Friday, October 31, 2008

Two tricks and a treat

Happy Halloween! This year the children of the trick-or-treating cultures of the world are going to have a hard time outdoing the real scaaaaary stuff, but there's no harm in trying. As I prepare to don my own Elvis wig, here are a few tidbits of note, classified in keeping with the day.

Trick - for companies with aging workforces and retired employees living longer.

Trick - for companies thinking that driving customers towards online transactions was a foolproof way to cut contact center costs. A 60-minute response time for webforms is pretty challenging, at least based on some of the experiences I've had. 

Treat - for proponents of OpenID. The OpenID Foundation Japan yesterday revealed for the first time its member companies, a very diverse group comprising the following: Asahi Net, Automation Research Associates, Cerego Japan, CyberTrust, Excite, Infoteria Co., Japan Airlines International, Japan IBM, Japan Verisign, JCB, K Opticom, KDDI, Lin Network, Livedoor, Mitsui Sumitomo Marine, mixi Inc., NEC, NEC Biglobe, Nifty, Nomura Research Insititute, Oki, Rakuten, SBI Holdings, Senshukai, Seven Bank, SixApart, Softbank BB, Sonpo Japan Systems Solutions, Taihei Computer, Technorati Japan, Yahoo! Japan, and Zakura. 

That's several ISPs, portals/web 2.0/social networking/e-commerce companies, a bank, the leading credit card issuer, a number of IT consultancies, a telco, a couple of electronics manufacturers, a couple of insurance companies, and an airline. Not bad for a start. The group also announced a number of initiatives to promote standards/harmonization, awareness and use cases for OpenID. More coverage is here (apologies, it's again in Japanese). 

Wednesday, October 29, 2008

Virtual coffee break - 29th October

A brief break from my tasks, to contemplate the irony of hedge funds being run over by, of all things, a Porsche... Word has it that Disney is working on a long-awaited sequel: "Herbie, the Killing Spree."

Strange press release of the morning: I note with some bemusement the use of the phrase "Web 2.0" in this release from Atos Origin. I always associated Web 2.0 with openness, sharing, and mutability - three qualities you don't want in a secure banking communications service. If anyone has a clue as to what they are talking about, please let me know.

Contrast with "Fridge Door 2.0" from Tesco - characteristically brilliant and unsettling at once.

If you scroll down the page of this bloglet, you will note a ticking clock showing the countdown to IPv4 address space exhaustion, a matter of interest to me, and arguably everyone, though I'm amazed at how little discussion seems to take place outside the cells of brilliant people working to resolve this looming crisis. If you're interested in the governance aspects of the "4-to-6" mass non-migration (as it is today), you should read this article by crusader Geoff Huston (hat-tip to a Platinum club mega-uber value reader). 

Interested to see who's farther up the IPv6 curve? Type the URL you want to check into the address bar of your browser, then add "" (without the quotation marks). The handful of names I tried showed some interesting East-West gaps. For example, Nokia doesn't appear to have an active v6 address, while Huawei does. BT doesn't, but IIJ does. Spot a pattern here? Please send in any other interesting finds you come across.

Speaking of technology gaps, a friend and Palladium club mega-uber value reader submits the following whimsical graphic - inspired!

Finally, it has come to my attention that Martin Dodge's fascinating body of cybergeography work, which I pointed to here ages ago, has now been updated. Dive in!

Tuesday, October 28, 2008

Alter-ego 2.0

In case you've been wondering why I've been posting less in recent days, it's partly because I've been trying to focus on a research project, and partly because I was preparing this post, both in aid of the Telco 2.0 initiative, and the upcoming event in London next week. I think it promises to be the best yet. 

Juxtaposition of the day

Amazing take on then and now from a new and interesting blog. Make sure you watch the two videos in chronological order. 

Monday, October 27, 2008

Unhappy photo of the day

Be careful what you name your business.

Friday, October 24, 2008

Five Web 3.0 start-ups for the Great Implosion Era

Moderator's note: This article is classified as satire, sub-category gallows humor.

Following another deeply unpleasant week in the financial markets, it might seem somewhat counterintutive to be thinking ahead to "the next big thing." Surely the current big thing is more than enough to keep us busy for years to come, and if we can't be bothered with current reality, there's always Perez Hilton (I refuse to link), or even Presidential politics to keep us occupied. However, let's remember that, while the previous downturn resulted in the effective extermination of a lot of household internet names (though occasionally I actually get hits on this blog from an AltaVista search query - who are these people?), it is a fact that Google really came into its own during the previous nuclear winter in the internet industry. So ignore those irritating naybobs who fixate on trivial things like the death of capitalism - as if... People get ready, there's a train a-comin', so join me as I tour the Web 3.0 newbreed, tapping into the Implosion Era zeitgeist.


Ever feel like you're struggling to cut through the crowd of people trying to negotiate opportunistic micro-finance transactions? Differentiate your pavement pitch with Panhandlr, a social Bluetooth applet (for Windows Mobile 5.0 and above, and Symbian) which allows you to discreetly (and silently) ask those within range for a bit of spare change. 


Think Dodgeball meets Tom Joad. Are you an untethered urban nomad? Looking to hook up with friends tonight, but unsure of which park or itinerant labor camp they'll be partying in? Then move on into huvervil, the hot new social GPS/802.11/LTE-compliant widget which puts you on the fast track to the people who used to matter! 


Optimized for Emerging Market 2.0, Hypa-N-Flashun is a Java flake for iPhone which removes the friction from everyday transactions. Let's say you're at a Web 2.0 conference in Zimbabwe. I don't know about you, but I find that dealing with a 1,000,000,000% annual inflation rate is a royal pain in the butt. Say you've bought a beer at the hotel bar and are waiting for change. Every second you wait costs you an extra $3, and the bartender has to keep going back to the till as the total changes - every second. This kind of situation could land you with a serious bar tab - what an outrage. Hypa-N-Flashun's clever software algorithms tap into the HLR of the mobile network you're on, link into APIs at the IMF datacenter, and through its intuitive context-aware UI, provides you with a prudent estimate of your real-time currency risk, so you can "pay it forward." Party on!  


Couchster is a next-gen viral social auction site dedicated to the booming "migratory casual accomodation" market. Need a couch to crash on? Just update your status page and set your price threshold (and let us know if you are travelling with a dog). Looking to monetize spare capacity on your couch during periods of low utilization? Set your price and watch your traffic skyrocket! Wired says "Couchster is sitting on a goldmine in the explosive SaaS (sofa as a service) market."


GloBungl is a persistent virtual world complete with in-world currency and economy. Members who register early in the community's life form elite guilds, which receive preferential rights to create, in an unregulated and unfettered manner, opaque virtual financial structures, which they can then sell on to later arrivals. Those who register shortly after the early guild members are designated "drones," and those who arrive late in the game are affectionately referred to as "TGUs". Those who arrive last are disparagingly referred to as "Reg-U-l8rs" (or, alternatively, as "Betta-l8-dan-nevvas"). GloBungl's unique algorithms steadily increase the level of tension and excitement for late arrivals, while allowing original guild members to discreetly "retire" with nice packages and start other virtual worlds of their own. 

Stresswatch - 24th October

The world is taking another step into deep doo-doo today (as I write, the EuroSTOXX 50 is down 8%, having been down much more earlier in the day). It's a broad canvas of nastiness we're facing, but let's stick to the misery of our own beloved sector, just to retain our sanity.

Any Spanish real estate agents hoping to retrain as cable technicians will want to think again, as ONO has announced that it is to cut its workforce by up to 30%, citing the economic situation. However, I recall the company stating last year that its level of dependence on new housing development was low - perhaps there is a genuine erosion in the existing customer base. If there are any mega-uber value readers in Spain who can shed some light on ONO's current state, let me know. Certainly the bonds seem to be pricing in nearly the worst - back in the summer before I got iced, they were trading in the high 60s/low 70s - now they're in the 30s. 

Elsewhere, it turns out I was wrong here, when I predicted that Novator would be quitting its Netia investment. To the contrary, Novator has bought more over the past month - with the company sitting on cash and currently trading at 3.3x 2009 EV/EBITDA, it's a nice level to average down.

Meanwhile, Vonage has pulled a rabbit out the hat.

Our asymptotic chart of the day belongs to leading Greek altnet/DTH operator Forthnet, whose main shareholders have also recently averaged down again after an epic slide. If there were ever a market in need of a roll-up, it's Greece, and someone will no doubt step up to the challenge eventually - though even after the share price plunge, the company is still trading on 8.0x next year's EBITDA.  

Thursday, October 23, 2008

Chickens, homes, roosts, etc.

Way back in 2006, I wrote a few pieces on some of the baffling PE transactions occuring in the Dutch cable market at the time, expressing amazement and concern at the valuations and strategic rationales involved. Perhaps unsurprisingly, it looks like the wheels are really starting to fall off. Once you have consumer groups and newspapers on your tail, you're in real trouble, particularly if you're carrying a lot of leverage (9.0x is what I hear, though I don't have access to any information as it was a private transaction) and your chief competitor is positioned to generate EUR2.4bn of free cash flow every year for the foreseeable future. What's the Dutch for "kaboom"?

Stresswatch - 23rd October

If you're in the market for disappointment and bafflement, there's no shortage today. Xerox seems to have disappointed with its Q4 guidance, and makes reference to further weakness in EuropeSony has cut its full-year earnings outlook by 38% from what it expected only back in July (okay, a lot of this has to do with the yen, but what really matters here is the consumer). Continued dire predictions about the Great Hedge Fund shakeout, if correct, will no doubt fuel more distressed sales of assets - yesterday I saw some quotes on senior secured debt from the European telecom/cable space which seemed ridiculously out of line with how some of the companies are performing, suggesting that some paper is getting dumped under duress. 

So now to the chart above, grabbed just a few minutes ago from Bloomberg. This is our beloved Level(3) on the wrong side of $1, which stock market historians will tell you is not a place you want to be. Level(3) reported Q3 results today which seemed to be marginally ahead of expectations, but the stock has been torched, presumably due to the outlook statements. I quote: 

"The Wholesale Markets Group has seen a lengthening of sales cycles. However, the company has seen increased sales interest as certain large customers express heightened interest in purchasing more cost effective local and regional transport services, particularly local and regional connectivity to and between mobile switching centers, enterprise buildings and other traffic aggregation points.

-- The Business Markets Group has also experienced a general lengthening of sales cycles across several segments. The company has reviewed its exposure to distressed financial services institutions and the company has not experienced any material negative effects from customers in this market segment.

-- The Content Markets Group has experienced a decrease in sales to certain media and entertainment companies who may be dependent on external financing sources. At the same time, the company has seen increased sales activity among larger media, entertainment and sports enterprises who seek to make more content available online.

-- To date, the European Markets Group has not seen the effect of the macroeconomic environment on sales activity."

I'm intrigued as to what these statements actually mean. The wholesale group statement about large customers bulking up on "more cost effective" transport could be read two ways: these customers are moving business to Level(3) and away from other providers, or these customers are opportunistically hammering Level(3) on price in a period of vulnerability. The remarks about financial services institutions and the European economy (KPN made the same statement yesterday) may be true, but then again I would naturally expect a lag here, as the real fun and games has taken place in Q4. As for the content distribution comment, my reading is that the contraction seen among "certain media and entertainment companies who may be dependent on external financing sources" points to some strain and cash-hoarding among the Video 2.0 start-up brigade, and I would assume that the growth among traditional media companies is supported by aggressive pricing.

Whatever the underlying dynamics, this company has unique assets and great people, and is under no imminent threat of default, despite the fact that the share price today seems to imply near term bankruptcy. Level(3)'s next debt maturities are $305m in September 2009, but the company has $587m in cash and equivalents, is free cash flow neutral in the past two quarters and expects to be positive in 2009, so the real test comes in March 2010, i.e., 16 months from now. Level(3)'s 11.5% bonds maturing March currently trade at 57 (!), so I have to assume that those who have taken a bath on the equity will be backing up the truck on the bonds in anticipation of a trade sale (at the current share price the company has a market cap of only $1.3bn) or eventual bankruptcy. This is the distressed waiting game, and it must be distinctly uncomfortable for those trying to focus on actually running the company.

Monday, October 20, 2008

From the ashes of disaster, 2.0 (now in HD)

Here's the TelecomTV segment I participated in last Thursday (not today, as the tagging erroneously says) with Simon Torrance (not Torrence) from Telco 2.0 and John Karidis from MF Global. It was even more fun than it looks, and I am, of course, actually much thinner and more poised than I appear. 

(For those of you not familiar with the Telco 2.0 view of the world, I would advise you to look at this inspired piece from March of this year, again featuring Simon, the eternally awesome Martin Geddes, and Norman Lewis, who, towards the end of the segment, puts perhaps as fine a point on the argument as one could hope for. From a purely selfish point of view, I am proud to have given the opening presentation at the first event back in late 2006, and it seems that we are still grappling with many of the same issues two years later.)

Friday, October 17, 2008

A day in the life

For those of you still battling the financial markets, my hat's off to you, and I have little to offer apart from my sympathy and an old North American folk remedy... Yesterday I was fortunately able to get away from my recently obsessive perch in front of the computer, basking in a red glow of stupifaction. 
My first stop in the morning was the studios of TelecomTV, where I took part in a panel with my friends Simon Torrance from the Telco 2.0 initiative, and John Karidis from MF Global, interviewed by the charming Martyn Warwick. The overall theme was similar to that covered in these posts, with the conclusion pointing towards a need to embrace different models in future. The finished product should be released on Monday, and I will link to it when it becomes available.
I next headed over to moderate a panel at the Streaming Media Europe event in the shadow of the beautiful Hammersmith Flyover (strangely, the hotel had no internet access). My panelists were Frederic Court of Advent (investors in Daily Motion), Alain Courtines of Intel Capital (investors in ManiaTV and Veoh), and Taavet Hinrikus from Skype, who is an advisor to Ambient Sound Ventures (investors in It was a very interesting exchange, which I can't really do justice here. However, the main points were: 
  • The current financial turmoil should not obscure the fact that the long-term prospects of video on the net are strong and we're only at the beginning of this revolution;
  • Monetization remains a challenge, and advertisers are still experimenting with formats, but content publishers are warming up to the space, and some old models (e.g., the "soap opera" approach) are staging a comeback (all this discussion was very consistent with what I heard/saw at the Level(3) event);
  • Given the paucity of exit opportunities for the foreseeable future, the VC community generally (not just Sequoia - it seemed that all the coverage around this irritated the panel) are taking a long look at their portfolio companies, reappraising cash burn thresholds and refinancing needs, and are changing their criteria around appraisal of new investments. 
  • The panel's view was that, apart from something with a really unique UI or other differentiator, new video platforms are going to be exceedingly difficult to finance. More likely targets for investment in the video space are technologies which allow cost-cutting, roll-ups of distressed competitors, enablers of better ad targeting, unique mobile iterations (Qik was held up as one example), and the like. 
Thanks to the Streaming Media people for the invitation (and the free meal!), and to my panelists for enduring both a journey to Hammersmith and 45 minutes in a room with me!

Thursday, October 16, 2008

Exaflood, schmexaflood?

I just got home, having been out at a couple of interesting events today (which I will blog after the kids are in bed). However, I notice that the awesome Kenjiro Cho and the IIJ team have once again produced what looks to be a very interesting paper on residential bandwidth consumption in fiber-rich Japan. I haven't had a chance to read it, but the abstract seems to suggest that their results may moderate the exaflood argument somewhat. 

Also waiting in my inbox this evening is an awesome-looking set of video presentations from ARCEP's seminar on ultrabroadband - there goes my evening!

Wednesday, October 15, 2008

Number one, and on the run

Back when I was a much younger man, dabbling occasionally in early hip-hop, the letters "PE" immediately brought to mind (beyond memories of humiliating episodes on the basketball court) "Public Enemy," of course. Now, as a somewhat older man, "PE" clearly stands for "Private Equity," though the two may still occasionally be confused in popular media coverage. 

I have recently made the point (here, and here) that there are going to be some very interesting opportunities around picking up the pieces from PE deals which, in hindsight, look somewhat less than inspired, or sales of good investments under duress. One doesn't have to look too far to see signs of strain emerging. 

First to Italy, where a private equity consortium has a controlling stake in directories/online media group Seat Pagine Gialle, whose equity has been crushed (-74%) this year. Yesterday, MF reported that the consortium was looking at consolidating its holdings in a single entity, as a precursor to taking the company private and finding a buyer. Today it looks as though perhaps this is not going to happen, due to a mandatory tender to the minorities which might subsequently arise, so it would seem that the PE parties involved are stuck in a holding pattern - probably not where they want to be. 

Next to Poland, where Icelandic investor Novator holds 30% of Netia, Poland's largest altnet in the wake of the Tele2 deal. Just two days back, Novator sold out of its remaining position in Elisa, which presumably reflects a need to claw back some capital, as one might infer from this article. At its current market cap of PLN903m, adjusted for a net cash position of PLN200m, Netia is trading at just over 3x EV/EBITDA on a prospective 2009 basis, which seems a bit harsh. There is obviously a significant overhang for anyone other than someone looking to take out Novator's stake, but I expect we may see that soon enough. 

Monday, October 13, 2008

Cable stress, 3.0

Two days ago I was having a discussion with someone about the strain that some of the leveraged cable names (ONO, KDG, Numericable, Ziggo, Virgin Media) are likely to come under in the new financing paradigm. Lo and behold, Virgin, to its credit, has taken the bull by the horns and asked to amend the terms on its senior debt, pushing amortization out to 2012, and paying a nice step-up for the privilege. That's a pretty strong statement on what they expect the credit markets to be like for the next three years. I wouldn't be counting on much participation from Virgin in the FTTH sweepstakes in the foreseeable future...

Manic Monday

Just a short post for today - I'm trying to stay focused on the tasks at hand. 

For the past 18 months, I (and my former colleagues) have sat in amazement as the equity market and many, many equity analysts, steadfastly ignored both the credit orgy and then the impending implosion. Looks like this still may be the case, though I think we have pretty ample evidence of the way things are heading. 

Elsewhere, here's a good example of why telcos don't build search engines.

Lastly, the presentations from the SCL Legislating Web 2.0 event are available at this site - highly recommended listening for those suffering fatigue with financial markets news coverage (in which case you'll want to skip my presentation).

Thursday, October 09, 2008

Where there's a will, there's a Willcom

To quote an old Southern adage, "I'm busier than a one-legged man in an ass-kickin' contest." However, this arrived in my inbox today, and I wanted to comment on it briefly because I think it's cool as well as illustrative of the gulf in thinking between some wireless players in Asia and Europe.

In case you've never heard of it, Willcom is a Japanese wireless operator (owned by Carlyle and Kyocera) using PHS technology (in contrast to PDC/UMTS/CDMA for the larger players). Given that it inherited a number of non-trivial competitive challenges from its previous incarnation as DDI Pocket, the company (in my experience) tends to think differently about its position in the market and how to exploit its strengths. (Of course, it doesn't hurt to have a handset maunfacturer as shareholder and development partner, which in itself is quite a unique situation relative to most cellular players.)

Perhaps the most significant difference with most other mobile operators I have observed is that Willcom has avoided the usually awkward shoehorning of a lot of extraneous content and services into the mobile experience. They concentrate on selling connectivity and voice (if you want it), and not much else, and three years ago they nailed the fact that their crown jewels were connectivity and the billing/authentication relationship, so they modularized it to free it from the handset and extend it to all sorts of devices. One identity bonded to a radio, on many devices, in many use scenarios, means more network utilization (Willcom has a huge number of cell sites because of the limited coverage of PHS), more revenues if the customer is on a metered plan, and presumably an increased resistance to churn because greater utility is being delivered to the customer.

Contrast this with my situation as an Orange customer - I have a voice subscription tied to a handset, with an extortionate data pricing plan for GPRS/EGDE use, as well as a 3G dongle with a 3GB cap. Besides appearing on the same bill, these services don't touch. I can't transfer unused data from my dongle account to my handset service, and I suspect that if I swapped SIM cards and started making calls from the dongle SIM I would get stung on call charges. I can't even use the dongle on another laptop unless it happens to have the drivers installed.

So, back to the news which started this rant. I don't want to translate the entire article, but the main point is that Willcom has jointly developed (with Buffalo and Sanyo Electric) a portable WiFi access point which again incorporates the W-SIM. WiFi on the fly for your non-PHS compatible devices (and those of your friends), but enabled by PHS backhaul (including on the subway lines) and a billable event which drives usage of the carrier's core assets. Not bad.

Wednesday, October 08, 2008

Color me anxious

Today I attended two very different events in the afternoon, but both shared a common sense of uncertainty and anxiety. The first was a "recruitment event" held at the beautiful Bloomberg offices on Finsbury Square in The City. This is part of Bloomberg's much-appreciated program of extending trial access to redundancy victims for 60 days, and is an interesting example of trying to preserve and enhance legacy customer relationships which telcos would be well-advised to learn from. I went along more out of curiosity than anything else, given my grasp of dynamics in the mainstream banking sector. It was an interesting, but vaguely depressing, event. The interesting part was turning up to find that the entire building had been evacuated for a fire drill, though when I first arrived I naturally thought that the recruitment event had drawn such a throng of participants that they had to be corralled across the street to maintain order. The vaguely depressing bit was that there seemed to be a lot of people there from Lehman Brothers, who had been truly shat upon from a great height, as well as other financial flotsam and jetsam, most of whom seemed to be going to great lengths to put on brave faces - understandably so. I also found it interesting that the queues for seeing the likes of CSFB and RBC were significantly longer than those leading to Citigroup and UBS, perhaps reinforcing the "frying pans and fires" view of the market at present. Finally, it was surreal to see some familiar Bloomberg Television "talking heads" sitting in the square during the fire drill, talking industry trash while we waited for the building to be declared "all clear".

Afterward, I headed over to the Broadband Stakeholder Group's presentation on Analysys-Mason's recent cost analysis of fiber in the UK. Matt Yardley and Steve Liput of Analysys-Mason did an admirable job, in my view, of dealing with some fairly hostile questioning, some of which seemed to me to be poorly informed (many attendees seemed to conflate operating/debt service costs and capital costs, of which the scope of the AM study by design only deals with the latter) and in some cases obsessional (one attendee seemed fixated on the case for greenfield developments in the UK, despite the current housing market ice age and the explicit exclusion of this topic from the scope of the AM study). Overall, it was a lively and interesting discussion, with some intriguing questions unanswered. Among them is the issue of incumbent ducts. In writing the report, Analysys-Mason took a view, in consultation with the BSG Directorate, as to what proportion of BT ducts might be usable in each technology scenario, but they concede that such information is not in the public domain and fairly nebulous. Some in the audience suggested that it is in BT's interest to overplay the scarcity of ductspace. International anecdotal comparisons offer confusing results - a EuroTelcoblog source connected to an FTTx deployment in another European country states that less than 1% of incumbent ducts were usable in its case, while this evening's panel cited the ARCEP duct survey as showing greater-than-expected availability in some cases. The ultimate answer to this mystery could lead to some significant swings in the cost assumptions, probably on a highly localized basis. There was also a lot of very interesting technical discussion which doesn't really merit discussion here, but the entire event was subliminally dominated by the carnage on the financial markets. The panel was asked about the specter of the UK being left behind in broadband development, and whether there was an imperative for government to get involved (with what, you might ask), but the overall view seemed to be, understandably, that, given the current state of the markets, NGA may remain a dream deferred for the foreseeable future. I agree, though it pains me to say it.

Which brings me to the ugly chart of the day: the S&P 500 from the lows of late 2002/early 2003 until the present. Nice "brick wall" formation in evidence in recent sessions, and only another 20% downside before we test support levels around 800. Burn, baby, burn.

Tuesday, October 07, 2008

Highway to Yell

Here's a glimpse of things to come, at least for the lucky. Yell, like much of the rest of the directories sector, has seen its equity crushed (down 76% year-to-date), and its debt whacked, seemingly reflecting waning market confidence that it can reinvigorate itself in the face of a secular shift to online advertising and a generational shift to search/recommendation engines and away from traditional directories. Clearly sensing that it is in for more pain as advertising spend contracts, secular shifts intensify, and businesses fail, it is sensibly asking for more headroom in its debt covenants, but notice that it is paying a 1% step-up and 0.5% consideration for the amendments. (I like the reference in the press statement to the effect that acceptances were overwhelming - is that really surprising after the bloodbath of the past month?) I almost feel sorry for these businesses - most were sold under financial duress by the telcos, or because their former owners didn't really get why they should be in the space, and now have to find their feet without all the potential benefits of telco ownership. This is a shame, because I believe the directories players would be hugely beneficial to telcos as a complementary sales/relationship channel, and the telcos could be the engine which revolutionizes communications, business processes and customer care for the currently withering client base of the directories companies. Hindsight is 20/20...

Monday, October 06, 2008

Ugly chart of the day - Armageddon edition

Ever feel like you're living through the first 45 minutes of a disaster film? You know the drill - smug and unrealistically prosperous community is faced with unprecedented events, greets with curious shrugs, more unprecedented events, news coverage containing ominous plot foreshadowing which is universally ignored, more weirdness, mounting sense of anxiety, more unprecedented events, frantic news coverage - followed in the second half by panic in the streets and the end of civilization as we know it. Well, in case you haven't seen it before, this is the VIX, the Chicago Board Options Exchange Volatility Index, an oft-cited indication of market volatility (using the S&P 500 as a proxy) over the coming month. Last week there were sharp intakes of breath (including yours truly) when it closed at 47 on Wednesday and finished the week at 45. As you can see, it closed today at 52, having surged towards 60 during the trading session. A weekly close of 45 is in itself unprecedented, based on the data I can find on Bloomberg, as is a daily close above 50 - and that includes such spectacular nightmares as the Asian crisis of 1997, the Russian crisis of 1998, 9/11, and the worst parts of the 2002 gloom. So, if you awake tomorrow to find zombies in your garden, a giant spaceship over your house, or a lot of ice, it's because the second part of the film is about to start. Goodnight and good luck. Maybe catch you on the beach next summer?

More datacenter expansion

Last week we saw Digital Realty Trust report accelerating leasing activity, in contrast to the gloom afflicting many other markets, and today Equinix ponies up an additional $30 - 35m for a third Paris datacenter, adding 116,800 square feet (I presume this is net) to its assets there. I still have questions about the lag effects from the current downturn, but I don't expect Equinix would have gone ahead with this if the new center hadn't already been pre-booked to at least EBITDA breakeven level. I would love to see a client list, or at least a breakdown of industries.

The curious semantics of "up to"

There's been a lot of discussion in the UK about the appropriateness of using the "up to" tag in broadband marketing campaign connection speed claims. Given that average speeds tend to be significantly lower, maybe these would be a better basis, but this would likely differ from exchange to exchange, which doesn't make for for a tidy national advertising campaign - and obviously, average speeds are less flattering to some than others. It's a genuine quandary, and doesn't bolster customer faith in the broadband value proposition. Still, in the UK, we're talking about missing expectations by a few megabits, though these can be significant - see this study previously pointed out by Benoit, and locate the UK in the rankings. In the relatively fiber-rich French market, the stakes in the "jusqu'à" marketing war may arguably be higher, partially because UK consumers are used to disappointment [:-)], and partially because the gap between claim and reality will yawn wider in future. If I'm reading this article (link removed - see UPDATE below) correctly, a test of Numericable's "Up to 100Mbps" FTTx product by an author previously on the 30Mbps shows effectively no change in throughput - a gap of over 7oMbps. Now that's marketing!

UPDATE on 7th October: It turns out that the PC INpact guys were running the test using a plain vanilla DOCSIS 2.0 modem, which accounts for the 30Mbps peak throughput. They have issued a mea culpa, and are apparently awaiting a "pre-3.0" NetGear CBVG834G to replace it.

Sunday, October 05, 2008

Sunday night links

Gearing up for another week of apocalyptic market shenanigans? Lost for something to send you off to sleep on a Sunday evening? I have a remedy...

  • My friends at E-Comm are looking for interesting speakers. Don't be shy, you know who you are...
  • During my final days at ML, one of the corporate-speak phrases which I heard (though not, I should say, from my bosses) with rather more nauseating frequency than I desired, was "blocking and tackling" (how does one block and tackle a systemic implosion in global financial markets, exactly?). This has various definitions, but I guess in incumbent-speak it means, "by any means necessary." Mid-way through this blogpost (and again in the comments) is a description of how this works in Spain. Telefonica may be treading a dangerous regulatory path, however, if it is too successful in thwarting its competitors. Jazztel lacks the scale to be properly competitive, ONO's leverage could crush it in the current downturn, and it sounds like Orange is having trouble (quell surprise!). (Muchas gracias to a Mega-Uber Eldorado class reader for this obscure tip.)
  • Having received this press release early yesterday morning, I'm still trying to work out precisely what it is trying not to say...
  • A fantastic example of Happy Meal financial journalism, in case you're in a hurry.
  • Right-wing credit crunch humor (with stunningly limited participation so far).
  • Where would financial firms end up translated onto a Monopoly board?

Friday, October 03, 2008

Multiple ouches of the day

Trying to get caught up on some research, so just a few links for now:

Help, my hedge is on fire!

Cisco/Polycom/Tandberg salespeople, get on the phone - corporate travel is uncool.

AlcaReach or OpenLu?

T&C = torment and consternation?

Thursday, October 02, 2008

HD ready?

My friends at Level(3) were kind enough to invite me along yesterday to their event, "HD Online: Can it be a Commercial Reality?" at BAFTA, which, perhaps unsurprisingly, has a very kick-ass presentation suite/screening room. The presentations were almost all uniformly interesting, with many common questions (how can ISPs be incentivized?, are ISP costs properly aligned with pricing?, can this stuff actually be monetized?) and a variety of answers/opinions. I can't go through each presentation in great detail, but will attempt to present the most interesting points. I found it to be a thoroughly informative and interesting day, and a great place to meet interesting, knowledgeable people. It always surprises me when I go to events of this nature and find no other financial people in the room.

Joe Trainor from Level(3) was the moderator for the morning session, and began with a couple of interesting points to highlight the fact that we are only at the beginning of a wild ride. New technologies initially start out aping their predecessors (early radio consisted of people reading the newspaper, early television consisted effectively of images of a radio announcer reading the news), before developing in unpredictable directions. And the gap between the arrival of a technology and its commercialization should not tempt us to be dismissive: John Logie Baird demonstrated television in 1926, but it was a full 15 years before the first TV ad was sold, to Bulova in 1941, for the princely sum of $9. The parallel with online video is that, while the first video stream rolled in 1993, it is only now, again 15 years later, that the industry is seriously trying to deal with the economics of this new distribution medium.

There followed two very interesting presentations, by Anthony Rose and Andy Quested from the BBC. Anthony Rose seemed to express fatigue with the iPlayer bandwidth debate, and stated his hope that the industry could now move on to consider issues around ISP incentivization and monetization. The iPlayer team has resisted the temptation to play out HD content so far, due to concerns that the experience would be unsatisfactory for many consumers, due to contention rates on DSL connections. (Unless I misunderstood his remarks during the Q&A panel later, I believe he said we should see some HD content on the iPlayer "this side of Christmas," probably encoded at around 4Mbps.) The iPlayer server farm, which apparently consists of 60 dual/quad core machines, transcodes content into "six or seven" codec/bitrate flavors, with the average in the 500 - 800kbps range (the latter being for H.264). The BBC is starting a trial of 1.5Mbps H.264 on the iPlayer to Virgin Media's 10,000 50Mbps trial customers in Ashford, Kent. The BBC's view is that the minimum threshold bitrate for HD is >3Mbps (though it's interesting to note that their "true" broadcast HD content goes out at 16Mbps or higher), which would be challenging for a lot of broadband connections and would risk high buffering levels. So there is a necessity to make sure the experience is not out of line with what HD TV viewers have come to expect. An essential ingredient in ensuring this would be an end-to-end dynamic adaptive bitrate system, but this is not a trivial exercise from a technology standpoint.

He made a case for the BBC's role in assembling the puzzle pieces for "others" (presumably ISPs) to build a business model around the iPlayer. He expressed an interest in working with ISPs to develop tiered service offerings to more closely align costs with revenues, as well as to cooperate on technology-based strategies to alleviate pressure on networks. Among these is a trial of Velocix network caching in three London suburbs (presumably this is with Virgin Media, but this was unclear).

Andy Quested, who is chief technologist on the HD side, gave an entertaining presentation, including a lot of pieces of sample footage encoded at different bitrates, in some cases shown in split-screen format, in order to demonstrate the variations in quality and the effects they have on different types of content (the flaws in lower resolution versions of a costume drama are much more tolerable than in a sports event, for example). He started out by observing that "HD" has developed into a brand phenomenon with many connotations and embedded expectations (he even had an ad for a pair of sunglasses which claimed to be HD - incidentally, this blog is coming to you in HD as well), which makes it a minefield if the user experience is not up to scratch. He also observed that the single greatest impediment to reaching true HD potential is the SCART cable, and that a large proportion of the complaints he receives on the broadcast HD service ultimately come down to cabling issues and incorrect surround sound configurations - yet typcially the unquestioning consumer only sees the experience as being less than what is promised.

Next came Kevin Baughan from Virgin Media, who highlighted that the Virgin TV iPlayer contributes 1/3 of all iPlayer sessions, at 11m sessions per month. There was other discussion about the "analogue dividend" and the eventual convergence of video and broadband bandwidth under DOCSIS 3.0, but the topic which really intrigued me was the question of storage vs. transmission. Virgin is experimenting with both edge/network caching, and in the Ashford 50Mbps trial area, has provisioned a 10Gbps link directly to Level(3), in an attempt to answer the question of whether storage trumps transmission, or the reverse. He conceded a fair number of unknowns around edge caching, such as predictability of demand and economics. I will be curious to learn what they determine in the process, but one intriguing idea he floated was that perhaps ISPs should be building their own internal CDN capabilities, striking deals with other CDNs and content players to mirror the most popular content.

There followed Phil Townend from ids, with some interesting observations on advertising. He cited forecasts of growth in online video streams in the UK from 250m per month in mid-2008 (of which the iPlayer only accounted for 1.2%) to over 650m per moonth by 2010, with ad revenues reaching £200m by 2012. Forecasts aside, there is current evidence of some serious traction in the market: Virgin Media has apparently sold 40m pre-roll ad streams so far in 2008, and PHD (part of Omnicom) now includes a tranche of online video ads in every TV campaign they run, apparently as an experiment. He also pointed to large opportunities to open up new industry verticals - for example FMCG giants like Unilever and P&G only spend around 2% of their total advertising budgets in online, but he believes online video may be just the sort of environment to pull them in. Another interesting observation was that the industry needs to move beyond pre-roll video ads, as they are too disruptive and test viewer patience, to the extent that a 30-second pre-roll generates abandonment rates of 40%, vs. only 15% for a 10 - 15-second clip, which has now unsurprisingly become the dominant format. He went on to show some examples of overlay ads and "in-skin" ads/branded media players. In the case of the overlay example (Kraft Foods), there was a standard pre-roll, then an overlay over the core "program" (itself an infomercial), which, when clicked, pauses the core program and presents another clip which gives more specific product information. His point here was that one piece of content can now be sold as three separate avails, effectively trebling the CPM. This was a key area of interest in the panel Q&A which followed, given that ad revenues in an HD environment will need to offset the transport costs of the content, which are likely to be at least a factor of four times those of standard definition video.

The speakers were then reassembled onstage for a panel exchange and Q&A. There was a fair amount of repetition here, but a few very interesting tidbits came out. On the inevitable question of the incentive for ISPs if CPMs remain static but delivery costs quadruple, Andy Quested answered that maybe the real question is whether audiences will watch non-HD material in future, pointing to HD displacement of SD equivalent channels in viewing patterns in the US. Anthony Rose chimed in intriguingly, alluding to a TiVo-like "season-ticket" predictive functionality in the works for the iPlayer, which would download content overnight, when most networks are relatively quiet. The next time the user visits the iPlayer site and clicks on this content, it will begin playing, but from the hard drive rather than as a stream. Kevin Baughan proposed that there is actually a need to move beyond the CPM to some other more suitable measure, such as share of attention, or duration of session. If the average duration of a single view on YouTube is under three minutes, then should advertising around this be priced in the same way as a session viewing long-format HD content (the BBC guys pointed out that the average iPlayer view is 22 minutes, with the average session consisting of two programs, i.e., 45 minutes, with very high completion rates)? The conclusion was probably not, but the industry is obviously going to take some time to work out appropriate metrics and structures.

After a top-notch lunch (can food be in HD?), Griff Parry, head of on-demand services at Sky, took a somewhat more cautious tone. His main messages seemed to be that the industry should concentrate on doing SD on the web properly before attempting HD, and that linear TV is far from dead. In support of the latter point, he cited viewing figures which show that, even in Sky+ households, 79% of viewing is still live/linear, despite 1.4 billion instances of time-shifted viewing on Sky+ last year. His take on HD seemed to be that it is currently a niche product for Sky, though it is emerging as a customer acquisition tool. As for HD online as a commercial proposition, he didn't rule out the prospect that it might eventually form a new channel for Sky subscriptions independent of satellite, but the overall impression was that this was a dark horse.

Microsoft followed with what was, in my opinion, a fairly dull presentation - the only relevant point of which I can recall being, that in the Democratic National Convention streaming project, jointly provided by Microsoft, Level(3) and Move Networks, the average viewing session time was a whopping 107 minutes.

Next came John Edwards, founder and CEO of Move Networks, in what was, for my money, the most interesting presentation of the day. Here we have an over-the-top video technology with 50m definable endpoints, 12 petabytes of traffic per month, average viewing durations over 60 minutes per session, a unique dynamic adaptive streaming capability coupled with a one-time "simulcoding" approach, edge caching solutions, time-based and geo-based ad targeting - in short, what more could we ask for? One really interesting illustration of the power of Move's platform, which tied in nicely with earlier discussions of the need to move beyond pre-roll ads, was the "Toyota Intermission," which consisted of a talking torso with five video frames above her head and to the left side of the frame. Four of the five frames seemed to relate to specific aspects of the car model on display, while the fifth frame was an avail for a local Toyota dealership, generated by (apparently) a commercial relationship and the geo-targeting capability of the platform.

Sadly, due to a previous commitment, I had to leave early on during the final presentation, which was by Steve Allison, Technology Evangelist for Adobe, so the only bits I caught which were of interest were that Flash 9 is at >90% penetration of global PCs after less than one year, and that Flash has shifted 159 petabytes of data so far this year.

Overall, this was a great event, though I left it with far more questions than answers. I noted, during informal chats with other delegates, that there was a concern with the "real economy" which threw the reality of the proceedings into question. I can't offer much solace there, except to note that some of the big "bubble era" stock victims of the 1929 crash were in fact radio companies, then a highly speculative segment, which ten years later developed into a hugely profitable and influential industry, which is still with us as a powerful force today, though unrecognizable from its orignal form.

UPDATE: A Palladium Club Mega-Uber HD Value Reader points me to a highly relevant and interesting paper from the excellent Dave Clark, which should be of interest to anyone interested in this topic.

Not all realtors are suffering

Interesting counter-cyclical datapoint just in from Digital Realty Trust (yes, I am a closet datacenter fan, though I haven't spent much time on the subject here - yet). It's interesting that the company signed new leases on nearly 50% more turn-key datacenter space in Q3 than the amount in previously signed leases which commenced during the same period - and at a significantly higher average price per square foot. In other words, there seems to be a marked acceleration in commitment to datacenter expansion as we head into recession. Maybe there's a lag effect in place here, and I will be curious to see what happens next quarter, but then again, my sense is that there was enough bad news already on the radar in Q3 that datacenter expansion projects could easily have been deferred - unless of course, they were deemed as absolutely essential regardless of the macro picture.

Another uplifting piece

If you don't like scary stuff, then please don't read my recent piece over at the Telco 2.0 blog.