Outsourcing leads to sharing (a single infrastructure)

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

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

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

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

Demand drives FTTH drives separation

FTTH and separation are probably the most important trends in telecom right now. They are also linked.

I believe demand for bandwidth and nations competing for a larger share of the worldwide GDP pie will drive investments in FTTH networks. Telcos feel the heat and are preparing investors for a large capex round.
At the same time, realisation builds that there is value in both networks and services. Telcos are leaning toward the latter, and are preparing for their new roles by introducing sharing, outsourcing and separation.

Below I elaborate on these issues.

1. Drivers

1.1 Demand

Demand growth remains high. Statistics from internet exchanges, IPTV, the rising popularity of YouTube, monitoring services, etc. are used to corroborate this point. Add to that the following. As long as there is no true end-to-end connection and bandwidth is shared at some stretch (either on the open internet or in the last few yards), bandwidth should be redundant. So, if you need let’s say 30 Mbps, you really need peak performance of 100 Mbps. Check out Dean’s remarks.

1.2 Competition among nations

A valued reader suggested that there is a race going on between nations. Already, eastern European countries leapfrog places like Germany by building FTTH networks. If you want to maintain your share of the world’s GDP, you better not stay behind. Places ranging from Chattanooga (Tennessee) to Malaysia acknowledge this. No wonder Italy is weighing a massive investment into Telecom Italia’s network, once the company is separated. No wonder also why Ofcom launched a consultation, apparently aimed at paving the way for FTTH.


2. Future proof solution: FTTH

This point hardly needs any back-up, even if your long-term view is that the last few feet will be wireless. You better bring fiber at least to the doorstep of all the places where people like to hang out.
As I have written before, telcos are actually preparing investors for the big plunge.


3. Sharing

I believe sharing is going to gain popularity. Right now it appears to be concentrated in areas where demand or scale is limited. You can find examples in such diverse areas as mobile TV (German operators jointly building a single network), WiMAX (look at this consortium in Malaysia), FTTN/VDSL (altnets in both Australia and Germany) and 3G (in the UK, for instance).
The question remains: which part are you willing to share? The passive (dumb) layer is an obvious candidate, but you want to remain in control of traffic and services. The Vodafone/Orange UK example takes (tower and antenna) sharing one step further than sharing deals elsewhere (including the Sprint/Clearwire deal), which are mainly focused on extending coverage to rural areas. For Vodafone and Orange, sharing means: separating the network from the services. It implies that the network must be redundant (so there will not be an issue over who gets how much capacity), and also that the days of network coverage as an USP are behind us.


4. Outsourcing and separation

4.1 Outsourcing

The next logical step seems to be outsourcing. If you decide to sacrifice full network control, why not let some third party handle the network?
KPN is a case in point, since it started outsourcing many tasks in its fixed network to a whole range of IT providers. To be sure, I do not believe that KPN will save on costs. We all know the ways of IT companies. There will be lots of talk and writing policy documents. I counted at least 7 IT companies involved. IBM will be the lead integrator, but I am unconvinced that this structure will save KPN any opex within the next 3 years. I believe the move is designed to sharpen the focus on services, perhaps even pave the way for more (i.e. core network outsourcing and structural or even ownership separation).

4.2 Separation

The new focus on services opens the gates to (further) separation. In fact, it is already amongst us. First of all, let’s not forget that selling the tower business by mobile operators can be viewed as a form of separation, even if this only sets site sharing apart (and not antenna sharing or any activities ‘higher up’).
But there is much more. In Switzerland, Swisscom Broadcast received a DVB-H license, but it must provide equal access to all operators. Shortly before, TeliaSonera took the unusual step to create a separate infrastructure/wholesale unit in Sweden. Another voluntary action comes out of EchoStar, which proposed to split its satellite fleet (with wholesale operations) form the service provisioning unit (the Dish Network).

Telecom New Zealand will be split along the well known BT Openreach lines, creating a unit in charge of the access network in order to jumpstart LLU.
It remains to be seen if this effectively creates a new stumbling block on the road to FTTH, as the new structure focuses on LLU and therefore on maintaining ADSL(2+). It would be my preference to try and leapfrog intermediary technologies as much as possible and go straight to FTTH.

Some companies are obviously atttracted by the wholesale business model (the NetCo part of the business, as opposed to the higher valued ServiceCo units), providing a ‘natural monopoly’ and ditto cashflows. Consider such diverse players as Reggefiber (the FTTH company in the Netherlands), Frontline Wireless (plans a national safety network in the US, stresses the importance of wholesale access to the new 700 MHz spectrum in order to foster new entrants) and even Gaiacomm International (whose proposed VLF/terahertz network would not compete with exiting service providers).

KPN pushes outsourcing to the max

John Marcus of Current Analysis recently wrote an article on outsourcing coming to fixed telcos. Now, KPN has been doing its own over the past few weeks, outsourcing several tasks (CRM, billing, testing, graphical systems) to a range of IT companies (Accenture, IBM, Capgemini, LogicaCMG, Satyam, Sogeti and ICT Automatisering). Before, several wireless access networks were outsourced to Ericsson and E-Plus outsourced construction, operation and maintenance to Alcatel-Lucent.

Obviously, this raises the question: how far will KPN go? Will the fixed network in the Netherlands follow? Could that be a first step toward sharing, selling, separation, or even FTTH? Will KPN develop as a service provider?

More to follow.

KPN: preview 07Q4 and strategy update

Yesterday KPN mailed its invitation for the upcoming analyst meeting in London, February 5. They added that it will contain a 'strategy update'.

My employer isn't so generous as to let me attend the meeting in person, so I will be following the webcast. Too bad KPN has shifted focus to London, after its previous IR manager left (he steered those meetings to the home country, in order to fortify relations with local analysts).

Anyway, the meeting will be quite interesting. KPN is a company in flux, but some major milestones were realized or at least determined. Hence, the need for an update and some new targets. Let me summarize how KPN responded to the telecom woes of recent years:

• Consolidate the markets by acquisition: Telfort (mobile NL), Tiscali NL (altnet), Tele2 Belgium (altnet), iBasis (international voice), Digitenne (DTT in the Netherlands) and Getronics (international ICT, but currently refocussing), to name just the big ones. I think KPN has reached its limits for growth by acquisition in the Netherlands. The result is a much more friendly market, with only 3 MNOs and cash constrained (but extensive) cable competition. In Belgium it could buy a company like Scarlet. Germany is wide open for consolidation. Further, KPN is trying to create an MVNO business into interesting European markets, first in Spain. Last year, market rumours circulated about KPN being interested in buying Bouygues (#3 mobile in France), but KPN denied. ICT obviously is a market that KPN could expand into also.
• Deploy new technology: swith to IP, under the All-IP banner; extend fiber (FTTC + VDSL2, as well as some FTTH); HSPA as the next evolutionary step in the GSM networks. These will bring both cost efficiencies and new revenue opportunities (mobile data, IPTV, convergence services, bundles, ehealth, telecommuting, etc.).
• Shrink the company: revenue growth, on an organic basis has been negative for a long time. At the same time, KPN is aggresively cutting jobs, buying back shares, outsourcing.
• Plant seeds for growth. Expansion in mobile, broadband and ICT, enabled by acquisitions, new technology and new services.
• Improve relations: job cuts have been done pretty quietly, and new contracts were recently negotiated; competitors are now seen as partners as well (co-opetition), as KPN is embracing wholesale revenues; OPTA (the national NRA) has been approving most of KPN's actions, thanks to the company's transparancy (accounting separation) and attractive wholesale portfolio.

For its strategy update KPN could focus on these issues:

• Technology (All-IP (FTTC + VDSL2), FTTH, HSPA): roll-out, real estate sales, service launches.
• Integration of recent takeovers: Getronics, Tiscali NL, iBasis.
• Sharing, outsourcing.
• Regulatory: mobile termination (currently to mid 2010 in NL and to March 2009 in Germany) and international roaming (voice was agreed upon through 2009; SMS and data may follow).
• Acquisitions, MVNO launches.
• Dividend, share buy-back.

I expect the following:

• Overall: Dutch market conditions improved considerably. Mobile markets will see lower margins and more regulatory rate cuts. KPN is very much capable of integrating acquisitions and cutting jobs and has large opportunities for more cuts, outsourcing, sharing and real estate sales. This is very important, as organic growth remains very low. IPTV, mobile TV and mobile data take a long time to really take off. Debt will remain at such levels where the balance sheet is healthy but not overly so. From time to time takeover rumours emerge. In short, not a very pretty picture, with growth coming mainly from successful shrinking.
• Revenue growth: Getronics and iBasis will add 20% or so, but organically growth will remain very low.
• EBITDA growth: low growth and Getronics will lower the overall margin ('up the value chain' nonetheless, according to KPN).
• Capex: will likely remain around the same level (12.7% in 07Q3).
• FCF: a big drop in 2008 as a result of a hike in cash tax payments (despite the lowered Dutch corporate tax rate), but growth thereafter.
• I suppose KPN will keep raising its dividend. A new share buy-back is likely, but it remains to be seen if it will be worth of a half or a whole billion euros.

Identity theft bedreigt outsourcing

Met het op straat komen te liggen van persoonsgegevens (zie incidenten bij Bank of America, ChoicePointe, Seisint en nu ook bij Time Warner) kan ook de outsourcingmarkt onder druk komen te staan.

De voornaamste bedenkingen tegen outsourcing zijn vanouds gerelateerd aan de kwaliteit van de dienstvelening en aan problemen met de communicatie. Maar nu een diefstal gedaan werd met de hulp van medewerkers van een outsourcer in India, is een nieuw lek boven tafel.

Zal dit de outsourcingmarkt wezenlijk raken?

Mobile Broadband

There is a lot going on in mobile broadband. I plan to cover that over the next few weeks. But first, off on hoilday for a week.

Some issues:

• Enablers: IP (i.e. 4G), VAS (such as LBS and payments for consumers, full access through laptop cards for workers), data tariffs coming down. Is the data over service revenues fianally taking off (settling above 20% at AT&T, Verizon and KPN)?
• Per IP: the Broadband Incentive Problem.
• MTA: comparing minutes of use in Europe and the US reveals that there is a lot of price elasticity.
• Fixed line replacement? (think 16d)
• Outsourcing, network sharing and separation to further lower costs.
• New entrants: Nokia, Apple, Google, Yahoo!
• Offloading (that's whta it is, no more!): mobile TV, femtocells.
• 4G Standards war: LTE, WiMAX (and Gaiacomm?).

Update on separation, FTTH and 3-D

Here's a short update on some of the hottest topics around:

• Separation. First of all, the Telecom New Zealand AGM rejected the election of the 'two Marks', put forward by Elliott International, to the board. They were in favor of structural separation, whereas Telecom right now focuses on operational separation and FTTN. A disappointing day, leaving the share price at a 16-year low ... However, good news related to functionally separated BT. The Register reports that it is considering outsourcing Openreach, putting the unit at an even longer arm's length. With Ben Verwaayen's departure to Alcatel-Lucent, it will come as no surprise that his new company could be a candidate for taking care of the job ... Finally, in Australia some people seem to be getting closer to structural separation as well, such as senator Minchin.
  
• FTTH. Julio Linares, COO of Telefonica, spoke at Broadband World Forum Europe. Here are some quotes from Total Telecom: "We will have to measure content in zetabytes. It is difficult to identify future services, but ultra-broadband will facilitate more video, high-definition and 3D content, and more. Consumers are going to need more bandwidth. Demand for bandwidth on fixed and mobile networks will multiply at least by five in the next three years. To support this zetabyte era, we are going to need new infrastructure, we are going to need networks. We need new technology, but technology is not going to be the constraint. Investment is the constraint. To build fixed broadband across Europe, we need to invest €250 billion, but at present the industry is averaging investment of €50 billion per year. It will take 20 years to build just the fixed part of the new infrastructure. Do you think we can afford it? (...) of course, no. (...) We need to speed up. At this time of economic crisis, it is very important to take into account the weight of our industry on the whole economy."
• 3-D. Philips has demonstrated 3-D VoD ('2D-plus-depth') at the IBC conference last month, branded WOWvx. It doesn't require special glasses, it's what they call an 'autostereoscopic display', basically consisting of an LCD display plus a lot of lenses covering the pixels. Both Deutsche Telekom and Orange have trialed the system. Even more recently, Philips showed its new Quad Full TV (thanks dear readers!), basically using the same technology but with everything brought together in a prototype TV.
  

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.

AWS re:invent 2022

AWS re:Invent 2022 (221128 - 221202, Las Vegas):

• No hiring freeze, keeps building datacenters
• Plans to be water positive (water+) from 2030 (returning more water to communities than it uses)
• Signs Descartes Labs; and Wallbox; and Brookfield AM; and Stability AI; and Yahoo; and American Family Insurance
• Vodafone, Intel, Dish Wireless, Swisscom, Spark, Telenor, Telefónica, T-Systems, JMA Wireless, others demo MEC & RAN solutions
• Expands partnership with Slalom to develop vertical solutions and accelerators on AWS for customers in the energy, financial services, healthcare, life sciences, public sector, and media & entertainment industries - Expands partnership with Atos (enables Atos customers with large-scale infrastructure outsourcing contracts to accelerate workload migrations to the cloud and achieve digital transformation)
• Launches tools to connect & analyse data stores - Launches Amazon DataZone - Launches Amazon Security Lake - Launches AWS SimSpace Weaver - Launches 3 new Amazon Elastic Compute Cloud (Amazon EC2) instances powered by 3 new AWS-designed chips - Launches Graviton3E chip - Launches AWS Supply Chain - Launches AWS Clean Rooms - Launches Application Composer (low-code tool for builduing serverless apps) - Launches  AWS AI Service Cards
• Adds 5 new capabilities for Amazon QuickSight - Adds 5 new Database & Analytics capabilities - Adds 8 new Amazon SageMaker capabilities

KPN: preview to 13Q1 results (April 23)

KPN's 13Q1 results are due April 23, before the market opens.

Looking back to the 12Q4 results:

• Weakened results.
• Rights issue announced.

Guidance:

• NL: market share broadband 40%, longer term 45%, market share mobile >40%, 'leading' on the Business/ICT market; overall stabilisation toward 2014; EBITDA margin mid term 40-45%.
• Germany: long-term market share 20%, margin 30-35%; 2013 margin down.
• Belgium: long-term market share 25%, margin 25-30%.
• Overall 2013: capex EUR 2.3bn, dividend 3 c/share, net debt/EBITDA toward 2.0-2.5.
• Overall 2014: dividend 3 c/share
• Beyond 2014: consolidation Reggefiber not before 14H2, capex cumulative 2013-2015 EUR 7bn (incl. Reggefiber).

Market consensus 13Q1:

• Revenue EUR 2.95bn.
• EBITDA EUR 1.00bn.
• Net income EUR 310m.

Recent issues:

• The results for 2011 and 2012 have been slightly restated to account for IAS 19 and for the splitting up of Corporate Market (formerly Getronics) - most migrates to Business, the rest continues as IT Solutions (data centers, consulting services, workspace solutions).
• The Reggefiber takeovers (approved April 2012) and the Reggeborgh takeovers (approved October 2012) create an unequal comparison basis. Same for the sale of Getronics International (May 2012).
• When will the rest of RoutIT be bought (KPN acquired 12.5% in September 2012).
• During 13Q1 the 4G-licenses were paid for (EUR 1.35bn).
• Rights issue EUR 3bn was approved and will follow after the 13Q1 results. EUR 2bn in hybrid bonds was already raised.
• What will the cooperation with America Movil (29.8%) lead to?
• According to fresh market rumors, E-Plus and O2 Germany are working toward some form of network sharing.
• Fixed network outsourcing to Alcatel-Lucent. KPN Business sold a maintenance unit.

New markets:

• LTE and DC-HSPA services in NL.
• Partnered with FON in NL.
• Mobile network for Alliander (energy grid operator).
• Quad play in NL (KPN Compleet).
• Triple play in Belgium (SNOW).
• Accenture is now developing IPTV for KPN (taking over from NSN).

Other issues:

• How are the results developing, especially in mobile? Can guidance be maintained?
• How is the DSL market doing? What was the effect of the winter on Reggefiber?
• Will the EUR 3bn rights issue suffice, or does the leverage need to be reduced further?

KPN: away from network ownership and toward FTTH

Today I had the honor to meet with Joost Farwerck, director of Wholesale and Operations at KPN. Most striking were unequivocal belief in FTTH ('the endgame', as I have referred to it before) and an apparent decline in interest in being a network operator.
Joost very tellingly was able to see me in between a trip to Australia and New Zealand and a meeting with bbned (Telecom Italia).

Here are my edited notes.

1. All-IP

• KPN is planning the migration to an NGN, as I have written about before. Many MDF locations, LLU and ADSL2+ will be phased out and replaced by SDF locations, SLU and VDSL2. Fiber will be pushed deeper into the network, to reach all the way to 28k street cabinets (FTTC) and bypassing 1300 MDF locations. No FTTH as yet, only in greenfields and selected towns (Enschede and Almere).
• Currently, details of an MoU are worked out. The MoU was signed over the summer by both KPN and the main unbundlers (bbned, Tele2 and Orange). The new agreement is to be published around December 15. The details are about phasing out the MDF locations, the migration and KPN will present an alternative to line sharing (this product is on the way out anyway, as it is replaced by full LLU). Apparently, street cabinets offer enough space for SLU. Bbned is going the way of SLU.

2. Network operator v. service operator

• KPN believes WBA (wholesale broadband access) is a good product that will ensure competition, based on equivalent access.
• Joost seems to think that OPTA nor the new EU regulations, will lead to functional separation. I think KPN is a case in point where proper accounting separation and a good wholesale strategy + portfolio can fend off functional separation.
• By the way, accordin g to Joost, a wholesale customer can be more valuable than a low-end retail client.
• Outsourcing is becoming a major part of KPN's strategy. At Joost's division up to 50% of current employment levels will disappear.
• Joost seems to be much more of a services man than a network operator. I have noticed this before at both Tiscali and Telecom New Zealand. Network control is less important in a regulated all-IP world.

3. Co-op

• I am a big fan of cooperation. So is Joost, but challengers seem to think differently. KPN tried to team with Tele2/Versatel several years ago, but was turned down. Also, unbundlers are sub-scale in many cases, but (foreign) owners appear to be 'believers', as Joost put is. They all seem to think that they can make it work on their own. Too bad that there are few G9 (Australia) type of intitiatives.
• Joost seems to be similarly at a loss when it comes to long-term commitment of the large Dutch unbundlers. Tele2 is selling off many assets; T-Mobile may sell on the Orange BB unit; Telecom Italia may get rid of bbned.

4. FTTH

• "FTTH is the endgame". I couldn't agree more.
• However, VDSL gets deployed 5-7 times faster (and is written-off in 3-4 years), so it cannot be skipped. Here Joost is very much on the same track as Belgacom.
• KPN recently teamed with 'public enemy #1', Reggefiber, for the city of Almere. Joost told me they will own the passive infrastructure together (I was under the impression it would be 100% Reggefiber); KPN will serve as network operator; KPN (and others, if they wish) will be service provider.
• KPN beefed up its Belgian mobile operator by acquiring Tele2 Belgium. That obviously begs the question: will E-Plus make a similar move in Germany? Joost seems to see better business opportunities for some German expansion (out of the Netherlands), e.g. to the Ruhr area, than for doing FTTH in some rural Dutch areas.

Week 15 in Telecoms, Internet, Media

CORPORATE

• Orange BE
• Polygon (5.29%) declines offer - Orange will not raise offer
• Deminor (adviser to Polygon) and WATT Legal oppose offer
• Tele Columbus: EC approves takeover; accepted by 91.96%, to close 210419, then rights offering to raise EUR 475m
• Eir (NJJ 33%, Iliad 32%) Report on poor customer service during corona virus pandemic due to remote working and outsourcing
• Virgin Media UK (Liberty Global): CMA (UK) approves O2 UK merger, "unlikely to lead to any substantial lessening of competition in relation to the supply of wholesale services" (provisional, open for comments until 210507, final decision 210527)
• Altice Europe (Patrick Drahi): Moody's: assigns B2 to sr secured notes ($3b) issued by Altice FR, outlook negative (high leverage, weak FCF generation); increases debt maturity from 5.5 to 5.9 yr, interest savings EUR 50m
• Telstra: Rumor: considers merging Telstra International with PCCW Global (talks with PE firm I Squared Capital), Telstra to acquire PCCW Global
• Amazon: Annual Report 2020, Letter to Shareholders, Proxy Statement; reaches 200m Prime subs worldwide; spent $11b (+41%) on content (movies, series, music) in 2020
• Netflix: Moody's upgrades from Ba3 to Ba1, outlook positive
• Clubhouse: Raises funds; rumor: at $4b valuation; 10m WAU
• Squarespace: Plans IPO via direct listing; symbol SQSP
• AppLovin: IPO, symbol APP, IPO price $80, opens at $70, closes $65.20 (-19%) on first trading day
• Epic Games: Raises $1b (incl $200m from Sony), valuation $28.7b
• Reservoir Media: Plans IPO via SPAC, with with Roth CH Acquisition Co II; 21Q3 on NYSE, symbol RSVR, EV $788m

NETWORKS

General

• Ookla Speedtest Global Index (March 2021)
• Global average FBB 99/53 Mb/s, MBB 48/13 Mb/s
• FBB: Singapore #1 (234), Thai #2 (231), HK #3 (225), RO #4 (211), Monaco #5 (205), NL #27 (137)
• MBB: UAE #1 (179), S Korea #2 (171), Qatar #3 (167), China #4 (150), KSA #5 (134), NL #8 (103)
• Tefficient mobile data usage report 2020 (ranking 105 MNOs)
• Global mobile data volume +38%, Zain Kuwait #1 (40.2 GB/SIM/mo), DNA #2 (34.8), 3 Austria #3 (30.5); T-Mobile NL 6.0, VodafoneZiggo 3.4, KPN 3.1
• "The bottom 11 operators are from the low usage markets of Greece (Vodafone), Czech Republic (TMobile), Belgium (Proximus, Orange, Telenet BASE), Germany (Telekom, O2, Vodafone) and the Netherlands (KPN and Vodafone Ziggo – but not T-Mobile)."
• " the nine operators with the highest revenue per GB are from six European countries: Greece, Belgium, Norway, the Netherlands, Czech Republic and Switzerland."

FTTP

• Orange PL establishes open access FiberCo (Światłowód Inwestycje) 50/50 JV with APG
• Orange PL anchor tenant
• Valuation PLN 2.748b (debt-free, cash-free) = EUR 605m
• Orange PL to receive PLN 1.374b = EUR 303m (PLN 887m on closing, PLN 487 on delivery during 2022-2026)
• Orange PL contributes 0.7m lines, to add 1.7m lines in 5 yr in mid/low competition areas, capex PLN 3b (partly from new debt (>80%), equity contributions PLN 300m from each during 2023-2026); ultimately to own 2.4m lines
• Will not be consolidated by Orange PL; Orange PL has option to acquire extra 1% + control between 2027 and 2029
• To close end Aug 2021

HFC

• VodafoneZiggo
• Ziggo (VZ) raises download & upload speeds (3.3m subs), requires modem reset (automatically by 210531)
• Launches Smart-Wifi app for Ziggo Connectbox users
• Ziggo (VZ) completes digital TV migration

5G

• AR: DNA plans 5G pilot at Hiukkavaara school in Oulu, with BusinessOulu, Educational & Cultural Services, City of Oulu, Oulun Digi, Hiukkavaara school, Playsign: to develop AR experiences for phenomenon-based learning
• VR: BT plans 5G at Hyberbat (battery maker) factory to support VR-enabled digital twin, with Ericsson, NVIDIA, Qualcomm
• 360 degrees video: Verizon launches TUDN Vision: portal for 360 degree watching of soccer games televised by Univision
• Cloud gaming: Vodafone IT launches 5G cloud gaming platform GameNow
• SA 5G: Vodafone DE launches SA 5G in 3.5 GHz band at 10 sites in 170 cities, with Ericsson, Qualcomm, OPPO; latency 10-15 ms
• Bell Labs Consulting (Nokia) report The Big Inversion ("How 5G+ technologies will create new value for industries in a post-COVID world")
• Private Wireless
• Nokia and EY partner on Private Wireless, 3 key offerings: 1. fuelling digital change in manufacturing, energy, and operations across industries, including for governments and cities; 2. building cybersecurity and digital trust by protecting and managing challenges brought by IoT and IT/OT crossover; 3. helping telcos, specifically, to capture and monetize 5G business enterprise opportunities
• DT acts as SI for Private 5G for Industry 4.0

6G

• German government plans EUR 700m investment in 6G research by 2025

SERVICES & CPE

Telco & other

• Virgin Media UK (Liberty Global): Liberty Charge starts national on-street EV-charging roll-out in Waltham Forest (London Borough) [see 200518]; to be operated by  EV DOT (= BMM Networks); retail price 30 p/kWh
• Vodafone ES partners with TiVo for targeted ads on TV platform
• CRTC (Canada) requires Bell, Rogers, Telus, SaskTel to offer wholesale services for MVNOs and seamless roaming

Music

• Spotify
• Launches Car Thing in US (smart player, limited release, invite-only), free for select Premium subs (excl shipping): voice control (“Hey Spotify”), dial, touch screen (4 inch), preset buttons, requires Bluetooth and smartphone; "Our focus remains on becoming the world’s number one audio platform—not on creating hardware—but we developed Car Thing because we saw a need from our users, many of whom were missing out on a seamless and personalized in-car listening experience."
• Partners with Warner Music Group to develop podcasts around WMG's catalogs
• Apple Music: WSJ: Apple Music pays 52% of subscription rev (0.01 $/stream) to rights holders [compare Spotify: 67% to rights holders o/w 75-80% to labels = 50-53; Spotify has more subscribers and has a free+ads tier]
• Distr deal with Epix (= MGM): bundle 13 $/mo, exclusive access to music to series Godfather of Harlem 

Video

• Self Financial report based on IMDb ratings: Apple TV+ #1 (average score 7.24 or 7.13 on 70 titles), HBO Max 7.13 or 7.01, Netflix 6.94 (530 titles), Disney+ 6.63 (420 titles)
• Morgan Stanley survey US: 39% say Netflix offers best originals, Amazon Prime 12%, Disney+ 7%, Hulu 7%, HBO Max 6%
• Antenna & MoffettNathanson report on churn rates US 20Q4: Netflix 2.5%, Disney+ 4.3%, Apple TV+ 15.6%, HBO Max 6.7%, Peacock 9.5%
• Plex: Reaches 25m MAU (r'red users who spent >= 10 minutes on Plex); >150 free channels, 20k free movies & episodes (from Lionsgate, Warner Bros, MGM, Sony Pictures Television, Sinclair Broadcast, AMC, A+E, Crackle, BBC); raises $50m

REGULATORY

• Amazon: WSJ: leverages dominance in one business to compel partners to accept terms from another
• Twitter: Launches Responsible Machine Learning Initiative led by ML Ethics, Transparency and Accountability (META) team: assess downstream or current unintentional harms in the algorithms used
• Platforms
• US Senator Josh Hawley (R-Mo) proposes Trust-Busting for the Twenty-First Century Act: ban M&A for fimrs with market cap >$100b, replace antitrust issue of consumer harm by protection of competition, , empower FTC
• EU plan for AI regulation leaked: to establish European Artificial Intelligence Board
• US House of Representatives Judiciary Committee approves report on platforms (Google, Facebook, Amazon, Apple); "each hold monopoly power over significant sectors" [see 201006]

Wednesday Telecoms Digest

FIXED:
* Licenses: Emirates Integrated Telecom Co (#2 in UAE; UAE 50%, Abu Dhabi Mubadala Development Co 25%, Emirates Co for Telecomms and Technology 25%) launches mid 2006, plans IPO
* DSL: M’’Net launches ADSL2+ (’16 Mbps’ for 41 EUR/mo or usage-based rates) in Munich; Telefonica plans VDSL from 2006 for Imagenio; AT&T intros 6 Mbps for 65 $/mo (first 3 months 50 $/mo); Telefonica expands European budget
* LLU: South Africa delays until after 2007
* FTTH: Magent Networks (Ireland) orders from Telcordia; TDS Metrocom launches in Fitchburg (Wisconsin), 1 Mbps for 20 $/mo, 4 Mbps for 30 $/mo, 10 Mbps for 45 $/mo, VoIP for 44/mo
* BPL: order from Bristol Hotel to PLC Network Solutions (= Trimax)

WIRELESS – CELLULAR:
* IPO: Austria wants IPO for Mobilkom (= Telekom Austria (state 30%))
* MVNO: Virgin SA plans launch mid 2006 on Cell C; Tesco plans Irish launch with O2, 50/50
* Budget, SIM-only: Plus enters prepaid market Germany (with Debitel), 16 c/min, Lidl plans undercutting Aldi in Germany, 12-13 c/min (Heise)
* Outsourcing: BASE (KPN) hires Atos Origin for IT services, 5 yr
* Data: Base Germany plans flat-fee unlimited internet access with datacard, 25 EUR/mo from Jan 2006; Polkomtel intros datacard for EDGE/3G/HSDPA
* Push email: Turkcell launches with Visto
* Music: Amp’s Mobile will launch with 99c downloads
* TV: Vodacom (SA) launches on live! over UMTS
* Video: Sprint launches movie downloads with Mspot at 7 $/mo flat for unlimited
* LBS: Verizon Wireless launches VZ Navigator (GPS, technology from Autodesk, Navteq, Networks In Motion)

WIRELESS – SHORT-RANGE:
* ZigBee: Holley Metering (China) launches for automated meter reading
* UWB: Ecma approves WiMedia Alliance standard (ECMA-368 and 369, unlicensed spectrum, up to 200 Mbps)

WIRELESS – LONG-RANGE:
* WiMAX: 802.16e (mobility, formally 802.16-2005) ratified by IEEE; Arcor (Vodafone) starts trial in Kaiserslautern; KT and Alcatel work on interoperability of WiBro and 802.16e; BEC Telecom (Dominian Republic) launches, with Airspan; NatCom plans trial Auckland, Jan 2006
* WLL: Iraq plans licenses (applications Jan 12, auction Jan 30, issue Feb 12)

WIRELESS – OTHER:
* ArrayComm licenses MIMO technology to Samsung (for cellular, WiMAX)
* UMTS TDD: IPWireless and Netgear launch router with WiFi and Ethernet connections
* BoS: Inmarsat launches Broadband Global Area Network, max 492 kbps, for access, streaming audio/video (4-7 $/MB) and VoIP (< 1 $/min), terminals from HNS, Nera SatCom and Thrane & Thrane ($1500-3500); FCC awards ICO 20 MHz in 2 GHz band

MUNIBROADBAND:
* FTTH: Amsterdam chooses active ethernet from Cisco (dedicated, up to 100 Mbps) over passive optical network (PON, shared, up to 39 Mbps); KPN wins Groningen tender
* WiFi: NeoReach Wireless (= MobilePro) hires Pronto Networks for managed services
* WiMAX: Netago Wireless launches 802.16-2004 for rural Alberta, 1-3 Mbps (with Nortel)

CONVERGENCE:
* VoIP:
-- Yahoo! plans VoIM to PSTN (Phone Out 1 c/min (promo), Phone In 30 $/yr for number), intros in Singapore, HK, Denmark, France, Italy, Spain (beta)
-- MCI (Verizon) and MSN (Windows Live Messenger) launch PC-to-PSTN, 2.3 c/min
-- SIPphone (‘Gizmo Project’) rumoured to intro 1 c/min PC-to-PSTN service
-- BellSouth resells 8x8
-- UPC plans launch in Czech Republic
-- Terra (Telefonica Brazil) launches
* wVoIP: SpectraLink (handsets) acquires KIRK Telecom (DECT handsets)
* IPTV:
-- China selects MPEG-4
-- BT adds content (BBC Worldwide, Paramount, Warner Music) for VoD, launch autumn 2006
-- Novis (Portugal) trials ‘Clix Smartv’ with Amino (STB), commercial launch 2006 (50-100 channels, epg, VoD, personalized choice of channels)
-- Siemens integrates Entone’s STB
-- Free deal with Canal+ for VoD
-- PLDT (Filippines) plans entry
-- neuf cegetel expects 200k subs through 2006
* F/M: Orange and Wanadoo launch ‘Mes services perso’ trial in France (unified comms)
* Gateway: AT&T orders STB from 2Wire; Galaxy Satellite Broadcasting (= See Corp, Television Broadcast) orders STB from Amino; Thomson acquires Thales Broadcast and Multimedia, EUR 130m

Wednesday Telecoms Digest

FIXED:
* Auction: Novator (= Thor Bjorgolfsson) bids for BTC (Bulgaria)
* License: SA to award second license to SNO by Dec 9
* LLU: India opposes; Tiscali Germany plans intro (trial Frankfurt 06Q1), invests EUR 200m in network + 200-300m in mkt (23 EUR/mo, 45 EUR/mo with VoIP); TelstraClear (Nw-Zld) complains about provisioning
* DSL: Lebanon plans launch 2006; Tiscali Italy launches ADSL2+ (24 Mbps for 60 EUR/mo); Ikanos intros VDSL2 chip (100 Mbps symmetric)
* Broadband Netherlands 05Q3: 3.84m lines (+5.6% qoq), of which 59.4% DSL and 40.6% cable, penetration 54.2% of households and 23.5% per head (Telecompaper)
* DOCSIS: Casema plans 30 Mbps trial; VTC (Vietnam) plans launch

WIRELESS – CELLULAR:
* Auctions: 9 interested in Telsim, bids from Dec 13 (Turkey); PT and MTN bid for 34% of MTC (Namibia)
* License: Warid awarded sixth license Bangladesh
* Service launch: Digical on Anguilla, Bermuda and St Kitts and Nevis; Vietnam Power launch delayed into 2006
* MVNO: Aldi Talk (budget: on-net 5 c/min, off-net 15 c/min, 15 c/SMS) launches on E-Plus; Lidl and Plus plan launches; Agcom (Italy) finds no market dominance so no open access required; Visage Mobile (MVNE) gets $30m series-D funding from Nomura et al (total $80m); Neuf Cegetel (on SFR network) plans extension into residential market mid 2006
* Outsourcing: 3 UK hires Ericsson (network, IT)
* Sub-brand: T-Mobile intros MoxMobil prepaid card with Mox Telecom for foreigners (39 c/min to 11 countries)
* MNP: Pakistan to introduce April 2006
* Flat fees: BASE (KPN) disconnects Unlimited subs for abuse (although no fair-use policy in place)
* International roaming: Bouygues files complaint against Freemove for limited access
* 2.5G: Go (Malta) and Cell C intro EDGE
* 3G: Vibo (Taiwan) launches W-CDMA Dec 6, Eurotel launches, Xfera (Spain) plans launch mid 2006)
* 3.5G: HTC plans HSDPA handset shipments 06H2; Nortel and Qualcomm achieve 3.6 Mbps HSDPA; MTN plans HSDPA trial; Cingular launches HSDPA (average 400-700 kbps, 60 $/mo for datacards)
* P2T: intro by Cingular with Kodiak, 10 $/mo or 20 $/mo/family
* TV: Verizon Wireless adopts Qualcomm’s MediaFLO network, launch 2006; Vodafone expands content offerings
* LBS: Inmarsat to manage Galileo

WIRELESS – SHORT-RANGE BROADBAND:
* WiFi: Telenor adds hotzones (400) for mobile users; Skyhook Wireless expands WPS (WiFi Positioning System) to 70 US cities; Sony launches video downloads for PSP

WIRELESS – LONG-RANGE BROADBAND:
* WiMAX: Fujitsu demos IPTV-over-WiMAX; BTC and Orbitel return license Bulgaria (for lack of mobility); Access Providers (Australia) plans wholesale service from 2006

CONVERGENCE:
* VoIP: Skype intros 2.0 (beta; with video (codec from On2 Technologies, web cams from Logitech and Creative), mood indicators, ring tones, avatars, distr deal with Six Apart); Israel outlaws VoIP to protect ILD providers; Telemar (Brazil) plans launch with Net2Phone; Time Warner Cable reaches 1m subs (75% of which triple play)
* IPTV: intro by SMG and Shanghai Telecom; Fujitsu demos IPTV-over-WiMAX; intr HDTV door SureWest Dec 2005 (HDNet and HDNet Movies); Tut Systems installs all-IP digital TV head-end for cable operator (Citizens Cable Comms); plan trial BellSouth mid 2006
* F2M: Xs4all (KPN) launches UMTS-subscription (dial-up over UMTS for ADSL-subs); Neuf Cegetel plans WiFi/cellular phone ‘Beautiful Phone’ mid 2006
* NGN: Vibo (Taiwan) orders from Ericsson
* IMS: HP intros software ‘OpenCall Media Platform’ (enable voice services, triple play etc) and ‘Mobile MusicSharing’ (conference calling, music, talk simultaneously); Cisco adds support to more products

MUNIBROADBAND:
* WiFi: Tempe (Az) and Sunnyvale (Cal) launch; Farmers Branch and plans with NeoReach/MobilePro; Portland shortlists three (EarthLink, MetroFi, VeriLAN)

Structural separation revisited

Premise #1: Telecoms market characteristsics

• High entry barriers (network duplication cost, mobile license cost).
• Scale business. The network effect is essential.
• There is ample legacy (incumbent operators inherited formerly state-owned assets).
• Telcos have a tendency to outsource network management to specialised firms such as Ericsson. Apparently, it is not considered core-business by many.

Premise #2: Private company characteristics

• The agency problem: management has its own personal agenda, targeted at personal wealth maximisation.
• Company targets are aligned with private management targets through stock & options rewards.
• Listed companies focus on short-term rather than long-term value creation in order to be able to pay out a predictable dividend.
• They have a tendency to repair instead of replace in order to minimise capex & maximise dividends. This comes at the risk of supporting outdated technology with 'regret investments'.
• Companies strive for low risk i.e. steady returns and hence predictable capex.

Premise #3: Government characteristics

• Civil servants are not entrepreneurs.
• Governments have extensive experience in running passive network grids (electricity, gas, water, roads, railroads).

Premise #4: Infrastructure vs. services

• Grids are vital for the economy & national security.
• They are typically long-lived assets, providing a steady but low return.
• Building a network requires high capex; technology shifts lead to periodical capex spikes.
• Networks thrive at a maximum utility level. More service providers means more business and a higher utility level.
• Services are high-risk business, requiring high opex, in a highly competitive market.

Premise #5: Regulation

• Regulation is a way to repair market failure.
• Market failure occures when cometition is insufficient.
• Insufficient competition leads to sub-optimal prices, quality, service levels, innovation, investment.

Issue #1: How to measure market failure?

• It should not be a matter of opinion, but of thorough & independent research.
• When are prices 'low'? How to benchmark?

Issue #2: How much is enough?

• In fixed, it famously sounds 'two is not enough'.
• In mobile, the OECD recently said 'three is not enough' (please do network sharing instead).
• Does network duplication make sense or destruct value since it undermines the utility level?

Issue #3: Are OTT services full substitutes for managed?

• Are managed services, with 99.999% availability & reliability, required for vital communication (emergency calls)?
• Which level of QoS or QoE is required or sufficient?

Issue #4: Is the active layer part of the network or part of the services layer?

• Active equipment coupled with a passive network raises the technology risk, leads to frequent technology shifts & capex spikes and thus undermines the low risk/return profile of grids.
• Active equipment coupled with the service provider layer introduces technology risk to the services business & raises the entry barrier. It also creates physical space-related & technology issues for service providers trying to compete.

Issue #5: Which role fits a government agency?

• Can a governement-controlled body act as an entrepreneur and run a business?
• Which role suits such a body (passive only, providing permits? or active, investing goverment funds & taking ownership?).

Solution: Structural separation. This model ...

• ... creates a state-owned natural monopoly grid (NetCo), which maximises the utility rate. Goverments are well-equipped for this. It doesn't compete with any company at the services level.
• ... could be a joint venture of market participants in a different model. For instance, all interested Italian telcos (Telecom Italia, Vodafone, Wind, ...) could jointly buy Metroweb and injects their network assets to create a national jointly owned grid. The NetCo in time may be spun off because of its low risk/low return profile that doesn't match the profile of its owners.
• ... frees up funds for services companies (ServCo) to improve services, to innovate & to keep prices low.
• ... creates an incentive to maximise competition at the services level in order to maximise the utility rate. In other words, the NetCo will treat all ServCos equally.
• ... incentivises the NetCo to support net neutrality because it raises the utility rate. As a result, competition is enhanced with pure OTT providers.
• ... connects to operator strategies of outsourcing network management.
• ... probably caters to the markets best if it allows for both access at the passive layer (unbundling) and at the active layer (resale). Service providers can chose what fits them best. This also allows for a specialised OpCo to arise (as in Singapore).

FTTH is the endgame (but it will take a while)

Yesterday I attended the 'Next Generation Network Conference', hosted by Euromoney's Global Telecoms Business, in Amsterdam. Thanks for inviting me!
It was an interesting day, even if there wasn't so much really new. I enjoyed talking to telco and vendor officials, most notably Dirk 'Amsterdam' van der Woude.
Below I will summarize my take of the views on a number of trends (which I regularly write about on this blog):

• FTTH, VDSL/LLU/regulation 2.0, Web 2.0, SaaS, WIMAX
• Separation, co-op
• Owning the customer, advertising as a business model

Companies and organisations represented included:

• KPN, BT, Vodafone, Orange NL, Thus, 2 smaller Dutch MSOs (CAIW and Kabel Noord)
• Xconnect, Alcatel-Lucent, BroadSoft, Sonus, AlwaysON
• OPTA (the Dutch NRA)
• Analysys, Fitch

1. Demand

The perennial question: will 10 Mbps be enough? or 100 Mbps? Some statements (not precise quotations) included:

• There is no ceiling (KPN),
• even if the new services are as yet unspecified (Analysys).
• Why should the exponential increase stop now(BT)?

My comment:

• KPN, through Nico Baken (senior strategist and professor at Delft University), proved to be among the most radical. By the way, when I asked Nico how he feels about KPN's current strategy, he responded somewhat in this manner: KPN is among the most respected telcos, and they allowed me to hire 12 PhD's to work on long-term strategies, in order to allow KPN to maintain its lead. Bravo Eelco Blok for gathering this team at the heart of KPN!

2. FTTH, NGA (access)

Statements included:

• We see no business case, except for greenfield operations (BT).
• FTTH is the endgame (OPTA, KPN).
• Build-outs in the Netherlands (7.0m households) are projected to go from 115k at present to 580k by 2009.
• Public/private partnerships (PPP) will emerge (KPN).
• Wireless will be the way to connect over the 'last few meters' (KPN).
• Within a few years, all munifiber in the Netherlands will be bought by either KPN or Cablecos (CAIW).
• 2 Infrastructures (copper/telco and coax/cableco) are not enough to ensure real competition (OPTA).

My comments here:

• KPN's Nico Baken was probably among the most impressive in his presentation. His visionary analysis underscores that KPN fundamentally believes in FTTH - as well as PPP!
• Dirk pointed me to a new development: KPN plans to connect 11k homes in the eastern town of Enschede and eventually the entire city (155k inhabitants) will be covered. "We will try to convince any doubters that copper access is not sufficient in tomorrow's world." I suspect that OPTA's 580k number (see above) does not include Enschede, which would take the number up to 735k. By the way, Dirk added a new overview (as of June) of fiber developments to the Citynet site.
• There was surprisingly little on VDSL. I feel that everybody present believes in FTTH, which makes VDSL a transitory if not outmoded technology before it is even launched.
• OPTA's acknowledgement of FTTH as the endgame is positive (in fact, it was aired before, most recently last week), but saying that 'two is not enough' is puzzling (to put it mildly). I would say: all we need is one (FTTH), which needs to be regulated. I feel that OPTA regards LLU and even bitstream access as a separate infrastructure.
• Now, if even KPN feels that PPP is the way to go, separation makes more and more sense to me. How about separating both the telco (KPN) and cableco ('Zesco') networks - which I feel could stimulate the two new network companies to build a nationwide FTTH network through some PPP/joint venture (with Reggefiber).

3. NGN (core)

Statements:

• The 21CN project started out as a cost savings measure, but grew into a complete business transformation (BT).
• We offer NGN as part of our 'Business Transformation Partner' offering (Alca-Lu).
• NGN implies cost savings, but at first a 'hump' will appear in capex and opex spend (Alca-Lu, BT). BT sees costs at a low in 2013, when the hump is coming to an end and normal growth is resumed (at a level less than half of what it is now).
• BT established BT 21C Global Venture as a way to leverage its know-how that it is acquiring, doing the 21CN project (BT).
• Apart from cost savings, NGN is all about new services (BT, Alca-Lu) for which SOA must be adopted (BT).
• Telecom New Zealand wants to be a service provider and is less interested in being a network operator (Alca-Lu).
• Altnets lack scale for NGN projects (Orange NL).

My comments:

• SOA and SaaS will be recurring themes for telcos,
• As well as separation. One could say that separation (and Saas) are ways of taking outsourcing to the extreme.
• I wonder how the BT 21C Global venture fits into the IT services market. Do they have customers yet?
• I will pound on one of my favorite subjects once more: why on earth do we see so few co-ops?

4. New services

Statements:

• Future services will include HDTV, social networking, software apps and Web 2.0. Many may not be really new but subsititutes. "New services are as yet unspecified", and business models are unclear (Analysys).
• Many new services, such as triple play, aren't really new. Blending however (like on-screen caller notification) is what we will be seeing a lot of (Alca-Lu).
• In offering IPTV, we focus on interactivity, not on exclusive content. We will offer "what is relevant for our customers" (KPN).
• We aim at personalisation (Vodafone).
• Data may actually make up for much of mobile growth decline, but IPTV will not do the same for fixed operators (Fitch).
• "The customer experience needs vast improvement." (Fitch)

My comments:

• Somebody mentioned that it is all about "owning the customer". I couldn't agree more. That is also why I question KPN's representation of WLR, which I believe distorts their net line loss numbers. Sure, WLR still adds to wholesale revenues, but the customer relationship is gone.
• I wasn't terribly impressed with KPN's IPTV ('Mine') presentation. The service will be (re)launched after the summer, but not as a premium service anymore. The UI didn't look very fancy. The feedback they had so far (the low key launch was done in May 2006) must be a long shot at what they overambitiously describe as "what is relevant for our customers".
• Blending sounds like mash-ups, in Web 2.0 terms.
• Selling to Google or KPN is one business model, and otherwise it seems to be advertising. Sure, budgets move online and can be targeted a lot better, but in the end online advertising will prove to be a cyclical market. The Broadband Incentive Problem kind of raises the same issue: in the long run, things need to be paid for, preferably in a usage based (not flat-fee) model.

5. Other

• I spoke to Orange NL and other people, who all seem to believe that T-Mobile will not dispose of the Wanadoo BB unit of Orange NL, once the acquisition is worked out. I always assumed that T-Mobile would be a mobile-only play (outside their home markets in Germany and Eastern Europe) in the US, the Netherlands, Austria, the Czech Republic. But who knows they will embrace the convergence story.
• On the side, if T-Mobile do embrace a convergence model, selling T-Mobile USA must come into play again (remember the cablecos work with Sprint and the satellite companies teamed with Clearwire, so teaming with a fixed or WiMAX operator seems hard).
• I am getting pretty fed up with people saying that the end user is not interested in technology - to the point that I start to feel that people are increasingly familiar with alphabet soup.
• On the side, WiMAX was touted by someone in the audience as a technology capable of bypassing cellular networks in large cities. I do not wish to be overskeptical about new technologies, but I think we have to be realistic. It is an emerging technology, especially 16e (there are many 16d deployments underway, including Vodafone's Malta plans). Handset range will be a major issue. At first, the technology was supposed to deliver 70-120 Mbps over a distance of 50 km. Now, 16d seems to deliver perhaps 10 Mbps over 5 km (in a NLOS situation). Imagine what the performance will be for 16e, assuming the kind of usage we see in cellular networks today. And then I haven't mentioned building the network, from construction, backhaul and interconnect up to marketing ...
• Not to end on a sour note: Xconnect is a very interesting story. Peering is a whole new way of saving costs (and enabling new services). In fact, it is like OTC trading. Actually, I included peering in my own overview of efficiency measures (including such seemingly unrelated things like DWDM, CDN, P2P, MPEG-4 and AJAX) at my Tiscali Wholesale presentation two weeks ago. Mail me for that presentation.

How to regulate near- or quasi-monopolies? (DEVELOPING)

Principles

• The market creates competition.
• Competition ...
• ... creates choice
• ... lowers prices
• ... stimulates innovation
• ... and good customer service.
• Complicated value chains require competition at every node, i.e. not just at the retail level. It is not enough to check only if retail prices are going up (as per Chicago school).
• Competition implies negotiating power, meaning there must be an alternative (at both the retail and wholesale markets) and not too high switching costs.
• In case the market failes: regulation.

The problem

• Highly concentrated marekt power among US internet majors, China internet majors and a few others.
• ISPs have no monopoly, but there are near-duopolies. Regulation brought switching costs down.
• Mobile site owners have no monopoly but switching costs are prohibitively high, creating a quasi-monopoly.
• Same for MNOs vs. MVNOs, but switching costs are probably manageable. However, being unregulated and data traffic continuing its high growth, MNOs will be less eager to offer wholesale deals in the first place.
• Internet platforms have near-monopolies (Google Search, Amazon e-commerce, Facebook social media) or near-duopolies (Android/iOS, Google/Facebook digital ads & news). There are alternatives (Bing, DuckDuckGo; Etsy; WT:Social), but are simply used very little.

Gatekeepers or 'structuring platforms' (2-sided businesses in red):

• ISPs and operators: varying power balance
• South Korean telcos (paid by consumers and possibly content providers) vs. Netflix et al bring up the case once more ("they are using my pipes for free") for content providers contributing to the cost of broadband access networks. Content providers have the upper hand and telcos can only win if the regulator steps in, because they have no monopoly on internet access.
• Fox Sports (paid by consumers and operators) vs. Ziggo. Polish investigation: do broadcasters abuse their market power? The content owner has a stronger position than the telco, because Fox's content is unique and Ziggo, as a TV operator, has no monopoly.

• Passive telco infrastructure owners: power is with the owners; they have an incentive to find new customers to not be getting income from a single customer
• Sale & lease-back constructions for passive infrastructure (esp. mobile sites) generate cash in the short term, but a huge lock-in and financial risk in the long term (generally after 15 years). Consider all the infrastructure deals from (cash-strapped or heavily indebted) telcos with the likes of Cellnex, InfraVia and others. The line between smart and not so smart is thin, where smart implies a sale of a minority stake (possibly through a spin-off or IPO). Cellnex may not be a monopolist, but the lock-in is huge.
• Wholesale can be a monopoly (such as KPN NL in fixed) or a near monopoly (when switching costs are prohibitively high, such as in MNOs hosting MVNOs).

• Internet platforms: quasi-monopolies (and duo-, oligo-), in need of sound negotiations
• Google and Facebook are paid by advertisers (in cash) and by consumers (in personal data). The value of the personal data is only limited by privacy regulations - which the internet companies are trying to circumvent.
• Amazon's e-commerce earns money from both consumers and third-party sellers. A clear case for chinese walls (if not bright line regulation i.e. structural separation). Apparently, Amazon is using information from its third-party sellers to support its own brands.
• Apple (vs. Epic Games) controls the iOS ecosystem through its App Store, whereas Google (esp. with Android 12) allows third-party app stores, besides its own Play Store. Apple demands a 30% fee (dropping to 15% for subscriptions after 1 year). Google's Fundo gets a 20% fee. Bandcamp charges a 15% fee.
• Amazon Channels is hardly a monopoly. CBS is a happy customer. The fee Amazon takes (if any) is not published.
• Peacock vs. Roku (paid by consumers and content providers). Peacock has its unique content (quasi monopoly). Roku is not a monopolist, but is a gatekeeper to its user base (quasi monopoly) and as such Peacock doesn't want to pass it by. Apparently, Roku demanded 30% of the ad inventory, but it's unclear how much they ended up with.
• ACCC vs. Facebook, Google: forced negatiations for the paid use of news snippets from news media (paid by consumers and possibly search engines and news sites), according to the News Media Bargaining Code. Internet services may claim fair use and directing traffic to news media, the ACCC look at it a Neighbouring Rights. The news media (supported by the regulator) thinks the internet services should pay, probably for the simple reason that they make money off of the snippets. In France, a court will decide on whether the regulator has the power to force such negotiations.

Forces

• Free market
• Abuse of market power, monopoly, duopoly.
• Allowing competitors to thrive, Prisoner's dilemma.
• Network effect (the bigger the network becomes, the easier is it to attract new users), winner-takes-all, first-mover advantage, competitor can't enter the market.
• Lack of antitrust enforcement.
• The risk of outsourcing distribution to a wholeale monopolist; theaters were split from studios.
• One-stop shop, lock-in (consumers & businesses become dependent on platform, no option to shop around, platforms set unfair ToS), high switching costs, high entry barrier.
• Peronal data portability will lower switching costs and thus entry barriers.
• Economies of scope allow easy expansion into adjacent areas.
• Two-sided business model, double hats, chinese walls, structural separation
• Fair use (content)
• Forcing a company break-up to make the parts become competitors. Case in point: Facebook's acquisition of Instagram (could have been fierce competitors). Acquisition only to be allowed if expansion cannot be realised organically. A break-up shouldn't be enforced only to destroy it.
• There appears to be a level of collusion among the platforms (Google has an unchallenged monopoly in Search, Gmail, Google Docs). But in certain areas they are challenging each other (Amazon in digital ads; Apple in maps; Google, YouTube, Facebook and Instagram in e-commerce, Facebook in gaming, Facebook in Hosting Services).
• There's a fundamental (political) choice that everybody needs to make: may my personal data be used to a. Improve the service (Google Search, recommendations), b. Enable targeted advertising. Further: Can personal data by anonimised/pseudonimised? It looks like a and b require converting back to personalised data or otherwise service improvement and targeted advertising doesn't work.
• Do the 'free' services need to be free? How much would Facebook (see it's reported ARPUs) and Google need to charge for an ad-free service? (See also price differential between tiers with and tiers without ads at VOD providers.) Without use of personal data, no personalisation or service improvement would be possible. hould platforms be forced to offer a data and/or advertiing free tier/variant? Also: are there options for consumers to NOT agree to the ToS and still use the service? There is a risk of ToS becoming some sort of private regulation.
• Platforms provide great services in exchange for personal data.It makes them as powerful as a state-within-the-state. The political issue being: is that a bad thing?

KPN Capital Markets Day, 7 November 2023: preview

KPN is organizing a Capital Markets Day on November 7. We expect the board to unveil plans for the period up to and including 2026 and to provide a glimpse into the years to come, possibly up to 2030. The fiber optic renovation is nearing completion, which will have a major positive impact on the financials. However, the network is never finished and further evolution is on its way. Partnerships will be central to this. In the meantime, competition is and remains the greatest risk.

Competition in mobile consists of the other two mobile operators and possibly entrants in Private Wireless. In fixed, fiber optic brings new players to the market. Consolidation is obvious, but there are different scenarios. In services, OTT still drives cord cutting, mostly or communications, but or TV/video as well.

Partnerships are likely to be central in areas where KPN is too small or lacks knowledge to develop solutions itself: ultra-rural coverage, cybersecurity, venture capital and developing a network-as-a-service platform. Where KPN lacks scale, such as in ICT customization (tailored solutions and serving verticals such as healthcare and transport), acquisitions are an obvious solution.

KPN's previous Capital Market Days focused on growth and simplification:

• May 2011: Strengthen - simplify – grow
• February 2014: Building on strong fundamentals
• March 2016: Raising the bar
• November 2018: Organic sustainable growth
• November 2020: Accelerate to grow
• November 2023: Building for the future???
  

General strategy

• Netwerk evolution:
  
• Fixed: FTTP and a partnership (e.g. Starlink) to cover the remaining ~30k ultra rural addresses.
  
• Mobile: 5G/3.5 GHz plans, following the 2024 auction, will mostly be about upgrading the 5G network's capacity. Ultra-low latency may form the basis for new services, e.g. in IoT.
• A jump on the AI bandwagon could look quite differently, if SKT is followed, or rather Iliad.
• New tech such as digital twins and virtualisation will serve network control and maintenance, help enable zero-touch and cloud-native networks.
  
• Network are increasingly seen as platforms-of-platforms (or: network-as-a-platform), for traditional (telephony, television) and new (IoT, etc.) services. Network API's are coming to market to allow developers and enterprises to take advantage of network and subscriber data, see e.g. TIM, DT/Ericsson, Nokia/Dish and BT/Google Cloud.
• Services:
• In fixed, most telcos have embraced the Super Aggregator status for access to and billing of media services (streaming video, music, other). In mobile, it's still early days. Proximus is trying to translate the Super Aggregator to a Super App strategy, for all 'daily services' (Proximus+).
• Some telcos are modestly in the business of developing apps themselves (Proximus, Orange, Verizon). The entry-barrier is low, but it remains a challenge to compete with Big Tech and specialised developers. Maintenance is complicated for a roster of apps (for a range of operating systems) that need to be updated regularly.
  
• Cybersecurity and quantum computing are very important areas and could involve partnering with other telcos. After all, it makes no sense for each telco to develop these solutions on their own.
• Branding could use a little more clarity, now that a single-brand strategy has been abandoned, with current brands KPN, Youfone (takeover pending), Solcon, Simyo, XS4ALL (no longer for new subscribers), Cam IT Solutions, Inspark.
• What is so hard devising a proper loyalty program?
• Financial targets:
  
• KPN's fiber renovation is finally nearing completion. Taking around 30 years in all, it must be regarded a once-in-a-century operation. Benefits will need to be updated, in terms of opex (maintenance, energy, support), revenues (ARPU, customer wins) and capex. When the fiber program was relaunched (Capital Markets Day 2018), KPN said it aimed for 80 percent coverage, which excluded the coverage at the time by third parties (mainly Delta Fiber and other cablecos). With KPN increasingly overbuilding competing fiber operators (such as in Oss), the 20% figure will drop to a lower level.
• The fiber impact will be positive for revenues, margins and free cash flow, exacerbated by sunsetting more legacy systems (copper, 2G, 3G, PSTN, ISDN, etc.). Capex will likely drop below EUR 1b per annum (currently EUR 1.26b), net free cash flow (after interest and tax) may rise above EUR 1b per annum (currently EUR 860m). Still, the impact of higher interest rates on the interest bill is not to be overlooked.

Threats and opportunities:

• New entrants
• Mobile: the 2024 3.5 GHz auction will set aside 100 MHz for Private Wireless. Citymesh is a likely candidate to enter the market.
• Fixed:
• Wholesale-only operators (neutral hosts) of the active layer in fiber networks have already entered (Fiber Crew/Jonaz, Fiber Operator, Weserve).
• Delta and ODF could team up to build the Third Digital Infrastucture. This would put pressure on occupancy rates, but with fierce competition price increases would be unlikely. Ultimately, a shake-out would follow.
• Alternatively, Delta and ODF could acquire Ziggo's HFC-network to construct a Second National Fiber Operator. In this scenario, VodafoneZiggo's retail operations would be combined with its mobile network, mirroring Odido (formerly TMNL).
• FWA is increasingly likely to compete with FTTH, especially in ultra rural areas and in places where KPN deploys PON technology (no physical unbundling and instead high wholesale tariffs). Odido would be very well positioned.
• Disintermediation:
• Communications (Meta, Microsoft) and content (Netflix, Amazon, Disney, WBD, etc.) have already largely gone OTT.
• Hyperscalers have claimed large sections of the cloud market.
• Smart TV manufacturers offer an alternative TV-platform.
• There's always the risk of NOT doing something. New opportunities that must not be missed may include the Super App (Proximus+), speed-based pricing in mobile or FWA.
• Outsourcing carries the risk of losing indepth network knowledge and capabilities. Perhaps KPN needs to clarify where it stands.
• Selling real estate, even if this is not core business, is not wise. It exposes the company to hefty annual price increase and gives it a fake sense of independence. Migrating to a different real estate owner may be possible in theory, but the lock-in is such that this is near impossible. Selling real estate only makes sense in case of an immediate need for cash.
• Structural separation is meant to create two businesses that can each improve their growth profiles. It can be implemented in two different ways: NetCo/wholesale versus ServCo/retail, or Fixed/wholesale versus Mobile/retail. The latter is becoming harder for KPN, now that it is integrating fixed and mobile at the core network level.
• APG could, from a value point of view, swap its 50% Glaspoort stake for roughly a 10% stake in the entire fixed-line network. Who knows, what could happen from there.
• Areas where KPN lacks scale or capabilities:
• ICT (Tailored Solutions).
• Verticals: health (KPN Health), possibly transportation.
• KPN Ventures: its portfolio is of limited size. Theoretically it would be better to participate in a larger and similar investment portfolio, such as DTCP.
• Cybersecurity is of the utmost importance and it doesn't seem to make sense for every telco to develop a cybersecurity unit on its own. Perhaps a partnership would be preferable.
• Takeover
• An LBO can be ruled out, theoretically resulting in a share price discount. It was tried by EQT and KKR, but it only led to KPN creating the option to issue preference shares with high voting power, combined with government oversight.
  
• Only a friendly takeover will be realistic.