Wednesday, June 30, 2004

Daiwa EuroTelcoblog No. 55: Wednesday, 30th June, 2004 - Takeaways from the On-Demand TV event

Yesterday I had the pleasure of sitting on a panel at the Informa Media Group's seminar "Profiting from On-Demand TV." I couldn't help but feel that I had something in common with the incumbent telcos grappling with entry into this market - I was a latecomer to the panel and was in largely unfamiliar territory! The organizers felt that the original panel lineup was unrepresentative of the telco space, and asked for some last minute input as to what the 800lb. gorillas of the European incumbent space were doing and what issues they face, which I tried to give. Some of this can be found in the May edition of the Daiwa Global Telecom Monthly (email me at and I'll send it to you).

The event was interesting and informative, but it brought home for me the feeling that the "convergence" phenomenon is still largely comprised of a line of vertical silos, even within individual organizations, which don't seem to connect very well. For example, it was interesting to see the focus of the presentations entirely on on-demand video content as an in-home service, and I didn't hear one mention of video as a potential mobile application. This was curious, in light of the fact that services such as the one launched recently by the Norwegian Broadcasting Corporation NRK are live today (, and NRK claims to have had 2,000 video clips downloaded in the first eight hours after launch. I also sensed that my comments regarding VoIP as an attractive part of a service offering might have come as a surprise to some (one executive from the content side claimed to be hearing about VoIP for the first time), though the keynote from Alessandro Petazzi of e.Biscom did seem reinforce the point, as did the experience of Norwegian FTTH player LyseTele (, which has 10,000 FTTH customers and typically sees a 60% takeup rate in new service areas.

It was also interesting to see the various players in the industry struggling with ensuring that an excessive technology focus does not obscure the real challenge, which was almost universally defined as discerning what consumers really want, and above all, minimizing churn. This is clearly an area where the pay TV world and telecom match up nicely. Brian Sullivan, New Product Development head at BSkyB, strongly urged caution in attributing too much value to some of the flashier features available to the customer, and stated that the industry was deluding itself if it believed that supplying unlimited consumer choice was the key to success in the near term. He highlighted the fact that for homes subscribing to the Sky Plus PVR package, fully 60% of viewing was still of linear broadcast content (Alessandro Petazzi from e.Biscom stated that the average premium content subscriber for Fastweb views five films per month, and the online PVR storage function [five hours recording time bundled with the set-top box rental] sees use an average of 10 times per month). For Sky, the point of supplying such functionality at this stage in the game, Mr. Sullivan stated, was primarily related to competitive considerations rather than a specific revenue opportunity. Longer term, generational changes in the subscriber base might change this situation, he said, but in the 2 - 5 year time frame identified as critical by many presenters, the industry should not expect too much from fully on-demand services via complex technological solutions. Marc Schroeder, T-Online's SVP for product marketing content, remarked frankly that, from DT's perspective the company doesn't care what the customer wants - it will seek to provide whatever is required to stem churn from its traditional services, be it network PVR function, mailorder DVD rental, or both (as is the case). William Reeve of Screen Select argued passionately that technology itself was overrated so far, pointing out only half-in-jest that his DVD mailorder rental company Screen Select moves 50 terabytes (10,000 DVDs) of data per day at an average cost of less than GBP0.20 per gigabyte, just by means of the Royal Mail (this leads to a new dimension of meaning for the phrase "packet loss"). Most presenters seemed to agree that the key technology issues will be resolved over the next two years (indeed, BT engineers paid a visit to my street in SE22 this morning, and now fiber runs within 10 meters of my door), leaving market development to be decided on the basis of features, content, service and price.

Similar caution was sounded on the issue of interactive services and commerce. Fastweb has developed a number of interactive services and T-commerce functions, but the revenue generated there is insignificant, a sentiment echoed by Kevin Walsh, MD of Kingston Communications Interactive, another pioneer in the industry. He did, however, point out that positive experiences in developing services can arise from some unlikely places. Kingston has partnered with the BBC to tailor BBCi (interactive) content to the local market, forming BBCi Hull, which it regards as a differentiator and a source of stickiness. Another example is original content being produced by local schools in Hull. From a different perspective, but with a similar message, Dean Hawkins, COO of Video Networks (, remarked about experiments the company had done on its Home Choice service, creating an interactive channel completely devoted to commercials, which has proven surprisingly popular (one viewer apparently watched the Pepperami spot 63 times), and opens up further questions about defining consumer taste and building revenue models to accomodate it. Video Networks will soon be unveiling a music download service linked in with its packaged music channels, an obvious example of how such synergies in the platform may present themselves as revenue opportunities, if the companies in question are open to them. The distinct impression I had listening to these pioneers of interactive and on-demand services was that a huge amount of research, trial and error and refinement has gone into the services they are offering today, in most cases over a period of four years.

Another theme which made me feel right at home from the telco world was the fact that technology is moving forward much faster than regulation (and also in this case licensing) regimes can handle. Dean Hawkins highlighted the grey area occupied by server-based PVR functionality in the copyright laws. Home recording for personal consumption receives special dispensation from anti-piracy laws, but defining server-based PVR functionality is problematic - is it an extension of the home recording function, or something else? The server-based PVR function is ostensibly something which can drive consumer adoption of new on-demand content services (and content owner revenues), but if the legal system complicates matters, or if the technology makes a nonsense of the law, an overhaul of the regulatory regime will be an urgent matter. The MD of research consultancy Decipher offered some interesting comments on the discontinuities facing the industry in future, predicting that new entrants to the PVR market might have radically different agendas to the traditional suppliers (indeed TiVO's strategy seems to be growing more free-wheeling, out of necessity), and that this tension coupled with the rise of more peer-to-peer functionality meant that the industry could expect content to be moving around "in a pretty alarming fashion." All of this had a familiar resonance to this listener.

So what are the takeaways for the incumbent telcos in Europe? I have identified a few key issues, and most are not terribly encouraging, based on what I saw and heard yesterday:

Market/service definition

What I heard yesterday a number of times from some very experienced people and companies in this arena was that the entrenched players themselves are not necessarily very sure of what the services are or should be. This is clearly an area where even their own experience and research seems to be of little help. This may encourage the telcos, as it is a nascent market. However, if the telcos seek to start services by replicating what the leading players have done already, then they are, at best, no further down the road to something unique.

Consumer education

Many of the presenters yesterday alluded to the need for some handholding and education in driving demand from the consumer side. LyseTele has adopted a community activist approach in proposed service areas, writing to residents and setting up community meetings to explain the FTTH triple play and build consensus for deployment. Video Networks, which is currently relaunching and seeking to double its London footprint before expanding to the next three large conurbations in the UK, has decided to deploy portable demonstration pods in shopping malls, train stations, etc., to give potential customers a hands-on education as to what the product offering is. e.Biscom revealed that 60% of its new customers come from tied specialist sales agents, who have a high level of knowledge about the product. Research just out from Ipsos-Insight claims that 72% of American adults show some interest in a "media hub" to fuse the internet with home entertainment hardware, though only 31% are familiar with the concept, and a mere 5% were determined to be "very familiar" with it. It's probably not enough for telcos to say "we do TV, please buy it," particularly as this will involve a considerable mental leap for many consumers.

Sweat equity

One of my contacts in the European cable industry put it succinctly recently: "We do this every day, full time, and have been doing it for many years. And it is still very, very hard." This was a sentiment echoed repeatedly yesterday. The most impressive examples of TV delivery via a non-cable/satellite platform - e.Biscom, Video Networks, and Kingston - have all been refining the product, content and the user interface intensively for the better part of four years. They also have an existing relationship, and framework for negotiating, with the studios and other content providers. We have seen a couple of service launches from the incumbents so far (MaLigne, Imagenio), and hear that a number of operators have RFPs in the market for video services, but the experience of the pioneers suggests a very steep learning curve in actually delivering something consumers will use.

Culture/skillset (closely linked to sweat equity)

I was lucky enough to have a briefing and demonstration at Video Networks' office a couple of weeks back, and Home Choice is truly impressive. The user interface was attractive, intuitive, and the set-top box was so compact and visually unobtrusive as to be almost invisible. If we drill down further into what makes the Video Networks story different from a telco we find some interesting things. Firstly, the company's management team has a long and credible collective experience in cable, broadband, and broadcast/content procurement. Secondly, the design of the box and software was done in-house, is proprietary (presumably licenseable to telcos looking to speed time to market), and the company has preconfigured it to accomodate MPEG4 (we are curious to see if other new entrants to the market end up with stranded boxes because of a lack of such foresight). Thirdly, with a couple of major studios as shareholders, we could argue that Video Networks has been a proving ground of sorts for the content providers, who we expect were initially concerned about quality issues associated with DSL delivery. We think this gives the company a great deal of access to the studios, as well as insight into their thinking and expectations of the VoD market, not to mention a sympathetic ear when it comes to licensing and revenue share arrangements. Fourthly, the company is small and has a free hand to bundle services and move quickly to capture new revenue streams, and we expect an IP triple play to be in place by early next year.

Damage limitation, not growth

The message that came through loud and clear from the established on-demand TV players yesterday was that the ranges of services and functions they are deploying now are about churn minimization, not necessarily startling new growth opportunities. This should serve as a warning to anyone who expects video to be a major growth driver for telcos generally, though we should stress that Europe is far from being a level playing field. As we wrote in our Global Monthly piece, in countries where the TV market is either relatively stunted (Italy, Spain), or where cable players are currently limited by issues of infrastructure (Germany) or regulatory barriers (France), there may be a case for some uplift from video-over-DSL, and notably these are markets where the operators are currently making hay while the sun shines. Contrast this with the Dutch market, where cable is near-universal, and KPN has determined for now that its DSL network is not up to the challenge, and we get a very different picture, also reflected in the price environment. The annual ARPU figure stated by e.Biscom yesterday works out at EUR76 per month (and rising), which elicited a pained gasp from the Dutch friend seated to my right, who stated, "If you come to the Dutch market with a triple play priced above EUR60, you will have your head cut off."

Monday, June 28, 2004

Daiwa EuroTelcoblog No. 54: Monday, 28th June, 2004 - IP = internet pests
We are all painfully familiar with spam (I spent about 20 minutes dealing with it this morning), and are growing more familiar with SPIM, or instant messaging spam. I have also been a victim of SNAM, social networking spam, wherein people I have never met have asked me to join LinkedIn or Spoke, and then immediately asked for ringing endorsements of them and their visionary work. Another phenomenon witnessed with the rapid rise of blogging could be termed BLAM, or spam over blogs, in which spammers post messages about erectile dysfunction products or Canadian online pharmacies to the comments sections of weblogs. Given the widespread defacement of the virtual environment, it was inevitable that we would see this issue coming to the fore in the VoIP world, particularly as presence functions can offer a great deal of insight into a user's availability, and services increasingly offer close integration with email (e.g., voicemails sent as attachments on emails, etc.). This is probably going to be a growing source of annoyance as VoIP penetration grows, particularly so with the advent of video in consumer services.

US company Qovia (, a developer of enterprise VoIP monitoring and management products which we wrote about in our coverage of the VON show last September in Boston (see EuroTelcorama No. 2), is set to announce today a patent filing in the US for an application which can detect what it terms Spam over Internet Telephony, or SPIT (I prefer VOM myself, but both are suitably unpleasant to convey contempt). The company's press release rightly observes that a proliferation of SPIT could serve as a disincentive to consumer adoption of VoIP, if the technology comes to be perceived as yet another venue for unsolicited marketing with no opt-out.

This issue again brings to mind questions we explored in EuroTelcorama No. 5 about the potential of closed networks, or so-called "darknets," which allow a small number of users to form an encrypted peer-to-peer network for secure, private communication. The stats are interesting to ponder. Our own internal straw poll suggested that close to 90% of all personal (i.e., excluding business) calling is to persons within the caller's social or family circle. Carphone Warehouse has estimated that 80% of outbound residential calls in the UK go to one of six numbers, and France Telecom recently mentioned at its investor day that 65% of its residential customers don't call more than three numbers on a regular basis. The power of viral marketing is a familiar refrain associated with this phenomenon, and one that we can see being used to great effect with VoIP services, but the nagging question is, does it matter how big the network is, particularly if the critical mass of a network may increase the risk that someone's privacy will be invaded?

We had a brief update last week from one of the developers involved with the WASTE project (, which is an application supporting 20 - 50 users within one user group, subject to bandwidth and encryption levels. The application, which currently is focused on IM and file sharing, has seen 95,000 downloads since the project was revived last year, and a future version on the drawing board will include voice chat capability. We hope to be able to do a more detailed follow-up on this issue in the near future. Clearly with something like WASTE, the inhibitor to mass adoption may be that it is not a service, a consumer brand or even a business as such, and therefore isn't really on the map for most people. However, the concept behind it - a self-defined, secure, private network free from intrusion - may be something appealing enough to take root as internet users increasingly feel violated by the rise of spam, SPIM, SNAM, BLAM and SPIT. Whether this concept could be product-ized, or would remain as a free project is a big question (law enforcement agencies, the RIAA and others will probably not be happy in any event), but we think the industry probably should consider that it may arise as the new new thing.

Friday, June 25, 2004

Daiwa EuroTelcoblog No. 53: Friday, 25th June, 2004 -

Back at the beginning of the year we published a long piece (which is probably lining a large number of bird cages at this very moment) on the future direction of the sector. One issue we raised was that new forms of interaction are taking root on the internet which have the potential to capture a significant proportion of traditional voice communication, and in this context we argued that the social networking phenomenon probably had the potential to become a lot richer as an experience if it were married with some more advanced communication tools. This was a theme I repeated at the VON show recently. Today I happened to stumble across ( which seems on the surface to completely embody this concept. It contains the standard social networking features and tools, but also has a blogging tool and claims to enable both text-based IM and voice/video chat, all from a browser-based interface (provided the user's PC has a Flash plug-in). It features a token system for membership, wherein newcomers are issued 2,000 tokens, which entitle them to different lengths of free membership, depending on which level of membership is selected (more advanced features like video/audio IM will burn through the credits more quickly). In order to keep membership free, members must invite other users into the group to replenish their tokens. I have signed up (though I'm probably too old) and am going to give it a whirl. I have also made an attempt to contact the company and find out more about who is behind it and what runs it.

Thursday, June 24, 2004

Daiwa EuroTelcoblog No. 52: Thursday, 24th June. 2004 - Learning more about Peerio

Today I finally had a chance to speak with Dmitry Goroshevsky, CEO of Popular Telephony, developers of the Peerio P2P telephony platform which we have written about a couple of times recently. A couple of days ago at the Supercomm show in Chicago, Popular Telephony announced three deals for deployment of Peerio as embedded software on IP phones from Vontel and Adtech, as well as in the CRM portals of clients of Atemis. My conversation with Mr. Goroshevsky highlighted a couple of more interesting developments, as well as giving more insight into Peerio's highly differentiated product strategy.

Firstly, there is a fourth contract in place with a hardware maker, which the company was not in a position to announce at Supercomm. This is with Logicom, France's No. 2 manufacturer of residential phones, with an estimated 30% market share, and prominent shelf space in major retail chains throughout France. The product will be a DECT (that's cordless, for our non-European readers) unit, will allow both conventional PSTN calling as well as via Peerio, and should be available by late Q3/early Q4. This was interesting to me, as the previous announcements from the company seemed to have an enterprise market bias. Mr. Goroshevsky conceded that from a short-term revenue generation perspective, the enterprise is necessarily the focus, but that the long-term strategy for the company was about much more than short term revenue generation, and that the residential strategy is key to this, and will become clearer to the market over time.

It is in these initial hardware partnerships that Popular Telephony's strategy is clearly distinguished from others we have seen in the space, where Skype has been very successful at creating a consumer phenomenon which must now be leveraged into the enterprise/embedded products space, or where Voipster has taken the approach of delivering a package of applications directly to enterprises but via white label arrangements to the service provider space. It appears to me that Peerio may be doing things in a reverse order to the others - getting itself embedded primarily in the enterprise and the hardware, proving the technology, and building a wider consumer brand on top of that. By putting hardware partners through a certification program before Peerio is embedded on their devices, Popular Telephony secures a prominent place for its logo on the device (which reads "C'est Peerio" and can be viewed in the company's publication "Peeriodica" which I downloaded from the Supercomm press release section after registering) - think "Intel Inside". Peerio also receives a EUR15 one time license payment on a per unit basis for embedded systems.

On first glance this looks to me more like IP in the sense of Intellectual Property than service provision as such, but it is also an essential step in establishing the brand and the concept within the enterprise space. It also involves a much closer working relationship (and undoubtedly a fairly labor-intensive one) with the hardware/software partners, which again makes it not directly comparable with anything else we have seen so far. The pay-off, as I see it, is that Peerio can get in the door via the equipment makers' relationships with enterprise customers and/or IP-PBX vendors, and then have a venue to demonstrate the cost advantages of P2P, which it believes will cut the IP-PBX vendor out of the frame altogether (my previous piece on this issue speculated that the market has so far focused exclusively on service providers and perhaps has not yet clocked the implications of such a system for Nortel/Cisco/Avaya). Peerio claims that it eliminates around 80% of hardware and maintenance expenses associated with corporate PBXs, and can reduce the total cost of ownership of corporate telephony over ten years by 99.75%, compared with conventional centralized systems.

On the issue of firewall/NAT traversal, which has been so widely identified as an ingredient in Skype's success to date, Mr. Goroshevsky clarified for me that Peerio in the corporate space will consciously avoid this functionality, as it raises obvious security questions from systems administrators looking to deploy the system in the enterprise. For a Peerio client to communicate with another Peerio client from outside the corporate environment, the system administrator must permission such transactions in order to maintain security. However, in the example of corporate/customer communications, this will also allow the corporate to offer a secure and free communication channel for customers to use. This is another area in which Popular Telephony is taking a novel approach, by segmenting its product into consumer (Peerio444) and enterprise (Peerio) versions, and actively advising enterprises against deploying the consumer version in the enterprise to avoid the kinds of security issues which have caused anxiety around public instant messaging clients and which appear to be lurking beneath applications which can traverse firewalls.

One other exciting element of the Peerio product is that it is Popular Telephony's aim to have PSTN breakout from day one in both the consumer and enterprise products, and it has termination partners in place already to do so. PSTN termination does not form a material part of the company's revenue model, and it is committed to passing on discounts from termination partners to consumers, to ensure that it remains the lowest cost alternative. The company also claims to be seeing strong interest from the service provider space globally. I was unsuccessful in gaining any insight into whether this was primarily incumbents, alternative operators, cablecos or ISPs, but was left with the impression that all of the above are represented to some extent.

The really interesting thing here is that, in pursuing any negotiations with a service provider, it is Popular Telephony's position that the service provider must effectively cede its role to Popular Telephony, thereby relegating itself to the provision and management of access and transport infrastructure - the classic "dumb pipe" scenario which we and many others have explored so many times. This is the uncomfortable scenario in which telcos wake up to the realization that they must carry on without 80 - 85% of their existing headcount onboard, and content themselves with a more limited role from the one they have played in the past. The real measure of the power of the IP revolution will be when a large service provider agrees to such terms and voluntarily moves from consumer service to infrastructure company. On that day, the whole telecoms paradigm will have indeed shifted.

Wednesday, June 23, 2004

Daiwa EuroTelcoblog No. 51: Wednesday, 23rd June, 2004 - Turn on, tune in, SkypeOut

A well-connected friend recently gave me a voucher to try SkypeOut, the Skype-to-PSTN service which is currently in beta with users who purchase a Plantronics headset from Skype. I've been playing around with it this evening for the first time and find it to be excellent. So far I've made several calls within the UK and to both US coasts and the Midwest region of the US. The sound quality has been very good, on a par with the PSTN, as far as these ears can tell. A test call to my own home phone, followed by a cellular call to the same, revealed that the latency level on SkypeOut is indistinguishable from that of UK domestic cellular. I'm not supposed to talk about pricing, but suffice it to say that after a handful of short calls, most of them international, I still have 98% of my EUR5 voucher intact.

Tuesday, June 22, 2004

Daiwa EuroTelcoblog No. 50 - Tuesday, 22nd June, 2004: Generational changes in mobile

We've written and talked a lot about the importance of generational change in determining new consumer behaviors and demand patterns for telecom/internet services, and also as a source for disruption of the incumbent business model. A report out today from UK research consultancy Teleconomy ( gives some further interesting insights into the dynamics at work in the UK mobile market. The fourth annual update of its "Me, My Mobile and I" series summarizes interviews with 1,400 UK consumers over attitudes towards their mobile phone, and reveals a growing dependency across society generally, as well an emerging generational gulf on several levels.

The survey in 2003 segmented the adult subscriber base into three groups: 1) Cyborgs - those whose life is seriously traumatized by the absence of a mobile phone; 2) Prosthetics - those who view the handset as an essential tool, but not an intimate object; and 3) Connected but Unattached - Those who view the mobile as useful, but would not miss it if deprived of it. For the 2004 edition, Teleconomy has identified a fourth set of users, the "Deniers," those who claim to be detached from the handset, but whose usage patterns suggest otherwise. The 2004 survey found that the Cyborg element of the market has grown from 18% of total last year to 26% this year, and the Prosthetics are also up from 27% to 32%. The Deniers group accounts for 18% of the sample, and apparently 30% of this group regularly exceed their inclusive minutes limits.

The generation gap revolves around the group identified as "M-Agers," or those children aged 10 - 14 who have never known a world without mobile phones. This segment demonstrates a much higher level of awareness of advanced features (64% awareness of Java applications vs. 44% for adults, 55% awareness of video capture vs. 37% for adults), and a much higher level of demand for further advancements. For example, on a desirability scale of 1 - 9, M-Agers rated a mobile TV service 8.4 (vs. a rating of just 4.8 by adults) and a mobile payment function 7.4 (vs. just 4.6 by adults). This level of interest could bode well for operators as M-Agers grow into more affluent consumers, but the head of the Teleconomy research effort himself notes a reticence to spend, and we wonder what implications this attitude may have for premium applications over the long run if it becomes deeply entrenched: "M-Ager's have proved themselves to be light users of their mobile phone network at present because regardless of how much they love their phone, they cannot afford to use it for communication. This group are heavy users of functions that don't cost money such as java games or camera features." Indeed, another finding of the survey was that camera phone users were largely bypassing MMS messaging, using the phone instead as a portable photo album.

One other generational issue arises in the area of handset choice, which was absent from the Teleconomy press release, but appeared in coverage of the report in today's Financial Times' Creative Business supplement. The table below was recreated by us from this article, and shows Teleconomy's findings regarding handset distribution by age group. It is interesting to see Nokia's market share concentrated in the "mature" segment of 26 - 35 year olds, while Samsung has real clout with the under-25's and SonyEricsson seems to have captured the imagination of the under-18's.

Handset distribution, by age group (%)
15-18 19-21 22-25 26-30 31-35
------- ------- ------- ------- -------
Nokia 53 43 53 59 61
Samsung 8 15 20 15 10
Motorola 5 8 6 7 8
Siemens 4 6 4 4 5
SonyEricsson 13 9 6 4 5
Sagem 8 7 3 3 2
Panasonic 3 3 2 3 2
Sharp 4 5 2 3 2
Other 2 3 2 1 2
Source: DIR, from Financial Times, from Teleconomy

Our main takeaways from this are: 1) that there is a clear case for a more cautious view on "hard" mobile substitution (mobile substitution as the primary form of telephony access) in the UK, as dependency levels are way up YoY; 2) awareness of advanced features is generally high, though the consumer's willingness to pay is open to question, particularly in the youth segment; 3) generational conditioning towards use of cheap or free services/features calls into question when the mobile data "revolution" may deliver a decisive pay-day for the operators. Performance expectations of the handset seem to be rising, but whether or not this translates into an opportunity to be monetized is unclear.
Daiwa EuroTelcoblog No. 49 - Tuesday 22nd June, 2004: Living in the future

One frustrating thing about doing conventional brokers' research in the age of RSS is that a lot of it tends to be tied to traditional production methods and timescales, while much of what we are trying to cover moves on in the interim. One good case in point is our Global Telecom Monthly, where every month I contribute a leader piece which seeks to be interesting, timely and fresh (with admittedly mixed results). For the June edition, due out this Thursday, I wrote my piece last Friday, according to plan, but with the Supercomm show underway, the world is moving on and some of what I have written can now be updated in more detail - before the original piece is even published! (Personally, I think the broking research world could get a lot out of using RSS as a distribution tool, but we'll see who dares to be first with this idea on a large scale.)

In my note for the June monthly, I run through some of the emerging developments in the P2P IP telephony space, and as part of this I mention Peerio444, which was covered here initially on 10th June. I speculate that Peerio (which stipulates in its T&Cs that developers working on embedded systems would be subject to a commercial licensing fee) might be looking to strike agreements with IP hardware manufacturers to embed Peerio into IP phones. This week at Supercomm, Peerio's developers, Popular Telephony, have made a handful of annoucements which bear this out and give us more guidance on future direction. (All can be found here

The first, which we expected, is a general announcement touting Peerio as an enterprise communication tool, and clarifies that Peerio aims to license its middleware as an embedded system to manufacturers of VoIP ICs, IP telephones, and audio/video conferencing systems. The release claims that Peerio can scale to above 4bn lines and also that "Peerio is protocol-agnostic, enabling switchless and serverless communications for VoIP systems and devices running on SIP, H.323 and all other standard or proprietary protocols" (our emphasis). The latter is a very sweeping statement, and we are curious to learn just how inclusive this definition of "all" is. What is clear is that Peerio is promoting itself as a serverless, plug-and-play replacement for the PBX, which is an audacious claim to make, but the company has also signed two agreements with partners which at least lend some support to the case.

The first deal is with Vontel (, a Swiss-based developer of IP telephony and video-over-DSL hardware, which will embed Peerio in its new generation of IP 110 terminals (, with a range of features which it claims will effectively put the IP-PBX on a single terminal. The second agreement is with Luxembourg-based Atemis (, which develops internet-based CRM applications. Atemis CRM system users will be able to use Peerio embedded in the Atemis e-business Management Portal to call any number from any location where an internet connection is available, enabling the creation of virtual call centers to eventually replace physical call centers.

With this flurry of press releases, we think we have a better idea of where Peerio is heading, and the gauntlet has now been firmly thrown down in the enterprise arena. In the press release relating to the Atemis deal, the Atemis chairman negatively name-checks Skype as a solution they investigated but passed over in favor of Peerio. This will probably not go unanswered for long, and a brief perusal of the jobs section of Skype's website ( gives some insight into what sort of development pipeline Skype has in the embedded products and integration/partnership areas. Skype also launched a Linux version yesterday, again illustrating its drive to broaden its user base, and the SkypeOut service is now in beta with a number of users (we have received a test voucher and are looking forward to trying it).

Peerio is making some pretty ambitious claims, and we have so far been frustrated in our efforts to set up a call with management. However, with these developments, we think the market perception of P2P IP telephony is probably set to turn a corner, moving from a view of P2P-as-extension-of-instant-messaging, i.e., as a behavior associated with teenagers and geeks, to a realization that some of these applications may genuinely cause some disruption in the traditional vendor/integrator space. So far, much of the coverage of IP voice, including our own, has focused on the implications for traditional operators the consumer space, but we will now be watching to see what sort of spin this story takes in the coverage of companies like Cisco, Avaya, Nortel, Siemens and others working in the enterprise vendor arena (a sector outside our normal coverage).

Wednesday, June 16, 2004

Daiwa EuroTelcoblog No. 48: Wednesday, 16th June, 2004 - Mapping VoIP usage

Following on from yesterday's piece on efforts to locate and map Wi-Fi nodes around the world, late yesterday we came across a similar image from Xten Networks (OTC: XNWK), a US firm supplying SIP softphone clients to a number of well-known access-independent VoIP service providers. Company co-founder Erik Lagerway, in his personal weblog, provided a link to an image showing geographical distribution of the Xten softphones downloaded to date by users of Free World Dialup (FWD), a free SIP community we first wrote about more than 18 months ago, but which is second only to Skype in size of user base. Since FWD's launch, Xten has seen 139,000 downloads of its softphones for use with FWD, and is seeing over 500 new downloads each day from FWD users. The link to the image can be found here ( Each dot on the map represents a location where downloads have occurred, and may represent individual or multiple downloads. As with yesterday's map of Wi-Fi access points, it is clear from this that VoIP (at least in the case of Free World Dialup, though Skype's breakdown presented at VON Europe last week was very similar) is still an overwhelmingly North American and European phenomenon (with Japan as an obvious exception). It is also interesting to see parallels between concentrations of Wi-Fi nodes and FWD users (heavy in UK, Benelux, Denmark, lighter in Spain, France and Italy) Whether this relates to language, overall awareness, or other factors is interesting to ponder, but ultimately unknowable. We are also interested in the apparent concentrations of FWD users in Germany, Austria, Switzerland and throughout Central Europe. We are currently attempting to establish contact with Erik Lagerway of Xten to learn more about his plans for a P2P telephony service (another new entrant into the Skype space) provisionally named peerSee.

Tuesday, June 15, 2004

Daiwa EuroTelcoblog No. 47: Tuesday, 15th June, 2004 - Measuring Wi-Fi

Way back in February 2003 we devoted a section of our sector piece to the potential of the free networks "movement" to create a patchwork of Wi-Fi hotspots dense enough to be meshed together, in effect forming an ad hoc alternative local loop in certain areas. As we have documented before and since, the efforts of entrepreneurial outfits like ( and ( have been focused on this issue, with some considerable strides made to date. Assessing just how dense the "network" is, of course, highly problematic, in light of the fact that the various databases of commercial hotspots and open nodes have traditionally had little overlap, and the market is also growing very rapidly. Efforts by UK free networking forum Consume, documented in the excellent report by Julian Priest highlighted here a couple of weeks back, appeared to show that the actual deployment of Wi-Fi nodes per square kilometer in Greater London is on the order of 15.5 (or an estimated 19,451 nodes within the M-25 orbital motorway), much higher than the level calculated by the group as the critical threshold for a viable meshed network (1.25 per square kilometer). Of the 1,525 nodes actually detected by aerial surveying, 45% displayed SSIDs (identifiers seen by Wi-Fi users seeking to access a certain node) classified as "default". In other words, it is highly likely that as many as 45% of nodes surveyed were simply plugged in with no additional configuration, probably including security settings. The result, as observed by Julian Priest, is that a large proportion of nodes, whether by design or through ignorance, are in effect "open nodes" freely accessible to other Wi-Fi users.

We are now halfway through the fourth annual WorldWide War Drive, organized by (Wireless Geographic Logging Engine) and running from 12th June to 19th June. In this global effort, contributors from around the world upload location information on Wi-Fi nodes logged during reconnaisance drives (WAR drives). The stats are being compiled in real time on the site (, and as at this writing, the total number of nodes documented worldwide is 1.32m (and has increased by 2,000 in the past hour that I have been monitoring the site). This is interesting, as the number cited in Julian Priest's report (date-stamped 31st March, 2004) was 778k, and other posts on the WiGLE site show only 900k as recently as 22nd April. In other words, the number of Wi-Fi nodes catalogued by the initiative appears to have grown by 70% in under three months, and by around 47% in just seven weeks.

What is interesting is that the Consume survey showed a number of nodes in Greater London more than four times higher than that included in the WiGLE database at the time of the survey, which suggests that even this rapidly growing catalogue of nodes is vastly under-reporting the number of hotspots deployed worldwide. This impression is reinforced by the European map compiled by the initiative ( which shows an apparently hugely disproportionate number of nodes in the Benelux as compared to other regions (Italy and Spain appear to be mostly uncharted territory). We think this may reflect higher adoption in the Benelux, but perhaps also a greater level of geek activist involvement in node cataloguing. A couple of other startling facts of interest are found on the site. Firstly, the percentage of nodes displaying default SSIDs is 31.8% of the total, lower than in the Consume survey, but still remarkably high. More interestingly and perhaps alarmingly, the ratio of nodes without WEP (the default security protocol for 802.11 networks) switched on is an amazing 50.8%, and the three years of data displayed in graphic format shows that the proportion of WEP to non-WEP nodes is essentially unchanged over the three years.

Thursday, June 10, 2004

Daiwa EuroTelcoblog No. 46: Thursday 10th June, 2004 - Disrupting the disruptors

Well, two days ago I stood in front of the audience at VON Europe 2004 and said that one major concern for traditional voice service providers (and newcomers as well) was that innovation was being driven by small companies or individuals way, way below the radar, which makes knowing what's around the corner even more difficult. Little did I suspect that I (and apparently a lot of other people) had missed announcements of two pretty interesting applications just recently. On the one hand, it's a bit galling, but on the other, it probably illustrates my point perfectly. So, who are the newcomers?

One is a listed US company called LitFiber (OTC: LTBI), which on Monday publicly launched a service called iTalk2U (, and has so far seen 10,800 downloads. Interestingly, this application claims to be P2P, but is based on H.323, which opens up some interesting questions, given this standard's large installed user base in the enterprise arena. Features claimed in the press release include IM, file sharing and video. We are looking forward to downloading it and trying it out, and are trying to establish contact with company management to find out more.

The other is Peerio444 ( from Popular Telephony Inc. The beta release of this application was made two weeks ago, but is available only on a very limited test basis. The site states that the trial is currently closed to new members, but a "further 'window of opportunity' for additional 900 downloads will be open within a week or so." An enterprise version should be unveiled at the upcoming Supercomm event 22nd - 24th June. Peerio444 claims to work in a narrowband environment, to offer voicemail and PSTN breakout from day one, and also to be compatible with both H.323 and SIP protocols. The current pre-release version is available only in Windows, but Linux versions are forthcoming and there are references to a Mac version in the pipeline for later this year. The website is a bit short on detail as to exactly what lies behind its "groundbreaking" technology, as it is patent-pending, but the developers have an open API for third-party developers, with two caveats: 1) the source code will not be released; and 2) the application will not function in embedded systems without purchasing a commercial license.

The rhetoric in the Peerio444 site seems to be pretty clearly setting the application up as the P2P player in the white hat: "Built on open standards and inspired by the principles of true peer-to-peer computing, we expect the enabling technology behind Peerio444 to become a basic platform for peer-to-peer telecommunications. Peerio444 will be forever free to consumers and is phase one of Popular Telephony’s plan to become the leader in peer-to-peer telephony...Unlike existing peer-to-peer VoIP technology, Peerio444 is not monitored by switchboards or Spyware, does not contain Adware or other backdoor profit tools and does not restrict users to call only other standard VoIP applications." We are also trying to establish contact with the developers of this application and find out more ahead of the Supercomm announcement.

Subject to what they announce in Chicago at Supercomm in two weeks' time, and how the media campaign (assuming there is one) shapes up, we may now be in store for a torrent of press coverage prematurely predicting the demise of Skype.

Wednesday, June 09, 2004

EuroTelcoblog No. 45: Wednesday 9th June, 2004 - an explosion of convergence

Yesterday was day one of the Voice on the Net (VON) Europe 2004 show at London Olympia, where I was honored to be given the closing slot in the morning's presentation line-up. Send me an email at, and I'll gladly send you the slides (Daiwa IT department would kill me if I tried sending it simultaneously to my distribution list...). Parts of it may be difficult to interpret without the accompanying commentary, so later in this post, I will provide some comments to help with interpretation for those who weren't there.

We saw and heard a lot of interesting things yesterday, which we also cover later in this post, but first we'd like to give attention to three announcements made by Northern European incumbents today, which look to us like shrewdly-timed return fire to the IP guerillas amassing outside the gates of telcoland (or in the Olympia conference center, to be more precise).

BT Group 21st Century Network

BT Group today announced more details on the timetable its 21CN program to deliver converged IP services throughout the UK. The principal components of today's announcement were:

1) A goal of mass migration to IP over a five-year period, starting in 2006, with the majority completed by 2008.
2) The company will initially conduct a PSTN bypass trial at two nodes in Cambridge and Woolwich (London) from October 2004, later expanding to the Faraday exchange in London.
3) 1,000 customers within the trial areas will be placed on an end-to-end IP telephony service (i.e., over its own IP network rather than the public internet) by January 2005, expanding to 3,000 customers in June 2005, as a precursor to wider rollout.
4) Initially Multi-Service Access Nodes (MSANs) will be installed in 18 exchanges around the trial areas, and by 2009 BT aims to make broadband dialtone available to around two-thirds of its customers, with large-scale migration kicking off in 2007.
5) Also starting in October 2004, BT will conduct fiber to the premises (FTTP) trials for 1,500 homes and businesses in five locations, running to September 2005.

The program will be funded out of BT's previously identified GBP3bn annual capex, of which 2/3 (increasing prospectively) of annual spend will be dedicated to the 21CN program. The transformation program targets delivery of GBP1bn in recurring cash cost savings on an annual basis by 2008/9.

With this announcement, we think BT is once again demonstrating its leading position among PTTs in awareness and adoption of new technology and services. Indeed, BT Wholesale CEO Paul Reynolds today referred to the need to "grasp the nettle" of transformation to all-IP, and we agree it is an absolutely inevitable development. We think this move will prefigure a rush of similar announcements from other incumbents in Europe in H2 and into 2005. The main question for us is, given the current competitive landscape in the UK, and rapid and accelerating pace of development in the IP application space (see our section on the VON show below), will a five-year migration be fast enough? Last week we saw Carphone Warehouse revise up its target for talktalk carrier pre-select customers to 900k by March 2005, implying a weekly net add rate of 9,900, down from the 11,200 seen in the March quarter. We think this target looks easily achievable, and there is more to come in the broadband space in the wake of the Bulldog acquisition last week by Cable & Wireless. Additionally, we also noted with interest the contract awarded last week by Tiscali to UTStarcom (supplier to Yahoo! BB) for IP DSLAMs covering eight countries in its European footprint. Given previous comments by Tiscali we think we can expect to see a serious push in the UK market via an unbundled DSL IP triple-play similar to that already on offer from Yahoo!BB in Japan and in France, perhaps by the end of this year. Obviously, there is more involved in the BT plan than just the voice and broadband access markets, and there were references today to a range of new services, including video, which will be enabled in such an MPLS network environment. We think BT continues to make some audacious moves and clearly has its eye on the ball, and our ongoing neutral stance on BT Group is more related to what we see as an increasing lack of order and visibility in the industry (and the lack of confidence this translates into when it comes to forecasting and valuation issues), rather than any negative view of the company itself.

France Telecom VoIP and flat rate initiatives

As if we didn't have enough to focus on today, France Telecom today also unveiled a range of new services and tariff changes, including VoIP. They principally break down as follows:

1) A 2Mbps DSL product for EUR39.90, and a reduction in the 1Mbps product to EUR29.90, which brings it into line with the product (minus the telephony service of course). The 2Mbps product will drop in price to EUR34.90 from 20th August.
2) Flat rate calling plans for PSTN users, under which a range of numbers can be specified and tariffs tailored to suit calling patterns. For example, if users want to identify five national fixed line numbers for unlimited calling after 6pm and at weekends, the monthly charge is EUR14, and EUR17 for 24/7 calls to the same numbers. For calls to all national fixed line numbers in France, the monthly cost is EUR20 for the 6pm and weekends option, and EUR30 for the anytime plan. These services will be available from 15th June.
3) From 20th August, Wanadoo DSL subs on packages of 512kbps or above will be offered VoIP via an ATA-based service for EUR20 per month, with an introductory promotional offer of EUR10 per month for the first year. Numbers are mapped to an 087 prefix, and national calls to fixed line numbers are free, as are calls to other Wanadoo VoIP customers.
4) A VoIP version of the EUR5 per month flat rate calling plan already in place on the PSTN, under which weekend and evening calls to fixed lines of up to two hours cost only EUR0.13 for the duration of the call. We think this is clearly aimed at potential VoIP customers who might not want an all-you-can eat plan, but who might otherwise move to an all-mobile/voice-over-broadband lifestyle and foresake the PSTN completely.
5) Unified account management for all FT services. FT states that
currently around 600k PSTN customers and 2m internet customers make some use of online account management facilities, but from July, French customers will be able to manage fixed, mobile and internet accounts from one location.

As with BT's announcements, we are impressed with what this says about FT's growing awareness of the need to "get with the program" in consumer IP and converged services, though it does not alter our underweight stance on the stock. Our concern with FT, as with all incumbents, is that we believe the IP voice world to be fundamentally a deflationary force, which will inevitably elicit questions about optimal headcount size (a very sensitive issue in France), and more fundamentally, what services will drive growth in future. We expect to have some clearer ideas on FT's thinking following the analyst day tomorrow, though we find it curious that a company so ready to embrace the internet has chosen not to webcast the event!

KPN's tentative foray into media

Though not as dramatic as the BT or FT announcements, we also had news today from KPN which serves as another datapoint on the road toward convergence. KPN today announced its intention to solicit tenders from leading cable companies to allow it to lease capacity on their networks for the provision of TV and radio programing, as is its prerogative under the Dutch Telecom Act. What exactly this says about strategy (for example, to increase KPN's visibility as a content provider in the eyes of cable customers) or the state of KPN's network (the press release states that the company has determined that its network is "still less suitable" for broadcasting services) are both open to speculation. The message for us is that we may see more of this as the PTTs try to define and refine their multimedia strategies.

A recap of our day at VON Europe 2004

Yesterday I was honored to close out the morning of presentations at the VON Europe conference in London with some thoughts on fragmentation in the industry. I will summarize this presentation at the end of this post. It was a good atmosphere, despite the apparent lack of air conditioning at the Olympia venue, and my rough estimate would be that something like 800 people attended over the course of the day (some photos can be viewed at organizer Jeff Pulver's blogsite

Update from Norway

I met a number of interesting people, and got some good leads to follow up for the future. I also met up with some more established acquaintances, such as Telio, which yesterday launched a pan-Scandinavian unlimited calling plan (to fixed lines) covering Norway, Denmark and Sweden. The new plan, which costs the same as their existing national plan at NOK159 (including VAT), is set to launch on 12th August, and CEO Espen Fjogstad said that an early check on the website showed that the new offering seemed to be stimulating a new customer addition every three minutes.

Meet Voipster

In my presentation yesterday, I introduced, I believe for the first time in such a public forum, the existence of Voipster (, a Dutch-based company of 20-or-so employees (with a team of software developers in Estonia), which has produced a P2P telephony service platform running on Overnet (please see EuroTelcorama No. 5 from 30th January, 2004 for more detail), which also allows break-out to the PSTN, SMS messaging, video, document sharing and a host of other features which differentiate it from other offerings in the market presently. A demonstration video can be viewed here ( Download the file first and then view it, but be forewarned - it is in Dutch, and the scenario involves people collaborating on an autopsy, so it is somewhat visually graphic.

Speaking to the Voipster management face-to-face for the first time yesterday, it became apparent to me that they followed a largely parallel development strategy and timeline to that of Skype, but they are coming to market somewhat later, with quite a different set of features and marketing approach. Their intention is to remain a neutral software developer and provider, targeting the enterprise space, and more importantly for our focus on the consumer segment, as a white label solution for ISPs or telcos who want to position themselves in this space. Notably, they also want to establish peering relationships with other services. I am very curious to see what sort of newsflow follows from Voipster and will update as the business unfolds.

Takeaways from the Voice over Wi-Fi session

I had a lot of meetings yesterday and didn't make it to as many seminars as I wanted to, but I made it for part of the Voice over Wi-Fi session, which contained interesting presentations from The Cloud, Telio and Spectralink. The thing that interested me most about the session, however, was the moderator's questions to the audience between presentations, in which he asked for projections as to what the future might hold. One interesting question was about the timeline for full seamless multimodal interoperability in the wireless world (2G, 3G, Wi-Fi), and the majority of the audience seemed to be roughly evenly split between 2005 and 2006(my hand went up for 2005). Another question was to identify the key inhibitors to the take-up of VoWi-Fi, and predictably the largest number of hands up was for battery life issues and security, but I was surprised at how few people cited QoS issues. This seems to confirm our view that, as with cellular, adoption of VoIP in the wireless arena is likely to be more about ease of use, cost savings and features than about ubiquity of coverage and iron-clad reliability. One other interesting question to the floor was about the form of future devices - would they look like the devices of today or more like the Apple iPod? My money was on the iPod, along with a few others, but we were overwhelmingly outvoted. One other interesting development in this session was a statement from Telio's CEO about some of the promising opportunities that applications written in Symbian OS can give to access independent voice providers in the 3G world, and we are very eager to follow up on this angle.

The rise of Citynets

I also attended an interesting, but surprisingly poorly populated session on the issue of Citynets, or networks funded and created by local governments to achieve socio-economic goals (once again, see our EuroTelcorama No. 5 for a detailed discussion of this issue). Unfortuntely, panel member Esme Vos, author of the Muniwireless site focusing on municipal Wi-Fi projects, was a no-show, but we were treated to presentations from two people with hands-on experience in building such networks. Bertrand Chauvet of netcentrex tracked the evolution of Fastweb in Milan from municipal dark fiber initiative to full-blown triple play service provider, and highlighted the inflection point in subscriber growth which accompanied the introduction of bundled IP telephony which could break out to the PSTN. He also offered comments on video service which echo our own thoughts and also what we are hearing from our friends in the cable industry - video content is a high cost item to the service provider, and should really be viewed as the teaser to get customers in. What keeps them and drives the cashflow is the availability of voice, and increasingly in the case of Fastweb, video telephony. This, in our view, further highlights the difficult balancing act required of the incumbents in the new world. Mr. Chauvet also highlighted some recent projects in France, such as the FTTH project in the Pau region, in which service providers such as are offering a 10Mbps internet/television service plus IP telephony over the municipal infrastructure for EUR30 per month. The availability of the infrastructure was cited as one of the key ingredients in attracting a new university campus to the area.

The other Citynet presentation of interest was from Byron Sherafatmend of E@glecom (that's not a typo), who has constructed municipal Wi-Fi networks in Ville de Vevey and Lauzanne in Switzerland. The model here is similar to those we tracked many months ago in our PTT Pulse publication, and centers on indirect revenue generation for the area under coverage, though the original motivation in the Vevey project was to stimulate e-voting in the area. However, following a promotion of the availability of Wi-Fi "dans la rue", the sale of coffee in local cafes went up by 30%. The Vevey project currently covers 20% of the population via 10 hotspots and can handle 250 concurrent sessions, and coverage should be ubiquitous next year, partially funded by a hike in local service charges by the city government. Vevey is apparently looking at offering VoIP services over its infrastructure in future. Eaglecom has set up and run 60 free hotspots to date, and targets 400 by year end. A list of free spots in Switzerland can be viewed at and includes a large number of spots constructed and managed by E@glecom in partnership with service station chain AGIP.

Niklas Zennstrom of Skype

The last event of the day was the predictably standing-room-only keynote by Skype co-founder/CEO Niklas Zennstrom, who gave the audience some insight into Skype's thinking about the service. Mr. Zennstrom showed a map of the world with an approximate breakdown of Skype's 6m registrations to date. Interestingly, despite the global scope of the application and the frequent erroneous identification in the press of Skype as a US company (it is registered in Luxembourg), North America only accounts from around 16% of registrations. Europe dominates at 64%, with Asia at 13%, Latin America at 5% (which seems huge relative to broadband penetration in the region) and Australia/Africa accounting for the remainder. Given all the attacks from the SIP brigade and traditional telcos about Skype's current standalone nature, it was interesting to hear Mr. Zennstrom confirm that the company had taken the instant messaging model as the example of best practice for user interface (which is an issue I covered in my presentation), and also that PSTN connectivity was not viewed as a core activity for Skype, but as an add-on feature to be used opportunisitically, which he likened to the J-Fax service. Nevertheless, Skype Out, the PSTN interconnection feature is on track for release "pretty soon," to be followed by "Skype In" to allow users to receive incoming PSTN calls. On the issue of interoperability/inconnectivity with other VoIP protocols, Mr. Zennstrom was clear that Skype considers this an important issue, but also stressed that innovation was drawn from user feedback, where such demand is not currently strong. He said that demands for features such as video and the availability of Mac or Linux versions of Skype were currently much stronger. He also stated that interoperability with other VoIP protocols would not initially be part of the Skype In feature either (this may account for Voipster's stated interest in establishing peering relationships). On the issue of the revenue model, I got the feeling that a lot was in the pipeline beyond the pre-paid solution for PSTN breakout, but there was little detail forthcoming. A few examples of what might be on offer included conference calling features for more than the current five participants offered for free, and we are interested in seeing what sort of services might evolve out of the company's decision to allow a Skype API for third party developers. However, Mr. Zennstrom stressed again the issue that we have repeated since Skype emerged - its cost structure is such that it does not need a huge number of paying customers to be profitable. He likened the service to Yahoo!, where a limited number of users may spend around $9 per year on paid content or services. A question from the floor raised the issue of whether ISPs would begin blocking Skype packets to prevent dilution of their own nascent VoIP offerings, and Mr. Zennstrom again repeated the analogy with Hotmail, which has never been blocked despite providing a service in direct competition with the connectivity service provider. To do so would promote churn, and this echos comments from the MSOs presenting at VON in Boston last September.

Daiwa presentation

Going back chronologically to the morning session, here is a rough guide to what I said there for those who weren't able to make it (email me and I'll send you the slides). Much of the content derives from previous editions of this blog, as well as much longer works such as EuroTelcorama No. 5 and our Global Telecom Monthly features on VoIP and broadband, and so may be familiar to regular readers.

Slide 4 - setting the stage - broadband household penetration in Europe >17% in Q1, Q1 annualized growth rate implies 50% growth this year

Slides 7 - 11 highlight the generational change issues facing incumbent telcos - instant messaging use (the three strongest platforms average 250 minutes a month - equal to typical outgoing minutes of use on the PSTN in Europe), less reliance on voice, greater use of rich media applications and independent self-provision of applications. The implication for telcos is that if voice is really just another application on the web (as BT acknowledged today), then getting and maintaining the user's attention/buy-in may be tough.

Slides 12 - 15 deal with new user interfaces and hybrid services. I opened discussing the popularity of social networking sites such as Orkut, which offer communities of common interest, simple messaging (email), some calendar reminder functions, etc. all driven by the interconnectedness of users. What could be achieved by embedding a richer set of communications tools (IM, voice, video)? Related to this is the statistics from late last year showing that Friendster users spend nearly two hours a month on the site - this is a sticky application. Now we see other services taking this social networking paradigm on board, and the examples I cited were ICQ Universe, Dodgeball (a fusion of location based info service and social networking) and xfire (presence management for locating friends on interactive gaming servers). From there, the argument was that we might expect to see voice embedded anywhere, and I showed the glophone from Voiceglo and (both interesting examples of browser-based softphones which we think ISPs or others might seek to white label), as well as the new version of Yahoo! IM, which has a huge range of features including voice and video. Lastly, all of this use of voice as a service differentiator makes me wonder how long Google will stay out of the game - a point I have raised before.

Slide 16 - A response to a recent diatribe against Skype by the founder of SIPphone, who lambasted the service as something only "hardcore geeks" would do. I made the point that every time I log onto Skype I see at least 300k other users on line, and that the assumption that the interface was something users would find alien seemed to fly in the face of the statistics we have seen regarding the rampant use of IM among younger user segments. We should not underestimate the power of this interface.

Slide 17 - Here I was playing Devil's advocate, posing the question of whether Metcalf's Law is really all it's cracked up to be. In other words, does it matter to me if I am connected to 300,000 people on Orkut or if 6m people have registered their copies of Skype? In the case of both of these services, the people I know within Skype or Orkut were known to me previously, so why do I need a huge network? What if there emerged a service which could enable a small group of users to establish a mini-Skype among themselves? I then highlighted three encrypted file sharing/IM applications (WINW, W.A.S.T.E., and BadBlue - all of which I have written about previously) as examples of services which might evolve to embrace voice at some point. Not sure if anyone in the audience liked this idea, but I thought the issue needed to be raised.

Slide 18 - An example of something I found the other day entirely by accident after wrongly entering a search query on Google. TeamTalk and Tiny TeamTalk are VoIP softphones with large scale conferencing functions and adjustable audio quality to accomodate narrowband users. Tiny TeamTalk is a Windows CE version which could sit on a wireless PDA, as with the lite version of Skype. This is the sole work of a graduate student in Denmark, and is available as freeware (Tiny TeamTalk is shareware). My point here is that if one person can do this and see 2,000 downloads of it each month with absolutely no promotion, what else might be out there?

Slide 19 - In this dynamic of high profile internet brands and independent guerilla programming both doing interesting things with voice, the incumbents may find themselves in a lethal crossfire.

Slides 20 - 25 - I tried to touch on a few themes we're seeing developing in the VoIP world. The first was IP as incumbent outreach product (examples included Wanadoo and Deltathree in the UK market, and BT Broadband Voice seeking to claw back revenues from cablecos. This was followed by VoIP as incumbent pre-emptive strike (BTYahoo Communicator, Telia Sweden's Bredbandstelefoni products as examples). Then followed VoIP as ISP differentiator ( IP triple play for EUR29.99, and's iPhone product as a smart tactic in a concentrated DSL market), and VoIP as an affinity product (Digilinea - an ATA-based service in the US targeting the Hispanic market, my point being that VoIP might offer some interesting variations on the ethnic calling card model, and the global ATA rollout from Morpheus). I then discussed the Cablecom hispeed 100 product as a good example of a common sense way to employ bundled VoIP in a product to attack an incumbent's most lucrative product set, followed by an examination of the foothold which naked DSL availability has given to Telio in Norway, effectively removing the duplication of access payment issue which some hold up as an inhibitor to the adoption of broadband telephony.

Slides 26 - 28 - Here I highlighted three innovative companies with unique products: firstly Paradial, a Norwegian start-up which claims leadership in NAT/firewall traversal for SIP/MSN video services. This has been one area where Skype has gained a lot of attention with its solution, but a company like Paradial may deliver something equally elegant for the SIP world. A competitor company, Ridgeway of the UK, was bought last month for $16m by Tandberg. Next came Voipster, covered above, and lastly I presented a screen shot of Gush from, which fuses IM, RSS, and in this experimental example voice and video, all in an attractive Flash-based format with some unique features.

Slide 29 - The point I was trying to make in summary was that some of the key innovations coming out of the sector seem to be coming from small companies, and in some cases, non-companies, utilizing skill sets found mainly outside the telco world. In this environment, it is increasingly difficult to determine where the next wave of change will come from and how telcos will position themselves quickly enough to benefit from, or at least absorb, the impact.

Thursday, June 03, 2004

Daiwa EuroTelcoblog No. 44: Thursday, 3rd June, 2004 - Hot off the presses

Just out a few minutes ago, a fascinating-looking report on the state of Wi-Fi networking in the London area, written by Julian Priest, co-founder of community networking forum Consume. A quick flip-through reveals some great-looking maps, and a lot of data on both commercial and free sites within the M-25. We're looking forward to reading this one!