Amsterdam smart city presentation

Here is a new presentation (Stockholm, November 2009) by Dirk van der Woude, one of the driving forces behind the Amsterdam smart city efforts, which includes FTTH and much more: wireless, smart grid, etc.

The only thing that I just can't get excited over is the smart grid concept. I think we need something much more fundamental than just increased efficiency, even though the first results (14% savings - see slide 25) are impressive.

• I doubt this is enough. A much more radical approach may be needed, like solar and wind power. My German neighbour is having a new home built, using only thermal power (the refrigerator turned upside down). It takes drilling a 80-100 meter deep hole, but a temperature difference of just 2-3 degrees is sufficient. How difficult is that. And how durable! Contrast that with the cost of building a smart grid.
• Savings of 14 percent may be unrealistic when the project moves beyond the initial group of trial homes, where people could be quite motivated to cooperate. There are a lot of jerks our there. Go drive on the highway to see how few people are interested in driving economically. Even though many cars these days have a smart meter, telling us that doing 90 km/hr will probably save us at least 30 percent of our as consumption, very few seem to be interested. That's human nature. Still, I hope the trial will prove me wrong. Smart software, added to the smart meter, may help us become better people.

Tele Basel launches FTTH in Switzerland

For those who master Schwizerdütsch, here is a report on an FTTH project in Basel. Tele Basel has activated 250 homes.

Will KPN pull out a wild card?

It's the time of year to make predictions. On December 15, KPN is set to clarify its FTTx Roadmap, but it doesn't look like there will be any fireworks. Here are a few possible outcomes that don't seem to be on anybody's cards:

• MAYBE they will accelarete FTTH. That would be a u-turn to previous statements, and construction capacity (currently at an annual run rate of 250k homes per annum) doesn't have much room to grow.
• MAYBE they will bet the farm on VDSL2. It is what they have announced, but it could be more than just an interim strategy (in theory).
• MAYBE have an acquisition to report. BBned is for sale and would add a handsome business provider (the wholesale provider would lose all its customers no doubt, and the retail business may have to be sold on). Still, they could replace BBned on a couple of FTTH networks.
• MAYBE they have a retail partnership to report. Perhaps Online Breedband is finally ready to live up to its promises (made in April). Or Tele2. But the real big fish would be Ziggo. Imagine Ziggo becoming an operator/RSP on the Reggefiber FTTH networks! (UPC would be a harder nut to crack - they suffer from a severe case of incumbofobia).
• MAYBE they have a content deal up their sleeve. Connected TV is all the rage. This would enhance the triple play.

UPDATE But the biggest surprise would be:

• MAYBE there will be a switch to GPON technology (in the larger cities), in order to be able to re-use VDSL investments.

KPN to shed light on its FTTH/FTTC network mix

KPN's (in)famous 2x5 evalution of FTTC (+ VDSL2) and FTTH, in 5 towns each, is drawing to a close. Next Tuesday will see a statement form Baptiest Coopmans, board member for the consumer market. I have prepared a short report (KPN's FTTx Roadmap) containing all the different considerations that KPN must be weighing (see also in the right hand column).

No doubt an unexciting mix will be announced, but there are two important questions to ask: what is KPN's long-term view of VDSL; and how seriously is it committed to FTTH?

YouTube shuts down API access for unlicensed STB makers

This is potentially big: YouTube is shutting down API access, except for 'a few strategic parners' (TiVo, PS3, Wii). Bad news for STB makers without a content deal with Google - and equally good news for those that do have one.

There are many of them around, including lots of start-ups, and they build much of their business case on access to: VoD, sports, catch-up TV and .... YouTube.

So, this may lead to a much-needed shake-out, but at the same time one wonders: would Google itself have any IPTV (hardware) ambitions?

The Sixth Sense progresses

Good to see that Pattie Maes and Pranav Mistry are actually making progress on their Sixth Sense project. Hat tip to Benoit for pointing us to the new TED presentation (November 2009):

as a follow-up to the March 2009 presentation:

Dedicated fiber's killer app: streaming video

Even if growth of the Internet was huge, the arrrival of video was a revolution. And yet, people are still looking for a killer app to justify NGN build-out. I think it is here now, and it is called streaming video.

Up to now, we mostly live in a download world. No matter if it's a web page, a .pdf file, an MP3 file or a movie, we basically download (causing a traffic burst) and then read/listen/watch. Even YouTube fundamentally is a download service. And after downloading, we are pretty much offline for a while.

This ties into a FTTH project that I had a chance to talk about with the operator. It has roughly 100 homes subscribing, with services ranging between 20 and 100 Mbps. But here comes the shocker: the aggregated bandwidth used never crosses the 100 Mbps mark!

Sandvine recently published its 2009 Global Broadband Phenomena report, claiming that streaming video is exploding already (to 27% of total traffic, from 13% in 2008). However, they include YouTube in the 'real-time entertainment traffic', while fundamentally it is a download service. Further, the top 1% of subscribers account for 25% of traffic. I would add that this 1% is not a constant group, but that all of us are part of it at different times.

Obviously, in a streaming world, traffic will explode. Imagine the continuous flow of 10 Mbps caused by watching HD video, as opposed to the bursts from downloading. The consequences will be especially large for shared networks (cable, PON, wirelsss). If Nielsen's law is to hold, it looks like dedicated fiber is the only infrastructure that will keep up.

So here is the point I would make, based on the above:

In a download world, any NGN will do, but in a streaming world we need dedicated fiber.

Amino announces hybrid OTT STB with Intel's CE4100

A press release from Amino adds to the OTT discussion, or more generally: IP-based services replacing dedicated networks (PSTN, CATV). Is OTT a threat, an opportunity, or something in between for traditional video network operators?

The OTT sector can be subdivided in three groups:

1. Start-ups. There are dozens, including at least three in the Netherlands: UCD, Stream Group, and a promising newcomer: Metrological, that I wrote about in this report. Others include Sezmi, that just raised another $25m and launched a pilot. Trials, trials, more trials ....
2. OTT giants, with an established revenue stream. Apple (Apple TV), Netflix (Roku), but where is Google? All its efforts are going towards mobile: search, ads, display ads (AdMob), operating systems (Android, Chrome OS), applications (VoIP, maps), possibly a smartphone and a Clearwire stake. Is IPTV the next big leap for Google? Are they awaiting all these trials to see who gets most successful - and then buy it, just like they did YouTube?
3. Traditional operators. As usual, newcomers may open up the market, but traditional players more than once end up winners. Once they feel the heat, they embrace the new technology and rebalance their revenues away from their legacy sources of income. With Amino, an established STB vendor, announcing an Intel CE 4100 based box combining broadcast and OTT video, this may just be happening once again.

TelePresence hits the Southbank

Vindication for Cisco's TelePresence: Southbank Sinfonia doing auditions via the system. Candidates were in Sydney, the orchestra is based in London.

Latency issues make you wonder how an opera performance such as below can be done.

On-net over fiber, latency can be as low as 3 ms, which seems fine.

Polar Communications: FTTN cannot keep up with future demand

Polar Communications of Park River (North Dakota) is ordering FTTH gear from Occam Networks. What makes it especially remarkable is this quote from the press release:

Polar realised its long term FTTN strategy would be unable to keep up with future demand. The solution was a shift to a FTTP strategy that began two years ago and will continue with the current Occam deployment.

It is a GPON deployment, so we'll see when they will need to replace that with a point-to-point network.

Ams-IX takes another hurdle: 800 Gb/s

Ams-IX traffic has recently broken a new barrier, the 800 Gb/s level. In fact, the peak level has almost reached 850 Gb/s.

Netbooks will make smartphones obsolete within 5 years

When people start estimating smartphone sales for the next few years, I am tempted to throw in my own personal prediction: the smartphone will be obsolete in 5 years time and completely replaced by new netbooks that provide an infinitely better experience than smartphones.

KPN may move beyond FTTH

Last week, I spoke with a couple of Ericsson people. They had a really cool slide of how market shares have moved for all vendors (Ericsson, NSN, Alcatel-Lucent, Huawei, ZTE, NEC, Cisco, Motorola, Nortel). The X and Y axis represented mobile and fixed sales. Each company was represented by three blobs, representing sales in 2006, 2007 and 2008. By their size and direction, one could tell who is moving where. Curiously, Cisco was regarded purely fixed (not counting the Starent takeover) and in LTE, Ericsson expects to see three winners: Ericsson, Huawei and some third party (I wonder who that could be).

When it came to LTE, they were perfectly clear about what it means: it is the third pipe that we have been talking about for a long time (but not recently). In Ericsson speak, mobile broadband (MBB) is not a complement, but a fully-fledged replacement to fixed NGA networks (helped by releases such as these: 500 Mbps, even if we should not get carried away). And make no mistake: we are talking laptop (or netbook) usage, not an inferior smartphone experience. Of course, MBB requires FTTS (site).

All this may be a blissing to KPN's indecisiveness regarding FTTC and FTTH.

On the side, new service development is notoriously slow, which may contribute to KPN's undecisiveness. One reason is (semi) governmental agencies' unwillingness to move online. A reason behind this, as was stressed in my newspaper this week, is the fact that health workers are paid by the hour. They are completely disincentivised to embrace e-health, because it threatens to make their work much more efficient.

Back to KPN. They bought a 41% stake in the FTTH start-up Reggefiber, and injected their own (few) FTTH projects into it. And now they are trialling both FTTH (through Reggefiber) and FTTC. By the end of the year, they want to decide their strategy going forward, based on these trials. (The Q3 release is due October 27.)

My prediction is: they will freeze the Reggefiber expansion (blaiming it on the financial markets) and move forward with FTTC. And this may be a smart move after all. The original FTTC targets were to bring fiber to 28k street cabinets. And perhaps some of these can also house LTE gear. At the same time, KPN's mobile sites will have to be fiberised as well (it is a well guarded secret how many actually already are).

It also becomes clear why KPN bought the Reggefiber stake: for the good old business reason of taking out a competitor. Remember Nielsen Media Research, once part of VNU, following the exact same strategy by buying start-ups that threatened Nielsen's monopoly on the US TV ratings market. They were never heard of again.

As a result, KPN may be the first operator in the world to actually move beyond FTTH. (So much for those who like to term FTTH not NGA but LGA: last-generation access.)

NBN Australia: Alcatel-Lucent's YouTube video

I wonder if Alcatel-Lucent has gotten the order yet ...

Newspaper 2.0

During our FTTH NL 2009 conference, I spoke with a journalist from the NRC newspaper, a 'quality' newspaper in the Netherlands. During my own presentation I claimed that dinosaurs take a long time to die, but in the end they actually do. Think PSTN, CATV, broadcast TV, newspapers. Of course, the man smirked at me 'so my newspaper is going to die'?

Ironically, the very same NRC edition that contained a review of our conference, also carried the news of The Independent closing down. And today, a local newspaper in Leeuwarden is in desperate need of EUR 100m.

Looking a little more closely at the chances of survival for newspapers, it is useful to distinguish between form, content and other services.

Form:

• Paper: clearly on its way out, with Amazon's Kindle going worldwide. Still, nice for specific locations (public transport, restaurants, etc.). In the long run: a typical dinosaur.
• E-reader: saves newspapers a lot in terms of paper, ink and distribution costs. But who is going to pay? There is some resemblance to the femtocell conundrum. Will the end user be willing to pay for a piece of hardware that saves his provider a lot of money?
• Netbook: if newspaper companies adjust their websites to the specs of a laptop or netbook, then they won't need to venture into the risky e-reader market. Instead, they could subsidise netbooks. If they make their websites fully for-pay only, they could make an offer to their subscribers: if you give up your print edition, we will give you a netbook and you can download our newspaper every day for a reduced subscription fee. If they score an MVNO deal, they could have the download process automated and performed daily (or even several times a day) over a 2G or 3G connection (cf. Amazon).

Content:

• News: AP, AFP and Reuters aren't going away. Newspapers, relying on printing syndicated news from these sources alone, are on their way out.
• Background stories, in-depth reporting, interviews: here is where a newspaper's value is, I believe.

Other services:

• Non-content: My NRC newspaper is venturing into community services that are especially appealing to its rather well-defined demographic: trips, books, CDs. Perhaps these services reduce churn somewhat, but I doubt they add much value.
• Content: Since newspapers are in the content industry, they could become portals for customised content by adding related content from a variety of sources. They could add books, blogs etc. to their daily newspaper download to the subsidised netbooks or e-readers.
• Other: newspapers have a billing relation and a more or less well-defined reader demographic, which in theory positions them to become MVNOs or even RSPs on broadband networks.

2009 Nobel Prize in Physics celebrates fiber optics

The fiber community can be happy. From Nobel Foundation's press release, on this year's Nobel Prize in Physics:

This year's Nobel Prize in Physics is awarded for two scientific achievements that have helped to shape the foundations of today’s networked societies. They have created many practical innovations for everyday life and provided new tools for scientific exploration. In 1966, Charles K. Kao made a discovery that led to a breakthrough in fiber optics. He carefully calculated how to transmit light over long distances via optical glass fibers. With a fiber of purest glass it would be possible to transmit light signals over 100 kilometers, compared to only 20 meters for the fibers available in the 1960s. Kao's enthusiasm inspired other researchers to share his vision of the future potential of fiber optics. The first ultrapure fiber was successfully fabricated just four years later, in 1970.

Today optical fibers make up the circulatory system that nourishes our communication society. These low-loss glass fibers facilitate global broadband communication such as the Internet. Light flows in thin threads of glass, and it carries almost all of the telephony and data traffic in each and every direction. Text, music, images and video can be transferred around the globe in a split second.

If we were to unravel all of the glass fibers that wind around the globe, we would get a single thread over one billion kilometers long – which is enough to encircle the globe more than 25 000 times – and is increasing by thousands of kilometers every hour.

WBA and innovation at the center of FTTH developments

We had our first FTTH NL conference last Thursday, and I am happy to say that it was a big success. We will likely put on a second edition next September. You can still find the program here (and for those of you who attended, you can download the presentations).

There was a clear distinction between those who looked at FTTH indepth by the nature of their business (Reggefiber, Emtelle, FTTH Council), and those who followed the latest mantra (it's not about the network, it's about the services) - taken one step further by KPN who claim that it's not about services either - it's about whatever you can imagine you want to do with it.

At the same time, three out of a total of eleven speakers had to do their utmost to make a connection to FTTH. But this provided the topic with extremely valuable context and perspective.

• Tele2 NL, focusing on VDSL2 for now, but an FTTH trial wil be conducted in 2010. And: it was acknowledged that VDSL2 is an interim strategy.
• UPC, FTTH's nemesis, however had an interesting quote: "Should we need to do FTTH in 10, 20 or 30 years, we will."
• Ams-IX doesn't directly feel the effect of FTTH, because uptake is a very gradual process. Interestingly, community services (local traffic kept on-net and hence off the Internet) will grow its share of total traffic.

Our regulatory session (with Opta and a lawyer for alternative operators) focused on WBA. Opta has chosen not to regulate this service (the bitstream wholesale service that ISPs buy from operators) in order to stimulate newcomers to become an operator themselves. Opta claims that this worked well in the DSL world. I cannot quite see this - it's a stagnant market with just three unbundlers, and in an FTTH context it still isn't flying yet. Our Bird & Bird lawyer drew the obvious conclusion: we need WBA regulation in order to allow newcomers to enter the market. It is the first step on the ladder of investment. Once they have gained a market presence, they can move on and become an operator.

One thing he also pointed to was equal time-to-market, which isn't satisfactorily regulated at this point for ODF access (wholesale service bought by operators from the network owner).

On the whole however he did identify a certain 'investment run', with Reggefiber kickstarting the market, KPN buying into it and now Tele2 doing VDSL and cablecos doing Docsis 3.0.

Rabobank's Henk Doorenspleet had a very smooth and appealing presentation. He appeared to be quite worried over government funding, because he quite directly notices that this is preventing private financiers to enter the market.

Personally, I was happy to see a favorite topic of mine being taken up several times: where does innovation arise?

• At the active layer? This is the traditional ISP view, who feel they need to unbundle copper of fiber. So they need to be an operator. However, there is only limited (economic) space in each PoP to justify this model for more than 2 or 3 players.
• At the services layer, but on-net? This is the view of Genexis. It has a drawback: WBA isn't regulated. So what you see now is that KPN and cablecos are starting to make innovation happen themselves and seem to be trying to keep RSP's out of the market.
• At the services layer, but OTT? This is the Google, Skype, iTunes model. A lack of QoS and security is a drawback, that is however pushed to the background by network upgrades and the rise of CDN's.

Any suggestions, ideas, views here?

ECI Telecom trials DSM L3

Short follow-up on this post (DSM increase's xDSL's reach). DSM L3 is trialed by ECI Telecom at 3 European telcos to extend the reach and performance of VDSL. This could be a way to deploy VDSL2 from the Central Office, where existing ADSL2+ DSLAMs can simply be replaced, instead of from the cabinet. Effectively, with DSM you don't need to do FTTC to extend fiber from the CO to the cabinet.

The strategy pits Tele2 (VDSL2 from the CO) against KPN (VDSL2 from the street cabinet). Tele2 obviously has a much cheaper strategy and can truely regard it a solid interim strategy before starting to unbundle FTTH.

New milestone at Ams-IX: the 700 Gb/s barrier

Service innnovation on FTTH: institutions need help migrating online

Today I visited the Glasdag 2009 conference put together by Glasvezel.nu (the website devoted to community and other efforts towards FTTH in the Netherlands) and SBNA (the non-profit behind a number of such initiatives in the city of Amersfoort). The conference was aimed at volunteers interested in launching FTTH initiatives in their home towns. Speakers included Kees Rovers (the driving force behind the Nuenen and Eindhoven FTTH networks built by OnsNet) and Jan Griffioen (Reggefiber).

The conference was opened by an Amersfoort city council member, who hailed the social and economic benefits of these networks. He also hinted at the 'option value', quoting history: when the telephone was first invented, its main purpose was to inform people that a telegram was on its way.

Kees Rovers first gave his 7 key elements to successful network deployment:

1. Business case. Make sure you have one, including funding. A high take rate is essential. Remember that fiber is cheap; it costs only EUR 1,000, which is negligible when compared to your home's value.
2. Community sense. Everybody needs to be in.
3. Triple play. This will make the network finance itself.
4. Communication. Forget fiber speak. Keep that 75 year old granny in mind when talking about your plans. Focus on telephone and television services.
5. Local services. This is something the cableco can't replicate. Think of the local soccer club, even marriages taking place in the local church.
6. Customer service. Remember that people hate call centers.
7. Reliable network.

Jan Griffioen outlined Reggefiber's long-term strategy. Connecting every Dutch home in the next 10-15 years is core to that strategy. The consumer-facing brand is Glashart. Today, he was able to add one more network to Reggefiber current c. 35 projects: the Kattenbroek area in Amersfoort.

A few things stood out. First, if any demographic needs to converted to the Fiber Religion, it's .... women. It was practically a men-only conference.

Second, Kees Rovers conspicuously de-emphasised fiber in order to put services in the spotlight. This is all fine and dandy, but it must be kept in mind that he is now involved with KPN's 2x5 trial towns, and that half of these are around VDSL, not FTTH. But obviously, on the whole he is quite right. If the end-user is to be converted (remember: a high take-up rate is needed for the business model to work), then it must be basic and understandable services to convince them to sign up. Many city workers and departments come to mind here: doctors, soccer clubs, church, library, school, hospitals, local broadcasters, city hall, etc.

What really stood out was that all these grassroots initiatives really appear to grasp this issue. But was even more striking, was Kees Rover's observation on how to get it done. Don't count on any organisation here to take care of this issue and migrate their services online themselves. It will never happen this way. That's just not how people are. They need to be forced, one way or another.

One final word: this movement is behind taking a lot of traffic off the internet. It's all local traffic. It has been reported before that local traffic can make up as much as 50% of traffic on FTTH networks.

DSM increases xDSL's reach

In this podcast at Cnet, John 'copper' Cioffi talks a little bit about DSM (dynamic spectrum management), a software solution for noise cancellation on DSL lines, sold through Assia. It delivers a reach increase of 25-30%, enlarging customer reach by up to 50%, according to him. Apparently, he is betting the farm on copper, delivering up to 100 Mbps over a maximum of 1 km.

At around the 17th minute, he also talks about VDSL2 and ADSL2+.

With great abundance comes great responsibility

The success of new applications has a lot to do with freedom and abundance:

• The mobile phone liberated us from having to sit at the desktop phone.
• VoD liberates us from having to watch linear broadcast TV.
• Social networking liberates us from having to be friends with family, neighbours, colleagues etc. only, because it allows us to explore the entire world.
• The digital camera made us much more independent from the photo store and the limitations of 'analogue' (chemical) photography.
• etc.

Imagine what the Snapdragon-based smartbook will bring about (always connected, 3-D graphics, GPS, video calling, full web browsing, all-day battery life, etc.).

There is however a shadow side to all this and it has to do with quality, art and science.

• How does a gallery owner select photographs in the age of digital photography? ("Everyone can be super! And when everyone is super ... no one will be.") Which raises the wider question: What is art anyway?
• How does a teacher put together a curriculum in the age of Wikipedia? What do you teach kids when they can look-up and download anything from the Internet?
• Where do you get a profound musical experience (check out Cesar Franck's Piano Quintet) in the age of MP3-files, flat fee access to millions of songs and DJs being promoted to artist status?
• How do you engage in profound relationships in the age of e-mail and social networking?
• etc.

To paraphrase a famous quote: With great abundance comes great responsibility.

FTTH versus HFC: short- and long-term over- and underestimation

Paul Budde has written a very eloquent piece on the FTTH/HFC debate. I have been talking to a number of cable execs myself recently, and my attempt at The Truth is something like this:

• The Medium. In general, the shortcomings of HFC networks include limited downstream (where Docsis and other technologies help out), even more limited upstream (where channel bonding options are more limited), the medium itself (which is much less 'transparant' for signals than fiber, which is why HFC operators need several amplifiers in their access networks) and the fact that it is a shared access network (just like wireless).
• The Upgrades. HCF operators have a choice of many technologies and techniques (I counted 14!) to upgrade their networks. The trouble is, some do not apply for practical reasons, some are still embryonic and others may prove costly.
• End-game. Even if HFC operators manage to do node splits to 1 per 20 homes and fiber deep to reduce the access network to 50 meters, expand the spectrum to 3,000 GHz and apply 256-QAM, questions remain: how much does it cost, and is it enough?
• Access network. In the above case, a 50 meter access network could in practice not be too different from an in-home network based on copper or coax in most FTTH networks.
• Non-linear video. The big threat is a migration away from linear TV to non-linear HD video, in both the uplink and the downlink. Here it is important to note that people tend to overestimate the short-term and underestimate the long-term. In other words: yes, upgrading will allow HFC operators to compete for several years; and no, it may not be enough and a full FTTH migration may be necessary.

Akamai new State of the Internet report

Akamai put out its 09Q1 State of the Internet report today.

Time spent online doubled in 4 years

Instead of asking 'why should NGA networks be built', a different question is worth asking: What will people do with virtually unlimited bandwidth?

Part of the answer comes a survey on the time spent online (done by The Media Audit, as quoted by BizReport, among a US audience).

"On average, American adults are now spending just under 4 hours each day online; that is an 81% increase over 2006 numbers, according to a new report from The Media Audit. Researchers have found that the Internet now accounts for more than 30% of a 'media day' for adults in the US."

In other words: time spent online must have doubled since, let's say, 2005. And it makes up only 30% of a media day.

FTTH in the Netherlands 2009: Conference September 17

At the parent company, we are working hard to put our first conference together. It is devoted to FTTH in the Netherlands and will be held September 17 in Houten (NL), in Dutch. Our list of speakers has been finalised, and we are very proud to have such a varied (and large) band.

We are selling the report (in English) and the conference as a bundle, but you can order them separately as well.

Ramp^Rate on the cost of running YouTube

For those of you who haven't seen it yet: RampRate's report on the cost of running YouTube. RampRate puts the numbers much lower than Credit Suisse does.

Medici.tv: Live streaming classical music

The people at Atanar Technologies have been able to create a stunning streaming service of classical live concerts - not requiring a particularly fat pipe at all. It's called Medici.tv and has some wonderful (live) content. Check out this Berliner Philharmoniker concert under Simon Rattle: Tchaikovsky's Nutcracker, the 'Rakh 3' (with Yefim Bronfman) and a Sacre in the rain.

(Have you seen the Grooveshark player in the right hand column of this blog? Poor guys have been sued!)

Singapore FTTH is ahead of schedule

Singapore is moving ahead of schedule in rolling-out FTTH (NGNBN), under the iN2015 banner.

• In-building work starts in September. It is free for those who signed up and will take four hours. During the first month, 56k homes and 1k businesses will be wired. At the end of 2010, 60% coverage will be reached.
• Activation and commercial service is set to be launched sometime during H1 of 2010.

It remains to be seen how competition will develop. Currently, there are 46 service providers, but on the NGNBN there will just be a single operator, rolling out mostly GPON (some p2p to businesses). It all depends on margins; smaller margins means becoming an operator might be necessary. But new operators will not be eligible for the SID 250m subsidy that Nucleas Connect (StarHub) receives. And with 46 SP's margins will likely not be fat.

Optimum Lightpath launches HD Voice

Coffee is a typical commodity, and many people don't mind drinking it just like that (left). Came along Nescafe and Douwe Egberts/Philips, to give the world Nespresso (right) and Senseo. These products are outrageously overpriced, but equally popular.

Imagine what marketing like that could do to plain old voice service.

Optimum Lightpath (the business arm of Cablevision) may be leading the way. It is launching HD voice (over its fiber-to-the-business network; quickly after its interactive patient care service).

FTTH in the Netherlands 2009

Our FTTH NL 2009 report is finally ready. It took a few months, but we've spoken to almost 20 C-level execs from around the Dutch landscape to get past, present and future into the 45-page document. You can access the table of contents here (registration).

The report has an entirely Dutch focus, but it's written in English. Buyers will have access to our first event, scheduled for September 17 - but that will mostly be in Dutch. We have been able to contract a handful of high-profile speakers.

FTTP raises Xfone's ARPU to USD 175 (from USD 75)

From a recent Xfone press release:

FTTP is a key profitability driver for our Company and we believe there are significant opportunities for our services in select communities. Our ability to provide a voice, video and data "triple play" offering attracts customers who, because they are subscribing to three services rather than one, generate higher monthly revenue per customer. For example, Average Revenue Per User (ARPU), at March 31, 2009 for our non-FTTP U.S. customers approximated $75 per month, while ARPU for residential FTTP customers exceeded $175 per month with business FTTP customers exceeding $300 per month. Furthermore, these customers tend to stay; monthly business and residential FTTP had an attrition rate of approximately just 1% and 1.7%, respectively during the quarter.

IBM launches stimulus fund for smart infrastructure

In theory, the business case for FTTH (and the like) is improving. Total cost of ownership is being reduced continually, broadband demand and traffic are growing, the cost of waiting is increasing, etc.

Again, in theory that should attract investors. Obviously, the crisis, a lack of regulatory clarity and the enormous amount of legacy assets still work against it.

All in all, it is pleasing to see IBM devote a $5bn fund to 'smart infrastructure investments' worldwide. Some corroboration of theory, at last.

In Europe and Asia-Pacific that could entail things like "Smart Grid, Health Information Technology and Smart Transportation", available to municipalities and businesses (a subtle endorsement of government involvement).

This ties nicely into more related news:

• In New Zealand, one country among several in the region working toward FTTH, it has been noticed.
• Optimum Lightpath is launching an Interactive Patient Care service for hospitals. It takes little imagination to see this extended 'to the home', as Orange seems to be thinking.
• 3-D as a driver of FTTH is gaining momentum. There is talk of standardisation (also for a version sans lunettes) broadcasting is 3-D is starting to happen (Spain, US) and Futuresource is expecting a rapid take-up.

FTTH to stop urbanisation

Nice little clip from the BBC on Japanese FTTH.

There has been a wide range of news around FTTH over the past few days. It is striking to see on how many fronts FTTH is gaining momentum.

• DIY trench digging: already 80% of Lyse's customer base. But that's Norway.
• Emerging markets: fiber coming to Lebanon, India, India again, the Philippines, Iran and Estonia.
• Infrastructure-based competition: Swiss utilities are banding together and Swisscom is abandoning VDSL in larger cities in favour of FTTH.
• Munifiber: UTOPIA is picking up steam. Focus is on businesses now and Integra Telecom is added as a business-oriented service provider. Meanwhile, FuzeCore launched a 100/100 Mb/s service at 147 $/mo in the residential market.
• Business VAS: Eurofiber (a Reggefiber sister company in the Reggeborgh holding) launched a surveillance service with a third-party SP, DIT is beveiligen.
• Separation: Telstra may be allowed to buy into the NBN (capped at 49%), by first contributing fiber assets in exchange for 20%. One condition would be for the company to be functionally (?) separated.
• DOCSIS 3.0: Virgin is testing a 200 Mb/s service, but here is why it stands no chance against FTTH.
• 3-D: Digital Hollywood wants it to come to our homes and indeed one consultancy expects up to 10% of homes to be upgraded by 2012. Meanwhile, the new Pixar film UP opened the Cannes festival.

Verizon to wholesale FiOS internet service

Verizon has closed a wholesale deal with DSL Extreme to resell FiOS internet (not TV or voice), which will be marketed as Fiber Extreme. Fiber Extreme will undercut Verizon's price points. The 50/20 Mb/s service will be sold for 100 $/mo, whereas at Verizon it costs 150 $/mo (or 140 if bundled with voice). It is available in 17 states.

Some remarks:

• This is a WBA (wholesale broadband access) deal, not unbundling (ODF access, which is not really an option on PON networks anyway), which was killed years ago. Perhaps the new FCC could reverse that. Obviously, Verizon is trying to stop it, as is described here (free registration). Are they making nice with the FCC by doing this deal?
• A wholesale deal makes Fiber Extreme not just subject to any pricing squeeze from Verizon, it makes the company much more dependent on Verizon for provisioning and innovation. Or so goes conventional wisdom. It is remarkable to see here that the deal comes without portal, email, content and security. Fiber Extreme will be bringing its own value-added services, including Google Apps Premier. And so goes unconventional wisdom: innovation is not only created at the active layer, it can be done at the services layer as well. In fact, new services, that fiber is so desperately in search of, are here today; they are called Web 2.0.
• Will Verizon learn that wholesaling (and unbundling) will actually help it fight off cable?

What is Cyrte's plan for Bol.com?

Short follow-up to the previous post on the sale of Bol.com.

Why does a firm like Cyrte buy a well-established webstore such as Bol.com? One has to assume that the asset was shopped around. Did Cyrte manage to pay less than the True Value? I see three possibilities:

1. Cyrte plans to create value by running Bol.com in a better way. No chance. The Cyrte people may be smart at finance, but they are not in the business of running an online store. I know my Stravinsky, but that doesn't make me a composer.
2. Cyrte scored a good deal and plots an exit by selling Bol.com to a greater fool. Could be. The greatest fools can be found at the stock exchange, and the IPO climate seems to be clearing. Vodafone Qatar was successful and Skype is planned for next year.
3. Interest in Bol.com was minimal and Cyrte pensils in a sale to a trade buyer. This is the intriguing option. In theory, a party such as Amazon could always afford to pay more than Cyrte because of synergy benefits. One particular party comes to mind: the Media-Saturn-Holding, operating the Media Markt and Saturn stores in Europe and controlled by the Metro Group. The websites connected to these stores are not online stores, but that is changing. After the Summer, both chains plan to operate web stores.

Bol.com sold, but not to Amazon.com

Bol.com, the leading e-commerce site of the Netherlands, was finally sold. It started life as part of Bertelsmann Online and is now becoming part of the Cyrte investments portfolio.
Two years ago, I argued that it was a great fit for Amazon.com. Bol.com, much like Amazon, is venturing beyond books into electronics and it too has fierce local competition from an eBay affiliate: Marktplaats.nl (classifieds).




Financial details of Bol.com are not disclosed, but let's see how they compare:

• Sales 2008: Amazon $19.166bn (+29%), Bol EUR 224m (+31%). This makes Amazon 65x larger (at current USD and EUR rates). Growth rates have pretty much converged.
  
• Employees (at present): Amazon 20,600, Bol 230. On this metric, Amazon is 90x larger.
  

Of course, the differences are significant. One could say that Bol.com is an early stage Amazon look-alike. It lacks a global presence, digital downloads and streaming, the Kindle e-book reader (including the WhisperNet MVNO), wholesale services (fulfillment) and web services. It doesn't seem to have the scale to ever match Amazon when it comes to innovation, which is essential in a world that steadily migrates away from physical products.

Amazon's market capitalisation is $36.3bn and it has $0.4bn in long-term debt, a total of EUR 27.7bn. One can only hope that Cyrte paid less than Amazon's 2x sales multiple valuation, which would translate into a maximum of EUR 400m.

Deutsche Telekom leads: the crisis is kicking in

Deutsche Telekom published preliminary results for the 09Q1 quarter. Results were due May 7 (which is now set for full results), which implies that management had something meaningful to disclose that couldn't wait another two weeks.

The US, the UK and Poland apparently are the cause of the recent deterioration. Less travel means fewer roaming revenues. Calling minutes in the US declined by a whopping 8%. And T-Mobile UK will take an impairment charge.

Is the telco industry immune to the crisis? I don't think so, but it kicks in with a 2 year delay.

True innovation arises at the active layer

My daughter was out horseback riding over the Easter weekend. Her teacher is new to the village where we have our country home and the business model deployed is really interesting.

The teacher rents space from an old farmer, who decided to take it a little easier. He was never into horses; his business was both milk and growing corn and wheat. Now, all he has left is a bunch of pigs. In other words MoF (milk over farm), PoF, CoF and WoF, but no HoF. He is still in control of the farm (the passive network of meadows, water, fences, etc.) but the young woman who co-locates at the farm, brought her own horses (active equipment, so to speak). She also does the teaching (the retail services) and the whole thing really works well. Right now, she is the only person co-locating, but I suppose the farm is big enough to be able to host a few more animal (horse, donkey, whatever) keepers. Or a service provider who knows how to teach the pigs a few tricks and sell the service.

So here is what is going on:

• Complete separation of passive and active elements.
• Vertical integration of active elements and services.
• No cannibalisation of legacy income streams. All interests are perfectly aligned.
• It remains to be seen what will happen once the farmer decides to allow another (horse) keeper to co-locate at his farm. There doesn't seem to be a reason for the farmer to keep the newcomer at a disadvantage, so it looks like this will lead to some competition.

Catching up on some old newspapers, a story about the Dutch railway system caught my eye. There has been structural separation between the passive elements (tracks, safety system, etc.), which are controlled by state-owned ProRail, and the active elements (stations, other real estate), owned by NS. However, there is still integration of the active level and a service provider (NS). Also, NS provides wholesale services to competitors.

Generally, the model seems to be working fine, but recently, new service providers have started to complain. They have a hard time competing with NS because the latter controls the active layer and provides wholesale services. Newcomers, that typically run services over regional lines, are at a disadvantage viz-a-viz NS as a service provider when it comes to renting office space at stations, the use of stations for consumers (competing trains are often at the far end of the platform, sometimes hundreds of meters away) and infomation to travellers.

A committee has proposed to take away wholesale service provision from NS and create a new company for that purpose or ask ProRail, the network owner, to perform this service.

To summarize:

• Complete separation of passive and active elements.
• Vertical integration of active elements and services.
• Full cannibalisation because there is just a single service: travel. The 'pie' most likely isn't growing very much, unless service levels at competitors are higher, which may draw travelers away from their automobiles. Right now, this doesn't seem to be happening, as witnessed by competitor complaints. To be sure: the pie is growing somewhat because competition has urged NS to raise its level of service.
• Vertical integration of the active elements operator and the dominant service provider seems to be an inhibitor for the system to really work. (Art Price would say: You can't compete with your customers.)
• Adding wholesale service to ProRail would effectively collapse the passive and active layers into a single network layer. It doesn't seem to be a bad idea, because there doesn't seem to be room for a competing active operator anyway.

Transporting these events to the world of telcos, my conclusions would be:

• Meaningful innovation arises at the active level (HoF is new to the farm). Innovation at the service level probably has more to do with service levels (railways are about taking people from A to B - no more, no less).
• Newcomers co-locating compares to xDF access (MDF, SDF, ODF).
• Newcomers not in control of active elements, are sold wholesale broadband access (WBA) by the operator.

If co-locating horses is like buying xDF access from the farmer (owner), and if providing travel services is like buying WBA from NS (operator), then what would it be to ...:

• ... buy WBA access from the horse keeper (operator)? A newcomer wouldn't bring his own horses. Service levels may rise, but innovation is questionable. If a new service provider wants to sell new services, it is dependent on the horse keeper to teach the animals new tricks. But then the new tricks could become available to all service providers.
• ... buy xDF access from ProRail (owner): A newcomer would bring along his own stations. It could be possible in theory, because many stations are too small anyway and serve as bottlenecks, degrading service levels. How about this for a stimulus plan?

Final conclusion:

If there is scope for true innovation, xDF access must be available (wholesale service provided by the owner); if innovation is merely about raising service levels, WBA is sufficient (wholeale service provided by the operator).

That's the question!

Australia goes structural separation for near-nationwide FTTP

After Singapore and New Zealand, now it's Australia to help fund a National Broadband Network. It will be FTTP after all: FTTH + FTTO. (There are 21.5m Australians in 7.5m homes, but how many offices? - anybody?)

Here are the specs:

• Ownership: government, managed at an arm's length; majority i.e. at least 51%; may not be sold until 5 yr after launch; private investment expected; any RSP max 15%.
• Technology, topology: FTTP, max 100 Mb/s, to cover 90% (all towns of >= 1k people), elsewhere wireless/satelliet, 12 Mb/s.
• Total cost: AUD 43bn (initially AUD 4.3bn), funding through Building Australia Fund and the issuance of Aussie Infrastructure Bonds (AIBs)
• Time-line: 8 year roll-out; simultaneously in metro, regional and rural areas from early 2010; first national backbone and Tasmania (July 2009, to be built by Aurora); FTTP mandatory in greenfields from July 2010.
• Jobs: 47k jobs, 25k staff every year (peak: 37k).
• Government strategy: facilitate access to land, poles, ducts; e-health, e-learning; FTTP required for greenfields from July 1 2010.
• Regulation: consultation on measures considered at Telstra: access, functional separation, horizontal separation; response due June 3 2009.

Questions remaining:

• PON (effectively 2-layer; no unbundling, just WBA) or P2P (3-layer, WBA or ODF access) network?
• How about in-home wiring?
• Role of Telstra: horizontal and/or vertical separation; access to infrastructure; spin-off assets into the new company?
• Pricing?
• Penetration targets?
• Will 1 Gb/s come into play?

Remarks: similarities to Singapore (PON) and New Zealand (probably P2P - see page 26):

• Clear choice for FTTP over FTTN.
• Mixed ownership of the passive layer.
• Open access.
• Structural separation.

Singapore: 100/50 Mb/s triple play for under 40 EUR/mo

IDA has ordered Nucleus Connect to construct the active layer (switches and routers, including network termination equipment (NTE) at the subscriber) of the Singapore NGNBN (Next Gen NBN). A presentation is here.

Here are the specs of the entire network:

• Part of the iN2015 policy.
• FTTH PON network, in the familiar 3-layer model. Structural separation between passive and active layers, operational separation between active layer and any RSP owned by the same company (i.e. StarHub). Open access (OA) at layer 2 and 3 (slide 8).
• Passive layer to be built by OpenNet (SingTel 30%, Axia NetMedia 30%, SP Telecomms 15%, Singapore Press 25%). Subsidy SGD 750m. Residential wholesale tariff 15 SGD/line/mo, business 50 SGD/line/mo, no connection fee.
• Active layer to be built by Nucleus Connect, a separate StarHub company. Subsidy SGD 250m. Tariffs (include OpenNet fee; all in SGD/line/mo): residential 100/50 Mb/s for 21, 1.0/0.5 Gb/s for 121; business: 100/100 Mb/s for 75, 1/1 Gb/s for 860.
• Open access to retail service providers (RSP).

And here is the timeline:

• Nucleus to be incorporated April 17 2009, RfP to formally close October 2009.
• Service launch April 2010.
• Coverage 60% by end of 2010, 95% by end of 2012.
• Universal service obligation from 2013.
• 2015 targets: 330k residential subs, 80k business subs.

Some remarks:

• Pretty much fits my ideal for a FTTH network, featuring structural separation of the passive network. See what is does for ownership and bringing in third-party investors. SingTel may spin-off network assets into OpenNet. It goes even further than New Zealand (structural separation only once Telecom NZ gains a majority share) or KPN/Reggefiber (functional sepapartion 'only'). It is striking to see how functional separation in the NL is defended by referring to the competitive situation (nationwide cable coverage), which has nothing to do with it - see Singapore, where structural separation is forced because the network needs to function properly, not because there is competition from some other network.
• Too bad it's PON, not P2P (slide 24).
• The 1 Gb/s offering is neat, though.
• The residential offering is asymmetrical. We are seeing more of this, because FTTH needs to be positioned above DSL (i.e. more expensive), including business DSL.
• The 2015 targets appear to be quite modest, for a state that is home to 4.8m.
• We'll be on the lookout for RfPs to equipment manufacturers. RSPs are suggested to bring their own residential gateways (see slide 26). The NTE will allow end-users to get services from several RSPs at once (as limited by the number of ethernet ports on the NTE, I suppose).
• The 100/50 Mb/s service will be 21 SGD/mo for the RSP (just over 10 EUR/m0), the 1.0/0.5 Gb/s service will be 121 SGD/mo (60 EUR/mo) at the wholesale level for RSPs. The retail price for a triple play will add a margin plus the cost of both TV and telephony. It looks like an extended TV package is 37 SGD/mo, and telephony (line rental, unlimited local calls) is around 10 SGD/mo. The fast triple play would then be around 68 SGD/mo (EUR 33,50), the ultra-fast triple play 168 SGD/mo (EUR 83), before earning the RSP a margin. I suppose the triple play will be commercially available for under 40 EUR/mo.
• MobileOne lost this round, but has stated it will be a RSP. Sureley SingTel will be one too.

Next in line: Australia is due this week to award its NBN contract.

Banking as a value-added service

My friend John posted on Tesco's recent effort to get into banking. It's in Dutch, and here's a Google translation into English. It's interesting an a number of accounts: using your network as a platform to launch yet another service; enter a new market without cannibalising a legacy revenue stream; commoditisation. Sounds a lot like IP and the possibilities it creates. If somebody would add the element of sharing (something to the order of Revolution MoneyExchange), it could very well be banking 2.0.

Control of subsidised FTTH will bring structural separation to Telecom NZ

New Zealand is getting closer to its ultra-fast broadband dream. The government issued a 'draft proposal for comment', basically to set up a PPP for constructing the network.

As promised earlier, the government will contribute half of the cost (NZD 1.5bn) of building out an open access FTTH network to 75% of the people (in 25 towns - note that 29.5% of all homes are in Auckland). During the first six years, focus is on schools, businesses, the health industry and greenfields. However, FTTH must be deployed within 10 years.

The big issue of course is: what will Telecom NZ do? Will they overplay their hand the way Telstra did in Australia? The document clearly demands structural separation of Telecom NZ, should it want to invest in the passive infrastructure; unless it would hold a minority stake (comparable to KPN holding 41% in the new Reggefiber Group), in which case functional separation (which it already implemented) would suffice. In other words: if Telecom NZ steps in with a minority share, it wouldn't have to change its structure, but (unlike KPN) it would need to be structurally separated once it would gain a majority stake in any LFC.

Here are the Key Principles from the document:

• making a significant contribution to economic growth;
• neither discouraging, nor substituting for, private sector investment;
• avoiding entrenching the position, or ‘lining the pockets’, of existing broadband network providers;
• avoiding excessive infrastructure duplication;
• focussing on building new infrastructure, and not unduly preserving the ‘legacy assets’ of the past;
• ensuring affordable broadband services.

Here are some conditions:

• The vehicle for investing the subsidy will be crown-owned: Crown Fibre Investment Co (CFIC). It will invest, alongside co-investors, in Local Fibre Cos (LFCs). CFIC will hold up to 50% of the shares of the LFCs.
• "Selection criteria will be focused on several aspects – the amount of additional fibre coverage being proposed, the proposed capital structure (including the parties’ relative capital contribution requirements), the commercial viability of the proposal, consistency with government objectives, and the track-record of the partner."
• "The government’s shareholding may be concessionary, and in particular may be subject to a lower rate of return than the partner for an initial period (for example, up to ten years). These provisions will be negotiable."
• "LFCs will not provide retail services. However, the government will not exclude partners that own or operate telecommunications retail operations, but such partners may not have the majority of voting control on the board of LFC (unless they divest themselves of any retail business). Telecom, and other telecommunications operators with retail operations, will therefore be able to participate in the contestable selection process, subject to the above requirement."

And here are some more details:

Time line

Comments due end of April, report back to the government end of May, appointmnet of the vehicle mid June, RfP to be released mid August, proposals due mid October, initial decisions due January 2010. All submissions, due April 27, will be published at www.med.govt.nz/broadband.

Wholesale

The network owner will primarily sell dark fiber, and "potentially other approved wholesale broadband services. (...) LFC may: provide a wholesale bitstream service; and enable the provision of interim solutions by wholesale customers, such as wireless last mile or ADSL2+ or VDSL2 solutions, provided that this is consistent with the LFCs achieving the government’s objective of FTTH within ten years; and subject to the CFIC’s approval, provide any other wholesale broadband service."

"The government investment will be in fibre networks that will operate only at the wholesale level, selling dark fibre based services enabling telecommunications providers to design and specify their own downstream services. This approach will ensure that all decisions regarding active network technology options are left to private sector investors."

"By keeping the new fibre business out of retailing, it will have no incentives to act anti-competitively, and there will be little need for regulation of its prices. In fact, there will be considerable initial incentives for it to keep the fibre rental prices low to facilitate use by downstream providers."

"The new network will provide dark fibre services to any ISP or telecommunications service provider, and will operate as an infrastructure ‘utility’ at the passive level of the market. The aim is to provide a new fibre platform upon which service providers can develop their own services and create unique, innovative offerings."

Services

The usual suspects are there, including: "There is also a strong likelihood of new applications being developed in the future that will require residential users to have fibre broadband connections to operate them effectively, particularly as increasing numbers of services are delivered digitally."