Iwashi power

As anyone who has ever lived in Japan can attest, approximately 98.6% of Japanese television programming is either quiz shows or food programs. This evening I was treated to a show which was both - one whole hour devoted solely to the humble iwashi, or sardine.

Location, location, location

Casting a red glow (this photo was taken just as the sign was lighting up) over a prominent intersection in Ginza is Vodafone. Several clients have asked over the past couple of days if there was a case to be made for a withdrawal from the Japanese market. My natural response would be that there is, but when I see the sheer amount of Vodafone advertising in this country (the "Vodafone crosses borders" slogan is also part of a ubiquitous TV ad campaign), I sense they genuinely are in for the long haul.

The Big Apple, Tokyo style

It's big, it's Ginza, it's packed, it's an iPod Christmas for Japan, apparently.

Makenai Furansu-jin

My personal laptop, from which I write, doesn't have Japanese character entry, unfortunately. Anyway, this title means something like "The French are nothing to sneeze at." While I waxed lyrical about broadband in Japan earlier, Yannick is riffing rather amusingly on French broadband bete noir Free's broadband brinkmanship. Inspired.

Step right up!

Inside the Yodobashi Camera store there was a long counter where sales representatives were promoting various broadband products, with most of the usual suspects represented. How about 50Mbps DSL for EUR28.50 per month? You got it. An extra EUR21 per month gets you 100Mbps symmetrical fiber. We asked one sales guy where fiber services were available, and he chuckled and replied, "Within the Kanto region (a mega-conurbation of 40m people), basically anywhere where there's train service." Which I unscientifically calculate as being pretty much everywhere...

Akihabara

Today I had a chance to stop off for a look in Akihabara. My locally based colleague remarked that the area's been under intense pressure as the various product ranges of its old specialist shops are subsumed in giant category killer stores around the city, such as the world famous Bic Camera. A new one, the Yodobashi Camera superstore, has descended on Akihabara, with an almost obscene range of tecnology on display. It was truly jaw-dropping stuff. If it ain't here, it probably doesn't exist.

Bad to the bone

Vodafone and au may be struggling to get their marketing messages across, but stroll up the road to MosBurger and there's an undeniably powerful message waiting for you, possibly literally in your face, depending on which way the wind is blowing: "Feel the chicken."

Waves of love

At the other end of the tech spectrum from poor old "News-kun" was this wedding ceremony occuring just under my window. The happy couple were standing on a glass platform erected over the lavish hotel swimming pool. The guests were seated around the pool, and if you look carefully you can see the organist in the upper left corner.

News-kun, we hardly knew ye

One thing which I find really interesting about Japan is that, for all the orderliness and sparkling, hi-tech infrastructure, there is a layer of retro rot just barely concealed under the surface, and a fair amount of retro-futurism, which I love. This is a newspaper vending machine, my guess is from the 1980s, still standing on the street, with newspapers still inside (I couldn't see if they were recent), but it looks entirely forgotten and forlorn. It's called "News-kun," "kun" being a suffix indicating a younger person, or a boy.

Pachinko fever

Pachinko fever
Originally uploaded by jimiinc.

This is a very poor photo, but I was walking past and shot it just as the doors slid open. Basically, I am afraid of pachinko parlors and their management, nuff said. Anyway, one thing that has always amazed me about Japan is the seemingly inexhaustible appetite which many people seem to have for it. It's hard to tell from this picture, but most of the people inside looked to be college students, or around that age, not the sad middle-aged man crowd which I always associated with pachinko when I lived here. Internet gaming, with all its attractions, is indeed impressive, but it seems that people who play pachinko are looking for something which may not be replicable online, even if they were allowed to win money. It seems to me that the experience involves some very unique aspects (cramped seating, a choking cigarette haze, deafening music, and the incessant din of the machines themselves), which no amount of Ajax could recreate.

au, get off of my cloud

Just across the road from the Vodafone shop, things were much quieter in the au shop (au is the fantastically successful mobile brand of KDDI). So quiet, in fact, that the management saw fit to send two young girls in long puffer jackets (deja vu of Yahoo! BB's tribe of street-pounding evangelists some years back) out in front of the shop. One exhorted passersby with a microphone and hectoring nasal tone unique to young Japanese women, while her colleague handed out packs of tissue, which believe it or not, are very common advertising tools in Japan.

Vodafone in Japan

The Vodafone shop in Monzennakacho near my hotel was very lively this Sunday afternoon, somewhat surprising for a brand which is struggling. The lifesize cutout of some popstar (unknown to me) in the shop window bears a clever marketing pun. The text reads "Vodafone crosses borders," but the word "borders" is rendered in a Japanized English rather than the native word. This comes out as "bōdaa," which sounds like the first two syllables of the Japanese pronunciation of the company name, i.e., "Bōdafōn."

Tokyo Nagaremonogatari

EuroTelcoblog is on the road in Tokyo, and while I intend to stick to the usual themes, I will exercise my editorial fiat to go offroad from time to time over the next few days.

Tokyo bound

I am headed to the mother ship tomorrow at midday. Hope to do some photoblogging while I'm there.

Toxic parents

Poor Swisscom. "No you shall not go to the ball, we want our dividends."

Sold on telecoms

Sell-side analysts no better than salesmen? Pshaw! Analysts covering FTSE 100 companies may be 90% positive/neutral, but hard-nosed European telecom analysts can confidently hold their heads high, proud in the knowledge that they are only positive/neutral 87% of the time. At least according to my digging on recommendations as reported by Bloomberg.

I don't want to mix business with pleasure, so I won't go into the specifics of my coverage, but suffice to say that 63% of my recommendations are neutral and 37% negative. I have no outperform or buy recommendations (our ratings are made against the wider market, not against the sector - if the policy was to make recommendations against the sector then things would look a bit different). Astute readers of this bloglet may have picked up on a nuance of pessimism I have towards the sector, and there's your proof.

I guess I would have been fired from somewhere else long ago, but I'd like to think that our clients like hearing it like it is, and that this is appreciated by my management. Anyway, I guess the performance numbers tell the real story. Here's the STOXX Telecom industry group's ranked relative performance against the STOXX 600 18 industry groups (1 being highest, 18 being lowest).

One month - 18
Three months - 18
Six months - 18
Year to date - 18
Two years - 16
Five years - 15

This probably gives some sense of the analyst fatigue which I assume many fund managers must feel. Given a poor performance track record, and an increasingly brutal set of competitive and technological risk factors, where can this overwhelming sense of positivity come from? I certainly don't have a clue, but hope definitely springs eternal. One other thing I notice from perusing Bloomberg's data is that average price targets on Vodafone, France Telecom, Deutsche Telekom, Telefonica and Telecom Italia (i.e., the five biggest constituents in the sector, which generate the highest trading volumes, and therefore commissions) are 20% above current trading levels.

Here's the data, as compiled from Bloomberg:

Positive/Neutral/Negative splits (%)

France Telecom 74/18/8
Vodafone 67/28/5
Telenor 62/29/9
OTE 57/43/0
Deutsche Telekom 56/36/8
Telefonica 55/37/8
Telekom Austria 54/46/0
TeliaSonera 44/36/20
Portugal Telecom 37/47/16
Tele2 36/43/21
Telecom Italia 34/41/25
TDC 30/50/20
BT Group 27/38/35
Eircom 25/75/0
Belgacom 22/50/28
KPN 56/36/8
Swisscom 5/57/38

Let's go back in time

I know there's a lot of very heavy stuff going on in the sector, and I could very rightly be accused of being overly negative and pessimistic, so mea culpa. But it's nearly Friday, so let's forget all that and enjoy a little nostalgia, returning to a simpler time, when we didn't have to think about the "database of intentions" or deep packet inspection, but we were definitely in search of something more (though I am amazed that the obsession with remote control of domestic appliances apparently goes back some 41 years, at least). And people wrote letters...

More Mesh Mapping Goodness

Very nice indeed. Would be very interesting to have this sort of facility for customers of the traditional players' networks (maybe a site called "How overbooked is my DSLAM?"), but I imagine Beelzebub might purchase a parka before we see that day.

Land of hope and Google

There's been plenty of media coverage of Google's London office opening, but a mega-uber value reader points me to an apparently new outreach initiative, Google Space at Heathrow Terminal 1. I wonder if we'll start to see Google sponsored hotspots turning up around London, say at Victoria Station?

To the max

Pipex, which frequently has a significant lag between press releases being emailed out and posted to the site (thus no direct link at this point), has this morning released an update of progress in its 802.16-2004 trial with Airspan. Its drive tests have achieved stable non-line of sight connections in excess of 1km from the base station, and the company is talking about hitting 8Mbps by March of next year. Towards the end of the release there is a reminder of progress being made towards 802.16e compliant handsets. I'm sure there are a lot of kinks to be worked out along the way, but I wonder how many investors have factored in what is in effect a sixth UK mobile network (and maybe a seventh, if the prohibition of handoff is lifted?) coming into the picture just as Vodafone, T-Mobile and Orange hope to begin seeing the fruits of their marketing pushes?

Meanwhile, Disruptive Dean has an interesting take on the market dynamics behind the xG Technologies story.

Do you speak Google?

(Just stumbled across this): Global domination can still be fun.

I think future iterations should include the telco doublespeak version, as well as the Dubyaficated version (Go to the button marked "Wordify" on the "Amusements" tab, and enjoy).

UPDATE: A few sample "Bushifications" -

Enck -> "mis-Enckicity"
EuroTelcoblog -> "over-EuroTelcoblogication"
Daiwa -> "Daiwaization" (簡便してくれ)
Mongolia -> "super-Mongolia-protection"
disruption -> "dedisruptionizational" (this is a timely word)
long tail -> "anti-long tailicity"
net neutrality -> "under-net neutralistic"
stupid network -> "stupid networkification"
misunderestimate (itself a documented Bushism) -> "mis-misunderestimatify"

Calling Dr. Orwell

I've spent the past week writing a piece for our global sector product, and putting together slide packs for clients, on the emerging issue of net fragmentation. Being an ardent believer in the principals of net neutrality, and the idea that openness and interoperability eventually pay huge dividends, I feel very strongly about this issue. Nevertheless, each time I commit a line to paper/cyberspace, I'm seized by a feeling of doubt for a few seconds. Can it really be this bad? Am I not just being sensationalistic and paranoid? Luckily (is that really the appropriate adverb?), subsequent newsflow (in this case via a Platinum Club mega-uber value reader) invariably makes me feel better, well actually worse, but at least vindicated:

"Telephone networks are made up of regional, domestic networks united
together in agreement of the ITU framework. A similar situation may start
with the internet." (?)

Secret German working groups concerned with IP interconnect, yet not involving ISPs (with a couple of prominent exceptions)?

Calling Dr. Orwell, we're 21 years late, but the patient is finally ready:

"Oceania was at war with Eurasia and in alliance with Eastasia. In no
public or private utterance was it ever admitted that the three powers had
at any time been grouped along different lines. Actually, as Winston well
knew, it was only four years since Oceania had been at war with Eastasia and
in alliance with Eurasia. But that was merely a piece of furtive knowledge
which he happened to possess because his memory was not satisfactorily under
control. Officially the change of partners had never happened. Oceania was
at war with Eurasia: therefore Oceania had always been at war with Eurasia.
The enemy of the moment always represented absolute evil, and it followed
that any past or future agreement with him was impossible."

Wayward mobility

I had a good lunch today with Dean Bubley of Disruptive Analysis. Turns out we worked together at Credit Lyonnais back during Bubble 1.0, if only for about five minutes, and in separate parts of the business (his small-cap team soon left en masse to another house, and I found my own exit a few months later). Anyway, he's got an acerbic style which I like, as in the case of his take on MMS:

"Yes! You can take lousy low-quality images, compress the living daylights out of them further, put them in a cumbersomely-constructed message, and spend lots of money to send them to someone else, who might occasionally receive them OK. No! Don't just upload the image to a PC and email it for free more easily instead."

He's certainly got a good point. As I think I've stated before, I almost never send an MMS, and on the rare occasion when I do, it's almost always one included in my monthly tariff, and invariably to my Flickr! account: one image transfer, to a potentially unlimited viewing audience, in perpetuity. Thinking back to the Bubble 1.0 era business projections I recall seeing (voice ARPU stays flat over the forecast period, with data growing to a commensurate level - hey, presto, ARPU doubles by 2010!), I am the nightmare customer, 2005-style.

I'm not alone. A cursory examination of European mobile ARPU (as reported by the players, caveat lector) shows that data revenues account for anywhere between 12 - 19% of ARPU, and typically around 75% of this is pure SMS. Strip this out, and we get voice ARPU down anywhere from two to more than 10% YoY, depending on the player and market. Given that voice is the only place where any telco has ever made money, there is an understandable scramble to replenish the top line and invent a public case for margin stability.

Then again, it only takes something like this to wipe a lot of potential revenue streams off the radar screen entirely. Sky UK, Sky Italia, Premiere, Canal+ , EuroCable, DSL players, anyone but the mobile players, may become the prime movers in mobile (okay, portable) content, precisely because they aren't explicitly trying to make money off of a discreet billable event, as the mobile players are natually obsessed with.

Shameless self promotion corner, revisited

Slow posting these past couple of days. I'm busily preparing three separate slide packs for my marketing trip to Tokyo next week. Two are for clients with varying interests - one very Eurocentric, one very global. The latter makes me laugh every time I look at it, because for the cover I have assembled images of telco/cable barons on the right (well, that's appropriate, isn't it?), with the global internet/media luminati on the left - between them is an inflatable kiddy wrestling ring. The title? "Let's get ready to rumble!" The third set is an introductory presentation on online gaming for the session I am moderating at the Europlace event on Tuesday.

If it ain't broke...

One of my favorite wacko Southern sayings comes from Jerry Lee Lewis, who once stated his attitude to excess thus: "Enough is alright, more is better, and too much is just about right." This might also be applied to Congressional efforts to fine-tune the economics and engineering of the internet. Just last week, we published our November edition of the Daiwa Global Telecom Monthly, and in it I wrote a leader piece dealing with the BITS act and related issues, and afterward I wondered if I had been a bit too alarmist and paranoid.

However, after reading Susan Crawford's take on the new draft bill on the Universal Service Funding mechanism (read pages 17 - 19, and then go and change your underwear), I am beginning to agree with Jerry Lee (i.e., only too paranoid is an adequate response to this kind of craziness). In other words, this piece from one year ago seems to be playing out as I envisaged - but it's actually worse.

Not only does the customer stand to get shafted, but it looks to me like purveyors of third party communications applications are left open to, in effect, being forced to pay interconnect, as well as being saddled with all manner of compliance costs (and fines, should they not play along nicely). I wonder how Skype would have handled this challenge had it remained an independent company, but even with eBay footing the bills, I'm not sure how it deals with this.

I guess this is a good time to be in the deep packet inspection field. Skype was about opening up communication, and now the sweet spot in the market is around closing it down.

(UPDATE: Those of you old enough will remember just how quickly Woodstock was followed by Altamont...)

Imagination at work

This M&A-driven market delivers one mega-deal a second. GE is getting out of insurance, and interestingly only yesterday hired two highly regarded people in the telecom and media world to advisory positions in its commercial finance arm. I wonder what they're going to do with the cash?

Hotlanta! My box runneth over

I seem to recall Cisco denying at some point in the past that it was moving into consumer electronics, but I don't know how else to categorize this. I see a box, with WiFi and SIP built-in, plus some place-shifting/remote management capability - and some headaches for a few people.

The human mesh

I'm not quite sure how I managed it, but I got invited to dinner with a bunch of interesting people last night, for a change, hosted by Kevin and Johanna Werbach. One of the attendees turned out to be Richard Lander from Locustworld, who had some great anecdotes about delivering broadband to Bolivia, as well as some other interesting (the important bit is about 7 minutes into this) developments I want to follow up on when things are a bit quieter. He also points me to this very cool mash-up of Google maps with the network status and topology stats from another Meshbox deployment in Vivian, Louisiana. Damned impressive. (Incidentally, this is the region where one half of my family comes from, and knowing it as I do, I guess the mesh pickup and bassboat are also in the pipeline!)

When in doubt, issue a press release

It's coming down to a battle for hearts and minds, and KPN has come off the ropes swinging, albeit somewhat feebly: "KPN's core network has been all fiberglass cable for many years now." Duh.

Through the keyhole

I just happened to stumble across this interesting blog, which details a rural family's experience as it drops the PSTN completely in favor of total Skypification. Interestingly, according to this unofficial survey, a significant number of people might be doing just that.

I still don't get no respect

I'm usually pretty skeptical as to the value of these company league table exercises put together by the financial press, but in the world of corporate paranoia and keeping-up-with-the-Jones', I guess they must mean something to someone. The Financial Times today has another in its annual series of "World's Most Respected Companies," a mixture of hagiography and crypto-advertising, and I'm sorry to report that, with the exception of Carlos Slim, no telco executive figures in the top 50 most respected business leaders, and not a single telco name crops up in any other category (shareholder value, turnaround, customer service, innovation, most respected company).

Some might argue that the list reflects largely global players in global industries, whereas telecom is a global industry comprised of national and regional players woven loosely together - thus, it's not a fair comparison. Balderdash, I say. Vision is vision, and where it exists it is awarded respect. At the very least, one would expect that the closest thing to a global player in the industry would appear somewhere in these lists (if nothing else, its market cap is larger than many of the companies which do appear - despite the rout of earlier in the week), but no cigar, hard cheese. You are known by the company you keep, and it looks like telecom is cowering in the corner with the dowdy wallflowers, suffering from low self-esteem.

El huésped malo

Deutsche Telekom must be feeling slightly Iberophobic right about now. The O2 acquisition can be of little comfort (think of the competitive roaming offers for destinations like the Costa del Sol or Argentina), Telefonica recently reported that its German DSL lines were up 25% YoY in Q3, and now the company is providing Skype with German SkypeIn numbers (thanks to Richard for pointing this out). If the Equant/Google story turns out to be true, then here we have two cases of national carriers jumping on the bandwagon as enablers of next-gen voice, once again to the detriment of their neighbors (and their own retail businesses?).

Now IVE seen everything

In all the distraction I suffered yesterday, I failed to notice the Sony news about IVE (Instant Video Everywhere, in conjunction with Glowpoint), making good on earlier suggestions of a consumer VoIP offering in the works. Not sure I fully understand the pricing, which looks fairly extortionate for PSTN breakout, particularly international, but I guess it's certainly cheaper than the typical conferencing service. Who's next, Dell?

Connect the dots

Two Superfantastico mega-valor readers simultaneously point me to news out of Latin America that Google is cooking up something with Equant for global VoIP. I can't think of any other players who have points of presence in Ulaan Baator or on the shores of Lake Baikal. This could be big, and also puts France Telecom in an interesting position...

Two out of five ain't bad

Today was the day I chose to re-start coverage of Vodafone following the departure of the other member of Daiwa's telco mega-team. Boy, I know how to pick 'em. The market is almost closed, the share price is down 10.7%, on an almost inconceivable volume of 2.05bn shares. Luckily I wasn't planning on being overly positive anyway, but today was any doom-monger's dream come true. Spain and Italy looked decent, but the UK and German markets are obviously very tough going (as we knew), and Japan is a nightmare. That's two out of five core markets doing well. However, Japan could get a lot uglier, as could the UK and Germany (particularly if DT decides it wants to play the converged game in the UK too, and does something drastic) and I wouldn't count on Spain remaining the relative island of calm it has been.

The outlook statement gives a fairly unappetizing view of the next couple of years: margins to compress further in Japan, followed by more vigorous marketing initiatives in the other core markets in the 2006/07 financial year, bringing more of the same. (Does this sound familiar to anyone?) Capex is going up, and there's this small matter of GBP5bn in deferred tax liabilities which are to be crystallized sometime over the next three years. I think the market rightly senses that the additional GBP2bn in buybacks and increased dividend are a last gasp of the good times before the heavy weather sets in. I'm tempted to say that EuroTelco mutual annihilation is beginning to show some signs of coming to fruition.

Strategic options

I just received a press release from Fastweb, which I can't find on their site, which begins: "Fastweb explores strategic options for further development," and goes on to say, "The Board of Directors - in the light of the current consolidation trend in the European telecommunication industry, and of Fastweb's success in the Italian market - believes that it is in the interest of the Company to explore alternative strategic options that could create additional value for shareholders." I've stated quite recently who I think might be interested...

Local mobile yokel

I just downloaded Google Local for Mobile to my Audiovox Scoblephone in London, selecting "other" as my carrier. It works like a charm, albeit only with US location information.

$2.7bn over Tokyo

I don't have a clue what IPWireless would be worth in an acquisition scenario (Flarion got taken out for $800m, but without any of the mass commercial deployment which IPWireless can point to). Whatever it's actually worth, I noticed with interest that its presence in this deal seemed to be sufficient to knock 1.7% off Vodafone's share price yesterday, which equates to $2.7bn in lost value. 大したもんだ！

Where the heck am I?

A Diamond Cluster mega-value reader writes in re: Google Local for Mobile, to observe that a lot of interesting stuff has already gone on in the space, driven by much smaller players. He points me to the supercool Navio, which looks downright useful, but also has a fun side, and integrates with the fantastic A2B search engine, which correlates map coordinates with URLs. Keep pushing, innovators!

More Q3 datapoints

Posting has been slow due to the reporting season and a number of other deadlines converging. I will attempt to remedy the situation with some short updates to clear the backlog. First comes cable VoIP, which is gaining traction in Europe. Liberty Global reports today that it is adding 6,000 subs per week in its properties in the Netherlands, Hungary and France, which it says is an acceleration over Q2's rate. However, the Q2 rate was stated at 7,000 - 8,000 per week, so how they are defining this is a bit of a mystery to me. Nevetheless, 6,000 per week is respectable. Elsewhere, UPC is trialling 100Mbps symmetrical FTTH services in France (Google translation here), suggesting that its commitment to coax is not set in stone. Incidentally, the article states that UPC's French unit Noos has garnered 100k subs on its NoosTel VoIP product.

Born free

A super-duper megavalue reader writes in re: this. His VoIP-centric take:

"If IBM, et al, lose this one, there could be potential licensing issues on a lot of VoIP-related software (especially software like Asterisk @ Home, which actually bundles the Linux OS with Asterisk on one CD). It would also increase the costs of the voice ISPs, as they'd start having to pay license fees (calculated at the moment on a completely unknown basis). Also, in light of all the 'open' stuff you've been talking about recently, I think this is quite interesting. Five big gun commercial giants getting together to keep something free for the good of the public. That's a sea change isn't it?"

More power to...

Today was BT's Q2 release, and at one point my boss, an oil analyst, seeing the share price down the better part of 3%, appeared by my desk to say, "Maybe BT should take its inspiration from BP in its corporate identity." What he was referring to is BP's marketing campaign, which stresses the idea that "BP" stands for "Beyond Petroleum." In other words, BT needs to be "Beyond Telecom," and God knows I think the management have adequately stated that idea by now. Vision is an important thing, and certainly BT has plenty of it, but the sad truth is that here in the present, BT is a company with a critical retail presence which is hurting: voice line loss of 8% annualized, market share in consumer telephony down another two percentage points, the proportion of consumer revenues "locked in" via contracts stalled at 65%, share of DSL net adds in decline again, a second quarter of net subscriber losses on the MVNO, customer losses on the MVNO in the quarter equivalent to the number of pre-registrations for Fusion. Every single KPI seemed to be wrong this time out, and the situation is not helped by both Sky and Carphone Warehouse, two credible consumer brands, going for 1,000 exchange unbundling programs over the next year. Nor was it a good day for Telewest to release results, showing that it and NTL combined had the best quarter for broadband net adds in nearly three years. I respect BT, and I think they have a reasonable chance of morphing into something with staying power, but the transition to that something is painful to watch from the outside - it must be crazy-making on the inside.

Less is more

Very limited posting today as I battled with some tricky stuff from Deutsche Telekom - a decent set of results, coupled with a big cut in 2006 forecasts due to an ambitious EUR1.2bn marketing and brand management revamp in search of higher growth, plus a four-hour webcast in the afternoon. A one-man-band like me gets somewhat overwhelmed in these circumstances, but I dutifully published my note, with only two typos, so overall it was a relatively good day. Watching the webcast, I was struck by a couple of things.

Firstly, it hit me that DT is trying, somewhat later than some of its competitors, but reasonably convincingly, to convey the idea that it understands Web 2.0 and speaks the same language as many of its critics. Walter Raizner, head of Broadband and Fixed Networks, at one point in his presentation stated in cringeworthy fashion that DT wanted to become "the eBay of telecommunications." This, however, was probably a bridge too far.

The other thing that struck me was the sense that today's strategy presentations laid bare the kind of inherent and irreconcilable conflicts which arise when integrated incumbents try to adopt disruptive models. Mr. Raizner painted a picture of converged services (one phone, one number, one bill) wherein his division is going to take advantage of the 10:1 pricing asymmetry between fixed and mobile networks (duh!) and generate subscriber loyalty and usage growth. Simultaneously, Rene Obermann made the case for continued growth from multiple SIM ownership and fixed/mobile substitution. Clearly these two agendas do not coexist easily within the same strategy. It's not as if DT is unique in this respect - it's just interesting to see the inconsistencies highlighted so clearly. One tenacious analyst pointed out, as if he needed to, that there is a risk that DT sees a reverse migration, from mobile to "converged service" minutes, which would be counterproductive. Management seemed to squirm at this point, reiterating, somewhat anemically, that they genuinely believed in their respective growth strategies.

I genuinely appreciate the position that the DT management are in: in the current market climate, this sort of transformation message has to be conveyed to maintain credibility, but it's damned hard to get it right. At the same time, I think it's interesting that the revised 2007 EBITDA guidance is not all that much above what consensus (or my own) forecasts were before today's "groundbreaking" announcement, though the 2007 revenue number the company is pointing to is 5% above previous consensus. The company has outlined all manner of concrete targets for triple play subs, web'n'walk handsets, etc., in an attempt to put meat on the bones, but it seems to me that investors may have some serious trouble accepting the revenue uplifts two years out, in light of all the uncertainties and dislocations confronting the industry. Nevertheless, Kai-Uwe Ricke was quick to point out that in its investment decisions, the company is moving philosophically from a focus on EBITDA to "shareholder value creation" and return on capital employed - a convenient swap when the top line forecasts jump but EBITDA remains in line with previous expectations, and you're facing a near-term capex spike. Less is, apparently, more, after all.

Telco inferno

It's 11:03 AM, the STOXX 600 is down 0.14%, our beloved telco sector is down 1.19%, Deutsche Telekom has basically wiped EUR1.2bn off consensus EBITDA forecasts (for a YoY decline) for next year as it invests for growth, and in the UK OFCOM has just cut wholesale line rental costs by 9%. Does anyone smell smoke?

Please Mr. Congressman, don't eat my internet

Via a mega-uber value reader, the man Vint Cerf speaks out ahead of today's Congressional hearing on - can it really be? - the future of the open internet. (Ironically, the man himself won't be at the hearing because he will be receiving a Presidential award for creating TCP-IP.) Whatever the outcome, I think the message for Europe is to get those alternative fat pipes out there!

More Q3 tidbits

For anyone out there obsessively counting VoIP minutes and subscribers, here are a few more datapoints from the steady stream of Q3 reports:

• KPN yesterday said that it estimates there to be around 400k users in the Netherlands of what it termed to be "VoIP-like" services. That would be something over 10% of the total broadband market, but I don't see how this number could be accurate. Back as long ago as April, I had a top 20 Skype user countries spreadsheet (from the company itself) showing nearly double that number using Skype alone. I sense that a more accurate estimate would be something closer to 1m users, which would be over 25% of broadband connections.
• In the German market, United Internet yesterday said that it is currently invoicing 175m VoIP minutes per month. Back in mid-August, the figure was 100m, up from 90m in June.
• T-Online, besides having a knock-out quarter in its home DSL market (342k net adds in Q3), claims that over half of new customers in France are taking VoIP at point of sale. T-Online reports France and Spain subscriber numbers together (+64k in the quarter), so a hard number eludes us, but assuming that France was 70% of net additions, that implies something like 23k VoIP subs in France in the quarter. Next to Free's c.1.3m VoIP subs, and France Telecom's 484k, this is fairly inconsequential, but it's a decent take-rate for a newcomer in a market which is arguably Europe's most mature.

Color me mobile

An eagle-eyed uber mega-value reader points me to what Om wrote about earlier: Google Local Mobile. I can hear mobile operators saying "Drat!" right now.

Chinese takeaway

Just last night I was finishing up a meal in a Chinese restaurant, I opened my fortune cookie to reveal the following message: "Confucius says: Skype bad, IMS good." If this is indeed the Chinese century, we are all in for interesting times.

Silence is golden

The KPN Q3 conference call just wrapped up. I bit my tongue throughout, expecting someone to mention this minor piece of news, but no one did...

Disruption 3.0

A couple of weeks ago, a friend and Double Palladium Club mega-value reader turned me on to xG Technologies, which I linked to here in passing, with no commentary. Accordingly, no one seemed to take any notice. I also contacted the company's PR guru, to no avail as far as I can see (unless of course a response got sucked into the infinite black hole which is the Daiwa spam filters). Today xG has been Slashdotted, in reference to a media event in support of its xMax product. I've written frequently about IPWireless and Flarion in the past, but this would appear to be a very different beast indeed, and if it works as described, could be significantly more disruptive. It seems that there are many unanswered questions, and I'm not an RF engineer, so I will demure, but I am inclined to believe that, having kept so quiet until recently, there must be some substance to their claims - otherwise it's media suicide. Expect this to become the next "new, new thing."

More adventures in Q3 earnings numbers

BSkyB reported its Q1 results (that's everyone else's Q3) this morning, and while most of the key items in the P&L are broadly in line, net subscriber intake was at the weak end of the forecast range at 57k. Consensus appears to have been around 68k, I was looking for 70k, and the most optimistic forecast according to Reuters was 87k. Stripping out Sky's Ireland business, net adds in the UK were only 48k. Annualized churn was up to 11.7%, 1.2 percentage points than in the June quarter. If this were obviously being absorbed by cable, that would be one thing, but NTL yesterday reported spectacularly weak numbers for the quarter (4.2k digital additions, 21.8k disconnections on analogue). Telewest reports next week, but I'm not convinced that things will look much better. HomeChoice has today been featured in a Reuters story, claiming 34k subs currently (i.e., net adds of 19k in roughly 9 months), so its effect in Q3 was probably marginal. [UPDATE: It turns out that this was a press release, which I did not receive for some reason. ] We can only assume that what market growth there is continues to be driven by Freeview, and perhaps that interest in TV generally is trending lower, faster than some might have expected. Sky's going to have to push hard in the remainder of this quarter to hit the 8m mark it has pledged, which explains the ubiquitous ad presence. It probably also underlines just how important a move Easynet was.

Afterthoughts

Cycling home this evening through the dark and bleak backstreets of South London, listening to stories of rioting in the suburbs of Paris and the degree to which national governments seem to be completely out of touch with the needs of their constituents, I started thinking about this Amsterdam development, and arrived at the following question: Isn't this project, and all the others we've seen recently (UTOPIA, Catalunya, Lafayette, the various French projects, and utility fiber in Scandinavia) actually a local/regional repudiation of the multi-100-billion euro privatization philosophy born of Thatcherism/Reaganism? This whole process (to which I owe my current employment, let's not beat around the bush), was supposed to stimulate competition, which in turn would deliver greater efficiency and better services. However, it looks as if some local and regional governments are coming to the conclusion that the market has failed to deliver what is needed in the time frame required, and are accordingly taking matters into their own hands.

This is particularly ironic in light of the fact that one key principle of the Reagan/Thatcher philosophy was devolution, or the passing of certain policy decisions/responsibilities from central government to the local/regional level - either (idealistically) because local people know best what they need, or (cynically) because it passes the buck more effectively. With projects such as these, however, devolution grows some teeth. The only problem is that these teeth may now be implanted firmly in the buttocks of privatized telcos (in Europe for the most part, read "only partly privatized telcos"), and those who bought into them via the privatization process. Besides the largely forgotten retail investors, no one has been more badly burnt over the past six years than the domestic institutions who bought into EuroTelco Privatization Inc./NV/Plc/AG/AB/SA/Spa, which makes the irony even richer that the previously unnamed third investor in Amsterdam is none other than ING (in line with what I suspected in my earlier post).

And the answer is...

I guess people have varying definitions for "amazing," and my teaser from last night somehow got people thinking I was talking about VoIP (and several others thought I had landed a mega-bucks job - dream on). I hope no one is let down. This is bigger than that one single issue, because it's about rewriting the rules of how telecom service is defined, funded and delivered, and re-examining the goals for which it is delivered.

Frequent readers of this blog will no doubt recall the frequency with which I have referred to the proposed Citynet FTTP project in Amsterdam. Well the embargo is now lifted, so I can reveal that Phase 1 has been formally proposed (to be debated and voted on by the City Council later this month), and the funding structure has been finalized. The City of Amsterdam is to be a 1/3 shareholder, with a consortium of five housing companies (also 1/3) and other unnamed investors (1/3). I'm curious to know who the other unnamed investors are. My guess is someone with a long-term view of investing and a preference for long-term predictability of returns. We are talking about a 20 - 30 year horizon here, so my gut feeling is that insurance companies are involved somehow.

Phase 1 consists of 40k premises, roughly 10% of Amsterdam, to begin in early 2006. Infrastructure build is to be carried out by Van den Berg and Draka Comteq, and bbned will be the wholesale network operator. This is intriguing, in that bbned is Telecom Italia. I expect there may be some interesting phone calls to KPN investor relations this afternoon. KPN was on the list of parties in the tender process (see the page entitled "oproep" in the Citynet site), but the company never publicly highlighted this fact.

These neutral network projects are not without historical precedents, but what I find so compelling here is that the city's priorities are spelled out so clearly:

"This enables our city to compete with other European cities. The fiber network
delivers to Amsterdam an innovative and freely accessible infrastructure,
suitable to support growth in demand for the next 30 years or more. In this way
we ensure a wide open marketplace for innovative service-providers and economic growth, as well as a fast track for the smarter and cheaper delivery of care, education and other public services."

Competing with other cities, yes, not just for the Olympics (hello London!), but for economic activity, tax revenues, social and cultural development (which attracts tourism and businesses). Smarter and cheaper delivery of public services, yes, as was articulated to me on my recent visit to Amsterdam. This stuff is too important to be left to gradualist measures like Ethernet over cable or ADSL2+, or to a duopoly market where investment and pricing decisions may be driven by shorter-term considerations such as share price or strategic redeployment of capital.

Not to put words in anyone's mouth, but I think the message is something like:

It may be "your network" and "your investment" you are trying to defend, but your customers are our taxpayers, our society, and we have a duty to look beyond the next quarter and where our share options are at present. Access to information is an essential building block of social development, like access to water and electricity. Highly-contended DSL products with bandwidth caps ain't gonna cut it.

This is powerful, challenging stuff, and I'm sure a lot of people in the market are going to be unhappy and stamp their feet. My sense from talking to politicians in Amsterdam was that political consensus is strongly in favor, and the press release itself expresses a high degree of confidence that Brussels will not consider this structure to be state aid. Certainly, cases like Limousin would seem to lend support to this view. I also sensed from my conversations with people in the local market that a number of other Dutch cities have been watching closely and drafting their own plans. Today is a green light to anyone with the vision to shake things up, and I’m sure that won’t be limited to the Netherlands.

I think this is an incredibly significant event for European broadband, and it's going to be fascinating to watch. How will traditionally access-oriented service providers adapt to differentiate themselves solely on price, user experience and customer care? For those who choose to sit out or attempt to fight back, what are the options open to them? What happens to pricing? (I have my ideas - remember I'm from the Deep South.) Longer term, and undoubtedly most importantly, how will Amsterdam be transformed? Neutral networks are a great leveller, commercially and socially.

I can unbundle 1,000 exchanges too

Sky is reporting results tomorrow, and I expect more detail on the future with Easynet, but in true Carphone Warehouse style, the company has stolen some thunder today, and knocked half a percent off Sky's share price in the process. More fuel to the fire - burn, baby, burn.

What do you want to buy?

The financial press is filled with speculation on further M&A deals, with two names coming up repeatedly: Fastweb and HomeChoice. The stories coming out of Italy cite an interest in Fastweb from BT, which would certainly mark a dramatic change in strategy if it turned out to be true. Meanwhile, in the UK, Sky is being touted as a possible suitor for HomeChoice. I would like to argue that the pairings may be reversed.

As I suggested at the end of this post, my feeling is that NewsCorp’s Sky Italia is a much more obvious candidate for Fastweb, given the Sky/Easynet product roadmap, and the unholy alliance between DTT and DSL in the Italian football market. While Fastweb’s existing offering on fiber might prove a challenging integration prospect, the growth is in DSL, and Fastweb’s move to a focus on single-play (capturing as much of the DSL market as possible as quickly as possible) would fit with the rationale behind the Easynet deal.

As for HomeChoice, the company has a fantastic product, no doubt about it, but it unfortunately has found itself swimming against the tide of near-ubiquitous Sky marketing, the runaway success of Freeview, and resurgent cable players. Arguably, the company could do with a financially strong backer/owner to increase investment in brand creation in a difficult market. For Sky, however, it’s difficult to see the rationale for picking up HomeChoice. As I have pointed out previously, HomeChoice already markets subsets of Sky content, and the HomeChoice content offering is strong enough that I would expect there to be a fairly high cannibalization risk to Sky’s satellite business if it pushed the HomeChoice platform too hard. More fundamentally, there are issues around differences in EPG and user interface, etc., which I expect a seasoned player like Sky, accustomed to uniformity and control, would find unpalatable. Most fundamentally, looking at Sky’s technology roadmap and hearing James Murdoch state definitively that Sky would not look to replicate linear TV on DSL in the near future, I would argue that an acquisition of HomeChoice would be way off message.

One thing which hasn’t come up in the coverage I have seen is the fact that BT has been an investor in HomeChoice from early times, and should be well acquainted with the company and its potential. As far as I am aware, prior to the last funding round, BT held 7% of HomeChoice (structured as a warrant), though I am unclear as to whether this holding may have been diluted in the fund-raising. Finding itself arguably coming late to the TV party, perhaps there is a rationale for accelerating the process via acquisition. Then again, this would also go against BT’s stated product roadmap, but maybe desperate times call for greater flexibility.

Tomorrow is the question

I know, I'm running out of titles fast. Readers of this blog could justifiably criticize me for having an overwhelmingly negative and pessimistic tone on any given day (maybe it's something to do with 5.5 years of sector underperformance, and false dawn upon false dawn - IMS, yawn...), and there's been no shortage of that in evidence today. However, now I'm going to bombard you with positivity and enthusiasm. If all goes according to plan, tomorrow something truly amazing is going to be announced, and I only wish I could say what and where. Assuming no last minute hitches, join me back here tomorrow afternoon, say around 4:00 PM London time, for more.

Through the looking glass

This Mad Hatter's tea party continues: Eircom has just confirmed that it has received a bid approach. Move down!

Ubersize mein Kleinsizing

Unwelcome news for Germany's work and pensions authorities out this morning from DT. To be sure, a net reduction of 19,000 is a lot of people (that's nearly four Googles!), but at only 7.8% of the total headcount as at June 30, is it enough?

UPDATE (in special DT magenta): An uber-uber-value reader points out that this could/should be interpreted as a threat to the regulator to behave itself (paragraph four), at a time when German politics are in a state of flux, and the economy continues to be a sensitive issue. I can't argue with that assessment.

Crossfire 2.0

Patrick Foulis, a former top-ranked analyst, and now the voice of reason at the FT's Lex column, writes an eloquent and spot-on piece today, on the theme of consolidation, which (in my view, overoptimistically) has driven the outperformance of the sector in the past month. My favorite quote is at the end:

"Europe's minnows will be swallowed up. But its big companies need to exhibit
some industrial logic, not just Powerpoint slide maps of Europe. If synergies
are unclear, then only nil-premium mergers are justifiable. Better still, they
could invent some new products or restructure their work forces. That is,
actually enhance value, not give it away."

New products indeed. A great idea, but not one the telcos are renowned for (I guess NTT is now the only telco anywhere doing technology R&D more or less for its own sake). Rather, it would appear that telcos are committed to doing what telcos do best when they have too much cash: buying more network, and apparently largely ignoring the hell that is breaking loose around them, while throwing the occasional embarrassing tantrum.

When I first started articulating my "Attack from Cyberspace" scenario to clients three years ago, I believe the exact phrase I wrote was that the impending entry of global internet players into the voice arena risked "...laying down a deadly crossfire from which the telcos would find escape difficult." Looking back on it, I'd say that was an understatement.

What Microsoft unveiled yesterday was not at all unexpected, but in my view it went further and faster than I could have hoped (considering that Teleo only happened 2.5 months ago), and from the telco perspective should be viewed as a neutron bomb. Messenger already has 185m active accounts, and the company has established momentum in the mobile space (my bet is that we see a Live Messenger lite for mobile by Q2 of next year). I guess all those stories of flying furniture inspired the company to pull its socks up, and you can bet that Google, Yahoo! and SkypeBay developers will not be going home early tonight.

The crossfire scenario now comes to fruition, let's call it Crossfire 2.0. I think it would be fair to say that, outside of furthering their own agendas, the Big Four's attitude towards the telcos is summed up in the Japanese phrase "屁とも思わない" (pronounced "heh to mo omowanai," and meaning "I don't even consider you a fart."). All this takes me back to my oft-cited anecdote about Bill Gates' apparent Freudian slip at the RTC launch back in the spring: asked if MSFT wasn't risking conflicts of interest with its conferencing and telecoms partners, he remarked, "No we very much need our partners because they can do lots of things that we can't do for ourselves, like............... network connectivity."

Make no mistake about it, however, what these guys do care very much about is what one another are working on. So, I guess Yahoo! now accelerates the switch-on for Dialpad-enhanced Messenger services, Google takes GTalk another step higher, and the impressive innovation train rolls on towards the horizon. My concern is that the telco train is meanwhile on a short spur line known as the Gravy Train, with Casey Jones as engineer, final stop Palookaville.

UPDATE: My traffic stats show that this piece is getting bounced around within telcos like a pinball. Was it something I said?

You've been gamed

Telcos, there are some awfully smart people using your dumb pipes. Here's a microcosmic example, for what it's worth. Here's a small-ish, but fast growing massively multiplayer online role playing game, called Eve, run by a tiny Icelandic company. It currently has somthing over 70k subscribers, and recently has seen concurrent sessions running at nearly a quarter of its total subscriber base. Oh, the bandwidth. Last month, it began offering a glossy magazine for the player community, priced at a not inconsiderable $15. It so happens that one of my colleagues knows the graphic design company commissioned to produce this, and apparently the first print run of c.5,000 copies is already sold out. This suggests a sell-through rate of over 7% of the user base on the first attempt. Based on the telco data I am seeing, I think telcos would kill to see this sort of take rate in their IPTV offerings... The difference is that, while telcos are selling a product (and a rather undifferentiated, boring one at that), these guys are selling an experience, a subculture/lifestyle, and there are willing buyers, both as individuals and corporations. I repeat, did you ever just feel plain lost?

Don't shoot the messenger

I'm too tired to work out exactly what this means right now, but check out Leah's post on the new MSN Messenger developers' group blog. It sounds to me like Microsoft has come to grips with the fact that it has to hammer two distinct IM/voice identities into one, with minimal duplication of effort and time to market.

UPDATE: While I was tinkering with spreadsheets of acquisitive European telesaurs, ignorant of what was happening in the real world (shame), Om was at the event, and was apparently blown away by what he saw. The game now moves to the next level, and telcos, it's time to get really worried.