News Blog

The Wall Street Journal reported on Monday that Qwest has been talking to MCI's largest shareholders in an effort to rally support for a takeover.

Qwest, which withdrew its $9.9 billion offer last week after MCI's board accepted Verizon's $8.5 billion offer, could have enough support to overturn the board's decision, the article said. MCI accepted Verizon's offer because many large business customers threatended to cancel their services if the company was sold to Qwest, the company said last week.

An MCI shareholder vote on the Verizon offer could be held as soon as late June or early July, the WSJ said.

A company called Sandvine, which sells bandwidth management gear to Internet service providers, claims that more than 1,100 voice over Internet protocol service providers are operating worldwide as of April 5th.

The majority of these players are small "mom and pop" operators, as well as free services like Skype. The proliferation of VoIP providers goes to show the beauty of the Internet protocol. Because voice simply becomes another application running on top of IP, it's easy for new players to enter the market without actually owning the underlying infrastructure.

But just because it may be easy to become a VoIP provider, it doesn't mean these companies will all survive. As the big phone companies and cable companies start offering their own VoIP services, it will be interesting to see how many of the smaller guys will survive. One big question is whether or not phone and cable companies will begin blocking VoIP traffic from other providers on their networks. This idea has many Internet advocates up in arms, but the legality of such a move is still a bit fuzzy.

From colleague Ben Charny:

Skype has started a VoIP provider subscriber number smackdown.

The upstart, and perhaps the most recognized Internet phone operator worldwide, says it now has a million paying customers. According to Skype's logic, it is now the world's largest commercial VoIP provider.

When comparing Skype's gaudy global figures to other VoIPers, it is indeed larger than anything in the U.S., and that includes Vonage, which has 535,000 paying customers. But perhaps the upstart should look to Japan, where Yahoo Broadband has quietly amassed four million paying VoIP customers, before it begins its boasting.

And what about revenues from the sales of those subscriptions? When comparing dollar signs, AKA the bottom line, Skype is a distant second to Vonage and other major operators.

A Skype representative didn't estimate revenues generated by its million-subscriber premium feature called SkypeOut, a pre-paid calling service charging a few pennies a minute for Skype users to call from their PCs to landline or cell phones. Because SkypeOut users must shell out $13 to open up an account, at a minimum the service has $13.4 million in revenues since its launch in July. That's more than what Verizon Communications made last year from its VoIP offering. Skype has likely also out-earned AT&T and Lingo, the next on the revenue rankings, when factoring in that many of the million SkypeOut users have paid another $13 to refresh the initial minutes.

But, revenue-wise, Vonage and cable operator Cablevision and Time Warner Cable are 10 times larger, even though they only have a fifth of Skype's paying customer count, according to an analyst revenue estimate. The financial disparity is largely because Vonage and the cable operators use a "post-pay" model in which they charge $25-to-$40 fees to every customer each month. By doing so, the comapneis generate multitudes of Skype's revenue with fraction of Skype's paying customer tally.

A feature in this week's Fortune takes an interesting perspective on SBC Communications CEO Ed Whitacre's new persona as media mogul. Reporter Stephanie Mehta recalls the gloomy February day in New York when the typically hard-edged Whitacre started schmoozing with reporters and beaming for photographers before a company press conference.

"Longtime SBC watchers could scarcely believe their eyes: Was tough old Ed Whitacre actually working the room?" Mehta writes.

This could be the new public face for Whitacre, a no-nonsense Texan running what soon could be the largest phone company in the United States (assuming the company's $16 billion acquisition of AT&T goes through). Perhaps that's what Whitacre and other Bell executives will need as they step into the shark-infested waters of media and entertainment where relationships with the content community are bipolar. Just ask the cable guys.

There's a strong sentiment among many former Yahoo employees who I talked to for my 10-year anniversary feature that the company's bullish turnaround was significantly fuelled by its paid search relationship with Overture Services (now a subsidiary).

"For Google and Yahoo and everybody else, paid search just fell in their laps... it arrived like a Christmas card," said one former Yahoo who spoke under the condition of anonymity. "Search was pooh-poohed, the directory got smaller and smaller, and then (search) just exploded."

Yahoo's not alone in reaping the benefits of paid search, of course, but reactions such as these beg the question of where many Internet leaders today would be if it weren't for the paid search market.

Hindsight is irrelevant now. Google and Yahoo are reporting record earnings and display advertising is showing healthy growth. Yahoo has diversified into subscription businesses and has grown its paid user base from zero to 8.4 million in four years.

Having covered one boom-and-bust cycle in the 1990's, I often wonder how these portals will fare if the bottom falls out again. Google relies more heavily on advertising than Yahoo did during the boom years, and any decline in the paid search market will have chilling effects on its earnings. While nothing is recession-proof, hard times will prove a company's mettle.

In the telecommunications world, the AT&T-SBC and Verizon-MCI deals are the fall of the Berlin Wall. The Baby Bell phone companies and the big long distance companies have for years been bitter opponents in regulatory offices, courtrooms and in the halls of Congress. They've collectively spent tens (or maybe even hundreds) of millions of dollars on lobbying funds, legal fees, and "astroturf" citizen groups aimed at influencing regulators and legislators.

So now the two sides are one (except for Sprint, which has never had as big of a lobbying presence). What does that mean? I'd guess that it won't mean their collective political muscle is going to atrophy. Congress is looking at rewriting the 1996 Telecommunications Act this year, and the big telcos are going to be as active as ever in trying to mould it to fit their own strategic corporate visions as closely as possible.

Consumer groups have often benefited from this industry's cold war. Alliances have rarely been stable, but having two powerful groups fighting against each other has led to lower prices, and to a well-funded diversity of lobbying opinion. It will be critical in the months and years ahead for legislators and regulators to look hard at what SBC and Verizon are asking for, and make sure those policies are good for consumers as well as the new superpowers' bottom line.

A traditional tactic in political campaigns is "astroturfing," or creating a seemingly grassroots group that in fact is backed by a political or corporate entity. Big phone companies have been particularly adept at using this tactic Â? one might even say they've abused it Â? over the years, as they've fought for policies that help their bottom lines.

The phone giants' latest battle is against cities or regions creating their own Wi-Fi or fiber optic broadband networks. There are serious case-specific questions about the idea, but the phone companies are bringing all their old tools to bear against the concept as a whole, including the publishing of critical studies and think tank reports.

Yesterday came one from the New Millennium Research Council, a group which eWeek wrote is actually owned and sponsored by Issue Dynamics, a Washington lobbying firm that represents many of the country's biggest telecommunications firms. This little fact is now bounding quickly around the blogosphere.

This is a promising development. Blogs are the real grassroots. Just as bloggers were able to be instrumental in exposing some of the flaws in CBS's national guard memo story, they may be devastatingly effective in exposing and undermining astroturf political campaigns on this and other issues.

Microsoft landed another big fish today when Verizon Communications agreed to use its Internet-based TV software. Verizon rolling out a fiber-to-the-home network called Fios and, like other Baby Bells, is spending a fortune trying to become a TV provider. Last year, Microsoft struck a similar deal with SBC Communications.

Years of Microsoft's efforts to elbow its way into the living room could be paying off huge now. BellSouth is also testing Microsoft TV for its upcoming IP video service. The question remains whether there's any room for smaller guys now that a huge portion of TV real estate could be occupied by Redmond.

Persistence pays off.

The Wall Street Journal is reporting that Cisco has agreed to buy wireless LAN switching start-up Airespace. The price tag is expected to be about $450 million, according to the article. CNET News.com reported the rumor of the sale last week. News.com sources had expected the cost to be between $400 and $500 million. The acquisition, which could be Cisco's largest since it bought Linksys last year, could be announced as early as tonight after the market closes, according to News.com sources. We'll have a full story when the news is released.