Tuesday, March 30, 2004

Daiwa Eurotelcoblog No. 3 Wednesday, 13th August, 2003: Variations on our themes (original email blast 8:10 AM, 13th August, 2003)

Long-suffering readers of our output may recall that we have been consistently updating a few significant themes emerging in the sector this year (identified in detail in a sector note back in early February - contact us for a copy). Below are a few more interesting things we have learned/come across in the past week, which serve as additional pieces to the puzzle:

SIP as a force for accelerating pressure on the European voice market

We had a brief chat late last week with the CFO of deltathree (Nasdaq: DDDC US, http://corp.deltathree.com), a SIP operator which we recently mentioned in conjunction with its interconnect arrangement with Free World Dialup. The conversation revolved mainly around the SIP phenomenon, strategy and product development, themes we will return to later in more depth. The bullet point for this week, from a European market perspective, is that the company has launched (in beta) "virtual" phone numbers on its iConnectHere service in the UK and Israel. The iConnectHere service in the US currently offers numbers in 50 different metropolitan area codes, and also offers a toll-free US number for users outside the US. This enables, for example, a French wine maker (if the Americans are still drinking wine from 'Old Europe'!) to set up a US national toll free number for sales, which in fact links into the Cisco ATA on his desk in Bordeaux. With the new UK numbers added to the portfolio, the same wine maker can now offer UK customers a national number to dial for assistance. This is a really groundbreaking step, but one which we expect other SIP players may soon move to emulate, to the detriment of long-distance revenues everywhere.

Voice as a loss-leader for broadband ISPs

French ISP Free.fr (http://www.free.fr number 2 in the market with 1.4m subs) is adopting a Yahoo!BB-style free VoIP add-on for its ADSL customers. The service reportedly includes unlimited free calls to French landline numbers and Free.fr subscribers, and calls to mobiles for EUR0.19 per minute. We understand that long distance calls to Germany, the United Kingdom and the United States cost EUR0.03 per minute. Apparently, the free introductory offer runs until the end of the year, after which it will be replaced by a 10-hour inclusive bundle (that's 20 minutes per day per month versus a three-quarter moving average of 8.6 minutes per day for voice on the PSTN in France), with overage charges of EUR0.01 per minute.

Enhanced IM as yet another driver for voice market fragmentation

Anyone subscribing to Business 2.0 may be interested to check out the review of Apple's i-Chat from last week (http://www.business2.com/articles/web/0,1653,51359,00.html). The author's tag-line is "Apple's new audio- and video-chats can make a convert out of the most IM-averse." This pretty much sums up our interest/concern as it applies to the voice market, because once the IM phenomenon moves away from the domain of teenagers and university students and into the mainstream (product reviews like this certainly don't hurt), we see awareness of its affordability over traditional voice services inevitably growing. We see powerful potential synergies with some of the other developments going on in the internet, such as the rise of social networking groups. Speaking of which, see the interview on National Public Radio with Wired journalist Xeni Jardin on this very issue in the segment called "Making connections on the web" (http://www.npr.org/rundowns/rundown.php?prgDate=12-Aug-2003&prgId=17).

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