Friday, July 30, 2004

Daiwa EuroTelcoblog No. 63: Friday 30th July, 2004 - Friday afternoon tidbits

Blip or new downdraft?

The Q2 reporting season for the Northern European incumbents has been a wild one so far. Following on from our sector pick Telenor's strong results last week, this week we got a very mixed bag from the next three to report (France Telecom, TeliaSonera, BT Group). The growing competitive tension in the Nordic and UK mobile markets were in evidence once again in the margin compression associated with just maintaining subscriber levels, let alone growing them. Carphone Warehouse management stated in its conference call that in the Dutch mobile market the company is seeing evidence of pricing aggression in the prepaid segment reminiscent of the 1999/2000 insanity, which probably bodes poorly for KPN results on 9th August. Fixed line volume decline moderated somewhat in Sweden versus Q1, but both France Telecom and BT Group exhibited signs of an acceleration of traffic decline significantly beyond our expectations and previous trends. Unbundled local loops in France now account for 15.6% of the total DSL line base, and have grown by over three percentage points each quarter (or 157%) since the start of the year. We believe the remainder of the reporting season may hold some other disappointing data points, with the central question being: is this a blip or the start of a new, more intense deflationary downdraft for the sector? We'll have to wait until Q3 for the answer, but the evidence at our fingertips suggests things may look rough once again. Take the announcements so far in the quarter by a couple of the key disruptors in Europe: Carphone Warehouse and Iliad, parent of French enfant terrible ISP Free.

Carphone Warehouse signed up 9,700 net new subs per week to its Talktalk carrier pre-select product during the quarter in the UK, has launched the product in France, and intends to roll it out in Spain, Switzerland and Germany by year-end. Based on previous statements from the company we expect these international Talktalk users will receive free on-net calls, regardless of where the call terminates. There is also an expanded European MVNO strategy in the works, as well as entry into the UK broadband market by year-end, and the discussion of VoIP on the call left us with the impression that it might be deployed opportunistically where there was a rationale for it. Compared to many players in Europe, we're talking about fairly small numbers here, but this is a company with 2m controlled wireless subscribers and 1300 stores across Europe. The UK stores reportedly account for half of the new subs signed up to Talktalk, and we wouldn't underestimate the potential of the company to cross-sell and bundle products in various markets across Europe longer term in a way that we haven't really seen from a newcomer before.

Iliad today announced ISP revenues up 84% YoY in the first half, and a 58% growth in its DSL subscriber base since the start of the year. More importantly, the proportion of unbundled subs expanded from 34% at the end of last year to 46%, giving it more control over product quality and better margins. Additionally, since mid-June the company has started pushing a fully unbundled product to customers, meaning that technically speaking, naked DSL has now come to France. Removing the incumbent from the customer relationship entirely is a key element in driving usage on its bundled IP phone available as part of the Freebox triple play product, which since March it gives to all DSL customers, not just unbundled lines. In other words, the 133k subscribers added in Q2 are all VoIP customers. One other thing we noted with interest was that Free's share of unbundled lines in France, though an impressive 48.6%, actually fell in the first half, as the other unbundled lines in the market grew by 208% in the first six months of the year. If the market continues at this pace, we may easily see one quarter of the market unbundled by year end, with a substantial number of VoIP users. No wonder France Telecom is serious about VoIP and TV over DSL.

More on Flarion

Last week we had a conference call with Flarion Technologies and wrote extensively about it here. A lot of the information in it probably sounded too good to be true for many readers, but this interesting product test review from Nextel's trial area in North Carolina seems to support the view that the product is robust and attractive. Similar to our conclusions last week, the reviewer nails it on the head in terms of broader market implications:

"It could replace your home broadband RoadRunner or DSL service and still be around the same price, with the added benefit of mobility....We predict that when Nextel rolls out this service on a national level, there will be many satellite broadband Internet providers, cell phone firms, and others who will lose customers immediately to this great new service."

We tend to think that this conclusion would hold true equally well in Europe, and if our speculation regarding T-Mobile and either the UK or Dutch markets turns out to be correct, then entrenched players in these broadband and mobile markets probably have trouble, and DT has a big opportunity. The review is here ( and the marketing site for the North Carolina trial is also interesting (

Analyst, blog thyself

Our leader piece in Daiwa's July Global Telecom Monthly ( made a case for why telecom analysts may face superannuation at the hands of a new, more interactive and independent group of bloggers writing to a very high standard. I also argued that the brokers have an opportunity to harness RSS and other technologies in the pursuit of new distribution and marketing strategies. Lo and behold, last night I stumbled across (, which is the collected blogs of analysts at research consultancy Jupiter Research, some of which have been running since 2002. This makes for interesting reading, ranging from some opinionated and amusing material to a disturbingly broker-like review of the Time Warner Q2 results. It is even more interesting when we consider that this is a business where the revenue model is based largely on selling access to research products (and the seminars and conferences that are built on top of them), and we normally wouldn't expect to see such a company giving away intellectual property. However, the informality of the blogs lets readers get some insight into the personalities and views of the analysts, and the posts are peppered liberally with references and links to research products which must be purchased. I expect the revenue conversion factor may be fairly low, but this approach probably generates more interest, and is certainly friendlier, than a webpage displaying the message "access denied to non-registered users."

Tuesday, July 27, 2004

Daiwa EuroTelcoblog No. 62a - clarification on previous post

Niklas Zennstrom of Skype has asked me to clarify a point I made in my previous post, which I gladly do. The feature of Skype 1.0 which I refer to as "file sharing" is accurately termed "file transfer." The key distinction is that, unlike file sharing applications, Skype 1.0 users cannot browse directories of content available for download, nor indeed can they "download" at all. The exchange must be initiated by the user possessing the content, and as such it is technically no different from an email client (though I've never tried to email a 2GB file). My question over how this may be legally construed, or misconstrued, however, remains, as does my interest in the potential for this feature to find some sort of commercial application, as we saw in the Morpheus/Heart deal which we covered last week. In this ground-breaking deal, the dynamics of the P2P network model were harnessed with a DRM system which allows both the network and the users (who effectively syndicate the content) to generate revenue. Apologies for any misconceptions I may have fostered.

Daiwa EuroTelcoblog No. 62: Tuesday, 27th July, 2004 - Graduation day for Skype

It's official, only a couple of weeks shy of its first birthday, Skype has graduated out of its beta phase. Skype 1.0 launched today, and carries an amusing greeting message on its home page:

"Hello. We’re Skype and we’ve got something we want to share with you. We’ve got a simple bit of software we want to give you. It’ll let you make free phone calls to your friends all over the world. And we don’t want any money for it. It’s free. You could think of us as the big, free Internet telephony company. We prefer to think of ourselves as a big group hug, even a present. Yes... that’s it... we’re a present... but without the ribbon."
For those of us who enjoy monitoring the development of disruptive technologies, Skype has indeed been something of a present. Very shortly after the service launched last year, we were the first brokers in the world to give it coverage (as far as we know), and stated at the time that the arrival of Skype would probably turn out to have been the most significant story in the telecom sector in 2003. That's a view we stand by now, and the growth of the service from a standing start a year ago to 17.2m downloads and average concurrent users of 400k (in my experience), with no marketing, has been an inspiration to watch. Similarly, moving from a position in September 2003, when very few people had heard of the service, to spring 2004, when BT Group was publicly comparing its BT Communicator product to Skype as some sort of industry benchmark, gives a good indication of the shockwaves this application has sent through mainstream telecom. The formal announcement last week of telco partners has similarly been a confirmation of the fact that Skype can generate real revenues, not just for itself, but for others as well, and from a service which is nominally free with a headcount of around 50 people. Skype should be popping the champagne open tonight.

Skype 1.0 contains the very impressive SkypeOut PSTN termination feature, as expected, but also file sharing of files up to 2GB in size (roughly equivalent to 3 feature length movies). This is an interesting development, and I don't want to sound alarmist, but given the determination of the entertainment industry and some US senators to attack piracy by leaning on the enablers via legislation and litigation, we have to ask if Skype is crossing the line from the relatively politically neutral world of voice and into the world of pain which is the file sharing phenomenon. Skype doesn't bill itself as a file-sharing network, but in a climate where (as we've documented here recently) ISPs in Europe are being coerced to block P2P traffic or shut down the accounts of P2P users, this does raise some very uncomfortable questions over the legal position of anyone perceived as facilitating the illegal sharing of copyrighted material. Or, to the contrary, is this a value-added feature which might make Skype more attractive to "legitimate" distributors of licensed content as potential business partners (an idea we have also discussed here recently)? This is a tough issue to read, and we must work on digesting its implications, if any.

Related to today's launch, this article ( contains some interesting comments from Skype founder Niklas Zennstrom on the redundancy of the PBX in this new world, namely that a hardware solution can now be replaced by software. This, in fact, is precisely the opportunity being targeted by Peerio, which has received surprisingly little coverage in the mainstream and financial press since its splash at Supercomm last month (which I blogged here). There is also a reference to the avoidance of a white label approach (Skype is going for co-branding in its first venture with ISP PChome in Taiwan, which is the key strategy behind Voipster, which has also received surprisingly little mainstream coverage since its appearance. A Google search returns 637k citations for Skype, 465 for Voipster and only 324 for Peerio.

Monday, July 26, 2004

Daiwa EuroTelcoblog No. 61: Monday 26th July, 2004 - Flarion's European puzzle piece
On Friday afternoon our US and European analyst mega-teams had a one-hour conference call with Flarion Technologies, to discuss the company, its technology, and future prospects. Based on the discussion, we think that the coming 3 - 4 months will bring some key announcements, which should move Flarion's Flash-OFDM technology from its current position as an "in-trial" dark horse to a recognized commercial reality. Specifically, we think the near future holds key developments in the following areas:

Enhancements and new applications

Based on our discussion, we believe the company is close to unveiling enhancements to the technology which should treble throughput (currently 1.0 - 1.5Mbps downstream, burstable to 3.2Mbps, and 300 - 500kbps upstream, burstable to 900kbps). Such performance enhancements, in the European broadband context, would put Flarion on a level pegging with the best of the consumer DSL/cable modem products currently available. We think that with such plentiful bandwidth and latency of below 50 milliseconds (in practice it is actually around 20ms.), Flarion users should be able to run a number of bandwidth-intensive applications (IM, VoIP, conferencing, streaming media, etc.) simultaneously in a mobile environment with no appreciable difference in experience to that of a high-bandwidth fixed broadband connection.

To date, much of the coverage of the company has been from the carrier perspective, particularly the Nextel trial in North Carolina. However, the company is also seeing increased interest from municipal public safety authorities (some of which are also examining/deploying Wi-Fi based solutions) on the heels of its trial with Motorola in Washington D.C. We think this experience may well be repeated in Europe in future. Additionally, reference was made to the potential for Telstra's test deployment in rural Australia to explore the possibilities for broadband backhaul in the airborne environment, which opens up some interesting scenarios for in-flight communications and entertainment alternatives.

Contracts and handsets

Flarion seems to be pursuing a strategy of getting the technology embedded in networks first, then using the carriers' leverage with handset suppliers to produce units in volume. The company remarked that it believes all it needs is one commercial order for handset production to kick off, and that such an order may not be far off. The chipset, developed in cooperation with Texas Instruments and Philips, is ready for production, and there is a prototype handset, which can be viewed in the factsheet ( and also in high resolution here ( It is interesting to note that Motorola is the networking partner for Flarion's public safety trial in Washington D.C., particularly in light of Motorola's apparent leadership position in integration of other technologies into GSM handsets (BT's Bluephone, expected Wi-Fi integration), and also its long-standing relationship with Nextel.


We noted that of all the announced trials and partnerships running around the world (Nextel in the US, Vodafone in Japan, Telstra in Australia, and SK Telecom/KT Corp/Hanaro in Korea), Europe is notable in its absence from the list. This, too, should change by year end, we were told, though there was absolutely no indication of who or where. Obviously, Vodafone is the first European operator to publicly announce a trial of Flarion (albeit in the Japanese market), and as such it would be tempting to pick it as the most likely candidate. However, with its own 3G launch just going live, we are not convinced. T-Mobile's position in markets like the Netherlands and the UK is more marginal than Vodafone's in any European market, probably making Flarion a larger differentiation opportunity than a cannibalization risk in these markets. Additionally, we think that given Deutsche Telekom's views on seamlessness of services articulated at CeBIT in March, Flarion is probably a more reasonable strategic match than in the case of Vodafone (for example, would Vodafone see the same strategic imperative to adopt a technology in Europe which would allow it a position in the residential broadband market?). T-Mobile's Venture unit is also a Flarion shareholder, and it is pure speculation on our part, but we think it may be possible that the company has pre-emption rights on trials in the European markets, or at least in markets where T-Mobile operates.

It is difficult at this point to envisage what approach T-Mobile might take in a trial deployment. However, with an estimated cost of deployment of around EUR5 per PoP in an existing W-CDMA network, and somewhere around EUR7 per PoP in a greenfield environment, we think that coverage of a market like the UK could be delivered for something under EUR400m (Germany would probably come in under EUR600m). With the performance enhancements expected, T-Mobile could deliver a mobile product superior to anything in the UK market currently, as well as (if it so desired) an attractive alternative to existing residential broadband technologies, which would represent an incremental revenue opportunity, either through bundling with T-Mobile subscription, or via a separate marketing/branding scheme.

Friday, July 23, 2004

Daiwa EuroTelcoblog No. 60: Friday 23rd July, 2004 - Amsterdam, are you getting enough fiber in your diet?

Anyone who actually made it through our EuroTelcorama No. 5 back in January will recall that we spent a long time exploring the issue of municipal or regional government-funded network initiatives to bring cheaper, better services to consumers, frequently as part of a socioeconomic policy initiative. Our main interest was in the emerging tension between the agendas of telcos and governments, potentially leading to competition in some cases. Among the various examples we discussed were some proposals in the Netherlands, notably in Amsterdam, where substantially all households and businesses in the area (450,000 in all) would be supplied with a fiber connection on a city network funded entirely by local government. Yesterday in Amsterdam a meeting was held with prospective infrastructure vendors and service providers in the project. The background document was issued at the end of June, and gives a good orientation to what the project is trying to achieve ( The presentation and Q&A slides from yesterday's meetings can be downloaded here ( and provide some additional insight to the process and the expectations of the project organizers. Much of it is technical and legalistic, but the clear points of interest are:
  • Phase one will involve at least 40,000 homes and 3,000 businesses, to be followed by another phase five to ten times larger.
  • The drafters of the proposal envisage that "at least" three services (TV, telephony and internet) will be offered, and specific reference is made to "low-cost/flat fee services" such as "two-way high quality video communication."
  • The organizers have avoided setting any specific benchmarks to define their use of the term "affordable," but the Q&A response states that, "Affordable means that a very large part of the citizens/households/small businesses can purchase services they require or desire, given the limitations of the 'share-of-wallet' they have available for this type of service." Judging from some of the current pricing in the Dutch market, "affordable," particularly in a government-funded network, may be quite attractive.

For example, KPN ISP Het Net is currently offering a 416/160kbps DSL product for EUR14.95, and 1Mbps products from both KPN and UPC's chello cable modem service cost EUR32.95. UPC's basic digital cable package costs EUR14.95 per month, and the UPC basic telephony package also costs EUR14.95. So, excluding any sort of bundling discounts, the typical Dutch consumer may be expecting to see an entry-level triple play product priced well below EUR60, and probably more towards the EUR45 level (as our contacts in the Dutch market have previously asserted). A Dutch reader subsequently emailed me to point out that UPC's digital cable package is only available on top of an analogue subscription, which costs the same amount. This would increase my triple play ARPU assumption to EUR75 at the top of the range, and EUR60 at the bottom. Certainly the value proposition underlying other similar projects, such as UTOPIA in the US, is for vastly higher access speeds and a triple play suite of services priced at a level comparable to existing services. The interesting thing to watch from the perspective of the incumbent analyst is how KPN deals with the situation, wherein it stands to be one of many service providers battling it out on someone else's network while potentially losing a substantial portion of its footprint. We are also very interested to see who turns up on the list of prospective service providers expected to be disclosed on 13th September. 

The Citynet website itself ( is worthy of some inspection, particularly if the reader has any knowledge of Dutch at all (though can also be a great help). If my own barbaric Dutch skills are close to accurate, there is a news item in the site which seems to say that the 7,500 home fiber project in the community of Nuenen (part of the Kenniswijk project) has so far pre-registered 90% of the households in its area. This level of uptake in Amsterdam would imply something like 400,000 homes and businesses moving to fiber, presumably with a far wider choice of service providers than they enjoy currently.

Thursday, July 22, 2004

Daiwa EuroTelcoblog No. 59: Thursday, 22nd July, 2004 - Taking a stab at VoIP's addressable market in Europe

Since we started looking at the impending rise of VoIP in late 2002, market awareness of the issue in Europe has grown from a whisper to a very loud cacophony, yet much of the market (ourselves included) has had great difficulty in quantifying exactly what's at stake. We have made a few attempts in past editions of EuroTelcorama, mostly on an individual country basis where we had reliable usage data, but a more comprehensive view still eludes us. With all the technological changes taking place, coming up with a credible number is a bit like the "how many angels can dance on the head of a pin?" argument. Theoretically, and very optimistically, we think the "addressable market" for VoIP as a "primary line" service in Europe is equivalent to the size of the broadband footprint itself, though in practice, this is probably unlikely to be the case for some time, for a number of reasons. We also have some serious doubts as to whether this is really an either/or scenario. In other words, we do not view the consumer VoIP phenomenon as a straightforward case of swapping one "primary line" service for another (PSTN for VoIP). Inevitably there is a need for the media and analysts to predict "winners and losers," but we think this oversimplifies what is probably really going on, at least among the early adopters - i.e., many consumers are eclectic, using IM (both text and voice/video based), Vonage/Telio-type commercial services, Skype, Stanaphone, glophone, PhoneGAIM, humble calling cards and a host of other services opportunistically as befits their needs and the specific environment they are in at the time.

Nevertheless, if we were to attempt to address the "how long is a piece of string?" question, to get a clearer picture, we would probably need some in-depth consumer survey across Europe, which, to our knowledge, hasn't been done yet. However, research firm Ipsos-Insight on Tuesday released a survey of American internet users which may allow us to make some speculative projections. Before we begin, we must state clearly that this is a "square peg, round hole" exercise to some extent, given the vast differences between the US and Europe (and within Europe itself) along cultural, economic and market structure lines. However, in the absence of any more granular data out of Europe, it's probably worth having a go.

Ipsos-Insight, in interviews with a panel of over 1,200 internet users in the US, determined that 19% of them would be classified as "likely" to switch to VoIP service in future. Users of DSL and dial-up services were keenest to move (22% and 20%, respectively), while people with phone bills of more than $40 per month were more than twice as likely as those with bills below $40 (32% vs. 14%). These facts are generally unsurprising, but there were some results which were more unexpected:
  • When asked which type of service provider would be the best (the choices were telco, ISP, and cable company), fully 50% of respondents thought the telecoms players would do best. Cable companies scored worst (15% overall rating), though 33% of cable subscribers backed their MSO. This would seem to validate the view (apparently strongly espoused by BT Group, France Telecom, TeliaSonera, and apparently less so by many others in Europe) that there is a strategically compelling reason to move into consumer IP services sooner, rather than later.
  • The other area of surprise was in the list of "must have" features for VoIP, as cited by those who said they were likely to switch. The most popular of these (caller ID, voicemail, power back-up, call waiting, call blocking) were as expected, but some of the more unique features of VoIP services, such as call forwarding, multiple phone lines and virtual phone numbers (in other words, the features which the industry pushes as key differentiators) scored below 30% (a full breakdown can be viewed here: Perhaps this merely reflects relatively poor consumer awareness of these features, thereby providing operators an opportunity to upsell customers after capturing them by delivering the basics. The alternative view would be that, while some in the industry are urging VoIP service providers to differentiate themselves along feature lines rather than price, this survey actually seems to indicate that consumers may be much more concerned with reliability of service, replication of standard PSTN features, and, or course, price. Viewed from this perspective, perhaps the incumbents are in a relatively stronger position, and certainly the US incumbents appear to be embracing the technology shift more enthusiastically than their European counterparts - so far.

Whatever the takeaways we can draw on consumer attitudes from one survey in isolation, the indication of interest is undeniably strong. How does this apply to Europe? Let's look at a few recent internet usage stats, onto which we can attempt to graft the assumptions produced by the Ipsos-Insight study. According to Nielsen//NetRatings, which tracks internet usage in seven of the nine largest European markets (excluding Italy and Belgium), the "active digital media universe" for these markets in June was 86m users (home panels only). This breaks down by market as:

France         14,348,243

Germany     26,775,877

Netherlands  7,785,983

Spain             8,436,889

Sweden         4,391,951 

Switzerland  3,215,203

UK               21,082,432 

Total            86,036,578 

Doing the numbers

Applying the Ipsos-Insight result of 19% overall intention to switch, this points to a figure of 16.3m for the seven markets covered, and probably something like 25m for Western Europe as a whole. This is a figure very close to the estimate of total household broadband connections in Western Europe at the end of Q1 (just over 26m on our reckoning).

Another approach would be to apply the Ipsos-Insight figure for interest level among DSL users (22%), and apply it to our estimates for DSL users in all of Western Europe at the end of Q1 (19.3m). This gives us around 4.3m, to which we can add the 15% interest level found among cable modem users (6.8m) for a total of 5.3m potential residential VoIP users in Western Europe, or c.3.5% of total households. Factoring in further penetration growth in Q2 probably safely takes this number over the 6m mark at present.

What this doesn't capture at all is the likely interest among narrowband users. Anecdotally, VoIP service providers we have spoken to in the US and Europe (of both the access-independent and cable varieties) have indicated that in their experience, narrowband customer awareness of VoIP as an application enabled by broadband can act to accelerate the decision to migrate to broadband.

So, at the bullish end of the range, we have a potential migration of at least 25m in Western Europe over time, and at the more conservative, shorter-term end we may have something like 6m candidates at present who are actually able to do something about it. EU market stats released annually have shown residential PSTN ARPU (access and switched minutes) in the EU-15 stable at just under EUR30 per month (ex.VAT) over the past two years. Setting aside the fact that roughly 40% of this expenditure will probably be related to access (which is a problematic issue for VoIP players in most markets), we determine that if the 6m near-term potential converts cited above migrated all their voice ARPU to a VoIP platform, the revenue opportunity is probably on the order of EUR1bn annually. Adding back the access portion would take the opprtunity nearer to EUR2bn, or nearly 1% of the total estimated 2003 market value of telecom services in the EU-15 (comprising telephony, internet, mobile, CATV, and switched data/leased lines). Mapping these same assumptions across 25m migrating subs gives us a voice opportunity of c.EUR5bn and total revenue opportunity close to EUR9bn. That's more like 2% and 4% of the total market value, respectively.

One final caveat here is that, at least among the access-independent service providers we've spoken with, our experience is that the customer profile attracted to the VoIP proposition tends to generate higher-than-average ARPUs, and the Ipsos-Insight survey shows a significantly higher level of interest from those spending more than $40 per month on phone bills. In other words, our conservative EUR1bn revenue opportunity estimate may indeed be too low. We do not regard this exercise as anything approaching definitive, and the larger nagging question we continue to confront is how much of the revenue opportunity (whatever it is) is revenue transfer, how much is revenue defense, and how much simply vaporizes? As we have written and presented on numerous occasions, we think there is a better than even chance that a lot of this value is transferred to global internet brands as they battle it out for world domination. 

Tuesday, July 20, 2004

Daiwa EuroTelcoblog No. 58: Tuesday, 20th July, 2004 - More on telco positioning in content distribution

Recent posts on this blog have tracked some difficult issues related to the position of telcos in the content value chain: developments such as the litigation squeeze being placed on Tiscali in the Belgian courts as an "enabler" of piracy, and also on issues of technology, competitive environment, company culture and consumer behavior, which telcos may encounter in delivering video services on their broadband platforms. This rapidly-evolving issue has seen another couple of interesting twists in the past few days, which may have some interesting implications for most of the stakeholders in this market - record labels, P2P networks, commercial music download services and telcos/ISPs.

French direct action

Last Thursday (15th July), an industry roundtable meeting was held at the behest of three French cabinet ministers, in which the various parties adopted the recommendations of Canadian anti-piracy watchdog ITIC/DIC for taking action against piracy over P2P networks( What resulted was reportedly an agreement in principle for telcos/ISPs to shut down the accounts of users found to be engaged in piracy, simply on the basis of a court order produced in response to user data supplied by the labels. This should speed action against individuals to an almost immediate response, while avoiding lengthy court cases and heavy fines, which have proved controversial and unpopular measures in previous actions. No doubt, this is a more moderate approach than that seen previously from the music industry, but it does put the telcos/ISPs in a strange position. It is a well-documented fact that P2P traffic accounts for more than 80% of total traffic on broadband ISPs, and depriving users of access to the "fat pipe" should do little to aid the growth of the broadband market in the short term. It also may alienate a potential target audience for migration to legitimate paid services, which have produced a staggering amount of positive newsflow recently, and which potentially offer the telcos/ISPs some incremental revenue opportunities through partnership. The gloss put on this development portrays the telcos/ISPs as willing and happy participants, but we also have to recognize that this may be a damage-limitation exercise from their perspective, if they sense that some European version of the approach used in the American INDUCE Act (as is apparent in the Tiscali case) is on the horizon.

A big week for the "nice guys"

Churning off broadband customers is clearly a place where the telcos/ISPs do not want to be, especially in light of the landmarks passed by the legitimate commercial download services over the past weeks:

Apple's iTunes last week reported it had broken through the 100m download mark. This may be small beer next to the estimated 2.6bn files exchanged each month on the P2P platforms, but if we accept that the service really exists to drive hardware sales, then this is clearly a very significant achievement (in spite of concerns that vulnerabilities in Apple's DRM may undermine it in the longer run [http://]).
OD2 (now part of Loudeye) last week reported six new white label partnerships, and pointed to soaring volumes on its partner networks, up 20 - 30% each month in the first half of 2004. Interestingly, the increase in competition in the market seems to be spurring volume growth across the board, as the launches of Napster and iTunes in the European markets were accompanied by week-on-week volume increases on OD2 partner sites of 22% and 28% respectively in the weeks in which they launched.

Napster parent Roxio yesterday announced six more high-profile additions to its university affiliate program in the US (the first was the University of Rochester in February). For those unfamiliar with this program, it is an alternative strategy for universities in the US to try to control bandwidth consumption on their campus LANs and stave off lawsuits as enablers of piracy, by partnering with Napster to provide a sanctioned P2P platform tailored specifically to the individual institution.

Perhaps the message from all of this is that the content providers have found a sweet spot in the market, supported mutually by broadband growth, consumer awareness, fear of litigation, and pricing. Indeed, 99 cents per track equates in some cases to less than $8 per album, which is very competitive versus CD pricing, and the OD2 service known as SonicSelector allows streaming (not burning) of tracks for 1p per song - a reasonable "try-before-you-buy" strategy. OD2 reports that one-quarter of downloads sold on its platforms are streamed in advance of purchase. For the telcos/ISPs, perhaps the best course is to strike a regulatory/litigation trade: actively shut down the file sharers, push partnerships with the legitimate partners in the space, and hope for the best.

P2P turning the tables?

However, things don't stay static in this market for very long, and yesterday saw the announcement of an interesting agreement between Streamcast Networks, parent company of P2P platform Morpheus, and '70's rock veterans Heart, who have released another comeback album and are embarking on a large-scale summer tour. Under the agreement, Morpheus users will be able to purchase the 16 tracks from the new album outright, or preview each track in its entirety three times before purchasing. Morpheus is giving the rights holders to the music a 50% cut of revenues, and interestingly, is also sharing revenue with users who share the tracks with others. Each Morpheus user who purchases tracks has the possibility of generating a commission of up to 20% for direct sales of tracks, with the commission declining thereafter by degree of separation (i.e., friend-of-a-friend transactions). This deal is fascinating, as it seems to harness the social networking aspect of file-sharing with a financial incentive to the end-user. It also provides a P2P "renegade" with a legitimate revenue stream sanctioned by the rights owners themselves. Lastly, for a band on an independent label, unsure of its prospects to get radio airplay in support of its tour, at the very least the preview facility offered by Microsoft's DRM, and the viral nature of the P2P network, may give it some added exposure it might otherwise not have had. Plus the band nominally gets to stand up as a party sympathetic to file sharers. While it is very difficult at this point to see the major labels getting into bed with their P2P nemeses in similar commercial arrangements any time soon, this does provide an intriguing model for harnessing the huge scale of the P2P networks to make money (the Morpheus application alone has been downloaded 125m times), which is what many in the P2P world have been advocating for some time now.

The implications of this deal may again pose hard questions for the owners of the pipe/customer. If the massive P2P networks are indeed embarking on a drive for "legitimacy," whether motivated by litigation or envy at the success of iTunes, Napster and OD2, then we are likely to see some other very innovative deals along the lines of Morpheus/Heart's agreement. Each step along this road may add further credence to the idea that the P2P platforms could become a money-spinner for a variety of parties, including the telcos/ISPs (either as an outright partner in the service, or through a sort of premium "turbocharged bandwidth on demand" facility to the platform itself). In the meantime, at least in Europe, what we see are early signs that the telcos/ISPs may end up on the wrong side of such a potential opportunity in the near term, if they are either themselves sued (as in Belgium) or coerced into churning off broadband customers (as in France) due to association with enabling piracy. This is a difficult issue, and one we will be tracking closely as it evolves.

Friday, July 16, 2004

Daiwa EuroTelcoblog No. 57: Friday, 16th July, 2004 - Some very different angles on on-demand TV
A couple of weeks back I wrote about some takeaways from the Profiting from On Demand TV event sponsored by Informa Media. Basically, my distillation of what I saw and heard led me to a pretty pessimistic conclusion over the likely success of the incumbent carriers in cracking this market. Since then we've had some new data released about shifts in file sharing patterns, and a kind reader has also alerted me to some new developments which potentially make the whole issue of content distribution somewhat more exciting and problematic for everyone. The following tries to weave these two developments into some sort of alternative view of the on-demand TV phenomenon.

Recent data

Firstly, over the past week, two reports on file sharing have been published (by the Motion Picture Association of America and the OECD), and two producers of P2P traffic policy solutions (CacheLogic and BayTSP) also produced some interesting stats.
  • CacheLogic found that as recently as June, global P2P platforms averaged 8m concurrent users at any given time (actually the press release says 10m, but this is a peak usage figure observed over six months). These 8 - 10m concurrent users typically shared a staggering 10 petabytes (that's 10m gigabytes) of data.
  • The MPAA estimated that 2.6bn files are copied each month on P2P platforms globally.
  • The OECD, basing its analysis on data from BigChampagne, estimated nearly 10m concurrent users globally in April 2004, up from just over 7m in April 2003. It also provided a breakdown of estimated users by OECD member state. Europe claimed seven of the top ten slots, with Germany at number two after the US, accounting for 10.2% of all global P2P users.
  • The OECD notes that the fastest growth in share of P2P usage has come from France, Germany, Italy and Japan.
  • In terms of penetration of total population, in France and Germany (joint third place after Canada and the US) the OECD estimates that 0.6% of the total population engages in file sharing. Canada is double that level, but adjusted for broadband penetration levels, some of the European penetration figures are actually higher than that in Canada.
  • Interestingly, while the OECD has found a strong negative correlation between income/education levels and downloading behavior in the US, in France this relationship does not appear to exist. The OECD produced data from ART which appears to show a roughly equal tendency to download irrespective of income, and a greater tendency based on education level. The reading is that, at least in France, file sharing is on the way to becoming a more mainstream and widespread phenomenon over time.

Running beneath all this data is an apparent shift in both P2P platform preference and the content being shared. CacheLogic pointed out that reports of declining file sharing activity are based on faulty measurement, as the industry groups such as the RIAA tend to track KaZaA and other Fast Track-based networks, which have gone ex-growth. If the net is widened to include other platforms, such as eDonkey and Bit Torrent, usage is growing and becoming more bandwidth intensive. The OECD data backs up the claim that there has been a platform shift, as it shows users of Fast Track platforms remaining fairly stable at around 4m since late 2002, while the overall number of P2P users nearly doubled.

What is promoting the shift? Video, apparently, particularly in the case of Europe. The OECD found that in Germany, Italy, Belgium and France, video accounted for c.25 - 40% of all files shared on KaZaA, though KaZaA is generally acknowledged as being inferior for swapping large files like video in comparison to Bit Torrent and eDonkey, the two platforms which have seen the largest growth. Bit Torrent in particular has been huge according to CacheLogic, which estimates that it now accounts for 53% of all P2P traffic globally, up from 26% in January 2004. The MPAA study asserts that globally, 24% of internet users have downloaded a movie at least once, with Korea leading the pack at 58%. However, France (27%), the UK (20%), Italy (20%), and Germany (19%) are all in line with the global average and the proportion in the US. The survey also found that 20% of those with no file sharing experience intended to start at some point in the future.

Some of this data is bound to be a bit skewed, because Bit Torrent is often used also for distribution of large software files, which may suggest that some items are being misclassified as movies. However, there are still some fairly serious implications for both the carriers and anyone involved in content ownership/distribution:
  • For the carriers, the shift from music files (average file size 4MB) to video files (ranging from 100MB to upwards of 600MB in the case of a full-length film) implies a lot of network capacity is being soaked up in the process. CacheLogic's presentation has some interesting graphics, and makes the point that in one extreme case, it determined that 30% of the total P2P traffic on the network of one large ISP was generated by the availability of a single 600MB file. With P2P traffic already estimated by some to account for >80% of ISP traffic, this dramatic uplift in bandwidth intensity is a pretty alarming prospect. CacheLogic's own estimate of transit costs to ISPs in Western Europe associated with P2P for this year is EUR100m.
  • For the content owners and distributors, the piracy issue is again intensified, but perhaps with more impact in the film industry as opposed to music, due to its more capital-intensive nature. This, in turn, may bring in more litigants via suits such as the Belgian case against Tiscali as an "enabler."
  • For carriers looking to build a business case for TV/VOD as an application on their DSL platforms, we have to question what sort of dilution impact they may see from an embedded and expanding user base more intensively sharing video content.


Against the background of all these data points, a kind reader this week alerted me to the existence of something very interesting called Torrentocracy. I spoke briefly with the developer of this application, which was just released last month. He was very quick to point out that he is keen to avoid any identification of his innovation with illegal file sharing, and there is a very clear policy statement on the website:

"Torrentocracy is not about railing against or stealing from big media. Instead it is about creating this all access network from the bottom up in the best interest of consumers. Just imagine how dull the internet would be if all the content was controlled and doled out by just a few large corporations. Now realize that this is how TV has always been. If the revolution will not be televised, it will instead be brought to you via torrentocracy."

My inclusion of it in this piece is purely my own decision as an illustration of some of the innovations coming out of the open source developer community which challenge old assumptions about content creation and distribution. Depending on the uses to which these innovations are put by the individual end user, the picture painted in the first part of this piece could grow more complicated.

Torrentocracy ( is a fusion of Bit Torrent and RSS, and there are others such as Buttress and Azureas which are perhaps better known (Azureas claims 10m downloads to date), but where Torrentocracy has moved forward is in the integration of this with the television. This was achieved via integration with the MythTV ( open source PVR system, a phenomenon we have been looking at from time to time over the past six months. Torrentocracy, however, seems to revolutionize the promise of such a system, by allowing syndication of content between large numbers of individuals using RSS feeds with torrent files embedded. Theoretically, we are looking at a new concept distribution platform for a variety of audio and video content, including entirely non-corporate, independently produced material. Obviously, being open source, such a system could be put to other uses not envisaged or sanctioned by the developer. My main interest is in the fact that Torrentocracy and any subsequent similar developments are clearly an interesting step in decentralizing control of content creation and flow from the global media conglomerates, and may prove an additional source of pressure on commercial on-demand offerings, whether from the telcos or the established players in cable/satellite.

Is the industry watching the right channels?

One potential inhibitor of such a platform may be the diffusion of Linux operating systems. Statistics based on system registrations at Linux Counter ( rather unhelpfully estimate somewhere between 2.9m and 72m users of Linux worldwide, so there is a wide margin of error here. It is interesting to note, in passing, that the country breakdowns of Linux registrations in the site are heavily weighted towards Europe. However, at this point, the main takeaway in my mind is that the current speculation about winners and losers (ADSL, cable, satellite) in the on-demand video content world may get considerably more complicated as a result of this sort of innovation being driven by independent developers working in relative obscurity.

Tuesday, July 13, 2004

Special: Excerpt from the upcoming Daiwa Global Telecom Monthly July edition

Every month I have to write a front-piece to the Daiwa global sector product, and occasionally I get lucky and produce something that doesn't immediately induce sleep. This excerpt is part of a longer piece, which later goes on to examine European telecom analysts' collective hit rate in correctly determining the direction of the Stoxx Telecoms index during a given quarter (under 40% since 1998, on my calculations), as well as to introduce some of the fabulous resources available to investors today in the blogosphere, most of which are probably known to the readers of this blog. (I have assumed a low level of reader awareness of blogging generally.) What follows below is a discussion of the real nub of the issue: in the face of newly developing information flows and alternative sources of market/industry intelligence, the investment banking world had better reshape its telecoms research product to be more immediate, interactive and original, or face marginalization.


"Why traditional telco analysis will go the way of the dodo"


"One turkey votes for Christmas"

In the April edition of our Global Telecom Monthly, I included a short piece on RSS (really simple syndication) and how it might change the world in some very straightforward ways. In that piece, and a subsequent edition of EuroTelcoblog, I speculated that there might be implications for more than just the traditional media, and that brokers’ research efforts might also benefit from RSS and the numerous other advancements being made in real-time information distribution and collaboration technology. My somewhat unorthodox "summer project" for this month is to delve a bit more deeply into precisely what this could mean, and to make a case for why traditional investment banking research is increasingly at risk of being outmoded, if it isn’t already. My ultimate goals here are two-fold: 1) to provide clients with a list of alternative information resources they may not be aware of, and; 2) to stir things up.

The background: Analyst – past, present and future

Back in 2002 a friend on the buy-side sent me a copy of a remarkable Powerpoint presentation from Robert Zielinski, then an Asian banks analyst with UBS Asset Management, entitled "Death of an Analyst." In this extraordinary piece of partially tongue-in-cheek vitriol aimed at investment banking "business-as-usual," Mr. Zielinski makes a case for why sell-side analysis is a broken model, contributing nothing to the investor’s decision-making process. Looking beyond the humor and bitterness evident in his presentation, however, there is one slide which has remained clearly in my mind since then, and it is reproduced below. In it Mr. Zielinski attempts to give a view of analyst characteristics and duties – past, present and future.

Robert Zielinski’s Evolution of Analysts

The Past

Information gatherers
Eager youngsters
Broad coverage
Serve client
Use a salesman

The Present

Industry experts
Tired veterans
Limited coverage
Serve bankers
Direct contact

The Future

Data provider
Live online
All companies

What is striking is the list of attributes which make up The Future, and the contrast with the normal way that analysts go about their jobs today. This normally consists of following a relatively small number of companies within a narrowly defined geographic and industry area, producing reports which are then emailed (and, astonishingly, still often physically mailed) to clients, bombarding the same clients with voicemails to alert them to the emailed report, and making marketing trips to reinforce the message face-to-face. This is all well and good, as long as the investor plays along. However, as one buy-side analyst told me not long ago:

"My inbox receives, on average, 15 emails every 30 minutes, and I tend to delete approximately 90% of them as useless, dated, or, even worse, completely superficial."

Numerous other clients I have met have typically described themselves as being "besieged" by broker research, which they find "depressingly undifferentiated." One group of fund managers only half-jokingly expressed a strong interest in some of the call blocking and diverting features available in VoIP services as a way of freeing themselves from broker voicemails. How could this be the case, given the devotion and tireless efforts of thousands of analysts worldwide to maintaining a steady flow of timely, value-added company and industry research?

The answer may lie in the way information flow has changed over the past decade. Ten years ago, the Daiwa research department in London had PCs loaded with Excel and Word, but no internet connection and no email. All research produced by Daiwa was printed and mailed, as well as FAXed, to clients. Company releases made to the London Stock Exchange appeared on a proprietary information system called TOPIC, and otherwise company information was sent to analysts by FAX or post. Reuters Business Briefing and Reuters television services were only launched in 1994. Bloomberg TV also launched in 1994, but the company had only sold something like 35,000 terminals worldwide, and we were still a year away from the launch of Neither Reuters nor Bloomberg systems were available in Daiwa’s research office. Sitting here in 2004 surrounded by "pervasive communication," it is hard to imagine/remember a life of such relative isolation as that experienced by Daiwa analysts in 1994, but their experience was probably pretty well the norm for the time.

The principal difference this technology gap made was that in 1994 analysts were a privileged subset of a group (including financial journalists and some more specialist institutional investors) with timely access to information which was exclusive to them, at least for as long as it took them to disseminate it to a wider audience. Today, and for some time now, companies have been using the web as a tool for information distribution, opening themselves up to the world. The latest set of company results (increasingly including a webcast analyst meeting) can be accessed simultaneously by anyone, whether it be an experienced sector analyst on Wall Street, or an elementary school student in Manila. Commercial transcription services such as Call Street produce conference call transcripts in short order, and later issue more detailed reports on the results and the call. At the same time the financial media have invaded every available real-time distribution channel (TV, radio, internet), meaning that the traditional role of the analyst to break and interpret company news is further diluted. Additionally, over the past decade, fund managers have largely moved from a country-based approach to a sector-specific focus. Today most of Daiwa’s Japanese institutional clients, and virtually all of the fund managers I am in contact with in European institutions, are either sector specialists or work closely with specialist analysts. This was not the case in 1994. In 2004 analysts may now have access to all the modern tools for information retrieval and distribution, but so does everyone else, and investors’knowledge level may be as good or better. Arguably, analysts are using new tools to create and distribute the same product as before, but to an audience which may be less in need of it than ever before.

Returning to Robert Zielinski’s ideas above, it is remarkable the extent to which parts of this description of the future analyst are already applicable to many people outside the broking world, namely the growing ranks of "bloggers" who are writing on telecom/internet/media/technology-related themes, sometimes in great detail and to a very high standard. The description of "data provider" is not correct in this case ("industry expert" is the norm), and "mechanical" and "salarymen" probably aren’t either (though some of the best bloggers have day jobs closely related to what they write about), but the other four elements match up nicely – live online, all companies, interactive, independent. Let us address each in turn:

Live online – The various blogware packages available to create blogs are very straightforward to use. If some significant news breaks, a blogger can publish quickly, while the analyst waits for compliance, editorial, and production teams before the .pdf note can be sent out. Web-based packages like Blogger are not as feature-rich as many others available, but they have the advantage of allowing updates from any internet enabled device capable of text entry.

All companies – This may be a real killer for the telecom analysts. As we have tried very hard to document over the past 20 months or so, the world is moving in ways which make it difficult to even define what a telco is anymore. Retailers, utilities, municipal governments, banks, and even the UK Royal Mail are moving into offering voice, and the global internet giants (AOL, Yahoo!, Apple, Microsoft, and even P2P network Morpheus) are offering quasi-telephony services. Even the geographical definitions which have traditionally governed coverage allocation at the brokers are increasingly open to question, as SIP-based service providers issue numbers not relating to the market where the customer is physically located, and global services like Skype are on the attack. It is no longer enough for the analyst to sit in his silo and write "France Telecom is trading at a 10% discount to DT – buy!" Bloggers typically are not constrained by any coverage allocation issues, and thus can take a wider view.

Interactive – As described in our April piece, a user of an RSS newsreader will receive a discreet notification that something has been added to a site bookmarked in his list, allowing him to decide when to go in and "pull" the item, rather than being confronted with another piece of broker spam "pushed" to his email inbox. There is also a forum for talking back. Most blogs have a comments section where readers may share views, correct inaccuracies, and criticize biased or unfair views. Sometimes these may be more informative and interesting than the original entry. Many blogs will have a trackback capability to allow readers to see where else the entry has been cited, and many blogs will link to other blogs of potential interest to the reader. New applications such as Gush ( combine RSS with instant messaging, allowing for direct real-time contact between author and reader (substitute analyst and client), and the developers have also experimented with video and voice chat as one new direction for it.

Independent – This is a potential minefield issue, but to be fair and discrete, the blogger brigade, in my experience, is not constrained by external considerations of remaining polite or shying away from nebulous or difficult issues. Blog entries often focus on sensitive issues such as questionable corporate ethics and poor standards of customer service, but are also likely to address small unlisted companies with unique products/services, or entirely non-corporate developments such as municipal wireless network initiatives. Additionally, we may often find coverage of listed companies which no broking analysts cover (for example, Bloomberg data shows no active coverage of Calypso Wireless, a $135m company with an interesting product set).

Is there really a case for saying that blogging will make traditional analysis obsolete? This is very debatable. What we haven’t seen (yet) is a blogger, for example, dissecting a company balance sheet in detail, making independent financial forecasts, or doing discounted cash flow analysis. That day may come, however, and in the meantime, if we assume that buy-side analysts and fund managers possess those same skills and are working from the same data (which they should be under fair disclosure rules), then it is not difficult to see investors increasingly relying on these less orthodox and more timely sources of market intelligence, and doing the valuation work themselves. We think this is already happening to some extent. The risk in this dynamic is that the sell-side analysts continue to beaver away writing Hold notes on Deutsche Telekom and emailing them to clients, who might not really want them – in fact, might want them less with each passing month.

How can the brokers respond? One idea might be to incorporate the very same tools and approach being used by the blogosphere. If we assume that IM/presence-based applications (including voice/video) are to become an integral part of corporate communications in the next few years, then this enables a level of immediacy and interaction in creating and marketing research. Blogging tools could be just one added feature of that newfound interactivity. This idea is not an alien one to the financial industry. Venture capitalist Tim Draper (a founding investor in Skype) has used his blog for the past two years to solicit ideas from readers for promising new business models and products, and has offered the most interesting candidates a chance to pitch their ideas to him live via a video conference link ( Is it so far-fetched to suggest that some variant of this model could be employed by the brokers in exchanging ideas and information with investors? We certainly think there may be some pent up demand on the part of the beleaguered fund managers/buy-side analysts, who are under ever greater pressure to manage information and news flow. An analyst with a hedge fund recently gave me his views:

"I feel very strongly that the sell-side needs to: (a) improve the originality of their research, and; (b) provide better syndication options via RSS so that I can deal with the countless upgrades/downgrades, notes, etc."

One main issue affecting the rate at which the brokers move is likely to be awareness of technology, and perhaps of the potential of the blogging phenomenon itself, both of which we think may be generally poor. We were intrigued by some data included recently in the first anniversary report from the site, which covers the phenomenon of municipally-funded/managed wireless networking projects in an in-depth and authoritative manner. In it, author/site founder Esme Vos lists (by category) the 466 subscribers to a weekly summary newsletter which she distributes via email (multiple subscribers from the same organization are counted only once, so the numbers in the table below do not add up to 466). It is interesting to note that, of the various categories of recipients listed, broking analysts do not appear at all, and neither do institutional investors, apart from venture capitalists. While it is possible that some of the recipients listed as "other" could be analysts/investors receiving the newsletter via a private Hotmail account rather than the company email, we think this is unlikely. We also concede that some analysts/investors may be subscribing via an RSS newsreader, but we think this is even less likely, given the email addiction of the industry as a whole. It is intriguing to ponder why, when the integrators, operators and vendors all seem to see this relatively niche segment of the market as worthy of monitoring, there are no visible analysts or investors on the list?

Recipients of the Muniwireless weekly email newsletter, by category
City and regional governments, 54
Systems integrators and consulting firms, 57
Telcos (fixed line and mobile), 14
Cable/satellite, 7
Vendors (mostly hardware, a few software), 90
ISPs and VOIP providers, 34
Journalists, 16
Research firms (the kind that sell analyst reports), 13
PR firms, 10
Community volunteer organizations (e.g., Wireless Amsterdam), 9
Venture capital, 7
Utility companies, 3
Educational institutions (universities/state colleges), 13
Conference organizers, 3
Other (people with email addresses at Hotmail or Netscape), 57
Source: DIR, from from anniversary report, June 2004

One other stumbling block to adoption may lie in the attitude the brokers might take to what they perceive as a freer flow of information. The currently highly conservative approach to compliance issues makes for one source of anxiety – how to ensure that readers in the US don’t see or hear something they’re not supposed to? The other would be the legacy of brokers’ research as a closed information loop, theoretically only available to clients, potential clients, or subscribers to research aggregators such as Multex or First Call. In practice, we know that brokers’notes get circulated far more widely than this, but this is the unofficial distribution system that is likely to plague any type of publication. The assumption is that the research product is free, but exclusive to clients or prospective clients on the implicit understanding that access to it involves getting some business out of it at some point. If the brokers take on an open-access approach, how does this model translate? RSS does allow for conditional access, so the brokers could tailor specific content feeds for particular classes of clients (those physically present in the US, those interested only in telecoms), or perhaps move to a chargeable structure with different tiers of access privileges. Adding richer communication tools and comments sections/discussion forums would make for a more interactive experience. This would be a chance to move from brokers’research as a "push" medium, to one based on "push and pull." The key question is probably one of culture and vision more than technology, and we will see who goes for it first. The risks for those left behind might be great.

Thursday, July 08, 2004

Daiwa EuroTelcoblog No. 56: Thursday, 8th July, 2004 - Tiscali sued for enabling piracy

I just came across a news item on which says that pan-European ISP Tiscali is being sued in a Belgian court by SABAM, a Belgian music and publishing industry group representing 25,000 artists. The suit claims that Tiscali contributes to copyright infringement by not attempting to block or degrade traffic from P2P file sharing sites. Previous actions against file sharing have focused on end-users and the P2P networks themselves, but this is the first time that I am aware of when the industry has attempted to sue a perceived "enabler" of copyright infringement.

Legal music download services such as the many white-labeled services operated by OD2 ( probably represent a decent new revenue opportunity for the European telcos and their ISP units. However, if this case is successful and sets a precedent for future European lawsuits based on the concept of inducement, those with a widespread ISP presence in Europe (France Telecom, Deutsche Telekom, Tele2 spring to mind) could also find themselves on the receiving ends of multiple legal actions in each market.

This development also disturbingly mirrors trends in the US, where Republican Senator Orrin Hatch (co-sponsor of the controversial [some would say infamous] PIRATE Act) is now sponsoring the bill known as the Inducing Infringement of Copyright Act, which targets those parties which "intentionally induce" piracy. Applied in its widest interpretation, this act could probably be applied to a very wide range of companies, from producers of MP3 players and PVRs to broadband ISPs and also sites such as CNET and Tucows, which host downloads of P2P software, as well as many other applications. Whether Europe would be as extreme in its legislative response is questionable, but my sense is that, having failed to shut down P2P networks, and having been widely criticized for suing impoverished teenagers and grandparents whose computers were unwittingly used for file sharing, the media industry now looks intent on squeezing the intermediaries or enablers, which must certainly include the telcos and their ISP units.