Yahoo!/Tumblr: combining UGC and social networking is where the action is

Yahoo! is acquiring Tumblr. The specs:

• 117m users (growing 120k per day), 108m blogs, 300m monthly active visitors
• 75m posts per day, total 51bn
• Raised $125m
• 2012 revenues $13m
• 175 employees
• Combining with Tumblr will grow Yahoo!'s audience by 50% to 1bn and traffic by 20%.

Tumblr is a combination of user-generated content (UGC) and social networking, like Instagram (Facebook), and in a sense comparable to Pinterest (pictures), Waze (social mapping & traffic info, going to Facebook). Flickr (Yahoo!) could expand its social functions as well, as could YouTube (Google).

Pulse went to LinkedIn and Yammer to Microsoft. Other obvious takeover candidates are those that in a way combine UGC and social networking:

• Pinterest (pictures)
• PhotoRocket (photos)
• SlideRocket, SlideShare (presentations)
• Evernote (notes)
• SoundCloud (music, audio files)
• WordPress (blogs)
• Quora (Q&A)
• Path (mobile social net)
• Dropbox and Box.net (storage)
• Twitter (text-based microblogging)

More on access and services

Telecoms is moving away from its 4 traditional silos: fixed voice, broadband, TV and mobile. A more compelling way of looking at it now is (see previous post):

• Two enablers:
• Devices (portable and non-portable)
• Access (fixed and mobile)
• Two classes of services:
• Communication (voice/video calls, text/IM/chat, M2M)
• Entertainment (TV/catch-up/VOD, gaming)

And thus:

• This could be the basis for new regulation.
• The distinction between managed (traditional voice, SMS, TV) and OTT services is becoming less meaningful. Net neutrality is used to create OTT competition to managed services. The call (mostly from the fiber community) to create new and compelling services ('killer app for FTTH') seems quite ridiculous, considering the innovation going on in the OTT space. And as witnessed by the thousands of apps available on smartphones. Not to mention that it is the world upside down: we are not looking for new services to justify the roll-out of NGA networks; we are rolling-out NGA networks to keep ahead of demand (c.q. commoditise bandwidth, put an end to throttling, remove bandwidth as an artificially scarce resource) and especially because of the implied opex savings.
• A distinction between telco and cableco no longer makes sense.
• Access:
• Each of these markets are very competitive, except access. Unless it no longer makes sense to distinguish between fixed and mobile. LTE allows mobile operators to offer fixed-line replacement services, WiFi allows fixed operators to launch quasi-mobile services. Governments could consider to allocate lots of spectrum for unlincensed use to make sure that technologies such as WiFi increase competition.
• The access market is core for telecom operators. It creates subscriber ownership and generates fat margins (whatever the operators claim). Operators are now throwing in free services to attract/keep broadband subscribers e.g.:
• KPN: free access to Spotify Premium.
• BT: free access to BT Sports.
• Communication is traditionally voice and SMS. A third leg is M2M, e.g. DT's usage-based insurance (mobile) and home automation such as AT&T Digital Life (fixed). The commonality between these services appears to be: sensors.
• The 'entertainment' market is still developing. It consists of video (live TV, catch-up TV, VOD) and gaming. Will there be a third leg?

The new dichotomy of connectivity and services

Technological innovation, competition and regulation shape the telecoms sector. The entry of OTT providers has one the one hand been more of the same, but on the other hand it is causing big changes. If we take a step back to see how the sector changed over the past two decades or so, this is what appears to be going
on.

First, let's look at what we have to work with:

• Telecoms is a privatised free market.
• Regulation consists of defining markets, ascribing significant market power and applying remedies (on the wholesale or retail level).
• There are two infrastructures (in most countries to at least some extent): copper (nationwide) and coaxial (regional).
• Telecoms is a scale business. The entry barrier (capex, licenses) is very high. It has a tendency towards a monopoly, duopoly or oligopoly.

In the old days, the wider telecoms market was about traditional managed services (voice, SMS, TV). There was a somewhat artificial distinction between line rental (basic charge, fixed) and a usage-based fees. Competition was inter infrastructure (copper vs. coaxial) of intra infrastructure (unbundling, reselling). A three-layer model (passive, active, managed services) could be applied. The incumbent telco was regulated, the local cable company (lacking nationwide coverage) was not. When services such as CS and CSP rose, a rebalancing in the voice market started to happen: as usage fees went down, line rental charges went up.

Today, a fourth layer is added: IP, enabling OTT services (VoIP, IM, unmanaged IPTV). Unbundling appears to be too expensive for most challengers, but OTT brings a new form of competition, at least in the services space. Infrastructure-based competition is reduced to copper (upgraded to fiber) vs. coaxial (HFC). A rebalancing is going on, as traditional managed services are being replaced by non-managed OTT services. The new distinction is between service revenues (dropping) and connectivity. Limited infrastructure competition may lead to rising connectivity prices. Especially when the infrastructure players not only see services revenues dropping, but at the same time investments must be made in NGA networks (FTTH, LTE, WiFi). Hence, they are asking for a regulatory holiday to first roll out the NGA and accept regulation at a later stage.

In the services domain, net neutrality rules are designed to protect the OTT players in order to create a higher level of competition. Looked at it this way, other regulation is no longer needed.

That leaves lots of questions regarding connectivity:

• Is two enough in fixed-line competition (copper, coaxial)? In mobile, is three enough?
• Is LTE a fixed-line replacement? Is WiFi a mobile replacement?
• Is infrastructure a natural monopoly? Is it really a utility, such as water, gas, sewer, electricity?
• Is structural separation the answer? Is regulatory symmetry needed, i.e. structural separation of cablecos as well?

Ziggo: piecing together an OTT mobile strategy

Fixed-line operators are looking to (re)enter the mobile market, despite threats from OTT, other competition, regulation and a stretched balance sheet. BT bought spectrum and is now looking for a partner. Virgin Media UK has an MVNO and plans a VoIP app. Ziggo appears to take its own route, involving WiFi, femtocells, an MVNO and a VoIP app. Here's how it may work.

• WiFi. All customer modems will be opened for use by Ziggo subscribers. It's much like FON (a KPN partner), except Ziggo has a dedicated piece of spectrum reserved for use by fellow Ziggo subs. As a result, the modem owner will not see his (shared) spectrum reduced by strangers.
• Femtocells. One might think that Ziggo, UPC and the other cablecos could allow each other to place femtocells outside their own footprint in order to reach nationwide coverage. But Ziggo is taking femtocells further and plans to expand the (very limited) footprint of its subscriber modems. It intends to roll-out femtocells to locations outside subscriber homes, possibly lamp posts or anywhere near the existing fiber backbone or backhaul from street cabinets. It now becomes clear why Ziggo bought LTE-2600 spectrum.
• MVNO. Ziggo already has an MVNO in place, with Vodafone NL. Customers do not need to sign up, but then they won't have full mobility. That would
  require a SIM card (hence subscribing to the MVNO). Ziggo will probably go SIM-only, and possibly data-only, if they manage to create a solid:
• VoIP app. At the recent Q1 call, management promised a VoIP app for 14H2.

There are plenty of challenges: a saturated mobile market, rolling out femtocells on a large scale, creating seamless handover between WiFi and 3G/4G, doing a stable and customer-friendly VoIP app. And hope that the network supplier (Vodafone) doesn't give in to the temptation to block mobile VoIP, violating Dutch net neutrality rules.

The mobile strategy looks a lot like an instrument to reduce churn. But it also has the potential to grow into a business and a new revenue stream. For this to happen, subscribers will actually need to join the MVNO (hence creating a quad play, mostly).

All in all, Ziggo is developing an interesting strategy to add mobile by going over-the-top.

Ziggo's share price rise: the good, the bad and the ugly

Ziggo's share prise has been on the rise over the past few months, despite deteriorating results. There are (at least) three possible explanations:

• The good: investors are banking on a return to growth, based on either mobility or yet another off-net revenue stream.
• The bad: investors are assuming that existing strategies (marketing and up-selling) can restore growth.
• The ugly: investment banks are pushing the stock among their institutional investor customers a. to make the share prise rise, b. to make nice with the Ziggo management and c. to get a slice of the pie once a public offer from Liberty Global needs to be executed.

KPN: preview to 13Q1 results (April 23)

KPN's 13Q1 results are due April 23, before the market opens.

Looking back to the 12Q4 results:

• Weakened results.
• Rights issue announced.

Guidance:

• NL: market share broadband 40%, longer term 45%, market share mobile >40%, 'leading' on the Business/ICT market; overall stabilisation toward 2014; EBITDA margin mid term 40-45%.
• Germany: long-term market share 20%, margin 30-35%; 2013 margin down.
• Belgium: long-term market share 25%, margin 25-30%.
• Overall 2013: capex EUR 2.3bn, dividend 3 c/share, net debt/EBITDA toward 2.0-2.5.
• Overall 2014: dividend 3 c/share
• Beyond 2014: consolidation Reggefiber not before 14H2, capex cumulative 2013-2015 EUR 7bn (incl. Reggefiber).

Market consensus 13Q1:

• Revenue EUR 2.95bn.
• EBITDA EUR 1.00bn.
• Net income EUR 310m.

Recent issues:

• The results for 2011 and 2012 have been slightly restated to account for IAS 19 and for the splitting up of Corporate Market (formerly Getronics) - most migrates to Business, the rest continues as IT Solutions (data centers, consulting services, workspace solutions).
• The Reggefiber takeovers (approved April 2012) and the Reggeborgh takeovers (approved October 2012) create an unequal comparison basis. Same for the sale of Getronics International (May 2012).
• When will the rest of RoutIT be bought (KPN acquired 12.5% in September 2012).
• During 13Q1 the 4G-licenses were paid for (EUR 1.35bn).
• Rights issue EUR 3bn was approved and will follow after the 13Q1 results. EUR 2bn in hybrid bonds was already raised.
• What will the cooperation with America Movil (29.8%) lead to?
• According to fresh market rumors, E-Plus and O2 Germany are working toward some form of network sharing.
• Fixed network outsourcing to Alcatel-Lucent. KPN Business sold a maintenance unit.

New markets:

• LTE and DC-HSPA services in NL.
• Partnered with FON in NL.
• Mobile network for Alliander (energy grid operator).
• Quad play in NL (KPN Compleet).
• Triple play in Belgium (SNOW).
• Accenture is now developing IPTV for KPN (taking over from NSN).

Other issues:

• How are the results developing, especially in mobile? Can guidance be maintained?
• How is the DSL market doing? What was the effect of the winter on Reggefiber?
• Will the EUR 3bn rights issue suffice, or does the leverage need to be reduced further?

Doing FTTC is ignoring a family of elephants in the room

The reasons to do FTTC/VDSL/vectoring instead of FTTH are obvious: they are about capex (cheaper) and demand (supposedly there isn't any). But when BT, DT and the Coaliton in Australia gamble on FTTC, it creates a family of elephants in the room. If you want to do FTTC, that's fine, as long as you acknowledge that it has a few issues.

1. Cost
It may save on capex, but FTTH saves on opex. And if FTTC proves insufficient, it risks being a 'regret investment'. It is going for the short term, instead of the long term. Put differently: the greatest benefit of FTTH is its opex savings of around 20%.
Further, vectoring is still quite experimental. It is completely unclear what the real-world performance will be and which share of the lines it can be applied to.

2. Demand
Doing a bottom-up assessment of the number of devices per household and the usage per device may render a picture of the demand side, but it completely ignores innovation and unexpected use cases. 4K is moving faster than previously expected and gaming may be a major growth driver.
To be fair, ongoing compression is relevant and also the fact that we are moving from a downloading to a streaming world. And streams are offered at a certain fixed rate. Making the access network 'faster' doesn't help. And the access network isn't the only bottleneck in the system.

3. Quality of service
Any bandwidth will suffice for anybody, as long as we don't care about QoS. As demand rises and networks aren't upgraded at a similar pace, QoS will go down.

4. Geography
If one could isolate the 30% (or whatever it is) that would be willing to pay for a gigabit, it would be easy to roll out FTTH there, and FTTC everywhere else. Only this doesn't work for several reasons: people move every 7 years or so; building nationwide FTTH in any country will probably take 10-20 years; and the 30% that needs a gigabit changes every month, so in reality it is probable closer to 50% (or whatever it is). Compare Cisco's statement: "the top 1% is actually the top 5%".

5. Business model
Traditional telcos are rooted in scarcity. They will upgrade not ahead of demand, but somewhat behind demand (in such a way that complaints are controllable). It is their game to minimise capex in order to maximise shareholder remuneration. And capex peaks are to be avoided, when shareholders must be reported to on a quarterly basis.
Google on the other hand is rooted in advertising. Governments, like Google don't want bandwidth to be a scarce resource. Google because it wants to maximise usage in order to create advertising inventory, governments because of the economic, social and environmenal benefits of migrating online.
Both business models can be applied, but looking at it this way explains why others besides incumbents are getting involved.

6. Specs
FTTH is not about download speeds alone, but also about the uplink and latency. And if it's not GPON but point-to-point, it is also dedicated instead of shared.

7. FTTH has a lot of supporters
Governments such as the current one in Australia, Google, KPN (sees FTTC as an interim technology), challengers such as Free and HKBN, several cable companies, etc. prefer FTTH over FTTC for any or all of these reasons.

Tele2 NL: preview to 13Q1 results (April 18)

Tele2's results are due April 18, before the markets open.

Looking back to the 12Q4 results:

• Relatively strong in mobile, weak in fixed broadband.
• Revenue still down, EBITDA weak as a result of losses in mobile.
• Tele2 has now finally entered the NGA world of FTTH and LTE.

Guidance for the mobile activities in NL:

• Revenue SEK 1,600-1,700m (EUR 185-200m) (2012: EUR 105m)
• EBITDA negative SEK 50-75m (EUR 6-9m)
• EBITDA break-even: 3 years after launches 4G-services
• Capex: SEK 2,000-2,500m (EUR 230-290m), of which SEK 1,400m (EUR 161m) for 4G licenses.

Market consensus (roughly):

• Revenue SEK 1,330m
• EBITDA SEK 340m
• Mobile subs 540k

Recent issues:

• Tele2 Russia was sold and perhaps Tele2 Croatia is next. This is good news from a capex point of view as resources may be shifted to NL. It may also leave room for acquisitions.
• Tele2 Business finally has a new director, Fedor Hoevenaars (formerly of BT and Verizon).
• Group management was reshuffled. Günther Vogelpoel (formerly Western-Europe) is now solely responsible for NL again.

Conclusion:

• The main point is Tele2 NL's LTE strategy:
• Timeline, pricing, targets, quad plays, fixed-line replacement services?
• Will there be network sharing (with T-Mobile NL)? Recently, the group stated it expected to see 'co-build' in NL.
• Is Tele2 NL essentially a mobile-only company, following the group's motto: "Tele2 - a European mobile operator - Mobile is our strategy".
• What about WiFi? And distribution (Tele2 NL doesn't operate a retail store chain of its own)?

Ziggo: preview to 13Q1 results (April 17)

Ziggo's results are due April 17, before market opening.

Looking back to the 12Q4 results:

• Revenue growth fell back to 1.4%; slowdown caused by weak telephony results (free on-net calls, FTA reduction, lower AMPU), less steep annual price increases; increased competition; no real growth for paid digital TV services (peaks at around 900k).
• Net adds digital TV zero (remaining analog viewers probably late adopters of digital TV), hence analog-to-digital conversion zero; net adds RGUs first time negative.

Guidance 2013:

• EBITDA growth 2.5-3.5%.
• Revenue growth slightly ahead of this.
• Capex EUR 320-330m.
• Expenses for S&M and product development (TV Everywhere, mobility) are speeded up.

Market consensus:

• 13Q1: revenue EUR 390m, EBITDA EUR 220m, net income EUR 76m
• 2013: revenue EUR 1,585m, EBITDA EUR 906m, net income EUR 310m

Recent issues:

• Rene Obermann (DT CEO) to be CEO from 140101
• Acquires Esprit Telecom
• In January 2013, Ziggo stated that the Q4 trends continue, i.e. the loss of RGUs isn't over.
• Liberty Global acquires a 13% stake.

Conclusion:

• Negative: Ziggo has a growth problem. Lifting revenue growth doesn't seem likely as a result of competition. It looks like the mobile strategy (around WiFi) is more about reducing churn than about adding to growth.
• Positive:
• Acquisitions in the business market save the day (Esprit adds 2.4% to revenues) and more may follow.
• Ziggo appears to move to offering services off-net, as with Breezz and Esprit, and also with TV Everywhere. Next may be offering services on FTTH (Reggefiber/KPN, CIF).
• Another way to look at it, is to see Ziggo as a content aggregator. Taking its ontent off-net, could add new revenue streams.
• Also, Ziggo may buy cable companies or even CIF of T-Mobile NL.
• Foreign takeovers could consolidate assets like Com Hem (Sweden), ONO (Spain), Numericable (France).
• Finally, at some point Liberty Global may launch an offer.

SingTel Investor Day: March 15, 2013

Short highlights from the SingTel Investor Day, March 15, 2013.

• Group Consumer (Singapore, Australia): Optus to launch TD-LTE in 2300 band 13H1 (slide 9).
• Group Enterprise: Market overview (slide 4), growth areas (slide 16).
• Consumer Singapore: Doubling the price for excess data usage April 2013 (slide 3) to 10.70 SID/GB (EUR 6.75). [Not quite as cheap as T-Mobile USA's new rate.] Interesting picture of cost per MB for both 3G and 4G coming down with rising traffic (slide 5). "Challenge: Customers are substituting roaming voice and SMS with data, using ‘free’ OTT services and Wifi. Solution: Partner international operators to offer data roaming packages - Launched roaming packages with partners for a fixed fee eg. Daily unlimited data roaming in UK with Telefonica at S$30/day"
• Group Digital L!fe: Clear picture of the telco role versus partner roles (slide 4). Acquisitions (slides 20, 24, 32, 36).
• AIS (Thailand).
• Bharti Airtel (India, Bangladesh, Sri Lanka and 17 African countries).
• Consumer Australia (Optus).
• Globe (Philippines).
• Telkomsel (Indonesia).