I spent last week with my children in a tent in Suffolk, pretty much disconnected and oblivious to the news. The only green shoots I saw were dandelions. I kept in touch with the news enough to know that, unsurprisingly to me, most of it was bad. The recent reporting season in Europe has confirmed, at least for me, that the Accident & Emergency wards of European capitalism have taken significant pre-bookings for emergency reconstructive surgery on a number of bloated LBO monsters (I could point fingers to various corners of Europe, but will refrain), which should keep lawyers and advisors busy for months and years to come. Just to clarify, in many of these cases, I think that the assets are good or great, but the capital structures look insane with the benefit of hindsight. So, the hard work begins...
Yet, it seems that sanity prevails in at least one small pocket of the globe, far from Europe. If you're feeling jaded and need a bit of relief, consider my friends at City Telecom in Hong Kong, or HKBN, as it is commonly known locally. Here is a company which has long pursued a singular vision of superior connectivity, has come from virtually nowhere to be number two in broadband, has grown both ARPU and EBITDA margin in the past six months, generates cash, pays a dividend, has leverage of only 0.3x and, for its small size, has an extraordinary attitude towards fostering the next generation of - wait for it - people. I was privileged to visit the company on a recent trip to Hong Kong, and can testify that the culture is young, disruptive, frugal, and above all, proud of what it has achieved so far and ready for much more.
And in case you didn't know it, the punchline here is that this company is devoted almost entirely to fiber access. We can argue endlessly about the unique economics of Hong Kong housing density and terms of access for service providers, which are undeniably key to the KPIs behind the story, but if it's the economics alone which are so compelling, why is this the only company starting from technical scratch and sticking to its guns throughout? Favorable economics may be meaningless in the absence of the vision and informed conviction necessary to seize upon them. So, it made me smile last week when I saw the recent results, and once again thought, "Yes, Virginia, there is a business case for fiber."
Wednesday, May 27, 2009
That's where I am - but rest assured it's a family holiday, not a life choice... I have sporadic internet access, thanks mainly to the wonders of 3G and a cheap portable power supply. My intention was to lie low and not do much of a professional nature, blurry as the definition of that has become, but a Palladium Club mega-value reader sent me a link to this blog today, and I thought it deserved "fast-track" attention. It's an intriguing and revealing account, which seems too surreal to be anything other than genuine, of life within a (presumably UK) telco, though I hope for the sake of the author that it does not resemble the Reginald Perrin saga too closely. The accounts of meetings confirm my skepticism around the real prospects for "telco transformation" - it's a culture thing, clearly I wouldn't understand...
Wednesday, May 20, 2009
(Okay, I know I haven't been keeping to my word on posting frequency...)
It's interesting to listen to the differing takes coming out of companies in Q1 on just how defensive pay TV might be in the economic downturn. It seemed to me that UPC, for example, showed much stronger performance in its pay TV numbers than in broadband, and for my money Virgin Media also performed better than I had expected.
Then again, maybe it's a matter of degrees. What might things look like if the economy got really bad, as is the case in Spain? GDP run-rate decline of nearly 8% (quarterly decline, annualized), unemployment heading for 20%, that sort of degree of badness.
Well, a picture is emerging from Spain which is not particularly encouraging for pay TV bulls. I concede there are likely to be all sorts of drivers at work here, such as household creation, repossession rates, etc., which could cloud the numbers, and we may see something different in next quarter's results. However, on the basis of the numbers reported by key players in the Spanish market, pay TV no esta caliente.
Telefonica's numbers showed that ULL and wholesale DSL in Spain grew by 119k, which is 5.6% sequential growth. Telefonica's own retail base grew by 46k, and Orange was flat. ONO, which reported today, added 12k broadband customers in the quarter, which is seqential growth of a little under 1%. However, in pay TV, Telefonica's Imagenio lost 7,700 customers, ONO lost 23k, Orange claims to have grown IPTV subs by 12k (but as it looks like 6Mbps and national calls is priced the same as the above plus IPTV after the special offer period, does this really count?), and Prisa's Digital + satellite offering lost 24k and suffered a 30% decline in pay-per-view ARPU.
So in summary, on the basis of these numbers it looks as though broadband overall grew by 177k, and pay TV contracted by over 43k, at least among the companies cited here. I'm cautious about trying to draw too many conclusions from one quarter, nor am I sure that anyone should really care, except that, in snapshot form, it appears to confirm my own suspicions about consumer behavior when forced by events to confront what they really can and can't live without.
Wednesday, May 06, 2009
A true story:
Four people sitting in an office with their personal laptops. One is running Vista with Office 2007, one running XP with Office 2003, one running Office for Mac, and one (me) running XP with Open Office. Our Office for Mac user opens an Excel spreadsheet (originally created on a Windows machine) which contains several XIRR formulas, and for no good reason, the calculations are borked - everything is hard-coded. The XP Office 2003 user then opens her copy of the same spreadsheet, and gets the same result. Office 2007 man has a go, and also fails. As a final act of desperation, the Open Office user opens the Excel file - and that's right, the formulas work flawlessly. Saves file, sends back to other users, all of whom can now use the sheet as it was intended.
This has happened twice, and none of us can explain it.
If not for whatever magical healing fix Open Office seems to have applied, we would have come to the depressing and unavoidable conclusion that the sheet would have to be rebuilt - an unappetizing and time-consuming proposition. Rather than rant about Microsoft, let's just let the facts speak (very loudly) for themselves.
The good people at the Open Mobile Summit have asked me to chair on the first day of their upcoming event in London, June 10 - 11, and I have agreed (you can check out some of the presentations from the previous event here). Hope to see you there, so book now to avoid disappointment!
Looking through the ZON Multimedia Q1 results, I came across a reference to a study carried out by the Portugese regulator, Anacom, into broadband performance. The Anacom website has some awesome material in it, and I have always been perplexed as to why small markets like Portugal and Denmark have regulators devoted to market research, while some notable larger markets produce next to nothing (you know who you are!).
Anyway, I'm not 100% sure that this is the study they're referring to in the release, but nevertheless I stumbled across this very detailed report from last month, detailing performance of both fixed and mobile broadband. It's in Portugese, but I think most readers will be able to get something out of it, or at least enjoy the nice graphics. For those less adventurous, a summary of the findings is here. I particularly like the observation:
"With regard to upload speeds it is seen that the speeds of mobile technology are higher than those provided by fixed technology."
I've got a 3G dongle which typcially sits idly by at home, as I ponder just how slow a cable modem upload can be. It would be nice to bond the two together somehow.
Tuesday, May 05, 2009
BT's CEO got the virtual equivalent of a mass Glasgow kiss (definition) for his recent Ford vs. Ferrari comments. But events have proven he's partially right - only 75% of Virgin Media's new customers want 10Mbps or more, suggesting that the other 25% are content with 2Mbps. This segment of bandwidth prudes could be an incremental growth target for UK ADSL players, as ADSL has proven it's fully capable of delivering 2Mbps, mostly (see point 1.8 on page 3).
But they'd better hurry - Virgin no longer even markets its 2Mbps product, and the remaining 2Mbps customers are going to be dragged kicking and screaming onto 10Mbps packages from this month.
Nice to see the cable industry finally doing what I have always believed it could and should do: use its network advantages as a blunt weapon to batter telcos with (Telenet results also show a similar trend and tone - 78% of subs are >12Mbps). In cases where the incumbent is unwilling or financially challenged to respond (4.8x leverage is a steep hill to climb), things are going to get very, very ugly.
This does nothing to bring closer the demise of the bete noir of asymmetry - this person felt strongly enough about the issue to devote a blog entirely to it, but apparently gave up out of despair. (I recently set up a YouTube channel, and people, let me tell you, the upload times are excruciating.)
Still, it's interesting to ponder that telcos who have enjoyed relatively benign financial climes in days-gone-by avoided making the investment in preference for M&A adventurism, share buybacks and dividends, only to find themselves now under duress to play catch-up in much less forgiving conditions. I've heard this story somewhere before.
Friday, May 01, 2009
Well, it's Friday afternoon, and if you're being honest with yourself you probably haven't done much work this afternoon anyway. So take a few minutes to re-live the last ten years of trading in Amazon and eBay shares (eBay shareholders won't like the last segment, but then they probably know that anyway). Go to this chart, right click and select "Animate" and watch the lines dance. Apple and Microsoft is another good one.