Tuesday, October 31, 2006
Monday, October 30, 2006
UPDATE: When I see this, I think there must be spambots at work, or the system is being gamed in some other way. We don't have 798 employees in London.
Wednesday, October 25, 2006
"Conclusion: Sell the rat bastards (aka the carriers) what they want to buy, especially all this IMS crap...
- The carriers don't know what the f*&k they are doing anyway (AT&T thinks one HDTV channel over ADSL2 is enough for America);
- There is no more money in voice (how much was your long distance bill last month? If it was greater than $3, you're being taken);
- There is no money in services (any 18 year-old in the Valley is a better new business development manager than any of the telcos have);
- If NBC can't make any money in television why do the telcos believe they can?;
- There is no money in transport (especially long haul);
- There is little or no money in access (but let's spend $5-8K per new sub on FTTH, the carriers will just screw their stock holders later - bondholders please note);
- There is little or no money left in mobility (it's all about the phone anyway);
- The carriers' customers all hate them (no brand loyalty in telecom);
- All their efforts at customer control (except political) have failed/will fail;
- And even when they actually buy something they want us to finance it on our books!"
UPDATE: A Platinum Class mega-value reader writes in with the following observation:
"Reading this I could not help but think that this guy is extrapolating future telco by starting from present telco. I think future telco will be anything but an iteration/variation of present telco.
Witness Iliad and their 300k wifi hostpots that popped up overnight in France - it gave Iliad a national SIP-based mobile network (a nasty one, probably, but nonetheless a network).
Morph this into a larger Wimax version (Iliad has the only French license) and you could get an almost decent national mobile voice network. Best of all: access capex is done by the end user (sort of like Skype, whose 100+ million users are the voice switching infrastructure).
This probably means that for incumbents to survive, they need to change into something they are not right now (e.g. could a tier 2 voice operator suddenly become a global SIP operator, i.e. a better/new/improved Vonage)?"
Spot on, though my question remains, does "future telco" evolve out of the current incumbent morass, or does it happen from outside, as with Iliad? To use a mass extinction metaphor, do the dinosaurs evolve into creatures which can survive (birds), and/or is it the nimbler, more adaptable small mammals which inherit the earth?
UPDATE 2: Another mega-uber value reader, also from the supplier space, chimes in:
"Both the original author and the commenter are correct. Traditional telcos are approaching this as a red ocean problem - what can I do within my own walls, where as the Illiads are the relatively new comers with blue ocean strategies. The latter has a value prop that appeals to the user while the former appeals to the street. I don't see morphing as a likely outcome soon; so I'd just assume sell weapons to both sides."
Tuesday, October 24, 2006
Every time I start to feel a bit of broadband wanderlust, I go trawling around UK user forums to read the outpourings of frustration and distress of highly dissatisfied customers. I guess that makes me a sadist rather than a masochist. Apparently, masochists are easily identified by their subscription to a free broadband package - and by their all-consuming rage. So far, Charles Dunstone has stolen the limelight, with occasional cameo appearances by Orange, but it looks like Sky may be ready to give him a run for his money. If you've got some time on your hands, or are a Sky shareholder trying to assess how the company fits into the "end-user value" matrix, have a look through the tales of woe here, here, here, and here. Or, just take a short-cut to this site and note that the unhappiness threads outnumber happiness by nearly five to one.
UPDATE: The vote was unanimous, in favor, across all 14 parties!
Monday, October 23, 2006
(PS, the title is a bad attempt at wordplay based on KPN's slogan, "Sluit je aan")
UPDATE: KPN is apparently denying there is anything to the story, but my sources say otherwise...
Friday, October 20, 2006
"...do not turn out to be the big adversaries that FON feared they would be... We are talking to several ISPs in The Netherlands. Now they can only give their subscribers internet access in The Netherlands, but with FON, their subscribers can go online all over the world."
UPDATE: Palladium Club uber-mega value reader alerts me to some very interesting background in French here (mirrored here).
Wednesday, October 18, 2006
Monday, October 16, 2006
Friday, October 13, 2006
UPDATE: I hear that Fabchannel is one of the content sources which has seen interest from the Venice Project.
The OECD broadband stats for June are out. Interesting to note that many of the most highly penetrated markets are the very places where the most disruption is taking place from muni/utility/property/entrpreneurial fiber. If people were happy with the telco/MSO vision of what broadband is/could be, would this be happening?
Thursday, October 12, 2006
Glasvezelnet Amsterdam's official launch is happening today. I've got a lot of information, but am not sure what is coming out when, so will hold fire for now. The official site is here, including the first three service providers, though Labs2 has added some interesting 11th hour news to the mix by introducing Scandinavian service providers next year. Some pretty exciting stuff is happening around this, so more to come later.
Elsewhere, a little bird tells me that the Gizmo/Live Journal LJ Talk mashup goes live today, which is timely as I just included a section on this in my recent note to clients as well as in my Telco 2.0 presentation.
Cycling home last night, I heard some nauseatingly sycophantic coverage of the Carphone Warehouse/AOL deal on BBC Radio 4's PM, which went something like: "Well, okay, TalkTalk broadband has had a few hiccups getting started, and management hadn't anticipated the huge demand, but Charles Dunstone's a great entrepreneur..." I'm surprised that they didn't have "Land of Hope and Glory" playing in the background, because the tone was very much that we're lucky to have him, what a national asset, etc. Fairly sickening stuff. I'm sorry, but when you make a big media splash initially offering free broadband for life, you should expect significant interest - if your marketing department leads places where your systems can't follow, that's bad planning, not "overwhelming demand." I thought, surely someone out there is going to tell it like it is. Over to my cyberfreund Keith, who seems a bit miffed. Also, I guess one interpretation of Vodafone's decision to cut and run may be that the collateral reputational damage of association with CW is just too much to risk.
I had a call with the management of Fring today, and am looking forward to getting a review handset sometime next week.
UPDATE: Amsterdam has added another ISP, Teleturk, which has IPTV rights on a range of Turkish programming. Also, Pilmo, one of the first group of ISPs on the network, has revealed initial pricing: EUR44.95 per month for 10Mbps symmetrical connection, 250 minutes calling in the Netherlands, and 38 TV channels, reduced to EUR34.95 per month during the first year.
UPDATE 2: A longstanding Palladium Club mega-uber value reader, veteran of the UK mobile arena, writes in to observe that the Vodafone/Carphone deal is nothing to do with reputation, it's all about payback, a sentiment echoed in this very fine post from Keith (I'm very intrigued by his suspicion that Mr. Dunstone may opt to take the company private.).
Wednesday, October 11, 2006
However, I was a bit taken aback by the strength of the response and need to clarify a couple of points, just so I'm not misunderstood. I didn't write this as some sort of manifesto. It was really just intended, for those who weren't there, as a summary of my opening presentation at Telco 2.0, which itself was designed to take the audience out of their comfort zone, albeit in a humorous manner. The whole idea around the Telco 2.0 event was the theme of an "industry brainstorm," and I was trying to focus on issues which the industry needs to work through. As I made clear to the audience at the time, the list is a distillation of things I genuinely have heard investors complaining or worrying about (occasionally with a bit of help from me). I don't necessarily subscribe to every item in equal measure, nor did I intend to paint a picture of utter despair. Fundamentally, I guess the thing which surprised me most is that the reaction to the piece suggested that people somehow viewed this as something new. A lot of the issues have been stated in discreet and fragmented form by me and others for the past three years or so, i.e., the underlying message was there already, but maybe it was the fact that it was all synthesized together in one place that got people's attention. Not that I mind - there's no such thing as bad publicity.
Be that as it may, the other thing to make clear is that the "Ten Things" are not what I came away with from the event, they're what I took in. What I came away with was much more complex. I met some extremely bright and forward-looking people, many of whom seemed to be terribly frustrated by the constraints in which they work. So when I say that "telcos can't innovate," that's an investor perception based on what we see on the outside. Clearly there are innovative people on the inside, but they face challenges in being heard and getting buy-in from the organization as a whole. I can certainly relate. My own industry is being disrupted, and I have often tried to be heard internally on the issue of how we position ourselves to deal with it (for instance, suggesting that we sponsor Telco 2.0 - pigs will fly...), but the level of awareness in places where it matters is very low, and risk aversion is insurmountable. So if it looks like I am pointing the finger, it is partly from a similar position of personal frustration and organizational paralysis.
All that said, my final impressions of Telco 2.0 are as follows. It is clear that the industry as a whole, and the specific companies within it, seems to be polarizing into two camps (as Malcolm Matson cheekily illustrates here): one of which says, "We should stop fighting in the services arena, restructure ourselves around infrastructure and reappraise how we can derive value at the edge."; the other is intent on raising its game in services and genuinely believes there is value to be derived in doing so. I don't know how companies can be run coherently with such cognitive dissonance going on, probably even at the highest levels of management.
Then again, I guess this is just the sort of process which can generate change - the conflicting voices in the head of telecom will eventually have to lead to some sort of action. Alternatively, perhaps regulation (mandated structural separation) or investor demand (structural separation as a form of financial engineering to unlock value) will force the agenda to the surface. The "good news" in all of this, if you consider admitting yourself to rehab to be good news, is that the level of denial I picked up at Telco 2.0 was dramatically lower than what I have encountered in previous events. It genuinely seemed as if the attendees were striving for some sort of answer, attempting to grapple with some dilemmas which I'm sure they'd just as soon ignore. As proof of this, I note that, unlike many other events, the majority of speakers stayed around for the entire event, rather than taking the typical "Elvis has left the building" fast-track.
I had a meeting with a very smart client yesterday, who was fascinated by all the issues around industry transformation. His final question, a rhetorical one was: "In investing theory we should always be uncomfortable with the consensus view. The consensus view of telecom is that it is inexorably trapped by its own limitations and inability to change. I wonder what are we missing in this story?" That is the EuroTelco challenge, the EUR500bn question.
Monday, October 09, 2006
1) Telcos have lost control of their core product - The old gags are usually the best, so I took the opportunity once again to trot out the supermarket photo from Norway, with voice and frozen peas in a battle-to-the-death for prime loss leader item in this market with one VoIP service provider for every 15,000 households. (I was surprised and flattered later in the morning when the photo also turned up in the presentation of Berit Svendsen from Telenor fixed line - wonder if she knew it came from a Telenor employee?) I then asked for a show of hands of people who had heard of RTC Factory, and only one person raised his hand, but then again he was the one who introduced me to the company in the first place, so this was no surprise. Quite a few people seemed to shake their heads in smiling shock and awe when I repeated the company's claim that it can give you (or anyone who can pay) a telco in a box with eight weeks' lead time. If investors like to see markets which enjoy significant barriers to entry, then this ain't one of them. I suggested that this implies that telcos need to think about trying to monetize the context around phone calls, rather than the billable event itself. Obviously, I said, there are others who are trying to do this already (the pay-per-call brigade and Gizmo Project's trade off of PSTN breakout in return for your real-world contact data), so get out there and rethink the value in the call. (During the feedback session, there seemed to be intense interest in what Gizmo was up to.)
2) Voice is becoming a feature, not a service - Here I called attention to the Busta widget on my Google homepage, as well as touching on some of the other early stage developments around embedding voice in web communities, virtual worlds, gaming, etc. Given the intensity of use that many of these generate, there is every reason to assume that the communication tools integrated within them will grow richer, and probably fast. One strategy for the telco on the outside, is to get on the inside, by providing the voice platform to these communities. If it's going to have voice anyway, it might as well be your platform which runs it. So far it has been the newcomers who have tapped into this trend.
3) Telcos can't grasp that consumers may not want what they're being sold - Here I observed that 45% of KPN's first half DSL customer growth came from the Direct ADSL tariff, which is basically raw connectivity with no ISP service, and now accounts for nearly 20% of the total customer base. I suggested that this seemed to be a validation of the increasing role that web services are having in the lives of ordinary consumers, and also seems to underline that where they are given a choice, many may choose to avoid telco-mediated services entirely. If I have 85 Gmail accounts, VoIP from a number of sources, a free blog, and theoretically unlimited online storage at my fingertips, what do I need an ISP for? The obvious message for telcos is that if people want dumb pipes you should sell them dumb pipes as efficiently as possible, and (as John Waclawsky from Motorola stated the next day) construct a strategy for capturing value at the edge.
4) Telcos thrive on scarcity - future value will be built around abundance - Here I gave as one example MySpace, which basically is an experiment in giving tens of millions of people simple site design tools, a lot of free storage and bandwidth, then standing back and seeing what happened. A lot of people laughed at the $600m price tag NewsCorp paid last year, but the Google advertising deal alone is worth $900m, so who exactly is the fool? Another example I gave was the Amazon S3 project, which opens up unlimited affordable storage to people who wouldn't normally have access to it, and was already enabling the creation of some high-quality sites.
5) Command and control culture is dead, open APIs rule - Here I focused on the classic walled-garden business which used to be AOL, before getting the open API religion. I also pointed out that as part of AIM Pages, users can build modules which import content from services offered by AOL's "mortal enemies" elsewhere on the web. I got distracted by my ticking watch and actually forgot to mention perhaps the most compelling recent example, which is Amazon.
6) Telco DNA is fundamentally unsuited to the current dynamics of content - Here I pointed to the example of YouTube, which serves in excess of 100m streams per day, but where the most subscribed channel of all time, lonelygirl15, has only 48k subscribers and first appeared on the site five months ago. Think about this, the musings of a teenage girl appear on the site, and in almost no time become the most subscribed channel in the site's history, but this auditable base of subscribers is tiny. To make things even more difficult to interpret, lonelygirl15 was subsequently revealed to be a stealth project by aspiring filmmakers. The audience particularly seemed to like the quote from one of them that all it took to make the videos was, "Two desk lamps (one broken), an open window and a $130 camera." I stressed that this sort of formula might well appeal to content companies or advertisers seeking innovative marketing strategies, but that if telcos found getting sports content a challenge, then this sort of dynamic could be a graveyard. Then again, who ever said that user-generated content had to be so US-centric? Can't telcos try to enable something more relevant to their home markets? So far, a lot of the weight is being carried by independent players, but on the positive side, one thing I noted was that it was not unprecedented for telcos to engage communities in the creation of locally relevent content, and benefit the core business in the process.
7) Telcos expand their footprints physically, not virtually - Readers of this blog will note the frequency with which I have talked about mutually assured destruction, which I think we are seeing play out among the big four PTTs in Europe. However, the question at the back of my mind is, why didn't a telco, maybe one with a relatively small footprint (Belgacom, Swisscom, BT) buy Skype? Why did it take eBay (and the other three or four internet players reportedly involved in the auction) to see the value of what Skype had to offer? Of all people, surely telcos should have seen what was happening and bought the company out at an earlier stage. Maybe some tried, but if so it went completely unreported, which probably is a good indication that no one tried. Ditto for MySpace - why was it Murdoch and not a telco? I could see the audience squirming, but I quickly pointed out that this was not as stupid as it sounds. SK Telecom had the good sense to buy Cyworld, which has become both an exportable, licensable platform, a generator of incremental revenue ($125m per annum in virtual goods), and serves to stimulate usage of the core asset base.
8) Telcos can't innovate - I guess this one was the proverbial duck in the barrel, given how few companies even bother to disclose R&D expenditure. I repeated Sir Terry Matthews' exhortation from VON Stockholm that telcos should get away from an obsession with bullet-proof reliability and be more adventurous in product development. Ironically, many of the people in the audience are in fact engaged in innovation efforts, and they are damned smart. However, I guess the issue of innovation is about much more than R&D if the overall organization is not driven by innovation, and some parts may even be openly hostile to it. This seemed to be a common theme of the feedback coming in towards the end of the conference - the people attending such an event would naturally be more amenable to the need to change the model, to do things differently. The real challenge was in convincing the other 99,000 people in the organization of the same. Anyway, I inevitably mentioned what many have called Google's spaghetti strategy (throw it against the wall and see if it sticks), which I think the audience appreciated as something to strive for, but probably impractical. (I noticed with interest the feedback which followed Jim Holden's presentation about Google's partnership strategy in the wireless space - a lot of it betrayed a level of suspicion and mistrust of the "step into my parlour said the spider to the fly" variety. This was similar to the response to Google at the TEN event back in June. Is there any company which instills greater fear in telcos than Google? I've been pondering this for a few days now, and am coming to the conclusion that Google may represent for telcos some very threatening ideas - a company which encourages innovation even when the direct connection to the core business may be unclear or non-existent, a company which believes in the option value of innovation investment. This is alien territory for the modern telco, and it's made even more galling by virtue of the fact that this innovation effort just happens to be bankrolled by $6bn in annual advertising revenues. Moreover, I think that Google encapsulates a telco awareness that the garage around the corner may give rise to something which could wipe you out.)
9) Telcos shouldn't try to innovate - Here I was trying to convey that some investors believe the battle is already lost, and that telcos should concentrate on things they know how to do relatively well - building and managing network infrastructure - and reposition themselves to enable the explosion of content and application innovation at the edge. The problem is obviously the need to sack tens of thousands of employees as a result, which may be untenable in a number of cases. However, I made the observation that, for companies like BT and KPN who report in such a way that investors can get some insight into divisional profitability, it is clear that the unsexy utility network business contains a lot of value. Based on BT's restated numbers from last year, Openreach and Wholesale accounted for 70% of positive operating free cash flow (EBITDA minus capex), and wholesale was 77% of the equivalent figure for KPN's fixed business in 2005. There are investors who would prefer exposure to this sort of business alone, rather than the IPTV-aggregating, me-too-softphoning service provider business.
10) Maybe the entire foundation is wrong - I had to close out with my current nagging question over the tension between broadband as a "product" (you know, the standard marketing pitches about blazing fast downloads...) and broadband as a lever of social policy and local economic self-determination (torrent version here). The access model as it is now clearly encourages and enforces artificial scarcity, when in fact what might be needed is something entirely different. If so, that means we have adopted the wrong model and invested heavily in it. A fairly downbeat topic to close on, but luckily, as we were out of time I didn't get to the part where I suggest that the entire privatization process might have been a miscalculation. Maybe next year...
UPDATE: I have published a followup here which clarifies a couple of things.
Saturday, October 07, 2006
On day two we broke into three separate workstreams: voice and messaging 2.0, advertising funded content, and broadband access. I personally have trouble seeing these three as separate issues, but I can see how conference organizers, and many attendees, would want to have some segmentation. Anyway, I was somewhat disappointed, but not surprised, to find that broadband access was the least subscribed of the three. Harking back to my experience in San Jose, I found it odd (particularly with an IMS conference taking place next door) that more people concerned about the implications of new third-party applications and content would not grasp that the likely key ingredient to innovation was unfettered access to true broadband. Anyway, the 25 or so of us grouped in the breakout room (with a disproportionately large representation from the Netherlands - arguably the testbed for a lot of what is to come) were treated to some amazing presentations.
I opened with a presentation covering the potential drivers of bandwidth demand in future, and how these didn't seem to match up very well with the more conservative views of consumer needs, particularly on the uplink, where all the interest is currently, thanks to the influence of user generated content and P2P. I went on to discuss a number of real-world examples (no doubt familiar to readers of this blog) where municipalities, regional development agencies, construction companies, housing companies, and utilities all pose challenges to the fundamental ideas underlying the traditional access model, and also raise potentially thorny regulatory issues.
I was followed by John Watlington of France Telecom (who it turns out was two years behind me at Central High School in Memphis, though we don't seem to have ever crossed paths), who gave two interesting presentations: one on the broadband incentive problem (i.e., the crunch faced by network operators in investing more in capacity for non-revenue generating bandwidth when declining revenues outstrip declines in costs - a point graphically illustrated on day one by Berit Svendsen of Telenor), the other on emerging concepts for "personal broadband", i.e., a way for consumers to access broadband in ways which are contextually appropriate to their location, financial parameters, personal preferences, and technical constraints. This slide pack from earlier this year gives some flavor of what he talked about, albeit in less detail.
John Waclawsky, chief software architect at Motorola, next gave a compelling presentation entitled "From POTS to PANs," dealing with the migration of value and context in communication to the edge, often in unpredictable ad-hoc groupings of persons and/or devices depending on the task or subject at hand. This man is a very engaging presenter, and I think his session was among the best I saw, though the concepts and illustrations were too rich for me to do justice to here after the fact. I did get a few messages in my notes which seem to sum his message up pretty well:
The challenge is not just about connecting 6bn people on the planet. It's about connecting them and all their devices. You can't swim upstream towards centralized services when the growth is going to be in distributed networks, some of which might be highly localized and dynamic in nature. If I were a network provider, I would concentrate on being the lowest-cost dumb pipe and deploy my services around the edge, just as the internet players do. These shifting ad-hoc networks are going to take shape anyway, we might as well draft a strategy to deal with them.
While his view of the future could be construed as Telepocalyptic, John had a number of illustrations of potential failure points in this looser network topology where telcos might be able to insinuate themselves to generate value: identity management, managed services, storage, admin and billing. I found John's presentation to be one of the most compelling in the two days, as it combined both some very advanced thinking about the future nature of the market as well as some pragmatic ideas around how this can be something more than a total loss to traditional players who spot the opportunities.
UPDATE: John has since posted his slides OPLAN Foundation. Those not familiar with his views might do better to do some background reading and save me the potential embarrassment of attempting to paraphrase him. There were some great moments in his talk, however. In describing the open network model, he likened the 15 - 25 year investment horizon to a mortgage on a house. The difference, he remarked, was that "I don't get charged every time I walk up and down the stairs, even though the bank owns the house." Another gem was his assertion that telcos, in seeking to define their role in providing/controlling content flows, have forgotten their 100-year legacy. In the era when the only content traversing the network was voice, the creators and consumers of content were the subscribers themselves - a situation the telcos were perfectly happy with. They have now lost this understanding of their position in the equation in the rush to become something else. Perhaps most interestingly, in light of what I see as a growing politicization of broadband globally, was his parallel with Lyndon Johnson's rise to power based on rural electrification - the message being that people are growing concerned enough for this to be an election issue in some places.
In the feedback/Q&A session which followed, one participant sought to draw a parallel between broadband and metered utilities such as water or electricity, wherein users are billed both for access and usage. One friend and long-time Palladium Class mega-uber value reader in the room immediately challenged this, making one of the best points of the two days, in my view. His assertion was that the water/electricity analogy was flawed, because in the case of broadband a large part of the value in the bits actually derived from what he himself contributed, rather than what he consumed. This got me thinking about the value of the intangibles derived from broadband: both the trivial, such as the global entertainment value of user-generated content, and the profound, such as grid-computing-based research, enabled by contributions from broadband users, rather than "consumption" of broadband, a unidirectional value flow, as telcos often tend to see it. As many have observed, the value is not in the bits, but rather in the context around the bits. I guess the only corollary in utilities may be the very small number of people with solar panels who contribute excess energy to the grid. This may strike some as hippy-ish, but if we are trying to rigorously assess the impact of broadband on all stakeholders, then we have to consider the wider definitions of value transfer.
We were next treated to two very different models of local activism in broadband access, both from the Netherlands. First was Herman Wagter of Citynet Amsterdam, who once again gave a very compelling case for why another model is required. Readers of this blog will be familiar with much of the background involved, but one slide in his presentation seemed to cut straight to the heart of what seemed to be on the mind of other attendees at this conference - the upper echelons of telco management are effectively shielded from the street-level realities of the lives of customers, or "revenue-generating units," as they are often characterized. Another significant point raised by Herman was that the muni-broadband issue historically had gotten backing from both ends of the Dutch political spectrum, and he fully expects that it will come onto the national election agenda within four years. Next came Anton Visser of OnsNet Nuenen, which I have written about previously. This is an interesting case of a local project funded by the local housing corporation, Domotica, Rabobank, and Dik Wessels-backed Reggefiber, in which service provision is driven by local residents. Interestingly, even after local cable incumbent UPC cut prices by 50%, making it slightly cheaper than OnsNet (literally "our net"), there was no noticeable churn. This is probably a function of the symmetrical connection afforded by fiber, as well as the locally-specific nature of some services (live feeds from the local church, a webcam featuring goings-on in the local street market - both of these may seem odd to the outsider, but Nuenen has a high proportion of elderly residents).
There were some interesting contrasts raised in the Q&A about the Amsterdam and Nuenen approaches. Nuenen can maintain an integrated access/services model based on a high level of home ownership and an older, more stable and affluent population, whereas Amsterdam opted for a layer one, open-access model partly due to a lower level of home ownership (c.10%), and more generationally diverse population.
After a short break, we heard from Colby Goff of WiFi access point aggregator Boingo Wireless, who had some stunning figures on growth in sessions and also session durations at its sites. Based on data collected in its network in August, session length is up by 25% since March, at 103 minutes on average, versus 81 minutes in March. Over the same period the number of sessions is up by 196% at Boston Logan Airport, by 55% at Charles de Gaulle, and 22% at Copenhagen International. Clearly, as more people have WiFi at home, they are coming to expect it as a natural feature of the landscape when travelling, and do appear to be willing to pay for it.
Lastly, we were treated to a pretty stunning product demo from Stuart Collingwood of Sling Media. He went straight for the jugular at the beginning, showing some very nice streams to a mobile handset over a questionable 3G connection, from a Comcast box in San Diego and a Viasat box in Sweden. He then showed us the laptop client in Slingbar mode, which virtually replicates the remote control of the appropriate service, covering a wide range of pay TV providers. "We even included HomeChoice, just to be thorough," which provoked laughter from those resident in the UK or otherwise familiar with that company's unfortunate failure to gain significant market traction. There were some intriguing statements in his presentation about the wider range of application which the box is seeing - remote head end monitoring for cable companies, CCTV monitoring, BBC World Service using Slingbox to monitor studios around the planet, even remote monitoring of babysitting/childcare services via a webcam. Stuart also remarked that, in his view, this was the first example of an application which could actually glue together the disparate elements of the triple/quad play, i.e., pay TV talks to the broadband connection and can extend it to the mobile phone. He claimed that this was a contribution to lower churn rates among Slingbox users, provided that service providers kept up their levels of reliability in other areas. There were also some classic telco executive quotes from recent meetings with Sling Media, including one senior exec who, having seen the Slingbox in action, demanded to know why he was currently constructing a DVB-H network. Stuart's summary comment was that many players, both telco and media, are building internet content strategies around technologies which have already been superceded. Perhaps unsurprisingly, along the way there were references to some broadband service provider partnership announcements in the pipeline.
We all reassembled at the end of day two in a closing plenary session, during which each of the workstreams, as well as the sister IMS event next door, reported their findings. As the audience entered its feedback into the system, Tomi Ahonen stood up and gave an extemporaneous and very animated pep talk to the audience, which probably would have gotten a more enthusiastic hearing if it had been a rebuttal to my opening presentation on day one. It was raining and miserable outside, the attendees were bleary-eyed and probably wanted to go home. Yet what he said made perfect sense. He spoke about the huge amounts of money spent within social networks and virtual worlds, as well as in viewer-driven programming such as Pop Idol and its variants, a recurring theme of many other presentations (including mine), but he made the case that telecom can capture some of this value via its own legacy assets. He specifically mentioned the case of the public backlash against the Finnish Pop Idol contestants, which resulted in twice as many people voting for the alternative performer. Rather than seeing user generated and driven content and trying to play in this arena themselves, telcos needed to be aware of what was in the ether around them and figure out how to insinuate their core legacy assets into the equation. It was a relatively upbeat final message at the end of two days of uncomfortable home truths, but one the audience probably needed to have in mind as they walked out into the rainy streets of London.
Wednesday, October 04, 2006
Let's start with the end of the day. The final item on the agenda was an audience poll, conducted on organizer Telvents' spiffy little notebooks distributed around the audience. The question was, "How confident are you today in the ability of telcos to create long-term sustainable growth in an IP-based world?" The results - 30% said "very unconfident," 23% said "not very confident," and 14% were not sure. Pretty damning stuff, but hardly surprising to me based on my previous involvement in events of this kind.
Maybe it was my fault. I was the opening stimulus speaker and "analyst in residence" for the entire day (think sports broadcast color commentator). My presentation was entitled "Ten Things I Hate About You," and was a distillation of ten common themes around which investors have concerns/criticisms. More about this in my lengthier followup post. I think it went pretty well.
The next two presenters, Abdul Guefor from Intel Capital, and Gordon Smillie from BT, spoke about a lot of themes which were also in my presentation - the need to be more open, to embrace the chaotic and find a way to adapt to it. Abdul's Platinum comment of the day, in my mind, was that telcos should learn to embrace controlled chaos, and talk to the rest of the world more regularly. "If you don't address these issues, Private Equity will," a recognition of the vast PE war chests looking for underperforming assets which nevertheless throw off a lot of cash. Gordon Smillie, who comes from a background outside telecom, has a really interesting presentation, which included the observation, "In the past we have been used to having time to evaluate where the next threat might come from. Just accept it is coming. Why wait to react? Define what market you're in, and compete in it." He also said something which intrigued me. "Telco outsiders looking in think that telcos' strategic assets are different than what the telcos themselves think they are." He also questioned if current telco structures are capable of delivering innovation, or whether some internal incubation structure needs to take root.
Norman Lewis from Orange was the barnburner presentation of the day, hands down. His opening line was that we shouldn't look at technology as an indicator of where the industry is going, we should look at childhood. Children, because of concerns over safety, are no longer allowed to do the things in the physical world which they might have once done freely. Confined in a restricted physical space, they pursue ways to define their own personal space by virtual
means. This is not technology to them, it is life, it is reality. Any future applications which do not have a social networking aspect to them will be irrelevant. If we don't understand that, we won't have a business in future. We should be viewing customers as points in the value chain, not end points. We should open up devices, with easy scripting languages which can allow them to be not just customers, but co-authors of the applications which will spread virally. He also had some intriguing comments about the next battle ground - open information systems and data retention - i.e, with all the user generated content and associated metadata proliferating currently, who claims ownership and how is it used? My summary doesn't do the presentation justice. It was simply wonderful, and it's inspiring to hear someone speaking with such conviction.
Kennet Radne from TeliaSonera had a slightly more conventional presentation which touched on many of the same themes. But it had one killer data point - when The Pirate Bay was taken down in Sweden, TeliaSonera's IP traffic declined by 60%.
Alessandro Petazzi from Fastweb came in with a presentation built around lessons learned from its leadership in IPTV deployment. This sobered people up, though he wasn't heavy-handed in his delivery. There was a lot of interesting information here, but the bullet points that the audience seemed to react to were: there was no discernable improvement in subscriber lifetime among triple play customers; offering premium sports content as a free incentive for subscriber acquisition had increased churn; people who were willing to buy premium content on the network were relatively price inelastic; these people are relatively small in number, but their average expenditure is significantly higher than average. He also made a great comment during Q&A to the effect that the amount of additional money you can squeeze from customers is governed by your place in the value chain - you have to accept that. Personally, I found this all fascinating given the near-hysteria surrounding IPTV. Here we have a player with five years of experimentation and marketing experience behind it, saying something pretty different from what many relative newcomers to the space seem to think.
There were some other presentations from Google, Intel, Yahoo!, Telenor, GSMA, et al, all worthy of some comment in a later post. I want to close out with some observations about the presentation given by Ken Ducatel, who works for Commissioner Reding. He ran though the key points of the Commission's review of regulation (spectrum management, elements of veto power at EU level, etc.), and then spent a long time on the issue of structural separation, an idea floated by Commissioner Reding in June, but not formally raised in the official communication which followed. It seemed to me as though he was trying to sound out the audience on the issue, and urged them several times to respond to the consultation which runs until 27 October. At the risk of misrepresenting his statements, what I took away generally as a message was that changes in the nature of service provision in an IP age, as well as provisioning problems encountered by the incumbents (presumably equal infrastructure access to third parties) makes structural separation a potentially attractive solution. My gut feeling, without seeking to over-exaggerate, is that this is a key area of interest to the Commission, and that it is something to watch very closely.
I've got to go to bed now. So far I feel, and many others have said, that this is indeed a different sort of event, and the sense of self-examination and self-criticism from the executives here, many of them very senior, is palpable. However, the other sense I am getting from attendees is that the realizations arising from this process are one thing, but implementing change and modifying organizational DNA are quite separate challenges.
UPDATE: For an excellent summary of day one and the voice and messaging workstream on day two, see here.
Tuesday, October 03, 2006
Anyway, here's the "there's no justice" aspect to the story. On the Bloomberg terminal version of the story (and in the brand-new edition of Bloomberg Markets magazine), there is an attachment which actually lists the most accurate 20 stock pickers in investment banking research according to the survey, based on an analysis of calls made by 2,500 analysts on a sample of 200 companies over the period August 2004 - July 2006. Judging from the .jpg I ripped, I appear to be one of them, as does my boss David Stedman. Suffice it to say that this has generated much interest internally, where I am, ahem, somewhat misunderstood.
UPDATE: I have to confess to being excited and bemused in equal measure by this news.
On the one hand, I love the idea that a two-year number-crunching exercise compiled by a trusted source of financial data has yielded a result which gives Daiwa 10% of the top 20 analyst slots, especially in light of the fact that the brand name Daiwa is usually associated outside Japan with fishing rods (this is an unrelated company). Among all the esteemed names appearing on the list, Deutsche Bank is the only other company which appears twice. At first it seems counterintuitive, but hell, if it's good enough for the mayor of New York, it's good enough for me.
On the other hand, this strikes me as almost surreal, given the reality underlying it. European equities are a very small part of the overall Daiwa business, and accordingly, we are a very small department. An outsider looking in might say that we are woefully underfunded, under-resourced, and pretty much unloved internally - and I would probably have to agree with them. My boss David and I are one-man shows, like all of our analyst colleagues. None of us has any support - no research assistants, no junior analysts, no specialist sales. Compared to most of our competitors, we wouldn't seem to have a chance in hell of differentiation against all the noise they can generate. Then again, maybe this survey suggests that noise doesn't have that much to do with it.
Then I look (via the webcast) at the mass of people who made the trip all the way to Milan for a four-hour Vodafone presentation today, and I think about the expense (travel, accomodation, office premises, IT, production, compensation, deforestation [why must brokerages continue to print research?]) incurred in supporting the conventional sell-side research effort, and I have to say that I am more perplexed than ever about the rationale for this industry to continue to exist as it is now. I guess someone will sort all this mess out.
UPDATE: Cyberfreund and mega-uber value reader Yves over in Brussels has some extremely helpful additional insights, particularly useful for non-Dutch-speakers.