5G: over-ambituous or under-ambitious?

5G research is gaining momentum. Huawei and Ericsson are aiming for 10 Gb/s by 2020.

Different stakeholders are involved:

• Operators: Telefonica, Orange, Deutsche Telekom, Telecom Italia, Portugal Telecom, BT, DoCoMo,  China Mobile, Verizon.
• Vendors: Ericsson, Alcatel-Lucent, NSN, Nokia, Huawei, Fujitsu, Samsung, Intel.
• Universities: Surrey, NYU, Princeton, Stanford, Illinois, Texas, Cornell, UCLA, etc.
• Governments: EU, UK, South Korea.
• Others: BMW, Rhode & Schwartz, AIRCOM, Thales, etc.

New 5G institutions include: 5G Innovation Centre (Univ. of Surrey), METIS, ISRA (Intel) and 5G PPP (EC). There will be a summit in Brooklyn, NY, this April.

Some observations:

• First of all, 10 Gb/s is not about downloading a DVD in under 1 second. Remember, this is shared capacity.
• It remains unclear what 5G will be. After all, LTE has lots of room to develop and is an all-IP standard. LTE is now at 300 Mb/s and is approaching its goal (1 Gb/s) rapidly.
• The time-frame appears to be very ambitious.
• At the same time, aiming for a 10-fold capacity increase (from 1 to 10 Gb/s) doesn't appear to be very ambitious.
• Stakeholder interest is to have standards set according to one's technology. This will create some first-mover advantage and patent income can be reaped.

Spectrum holdings in the Netherlands create opportunties, but not for Tele2

Spectrum in the Netherlands has been auctioned off in 2010 and 2012, leading to the situation shown in the figure. A few things stand out:

• All holdings are roughly equal for the incumbents (KPN, Vodafone, T-Mobile).
• T-Mobile has a lot of unpaired spectrum, which could enable TD-LTE and DSL-replacement services.
• Tele2 has limited spectrum. This offers limited options for LTE-Advanced and Carrier Aggregation. And limited spectrum/capacity means limited options for a wholesale strategy.
• ZUM (Ziggo/UPC) only owns 2600-spectrum, which could be used to lower wholesale costs to Vodafone. Ziggo has an MVNO on Vodafone and focuses on WiFi. An alternative would be to focus on the 2600-spectrum, offload to WiFi as much as possible, roam on Vodafone (or T-Mobile or KPN) and cancel the MVNO.

Public viewing coming to a place near you?

With the Winter Olympics and the FIFA World Cup around the corner, once again the telecoms angle of mega sports events is in the spotlight. One aspect is public viewing. A Danish company (dnp denmark, through xScreen Interactive) is pushing a 100 inch full HD optical projection screen. I have seen a sample a few months ago and the picture & sound quality were very good. They are now marketing it as a (white-label) 'public viewing system'. Pay-TV operators looking to extend their market beyond households are the target customers, but anyone in the value chain could step in.

It's easy to see how this will work:

• Public spots, anywhere there are people wasting time waiting, basically, are candidates. Or eating and drinking of course (bars, restaurants, hospitals, public transport, fitness centers, sports clubs, colleges, etc.). In the Netherlands alone this is a 50k location addressable market.
• Obviously, food and drinks consumption will go up.
• Ad inserts are made possible through narrowcasting techniques.

For the venue, this looks like a one-sided business model, taking money from drinks etc. They will still have to pay a pay-TV operator (i.e. dnp/xScreen's customer) for the TV services. The pay-TV operator can of course throw in additional business services, including premium content.

Alternatively, the venue or its representative (e.g. a brewer such as InBev or Heineken, for its affiliated pubs) could buy the system directly from dnp/xScreen and charge a pay-TV operator for displaying its content. That would turn the model into a two-sided business.

In any case, for venue owners the differentiators are:

• Price. The system is much cheaper than a large plasma or LED screen.
• Quality. The quality is HD i.e. beats what you could do with a simple beamer.
• Ad inserts. The option to insert ads using narrowcasting adds value.

Submarine cables to double capacity by 2015

The sub-marine cable market grew by 2.3% or 25k kilometers during 2013, reports seim & partner. My friend Kai Seim put out a new complete submarine cable map, based on Greg Mahlknecht's data (interactive map).

You can order a print version (A0 format) via mail: info@seim-partner.de or via phone: +49 6128 609 22 69.

The data cover the period since 1989 and include all planned cables through 2016, for a total of 263 cables. In terms of capacity, the entire submarine segment more than doubled between 2009 and today, and through 2015 capacity is set to double once more.

Important new submarine cbales include:

• SAex, linking Brazil, Angola and South Africa (2013).
• SJC, linking Singapore, China and Japan (2013).
• ROTACS, linking the UK, Russia, China and Japan (2014).
• Another system linking Brazil, South Africa and Singapore (2014).
• Arctic Fibre, linking the UK, Canada, Japan (2015).

What next for satellite DTH service providers?

The telecoms sector is embracing the triple play, but broadband is emerging as the new line rental. Services can be added in a variety of ways:

• Managed services (fixed/mobile voice, SMS/MMS, TV/VOD).
• OTT (partnering with the likes of Netflix).
• Operator OTT (using new technologies such as NFV, SDN, WebRTC, HTML5).

What is there left to do for managed services companies without infrastructure, i.e. satellite TV operators such as M7 Group? They can still be resellers, but if they want more control, there are still some options left.

First, remember that they have one strength (a strong TV portfolio, lots of HD) and two weaknesses (no VOD, no BB).

Here are some options:

• Add broadband:
• Become an unbundler on FTTH (or a wholesale customer of an independent unbundler).
• Partner with an MNO for rural areas, using outdoor LTE antennas (see Cyfrowy Polsat).
• Add VOD:
• Add interactive TV and VOD using HbbTV.
• Add VOD through a Netflix-partnership.
• Add VOD using the new Smart LNB technology.
• Remain focused on TV/video:
• Launch an OTT service (like BSkyB, Sky Deutschland, ONO, etc.).
• Focus on the wholesale market to service resellers, OTT providers, cable headends etc.

UPDATE: the second VOD option requires broadband access and so a hybrid STB, just like TV Vlaanderen (part of M7 Group) is now launching.

Structural separation: great in theory (but so is communism)

Structural separation, separation of network and services, open access: it remains beautiful in theory but hard in practice.

Network and services are financially and operationally entirely different animals, but operators are simply reluctant to let go of the vertically integrated model.

• EE (UK mobile JV of DT and Orange): set off as wholesale-only, but decided to enter the retail services market.
• LightSquared (4G in the US): never got off the ground as wholesale-only provider, albeit for entirely different reasons (interference).
• Reggefiber (FTTH in NL) set out as a wholesale-only network builder with an operator and a services branch to get things off the ground. Indeed, it succeeded in selling the ISPs to KPN, but itself will be rolled into KPN as well. Effectively, it will end up being the NetCo of a vertically integrated player.
• CIF (FTTH in NL) wanted to sell its services branch Caiway to KPN, but this was prevented by the competition council. No other buyer seems on the horizon, leaving CIF a vertically integrated player as well.
• Several open access FTTH operators in the US: the incumbent shuns using their networks and small ISPs appear to have just too little weight to pull of the job. And so, Provo ends up in the hands of Google.
• Google Fiber itself promised an open access model, but this isn't happening either. Google is providing services itself.

Singapore seems to be pulling of the separation model, even though SingTel is trying to grab hold of the passive layer (which it will be required to spin off). The Australia NBN appears to be a disaster. (Who ever advised the NBN Co? Who so shamefully failed in carrying out the business plan according to plan?)

OTT providers are not to blaim - subscribers are

Breaking Views blames the Google founders for demolishing the newspaper industry. Gigaom rightfully disagrees (No, Larry Page and Sergey Brin are not to blame for the decline of the media industry): "In a similar way, many people who might normally have paid money to place a classified ad in a newspaper have chosen instead to post one for free on Craigslist. Is that Craig Newmark’s fault? Hardly. He stumbled on an opportunity — one that was also open to newspapers and other media outlets — and he pursued it. Blaming him (or Google) for their decline is like blaming Henry Ford for the decline of the buggy-whip manufacturing industry".

Ironically, NRC regularly publishes Breaking Views content. And NRC's Editor in Chief gave his views on the newspaper trouble. Peter Vandermeersch shows he understands this better than the Breaking Views analysts ("Industries come and go."), but he makes a somewhat different point: it remains to be seen if in-depth journalism (which is important for transparency in any democracy) can be taken over by online (or radio, TV) news agencies. The way newspapers covered Edward Snowden and the NSA is a case in point.

But blaming Google makes no sense. All Google does is 'provide'. Like the Division in 'Marathon Man':

When the gap gets too large between what the FBI can handle effectively and what the CIA doesn't wanna deal with, we step in.

- Who's we? - The Division.

- And my brother worked with you? - Yes.

- You're full of shit. What do you do exactly? - We provide.

- Provide what? - Anything.

In this respect, the argument made by Breaking Views resembles what some operators say when they complain about OTT providers (!) have a 'free ride' on the operators' networks. In fact, all the OTT providers do is ... provide. And subscribers are the ones to blaim. Subscribers generate traffic, not OTT providers. They prefer OTT over managed services. Just like they prefer Craigslist over newspaper classifieds.

And blaiming subscribers is obviously dumb. It shows how an industry fails to follow its subscribers as they move from one platform to another. Just like the post office, that should have been a pioneer of e-mail, instead of letting Microsoft/Hotmail and others corner that market.

Final point: there is no such thing as 'changing consumer behaviour'. Subscribers simply move from one platform (such as SMS) to another one (WhatsApp), which is much user-friendlier and more innovative.

Outlook 2014 for Dutch telecoms market

We have produced a number of articles looking ahead to 2014 for each of the majors on the Dutch telco market. Here are the main questions:

• KPN:
• who will be the new CFO?
• offer from America Movil: unlikely?
• what to do with EUR 5bn from selling E-Plus?
• consolidate the Belgian market and become the prime reseller?
• buy Ziggo and UPC NL to create a national open access infrastructure?
• Tele2 NL:
• what will a new CEO mean for Tele2?
• when will the LTE-network be activated? will it lead to pricing pressure?
• how can the downturn on the fixed market be stopped? when will it start unbundling FTTH?
• Ziggo:
• the new CEO (Obermann from DT): his arrival alone would imply either no deal with Liberty Global, or a guaranteed career for Obermann within LGI.
• expanding the mobile strategy: nomadic rather than a full MVNO?
• OTT-partnerships: unlikely?
• UPC NL:
• will the merger with Ziggo happen? or will a reversed deal take place: Ziggo acquires UPC?
• what can the company do on a standalone-basis to improve its performance? will it follow in Ziggo's footsteps regarding mobile and WiFi?
• will it launch the UPC Phone app?
• will it hold on to the Horizon box, or explore alternatives? (cloud-based solution, TiVo, RDK, Frog by Wyplay, ...)
• Vodafone NL:
• when will it start unbundling FTTH?
• takeovers on the business market?
• T-Mobile NL:
• a new CEO is due, after Thomas Berlemann was sacked.
• how disruptive will the mobile-only strategy be? attack the DSL-market? deploy TD-LTE? follow T-Mobile USA's uncarrier strategy?
• how dependent will it become on Tele2? (2G/3G MVNO income, 4G network sharing income; network sharing cost savings) will it explore more wholesale opportunities?

There are so many opportunities for operators to return to growth, but resources (euros, management time) are scarce. One would wish that the operators would be aggressive, opportunistic and on the offensive, rather than following a me-too strategy, avoid risk and be on the defensive, but that remains to be seen. Ultimately, this is a matter of short-term versus long-term vision.

Ziggo outlook 2014: questions on Liberty Global, mobile and CEO

The main items for 2014 are the new CEO (René Obermann, from Jan. 1), expansion of the mobile strategy, the impact of Netflix, and obviously: an offer from Liberty Global.

Here are the details:

Corporate:

• Will LGI and Ziggo agree on an offer price? Or will Ziggo resist, like Telenet did?
• If Ziggo and UPC NL merge, what will be the consequences: improved financials, complex integration, regulation possibly.
• DT's René Obermann will take over January 1. What will his plan be?
• There is a chance of more small acquisitions in the business market.

Network and broadband:

• Docsis 3.1 is coming (2015?), but copper networks can match this (albeit over very short distances) with G.fast. Other competitors are FTTH, LTE and possibly Redstone's new technology.
• Further down the road are options such as all-IP and extension of the spectrum beyond 1 GHz.
• Alliances with OTT service providers cannot be ruled out, like ONO/Sony for PlayStation users.
• What is the impact of Netflix, on data usage and capex?
• Service provision over third-party cable networks may come to an end. After Kabelnoord, Cogas and Borculo will probably choose for exclusive provisioning by Caiway.

Television:

• The end of analog TV is nearing. This will release a large amount of spectrum.
• The Ziggo TV app may be extended with new options, such as nationwide usability (i.e. outside the Ziggo footprint) or a version for Xbox One and PlayStation 4.
• Ziggo could cooperate with Netflix to bring the latter's CDN (Open Connect) to its network. Or Ziggo could go one step further, like Com Hem and do a distribution deal.
• Will Ziggo endorse HbbTV?
• Possibly Ziggo will work with the Comcast RDK or Wyplay's Frog for STB innovation, i.e. a Horizon-like connected device.

Mobile:

• The WiFi network will be extended, using both CPE and public locations.
• So far, mobile services are SIM-only and for TV subs only. Will the service go nationwide, become a full MVNO? And become part of a quad play? Possibly with handset subsidies?
• Will the company ever use its 2600 spectrum? (Will the opex advantage outweigh the capex effect?)
• Will there be a VoIP app such as UPC Phone or BT SmartTalk? (Possibly as an extension of the current Visual Voicemail app.)

Conclusions

• Uncertainty and risk are at a maximum, simply because of the large numbers of questions (see above), exemplified by the arrival of a new CEO. DCF valuations will vary widely - giving Ziggo's management an easy job to claim a very high offer from Liberty Global.
• Assuming René Obermann takes up the CEO position January 1, he can either work with or against Liberty Global. Resisting like Telenet, will surely see him get sacked in the next few months. In other words: if Obermann indeed takes up the CEO position, a deal with Liberty and a friendly takeover are highly likely.
• A full MVNO strategy (with VoIP app) seems likely, since the current limited mobile strategy probably doesn't do enough for growth.
• OTT partnerships seem less likely than at ONO, Com Hem and Virgin Media.

Consolidation versus expansion

There are different types of consolidation:

• horizontal: when opeators focus on certain geographies
• horizontal: for focus on certain services markets:
• fixed, mobile
• consumer, business, wholesale
• communication, entertainment, web services
• vertical: when exposure to the value chain is reduced by selling infrastructure assets (sale, sale & lease-back, sharing):
• real estate: cabinets, towers, PoPs, data centers
• passive layer: mainly fiber
• active layer, managed services: equipment

Focus and consolidation make sense for several reasons:

• capital/cash flow may be scarce (capex)
• maximise revenues by concentrating sales efforts (opex)
• the economics and business models may vary widely (network vs. services)
• not compete with ones own customers (retail vs. wholesale)

We have seen examples of geographic consolidation. Services consolidation happens for instance at T-Mobile NL, which is going mobile-only. However, we have also seen expansion rather than consolidation:

• Verizon acquiring upLynk and EdgeCast
• Deutsche Telekom acquiring GTS
• Vodafone acquiring CWW and Kabel Deutschland
• TeliaSonera acquiring FTTH assets in Sweden
• Telstra buying DCA Health

Expansion can be driven by:

• expand to new markets (geographies, services)
• control a larger part of the value chain (infrastructure)
• scale, synergies

Geographic consolidation can easily be understood from a capex point of view. Verizon and TeliaSonera (see above) are trying to get control over a larger part of the value chain by adding CDNs and FTTH assets. Telstra goes one step further by venturing into the services business.