Amazon break-down: e-commerce, web services, renewable energy, Kuiper Systems

Amazon really has only two platforms: e-commerce and web services (with some links between them, such as Prime).

On each, it is continually expanding, including wholesale services.

Renewable energy could be a third, esp. when it opens for third parties, turning Amazon into an energy provider.

Kuiper Systems seems a long shot, but potentially turning Amazon into a global ISP.

Platform

E-commerce

goods

ordering

distribution centers

delivery

shipping

physical stores

Web services

AWS

Media services

3rd Party services

Voice assistant

Amazon Chime

Amazon Pay

Renewable energy

Kuiper Systems

FTTH and LTE help increase focus on wholesale

Three weeks of holidays create a truck load of catching up to do. Results, LTE, MVNO, FTTH, VoIP, WiMAX - every possible new item crossed our mail boxes. They can best be categorised at the next higher level: Corporate, NGN, Wholesale and OTT.

Corporate:

• Results: incumbents (KPN, DT, BT, Telefonica, Belgacom, FT, Bell Aliant), mobile (Sprint), cablecos (Liberty Global, Telenet, Ziggo, Virgin Media, ONO, Comcast).
• Financing: Reggefiber got its desired EUR 130m loan from the EIB.
• IPO: Skype's $100m plan.
• M&A: possible buyers (Telefonica, PT, Vodafone, FT, TI) and sellers (PT, TI, Vodafone).

NGN:

• FTTH: lots of deployments announced (inclusing China and India).
• NBNs and NBPs: Australia expands coverage plans to 93%, New Zealand receives 15 bids, the US awards another round of funds.
• LTE: several deployments announced.
• 4G: Clearwire moving closer to switching from WiMAX to LTE and the WiMAX2 standard gets ready for a 2012 launch.
• 1 Gbps: several MSO and telcos are now going beyond 100 Mbps, while ever more are eying 1 Gbps as the new frontier for bandwidth.

Wholesale:

• Structural separation: proposal from Telecom NZ in order to be able to bid for the Crown Fibre plan.
• MVNO: KPN reports success with foreign MVNO operations (2G, 3G); Econet plans launch on the Everything Everywhere network (3G); Best Buy will do the same on the Clearwire network (WiMAX); Airspan is LightSquared's first wholesale customer (LTE); Tele2 NL started offering CATV on the networks of Ziggo and UPC (analogue TV); Chile considers a wholesale-only network (mobile and digital TV).
• BT was not allowed to raise wholesale prices to help stem the pension fund deficit.

OTT:

• Apps: Google ended the development of Google Wave and acquired Slide; Samsung announced a developer contest.
• Net neutrality: Google and Verizon struck an agreement.
• Hybrid TV: Apple was rumoured to rework Apple TV into iTV, Cox partnered with TiVo and the Virgin UK/TiVo partnership added Cisco.

Conclusions:

• The focus in the sector is shifting to Wholesale and OTT; FTTH and LTE are ongoing; wholesale is established as an important new business.
• M&A is focused on emerging markets, esp. Latam.
• Many incumbent telcos are still assembling global empires in order to be able to show growth. KPN is continuing on the wholesale path for growth.
• A telecoms network can be looked at as a vital piece of national infrastructure. If structurally separated, its cash flows can be seen as a vital element of the governments budget (incl. retirement funding).
• Cablecos are outperforming telcos. If you split the business three ways, it becomes clear why. 1. Connectivity (access): Docsis 3 outperforms xDSL and provides cable with a growth engine. Utility rates are close to 80% in the Netherlands, still much higher than FTTH's. 2. Communication: a nice add-on for growth and loyalty, hitting incumbent telcos in their hearts. 3. VAS (incl. content): here cable is the incumbent and benefits from a considerable head-start on multiple fronts (network, digital services, content deals). The foremost risks include FTTH and non-linear TV/hybrid TV/OTT.
• NGNs (FTTH, LTE) are exploring their advantages: 1. Maximum symmetrical bandwidth. 2. Lowest opex, highest score on the green scale. 3. Options for open access and wholesale.
• OTT is a complex and uncertain field, but hybrid TV seems to be a promising direction.

Final conclusion: while areas such as Latam may provide telcos with some more growth, wholesaling (open access) appears to be the way to maximise the value of a network. FTTH and LTE carry the lowest possible technology risk. OTT is a promising but complex development.

New telco insights are catching on

While the STL conference is ongoing, it is striking to see how their very original views are catching on, to say it nicely. I've written about their 'brainstorm' and accompanying report before and stumbled over no less than three institutions who seems to be taking a page or two from STL's Telco 2.0 (TM) views (yes, they trademarked the term): IBM, Accenture and Heavy Reading (a unit of UBM). Follow the links, and here are a few quotes.

The common theme: telcos face marginalisation and must act now to prevent it.


RegLugtu of IBM Philippines: A future in content

Reinventing “walled garden” involves: leveraging capabilities such as presence and location to enhance collaboration among subscriber social networks; providing trusted and third party authentication among participants in a social
network; and encouraging user and community content such as college sports and
community programming over IPTV.
Telecom providers can also provide a “white label” content distribution service to third-parties to distribute branded content to their subscriber base without having to invest in building their own infrastructure.
Telecom providers can also collaborate with new platform aggregators by enabling the integration of network capabilities such as location, presence, voice and conferencing in Web 2.0 and virtual world applications such as Second Life.
Finally, as professional content owners bypass traditional content distributors and deliver content directly to consumers, telecom providers can lower their entry costs by providing them with managed open content distribution platforms with end-to-end service quality and management and multi-channel capabilities.
In short, telcos must look to combine their investment in service delivery platforms and Information Management Systems (IMS) with new digital content services; invest in service quality management to enhance the end-to-end user experience across multiple networks and devices; and enable users to control their content experiences.

Andy Zimmerman of Accenture Global Communications

Operators have assets relating to the end user - like presence, identification, authorisation and credit information - that give them a richer customer relationship than other members of the value chain, says Zimmerman. "But they haven't been particularly proactive about bringing those to the table," he says.
Despite this, he argues that there is a rough 50/50 split in the carrier community today, with one half ready to accept a redefined role, and the other convinced that it needs to play end-to-end to avoid being marginalised. "It depends on the individual personalities, and where their company is at the moment," he says. "There are a fair number of executives out there who say that they're never going to be in the [end-to-end] business, and that they should focus on the enabling business."
Zimmerman's assessment of the structure of the industry may not be what everyone wants to hear. But he's not the first observer to suggest the carrier community might be heading up a blind alley. Whether any of his consulting customers heed his advice or not remains to be seen.

Graham Finnie of Heavy Reading: Reinventing the Telco

Telcos and their suppliers still believe that the future lies in telcos themselves provisioning a wide range of packaged services to end users. However, a significant minority of survey respondents believed that telcosshould focus on providing basic bandwidth along with enabling capabilities(such as QOS) for third-party service providers.
At the same time, telcos believe that they can add value to third-partyservices by offering them a wide range of enabling capabilities. The mostimportant of these capabilities, our survey found, are the ability to billsubscribers; the ability to authorize subscribers and manage theiridentities; the ability to offer security tools; and the ability to offerQOS guarantees on a per-application or per-subscriber basis.

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.

FTTH: Amsterdam v. Singapore

Just a few short postings.

First, I added a few noteworthy documents in the right hand column. Go down to 'Favorite Articles'.

Second, another WSJ story on the Amazon Web Services. Outages will be tackled and QoS added, so large corporates can buy the services also. What makes it so interesting to me, is the strategy of trying to maximize utilisation rates of Amazon's hardware. In telcoland, it is called embracing wholesale services.

Third, a thought on subsidizing broadband: Amsterdam v. Singapore. Assumptions: FTTH is the end game and nobody needs two fiber networks. Here is the reasoning:

1. Politics will put broadband on the agenda for its GDP, environmental and social benefits. As long as (public) companies are not ready to commit, governments will get involved.
2. States could participate (honoring MEIP), which is the basis of many munifiber projects such as Amsterdam.
3. Governments could choose to subsidise a regulated (natural) monopoly, implying separation and sharing. This is what is happening in Singapore.

Key questions:

1. Will Amsterdam put copper and coax based networks out of business? Many are skeptical. Check out these stories on the UTOPIA initiative in Utah, refuted here.
2. Will the NetCo monopoly in Singapore be incentivised to invest?

Back on the grid: FTTH and OA

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

This is what I found in my mailbox and around the net on FTTH:

• Algeria, neatly covered by Blues Brother Benoit. Another case of an emerging market leapfrogging ‘the west’.
• Singapore, which didn’t escape Brough’s attention. Very interesting, as it mirrors approaches seen in Amsterdam and Sweden: a network in 3 layers, and Singapore is adding structural separation.
• Amsterdam itself, finally approved by the EC (see Benoit’s coverage).
• Cisco announced a Reggefiber deal. Interesting wording in the press release: Deventer, Almere and ‘another city within the next few months’; ‘speeds of 100 Mb/s initially, and up to 1 Gb/s in the future’; ‘Reggefiber has plans to offer FTTH-based broadband services to the majority of residents in the Netherlands’; ‘Reggefiber has the ambition to make broadband available to everyone in The Netherlands’.
• Network build-out in Almere has now started. KPN and Reggefiber joined forces, which apparently extends to datacenters.
• More Dutch initiatives: BreedNet in North Holland and schools in Frisia (which successfully tapped Kabel Noord, a small MSO that I have learned to know as a frontrunner in cable country). Many MSOs still resist FTTH, apart from the well known Numericable, which is expanding.
• FTTH appears to be part of the FTTx plans of seven Greek towns, that contracted Ericsson.

‘FTTH’ is linked, via ‘natural monopoly’, to topics like ‘open access’, ‘wholesale’ and ‘sharing’. Still, not everyone is convinced, as can be read here (in relation to the Singapore plans). Still no Telco 2.0 points yet for Belgacom either.

But now, it is spreading to the mobile realm:

• Network sharing is gaining traction. No longer just Vodafone, but T-Mobile and 3G as well.
• E-Plus (the German subsidiary to Telco 2.0 champ KPN) is looking ahead to a time where all-IP implies commoditisation on one side and a quest for new revenue streams on the other side. Very interesting, as Apple, Google, Nokia et al seem to be planning along the same lines. KPN itself is taking the services-only path in Spain.

See also my updated FTTH database.

The Investment Incentive Problem

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

However, things are different in today’s telco marketplace. Governments have largely backed out and the market has taken over. Monopolies are on the brink of extinction. Add to that the natural monopoly of fiber (which gets to be pushed deeper into networks everyday, until we will finally end up at homes (FTTH) and businesses (FTTB) networks) and the rise of IP (which is indifferent to whatever is inside a packet, be it voice, video or data), and what do we get?

Exactly, new monopolies of all-IP, all-fiber networks – whoever may own them.

Now, does the investment incentive problem still exist? I believe not, as long as owners are sensible and try to maximize the value.

Maximizing value in the first place means, quite simply, maximizing sales and thus the number of clients. This entails the end of the retail/wholesale dichotomy and an appreciation of doing business on the wholesale level, as I have stressed before. Competitors should now be looked upon as partners and clients too.

Of course, investing can also have a different purpose: cutting costs in the long run. This is why investing in NGNs and NGAs makes perfect sense.

Attracting wholesale clients entails expanding your portfolio of services, which implies investing in every aspect of your business. Different wholesale clients will focus on different market segments (which at the same time relieves your retail division of marketing to all those different niches), each demanding a different portfolio of services.

It also entails entering adjacent markets. Take a look at utility companies building BPL networks (run by third party service providers) to capture a piece of the broadband market, but also to cut costs (using the network for monitoring services).

In a word, ‘sweat your assets’, as Telefonica’s Santiago Fernández so eloquently put it.

This reasoning is why I keep being surprised when I read about incumbents claiming that (structural) separation would take away the incentive to invest. Which by the way seems to be the conventional wisdom. In the wake of the new EC regulations, telcos like France Telecom (c. 30% state-owned) and Belgacom (53% state-owned) have been making such statements. No Telco 2.0 points for them, I presume.

(PS: BT is quite explicit over their separation costs. Would it be a weird idea to allow incumbents to pass on any separation cost to the government?)

KPN is pushing all the right buttons

KPN and Reggefiber are teaming to build FTTH in Almere, we learned last week. The importance of this deal is in its size (we are talking the #5 town in the Netherlands, 180k inhabitants), but let me summarize why this is so much up my alley.

FTTH
No need to step on the soapbox over this shiny new fiber stuff.

Sharing
All we need is a single strand of fiber. Nobody would like to get into a land grab for access to ducts, buildings, homes, etc. (as we are seeing in France).

Open access
Wholesale as a sound business model. I defended it recently.

Service provider v. network operator
Sharing implies open access, separation and wholesale. KPN is stepping away from full network control and focuses on services. The network is relegated to Reggefiber, which feels at home in the infrastructure business (Dick Wessels roots are in the building and roads industry).

KPN is beating the cableco (UPC) to the punch, but Liberty Global sees no need to move to fiber anyway. The other large cableco in the Netherlands, Zesko (the merger product of Casema, Multikabel and @Home), just last week refused KPN access to its network.

KPN, not the cable companies, is pushing all the right buttons.

Telcos should embrace the wholesale market

Yesterday I had a short meeting with an industry executive in my hometown Utrecht. Another very valuable meeting - by way of reality check.

We mainly discussed two topics.


1. Wholesale

I think of wholesale as a very attractive business. Obviously, there is a strong connection to the separation stance.
In the old days, incumbents like KPN instructed managers pretty explicitly to frustrate their wholesale clients. Even today, Deutsche Telekom thinks it can only recoup their FTTN/VDSL investments by demanding a regulatory holiday, effectively allowing its retail organisation sole access.
Now, this is all reversing – maybe not at DT but I do think at KPN (a finalist for Light Reading’s Awards). More incumbents acknowledge that independent service providers (let’s call them BSPs) have something to add – things that are not in the incumbents’ DNA. Think innovation. Also, marketing to specific niches can handily be left to focused BSPs.

Linked to this is the telco stance that the investment incentive supposedly disappears when full (structural or ownership) separation is forced upon the company by the regulator. Again, I do not see this. Extending the portfolio, and opening the platform to third-party developers, looks like a sound business strategy to me. It will attract BSPs large and small. Sure, investing carries risk, but that’s part of doing business, isn't it?

Speaking of which – applications. Please allow me to wander off for a moment. I have been putting together a very short overview.

Fixed
Back in April, BT took the lead by restructuring and establishing a BT Design and BT Operate unit, granting developers access plus a SDK. AT&T may be planning a similar move.

IPTV
See my post on Orca Interactive and SeaChange. IPTV seems to me the one area that could benefit most from adding apps, in order to strengthen the telco vis-a-vis
the cableco or satco.

Internet
Facebook did very well, allowing third-party developers access to the APIs, even if monetization is not quite so easy. In any case, the apps worked well for the valuation of Facebook.
Yahoo! may follow.

Mobile
Motorola launched a ‘solutions Catalog’ into beta to invite third-party developers.

2. KPN

Few will contest the strategic logic of the string of acquisitions (Telfort, Tiscali NL, Getronics, iBasis, etc.) by the Dutch incumbent, KPN. Right now, it looks like brand rationalisation will happen, but what does that mean when the company has a multi-brand strategy?
Of the above takeovers, obviously Tiscali is the one that will have to return its brand to the mothership in Italy. Normally, they would probably have 36 months or so. After that, I think KPN will revert to one of the existing brands. I guess XS4ALL, the premium brand, could be a candidate.

So, which holes are left in the KPN portfolio? After the Tele2 Belgium deal (which effectively precludes a Belgacom merger), KPN may shift its attention to Germany. I think E-Plus will be beefed up by an LLU operator. Some are not for sale (subsidiaries of Vodafone, Telefonica and Telecom Italia), many others probably lack sufficient network coverage. What’s left is Versatel Germany or QSC. The latter has a wholesale business only, so combining it with E-Plus may not be a bad idea at all.

Finally, for my readers at Belgacom – check out this Trouw article (in Dutch) on Reggefiber, the stealth FTTH builder in the Netherlands. Get back at those KPN guys who bought Tele2 Belgium, and enter the Netherlands by buying Reggefiber!
Some will argue that owning an (open access) network is at the lower end of the value chain, but I believe it can produce great returns, especially since a FTTH network is future proof. Granting independent BSPs open access not only allows you into the wholesale market, it will keep the regulator happy too. Furthermore, you can always start or buy your own retail organisation!

UPDATE (thanks Dirk 'FTTH' van der Woude: "It's been quite a while since I last reported something remarkable from the Netherlands, but I think this falls in that category.")
Reggefiber and KPN are teaming up in Almere, reports Trouw. That adds a twist to any Belgacom/Reggefiber speculation. Of course, all we need is a single FTTH network. KPN and Belgacom could dump all their FTTH assets into a Reggefiber Joint Venture and turn into service providers.
Here is an English translation of the Vincent Dekker story (translated by Vincent himself):

KPN has decided to join forces with Reggefiber to speed up the roll out of FTTH in Almere, the fifth largest city in The Netherlands. Reggefiber already owns some networks in smaller towns and in parts of cities, like the project in Amsterdam. This time they will build a network for the whole of Almere. KPN will deliver services on that network. It will bean open network though, so KPN will have no monopoly on it.
Then why would KPN do this? Well, I'm not sure, but it looks as if KPN has no other options. KPN is losing customers in great numbers to the TV-cable networks nowadays. These networks can offer full triple play, whereas KPN kan only deliver ADSL and telephony on its network. IPTV is not a success as yet. And its Digitenne (DVB-T) is also not good enough to really compete with the cablecos. KPN has a plan to roll out All-IP in the next 4 years, which is fiber to the street cabinets and old copper from there to the homes, but this VDSL will also not be good enough to protect marketshare.
So KPN needs FTTH badly. In Almere Reggefiber was already chosen to build the FTTH network and now KPN has decided to join forces with Reggefiber. It will encourage its customers to switch from the KPN POTS network to the fiber network. That should make the new network profitable in a very short time. On that network it will most probably not only offer very fast internet (100/100 to start with) and cheap IP telephony, but also DVD-quality analog video and digital hdtv. With that offering people might be persuaded not to switch to the cable company and even drop that cablecompany for their tv-service. In the Netherlands some 90 percent of all homes now still get TV via cable, the rest via satellite and a few percent via Digitenne.
KPN will keep its POTS network alive for the time being, but that can't last very long. So in a few years this incumbent will no longer own a network that covers the whole of the country. My guess is that Almere could very well be the start of much more cooperation between Reggefiber and KPN in other parts of the Netherlands, Amsterdam and other big cites to start with. KPN needs a network to compete witch cable, and it needs it fast. The news of todaycould therefore be good news for everybody in The Netherlands: the start of a national FTTH network at last. We're a few years behind Japan and quite a few other countries already, so it certainly is not too soon...
Almere is an interesting city for FTTH. The cable company there is UPC, owned by Liberty Global of John Malone. If Almere will show the same pattern as seen in other towns where Reggefiber already has fibernetworks, UPC can expect to lose some 70 percent of its customers in the next 2.5 years. After Amsterdam and Rotterdam Almere is UPC’s biggest market. So losing most of its customer there will hurt. And ater Almere, Amsterdam or Rotterdam could be next on the agenda of Reggefiber and KPN.
KPN has decided its POTS network in Almere has only marginal residual value. That's one message we got today. How long will it take before cable companies will admit that this is true for their network too?