Thursday, July 28, 2005

Disruption in action

The earnings reporting season is upon us, accounting for a marked blogging slowdown as I torment myself. BT reported some pretty decent numbers today, and to be fair there was a lot to be positive about in them, but in the detail there is some stuff which shows where the retail market is heading - which is for trouble, despite the recent euphoric rally in the sector:

  • Retail share of net DSL adds went down to 28%, taking overall market share below 35% on my reckoning. This is worrying because Retail lost 319k consumer voice lines this quarter, the worst result in living memory. Throw in the business voice lines lost and you get a decline of 400k voice lines. Even taking into account the DSL additions, we're still looking at a loss of 305k customer relationships, a 1% sequential decline. Bear in mind that unbundling is only 1.3% of the market at present, so the challenge to replenish the line base is only going to get much tougher.
  • Wholesale line rental lines went up 424k this quarter, that's a sequential increase of 41%! Management were a bit cagey about whether the increase started early in the quarter (in anticipation of the OFCOM settlement), or whether it was a direct response to OFCOM - i.e., next quarter's number could be far worse for Retail. Management did comment that, in their view, about half of the new converts to WLR were also new CPS users, which is a dangerously high conversion rate.
  • BT claims to have had 15,000 expressions of interest in Fusion since it was launched on 15th June, which frankly seems a bit low to me. More worrying is that the MVNO business (which could be an interesting cross-selling foothold for Fusion) suffered a net customer loss of 13k this quarter in the consumer segment.

It's interesting to see all this coinciding with changes to company reporting presentation which, while apparently designed to take complexity out of the organization, also have the effect of minimizing the Retail division's perceived financial contribution to the whole business, which is increasingly being driven by a Wholesale and Enterprise orientation anyway.

Wednesday, July 27, 2005

It's my party, and I'll Skype if I want to

Hard to believe it's been a year. SkypeOut rates have been cut by an average of 15% today in celebration, and the press release I just received claimed over 1.8m SkypeOut users, which suggests (based on my numbers) that Skype is adding about 19,000 SkypeOut accounts per week.

Tiny, but technologically advanced, MSO Primacom yesterday suggested that it is getting a one in three response rate to its early-stage VoIP marketing in its footprint, and expects to have Primafon available to 185k households by the end of the year.
The race is on

I'm reminded of an old George Jones song by this name, which contains the fabulous line:

"Now the race is on, and here comes pride up the backstretch,"

and culminates with:

"And the winner loses all."

I don't know if that summation will apply to the M&A arms race unfolding in Europe, but certainly the starting gun on phase two has been fired today. I doubt if there were even any Tuareg nomads who could have been oblivious to this deal, as it was so extensively leaked. There is a conference call in a few minutes and I will return with more later. Suffice it to say that broadband/VoIP/mobile convergence is hereby confirmed as the central deal driver in Europe (as I have previously said), and given the tit-for-tat history of the PTTs in Europe, I think it will not be the last - not by a long shot.

Monday, July 25, 2005

Alpha Mail

The UK Post Office has cut line rental on its WLR product to as low as GBP9.95 per month for those paying by direct debit. The press release mentions 140k subscribers, which is up by 40k over the past seven weeks, and the PO is claiming a 97% satisfaction rate with users.
Kiss me quick

A Platinum Circle mega-value reader writes in with some views on the Cisco/Kiss deal:

"I'm not sure if you're familiar with the Kiss product line, but they have a bit
of a cult following - an Ethernet-connected PVR/HDD/DVD player which is easily
hackable (loads of people produce and download modified firmware versions) and
which runs its own markup language (KML). Online programme guides for something like 1,000 channels and you can log into the Kiss portal from your mobile phone and tell your Kiss device at home to record a certain programme for you. Plus you can play games, read the news etc - way more extensible than Tivo etc... it could be quite exciting... especially if they bring out a device which has the
Kiss features plus Wi-Fi and voice in one box."

As for the last statement, I think we can count on it, and this presumably makes Cisco a strong contender in the quest for the all-singing, all-dancing placeshifting PVR media gateway Holy Grail as far as I can see, though this article contains a denial of any plans to enter the consumer electronics space.

DSL may have had things pretty much its way in Germany historically, moreso than in any other market except for Italy, but it looks like cable is now starting on a long road back from oblivion. Kabel Deutschland, which at 10m customers, has over half the cable households in Germany and is Europe's largest single market operator, is to offer triple play services in its Rhineland-Palatinate and Saarland networks to 1m homes from October. Reading on in the press release we find that by year end an assault will also be launched on Munich, Berlin and Hamburg. Check out the coverage map (Flash).
Silent voice

Om has been digging through Yahoo!'s 10-Q, and pondering what the cash outlay was for Dialpad. I haven't a clue, and reading through the conference call transcripts, I was amazed to see that none of the analysts even mentioned it - not once!

Friday, July 22, 2005

VoIP visibility

Listening to the Telenor conference call just now, CEO Baksaas remarked that Telenor estimates that VoIP in Norway (including its own subs, but excluding Skype) now accounts for around 90k users, defined as persons who have ported their PSTN numbers to VoIP. He identified this as being 5% of the market (I work it out to be closer to 4%, but what the hell). Accordingly, he said that Telenor would be committing to greater efforts in this area. One interpretation of this 90k figure might be that naked DSL in Norway could possibly account for as much as 14% of DSL connections...

Thursday, July 21, 2005

Let it be

It's been a shitty couple of weeks on the whole: the 7x7 bombings, one of my favorite colleagues being shipped back to Japan, today another set of bombings and another favorite colleague resigning for pastures greener. Still, it's not all doom and gloom. If at home with the broadband is the safe option, then newcomer Be may have just the ticket: 24Mbps DSL and a free all-singing, all-dancing Thomson SpeedTouch 716g router.

More bombs being reported, mobile networks appear to be seized up.
Know your units

No, it's not a cautionary statement on alcohol consumption, rather finger-pointing at journalists who don't know millions from billions. The quote:

"Skype's annual revenue has not been disclosed, but analysts suggest that it could be in the $6 billion to $10 billion range."

I don't know which analysts they've been talking to, but Skype revenue estimates of $6 - 10bn would make it two to three times the size of Google. It would also be quizzical for a company turning over $10bn to consider being taken out for 0.1x sales.

Wednesday, July 20, 2005

Is there an echo in here?

Bambi Francisco thinks Google might be a good bet to acquire Skype. Wow, wish I'd thought of that.
You've got megachat

Very busy trying to get caught up with a lot of nuts and bolts stuff ahead of the Q2 reporting season, blogging is going to be minimal today. Further to Monday's rumination on how Skype has stimulated innovation and a sense of urgency among the IM camp, a mega-uber value reader draws my attention to AIM Triton reloaded, with group voice chat for up to 20 persons, via RTC 1.2. Ignore at your peril.

Monday, July 18, 2005

What we've got here is a failure to communicate

There's been more than enough oxygen and paper expended on coverage of Vodafone's poor performance in the Japanese market, as well as a lot of spin coming out of the company itself, but what we love about the blogosphere is its ability to give us live views direct from the front lines. Here's a damning assessment from Jeff, on the ground in Tokyo.
Digging telco's grave

Interesting short video (MPEG, right click and save) showing the hands-on efforts of a rural community in Sweden to get fiber to the farmhouse.

Given last week's Boingo announcement, I guess this should have been a no-brainer.
Moral fiber

Lafayette's muni-fiber decision is getting plenty of attention on this side of the pond, particularly in Amsterdam, where the interest is more than academic. One post in this site generated a comment from a reader ("Maximus MBA") who speculates that the underlying monthly cost of a FTTH network per household could be EUR8.63 ex-VAT. This is earth-shattering stuff. He bases his calculation on the EUR750 per household calculation appearing in the Rotterdam report from last year, applies a 25-year depreciation period (EUR2.50 per month), network maintenance costs of 2% per year (EUR1.25 per month), and derives capital costs of EUR4.88 per month using a WACC of 7.8%.
Offshoring your identity

The mega-value reader who first alerted me to Boingo's UK woes follows up with this, also from the company's customer service department - apparently everything works as long as you lie about your country of residence:

"Thank you for contacting Boingo Wireless. For UK residents, during account
creation, if one selects Ireland in the country pull down, this will circumvent
the UK restriction. However please be advised of premium pricing on certain
UK locations. Refer to the location directory on our home page for details."
Talk ain't cheap

This IDT/Net2Phone situation appears to be getting serious. A press release on Bloomberg from Friday states that Bull & Lifshitz is filing a class action against NTOP, and I have been separately contacted by an attorney who claims to represent shareholders jointly holding 2m shares (over 4% of the equity), who has forwarded the letter he has sent to NTOP's independent directors:

"Re: Net2phone, Inc., and IDT Corporation’s attempted buyout at $1.70

Dear Sirs:

I am an attorney and a member of a shareholders group in the above referenced
corporation which has great concern about the possible buyout of the corporation
by IDT Corp.

As you are all aware, NTOP’s great interest lies not just in its cash, portfolio of patents, net operating loss carry forward, facilities and current business, but more importantly, on its partnerings with numerous cable service providers. For your reference, I am attaching a schedule prepared by a fellow member of our group which details that Net2phone and its cable partners will be offering VOIP service to the approximately 3.2 million homes passed by the various cable providers. Net2phone has been extremely guarded in its financial projections, but however these opportunities are valued, it is clear that the values are substantial and that a zero value is inappropriate.

There has also apparently been a fairly compelling case made that MCI’s residential VOIP service trial is powered by NTOP’s VOIP service. (See the following blogs: Eurotelcoblog; Om Malik's Broadband Blog; and Voip Watch by Andy Abrahamson Admittedly this has not been confirmed officially, but it certainly does seem likely to be true. What the economic value that will come from this
remains to be seen, but again, a zero value of this opportunity likewise seems

In view of the company’s current position and its future prospects, the 2 million shares controlled by our shareholder group will vote against a merger with IDT at the price discussed and at any price which is no more than a moderate premium to the $1.70 that was offered.

Should any of you have any questions regarding our group’s position, feel free
to contact the undersigned.

Very truly yours,

Skype as inspiration

A member of the MSN Messenger development team, Leah, has been in touch regarding my post on the GIPS/MSN "anti-Skype backlash," with some interesting insights:

"In the opening line of the post you mention 'The anti-Skype backlash.' Even as
a member of one of Skype's biggest competitors, that is not how I would
describe the current VoIP market. As a lower-level individual contributor
to MS, I'm pleased to see a company forcing issues like improved quality and
ease of use. It makes all of our companies become acountable for delivering
truly quality features. I want customers to tell me the work I'm doing is
awesome, not satisfactory - especially because VoIP is all about people and
relationships. But in order to do so, I need Microsoft to value VoIP enough
to fund it appropriately, and Skype is making that happen. I would actually
consider the recent VoIP innovations the result of a "pro-Skype backlash."
Double Dutch

The KPN board must hate waking up on Mondays. Today, as further evidence of Tele2 getting serious about infrastructure in an unprecendented manner, the company has revealed today that it is tabling a joint bid with Apax to acquire Versatel, whose German assets will then be bought out by Apax on a standalone basis. With unbundling well-entrenched in the Dutch market, and full service billing coming into play, this is a market that Tele2 can really sink its disruptive teeth into.

Friday, July 15, 2005

Yes, we have no Boingo

A Gold Circle hypervalue reader in the UK writes in with a curious email reply from Boingo customer support. He was interested in signing up for the $21.95 Unlimited offer, but was told the following:

"Due to a contractual agreement with oneof the local providers there in the UK, we cannot authorize new customer signups for customers based in the UK at
this time. We hope to be able to renegotiate this with the local provider there in the near future, but at this time we do not have any estimate on when this will change."
Torrents from heaven

Stumbled across this good article on a new BitTorrent client called WinMobile Torrent. I don't speak Bahasa Indonesia, so I am not in a position to say whether the company name is meant to be an English pun, but I like the fact that it's called Adisasta.

Thursday, July 14, 2005

Here comes Tele2

Though this company has previously shied away from the unbundling issue, and from fixed line infrastructure generally (outside its home market), Tele2 has today joined the unbundling race in Spain, acquiring Comunitel, giving it 191 central offices and coverage of 30% of the residential market from day one. I think I hear a collective "ouch" passing through the industry.
Dialing up 404

A mega-value reader points me to this announcement from Nomad International of a dialup VoIP solution. Before I rush out to buy one, I'd prefer to see a corporate website, but the URL in the company's own press release doesn't work. Maybe it's DNS hijackers at work again...
Skype oikaze

Oikaze is a Japanese word which means "a favorable wind" or "tailwind." Yesterday's print version of the Nikkei carried an extensive feature on Skype and the Skype halo effect for peripheral makers. The online version seems to only excise certain pieces, among them Novac's Skype starter kit for Y1980, and Greenhouse's new webcam.
On the march

Reuters is citing sources in the Dutch media as saying that Deutsche Telekom and Versatel are in advanced discussions, and that Betten has gone so far as to publish the text of what it claimed was a press release from Versatel on the subject. Versatel has told Reuters that it has not issued any statement, and would not comment on any market speculation of negotiations. I'm not confident enough to say that a wink is as good as a nod, but if this story is in fact true, then I think we have to ask ourselves what's next in terms of consolidation. I assume that the rationale for such a deal for DT in the Netherlands would be around issues of mobile/broadband convergence (no broadband presence, weak position in mobile, Flarion trial in the Hague). If so, then we are right back to our PTT mutual annihilation scenario, and the short list of likely beneficiaries.

UPDATE: It would appear that the phantom press release was a hoax.

Wednesday, July 13, 2005

Microsoftly, softly

The anti-Skype backlash takes another step forward today as GIPS announces that MSN Messenger will take on its VoiceEngine wideband codec, and Microsoft RTC will add GIPS acoustic echo cancellation and gain control solutions. Interesting to note is the figure of 165m unique monthly users attributed to MSN Messenger in the release. Only six weeks or so back I was regularly seeing and hearing 155m. It's difficult to speculate about the hierarchy of needs of the typical IM user (i.e., is the legacy contact list valuable enough that users will willingly sacrifice audio quality to remain with the incumbent client?), but whatever the relative weightings of factors, it seems pretty clear that one key advantage of Skype over other IM players is about to be toppled. Can PSTN breakout be far behind?

UPDATE: Tandberg has now weighed in, revealing its integration into RTC.
OFCOM market update available

Fans of statistics and information overload will welcome the just-released OFCOM overview of the UK communications market for 2005. Last year's version was fantastic, and I look forward to wading through this one. Notable headlines:

  • Broadband outpaces narrowband, and the average price-per-megabit for broadband has fallen 63% since 2002;
  • Price declines in fixed-line telecom services in 2004 delivered savings of £20 per household on average;
  • Broadband connections doubled in 2004, but broadband industry revenues rose only 6.8%, reflecting price erosion;
  • Spending on communication services (TV, radio, fixed and mobile) accounts for 4% of total consumer expenditure, and in real terms expenditure per capita is one-third higher than in 2000.

Tuesday, July 12, 2005

To ubiquity, and beyond

Nielsen//NetRatings has reported (see page three of this release) that once again Vonage is near the top of the heap in US web impressions, in absolute terms a level more than double that of Microsoft.
More next-gen wireless momentum

IPWireless gets a leg up today from Dovado, which will support its PCMCIA cards. I assume that the relationship the two had in the Sentech trial in South Africa must have borne fruit.
VoIP, schmoip

A mega-uber value reader points me to this post in The Unwired from last Friday, in which author Arne asserts that Vodafone Germany is blocking VoIP on its 3G datacards. If anyone out there has any corroboration of this claim, please let me know.

UPDATE: More on this issue here.

UPDATE 2: It turns out that Dean from VoIPUser discovered some interesting and questionable things about Vodafone UK's 3G datacards a few months ago, i.e., it appears that the company has joined the exalted ranks of reactionary Third World telcos in blocking access to the URL. Any similar experiences to report out there?

The other OFCOM (in Switzerland) has announced an auction of three national WiMAX licenses to be held by year-end. Following the pattern seen elsewhere in Europe to date, I assume that two of these will end up in the hands of incumbent mobile players (Swisscom, Sunrise, or maybe the mooted convergence of Orange and Cablecom), but the third may be a wildcard. The consultation document (in French) contains some interesting details about the kinds of parties interested, where they come from (one service provider from Germany, one from Belgium - hmmm, wonder who they could be?), and what segments of the market they envisage serving with the licenses. Mobile services and fixed seem pretty equally split, as do consumer/SMEs.
Two pints of Guiness and a Skype mega-chat, please

Skype and Boingo have gotten together to create SkypeZones. Note the heavy concentration of SkypeZones in the UK (over 1/4 of the total, many of them in pubs). Denmark, Switzerland and Italy are also well-represented. For $7.95 per month, I'd be a buyer if pervasive communication on the move was important to me. David Brent could probably benefit in his new role.

UPDATE: Andy, in typical fashion, pulls out some interesting connections which may add some new dimensions to this deal.

Monday, July 11, 2005

Roaming - privilege or responsibility?

The EU DGInfosoc has just published a consumer guide to roaming, with some excellent tables of extortionate pricing examples from around Europe. Read 'em and weep.
Mi red es su red

For any Spanish speakers in the house, a pronouncement of note from the Spanish regulator.
Speculating about speculation

Some time back I did a post about takeover candidates in the telco mutual annihilation sweepstakes, and identified a number of stocks which I thought might see a tailwind from this process. Here's an update on their performance as of 30 minutes ago, based on month-to-date performance in euro. Saunalahti was already the subject of speculation at the time I picked it, but has since received a trumping bid from Elisa. Ch-ching!

Easynet : 5.4%
Freenet : 8.6%
Fastweb : -1.1%
Iliad : 1.5%
Nextgentel : 4.4%
Pipex : 8.9%
Saunalahti : 21.2%
Tiscali : 4.7%
Versatel : 1.1%
United Internet : 7.3% : -1.1%
Average return : 5.5%
SXXP : 1.3%
SXKP : 0.7%
Crossing your T's and dotting your I's

PT Barnum once famously said something to the effect that no one ever lost money by underestimating the intelligence of the public (the American public to be precise), but read page 7 of this document and consider how clued-up the public may be becoming when it comes to broadband. Sell it cheap and sell it straight.

UPDATE: Though usually attributed to Barnum, this quote rightly belongs to H.L. Mencken.
No homebrew for sale

A man's home media gateway is definitely not his castle.
More catching up

Unbundlers gaining momentum in Germany and the UK (though the latter market obviously still has a long, long way to go).

Sunday, July 10, 2005


I have returned from vacation to find a large number of my Flickr uploads apparently wiped out. Has anyone else experienced anything similar? Apologies if this is a widely known phenomenon, but I've been out of touch. I know Flickr had a datacenter migration recently, related to the Yahoo! acquisition, but this seems to be a fairly major disruption, if my experience is common to others.

UPDATE on 11th July AM: The problem seems to have rectified itself. The approximately 50% of photos which last night appeared as broken links have now magically reappeared.

Back, in black

One full week completely offline (other than the occasional unfulfilling dalliance with GPRS) has left me clear-headed and energetic - let's see how long that lasts. Here are a few random observations and early updates on things I missed while down in Cornwall.

Firstly, being offline and largely ignoring TV, the first we heard of the carnage in London last Thursday was via a friend in Paris, who rang my wife to ask if we were alright. This was at around 10:30 AM (i.e., c.90 minutes after the attacks), and I called my office 30 minutes later, successfully getting voicemails and the main reception on first attempts. My colleagues' responses (SMS and calls), however, didn't reach me until 12:30 PM, 90 minutes after my attempts to call them. My boss, a Vodafone subscriber, noted that he had been able to call BT lines and other mobile networks, but that my Orange number was hopeless. I had no trouble making outgoing calls at any time. It was all very strange, and once again points up the serious choke points endemic to the PSTN/GSM world - and some people complain that Skype is a temperamental application...

The only other telecom-related thing of note from my holiday was that fact that there is a sh^tload of AOL broadband advertising everywhere in the UK (based on my travels), including some remote corners of rural Cornwall. This reinforces my previously stated view that, at least in the UK, and probably elsewhere in Europe, this is a company with very serious aspirations.

The last client meeting I had before leaving town featured one fund manager asking me what catalysts I could envisage for a period of outperformance from EuroTelcoland. I apologized in advance for sounding cynical, but I felt obliged to point out that the last period of sustained and significant outperformance from European telecom was in the three months following 9/11 (by default, as the airline, travel and insurance sectors went into the toilet), and that I envisaged that a similar event might be required to jolt the sector into life again. I am haunted by those words now, and though the circumstances are different in 2005, I am curious to see if we have a repeat in the wake of last Thursday (and whatever else may happen). I will do some work on this topic over the next couple of days.

Some of the last posts I did before going away related to the distinct possibility that the MCI VoIP product may in fact be a white-labelled Net2Phone product. In my absence over the past week, the following has happened, all of it interesting:

  • Apparently, the NTOP/MCI log-in anomaly I referred to has been rectified;
  • The NTOP board has rejected IDT's offer for the outstanding minorities, presumably because it believes there is more happening under the hood at NTOP than the offer captures;
  • One new mega-value reader writes in to speculate that NTOP is also powering the AOL product (unsubstantiated at this point);
  • Another Platinum Circle reader alerts me to this job posting for a CFO at IDT Spectrum, a newly-formed division I wrote about previously. IPO experience is preferred, which begs questions about whether NTOP's VoIP expertise, once bought in, is to be re-packaged into a wireless connectivity play as a spin-out. I have no particular idea or opinion, but would welcome any views on the issue.

UPDATE: A Diamond Cluster charter reader writes in to question: why would AOL need NTOP when they have Level(3)? Good question. Any alternative answers?