Thursday, November 27, 2008

KPN versus Telstra: driving volumes versus prices

KPN's FTTH proposal and Telstra's NBN bid couldn't be further apart. It's open access thinking (driving utility rates and thus volumes) versus denying that telecoms is a volume business (charge as much as possible for the service). Of course, it's also FTTH versus FTTN.

Let's hope the Australian contenders (Optus/Terria, Acacia, Axia NetMedia) will be able to put aside their differences and join together. After all, they are all open access aficionados as well.

Telstra is looking to charge 30 AUD/mo for a 1 Mb/s connection. How does that compare to KPN? We will have to make some assumptions. Take a look at the layered network:
  • Passive: to be regulated. Wholesale prices: 12-15 EUR/line/mo (capped at 14.50-17.50 EUR/line/mo, and subject to CPI corrections), excluding VAT. This all derives from the current Reggefiber pricing.
  • Active layer: no regulation, but price discrimination is not allowed.
  • Services: digging around at OnsNet Nuenen, OnsNet Eindhoven and GNA (Amsterdam) should provide an idea of where retail prices may end up, since they are each munifiber projects with Reggefiber involved. A triple play costs anywhere between 45 and 125 EUR/mo. A wide margin, but the high-end is somewhat of an outlier. KPN so far has more expensive triple play packages available: 65 EUR/mo, which includes a 30/3 Mb/s connection, and all the way up to a very asymmetrical 60/6 Mb/s service for 110 EUR/mo. This grants KPN some room to drop its prices once the service is launched nationwide.

It looks like triple play retail pricing will be in the 45-65 EUR/mo range, with KPN probably using its brand to charge tariffs at the upper end. Still a great deal compared to Telstra's very expensive single play.

Sunday, November 23, 2008

Wither FTTH regulation?

Last week, KPN's FTTH plans were leaked - possibly to test investor appetite for large-scale FTTH investments. Officially, they are testing demand and will decide 09H2 to go either FTTH or FTTC. Whatever is the case, the coming week will be eventful. Not only does it have Australia's NBN deadline, OPTA (the Dutch NRA) will publish a proposal on rulemaking regarding FTTH Monday night (at 7 PM).

It will be very interesting to see how they plan to regulate this huge effort, that could entail re-monopolisation of the market if it is not regulated well enough.

We have been in favour of structural (ownership) separation to deal with the two basic issues at stake: competition and investment. However, KPN has been able to stave off any threat like that by offering open access to rivals. It was also helped by the fact that competitors' commitment to the Dutch market has always been a bit uncertain.

Now James picked up on one of the basic reasons to go to structural separation: attract outside funding.
KPN will have 41% of the Glashart joint venture, but Reggefiber's 59% should not suggest that it will shoulder the majority of the investments because it simply can't. Enter third parties ...
If KPN is allowed to spin-off network assets into the joint venture, it will start to look more and more like the Singapore way.

If Telstra is structurally separated, there is no more Telstra ...

Conventional wisdom is: an incumbent building a NGN equals re-monopolisation; it therefore must offer open access to rivals. But if it has to offer open access, it has no way of earning a decent return on NGN investments.

So much for conventional wisdom.

Just a few days left for the National Broadband Network (NBN) RfP deadline (November 26) and Telstra is rattling its guns. No structural separation, or else we won't bid. It looks like Telstra wants to have monopoly-style rights, or else it is afraid it will not be able earn a decent return.

Let's poke some holes.
  • If Telstra is structurally separated, THERE IS NO MORE TELSTRA (which is something that must be a worrying idea to Mr. Trujillo). I'm quite sure the Netco that will arise from the ashes will be more than happy to take a AUD 4.7bn grant to expand its network.
  • Open access is for the good of everybody. The more the merrier. More service providers means: more services, more marketing dollars, more take-up, higher utility rates.
  • It would not be good news if Telstra's existing network assets were excluded from the NGN. There would be excessive network duplication.
  • They really need to take the plan a little bit further and aim for FTTH instead of FTTN.
The solution is quite simple - on the drawing board, at least. Put all those network assets and available funds together (Telstra, Terria, Acacia, Axia NetMedia); invite third-party investors in (telecoms stocks are hot these days); bring in government funds (Keynes-style).

Put differently: if Telstra refuses to bid if it is structurally separated, then the only way to make sure that Telstra's network assets are included in the NBN is to first structurally separate the company.

Thursday, November 20, 2008

FTTH depends on regulation

The word is out, but no big surprise for our readers: KPN and privately held Reggefiber will build out FTTH nationwide in the Netherlands, spending EUR 6-7bn over 5-7 years. Vincent Dekker gets the credits for digging in. KPN and Reggefiber are planning a joint venture Glashart (originally Reggefiber FttH), with KPN taking a 41% stake + option to a majority.

Just a few comments/clarifications:

1. Conditions:
  • NMa (competition authority) approval: without it, there's obviously no deal. Also, the combo would risk to be regulated at the retail level. That's a no-go too. Approval seems to be close.
  • OPTA (the NRA) regulation: due Monday, open for a brief two week consultation. KPN and Reggefiber will realise they have to play nice, or else risk to be structurally separated.
2. Numbers:
  • Capex: 1000 EUR/home seems reasonable for 'just' the passive network. No more DSLAMs, no VDSL2 - that saves a lot too.
  • Timeframe: current run rate is 200k homes/annum, with room to move to 600k. That would still require 12 years for the entire 7.2m homes. I suppose they will target 75% or so, and see about the rest later (wireless?).
More next week.

Friday, November 14, 2008

Axia NetMedia: take a look

Axia NetMedia reported Q3 results. They are leading the OpenNet consortium (with SingTel and a number of local firms) that won the NetCo business (passive fiber network) for the Singapore FTTH network (NGNBBN, if you will).

Axia takes care of planning, designing and operating open access broadband networks. It's a pretty small company, but it has some reasonable growth, positive earnings, no long-term debt and a pile of cash.

Some interesting points from the release:
  • Axia is also qualified to respond to the second RfP, to build the active layer (OpCo). The network is supposed to be full open access and vertically/structurally separated. I suppose the government deal with these conditions by limiting anybody to a maximum of 30% consortium share. Submissions are due December, the winner will be selected during 09Q1.
  • Axia also intends to bid for the NBN in Australia. Responses are due November 26 and the government has 8 weeks to select the winner. Axia expects to respond during 09Q2.
  • Axia has 4 proposals oustanding in France. Decisions are expected by the end of this year.

Thursday, November 13, 2008

FTTH is coming to New Zealand

Good times are coming to New Zealand. The National Party won last weekend's elections, so now the NZD 1.5bn plan to bring FTTH to 75% within 6 years is becoming a reality. The government will help to put together PPPs (public/private partnerships) to build an open access multi-layered network, in order to have maximum competition and "avoid excessive duplication of infrastructure". The government will launch a tender and Telecom NZ will participate.
To quote National's spokesman (and possibly the new Minister of ICT in John Key's cabinet) Maurice Williamson:
"... the government builds a road and everyone has the right to drive on it. Fibre optic is the road system of the 21st century".

Communication 2.x

How long has it been since a great new Web 2.0 service was launched - or bought for a crazy amount of money? Has innovation come to a grinding halt?

Take a look at Twitter or LinkedIn; seem like the latets fads, but they have been around for quite some time (Twitter mid 2006, LinkedIn launched May 2003).

Anyway, innovation is still happening. Here is some (getting them to work isn't always easy):
  • Mjoy. Free SMS to any fixed or wireless phone. Ads will appear on the mobile portal, not in any message.
  • Dial2Do. Launched April 2008 in the US and comes to 18 more countries today. Sign up, dial a 'local' number and speak. Dial2do will translate your message into an email, a Twitter message, an SMS, and more.
  • Gmail voice and video chat. Goes without comment.
  • YouMail. Personalised voicemail greetings, and more.
  • Yotify. A little like Google alerts. Create targeted 'scouts' that'll send you hourly/daily email updates from specific sites.

Wednesday, November 05, 2008

The battle of the ISPs

Yesterday at my new employer an interesting newsbit was commented on by one of my colleagues (it's in Dutch, so sink your teeth in it, or alternatively try to get through this Google translation). Quite interesting, how ISPs have the opportunity to distinguish themselves from the rest by providing higher quality IP video streams. Of course, the question remains if ISPs have sufficient pricing power (industry sources tell me ISPs typically pay 3 c/month/channel/subscriber for most digital channels, but as much as 37 cents for the catch-up channel Uitzendinggemist).

Whatever the case is, there seems to be yet another opportunity for Daily Media (the PC-to-TV set-top box company, full coverage here). Working with national TV and joining forces with Daily Media, ISPs could be distributors of the Daily Media box and make everybody happy in the process.

Paul Budde for President

The battle over Australia's National Broadband Network, including an AUD 4.7bn subsidy, is drawing to a close - and it's not getting any prettier. Telstra wants to bid, but threatens not to, should the government structurally separate the company. The main opponent is the Terria consortium, which has had a few defections recently and seems to have trouble (I wonder why) getting it's financing in order.
Yesterday, at the Broadband World 2008 conference in Sydney, Telstra played hardliner once again by not taking part in a panel, apparently for the simple reason that Paul Budde was there too - and as chairman, mind you. Budde is a firm believer in structural separation, which sort of (does it?) explain Telstra's actions. I have to give credit to Paul, not just for his views, but for taking an Obama-esque stance at the conference. Writes iTnews:
Budde implored delegates not to ignore or ridicule Telstra in the remaining part of the process. "It's not in our interest to ignore Telstra," he said. "Telstra will still be a critical part of telecommunications in Australia. We all need to sit down and address the seriousness of the issues brought about by the NBN and the ways to go forward." Hear hear Budde!

Sunday, November 02, 2008

Update: FTTH and new job

Tomorrow I will start my new job at Telecompaper. It will be very exciting to board a mothership outside the financial services industry.
It remains to be seen what will happen to this blog. Posting may be more irregular, but one thing will not change: independence.

Also, it's a good time to publish my updated and expanded FTTH & Broadband database. Do take some time to flip through it. I hope it helps.
It has 11 different sheets, which I think are pretty self-explanatory.