FTTP raises Xfone's ARPU to USD 175 (from USD 75)

From a recent Xfone press release:

FTTP is a key profitability driver for our Company and we believe there are significant opportunities for our services in select communities. Our ability to provide a voice, video and data "triple play" offering attracts customers who, because they are subscribing to three services rather than one, generate higher monthly revenue per customer. For example, Average Revenue Per User (ARPU), at March 31, 2009 for our non-FTTP U.S. customers approximated $75 per month, while ARPU for residential FTTP customers exceeded $175 per month with business FTTP customers exceeding $300 per month. Furthermore, these customers tend to stay; monthly business and residential FTTP had an attrition rate of approximately just 1% and 1.7%, respectively during the quarter.

IBM launches stimulus fund for smart infrastructure

In theory, the business case for FTTH (and the like) is improving. Total cost of ownership is being reduced continually, broadband demand and traffic are growing, the cost of waiting is increasing, etc.

Again, in theory that should attract investors. Obviously, the crisis, a lack of regulatory clarity and the enormous amount of legacy assets still work against it.

All in all, it is pleasing to see IBM devote a $5bn fund to 'smart infrastructure investments' worldwide. Some corroboration of theory, at last.

In Europe and Asia-Pacific that could entail things like "Smart Grid, Health Information Technology and Smart Transportation", available to municipalities and businesses (a subtle endorsement of government involvement).

This ties nicely into more related news:

• In New Zealand, one country among several in the region working toward FTTH, it has been noticed.
• Optimum Lightpath is launching an Interactive Patient Care service for hospitals. It takes little imagination to see this extended 'to the home', as Orange seems to be thinking.
• 3-D as a driver of FTTH is gaining momentum. There is talk of standardisation (also for a version sans lunettes) broadcasting is 3-D is starting to happen (Spain, US) and Futuresource is expecting a rapid take-up.

FTTH to stop urbanisation

Nice little clip from the BBC on Japanese FTTH.

There has been a wide range of news around FTTH over the past few days. It is striking to see on how many fronts FTTH is gaining momentum.

• DIY trench digging: already 80% of Lyse's customer base. But that's Norway.
• Emerging markets: fiber coming to Lebanon, India, India again, the Philippines, Iran and Estonia.
• Infrastructure-based competition: Swiss utilities are banding together and Swisscom is abandoning VDSL in larger cities in favour of FTTH.
• Munifiber: UTOPIA is picking up steam. Focus is on businesses now and Integra Telecom is added as a business-oriented service provider. Meanwhile, FuzeCore launched a 100/100 Mb/s service at 147 $/mo in the residential market.
• Business VAS: Eurofiber (a Reggefiber sister company in the Reggeborgh holding) launched a surveillance service with a third-party SP, DIT is beveiligen.
• Separation: Telstra may be allowed to buy into the NBN (capped at 49%), by first contributing fiber assets in exchange for 20%. One condition would be for the company to be functionally (?) separated.
• DOCSIS 3.0: Virgin is testing a 200 Mb/s service, but here is why it stands no chance against FTTH.
• 3-D: Digital Hollywood wants it to come to our homes and indeed one consultancy expects up to 10% of homes to be upgraded by 2012. Meanwhile, the new Pixar film UP opened the Cannes festival.

Verizon to wholesale FiOS internet service

Verizon has closed a wholesale deal with DSL Extreme to resell FiOS internet (not TV or voice), which will be marketed as Fiber Extreme. Fiber Extreme will undercut Verizon's price points. The 50/20 Mb/s service will be sold for 100 $/mo, whereas at Verizon it costs 150 $/mo (or 140 if bundled with voice). It is available in 17 states.

Some remarks:

• This is a WBA (wholesale broadband access) deal, not unbundling (ODF access, which is not really an option on PON networks anyway), which was killed years ago. Perhaps the new FCC could reverse that. Obviously, Verizon is trying to stop it, as is described here (free registration). Are they making nice with the FCC by doing this deal?
• A wholesale deal makes Fiber Extreme not just subject to any pricing squeeze from Verizon, it makes the company much more dependent on Verizon for provisioning and innovation. Or so goes conventional wisdom. It is remarkable to see here that the deal comes without portal, email, content and security. Fiber Extreme will be bringing its own value-added services, including Google Apps Premier. And so goes unconventional wisdom: innovation is not only created at the active layer, it can be done at the services layer as well. In fact, new services, that fiber is so desperately in search of, are here today; they are called Web 2.0.
• Will Verizon learn that wholesaling (and unbundling) will actually help it fight off cable?

What is Cyrte's plan for Bol.com?

Short follow-up to the previous post on the sale of Bol.com.

Why does a firm like Cyrte buy a well-established webstore such as Bol.com? One has to assume that the asset was shopped around. Did Cyrte manage to pay less than the True Value? I see three possibilities:

1. Cyrte plans to create value by running Bol.com in a better way. No chance. The Cyrte people may be smart at finance, but they are not in the business of running an online store. I know my Stravinsky, but that doesn't make me a composer.
2. Cyrte scored a good deal and plots an exit by selling Bol.com to a greater fool. Could be. The greatest fools can be found at the stock exchange, and the IPO climate seems to be clearing. Vodafone Qatar was successful and Skype is planned for next year.
3. Interest in Bol.com was minimal and Cyrte pensils in a sale to a trade buyer. This is the intriguing option. In theory, a party such as Amazon could always afford to pay more than Cyrte because of synergy benefits. One particular party comes to mind: the Media-Saturn-Holding, operating the Media Markt and Saturn stores in Europe and controlled by the Metro Group. The websites connected to these stores are not online stores, but that is changing. After the Summer, both chains plan to operate web stores.

Bol.com sold, but not to Amazon.com

Bol.com, the leading e-commerce site of the Netherlands, was finally sold. It started life as part of Bertelsmann Online and is now becoming part of the Cyrte investments portfolio.
Two years ago, I argued that it was a great fit for Amazon.com. Bol.com, much like Amazon, is venturing beyond books into electronics and it too has fierce local competition from an eBay affiliate: Marktplaats.nl (classifieds).




Financial details of Bol.com are not disclosed, but let's see how they compare:

• Sales 2008: Amazon $19.166bn (+29%), Bol EUR 224m (+31%). This makes Amazon 65x larger (at current USD and EUR rates). Growth rates have pretty much converged.
  
• Employees (at present): Amazon 20,600, Bol 230. On this metric, Amazon is 90x larger.
  

Of course, the differences are significant. One could say that Bol.com is an early stage Amazon look-alike. It lacks a global presence, digital downloads and streaming, the Kindle e-book reader (including the WhisperNet MVNO), wholesale services (fulfillment) and web services. It doesn't seem to have the scale to ever match Amazon when it comes to innovation, which is essential in a world that steadily migrates away from physical products.

Amazon's market capitalisation is $36.3bn and it has $0.4bn in long-term debt, a total of EUR 27.7bn. One can only hope that Cyrte paid less than Amazon's 2x sales multiple valuation, which would translate into a maximum of EUR 400m.

Deutsche Telekom leads: the crisis is kicking in

Deutsche Telekom published preliminary results for the 09Q1 quarter. Results were due May 7 (which is now set for full results), which implies that management had something meaningful to disclose that couldn't wait another two weeks.

The US, the UK and Poland apparently are the cause of the recent deterioration. Less travel means fewer roaming revenues. Calling minutes in the US declined by a whopping 8%. And T-Mobile UK will take an impairment charge.

Is the telco industry immune to the crisis? I don't think so, but it kicks in with a 2 year delay.

True innovation arises at the active layer

My daughter was out horseback riding over the Easter weekend. Her teacher is new to the village where we have our country home and the business model deployed is really interesting.

The teacher rents space from an old farmer, who decided to take it a little easier. He was never into horses; his business was both milk and growing corn and wheat. Now, all he has left is a bunch of pigs. In other words MoF (milk over farm), PoF, CoF and WoF, but no HoF. He is still in control of the farm (the passive network of meadows, water, fences, etc.) but the young woman who co-locates at the farm, brought her own horses (active equipment, so to speak). She also does the teaching (the retail services) and the whole thing really works well. Right now, she is the only person co-locating, but I suppose the farm is big enough to be able to host a few more animal (horse, donkey, whatever) keepers. Or a service provider who knows how to teach the pigs a few tricks and sell the service.

So here is what is going on:

• Complete separation of passive and active elements.
• Vertical integration of active elements and services.
• No cannibalisation of legacy income streams. All interests are perfectly aligned.
• It remains to be seen what will happen once the farmer decides to allow another (horse) keeper to co-locate at his farm. There doesn't seem to be a reason for the farmer to keep the newcomer at a disadvantage, so it looks like this will lead to some competition.

Catching up on some old newspapers, a story about the Dutch railway system caught my eye. There has been structural separation between the passive elements (tracks, safety system, etc.), which are controlled by state-owned ProRail, and the active elements (stations, other real estate), owned by NS. However, there is still integration of the active level and a service provider (NS). Also, NS provides wholesale services to competitors.

Generally, the model seems to be working fine, but recently, new service providers have started to complain. They have a hard time competing with NS because the latter controls the active layer and provides wholesale services. Newcomers, that typically run services over regional lines, are at a disadvantage viz-a-viz NS as a service provider when it comes to renting office space at stations, the use of stations for consumers (competing trains are often at the far end of the platform, sometimes hundreds of meters away) and infomation to travellers.

A committee has proposed to take away wholesale service provision from NS and create a new company for that purpose or ask ProRail, the network owner, to perform this service.

To summarize:

• Complete separation of passive and active elements.
• Vertical integration of active elements and services.
• Full cannibalisation because there is just a single service: travel. The 'pie' most likely isn't growing very much, unless service levels at competitors are higher, which may draw travelers away from their automobiles. Right now, this doesn't seem to be happening, as witnessed by competitor complaints. To be sure: the pie is growing somewhat because competition has urged NS to raise its level of service.
• Vertical integration of the active elements operator and the dominant service provider seems to be an inhibitor for the system to really work. (Art Price would say: You can't compete with your customers.)
• Adding wholesale service to ProRail would effectively collapse the passive and active layers into a single network layer. It doesn't seem to be a bad idea, because there doesn't seem to be room for a competing active operator anyway.

Transporting these events to the world of telcos, my conclusions would be:

• Meaningful innovation arises at the active level (HoF is new to the farm). Innovation at the service level probably has more to do with service levels (railways are about taking people from A to B - no more, no less).
• Newcomers co-locating compares to xDF access (MDF, SDF, ODF).
• Newcomers not in control of active elements, are sold wholesale broadband access (WBA) by the operator.

If co-locating horses is like buying xDF access from the farmer (owner), and if providing travel services is like buying WBA from NS (operator), then what would it be to ...:

• ... buy WBA access from the horse keeper (operator)? A newcomer wouldn't bring his own horses. Service levels may rise, but innovation is questionable. If a new service provider wants to sell new services, it is dependent on the horse keeper to teach the animals new tricks. But then the new tricks could become available to all service providers.
• ... buy xDF access from ProRail (owner): A newcomer would bring along his own stations. It could be possible in theory, because many stations are too small anyway and serve as bottlenecks, degrading service levels. How about this for a stimulus plan?

Final conclusion:

If there is scope for true innovation, xDF access must be available (wholesale service provided by the owner); if innovation is merely about raising service levels, WBA is sufficient (wholeale service provided by the operator).

That's the question!

Australia goes structural separation for near-nationwide FTTP

After Singapore and New Zealand, now it's Australia to help fund a National Broadband Network. It will be FTTP after all: FTTH + FTTO. (There are 21.5m Australians in 7.5m homes, but how many offices? - anybody?)

Here are the specs:

• Ownership: government, managed at an arm's length; majority i.e. at least 51%; may not be sold until 5 yr after launch; private investment expected; any RSP max 15%.
• Technology, topology: FTTP, max 100 Mb/s, to cover 90% (all towns of >= 1k people), elsewhere wireless/satelliet, 12 Mb/s.
• Total cost: AUD 43bn (initially AUD 4.3bn), funding through Building Australia Fund and the issuance of Aussie Infrastructure Bonds (AIBs)
• Time-line: 8 year roll-out; simultaneously in metro, regional and rural areas from early 2010; first national backbone and Tasmania (July 2009, to be built by Aurora); FTTP mandatory in greenfields from July 2010.
• Jobs: 47k jobs, 25k staff every year (peak: 37k).
• Government strategy: facilitate access to land, poles, ducts; e-health, e-learning; FTTP required for greenfields from July 1 2010.
• Regulation: consultation on measures considered at Telstra: access, functional separation, horizontal separation; response due June 3 2009.

Questions remaining:

• PON (effectively 2-layer; no unbundling, just WBA) or P2P (3-layer, WBA or ODF access) network?
• How about in-home wiring?
• Role of Telstra: horizontal and/or vertical separation; access to infrastructure; spin-off assets into the new company?
• Pricing?
• Penetration targets?
• Will 1 Gb/s come into play?

Remarks: similarities to Singapore (PON) and New Zealand (probably P2P - see page 26):

• Clear choice for FTTP over FTTN.
• Mixed ownership of the passive layer.
• Open access.
• Structural separation.