EU telco regulation reform: not enough for FTTH

Monday night, two committees within the European Parliament approved, with amendments, the upcoming reform to EU telecoms regulation. The full EP is set to vote September 3, and the Council of Telecoms Ministers will have its say November 27. The main points are:

• There will be a new pan-European body: BERT (Body of European Regulators in Telecom, basically an upgrade to the existing ERG), instead of the much more powerful EECMA as proposed by the EC. BERT (not the EC) will have veto power over NRAs.
  
• NRAs will be able to enforce functional separation, but only if there is no other remedy, and on the condition of EC and BERT approval.
• NGA: no monopolies and shared financial risk on the build-out through long-term leases (i.e. upfront payments from altnets) instead of regulated wholesale prices.
• Striving for spectrum harmonisation across the EU, i.e. any technolgy and any service in any band (as long as the ITU and national policies allow it).

Good news then for FTTH aficionados: no monopolies. But this is not enough. Regulation needs more reform.
Time to see how recession-proof TMT markets and regulation are. A number of reports show that telcos (despite their utility-like nature) and B2B media (despite their must-have portfolios) are not immune. But regulation, particularly when it comes to FTTH, needs to take a look at the new reality too.

• FTTH network construction: A valued reader tells me that pension funds, who take an interest in funding FTTH network build-outs, are typically looking for a 11-13% return (before inflation!). Viviane Reding has been hinting at proper returns for infrastructure builders (see below*). The other side of the equation (costs, let's say WACC) deserves some attention too. Unfortunately, regulators tend to look back trying to establish these numbers, when they really should be looking forward. And, they tend to look at services, instead of infrastructure. First of all, debt markets are in crisis and interest rates are significantly higher than they used to be. Second, the typical review cycle is 3-5 years, but fiber needs a much longer horizon of let's say 20 years (LLU gear may depreciate in 3-5 years, but not fiberoptic cables). What this effectively does, is create uncertainty for investors and infrastructure builders who are prepared to take a long-term (20 year) view.
  
• Broadband internet service: The latest report from the Pew Internet & American Life Project shows that broadband penetration in the US grew from 54% in December 2007 to just 55% in April 2008.
• B2B media: Reed Elsevier is trying to sell its RBI unit (valued at roughly GBP 1.25bn) but is hit by the credit crunch. The company may have to offer a GBP 100m loan to potential PE buyers. The Deal reports that "PE fundraising continues at breakneck pace", but "fundraising for traditional LBO funds fell off 20%".

* Recently Viviane Reding proposed a 15% 'risk premium' on top of wholesale prices for fiber networks (sources tell me she was really meant to be a little more careful by giving a 13-17% range because of local differences). I suppose this relates to the passive layer and the wholesale prices it charges to the active layer, but several things remain unclear: Can a vertically integrated operator charge a third-party active operator a 15% higher price than its own active operator unit? Does it include FTTN/VDSL-networks?

Reed Elsevier and Thomson Corp could carve up Reuters

Reuters has received a takeover approach. The Reuters (!) news service mentions Thomson Corp and News Corp as possible suitors.

I am surprised Reed Elsevier isn't mentioned. They are selling Harcourt (the education unit), reducing the company to a 3-trick pony. Thomson could be interested in the news business (avoiding FCC/FTC scrutiny, which would almost certainly result from combining Reuters and Thomson Financial), even if this is a minor part. Thomson recently stated they want to create their own news service, built upon the AFX buy, to be launched this month. In short, Reed and Thomson could carve up Reuters.

News Corp being mentioned, after their Dow Jones approach, seems a bit silly, but I do think it points to a trend. Piracy, P2P file-sharing and user-generated content undermine the value of B2C content. Hence, B2C companies seem to take interest in more valuable B2B assets. Not public data (that Google's Gapminder helps disclose), research funded by government bodies (under attack from the open access movement led by people like Stevan Harnad and Peter Suber), or even stock prices that used to fuel Reuters' profits. But 'must-have' content that the B2B conglomerats are focusing on.

That could spark another round of bid and break-up speculation.

Google helps value shift to B2B media

The Voelspriet site (and Dutch language alert service) pointed me to a wonderful presentation by Hans Rosling, co-founder of Swedish Gapminder (from the 'Mind the Gap' phrase). It is titled 'Debunking third-world myths with the best stats you’ve ever seen' and is definitely worth the 20 minute view.

The content is compelling as it is, but the reason for being linked to on this site is the second half of the above title. Google bought Gapminder in March (this VentureBeat story also links to the Rosling performance) and the presentation highlights its Trendalyzer capabilities of visualising movements in time (e.g.) of (public) data.

I can see an intriguing, if somewhat vague, implication for Google. Once more this company undermines the value that B2B publishers extract from public data by making them more accessible. It builds upon the open access movement advocated by people like Stevan Harnad and Peter Suber. Imagine combining the technology with things like Google Book Search, Google Scholar, Google Health.

Last minute addition: Reuters has received a takeover approach. Reuters (!) mentions Thomson Corp and News Corp as possible suitors. So much for the undermining of the value of B2B content!
I am surprised Reed Elsevier isn't mentioned. They are selling Harcourt, reducing the company to a 3-trick pony. Thomson could be interested in the news business (avoiding FCC/FTC scrutiny, which would almost certainly result from combining Reuters and Thomson Financial). Thomson recently stated they want to expand their own news service. In short, Reed and Thomson could carve up Reuters.
News Corp being mentioned, after their Dow Jones approach, seems a bit silly, but I do think it points to a trend. Piracy, sharing and UGC undermine the value of B2C content. Hence, B2C companies seem to take interest in more valuable B2B content (apart from public data, or research funded by government bodies, or even stock prices that used to fuel Reuters' profit).

MARKETS://Growth v. dividends

There is always a bit of an ambiguity when a company produces a big fat dividend. Sure, excess cash is nice to have (cash is king), but why do investors bother at all investing in the stock, if all they really want is to get all excess funds out?

Make up your mind: do you want to invest in the business or don't you?!?

A comparable kind of ambiguity came out of Reed Elsevier today. They will sell Harcourt (the educational arm), but the proceeds will be paid out to investors. The remaining business will be high growth, and yet management cannot see how the money could be wisely reinvested to earn a decent return. So now investors buy the stock (it's up 6%) because they applaud management not holding on to the money.

Why buy when you don't have high esteem of the management?!?