USA - Travelogue USA Trip November 2007
SYNOPSIS
After my trip to China I travelled on to the USA, where I visited New York, Washington and Boston. I was involved in some interesting debates regarding developments in relation to Alcatel/Lucent, Sprint, Time Warner and Google. As well as that I had plenty of opportunities to look at some of the more strategic developments that are going on in the USA …. so plenty to talk about.
HALLOWEEN IN NEW YORK
Doing business in the USA remains one of the most exciting things one can be involved in. One never comes back empty-handed from such trips – the new ideas, marketing activities and sheer commercial energy that flow out of this country are incredible. I always need to make notes so as not to forget anything.
Interestingly, despite the feelings of fear and suspicion that are increasingly being spread via TV, newspapers and the like, I found New York to be a much friendlier city that it used to be – it’s almost as if 9/11 has opened up a soft spot in this normally tough city.
On arrival at JFK the courtesy and friendliness of the custom staff was greatly improved; police cars drive around with signs indicating their commitment to courtesy; and taxis exhibit pledges about the rights of passengers, signed by the mayor.
Looking back over a period of 25 years of travelling to the USA, I find all of this a great improvement.
As it happened I arrived on Halloween and had my first ever Halloween experience in the USA.
My favourite hotel is the funky Paramount Hotel, just off Times Square. On this occasion it was full of spider webs, carved out pumpkins, with the staff dressed in vampire and skeleton outfits – a great Halloween reception. On the street, the same scene – with many costumed New Yorkers, all having great fun. I joined the thousands of onlookers at the parade that night.
Jogging through Central Part is another great way to get a glimpse of what is behind the normally reserved behaviour of these city slickers. The people with dogs (these make up roughly half of the morning walkers) are especially interesting to watch.
To the surprise of many the US economy continues to boom, despite the financial problems and the billions spent in Iraq. For the first time in my life I found New York relatively cheap, in some ways even cheaper than Beijing.
NEW YORK VS BEIJING
Having flown in from China I couldn’t help comparing the two cities.
As a people, New Yorkers are certainly my favourite. I often find Chinese city dwellers fairly indifferent, and sometimes rather rude.
I am not claiming that this is related to cultural difference. I think it has more to do with China’s history – in particular over the last 50 years, especially the ‘cultural revolution’.
However, I distinctly remember that on my first trip to New York in the 1980s it was pretty scary to walk in Times Square in the evening, and taxi drivers and others were also very rude. There certainly was, at that time, an ‘uncaring’ atmosphere in that city also.
I am sure that with the current exposure of China to the rest of the world, and as the period of the Cultural Revolution fades away, the people of Beijing will also change. I believe no other generation of people has experienced such rapid and profound change as the Chinese have, and this, of course, does take its toll.
Coming from Beijing, New York now seems old and a little tired. In 1980 I thought New York looked modern and the European cities looked aged. This time I had the same feeling about modern Beijing compared with an ageing New York.
Of course, it’s all about perspective.
In Beijing the infrastructure (cities, airports, airplanes, railroads, highways, telecoms, and so on) is mostly new and built with a 25- to 50-year vision. There is, for example, plenty of space around their skyscrapers. Such planning never happened in New York, and also a great deal of the housing and infrastructure maintenance there has been very minimal over the last 30 years, which makes the city look rather shabby in comparison with the newer Chinese cities.
As I mentioned in my China Travelogue (Travelogue China – November 2007), China’s long-term vision and infrastructure planning could easily set them apart from the short-term approach of the western economies.
However, a major negative in Beijing is its awful pollution. It is constant and all-pervasive. I have never ever experienced anything like that in New York.
In my China Travelogue I complained about the airplane delays in Beijing. I think JFK in New York beats them all – the delays there are so bad that they are now considering limiting the number of flights.
AMERICAN DENIAL
Of course, in my meetings in the USA I mentioned my recent trip to China and the impressions I brought with me. The people I spoke to were interested in my reports of the progress in China, but some of them also mentioned that this is an uncomfortable topic in the USA.
Many Americans find it very hard to believe that their country may not be the best in the world. They believe that it would be impossible for another country to outperform the USA. They also believe that it would be impossible for any other country, in particular China, to seriously compete with the USA.
It will be interesting to see whether, as some people over there predicted, America can pull off another economic miracle and remain the global leader. I am not saying that this is impossible, but I believe the chances are slim. The country would certainly need to look very seriously at its ageing infrastructure.
WASHINGTON IN FALL
Travelling from the hustle and bustle of New York to a comparatively sedate Washington was like taking a breath of fresh air. I spent a glorious weekend there with my friend and colleague, Gary Arlen. He has lived in Washington for 30 years and is a proud citizen of that great city.
Its monuments are reminders of how this impressive country was formed, and some of the words of its founding fathers are at odds with what is currently happening there. Franklin Roosevelt spoke about precious nature, and how we need to protect it. And, of course, he was also responsible for the famous saying: ….the only thing we have to fear is fear itself.
Given the current state of affairs in the world, Abraham Lincoln’s Gettysburg Address is also worth reading again.
It was sad to see many places completely blocked off from the public and the enormous presence of police, as well as what I thought to be the over-the-top security measures at the airport. In that respect the terrorist has certainly won. And, although largely suppressed, the many injured and maimed people now returning from Iraq are also beginning to have an impact on the America psyche.
We survived the many attacks of the Palestinian terrorists, the Baider Mainhoff Group, the Roten Armee and the Italian neo fascist group Nuclei Armati Rivoluzionari, between 1968 and 1980 without the draconian laws that are now spreading doom, gloom and fear. I miss the American spirit that was embodied in the many heroic Washington monuments – I believe those American heroes deserve better from us.
Passing by all those national and international institutions I also realised the influence that events in Washington have on all of us around the world.
THE BOSTON PATRIOTS
It was fortunate that on the night I arrived in Boston the local NFL team won their very important mid-season game against the Indianapolis Colts. Before the game both teams were unbeaten. The win made everyone in Boston very happy and created the right environment for my business meetings there
And the glorious weather presented Massachusetts in the most spectacular autumn colours, a real feast for the eyes.
However when I left a few days later Canadian snow had started to reach the city, so it was a good time to move on!
TELECOMMUNICATIONS NEWS AND UPDATES
TELECOMS NOT UNSCATHED
The fallout of 9/11 has also affected the telecoms industry and there is currently a debate raging about the pros and cons of the telcos siding with the government to the extent of allowing them to tap their phone lines.
Under the American Constitution telephone companies are not allowed to do this, and civil libertarian groups are preparing a court case against AT&T and Verizon.
On the other hand, an editorial in the New York Times indicated that these telcos deserve a medal for their cooperation with the government.
It will be interesting to see who (if anyone) will be blamed for this breach of the Constitution – the telcos or the government.
THE WEB BOOM
As mentioned above, the US economy is growing at a healthy pace. The same applies to the ICT industry. Silicon Valley is booming as well, but this has been setting off some alarm bells, as everybody still remembers the dot.com boom/bust, which was very much driven by Silicon Valley. However financial analysts all agree that it is unlikely that the current boom will end in another spectacular bust.
The current scale of the growth is far more sustainable and doesn’t necessitate the massive amount of venture capital that the dot.comers needed (and were cheerfully given). It is estimated that the current boom requires less than $30 billion of investments this year, while at the peak in 2000 dot.comers consumed $95 billion in one year.
The big money is changing hands between the new startups (Facebook, YouTube, MySpace, Skype, etc) and companies such as Google, Yahoo, News Corp, Microsoft, etc; making the present boom less vulnerable to the smaller punters. Nevertheless, if anything were to go wrong with one of these players – Google in particular – it would have enormous consequences for the whole industry and would totally destroy the positive sentiment that has been returning to the investment market.
However, under the radar of these headline-grabbing developments there are literally thousands of companies entering the Internet economy market with many local services in different countries – as well as players aiming for the numerous niche markets that are now opening up through better broadband infrastructure. This certainly makes the current developments far more sustainable in the long term.
COMPANY ANALYSES
While travelling through the USA I wrote several analyses around the various developments.
The problems Sprint is having with WiMAX. See Sprint’s flawed business plan for WiMAX.
The losses of Alcatel/Lucent. See Global - Analysis - The Industry Moving into 2008
The new Google mobile phone initiative. See Global - Digital Media - Internet Media Companies
Structural separation at Times Warner. See Will Time Warner lead the charge towards structural separation?
Mobile operators will face open competition. See Global - Mobile - Equipment - Mobile Handsets
See also:
USA – Mobile Market – Analysis, Statistics & Forecasts
USA – Mobile Market – Major Operators
USA – Broadband Market – Wireless Broadband
BROADBAND STILL LAGGING BEHIND
President Bush’s promise from 2004 to get broadband in every corner of the country by 2007 is not eventuating. With broadband penetration at 22%, the US has fallen to 15th place on the OECD scorecard, down from 12th place last year. It has fared no better in terms of broadband speeds, with its average maximum download speed of 8Mb/s falling well short of the nearly 100Mb/s achieved by Japan. Similarly, average US broadband pricing is nothing to boast about.
Embarrassed by the relatively slow development of broadband in the USA, federal subsidies have now been made available to State Governments to ensure that affordable broadband will be made available. The FCC has been ordered to map the country so that it becomes clear where the gaps are. The telcos and cable companies have been very reluctant to assist the FCC in this process and regulations are now in place to obtain the necessary data.
With the new subsidies, Kentucky has been the most successful so far with 95% of the state now connected to broadband. Over the last year penetration there has increased from 20% to 44%. The state works together with others under the national not-for-profit organisation ‘Connected Nation’, with West Virginia and Tennessee also active participants in the programme. So successful has been the Kentucky initiative that presidential-hopeful Senator Hillary Clinton has modelled her broadband policy, Connect America, on it.
Consumer organisations have also urged the FCC to use the $7 billion Universal Services Fund to improve broadband throughout the country; so far the regulator has been reluctant to use the fund for such purposes. During my discussions in the USA I heard from several people that they believed that the FCC has become increasingly politicised, with its Republican chairman being more interested in his political career rather than in ensuring nation-wide broadband of a good quality and an affordable price. The USA clearly has a long road ahead to improve its broadband record.
See also: USA – Broadband Market – Cable modem & DSL – Analysis, Statistics & Forecasts.
FCC REPRIMANDS CABLE OPERATORS
My greatest concern regarding telecoms reforms in the USA is that the market is dominated by a handful of monopolies and, while it is true that there is good competition between them, I don’t see this structure as a sustainable model for the future.
Also the USA will need to address the issue of open networks and the structural separation between infrastructure and services. In my Time Warner analysis (see Will Time Warner lead the charge towards structural separation?) I indicated that the cable companies will eventually retreat from the infrastructure market as it makes sense for them to start using the two telcos’ FttH networks for delivery of their content. This will give these two monopolists far too much power and will undermine the US Internet economy.
In order to be seen to be doing something in relation to competition the FCC ordered the cable companies to end their exclusivity deals with apartment buildings and condominiums. While this does give Verizon and AT&T some new opportunities it is, however, not expected to have an enormous impact in the broadband market.
MOBILE
GOOGLE THROWING A LIFELINE TO MOBILE CONTENT
One could never say that there is insufficient interest in mobile content. For the last ten years thousands (yes indeed, thousands!) of small and large companies have tried to crack this nut. However, in 99% of all cases it was the mobile operators’ vertically-integrated business model that prevented these companies from even reaching a trial stage.
However, with the new initiatives from Apple and Google (see Global - Digital Media - Internet Media Companies) we see a renewed interest in this market. CBS Mobile is looking at exploring new avenues to develop services for the small screen, and companies such as Disney and NBC are also looking again at the market.
It will be interesting to see if the mobile industry can deliver. One of my arguments has been that the mobile technologies are not well-suited for mass market mobile data applications. The upcoming wireless broadband spectrum auction will shed some light on that.
While I am convinced that Google doesn’t want to become a telco, it will do everything in its power to force open this market. Without open broadband networks the future for Google will be very bleak indeed. So, in the absence of any serious attempt from the telcos to move towards open networks, Google will put its money where its mouth is, bid in the 700Mhz spectrum auction and get a wireless broadband network in operation, if that is what is needed to open the market up.
At that stage we will also see whether the mobile operators can compete in the emerging personal wireless broadband market.
MOBILE INCENTIVE
There is currently a proposal before the Education Department in New York that could see high-performing students receiving free mobile calling minutes as a reward for their efforts. This certainly is a controversial issue, as the official policy is to ban mobile phones from schools. If the award system is adopted the mobile minutes can’t be taken up during school hours.
The New York education system has recently seen other controversial proposals, such as the handing out of cash bonuses to high-achieving students and their teachers.
This is a reflection of the need to put more and better educated students through the system. Again comparing this to China, year after year more than a million new graduates in engineering alone are delivered to the marketplace in that country. I am not saying that the New York initiatives are fuelled by this – education should be one of the top priorities in every country in the developed world.
DIGITAL MEDIA
WILL STRIKE FORCE USERS TO THE NET?
One of the hottest media topics in the country was the ongoing Mexican standoff between the Hollywood producers and the writers. This latter group wants a better deal on their rights regarding scripts used for the digital media. While the business models for these productions are unclear, the writers don’t want to fall into the same trap as they did a few decades ago. At that time they unwittingly signed long-term contracts for the use of their intellectual products for video, which included a ‘dud’ deal for the use of their materials on DVDs.
This clearly shows that digital media have reached a critical point in the USA.
The writers were indirectly supported when Google’s share price crashed through the $700 mark during that week, making it one of the highest valued companies on earth. All the signs indicate that these media will be the future and the writers, in my opinion, have a good case to argue.
The first shows that went off the air were the late night comedy programs, and this resulted in some interesting questions about whether these ‘comedians’ can do their own jokes without their scriptwriters.
If the strike continues for a long time it will also be interesting to see what this will do for broadcasting in general. Will this further establish the Internet as a serious alternative media outlet? The strike might trigger people to look for alternative entertainment on the Net.
WEB CAMPAIGNS
As I expected, convergence is well and truly accepted in the USA. I have mentioned the triple play offerings from the telcos and the cable companies, but interesting partnerships are working in this converging marketplace also.
As an example (there are too many to cover all of them) Turner Classic Movies is presenting the movie choice of 30 celebrities. Hearst magazines will ask its readers to program their own film festival, utilising these movies and the services of DVD distributor Netflix and Philips Electronics North America.
Users will be directed to six web sites, each of which will list ten movies. On these sites Netflix will provide trailers. They can be watched on embedded players which will demonstrate the look of Amblight Philips TV sets (these sets cast a glow on the wall around the screen enhancing the colour experience).
A range of interactive services and competitions are provided by Netflix and users can get a Philips set, free on a two-week trial.
The web campaign has a two million dollar promotion campaign attached to it.
CONTENT FINGERPRINTS
A new company called Attributor has developed software that can identify ‘fingerprinted’ material on the web. Publishers can put these fingerprints in their content and the software program allows them to check if significant parts of their content appear, legally or illegally, elsewhere on the Net.
The software program can also run continuously and alert the publisher to possible breaches of the copyright laws.
SLINGBOX
The Slingbox is also getting a lot of attention in the States. Forget about the PVR, the Slingbox (retailing at $180 around Times Square) allows you to transmit whatever is on your TV at home to a laptop or mobile/wireless device. This enables the user to move to another room and, for example, use the laptop to continue to watch the TV.
Travellers at hotels can still watch their TV programs, no matter where they are. There are no international barriers, so if I had had Slingbox while I was in the States I could have watched the Australian ABC news in my hotel in New York.
ONLINE PRIVACY
Chat rooms are now becoming so sophisticated that advertisements can be inserted instantaneously, based on a conversation that is taking place. If, for example, you are chatting with a person about a recent trip it might insert travel advertisements; if you discuss your health, it comes up with medical ads, and so on. The FCC has now indicated that it wants to investigate this practice of ‘customer tracking’ as it is becoming an intrusion into people’s private lives. The FCC wants to know how much control people need or want. It also wants to ensure a customer permission regime.
While these tracking services are currently still anonymous, Internet technology already exists to profile individuals, including private details, and it will only be a matter of time before serious commercial misuse is reported. Some of the leading Internet companies are already warning their customers and offering them opt-outs from these tracking services.
INNOVATIVE NEW VIDEO CONTENT
In many cities, railway systems and public venues such as hotels, convention centres and shopping centres in China (I saw this last year in Japan also) you see plasma screens linked to interactive telecoms networks. These closed circuit networks can provide essential information, security information, traffic and travel information and so on.
Of course, in between there is plenty of room for advertising and over the last few years the ads have already become far more entertaining. However, China has gone that one step futher. In the subway system in Shanghai (and soon also in Beijing) the webisodes or mobisodes (short sequences of soap opera content) are transmitted over these internal networks over periods of up to 40 weeks. It will be interesting to see the
Chinese people’s reaction to this. The ‘suboperas’ as they are called in Shanghai are sponsored by Starbucks and Pepsi.
I picked up the above information in China, but when I was in New York I came across another interesting new content development.
An indie (as in non-mainstream) filmmaker is producing web-based sitcoms. These are quite different from the webisodes mentioned above. To date three multi-act episodes of around 30 minutes each have been developed and so far these shows have been watched one million times on YouTube and Blip.TV (search for Groommates). Production cost per episode is around $400!
A very interesting development here is that content and service providers are building up a customer base around their particular website, theme, interest, etc and, as such, they create a ‘fan club’. With that in place interesting business models can be developed, either through e-payments, subscriptions and/or advertising.
WHAT’S ON THE WEB TONIGHT?
Increasingly the TV stations are putting their stamp on the new digital media. They have seen companies such as YouTube, Joost and others encroaching on their territory but now they are striking back with their own web services.
Hundreds of TV programs are now available from their websites:
• ABC.com
• CBS.com
• CWTC.com
• NBC.com
• Fox.com
Already we are seeing some interesting developments in this area, as they are beginning to offer these services through their TV set-top boxes, and that does not require the use of a PC. The current web-based developments are all PC-based and, as a general rule, that is not where people want to watch TV.
Very similar to the TiVO phenomenon (the Digital or Personal Video Recorder), the media companies will bypass these development and leave them behind, as they have a far larger market power to incorporate new developments within their own environment. NBC has developed an interesting service, Hulu, which comes with a widescreen video player and allows for media sharing without the copyright hassles that a service like YouTube brings with it.
