HD video and two-way video chat should send chills down 3G operators' backs

It was quite ironic when Apple (NASDAQ:AAPL) CEO Steve Jobs couldn't run a demo showing the new iPhone 4's higher screen quality during his keynote on Monday at the Worldwide Developers Forum. The download failed because Jobs couldn't maintain a solid WiFi connection.

After the snafu, Jobs asked people in the audience to turn off their access points, such as the MiFi and other devices that create instant WiFi hotspots. And after pressuring more attendees to turn off their cell phones and put their laptops in sleep mode, the demo finally worked.

It's a good segue to the potential problems iPhone 4 will create in the carrier network--mostly indirectly at this point. The new iPhone sports new capabilities such as HD video and a video call application called FaceTime--which Apple is restricting to use on WiFi connections for the rest of 2010 so that Apple can work with carriers on optimizing the service, Jobs said. No wonder AT&T (NYSE:T) revamped its data plans with usage caps the day Jobs introduced the iPhone 4.

But any new or perceived new application Apple introduces puts pressure on competitors to answer (Apple is extremely adept at taking existing applications and packaging them as if they were new). Moreover, the HTC EVO 4G device from Sprint is another phone that will be emulated. It too has video chat, a solution from Qik.

Qik basically underestimated demand, reporting it had an unprecedented 20 times the amount of workload on its services. Qik apologized on its blog and said it's team is provisioning more capacity. "... Even the significant growth assumptions were not enough, and we are seeing some unprecedented number of new users joining and Qikking. It truly is beyond what we had imagined," the company wrote on its blog.

Reading comments left on Qik's blog, it was evident HTC EVO users weren't so forgiving and many complained about the user experience.

Real-time video is now becoming the norm, whereby operators no longer can incorporate caching and buffering to help the traffic move smoothly through their networks, said Raymond Pasquale, managing director of business development with multimedia optimization company Aylus Networks. Video chat is even more problematic because traffic runs on both the uplink and downlink of a wireless connection.

Pasquale said the company's technology is catching on with operators. Rather than offloading data traffic or incorporating other tricks operators are considering, Aylus' gear can reduce the size of video streams to match a smartphone's screen size, change audio capabilities and even hold back or reduce the frame rate of a video connection if network bandwidth isn't available at the moment.

Moreover, Aylus gear can deliver chunks of video instead of the entire video given the fact that 80 percent of video playbacks are aborted mid-stream, Pasquale said.

As a result, bandwidth savings can be 40 percent to 70 percent depending on an operator's content and policies with little or no loss of quality of service, Pasquale said.

At any rate, enhancements with video appear to be the new "killer app" for 2010, and it could become a nightmare for many operators if they can't stay ahead of the popularity of new services smartphone makers manage to cram into their devices at an unprecedented rate. --Lynnette