Australian NBN trials apps for FTTH

The Australian NBN is trialing applications to run over the new network in NSW. Finally stuff other than Internet access requiring OA FTTH! Here's what they will ofer 40 trial homes in the Parkbruidge Estate. Teleworking seems to be missing; the services being trialed can definitely be expanded; but smart metering - who buys that?

• Smart metering (with Integral Energy). "Allow families and business to track their energy consumption in real time and adjust energy use accordingly". This is the one application that nobody has been able to convince me about (see next post).
• Touch screen communication (by Smart Services Cooperative Research Centre and Consult Point). Basically e-health/e-care. For elderly and young children.
• Virtual world learning environment (by Smart Services CRC and NSW Department of Education and Training): An e-learning app.
• HD Internet TV (by NICTA and Opticomm). Basically a hybrid STB. You can wonder why they do not partner with Google TV or another existing player in the connected TV/hybrid TV/OTT market.

Health needs ICT

McKinsey talks about the growth of the healthcare market (article here, free registration). It has exceeded GDP growth by 2 pp for 50 years. This underscores the importance of bringing ICT to that market. See my earlier article on KPN Healthcare.

Video: place your bets

It's Polling Season. Please do take my Poll in the right hand column (multiple answers, you may want to read this post first), and while you're at it anyway: please do fill out the new survey on Internet Video Distribution from my friends over at STL Partners. For that, you may want to read this post first.

On the side: I am quite sure we haven't seen the end of video coming to the web and it poses real threats to ISP business models. But let's not forget that primo it is a wonderful development.

Which brings me to United Content Distributors, my love-baby and maker of the Daily Media box. I know, there are lots of boxes like the Apple TV around. Some, like Sezmi, even come close to Daily Media. But the latter still has the advantage of its unique business model. And: it's not just a press release or a prototype. The Daily Media box is up and running in several (trial) locations in the Netherlands, one of which is a full-blown deployment at a hotel (fiber, IP - the works). Read about it here or here (in Dutch, but translated here and here).

On the side: you may counter that an application like Daily Media initially will not add to the pressures on ISPs and last miles. However, one thing it is supposed to do is eat the video store's lunch by offering VoD.

Which brings me to the new application I found on UCD's web site: Daily Care. Very much in line with KPN Health's strategy, and yesterday even Telstra (!) stepped on the bandwagon.
I look at the KPN strategy as very much of a blueprint for the entire telco business:

1. Traditional ICT services.
2. Connecting professionals and adding (third-party) VAS.
3. Consumer services.
   

E-Health: a market waiting to be consolidated

Last week we had a talk with Monique Philippens, director of KPN Healthcare. The unit is still small, but shows some healthy growth. It has its own sales, marketing, product management and business development units and comprises 3 companies that KPN acquired over the past few years:

• E-Zorg (network)
• PharmaPhone (mobile professional services)
• IPT Medical Services (professional services)

I wrote about the market before. It is potentially very large and diverse. It benefits from a number of long-term trends, such as the ageing population, the rise in the number of chronically ill, and a (quite worrying) labor shortage. Therefore, it is not just an opportunity for all sorts of service providers - it is bare necessity to digitize and automate the healthcare industry. The market is also quite complicated. There are many participants:

• Patients
• Doctors (GPs), hospitals, pharmacists
• Insurers and policy makers (governments agencies, municipalities)
• Information providers: professional (the likes of Elsevier Science) and consumer-oriented (web sites, such as WebMD, Revolution Health, LiveStrong)

The overall Dutch healthcare market was worth about EUR 50bn in 2006, of which a mere 2% (EUR 1bn) was spent on ICT. The market is expected to grow to EUR 77bn by 2025, and it seems inevitable that ICT expenditure will expand to more of a market average such as 5-6% (which would imply EUR 4bn). KPN doesn't break out figures for Healthcare, but the unit is deeply entrenched in the market. It counts all 104 Dutch hospitals as clients, and services more than 50% of the other professionals (doctors, pharmacists, clinics, care organisations, etc.). By far the biggest challenge for the overall industry is creating (centrally located) electronic health records. In the Netherlands, a fully connected system is probably a generation off. There is however an LSP ('landelijk schakelpunt', national switch point), which is supposed to connect three existing 'information systems':

• ZIS (z for ziekenhuizen = hospitals)
• HIS (h for huisartsen = GPs)
• AIS (a for apothekers = pharmacists).

In the US, Google (Google Health) and Microsoft (HealthVault) have set up websites for this purpose. What they do is, in fact, shift the burden of collecting all relevant information from hospitals, doctors and pharmacists to patients. Smart idea! However, there are two problems. First, this can only work if ZIS, HIS and AIS are well organized (which could be the case in the US, but certainly is not in the Netherlands), in order to allow consumers to collect all necessary information. Second, there are all sorts of privacy issues: Who has the right to know what? What does all that have to do with KPN? Obviously, a lot. KPN supplies connectivity to professionals and value-added services to both professionals and consumers. We have to say that we were positively impressed by KPN's strategy toward this market. It comes down to these three steps:

1. Traditional ICT services.
2. Connecting professionals (information exchange), plus value-added services from third-party providers.
3. Consumer services.

We regrouped these capabilities in a slightly different way:

• Link professionals. Building a relationship with professionals is essential in this market. KPN uses the fact that it is a certified ZSP (healthcare service provider), which allows it to exchange information between market participants. The first step in the execution of this part of the strategy was to build a nationwide secure network (basically, a closed VPN), called ZorgConnect ('care connect'). The larger participants are hooked up by fiber (hospitals, of which roughly 50% are now connected).
• Value-added services for professionals. Some examples here. Recently, KPN scored a deal with ZorgDomein, which built a referral application for GPs. Using this, the doctor can easily refer patients who need specialist care. The doctor can see at which hospital a specialist works whose services are needed, check availability and make an appointment. Also, KPN has an application that allows oncologists nationwide to join in a videoconference and share multimedia content.
• Information and entertainment for patients, whether in hospitals, clinics or at home. KPN built a platform (UI) that combines offerings from its traditional portfolio (VoD, internet access, etc) with information that is relevant to the patient-as-a-patient. For the latter, KPN uses third-party applications exclusively. KPN wants the platform to remain open; adding applications of its own would turn off other suppliers. To this purpose, KPN is even selling its in-house applications factory (part of Getronics). An example is Koala, for which KPN teamed with Menzis (insurance co), a local healthcare provider in Groningen as well as the recently acquired company IPT. KPN is building 5 services for now:

1. Video communication
2. Monitoring (heartbeat, etc.)
3. Alarm
4. Self-management
5. Domotics

To round off, a few remarks.

• KPN seems very well positioned to consolidate the market. It has built a network + services, and can now work to expand the KPN Healthcare unit. But of course, there are competitors such as Tele2/Versatel.
• E-health is a complex and yet well defined market, with the patient clearly in the middle. Not quite the same goes for students (as the center of the telelearning market) and workers (in the teleworking market), but still: these markets could be approached in a similar way. There are dedicated networks linking schools, and it isn't very hard to think of applications for these markets (for students and workers on the one hand, teachers and managers on the other). To take the argument even further: how about soccer? (think of a network linking fans to stadiums, and service them with applications including games, gambling, Web 2.0, etc.).
  
• I particularly like the bit where they say they do not want to develop applications themselves. They want an open platform (very much in Telco 2.0 style) and they want to be friends with everybody, in order to be the platform of choice.
• When it comes to B2C services, the Daily Media box comes to mind. Not only does it allow service access from the TV, the Daily Media platform and business model hook into KPN's strategy very nicely. It is open too, so an health insurance company (for instance) could come on board to distribute the box and use it as a store front.

Belgacom and FTTH in the Netherlands

Yesterday I had a short meeting with my contact at Tiscali Wholesale (now a unit of KPN). Always a pleasure and always good new insights.

Here are my takeaways.

• The future of Tiscali NL. Most of it is rebranded to Telfort. Tiscali Wholesale however will be folded into KPN Wholesale, but more or less as a separate unit. Some ISP customers may not like to be dealing with the incumbent now, but nothing really changes for them. The Tiscali people will still be their point of sales contacts. Besides, there are not very many other shops to go to, and probably not of Tiscali's quality.
• eHealth. We agreed that here lies a big market opportunity. The value chain is vast, something I plan to dig into.
• IP. The perennial thing behind so much that is going on right now. (I plan on mapping an 'IP cloud'). Here Tiscali seems to be further advanced than KPN. Tiscali Wholesale clients are offered much more than just 'naked access'. IP allows for modular compounding of services.
• FTTH. Things are probably speeding up in the Netherlands (but availability of construction workers is a bottleneck and VDSL may be an intermediary step that cannot be skipped for that reason). One caveat: an all open model, with dozens of service providers, carries the risk of confusing consumers. They simply get too many marketing messages. Apparently, Amsterdam's Citynet (3 layers: GNA monopoly at the passive layer; bbned monopoly at the active layer; many SPs) has lost an SP because the market was overcrowded. Compare that to the new Powell (Wyoming) network plan, which has agreed on a service provider monopoly for the first 6 years of operation.
• Belgacom. Rumour has it that 'a Belgian operator' plans an assault of the Dutch market. I cannot think of any other viable option than Belgacom. To get back at KPN (which bought Tele2 Belgium), they first took over Scarlet. Scarlet NL may not be for sale after all, and the operation could be beefed up by acquiring Orange Broadband (put up for sale by T-Mobile NL). And how about Reggefiber and Telecom Italia's Dutch assets (bbned, Alice)? The strategy would mirror the Swisscom/FastWeb deal, as well as Telefonica's O2/Be deal, to name a few.

The access network is the weakest link

Operators hesitating to deploy FTTH face a short-sighted stock market and uncertainty over demand. I have displayed some scepticism over the latter myself.

However, as a user I am still frustrated over web pages loading slowly (try FT.com for instance, and even Amazon.com could be a little faster to my taste), which highlights the importance for every single weak link in the network to be dealt with.

Dirk 'munifiber' van der Woude mailed me this excerpt to Nick Carr's new book and tells me USB 2.0 delivers 400 Mb/s. Now, Devolo plans a 400 Mb/s demo for in-home networking (based on PLC). At the other end, Google is making sure it doesn't overpay for transpacific transit.

In other words, the access network (but not just that part) is being squeezed from both sides (backhaul as well as in-home) to deliver more bandwidth to the user. (And not just fixed access, but wireless as well.)

To round off, here are two new articles supporting the demand side of the FTTH equation:

• e-Health. Google recently scored a deal with the Cleveland Clinic, which could add to a new wave of information competing for bandwidth. McKinsey just released an interview (free registration) with CEO Cosgrove. It doesn't touch upon the Google deal, but it is an interesting read anyway, since e-health is such a big opportunity for the telecom sector.
• Web 2.0. In a presentation I did last year, I referred to surveys showing that 8% of the US population was actively taking part in Web 2.0, and that 50% read blogs. Now, research shows that 54% of enterprises and 70% of small companies use Web 2.0.

DIY fibre to the farm

A local Dutch newspaper carries a story (in Dutch) on bridging the digital divide in rural areas. The eastern towns of Bronckhorst and Berkelland have launched a 'Fibre to the Farm' project. A trial is currently conducted among 150 households. Next year it will be evaluated.
It involves a co-op ordering a backhaul network from a company like Reggefiber or Schuuring. The members of the co-op (farmers) do the digging of the last mile themselves.

Here are some quotes (somewhat freely translated), that fit my stance on FTTH, munifiber and e-health exactly:

In rural areas ADSL-connections lack the quality necessary for proper business networks. In this day and age, that leads to trailing economic growth, which is precisely what rural areas are afraid of.

Large operators have no interest in hooking up rural areas, since it costs too much and pay-back periods are too long. That is why municipalities have to take up the gauntlet, supported by regional governments.

The trick is the cost savings at digging, explains Hupkens. The digging activities represent 70% of the cost of constructing the network. (...) Farmers can easily do this relatively simple job, digging to their yards. Thus you can construct a valuable network at low cost. A network, of which the users are co-owners. And therefore have a say over the services delivered over it. Hupkens points to a similar project in the Brabant town of Nuenen, where the members themselves have allowed local radio and TV stations onto their fibre network.

A study revealed that 60-80% of consumers and businesses are likely to want to be connected. Willingness among farmers to do the digging is extremely high.

Reasons for wishing to be hooked up vary. Companies want access to the digital highway. Senior citizens are interested in e-care.

The bottom-up economic argument for FTTH

The New Zealand Institute published an interesting document supportive of FTTH. The economic benefits are calculated bottom-up and are (conservatively) estimated at 2.7-4.4bn NZD/year. Their next report will focus on the cost of covering 75% of the population by 2018.

(All fine and dandy, but I was reminded of a recent Greenspan quote: "It is not yet settled, although I guess it should be by now, that human beings are not significantly more perfectable than we are." Still, I strongly believe in the benefits of FTTH.)

Keep in mind however that New Zealand is not your typical place:

• Remote. It faces the risk of talented young people leaving the country. Also, it is very much reliant on the Southern Cross Cable (connecting it to Australia and the US), which needs an upgrade.
• Thinly populated. Projections are that even by 2018, 'just' 75% of the people will be covered by FTTH.
• Beautiful countriside! It tries to attract investments from the digital media industry specifically. Think 'Lord of the Rings' or 'Chronicles of Narnia'. One quote from the document: "It was cheaper for us to fly the data [to LA] than it was to send it over the network" (page 22).

Here are a few things that stood out for me.

Quotations
The benefits are derived from enhanced productivity and growth, but also from opportunities in the 'weightless economy' ("a New Zealand Skype").
"Bandwidth demand has followed Moore's Law - roughly doubling every 18 months."
To capture the economic value, New Zealand needs to "cross the DSL wall to fibre".
Build-out should start by mid 2008. There is no mention of VDSL, so I suppose the institute recommends moving fast, and skipping the VDSL stage.

e-health
A hugely interesting topic. I will try to write a follow-up at some point. Let me just list some of the companies that are involved. Obviously, the market has many participants:

• Telcos: KPN has e-zorg, BT is building a network.
• B2B Media: Wolters Kluwer and Reed Elsevier publish research articles and journals and operate portals. Elsevier Science recently changed the business model to its oncology efforts: it is moving from subsciptions to a free + ads model.
• Internet verticals: ranging from Elsevier's Oncology portal to WebMD and RevolutionHealth and from Microsoft's HealthVault and Google Health ('Project Weaver')to the Sermo social network for physicians.
• Pharma: Pfizer is now working with Sermo.