Monday, July 31, 2006
Down in the bunker
Anyway, much water under the bridge so far, and thus perhaps less newsworthy, so I may come back to some select Q2 highlights if they are relevant. However, right now, if you've got more spare time than I have, head over to the OPLAN Foundation and check out their report on open public local access networks. I will as soon as my clone is ready...
Wednesday, July 26, 2006
Strong words - and cheaper than a lock!
Sorry to interrupt your march to dominance in the UK quad play market, but I thought I ought to let you know that I was cycling home last night through what I would term a God-forsaken part of South London when I stumbled upon one of your boxes, wide open. There did not appear to be a handle, let alone a lock, anywhere in sight. I don't know the street name, because it appears that someone has walked off with the street sign (it's that sort of area), but it's near the intersection with Crail Row in SE17. It was still open when I cycled in this morning. I would have thought that a subscriber in the area would have reported this by now, but unless I am misreading the photo, it doesn't look like there are many subscribers connected around here. I did notice a lot of Sky dishes though...
Tuesday, July 25, 2006
Free broadband, nearly free broadband, we've seen it all. Now comes free TV for new NTL/Telewest telephony customers. This is a nice defensive kick in the groin for Sky's DSL offering, because NTL telephony customers won't be susceptible to anyone's free DSL offer, except maybe from NTL itself at some point in the future. The natural inclination will be to sign up for/remain with NTL broadband, particularly if you're getting digital TV for free. I'm a bit flummoxed here because legacy NTL customers already pay for a phone line as part of their cable service anyway, whether they actually use it or not. I am tempted to call them up and burn up some call center minutes arguing that the offer is unfair to existing NTL customers. Nevertheless, this proves that the marketing guys are just one step behind the M&A gurus in delivering stunning headlines - let's hope the rest of the company is up to the challenge! This market is getting very ugly.
Humble apologies for the thin posting lately. It's Q2 reporting season, and I have to shadow a lot of results as well as write things for clients, so as one of my old Memphis friends used to say, "I'm busier than a one-legged man in an ass-kicking contest." Colorful, eh?
Just a few points of interest and observation:
Om seems to be on to something with the Skype founders' side project story. I'm 99.9% sure I know the punchline, but let's wait for his undoubtedly interesting followup later this week.
Six months ago, in the run-up to Vonage's IPO, I expressed a gut feeling that we were looking at a $1bn valuation when all was said and done. Not having paid any attention to the company for the past couple of weeks, I now see that, in fact, this is exactly where the stock price seems to be getting some support over the past 10 sessions or so after a 59% slide since trading started.
In a separate development, Jamie Serino, Vonage's director of corporate communications, has left the company (no doubt with a head full of grey hair) for what sounds like an interesting new opportunity elsewhere. I wish him success.
Speaking of people on the move, my friend and co-opetitor Rod Hall from DRKW has left the firm. Given that Rod went through the pain of getting official approval for his blog and trying to integrate blogging more closely with the research/sales function, rather than going the purely personal route, I'm curious to see what he does next.
The agony and ecstasy of free broadband in the UK continues. My colleague, whose woes I described here, managed to work out his problem through trial and error. It seems to have involved some authentication error, but his description is somewhat vague. In any event, he has not had a response to his personal email to Charles Dunstone. Meanwhile, his wife has demanded a credit on her Carphone Warehouse mobile account due to all the time spent on the premium rate TalkTalk technical support desk. She was advised on the customer service line to go to her nearest Carphone Warehouse shop, where employees can use a dedicated direct line to contact TalkTalk technical support. Meanwhile, Disruptive Dean suggests that Carphone Warehouse has redeployed some of its mobile call center employees to TalkTalk - the phrase "fighting a war on two fronts" comes to mind.
Yesterday's Vodafone Q1 KPI release and conference call brought another epiphany in my mental musings on why broker research is likely to be toast in the long run. Management were pretty forthright in saying that a lot of the metrics traditionally used to assess company performance have become less relevant in saturated markets with multiple SIM ownership (Italy they cited as an example of a market with an average SIM per customer of 1.3), and I would have to agree. Yet there we were, 50 or so sell-side analysts who cover the company, God knows how many on the buy-side, individual investors, media, bloggers, etc., all spending a good few hours poring over these same statistics which contain a lot of distortions, in search of some magical message - namely what is the true underlying trend in usage per real person? The rather staid note I wrote for clients politely expressed frustration at the exercise (what exactly do you do with a near-15% inactivity level in the UK?), but the likes of Keith and Dean can be more direct and immediate. Like I said quite some time ago, I feel confident that the bloggers' mindshare will expand to the detriment of brokers' research.
Check out the Vodafone AGM webcast at 11:00 AM UK time (12:00 PM CET) - it's better than reality TV. Will they or won't they, does he or doesn't he? Ultimately, it doesn't matter. This company faces big challenges no matter who is in charge.
Now back to the trenches...
Monday, July 24, 2006
Get your broadband right here - it's cheap as chips, or more appropriately, French fries. Subscribers taking Neuf-Cegetel's full unbundling option get the Twin handset for a cool EUR1.
Thursday, July 20, 2006
First the good news. My cyber-freund Gordon Cook, who I think is probably genuinely the hardest working man in telecom research, has started a blog. Now the bad news. He has uncovered a legal wrangle brewing between Level(3) and Qwest in the western US which may make the Net Neutrality debate look like a silent movie pie fight when all is said and done:
"Net Neutrality is a skillful diversion to draw our attention there while Qwest, ATT, Verizon and BellSouth stick the knife in at the court and PUC level and kill off the remaining services they don’t control. The crying shame is that no one knows what is going on outside a very very narrow circle of people."
This is something which telecom industry (if indeed there really is a telecom industry) bears like myself must constantly remind themselves of: technology may move rapidly and we may pat one another on the back for all the innovation happening at the edge, but there are still weapons lying at the back of the telco arsenal, and they are litigation and competitor-attrition supported by massive legacy cash flows. Looks like I should get on the blower to Johnny Debacle and see if we can get some RBOCs added to Satan's Portfolio...
UPDATE: It's happening elsewhere too, further supporting Gordon's point.
Wednesday, July 19, 2006
They certainly don't waste any time
This Sky double page spread seems to have featured in a number of London daily newspapers today (Metro and The Evening Standard for sure). Sorry the resolution is so poor, but I guess most of you know the salient details by this point. Beyond the pricing and structure, what should impress and scare the competition is that, as with its billboard campaigns, Sky is so confident of its brand recognition that it can afford to only reproduce a small part of its logo and people will still absolutely know who it is. You won't see BT doing that, even though its logo is already broken into pieces which don't fully connect. Worrying.
Proving that Senator Ted Stevens isn't alone in having some strange views on what the internet is, the European Commission seems to have some strange views on what it shouldn't be. The Commission has determined that the Appingedam muni-FTTH project in the Netherlands constitutes state aid. I am both amused and depressed by the determination that, simply because the town is served by both DSL and cable there is no case for a third technology - as if to say who could ever want/need more than 12Mbps DSL for EUR74.95? Never mind that the Dutch DSL market is getting more, not less, concentrated. Any broadband is good enough, that's the takeaway.
However, implicit in projects like Appingedam, in my experience, is the message that the market has failed to deliver a level of connectivity which the local government/community considers adequate for its development agenda (notice that Appingedam calls itself "the Digital City"). Maybe the local government/community will ultimately be proven wrong, but in the meantime isn't it being deprived of a fair degree of control over its destiny? Can local governments so constrained in turn sue the Commission for the loss of the economic gains they hoped to make via the project?
Beneath the media hype about free broadband in the UK lies a sordid underbelly of broken promises and frustrated customers. In the latest example, one of my colleagues has suffered from a complete lack of connectivity on TalkTalk broadband for the past 36 hours (the line is working fine for voice), and can't make contact with the premium-rate help desk, no matter how hard he tries. However, he has happened to notice that the Carphone Warehouse corporate site (not the consumer-facing site, interestingly) appears to contain Charles Dunstone's email address, to be used in case of "customer service issues."
He has risen to the challenge and sent Mr. Dunstone an email. Highlight: "Now, this morning we dial through to the helpline which lets us wait for 5 minutes before telling us there is a service disruption. Why doesn't this message appear after 20 seconds? Free broadband forever, but it's costing us an arm and a leg in premium rate phone calls. Not impressed. My wife is now on her way into one of your stores which I hear other customers have been doing recently in desperation. So, your store staff are having to mollify frustrated broadband customers instead of concentrating on meeting their sales targets."
Viral marketing can work in reverse, we must remember. It is said that we're separated from the rest of humanity by only six degrees of separation, though in my case I have had two examples recently of only one degree of separation from complete free broadband despair - and that's just in my office. Wait until my next door neighbors, recent happy converts to Sky but still using NTL for telephony and broadband, realize that they have to go back to BT to take up Sky's brilliant new offer. As Peter Cook said in his appearance as a pop idol in Bedazzled, "(Free broadband) you fill me with inertia."
Tuesday, July 18, 2006
It's 9:05 AM in the UK, and the Sky broadband launch webcast has just kicked off. Initial headlines include:
- £400m operating profit hit over three years, EPS-accretive from 2010, IRR of at least 16%, return on capital of 15% in 2011;
- SAC is forecast at £80 (a blended number consisting of various combinations of the following: £35 connection fee payable to BT, £50 for Netgear router, £45 for installation, £16 - 22 for marketing and CRM), and taking into account incremental depreciation, EBIT impact in year one is £170m;
- The company is using bandwidth as a blunt weapon - top tier product is 16Mbps unlimited usage for £10 per month, with an optional call package for £14 per month. In Q4 of this year Sky will come to the market with PSTN line rental of £9 per month, though I would expect the marketing message to strongly emphasize that a telephony product is not compulsory, thus drawing a clear distinction between it and Carphone/Orange;
- Underlying market assumptions are 80% broadband household penetration by 2010 (in line with my own assumptions), with bandwidth demand per household doubling every five years (this seems a bit conservative to me).
Update: Company has just confirmed it will be at 50% reach of UK homes with ULL by Christmas of this year. BT's full ULL product is deemed to be not ready for primetime yet, so the focus initially will remain on partial unbundling. "We don't want our customers to be guinea pigs," says James Murdoch. (I had a chat with a journalist a couple of weeks back who had the same concerns - Sky customers have not typically suffered the sort of misery associated with UK DSL CRM, so Sky has created a high bar for itself in a new product set, where it is to some extent at the mercy of the Regulatorium and the capabilities of a wholesale provider.)
In the Q&A session inevitably the AOL question has come up, and Mr. Murdoch described Sky as not having a strong appetite for acquisitions, though he made tantalizing reference to market research suggesting that a large number of AOL customers are Sky customers already. Overall he intimated that the due diligence process has not moved very far.
By 2010 the company is expecting to have 30% of customers on the broadband product, with half of those taking the telephony product. Depending on your assumptions, that's something like 2.5 - 3.0m broadband customers and 1.2 - 1.5m telephony subs - a significant dent in the UK broadband market - in fact, that's 15% broadband market share on Sky's market assumptions. Perhaps somewhat ambitious, but then again Sky+ penetration is moving towards 25% well ahead of schedule, so Sky does have some credibility in selling into the existing customer base and should not be underestimated.
This is all fantastic news for those who embrace a view of telco deflationary spiral (keep in mind that DT and Vodafone have yet to get their feet wet, and Telefonica is just getting started). Sky shares are down 3.9% at 10:00 AM, but Carphone Warehouse is down 4%...
Sunday, July 16, 2006
Last Friday afternoon I was only about 100 yards or so from my office, beginning my bike ride home, when I had a three-way misunderstanding with an unobservant pedestrian and an innocent bus. I was the only injury, but as I never like to do things halfway, I seem to have bruised most of the ribs on my right side. All outpourings of pity are welcome, as are cash donations and unwanted painkillers. Understandably, I think, blogging is a low priority for me right now. Though it's unlikely that they will be reading this, I would nevertheless extend my gratitude to the three very kind, decent people who came forward from the throng of gawking morons in front of Cannon Street Station to help me get upright again and see if I was okay.
Thursday, July 13, 2006
Lee Dryburgh alerted me to claims of a Skype reverse engineering project in China which is apparently going to result in some code being published in the next month or so. This could usher in a world of pain.
A while back I related the woeful experience of one of my colleagues in joining the "free broadband" revolution. She has just told me that a couple of nights ago she received a marketing call from none other than Wanadoo UK, to alert her to the new offer from Orange. Apparently it took some considerable time to convince the enthusiastic caller that not only did she already know about the fantastic new offer, but that she had already signed up. Recall that previously she had to spend some considerable time convincing them that she was already a broadband subscriber. Now yet another apparently separate database is flagging her as a good prospect for upgrade - two weeks after she's signed up.
Tuesday, July 11, 2006
Om (along with his new team of X-Bloggers) has the goods on an interesting development from Sightspeed, adding place-shifting to its voice/video client. [Also check out Aswath's interesting comments here.] The UK angle to this is that one of Sightspeed's deployments is with legacy Telewest customers, which is made even more intriguing by the fact that former Telewest CEO Eric Tveter is Sightspeed's chairman. I wonder if the Sightspeed relationship will fall by the wayside in the merged NTL-Telewest or if it is to be part of some bigger future push into place-shifting. The latent potential of NTL-Telewest's asset base in this area could be pretty huge, particularly with mobile now in the mix.
Friday, July 07, 2006
One of the really fascinating things about writing a blog is monitoring who comes in and what brought them here. Sometimes it is something odd or even highly unpleasant (somewhere in Egypt there is a man in need of some serious counselling), and sometimes it leads me to new discoveries, so I'm always hesitant to dismiss any search query, no matter how strange. In April last year I started getting hits from the search query "Ikea MVNO" (still no evidence of where or when, but this is apparently true), followed by "Disney UK MVNO" (which is also apparently going to happen). Yesterday I got a hit from the query "marijuana MVNO". Intriguing possibilities here. Normlcom or Hemphone anyone? I can see lost handsets being a chronic problem, but I guess there is an insurance-related business model here somewhere, particularly if, say, Motorola were to produce a dedicated handset, the STONR.
Thursday, July 06, 2006
I recently wrote a fairly tedious note on bandwidth which seems to have gone largely unnoticed, as all good brokers' research deserves, some would say. In it one point I made was that there was no reason to believe that the growth rates observed to date should not get a lot steeper very quickly, and one key driver of this which I cited was the arrival of HD programming (whether as part of telco VOD or on P2P networks). Today I find that the UK-based IP Development Network has done a study on the cost implications of just this issue, and they're pretty devastating in a unicast context - particularly against a background of rising consumer expectations of "free broadband" in the UK market.
(On a separate, but I believe related, note, I understand that CacheLogic is readying some new announcements for release in early August, I would presume related to this issue. Recall that CacheLogic is already working with BitTorrent and NTL on content delivery, and has some other irons in the fire as well.)
Tuesday, July 04, 2006
Signs of life
How fitting that I'm here in Paris on the day that France Telecom announces the LiveBox Lab. One thing telco bears like myself have always bemoaned is the dearth of effort in the industry to embrace the concept of a developer ecosystem, but here's an exception to the rule. I'm also impressed and intrigued that this is apparently some joined up thinking between R&D and marketing. Mon dieu!
Happy 4th of July to all those who take note of such things. Apologies for the recent light posting, but real work has beckoned. EuroTelcoblog and Chaotica are on a secret mission across the Channel for a couple of days, so posting is likely to continue light and sporadic for the time being.