All Things Digital

Vonage’s slow death is … well, it’s slowing.The financially struggling Internet-phone company reported today a smaller first-quarter loss thanks largely to prudent cost cuts.

Great news for Vonage (VG), which has been tormented by a barrage of costly legal battles and set upon by new and powerful rivals. The company’s net loss shrank to $8.96 million, or 6 cents a share, from a loss of $72.3 million, or 47 cents, in the year-earlier quarter.

Sadly for Vonage, the company’s Q1 loss isn’t the only thing that shrank. Subscriber growth did as well. The company signed up just 30,000 new subscribers in the quarter, a big decline from a year earlier when it added nearly 166,000 subscribers. Worse, turnover rate increased to 3.3% from 3% in the fourth quarter.

Still, Vonage is a bit healthier than it’s been for some time now. So while it may not exactly be on the road to recovery, it’s at least crawling in its general direction. To that end, the company’s inked a deal to resell Covad’s DSL service under the Vonage Broadband name. An interesting idea, in that it will allow Vonage to bundle a broadband offering with its Internet telephony services like most other phone and cable companies on the planet. But DSL? Really? At a time when Verizon (VZ) is expanding its FiOS fiber-optic service and Comcast (CMCSA) is boosting the speed of its high-tier cable broadband?

Those on-again, off-again talks between Sprint (S) and Clearwire (CLWR)? They’re on again. In fact, they’re so on that they’re already over. This morning the two companies announced a $14.5 billion multi-player joint venture backed by cable operators Comcast and Time Warner as well as Intel and Google.

The alliance will see the four cable and tech companies investing $3.2 billion in the nationwide wireless network that Sprint and Clearwire have been struggling–with profound unsuccess–to roll out. Comcast (CMCSA) will contribute $1.05 billion, Time Warner Cable (TWX) $500 million. Intel (INTC) will invest $1 billion, Google (GOOG) about $500 million. The new venture will be majority owned by Sprint, but it will take the Clearwire name and be run largely by Clearwire execs, among them cellular industry pioneer Craig McCaw.

For the cablecos, which have yet to settle on a clear wireless strategy, the deal is a quick and dirty way to establish the high-speed wireless network they need to compete with telcos like AT&T (T) and Verizon (VZ). For Sprint and Clearwire, it’s a chance to make their non-starter of a WiMax network viable and something happy to talk about when conversation turns to Sprint’s stock price, which has fallen nearly 60% over the past 12 months.

That said, the deal is not without its problems–top among them WiMax itself. As Craig Moffett, an analyst with Bernstein Research, explained in a note to clients earlier this year, the 2.5 GHz spectrum upon which Sprint and Clearwire are building their network isn’t nearly as good as the spectrum Verizon and AT&T just purchased in the FCC’s 700 MHz auction. “Serious questions remain about penetration through walls and windows,” Moffett explained. “Elsewhere in the world, operators have also raised questions about WiMax’s real-world bandwidth, latency and non-line-of-site coverage. How competitive the offering would be versus Verizon’s or AT&T’s planned LTE broadband service therefore remains to be seen.”

That it does–though there have been some indications that it may not be quite up to par. Speaking at an international WiMax conference in Bangkok in March, Garth Freeman, CEO of Buzz Broadband, Australia’s first WiMax operator, described the technology variously as a “disaster,” “miserable failure,” and a standard “mired in opportunistic hype.”

So will that prove true for Clearwire as well? We won’t know for some time. Building out a massive network like this will take some doing. “We’ll likely to see early trials in 2010, but a full-fledged build-out will take longer,” Clearwire CEO Benjamin Wolff said during a conference call this morning. “Building faster is a matter of logistics. The build plan we’ve laid out will be one of the largest and fastest build-outs ever done. We have the capability to do it, but it’s a massive undertaking.”

Time Warner’s AOL division posted financial results today, and while its revenue did not, as some investors worried, “fall off a cliff,” it’s clearly hanging on to one for dear life.

Revenue at the AOL unit slid 23% to $1.1 billion, with much of that decline stemming from a steep 28% drop-off in dial-up subscribers. Ad-revenue growth slowed markedly, rising just 1%. Disappointing news for Time Warner (TWX), which has been mulling the possible sale of AOL. With the MicroHoo merger on the horizon, the field of suitors for the division could narrow by two very quickly.

That said, today brought with it good news for Time Warner as well. The company reported first-quarter earnings that were largely in line with analyst expectations and announced plans to spin off its cable operation. “We’ve decided that a complete structural separation of Time Warner Cable, under the right circumstances, is in the best interests of both companies’ shareholders,” Time Warner CEO Jeff Bewkes said today in a statement. “We’re working hard on an agreement with Time Warner Cable, which we expect to finalize soon.”

Well, Comcast founder Ralph Roberts has at least one thing in common with Apple CEO Steve Jobs: an annual salary of $1. Bowing to shareholder criticism, the bandwidth-throttling cable company is slashing Roberts’s pay from $1.85 million to a buck and has amended his compensation package so that he will no longer be eligible for bonuses or stock options. Comcast also scrapped a clause in its proxy statement that had allowed for Roberts’s beneficiaries to receive his salary for five years after his death.

The moves come at a time of growing institutional shareholder dissatisfaction with Comcast (CMCSA). The cable operator’s shares are down nearly 40% in the past year and off by 25% since it gave disappointing 2007 financial guidance in the fall. Suffice it to say, the company’s shareholders are not happy. In a Jan. 14 letter to Comcast, investment firm Chieftain Capital Management accused management of strategic missteps and called CEO Brian (son of Ralph) Roberts’s stewardship of the company over the past decade a Comcastrophe. “The management of this company and supervision by its board have been a ‘Comcastrophe’ for shareholders over the past decade,” Chieftain wrote. “We want and deserve the best CEO Comcast’s board of directors can find–and, based on his record, Brian Roberts is not it.”

Will the concessions Comcast has made to its shareholders silence calls for Roberts’s head? Perhaps. It’s tough to shout epithets at management when the company’s just posted a better-than-expected 54% jump in fourth-quarter net income and announced plans for its first dividend in nearly a decade.

Undersea Internet cable damage is hardly unusual, but four five cables severed in one week? Seems a bit odd, doesn’t it? Last Wednesday, two cables in the Mediterranean were cut, disrupting Internet traffic from Egypt to India. On Friday, a third cable was cut, this one in the Persian Gulf, off the coast of the United Arab Emirates. Then a fourth cable, also off the coast of the UAE, has been compromised.

Initially, authorities thought that a wayward ship might have cut the cables with its anchor, but that theory was dismissed by the Egyptian government over the weekend. Turns out there were no ships in the area at the time the cables were severed. “The ministry’s maritime transport committee reviewed footage covering the period of 12 hours before and 12 hours after the cables were cut and no ships sailed the area,” Egypt’s transport ministry explained. “The area is also marked on maps as a no-go zone and it is therefore ruled out that the damage to the cables was caused by ships.”

So what caused it? A submarine? An unseen enemy? The NSA? Or something far more sinister … Architeuthis TCP/IP?

UPDATE Feb. 5: Looks like the fourth cable may not have been cut, but taken offline.

UPDATE Feb. 5: Khaleej Times reports that a fifth cable has been damaged.

With little more than a year to go before television in the states goes all-digital, the federal government is doing its best to make the transition easier for couch potatoes dreading the looming obsolescence of their rabbit-eared sets.

Yesterday, the Commerce Department began accepting applications for $40 coupons to defray the cost of a basic digital-to-analog converter box (expected to sell for between $50 and $70) that will allow older TVs to receive digital broadcast signals. “There is a big change in television coming on Feb. 18, 2009, and people who have old televisions who receive free over-the-air broadcasting, which means they are not hooked up to cable or satellite or another pay-TV service, have to make a decision,” Meredith Atwell Baker, deputy assistant secretary of the National Telecommunications and Information Administration, told Broadcast Newsroom. “They have three choices. They can buy a new TV that’s digital, they can subscribe to cable or satellite or another service, or they can buy a converter box. Otherwise, their television won’t work.”

The coupons are available on a first-come, first-served basis at www.ntia.doc.gov/dtvcoupon/index.html. And there are about 33 million of them available. Great news for the estimated 26 million households in the United States that have yet to make the jump to digital TV.

Note: John Paczkowski is on vacation and won’t be writing or posting videos until he returns on Monday.

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. Our Tech 10 appears below.

1. Bienvenue, iPhone: France Telecom has begun selling Apple’s cellphone at selected Orange stores in Paris and other cities. The device itself will cost about $1,106 with no plan attached, or 399 euros (about $590) with one of four “Orange for iPhone” plans, Computerworld notes, adding it will cost 100 euros ($148) to unlock the handset.
2. FCC Says ‘Uncle’: A proposal by Federal Communications Commission Chairman Kevin Martin to tightly regulate the cable TV industry has been “drastically” trimmed, reports the New York Times, which noted that Martin had sought more diverse programming and reduced cable costs.
3. Amazon: 1; Feds: 0. The federal government has lost its bid to compel Amazon to release details about the book-buying habits of thousands of its customers, according to Declan McCullogh on his blog, The Iconoclast. The Justice Department sought the information to prove its case against a former Madison, Wisc., city official accused of evading taxes in selling used books online.
4. Google, Online Snitch? The search colossus has voluntarily given the IP address of an Israeli blogger who used “Google Blogger” to allegedly slander municipal council members running for reelection, the Israeli Web site Globes Online reports, calling the move “unprecedented.”
5. YouTube, Censor? The popular video-sharing site has suspended the account of a well-known Egyptian anti-torture activist who posted videos of alleged brutality by a number of Egyptian policemen, Wael Abbas told Reuters, claiming that about 100 images he had sent were no longer available on YouTube.
6. But It Doesn’t Mind those CondéNet Vids: CondéNet is announcing today that it will distribute videos from its various consumer-interest Web sites via YouTube, The Wall Street Journal reports, adding that the deal is the latest in a series for Condé Nast Publications’ digital division.
7. LinkedIn Link to News Corp.? A “well-placed source” has told VentureBeat that News Corp. (owner of this site) is in talks to buy business-networking site LinkedIn. But LinkedIn CEO Dan Nye told Fortune’s Adam Lashinsky that “It would take a helluva lot” to get him to sell.
8. The Earth, Updated: Google Maps is updating its features, prompting Duncan Riley at TechCrunch to wonder if the new features won’t ultimately send Google Earth down the path of the dodo.
9. Feeling Insecure: Web applications and holes in Windows Office are the top concerns of Internet users, according to the annual security report by SANS, a computer training and security organization, in its Top 20 risk assessment for 2007.
10. How Green Is My Gaming? Greenpeace has released a report slamming Nintendo and Microsoft for making their video-game consoles with toxic chemicals, reports BusinessWeek, noting that the enviro group’s latest ranking of electronics firms this week also highlights questions over the environmental impact of the products and how much consumers care about them.

–posted by Associate Editor John Sullivan

Why Hulu? Objectively, Hulu is short, easy to spell, easy to pronounce and rhymes with itself. Subjectively, Hulu strikes us as an inherently fun name, one that captures the spirit of the service we’re building.”

–Jason Kilar, CEO, Hulu

Hulu.com, the News Corp./NBC Universal video service that sounds like it was named by the Web 2.0 Bull—t Generator™, went into private beta today, and while critics continued to snicker at the name, most admitted the ad-supported service was, by and large, pretty decent. ”I am impressed thus far,” wrote BoomTown’s Kara Swisher. “I will, of course, reserve judgment until I get to test-drive it for a while, but in concept and tone and aims–that is, more open than I ever expected the service to be–it is off to a good start.”

Over at GigaOm, Om Malik, who ridiculed the service this past summer, reversed course and called it brilliant. “From the moment I learned about the new company, I was skeptical,” he wrote. “And now, after spending three hours or so on the service, I am ready to eat crow. And not just any crow, but rotten, six-month-old crow: I have never been more wrong. … Hulu doesn’t seem like a YouTube (GOOG) competitor. (This is yet another thing I was wrong about.) What it really is trying to do is time shift–and place shift–television on a massive scale. It’s basically an attempt to counterbalance the tight control that cable and satellite networks have over distribution. [Hulu] is the kind of service that should scare start-ups trying to develop their own distribution platforms, such as Joost. It is also the kind of service, if it can attract enough viewers, that could succeed in relegating YouTube and others like YouTube to the ‘user-generated content’ world, at least in the U.S. market.”

Looks like there are a few more years of life left in those old rabbit-eared TV sets yet. The Federal Communications Commission this week unanimously adopted rules designed to prevent analog-only cable subscribers from losing their local TV stations’ signals for three years after the switch to digital TV occurs.

“This item, at its core, is about the consumer,” FCC Chairman Kevin Martin said in remarks before the vote. “It is about ensuring that all Americans with cable–regardless of whether they are analog or digital subscribers–are able to watch the same broadcast stations the day after the digital transition that they were watching the day before the transition. If the cable companies had their way, you, your mother and father, or your next-door neighbor could go to sleep one night after watching their favorite channel and wake up the next morning to a dark fuzzy screen. This is because the cable operators believe that it is appropriate for them to choose which stations analog cable customers should be able to watch. It is not acceptable as a policy matter or as a legal matter. The 1992 Cable Act is very clear. Cable operators must ensure that all local broadcast stations carried pursuant to this act are “viewable” by all cable subscribers. Thus, they may not simply cut off the signals of these must-carry broadcast stations after the digital transition. The order we adopt today prevents the cable operators from doing just that.”

Cable companies must now either ensure that all subscribers have the equipment necessary to view a digital signal, or convert it to analog format for those who cannot. And so the era of analog television broadcasts will officially end on Feb. 17, 2012, and not the same day in 2009, when U.S. broadcasters make the switch to digital TV.

“There is nothing ‘oh my god’ unique that has happened on the Net in forever. What we have seen are incremental applications that have been powered by the amazing ongoing drop in pricing of PCs, hard drives, memory and BACKBONE (not last mile) bandwidth. None of which are ‘the Internet.’ … It’s not the Net, it’s the applications, stupid! Falling costs to create, host and deliver digital bits enable entrepreneurs to be entrepreneurial. … It’s the brainpower that is changing our world. The Internet is just a utility to deliver the digital bits they create.”
–Mark Cuban

In July 2006, Mark Cuban, the billionaire Internet entrepreneur who sold Broadcast.com to Yahoo for $5.7 billion in stock back in 1999, declared the Internet “old news and boring.” And now, a little over a year later, he’s gone and pronounced it dead. Speaking at a cable telecommunications industry event earlier this week Cuban, who seems to have regained his wind after a recent and much publicized colonoscopy, said the Internet has become a dull bunch of infrastructure. “The Internet’s dead,” Cuban said. “It’s over. … The Internet’s for old people.”

Huh. So if the Internet’s for old people, where should the world’s next Mark Cuban focus his/her attentions? On the “intranet,” which Cuban describes as the on-demand and digital video-recording platforms managed by cable companies. “There’s less restriction on the intranet, it’s like your own corporate network for all the cable networks and even wireless,” Cuban told Advertising Age. “All [content] is moving to the TV. What’s the difference between a PC and a TV? Nothing.”

Is government ever a good substitute for parenting? If you’re at a loss for an answer to that question, consider some of the statements coming out of this week’s “Protecting Children on the Internet” hearing in Congress. In testimony given at the hearing, Senate Commerce, Science and Transportation Committee Chairman Daniel K. Inouye (D., Hawaii) and Committee Vice Chairman Ted “Tubes” Stevens (R., Alaska) both argued that the Internet presents a threat to children–one best addressed with universal filtering and monitoring technologies.

“While filtering and monitoring technologies help parents to screen out offensive content and to monitor their child’s online activities, the use of these technologies is far from universal and may not be foolproof in keeping kids away from adult material,” Inouye said. “In that context, we must evaluate our current efforts to combat child pornography and consider what further measures may be needed to stop the spread of such illegal material over high-speed broadband connections.”

“Given the increasingly important role of the Internet in education and commerce, it differs from other media like TV and cable because parents cannot prevent their children from using the Internet altogether,” Stevens said. “The headlines continue to tell us of children who are victimized online. While the issues are difficult, I believe Congress has an important role to play to ensure that the protections available in other parts of our society find their way to the Internet.”