Thursday, December 20, 2007

Teleworking (and Web 2.0 and P2P) wil drive FTTH

Here at Communications Breakdown, a Fibre Ring member blog (see right), we are strong believers in the benefits of true broadband, i.e. FTTH.

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.

1. Demand
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'.

2. Competition
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.

3. Innovation
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'.

4. Advertising
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

Back on the grid: FTTH and OA

On my way back from Australia, I had a chance to read the Straits Times, which reported on the next stage (an RfP for the NetCo layer), of the Singapore Next Generation National Broadband Network plan. The leading front page story on that day, mind you. Justice finally to this eminently important issue.

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

Down under

How about this deal for a day like today!

Signing off for a short vacation. Anybody care to meet me in Adelaide?
Back December 17!

World's first large-scale 802.11n network

Morrisville State College claims the world's first large-scale 802.11n network. It has 720 access points from Meru Networks. Capacity (speed) should be 130-150 Mb/s per basestation (shared). The MSC reports 1200 simultaneous users at peak times. It's still early days, but improvements relative to 11a/b/g are noticeable.
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).

Teleworking: traffic growth to stay at the 100% level

In this release Foundry Networks announces a deal with the Amsterdam Internet Exchange (AMS-IX). In case you didn't know, it's the largest in the world.
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

The Investment Incentive Problem

Do monopolies lack an incentive to invest? I suppose they did in the ‘old world’, where business was guaranteed and a government-based owner didn’t care much about maximizing value.

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 Fern├índez 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

KPN and Reggefiber roaring ahead

It looks like 2007 was the breakthrough year for FTTH in the Netherlands. Two players have emerged as leaders, Reggefiber and KPN. They co-operate in Almere and now appear to be dividing up the rest of the country among themselves.
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.