Tuesday, September 30, 2008
The equity markets have staged a nice rally, after yesterday's historic carnage. Great...if you're lucky enough to be completely free of having to deal with the credit markets. In point of fact, today's rally seems to underline a phenomenon which my former colleagues and I used to regularly marvel at - the yawning disconnect between the credit and equity markets. The chart at right shows the overnight LIBOR rate, i.e., the interest rate at which banks are willing to lend to one another overnight. Yes, it shows a dramatic spike, and yes, the spike constitutes an historic high. If large banks demonstrate their mutual mistrust to this extent, then what are the chances of a small business getting even the most modest funding for working capital? How many small businesses have to find their access to short-term finance constrained before their suppliers and customers find themselves seriously stuck? What are the implications as this dynamic plays out across the economy, and how might this situation displace other priorities? The answer, my friend, is blowing in the wind, I'm afraid, and this is the central problem confronting us all now. Every day the politicians delay merely amplifies the problem.
Nevertheless, I'm amazed (I'm probably going to piss some people off at this point) at the extent to which some people seem to think that NGA development might be miraculously decoupled from the real economy (or perhaps they hadn't picked up a recent copy of the Wall Street Journal). I would argue, more vociferously than most, that FTTH is an essential investment in the future of our country (pick the nation of your choice), but if we have to choose between NGA and dealing with mass unemployment, business failure, and homelessness, then NGA must lose out, at least in the short-term. Trust me, when Obama, McCain, Pelosi, Paulson, Bernanke, Brown, Cameron, et al, go to bed tonight, they will, sadly, not have FTTH anywhere above number 10 in their lists of things to do.
Elsewhere, I really admire the art of the elegantly-timed press release, and this one from Cisco yesterday really seemed to pile on the agony in a masterful way. I'm sure the financial community would love to say something in response, but a naked emperor tends to be silent. I smell an opportunity in the making.
UPDATE: I resisted posting this the first time around, but have thought better of it. Perhaps I was a bit harsh on the Ars Technica article; afterall, it does allude to the distractions of the current crisis. In any event, it's the mention of "ceding leadership to Japan" that actually gets my goat. I speak Japanese, have lived there, and have worked for a number of Japanese companies in my time, and I remain skeptical.
On my last visit, while at Merrill Lynch, in summer 2007, I had lunch with a group of very smart telecom consultants who were very well-connected, particularly to NTT. At one point I mentioned the awe with which the West views Japan's FTTH deployment. They were genuinely baffled. The general comment coming back was, "The only benefit of fiber as far as we can see at this point is in cheaper voice" (the NTT fiber packages have a relatively generous VoIP subscription lumped on top for a fairly nominal fee). I was stunned.
Another moment of epiphany for me occurred while I was still at Daiwa, when I had a meeting request from yet another consultant who had been commissioned by a Japanese government agency to travel the world looking at issues of innovation. His explanation of the rationale behind his brief was that, the agency in question had noticed a marked decline in student intake in computer science programs at Japanese universities, and was appalled. Surely a country with world-beating last mile access should also be taking the lead in application development, where the real long-term value would be created, right? Wrong, apparently, to the dismay of the government agency, which seemed to be terrified of China.
In any event, upon reflection, it occurs to me that FTTH as an enabler of economic opportunity for the individual is naturally likely to be constrained in Japan, which is still rigid in its approach to work and commerce. The country is not geared to accomodate the maverick entrepreneur (Masayoshi Son, a rare exception, is ethnically classified as a Korean-Japanese, therefore an outsider, with a license to be awkward), and work is still largely defined by hours spent in the office as opposed to any other definition. The notion of telecommuting is utterly alien, as far as I know. So, ultimately, technology alone does not transform, at least not in the absence of some other key ingredients which are cultural/economic/political in nature, and much harder to put in place where absent.
Posted by James Enck at 10:41 PM
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Ouch, that release must have hurt.
I am currently evaluating my own optimism level on the NGA issue and sadly have to agree that I am over-optimistic.
However, an unnamed party told me yesterday that horizontal coverage of FTTH in Paris and surroundings continues apace and that my town would likely be covered in the next 18 months.
I'm adopting the pre-meltdown phat banker's philosophy: If I get it, I don't really care about the rest of the world...
If some Japanese, Korean or American FTTH “insider” would tell me that there is no real benefit of telco FTTH roll-out, I would not be stunned as you have been. There are two reasons why not – the first one is based on a presentation of Prof. Raul Katz I will send you via Skype. He came to the conclusion that all Telcos investing in fibre are making big losses, because the ARPU and the adoption vs. penetration rate are too small. The only reason why they are still doing it is because of a strategic reason – having a better network than cable operators in the future. DOCIS 3.0 is having bigger potential than xDSL. The second reason is that they are all vertical integrated and not going the open access path. I do not believe that telcos are capable of being innovative or adopting fast. Internal processes are killing innovation totally. The only chance I see for FTTH in the moment is that cities or communities are building the network (Stockholm, Singapore) and offering it to any service providers under the same conditions. The question is only how to realise successful PPP models for communities in building the infrastructure, specially because of the today financial situation.
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