October 3, 2005

More Up-to-date Info on Broadband Use (and an Explanation of Why We Lag)

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 8:12 pm

This previous post indicated that it wasn’t clear whether broadband use in the US is peaking.

I’d say this report puts that debate to rest–growth is strong and sustained, and that is good news:

Growth of broadband is good news to many

Publishers, advertisers and retailers should be pleased to know that since January, more than 17 million Americans have signed up for broadband Internet access, bringing the total number of subscribers to 120.8 million, analysts said.
Nielsen/NetRatings issued a report this week indicating that broadband users make up 42 percent of the population, up from 36 percent in January. Since August 2004 the number of broadband subscribers has increased by 34 percent, while dialup use fell by 10 percent.
“There’s not anyone that doesn’t benefit from this,” said Charles Buchwalter, vice president of analytics at Nielsen/NetRatings.
Buchwalter said online publishers appreciate the growth of broadband use because it allows them to appeal to a more engaged audience.
“(W)hen there’s more engaged users, more advertisers want to be in front of them,” Buchwalter explained. “You can add more bells and whistles to appeal to users on broadband than people with more limited connections.” Most DSL service ranges from 8 to 20 mpbs, while cable Internet can reach speeds up to 30 mbps. Standard dialup services operate at 56 kbps.
Buchwalter said broadband users spend more time — and money — on the Internet. Forrester Research, a technology research company, said in a July report that broadband users spend 31 percent more time online than dialup users.

But there is reason for caution:

“The battle is far from over in terms of how broadband is going to unfold over the next decade,” Buchwald said.
But until then, Internet service providers will have to think of creative ways to persuade the 54 million Americans connecting via dialup to switch to the faster — and costlier — broadband services. Though the price of broadband continued to fall, cost still remains a factor preventing more Americans from connecting at high speeds. Forrester found that the mean household income of U.S. broadband users is $75,926, vs. $58,668 for dialup households. DSL service usually starts at $30 per month, and high-speed cable starts at $45 per month. Dialup costs about $10 per month.
Henson said Verizon just introduced a $14.95 per month DSL plan. At 768 kbps, it’s slower than standard DSL service, but it is also half price. SBC/Yahoo! offers a similar service, charging users $14.95 to connect at speeds up to 1.5 mbps.

I’m guessing that as more content becomes Flash- and video-based, the low-end DSL users (who according to the previous post weren’t considered full-fledged DSL users) will be demanding faster speed shortly, and that the telcos will have to come through for them without raising rates much. When that happens, the cable companies will either have to make their service even faster, or come down in price to compete.

Finally, none of this changes the fact that we are lagging other countries, especially Korea and Japan.
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UPDATE: Regarding the US lag in broadband adoption, I just caught up with my online Wall Street Journal reading and came across this October 1 piece (requires subscription) by an experienced telecom executive and entrepreneur, who has a sobering analysis of what has happened so far and hopes that clearing the regulatory underbrush will enable us to catch up to the rest of the world:

What’s a Polite Word For ‘Shakedown’?

That depressing question reverberates among everyone contemplating the future of telecommunications in the United States, where the level of broadband penetration has now dropped to 13th place in the world.

As someone who has spent the past 25 years building and bundling cable, data and phone systems, the barriers to broadband are frustrating. Critics sometimes suggest that our broadband problems are a result of a lack of imagination or innovation in the industry. But to anyone who has actually tried to build a competitive system, it is painfully obvious that local regulators have become the bottleneck in the system.

These regulators have emerged as neighborhood tyrants, protecting existing local and regional monopolies and effectively holding competitive broadband hostage. By creating unreasonable demands on any new entrant to the market, local regulators have slowed the advancement of broadband at the very moment when the telecom industry might finally be ready to enter the next age of innovation.

….. before long, building a new telecom system meant navigating through a maze of hundreds of local councils, each with its own list of demands. Little wonder that today the vast majority of American homes do not have an alternative broadband provider.

We have a second chance to get broadband right. The former Bell companies like Verizon and SBC, admittedly late to the game, are now eager to invest billions of dollars to create high-speed networks that deliver bundled voice, data, and video service. Even the FCC has agreed that customers should enjoy what they call “net neutrality” — the right to choose among competing network, content, and service providers. But the only logical way new competitors will enter these markets is if local authorities are restricted to focusing on the condition of their streets, not negotiating contracts with service providers.

This month Texas passed a law allowing broadband competitors to by-pass local regulators when introducing new service to local markets. This event has become a catalyst for renewed federal involvement. A bill has already been introduced in Congress by Sen. John Ensign that would free broadband providers from having to win special permission from local authorities.

Local regulators will undoubtedly fight it. But it is time residential customers were told that “linkage” doesn’t bring better telecom service.

Indeed, according to GAO statistics, the absence of cable competition in U.S. markets has raised monthly rates, which average more than $40 a month, by 15%-41%. Even using the low end of the GAO estimate, a community with 500,000 households would stand to save its residents $36 million a year — far more valuable than the concessions the municipalities demand in the name of the public interest.

There is much more at stake here than cable rates. Today the Internet is still very much like electricity a decade after Edison invented the light bulb. The huge tide of applications has not even begun to appear. But as Asia and parts of northern Europe have started to discover, there is much more to broadband than sending email, sharing digital photos, and downloading music.

The next generation of Internet entrepreneurs will discover how broadband will play a pivotal role in health care, education, energy, and personal security. Ideally, consumers should exploit all these opportunities through a national policy of “net neutrality,” giving them whatever applications and information they want from the Internet without the interference of regulators or industry bandwidth gatekeepers.

This is a rich opportunity for consumers and business visionaries. But as long as the United States is still battling municipalities about how to permit a broadband competitor from entering the local market, those opportunities will be pursued elsewhere.

Quote of the Day: John Bogle on the Mutual Fund Industry

Filed under: Consumer Outrage,Economy,Quotes, Etc. of the Day — Tom @ 3:52 pm

Well, it’s more of a rant than a quote–The Former Vanguard Chairman, who is never at a loss for words, rips the mutual fund industry:

The problems created by this new and conflicted world of financial intermediation are hardly trivial. Excessive return projections for pension plans have played a major role in creating the current shortfall of $600 billion in private pension plan liabilities relative to plan assets. The shortfall in public plans has been estimated at $1.2 trillion, bringing the total deficit to $1.8 trillion, and rising. Individual retirement savings are also at dangerously low levels. Only 22% of workers participate in 401(k) savings plans and only 10% in IRAs (9% have both). Despite having had a quarter-century-plus to build assets in these tax-sheltered plans, investors have accumulated balances of but $33,600 and $26,900 per participant respectively, a trivial fraction of what would be required for a decent retirement.

With today’s agency society arrogating to itself far too large a share of market returns, the outlook for future individual retirement savings is dire. A citizen entering the work force today has an investment horizon of at least 60 years. If the stock market were to earn an average nominal return of 8% per year, $1,000 invested today would then be worth $101,000 — the magic of compounding returns. But if our financial system consumes 2.5 percentage points annually of that total return — a conservative estimate of today’s reality — that $1,000, growing now at 5.5% net, would be worth just $25,000, a minuscule 25% of the accumulation that could have been obtained simply by owning the stock market itself. The magic of compounding returns, it turns out, is simply overwhelmed by the tyranny of compounding costs at today’s exorbitant levels.

The serious shortfalls in retirement reserves that represent the backbone of the nation’s savings have arisen importantly because our manager-agents have placed their own interests ahead of the interests of the investor-principals they are duty-bound to serve. Our financial institutions have failed to exercise the rights and responsibilities of corporate citizenship; to adequately fund pension reserves; and to deliver to fund shareholders their fair share of the returns generated by the financial markets themselves.

He could have shortened his message to five words: Buy and hold index funds.

A full explanation and discussion of the historical advantages of index funds is here.
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October 2 Outside the Beltway Jammer.

Bizzy’s Business Briefs (100305)

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 1:24 pm

Wall Street Journal Rips Washington GOP Establishment

No one is left standing, no further comment necessary:

Here are the depressing facts. Domestic discretionary nondefense spending is up 70% since 1994. Spending growth slowed in 1995 and 1996 as the Republican-controlled House pushed for a balanced budget. But spending began to rise rapidly again in the later 1990s, as Republicans and Bill Clinton “compromised” by spending more on both of their priorities. And the gusher has continued under President Bush, as Republicans have failed to trim domestic pork to pay for the necessary increases in defense.

Except for the 2003 tax cuts, we can’t think of a single recent major policy accomplishment. There have been smaller victories—trade bills, some modest tort reform, and now some judges approved. But the drive for major reform has stalled. Mr. Bush was a co-conspirator in passing the 2003 Medicare drug bill that is the largest expansion of the entitlement state since LBJ’s Great Society. But even when Mr. Bush has pressed for reform, as he did this year on Social Security, Republicans on Capitol Hill have whined and resisted. If Mr. Bush failed to mobilize the country, it was in part because Congressional Republicans were so vocal in their caterwauling.

Heritage on Another Kelo

So much for helping the poor (bold is mine):

In Kelo v. City of New London, the U.S. Supreme Court confirmed that a municipality may use the power of eminent domain to transfer land between private owners to increase the tax base.

Critics complained that the Court’s rule in this case would put every home and property in America at risk. In effect, they argued, the Court had granted local government’s a carte blanche to seize any home or structure and replace it with one that might generate more revenue. Supporters of the decision replied that the threat to private property–particularly property belonging to low-income families–was overblown .

Guess who was right? The Washington Times reports: “Florida’s Riviera Beach is a poor, predominantly black, coastal community that intends to revitalize its economy by using eminent domain, if necessary, to displace about 6,000 local residents and build a billion-dollar waterfront yachting and housing complex….

Factories on Fire (figuratively)

There’s a whole lot of production goin’ on:

NEW YORK — Factories ran at their strongest pace for over a year in September, registering large increases in new orders despite a sharp rise in the price of raw materials, according to a survey published on Monday.

The Institute for Supply Management said its index of national factory activity rose to 59.4 in September from 53.6 in August, far outstripping economist’s median forecast for a drop to 52.0.

Hurricanes Katrina and Rita boosted manufacturing activity throughout the month as reconstruction of the areas damaged by the two storms that battered the Gulf Coast in late August and late September got underway, analysts said.

The article goes on to cite fears of inflation as a result of the ramp-up. I’m not convinced that it’s anything more than a 6-8 week blip, and that production levels will settle back shortly. Anyway, I suspect the car companies aren’t sharing in the temporary good times.

UPDATE: Larry Kudlow thinks/hopes that the rate-hiking by the Fed is nearly done. You may recall that Don Luskin disagrees, and thinks that Greenspan should, and will, raise rates three more times before he retires. I’m with Kudlow.

UPDATE 2: The “domestic” car companies are NOT in on the fun. GM and Ford sales were both way down in September (24% and 20%, respectively), even though they were essentially selling cars at near-zero-profit employee pricing (ouch). Daimler Chrysler was up 4%, and the big Japanese companies’ US sales were up by even more (Toyota 10%, Nissan 16%, Honda 12%–double ouch).

Digital Music Sales Growing Briskly

Digital is still small, but is now over 5% of all music sales–pretty impressive, since it has only existed in a consumer-friendly form for about 2 years:

Digital Music Sales Nearly Triple Over Year

LONDON — The market for music downloads and other digital forms of music has tripled in a year, helping offset a continuing decline in sales of CDs and other physicial formats, an industry report said Monday.

The International Federation of the Phonographic Industry (search) estimated that digital music sales totaled $790 million in the first half of this year, equivalent to 6 percent of industry sales, compared to $220 million in the same period a year earlier.

Recorded music sales fell 1.9 percent to a retail value of $13.2 billion in the first half of 2005, compared to $13.4 billion in the same period of 2004.

IFPI said the digital boom, which now exceeds the value of the global singles market, was largely driven by sales in the top five markets — the United States, Britain, Japan, Germany and France.

Sales of physical formats fell 6.3 percent by value in the period to US$12.4 billion, the report said.

As noted previously, with digital clearly being the future, recording industry executives would be foolish to choke it off by demanding price hikes.

Very Cool: A Computer-Free Wireless Camera

Filed under: Marvels — Tom @ 9:44 am

Kodak gets there first:

Kodak Ships Computer-Free Wireless Camera

ROCHESTER, N.Y. (AP) – After a summer-long delay, Eastman Kodak Co. (EK) has begun shipping the first digital camera with Wi-Fi wireless technology to e-mail photos directly to friends and family without a computer.

Users of the new EasyShare-One, priced at $599, can send photos directly through a Wi-Fi transmitter at home or work, or pay $4.99 per month to connect the camera with any of T-Mobile USA’s 6,000 hot spots at stores, airports, hotels and other establishments.

However, subscribers to other Wi-Fi services will not be able to connect an EasyShare-One to those wireless accounts.

The EasyShare-One’s liquid-crystal screen contains an easy-to-use instruction menu: Shutterbugs can either e-mail pictures and video clips or post them on Kodak’s online photography site.

Though the photos are actually routed through the Kodak site, users can set up their accounts so that the messages appear to arrive from a personal e-mail address.

Camera-equipped cell phones already offer photo-sharing capabilities but typically produce low-resolution images. The new Kodak camera boasts 4 megapixels of resolution, 3x optical zoom, storage room for up to 1,500 photos and a 3-inch touch screen – big enough for the camera to double as a portable album.

….. Japan’s Nikon Corp. looked like it might steal Kodak’s thunder by shipping its own Wi-Fi camera to stores last month. But while the Nikon P1 can wirelessly transfer pictures to a computer, the Kodak model remains unique in its potential to bypass the hassle of downloading.

Positivity: “Buffalo Bill” Detects IEDs

Filed under: Positivity — Tom @ 6:05 am

Keeping bombs (“Improvised Explosive Devices” or IEDs) from going off IS good news, right?

From the Army Times:

(more…)

The Whining About “Control” of the Internet Continues (Plus the “Gobbled Up” Internet Addresses Canard)

Filed under: Economy,Taxes & Government — Tom @ 12:02 am

Following on the heels of this previous post on the UN wanting to take over management of the Internet, a call rightly rejected by the US, there have been additional news items on the topic.

First, the UN says it’s ready to rule:

GENEVA (Reuters) – The United Nations’ International Telecommunications Union (ITU) is ready to take over governance of the Internet from the United States., ITU head Yoshio Utsumi said on Friday.

The United States has clashed with the European Union and much of the rest of the world over the future of the Internet. It currently manages the global information system through a partnership with California-based company ICANN.

“We could do it if we were asked to,” Utsumi told a news conference. The U.N. agency’s experience in communications, its structure and its cooperation with private and public bodies made it best-placed to take on the role, he said.

Washington has made clear it would oppose any such move despite widespread demands for changes in the current system.

And of course, in this AP piece by Aoife White, the EU chimes in: “EU Wants Shared Control of Internet” (HT Little Green Footballs-LGF):

The European Union insisted Friday that governments and the private sector must share the responsibility of overseeing the Internet, setting the stage for a showdown with the United States on the future of Internet governance.

A senior U.S. official reiterated Thursday that the country wants to remain the Internet’s ultimate authority, rejecting calls in a United Nations meeting in Geneva for a U.N. body to take over.

EU spokesman Martin Selmayr said a new cooperation model was important “because the Internet is a global resource.”

“The EU … is very firm on this position,” he added.

The Geneva talks were the last preparatory meeting before November’s World Summit on the Information Society in Tunisia.

….. Some countries have been frustrated that the United States and European countries that got on the Internet first gobbled up most of the available addresses required for computers to connect, leaving developing nations with a limited supply to share.

The piece repeats almost verbatim a claim made in another AP article by Bradley Klapper yesterday:

While this arrangement satisfies some, developing countries have been frustrated that Western countries that got on the Internet first gobbled up most of the available addresses required for computers to connect, leaving developing nations to share a limited supply.

I guess both White and Klapper are good at retyping press releases. They’re not as good at relaying accurate information to their readers.

The “gobbling up addresses” claim simply isn’t true (HT to LGF reader “Hunter”–I’m sorry I didn’t get your first name before I deleted the e-mail):

Looking at how take up of address space has progressed until now, experts are divided on when addresses will run out. Estimates of this time fall between 2019 and 2040.

This means that we do not have ‘forever’. Plans are in place to find a new way of allocating addresses well ahead of the pool running out.

In other words, “Don’t worry; be happy; they’re working on it.”

These two comments from LGF readers are also pertinent:

From RedhouseBluestate:

Most of the world’s address space is already claimed. But by using tools like NAT* and PAT** you can hide an entire network of computers behind a single IP address, and they can use IP addresses already assigned to other people.

*NAT – Network Address Translation. Used extensively. Even though, for example, AT&T owns 63.x.x.x, I can have a router or a firewall change every 63.x.x.x address I’m running on my private network, to look like another address once it leaves my network and heads to the internet.

**PAT – Port Address Translation. By employing this nifty little tool, I can have tens of thousands of servers sitting behind a router or a firewall, and all traffic exiting my device will appear as one or two addresses.

Anyone who’s using a nifty little LinkSys router to plug multiple home computers into, say Road Runner or Cable/DSL, is already using these tools.

From bianchi_roadie:

(The Internet) actually isn’t “controlled” by anyone. Just a set of agreements between networks, which are controlled by companies, universities, and governments.

The only thing the Dept of Commerce “controls” about the Internet is that they back ICANN and IANA, which regulate the root zone of DNS. The US gov’t doesn’t even control much of the RIR’s (which maintain the IP address allocations around the world – 1 in North America, 1 in Asia, 1 in Europe, and 2 new ones in Africa and Latin America).

Really, the US DoC only approves changes to the root DNS file. The rest is left up to ISP’s, business regulations and standards bodies. My fear is that the UN would seek to impose tighter controls than the USG (United States Government) ever would – “hate speech” crimes for online postings for example.

This is exactly what to fear from any UN or EU role in Internet governance. Their instincts, especially the UN’s, are demonstrably anti-democratic. The Internet has thrived under US governance, and there’s no reason to change things now.
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UPDATE: Willisms’ Hoodlumman: “Sorry, those guys couldn’t manage a Jiffy Lube.”

UPDATE 2: RConversation has a typically newsworthy and thoughtful post on the Internet, human rights, and the November World Summit on the Information Society that will take place in Tunis. First two paras:

Internet governance fight: will the real loser be human rights?

Much is being reported on the clash between the U.S. and most other world governments over who should control the internet… and the failure of diplomats at last week’s Geneva meeting to agree on a document outlining the future of internet governance, which is (or was) supposed to get announced at the World Summit on the Information Society (WSIS) in Tunis in mid-November.

Many of the governments who want to assert more control over the way the internet works are not friends of human rights and free speech. Like China, Iran, and the summit’s host country, Tunisia. Human rights groups are, shall we say, concerned about what this will mean for the future of free speech and human rights activism on the internet. A case in point: China has moved to block the exiled Chinese dissident organization, Human Rights in China, from participating as a non-governmental organization at WSIS.

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Previous Posts:
- July 5–US Retains Control of Internet Directory: AP Has Hissy Fit
- September 29–Internet Control Stays in the US (I should think so)