Saturday, April 25, 2009 sold, but not to, the leading e-commerce site of the Netherlands, was finally sold. It started life as part of Bertelsmann Online and is now becoming part of the Cyrte investments portfolio.
Two years ago, I argued that it was a great fit for, much like Amazon, is venturing beyond books into electronics and it too has fierce local competition from an eBay affiliate: (classifieds).

Financial details of are not disclosed, but let's see how they compare:
  • Sales 2008: Amazon $19.166bn (+29%), Bol EUR 224m (+31%). This makes Amazon 65x larger (at current USD and EUR rates). Growth rates have pretty much converged.
  • Employees (at present): Amazon 20,600, Bol 230. On this metric, Amazon is 90x larger.
Of course, the differences are significant. One could say that is an early stage Amazon look-alike. It lacks a global presence, digital downloads and streaming, the Kindle e-book reader (including the WhisperNet MVNO), wholesale services (fulfillment) and web services. It doesn't seem to have the scale to ever match Amazon when it comes to innovation, which is essential in a world that steadily migrates away from physical products.

Amazon's market capitalisation is $36.3bn and it has $0.4bn in long-term debt, a total of EUR 27.7bn. One can only hope that Cyrte paid less than Amazon's 2x sales multiple valuation, which would translate into a maximum of EUR 400m.

Tuesday, April 21, 2009

Deutsche Telekom leads: the crisis is kicking in

Deutsche Telekom published preliminary results for the 09Q1 quarter. Results were due May 7 (which is now set for full results), which implies that management had something meaningful to disclose that couldn't wait another two weeks.

The US, the UK and Poland apparently are the cause of the recent deterioration. Less travel means fewer roaming revenues. Calling minutes in the US declined by a whopping 8%. And T-Mobile UK will take an impairment charge.

Is the telco industry immune to the crisis? I don't think so, but it kicks in with a 2 year delay.

Tuesday, April 14, 2009

True innovation arises at the active layer

My daughter was out horseback riding over the Easter weekend. Her teacher is new to the village where we have our country home and the business model deployed is really interesting.

The teacher rents space from an old farmer, who decided to take it a little easier. He was never into horses; his business was both milk and growing corn and wheat. Now, all he has left is a bunch of pigs. In other words MoF (milk over farm), PoF, CoF and WoF, but no HoF. He is still in control of the farm (the passive network of meadows, water, fences, etc.) but the young woman who co-locates at the farm, brought her own horses (active equipment, so to speak). She also does the teaching (the retail services) and the whole thing really works well. Right now, she is the only person co-locating, but I suppose the farm is big enough to be able to host a few more animal (horse, donkey, whatever) keepers. Or a service provider who knows how to teach the pigs a few tricks and sell the service.

So here is what is going on:
  • Complete separation of passive and active elements.
  • Vertical integration of active elements and services.
  • No cannibalisation of legacy income streams. All interests are perfectly aligned.
  • It remains to be seen what will happen once the farmer decides to allow another (horse) keeper to co-locate at his farm. There doesn't seem to be a reason for the farmer to keep the newcomer at a disadvantage, so it looks like this will lead to some competition.
Catching up on some old newspapers, a story about the Dutch railway system caught my eye. There has been structural separation between the passive elements (tracks, safety system, etc.), which are controlled by state-owned ProRail, and the active elements (stations, other real estate), owned by NS. However, there is still integration of the active level and a service provider (NS). Also, NS provides wholesale services to competitors.

Generally, the model seems to be working fine, but recently, new service providers have started to complain. They have a hard time competing with NS because the latter controls the active layer and provides wholesale services. Newcomers, that typically run services over regional lines, are at a disadvantage viz-a-viz NS as a service provider when it comes to renting office space at stations, the use of stations for consumers (competing trains are often at the far end of the platform, sometimes hundreds of meters away) and infomation to travellers.

A committee has proposed to take away wholesale service provision from NS and create a new company for that purpose or ask ProRail, the network owner, to perform this service.

To summarize:
  • Complete separation of passive and active elements.
  • Vertical integration of active elements and services.
  • Full cannibalisation because there is just a single service: travel. The 'pie' most likely isn't growing very much, unless service levels at competitors are higher, which may draw travelers away from their automobiles. Right now, this doesn't seem to be happening, as witnessed by competitor complaints. To be sure: the pie is growing somewhat because competition has urged NS to raise its level of service.
  • Vertical integration of the active elements operator and the dominant service provider seems to be an inhibitor for the system to really work. (Art Price would say: You can't compete with your customers.)
  • Adding wholesale service to ProRail would effectively collapse the passive and active layers into a single network layer. It doesn't seem to be a bad idea, because there doesn't seem to be room for a competing active operator anyway.
Transporting these events to the world of telcos, my conclusions would be:
  • Meaningful innovation arises at the active level (HoF is new to the farm). Innovation at the service level probably has more to do with service levels (railways are about taking people from A to B - no more, no less).
  • Newcomers co-locating compares to xDF access (MDF, SDF, ODF).
  • Newcomers not in control of active elements, are sold wholesale broadband access (WBA) by the operator.
If co-locating horses is like buying xDF access from the farmer (owner), and if providing travel services is like buying WBA from NS (operator), then what would it be to ...:
  • ... buy WBA access from the horse keeper (operator)? A newcomer wouldn't bring his own horses. Service levels may rise, but innovation is questionable. If a new service provider wants to sell new services, it is dependent on the horse keeper to teach the animals new tricks. But then the new tricks could become available to all service providers.
  • ... buy xDF access from ProRail (owner): A newcomer would bring along his own stations. It could be possible in theory, because many stations are too small anyway and serve as bottlenecks, degrading service levels. How about this for a stimulus plan?
Final conclusion:

If there is scope for true innovation, xDF access must be available (wholesale service provided by the owner); if innovation is merely about raising service levels, WBA is sufficient (wholeale service provided by the operator).

That's the question!

Tuesday, April 07, 2009

Australia goes structural separation for near-nationwide FTTP

After Singapore and New Zealand, now it's Australia to help fund a National Broadband Network. It will be FTTP after all: FTTH + FTTO. (There are 21.5m Australians in 7.5m homes, but how many offices? - anybody?)

Here are the specs:
  • Ownership: government, managed at an arm's length; majority i.e. at least 51%; may not be sold until 5 yr after launch; private investment expected; any RSP max 15%.
  • Technology, topology: FTTP, max 100 Mb/s, to cover 90% (all towns of >= 1k people), elsewhere wireless/satelliet, 12 Mb/s.
  • Total cost: AUD 43bn (initially AUD 4.3bn), funding through Building Australia Fund and the issuance of Aussie Infrastructure Bonds (AIBs)
  • Time-line: 8 year roll-out; simultaneously in metro, regional and rural areas from early 2010; first national backbone and Tasmania (July 2009, to be built by Aurora); FTTP mandatory in greenfields from July 2010.
  • Jobs: 47k jobs, 25k staff every year (peak: 37k).
  • Government strategy: facilitate access to land, poles, ducts; e-health, e-learning; FTTP required for greenfields from July 1 2010.
  • Regulation: consultation on measures considered at Telstra: access, functional separation, horizontal separation; response due June 3 2009.
Questions remaining:
  • PON (effectively 2-layer; no unbundling, just WBA) or P2P (3-layer, WBA or ODF access) network?
  • How about in-home wiring?
  • Role of Telstra: horizontal and/or vertical separation; access to infrastructure; spin-off assets into the new company?
  • Pricing?
  • Penetration targets?
  • Will 1 Gb/s come into play?
Remarks: similarities to Singapore (PON) and New Zealand (probably P2P - see page 26):
  • Clear choice for FTTP over FTTN.
  • Mixed ownership of the passive layer.
  • Open access.
  • Structural separation.

Sunday, April 05, 2009

Singapore: 100/50 Mb/s triple play for under 40 EUR/mo

IDA has ordered Nucleus Connect to construct the active layer (switches and routers, including network termination equipment (NTE) at the subscriber) of the Singapore NGNBN (Next Gen NBN). A presentation is here.

Here are the specs of the entire network:
  • Part of the iN2015 policy.
  • FTTH PON network, in the familiar 3-layer model. Structural separation between passive and active layers, operational separation between active layer and any RSP owned by the same company (i.e. StarHub). Open access (OA) at layer 2 and 3 (slide 8).
  • Passive layer to be built by OpenNet (SingTel 30%, Axia NetMedia 30%, SP Telecomms 15%, Singapore Press 25%). Subsidy SGD 750m. Residential wholesale tariff 15 SGD/line/mo, business 50 SGD/line/mo, no connection fee.
  • Active layer to be built by Nucleus Connect, a separate StarHub company. Subsidy SGD 250m. Tariffs (include OpenNet fee; all in SGD/line/mo): residential 100/50 Mb/s for 21, 1.0/0.5 Gb/s for 121; business: 100/100 Mb/s for 75, 1/1 Gb/s for 860.
  • Open access to retail service providers (RSP).
And here is the timeline:
  • Nucleus to be incorporated April 17 2009, RfP to formally close October 2009.
  • Service launch April 2010.
  • Coverage 60% by end of 2010, 95% by end of 2012.
  • Universal service obligation from 2013.
  • 2015 targets: 330k residential subs, 80k business subs.
Some remarks:
  • Pretty much fits my ideal for a FTTH network, featuring structural separation of the passive network. See what is does for ownership and bringing in third-party investors. SingTel may spin-off network assets into OpenNet. It goes even further than New Zealand (structural separation only once Telecom NZ gains a majority share) or KPN/Reggefiber (functional sepapartion 'only'). It is striking to see how functional separation in the NL is defended by referring to the competitive situation (nationwide cable coverage), which has nothing to do with it - see Singapore, where structural separation is forced because the network needs to function properly, not because there is competition from some other network.
  • Too bad it's PON, not P2P (slide 24).
  • The 1 Gb/s offering is neat, though.
  • The residential offering is asymmetrical. We are seeing more of this, because FTTH needs to be positioned above DSL (i.e. more expensive), including business DSL.
  • The 2015 targets appear to be quite modest, for a state that is home to 4.8m.
  • We'll be on the lookout for RfPs to equipment manufacturers. RSPs are suggested to bring their own residential gateways (see slide 26). The NTE will allow end-users to get services from several RSPs at once (as limited by the number of ethernet ports on the NTE, I suppose).
  • The 100/50 Mb/s service will be 21 SGD/mo for the RSP (just over 10 EUR/m0), the 1.0/0.5 Gb/s service will be 121 SGD/mo (60 EUR/mo) at the wholesale level for RSPs. The retail price for a triple play will add a margin plus the cost of both TV and telephony. It looks like an extended TV package is 37 SGD/mo, and telephony (line rental, unlimited local calls) is around 10 SGD/mo. The fast triple play would then be around 68 SGD/mo (EUR 33,50), the ultra-fast triple play 168 SGD/mo (EUR 83), before earning the RSP a margin. I suppose the triple play will be commercially available for under 40 EUR/mo.
  • MobileOne lost this round, but has stated it will be a RSP. Sureley SingTel will be one too.
Next in line: Australia is due this week to award its NBN contract.

Thursday, April 02, 2009

Banking as a value-added service

My friend John posted on Tesco's recent effort to get into banking. It's in Dutch, and here's a Google translation into English. It's interesting an a number of accounts: using your network as a platform to launch yet another service; enter a new market without cannibalising a legacy revenue stream; commoditisation. Sounds a lot like IP and the possibilities it creates. If somebody would add the element of sharing (something to the order of Revolution MoneyExchange), it could very well be banking 2.0.