Socially inept social marketing

As enablers of communications, I don't think it's too much to expect of communications companies to be able to communicate. However, it seems to be almost an alien concept, and when it goes wrong, their efforts can smack of ineptitude, if not outright desperation. A friend received the following from a PR agency, which shall remain nameless to save them embarrassment, though I don't know why I'm being so charitable:

Hi there,

We work for BT and would like to offer you the opportunity to trial the new BT Infinity Superfast Broadband. The service is being rolled out across the UK over the coming months and as a prominent xxx blogger, we'll like your influence to help tell people about it. Here’s the deal – we’ll give you FREEbroadband in exchange for running a competition about BT Infinity on your blog.

BT Infinity is basically a fibre optic broadband service that allows download speeds up to 40MB and upload speeds of up to 10MB so you'll be able to do so much more at the same time - and in an instant.

Here’s some more info on BT Infinity: http://www.productsandservices.bt.com/consumerProducts/displayTopic.do?topicId=29017

Sound a good deal? Just let us know if it's something you'd be interest taking part and we’ll arrange for full installation and send you a media pack about the competition details right away!

Please let us know.

Best wishes

So it looks like said PR shop is scatter gun spamming bloggers in a cack handed effort to tap some illusory "social buzz" surrounding BT Infinity (interesting name choice, by the way - you can't go beyond infinity, now defined as 40/10Mbps). No personal salutation, so not particularly social, and in line two my friend is described as a "prominent xxx blogger." Triple X? Really? I'm also baffled as to exactly what sort of "competition about BT Infinity" he is meant to "run" on his blog. Perhaps some sort of xxx download speed contest?

Bizarre from start to finish, and it's reminiscent of the kind of anonymous nonsense I occasionally receive from Sani Abacha's widow. Socially inept, and, methinks, highly unlikely to inspire a warm and fuzzy feeling in any "prominent xxx blogger," but fantastic comedic value. So here comes the punchline: the "prominent xxx blogger" recipient mothballed his blog quite some time ago, just so you know.

BT, if you are intent on doing social marketing, I am available to advise you.

Digital Dales Colloquium Number 1

In direct contravention of my own new year's resolution, I have not, in fact, posted more frequently, which is a source of ongoing embarrassment to me. Life has brought many changes over the past six months, and most of them have not been great. I've been trying to focus my energy on things which have a more positive direct impact on my life, or on issues I care about, and less on things like pontificating about the iPad (though if I did want to pontificate on it, I would probably take a different tack).

For this reason, I would really love to be at the Digital Dales Colloquium Number 1, next Friday the 26th of February, but unfortunately, I am moving house that day. I had the pleasure of finally meeting Lindsey Annison recently, and her enthusiasm and commitment to getting true connectivity to people who need and will benefit from it is truly inspiring. It probably helps that she has experienced life on the broadband margins personally - as she said to me, try running a business out of your home with a DSL line that delivers 256kbps, on a good day.

Anyway, try to get there if you can, because I'm sure it's going to be a great event. Sorry I have to take a rain check.

Googlebit to the home

Here I am in Amsterdam spending the day with people involved in the FTTH open network space, and lo and behold, the big G weighs in with a helpful bit of ammo to throw at the asymmetric services Taliban.

"We want to see what developers and users can do with ultra high-speeds, whether it's creating new bandwidth-intensive "killer apps" and services, or other uses we can't yet imagine."

The emphasis on the last bit is mine, and for obvious reasons. This is something which we were trying to stress here, in drawing a parallel with the decision to extend the power grid to all. That decision wasn't taken with perfect knowledge of what the benefits or ripple effects would be, and I suspect we have no greater insight into where developments like this will lead.

But rest assured that, with Google now wading in, telco paranoia readings will rise to DEFCON 1, which should provide great comedy value for months to come. Just when I thought broadband was getting dull...

A blaze of glory

Firstly, I'd like to wish a belated Happy New Year to all mega-uber value readers. I've started the year with a few distractions, and so haven't been as assiduous in my resolution to post more in 2010, but there's still a lot of the year left.

I've previously sung the praises of Virgin Media's top-notch treasury team, and once again they've shown what they're made of. On Monday the company announced a £500m offering of senior secured notes, following on from the senior facilities amendment process of last year, which allowed the company to issue bonds ranking pari passu with existing bank debt, in order to manage maturities. This in itself was not surprising, but demand was such that the company was able to up-size the transaction to raise a jaw-dropping three times what it initially aimed for. The two tranches (7% sterling and 6.5% dollar) priced at 98.5, to yield 7.25% and 6.75%, respectively, and traded up on the break, but appear to be struggling somewhat now.

This development tells us that there is an eye-watering level of liquidity looking for a home, though I am puzzled as to why, in the face of rising interest rates in the future, it chose this issue and this sort of pricing to get excited about. More interesting to me is what this deal says about Virgin Media's expectations for the capital markets in the near term. Most of the new issues we have seen in recent months (including Virgin's own issues) which have been up-sized have typically been increased by 50%, or in extreme cases, to maybe double the initial expectations. But three times? Audacious stuff indeed, though completely understandable if investors are trampling one another to hand you money on favorable terms.

Thinking back to the dark days of Q4 2008, when everyone seemed to think the world was going to end, Virgin Media was among the first in Europe to take a proactive stance towards managing its maturity profile, itself a bold move against a backdrop of widespread scepticism and despair, and it continued to manage the process throughout the following year, tapping the market in May, July and November. In doing so, it would appear that the company correctly read the course that the market would take as the mood lightened and risk appetite returned, and it was opportunistic in taking advantage of the dynamic.

With this latest gargantuan issue, however, I feel an element of "last gasp," and I am wondering if we should take a negative view of what this says about the company's reading of the market in 2010, i.e., the door is closing so take the money and run. If that's what they're saying, I'm prepared to listen.

Now ONO, which has endured far more stress and waited far longer to deal with its own issues, is going to attempt broadly the same solution, albeit in a much more compressed fashion. I will be very interested to see how it fares in comparison.

Happy holidays, farewell noughties, and onward and upward in 2010

Well, as Santa packs his sleigh, one thing is painfully clear: I have been a bad blogger and will only be receiving lumps of coal this year. My New Year's resolution is to post and Tweet more frequently in 2010. It promises to be an interesting, if challenging, new decade, and I look forward to being involved in new projects and adventures.

Given that the past two years have brought me little besides serial frustrations and disappointments on both personal and professional fronts, I can't say that I am sad to see the end of this first decade of the millennium. However, that would be to overlook all the wondrous developments in our beloved telecom which make the world in December 2009 look almost unrecognisable to the time traveller from ten years ago: the inexorable global rise of mobile; ubiquitous WiFi; grid computing; Linux in the consumer sphere; the proliferation of consumer broadband; peer-to-peer architectures; social media, user-generated content, and mash-ups; online gaming and immersive worlds; access-independent voice; the iPhone and apps; the iPlayer/Hulu; YouTube; the Cloud phenomenon; Google Earth; search and recommendation engines which actually work...

I could go on, and no doubt I'm missing many and overselling others. However, those of you who remember 2000 will, if you're honest, recognize that this list represents some genuinely huge changes to the world we inhabited when we celebrated the Millennium, and also that many of them were unexpected, or have happened either faster or on a broader scale than many could have anticipated at the time. Yet, what underlies their development is the technical, regulatory, and commercial framework which allowed these developments to take shape. In other words, the investment in development, policy, infrastructure and business models which enabled the fairly humble and primitive platform quaintly called "The Information Superhighway" in 1999 was critical to engendering all of the innovation we have seen in the decade since.

Only the most visionary at the time could have had a genuinely clear idea of how things would look in 2009, but the steps were taken nevertheless, possibly in some cases as a blind stab in the dark at some sort of nebulous opportunity which might develop as a result. We now find ourselves at the threshold of a new decade and a new range of unforeseen possibilities to be facilitated through further investment, and my guess is that the degree of transformation we will acknowledge at this time in 2019 may make the past decade look tame by comparison. If you find this line of thinking interesting, and also find yourself overdosing on family togetherness over the holidays, you might like to sneak away into a quiet corner and have a read of this recently-published paper which I co-wrote with my man Taylor Reynolds of the OECD. I look forward to your feedback, and hopefully to discussing and debating in the new year. Meanwhile, I am off to the States to see family and friends and (gulp) play a live show...

Until then, thanks for reading, and I'd like to wish you all the best during the holidays and a fulfilling and prosperous new year.

Of sausage and budgets

There's an old saying to the effect that there are two things you never want to see being made: UK budgets and Vienna sausage. Yesterday, most eyes in the UK were on the renaming of the City of London as Darlingrad, a brave new world wherein the conventional laws of mathematics don't apply, e.g., a 50% tax on an estimated GBP6bn bonus pool raises only GBP500m.

Meanwhile, another debacle was occurring somewhat further east, as Telekom Austria yesterday issued a tersely-worded recalibration of market expectations for 2010, wherein, despite revenue outlook being in line with consensus, EBITDA was forecast to be 11% below consensus, capex 14% higher, and as a result, operating free cash flow 25% lower. No additional color was offered by way of explanation for the variance, and the market understandably did a 14% tap dance on the share price.

Some friends of mine on the sell-side had a few hours before unfortunately published a buy note on the company. It is common practice for analysts to run their forecasts and note past a company prior to publication, just to ensure there are no factual errors or misrepresentations. Whether that occurred in this case or not, I don't know, but I assume it did, and if so, the fact that the company was on the verge of publishing material information and said nothing is not the sort of thing which endears companies to analysts.

In fact, in this case, the analysts in question, rather than trying to explain things away and goose their numbers to fit their recommendation, have done the right thing, and terminated coverage. They write:

"We spoke with TA after its profit warning yesterday. In sum we understand the following: A few months ago it was quite clear that the four year budget drawn in late 2008 would have to be revised down. But TA goes through the detailed process of drawing up a four year budget only once every 12 months (at the end of each calendar year) - yesterday's announcement follows the conclusion of this process for 2009.

From this we deduce that until this detailed process is completed, TA is largely unable to correct/reset consensus expectations even if trading conditions look set to be very different from the assumptions behind the last communicated business plan (in this case, the one drawn up in late 2008).

We apologise unreservedly for not thinking that this was at all possible. Because clearly it is possible, we believe that we cannot research TA's investment case with any reasonable degree of confidence. We therefore terminate coverage."

This is hard stuff to have to write when you're in their position, and if anything, I think they're being overly polite. I am of the humble opinion that if companies become aware of a material change to outlook over the coming 12 months (I consider EBITDA variation of 11% to be material), there is every incentive (and indeed, in some markets, a regulatory requirement) to issue a formal statement and get the pain over with in a way which preserves some degree of trust and respect from the analyst and investor base. Such a move would also avoid having to surface revelations such as the fact that the four year budget is reviewed once a year, three weeks before Christmas. Investors don't want nasty short-term shocks, but they also don't want persistent nagging suspicions that there is a culture of complacency in such a rapidly changing industry landscape, or more frankly, that visibility is too poor to make credible four-year budgets.

Walk like an Egyptian

A little over a month ago, I had an interesting discussion with someone involved in the subordinated debt of WIND Hellas. This is a situation I have followed very closely all year, though I was only interested in the senior parts of the capital structure, for reasons which are now obvious, principally because I have always expected the outcome we have recently seen.

As I explained to them, my thesis was pretty straightforward. The company's capital structure was over-leveraged, and the EBITDA multiple of the company through the senior debt alone was in some cases at a premium to European incumbents, despite having a critical liquidity crisis, compromised competitive position, and Greek macro risk. The implication was that the subordinated debt had little if any value, and Mr. Sawiris' original EUR500m equity check was lying at the bottom of the Aegean. The only way to salvage any equity value would be to align interests with the senior lenders and push out the guys in the middle - the subordinated debt holders. No room for concessions or niceties.

Their response was that they couldn't understand why Mr. Sawiris would risk his reputation and access to capital markets through a UK pre-pack insolvency which would wipe out EUR960m and $275m of subordinated debt. Surely he wouldn't be able to come back to the markets any time soon. I told them I wasn't convinced that he need be too worried about either reputation or access - a lot of cash is waiting on the sidelines, and the market has a chronically short memory.

Sure enough, less than a month since the filing, a sister entity from the Weather complex, Wind Acquisition Holdings Finance SA, comes to market with a EUR500m bond offering. Not only is it serious money, it is also reportedly structured as a PIK note for the first four years. We haven't seen any PIK issues since things started to go south in 2007, and many of the outstanding PIK deals from the Good Old Days have been treated like red-headed stepchildren over the past year. So, having just crushed a boatload of subordinated debt in November, we're now looking at a large, deeply subordinated debt issue which is effectively free money for the first four years. Far from being locked out of the markets, Mr. Sawiris will defiantly get this one away, and I am now prepared to officially elevate him to rock legend status. You may not agree with his tactics, but he certainly gets an A+ for audacity.

Surely investors angered by the WIND Hellas outcome would be inclined to boycott, but I hear price talk of a 12% coupon, and the market is so relentlessly thirsty for yield that I'm pretty confident that when the books close it will either be significantly up-sized or very oversubscribed. I don't know the Egyptian gesture equating to the two-fingered salute, but this will probably do nicely.

Happy Thanksgiving

A very happy holiday to all the turkey gobblers across the pond. Here in Britain we are thankful for our universal right to untrammelled internet access, er, d'oh!

A little more conversation...

I find it equally amusing and depressing when I hear telcos speak, as they frequently do, about the secret to value creation being in their content strategy. For shareholders, perhaps that's true (I'm deeply skeptical), but for customers and society at large, clearly the greatest value created in communications is in enabling interactions and transactions, or as my friends at Telco 2.0 frame it, "removing friction."

So here's some friction. This morning I took my daughters to school, to find the headmaster and several other members of staff standing at the school gates holding hastily printed signs which read, "Unfortunately, we have to cancel school for all of year 1 and class 9 due to health and safety reasons." From what we could gather, there was a flood overnight, affecting classrooms in one section of the building.

Luckily, (or unluckily, they might say) neither of my daughters was in the affected groups. However, there are around 100 kids who were, and the first notice their parents received of this less-than-minor inconvenience was when they arrived at the school shortly before 9:00. Some of these kids don't live all that close to the school, so their families will have made unnecessary car or bike journeys, while others will have had contend with no childcare backup and unsympathetic employers. The employers, sympathetic or not, will have lost productivity. Overall, this one incident affecting nominally 100 children also affected at least 100 adults and probably nearly as many businesses.

Now, I'm guessing that the school caretaker or some other members of staff were aware of the problem at least an hour or two before the parents and children arrived, but it would have been impossible to phone every affected household to let them know they needed to make alternative arrangements - or so I'm sure the defensive administration would respond. However, phoning every household is a very 1980s sort of solution, and totally unnecessary in 2009.

It's safe to assume that every parent in the school has a mobile phone, so either the local education authority should have an SMS alerting service for this sort of situation, or the school, which seems to pride itself on its level of IT literacy, should set up a Twitter account and encourage parents to follow and/or activate SMS tweets. Some effort would be required, and inevitably this strategy won't cover everyone, but it's a start, and surely it's better than disrupting something like 300 lives and imposing a cost on people/businesses who are just trying to get on with earning a living. And for those delivering the bad news, surely it's a more pleasant alternative to having to stand in the rain with a limp sign encountering withering looks from outraged parents. We have the tools, so why don't we use them?

Tweeting selectively from the Citi credit conference

www.twitter.com/jimiinc #Citi

The best scam email of all time

That's a bold statement to make, but you have to admire the genius of a scam "cleverly" disguised as a compensation program for scam victims. What was the old saying about "Fool me once..."? I particularly like the professional-sounding "We shall feed with you more modalities..." phrase, as well as the fact that the email address for correspondence is in, of course, the yahoo.com.hk domain. Keep trying guys, at least the entertainment value is continually rising.

<><><><><><><><><><><><><><><><><><><><><><>

ECOBANK NIGERIA PLC
SCAM COMPENSATION OFFICE DEPARTMENT
ECOWAS NATIONS STATE/UNITED NATIONS
2009 SCAM VICTIMS COMPENSATIONS PAYMENTS.

YOUR REF/PAYMENTS CODE: ECB/06654 FOR $500,000 USD ONLY.

This is to bring to your notice that our bank (ECOBANK INTL. PLC) is
delegated by the ECOWAS/UNITED NATIONS in Central Bank to pay victims of scam
$500,000 (Five Hundred Thousand Dollars Only). You are listed/approved for
this payment as one of the scammed victims to be paid this amount.

On this faithful recommendations, want you to alert you that during the last
U.N. meetings held at ABUJA (WEST AFRICA), it was accessed/accumulated of
reported cases of fraud that the money lost by variousindividuals to Africans
scam artists operating in syndicates all over the world today is over $239
Million United States Dollars in year 2007 to fraud in USA alone.

http://www.techspot.com/news/29644-US-Citizens-lost-239-million-from-Internet-
fraud-in-2007.html

In other to compensate victims, the ECOWAS/UNITED NATIONS is now paying
victims of such scam $500,000 (Five Hundred Thousand Dollars Only Each ).in
accordance with the UNITED NATIONS recommendations.

The payments are to be remitted by ECOBANK PLC NIGERIA as corresponding
paying bank under funding assistance by CENTRAL BANK OF NIGERIA. Benefactor
of this compensation award will have to be first cleared by ECOBANK and
confirmed as a victim from Africa Scam before scam payment can be effected.

We shall feed you with further modalities as soon as we get response from you
on how you can receive your compensation payment award.

Send a copy of your response via email or call your remittance officer
quoting your PAYMENT CODE NUMBER(ECB/06654).


NAME: MR.KEN OSAZUWA
SCAMMED VICTIM/REF/PAYMENTS CODE:
ECB/06654 $500,000 USD.
TEL : +234 7025669085

Email: scamvictimstransfer@yahoo.com.hk


Yours Faithfully,
Mrs. FRANCA OSARO
PUBLIC RELATIONS OFFICER

Another incumbent buys open access fiber

Private-equity owned companies are frequently the subject of ridicule, due to a perception that they're purely run for cash, by shareholders who are always looking for the exit, and who, in some cases are clueless. That point of view is often justified, and there are other situations where very bright and talented people who are genuinely committed to the business end up in untenable situations, but there are also some comparatively rare situations where the PE sponsors genuinely seem to understand how to build value and innovate in ways which public companies struggle to match.

Take TDC, whose shareholders were not only bold enough to basically pay the record industry to shut up, but are now following KPN into open access fiber, purchasing c.60% of the network assets (apart from those involved in monitoring the grid) of the unfortunately named DONG Energy, for DKK325m cash plus an additional DKK100m in earn-out structured as a revenue share. The key difference here is that DONG has built out much more extensively than Reggefiber has. Two summers ago, when on vacation in North Zealand, I remember driving through small villages, remote by Danish standards, where fiber was being rolled.

By allowing DONG to take the capex and commercial risk in deploying the network, TDC avoided having to listen to lenders complaining and fretting, until the asset was mature enough to buy in. (It always fascinates me that investors prefer M&A to capex.) From DONG's perspective, it seems as though the company struggled to build a customer base in the absence of third party carrier relationships, which of course TDC has in abundance, so it probably was an inescapable outcome that DONG would sell out and leave the telco-ing to the telco.

Britain's Embarrassing Travesty?

If you're planning to make an inspirational video about fiber which makes the viewer contemplate suicide within the first three minutes, I think I have a template for you to follow. "Patience is a virtue of the past." Indeed. In fact, it looks like patience in some quarters was exhausted some considerable time ago. Note the call to action towards the end:

If Ofcom will not lay down the law on this one, or at least issue some guidelines or a Code of Practice about NGA marketing to stop this in its tracks, I will personally pay a bunch of very cheap workers to spend as long as it takes out on the Internet making sure that as many websites as possible have either a forum post, blog comment, banner ad or similar on it saying something along the lines of "BT's BET is NOT next generation broadband. Complain now. Boycott BT."

Funny how these things can spread virally and unpredictably, which is something I thought marketing departments were supposed to understand by now. I notice that there currently seems to be no Facebook group with a title such as "BET = Britain's Embarrassing Travesty." Not that I'm advocating that someone start one. But if they did, I would join it.

My big fat Greek restructuring

Well, looks like the third party interlopers in the WIND Hellas situation waited a bit too long to show their hand. However, the investment from Weather only delivers EUR50m in additional liquidity to the company, with the remaining EUR75m going to consent fees and transaction costs. Once the subordinated debt holders have been crushed (the FRNs are quoted 3 - 5, and the PIK notes are looking extremely hot at 1/16 - 9/16), the company should save c.EUR95m in interest costs before taking into account the margin increases for the senior lenders. In short, the company should be stabilized by this deal, but things are going to be tight for a long time, and the market still needs to consolidate, so let's call it Chapter One.

A question for European equipment vendors

Q: How do you compete with a privately held national champion with a $30bn credit line?

A: Maybe you don't.

(P.S., Starent is in the process of being acquired by Cisco, so you'll probably be seeing them around a bit more too.)

Tuesday morning drive-by

Still trying to recover from eComm last week in Amsterdam, and get caught up on other things. I would love to do a lengthy post on eComm, but I don't have the time, unfortunately. Stated simply, I think it is the finest event of its type on the planet. Lots of short and punchy presentations, many of them challenging and provocative, covering a wide range of aspects around communications (note my omission of the prefix "tele"), with a low tolerance level for bullshit, and good representation from people who are actually doing innovative things. Not many carriers were present (I counted four), but then why would carriers be interested in new developments in communications? And no IMS, HADOPI, or any other toxic and delusional acronym-based strategies were to be found - heaven! I gave a 15-minute talk on day one, and moderated a panel on day two. Wish I could have stayed for day three, which sounds like it was very interesting indeed. Take my advice - bookmark the next event and just go. You won't regret it.

Speaking of interesting events - tomorrow I'll be moderating a panel at Telco 2.0 in London, which has apparently seen a huge level of interest and registrations. I'm looking forward to the event and the Thames River cruise which follows. Hope to see you there!

I've come to the conclusion that my "social media brand" strategy is inevitably doomed to be one of fragmentation. Sometimes I have something to say or point to which is suitable for this blog, but which I just don't have time to write a proper blog post on. If you're interested in capturing any of that stuff, you may wish to follow me on Twitter. I know it is probably over-hyped as a medium, but it is imminently suitable to certain types of expression, such as "31bn? That's 3x BT's market cap, or one national FTTH network. What's that burning smell?" Alternatively, you may just wish to friend me - I already consider my mega-uber value readers to be friends I haven't met, so why don't we formalize things?

So, on to the industry/market:

Data centers - You have to love data centers, well I do anyway. The unsung heroes of the web services revolution, they work away in quiet anonymity and throw off disgusting amounts of cash if run properly - and we don't have nearly enough of them. We tried like hell to get a Greater London project funded while at Merrill Lynch, but timing and the parlous state of the firm's balance sheet thwarted us, sadly. Judging from Telecity's statement from yesterday, our investment case still stands.

Ride that high yield bubble - Virgin Media, which is a company I have a lot of time for, despite my frequent mocking posts about open street cabinets, continues to demonstrate that continuity issues in the CFO's office need not be an impediment to sound financial management. Following last week's acceptance of its senior facilities amendment, the company is wasting no time in lining up refinancing options for the lower parts of the capital structure, which is exactly what it should be doing given the opportunity which the market's thirst for yield has created. What looked to be a very steep mountain to climb at the start of the year, has been handled masterfully in my view, and the second lien debt, which is something we loved at the beginning of the year at 50, is now quoted 93.5. I don't often think of congratulating company treasurers, but here's to a job well done.

Greek consolidation - This is a topic we did an awful lot of work on at Merrill Lynch, and the ongoing WIND Hellas saga has been very much on our mind since the beginning of the year. Now a "wild card" bid has reportedly emerged from what most would regard as an unlikely source. However, I have previously worked closely with some of the people involved behind the scenes here, so I, for one, am not surprised, and I think things are going to get very interesting from here.

Waving from afar

Folks, a very altruistic Palladium Class mega-uber value reader has commented on my previous post to let us know that he has a surfeit of Google Wave invites, and that if you ping him and ask nicely, he'll pass them on to you. Thanks Peter!

Calling all Bulgarians!

If you're Bulgarian and have any views on broadband, my friend and fibrous co-conspirator Benoit Felten needs your help in completing a survey for the good of the country, so get yourself over to the site and take part, faster than you can say Ivo Papazov.

Waving goodbye

Okay good people, I have two major problems. Firstly, a number of people have posted requests with no email address. Google Wave makes you more productive, apparently, but not psychic. Secondly, and more importantly, something seems to have gone terribly wrong. Wave crashed earlier and prompted me to refresh, and when I did my remaining invites were gone. I had dished out five and still had three left. I've retained the details of those requests I wasn't able to honor, and if I get more invites, or my remaining ones are restored, your requests will be honored. For those I was able to fulfill, be advised that it may take some time, as it seems there are some scaling issues.

Waving, not drowning

Still trying to recover from the eComm experience and catch up on other things, so drowning is not far from the truth, but meanwhile, I have eight [8] Googlewave invitations for first-comers.

My slides from eComm

Scribd doesn't maintain the animations, so you may prefer to download it here.

Like I said a few hours ago...

Data centers are the new steel mills, and every bit as hot. Just a few minutes ago, Equinix announced the acquisition of Switch & Data, at what I work out to be around 10x LTM EBITDA (10.5x if you use numbers up to Q2, and 9.5x using my Q3 guesstimate). I'm sure this is dramatic news for S&D shareholders, but it's really pretty unsurprising if you've been watching what's been happening in the space over the past three years or so, as I have. This is just the opening salvo in what I expect will be a new phase of consolidation, and I would expect European assets to be pretty high on the agenda.

I'm too sexy for my picks and shovels

An adviser to Goldilocks has apparently been channeling the spirit of Horatio Alger, Jr., and unsurprisingly receiving some unsympathetic coverage in the process. Still, for good or evil, inequality is an inescapable fact of life, particularly in business. So setting aside investment banks, which other brazen, rapacious industry is shamelessly enjoying demand for its product outstripping supply three-to-one, with pricing up 15% this year, in the midst of the deepest recession in living memory? All hail the humble data center.

Don't shrug at ATLAS 2009

Thanks to @kerryritz for the pointer on this very interesting presentation on the ATLAS Internet Observatory 2009 findings from the NANOG conference. The most interesting findings from my point of view are: 1) the rapid concentration of content sources (only 150 ASNs account for 50% of internet traffic, with CDNs accounting for 10% and Google alone for 6%); and, 2) the apparent decline of P2P in favor of streaming and direct download, although I find it notable that the authors point out that data is distorted by random port selection and the fact that 40% of P2P is encrypted.

Call for input

I'm in the process of putting together my slides for eComm next week in Amsterdam, and I wanted to ask for your input, gentle reader. If you would be so kind as to send me the three most critical issues which the communications (notice I did not say telecom) industry faces in future, I would be very interested to see them. By critical issues, I mean opportunities and/or challenges, both endogenous and exogenous. I'm just curious to see how your ideas line up against my own.

Cognitive Dissonance

Is it just me, or are the terms "2016 maturity" and "terrestrial broadcaster" not mutually exclusive?

Christmas come early

I have two tickets to eComm Amsterdam, 28 - 30 October, up for grabs. One is *F*R*E*E* and the other entitles you to a 50% discount. First come, first served, but please only ask if you are absolutely sure you are actually going to go. Holler at me.

UPDATE: Well, that didn't take long. The free ticket is now gone, which leaves the 50% discount ticket. Don't be shy.

That was the week that was

I think I may have confused or annoyed a number of mega-uber value readers with my post on the arrival of the Memphibian blog. Make no mistake, it is not supplanting this humble bloglet, but during the first couple of weeks I had to ensure I had seeded enough content there to give it a life of its own. As in everything, I will strive for balance going forward.

So, among the things I noted but failed to comment on last week, here are the ones I found most interesting:

The Skype and European Directories (a MacQuarie LBO) tie-up looks interesting, and I would expect some of the other directories players to follow suit, if they know what's good for them (the jury is out on that one). However, for me the bigger message in this deal is of how the previous owners of both assets squandered their potential. In the case of Skype, it's ironic that only as the business is sold by eBay does it begin to fulfill some of the potential used as rationale for doing the transaction four years ago. And on the directories side, this deal shows the obvious potential of tying together customer data, advertising, and sponsored telephony - something the telcos didn't seem to contemplate when they owned these directory assets. Now whatever value might be generated with this formula once again accrues to someone else...

A couple of big validations for fiber in the week, with BT capitulating on brownfield FTTP, probably in recognition of the threat posed by Virgin's DOCSIS 3.0 marketing, and Telefonica trumping Vivendi's one-month old bid for Global Village Telecom at a 14% premium, with in-market synergies that Vivendi can't get anywhere near.

The profound and ridiculous ends of the iPhone App spectrum were on display on Friday, with Herman pointing us towards the ludicrous (but entertaining) Gym Babes app, while the HealthMap project's iPhone app has generated 1,000 reports since launch a month ago. As the project team says, "This form of participatory epidemiology may alert the public to valuable disease information before it is reported by the media or public health officials," which is bound to have an inestimable value. All this is fascinating, though if Gartner is right in predicting that Android will eclipse the iPhone juggernaut by 2012 due to its open-source framework and multi-vendor backing, then presumably app developers are going to have to start hedging by developing for both platforms. This despite the fact that I am told repeatedly that investors currently have no time or appetite for anything non-iPhone in nature, and Kleiner Perkins Caulfield have taken a highly directional bet on iPhone hegemony.

From the "Yeah, whatever" department

I think one of the first rules of marketing is that merely repeating an assertion ad nauseum doesn't make it true, particularly if the direct experience of your existing users shows it to be false. Yahoo! seems to be doing its best to pull the outdoor advertising marketing out of its deep recession with this campaign splashed all over London. Meanwhile, I have a colleague who uses Yahoo! mail, and for the past two months, he would say that the internet has been under the control of a Diabolical Denial of Service attack. I don't know if this is an isolated problem, or relates to his being a Mac user (as if that should really make any difference), but seeing his suffering, I am now programmed to ignore or laugh at billboards like this. Also, in case no one at Yahoo! corporate had clocked it, hooded figures like this in the UK are associated with muggings and other pointless acts of antisocial behavior, so my guess is that drivers passing this billboard will immediately assume it is yet another government fear appeal message and pay no attention.

Your lucky day

One of my colleagues received this message today, which, apart from being risibly written and fundamentally ludicrous, points out just how mainstream Skype has become, if 419 scammers are invoking its name, particularly alongside that of Microsoft.



Date: Fri, 9 Oct 2009 19:03:24 +0800
> Subject: Congratulations!! *You Have Won 850,000.00 GBP
> From: dzplum@yahoo.com
>
>
>
>
>
> World Annual Skype/ Microsoft Internet Users Award
> 102, Denton Manchester Lancashire M34 3GE
> Annual Random Charity International
> United Kingdom
>
> Dear, Lucky Winners
>
> We happily announce to you the draw of 2009 World Annual Skype/ Microsoft
> Internet Users Award International Program held annually, in United
> Kingdom. Your e-mail address attached to ticket number: 500-744-3465-A42
> with serial number: 652-112 and draw lucky number: 7202013-05 which
> subsequently won you lottery in the 1st category of files number:
> FA1345U-ID.
>
> Batch Number.0152k Reference Number.02-QH-05 you have therefore been
> approved to claim a total sum of 850,000.00GBP (Eight Hundred and Fifty
> Thousand, Great Britain Pound Sterlings) in Cheque,
>
> All participants in this lottery program were selected annual randomly
> through a computer ballot system, drawn from 100.000.000 individuals email
> addresses from all search engines. Your e-mail address was picked by the
> automated computer ballot system, which has been programmed for this
> random selection. This has eventually qualified you to won our lottery
> prize.
>
> This promotional program held annually, and was promoted and sponsored by,
> Microsoft Inc, and Skype Internet Companies to encourage the use of
> Internet globally together with enhancing improves the lives of citizenry.
> Please note that your lucky winning number falls within our Europe
> representative's booklet in United Kingdom , as indicated in your file
> number: FA1345U-ID. In view of this, your 850,000.00GBP Cheque have be
> released and forwarded to our United Kingdom regional headquarter in
> Manchester, you are hereby informed to contact Manchester on this
> information, for the immediate commence of your Cheque
>
> Mobile Number: +447024064610
> +447024087960
> E-Mail: worldannualskype@yahoo.com.hk
>
> Fill the following details below to enable the speedy evaluation and
> processing of your won prize. 1 Name, 2 Home address, 3 Telephone number,
> 4 Age and occupation, 5 Ticket number, 6 Serial numbers, 7 File number, 8
> Draw number
>
> For security purposes and clarity we advice that you keep your winning
> information confidential, and not to be disclosed to anyone until your
> claim have been fully processed and your winning Cheque delivered to you.
> BE WARNED!
>
> National Coordinator
> Skype/ Microsoft
> Mr Amoosa Amoosa
>

Benign neglect

It's quite probable that this will be of absolutely no interest to the vast majority of my mega-uber value readers out there, but on the off-chance that you are curious as to where I've been recently, I've been working on a purely personal side project, partly because it makes me happy, and partly because I feel I need to. It doesn't help that the past couple of weeks in telecom have left me feeling distinctly uninspired - is it just me?

Questions to ponder over lunch

Is Huawei the Countrywide of vendor finance?

How can a perfect digital copy be considered a "forgery"?

Doesn't "360" also mean turning around to find yourself exactly where you started?

Pimp my panel

Folks, eComm Europe is coming up fast, October 28 - 30 in Amsterdam, and you'll hate yourself if you miss it. I honestly think the speaker list is unparalleled anywhere, and the format ensures a rich flow of sharp and challenging talks on a wide range of topics of critical interest to those of us linked in the communications value chain. So look into my eyes, look deep into my eyes, and now go and register. I will be giving a talk on day one, and also moderating a panel on day two. The panel format is still being tweaked, but I have submitted the following summary, and I'd be interested to hear your feedback and input in the interest of making it as representative as possible:

Investing in the Telecom Value Chain for a Post-Meltdown World

The world has been through huge financial stress in the past two years, and despite the repeated sightings of "green shoots" by the more optimistic factions on Wall Street, many respected forecasters predict even more dire developments to come: the death of the dollar as a reserve currency, persistent high unemployment and social displacement, drastic cuts in public sector spending, runaway inflation, social unrest, the death of capitalism. While many of these outcomes represent worst case scenarios, we must accept that the "recovery," whenever it arrives, is not going to be a "reversion to business as usual," as the term is commonly defined. Consumers will behave differently and have different definitions of value, businesses will transact differently, entire industries will emerge smaller if indeed they survive at all. Add to this the increasing pressures of urbanization, migration, aging society, and climate change, and the picture becomes even more challenging. What influence will the telecom value chain exert in this new world? What opportunities do the challenges of The New Normal offer investors, and how should they position themselves?

Supersize my toast

I've seen a lot of stuff recently that I don't understand, but if we needed any evidence that this credit market rally may be getting a bit silly, I think I may have found a compelling shred. A couple of days ago, Blockbuster announced an offering of "up to" $340m in senior secured notes, but LCDNews has just reported that this offering has been up-sized to an unfathomable $675m. Most of the deals I've come across recently have been up-sized, but not doubled. The coupon may be huge, I don't know yet, but what else could make this so compelling that demand could lead to a supersizing like this, especially with incineration such a strong possibility?

Lunchtime drive-by, 16 September

Europe is grindingly dull today compared with events elsewhere:

Australia - Life gets more interesting with each passing day for Telstra and its shareholders, as it deals with both the implications of structural separation and yet another catastrophic network outage.

New Zealand - The government tells Telecom and Vodafone to take a flying leap with their proposals, in favor of a highly-localized procurement process for open-access fiber.

Taiwan - Taiwan Mobile buys MSO Kbro for 10.0x LTM EBITDA, a great exit for Carlyle into a much more interesting asset. Surely a company with ubiquitous mobile coverage will also desire a more extensive fixed footprint, particularly if it is only 1.2x levered and can afford to do more - i.e., further consolidation seems inevitable.

Adobe/Omniture - I think I understand what is happening here, or at least I understand the rhetoric around it, but Hank Williams' recent post highlights failings which make me wonder just how well the company will engage with the more demanding customer base it will carry as a result of this deal.

Head-scratching time

Whatever its shortcomings as an industry, one can always count on telecom to deliver unusual and inexplicable M&A activity. Down in Greece, ON Telecoms and Vivodi, two companies I studied in great detail once upon a time in a previous incarnation, have decided to get together, in a somewhat unusual deal. Having presumably already burned a lot of cash on their own company, I'm puzzled as to why the vendors would pony-up for the entire capital increase required to get the deal done, especially when the Greek regulator seems to be giving incumbent OTE more room for maneuver on marketing of bundles. Perhaps there's some trade-off in terms of footprint complementarity, but I would be amazed if that could account for the valuation implied by the deal, EUR250m, i.e., the same as Forthnet's market cap, though Forthnet has more subscribers and also a monopoly position in satellite pay-TV.


UPDATE: Okay, I think I was probably a bit too kind here. I think this is about saving face on both sides. Greece is a pretty unique market, in that one can capture c.85% of ITC spend in just two conurbations - Attica (Athens and environs), and Thessaloniki. There's not much scope for regional niche market approaches, it's pretty much head-to-head in the big two urban centers, and there are already four big players (OTE, Forthnet, Hellas Online, and Wind Hellas) present, which history suggests is typically about the number a single market can viably support. Yes, I know that ON has Fastweb's "secret sauce" to a certain extent, but I'm not convinced that makes much difference against a more nimble OTE, Hellas Online in league with Vodafone, Forthnet, and (eventually) a restructured Wind Hellas. The latter two I do think would make an interesting asset combined, but I don't think this particular deal really moves the needle for anyone.

Battling latency and packet loss

Many years ago, I worked with a German fellow, whose name happened to be Herman, which unfortunately led to him frequently being referred to as "Herman the German," of course mainly when he was out of earshot. Anyway, Herman was a very bright guy, and possessed very good English, though he seemed to be somewhat lacking when it came to colloquial language, so he had a tendency to substitute business language in everyday situations. For example, instead of saying that someone was chatting up a woman in a bar, he would say something along the lines of, "He's performing due diligence on a possible joint venture." Maybe it was just his peculiar sense of humor.

Anyway, it can't have escaped your attention, dear reader, that I have been remiss in posting of late, and I will borrow from Herman's argot to explain that several critical functional areas of my life have been undergoing fundamental restructuring in recent weeks, inflicting high levels of packet loss and latency on my neural network. My NOC has now resolved the problem, and normal service should resume shortly. In the meantime, please enjoy this, perhaps the funniest telco story in recent history, unless of course you are a Telkom S.A. employee...

I'm too sexy for my product

Yesterday I was emailed out of the blue by someone from an agency working with Virgin Media on its "Powerful Stuff" campaign, and asking for feedback on the commercial embedded below. I personally think that with reviews it always pays to be careful what you wish for. As a piece of creative it's fine - nicely shot, etc., but it's an elaborately staged yet unimaginative pun (50 Megs, get it? Get it?). Cute, but pointless, and it does nothing to convey the sort of message this company should be telling regarding its competitive strengths.

Despite telcos' repeated attempts to make it something other than an enabling utility, ultimately broadband should be as sexy and thrilling as electricity, water or a tin of Ronseal. The benchmark of success is that it is available and reliable when people need it, and hopefully reasonably priced yet profitable as a business. You turn it on, and it works. And that's certainly something customers should be thankful for, but not excited about. It's a pretty sad comment on broadband development to date that, much like the British rail transport system, people express excitement on the rare occasion when it actually works as intended.

Null points!

Back on the block

Yet another Virgin cabinet - is this what we mean by open network?
Originally uploaded by jimiinc

I was away in the country last week and spent as little time online as possible. Back now, and with a lot of catching up to do. It's comforting to see that some things back in South London never change. This is Forest Hill Road near Mundania Road, in SE22.

The tracks of my tears

Azeem has an awesome post on VC fund returns, which I highly recommend, and hats off to CalPERS for keeping everyone honest. Our merry band is generally interested in more mature businesses which are under stress, usually due to inappropriate capital structures dating from the most aggressive vintage of the LBO contagion.

When looking at opportunities in this space, it's always helpful to try to get some insight into the states of mind and motivations of the relevant private equity sponsors, though this is often difficult given the veil of secrecy surrounding the industry. So after reading Azeem's post, I was interested to also discover in CalPERS' site a similar table of private equity fund performance, which like the VC table, is not all-encompassing, but is pretty damned comprehensive, especially when one considers that typically these numbers would not be seen outside the relatively small group of insiders/investors.

There are some stunningly bad IRR numbers to be found here, and I only count 34 funds from the 2005 - 2008 time frame in positive territory, and among those who are down, they are often waaaaay down. Conversely, there is only a handful of funds from the pre-2004 vintages in negative territory. It would be nice to think that the critical issue for the 2005 - 2008 vintage funds is time and a turn in the economic cycle (to break out of the trough in the J-curve), but I'm far from convinced. I would be interested to see a comparison of leverage in pre- and post-2004 deals (no doubt a good academic research project for someone with the time and resources), because my suspicion is that the use of leverage in the '05 - '07 period was, as in the broader economy, freakishly supersized - a last gasp of excess before the lights went out - and that this will preclude many of these deals from ever generating a return. And God only knows what happens to some of these deals if LIBOR/EURIBOR are markedly higher in two to three years' time, which I suspect may be the case.

Looking for a datacenter?

Just got a notification that these guys are following my Twitter feed, so I went to their site, Data Center Map, which is very cool, so check it out.

More depressing data points for old media

At the risk of piling on the agony, Le Monde has a nice piece today on the decline of print media within household budgets in France (Google translation here), including this chart showing huge declines for newspapers and books - but keep in mind the last data point is 2005, arguably when the real pain was just beginning. Elsewhere, a colleague noticed a good example of a relatively "uncool" industry seemingly getting the structural shift - UK housebuilder TaylorWimpey's results presentation yesterday (see slide 15) contained a pledge to cut classified ad spending in half (to slightly less than 1/3 of total marketing spend, in favor of online.

Virtual coffee break - 6th August 2009

OFCOM's latest update on the UK market is out, and no doubt it will prove an interesting read, when I get a moment. Among the headline points, it seems clear that survey respondents would rather lose a limb than cut back on telecom spending, a somewhat unsurprising conclusion, and one which I tried to stress repeatedly during my Telco 2.0 series last year/early this year. A couple of other headline-grabbers are that 21% of internet users have had some experience with VoIP (a 50% increase YoY), and that apparently half of UK internet users (that's 19m people) are on Facebook.

This latter point contains an interesting sub-plot, which is that the proportion of respondents 15 - 24 who claimed to have a profile on a social networking site actually fell from 55% to 50%. Maybe they're shifting to anti-social networking, from Bebo to ASBO, as it were. Or maybe they see the herd of more mature users invading their space and fear being bombarded by ads for laser corrective surgery or invitations to become fans of hip replacement surgery. Churn, baby, churn.

The release of these findings today is ironic to me, coming on the same day as I received a Facebook friend request from a relative in Texas in her mid-60's, and also as ITV, the embarrassing uncle in mid-life crisis desperately in search of a way to remain relevant, gave up the ghost on Friends Reunited. But only after paying a £55m earn-out earlier this year - ouch.

So, who's the online video daddy?

Yep, you got it. Nice timing to boot.

Into Africa

This post to the NANOG list struck a chord, as it seems to demonstrate, in near real-time, the dramatic effects that better and cheaper connectivity can have on a market, in this case Kenya. I will look forward to following the responses from the list.

Things I thought I'd never live to see, part 1

An IPO, in the US of all places, for The Pirate Bay? What next, a strategic investment by Universal Music, Time Warner and NewsCorp?

Ferrari, Ford, or Trabant?

It's front page news in the Financial Times today. Ed Richards of OFCOM droned on about it somniferously on Radio Four this morning, while interviewer Sarah Montague sounded very irritated with him. OFCOM's latest update on broadband speeds is going to be picked apart by the media ad nauseum, and I couldn't be happier about it.

Repetition is a good thing where consumer education is concerned. For years I've been hoping that Clive Sixpack would take a look at the parlous state of UK broadband versus its neighbors and get annoyed, because annoyance is frequently followed in this country by quiet muttering, and in some cases by a demand for action, or even a good punch-up. Hopefully the Daily Mail will take hold of the story and run with it, without attributing the problem to illegal immigrants, as it seems to do with most issues.

I'm joking here, but my point is serious - this is a golden opportunity to make broadband a genuine populist issue to demand change. One of my colleagues came up with the idea for a campaign to encourage subscribers receiving only 40% of their nominal line rate to submit only 40% of their nominal tariff every month, which I quite like.

I don't think there's anything here that people who follow the industry haven't at least suspected, if not known outright, and the spectrum of operator suckiness is almost precisely what I expected when the previous SamKnows report was issued. Still, it's nice to see the worst offenders named and shamed publicly, though I suspect their customers are well aware of their failings already.

The big winner here is Virgin Media - clearly acknowledged as superior, the BBC Radio Four news story intro this morning even highlighted that the study found "broadband by cable is better than by phone line," which is the sort of PR you can't typically buy, let alone get for free. I suppose Lord Carter must also be feeling pretty good. If the average speed delivered in the UK is 4.1Mbps, then Digital Britain's "vision" of 2Mbps for all is virtually in the bag, three full years ahead of schedule. Job done, time to move on!

It's a sad irony that, just as we reach a point where the flames of public discontent can be fanned effectively, the government will have the luxury of shrugging and pointing to empty coffers, while just up the road, construction continues on an Ozymandian project, the cost of which equates roughly to one-third the total bill for FTTH to every home in the country. Never mind, we're building a legacy here, just ask the Athenians. And when things go wrong with the subprime self-cert mortgage which is our future, we can pile into the broadband Trabant we've bought and seek opportunity elsewhere, at 4Mbps per second.

Mega rebUKe

From the "Duh of the Day" category, 84% of respondents to the ISPreview survey in the UK think 2Mbps universal service is not enough. Frankly, I'm surprised it's only 84%, and I'm really astonished that only 9.5% view upload as a key factor.

Misadventures

Busy, busy, busy. Just enough time to give some attention to three car crashes of interest:

1) Spinning out of control - By the way, from now on all my blogposts will actually be written by a 20-year old woman in Dhaka.

2) Blykety-split - We used to be in the same building as this company, and they had fanstastic office furniture, hopefully on flexible leasing terms.

3) That smarts - Haven't seen any coverage of this in the English media, and I'm not sure I fully understand the background here, but it looks to me like a small French smart meter/energy management vendor is actually going to be forced to refund to EDF the equivalent of what consumers have saved by using its product, which is apparently equal to 70 - 80% of its annual revenues. That's rough justice.

Fiber a la casa

CMT has just published a study on fiber in Spain, which I will try to read through later today. Seems to contain a number of detailed scenarios.