Yahoo! preview: was Q1 the bottom?

Growth numbers seem to suggest that Yahoo! passed the corner, 07Q1 having been the bottom.
Check out the table, based on sales of $1.24bn - the consensus number that slavishly follows guidance (i.e. toward the top end of the lower half of the original range).

Co-op gaining momentum

German alternative network operators, both wholesale (Vodafone's Arcor, Telefonica Deutschland) and integrated players (Versatel, Telecom Italia's Hansenet) are planning to jointly build a VDSL network.

This underscores a trend gaining considerable momentum: co-operation to better compete with the incumbent.

Comparable events:

• Australia's G9 and Telenor's Swedish operation have similar plans.
• Neuf Cegetel recently said it expected consolidation (FTTH).
• In Nigeria 25 ISPs plan a joint WFi network.
• SoftBank en eMobile plan a joint offer for a WiMAX license in Japan.

Will mobile network sharing lead to separation?

This news from Thailand again brings up the matter of separation in wireless networks. Thai Mobile seems to volunteer the building of the nation's first 3G network, to which it will offer open access to all operators.

Other recent news around mobile network sharing:

• Vodafone UK and Orange UK plan RAN sharing (3G and 2G) to reduce capex and opex by 20-30%.
• Hutch Essar and Bharti plan infrastructure sharing, to be supported by the regulator.
• Nokia's solution is expanded to supporting up to 4 operators.
• Yoigo (TeliaSonera) and Telefonica Movistar plan antenna sharing.

(Now, it is important to realise that sharing may be done at different levels: sites (towers), antennas, RAN, backhaul.)

Some observations, beyond the obvious cost savings target:

• Similarly, operators are teaming for mobile TV (be it a shared DVB-H network, wholesale access to Qualcomm's MediaFLO or any other technology). So, why not for 3G as well - or for that matter: for 2G (not to mention 4G)? As in fixed, sharing and separation make a lot of sense in an IP-based world.
• Differentiating by touting network coverage (as Verizon Wireless still does) will become a thing of the past.
• So, operators will need to make sure they can differentiate on the services and applications level.
• If network operations are to be separated, a new (natural) monopoly will arise. As long as existing service providers are deemed to have SMP (significant market power), this may give rise to new open access obligations at the network operator. On the other hand, the rise (not the fall) of MVNOs could preclude this (what will the difference be between MNOs and MVNOs anyway)? However, spectrum will always be much more of a scarce resource than anything equivalent in the fixed world (duct access, access to sewers, etc).

Google adds another element to its enterprise strategy

Today's Postini acquisition raises the issue of how serious Google is on its efforts aimed at the enterprise market. I think there is more to come.

So far, Google is almost entirely about the consumer market (if consumer and professional users can be separated at all), with advertisers to pay for it. 'Licensing & Other Revenue' was just 1.0% of total revenues in Q1 of 2007. Now, Google appears to be beefing up this tiny part of its business model.
Ultimately, the advertising market will prove to be a cyclical market, so why not do a little diversification while growth is still double digit? In Q1 of 2007 revenue growth was still around the 65% level and personnel numbers grew 80% yoy. Obviously this reminds us of Yahoo! and its diversification efforts, several years ago.

The licensing and other revenues stem from the Google Search Appliance sale and licensing of for-pay applications (applications that are free as long as they are not used in a commercial way, such as SketchUp and Earth).

Recent developments in this space include:

• February 22: launches Google Apps Premiere Edition (50 $/year/user)
• April 19: acquisition of Marratech (video conferencing software)
• May 18: launches Google Apps Partner Edition (for ISPs)
• May 30: launches Google Gears (offline application of Gmail, Docs & Spreadsheets, etc.)
• June 20: plans slide presentations addition to Apps
• June 27: additions to Docs & Spreadsheets (folders, etc.)
• June 27: teams with Ingram Marshall (Search Appliance distribution)
• July 9: acquisition of Postini (adds security and compliance solutions to Google Apps)

Conclusions:

• First, competition with Microsoft is intensified, especially from the ever increasing Google Apps suite and the addition of both Gears and Postini.
• I suppose a major sales push of the for-pay services must be on the horizon, mirroring the Ingram Marshall deal for the Search Appliance.

Co-operation will drive separation and FTTH

This news out of Italy unites three of my favorite (and interrelated) trends: co-operation, separation and FTTH.

Apparently, alternative operators (Vodafone Italia, Fastweb, Wind, Tiscali, BT, Tele2, Welcome Italia and Eutelia) are calling for a break-up of Telecom Italia.

1. Co-op
Note that PTTs who resist full separation at home (BT, Swisscom), allow their foreign subsidiaries (BT Italy, Fastweb) a viewpoint different from their own. Deutsche Telekom to the contrary did not allow T-Mobile NL a divergent view when OPTA (the Dutch NRA) called for market response to KPN's All-IP network plans; T-Mobile, mirroring Deutsche Telekom's strategy in its home market, called for an end to regulation altogether in the Netherlands.
The new development in Italy is supportive of my call for a country-by-country approach, which will allow altnets to finally work together, no matter what their parents do or believe or say.

2. Separation
I am not sure what kind of separation the Italian market is headed for (anywhere between accounting and ownership regulation, but probably functional). Anyway, having truly equal access to TI's network must reduce the need for altnets to build their own infrastructure: embracing the wholesale market will drive the need for TI to build a broad portfolio of IP-based services, available to each altnet.
Another interesting development is that an incumbent like Telecom New Zealand openly lost interest in being a network operator and wants to be service provider.

3. FTTH
Fiber being a natural monopoly and the TI network to some degree spun-off from the TI services organisations will, I believe, drive the newly created NetCo to aim for nationwide FTTH. Demand keeps rising and there is no such thing as the Broadband Incentive Problem in the wholesale market, where tariffs are usage-based (the BIP in the consumer market is a consequence of flat-fee tariffing and unsufficient pricing power). As a result, building FTTH will drive revenues and lower the cost base (after an intial capex hump, naturally).

The BCE bid implies 20% upside at KPN and 30% at BT

Pensioen funds and private equity are performing an LBO at BCE. Its valuation, 7.8 times EBITDA over the trailing twelve months, implies an equivalent bid level of EUR 14.93 at KPN (a 21% upside) and GBP 438 (a 31% premium) for BT.

Check out the underlying calculations in this Google Spreadsheet.

Adding some realism to WiMAX and xMax

How realistic are claims of both WiMAX and xMax when it comes to cost savings on network build-outs, relative to GSM or CDMA-based networks?

I suppose a good deal of common sense (if not scepticism) is needed.

Just to add a thought on each:

• WiMAX: in this release it is revealed that the range is limited to just 0.75-1.00 miles when indoor-coverage is needed to deliver 5 Mbps. Remember that originally, WiMAX was supposed to deliver up to 120 Mbps over a distance of up to 50 km?
• xMax: I was a little puzzled over the Frost & Sullivan award last week. That seems quite premature, as xMax is far from both technical and commercial reality (see this article): "But is it stretching the rules of economics, or those of physics?" The company behind the 'Flash Signal' technology, xG technologies, puts forward Prof Stuart Schwartz. But the article quotes Prof Ben Friedlander, who dismisses the technology. Who should we believe? Now, Frost & Sullivan seems to add some weight to the xG/xMax side, but the article delicately reminds us of a similar award in 2004 for Gaiacomm ("transmit a signal of any strength to all parts of the planet up to and including inner space and outer space"), which is dormant now. Lastly, the fact that Stuart Schwartz held an interest in xG must not be overlooked (check out this paper from last September, prior to the IPO).

Lyse Tele adds WiFi/GSM to its FTTH offering

The disruptive FTTH operator Lyse Tele (owned by Lyse Energi) teams with Comverse and Cicero to add mobile, effectively producing the quad play.

It includes wVoIP (the CiceroPhone client - not UMA but SIP based) and seamless WiFi/GSM roaming (voice only, mind you). At home, calls will be routed via WiFi to the BB connection. Outside the home, mobile will be ordinary GSM calls (Lyse doesn't own a 2/3G network), and usage will be limited to certain handsets, I presume.

I think the offering is interesting for 3 reasons.

(1) Cicero's seamlessness is a cool piece of tech, that (2) allows Lyse to offer wVoIP (basically for cheaper calls when in range of a free hotspot), without having to team with a mobile operator. (3) Users only need a single number. I am not sure how this would work out for existing Lyse subscribers, who already have two numbers (one Lyse, one mobile). Perhaps they can now drop the Lyse number.

FTTH is the endgame (but it will take a while)

Yesterday I attended the 'Next Generation Network Conference', hosted by Euromoney's Global Telecoms Business, in Amsterdam. Thanks for inviting me!
It was an interesting day, even if there wasn't so much really new. I enjoyed talking to telco and vendor officials, most notably Dirk 'Amsterdam' van der Woude.
Below I will summarize my take of the views on a number of trends (which I regularly write about on this blog):

• FTTH, VDSL/LLU/regulation 2.0, Web 2.0, SaaS, WIMAX
• Separation, co-op
• Owning the customer, advertising as a business model

Companies and organisations represented included:

• KPN, BT, Vodafone, Orange NL, Thus, 2 smaller Dutch MSOs (CAIW and Kabel Noord)
• Xconnect, Alcatel-Lucent, BroadSoft, Sonus, AlwaysON
• OPTA (the Dutch NRA)
• Analysys, Fitch

1. Demand

The perennial question: will 10 Mbps be enough? or 100 Mbps? Some statements (not precise quotations) included:

• There is no ceiling (KPN),
• even if the new services are as yet unspecified (Analysys).
• Why should the exponential increase stop now(BT)?

My comment:

• KPN, through Nico Baken (senior strategist and professor at Delft University), proved to be among the most radical. By the way, when I asked Nico how he feels about KPN's current strategy, he responded somewhat in this manner: KPN is among the most respected telcos, and they allowed me to hire 12 PhD's to work on long-term strategies, in order to allow KPN to maintain its lead. Bravo Eelco Blok for gathering this team at the heart of KPN!

2. FTTH, NGA (access)

Statements included:

• We see no business case, except for greenfield operations (BT).
• FTTH is the endgame (OPTA, KPN).
• Build-outs in the Netherlands (7.0m households) are projected to go from 115k at present to 580k by 2009.
• Public/private partnerships (PPP) will emerge (KPN).
• Wireless will be the way to connect over the 'last few meters' (KPN).
• Within a few years, all munifiber in the Netherlands will be bought by either KPN or Cablecos (CAIW).
• 2 Infrastructures (copper/telco and coax/cableco) are not enough to ensure real competition (OPTA).

My comments here:

• KPN's Nico Baken was probably among the most impressive in his presentation. His visionary analysis underscores that KPN fundamentally believes in FTTH - as well as PPP!
• Dirk pointed me to a new development: KPN plans to connect 11k homes in the eastern town of Enschede and eventually the entire city (155k inhabitants) will be covered. "We will try to convince any doubters that copper access is not sufficient in tomorrow's world." I suspect that OPTA's 580k number (see above) does not include Enschede, which would take the number up to 735k. By the way, Dirk added a new overview (as of June) of fiber developments to the Citynet site.
• There was surprisingly little on VDSL. I feel that everybody present believes in FTTH, which makes VDSL a transitory if not outmoded technology before it is even launched.
• OPTA's acknowledgement of FTTH as the endgame is positive (in fact, it was aired before, most recently last week), but saying that 'two is not enough' is puzzling (to put it mildly). I would say: all we need is one (FTTH), which needs to be regulated. I feel that OPTA regards LLU and even bitstream access as a separate infrastructure.
• Now, if even KPN feels that PPP is the way to go, separation makes more and more sense to me. How about separating both the telco (KPN) and cableco ('Zesco') networks - which I feel could stimulate the two new network companies to build a nationwide FTTH network through some PPP/joint venture (with Reggefiber).

3. NGN (core)

Statements:

• The 21CN project started out as a cost savings measure, but grew into a complete business transformation (BT).
• We offer NGN as part of our 'Business Transformation Partner' offering (Alca-Lu).
• NGN implies cost savings, but at first a 'hump' will appear in capex and opex spend (Alca-Lu, BT). BT sees costs at a low in 2013, when the hump is coming to an end and normal growth is resumed (at a level less than half of what it is now).
• BT established BT 21C Global Venture as a way to leverage its know-how that it is acquiring, doing the 21CN project (BT).
• Apart from cost savings, NGN is all about new services (BT, Alca-Lu) for which SOA must be adopted (BT).
• Telecom New Zealand wants to be a service provider and is less interested in being a network operator (Alca-Lu).
• Altnets lack scale for NGN projects (Orange NL).

My comments:

• SOA and SaaS will be recurring themes for telcos,
• As well as separation. One could say that separation (and Saas) are ways of taking outsourcing to the extreme.
• I wonder how the BT 21C Global venture fits into the IT services market. Do they have customers yet?
• I will pound on one of my favorite subjects once more: why on earth do we see so few co-ops?

4. New services

Statements:

• Future services will include HDTV, social networking, software apps and Web 2.0. Many may not be really new but subsititutes. "New services are as yet unspecified", and business models are unclear (Analysys).
• Many new services, such as triple play, aren't really new. Blending however (like on-screen caller notification) is what we will be seeing a lot of (Alca-Lu).
• In offering IPTV, we focus on interactivity, not on exclusive content. We will offer "what is relevant for our customers" (KPN).
• We aim at personalisation (Vodafone).
• Data may actually make up for much of mobile growth decline, but IPTV will not do the same for fixed operators (Fitch).
• "The customer experience needs vast improvement." (Fitch)

My comments:

• Somebody mentioned that it is all about "owning the customer". I couldn't agree more. That is also why I question KPN's representation of WLR, which I believe distorts their net line loss numbers. Sure, WLR still adds to wholesale revenues, but the customer relationship is gone.
• I wasn't terribly impressed with KPN's IPTV ('Mine') presentation. The service will be (re)launched after the summer, but not as a premium service anymore. The UI didn't look very fancy. The feedback they had so far (the low key launch was done in May 2006) must be a long shot at what they overambitiously describe as "what is relevant for our customers".
• Blending sounds like mash-ups, in Web 2.0 terms.
• Selling to Google or KPN is one business model, and otherwise it seems to be advertising. Sure, budgets move online and can be targeted a lot better, but in the end online advertising will prove to be a cyclical market. The Broadband Incentive Problem kind of raises the same issue: in the long run, things need to be paid for, preferably in a usage based (not flat-fee) model.

5. Other

• I spoke to Orange NL and other people, who all seem to believe that T-Mobile will not dispose of the Wanadoo BB unit of Orange NL, once the acquisition is worked out. I always assumed that T-Mobile would be a mobile-only play (outside their home markets in Germany and Eastern Europe) in the US, the Netherlands, Austria, the Czech Republic. But who knows they will embrace the convergence story.
• On the side, if T-Mobile do embrace a convergence model, selling T-Mobile USA must come into play again (remember the cablecos work with Sprint and the satellite companies teamed with Clearwire, so teaming with a fixed or WiMAX operator seems hard).
• I am getting pretty fed up with people saying that the end user is not interested in technology - to the point that I start to feel that people are increasingly familiar with alphabet soup.
• On the side, WiMAX was touted by someone in the audience as a technology capable of bypassing cellular networks in large cities. I do not wish to be overskeptical about new technologies, but I think we have to be realistic. It is an emerging technology, especially 16e (there are many 16d deployments underway, including Vodafone's Malta plans). Handset range will be a major issue. At first, the technology was supposed to deliver 70-120 Mbps over a distance of 50 km. Now, 16d seems to deliver perhaps 10 Mbps over 5 km (in a NLOS situation). Imagine what the performance will be for 16e, assuming the kind of usage we see in cellular networks today. And then I haven't mentioned building the network, from construction, backhaul and interconnect up to marketing ...
• Not to end on a sour note: Xconnect is a very interesting story. Peering is a whole new way of saving costs (and enabling new services). In fact, it is like OTC trading. Actually, I included peering in my own overview of efficiency measures (including such seemingly unrelated things like DWDM, CDN, P2P, MPEG-4 and AJAX) at my Tiscali Wholesale presentation two weeks ago. Mail me for that presentation.

Network operators give limited clarity

Network separation as well as sharing are gaining momentum, but several operators provide limited clarity on their long-term strategies.

• Sprint Nextel: having several networks (iDEN for P2T, CDMA for voice and data) already, it is ready to add WiMAX (for 4G) to the mix. The iDEN networks needs investments for maintaining a certain quality level, while the CDMA network is being upgraded continuously (Rev A, B, C). The company appears to be looking for a partner in WiMAX. Will all networks converge one day?
• Deutsche Telekom: outside Germany and Eastern Europe (where it owns PTTs), the company has a mobile-only strategy (with WiFi). However, buying Orange NL would add an LLU operator. OK, that can be sold on, but to whom?
• France Telecom: selling Orange NL makes sense, given weak market positions in both wireless and LLU. However, the company owns many wireless operators and yesterday added Austria. So far, triple play offerings are limited to France, Poland, the UK and Spain (as well as fixed/BB in several smaller countries). What about the mobile-only operations, like Austria - will they add LLL or BB?