Shifting bargaining power in the NN debate

In the net neutrality debate, this is how bargaining power is shifting:

1. OTTs are afraid ISPs will extort money from them, hence claim strong NN regulation is needed.
2. Netflix turned this upside down and hinted at being able to charge ISPs - but added that it won't.
3. Now, Time Warner Cable appears to be afraid of being charged by OTTs.
4. Comcast came out as a defender of NN regulation.

And so:

• Everybody is in favour of weak NN.
• ISPs and OTTs both have bargaining power.

Conclusion: all regulators need to do is:

• Keep an eye on weak NN not being violated.
• Make sure peering is made free (in Google's words: it's a win-win-win not to charge for peering), as long as OTTs and ISPs do their utmost to interconnect in such a way that traffic is not hindered, i.e. OTTs deliver traffic at the ISP and ISPs add capacity when needed.

All providers are potential preys in ongoing consolidation

Consolidation is ongoing. International groups consider takeovers, as well as exits. Local companies are acquired.

Europe

The hunters:

• Telcos: DT, Orange, Telefónica, América Móvil
• Mobile: Vodafone, Hutchison, SoftBank, VimpelCom etc.
• Cable: Liberty Global

The hunted:

• Telcos: KPN, Belgacom, Swisscom, TDC, eircom, BT, PT, TI, etc.
• Mobile: Bouygues Télécom, Yoigo (TeliaSonera), etc.
• Cable: Com Hem, RCS&RDS, R Cable, Publifin/Voo (formerly Tecteo), etc.
• Challengers: FastWeb (Swisscom), Eurofiber (Doughty Hanson), Iliad

Undecided:

• Telcos: TeliaSonera, Telenor
• Other: Tele2, Altice, M7 Group

Some considerations:

• A certain required rate of return.
• Being #1 or #2 in any given market (segment).
• Owning sufficient mobile licenses and network assets (for minimal COGS, to maximise gross margins).
• Aternatively: virtual service provider (asset-light).
• Substantially increased scale and/or synergies.
• Willingness to incur start-up losses.

Netherlands

Let's look at the Netherlands as an example. There are 7 nationwide groups, consolidating to 6:

1. KPN: mostly a local telco, with a small operation in Belgium. It will receive EUR 5 bn from selling E-Plus, and a 20.5% stake in Telefónica Deutschland (worth another EUR 1.5 bn). Perhaps it finds ways to expand.
2. Tele2: among the largest holdings of the group, with a strong core/backbone network and a strong fixed-line business market presence. Tele2 NL is on the ladder of investment that is so central to the group's strategy. Still, T-Mobile could buy Tele2 NL to re-enter the fixed-line market. But as the Tele2 Group is getting out of Norway (after exiting Russia), it is becoming a takeover candidate itself.
3. Vodafone: it remains to be seen if it can build substantial presence on the fixed-line market. Takeover candidates are Tele2 and Eurofiber. Alternatively, it could partner with these companies, as well as Reggeborgh (once it gets out of Reggefiber) and CIF (which owns a string of small cable companies, which are structurally separated and overbuilt with FTTH - service provider Caiway is for sale) to create a competitor to incumbent FTTH (much like Vodafone is doing in Spain and Ireland). Alternatively, if the fixed-line market is unpenetrable Vodafone may decide to exit.
4. T-Mobile: it sold off Online.nl, making it a mobile-only provider. This doesn't sit well with DT's stance, but it could be tolerated (T-Mobile NL being billed as a 'smart attacker' - perhaps evolving into an 'un-carrier'). Otherwise, it could be a takeover candidate for Tele2, Liberty Global or a new entrant (América Móvil, Orange, Iliad, Altice). Or buy Tele2 NL.
5. Ziggo and UPC are in the process of merging, with ~92% coverage. Liberty Global may subsequently sell the merged entity if it doesn't comply with the group's goals.
6. M7 Group: controls CanalDigitaal (sat-TV) and Online.nl and is a 3P service provider on FTTH networks. Could be a takeover candidate for a group that believes in virtual service provisioning: Caiway (= CIF), Scarlet or a large MVNO group such as Lebara or Lyca.

Other companies that could be for sale:

• Cable: Delta Kabel, Rekam, Kabelnoord, Kabeltex, SKV Veendam, Edam-Volendam, Pijnacker, Waalre, Bleiswijk, Assendorp, Rozendaal, Hoogvonderen; service providers Caiway and Cbizz.
• Other: Eurofiber, Scarlet, Solcon and a long list of FTTH service providers.

Conclusion: the future is uncertain for all players, but more consolidation seems to be on its way. There are a few dead-certain predators, but even Vodafone, Liberty Global or Tele2 could turn into a prey.

DT's Niek Jan van Damme misleads over wholesale

Niek Jan van Damme, MD of Telekom Deutschland, gave his view on networks after the EC approved the E-Plus/O2 merger.

Van Damme applauds the merger, as part of ongoing consolidation, but has two objections. One is that E-Plus/O2 controls a disproportionate amount of spectrum. The other is that the new company agreed to giving access to wholesale customers at friendlier rates & conditions.

Van Damme's latter argument doesn't seem to make sense:
- Why would retail customers be better for network expansion than wholesale customers?
- Why did E-Plus/O2 agree to this?

Wholesale carries virtually no S&M costs and therefore produces much higher gross margins. Partner marketing (at the wholesale customers) extends the S&M budget of the extended group. As a result, penetration & take-up of new services potentially grow higher/quicker.

In fact, focus on wholesale-only may even yield more cash than focusing on expensive retail services. Who knows. In any case, Telefónica Deutschland appears to have much more faith in wholesale than Telekom Deutschland.

Van Damme's quote even appears to be quite misleading:

`Another problem is that these regulations give an unequivocal advantage to providers who don’t have their own network infrastructure – and that sends the wrong signal entirely. The focus of the competition authorities should not be on strengthening providers without their own infrastructure, but on promoting the network expansion. Our society is continually becoming more digitized and connected, and the necessary infrastructure to support this expansion needs to be built. Marketing existing network capacities will not be sufficient.´