Enterprise software, which has gone from running on the computer to being hosted in a corporate data center, is now moving out to nebulous pools of servers called clouds. As computing clouds become part of the corporate information technology environment, making sure software hosted in the cloud is delivered as quickly and efficiently as possible will become increasingly important.

Whether it’s an external cloud such as those offered by Amazon.com or an internal cloud operated by a Wall Street investment bank, connecting the applications running on those pools of compute power to the employees using them is going to be an integral part of a company’s wide area network, or WAN. And that has venture firms taking a fresh look at an already mature industry known as WAN optimization.

There’s nothing terribly exciting about making sure the pipeline that delivers applications between various corporate branch offices and data centers keeps moving and the software gets delivered as quickly as possible, but it’s a multibillion-dollar area of spending for corporations intent on squeezing every bit of efficiency from their broadband connections. Players in the WAN optimization market include Riverbed, BlueCoat, and Packeteer, which BlueCoat agreed to buy back in April, as well as Citrix, Cisco and Juniper.

Despite the relative maturity of the market, venture dollars are still coming in, with two fundings in August alone. On Aug. 18, Ipanema Systems, whose tactic of selling to service providers could be used to offer WAN optimization to providers of computing clouds, said it raised $7 million from Noble Ventures. About a week later, Expand Networks said it raised $8.5 million from Intel Capital, one of several rounds of funding the company has raised since its 1998 formation. On Wednesday, Expand purchased software provider NetPriva, a move that will deepen Expand’s visibility into data networks.

Both Expand and Ipanema are smaller players, says Tracy Corbo, an analyst with Gartner. She says these firms have niche products but aren’t likely to take a lot of market share away from the existing vendors. Meanwhile, there is also venture interest in creating and finding startups that might use the building blocks of WAN optimization as a launchpad for better cloud utilization and pricing. As Ryan Floyd, a general partner with Storm Ventures, says, “There are opportunities in this space for connecting two types of compute clouds and using WAN optimization to ensure reliability so outages don’t happen.”

What’s so interesting for venture firms (and eventual corporate customers) is the type of knowledge some WAN optimization startups have on hand. That visibility into a network and the servers running applications make it possible to track the delivery of cloud-based services and offer service-level agreements. Many offer compression that could reduce the costs of delivering data from a cloud. For consumers it means Twitter may become more reliable while for corporate users, it means one less strike against cloud computing. It’s also why Expand bought NetPriva and why David Asprey is starting a new company called Cloud Nines.

Asprey plans to launch within six months and doesn’t yet have venture backers, but as a veteran of Citrix, Akamai and Exodus, he’s familiar with some of the problems facing cloud providers. “The reason people care so much about WAN optimization now is that cloud computing is coming up, and clouds remove the barriers and policies an IT department has in place. So now visibility of the network traffic has become very important,” Asprey says.

Being able to measure the availability and costs associated with delivering every byte of data will benefit corporate users, but it should help the providers of clouds squeeze the lowest costs and most utilization out of their networks as well. Google has talked about such network-aware pricing, as have other service providers. Given that providing the basic pools of servers that comprise a computing cloud is a fairly low-margin business, finding pricing models that can take into account cheaper routes for data is a compelling way to shave costs.

Since you have to be able to see the network — a capability some of these WAN optimization firms have — in order to determine the best way to traverse it, expect older players to try to enhance their visibility across the network and newer players to try to usurp their dominance with a cloud-specific model.

This article was also published on BusinessWeek.com.

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With all the hype and excitement surrounding the release of Google Chrome yesterday, I, like so many, was eager to try the browser out for myself. What I didn’t expect was the overwhelming sense of déjà vu it would trigger in me.

I am a veteran in this industry, one whose first PC was a portable Hyperion I used when managing the sales of some graphics plotters back in the mid-80s. I went on to manage AST Computers’ Canadian operation, and from there went to Quarterdeck Corp., whose primary product was a DOS multitasking environment called DESQview, which was supported by QEMM, the most popular PC utility from about 1990 until the Windows 95 launch in August 1995. QEMM was a memory manager for PCs limited to 640K of primary DOS memory that effectively allowed them to create multiple 640K virtual machines. Simply put, DESQview allowed you to run Lotus 1-2-3, WordPerfect, cc:Mail and Harvard Graphics concurrently, taking advantage of the virtual memory architecture of the 386 and subsequent processors. Both AST memory boards, as well as their later line of computers, took advantage of DESQview and QEMM.

Reading the Google Chrome comic strip made clear the parallel to the emergence of QEMM and DESQview: All today’s browsers are effectively single tasking, in that only one tab can be actively processing, say, a JavaScript application at any given time (”inherently single threaded”), yet the tabs are interactive to the point where the misbehavior of an “application” in one tab can impact — and sometimes crash — the operation of the entire browser. Web 2.0 has brought about an array of browser-based applications and activities that require a more robust, stable, multiprocessing browser with each process assigned to its own memory space and associated data structures — which is basically how DESQview operated. Indeed, when I pointed this out during yesterday’s SquawkBox, someone labeled Google Chrome as “DESQview for the cloud.” Talk about “Back to the Future“!

But then Chrome goes beyond simply providing a true multiprocessing capability for web browsers. It eliminates memory creep/leak issues that I experience with Firefox; it has a “Task Manager” feature that allows you to view all running tasks and shut down any misbehaving tab without having to shut down the entire browser. Its JavaScript virtual machine architecture supposedly introduces speed, robustness and automatic memory management features. Its “Omnibox” feature combines the address bar, desktop/web search bar and browsing history to enhance, yet simplify, both the browsing and search experience. It addresses a range of security issues such as malware and phishing. But the real gem is that the entire development is based on freely accessible and reusable open-source code.

I installed Chrome and ran it on a quad-core desktop PC. Not only is it fast, but introduces an altogether different browsing experience than any I’ve ever had. For example today I had three windows open and when one crashed, sent a report to Microsoft and closed, the other two windows remained open and fully operative. The real test, of course, will come from using it over time, to see if it provides a smoother, more technologically transparent user experience as you add tabs and leave it running for a while.

In summary:

1. Chrome was developed from scratch as Web 2.0 has evolved to include a wide range of browser-based applications, thereby bringing new architectural and user interface demands to the browser experience.
2. But, as Alec Saunders points out, while it allows you to run web-based applications, it’s not an operating system that abstracts the hardware from the software. Leave that part to Microsoft, Apple, RIM, Nokia/Symbian and other platform vendors. Google wants the browser to act as an application platform, independent of operating system.
3. It brings out features that Google encourages other browser developers to incorporate into their respective browsers for a more stable, robust and secure browsing experience.
4. It’s beta, so there will be some bugs; and much like the Skype 4.0 beta, they’re looking for user feedback on the entire experience. The big question, as with some other Google applications, is whether it will ever come out of beta or will the key features first migrate to other browsers?
5. It’s not a threat to Microsoft, Mozilla, Apple or any other browser developer but rather a challenge to them to improve their own browsers such that all Google applications as well as any other browser-based applications can run smoothly and fully transparently to the underlying technology.
6. It has the potential to be an extension of the mobile Google applications I run on my Blackberry and Nokia N-Series phones, yet it can address more generically the issues of running any browser-based application on smartphones and other mobile devices.
7. As it matures, it has the potential to become a seed for developer innovation.

In addition to opportunities for application innovation, of course, fully transparent, smooth user experiences lead to significantly enhanced opportunities for Google ads. Nobody has ever made any significant revenue from a browser itself. Again I am reminded of my Quarterdeck days. We had a browser back in 1995 (including a feature equivalent to “Tabs”), but did not recognize it as simply a critical infrastructure component whose content and applications, not the underlying technology, would be the key to revenue generation. Been there; seen that.

Jim Courtney is an associate editor of Skype Journal.

It was nearly a decade ago when a then-young Marc Andreessen, the wunderboy founder of Netscape Communications, first talked about the concept of the browser pushing the operating system into the background. With the release of Google’s experimental browser, Chrome, we have come full circle.

A lot has changed in the past 10 years. For one thing, the cost of hardware and network infrastructure has declined sharply. Such a decline has led to what’s known as cloud computing, whereby companies like Amazon offer infrastructure on demand. That has, in turn, allowed innovators to roll out their applications without making major outlays up front.

In the meantime, always-on broadband connections at home, work, and while on the move have become commonplace. This has served as a catalyst for innovators, who have developed web services that are now screaming for browsers that allow your data to live on the web but be accessible offline, a trend I first wrote about out in a column for the now-defunct Business 2.0 magazine back in March of 2006.

As I noted back then…

“Things will get more exciting for entrepreneurs when we all start walking around with new Internet-ready portable devices…these pocket-size monsters with keyboards, luscious displays, and brisk 3G connections will soon replace laptops…all they need are browsers that can access Web-based software as easily as your desktop can.”

For web applications, the bigger and more real opportunity is with an emerging category of Internet-enabled devices optimized for on-the-go computing. They are skimpy on resources, but they all have browsers. And given app developers’ focus on designing apps that can be made available to millions simultaneously, the browser has taken a much more prominent role in our digital life compared to the operating system.

Alistair Croll put it best when he wrote:

“Browsers have made computers interchangeable; most of us can work on whatever machine we have at hand, be it a PC, Mac or an XO laptop. As a result, the browser is the new desktop. Today’s browser competition is less about who renders HTML properly, and more about what the incumbent browser is and how well it accommodates whatever new applications the Internet throws its way.”

But in order for web applications to match the desktop applications they seek to replace, these browsers need to start offering OS-like functionality. While this year has brought some changes in that direction, Google’s Chrome browser embodies such an approach as it is specifically built for these web applications.

“We realized that the web had evolved from mainly simple text pages to rich, interactive applications and that we needed to completely rethink the browser. What we really needed was not just a browser, but also a modern platform for web pages and applications, and that’s what we set out to build,” Sundar Pichai, VP of product management, and Linus Upson, engineering director, write on the Google blog.

One of the biggest improvements on this browser is the V8 JavaScript Virtual Machine, which allows multithreading and is said to be more stable than the current implementations of JavaScript. It enables the easy use of multiple web applications without slowing down the browser.

Google Chrome has faster JavaScript VM, better memory management, better Windows UI rendering, faster text layout and rendering,  and intelligent page navigation in comparison to other more widely adopted browsers. When combined with Google Gears technology, this is as close as you can get to replicating the desktop experience with web applications. “While we wanted to make more choices for users, we wanted to make less headaches for developers,” Pichai said in a demo of Chrome at the Google HQ on Tuesday. Chrome could act as the operating layer for cloud computers — and could turn out to be the netbook browser of choice.

“No, I would not call Chrome the operating system of web apps,” said Google co-founder Sergey Brin at the Tuesday demo. “I think it is a very fast engine to run web apps.

“With Chrome we will be able to bridge the divide; we will be able do more and more online,” he said. “You will be able to access your work from an Internet cafe and get all those benefits.”

Microsoft with its IE 8, Mozilla Firefox with its new technology efforts such as Prism and TraceMonkey, and Apple’s Safari are also moving to make their browsers work better with web-based services and applications.

No matter how you look at it, we’ve gone back to the future. And while the browser is not quite the OS yet, its relevance in our digital lives has become paramount.

With additional reporting from Liz Gannes

Updated Analysis: Google, in a blog post on its web site has acknowledged the existence of Google Chrome, a browser that the company will be releasing tomorrow. Kara Swisher has confirmed the existence of Google Chrome, a browser developed by the Mountain View, Calif.-based search company. The rumors of the browser were reported earlier on Google Blogoscoped, which received a comic book that outlined the key features of the browser.

• It is based on Webkit and will include Google Gears.
• It has a browser extensions framework that will allow it to make Adobe AIR-type hybrid apps.
• It includes Javascript Virtual Machine called V8 that was developed by a team in Denmark. It accelerates the Javascript performance and is multi-threaded.
• It has tabs, auto-completion, and a dashboard-type start page that can help you get going to the web services you need. Opera has such a dashboard.
• It has a privacy mode that allows you to use the machine without logging anything on the local machine. It might be similar to a feature called Incognito in the latest version of Microsoft IE.
• Malware and phishing protection would be built into the browser.

The company released:

So why are we launching Google Chrome? Because we believe we can add value for users and, at the same time, help drive innovation on the web. All of us at Google spend much of our time working inside a browser. We search, chat, email and collaborate in a browser. And in our spare time, we shop, bank, read news and keep in touch with friends — all using a browser. Because we spend so much time online, we began seriously thinking about what kind of browser could exist if we started from scratch and built on the best elements out there.

We realized that the web had evolved from mainly simple text pages to rich, interactive applications and that we needed to completely rethink the browser. What we really needed was not just a browser, but also a modern platform for web pages and applications, and that’s what we set out to build. On the surface, we designed a browser window that is streamlined and simple. To most people, it isn’t the browser that matters. It’s only a tool to run the important stuff — the pages, sites and applications that make up the web. Like the classic Google homepage, Google Chrome is clean and fast. It gets out of your way and gets you where you want to go.

Google says the browser is going to be in open source.

We owe a great debt to many open source projects, and we’re committed to continuing on their path. We’ve used components from Apple’s WebKit and Mozilla’s Firefox, among others — and in that spirit, we are making all of our code open source as well. We hope to collaborate with the entire community to help drive the web forward.

The new browser is going to be released in beta for Windows first, and there will be Mac and Linux versions at a later stage. A source tells me this initiative prompted Apple to release Safari For Windows as a beta last year.

The question is: Why a browser? What does Google get from releasing a browser? There are going to be many theories around the Google Browser — that it is a direct challenge to Microsoft’s IE Browser, for example — but I think it might be more than just the desktop. Why? Because even today, despite strong competition from Mozilla’s Firefox, Microsoft controls about 75 percent of the desktop browser market. In other words, given Microsoft’s control of the desktop, it is hard to dislodge it on the desktop.

However, it is vulnerable on mobiles, where IE Mobile has a non-existent market share. Like Mozilla, Microsoft is playing catch-up with Webkit, the core rendering engine for Nokia S60 phones, Apple’s iPhone Safari and Google Android devices. Even a Windows Mobile version is in the works. (Read my Webkit report.) By developing a browser that offers a seamless experience on both mobile and desktop devices, Google can carve out a nice chunk of the browser market for itself. The big opportunity could be especially the emerging class of mobile devices like the Netbooks.

Most of the features mentioned in the comic book and Google’s blog post indicate that features such as faster JavaScript VM, better memory management, better Windows UI rendering, faster text layout and rendering and intelligent page navigation are all features that make absolute sense in a mobile browser. I wouldn’t be surprised that that many of these features end up back in the Android browser.

In recent months, there have been rumors that Android is going to work on more than just mobile phones. Given the light-weight footprint of these devices and Google Chrome’s focus on “web applications” it would make perfect sense for Google to chase this opportunity.

Mathew Ingram points out, “Google clearly sees the browser as a form of operating system — just as I think the Mozilla group.” I agree, and also I agree with John Furrier’s contention that browser-as-OS war is only beginning. What are your thoughts about this development?

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Broadband service providers are looking to add higher-value services to their offerings, services that could soon include a virtual desktop for consumers. Indeed, the idea of a service provider offering a PC as a Service (PCaaS), essentially a PC in the cloud, may be coming to your broadband connection sooner than you might think. Here is how a virtual desktop would work: You’d have an access device at your location, called a thin client, which would connect your keyboard, video screen and mouse (KVM) to the service provider’s broadband network. (For more detail on thin clients, see Stacey’s recent post.)

The thin client could be a hardware device or it could be a piece of software running on your current PC. In either implementation, the thin client sends all of your KVM data from your location to a server hosted in the service provider’s network. All PC functions and applications would be running on the server in the network and the only data going between your location and the server would be KVM information.

That is the major benefit of a virtual desktop: All operating system files, applications, documents, security software and so on are located on the server. All you need at your location is the thin client and you get access to your full desktop. These benefits, however, also highlight the main drawback of a virtual desktop: lack of portability. Moving your data from one virtual desktop to another may not be a trivial task and some applications may not be portable into a virtual desktop at all.

The technology to offer a virtual desktop has been around for a number of years. Companies such as Citrix, VMware, Microsoft and others already provide software to virtualize user desktops and connect to thin clients. The main issue with these offerings has been their performance relative to local computers. I, for example, was subjected to the horrors of using a software-based thin client connected to a server in a remote location, and the performance was abysmal at best.

But two fundamental technologies that may solve the virtual desktop performance issues already exist. The first is the proliferation of broadband Internet. Using a thin client to connect to a remote virtual desktop server over a multimegabit link that is within the same metropolitan area can provide reasonable performance. The second technology is KVM enhanced by hardware. Companies such as Teradici and Pano Logic provide hardware acceleration and compression for the KVM data passing from a thin client to the server — to the point where the performance difference between a local computer desktop and a virtual desktop is nearly indistinguishable. Using these technologies, the performance of the virtual desktop could even provide a graphics-intensive experience, such as playing a 1080p HD movie in one window and playing an action-packed game in another.

Assuming that the technologies exist to enable service providers to offer virtual desktops for consumers, from a business perspective, PCaaS has numerous appealing qualities. Broadband customers that use a virtual desktop will more than likely pay for a higher-bandwidth broadband service. Given the portability issues around virtual desktops, this also provides a clever mechanism to lock the consumer onto a specific network, which would ostensibly result in lower churn. I can also envision different product bundles for consumer-focused virtual desktops: a basic desktop with a browser only, an enterprise desktop with Microsoft Office applications enabled and a gaming/HD desktop that comes bundled with a hardware-based thin client branded by the service provider (Here’s your AT&T desktop access device!). Additional options could be storage space, accessibility options (Do you want to access your desktop from any TV and your mobile phone? Please pay us $5 more per month) or peripheral device support (such as printers and webcams).

One question that needs to be answered is how service providers could offer virtual desktops in conjunction with their metered bandwidth services. If I am sending lots of KVM data to a virtual desktop hosted by my service provider, you can be darned sure I don’t want be billed on a bandwidth meter.

But perhaps the biggest unknown around the PCaaS business is the user support that would be required. Service provider support organizations are better known for frustrating their users than helping them. Extending these support organizations to answer a myriad of desktop, application and device peripheral issues might be too much for them. An alternative may be for service providers to outsource the application and peripheral support to someone like Microsoft, similar to today’s relationship between MSN and Qwest.

With all of this to consider, are you ready to give up the hassles of managing your own desktop for a virtual desktop run by your service provider?

Since we’re getting in a huff over Comcast’s 250 GB cap, we thought it would be helpful to lay out why capping broadband is a bad idea today and a worse one for tomorrow, how it can benefit ISPs, and why it’s not really necessary on most networks. Check out our handy overview and links to our past coverage on the topic.

1. Time Warner got the ball rolling back in January, and in June it announced a trial limiting folks to tiers from 5 GB per month to 40 GB per month. Billing began this month.
2. While some of the telcos have threatened caps, only Frontier has actually done so across its service area with a minuscule 5 GB limit.
3. Yesterday Comcast clarified that it will implement a per-month cap of 250 GB, but defended it by noting that it will affect less than 1 percent of its users and most users download 2-3 GB per month.
4. Many of these caps have been imposed in the name of network management, but they have financial benefits for ISPs as well.
5. There are differences between the last-mile networks of telco and cable providers that make broadband caps more useful for cable networks, but it’s still a bad idea.
6. A 250 GB cap won’t affect many people today, but anything making people think twice about delivering or downloading broadband services could have a negative impact on innovation.
7. In the case of delivering Olympic coverage online, lower-level caps may already be having an effect, but it’s hard to tell without software to track usage.
8. That means it could hurt companies such as Google, Amazon.com and Netflix as they roll out higher-bandwidth using services.
9. And in the future, services ranging from telemedicine to teleconferencing could feel the impact. Not to mention those poor web workers.
10. But regardless of what a few carriers in the U.S. are doing with caps, the web will continue to grow, both in terms of the number of users and the amount of data they consume. Caps won’t stop it, and neither will network management measures such as traffic throttling. If our broadband networks can’t meet that demand, the U.S. eventually could find itself lagging in the technology field.

Everyday activities — commuting to work, walking the dog, grocery shopping — could one day help keep your cell phone charged, thanks to an emerging technology that converts regular motion into power.

Boise, Idaho-based startup M2E Power announced this week it will start selling a cell-phone charger next year that can convert six hours of everyday movement (about two days of toting it around) into one hour of talk time. The company hopes to one day embed its microgenerator and a battery storage system into the cell phone itself. While motion-harvesting mobiles might not become a blockbuster hit in industrialized nations, they could fill a real need in developing nations where the power grid is woefully lacking.

Cell phones are sweeping the developing world, as the technology becomes cheap and can offer an otherwise hard-to-come-by data connection. At the beginning of the year there were a quarter of a billion cell-phone subscribers in Africa alone, according to the International Telecommunications Union. In India there are about 300 million cell-phone subscribers to date, and China has more than 550 million subscribers. As research firm Gartner notes in a recent report, the growth of the mobile phone industry “will increasingly rely on emerging markets as mature regions, such as Western Europe, Japan and North America reach saturation.”

These countries also have electrical grids that are woefully fractured, inadequate or, when actually available, intermittent. Being able to generate, store and use non-grid power to juice up a cell phone could be extremely valuable in these markets. According to the International Energy Agency and the World Bank there are roughly 1.6 billion people without access to modern electricity grids, most of them in Southeast Asia, Sub-Saharan Africa and East Asia. If motion power could give mobile phone users longer times between charging, it could be a highly sought-after feature.

In developed markets, phone makers are striving to “out-green” each other as a way to stand out from the crowd and command premium prices for their gadgets. M2E’s charger, which will sell for $20 to $40, can reduce the need to charge from the grid and thus cut down on electricity and related carbon emissions. (External power supplies, including battery chargers, make up 3 to 4 percent of U.S. electricity use, according to Ecos Consulting.) And the trend of using renewable energy to power cell phones is just starting. Solar chargers, like Solio, can power an hour of talk time with about 2.5 hours of direct sunlight.

Thus far, cell-phone companies haven’t made any moves toward adopting the technology, but they say they’re reviewing it. The world’s largest handset maker, Nokia, has been grabbing market share from competitors — selling 122 million cell phones, about one-fourth of the global total, in the second quarter — because of its success in developing nations. Its sales in Latin America and Asia-Pacific increased about 40 percent over second quarter last year. A spokesperson says Nokia is “keeping an eye out for” a variety of cleaner charging options — including power generated by human movement — that could be used in Nokia products.

Motorola sees a potential market for the battery-extending technology among users “with active lifestyles.” A spokesperson said Motorola views motion-harvesting as a viable external power source in the short term, and noted that it could become an integrated solution in the longer term, as power generation becomes an important design issue.

M2E hasn’t yet named a manufacturing partner for its charger, but the company says it is in discussions with the accessories divisions of major cell-phone companies. M2E Power’s Business Development Director Regan Rowe acknowledges that cell-phone companies see an early-adopter risk in embedding the technology on the phones themselves, so the external charger has been the company’s first step to commercialization.

Ultimately, the determining factor in whether motion-harvesting technology makes it into mass-market cell phones and accessories will be cost. How much will it cost to add the technology to phones, and how much is the user willing to pay? If the price tag remains high, the technology could end up as a pricey feature on a high-end green phone, rather than solving energy (and digital access) issues in the developing world. But if the cost comes down enough, it could be a real game-changer for cell phones with sporadic or no access to the power grid.

This article originally appeared on BusinessWeek.com.

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Nokia, the leading handset maker, has been a favorite of ours for two reasons –- it ruthlessly promoted and added Wi-Fi connectivity to its handsets and added VoIP functionality to its devices.

Carriers did not view these technology developments too kindly since it prevented them from extorting exorbitant amounts of cash for costly long distance connections, leading to the rise of mobile-VoIP players such as Truphone, Fring and Gizmo Project.

But now the Finnish giant seems to have developed cold feet, and some of its new handsets, such as the new N78, are not VoIP compatible anymore. Many of these new phones are not on the list of Nokia’s VoIP compatible handsets. It is not clear how the older phones are going to be impacted. A reader tipped us off about this apparent change in the latest N-series phones.

…the N78 (and also to affect the forthcoming N96) which is that Nokia has very quietly and seemingly sneakily redacted their built-in VoIP / SIP implementation in all phones that come with Symbian Series 60 3rd generation Feature Pack 2 (otherwise abbreviated as S60 3.2).

I have a N78 lying around so I decided to test it myself. And lo-and-behold none of the VoIP services I am accustomed to using worked. Truphone and Gizmo are two services I typically use and neither of them work.

Ditto for Fring, a VoIP-IM service as well. However, all three worked on the Nokia E71 smart phone. When I asked Nokia if this was true, the company sent me this response, which pretty much admits that is the case, though it didn’t say why.

Nokia Nseries is committed VoIP services as part of its offering. That is why we have included SIP stack and improved the developer VoIP offering in S60 3rd Edition Feature Pack 2 by enhancing the VoIP APIs to improve the call quality, as an example.

A Nokia VoIP client is not included with the Nokia N78 and the Nokia N96 and VoIP solutions based on this particular client such as Gizmo will not work. However, Forum Nokia will cooperate with third-party developers to support them in porting their applications from S60 3.0/3.1 releases to S60 3.2. One example is Fring, whose popular application will be offered via Nokia’s Download! service for the Nokia N96.

Truphone isn’t waiting around for Nokia to do something. A company spokesman told us: “From Truphone’s perspective Nokia has removed the VoIP client from all the N-Series phones for the planned future. We are putting in a replacement client functionality so that existing customers are not orphaned.”

The theory is that Nokia isn’t mucking with E-series devices because they are more enterprise focused. Since VoWLAN is more popular with the corporations, Nokia can’t afford to remove the VoIP functionality. It is one feature that makes the phones more competitive with say Blackberry.

On the consumer front, however, voice-over-WiFi has become a thorn in the side of carriers, as exemplified by actions of carriers such as T-Mobile against VoWiFi-startups such as Truphone. Furthermore, the emergence of 3G has made it easier to route calls over the 3G network.

Funnily enough, the decision to back away from built-in VoIP comes at a time when fixed mobile convergence is finally beginning to gain traction, especially in Europe and Asia. In the U.S., Nokia launched a handset that works with T-Mobile’s Hotspot@Home service.

Nokia has to be taking a lot of heat from carriers over making VoIP easy on its devices. Whichever way you look at it, I think it is a bone-headed move by the company, which should be trying to out-innovate its competitors and be more open in terms of its features.

The decision also brings into question company’s new mantra of being open and open-source friendly. Being open isn’t about releasing some software in open source, but it is about having an open mind. Shutting down a much loved VoIP feature isn’t exactly the right move.

As our reader very aptly wrote:

….does this move by Nokia really appear to be the type of move that is indicative of a culture shift towards open source per the Symbian Foundation? Google is already culturally rooted in open source (its entire infrastructure runs on Linux clusters). I am not so confident about Nokia’s ability to shift to open source…

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The image of a bedtime-avoiding youngster huddled under blankets with a flashlight and comic book might soon be joined by that of a kid thrilling to a superhero’s latest adventures on a laptop tucked under the covers.

Just like music, movies and TV shows, comic books are going digital. But unlike other media migrations, the jump from ink to bits significantly changes the nature of a comic book. “Ours is different from video because their final product looks exactly the same,” said Dan Buckley, president of publishing at Marvel Entertainment. “The DVD is the same as if you downloaded it.”

Comics, however, must go from a tactile, paper experience to a hands-free digital one, and unlike text-only books, comic narratives are told through sequential art; how the panels are laid out is just as important as what’s in them. Both Marvel and DC Comics are experimenting with different approaches to presenting comics on the web as they try to figure out what consumers want — and what they’ll pay for.

While sales of traditional entertainment forms like music CDs and DVDs have decreased or flattened, there hasn’t been a similar sea change forcing the comics industry to go digital — the paper-based comics business is still doing well. Combined sales of graphic novels and comic books in the U.S. and Canada hit $705 million in 2007 — a 10 percent bump up from 2006 — and sales of graphic novels have quintupled since 2001.

So if demand is still high for print, what’s driving the digital moves? Opportunity. “We want people to see these stories through as many distribution points as possible,” Buckley said. So Marvel is trying out a number of different digital formats for its properties. Last year, the company launched Digital Comics Unlimited, a subscription-based service that charges $50 a year for access to more than 4,000 (soon to hit 5,000) comic books online. Since launch, Buckley said Marvel has learned quite a bit. “The print and digital businesses complement each other,” he said. “One is not cannibalizing the other.”

The company is also trying its hand at so-called motion comics, which use existing comic panels but give them an animated feel through pans and zooms or by giving characters simple movement; voice actors provide the dialog. Marvel created a 25-episode motion comic out of “N,” a short story by Stephen King, as a promotion for “Just After Sunset,” his upcoming collection of short stories; free episodes are being released every weekday until August 29. The company has also tested motion comics out on some of its bigger-name properties like Ultimate Spider-Man.

Rival comic book powerhouse DC Comics and parent company Warner Bros. are jumping into the deep end when it comes to motion comics, releasing two high-profile properties, Watchmen and Batman Adventures: Mad Love, as motion comics. Watchmen, which will promote the upcoming feature film version, debuted exclusively on iTunes, with episodes costing $1.99 a pop, while Batman Adventures is available on Microsoft’s Xbox Live Marketplace (in high-definition) for roughly $1.75 per episode and on Verizon VCast as part of a subscriber’s plan.

Both digital and motion comics could help companies monetize their rich back catalogs for a relatively low cost or promote upcoming film properties and printed collected works of a particular title. But in a time when consumers can watch ad-supported TV and movies for free online, will people pony up for digital comics?

Neither Marvel or DC would provide any sales or subscription numbers. Marvel offers some digital comics online for free, but says it’s proceeding cautiously. “We’re still quibbling about what the primary form of revenue will be,” Buckley said when asked about ad-supported offerings. Marvel is also concerned about the impact of the move on the niche retailers like hobby shops that still sell comic books. “We don’t want to do anything to hurt anybody in the short term,” said Buckley.

But James Sime, owner of the Isotope comic book store in San Francisco, isn’t too worried about the impact of digital comics on his business. Sime says he believes there’s a great opportunity for comics retailers and publishers to learn from mistakes of the ailing music industry.

According to ICV2, a trade publisher that monitors the business of comics and pop culture, trade paperbacks (collections of single issues in one book) generated $375 million in 2007 and single issues did $330 million that same year. Though Sime doesn’t think single issues sales will go away, he envisions a scenario in which they are moved from print to online as promotion for the trade paperback.

“I’m all about it,” said Sime. “People are excited about comics. The more people get them into their hand, the more they read them — the Internet is a great facilitator for that.”

The article originally appeared on BusinessWeek.com.

Slideshow: Comic book heroes go digital

Amazon has announced Amazon Elastic Block Store (EBS), a persistent storage offering that can be used in tandem with applications using the Amazon Elastic Compute Cloud (Amazon EC2). With this move, it is turning up the heat on everyone from storage area network vendors, server companies and of course data center operators. Don’t be surprised if the company starts attracting corporations using its suite of web services.

Amazon first started talking about this back in April, sharing some details about the service. (More about its road map, here.) With EBS, new storage can be essentially created on the fly, attached to the EC2 instances, and make the cloud services behave more like the traditional machines people are used to. Storage volumes can be backed up to Amazon’s S3 service. Amazon CTO Werner Vogels has penned an excellent summary about the service, on his All Things Distributed Blog.

However Amazon EBS isn’t just a massive volume storage array … We see developers use this feature for long term backup purposes, for use in rollback strategies, for (world-wide) volume re-creation purposes.

RightScale, a company that has received funding from Amazon and works closely with it has a great explainer on how it works — a must read.

With EBS, developers can deploy scalable solutions including relational databases, distributed file systems and Hadoop processing clusters. EBS is more adept for working with databases, as well apps that require a file system. You can now start and stop just like you would on a traditional physical server. This is a play for larger, corporate customers, a move that is long time coming.

First, some facts about the service:

• EBS volumes can be anwhere from 1 GB up to 1 TB.
• As a beta customer, you can create 20 EBS volumes with a total of 20 Terabytes.
• EBS costs storage plus I/O requests: $0.10 per GB per month & $0.10 per million I/O requests.
• EBS functionality is available via EC2 API using any number of tools, including command line and Elasticfox.

Why this is a big deal? Well in the past, data that was coming off storage that was attached to Amazon EC2 instance was lost once the instance was lost, a problem that became an issue for quite a few app builders. Persistent access is key to many applications. With the release of this service, now you can simply use Amazon as a full-scale virtual data server. Another way to think about it: a storage area network in the cloud. Check out this post about how to run MySQL on Amazon EC2 with EBS.

Think about it this way — Amazon has taken one more step (a big one) toward turning servers into a service, a prospect that should keep the chiefs of big server makers awake at night.

• Related Post: Check out my interview with Amazon CEO Jeff Bezos and his views on cloud computing.

Want to know more about the rapidly changing Cloud Computing landscape? Preview our Cloud Computing Briefing or purchase the full version.

Having followed the optical network business for over a decade, one thing I have learned is that the boom and bust cycles of the business often mask patterns that have long-term implications. The overbuilding of U.S. networks in the 1990s foretold a bust in the telecom industry. The buying up of bankrupt carriers’ assets indicated the rise of new players including Google, which has built a fearsome infrastructure. These days, all the excitement in the optical business is around new undersea cables being laid (or planned), bridging previously unconnected parts of the world. These cables are, in fact, the early warning signs of a pending economic boom.

Let me explain. In the 1990s, we saw a grotesque number of cables laid under the Atlantic and Pacific, connecting the United States with Japan, parts of Asia Pacific and Europe.

Those three regions went through an unprecedented boom, much of it inspired by technological changes that had millions turning to the Internet. The boom, also inspired by deregulation of the telecom infrastructures in those countries, led to further spending on communications such as wireless phone calls and high-speed Internet. Unfortunately, the demand (captured quite well by bandwidth provider Global Crossing in early days) led to overbuilding, oversupply and eventually a bust.

Growing Fibers In Asia

A similar scenario is now playing out in the Trans-Pacific region where cables are being built rapidly, and the bandwidth capacity on pre-existing cables is being doubled. Many more cables under construction are connecting with India and China, both of which are going through their own economic booms. According to the World Bank, China is the world’s second largest economy, and India claims the fourth spot. These countries have become economic hubs — not only buying but also selling to the outside world. And a key ingredient of trade is the ability to communicate, which in turn requires the large amount of capacity that can only come with undersea fiber cables.

The latest such effort is SEACOM, a $650 million, 15,000-kilometer cable connecting East Africa with Asia and Europe that is expected to be completed in June 2009 and provide 1.28 Terabits per second of network capacity. This is just tip of the iceberg.

According to TeleGeography, a research firm that tracks the global broadband business, there are about 12 cables either in planning stages or under construction that will connect Africa to the rest of the planet. Those connections will have a theoretical capacity of over 13 Terabits per second, and construction is estimated to cost more than $3 billion.

In Africa, Mobiles Drive Bandwidth Demand

Why so much connectivity? After all, PC penetration is abysmally low in Africa. The answer is cell phones. At the beginning of 2008, there were a quarter of a billion mobile subscribers on the continent, according to International Telecommunications Union, and Portio Research estimates the number will increase to 378 million by 2011. Local companies are furiously building out networks, and by all indications, the overall market penetration is going to increase from the 28 percent mark reported at the start of this year. Cell phones need networks to transfer calls between countries, so there is a need for networks to circle the continent — or at least countries like Kenya, Nigeria and South Africa, which have the most critical demand.

In the recent past, India went through a similar cycle, where a spurt in mobile sales acted as a catalyst for the overall economy. Phone calls provide the vital connections for trade to flourish in areas hitherto unconnected. Something similar is happening in Africa, where mobile banking has emerged as a facilitator of cross-border trade.

You can see a similar scenario set to play out in other parts of the world. There are about five cables on the drawing board or under construction that would connect Cambodia, Bangladesh, Vietnam and some of the smaller countries in Asia. All these countries are going through an economic upsurge and are becoming part of the global economic system.

This leads me to my conclusion: Building new cables is the equivalent of adding new roads, new shipping lanes or flights. The undersea fibers of today are what sea trading routes were in the past — an indicator of future economic activity and the subsequent boom.

This article first appeared on BusinessWeek.com

Earlier this week, San Francisco-based web publishing software company Six Apart released the newest version of its flagship product, Moveable Type, and pushed the blogging community into taking the first step toward a very social future.

It is not a new concept — since their early days blogs were all about sociability. Late last year, we backed Chris Messina’s wild idea that WordPress, the open-source blogging software that we use to power majority of our network blogs, could be become the underpinning for a social network. In January, Automattic, the company behind WordPress and the free hosted blogging service WordPress.com, bought BuddyPress to help bring sociability to blogs. (Disclosure: Automattic was started by Matt Mullenweg, a close friend of mine. We share True Ventures as an investor.)

Our friends at ReadWriteWeb theorize that in order for blogging to evolve, the blogging systems need to embrace the newly popular life-streaming services such as Twitter and FriendFeed, along with a growing panoply of personal web services (including the most fabulous, Dopplr). The team at Six Apart has combined the above-mentioned ideas to create Moveable Type Pro, a blog-publishing system with extremely social DNA. (Check out the Six Apart blog for details.)

Blogging Needs To Evolve

Six Apart is making the right move, for it is time for blogging to evolve. Many of us have forgotten that blogging is not just an act of publishing but also a communal activity. It is more than leaving comments; it is about creating connections. For instance, through comments I met folks like Robert Young, who in turn wrote for the blog, and then in the process became a friend. It is time to re-embrace and extend that philosophy.

Establishing those kinds of relationships becomes an even bigger challenge as newer tools emerge, enabling new kinds of sharing. Whether it is Friendfeed or Dopplr, videos or photos, we are constantly figuring out ways to share information about us on the web. In other words, our digital life is spreading out across the web.

Blog = Digital Life Aggregator

We have two choices in order to consolidate these — either opt for all-purpose services such as Facebook (as tens of millions have done) or use our blogs as the aggregation point or hub for all these various services. Facebook, for instance allows you to share photos, aggregate your digital droppings, share comments with friends and exchange messages, but it doesn’t give you a unique identity on the web. In contrast, blogs with social features could allow you to do exactly that.

Marc Canter has been talking about this digital aggregator forever and has been ahead of the curve, though now pieces have started to fall in place. Robert Scoble is a good example of how and where things might be headed. He uses multiple services, and they are all easily consumable on his blog, where he writes longer, more engaging posts. His short conversational posts of yesteryear have migrated to FriendFeed, his video has bifurcated into long-form or live, short-form videos. I know Scoble is an outlier of this trend, but he was also ahead of the curve six years ago as far as blogging is concerned.

The Demographic Shift

As a society, we are entering an increasingly narcissistic phase, enabled by web technologies — a theory that is articulated in Wired’s recent cover story. As the Wired writer quips, “Like it or not, we are all public figures now — famous, as the new cliché goes, for 15 people.”

The evolution of blogging platforms needs to match these societal and demographic changes. I think folks who are blogging now (no, not just tech bloggers) are different from some of us early bloggers — they use different tools and services and have different views of sharing. In many ways MySpace and Facebook have changed what is OK, and what is not OK online.

With that as a sub-text, it is good to see the blogging systems start to evolve. Kudos to Six Apart for making the first major move. Suddenly, blogging tools are more fun — and social.

Open Question: How will you build the next-generation blogging system? I am going to be discussing this question with various attendees of WordCamp 2008 that is being held in San Francisco this weekend. I am speaking at the camp and have a exciting announcement as well.

PS: Get ready for BlogActionDay.org by registering your blogs, watch the new video, and become part of the movement that is about blogs making a change in our world.

The iPhone 3G’s problems are a hot topic of discussion these days, with everyone trying to figure out who’s to blame. Is it the fault of the carrier? The software? Or the chips inside the device? While I have a feeling this is really a witches’ brew of all three, the explanations only add to the mystery.

Users are complaining of four basic problems. And notably, they are the same ones that handset makers and carriers in Europe and Asia had to deal with when they started to roll out 3G systems in those regions:

1. Speed of the 3G network is often not as fast as it should be.
2. Switching between the EDGE and 3G networks leads to broken web sessions.
3. For some, the switch between the networks leads to dropped calls.
4. Weak battery life.

A report on BusinessWeek.com today sheds more light on the issue, though there is still no official comment from Apple. According to the report, the problem is impacting 2-3 percent of iPhone traffic. BW cites an unnamed source who notes that considering 1 percent of AT&T calls get dropped, this is a problem, but not a catastrophe.

AT&T: Network Is Fine

AT&T, displaying a classic head-in-the-sand attitude, issued a statement that said, “Overall, the new iPhone is performing just great on our 3G network.” Right, and overall, the Yankees are on target to win the MLB World Series! If it’s performing so well, why are so many people complaining?

Ask anyone in San Francisco or New York and they will make your ears bleed with their tales of iPhone 3G woes. When we asked our readers about their experience, a majority said they were getting speeds only marginally better than the original iPhone. BW offers some clues as to what the problem might be:

Part of the role of the Infineon chip is to check whether there’s enough 3G bandwidth available in a given area. If 3G isn’t available or there isn’t enough bandwidth, the iPhone will be shifted to a slower network. One source says Apple programmed the Infineon chip to demand a more powerful 3G signal than the iPhone really requires. So if too many people try to make a call or go on the Internet in a given area, some of the devices will decide there’s insufficient power and switch to the slower network—even if there is enough 3G bandwidth available.

Apparently this is resulting in problems in areas of high iPhone density — aka San Francisco, Boston etc. — the very markets where Apple has both a strong retail presence and higher-than-average mind share.

Antenna & Weak Signals

Meanwhile, Swedish magazine Ny Teknik is citing unnamed experts that have come up with yet another theory:

… the most likely cause of the 3G problems is defective adjustments between the antenna and an amplifier that captures very weak signals from the antenna. This could lead to poor 3G connectivity and slower data speeds.

And when I tried to test their theory, it made sense. I currently have three 3G handsets — Nokia E71, Nokia N78 and Sony Ericsson U750a — all of which are optimized for the AT&T 3G network. The speeds on those phones are much faster. Similarly, if I pop a 3G SIM card into one of the USB modems, the speeds on AT&T network are quite fast.

Its the 3G Stupid

Finally there is our friend Mike Puchol, who explains how wireless networks work and outlines some of the problems associated with 3G technologies. In his view, the problem is shared bandwidth:

…key issue to remember is that the download rate is “per tower”, not per user. So, if two users using HSDPA are on the same tower, they will each get a maximum throughput of 3.6Mbps. Divide even further, and the more users you have the worse experience everyone gets.

His explanation also makes sense, and ties in with an earlier post of mine in which I looked at the backhaul problems facing U.S. 3G networks and asked whether or not they’d be able to withstand the iPhone 3G stress test.

I get the feeling that this issue isn’t going to die anytime soon. If you have theories, please share them with us.

If this story interests you, check out our upcoming conference:
Mobilize — The Next Generation Mobile Conference

Is cloud computing right for you? For the fledgling startup, the appeal of the cloud is obvious. Given how easily an entrepreneur’s vision can be stymied by a lack of technical and operations expertise, leveraging an Amazon EC2 or Google App Engine could provide the only viable option.

But what about large enterprises that not only have an in-house technical staff to do their bidding, but existing data centers and deep pockets? Stacey has already identified issues with some cloud providers, such as security, reliability and portability. However, assuming they are all resolved, are there compelling reasons for large enterprises to even be interested in cloud services? And if so, under what conditions?

In order to decide, the enterprise needs to ask these five simple questions:

1. Is demand constant? If demand is constant, dedicated resources in an enterprise data center are fine. Smooth, constant workloads mean that a fixed pool of servers can chug away 24/7, meeting utilization targets.

Unfortunately, very few enterprise applications have this kind of profile. Consider a retailer that does 80 percent of its annual business in the month following Thanksgiving Day. Fixed capacity engineered to peak would only be fully utilized during those four weeks, compared to utilization of slightly more than 2 percent during each of the other 11 months. In other words, its investment would go virtually untouched for more than 90 percent of the year. Try selling that to the finance committee. A cloud, on the other hand, can provide dramatic cost savings by offering access to scalable resources on a pay-per-use basis.

2. Is growth predictable? Even if demand isn’t constant, if growth is predictable, it can be managed in an enterprise data center. By building in lead times, one can place orders for additional capacity and rest easy that it will arrive in time, even by snail-mailing paper purchase orders for servers that get delivered by slow ships.

But when growth is unpredictable, the pay-per-use model of the cloud makes “cloud-bursting” — that is, leveraging cloud services to handle spikes — a more cost-effective option. Plus, with fixed capacity, it’s easy to make one of two fatal errors: Being overwhelmed by surprise demand can easily lead to poor performance or no service, resulting in the loss of both revenue and reputation. On the other hand, investing in capacity that remains idle can bankrupt a small company.

3. Can demand be shaped? Users today expect instant gratification, even from free services. While some demand can be shaped and smoothed – either by avoiding it, deferring it, or incenting it, via sales, promotions, queuing, congestion pricing, or variable pricing for yield management — some can’t.

If spiky demand can’t be shaped, on-demand scalability is indispensable. After all, how popular would Google be if a search request returned, “We’re kinda busy right now. How does next Tuesday around 2 pm work for you?”

4. Where are the users? If users are concentrated in a particular locale, they can be serviced by a single nearby data center (or two, for business continuity), but not if they’re scattered around the globe.

The only way to engineer today’s rich Internet application for a global community is to leverage a network of dispersed web, content and application servers. While building lots of data centers all over the world might have seemed like a good idea for enterprises a few years ago, a better option today is to consolidate enterprise data centers while simultaneously leveraging a cloud service provider with a global footprint.

5. Is the application interactive? There are still many applications out there that aren’t highly interactive, such as seismic analysis, circuit simulation and equity portfolio optimization. For them, geographic dispersion could be a negative, due to an inability to effectively partition the compute tasks into loosely coupled components.

However, for the tidal wave of emerging Web 2.0, AJAX, Rich Internet Applications, proximity to a service through geographically dispersed cloud resources is key as the client portion of the app has to make frequent round-trips to the server — in some cases on every keystroke. And for applications such as multipoint video collaboration, reducing hops and propagation delays between end points and cloud-based bridges is essential to creating a natural experience.

So for enterprises with smooth and predictable demand created by accommodating users who are willing to walk back across the street another day to process their batch jobs, clouds may be unnecessary.

But for enterprises pursuing emerging, shifting and uncertain global markets, with global supply chains or virtual enterprise partners and variable and unpredictable workloads coming from demanding users who want engaging, interactive interfaces, the cloud could be the right — perhaps even the best — option.

Joe Weinman is Strategic Solutions Sales VP for AT&T Global Business Services. The views expressed herein are his own and do not necessarily reflect the views of AT&T.

Want to know more about the rapidly changing Cloud Computing landscape? Preview our Cloud Computing Briefing or purchase the full version.

The second-quarter 2008 financial reports are in –- and the tea leaves aren’t showing a sunny future for phone companies. While their financials today look bearable, economic and demographic trends are acting as gale-force headwinds for the future. Here are some of the major issues they’re facing:

• A slowing economy means people are choosing wireless phones over landlines, resulting in increased access line losses. That, in turn, is reducing the number of people the phone companies can convince to switch to their higher-speed networks and video services.
• Cable’s triple-play bundles, which include higher speeds and voice, are starting to resonate with the residential customers, leading to further landline losses.
• Phone companies’ own higher-speed services are starting to cannibalize their installed base instead of luring customers away from cable companies.

In broadband, cable rules for now

According to Leichtman Research, there were 65.1 million U.S. broadband subscribers at the end of the second quarter of 2008, with cable companies getting a larger share of the total –- 35.3 million subscribers. In comparison, phone companies have 29.7 million subscribers.

The two big cable operators, Comcast and Time Warner Cable, continue to add broadband subscribers at a furious pace, though their growth rate is starting to lose speed. In contrast, phone companies are having trouble adding subscribers, even as they roll out video and faster networks.

Phone companies’ broadband offerings are taking the shine off their DSL services. AT&T, for example, added 46,000 new subscribers (down from 491,000 last quarter) and 170,000 U-verse subscribers. John Hodulik of UBS Research suggests that when taken together, it lost around 124,000 DSL subscribers.

Verizon is experiencing similar issues. It added 187,000 FiOS Internet subscribers, but the total broadband tally came in at just 54,000 net additions for the quarter — a loss of 133,000 DSL lines, using the UBS method.

It shouldn’t come as a surprise. Once you hear about a much higher speed Verizon FiOS connection in your neighborhood, why would you want DSL? Cable companies have used this “more is better” mantra to their advantage, offering up all sorts of geewgaws, like Comcast’s Powerboost.

An AT&T spokesman told the Wall Street Journal that speed is only one component of a broadband service and offered up other arguments such as shared capacity and other technical mumbo jumbo to justify that their DSL connections are better. “We offer the best broadband for the price,” he told the Journal.

I was amused, because when you sell broadband, speed is the most critical component — and all these points made by the phone company guys don’t translate too well in the winner-take-all world of consumer marketing.

The divergence between U.S. cable and telephone companies can be easily explained: Cable companies added phone service and offered triple-play service, stealing voice customers from the phone companies. Phone companies are responding to the triple-play threat by rolling out their own video networks, but it is early days and really slow going. Since voice networks are easy to roll out compared with big video networks, phone companies are finding themselves on the losing end of the equation.

Where did my lines go?

As I’ve said before, the biggest problem for phone companies is that they’re losing voice customers at a rapid clip -– either to cable operators or to wireless. Many believe that uncertainty regarding the economy is making people pick a wireless-only option — a theory supported by robust growth in the wireless additions at Verizon (1.5 million net new subscribers) and AT&T Wireless (1.3 million net new subscribers).

This continuous line loss reduces the pool of potential switchers to video and higher-speed broadband services. You want to know how bad it is? Here’s a quick rundown of second-quarter losses: Qwest saw a 10.2 percent decline in residential lines; AT&T an 8.7 percent drop; Verizon lost 8.5 percent (1.4 percent decline in residential switched access lines), and Embarq lines dropped 7.8 percent. All four percentage losses were higher than in the previous quarter.

What phone companies should do

I think between the bluster and hype, the reality is that phone companies are facing an uncomfortable today and an uncertain tomorrow.

Big phone companies should take a cue from Roseville, Calif.-based Surewest Communications, a smaller player that’s been very aggressive about offering broadband at competitive prices, offering higher speeds and, in general, meeting consumer demands. It reported a 1 percent sequential decline in voice lines for the quarter and a 2 percent jump in broadband subscribers. It’s trying hard to compensate for access line losses with VoIP services. The company said that “over 82 percent of existing data subscribers who signed up for VoIP increased their Internet speeds to enhance the overall experience.”

Maybe it’s time for the big boys to let go of their legacy and fully embrace the future — including offering better broadband, advanced services and new voice at prices that are much lower than cable. At least that way they can start to stem the tide of losses.

Cisco Systems (CSCO) reported its fiscal fourth-quarter 2008 financials last week, but while the San Jose, Calif.-based networking giant beat Wall Street estimates, thanks to the hurdle posed by the law of large numbers, it forecast more modest growth going forward. “The market is clearly in transition, and we will use this time as an opportunity to expand our share of customer spend and to aggressively move into market adjacencies,” CEO John Chambers said in statement.

The question is, what are those markets adjacencies? After all, in order to move the needle, Cisco needs to find as-yet untapped markets that it can serve. Such a challenge comes at a particularly difficult time: The telecom market has consolidated in the hands of a few carriers, new opportunities are few and far between, and the overall trend is towards hardware becoming a service.