Thursday, December 20, 2007
Time for a reality check, though. Below are 5 issues that may be relevant for broadband, through the laws of demand & supply.
But make no mistake: they do not reduce the urgency to build FTTH (they may necessitate a long-term view and perhaps new business models). The lesson here is, I believe, that Web 2.0 may be hyped (from a broadband point of view) and that there are other important drivers (teleworking, telemedicine, etc.), apart from P2P file sharing, that still do not get the attention they deserve.
As Carlota Perez put it: the recent past is not a very good indicator for the future. In other words, high growth will not continue perpetually.
As the internet moved on from providing data and voice to being an alternative channel for video, traffic surged. Growth may continue into the foreseeable future, but there is no fourth 'packet type', after the familiar 'voice, video, data' troika.
Check out this discussion: 'The bandwidth explosion myth'.
Don't count the incumbents out just yet. Cablecos are known to launch aggressive campaigns in Dutch towns that are trying to build munifiber. The same is happening in Provo, Utah.
Who actually uses all those apps? As a blogger, I try many of them, but I am reminded of this post on Dean's blog.
At the same conference where Carlota Perez spoke, the EC advisor Jean-Claude Burgelman came up with a range of Web 2.0 apps (YouTube, MySpace, Orkut, Flickr, del.icio.us, LinkedIn), but none was really new. It could have been a 2005 presentation.
The new Google knol project doesn't seem to innovate relative to a site like Squidoo.
TechCrunch already has a 'dead pool'.
Ads are practically the sole business model (except for aiming for a Google takeover). In itself, that's OK (free radio and TV have the same). Ultimately however, this will prove to be a very cyclical source of income. Hence, in due course a huge shake-out is unavoidable. Remember how hard it was for Yahoo! back in 2000 and 2001 to diversify away from ads (display ads made up some 80%)? That will be even more so now, since newer generations have grown up to expect everything on the internet to come for free.
5. UGC v. the expert
Content increasingly comes for free. This forces content providers to aim for a share of different sources of income (devices, access, software, bundles, etc.). If everybody wants a piece of the pie, and there is no pricing power, everybody's slice will shrink.
Wednesday, December 19, 2007
This is what I found in my mailbox and around the net on FTTH:
- Algeria, neatly covered by Blues Brother Benoit. Another case of an emerging market leapfrogging ‘the west’.
- Singapore, which didn’t escape Brough’s attention. Very interesting, as it mirrors approaches seen in Amsterdam and Sweden: a network in 3 layers, and Singapore is adding structural separation.
- Amsterdam itself, finally approved by the EC (see Benoit’s coverage).
- Cisco announced a Reggefiber deal. Interesting wording in the press release: Deventer, Almere and ‘another city within the next few months’; ‘speeds of 100 Mb/s initially, and up to 1 Gb/s in the future’; ‘Reggefiber has plans to offer FTTH-based broadband services to the majority of residents in the Netherlands’; ‘Reggefiber has the ambition to make broadband available to everyone in The Netherlands’.
- Network build-out in Almere has now started. KPN and Reggefiber joined forces, which apparently extends to datacenters.
- More Dutch initiatives: BreedNet in North Holland and schools in Frisia (which successfully tapped Kabel Noord, a small MSO that I have learned to know as a frontrunner in cable country). Many MSOs still resist FTTH, apart from the well known Numericable, which is expanding.
- FTTH appears to be part of the FTTx plans of seven Greek towns, that contracted Ericsson.
‘FTTH’ is linked, via ‘natural monopoly’, to topics like ‘open access’, ‘wholesale’ and ‘sharing’. Still, not everyone is convinced, as can be read here (in relation to the Singapore plans). Still no Telco 2.0 points yet for Belgacom either.
But now, it is spreading to the mobile realm:
- Network sharing is gaining traction. No longer just Vodafone, but T-Mobile and 3G as well.
- E-Plus (the German subsidiary to Telco 2.0 champ KPN) is looking ahead to a time where all-IP implies commoditisation on one side and a quest for new revenue streams on the other side. Very interesting, as Apple, Google, Nokia et al seem to be planning along the same lines. KPN itself is taking the services-only path in Spain.
See also my updated FTTH database.
Wednesday, December 05, 2007
The report also mentions Duke University (a Cisco user) and Carnegie Mellon (which uses Aruba Networks and Xirrus gear) as 11n test sites.
I suppose this is the next step toward ubiquitous broadband, with any type of wireless technology for the last-few-meters. The WiFi camp will now be looking to add mobility (part of the 11r standard).
Some interesting info in the release:
- By late October a new record was set: 350 GB/s. AMS-IX expects to maintain its c. 100% growth rate and get near the 1 Tb/s threshold by the end of 2008. By the way, in the AMS-IX stats it now appears that the new record is 371 Gb/s.
- All the usual suspects are 'blamed': video, gaming, streaming. Looking ahead, AMS-IX points to HD, and specifically to " the maturation of children of the digital revolution (...). As they embark in their professional careers, they are already accustomed to being online all the time, especially with the new Web 2.0 applications. We will potentially see traffic patterns shift to higher volumes, thus defining more critical infrastructure needs".
Approaching the matter from a completely different angle, it is interesting to take a look at slide 22 of McGraw-Hill's UBS presentation. Standard and Poor's apparently expects growth in 2008 to come a.o. from public finance for "increasing demand for new-money issuance to fund general infrastructure needs" (added at the presentation: "especially in large developing countries"). Now of course, infrastructure will entail a wide range of physical stuff, but it sounds great for us Fiber Ringers.
To end, this ties nicely into the teleworking stance we heard at the Broadband Cities conference last month. (Look out for Benoit Felten's run-down of Dirk van der Woude's presentation on his excellent Fiberevolution blog.) Reports on the benefits of true broadband i.e. FTTH abound. Personally, I am entirely convinced:
- Economic and environmental benefits: productivity goes up, GBP grab (developing nations are leapfrogging western countries' incumbent networks), the environment will benefit from reduced traffic etc.
- Appease managers who will have to put some trust in their employees: a video link requires FTTH. Take a look at this Alltel release for some added manager reassurance.
- Quality of life: teleworking is nice tool for businesses trying to attract workers in tight labour markets. I presume it will become common practice to plan houses with built-in office space. More people will own second homes!
Tuesday, December 04, 2007
However, things are different in today’s telco marketplace. Governments have largely backed out and the market has taken over. Monopolies are on the brink of extinction. Add to that the natural monopoly of fiber (which gets to be pushed deeper into networks everyday, until we will finally end up at homes (FTTH) and businesses (FTTB) networks) and the rise of IP (which is indifferent to whatever is inside a packet, be it voice, video or data), and what do we get?
Exactly, new monopolies of all-IP, all-fiber networks – whoever may own them.
Now, does the investment incentive problem still exist? I believe not, as long as owners are sensible and try to maximize the value.
Maximizing value in the first place means, quite simply, maximizing sales and thus the number of clients. This entails the end of the retail/wholesale dichotomy and an appreciation of doing business on the wholesale level, as I have stressed before. Competitors should now be looked upon as partners and clients too.
Of course, investing can also have a different purpose: cutting costs in the long run. This is why investing in NGNs and NGAs makes perfect sense.
Attracting wholesale clients entails expanding your portfolio of services, which implies investing in every aspect of your business. Different wholesale clients will focus on different market segments (which at the same time relieves your retail division of marketing to all those different niches), each demanding a different portfolio of services.
It also entails entering adjacent markets. Take a look at utility companies building BPL networks (run by third party service providers) to capture a piece of the broadband market, but also to cut costs (using the network for monitoring services).
In a word, ‘sweat your assets’, as Telefonica’s Santiago Fernández so eloquently put it.
This reasoning is why I keep being surprised when I read about incumbents claiming that (structural) separation would take away the incentive to invest. Which by the way seems to be the conventional wisdom. In the wake of the new EC regulations, telcos like France Telecom (c. 30% state-owned) and Belgacom (53% state-owned) have been making such statements. No Telco 2.0 points for them, I presume.
(PS: BT is quite explicit over their separation costs. Would it be a weird idea to allow incumbents to pass on any separation cost to the government?)
Monday, December 03, 2007
Meanwhile, cablecos (mainly UPC and Zesko) are fighting rearguard action.
News of the last few days underscores these trends:
- KPN will build a network in Haaksbergen (24k people), not far from their current Enschede project in the east of the country. Add Almere, and we have 3 towns already planned by the incumbent.
- Reggefiber is involved in OnsBrabantNet (in the south of the country), which is looking to expand to Valkenswaard (13k homes) and Best (11k homes). One of the ISPs on the string of Reggefiber networks, Alice (part of the Dutch Telecom Italia family, including bbned, InterNLnet and Pilmo), is claiming success and is looking to expand from Amsterdam to Rotterdam. Meanwhile, the Deventer project is progressing nicely, with 3.5k homes connected and 1k subs.
- Meanwhile, cablecos are fighting on two fronts: DOCSIS and marketing - not FTTH. UPC is trialing DOCSIS 3.0 (much like Comcast), but for now they appear to have resorted to localised marketing efforts. No more national pricing, but local promos aimed at frustrating fiber initiatives. Usually, new projects are given a go-ahead when 50% of the addressable market signs up. UPC and Zesko are trying their utmost at locking their subscribers into long-term contracts at low price points.
Thursday, November 29, 2007
Wednesday, November 28, 2007
So what does this mean? I think the company is opening up in a limited way, with only one goal in mind: retain (or even win) market share.
Here are my takes:
1. It's a defensive move.
- VZW responds to having lost its battle with the FCC over the upcoming 700 MHz auction. Of course, any relation to the auction is denied. An operator in the C-block will be held to allow 'any device, any application' onto its network. Don't be surprised to see Verizon effectively keeping new entrants out of the market by bidding up the value of this piece of spectrum.
- VZW does not want to lose out against Apple's iPhone, Google's Open Handset Alliance, Nokia's Ovi, or any other open platform (WiFi, WiMAX).
2. A positive move, but crucial info is lacking.
- Obviously, the user will benefit. More devices and more apps will come to the market. Those in favor of more openness are in favor. Also, when markets (such as mobile data) need to be broken open to the masses, any initiative is helpfull.
- On the conference call, the company ackowledged the possibility of vendors entering the market directly; existing Sprint devices should be allowed to work on the verizon network (once certified). The final question on the call painted a picture of Verizon 'stealing some of the subsidy' that a subscriber got from his original provider.
- Pricing details are unavailable. On the conference call, the company said it should be a 'competitive' offering. However, it doesn't look like new devices will be subsidized. Service plans will be 'basically usage based', so no unlimited use here (whatever that means, in the wireless space). On a positive note, the operator could experiment with true usage based models and see how it works. Walled gardens could gradually be opened up without introducing a 'broadband incentive problem'. Can they do the rebalancing act?
3. Not really open because of technical preconditions.
- There are several technical preconditions. Devices must work on CDMA technology, so Apple's iPhone or any GSM device cannot be ported. It remains to be seen which 4G technology will be chosen.
- Any OS will do. Both BREW and Java will be allowed as distribution systems.
- In the end, the VZW lab will decide. It remains to be seen how transparant the certification process will be. By the way, Verizon claims certification will be a swift for a 'surprisingly reasonable' fee.
- innovation to a very profitable service that will likely find appeal, especially among the younger demographic.
- it's an opt-in service.
- could generate new revenues, both from using data and advertising.
Thursday, November 22, 2007
- Gaining a lot of momentum. I just updated my private litle database, a Google spreadsheet that you can also access on the right (under 'Fiber Ring').
- Of note: OEN (Houston) closes its network, SureWest may buy the assets.
- DT is checking out EDS. Will DT be the big new consolidator? DT is also interested in 3's European assets.
- Google is weighing Skype.
- TI is looking to exit France, Iliad is interested.
- Several operators are mysteriously selling international mobile assets, or are putting them at an arm's length: PT and its Africa Holdings, Telmex and its Telmex Internacional, Telekom Malaysia and its TM International. Vodafone is interested in the latter, as well as in Vodacom. And Tele2 is still busy buying and selling things.
Cool new products:
- Everex is launching a Google-friendly PC, the Green gPC, with Google apps pre-loaded or given easy access to. I suppose that is an 'asset-light' entry into the PC-market.
- Amazon Kindle, Kindle Store and Whispernet. Many comments widely available. Connectivity is included - very much a Telco 2.0 strategy. A European launch will be hampered by lengthy negotiations with operators.
Cool new services:
- Celtel in Africa is launching 'One Network', essentially a roaming deal turning 12 networks into one. Calling at local rates, automatic activation, no sign-up or fee.
- Cox is stretching its network towards 1 Gbps bandwidth.
- BT is negotiating e-health business opportunities in Qatar and neighbouring states. I think e-health is a multi-billion opportunity, where many participants meet. That will allow operators like BT to become the center of an ecosystem.
- Jajah is launching an opt-in service where advertisements replace ring-back tones. They say it takes an average 12 seconds before people answer a call. I suppose they will not allow competitors into the advertising network.
Ever new SMS-based apps:
- Zain launched automatic translations (Arabic/English).
- SpinVox enables voice-to-text conversion and has a deal with Skype: a voice message will be converted into an SMS. Also several operator deals (Alltel, Vodacom, Telstra a.o.).
- Kajeet, an MVNO on Sprint, launched 'Feeds': entertainment and information pushed to the user as an SMS, at 10 c/SMS.
- Mobile payments using SMS, e.g. Safaricom in Kenya and Base in Belgium. Proximus (Belgium) launched public transportation ticketing by SMS.
- KPN's 'flirting service' olllo uses SMS (priced at 55 cents!).
Tuesday, November 20, 2007
What is happening? Deutsche Telekom bought Orange NL to merge it with T-Mobile NL. However, Orange NL also operates an LLU unit (the former Wanadoo operations). So far, Deutsche Telekom appears to have either a PTT (eatern Europe) or a mobile-only strategy 'abroad' (even as Vodafone is entering the fixed-line business). I therefore assumed that the BB unit would be put up for sale.
Now Deutsche Telekom has spoken, in Barcelona. It aims to reduce its dependence on the domestic business by expanding abroad - in both mobile and ISP assets. The latter is really new to the strategy. (remember that Club Internet (France) and Ya.com (Spain) were sold). See also the recent Q3 report (page 17, under Group Strategy): "Grow abroad with mobile communications" (which, by the way, is repeated in the Barcelona presentation).
This addition to the strategy could have quite far reaching consequences, as T-Mobile operates (mobile-only) units in the UK, the USA, Poland, Austria, the Czech Republic and the Netherlands. Deutsche Telekom could be a major consolidating force, but it remains to be seen if the company truly pursues this strategy.
Friday, November 16, 2007
At the break-out session, Robert Bell of ICF and Dirk van der Woude had very insightful messages.
Again, see below for some useful links.
Two aspects were stressed on more than one occasion: 'open access' and 'user centric'.
- Open access: SABO appears to have found a great model for open access, separating the roles of the network operator and the service providers. Here is an older presentation. Martin delivered a container shipping parallel ("telecom = freight business for bits") and stressed the importance of co-operation and wholesale ("allow service providers to package connectivity with services"). PacketFront, a provider of open access networks, was present as a sponsor and spoke on the first day. The company is a supplier of SABO and Reggefiber, to name a few.
- Customer centric: a central question remains: what do we need 100 Mbps for? There was a call for more research on the actual economic (etc.) benefits of FTTH. Dirk van der Woude gave a very specific example: teleworking. If managers are reluctant to allow people to work from home, FTTH will be a great enabler. Not just for connectivity, but also for video communication. That will allow paranoid managers to keep an eye on their workers. User centricity also was at the heart of Martin's presentation (telcos should sell the connected user, not access to all sorts of different devices and networks, at a wide range of prices). Anders proposed to talk about FFTH instead of FTTH: fiber from the home.
Wednesday, November 14, 2007
A great place to meet people, but above all to attend several great presentations. I will not attempt to present a summary, and instead encourage you to check out some material that is freely available on the internet (see links below). Euroforum will post the presentations on its site from November 16.
Here are some quick takeaways.
- Let's not forget that FTTH is more than 'just' superior download speeds. References were made to the symmetrical nature and the economic, social, environmental and cultural benefits.
- PacketFront displayed its 'living networks' vision, where off-net (ISP, telephony, TV) and on-net (local services, including gaming, education, storage and ehealth) are distinguished.
- Prof. Carlota Perez had a hugely interesting presentation on the nature of tech revolutions. This presentation is pretty close to today's and here is a paper. She also has a book out. I particularly liked the bit where she saw an end to (so called) dichotomies: high tech and custom made now merge into mass customisation; competition and co-operation merge into co-opetition; etc. The question now is: how will 'state' and 'market' learn to work together? Very relevant in a FTTH context.
- KPN's Eelco Blok was scoring points (again) on the telco 2.0 score card, talking about wholesale and Chinese Walls. Mr. Blok, as well as his companion Joost Farwerck (who I spoke with yesterday), have conspicuously changed their tone when speaking about the telco v. cable dichotomy. Unbundlers and wholesale are now fully embraced, and in the 'us v. them' battle, it is now KPN + unbundlers v. UPC + Zesko.
- Mr. Burgelman (an EC advisor) gave a fine Web 2.0 overview. His presentation leaned pretty heavily on this one.
- My cyberbuddy Benoit Felten (now at the Yankee Group) gave a detailed analysis of that exciting FTTH market, France.
- Taylor Reynolds of the OECD presented the latest broadband statistics (as of October), which led to several pretty stunning observations. Check out the October stats on the OECD Broadband Portal. The last one is especially funny.
- William H. Melody presented his analysis of the private equity takeover of eircom and TDC. The (shocking) TDC report was published before.
Tuesday, November 13, 2007
Joost very tellingly was able to see me in between a trip to Australia and New Zealand and a meeting with bbned (Telecom Italia).
Here are my edited notes.
- KPN is planning the migration to an NGN, as I have written about before. Many MDF locations, LLU and ADSL2+ will be phased out and replaced by SDF locations, SLU and VDSL2. Fiber will be pushed deeper into the network, to reach all the way to 28k street cabinets (FTTC) and bypassing 1300 MDF locations. No FTTH as yet, only in greenfields and selected towns (Enschede and Almere).
- Currently, details of an MoU are worked out. The MoU was signed over the summer by both KPN and the main unbundlers (bbned, Tele2 and Orange). The new agreement is to be published around December 15. The details are about phasing out the MDF locations, the migration and KPN will present an alternative to line sharing (this product is on the way out anyway, as it is replaced by full LLU). Apparently, street cabinets offer enough space for SLU. Bbned is going the way of SLU.
2. Network operator v. service operator
- KPN believes WBA (wholesale broadband access) is a good product that will ensure competition, based on equivalent access.
- Joost seems to think that OPTA nor the new EU regulations, will lead to functional separation. I think KPN is a case in point where proper accounting separation and a good wholesale strategy + portfolio can fend off functional separation.
- By the way, accordin g to Joost, a wholesale customer can be more valuable than a low-end retail client.
- Outsourcing is becoming a major part of KPN's strategy. At Joost's division up to 50% of current employment levels will disappear.
- Joost seems to be much more of a services man than a network operator. I have noticed this before at both Tiscali and Telecom New Zealand. Network control is less important in a regulated all-IP world.
- I am a big fan of cooperation. So is Joost, but challengers seem to think differently. KPN tried to team with Tele2/Versatel several years ago, but was turned down. Also, unbundlers are sub-scale in many cases, but (foreign) owners appear to be 'believers', as Joost put is. They all seem to think that they can make it work on their own. Too bad that there are few G9 (Australia) type of intitiatives.
- Joost seems to be similarly at a loss when it comes to long-term commitment of the large Dutch unbundlers. Tele2 is selling off many assets; T-Mobile may sell on the Orange BB unit; Telecom Italia may get rid of bbned.
- "FTTH is the endgame". I couldn't agree more.
- However, VDSL gets deployed 5-7 times faster (and is written-off in 3-4 years), so it cannot be skipped. Here Joost is very much on the same track as Belgacom.
- KPN recently teamed with 'public enemy #1', Reggefiber, for the city of Almere. Joost told me they will own the passive infrastructure together (I was under the impression it would be 100% Reggefiber); KPN will serve as network operator; KPN (and others, if they wish) will be service provider.
- KPN beefed up its Belgian mobile operator by acquiring Tele2 Belgium. That obviously begs the question: will E-Plus make a similar move in Germany? Joost seems to see better business opportunities for some German expansion (out of the Netherlands), e.g. to the Ruhr area, than for doing FTTH in some rural Dutch areas.
- Standard: the ITU approval, I would add, is a set-back of sorts. Not 4G but 3G, as Mr. Daniels eloquently put it. I suppose if you want 'xG' real-life performance, you better aim for '(x+1)G' lab-performance. (Also, compare this WiFi distance record: 382 km!)
- Sprint/Clearwire: much has been said about the consequences for Sprint, Clearwire, Intel, Motorola and the rest of the WiMAX industry. I think Sprint doesn't communicate very well about its intentions, deploying so many standards (iDEN, CDMA, WiMAX). Also, the original MoU was somewhat puzzling to me. Building out together is only logical, but why not put the network assets into a joint venture? The way it was set-up made it look like a complicated roaming deal.
- WiMAX v. cellular: KPN decided to go with HSPA, not WiMAX, for rural deployments (fixed-line replacement, with WiFi for in-home and Digitenne for TV). No surprise: cellular technology is heavily entrenched.
- Deployments: recently mostly in emerging markets.
- Auctions: coming up in Japan, Italy, Mexico and New Zealand.
Thursday, November 01, 2007
It involves a co-op ordering a backhaul network from a company like Reggefiber or Schuuring. The members of the co-op (farmers) do the digging of the last mile themselves.
Here are some quotes (somewhat freely translated), that fit my stance on FTTH, munifiber and e-health exactly:
In rural areas ADSL-connections lack the quality necessary for proper business networks. In this day and age, that leads to trailing economic growth, which is precisely what rural areas are afraid of.
Large operators have no interest in hooking up rural areas, since it costs too much and pay-back periods are too long. That is why municipalities have to take up the gauntlet, supported by regional governments.
The trick is the cost savings at digging, explains Hupkens. The digging activities represent 70% of the cost of constructing the network. (...) Farmers can easily do this relatively simple job, digging to their yards. Thus you can construct a valuable network at low cost. A network, of which the users are co-owners. And therefore have a say over the services delivered over it. Hupkens points to a similar project in the Brabant town of Nuenen, where the members themselves have allowed local radio and TV stations onto their fibre network.
A study revealed that 60-80% of consumers and businesses are likely to want to be connected. Willingness among farmers to do the digging is extremely high.
Reasons for wishing to be hooked up vary. Companies want access to the digital highway. Senior citizens are interested in e-care.
Wednesday, October 31, 2007
It was enlightning to notice how much aversion there is in the market against government funding - to any degree. My colleague holds that, after the telco sector was privatized and liberalized, the last thing we should want should be a return of government bodies (‘tax payers’ money’), to the market.
More fundamentelly, he clearly sees the technical benefits of FTTH but believes consumers are solely interested in price and couldn’t care less about bandwidth claims. ‘Timing is everything’, and this is simply not yet the time for large-scale FTTH roll-outs, he contends.
So here is a reality check if I’ve ever seen one.
Still, I think there are largely two reasons for holding a different view on FTTH and munifiber.
First, debt investors have a very short-term focus. Interest payments have to start within a couple of months, so there is no patience for long-term views and lofty strategies. In this respect, telco managers obviously are incentivised in the same way, having to deliver each and every quarter.
If you are building for the future and try to leapfrog cable networks, there is no way you can turn cashflow positive within a few months.
Second, I think there is a whole new dynamic in the markt: governments vying for their share of the world’s GDP growth. Market leading countries, including emerging markets without legacy infrastructure, force established markets into considering FTTH to drive economic growth. Build-out takes years, and in the meantime congestion of the freeway system eats away at GDP growth. Hence the need for a long-term view.
Free markets may provide us with FTTH in the long term, but since telco managers (and debt investors) have a short term focus, government interference could help break the stalemate. Earlier this week I also spoke with a friend at a leading trade journal. He suggested that government interference can take several forms, ranging from PPPs to subsidies or tiered regulation (to bridge the digital divide).
Further, the European Union sets the terms for government participation (MEIP). Nuenen, a small town in the Netherlands, has often been quoted as a prime example of successful government interference in FTTH. It is only fair to stress that the 90% take-up rate was due to getting the service for free for a year. An offer nobody could refuse. However, to say that this is throwing away 800 EUR/sub of tax payer’s money is not completely fair, I believe. Any commercial company could have opted for this sort of aggressive promotion. It may fit very well within a sound business plan – one with a long term focus.
To round off, there are a few more hurdles for telcos to take the big leap to FTTH. First, absolute size (multi billion euros). Second, limited infrastructure-based competition and a high barrier to entry (i.e. limited competitive need). Third, I strongly believe FTTH (the physical layer) is a natural monopoly. This implies open access and the possible need for regulation, things that telcos by nature dislike.
Tuesday, October 30, 2007
Looking at the technicalities, we have seen several interesting developments recently:
- Standard: The ITU approves the standard as 3G.
- Handover: Datang (a TD-SCDMA vendor) challenges the ITU decision, pointing to the lack of handover capabilities. Interestingly, Alcatel-Lucent and Onemax just demonstrated seamless 16e handover in the Dominican Republic, a 'world's first'.
- Interference: Reports out of Australia over satellite interference. Interesting to see how this develops.
Tuesday, October 16, 2007
(All fine and dandy, but I was reminded of a recent Greenspan quote: "It is not yet settled, although I guess it should be by now, that human beings are not significantly more perfectable than we are." Still, I strongly believe in the benefits of FTTH.)
Keep in mind however that New Zealand is not your typical place:
- Remote. It faces the risk of talented young people leaving the country. Also, it is very much reliant on the Southern Cross Cable (connecting it to Australia and the US), which needs an upgrade.
- Thinly populated. Projections are that even by 2018, 'just' 75% of the people will be covered by FTTH.
- Beautiful countriside! It tries to attract investments from the digital media industry specifically. Think 'Lord of the Rings' or 'Chronicles of Narnia'. One quote from the document: "It was cheaper for us to fly the data [to LA] than it was to send it over the network" (page 22).
The benefits are derived from enhanced productivity and growth, but also from opportunities in the 'weightless economy' ("a New Zealand Skype").
"Bandwidth demand has followed Moore's Law - roughly doubling every 18 months."
To capture the economic value, New Zealand needs to "cross the DSL wall to fibre".
Build-out should start by mid 2008. There is no mention of VDSL, so I suppose the institute recommends moving fast, and skipping the VDSL stage.
A hugely interesting topic. I will try to write a follow-up at some point. Let me just list some of the companies that are involved. Obviously, the market has many participants:
- Telcos: KPN has e-zorg, BT is building a network.
- B2B Media: Wolters Kluwer and Reed Elsevier publish research articles and journals and operate portals. Elsevier Science recently changed the business model to its oncology efforts: it is moving from subsciptions to a free + ads model.
- Internet verticals: ranging from Elsevier's Oncology portal to WebMD and RevolutionHealth and from Microsoft's HealthVault and Google Health ('Project Weaver')to the Sermo social network for physicians.
- Pharma: Pfizer is now working with Sermo.
Several countries (Poland, Italy, Australia), operators (Telecom New Zealand, TeliaSonera, eircom and of course BT) and the EC seem to be moving in that direction.
Here are the external forces driving or slowing down the movement. They differ from country to country, but the end-game is the same everywhere (FTTH), so separation will happen - sooner or later.
- Cable competition (i.e. inter market): forestalls separation. Sufficient BB market competition was a reason for OPTA to say that KPN needn't be separated (aside from OPTA not having the legal means to enforce it).
- Intra market competition: drives separation. BT is a prime example. The creation of Openreach kickstarted LLU.
- Wholesale offers: forestall separation. Here KPN is the perfect example. Moving from LLU (with fiber to the MDF locations) to SLU (with fiber to the cabinet), it managed to agree on MoUs with the nations largest unbundlers (Tele2/Versatel, TI's bbned and DT's Orange). In other words, no need to kickstart SLU by separating KPN.
- FTTH: drives separation. As this is the end-game, separation I believe is inevitable.
Here is my view of the future:
Nobody wants two FTTH networks, even duct sharing isn't sufficient. KPN resorts to being a service provider in Almere on the Reggefiber network, and UPC will be marginalized unless it follows KPN. The physical layer (the fiber) will be a monopolist utility. It will need to be regulated only once service providers start complaining over rates or services.
Thursday, October 11, 2007
Here are the possible outcomes I envision:
- Hang on to it. T-Mobile could kick-off a major strategy shift, away from being a mobile pure-play and go the way of Orange and Vodafone. Not impossible, but highly unlikely, I believe.
- Sell it to KPN or Vodafone. That's a double no. KPN has reached the limits of its market share, and Vodafone has just launched a complicated resale arrangement with the former Tiscali NL (now part of KPN). Also, T-Mobile wouldn't want to strengthen a competitor!
- Sell it to another unbundler, i.e. Tele2 or Telecom Italia's bbned. Why not. In time, it could be a way for cooperation between T-Mobile and the buyer of the Orange BB unit. Also, Tele2 is selling lots of assets (Denmark, Portugal, Hungary, Italy, Spain, Austria), and in the meantime focuses on other regions (Scandinavia, Baltics, Russia). It will be interesting to see if Tele2 is really committed to the Netherlands, where consolidation is making the market a lot more attractive. Sort of the same goes for bbned. Or is Telecom Italia only readying the unit for a sale, by beefing it up first?
- Sell it to Reggefiber. Unlikely, since Reggefiber focuses on building infrastructure (FTTH), and it doesn't seem to have access to unlimited cash. However, the argument could be: add a service provider business and in due course migrate the customers to the Reggefiber network (where possible).
- Sell to a new entrant. A wild card. Maybe Telefonica is willing to do a relatively small deal, since it turned away from larger ones. Also, Belgacom could be a candidate (as I have hinted at before).
So, my order of likelihood would be:
- Sell to Tele2 or bbned (TI).
- Hang on to it.
- Sell to a new entrant like Telefonica or Belgacom.
- Sell to Vodafone, Reggefiber or KPN.
Wednesday, October 10, 2007
Virtual + real calling
Vodafone ('InsideOut') enables voice calling on and off Second Life. Telecom Italia's Second Life service is limited to on-net calling (between avatars). This functionality may spread, as Linden Lab is working on interoperability with IBM, in order to allow avatars to move into other virtual worlds.
Internet + mobile IM
Billed as micro-blogging service or as a Twitter look-alike, Jaiku is the newest Google annex. It extends into the mobile realm.
Email to SMS/IM
The latest Yahoo! Mail version added the possibility of sending messages to mobile phones (as an SMS) or to an IM service (Yahoo! or Live).
SMS + LBS
KPN launched olllo (with Heineken and MTV for advertising), a flirting service. It uses both SMS (for communication) and the callers' positions on the network (to find a victim) and obviously goes a little bit further than Sprint's 'friend finding' service, which uses GPS (so the pin-pointing is better, but it takes a GPS-enabled handset).
UPDATE (Oct. 11):
Of course I could have included SMS services from Google:
- In September, it applied for a patent related to paying by SMS (Safaricom of Kenya apparently also has a payment system based on SMS, as does KPN-subsidiary Base).
- Yesterday it launched Google SMS (queries by SMS for local info) in India.
Monday, October 08, 2007
No need to step on the soapbox over this shiny new fiber stuff.
All we need is a single strand of fiber. Nobody would like to get into a land grab for access to ducts, buildings, homes, etc. (as we are seeing in France).
Wholesale as a sound business model. I defended it recently.
Service provider v. network operator
Sharing implies open access, separation and wholesale. KPN is stepping away from full network control and focuses on services. The network is relegated to Reggefiber, which feels at home in the infrastructure business (Dick Wessels roots are in the building and roads industry).
KPN is beating the cableco (UPC) to the punch, but Liberty Global sees no need to move to fiber anyway. The other large cableco in the Netherlands, Zesko (the merger product of Casema, Multikabel and @Home), just last week refused KPN access to its network.
KPN, not the cable companies, is pushing all the right buttons.
Friday, October 05, 2007
We mainly discussed two topics.
I think of wholesale as a very attractive business. Obviously, there is a strong connection to the separation stance.
In the old days, incumbents like KPN instructed managers pretty explicitly to frustrate their wholesale clients. Even today, Deutsche Telekom thinks it can only recoup their FTTN/VDSL investments by demanding a regulatory holiday, effectively allowing its retail organisation sole access.
Now, this is all reversing – maybe not at DT but I do think at KPN (a finalist for Light Reading’s Awards). More incumbents acknowledge that independent service providers (let’s call them BSPs) have something to add – things that are not in the incumbents’ DNA. Think innovation. Also, marketing to specific niches can handily be left to focused BSPs.
Linked to this is the telco stance that the investment incentive supposedly disappears when full (structural or ownership) separation is forced upon the company by the regulator. Again, I do not see this. Extending the portfolio, and opening the platform to third-party developers, looks like a sound business strategy to me. It will attract BSPs large and small. Sure, investing carries risk, but that’s part of doing business, isn't it?
Speaking of which – applications. Please allow me to wander off for a moment. I have been putting together a very short overview.
Back in April, BT took the lead by restructuring and establishing a BT Design and BT Operate unit, granting developers access plus a SDK. AT&T may be planning a similar move.
See my post on Orca Interactive and SeaChange. IPTV seems to me the one area that could benefit most from adding apps, in order to strengthen the telco vis-a-vis
the cableco or satco.
Facebook did very well, allowing third-party developers access to the APIs, even if monetization is not quite so easy. In any case, the apps worked well for the valuation of Facebook.
Yahoo! may follow.
Motorola launched a ‘solutions Catalog’ into beta to invite third-party developers.
Few will contest the strategic logic of the string of acquisitions (Telfort, Tiscali NL, Getronics, iBasis, etc.) by the Dutch incumbent, KPN. Right now, it looks like brand rationalisation will happen, but what does that mean when the company has a multi-brand strategy?
Of the above takeovers, obviously Tiscali is the one that will have to return its brand to the mothership in Italy. Normally, they would probably have 36 months or so. After that, I think KPN will revert to one of the existing brands. I guess XS4ALL, the premium brand, could be a candidate.
So, which holes are left in the KPN portfolio? After the Tele2 Belgium deal (which effectively precludes a Belgacom merger), KPN may shift its attention to Germany. I think E-Plus will be beefed up by an LLU operator. Some are not for sale (subsidiaries of Vodafone, Telefonica and Telecom Italia), many others probably lack sufficient network coverage. What’s left is Versatel Germany or QSC. The latter has a wholesale business only, so combining it with E-Plus may not be a bad idea at all.
Finally, for my readers at Belgacom – check out this Trouw article (in Dutch) on Reggefiber, the stealth FTTH builder in the Netherlands. Get back at those KPN guys who bought Tele2 Belgium, and enter the Netherlands by buying Reggefiber!
Some will argue that owning an (open access) network is at the lower end of the value chain, but I believe it can produce great returns, especially since a FTTH network is future proof. Granting independent BSPs open access not only allows you into the wholesale market, it will keep the regulator happy too. Furthermore, you can always start or buy your own retail organisation!
UPDATE (thanks Dirk 'FTTH' van der Woude: "It's been quite a while since I last reported something remarkable from the Netherlands, but I think this falls in that category.")
Reggefiber and KPN are teaming up in Almere, reports Trouw. That adds a twist to any Belgacom/Reggefiber speculation. Of course, all we need is a single FTTH network. KPN and Belgacom could dump all their FTTH assets into a Reggefiber Joint Venture and turn into service providers.
Here is an English translation of the Vincent Dekker story (translated by Vincent himself):
KPN has decided to join forces with Reggefiber to speed up the roll out of FTTH in Almere, the fifth largest city in The Netherlands. Reggefiber already owns some networks in smaller towns and in parts of cities, like the project in Amsterdam. This time they will build a network for the whole of Almere. KPN will deliver services on that network. It will bean open network though, so KPN will have no monopoly on it.
Then why would KPN do this? Well, I'm not sure, but it looks as if KPN has no other options. KPN is losing customers in great numbers to the TV-cable networks nowadays. These networks can offer full triple play, whereas KPN kan only deliver ADSL and telephony on its network. IPTV is not a success as yet. And its Digitenne (DVB-T) is also not good enough to really compete with the cablecos. KPN has a plan to roll out All-IP in the next 4 years, which is fiber to the street cabinets and old copper from there to the homes, but this VDSL will also not be good enough to protect marketshare.
So KPN needs FTTH badly. In Almere Reggefiber was already chosen to build the FTTH network and now KPN has decided to join forces with Reggefiber. It will encourage its customers to switch from the KPN POTS network to the fiber network. That should make the new network profitable in a very short time. On that network it will most probably not only offer very fast internet (100/100 to start with) and cheap IP telephony, but also DVD-quality analog video and digital hdtv. With that offering people might be persuaded not to switch to the cable company and even drop that cablecompany for their tv-service. In the Netherlands some 90 percent of all homes now still get TV via cable, the rest via satellite and a few percent via Digitenne.
KPN will keep its POTS network alive for the time being, but that can't last very long. So in a few years this incumbent will no longer own a network that covers the whole of the country. My guess is that Almere could very well be the start of much more cooperation between Reggefiber and KPN in other parts of the Netherlands, Amsterdam and other big cites to start with. KPN needs a network to compete witch cable, and it needs it fast. The news of todaycould therefore be good news for everybody in The Netherlands: the start of a national FTTH network at last. We're a few years behind Japan and quite a few other countries already, so it certainly is not too soon...
Almere is an interesting city for FTTH. The cable company there is UPC, owned by Liberty Global of John Malone. If Almere will show the same pattern as seen in other towns where Reggefiber already has fibernetworks, UPC can expect to lose some 70 percent of its customers in the next 2.5 years. After Amsterdam and Rotterdam Almere is UPC’s biggest market. So losing most of its customer there will hurt. And ater Almere, Amsterdam or Rotterdam could be next on the agenda of Reggefiber and KPN.
KPN has decided its POTS network in Almere has only marginal residual value. That's one message we got today. How long will it take before cable companies will admit that this is true for their network too?
Tuesday, October 02, 2007
070829: Truckee (Cal) plans network (15,500 homes/businesses, > $15.5m), with 180 Network Services
070902: Verizon 'FiOS' trials 100 Mbps
070903: CityNet (GNA (= Amsterdam, 5 housing corps, ING, Reggefiber) phase 1 on track (40k homes, EUR 30m) for completion mid 2008, with Draka Comteq and Van den Berg Infrastructuren
070903: Iliad ('Free') plans launch of service (TV (2 sets, >100 channels), 100/50 Mbps, free calls for 30 EUR/mo) in 2 Paris districts mid Sep 2007
070903: Lafayette RfP for building equipment housing comes in above budget
070904: Orange Slovensko (FT) launches network ($40m to cover 200k households in 2007) in Slovakia: BB (12/1 Mbps for 600 SKK/mo, 30/2 Mbps for 720 SKK/mo, 60/4 Mbps for 1190 SKK/mo), TV (from 360 SKK/mo), calls (480 SKK/mo incl 100 minutes)
070906: 22 CLECs (XO, Cavalier, RCN et al) ask FCC for open access to Verizon's FiOS
070906: Tellabs launches indoor ONT (for active ethernet)
070906: Telefonica plans network for 50 Mbps capability
070907: El Dorado Golf & Beach Club (gated community in San Jose del Cabo, Mexico; = Discovery Land Co) ordered network from ERF Wireless, X Analogue Comms, $2m, to be completed mid Sep 2007
070911: Sipperec (86 Paris municipalities) plans FTTP network 'Sequantic' (EPON 802.3ah, up to 1 Gbps), with Spie Comms, Wave7, to launch Oct 2007 to 6500k businesses in 147 areas
070911: Reggefiber plans network in Valkenswaard, with NEM Brabant
070911: Telstra plans network to greenfield (Rouse Hill, Sydney) from early 2008
070911: Telus plans trial fall 2007 - mid 2008 (1k subs in Calgary, Edmonton, Vancouver, Quebec)
070914: Embarq plans FTTP network in Portofino (267 homes in Clayton, NC)
070916: Monticello (Minn) plans network, referendum Sep 18 2007 (65% needed)
070917: China Telecom plans network in Wuhan, with Fiberhome Telecomm Tech
070918: Telenor orders gear from AlcaLu for greenfields, GPON (also FTTN + VDSL)
070918: UK government considers ultra-fast BB 'intervention', discussion with Ofcom and BT Nov/Dec 2007
070920: Hong Kong Broadband Network (HKBN; = City Telecom; operates FTTB) plans FTTH network 'FiberHome', 48.50 $/mo for 100 Mbps, 88 $/mo for 200 Mbps, 215 $/mo for 1 Gbps
070922: Oxford Networks plans FTTP in downtown Bangor and Brewer (Maine), $4m
070924: Cisco launches active ethernet CPE gear for FTT-MDU
070924: Wien Energie Wienstrom (= Vienna) orders gear from PacketFront (network and home gateway systems); active ethernet; Phase 1: 50k homes, EUR 10m
070925: North Kansas City launches 'liNKCity' ($8m)
070926: Ofcom launches consultation on NGA, until Dec 5 2007
070927: St Paul (Minnesota) City Council approves network plan, $150-200m
071001: Iliad ('Free') plans network in Valenciennes 08Q2
071001: STA (Andorra) plans FTTP network, with Wave7, Telindus (= Belgacom) and Cisco, to launch 08Q1, nationwide 09Q2
Look at the data (and previous posts) for several interesting developments since my last update. See also the recent flurry of press releases in the wake of the ongoing FTTH Conference & Expo in Florida.
What stands out most to me: Orange's expansion into Slovakia, Telefonica's stealthy expansion, Telus and Embarq tipping their toes, and of course Vienna, Hong Kong (and Andorra!) moving forward. Look at Telindus, the Belgacom subsidiary, that is leveraging its skills in the Andorra project (looks pretty much like BT leveraging its 21CN skills).
Monday, October 01, 2007
I believe demand for bandwidth and nations competing for a larger share of the worldwide GDP pie will drive investments in FTTH networks. Telcos feel the heat and are preparing investors for a large capex round.
At the same time, realisation builds that there is value in both networks and services. Telcos are leaning toward the latter, and are preparing for their new roles by introducing sharing, outsourcing and separation.
Below I elaborate on these issues.
Demand growth remains high. Statistics from internet exchanges, IPTV, the rising popularity of YouTube, monitoring services, etc. are used to corroborate this point. Add to that the following. As long as there is no true end-to-end connection and bandwidth is shared at some stretch (either on the open internet or in the last few yards), bandwidth should be redundant. So, if you need let’s say 30 Mbps, you really need peak performance of 100 Mbps. Check out Dean’s remarks.
1.2 Competition among nations
A valued reader suggested that there is a race going on between nations. Already, eastern European countries leapfrog places like Germany by building FTTH networks. If you want to maintain your share of the world’s GDP, you better not stay behind. Places ranging from Chattanooga (Tennessee) to Malaysia acknowledge this. No wonder Italy is weighing a massive investment into Telecom Italia’s network, once the company is separated. No wonder also why Ofcom launched a consultation, apparently aimed at paving the way for FTTH.
2. Future proof solution: FTTH
This point hardly needs any back-up, even if your long-term view is that the last few feet will be wireless. You better bring fiber at least to the doorstep of all the places where people like to hang out.
As I have written before, telcos are actually preparing investors for the big plunge.
I believe sharing is going to gain popularity. Right now it appears to be concentrated in areas where demand or scale is limited. You can find examples in such diverse areas as mobile TV (German operators jointly building a single network), WiMAX (look at this consortium in Malaysia), FTTN/VDSL (altnets in both Australia and Germany) and 3G (in the UK, for instance).
The question remains: which part are you willing to share? The passive (dumb) layer is an obvious candidate, but you want to remain in control of traffic and services. The Vodafone/Orange UK example takes (tower and antenna) sharing one step further than sharing deals elsewhere (including the Sprint/Clearwire deal), which are mainly focused on extending coverage to rural areas. For Vodafone and Orange, sharing means: separating the network from the services. It implies that the network must be redundant (so there will not be an issue over who gets how much capacity), and also that the days of network coverage as an USP are behind us.
4. Outsourcing and separation
The next logical step seems to be outsourcing. If you decide to sacrifice full network control, why not let some third party handle the network?
KPN is a case in point, since it started outsourcing many tasks in its fixed network to a whole range of IT providers. To be sure, I do not believe that KPN will save on costs. We all know the ways of IT companies. There will be lots of talk and writing policy documents. I counted at least 7 IT companies involved. IBM will be the lead integrator, but I am unconvinced that this structure will save KPN any opex within the next 3 years. I believe the move is designed to sharpen the focus on services, perhaps even pave the way for more (i.e. core network outsourcing and structural or even ownership separation).
The new focus on services opens the gates to (further) separation. In fact, it is already amongst us. First of all, let’s not forget that selling the tower business by mobile operators can be viewed as a form of separation, even if this only sets site sharing apart (and not antenna sharing or any activities ‘higher up’).
But there is much more. In Switzerland, Swisscom Broadcast received a DVB-H license, but it must provide equal access to all operators. Shortly before, TeliaSonera took the unusual step to create a separate infrastructure/wholesale unit in Sweden. Another voluntary action comes out of EchoStar, which proposed to split its satellite fleet (with wholesale operations) form the service provisioning unit (the Dish Network).
Telecom New Zealand will be split along the well known BT Openreach lines, creating a unit in charge of the access network in order to jumpstart LLU.
It remains to be seen if this effectively creates a new stumbling block on the road to FTTH, as the new structure focuses on LLU and therefore on maintaining ADSL(2+). It would be my preference to try and leapfrog intermediary technologies as much as possible and go straight to FTTH.
Some companies are obviously atttracted by the wholesale business model (the NetCo part of the business, as opposed to the higher valued ServiceCo units), providing a ‘natural monopoly’ and ditto cashflows. Consider such diverse players as Reggefiber (the FTTH company in the Netherlands), Frontline Wireless (plans a national safety network in the US, stresses the importance of wholesale access to the new 700 MHz spectrum in order to foster new entrants) and even Gaiacomm International (whose proposed VLF/terahertz network would not compete with exiting service providers).
Thursday, September 27, 2007
1. Equipment and technology
Several vendors have started interoperability testing. Also, competion for erstwhile first-movers Alvarion, Redline, Navini and Aperto is still on the rise, as Nortel, Nokia, Alcatel-Lucent and Motorola expand their offering. Alvarion is teaming with Hitachi for the Japanese market.
2. Auctions and licenses
Many auctions will be carried out in the short or medium term. Watch out for Japan, where two groups have formed, one around DoCoMo and one that includes SoftBand and eAccess.
3. Trials and deployments
There is no single trend here. Many emerging markets use the technology to leapfrog fixed network investments, AT&T is aiming for rural markets and Sprint is moving ahead on its 4G plan.
Of course, there is also the ongoing debate of WiMAX vs. LTE (not to mention Terahertz). It seems to me that LTE has a considerable advantage:
- It is an evolutionary technology to entrenched networks.
- It could be the tentative end point of both GSM and CDMA evolutions, as Verizon Wireless and Vodafone have attested.
- And the performance is continually enhanced, whereas WiMAX doesn't seem to have that much upside (but I am not quite sure of the latter point - readers please fill me in on that).
Monday, September 24, 2007
Thursday, September 20, 2007
Late August, KPN strengthened its Belgian mobile operation Base by adding the Tele2 Belgium assets to it. This effectively precluded a Belgacom merger or offer.
Look at the above chart to see what investors thought of all this non-M&A activity. Telefonica is no longer a predator, and KPN a much less likely target.
This is why I like Comcast's recent plan for a low-tier (sub 1 Mbps) service. At a low price point it will attract even 'nonline' persons - and at the same time provide them with a simple upgrade path, once they start living on the net.
Contrary to this is Hong Kong Broadband Network's plan to end its 'entry-level' 10 Mbps service (on its new FTTH network). HKBN will focus of speeds of 100, 200 and even 1000 Mbps.
Are there no nonliners or light users left in Hong Kong?
Monday, September 17, 2007
Obviously, this raises the question: how far will KPN go? Will the fixed network in the Netherlands follow? Could that be a first step toward sharing, selling, separation, or even FTTH? Will KPN develop as a service provider?
More to follow.