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Publisher's Outlook
May 2001

Rich Tehrani

 

In Step With In-Stat

BY RICH TEHRANI

Go Right To:  Communications Solutions EXPO: Truly Unique

Spring is in the air... The flowers are blooming, the birds are chirping, the dust and pollen are awakening from their long winter's sleep, and I can't stop sneezing. It's a good thing I'm not allergic to the reams of information reaching my desk from the analysts at Cahners In-Stat Group.

The good folks at In-Stat have been very busy lately sending me incredible amounts of market research and reports on industry trends. Much of this information is very useful and I figured I'd share some of the highlights from a few of their reports in this column. With market research, as with most things in life, a lot depends on your perspective. Some of the numbers might seem to be good, some bad, and some... well, it's too early to classify. Here's a bit of what I found.

Death Of The Internet Appliance?
Perhaps one of the more disappointing news announcements in the last month was the news that 3Com was pulling out of the Internet Appliance (IA) market and discontinuing their Audrey line. While Internet appliances have yet to make significant headway into the consumer space, there was hope that 3Com might be able to break through and develop a must-have product. I guess not. Most people haven't even heard of this product and they're already discontinuing the line.

So, with PC prices so low -- and heading even lower -- do Internet appliances even make sense? I shudder to think how many development dollars were spent on the production of this now defunct device. I have my own nagging suspicions that if this device could have somehow leveraged the installed base with connectivity to Palm computers, it just might have become popular. (More on this issue later.)

However, my feelings and 3Com's disappointing announcement are in sharp contrast to an IA report recently released by In-Stat who maintain that sales of these devices will grow over 40 percent per year between 2000 and 2005. Of key importance to this segment are Microsoft's WebTV and AOLTV. The introduction of the latter, they say, should thoroughly invigorate the market.

In summary, total IA sales will jump from $219 million in 2000 to $1.3 billion in 2005, with much of the growth occurring outside of the PC-centric North American and Western European markets. Personally, I choose to maintain some healthy skepticism regarding these projections. People have forever underestimated the speed at which PC prices drop -- they are always cheaper than you expect them to be. When the cost of a PC drops to $400, how low can you price a Web appliance and still make money on it? Only time will tell.

Can Someone Throw This Company A Map?
By the way, what exactly is 3Com doing with their company? Here was a runaway leader in the corporate networking market, one who happened to make the hottest handhelds in the business, to boot! With the inevitable convergence of more and more disparate products and the future of computing pointing to handheld devices, why would you give away your crown jewel and spin off Palm as a separate company? As I mentioned, the Palm platform provides a great deal of leverage. The question becomes even more important in light of the fact that 3Com discontinued their enterprise networking product line last year upsetting a tremendous amount of their installed base. 3Com is the only company I know that is discontinuing their product lines faster than it is launching new products. This company seems to have lost its way.

Cable Modems To The Rescue
And yet, all is not lost. In-Stat reports that 3Com's market share in the cable modem market increased nicely in Q4 of last year from 10 percent to 19 percent; all this while Nortel announced they are gradually exiting the cable modem market and Lucent is no longer shipping CMTS units to Europe.

Cable Versus DSL
3Com is not the only networking vendor finding it difficult to navigate in the current market conditions. Cisco, for one, has had its share of difficulties as well. In fact In-Stat reported that in Q4 of last year, Cisco's ADSL CPE shipments declined by over 50 percent! And yet, DSL deployment is still pathetically low. This is certainly an untapped opportunity.

Consider that ADSL CPE shipment degradation was much less severe quarter to quarter as compared to cable modem shipments. ADSL declined by less than 1 percent, where cable declined 13 percent over the last two quarters of 2000. According to In-Stat research, this is only the first quarter since cable modems began shipping that levels have fallen. In my home state of Connecticut, cable modems are king among consumers while DSL growth has been rather slow. And still, neither technology however is keeping up with consumer demand! Many people I work with would give away offspring for broadband connections at home, and service providers aren't responding fast enough. VCs, are you reading?

Internet Telephony, The International Cure
So where is Cisco looking to grow in light of this news? How about Internet telephony (specifically, the service provider market)? Cisco has experienced 100 percent growth in this area recently. In fact, analysts cite Cisco's market share in the service provider IP telephony market at 27 percent, a full 50 percent more than Lucent, the next largest provider.

There is no question that Internet telephony is doing well, especially in Latin America, where companies including Cisco are investing in IP telephony service providers that are competing against incumbent providers in recently deregulated environments. I recently met with some people down in Argentina that tell me that Internet telephony providers are on fire in that country -- laying down fiber rings and offering services and terms that make the incumbent's offerings pale in comparison.

WHERE WIRELESS GROWTH LIES
As healthy as the international Internet telephony market appears today, the wireless voice and data market was also being viewed a few years back as "unstoppable." But as the economy slows (and the wireless market with it) and the business market reaches saturation, where can service providers turn to make sure they achieve maximal profitability?

"Business users have been first to adopt wireless data and Internet services, just as they were the first to adopt cellular voice services in the 1980s," says Becky Diercks, Director of In-Stat's Wireless Service. "With a population of more than 250 million in the United States today, however, the consumer market has barely been penetrated."

According to In-Stat, carriers will need to target user niches with tailored applications and marketing.

Yet Again, It's The Applications
In-Stat currently estimates that in the United States, there are over 109 million wireless subscribers and over 60 million households with Internet access.

According to Diercks, "These numbers indicate demand for wireless Internet should be significant, however, there are only slightly more than 600,000
consumer wireless data users in the United States today, representing just one-half of one percent of all U.S. wireless subscribers."

To boost that percentage, providers must promote simple-to-use applications that users find valuable in addition to offering flat rate pricing. As an aside, I feel that someone has to provide bigger screens on our cell phones to make wireless data/WAP access feasible. If the wireless data market is going to grow quickly and we're left to access the data on miniscule screens, I would suggest that now is the time to buy stock in companies that make eyeglasses and contact lenses.

In-Stat points out that the primary draws for consumers will initially come from such applications as instant messaging, location-based services, news and alerts, and banking and financial applications. Successful marketing of these services will not come from service providers alone, but through service provider/content provider partnerships.

Provided all of the necessary ingredients are in place, consumer wireless data subscribers as a percent of total U.S. wireless data subscribers will increase from only 14 percent in 2000 to a very substantial 37 percent by 2005.

The research suggests that carriers will need to focus on four key areas: Customer equipment; Applications; Services; and Market integrity. If the carriers are able to do this, In-Stat expects the market to grow to more than 36 million residential subscribers by year-end 2005, and that, dear reader, is certainly nothing to sneeze at.

[ Return To The May 2001 Table Of Contents ]


Communications Solutions EXPO: Truly Unique

Did you know that over 60 percent of Communications Solutions EXPO attendees don't attend any other events in the communications or networking field? While that may be news to some of you, for those of you that have ever attended a Communications Solutions EXPO, you know that we always strive to present our attendees with unique opportunities. And this month's event is no different! As usual, we have come up with an unmatched variety of attractions designed to educate you and help you in your job.

Wireless World
We're working with Interactive Intelligence to present you with Wireless World, an area of the show floor dedicated to showing you the latest productivity boosting remote access and m-commerce (mobile commerce) technology available in the marketplace.

Reseller Night
Another key attraction that has recently been announced and is getting a great response is Reseller Night. We are proud to announce that we've joined forces with CRN (Computer Reseller News) and VAR Business as well as Interactive Intelligence, who seem to attract swarms of resellers at most shows I attend. There will be a special seminar and reception on Thursday, May 24th. The Reseller community is invited to attend a 1-hour seminar beginning at 4:30pm followed by a cocktail/networking reception with the industry's leading vendors. It's the perfect setting for generating profitable new relationships. The seminar will focus on marketing your services, as well as an overview of the latest communications technology that should be in your arsenal.

Critical Sessions Open To All Attendees
There are many compelling reasons why right now is the perfect time for you to invest in your communications infrastructure and improve your communications services. That's why we've added two absolutely critical meetings to this year's show that we're opening up to all attendees for free. You'll find out how to select equipment that could potentially pay itself back in a matter of months. Choose the session that's targeted at your needs -- government or enterprise-focused.

  • Critical Session for Government Technology Buyers -- Friday, May 25, 8:00am.
  • Critical Enterprise-Focused Session -- Friday, May 25, 11:00 am.

Meet The Editors
We receive a constant stream of letters from readers asking questions about various aspects of the industry we cover. Since we can't possibly reply to each and every letter, we thought we'd present our readership with an opportunity to be heard, and so we decided to have our editors and TMC Labs staff spend some time in a dedicated location in the Exhibit Hall. Throughout the show, editors will be available to answer questions and discuss the latest communications technology. Just stop by the TMC Editorial booth on the show floor and say hello. We're listening.

As you can imagine, we are really excited about this year's event... With so many attractions that simply can't be seen anywhere else, we hope you come to Communications Solutions EXPO May 2325, 2001 in Washington, D.C. and take advantage of these opportunities. Please register online immediately and save the onsite registration fee of $100.

HUGE GIVEAWAYS
I almost forgot... One of the most enjoyable parts of this event is being a part of giving away fabulous prizes, and of course, this show is no exception.

Win A Million Dollars!
For the first time at any technology show I am aware of, you'll have a chance to win a million dollars. That's right, $1,000,000! This giveaway is being sponsored by our friends at Altigen. Just swing Altigen's booth (#414), enter the correct six-digit code that opens the Money Vault -- and you win! Every attendee gets one chance -- so get there early before someone else wins YOUR money!

Win A Cruise!
Also, you can enter for your chance to win a cruise to either Alaska or the Caribbean. Stick around until the end of the show on Friday and you could walk away with a great trip. The drawing will be held at 2:15 pm on Friday, May 25th. You must be present to win. 

[ Return To The May 2001 Table Of Contents ]



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