Monday, August 7, 2006

DIRECTV Reports Higher Profits, Emphasis on Quality Subscribers

DIRECTV reported U.S. gross subscriber additions of 863,000 for Q2, a decline of 10% compared to the second quarter of 2005 primarily due to the implementation of revised credit policies and dealer incentives aimed at improving the quality of new subscriber additions. DIRECTV now has 15,513,000, up from 14,670,000 a year earlier.

Q2 revenues increased 10% to $3.52 billion and operating profit before depreciation and amortization(1) nearly doubled to $977 million compared to last year's second quarter. The DIRECTV Group reported second quarter 2006 operating profit and net income both more than doubled to $741 million and $459 million, respectively, when compared to the same period last year. Earnings per share were $0.36 compared with $0.12 in the same period last year.

Highlights for the quarter:

  • Gross Subscriber Additions were 863,000 compared to 964,000 in Q2 2005.

  • Net Subscriber Additions were 125,000 compared to 225,000 a year earlier.

  • Average Monthly Subscriber Churn was 1.59%, compared to 1.69% a year earlier.

  • ARPU was $71.59, compared to $67.79 a year earlier.

"In many ways, the results in the quarter reflect our strategy to target higher quality subscribers. For example, although gross subscriber additions of 863,000 and net additions of 125,000 in the quarter were below expectations, it's important to note that we added 11% more higher quality gross subscribers in the quarter compared to last year. This trend -- which is driving both the top-line and bottom-line financial results -- is primarily due to the ongoing changes we're making to refine our credit policy and dealer network. These factors played an important role in reducing DIRECTV's monthly churn rate from 1.69% to 1.59% this quarter. In addition, customers are buying more premium services such as high definition programming and digital video recorders which is contributing to the strong ARPU growth of 5.6% in the quarter. The increase in operating profit -- excluding the accounting effect from the new lease program -- is also directly linked to the improved subscriber mix primarily due to the reduced acquisition costs associated with the significant reduction in lower quality customers attained and the related lower bad debt expense incurred," stated Chase Carey, president and CEO of The DIRECTV Group.

Cisco Beats Expectations and Reports Good Momentum

Cisco Systems reported net sales for its fourth quarter of fiscal 2006 ending 29-July-2006 of $7.98 billion, compared with $6.6 billion for the fourth quarter of fiscal 2005 and compared with $7.3 billion for the third quarter of fiscal 2006. Scientific-Atlanta contributed $582 million to net sales for the quarter.

Net income (GAAP) was $1.5 billion or $0.25 per share, which includes stock-based compensation expense related to employee stock options and employee stock purchases of $152 million, net of tax, or $0.02 per share. Net income prior to fiscal 2006 did not include stock-based compensation expense related to employee stock options and employee stock purchases. Including the pro forma stock-based compensation expense previously disclosed in Cisco's financial statements footnotes, net income for the fourth quarter of fiscal 2005 was $1.3 billion or $0.20 per share.

Net sales for fiscal 2006 were $28.5 billion, compared with $24.8 billion for fiscal 2005. Scientific-Atlanta contributed $989 million to net sales for fiscal 2006.

Some highlights from the quarterly report:

  • Cisco's core enterprise networking platform, the Cisco Catalyst 6500, surpassed $20 billion in sales to date.

  • More than 8 million Cisco Unified IP Phones have been shipped worldwide to date.

  • More than 60 service providers have adopted the Cisco Carrier Routing System, or CRS-1, in the first two years since its introduction. Sales are now exceeding $100 million per quarter.

  • Cisco's enterprise customer installed base surpassed the 3 million wireless access points (APs) milestone.

  • Q4 sales momentum was "good" and balance was "very good", with total orders growing in the mid-teens year over year.

  • Product gross margin was 65.1% and services gross margin was 66.3%

  • Cash flows from operations were $2.3 billion for the fourth quarter of fiscal 2006, compared with $2.4 billion for the fourth quarter of fiscal 2005, and compared with $2.3 billion for the third quarter of fiscal 2006.

  • Cash and cash equivalents and investments were $17.8 billion at the end of fiscal 2006, compared with $16.1 billion at the end of fiscal 2005, and compared with $18.2 billion at the end of the third quarter of fiscal 2006.

"From a Cisco standalone product perspective the balance was extremely good across routing, switching, and advanced technologies. Routing revenue grew year-over-year by 12%, switching revenue grew year-over-year by 8%, and advanced technologies' revenue grew year-over-year by 23%. Of the advanced technologies, storage area networking, unified communications, formerly known as enterprise IP communications, and wireless led the way. We believe we are gaining market share versus almost all of our competitors, but we also believe we are getting a larger share of our customers' total spend on communications and IT," said John Chambers, Cisco's CEO.

Cablevision Reports Revenue Growth, Stock Option Review

Cablevision reported consolidated net revenue growth of 15.6% to more than $1.4 billion as compared to the second quarter of 2005. The company did not release full Q2 results because of an ongoing stock options review and an expected restatement of financial results.

Some highlights from the period:

  • Telecommunications services net revenues, including its "Optimum" branded consumer services and "Optimum Lightpath" branded business services, rose 17.2% to $1,049.1 million, compared to the prior year period.

  • Basic video customers were up 35,328 or 1.2% from March 2006 and up 95,486 or 3.2% from June 2005, marking the ninth consecutive quarter of basic video subscriber gains

  • iO: Interactive Optimum digital video customers were up 143,499 or 6.7% from March 2006 and up 529,265 or 30.4% from June 2005

  • Optimum Online high-speed data customers were up 84,819 or 4.7% from March 2006 and up 371,578 or 24.4% from June 2005

  • Optimum Voice customers were up 122,234 or 14.1% from March 2006 and up 509,185 or 106.4% from June 2005

  • Revenue Generating Units were up 385,284 or 4.9% from March 2006 and up 1,503,577 or 22.3% from June 2005

  • Lightpath net revenues increased 11.3% to $52.9 million, compared to the prior year period. The increase in net revenue is primarily attributable to growth in Optimum Voice call completion activity and Ethernet data services over Lightpath's fiber infrastructure, offset in part by a decline in traditional phone service usage. Lightpath revenue excluding Optimum Voice call activity would have increased 1.0%.

3Com Appoints Edgar Masri as New CEO, Seeks Greater Stake in Huawei Joint Venture

3Com appointed Edgar Masri as its new President and CEO, replacing Scott Murray who submitted his resignation. Masri previously served as the Chief Operating Officer for Redline Communications. From 2000 to 2006, Masri was a general partner at Matrix Partners, a venture capital firm focusing on technology investments. Prior to joining Matrix, Masri spent 15 years at 3Com in a variety of senior management positions, including his role as Senior Vice President and General Manager of the company's former Network Systems Business Unit and President of 3Com Ventures.

3Com has also hired Bob Mao as Executive Vice President of Corporate Development to manage 3Com's interests in its China-based joint venture with Huawei Technologies, Huawei-3Com (H-3C). Mao currently is Vice Chairman of the Board of Governors of the Pacific Telecommunications Council.

3Com also announced that it will begin negotiations with Huawei with the intent to increase 3Com's ownership stake in H-3C. 3Com currently owns 51 percent of H-3C and recently began consolidating H-3C's financial results. Under the terms of existing agreements, each party has the right, commencing on November 15, 2006, to initiate a bid process to purchase the equity interest in H-3C held by the other. These negotiations are intended to result in an agreement outside of the bid process.
  • In January 2006, 3Com named R. Scott Murray President and Chief Executive Officer, replacing Bruce Claflin who retired. Murray also assumes Claflin's position on the 3Com Board of Directors. Murray will shortly become Chairman of the company's joint venture in China, Huawei-3Com. Prior to accepting the role of CEO for 3Com, Murray was the CEO of Modus Media International, a global provider of supply chain management and hosted services.

Time Warner Cable Selects ARRIS CMTS

Time Warner Cable has signed a two-year Purchase Agreement for the ARRIS C4 and C3 CMTS products. The nation's second-largest Multiple System Operator (MSO) has already deployed the 1RU-size ARRIS C3 CMTS in several of its systems and, in anticipation of this purchase agreement, placed its first C4 CMTS orders last week.

Time Warner Cable has over 5.4 million high-speed data subscribers and over 1.6 million digital phone customers.

Sony Debuts "mylo" WiFi Personal Communicator

Sony introduced its "mylo" personal communicator for the US market. The pocket-sized device works in any open 802.11b wireless network to provide instant messaging, VoIP calling, email, web browsing and media playback. Some key features:

  • the communicator comes with Skype, Google Talk and Yahoo! Messenger software

  • it includes JiWire's hotspot directory listing more than 20,000 WiFi networks in the US.

  • 1GB of the flash memory is included

  • it uses a 2.4 inch color LCD (measured diagonally) with a slide out QWERTY keyboard for thumb typing

  • a lithium-ion battery offers up to 45 hours of music playback, around seven hours of chatting and web surfing and more than three hours of continuous Skype talk time.

  • it includes a microphone, stereo headphones, a USB cable and a neoprene case.

  • the device will be sold online for $350 online at

Nokia to Acquire Loudeye, Enter Digital Media Distribution

Nokia agreed to acquire Loudeye, a provider of digital music platforms and digital media distribution services, for approximately US$60 million.

Loudeye aggregates rights and content from all the major labels and hundreds of independents and currently offers licensed catalog and complete media for over 1.6 million tracks. The company delivers 60 live services in over 20 countries and multiple languages across Europe and South Africa, Australia and New Zealand.

"Music is a key experience for Nokia and Nokia Nseries multimedia computers and we want to be able to offer the best fully integrated mobile music experience to our customers. Loudeye brings a number of key assets to Nokia, including a great team of people, a substantial content catalogue and a robust service platform that will help us to achieve this objective," said Anssi Vanjoki, executive vice president and general manager, Multimedia, Nokia. "People should be able to access all the music they want, anywhere, anytime and at a reasonable cost. With this acquisition, we aim to deliver that vision and a comprehensive music experience to Nokia device owners during 2007."
  • Loudeye is headquartered in Seattle, with offices in London and Bristol UK, Paris France, Cologne Germany and Milan Italy. It employs approximately 130 people with reported revenue in 2005 of approximately $20.3 million, excluding discontinued operations.

Brocade to Acquire McDATA Corp for $713 Million

Brocade Communications Systems agreed to acquire McDATA Corporation, a leading provider of storage networking solutions. Brocade, which offers a family of Storage Area Network (SAN) connectivity platforms, said the acquisition accelerates the pace of change in next generation data centers.

"The acquisition of McDATA will build on Brocade's vision for the next generation data center, leveraging Brocade's product innovation and operational discipline. The combined company will accelerate innovation and the delivery of a diverse set of compelling and cost-effective solutions to customers, while preserving investment protection, simplifying administration and management, and delivering greater interoperability. These capabilities will enable us to compete more effectively and address the challenges and opportunities for significant growth in a dynamic and changing market," said Michael Klayko, Brocade CEO.

Under the deal, McDATA stockholders will receive 0.75 shares of Brocade common stock for each share of McDATA class A common stock and each share of McDATA class B common stock they hold. Based on Brocade's closing stock price on August 7, 2006, the transaction is valued at approximately $4.61 per McDATA share, or approximately $713 million.

Skype and iSkoot Sign Co-Marketing Deal for Mobile-PC Calling

iSkoot, a start-up based in Cambridge, Mass. offering a mobile-to-PC calling solution, announced a co-marketing deal with Skype.

The iSkoot solution will allow mass market Java-phones as well as high-end Smartphones to place and receive Internet calls through Skype software from their handsets, without the need for PCs, special hardware, or WiFi hot spots. The software enables Skype users to use SkypeOut for inexpensive calls to any phone from their mobile handset.

iSkoot said it has eight patents pending for its unique client server protocol and interfaces, Mobile-to-Skype gateway and integrated presence system. http://www.iskoot.com

Nokia Wins 3G Expansion Contract from Taiwan's Chunghwa Telecom

Chunghwa Telecom Co., the incumbent telco in Taiwan, has awarded a turnkey network expansion contract to Nokia to expand its WCDMA 3G and HSDPA network coverage. Deliveries and deployment will start immediately. Financial terms were not disclosed.

Under the agreement, Nokia will deploy WCDMA 3G radio and core networks. Nokia will also provide turnkey services including network planning, other support services, deployment and optimization of Nokia HSDPA that was provided earlier. Nokia has been working with Chunghwa Telecom since 1999, and in addition to the WCDMA networks it has supplied the operator's GPRS core network, MMS (Multimedia Messaging) Solution and ADSL equipment.

The deal brings Nokia's managed services references to 40 contracts in 31 countries.

Lucent Supplies Carrier Ethernet Router to UK's Updata

Lucent Technologies is supplying Updata, a broadband solutions provider in the U.K., with one of its most advanced Carrier Ethernet platforms -- the Lucent Ethernet Router 15100 -- recently acquired from Riverstone Networks. Lucent said the deployment marks one of the first large-scale customer deployments of the Lucent Ethernet Router 15100.

The network is used to support high-speed data services for Updata's local government customers in the U.K.
  • In April 2006, Lucent Technologies completed its acquisition of certain net assets of Riverstone Networks, a maker of carrier Ethernet routers for the telecommunications industry. The purchase price under the amended agreement was approximately $207 million.

Firetide Ships New Modular Access Points

Firetide began shipping a new line of "HotPoint" access points for municipal and enterprise wireless networks. The new access points include an extended feature set to enable service providers to support multiple Wi-Fi services and virtual networks over a Firetide wireless mesh infrastructure as well as a conventional wired network. Access points can be mounted independently to achieve optimal radio coverage for both mesh backhaul and client access. High powered, 400 mW radios extend reach and penetration, while a turbo-mode provides data rates up to 108 Mbps. A virtual access point function provides layered service and security levels for individual APs and virtual AP groups. Both indoor and outdoor versions are available.

Microsoft Integrates Speech Capabilities into Office Communications Server

Microsoft plans to integrate speech platform services into its Office Communications Server 2007, extending its unified communications strategy to integrate instant messaging, IP telephony, voice response, audioconferencing and videoconferencing.

Microsoft announced Office Communications Server 2007 earlier this summer as a key component of the company's unified communications road map. The addition of speech capabilities gives developers the opportunity to create new communications applications or extend existing applications using an integrated set of application programming interfaces (API) and by extending existing applications for Office Communications Server 2007.

Using the new integrated APIs in Office Communications Server 2007, Microsoft demonstrated how a unified communications solution can bridge communication methods such as instant messaging and phone calls through spoken commands and presence capabilities. The demonstrations included the use of an intelligent agent to help a caller locate and communicate with a person based on previously defined preferred methods, such as e-mail or instant messaging. A second demonstration showed an instant messaging conversation taking place with one person speaking and the other typing. The spoken words were translated to text and the typed words were converted to speech, creating a seamless communications experience for both parties. Other solutions demonstrated include presence-aware help desks, integrated contact center solutions, and multimodal applications that can be accessed from a variety of clients.

Microsoft also demonstrated Windows Speech Recognition, which will be available in Windows Vista in eight languages, marking the first time a Microsoft Windows operating system will include speech recognition technologies.

BellSouth Launches Virtual Metro Ethernet Service

BellSouth launched a "Virtual" Metro Ethernet Service, providing four classes of service, committed information rate and service level agreements between locations using multipoint-to-multipoint, point-to- multipoint or point-to-point architecture. BellSouth expects early adopters of the service to include companies from finance, health care, manufacturing, education and local government segments that require guaranteed throughput, comprehensive service level agreements and high-speed, cost effective Ethernet service to support multiple applications.

The Virtual BellSouth Metro Ethernet Service enables customers to designate traffic into four different classes with different routing priorities: best effort, business critical, interactive and real-time. Real-time and interactive classes are suitable for applications that have a low tolerance for delays, such as voice and video. Business critical and best effort are used to distinguish higher priority business data from non-critical applications such as email and general Web surfing.

Businesses can combine more than one class of service on the same Ethernet port, creating additional virtual ports and allocating the appropriate bandwidth to each application. For example, a customer may decide to order a virtual port that uses 90 percent of the bandwidth to support e-mail, while assigning the remaining 10 percent for voice over IP. The e-mail would be designated as best effort class of service and the voice over IP as real-time. These virtual ports can be adjusted through a Web interface based on the bandwidth required and the applications in use.

Committed information rate ensures guaranteed bandwidth throughput for customers, available at the following speeds: 2Mbps, 4Mbps, 8Mbps, 10Mbps, 20Mbps, 50Mbps, 80Mbps, 100Mbps, 200Mbps, 300Mbps, 450Mbps, 600Mbps, 750Mbps and 900Mbps. This provides additional service assurance to businesses.

BellSouth offers service level agreements for the following metrics according to the class of service designation:

  • Network availability - 99.5 to 99.995 percent

  • Jitter - 1 millisecond

  • Latency - 5 to 15 milliseconds

  • Packet delivery - 99.9 to 99.995 percent

  • Time to repair - 4 hours

Service level agreements are supported by Web-accessible customer network management software and credits are awarded if service levels drop below contractual levels.

BellSouth recently launched Mid-band Ethernet speeds options of 2Mbps, 4Mbps and 8Mbps over both copper and fiber and expanded Metro Ethernet access to Network VPN throughout the Southeast. Virtual Ethernet functionality is also available in Mid-band Ethernet speeds and in Metro Ethernet access to Network VPN applications.

MobiTV Announces WiMAX Support

MobiTV, which is currently delivering video services to over one million mobile subscribers, announced its official support for the WiMAX standard. The company said it has been investing heavily in research and technology development to support the latest wireless network standards and the company is now committed to deploying advanced mobile television and media delivery services over WiMAX networks.

The MobiTV service for mobile is available in the US through Sprint, Cingular and Alltel; in the UK through 3 and Orange UK; in Canada through Bell Canada, Rogers and TELUS Mobility; through America Movil in Latin America; and other regional carriers around the world.

The MobiTV service can also be accessed on laptops via the AT&T WiFi network.

Sprint Nextel Selects Mobile WiMAX for 4G Network

Sprint Nextel's unveiled plans to develop and deploy a 4G nationwide broadband mobile network based on the IEEE 802.16e-2005 mobile WiMAX standard. The network will use Sprint Nextel's extensive 2.5GHz spectrum holdings, which cover 85 percent of the households in the top 100 U.S. markets. Mobile WiMAX iniitially is expected to support data rates in the 2 to 4 Mbps range. Initial services are expected to be online by Q4 2007.

Sprint Nextel is expecting to invest $1 billion in 2007 and between $1.5 billion and $2 billion in 2008 relating to the 4G mobile broadband network.

In addition, Sprint Nextel announced partnerships with Intel, Motorola and Samsung to incorporate WiMAX technology for advanced wireless communications and help make chipsets widely available for new consumer electronics devices.

  • Intel, one of the early members of the WiMAX Forum and one of the key contributors to the IEEE 802.16e-2005 standard, will deliver WiMAX solutions for Centrino Mobile Technology and next generation computing devices. Intel provide device-to-network verification as well as marketing expertise.

  • Motorola will offer Sprint Nextel both single- and multimode devices designed to enable seamless mobility for users, while playing a major role in its WiMAX infrastructure roll-out. Since Motorola is the exclusive supplier of iDEN technology as well as a major supplier of CDMA and EV-DO Revision A technology, it can offer a end-to-end solution (from radio access network equipment to both single- and multimode mobile devices).

  • Samsung Telecommunications America will be a primary Mobile WiMAX infrastructure supplier to Sprint Nextel and will also deliver dual-mode devices supporting Mobile WiMAX and CDMA2000 1xEV-DO, designed to enable Sprint's Mobile WiMAX users to utilize Sprint Nextel's existing 3G network resources. With its installation of networks in South Korea and other markets, Samsung Electronics is the first to commercially deploy Mobile WiMAX and with its alliance with Sprint Nextel will bring this global expertise to North America. Samsung offers Sprint a total solution including chipsets, infrastructure, mobile devices and consumer electronics focused on Mobile WiMAX and dual-mode WiMAX/CDMA services delivery.

The Rev A and 4G networks will be served by a common IMS core, enabling applications to move seamlessly between networks.

Sprint confirmed that its cable partners are aware of its 4G plans and that the joint venture does have a business plan for leveraging the 4G network. The first services from this joint venture are expected to roll out later this year.

The company did not comment on its strategy, or its cable joint venture strategy, for the upcoming FCC auction of AWS spectrum.
  • Last week, Sprint announced plans to speed up its deployment plan of EV-DO Revision A technology. The company now plans to begin its roll out of EV-DO Revision A service during Q4 2006, with coverage expected to reach more than 40 million people by year end. Sprint said EV-DO Rev A users should expect faster average download speeds of 450 - 800 kbps; and average upload speeds of 300 - 400 kbps. Overall, Sprint plans to reach more than 200 million people in the U.S. with mobile broadband data services (both EV-DO Revisions 0 and A) in 220 major metropolitan areas and 908 airports across the country with its Power Vision network by the end of 2006. By Q3 2007, Sprint's Power Vision network will be completely upgraded to the faster EV-DO Revision A.