New Zealand: what investment vehicle?

Earlier this month, the New Zealand Institute released another paper on broadband: The Need for Change. The call for FTTH becomes increasingly explicit. They stop short of calling for separation of Telecom New Zealand and providing government funding to the passive layer.

In an earlier report (September 2007), the benefits from increased productivity and growth (through telepresence) were calculated: 2.7-4.4bn NZD/year. Also, there is a cost to waiting. The institute proposed a 10 year roll out of FTTP for a 75% coverage.
In the meantime, Telecom New Zealand (TNZ) progressed on issues such as additional fibre (to cabinets, FTTC), LLU and separation (the government is to decide on the latest proposals by March 31).
Now, the Institute says these efforts are insufficient; the 75% coverage ratio would only be reached by 2040. Just a third of the benefits would be captured.

Approaching the FTTH issue from the financing side, they hit the nail on the head and come to some remarkable conclusions. Here are some (non-literal) quotes:

• Summary: Progress is too slow, the dominant investor has weak incentives to invest, a new regulatory and funding model for rapid roll out of fibre infrastructure is recommended.
• More specifically: TNZ needs higher returns than those provided by infrastructure assets like fibre. Besides, the company perceives a regulatory risk, demand is uncertain and there is capital market resistance to increased investment.
• Even more to the point: the cost of inaction is greater than the cost of action, even though both are value negative.
• A natural monopoly is much more difficult to regulate once multiple investors have invested in fibre and xDSL. ISPs/telcos will have increased investment in xDSL and will require a return before changing platform.
• The Institute recommends accelerated, efficient roll out of fibre infrastructure. This will require a new regulatory approach and investment vehicle. Investment in fibre infrastructure made by a third party that treats the investment as an infrastructure asset. Government intervention is the only viable option to accelerate roll out through a privately funded vehicle.
• The last question remains: What investment vehicle needs to be built?

New web-based video services

After posting about the Daily Media box yesterday, I came across an apparently similar product from the US: My Broadband TV: basically an STB for personalized TV over broadband.

There are some nice extras, such as CD and DVD playing functionality and the box also serves as a DVR. (It adds WiFi connectivity, something Daily Media didn't bother to include because of interference issues.) It hasn't launched yet and details are lacking, but going by their web site makes it look like they are on the prowl for both content and distribution partners.

The company offers a $100-200 subsidy, "depending on the functionality and the length of commitment", whereas Daily Media is free for consumers and requires no subscription.

In any case, the box market is on the move. I think that price and simplicity (on the consumer side) and revenue sharing (on the partner side) are of paramount importance - things I particularly like about Daily Media.

Also worth mentioning are video solutions that add to potential congestion issues - and hence to the importance of network upgrades (FTTH).

• Telepresence, i.e. next-gen videoconferencing. Telephony ran this interesting article, highlighting the main players (HP, Cisco, Tandberg, Polycom, Teleris, LifeSize and Telanetix) and their market approach (managed services v. resellers). Still much too expensive ($250,000 for a room installation, plus bandwidth and service cost), but I suppose simpler products will come to market. Cisco: "At least 60% of our WAN traffic today is telepresence traffic." Benefits: reduction of travel cost ($70m for Cisco in 2007) and carbon emissions, increased productivity.
• Home monitoring. SureWest, an FTTH pioneer, is launching remote monitoring with partner Xanboo. They will sell to anybody in the US, but obviously only SureWest subscribers have no upload bottleneck. And the experience will only be optimal if the viewer is on a high-speed connection as well. It "can be programmed to deliver live or recorded video and still images, as well as sensor notifications for things such as motion, door and window activity, water leakage and temperature change. (...) You can control your kitchen lights, check on pets, receive e-mail alerts if a window is opened, or watch your kids come home from school from virtually anywhere in the world."

Daily Media allows new players into the IPTV market

When you ask "can it it do x?", the answer will either be "yes" or "no, but it could - easily".
That's one way to describe the new Daily Media box.

Last week, two of United Content Distributors' executives came to my home for a private demo of their newest box. And I have to say I was impressed. Hennie Meijndert is their CEO and behind much of the technology. John Goedegebuure is taking care of PR, now that the Daily Media product is ready for commercial launch.

Basically, the box provides place-shifting in that it allows for a full-blown TV experience of internet-based content. In that respect it resembles both Apple TV, Microsoft and Sony products, as well as TiVo, Akimbo (the original box) and Orb. But it offers a whole lot more, especially to distribution partners. Typically, these could be operators (CATV, DTT, telcos, munifiber) as well as 'service providers' in the widest possible sense (ranging from insurance companies to the post office) - as long as they have some form of customer relationship because UCD doesn't plan to become a service providers itself. Partners will be able to share in (targeted) ad revenues, VoD fees and other fees. And more.

Openness, partnering and revenue sharing are at the heart of the company and it's business model. In that respect, it has telco 2.0 written all over itself. It offers traditional and web 2.0 based video content, enhanced with highly targeted ads.

The specs (also, check out this .ppt that I made available as a Google Presentation):

• United Content Distributors has been working on the Daily Media box for 4 years, with 16 employees (developers and sales). CEO is Hennie Meijndert.
• Funding is private so far, coming from the shareholders: the CEO and his partner.
• Daily Media is a box for connecting a range of input sources (currently >500 channels through web feeds, beside CATV channels) to the TV. Also, all media content available in the home can be converged into the platform. As the box is portable, it can even mimic Sling-like capabilities.
• Video is streamed at 540 kb/s.
• Manufacturing cost: EUR 150 (excluding several relatively cheap add-ons, such as a PLC adaptor, cables, web-cam, microphone, possibly a DTT-tuner, etc.).
• Proprietary are the hardware specifications and the OS running on the box (albeit based on Windows CE). Further, two programs are server-based (for updates and the UI).
• Upon receipt the customer receives a EUR 240 credit at LaSer Nederland/VISA for buying content (VoD) and services. After registration it is raised to EUR 1,000.
• The company does not aim to be a service provider and instead relies on third party distributors. Their role is to subsidise the box and subsequently share in the revenues.
• The business model is centered on revenue sharing with both upstream (content providers, advertisers) and downstream (operators) partners. Sources of income are fees (VoD, t-commerce and other servies) and advertising (skyscrapers and video on the menu pages; commercialised slides during buffering; inserts; etc.).

Here are the benefits to each party in the ecosystem:

For consumers:

• A wide range of content, including web feeds of traditional TV channels, with a heavy focus on long-tail content (e.g. a Brazilian soccer channel).
• Access to the internet, so no walled garden.
• Movies (VoD, running quite well on an astonishing 540 kb/s, or 800 kb/s for somewhat better quality), with a single-click payment system (through the LaSer Nederland/VISA deal), connected to a maximum EUR 1,000 credit against which payments are debited – nice for impulse buying.
• VoIP (an SIP-based home grown solution) for box-to-box communication.
• Services including a 'red button' on screen for t-commerce and potentially domotica.
• Uploading personal content (audio, photo, video), with a free of charge 2 GB of personal storage.
• Plug-and-play installation with a single remote control, a wireless keyboard for web surfing, a webcam and a headset and PLC-based plugs that allow you to hook up anywhere in your home.

For content providers:

• Yet another platform to sell your wares.
• Daily Media picks up free web feeds, but adds pay-TV channels to make the offering more compelling.
• Also, it has a VoD agreement in place with which it has a very narrow distribution window (sometimes movies can be seen just days after they become available for rental).
• New revenue streams from interactivity (purchases through a single click on the red button on enhanced programs) and highly targeted ads (IP addresses and subscriber data can be combined, so CPMs in theory must be relatively high).

For operator partners:

• The solution to your quest for content, with the added benefit of raking in advertising euros, VoD and other fees, and solidifying your customer relationship.

For other distribution partners:

• Same as for operator partners, and add to that the option of having your brand and access to your services on the personalised home page of each individual user. This adds a line of communication to your subscribers. Providing 'hot news' may even alleviate your help desk (in case the partner is a health insurer, e.g.).

Obviously, there are a number of obstacles for UCD and its Daily Media box:

• Picture quality. At a 540 kb/s bit rate, the offering is quite astounding. However, the audience will adopt HD and get used to much more over the coming years. It remains to be seen if Daily media can keep up in this arms race.
• Dependence on web feeds implies that the server of any content provider may crash. Obviously, this is an area in flux. The service is dependent on third parties and you can only hope/assume that capacity is added, and deals with CDN operators such as Akamai and Limelight are scored.
• Funding. Four years and 16 employees implies considerable investments have been made by the current shareholders. Going to the next stage can be achieved through organic growth, but can also be expedited if the company were to attract additional funding. I have been shown some very interesting innovative financing methods.
• Yet another box. STBs and the boxes of even a company like Apple have a hard time making it to the living room. Sure, UCD adds interesting deals for partners, as well as a wide range of content and services, but still ... What helps is that the Daily Media remote can also be used to control the already existing audio/video hardware in the living room, so "one box in and 2,3 or 4 remote controls out".
• Focus. Perhaps the box can do a little too much to make it sellable?
• Exclusivity. Any distribution deal may alienate other potential partners in a specific geographical market. The same would apply if the company would sell itself to KPN, to its erstwhile Siamese twin TNT or to a large retail banking group - to name a few thinkable options.

To round off, here is what I particularly like:

• The box promises to be truly plug & play and converges several other boxes and remote controls.
• Low cost for consumers and operator partners. This is basically the result of distribution partners and advertisers coming on board, taking a big chunk of the cost.
• There are no regional boundaries. Daily Media could be sold anywhere, provided they have a distribution partner.
• New operators such as Reggefiber or bbned/Alice (both involved in FTTH in the Netherlands) could team with UCD to extend their content offering. This would raise their chance of winning against entrenched cable operators.
• KPN could forgo the development of its ill-fated IPTV offering and simply quit that game altogether. Instead, a Daily Media box with DTT tuner could allow KPN to offer basic TV and some pay-TV of Digitenne (at the highest available quality), enhanced with all the Daily Media stuff (which has a somewhat lower picture quality). In fact, an alternative could be to accept CATV channels to enter the box too (outside the network or commercial reach of Digitenne). KPN could look at that as a form of traffic off-loading – comparable to what femtocells do for mobile-only operators (in-home traffic off-loaded to the subscriber’s broadband connection). Another possibility may be to deploy Daily Media in a closed setting, to improve its performance (in terms of picture quality and stability).
• CATV operators could integrate their STB in the Daily Media box (or vice versa). A single box and a single remote control would be great for consumers.

Belgacom and FTTH in the Netherlands

Yesterday I had a short meeting with my contact at Tiscali Wholesale (now a unit of KPN). Always a pleasure and always good new insights.

Here are my takeaways.

• The future of Tiscali NL. Most of it is rebranded to Telfort. Tiscali Wholesale however will be folded into KPN Wholesale, but more or less as a separate unit. Some ISP customers may not like to be dealing with the incumbent now, but nothing really changes for them. The Tiscali people will still be their point of sales contacts. Besides, there are not very many other shops to go to, and probably not of Tiscali's quality.
• eHealth. We agreed that here lies a big market opportunity. The value chain is vast, something I plan to dig into.
• IP. The perennial thing behind so much that is going on right now. (I plan on mapping an 'IP cloud'). Here Tiscali seems to be further advanced than KPN. Tiscali Wholesale clients are offered much more than just 'naked access'. IP allows for modular compounding of services.
• FTTH. Things are probably speeding up in the Netherlands (but availability of construction workers is a bottleneck and VDSL may be an intermediary step that cannot be skipped for that reason). One caveat: an all open model, with dozens of service providers, carries the risk of confusing consumers. They simply get too many marketing messages. Apparently, Amsterdam's Citynet (3 layers: GNA monopoly at the passive layer; bbned monopoly at the active layer; many SPs) has lost an SP because the market was overcrowded. Compare that to the new Powell (Wyoming) network plan, which has agreed on a service provider monopoly for the first 6 years of operation.
• Belgacom. Rumour has it that 'a Belgian operator' plans an assault of the Dutch market. I cannot think of any other viable option than Belgacom. To get back at KPN (which bought Tele2 Belgium), they first took over Scarlet. Scarlet NL may not be for sale after all, and the operation could be beefed up by acquiring Orange Broadband (put up for sale by T-Mobile NL). And how about Reggefiber and Telecom Italia's Dutch assets (bbned, Alice)? The strategy would mirror the Swisscom/FastWeb deal, as well as Telefonica's O2/Be deal, to name a few.

Singpore on the move in the three-layer model

Does it pay to operate the passive layer of an FTTH network? I think it does, but it will be different from both running the active layer and providing services.

Last week I spoke with Marcel Jansink (Wavin) and Niclas Mika (Reuters) on this perennially vexing subject. There is a risk of building 'too wide a highway', so it all comes down to usage. I will try to elaborate in future posting and give actual numbers, using Marcel's input (the TNO model).
Needless to say, I strongly believe in the return of the 'Field of Dreams' ("If you build it, he will come.").

Anyway, one condition must be that we build a single infrastructure. Things look a lot more troublesome, both from a financial and a regulatory point of view (duct access, MDU access, etc.), when everybody starts digging.
This entails three things:
1. Separation, but the natural monopoly at the passive layer requires some form of regulation.
2. The ability to attract state funding for the passive layer, as there is no competitor (at the passive layer) to make objections.
3. Changing insights at operators. They must learn to value all their potential roles (network operator, service provider) and be willing to split them.

As I have written before, things are definitely moving in that direction. Separation is all over the EU; governments are increasingly valuing the benefits of FTTH; operators are saying goodbye to running (parts) of their networks.

Singapore may provide a great example of the above: separation into three layers; state funding; operators voluntarily adopting separation and focus on playing a role in one of the three layers.
Singapore's IDA today has a deadline for RfPs (request for proposals) for building the city's Next Generation National Broadband Network. A consortium of City Telecom, M1 and StarHub plans to submit a proposal for building the passive layer.
We will track who else will reply to the RfP.

Outsourcing leads to sharing (a single infrastructure)

Here is an interesting read on a case of outsourcing. CTO Don Price of Bharti Airtel acknowledges to having been an avid opponent ("I was screeming the loudest about not outsourcing"), but now he sees all the benefits:

What happened immediately was that rather than me getting 30 messages an hour relative to network performance, sites being down, trouble tickets being raised, with my phone ringing off the hook, that was all happening to my managed services partner. We were having dinner together, my phone was relatively quiet and he was on the phone constantly. And I'm saying this model is great!'

There are many interesting topics. As you will see, outsourcing leads to network sharing, even to a single infrastructure! That obviously leads to separation and open access. There you go - all my favorite topics.

• Managed capacity (equipment supply) v. managed services (planning, operations, maintenance).
• The motivation is efficiency ("I have a group of roughly 200 people who are managing a subscriber base of more than 60 million and a base station count of roughly 70,000").
• "When I was building sites I was building 400 a month, now my partners are building 3,000 a month."
• "There's one argument that says your managed services partner should be vendor-agnostic, because he will bring you the best in breed kit. Then there's another argument that says there's nobody better to operate and maintain the network than the guy who designed and manufactured it. But as an operations person having done this for a number of years, I would tend to say go with the latter, because there are benefits."
• About not outsourcing: "The things you would want to retain are things like market planning. I want my business guys to draw my cloud for me in terms of where they need coverage. I wouldn't just leave that up to a third party because ultimately they have to deliver a P&L."
• "This is the most difficult part of the entire exercise because people feel that network is their core competence, their key differentiator."
• "... first of all, the network is important. But if you look at the relative importance today versus a few years ago, it's changing. A few years ago network was a potential delight factor. Somebody got their phone, they pull it out of the box, they make their first call and they are absolutely thrilled. Now if they pull the phone out of the box, pop the SIM card in it and if it doesn't work in the parking garage in the basement, they get pissed off. So network has moved form a delight factor to a dissatisfaction factor because expectations have increased."
• "As a network person I can do very little do drive the top line but I can certainly do a hell of a lot to drive cost out of the middle. So therefore I believe things like passive network sharing, site sharing, co-building of sites and ultimately even the active network sharing is the right path to go down. If you and I are competing in the same market, it doesn't make sense for both of us to do the build out. We have an expense that we can't reduce, you're left with an expense that you can't reduce. You're on the left side of the highway, and I'm on the right side of the highway. What did we do? We crossed the finish line six weeks apart. So as we go forward in the industry, as a network community, let's build one highway, one common infrastructure and let the sales and marketing guys compete on the cars."
• "If you are a managed services partner, you have a business of trying to drive growth in terms of your revenues and profitability. You're getting a fixed amount from me for services. But beyond that you're somewhat limited. So what do you do? You try and figure out ways that you can take cost out of the middle as well. So you start outsourcing to other agencies. So you get double and triple hop outsourcing. All of a sudden I come into a meeting, look across the table at the other people. They're not my guys, they're not NSN guys, they're a third party. The guy's been out of school six months. He can barely spell RF and he's designing my network. (...) But at the same time a part of me says that as long as you're meeting my KPIs and SLAs, why should I be bothered? But the guys I work with, it's an emotional thing, it drives them absolutely crazy. I have to pull them back and say: "Are the KPIs better? Are the site deployments better? Is the customer satisfaction better?" If the answer is yes to all three then there's really nothing to discuss."

Seattle FTTH on the move

The city of Seattle has been considering FTTH for quite some time, apparently frustrated over the network efforts of Comcast and Qwest (but Verizon may be moving in). Now, the city's CTO Bill Schrier is about to announce the issuance of an RfP by September.
Obviously, this will be a pretty large deployment. The designated $500m sounds a little ambitious for a city of just over half a million, but with a population density of roughly half that of Amsterdam.
Anyway, yet another project to keep our eyes on.

Further, to add another reason why we really need FTTH: 'tele-hearings'. Several Dutch courts have been trialling hearings of witnesses and experts via a video link.

The EUR 100 trillion FTTH investment opportunity

FTTH is a hot topic already and it is only a matter of time before investors start realizing the true potential by launching special products or investment funds. The only trouble is, there are few FTTH pure plays in the public realm (unless you count any telco as such, because FTTH is the inescapable way forward). However, direct investments may come into play.

The Swedish Ventura Team recently reported on usage, which provided some reassurance to anybody displaying scepticism over what to do with all that bandwidth. Here is a link to the presentation sans graphics, or mail me for the original PDF.

Their main findings:

• Nielsen's Law (available speed increases at a 50% CAGR) generally holds. The Ventura Team expects it to hold for at least another decade. This means that 100 Mb/s will be available in France in 2008, in Poland in 2012 and in the UK in 2015.
• The mass market lags the high-end user by 2-3 years.
• FTTH customers generate >3x more traffic. Surprisingly, the inbound/outbound traffic ratio seems to be similar to the one for ADSL networks (notwithstanding an expected P2P concentration on FTTH networks).
• P2P and video are the most important applications.
• Operators will need to invest and upgrade (a EUR 100 trillion wave of capital investment).

Here is a short overview of the elements of the FTTH market:

• Benefits: social, economic, environmental.
• Business models: PPP, separation, open access, layere model (netco, opco, servco).
• Revenue models: pricing, revenue sharing, etc.
• Value-added services: ranging from P2P and internet video to e-health, teleworking, monitoring and IPTV/HD/3-D.
• Participants: network operators and service providers, vendors, construction companies, consultancies.
• Technology: active/passive, standards, performance, components, architecture, tools etc.
• Practicalities: plan ahead (or be behind Korea, Japan, Sweden), VDSL for interim, rights of way and construction labor availability are bottlenecks.
• Regulation: open access, wholesale, interconnection.

The interesting thing to me is that the investment opportunities reach far beyond the traditional telco ecosystem of operators and vendors.

Even in the Netherlands, we have a very diverse range of (not all public) companies involved in what no doubt is the most important development for the next few years:

• Operators and service providers: KPN, Reggefiber, bbned (Telecom Italia).
• Vendors: Wavin, Draka, Daily Media.
• Construction companies: BAM, Volker Wessels Telecom (thanks Rudolf).
• Consultancies: Arcadis.

The ValleyFiber Opportunity

New England is an interesting new case in FTTH context. Verizon (which was not interested in upgrading) sold 1.7m lines to FairPoint (which lacks financial power to invest), which at first sight appears negative for consumers. However, ValleyFiber is ready to move in.

We will track how this develops over the next few months.

Reader feedback loop: FTTH and more

Over the past few days I spoke/mailed with a number of 'industry leaders'. In some cases the most interesting things came up in a sideline. Here is what I have to share, with more to come next week.

1. Ed Achterberg of Telecompaper.com

His outfit is growing, both internationally and 'up the value chain'. Telecompaper already is the preferred partner of most Dutch operators and providers (and many more) for news, market research (including surveys) and analytics (including services). Now, they are adding commentary, research and who knows where they will be in 5 years time.
(Sounds like a takeover candidate for Informa or Wolters Kluwer, but that is another matter.)
Two items stood out:

• VDSL. KPN seems to be skipping this technology and may move into FTTH on a larger scale. Good news for us FTTH aficionados, even if I was reminded of Philip Rogge (of Belgacom, which did roll out VDSL on a large scale), who said that you may need VDSL as an intermediary solution as FTTH may take a long time to roll out.
• Mobile broadband. Ed views this as an ever more (HSPA+) viable DSL/cable replacement. In his monthly magazine he acknowledges that "it won't do for daily YouTube consumption", which makes me a big skeptic. Still, my 85 year old mother could be convinced - all she does is basic email.

2. Marcel Jansink of Wavin

After this post on Wavin's ducts he agreed to let me take a look (next week) at the cost model that TNO developed for FTTH deployments.

3. Serial entrepreneur John Goedegebuure

He called after reading this post on his Daily Media box. Next week we will meet (together with UCD CEO Hennie Meijndert) to talk more about the (28!) very open business models.

• He hinted at the upcoming availability of a DTT-ready version of his Daily Media box, which would make KPN a serious potential partner - just as I 'predicted'. And BT as well, because BT's Philips-box has a Freeview connection (but a different business model).
• Besides KPN, the MSOs and Reggefiber, John suspects there may be a #4 FTTH market participant in the Netherlands: Rabobank. Through their Bouwfonds venture they are buying an MSO and are supposed to have hundreds of millions available for telecom infrastructure projects. Remember that Rabobank is no stranger to telecoms: they were an original investor in Dutchtone (then Orange, now to be integrated into T-Mobile).

4. Stefan Stanislawski of Ventura Team

His group produced an FTTH usage study for the FTTH Council Europe. A must read.

Expanding the network business up & down

An MSO (Vigcom in Krimpen, NL) and an FTTH operator (OBR in Rotterdam NL) are starting a field trial of UCD's 'Daily Media' set-top box. The box will bring together both the video feed and internet-based video (comparable to AT&T's 2Wire box).

This way, the network operator, which already has upstream deals for its video feed, can expand this side by adding internet-based video. The latter will not directly bring in revenues, but indirectly (i.e. advertising): the box will be sold through retail partners, who will have their brand exclusively put forward on the user interface.

At the same time, downstream partners (UCD and any retailers) are added.

For UCD (United Content Distributors) itself, there are "28 different potential revenue models for the service, which include revenue-sharing of video-on-demand offerings or video subscription services."

Comments:

• The above terminology I used is a reference to STL's 'two-sided business model', that they are making waves with.
• Maybe the box could also bring together a DTT signal, such as KPN's Digitenne service, and internet-based video.
• I wish I could count to 28.

Vermont: FTTH at 'Free' price level

Another munifiber project launched, ValleyFiber. This time it's in Vermont - apparently triggered by Verizon's sale of the incumbent network. A 'non-recourse 15 year capital lease' with an 'outside private financier', along with pre-registrations, is targeted in order to avoid a municipal bond.

The project plans a Fall 2009 launch, an 8 Mb/s symmetrical BB connection (not terribly ambitious, but hey: this is the land where 200 kb/s is defined as 'broadband'), and a triple play service from a minimum of 50 $/mo (cutting in half comparable offers).

Interestingly, at current dollar prices (1.54 against the euro), this comes close to the famous 30 EUR/mo level that made Iliad's Free such a success (at first over their proprietary 28 Mb/s DSL equipment, and increasingly over fiber).

Timothy Nulty heads the effort. I suppose this bodes well: he made Burlington Telecom (see link in the right hand column) a success.

Interesting read and event from STL (Telco 2.0)

STL Partners (who trademarked the Telco 2.0 term), the firm of Simon, Martin, Keith et al, plan to do another brain torturing event in April. I was lucky to get a view of the accompanying report (they will also present some entirely new research). Their concepts are thought-provoking, highly original and totally worthwhile for anybody in the industry, or even with an interest in business models in general.

I will not try to replicate the report, or even give a summary, but I do wish to put anybody interested on the right track, as the report (165 pages) is quite a challenging read. I also recommend the STL blog to come prepared.

In short, the message is that new wholesale is telco's salvation.

The building blocks of their views may be presented as follows:

1. All-IP is a given. STL is specifically looking beyond it (for which in itself they may be applauded, because most people are still trying to get to grips with NGNs per se) and sees the broadband incentive problem, the problem of all-you-can-eat pricing, as well as the threat for operators to be reduced to dumb pipes. Of course there are several ways out of this: fix the flat-rate or all-you-can-eat pricing (see Benoit's post), embrace the dumb pipe (if you wish to forego a big revenue opportunity), or follow STL (design new business models). Obviously, STL is presenting itself as the sector's saviour.

2. Hence, new business models are needed (or rather: revenue models). STL's answer involves the two-sided business model (see from slide 47 of this Arvetica presentation), implying operators should view themselves as logistics services companies, making use of their specific strengths. I suppose the cable industry could be an example too, where upstream partners (networks) are teamed with and shared revenue with. Networks should be seen as platforms, where operators, upstream (content and application providers, ecommerce, payment systems, advertising (cf. Project Canoe in the NYT ) etc.) as well as downstream (device and set-top box makers) meet. It also involves breaking-up and re-assembling the value chain. Effectively, the BSP (broadband services provider: ISP + apps) is born. Focus of the report is on exploring new wholesale opportunities and partnering in all its manifestations (co-op, sharing, outsourcing).

3. Also, STL give a top-down market approach, estimating the global telecoms market (at the retail level). It is set to double from 2006 to 2017 (from GBP 680 to 1300bn), with the share of the largest 12 countries dropping from 50% to 40% (from GBP 341 to 514bn). This implies a 3.9% CAGR (same as during the 2001-2006 period). However within the numbers (they asked me to be a little discreet about them) are big variances: access is very low growth (esp. mobile), the platform thing (and wholesale to a lesser extent) is where future growth opportunities are. Keep in mind however that these numbers are the results of STL's assumptions, not the other way around, and therefore they are basically the result of reverse engineering.

4. Input is mainly STL's own qualitative research about distribution systems. They see both parallels (mainly in shipping) and early movers (such as Amazon). Further, STL use a large-scale survey among industry workers, consultants and analysts.

Buried duct (for FTTH) is cheaper than buried cable

Emtelle and Wavin commissioned an FTTH cost evaluation study from TNO, an independent Dutch research organisation.

A quote:

One of the key conclusions of the study was that the cost of direct buried duct
— plastic tubing into which optical fibres can be blown as and when required —
was lower than that of direct buried cable when considered over a 25 year
period, even though the upfront costs were higher. The study took into account
events such as adding subscribers, maintenance and repairs.

Another step in the right direction. Still, investors need to be convinced to take a long-term view.

Off-topic: applying DCF modeling in the stock market

I have always thought of the stock market as a Platonian reflection of the real world of companies. See the table.

We have learned that mathematics isn't restricted to the lofty world (left side). Just the same, DCF modeling shouldn't be restricted to the real world of companies. (The reverse is not true: check out this line from a recent KPN press release: "The initial consideration is based on a multiple of current earnings (...)." Letting this slip through the CFO's office should be enough to get him fired, but I suppose he's allowed to 'steal a horse' for a change.)

However, it isn't easy to reconsile True Value (DCF-based) and Market Value, other than by declaring that "ultimately, the value will show", or crap like that (what is that supposed to mean: 'ultimately'? Is that 2040?). Since it is a moving target, the value may never show.

The access network is the weakest link

Operators hesitating to deploy FTTH face a short-sighted stock market and uncertainty over demand. I have displayed some scepticism over the latter myself.

However, as a user I am still frustrated over web pages loading slowly (try FT.com for instance, and even Amazon.com could be a little faster to my taste), which highlights the importance for every single weak link in the network to be dealt with.

Dirk 'munifiber' van der Woude mailed me this excerpt to Nick Carr's new book and tells me USB 2.0 delivers 400 Mb/s. Now, Devolo plans a 400 Mb/s demo for in-home networking (based on PLC). At the other end, Google is making sure it doesn't overpay for transpacific transit.

In other words, the access network (but not just that part) is being squeezed from both sides (backhaul as well as in-home) to deliver more bandwidth to the user. (And not just fixed access, but wireless as well.)

To round off, here are two new articles supporting the demand side of the FTTH equation:

• e-Health. Google recently scored a deal with the Cleveland Clinic, which could add to a new wave of information competing for bandwidth. McKinsey just released an interview (free registration) with CEO Cosgrove. It doesn't touch upon the Google deal, but it is an interesting read anyway, since e-health is such a big opportunity for the telecom sector.
• Web 2.0. In a presentation I did last year, I referred to surveys showing that 8% of the US population was actively taking part in Web 2.0, and that 50% read blogs. Now, research shows that 54% of enterprises and 70% of small companies use Web 2.0.

It's all about customer happiness

EBay is a case in point proving that running a great business ultimately boiles down to just one thing: make your customers happy. Causing a sellers revolt is exactly what is wrong over there. If the basic laws of economy still hold, this is the time for a (disruptive) competitor to rise to the challenge.

Of course, Amazon.com is a candidate too.