Tuesday, November 30, 2004

Bloomberg as telco

Validation that anyone can telco. This, from a reader in the US, an email from Bloomberg:


Voiceglo IM

Voiceglo is certainly getting hipper by the second in terms of pushing all the youth buttons. First eDonkey, now the GloConnect IM service, which sounds from the description like some sort of Jabber plug-in integrating the Glophone. It's ambitious, aiming to tap 600m IM users worldwide, and seems to be a validation of the Skype IM-centric proposition.

Last night I stumbled on an interesting group blog devoted solely to UK super-mega-uber-hyper-ultra-regulator OFCOM.

Monday, November 29, 2004

Takeaways from Osney Media Voice over IP Forum

Today I presented at the first day of the Osney Media VoIP Forum at Le Meridien Picadilly. It was an interesting event overall, partly because almost everyone there was from industry (I was a rare exception) and partly because Osney events are based on a roundtable format, encouraging discussion and debate in mini-breakout sessions along the way. I met some interesting people and heard some interesting things. I didn't meet everyone, but carriers I saw being represented included BT Group, Vodafone, mmO2, Telefonica, TeliaSonera, Telenor, Cable & Wireless, Swisscom, Matav, Inmarsat, and Glocalnet. I also saw/met representatives of both OFCOMs (the Swiss and the UK). Rather than go through each of the presentations, I'll just highlight a few things of interest.

John Blake from BT's Hosted IP Services division gave a very detailed and interesting presentation, outlining a lot of BT-specific information, but also more general industry drivers relating to the enterprise space. From this it was clear that awareness of what IP can offer enterprise is spiking, with a general technology refresh wave coming through now, five years on from investments made in more optimistic times and ahead of Y2K. Customer interest is generating a lot of enquiries, if not outright sales leads.

He also discussed in some detail BT's deployment for UK bank Abbey, though the really interesting information came later during the roundtables, when he shared the fact that only 10% of the project value actually related to VoIP itself, though voice was the central, mission-critical element, the pull-through that made it an attractive proposition for the customer. It was also revealed that in the current £15m BASF deployment, only around £32k of the project value relates to VoIP proper. This seemed to highlight an interesting and disturbing facet of the entire VoIP phenomenon for many in the audience: while voice may be the essential driver for both enterprises and consumers in making purchasing decisions (technology refits for the enterprises, broadband adoption for consumers), it may not have as strong a business case as a standalone entity. The overall tone in this regard grew noticeably more bearish as the day wore on.

Someone I chatted with in passing (who preferred to remain anonymous) alluded to an impending VoIP initiative from Macromedia. This is the first news I have had of this development, but it seems credible and potentially somewhat frightening. It also makes me anticipate what sort of shape this might take (readers will remember the coverage I gave to Gush early this year), i.e., it could be very differentiated and interesting. This came as interesting news, considering that paranoia levels regarding the global internet brands seem to be exceedingly high among the carriers. This is an issue I sought to stress in my presentation, and independent consultant Matt Winckless later highlighted in his case study just how much was possible on a DIY basis if enterprises merely enabled the correct features in existing versions of Windows.

John Rego from Vonage made a presentation, straight from an overnight flight from Philadelphia, clutching a UTStarcom Wi-Fi handset with 6-hours talktime and 70-hours standby. John is a charismatic and entertaining presenter, but the much-anticipated revelations about the UK did not materialize, and the presentation was pretty much the standard Vonage story. He did reiterate that the company will launch in the UK before the end of the year (or heads will roll, apparently), and also Switzerland. Following on from this, Vonage will move to establish beachheads in Hong Kong (a market which strikes me as a bloodbath for new entrant triple play operators, let alone voice-only players, no matter how good) and Singapore early next year, before returning to the European market. Vonage expects to be in 12 countries by year-end 2005.

He also gave some other interesting insights on operating stats. Apparently 20% of net adds are coming from retail partners (Best Buy, et al), 25% of customers take a number from an area code other than the one they inhabit, and about 5% of total volumes (3bn minutes since launch) are on-net. This latter stat, if I remember correctly, is pretty much unchanged from this time last year. The other interesting observation John had was that roughly 65% of call center calls are pre-sales enquiries, and half of these are from people who are interested in the service, but who don't have broadband. This echoes statements from cable players like UPC and Cablecom, that VoIP and broadband are mutual accelerators - though this inevitably brings us back to the observation above, that voice may be an essential means to an end, rather than an end in itself.

One last point of note was that a representative of Swiss regulator OFCOM stated to John Rego in the Q&A round that OFCOM would be "very happy" to see Vonage come to Switzerland. During the Q&A the UK OFCOM was also asked to clarify its stance on VoIP, and a representative stated unequivocally that not only is it adopting a "light touch" approach, but more importantly, was actively lobbying other national regulators in Europe to follow suit (obviously this hasn't reached Germany yet!).

I had a chance to catch up with Alan Duric, CTO of Telio. The company is closing in on 30k subscribers in Norway. Apparently 80% of subscribers port their PSTN number over to the service, and the really interesting thing is that a significant proportion of the other subs are younger consumers who never previously had a fixed line connection. (Surely there's a message here for other European regulators as regards naked DSL.) Telio is now in 500 Narvesen convenience stores across Norway, and it appears that the retail presence is generating a significant uptake, if mainly through interested consumers picking up the literature in the stores and going home to sign up on the website. This is an interesting development also in light of the fact that the Narvesen chain's parent, Reitan, also has a range of stores in Sweden. (My own observation is that Reitan's ownership of Norwegian MVNO Sense also offers some interesting cross-marketing opportunities, particularly if we think about the sort of possibilities which open up when we connect SIP to the HLR in the GSM world - though there was no sense that this was happening currently.)

It is difficult to draw too much in the way of conclusions from the event, though some interesting issues/concerns were highlighted in the roundtable breakouts:

  • VoIP may be booming, but the impacts are entirely unclear, at least in the consumer space, where market fragmentation looks set to increase;
  • Seamless, ubiquitous IP communication may not necessarily be a productivity enhancement in the enterprise, as employees then have to combat constant interruption;
  • Numbering/identity issues are a mess;
  • It is exceedingly difficult to identify what portion of the VoIP adoption/usage pattern is outright substitution, and what is new usage, or usage which would have found a different outlet (or no outlet) if not for the availability of IP;
  • If voice is the essential glue which holds a lot of other business models together, yet voice may be a strategic weapon for those with an entirely different objective than making money from voice itself, then how is anyone going to make money from a pure voice offering in future?
All of these are interesting observations and hard questions, and as an outsider, I was struck by the apparent lack of any real answers among the very bright and hugely experienced audience assembled. That's not a criticism by any means, but it is a pretty good measure of where the industry stands - balanced circus-elephant-like atop a ball of confusion.

Friday, November 26, 2004

European VoIP harmonization

The European Regulators' Group, made up of national regulators from all EU member states, is set to discuss a common approach at its next meeting in Brussels next week. Judging from the bizarre decisions coming out of Germany these days, it should be an interesting discussion, and I would love to be a fly on the wall.
Innovation in action

This isn't strictly related to any of the themes I normally write about, but it seems to validate the idea that innovation at the edge can have a sudden and visible impact. As Om and others noted a couple of days back, OneStat has observed a sharp increase in Mozilla browser usage, which they make out to be 7.35% of the global total. On this site today, Firefox's share is currently 22% (note that when you click through you will almost certainly see a different number - just a couple of hours ago, before the US was awake and most of my traffic was coming from Europe, the figure was over 25%).
Big fun on the bayou

The guys at Jambalaya do enjoy mixing it up, and their monthly newsletter is something I look forward to reading, because it often highlights the contortions regulators and industry groups go through to attempt to maintain control in the IP world. The recent edition contains a link to this acerbic take from the Boston Globe. We've highlighted previously how devices like the Bug in the UK raise interesting dilemmas for copyright holders, and it will be interesting to see if developments in Europe evolve along the dystopian lines envisaged for the US in the Globe article.
Norway 3.5GHz auction - live and in color

A kind reader points me to live updates from Norway's ongoing 3.5GHz auction. At the current exchange rate, round 32 has seen combined bidding totalling $5.4m, by my reckoning, which seems to be over ten times above the reserve price. Detailed rules are here in English. No sign of who's taking part, as far as I can see.

Thursday, November 25, 2004

Supersize my BitTorrent

National Public Radio in the US yesterday ran an item on the growth of BitTorrent (Real Player) on the All Things Considered show, no doubt causing some dangerous driving from mediaco execs heading home. Probably nothing new for those familiar with it, but this kind of mainstream coverage is important as a measure of just what sort of impact it is having more generally.
Go outsource yourself

Just a couple of weeks after presenting a Walton's Mountain-esque united front at the interim results presentation, BT Group management has a Pierre Danon-shaped hole in it today. The head of Retail has agreed to join Cap Gemini. This may be something of a relief for BT Group on the broadband front, because previous speculation was that he was mooted as successor to Thierry Breton at FT. However, Cap Gemini is an arch rival to BT in the IT services space, and Mr. Danon's knowledge of the BT playbook may be a very valuable asset.
This turkey votes for Thanksgiving (that's Christmas, for UK readers)

A few weeks back I caused a fair bit of agitation with some thoughts on disruption in investment research, and completely contrary to my expectations (which were mainly to be ignored, particularly by my own folk), this post has been linked to more than any other, and in places I never expected. Still, I'm amused, more than surprised, at the dearth of Bulge Bracket URLs turning up in the site. Never mind, people at the edge are getting busy. Stephen Castellano's Mosaic project had a conference call this week (sorry folks, I couldn't make it because I'm swamped, but I was there in spirit), and Om Malik is moving forward with a concept for a group blog, of which I'm honored to be a part. I'm sure there's other stuff happening out there, given the apparent widespread yearning for something different. I await more news.
Blog Torrent

At the end of a post yesterday, I made an off-the-cuff remark about the potential for the conference industry to take a hit from unauthorized audio/video content being either blogcasted in real time or distributed via P2P later. One very switched-on reader in Belgium (thanks/merci/dank u) has pointed out that Downhill Battle's Blog Torrent launched in beta format yesterday. Nicholas Reville's introductory remarks pretty much sum up what I (and many others) have been thinking for some time, and big media probably should listen up:

"Blog Torrent is a key first step of our plan to make software that builds
participatory culture. Video (specifically television) is a huge part of
culture. But it's still an extremely top-down medium-- even as the tools to high
quality video and animation have become extremely cheap, very few people watch any significant amount of video other than what's on networks and cable. We
think homemade video can compete directly against professional television,
especially as reality shows have brought down viewers expectations about the
production values needed to make engaging TV."

More IP consolidation

Give 'em a day and they'll do a deal, Thomson that is. Following on from the ContentGuard and Verisign agreements a couple of days ago, today Thomson agreed to acquire the VoIP team of defense giant EADS's DCS unit. The team has "unique expertise in the design, systems integration and management of IT infrastructure above the IP layer (system administration, messaging, portals and web services), with an emphasis on TV and Video On Demand (VOD) over xDSL solutions." That's DRM, authentication/transaction management, and now integration, all related to TV over DSL, and all in the same week.
PCCW pullback

The Financial Times is reporting today that PCCW's Netvigator project in the UK has opted for "phased rollout" rather than something more ambitious, at least in the near term. Apparently one major city is to be launched in the next few months, which suggests a bias towards built-up areas. This, in turn, takes us back to Telabria's scenario from last week, whereby greater flexibility in spectrum ownership rules from next year opens up the potential for PCCW to offload some spectrum selectively, potentially placing it in the hands of some proto-WiMAX operators in less populated areas.

Wednesday, November 24, 2004

Vorsprung durch technik?

For all those who have been pondering the age-old question "when is a non-geographic number not non-geographic?" the German regulator RegTP has the answer. Curiously coming on the same day when T-Online highlighted its domestic VoIP ambitions (as well as EUR1bn in investment in unbundling in Spain and France to become the number one or two alternative player in those markets - see Mutual Assured Destruction), RegTP has published its rules for the proposed 032 non-geographic numbers. It is taking applications from today, with a view to the first allocations in January of next year. However, if you don't have either a place of residence or incorporation in Germany, you can't have one.
VoIP (Picadilly) Circus

There's an old saying in London, that if you stand in Trafalgar Square long enough, you will eventually see everyone you know. (Chances are you will also be on the receiving end of anti-social behavior from pigeons and humans alike in the meantime.) If you follow the VoIP space and can't wait around, you might want to move just up the road to Picadilly Circus, where next Monday and Tuesday a number of familiar faces will meet up for another VoIP food fight sponsored by Osney Media. John Rego of Vonage is to be there, and Andy speculates we might get some details on Vonage's UK strategy. I am also on the program, and getting a feeling that I might say some things that no one will like. The presence of the excellent Tony Fish as moderator ensures that it is likely to be punchy, challenging and lively. I will blog the event after the fact. (With Wi-Fi, how long before someone starts illicitly webcasting these events, setting up Skype conference calls for those not in attendance, or distributing video after the fact over P2P? You have to wonder about the conference industry.)
My ISP ate my telco, revisited

How things change. Back in March I sat befuddled as Dr. Kittel of T-Com told the analysts assembled at the DT day at CeBIT that DT would not launch a consumer voice product which offered a lower quality service for a lower price. I'm not insinuating that consumer VoIP is a lower quality product, but this seemed to be his view, and I was surprised at the dismissiveness of it, given the moves other incumbents were already making in this area. VoIP was pitched very much as an enterprise product, and that seemed to pretty much be the end of the story. Today T-Online revealed its long-term strategy to its supervisory board, including an ambitiously-named Ten Year Plan. Personally, I find this a bit unfortunately North Korean in tone, and more fundamentally, question how anyone can plan ten years out in this market.

Nevertheless, T-Online is now officially going to do VoIP. This was clearly on the cards in the wake of the Xten announcement, but the question mark for me was whether this would be a domestic, or purely foreign deployment (Club Internet in France was already earmarked). It is clear that this will be a key element of the domestic market defense strategy now, which seems to point to a change in attitudes within DT, and perhaps a shift of influence to the netheads (I guess the German equivalent of Bellhead would have to be T-head, since DT thinks everything should begin with T, preferably a magenta one). Even if DSL/VoIP bundlers like United Internet and freenet quizzically decline to disclose VoIP user numbers, DT must have looked at recent trends and come to the conclusion that there was a need for damage limitation measures. T-Online is also talking about organic growth in Spain and France, which seems to rule out the much speculated M&A activity. I assume that DT will follow FT's lead and move towards triple play in these markets as well, thus adding to my developing thesis that DSL/VoIP bundling for the incumbents is going to be defensive in the domestic core, and offensive in other markets - potentially a mutual assured destruction scenario.

Tuesday, November 23, 2004

Read the fine print

Buried away in the lower lefthand corner of page 4 of the Financial Times today is an article entitled "Security fear over GP's booking system" (online version is here). Apparently the British Medical Association is expressing to its 30,000 GP members that it has a very low level of confidence in the security of the online appointment booking system, part of the NHS IT transformation program being overseen by BT. This is yet another bearish piece of news about this project, following on from last month's cost overrun bombshell, and it just further underlines the significant reputational issues likely to be encountered by telcos if they dare to tread into such highly emotive and politicized territory.
Clearwire European stealth saga continues

I still don't see any sign that the company has made any effort to respond to my original query over European strategy, but never mind - the third party sources continue to deliver. This, posted on Corante, from Bulgaria, sent to me by someone in Belgium - isn't the internet a wonderful thing? You can run, but you can't hide. Thanks to all concerned!
Broken windows theory in action

There's a theory that a house with a broken window left unrepaired merely invites more of the same. Presumably, it's because vandals think either the house is abandoned, or that there are no consequences for their actions. The UK banned driving while talking on a handheld mobile phone (headsets are okay) last year, and imposed a GBP30 fine on offenders. Personally speaking, where I live in Southeast London, most people apparently have handsets surgically embedded in their palms at birth, and seem to be on some sort of 20,000 minute per month plans, as far as I can see. There's no evidence that driving interferes with ubiquitous communication for this crowd, and I have never seen anything resembling enforcement in my neighborhood (that requires policemen, afterall - I did see one yesterday morning, speeding to the scene of a crime, talking on a mobile phone).

Today motoring group RAC has revealed that handheld mobile use while driving has actually gone up dramatically in the wake of the ban. Go figure. Cynical short-term solution for the investor? Long on mobile players, short on insurance companies with exposure to consumer auto insurance. The longer term answer, and challenge for anyone working in the arena of mobile presence and vehicle information systems, is to come up with a way to identify when the mobile user is driving, whether a headset is being used, and then levy the fine directly to the miscreant's SIM card.
Resource update - OFCOM spectrum review

OFCOM's consultation issued today proposes that unlicensed spectrum increase from 4.3% of total at present to 6.9% by 2010, but doesn't identify specific frequency ranges to be refarmed. It proposes retaining direct regulation over 21% of existing spectrum, and allowing market forces to prevail over the other 72%. Cognitive radio does not look likely to receive license-exempt status, but the document refers to an upcoming separate consultation on UWB, which sounds like it might be interesting. Also of interest is a reference to the possibility that a WiMAX operator acquires frequencies through trading and expands coverage to various parts of the country, exactly the kind of scenario suggested by Telabria during our conversation last week.
Verisign and Thomson

Is there any segment of the IP world where Verisign is absent? Today the company has announced a tie-up with Thomson (personally, the word "leverage" appears too many times for my taste) to create an authentication, authorization and transaction reporting system for content distribution over IP. The two expect this will be up and running by mid-2005, and are also working on a proprietary DRM solution for mutiple networked devices in the home. In my recent post on Bridgeport Networks, I offer idle speculation that France Telecom might be the kind of operator to go for the Bridgeport solution in the UK market, where the ingredients seem to be right, and I would also expect to see FT near the front of the queue on this project, partly because of its IP vision, and obviously because of its historical connections to Thomson.

This further complements Verisign's recent moves in the VoIP space, and seems to validate the view that the company is looking to be the chief interconnect/peering/transaction management agent of the "everything-over-IP revolution." Thomson has also been busy, only yesterday taking a 33% stake in ContentGuard, which puts it in bed with Microsoft and TimeWarner.
That's one way to raise ARPU

BSkyB, which needs to generate GBP23 in additional ARPU to hit its GBP400 target, had an inspired idea - charge GBP9.95 for pay-per-view darts. The first match aired on Sunday, but Andy "the Viking" Fordham (who famously recovered from a wrist injury by drinking staggering amounts of beer) retired with heat exhaustion at the halfway mark. Subscribers are not receiving a refund, apparently. Perhaps they should submit half of their monthly subscription fee in protest.
Picks, shovels and calculators

Not long ago I made the claim that the best way to make money in the telecom melee was through those companies in ancillary industries most likely to benefit from telco folly. Advertisers WPP Group (Samsung reportedly handed them $200m last week) and Havas are not doing too badly out of the new telco bubble, the lawyers are going to be tied up for ages, and now the accountants are raking it in. PwC's annual results show 10% annual revenue growth in the North American market, which it attributes to "new regulatory requirements." Of the Eurotelcos with ADRs, PwC audits BT Group, Deutsche Telekom, KPN, mmO2, Swisscom, TDC, and TeliaSonera - in short, they must be "minting it."

Cut to today's feature on BT Chairman Sir Christopher Bland in the Financial Times, where he expresses frustration at the GBP10m in annual compliance costs generated by Sarbanes-Oxley, and goes so far as to say that BT would de-list from the NYSE if it could. This echoes recent developments in Germany, where a number of SEC-registered companies are reportedly examining their options. The interesting question is, should frustration with the cost and distraction of S-O compliance lead to a withdrawal of Eurotelcos (and others) from their ADR programs, what are the implications for sector liquidity out of the US institutional investor base? How many European telecom analysts will we need under this scenario?
BT in expansive mood

While the Financial Times today carries one of its "The Wit and Wisdom of..."-type human interest features on BT Chairman Sir Christopher Bland, the South China Morning Post (paid subcription required - my Hong Kong colleagues faxed me the story) is reporting that BT Group is looking to set up a 3G MVNO in the Hong Kong market, taking advantage of license terms which stipulate that 3G license holders have to earmark 30% of spectrum for MVNOs. A BT Hong Kong spokesman in the story is cited as saying that the company is setting up a dedicated unit for negotiating MVNO deals there, and will also be exploring similar deals in other parts of Asia. I assume this is BT adding another facet of connectivity to its existing services to multinationals in the region, rather than anything with a consumer element. Expect the Wi-Fi roaming issue to figure prominently in the corporate pitch.

You can take the boy out of file-sharing... As already covered by a number of bloggers who stayed up later than I did last night, the new version of KaZaA (v3.0) comes with Skype bundled in, as well as a free trial of TypePad. KaZaA claims 300m downloads to date, and the data I have seen suggests something like 4m concurrent users on average, so on the face of it this has the potential to expand Skype's footprint considerably.

Then again, concurrent P2P user numbers on all monitored platforms have more than doubled in the past couple of years, and all of this growth appears to have come on platforms other than KaZaA. As part of a project, I have been painfully aggregating download data on the top 10% most active BitTorrent applications on SourceForge.net, and the number I come up with is 67m since it was created in late 2003. The Azureas client alone has seen 27m downloads in 16 months. KaZaA has lots of users, but the growth segment of P2P is BitTorrent and eDonkey variants (eMule is at 77m and doing 4 - 5m per month), as far as I can see.

I would also expect that KaZaA users generally have a pretty high awareness level of Skype as it is, so I don't know how much of an incremental uplift we can realistically expect to see. Conversely, maybe Skype's view is that there's no point in preaching to the converted (I assume all BitTorrent users are aware of Skype), and this is a clever attempt to penentrate a less tech-savvy audience, i.e., recent converts to KaZaA.
You will be absorbed

After a couple of weeks of testing and tweaking, Peerio GNUP is up and running since about midnight London time. I'm hoping Popular Telephony will post regularly-updated registration number data on the site, similar to what Skype has done to such great effect on its site.

Monday, November 22, 2004

GIPS and Infineon

Global IP Sound has announced an agreement with Infineon to port its iLBC codec to Infineon chips. Back in August, iLBC, which is a freeware project, was included as a mandatory part of the CableLabs Packet Cable 1.1 Audio/Video codec spec, and iLBC is also to be found in Xten softphones as well as in Asterisk. My chip guru tells me Siemens is Infineon's largest customer, but Nokia is also a significant one. It's going to be interesting to see where this ends up being deployed.

Jersey-based OnInstant today announced "OnCore," an outsourcing solution for retailers seeking to offer low-cost internet telephony to customers. The first contract is with e-tailer CD-WOW!, which is launching WOW-Talk for GBP1.99 per month, and will offer the service in a free two-month trial to CD-WOW's 2m registered customers. This is somewhat similar to the Glophone promotions we have seen in the past, though it is interesting (and a bit audacious) to see CD-WOW marketing the P2P version as a paid service. I'm interested to see what the take-up rate may be. I assume also that there may something else in the works along the lines of the eStara "click-to-call-us" function for customer-facing websites.

Grey goo

Prince Charles, not exactly the flavor of the day in the UK press at the moment, once famously remarked that nanotechnology might unleash forces capable of reducing the physical world to a mass of "grey goo." Despite the brave public faces they put on, the telcos must feel the same way about IP, and last Friday I had a 40-minute Skype call with Bit Torrent creator Bram Cohen which would not make them feel any better about it. I wish I had a transcript to present here. (A footnote is that I wish Skype had some built-in mechanism for allowing audio streams to be captured easily, and I presume that the privacy concerns could be dealt with through having users validate each other's recording privileges in exactly the same way that contacts are authorized currently.)

Since I have no audio record to work from, I'm paraphrasing, but the crux of Bram's message was: "It's always difficult to predict where technology is heading exactly, but in this case the debate has been held and the result is in. All content and communication will be over IP. It subsumes everything, and the inevitable outcome is that pricing eventually goes to zero. The only remaining inhibitors are ubiquity of broadband access and bandwidth availability, but those will fall in time, and then it is all over." (This is precisely why I think the telcos will over time attempt something like this as a way to replenish revenues.)

Whew, I thought I was bearish on the future of traditional telcos and media companies. If the boards of old guard companies were genuinely interested in shaking themselves up and challenging their market assumptions (that's a huge 'if'), they would be mailing plane tickets to people like Bram and getting them in front of decision-makers as a wake-up call. As it is, he says he doesn't like flying, so maybe a Skype conference call is better - and it's free.

Friday, November 19, 2004

Clearwire in Europe, revisited

My earlier post on Clearwire in Austria contained an error, apologies. It was early in the morning and I thought the auction figures were denominated in 1,000s. In fact the auction proceeds were EUR464k, not million. Perhaps if the company had responded to my inquiry of last week I wouldn't have to rely on third party sources... I have updated the original post accordingly.

A reader kindly pointed out the fact that Clearwire won a 3.5GHz license in greater Copenhagen during the summer through Flux (anyone with a good grasp of Danish look here). As far as I know, the population of greater Copenhagen is 1.7m, and they reportedly shelled out $260,000 for the license, which implies 15 cents per PoP. This seems insanely cheap, but it is well above the level that the Austrian auction worked out at, and they sat that one out.

The same reader also points to Belgium where Clearwire (Flux) has obtained spectrum in a base-station-by-base-station process.
More about Telabria

I had a chance to speak with Jim Baker, founder and CEO of Telabria about the company's plans. They plan to go with a commercial launch in the April-May timeframe, offering voice and data from day one, but don't have aspirations of conquering the world. Mr. Baker said that if by mid-2006 the company has 15,000 subs it will be "extremely happy." Telabria will focus exclusively on Kent in 2005, under a regional network operator strategy. This is interesting, because the Telabria proposition looks to be well-suited to the characteristics of the local market - for example, a lot of local farmland is coming into development as commercial property, and the farmers want to be able to offer potential tenants broadband connectivity, which they can't get anywhere else. There are also a lot of isolated villages, such as Mr. Baker's own (his house has no line of site to Sky, questionable cellular coverage, and no hope of DSL), but he stressed that he doesn't think anyone can build a business case in wireless solely on the residential market.

Coming from a background in streaming media, Mr. Baker is also downbeat on the short-term prospects for video over broadband wireless. He expects that the 5.8GHz business opportunity may mainly lie in the regions of the UK, because in major conurbations, interference issues may be significant enough to thwart a commercial offering. (I'm curious to see if Telabria inspires imitators in areas like Wales and Scotland). That said, Telabria is not solely committed to using unlicensed spectrum, and he thinks things will get a lot more interesting next year when spectrum swapping comes into play. PCCW and Pipex are sitting on the 3.4GHz licenses, though intentions of the latter are unclear to me at this point. I am hoping to arrange a site visit sometime early next year.
Clearwire in Europe

A bit of personal information (don't worry, I won't be posting photos of my cat or children) - my wife and I have friends in Vienna, and knowing that I am interested in this sort of thing, they have sent me a couple of interesting links. One is from the Austrian regulator's website, and shows that Clearwire was an applicant in the country's 3.5GHz auction in October, along with T-Mobile Austria among others. Apparently, the company decided the pricing was too rich (EUR464k was raised, or about EUR0.06 per PoP), as it doesn't seem to have participated in any of the ten rounds. T-Mobile apparently made the same determination. Austria already has pretty impressive DSL and cable competition, so I can only infer that the pricing (bid up by the incumbent and cablecos) vaporized the business plan for a complete newcomer to the market like Clearwire. Vienna is an even more complicated picture, as suggested by the second link, to Wien Energie's FTTH project, blizznet.
I don't get no respect

The Financial Times London edition today contains one of those vaguely nauseating supplements on "The World's Most Respected Companies." GE comes tops, and coincidentally, there is a full page ad from GE on the facing page. Guess how many telcos turn up in this list of 45 great companies? That's right, zero. And in the Most Respected Business Leaders category, only Carlos Slim represents the sector. The most ludicrous section is a table of the top ten individuals from history or today to be chosen for a "dream" board. Jack Welch comes first, of course, and Jesus Christ (!) will be disappointed to hear that he comes fifth behind Carlos Ghosn of Nissan. At least he can content himself with the news that he beat Napoleon. I don't know how seriously managements actually take this sort of stuff (probably not very), but this must be galling stuff for the likes of Vodafone, the only consumer-focused telco with a truly global footprint and a $183bn market cap to match.

Thursday, November 18, 2004

The Empire Strikes Back

If incumbent VoIP products are "The Attack of the Clones," then how about this for "The Empire Strikes Back"? Om Malik's painfully insightful post on SBC's VoIP end-around got me thinking, particularly the bit about using Cisco's packet-inspection technology (acquired via the P-Cube deal) to degrade the user experience of access-independent VoIP service providers in favor of its own product. Later in the day one of my favorite clients called to generally shoot the breeze about the sector, and inadvertently filled in a piece in the puzzle.

He was keen to to discuss Vodafone's data-pricing strategy for 3G (basically, download from our portal and the packets are free, go to a third party and you will pay for them), and its implications for the market more generally. We then started talking about the idea of discriminatory pricing for content based on source (i.e., whether it's telco-friendly or not), and he highlighted the case of Portugal Telecom, which (unbeknownst to me) apparently already distinguishes between content downloaded from servers in Portugal and abroad. Then I recalled a paper by Andrew Odlyzko which dealt with discriminatory pricing (Andrew himself subsequently pointed me to a more recent paper which might is even more relevant), and mentioned Om's observations to the client, who immediately responded, "This makes sense to me now."

I asked what he meant, and he related a presentation from a Cisco representative that he saw at a much larger and better-resourced competitor's conference. In it, the Cisco man apparently remarked that he thought European mobile data pricing schemes were a good template for the industry as a whole. Surprised that no one in the audience followed up on this point, my client cornered the Cisco man afterward and asked, "Can I just clarify, do you mean that in the fixed broadband world operators should start charging for data on the basis of what it is and where it comes from?" The Cisco man said yes.

Then it clicked, for both of us - deep packet inspection is not only a tool for managing bandwidth in a sea of P2P traffic, nor is it merely a blunt instrument for dealing with cheeky upstarts like Vonage and Telio, it is in fact the key to your future billing system. Picture this "customer care" letter from the not-too-distant future.

Dear esteemed customer,

You've probably noticed that we've made some changes to your account. First of all, we've doubled your access speed for the same low monthly price (lucky you). However, due to the irresponsible behavior of a few, we have had to make some changes to the way we bill for the data you use.

Firstly, feel free to keep using our TurboVox VoIP product, safe in the knowledge that you will only ever pay the $15 monthly fee for unlimited national calls to fixed lines, and the same fabulously low prices for fixed to mobile calls. However, should you decide to use the access-independent voice services offered by one of our worthy competitors, we will monitor the dataflow associated with these calls and convert the total number of packets to minute equivalents at the end of each month. Please consult the easy-to-use packet/minute conversion table on the next page for more information. Please note that traffic identified as Skype calls will be billed at a minute-equivalent of 20 cents per minute. We cannot ensure call quality.

Similarly, for our hugely popular video-on-demand services, rest easy - you'll still only pay for the actual content itself. For content downloaded from other sites, charges apply. For example, files with the extension ".avi" cost $10 per gigabyte for the first two gigabytes, and $7.50 per additional gigabyte. If you think you're particularly clever, by all means feel free to carry on using any fancy-schmancy, smart-assed port-hopping filesharing applications you like. Encrypted data in unidentifiable protocols will be charged at a flat rate of $20 per gigabyte.

We're sure that over time you'll learn to appreciate, if not love, the changes we have made to our value proposition to you. After all, keeping you happy is our number one priority, and we're looking out for your best interests. Remember our motto, "Revenge is a dish best served cold." Have a nice day.
Go regulate yourself

It's been a bad day for telecom regulation in Europe. Following on the heels of the diatribe from UKIF against OFCOM, this bombshell from Reuters newswire:

EU concerned about telecom regulators independence

By Lisa Jucca
BRUSSELS, Nov 18 (Reuters) - Not all national EU telecoms regulators carry out their work independently and impartially although competition in telecommunications and IT has improved, the European Commission said in a document obtained by Reuters.

The paper, due to be adopted on Friday, is the Commission's annual assessment on the state of liberalisation of the European Union's electronic communications market and its prospects.

"The Commission has substantial concerns that the principles of independence and impartiality are still not fully observed in all 25 member states," the EU's executive said in a draft of its 10th implementation report for the telecoms sector.

"Some of these arise from the fact that full separation between the state's shareholding and the taking of regulatory decisions is still not ensured in all instances."

The document mentioned problems when governments interfere in decisions by national regulators or when there is no clear separation between the state and the regulator.
"This is a concern," Fabio Colasanti, who heads the Commission's Information Society department told Reuters. "There are some countries which have big problems, for instance Cyprus, which is not very satisfactory from the point of view of the historic regulator."

Other problems were regulators' lack of effective powers and lengthy appeal procedures against regulatory decisions, the document said without naming individual countries. "We are trying to attract the attention to some problems, we want to be constructive," Colasanti said. Investors head towards countries that have effective telecom regulation and a low level of state ownership, the European Competitive Telecommunications Associations said in a May report, naming Germany, France and Belgium as the worst EU performers.

The Commission said 5 EU members -- Belgium, Greece, Luxembourg, Estonia and the Czech Republic -- have not yet adopted the 2002 EU telecoms law, putting future investment at risk.
Finland and Britain were ahead of the pack, Colasanti said.

In the 5 years to 2003, new entrants have invested 70 billion euros in the EU, then comprising 15 members.

Overall, the Commission said the outlook for the industry was positive and noted that competition was growing. It said competition had led to a dramatic increase in broadband usage and had driven the cost of fixed line telephony down.

Competition was rising also in mobile phone services, where revenues had exceeded those of fixed voice services and where the average share of EU leading operators had dropped to 43.2 percent in 2004 from 46.6 percent a year earlier.

But concerns persisted with regards to high international roaming fees and charges for terminating calls on cell networks.
UKIF fires back

In the rapidly developing poo-storm which is the Phase 2 review from OFCOM, UK ISP industry lobby UKIF has wasted no time in labelling the process a whitewash:

18th November 2004
For Immediate Release

PRESS RELEASE Ofcom Strategic Telecoms Review Missed Opportunity - Says UKIF

Ofcom, the Communications industry regulator, whilst admitting that there are several enduring economic and technical 'bottlenecks' that BT uses to maintain its dominant position, today missed a golden opportunity to open up the UK Communications market to greater competition, innovation and investment. The key phrases in Ofcom's review are that it seeks "a significant shift in BT's behaviour" but "looks to the management of BT to provide prompt and clear proposals which will achieve such a change". UKIF notes that whilst Ofcom seeks to avoid "The regulatory battles of the last twenty years", it appears to be doing this by avoiding regulation itself and leaving it to BT to propose the way forward. If Ofcom will not regulate then what is its function?

Stephen Carter, Ofcom Chief Executive, admitted that there is 'no real foreseeable route for corporate investment in the market at present', and then proceeded to give industry no clear roadmap for a future regulatory framework that would encourage this investment. UKIF Spokesman Jonny Mulligan, said, "Ofcom is overseeing a regulatory environment which does not encourage competition, innovation, or investment. The current regime applies to a market that has gone, and we have no modern replacement for the new market realities. This is a difficult challenge for Ofcom as technology is developing quicker than it can regulate". UKIF believes that investment in alternative broadband and telecoms providers is key for the growth in the UK communications market. Investment is driven by a market in which a regulator makes big decisions in line with a clear direction. Jonny Mulligan UKIF spokesman continues, "if 'Ofcom wants to build a bridgehead' for broadband and modern networks, it will need to engage more successfully with all stakeholders including Development Agencies, Community groups, schools and most importantly the ISPs and Telecoms providers that are driving the development of the new technology sector". Ofcom has and needs the support of government, industry, consumers and organisations such as UKIF in its difficult task in providing a level playing field. It must use this support in the David and Goliath struggle it faces with BT.

Update from OFCOM Phase 2 analyst conference call

The call has just ended, the slides are here.

Here are the interesting statements I noted, paraphrased by me as faithfull as possible:

If next year we are not convinced that there is a structure in place to achieve the equivalence of access principle, we will "more out of sorrow than anger" be left with no other route than to address the structural issue via an investigation under the Enterprise Act.

We have high expectations of BT's cultural and behavioral changes, and will be working with them closely "at some speed" during the consultation period to effect change.

Equality of access is not merely a regulatory concept. If it does not become a practicable reality, we have a major problem. BT must understand this is not about "noodling at the edges."

We would be surprised if the outcome of this process did not result in a change in the structure and ownership of some of the assets in the business.

We did not disclose our weighted average cost of capital (WACC) today because there are questions involving the equity risk premium (previously 5%) and also how the WACC may be calculated or applied in different parts of BT's business.

Two areas of prioritization for us are local loop unbundling (Stephen Carter stopped himself and restated this as "full unbundling") and wholesale line rental (WLR). We expect a fit-for-purpose WLR product ready for testing in early 2005. We think WLR has been an attractive option for the business markets, but there remain significant questions about margins in WLR for the residential market. There is a strong incentive for BT to deliver in these areas, because the reward is relaxation of retail call charge regulation.

The approach is likely to differ by region, as it probably only makes economic sense to fully unbundle in certain areas. We may see some regional differentiation of BT pricing to reflect the local competitive environment.

(In response to a question on possible unbundling within BT) - To date we have received no application from BT regarding potential unbundling at BT Retail.

(In response to a question on naked DSL) - We cannot envisage a time when BT would not be remunerated for its copper.

(In response to a question on 21CN) - We think it's important to discuss 21st Century Networks and we stress the plural. This project should not confer any unfair advantage to BT.

21CN is a separate matter from next generation access networks, and in this area no one (Stephen Carter emphasized "none of the fixed line players, anyway") are talking about expending large sums. For next generation access, we explore in our document the concept of regulatory forbearance in this area. We also contemplate an open access model, where a utility would be established for providing and managing the ducting for FTTH.

We see no rationale at this time for a Universal Service Obligation in broadband. It would be stifling of investment.

(In response to a question about vertical integration in the pay TV market and the implications for telecom, in which the analyst asked if OFCOM would be re-opening its investigation of Sky, Stephen Carter said this was a tangential issue and in any event it would not be appropriate to comment.)

My initial impressions of this are that:

OFCOM sounds deadly serious, and BT will need to move earnestly and quickly to avoid more extreme measures.

The structural changes in BT itself and the disclosures and presentation necessary should add to the pain of analysts trying to cover the company, particularly as they will coincide with the adoption of IFRS reporting (which applies across the whole sector).

Behind the governmental veneer there is almost palpable sense of enthusiasm for unbundling, wholesale line rental, alternative access structures, and by implication, wireless, in wresting dominance in access from BT.

The lawyers and accountants are going to get rich in this process.

Surely the EU must be looking at this situation and pondering where to move next. BT is the only telco in Europe to even bother trying to present the wholesale and retail functions as two separate business units operating at arm's length. Swisscom used to do so, but now reports its Fixed unit as one entity, and there is some segmentation in the way KPN reports, but these are almost certainly purely presentational. In the case of BT we are talking about functional change. If the industry believes BT lacks transparency, then what should we make of the integrated fixed line units on the Continent? This process may raise some uncomfortable questions for Brussels.

Resource update - OFCOM strategic review, phase 2

UK super-mega-uber-ultra-regulator OFCOM has released the much-awaited and widely leaked Phase 2 document today. It's a lot to digest (brevity is not one OFCOM's virtues), but it's a complicated issue. Personally, I started with Annex O, case studies from other markets, because I thought it would be interesting to see what OFCOM makes of markets like Korea, the US and France in particular. My oft-stated thesis is that the UK DSL market goes the way of France over the next year. Therefore, I was interested to see quotes like the following:

"The French experience with local loop unbundling gives some cause for optimism.
The success of Iliad suggests that (all other things being equal) the entry of a
strong player with a fully differentiated product in the UK could have
realistic expectations to quickly grow its subscriber base. OFCOM's recent
action on LLU pricing is not too far behind similar action by ART, and on this
basis some similar market growth may emerge in the next few months."

There is a conference call with analysts/press later today, which may be interesting. More to come.
The few, the proud, the Skype

Apologies to those not acquainted with past military recruitment campaign slogans from the US (in this case, the Marines). Just having a quick look around the Skype website this morning, I noticed that there is an extensive subsection of the jobs page devoted to giving a flavor of life at Skype. As with much of Skype's site, it manages to be both tongue-in-cheek and bombastic at the same time, but it is an interesting read. Given the cachet surrounding VoIP and Skype in particular, I wouldn't have expected there would be any need to make such a hard-sell. In the past I have posted on what you can infer from Skype's list of job vacancies, and assuming this page is up to date, it's interesting to see product manager positions in areas like embedded products, mobile, and desktop still unfilled, along with BizDev positions in several other strategic areas.

As already leaked to the press and reported by my man Andy, Skype today announced a partnership with Swiss peripherals giant Logitech to bundle 120 minutes of SkypeOut calls with Logitech USB headsets. This is another good partnership agreement for Skype, and may be a key accelerator of uptake, but from the outside it looks like Skype is focusing on the end-user (partnerships with peripherals developers) and distribution (the various ISP/portal partnerships) aspects. Is this "outside in" strategy a function of conscious planning, opportunism, or not enough players on the bench? Meanwhile, NimCat and Popular Telephony are taking the "inside out" approach, getting themselves ported to chips. As George Jones sang, "Now, the race is on, and here comes Pride up the backstretch."

Wednesday, November 17, 2004

Gnomic Triple Play?

I'm in blog slowdown mode, trying to complete our global monthly (zzz...), some slides for an upcoming conference, and a note on BSkyB all at once. The latter has me pretty excited, because I've decided to take some different angles on the story, and am coming up with some interesting things - I think. In doing the inevitable price/product comparison analysis, I went back to the Top Up TV site for the first time in a couple of weeks, to find that the company is now in a joint promotion with Tele2.

I knew that Top Up TV was already in a cross-promotion campaign with Screen Select (the UK's homegrown version of NetFlix, for those who don't know it), but this brings telephony into the mix. This gives Top Up TV viewers multichannel TV with a channel package that is not too far off basic cable packages in terms of channel popularity, plus near-VoD (albeit with a couple of days' delay in the post), and aggressively discounted calls to boot. Tele2 has a policy of waiting until the first service launched in a given market is profitable before launching new ones, but I can only assume that a move into low-cost broadband in the UK would see that service included in such cross-marketing efforts in future. Alternatively, Top Up TV could choose a different internet partner, though all the major names I can think of are conflicted on the voice/content side of things, as far as I can see.

This may sound like a crazy and disjointed triple play strategy on the surface, but in working on this report, I've been looking closely at UK household income/expenditure and demographics, and the more I learn, the more I think the guys at Top Up TV actually have come up with something really inventive and potentially very appealing to the large group of pay TV refuseniks who frankly don't have all that much money to spend. One figure I'm coming up with in my income/demographics research is that 56% of UK households have weekly income of GBP450 or less, versus average household weekly expenditure of GBP406. The 44% of households on the other side of the fence works out at around 10.6m, which incidentally is very near the number currently taking satellite or cable (10.4m).

Looking at how cable has punched above its weight in the TV market in the last few quarters, my working thesis is that the key differentiator against Sky in the long term is the ability to bundle. Sky has a superior TV product, hands down, but that's all it has at present, and may not be as important as it once was, all things considered. The voice product is not actively pushed, and there is no internet access strategy (that we know of). So what if DTT and some of the TV-over-DSL products in the pipeline can't match Sky in breadth or depth? For the segment of the market yet to be converted to either multichannel TV or broadband, this is likely to be of marginal importance. Of greater importance will be discounted bundled services.

The owner of my local corner shop in Southeast London (NTL territory) is an Indian man who works long hours and loves his television. Whenever I go in the shop, he is invariably watching Bollywood films or Indian soap operas. Recently I succumbed to my curiosity and asked what channel he was watching. “Sony TV Asia,” he replied. “Is that on Sky?” I asked. “No, NTL. I took the Asian channel package and they gave me free line rental on my phone.” This is something Sky is not equipped to do, barring a significant change in direction and some heavy additional investment, which the market may hate on top of everything else going on. Sky may be the best in its class, but as I'm writing this note, I'm really struggling with just how sustainable demand for its product is going to be in a changing media landscape.

Tuesday, November 16, 2004

Skype - Good times, bad times

I knew this was going to happen eventually, so six months ago I signed up for Secunia security email alerts, in the knowledge that one day, something bearing the name Skype would come in. Such an alert did arrive, two minutes after I left the office yesterday highlighting a buffer overflow vulnerability rated as "highly critical," Secunia's second-highest rating. This, just hours after my post on how dramatically the traffic is growing. Later, the Skype-Siemens USB adaptor phone project felt the steely prick of Om Malik's poison pen, as he revealed that no version will be available in the US market.

Three takeaways from this news so far:

  1. The buffer overflow vulnerability revelation may make Skype a harder sell into the corporate space, and seems to validate Popular Telephony's concept of switching off the firewall traversal feature for the enterprise version of Peerio. How many of Skype's user base are currently using the software illicitly on company/university/institutional systems?
  2. The lack of availability for the USB Gigaset for Skype in the US market may dilute the Skype message in the US market, but in Western Europe, where DECT phones are nearly ubiquitous in homes, by my reckoning, the relative exposure of the PTTs to Skype substitution is probably greater than for the US carriers, at least for the time-being.
  3. It will be interesting to see if there is any visible impact on adoption or usage of Skype in the wake of yesterday's vulnerability news. Perhaps coincidentally, this morning a new reader (apparently Italian) has wandered into my site for the first time. The search query which led them to me was one which I have never seen before - "http://www.google.com/search?sourceid=navclient&hl=it&ie=UTF-8&q=%22alternative+to+skype%22"

UPDATE: Andy Abramson rightly points out that the company took its time in getting the news out, and also highlights the importance of the blogosphere in shaping opinion in situations like these.

Monday, November 15, 2004

Black ships on the horizon - Peerio in Japan

Skype may have been pounding the pavements of Asia recently, signing agreements with portal partners, but Popular Telephony has been working this patch too, though predictably with a radically different approach. Today Popular Telephony is to announce an agreement with E-with you, headed by Shunsuke Matsuda, former futurologist at Panasonic, to use Peerio as the middleware on new Wi-Fi PAS handsets developed by E-withyou. E-withyou is a relatively new company, to my knowledge, but appears to have some unique devices, as well as a client list including Honda Research Institute, Mitsui Engineering & Shipbuilding, Panasonic, and Netone Systems. Once again we have a good example of the Popular Telephony approach - partner with someone established, but flexible and innovative, with real customers. I have to wonder what the implications are for Japan of a device like this potentially coming into the product portfolio of Softbank (speculation on my part), and also what influence this might have on other device makers in Japan (since Panasonic is on the client list). Further afield in China, where PAS has been a genuinely disruptive influence in the wireless market, I expect this is the sort of development which would raise some eyebrows.
A uniquely German VoIP

As expected/feared, German national regulator RegTP has taken the unusual step of allowing VoIP service providers to issue geographic numbers (German version), but only if the customer receiving the number actually lives in, or operates a business in, the area to which the number relates. Top quote: "...local numbers will not be decoupled from locality in any case." That's pretty definitive. There goes one of the principal selling points of the VoIP proposition - flexibility. For any foreign companies hoping to set up virtual phone numbers in Germany, it looks like you will have to open up a branch office there first, at considerably greater cost. This makes me even more intrigued to see what interesting definition RegTP might come up with for "naked DSL". Perversely, it's just this sort of regulatory obfuscation which makes us (from the stock-picking perspective) relatively more positive on Deutsche Telekom than on some of its neighbors, but this is probably also going to deprive the access-independent VoIP crowd of an important part of their German business model, and send some consumers rushing into the arms of Skype wherever possible.

Q3 data points - Northern Europe

Pan-European ISP Tiscali reported results Friday, and now claims it has 140k unbundled DSL subscribers in its Dutch business, and has passed the 20k mark in its Denmark operation. Last quarter the two countries weren't broken out separately, but the stated total for the two was 127k - i.e., it looks like Tiscali averaged about 2,500 unbundled lines per week during the quarter in these small and already-tough markets. There has been a lot of speculation recently about the ultimate destiny of Tiscali, but now that it has exited most of its marginal markets, surely its appeal as a takeover target must be growing for PTTs enjoying stronger balance sheets and struggling to generate some growth and excitement outside the home market. Alternatively, maybe this is one for a player from outside the incumbent space, like a large US ISP with a solid existing franchise in Europe, and aspirations to push VoIP as part of a pan-European triple play strategy...
Q3 data points - Spain

My colleague Jacqueline Millan, who covers Southern Europe, makes a couple of interesting observations in her write-up of Telefonica's Q3 results. Firstly, Telefonica was apparently very concerned about PSTN line loss as the end of the quarter neared, and in the last two weeks of September ran a special promotion offering a PSTN line with no connection fee (as they did in Q1 also). If not for the 101k new subs who signed up, sequential line loss in the quarter would have been 0.5%, which is fairly hefty. The other interesting insight is that, while unbundled lines in the Spanish DSL market numbered only 72k at the end of Q3, 80% of these are fully unbundled. This is a major contrast to France, where 20% of DSL lines are unbundled, but only 5% are fully unbundled. My personal takeaway is that, if unbundling gathers significant momentum in Spain at the same proportion of full-to-partial unbundling, the challenges to Telefonica in maintaining stability in the PSTN line base are going to be a lot greater, and the shifts in the DSL market in Spain could be even more dramatic than what we have seen in France. This is definitely one to watch, especially as France Telecom has identified Spain as one of its "axis of unbundling" (my phrase, not theirs) countries.
Skype - 500m minutes in 26 days

Yesterday Skype on-net minutes broke through the 2.5m minute mark. This comes 26 days after the 2bn minute mark was surpassed. The previous 500m minutes added came over a period of 35 days. In other words, during the period 14 September - 19 October, Skype users were generating over 14m minutes per day on average, and during the past 26 days this figure has grown to over 19m, or 35% in less than a month. On an annualized basis this is a growth rate of 493%.

Friday, November 12, 2004

...or I'll huff, and I'll puff...

Both Reuters and Bloomberg wires are reporting that KPN has made a formal complaint to the Dutch regulator about UPC's alledged refusal to negotiate on KPN's request for wholesale access to its coaxial network. It is my understanding that under Dutch communications law, this is a legitimate request, and presumably has to at least be received in good faith. No statements yet from either party. This is certainly a rarity - an incumbent pleading for unhindered access to a competitor's network...
What do you want to watch?

BSkyB reported results and had a conference call today, and there were a couple of interesting points in it. Penetration of the Sky+ PVR now stands at 6.4% of the total base. In fact Sky+ net additions outstripped overall net additions by 15k in the quarter, and management remarked that a quarter of new Sky+ customers were also new to Sky itself, suggesting that there is indeed some marketing magic in PVRs, at least in one segment of the market. CEO James Murdoch characterized BT as a "good partner," and in the next breath said that the TV-over-DSL product being trialled by BT is not competitive. However, ARPU is down GBP3 in Q1, to GBP377, and with most of the growth in the market coming in at the low end of the market (and cable punching above its weight in its small footprint), the long-term ARPU target of GBP400 looks challenging, to say the least.

Over the next couple of weeks I'm going to be working on a "conventional" report on Sky, but it will mainly focus on some of the longer term challenges stemming from technological, behavioral, and demographic changes. In putting it together I'm finding that a lot of the issues I'm addressing are things which have been addressed in this blog previously. Some of those are ideas which were brought to my attention by helpful readers of this blog, or indeed by reading the work of other bloggers. I'm coming to the conclusion that this is an interesting point of interface between "traditional" research and blogging, and that rather than being separate phenomena, in this case they seem to be informing each other. Rather than a semi-random series of posts and irreverent commentary, I am finding that my blog in this particular instance is a nice resource to have, a kind of mental scratchpad for ideas that can come in very handy when it comes time to synthesize all of this into some sort of more coherent and rigorous output.
Mobile substitution visibility

This is from my colleague Jacqueline Millan's morning meeting comment today:

Bloomberg is reporting that Hutchison will be heavily subsidising its 3G phones in Italy in the run up to Christmas. 3 Italy could offer phones for as little as €19 compared to Vodafone live! for 3G offers which are retailing for between €399-€499 and TIM's UMTS phones which are retailing for between €331-€474. 3 Italy is changing the dynamics of the Italian market at the moment by subsidising phones for customers in order to acquire them; in the past this is a market where subsidies did not exist. We also got the sense that TIM is starting to notice 3 Italy, as TIM's CEO mentioned that he was more interested in revenue market share vs. subscriber market share, but TIM invested a lot of resources over the summer to beef up their CRM system by contacting customers and offering 100 free minutes to customers who were willing to give personal details to the company.

In addition, at TI's fixed line business the Q304 YoY traffic turnover was down 3.2% vs. 1.7% in Q204. While Q3 is usually a weak quarter for the fixed line business as the mobile operators offer attractive bundled offers during the summer months, the worse than expected decline was attributed to the fact that 3 is starting to have more of an impact. We recently downgraded TIM to a neutral rating from outperform due to our view that in the medium term margins in Brazil will have a hard time hitting the 40% margin target that had previously been given by management, but we are also starting to witness an uptick in the competitive scenario in Italy which to date has been immune from any real competition.

Thursday, November 11, 2004

Q3 data points - UK last time

UK cable is making some pretty impressive headway on the triple play front. Last week NTL reported triple play penetration up to 23%, and each customer on average taking 2.0 services from the company. Today it was the turn of Telewest, which is more impressive - triple play in 24.4% of homes, and an average of 2.1 services per customer. Telewest has been more successful at digital conversion of CATV customers (now 83% vs. 68% at NTL), and also at cross-selling telephony (92% vs. 86% of total customers), while NTL has been more successful at converting CATV customers to broadband (55% vs. 47%). Still, Telewest added 70k new broadband subs in a much smaller footprint (NTL only added 47k), so maybe that is changing. I am also interested to see that Telewest managed to migrate 26k subs over to digital cable and still actually grow the overall CATV base, something NTL didn't get close to achieving. Maybe the difference is that Telewest actively promotes bundling, while NTL doesn't so far, though CEO Simon Duffy acknowledged last week that Telewest's approach might be worthy of emulation. Might Telewest think the same about NTL's DSL strategy following the debt haircut?

UPDATE: I neglected to mention that Telewest is rolling VoD in H1 2005, and a PVR in H2 2005, and the EU today approved the joint venture between Disney and Sony submitted in October to deliver on-demand content to NTL and Telewest subscribers in the UK and Ireland.
Q3 data points - UK once again

BT Group reported today, and while we knew some of the story from last week's broadband number pre-release, but today there was more of interest. CEO Ben Verwaayen strayed into "strange-but-true factoid" territory with his observation that BT is signing up one new broadband subscriber every 15 seconds (hopefully not all through the same call center!), and that at the end of BT's further DSL expansion, DSL coverage in the UK will exceed that of analogue television, and gas, and approach that of water. This an interesting line to take in light of BT's recent rhetoric on broadband pricing, but it may be a bit dangerous to compare DSL with water and gas transmission, both of which are very highly regulated businesses in the UK.

Apart from the murky rhetoric, we saw a few more stats of interest. BT lost just over half as many lines in residential voice this quarter as last, but in the business market, voice line loss was 2% sequential, or 112k, which is huge. Unbundled DSL lines increased by 6k, taking the total to 0.6% of total DSL lines. This is about as I expected (i.e., miserable and embarrassing compared to the rest of Europe), but mark my words it's coming, or BT wouldn't be considering unbundling itself at the Retail level, which management today confirmed is still on the agenda for discussion. Next week's OFCOM review of the market will probably determine the next step.
Q3 data points - Germany

Deutsche Telekom reported today, and there were a few points of interest from the perspective of this blog. T-Com, the domestic fixed division, grew DSL lines by 458k, which was very strong for a normally subdued quarter, and 100k above what I was looking for. T-Online's share of retail net adds rebounded to 63.5%, but it's interesting also to note that based on today's market figures, United Internet also expanded share of net adds, to 23% from 19% in the previous quarter. This is a company which has been bundling VoIP with DSL during the quarter, so it's interesting to ponder the effect on share of net adds, though the company hasn't disclosed any user numbers.

Coincidentally (?), DT yesterday signed an agreement with Xten for its eyeBeam product, and today DT management were talking about developing a "more aggressive approach" to the IP services space. The other things I noted were a sharper decline in access lines (300k), but the decline in outgoing voice minutes per line was a lot lower (11% YoY, 5.7% sequential), in contrast with the carnage of previous quarters. While DT has lost another 3% of local market share, usage declines in the remaining user base don't look as severe. This begs the question of whether those who have left are higher users/more discriminating/early adopters, and if those left behind are a bit more solid in traditional calling habits. Impossible to answer, but it will be interesting to see how this evolves over the next couple of quarters.

Wednesday, November 10, 2004

More on sell-side research - give the people what they want

Before anyone pillories me for posting this, the point of this is not self-aggrandizement (though it obviously made me smile), but rather a validation of the concept that a lot of people, both buy and sell side, are struggling with, as proven by the strong responses to previous posts on this issue. The comment is presented anonymously, but the investor in question works for a large fund that most brokers would lop off their right arms to get business from - and I would not have come into contact with him, or vice versa, if not for this blog. Take from it what you will.

"Your work is still the most meaningful material I receive from the sell-side (and I think the gap is widening). I just spent the entirety of the Telecom Italia conference call reading your blog archive and some of the linked material. (Tells you something about the quality of the TI call as well as the quality of the blog.) It's got me thinking, not reacting - thus avoiding one of the most glaring errors made by most sell-side shops. (Do I care how the last quarter went? Sure. Do I need eighteen different shops giving me an update on 3Q:04 earnings? No, I need a company's press release for that.) The visions are dancing in my head: how will I use this stuff? And how will people make money off this stuff? Your blog always sets off a dozen different thought-threads in my head - and for that I thank you."

Q3 data points - France

Technological advancement brings falling barriers to market entry, and the sacred cows in the European incumbent telecom space are headed for the slaughterhouse. While France Telecom is doing all it can to be a problem neighbor to BT, KPN and Telefonica in their home markets, using the very strategy which has caused it such trouble in France, Telecom Italia has drawn inspiration from France Telecom - in France. My colleague covering Southern Europe reports that Telecom Italia's conference call yesterday contained the news that it is now in 128 local exchanges, covering 25 - 30% population in the French market, and is now on a marketing push. T-Online's French ISP Club Internet is also working on a VoIP product to add to its broadband offering. Let's have a gang fight!
Like deja vu, all over again

Yesterday in a post on BT's free call giveaway, I included a link to the Siemens Gigaset as an example of how Skype was looking to get users away from the PC, just as BT strives to drive them there. Little did I know that the cobranded version was being launched today, or that the offer would include a SkypeOut voucher for up to 120 minutes of calls. Really smart UK consumers will sign up for BT broadband, use the unlimited national calls for a year, discover Skype if they haven't already (because they'll be spending so much time making calls from their computer in 2005), then buy the Gigaset and Skype everyone else, possibly forever.
Q3 data points - Germany

The three main listed German ISPs have reported this week, and between them have reported sequential growth of 12.5% in DSL over Q2 results. United Internet continues to outpace T-Online (13% sequential vs. 11%) and is creeping up on 1m lines, but relatively smaller freenet has broken the quarter-million mark and posted sequential growth of 29%. Both companies have been bundling in VoIP (Freenet since March, United since the summer), but neither has specified how many VoIP users they have currently. United's release describes the product as "extremely well-received" and Freenet says "...more and more DSL customers are choosing to use the freenet iPhone." It's nice to have an idea on market trajectory guys, but a bit more granularity would help.
Q3 data points - Switzerland

Another spectacularly dull conference call from Swisscom revealed that the company is expecting rival Cablecom to have 80,000 VoIP subs by year-end, which would equate to just over 2% of the access market. Swisscom's voice line loss went up fairly sharply sequentially in the quarter (-0.7%, or 29k lines), but the company rightly stresses that there are some deconsolidation effects (Telecom Liechtenstein) and mobile substitution effects which complicate interpretation of the VoIP impact. Q3 mobile voice traffic was up only 1.75% YoY, while national fixed line traffic was down 7.9% YoY. In raw minute terms, national fixed traffic lost 145m minutes, and mobile gained only 15m, despite Swisscom's stable 64% market share in mobile. Some traffic is going to carrier pre-select (my guess is half of the decline), some to mobile (based on Swisscom's market share I think this is around 16% overall), and I think the rest is VoIP, IM, etc. Maybe we'll get some further insights when Cablecom next reports.
KPN, UGC got your number

UnitedGlobalCom reported Q3 numbers yesterday, and had a lot of interesting things to say on VoIP and broadband. Since the launches in the Netherlands and Hungary, the company now has 500k homes VoIP-serviceable, and is heading towards 2m by year-end, 1.5m of which will be in the Netherlands. Four additional countries (France, Austria, Poland, Norway) are slated for launch in Q1 '05, and by mid-2005, the company should have 5.5m serviceable homes in nine countries. That's the rollout, what about the execution?

UGC reported yesterday that conversion rates on its VoIP trial subscriber base are 25% in the Netherlands and 40% in Hungary. Weekly sales are currently running at 3,000 within the 500k serviceable homes, which is a vast improvement over the 2,000 weekly rate the company previously achieved with conventional telephony in a base of 3.5m homes. Another key data point is that 60% of VoIP sales are sold as a bundle with broadband at point of sales, as further confirmation of what Cablecom (Switzerland) and others have previously stated about broadband and VoIP being mutual accelerators. The company is looking for a total of 15 - 20k VoIP subs by year-end across the base of 2m serviceable homes.

It looks to me as if, extrapolating the current 3,000 weekly net add rate across a marketable base of 500k homes, UGC could be adding 12,000 per week by early next year across 2m homes. The real kicker is that UGC is taking a lead from what NTL is doing in the UK, yesterday announcing an off-net DSL unbundling trial, targeted at expanding its footprint (and the VoIP/video threat) to the 60% of Dutch homes outside UGC's footprint. As a player with an existing television offering and well-recognized brand, this seems to pose a very big challenge to KPN's somewhat bizarre three-pronged video strategy.

(As an aside at the macro level, I am intrigued by the whole Liberty Media/News Corp. wrangle. UGC is a Liberty property, and is a major cable player in every European market with the exception of the UK and Italy. News Corp. controls BSkyB and Sky Italia. Talk about blanket coverage in distribution...)
AOL, reloaded

Following a couple of recent posts about AOL, it was interesting in yesterday's management reshuffle to literally see two heads, one from broadband, the other from international. I was also pleased, if not surprised, to see AOL Europe formally carved out as a distinct operating unit - confirmation that it is indeed a different beast. Anyone who writes this company off in Europe may get a shock.

Tuesday, November 09, 2004

More ripples across the pond

I caught a good double bill tonight on CNBC's Kudlow & Cramer (love 'em or hate 'em, they're never boring) - Michael Powell followed by John Rego of Vonage. Mr. Powell was predictably measured in his responses to predictably pointed questioning, but I think the veiled message that came through loud and clear was something like, "It's absurd to try to apply localized regulatory frameworks to what is, in essence, a global revolution." John Rego looked exhausted, but palpably elated, almost incredulous, at the whole turn of events.

Thanks to Vonage (and its deep pockets) for taking the regulatory and legal pain (it's interesting to see the likes of BellSouth issuing apparently supportive press releases within minutes of the ruling) to force a ruling which should hopefully benefit everyone involved in promoting competition. I realise that the differences between the US and Europe are vast, but given their intimate trade and political ties, one has to ponder the extent to which Europe may now find itself in an interesting position, where the Euro-corollary of today's FCC ruling is that regulation of VoIP within the EU member states is really a Community (or supranational), rather than national, issue.
VoWi-Fi is good for you

I made a partly tongue-in-cheek post last week about how once we saw a depiction of Skype use in a mainstream TV drama, we would know VoIP had really arrived. It was only partly tongue-in-cheek, however, and I think a number of fairly basic things have to happen for consumers to become genuinely comfortable with adopting new applications and bearer technologies - some signals have to be sent and some assurances made. Try this one just released by Spectralink (which incidentally has outperformed Motorola by 29% over three months). The Next of Kin Project has endorsed Spectralink products as being a key enabler in achieving hospital compliance with the Next of Kin Laws in Illinois and California, which aim to establish contact with relatives within 24 hours of admission. Quite apart from some of the more emotive elements of this press release, the point is a perfectly valid one. VoWi-Fi provides the mobility at 1/50 of the electromagnetic radiation of cellular, and it works.

Take my voice, please

BT Group is giving away a years' worth of voice to the first 50,000 new DSL subs who sign up between now and 31st December and register for BT Communicator before 14th January 2005. The coverage on Reuters newswire namechecks Skype as a threat (is there an echo in here?), and this is clearly aimed directly at Skype, but there is other important stuff happening in the UK market too, which may have escaped Reuters' attention.

HomeChoice last week launched a telephony product (CPS, not VoIP) to complement its already-impressive TV/DSL bundle. Having done the hard work first (getting the TV piece right), they are now pursuing the easy bit, offering voice. Anyone for 1Mbps DSL, TV and free weekend and evening calls to geograhic numbers for GBP45? This ain't France yet, but it's a pretty radical downshift in pricing points for the UK, that's clear. A comparable plan combining BT Together Option 2 and NTL broadband plus TV would come in at GBP61.

The interesting thing about this BT offer is that it only applies to PC calling, and BT is also giving away a GBP5 voucher to be redeemed for a headset/handset. As such, it appears that BT is trying to acculturate new broadband users to the wonders of PC-based VoIP, just as Skype itself is trying to pull users away from the PC. In the spirit of "how're you gonna keep them on the farm when they've seen gay Paris," actively pushing consumers towards the PC is both bold and risky.
Ripples across the pond

I came into contact with California-based WISP NextWeb several months back, just ahead of its merger with SkyPipeline. Yesterday the company announced a VoIP initiative in partnership with Level3, covering 250,000 potential business customers. NextWeb has over 2,000 customers now, and clearly sees the addition of voice to its wireless T1 service offering as an important differentiator. Yesterday two completely different types of readers emailed me almost simultaneously to ask, "Nextel/Flarion/Level3 - can it be far off?" This certainly poses some interesting questions for Europe, particularly in markets like the UK and Germany, where we have IPWireless deployments in place, and also the Netherlands, where Flarion is in trials. We may see some interesting hybrid product offerings coming from some unexpected places.
Skype API out

Skype's API is available from today. I expect a lot of smart people are going to be downloading and digesting it, and searching for new ways to exploit Skype functionality. A couple of weeks back we inadvertently got some insight into how this might look, and no doubt the floodgates are going to be opening up on the back of this.

Monday, November 08, 2004

Can't happen here?

Despite my best efforts (and those of others) to raise the alarm, one of the issues I think the market is going to have to get to grips with over the next year is that VoIP (or voice on the internet, as some say we should more accurately term it) is not merely an issue for the fixed carriers, as many seem to believe. I would argue that this is where its impact is likely to be visible first, but as Churchill famously stated, this may only be "the end of the beginning." Obviously VoIP is in use today over wireless networks, and we have devoted a lot of time over the past two years to the kinds of interesting things that one can do on a Wi-Fi/1XRTT/Flarion/TD-CDMA/3G connection. However, almost all of this usage is laptop or PDA-based for now, as we await the advent of multimodal handsets in 2005.

Perhaps some of the relatively sanguine views on mobile VoIP in the market stem from the fact that 3G is in go-slow mode at launch, and that an alternative fixed/mobile convergence solution such as UMA, though integrated well into the legacy GSM system, appears fairly inelegant from the IP standpoint (it is incompatible with IMS and doesn't make use of widely-used existing standards). What most people don't seem to have clocked yet is that the technology exists to bring SIP deep into the heart of the traditional cellular network today, irrespective of the availability of multimodal handsets, and offers some potential opportunities and also significant revenue discontinuities for wireless players, depending on how they choose to respond to it.

I sat down last week with pioneers in this area, Bridgeport Networks (which has some interesting investors), to learn more about how this works and how it might happen in practice. Here's a challenging-looking graphic of their NomadicONE solution, debuted at 3GSM in Cannes back in February. The key point of the diagram, and of the product itself, is the interface with the mobile home location register (HLR) via SS7 connection with the NomadicONE convergence gateway. This allows a high degree of visibility as to who and where the user is, what the account permissions and preferences are, and most importantly for the service provider, is a key linchpin in generating a record of a billable event (voice call, SMS, chargeable IP packets). In the world of new multimodal handsets and cognitive radios, the possibilities are there to allow a cellular player to capture categories of voice traffic where they might be out of the mix at present, such as fixed line voice in the home, or access-independent VoIP traffic within a Wi-Fi hotspot, by mapping the mobile phone number to a SIP address, which can then be used across a variety of devices.

Scenarios I see for adoption are as follows. They are entirely my own and are illustrative. I have no knowledge of who Bridgeport has been talking to, but I can only assume that a product such as this must be generating a signficant level of interest among a variety of players, and I fully expect someone to deploy it sometime soon. I should also point out that the technology works fine today on standard GSM phones, though my examples below assume the availability of multimodal phones with Wi-Fi integrated, because this increases usage scenarios dramatically, in my view. However, the fact that the technology works today with "plain old" GSM is another important differentiator from UMA, which will be reliant upon handset replacement cycles, which though shortening to around 18-months according to Carphone Warehouse, are still an impediment to operators gaining traction in the short term.

MVNO - Let's take a player in an increasingly competitive broadband market, say UPC Netherlands. It has the video, broadband and now the voice pieces, but is absent from the mobile market. Rather than go out and create a zero-value-added MVNO using a third party network, UPC could, assuming the hosting network opened up the HLR to it, use Bridgeport's solution to actively move otherwise outgoing GSM minutes to VoIP over a Wi-Fi connection when the user is at home or within range of an accessable AP. This could presumably also include calls made outside UPC's own MVNO footprint, and the fact that the number is a SIP address could be used to eliminate the artificiality of pricing for international calls. The customer may be billed however UPC would see fit, UPC would save money on roaming, interconnect and wholesale minute costs, and perhaps most importantly, could develop a churn-mitigating differentiator beyond its current triple play offering.

PTT - For a PTT with a mature mobile unit (basically everyone in Europe except Eircom and BT Group), the Bridgeport solution could be used to attain many of the same goals as in the cable MNVO example. However, for the handful of PTTs with both broadband and mobile presence outside their home markets, there is probably an opportunity to more closely integrate the marketing of, and to differentiate the features of, the two. Probably the most appropriate example I can come up with is France Telecom, which is making increasingly disruptive forays into the UK and Dutch broadband markets, but is struggling somewhat on the mobile side in both. With NomadicONE, Orange and Wanadoo could play off each other in marketing the product, and offer something which the other key players in the UK market could not easily replicate due to their lack of presence in broadband access.

Pure mobile player - The proposition here, at least in the consumer market, looks somewhat more challenging if the operator lacks a broadband access customer base. However, I suppose it is conceivable that pure mobile operators could employ the Bridgeport approach by putting ATAs or hybrid Wi-Fi routers into the hands of subscribers, though in doing so would create some dilemmas relating to in-home voice usage and also roaming revenues. However, roaming costs would also fall, and with the market saturated, the main issue probably comes down to customer retention in any event. The real advantage of the Bridgeport solution for pure mobile players, as far as I can see, is in bringing all the SIP functionality into the corporate environment in a way that incorporates the mobile element seamlessly, and can save companies money.

Beyond what Bridgeport has done with the NomadicONE gateway, the company also has a partnership with Verisign, which is reselling Bridgeport's solution under the Wireless IP Connect brand. In my view this gives Bridgeport an interesting positioning in an emerging infrastructure which could develop into a new roaming management and settlement system for the VoIP world. The company also has a low-cost active RFID presence detection solution which can enable any existing cellular handset. It seems that the company is adopting a holistic approach in pushing the silicon which makes its gateway product viable, and also teaming up with an emerging player in identity/security/trust/intercarrier compensation management in the VoIP space (which is the sort of thing required if the carriers are to ever become comfortable with the concept).

What interests me most about this development personally is trying to imagine which of the carriers will "get it," and which not. Beyond getting it intellectually, this sort of move will also require some intestinal fortitude. Carriers trapped in a mentality which confuses the application (voice) with the access element (a GSM or CDMA network), or which refuses to see that the two can in fact be disaggregated, may fail to see the value in it.