2 (DOCSIS-2) have been standard for years. DSL has s-l-o-w-l-y moved to 6mbps/768kbps IF you are lucky to live close to the DSLAM. For businesses the big technology has been Multi Protocol Label Switching (MPLS) over T-1 service, which is not really a Layer 2 improvement at all. Metro Ethernet is coming along but too slowly for most. And Internet rates for businesses are still around $500 per month for a 1.5 megabit-per-second T-1, which is lousy compared to many parts of the world, some of them supposedly a lot less developed than the U.S. Here are some clues to what has just started happening to change the Internet service status quo. Alltel, a national mobile phone company, was acquired by Silverlake and TPG Capital, two private equity funds. Avaya, a maker of IP telephony systems for business, was also acquired by the same Silverlake and TPG Capital. T-Mobile now offers in the U.S. a pair of mobile phones from different vendors that will allow free calls from WiFi hotspots. Apple's iPhone has WiFi support. DOCSIS-3 cable modems have been demonstrated operating at 150 mbps with deployment to begin next year. Verizon is rolling out fiber service to homes and businesses. For customers who can't get fiber, Verizon recently increased DSL speeds with no price change. Sprint is becoming the dominant wireless Internet service for businesses through aggressive pricing, which is especially hurting AT&T (formerly Cingular). And AT&T has taken 30 percent of MCI's (now Verizon's) business customers through aggressive T-1 pricing. In short, everyone is poaching from everyone else in the business market, which points to a looming price war for business Internet service starting this fall. Here is the first shot -- Verizon's FiOS Business Internet prices to be rolled out this fall in the northeast U.S., bypassing Metro Ethernet, Frame Relay, and point-to-point T-1's with asymmetrical fiber service: Dynamic 5M/2M $ 40/mo. Dynamic 10M/2M $ 40/mo. Dynamic 15M/2M $ 60/mo. Dynamic 20M/5M $ 60/mo. Static 15M/2M $ 100/mo. Static 20M/5M $ 100/mo. Dynamic 5M/5M $ 170/mo. Static 5M/5M $ 210/mo. Dynamic 30M/5M $ 350/mo. Static 30M/5M $ 390/mo. Dynamic 35M/10M $ 170/mo. Static 35M/10M $ 210/mo. Dynamic 50M/10M $ 350/mo. Static 50M/10M $ 390/mo. So business Internet prices will drop in the northeast, where Verizon is king, but the impact will be felt nationally because Verizon will have established pricing levels that other competitors will have to meet. Now let's get back to Silverlake and TPG Capital. Their Alltel mobile phone network will provide VoIP to Avaya PBX's, effectively creating for businesses (at first) a PSTN bypass. Then the same people will provide Vonage-type phone service over local broadband using Avaya PBX's, creating yet another PSTN bypass. WiFi will become standard for the cellphone industry after years of being blocked by cellular providers. Verizon fiber pricing will force AT&T and others to lower prices in the northeast, but AT&T can't have two national pricing plans so costs will fall everywhere. Part of this will be driven by Comcast's pending roll out of DOCSIS-3 cable modem services. AT&T's response will be to try and lock in clients for multiple years BEFORE the DOCSIS-3 deployment, causing even more downward pressure on prices. By now we're talking about not just business prices but also residential. At this point expect the state utility commissions to push for rate normalization between fiber and non-fiber territories, meaning more downward pressure. Business model changes involve so-called "triple play" services where ISPs hope to make money from providing not just Internet service, but also telephone and television. The cable TV companies want to steal from the telcos basic phone service while the telcos want to steal television service from the cable companies. Since either possibility requires advanced data services and more bandwidth, users benefit. U.S. telcos, notably AT&T and Verizon, are aggressively building out their fiber plants, though AT&T is taking its fiber only as far as the curb while Verizon is taking fiber directly into the home. This ostensibly limits AT&T to XDSL speed limits, though the company can use channel bonding (more than one pair of copper wires per service) to increase speeds if forced to do so by competition. Verizon is rolling out residential fiber service from 30-50 megabits per second but its equipment can jump to 100 megabits per second if needed without requiring another truck roll. An important secondary motivation for this fiber roll-out is that telcos are not required to share such facilities with competitors as they have been required to share copper infrastructure under the Telecommunications Act of 1996. So while there may be competition in the neighborhood from cable modems, once the fiber is in and the copper is out the telcos need never again fear competition from Competitive Local Exchange Carriers (CLECs). While the number of U.S. residential broadband users is continuing to increase, the rate of that increase is slowing according to several surveys by the Pew Internet & American Life Project. Extrapolating these numbers suggests that ultimate broadband penetration will be comparable to cable TV or around 85 percent absent some total coverage solution like BPL. This slowing of growth may be inspiration for the growing telco vs. cable battle over triple play digital services, with the idea that some telephone users (where market penetration is already 97+ percent) will be induced to buy broadband service to lower their telephone costs. Who is the big winner here? Well I'll count myself a winner if my Internet pricing comes down a bit (I pay $168 for 8/1 cable service with five static IPs) but the REAL winner is Cisco Systems, whose largest market is service providers. With Comcast and Verizon pushing AT&T toward offering new technologies at lower prices, EVERYONE is going to need a new router.

  • Does IPTV Threaten the Cable Subscription Model?

    NEW YORK (AdAge.com) -- Internet-protocol TV sites such as Hulu, iTunes, Amazon Video and TV.com are rapidly evolving into a game-changing force for the TV industry. Even before the recession forced growing numbers of consumers to cancel their cable TV subscriptions and explore online alternatives, this new trend was clear. At Ad Age's Digital Conference, Verizon Chief Marketing Officer John Stratton was asked if this exploding new world of IPTV wasn't a serious threat to traditional subscription TV.

  • Mac Mini, AppleTV, TiVo, Netflix - Who Needs Cable?

    Recently we moved into a new home. Getting the cable installed properly has been a nightmare, and it has caused me to take a long hard look at traditional TV service. Between being lied to by the cable company about the products that they offered, to having to have them out for a THIRD time and still not having cable in the bedroom, there were some pretty compelling reasons to look at my month bills and decide if this $70+ expense was even necessary. And you know what? It's really not. All the networks here have made the digital switch, and they come in beautifully over the air in HD. NBC, CBS, ABC, CW, FOX, PBS - it's all there…and its gorgeous. I purchased a TiVo to serve as my DVR for this cable company, but even if I leave them, I'll still have DVR for my HD locals, and I'll have the many benefits of TiVo including Netflix service, and super simple podcasts downloads that stay right there with my normal television programming. I also have an AppleTV, as well as a first gen Mac Mini - so I have plenty of options for buying TV from iTunes and watching it in HD on my television. I even have HULU as an option if I choose to hook up the Mac Mini, so I don't have to pay for things like The Daily Show and Colbert if I don't want to. Of course, I can also watch them on my desktop…which is where I watch those shows the most anyway. After I finished having a shouting match with the cable guy about disconnecting my high speed Internet (which they also lied to me about), all these options started clicking. Between Netflix and TiVo I'm already spending about $20 a month on my television, and I hardly ever watch the thing. When I do its typically a network show or a podcast. So it's time to tell the cable company to suck it. I tried this when the AppleTV first came out, and found that I really didn't need cable then…now there are even more options (Neflix “Watch Now” is the dawn of a revolution my friends), and that money could be better spent buying ammo and toilet paper for when the world collapses in on itself. Which reminds me…there's another reason not to have cable…I'll no longer have Fox News piped into my home against my will.

  • Pocket Tunes plays sweet music

    Filed under: Audio, iTunes, Reviews, iPhone, App Store, iPod touchWhat! Another internet radio player for the iPhone? Yes, Pocket Tunes [App store link] does play internet radio in a pretty crowded field of similar iPhone/touch apps, but this little player has some unique attributes. Pocket Tunes, which is also available for Windows Mobile and Palm phones, has excellent audio quality, and a nice, but not overwhelmingly large, selection of stations. You can add your own stations of course, and Pocket Tunes plays more audio formats than most of the other players out there, including aacPlus v1, aacPlus v2, Shoutcast, RTSP, and the usual suspects like MP3, AAC and WMA. There are a few things that set Pocket Tunes apart from the competition. The GUI is pretty, not just a jumble of text, and the app contains a web browser so you can surf while listening to streaming music, something you simply can't do with other radio streamers. The browser can't see your Safari bookmarks, and you can't make your own, but listening to music and surfing the web is certainly better than listening to music and not surfing. The browser does have a link for the Google search engine, so getting to a website is not too painful. You can also connect to the iTunes Store to buy any music you've listened to, and Pocket Tunes remembers stations that you have heard and caches them without your having to save them. The audio quality of this app is quite good, and I got reasonably fast load and buffering times even using the EDGE network. I even tried to listen to music while driving, but when I plug in my car iPod adapter cord to the iPhone, I just get my regular playlists. I could have used the headphone out on the phone into the mini plug input on the car, but I didn't have the proper cable. Note to self: always bring the proper cables. Pocket Tunes is $9.99, and competes against some fine free apps like AOL Radio and Flycast, and some apps that aren't free like Tuner [App Store link] and Wunder Radio [App Store link] which are both loaded with features for $5.99. Still, Pocket Tunes works very well, and unlike all the other entrants (except Flycast), it will let you read this review while listening to your favorite stations. TUAWPocket Tunes plays sweet music originally appeared on The Unofficial Apple Weblog (TUAW) on Tue, 23 Dec 2008 18:00:00 EST. Please see our terms for use of feeds.Read | Permalink | Email this | Comments

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