Network sharing versus intramodal competition

As always, the TMT markets are moving rapidly. The interesting thing is that several seemingly unrelated deals can quite easily be connected. Let me set out on this small journey by starting with an Australian newspaper group and ending in the very same country.


The WSJ proves its value

The Wall Street Journal once more proves its value, this time at a very convenient moment. The Bancrofts may be pushing Murdoch for raising his Dow Jones offer, or they might want to entice somebody else to mount a counter offer.

Just two days ago a WSJ story carried this headline: Will Vodafone Be Put in PlayBy ABN-Energized Activists?. And today, John Mayo steps forward with his ECS Assets vehicle to push for the freeing up of up to GBP 38bn.

Bravo WSJ.


Will wireless be a duopoly market as well?

Further, one may question the long-term chances of a standalone wireless operator such as Vodafone, along the lines of consolidation in the European broadband markets: AOL has vanished (as an ISP), Tiscali has retreated to the UK and Italy, Pipex is up for sale, and today France Telecom and Deutsche Telekom are swapping assets (see below).
Vodafone's break-up value could be considerably more than its current market value. For now, mobile is a far more attractive game than broadband, in terms of margins, justifying 3, 4 and 5 player markets (not to mention markets like Bangladesh, served by 6 operators). But in a few years, mobile could be another utility. Look out for cablecos to snap up mobile operators once they have their networks and balance sheets under control.
Also, imagine the kind of cost savings when access networks are shared. In the end, base station networks are extremely overlapping access networks, which may very well be shared.


Telco/cableco duopoly nearing in the Netherlands

As to the FT/DT swap: today Ya.com is snapped up by France Telecom and Orange NL goes to T-Mobile.
Spain is consolidating:

• three major players (Telefonica, France Telecom, Vodafone)
• two standalone operators (Yoigo in mobile, Jazztel in fixed)
• cable company Ono.

The Netherlands too:

• it will be a 3-player mobile market (KPN, Vodafone and T-Mobile).
• there is no obvious buyer for the Wanadoo-part (ISP) of Orange NL.

What could happen to the former Wanadoo-part of Orange NL?

• I am sure T-Mobile is not interested - unlike FT, DT has a mobile-only strategy 'abroad'.
• KPN is restricted, as the regulator barely allowed its recent Tiscali NL takeover.
• Tele2/Versatel could be a serious candidate; if not, do not be surprised to see Tele2 abandoning the country altogether.
• Scarlet could step in and move to a facilities-based business plan (following the Tele2 example).
• Vodafone doesn't seem interested, as it uses Tiscali NL as its broadband partner for its 'Total Communications' strategy.
• Finally, bbned (Telecom Italia) is a candidate, but its commitment to the Netherlands is doubtful.

In other words, the Netherlands seems to be advancing toward this telco/cableco duopoly.

I believe PTT's are increasingly proving to be winners, but so far this seems to be visible in the Netherlands only. Pushing fiber deeper into their networks (FTTC: fiber to the street cabinet - not to mention FTTH) makes LLU a thing of the past and effectively forces altnets to follow or die (see below).

Unless PTT's allow munifiber to get a too strong foothold, will many markets move toward a US-style duopoly of telco v. cable.


If SLU is impossible, network sharing should be considered

As I have written several times before, KPN is trying to kill LLU by moving to an All-IP network, which includes FTTC. The most obvious replacement would be SLU (sub-loop unbundling: from the street cabinet, instead of the central office), but Analysys has shown that this is not economically viable.
OPTA, the local NRA, is grapling with this dilemma. A 'full alternative' to LLU was promised for Q2, but so far hasn't emerged from OPTA's offices.

In my view, the obvious way out would be the Australian way, where 9 altnets have come together to propose an alternative to Telstra's fiber plans. Sure, altnets are backed by competing companies, but shouldn't they set aside their differences to work locally on a country-by-country basis? It simply makes no sense for 9 altnets to want to each compete with a strong incumbent.

Still, one may question the long-term viability of intramodal competition (operating active elements like DSLAMs on the incumbent telco network). Fiber will be extended - sooner or later all the way to the user: FTTH. Any xLU model (LLU, SLU, ?LU) would imply altnets replicating more and more of the incumbent's network, in the end actually replicating the whole thing, as the copper last mile gets shorter and shorter. The only way out seems to be to sooner or later admit that a single fiber network is the only economically viable situation. Now that LLU is coming under strain seems to be the time to acknowledge this. In other words, altnets should aim for network sharing with incumbents. However, the PTT could be tempted into wanting to go it alone. Hence, an NRA like Arcep (France) is trying to facilitate network sharing.

The viability of intramodal competition in general was questioned earlier this week by the Australian Kevin Morgan. He referred to this an arbitrage game. Frankly, I hadn't looked at it that way before, but I suppose he has a point as altnets are merely kept alive by regulatory intervention. It reminds me of what the Bells over in the US kept repeating a few years ago, when the 1996 Telecom Act was replaced and intramodal competition was effectively killed: after 8 years of competition and cherry-picking, altnets should have built their own networks. However, Kevin does not acknowledge one important thing: how LLU operators have increased competition, driving prices down and broadband penetration up.

Anyway, the end of intramodal competition seems to be nearing. FTTH, fiber in the last mile, seems to be a natural monopoly. If PTTs do not see this, newcomers (like Reggefiber, Iliad, neuf Cegetel) will.

Which leaves cablecos: will they follow?

Cool new hardware

Here is a number of very interesting hardware technology developments worth checking out.

First, Jim Marggraff's LiveScribe 'paper-based computing', using a pen stuffed with technology. The New York Times has some pretty amazing details:

Instead of forcing users to write with a stylus on a computer’s slippery
display, Livescribe put the computer inside a plump ballpoint pen that is used
on paper imprinted with nearly invisible miniature dots. As a user writes, a
tiny camera near the pen’s tip watches those dots go by, recording what is being
written. (...)
The Livescribe pen is a more advanced version of the LeapFrog Fly Pentop
Computer, which itself has some impressive abilities, even if it is intended for
children. Fly users can draw a calculator on paper and make it work by tapping
the keys with the pen; a speaker in the pen plays back the results. Users can
also draw a piano keyboard on a piece of paper and play a tune on it. (...)
The pen, he said, will revolutionize the way millions of students take
notes. To demonstrate, Mr. Marggraff jots down some notes while talking with a
visitor. As he speaks, the digital recorder inside the pen captures his voice.
Once done, he taps the pen on a word he scribbled halfway down the page. The pen
immediately begins to replay the conversation, starting from the point in time
when Mr. Marggraff had written that word. He then skips back and forth in the
audio simply by tapping the pen on different places on the page. (...)
To generate excitement about the future potential of the Livescribe
technology, Mr. Marggraff performs a nifty stunt: he reaches into his pocket,
pulls out his business card and hands it to someone saying that if the person
jots down a note on the back of it with a Livescribe pen, the note could soon
land in Mr. Marggraff’s e-mail in-box.

From Microsoft, a great looking Surface computer. It reminds me of Jeff Han, showing his very cool display.

Sony has developed "a razor-thin display that bends like paper while showing full-color video", but "it has yet to decide on commercial products using the technology".

Also in the New York Times, HP's efforts to get more printing done. It will introduce a handheld printer.

Finally, the Times also wrote about advances in video conferencing.

More FTTH

Dirk 'Citynet' van der Woude informs me that the Geldrop project actually has yet to be built out. In other words, the 56% 'take' rate so far could end up at Nuenen levels of around 80%.

Further, Cisco's Francisco Feuntes spoke at a FTTH seminar in Singapore last week, giving a short overview of the current state of affairs. He aired a 'telco 2.0' theme:

According to Feuntes, open access is a common theme in nearly all of the European rollouts, something he says is critical to fostering innovation.

FTTH Update - growing in the Netherlands, Denmark (and Italy)

More exciting FTTH developments. My cyberbuddy in Italy, Stefano Quintarelli, is making waves with his 'Fibra che ride' ('Fiber that laughs') initiative through his blog. He is an industry insider pushing the economic importance of FTTH.

In the Netherlands, it's Reggefiber again that is making waves - on actual deployments. In the towns of Geldrop-Mierlo, where 16k homes were connected, 56% (9k homes) took up the 60 EUR/mo service. Not much less than what either KPN or UPC charges, which makes it all the more remarkable. Reggefiber states it needs a 50% take rate to be profitable. And they are expanding to nearby towns. The target is 50-80k subs in 2 years.

Finally, Cisco and HP are helping Danish utilities launch service.

Australia and Sweden may lead the way

Alternative operators and ISPs have a hard time fighting the incumbent. Why not get together?

Now, Australia and Sweden could pull the industry into a new phase:

• The Australian G9 consortium has proposed to build a FTTN network with Telstra.
• Telenor is trying to convince Telia, as well as Tele2, to cooperate on a VDSL2 network.

Somehow, market participants and regulators must come to balance the interests of each:

• Incumbents may prefer to go it alone, in order to force altnets to 'follow or die'. Still, there may be budget restraints, especially when FTTN/VDSL networks are regarded intermediate stages toward FTTH.
• Altnets lack scale on an individual basis. Also, in most cases they are backed by competitors. The Swedish example could be a way out: work together on a country-by-country basis.
• As the G9 put it, only a single FTTN network is economically viable. As regulators and operators alike prefer facilities-based competition, the competitive element will have to move up and away from the physical (passive) layer.

Sweden and Australia may lead the way. The next step could be to separate the cooperatively built network. This way, a (natural) monopoly would arise and competition would be focused on delivering superior services.

Buying Joost would fit Comcast's strategy

Comcast is looking at all possible means to enhance its high-speed data offering, but so far P2P technology apparently hasn't come into play. Hence, Joost (as well as Bablegum) could be a takeover target.

Let's first step back a little bit. Cablecos and telcos are trying to leapfrog each other in the broadband game. Telcos have xDSL technology to upgrade copper, cablecos have DOCSIS. Almost as old is the DOCSIS 3.0 conundrum; Comcast gave a demo and Giga Om justly reminds us of the barriers yet to be taken: certification, commercial availability, freeing up bandwidth. Meanwhile, let's not forget that FTTH is still the ultimate solution - i.e. Verizon's FiOS. As Comcast is reluctant to go the FTTH way, it has not only DOCSIS 3.0, but other technologies at its disposal: further plan upgrades (toward 1 GHz), node splitting, switched digital video, Vyyo.

Now how does Joost fit in here?

The Wall Street Journal recently devoted a fine article to Comcast, highlighting its efforts toward gearing up its broadband offering. Video is increasingly brought to us over the internet, so making Comcast.net a viable player is a good (defensive) strategy, complementary to the regular TV/VoD offering. The most recent Comcast.net related deals include:

• Acquisition of thePlatform: video delivery technology
• Acquisition of Fandango.com: movie info (and tickets)
• Acquisition of a stake in Revver: video sharing
• Launch of Ziddio.com: user-generated content
• Planned launch of Fancast.com: TV/movie portal
• Deal with Yahoo! (replacing Google): display and video ads
• Deal the News Corp/NBC Universal company: distribution to Comcast.net and Fancast.com

Acquiring Joost would round out the Comcast.net efforts (as long as FTTH is deemed unnecessary) and gives Comcast another tool in building a more or less robust delivery platform, based on the open internet (v. Comcast's still superior and proprietary cable network).

How Terry and Meg are marrying off Yahoo! and eBay

It is interesting to see what happened at Yahoo!, six months after Brad Garlinghouse’s ‘Peanut Butter Manifesto’ was leaked to the Wall Street Journal. In general, he called for focus and job cuts.

It looks to me like Yahoo! is quietly implementing Brad’s underlying recommendations. Focus is in fact increasing (but as a content aggregator Yahoo!’s coverage remains naturally wide). Job cuts could be on the cards next. Still, Yahoo! seems pretty phlegmatic in executing its grand plan. Take for instance Facebook. As Mr. Zuckerberg is looking for more and more money, a deal with Yahoo! is getting less and less likely.

As Yahoo! is focusing and eBay is expanding its branch of e-commerce operations (see below), speculation over increased cooperation or even a merger may continue.

So what action have we seen at Yahoo? First of all, a restructuring into three groups was launched: Advertiser & Publisher, Audience and Technology. Some high-profile vacancies were created in the process. As Susan Decker seems to be heading for the CEO job when Terry Semel retires later this year, the company is trying to hire a CFO and an Audience CEO.

Second, Yahoo! got focused on improving its search engine and monetisation efforts under the ‘Panama’ banner.

Third, it is defending the display market that Google is entering. Yahoo! is building ‘brand universes’ for large advertisers and it acquired Right Media. Also, it entered into a large newspaper cooperation.

Fourth, Yahoo! continued the ‘relaunch’ of its verticals, lastly Yahoo! Finance and Yahoo! Travel. At the same time, the company has started discontinuing other sites, such as the North American Auctions business and Yahoo! Photos (which will migrate to Flickr). Yahoo! Bookmarks and del.icio.us could be merged, but the former is simply too successful to discontinue. New verticals include Yahoo! Food.

Fifth, Yahoo! continually expands its community features. It bought blogging services MyBlogLog and Wretch (Taiwan), as well as Bix.com (runs contests). The vastly popular Yahoo! Answers teamed with Answers.com. A deal with Reuters will see uploaded photos and videos appear both on Yahoo! and Reuters.com. The new Yahoo! Pipes allows for the creation of mash-ups.

A different way of seeing increased focus is by looking at what does NOT offer: no satellite images such as Google Earth and Microsoft Virtual Earth; no Office look-alikes such as Google’s Docs & Spreadsheets and its soon-to-launch presentations tool; offline efforts are largely limited to wireless and print (no radio, TV, outdoor and in-game, as we have seen at Google); e-commerce activities are limited to certain countries.

The latter easily leads to some eBay speculation.

First, as Yahoo! is focusing, eBay is in fact expanding without creating more overlap. The e-commerce activities comprise not only the core auctions business, but a growing list of related services and sites: Buy It Now, eBay Express, Shopping.com, Rent.com, Craigslist, Marktplaats.nl, Kijiji. Recently eBay added StubHub (ticket sales) and possibly StumbleUpon (recommendations).
As a side note, it is quite easy to list a few takeover candidates for eBay to grow further within the e-commerce sector: single-item retailers (Woot.com in the US, iBood.com in Europe), travel (Expedia, Orbitz, Travelocity), securities trading (E*Trade, Zecco.com), swapping (La La Media) or even Amazon.com.

Second, Yahoo! and eBay are already partnering on a number of services (search, ads, payments, communication).

Third, strong positions in the Far East make a nice fit as well, as overlap is limited.

Fourth, eBay is aiming for increased community activity (see StumbleUpon) - a core strength at Yahoo!.

Would Terry Semel and Meg Whitman feel any urge to do a large deal before retiring or moving into politics?

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).

Enhancing cablemodem broadband

Broadband over cable benefits from the upcoming DOCSIS 3.0 standard. It enhances the user experience by expanding the downstream bandwidth to 160 Mbps. Approaching the bandwidth issue from the other side, namely the ISP's (i.e. dealing with efficiency), there are several options: fiber node splits, switched digital video technology, digital simulcasts, plant upgrades to 1 GHz spectrum, MPEG-4.

Also, two interesting companies are providing technology to MSOs.

First, Vyyo frees up bandwidth and had a number of equipment orders, as well as funding from Goldman Sachs and a board member appointment from another Wall Street firm. All this basically leading to a doubling of its share price.

Second, I stumbled upon this press release from PeerApp, which allows MSOs and ISPs to add P2P caching.