$842 MILLION DATA CENTER INVESTMENT

Put aside for a second — if you can — the threat of Google or other Web players building an IP-based telco business, likely driven by Wi-Fi or WiMAX access. The nearer-term threat is the very real data center investment that large Web players are making to host the next-generation of utility-style “cloud computing,” led by Google's $842 million in infrastructure spending in Q1 2008 alone. Amazon, Microsoft, Yahoo! and other Web players are spending mightily on new data centers as well.

While telcos traditionally spend money on IT projects (including new hosting and data center facilities) to cut costs or support readily captured revenue, investing in IT to fuel growth — as Google is doing — is a much more speculative prospect that is sure to make service providers uneasy. The question is not only can telcos compete, but do they want to?

“We're not a start-up; we can't be experimenting with new concepts without taking risk into account,” said JP Rangaswami, managing director of service design for BT. “But we have certain classes of assets we believe we can develop and expose. We're not running a charity; when people exploit our infrastructure, we get paid. We just get paid in different ways from our traditional roots.”

That kind of creative thinking about telco IT is at least in part responsible for expected increases in carrier back-office spending, projected to climb from $42 billion in 2007 to $63 billion by 2012, according to Insight Research. Spending largely will be focused on systems that can reduce capex spending, including automated online billing, network asset management, configuration management and automated provisioning, said Brenda Belkin, senior analyst for Insight.

Bottom line: You have to spend money to make money — AT&T alone has pushed capex spending from $750 million to $1 billion for 2008. The challenge will be to spend intelligently in the face of competitors with the will, the cash and the business model to spend more freely — even as those competitors push Net neutrality and bandwidth-hogging peer-to-peer (P2P) apps for what amounts to a free ride on carrier networks. …

Q4 2007 spending versus Q4 2006:

OVERALL CAPEX SPENDING IN THE TELECOM SECTOR IS ON THE RISE

Wireline: $8.8 billion, up 12.4%

Cable MSO: $3.7 billion, up 8.6%

Mobile: $6.3 billion, down 11.4%

Source: Ovum

8.2 MILLION P2P DOWNLOADERS

Despite countless countermeasures — Recording Industry Association of America lawsuits, carrier traffic-shaping, the proliferation of low-cost and free commercial music outlets — BitTorrent traffic (consisting mainly of music and video files) remains on the rise. Average BitTorrent traffic for March was up 25% versus the last month of 2007, according to online media measurement firm BigChampagne. More than 8.2 million people downloaded the 200 most actively traded BitTorrent files, up from 6.6 million downloaders in the previous period.

P2P isn't going away. And now the FCC, with hearings and some caustic comments to Congress, is in the mix as well. Taking big hits is Comcast, which has said it doesn't block but rather manages peak-time traffic. But FCC Chairman Kevin Martin told a Senate committee in April that the multiple systems operator (MSO) appears to be blocking BitTorrent traffic much more broadly. Meanwhile, a speech by an AT&T exec this month claiming that soon “20 typical households will generate more traffic than the entire Internet today” was roundly jeered.

Bottom line: P2P isn't slowing down any time soon. Traffic-blocking charges and anti-carrier sentiment likely will re-energize the push for a congressional Net neutrality law, ensuring that P2P issues remain at the forefront in 2008.

$3.5 TRILLION GLOBAL TELECOM REVENUE

Stand far enough back, and you can see the forest for the trees. That's the lesson to be learned from the annual Telecommunications Industry Association Market Review and Forecast published in February. Here's a view of the global big picture for 2007, courtesy of the TIA and report authors Wilkofsky Gruen Associates:

• Worldwide telecom revenue totaled $3.5 trillion, up 11.2 % from 2006.
• The U.S. market accounted for $1 trillion of that total, with domestic revenue up 8.3%.
• Europe was the largest telecom market at $1.2 trillion (8.6% growth), followed by the U.S. and then Asia/Pacific at $880 billion (17.1% growth).

• Landline revenue fell 4.6% (to $299.3 billion) while wireless revenue rose 11.2%.
• 40% of residential landlines were bundled with another service, up from 26% from 2006.
• There were 69 million broadband subscribers, twice the level of 2004.
• Cable MSOs garnered an 8.5% share of all telephone lines and 52% of all CLEC lines.
• VoIP accounted for 16.2% of residential lines, up from 10.3% in 2006.
• Data services were 15.8% of wireless revenues, up from 9.8% in 2006.

• U.S. equipment revenue was $188.2 billion, up 5.6% from 2006.
• 12.3 million fiber miles were deployed in the U.S., up from 4.8 million in 2003.
• Spending by wireless carriers on infrastructure and R&D grew 2.3%.