Ziggo: stepping into the same marketing pitfall plaguing the FTTH market

Cable marketing against FTTH is based on services, not infrastructure. This makes sense for the simple reason that consumers want services, not infrastructure. They couldn't care less about the underlying network. As long as the services are great. The network is the operator's problem. If it's broke, they will fix it.

FTTH providers base their marketing on infrastructure, and they appear to have some success in making the network the consumer's problem. "You want a future-proof network." Or: "gimme fibre". But it makes no sense from a marketing point of view.

Now, Ziggo, for its Ziggo Mobile marketing, is stepping into the same pitfall. They focus on infrastructure (WiFi) in their marketing instead of services.

What both FTTH providers and Ziggo Mobile should focus on is services. The network message should be directed to their shareholders. "Look, we are using superiour infrastructure, which reduces our opex."

Lessons for Ziggo:

• Fixed:
• Keep up the good work in the fixed-line area. Capex will keep rising - not the consumer's worry, but the shareholders' worry.
• Maybe give FTTH another thought.
• Mobile:
• Refocus Ziggo Mobile's marketing. Stop talking about WiFi. Talk about price instead, because lower opex can and indeed will be passed on to consumers.
• Reconsider Ziggo Mobile's network. WiFi is for off-loading and indoor coverage. But maybe LTE-2600 can be the core of the service offering. Cancel the MVNO on Vodafone. There's nothing like owning your own network.

TD-LTE: an introduction

TD-LTE is an interesting area. Spectrum is cheap and lends itself very well to data traffic. TD-LTE may also present an upgrade path for WiMax, possibly leading to a merger of LTE and WiMax. Touseef Ahmed of Mobile Broadband has been friendly enough to make an intro into the topic, that is presented here as a guest post.

Defining TD-LTE:

LTE (Long Term Evolution) is the fundamental and primary technology for the development of 4G technology, which is an evolution of 3G networks. TDD (Time Division Duplex) version of LTE is called TD-LTE. It was developed by China Mobile in the recent years.

TD-LTE explained:

TD-LTE allows carriers to make use of unpaired spectrum that many of them already own. Compared to the previous standards GSM, EDGE, etc., TD-LTE's commercial release time period is very short, due to its later addition into the standards.

There are some essential similarities and differences between TD-LTE and classic LTE. Basically LTE has the following characteristics:

• Much faster upload and download speeds than the 3G.
• It can reach download speeds of over 150 Mbit/s and upload speeds of over 80 Mbits/s.
• It has a larger cell size where a single LTE cell tower can cover upto 100km. Although its size will be greatly diminished in urban areas, it is still a lot better than 3G.
• It can easily be upgraded as it was developed with the intention of making the implementation of upgrades easier down the line.
• It has a great advantage of being compatible with existing standards.

Differences and similarities between LTE and TD-LTE:

• They run on different bands of wireless spectrum. But the part of spectrum that carries the TD-LTE signal is a lot cheaper and has much less traffic.
• LTE and TD-LTE are so similar that both the networks can be accessed by the same chip, which is easier for handset manufacturers.
• 4G, WiMAX standards are not compatible with LTE, but compatible with TD-LTE.

TD-LTE technical specifications:

• TD-LTE is specified to operate in the frequency range of 1850 to 2620 MHz.
• It uses the same MIMO (Multiple Input, Multiple Output) scenarios.
• There are two frame configurations, each with an overall length of 10 milliseconds and divided into 10 subframes as shown in the figure above.
• That is, the transmitted signal is organized into subframes of 1 millisecond.
• There is only one single carrier frequency and the transmissions (uplink and downlink) in the cell are always separated in time.

TD-LTE frame structures (see figure above):

• The 5ms version has two special subframes when compared to one in the 10ms version which provides greater chances of uplink/downlink flexibility.
• The frame can be dynamically configured to any one of the above depending upon the transmission requirement.
• Each one millisecond downlink subframe contains blocks of data called “Resource Blocks” meant for a number of different users.
• Uplink subframe contains blocks of data from the users to the Base Station.
• The specified latency time is 5 ms or only half a frame for small data packets.
• The current system is made such that the stationary or pedestrian users or the low speed users experience operations done at the highest speed.

Advantages of TD-LTE:

• There is no need to develop new devices for using TD-LTE. It's enough to add TD-LTE support to the existing devices.
• There is a lot of TDD spectrum available and it is cheap in cost.
• The increasing availability allows transition of WiMAX (Worldwide interoperability for Microwave Access) operators to TD-LTE using the same allocated spectrum.
• Industry commitment is great without any limitations.

Future of TD-LTE:

TD-LTE will bring in new challenges to developers and vendors of design. New schemes, new configurations, higher system bandwidths, higher system capacity, lower latency are some of the expected challenges. There is a prediction that there will be 30 to 80 million subscribers and over £70 billion in operator revenues within 5 years.

FTTH and LTE help increase focus on wholesale

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

Corporate:

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

NGN:

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

Wholesale:

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

OTT:

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

Conclusions:

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

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

LTE breakthroughs coming

Three simultaneous efforts aimed at bringing about technology breakthroughs in wireless technology. LTE faces an uphill battle, because the shared nature of wireless technology forces upgrades to bring fiber ever closer to subscribers. Unless of course we are having a number of real breakthroughs here. I hope 'breakthrough' is the superlative to 'groundbreaking'.

• BuNGee, as reported here: "The current next-generation technologies LTE and WiMAX support a mere 100Mbps/Km2 in ordinary cellular deployment. This is insufficient, in particular in dense urban areas where the market demand for wireless broadband access is the highest, thereby seriously jeopardising the wide scale uptake of IMT-Advanced technologies. BuNGee’s goal is to dramatically improve the overall infrastructure capacity density of the mobile network by an order of magnitude (10x) to an ambitious goal of 1Gbps/Km2 anywhere in the cell – thereby removing the barrier to beyond next-generation networks deployment. To achieve this objective, the project will target the following breakthroughs: 1. unprecedented joint design of access and backhaul over licensed and license exempt spectrum;2. unconventional below-rooftop backbone solutions exploiting natural radio isolations;3. beyond next-generation networked and distributed MIMO and interference techniques;4. protocol suite facilitating autonomous ultra-high capacity deployment.
• NTU-NI Wireless Research Programme, as reported here: "bring the speed and quality of wireless network communications up to par with that of wired communications…[and] to develop wireless devices that offer ultra-high-speed mobile broadband services at virtually zero cost to the user"(...) "develop the next-generation wireless communication technologies which are cheaper, faster, more reliable and more pervasive." "(...) next generation of wireless communication technologies that are able to relay radio signals and scan for available 'holes' in airwaves without interfering with the incumbent users." "This project will not only bring about a technology breakthrough; it will also have a profound impact on current business models and inspire new designs for various wireless applications for the benefit of both mass-market and military users."
• Alcatel-Lucent announces 'breakthrough innovations in wireless IP' here, for a press conference March 18, "to announce groundbreaking enhancements to its end to end LTE solution".

Mobile broadband is threatening Israeli ISPs

An ancient question is gaining relevance: will mobile broadband be able to replace fixed line broadband?

At first glance, the answer could be no. The bandwidth difference between fixed and mobile networks remains large. In fixed networks, 1 Gb/s is a reality now in Hong Kong and Lattelecom is working toward half of that by the end of the year. In mobile, Telstra is leading the pack with 21 Mb/s and upgrading to 42 Mb/s later this year. That's still a large difference and it doesn't look like it will be getting any smaller soon, in a relative sense (Lattelecom already talks about 10 Gb/s, and LTE is some years off).
However, without a video component, mobile broadband looks more and more like a fixed line replacement. HSDPA USB modems have come to the market and gateways are avaliable for connecting up to 4 PCs to the mobile network. The addressable market could be limited (probably business travelers) as broadband is becomig pretty universal and heavy video consumption or P2P file-sharing is not going away (so, giving up on your fixed BB connection doesn't seem realistic). Also, mobile broadband carries much higher opex than fixed broadband, I would suppose.

Now, in Israel operators are asking the government to prevent mobile operators from providing internet services. According to this article, Partner and Cellcom are trying to sell mobile broadband services through a gateway. The operators crying foul are asking for 'structural separation' (I think horizontal separation would be a better term) of mobile operators and ISPs. Interesting development, underpinning the view that mobile broadband is indeed becoming a fixed line replacement.

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?).

Sprint Nextel: no inflection point nor WiMAX success just yet

Sprint Nextel is a tricky investment case. On the one hand, there is a meltdown of sorts. On the other hand, WiMAX holds a promise as a 4G solution. For those wanting to catch up, read these two articles: Light Reading summarizes all the big disasters (management, churn & customer service, joint ventures & technology choices), while IEEE focuses on the biggest issue going forward: WiMAX.

All will depend on the company reaching an inflection point and the take-up of the Xohm WiMAX-service. Success is inevitable, but timing is everything.

I believe it is still to early to jump in.

As to the former, it is very hard to make a trustworthy valuation in a case like this one. Market target prices range from $12 to $28, but personally I believe the share is still overvalued (based on takeover speculation, I suppose, related to Comcast which may find it harder to grow its basic subscriber base when capped at a 30% penetration rate).

As to the latter, I am a big believer in mobile broadband, but one has to be realistic. Mobile data so far is a big disappointment.
WiMAX may have a headstart over LTE, but there are several challenges: (1) LTE is the technology of choice for most entrenched players (all GSM and possibly some or most CDMA operators, including Verizon Wireless), (2) how does it scale?, (3) will there be enough of a choice of handsets and devices?, (4) will Xohm be open enough, and last but not least (5) demand as related to pricing.
What Sprint needs to do most, I believe, is to make Xohm really open to all internet-based services and it should come at a reasonable price.
Look out for usage numbers at Vodafone, which may have finally understood that currently data tariffs border on the insane. Vodafone NL is reducing data tariffs by up to 85%.

Update on WiMAX

The WiMAX World 2007 Expo invited many participants to issue press releases. Here is a short overview of what is happening at the moment.

1. Equipment and technology
Several vendors have started interoperability testing. Also, competion for erstwhile first-movers Alvarion, Redline, Navini and Aperto is still on the rise, as Nortel, Nokia, Alcatel-Lucent and Motorola expand their offering. Alvarion is teaming with Hitachi for the Japanese market.

2. Auctions and licenses
Many auctions will be carried out in the short or medium term. Watch out for Japan, where two groups have formed, one around DoCoMo and one that includes SoftBand and eAccess.

3. Trials and deployments
There is no single trend here. Many emerging markets use the technology to leapfrog fixed network investments, AT&T is aiming for rural markets and Sprint is moving ahead on its 4G plan.

Of course, there is also the ongoing debate of WiMAX vs. LTE (not to mention Terahertz). It seems to me that LTE has a considerable advantage:

• It is an evolutionary technology to entrenched networks.
• It could be the tentative end point of both GSM and CDMA evolutions, as Verizon Wireless and Vodafone have attested.
• And the performance is continually enhanced, whereas WiMAX doesn't seem to have that much upside (but I am not quite sure of the latter point - readers please fill me in on that).

Australia plans ADSL2+/WiMAX network

Australia has awarded AUD 958m to the OPEL Networks joint venture of Optus and Elders, to build a combined ADSL2+/WiMAX network. It is part of the government's Australia Connected initiative.
The network will consist of 15k km of fiber backhaul, 426 exchanges (to cover 3m households with ADSL2+) and WiMAX (for regional areas).
End-user pricing should come in the range of 35-60 AUD/mo, depending on speed. In 2009 the maximum speed should be 12 Mbps, which is subsequently to be raised. The network should cover 99% of the population. The other 1% is eligible for a 2750 AUD/household subsidy.

I find this a remarkable move. First, the G9 consortium (around Optus - also), as well as Telstra, is vying for building a FTTN/VDSL network. Second, an ADSL2+/WiMAX looks like combining 'old' technology (ADSL2+) with unproven and possibly inferior (to LTE) technology (WiMAX), as Telstra is eager to point out.

For reference, read Alan Kohler's case for FTTH (as opposed to FTTN) and Grahame Lynch's case for a merger of the G9 consortium members, which nicely fits my view on how to beat the incumbent.