Gaming as a managed service?

We have been doing a report for the regulator on the OTT-market. Our approach was to split services as follows (fixed and mobile have been thrown together - after all, networks are being fiberized while sharing the backhaul and long-haul and the access portion is becoming less relevant: copper, coaxial, fiber, 3G, 4G, WiFi):

• Communication
• Text-based (with or without pictures/video)
• Managed
• SMS
• OTT
• Email
• Chat, IM
• Social networking, (micro)blogging
• Voice-based (with or without video)
• Managed
• Voice calling
• OTT
• VoIP
• Entertainment
• Video
• Managed
• Broadcast linear TV
• Catch-up TV
• VOD
• OTT
• Broadcast video
• Catch-up TV
• VOD
• Gaming
• Managed?
• OTT

Gaming is an OTT service. Which operator will introduce gaming as a managed service?

Ziggo going ex growth on the digital TV market

Here is the analogue-to-digital conversion ratio for Ziggo (digital net additions divided by analogue net deletions). As you can see below (blue line), the ratio used to be roughly around 80 percent for three years (consumers only). Meaning: of all analogue deletions, around 80% would return as a Ziggo digital customer and the other 20% would defect to a different platform (IPTV, DTH, OTT-only). In 12Q4, all deletions defected to a rival platform.

The digital TV penetration now stands at 80.4%, and there are 546,000 analogue-only viewers left to be converted to digital TV. The red line below shows the utility rate of the network (customers divided by homes passed), or if you will: Ziggo's TV market share in its service area against all competition. Currently, it stands at 65.9%.

If all 546,000 analogue-only viewers would defect away from the Ziggo platform (hence the blue line would be flat at 0,00%), then the red line would end up at 52.9% (assuming a flat number of homes passed: 4.213 mln).

Akamai 12Q3 in brief

Akamai State of the Internet report 12Q3

Some overall stats from the 12Q3 State of the Internet report from Akamai:

Fixed:

• global average connection speed -7% qoq and +11% yoy to 2.8 Mb/s
• global average peak connection speed -1.4% qoq and +36% yoy to 15.9 Mb/s
• global high BB (>10 Mb/s) adoption rate +8.8% qoq to 11%
• global broadband (>4 Mb/s) adoption rate +4.8% qoq to 41%

Mobile:

• average connection speeds on mobile networks 324 kb/s to 7.8 Mb/s
• average peak connection speeds on mobile 2.8-39.1 Mb/s
• market shares mobile devices: Android 37.6%, Safari 35.7%

Fixed and mobile:

• market shares mobile devices on all networks Safari 60.1%, Android 23.1%

European telecoms assets for sale

America Movil, AT&T and perhaps France Télécom are looking at telecoms assets in Europe. Let's see what could be for sale right now:

• Deutsche Telekom: T-Mobile in Austria, the Netherlands and Albania, Bulgaria
• DT and FT: EE in the UK
• Telefónica: UK and Germany
• KPN: E-Plus (Germany) and Base (Belgium)
• Tele2: Russia, Germany, Austria
• TeliaSonera: Yoigo (Spain)
• Vivendi: SFR (and Maroc Telecom and GVT)
• UPC: Romania
• Further, assets held by private equity: Com Hem (BC Partners), Colt Group/Colt Technology Services (Fidelity) and Eurofiber (Doughty Hanson).
• And then there are companies considering splitting off businesses: Telekom Austria (Eastern Europe), Telefónica (Latin America, Europe).

The question remains, what are potential buyers looking for: mobile, incumbents, cable companies, business/wholesale operators?

Many scenarios are possible:

• Consolidate Germany: buy both E-Plus and O2 and add some Tele2 to the mix. Could this propel Orange into Germany?
• Consolidate the UK: buy both EE and O2. That could be a start for AT&T, in English speaking territory.
• Pan-European fiber: buy both Eurofiber (mainly Netherlands, but some in Germany and Belgium) and Colt Technology for networks and services. This seems a good fit for Vodafone. But also operators such as BT and AT&T could beef up their European asset portfolio.

What we like about Google

There are many things to like about Google. We grouped them around three themes:

• Advertsing-based business model:
• It implies drawing people to its services, i.e. making great products and services.
• The risk of this model is to be focussed on the masses and producing more of the same, but there appears to be plenty of room for 'the long tail'.
• Open platforms such as Android (Chrome, Widevine, WebP, Dart), allowing for all sorts of cooperations (incl. competitors), with Google only interested in advertising.
• Invests for the long term:
• R&D: plenty of that plus Google[X] (imaginative projects) and Google Ventures. Provides no guidance to Wall Street, i.e. demands the freedom to have a long-term strategy. Hires great scientists, such as Vint Cerf and Ray Kurzweil.
• Access networks (FTTH, WiFi, satellite).
• Green energy
• Google.org
• Be good:
• Motto: don't be evil.
• Google.org (investments and donations)
• The company is also good to its employees.
• Green energy investments.
• Funding (with Clean Power Finance) for solar panel buyers.
• Book preservation through Google Books.
• Free WiFi projects.

The case against technology-neutral spectrum

Rewheel showed that 'independent challengers' add a lot to competition in mobile markets in Europe. The E5 (DT, FT, TEF, TI, VOD) have a combined market share of 80% across 27 nations. There are indie challengers in 14 of those. In the other 13, minimum prices can be 140% higher.

Competition in telecoms is limited as a result of an extremely high entry barriers. In fixed markets, it is legacy infrastructure held by the incumbents. In mobile markets the scarcity of licenses is added. Hence regulation.

Take note that Vodafone is an incumbent on the mobile market, just like Bouygues and SFR. Tele2 also is an incumbent, at least in markets where it joined when 2G (and 3G) licenses were tendered. Now Tele2 is entering the Dutch market on the back of winning a 4G license (not counting its presence as an MVNO). So, Tele2 NL will most likely act as an indie challenger. Hutchison 3G was a challenger in the 3G era, but may not act like one when 4G licenses are issued and a new entrant appears.

Now, there's always scope for an incumbent/E5 operator to behave like a challenger. One could call this atypical, in light of the Rewheel study. For instance, at the latest strategy update, DT told T-Mobile NL to behave like an 'unconventional attacker'. Hence, T-Mobile NL may display atypical behaviour as well.

Back to the entry barrier. It has been lowered considerably by allowing the timing of issuing new licenses to coincide with rise of new technology (4G/LTE). So, Tele2 NL enters the market as an MNO and at the same time can use all the advantages of LTE.

The question now is: is it wise to make spectrum technology neutral? The regulator decided to do so, which at first sight seems to make a lot of sense. However, by the time the next auction will take place (2029 - not counting the 1900/2100 auction probably taking place in 2016), new technology will be around (5G) and all 4 MNOs will have introduced it. So, the new entrant coming to the market in 2030 will not have a technology advantage like the current wave of 4G entrants have.

Smartphones add a sense: smell (what about a thermometer?)

If a smartphone's core competencies are the software and the touch screen, then it has to be added that there are more senses in a smartphone:

• Sight: it has a camera.
• Hearing: it has a microphone.
• Touch: it has a touch screen
• Balance and acceleration: it has a gyroscope and accelerometer.
• Time: it has a clock.

That leaves (apart from temperature) smell. And that is now to be added through a new chip from Adamant Technologies.

One more to follow: a thermometer.

Tele2 Capital Markets Day: highlights

Overall: moving from Discounter to Best Deal and now to Value Champion.

Sweden:

• Comviq discounter brand, Tele2 Value Champion brand.
• 3P on OA networks by YE 2013: 600k households.

Norway:

• Focus on network roll-out. Coverage 75% mid 2013.
• Auction (800, 900, 1800) coming 13Q1.

Kazakhstan (Tele2 51%, Asianet Holding 49%):

• EBITDA-breakeven by 13H2.
• Network coverage 92% in 2015 (today 80%).

Russia:

• Tele2 leads in 9 regions, is a challenger in 21 and a newcomer in 8.
• Focus on 2G; quotes:
• "maximize the 2G opportunity
• make progress on technology neutrality
• absence of MBB will not be critical in approx. 2 years
• >90% of data usage is social networks, where EDGE speed is enough for good user experience"
• "Evaluate possibilities to expand carefully through new licenses as well as by complementary acquisitions."
• Tele2 (and others) aims to launch LTE in 1800 band. 58% of its base stations are LTE-ready and 67% of its transport network.
• MNP is coming to Russia Dec. 1 2013.

Deutsche Telekom Capital Markets Day (3): highlights Germany

General:

• "We believe highspeed network quality will be key differentiator".
• Rev stabilisation in 2014.

LTE:

• Coverage to 85% by 2016 (from 38% now).
• Peak performance 75 Mb/s in 800, 150 Mb/s in 1800 band.
• Capex 1800 70% lower than HSPA (in terms of capex per Mb/s)

Fiber (FTTC):

• Speed FTTC max 50/10 Mb/s, with vectoring 100/40 Mb/s
• Capex FTTC + vectoring 70% lower than FTTH (in terms of capex per home).

Hybrid access (FTTC with vectoring and LTE in 1800 band):

• Down: FTTC + LTE 200 Mb/s (100 each), ADSL + LTE 116 Mb/s (16 + 100).
• Up: FTTC + LTE 90 Mb/s (40 + 50), ADSL + LTE 51 Mb/s (1 + 50).
• Vectoring and hybrid prolong copper lifecycle up to 10 years.

Mobile targets 2015:

• Smartphone LTE sales 67% share (now 4%).
• 10m contract subs (+47%) (now 6.8m).
• Service rev EUR 7bn (+ 2-3%), market share 35%.

Fixed:

• Focus on wholesale to secure network utilization.
• Targets 2015:
• 2.7m fiber subs (+240%), market share 43%
• 3.0m Entertain subs (+60%)
• Connected home rev EUR 5.4bn (+2%).
• Growth initiatives (cloud, intelligent networks, De-Mail, M2M) rev EUR 0.7bn.
• Total growing rev EUR 9.2bn (+1.7%)
• Total rev EUR 22.2bn (from 22.7 in 2012), o/w >40% from growth.

                              2012  2013  2014  2015

REVENUE TEL DLD               22.7              22.2

          BASIC               15.2              13.0

          GROWTH               7.5               9.2

            CONNECTED HOME     5.3               5.4

            MOBILE DATA        2.0               3.0

            INITIATIVES        0.2               0.7

OPEX                          13.9              13.8

  DIRECT COST                  4.8               5.1

  INDIRECT COST                9.1               8.7

EBITDA MARGIN                   40    40    40    40

CAPEX   TEL DLD                3.6   3.4   4.1   4.3

          BASIC                                  3.2

          FTTC                                   1.1