Wednesday, February 25, 2009

Starless and Bible black

It's bad to feel that each sporadic new post on this humble bloglet requires an apology for the yawning gap since the last. But I fortunately have a good excuse, having been stranded in Africa for the past week. I write this from a net cafe in Freetown - please send money, and also the PIN to your bank account and credit cards if possible. 

Sadly, this is not true. I have been absorbed in start-up activities - investor presentations, brainstorming with my wonderful colleagues, work on the pipeline, meetings with external partners, and generally absorbing the astonishingly black newsflow which overwhelms us all (thus the pretentious title of this post - King Crimson, yes, but I had in mind the description of night in the opening line of the original source, Under Milk Wood). Pretentious it may be, but I think it fits, as we are in an economic night both starless (as in no star to steer by), and Bible black, because there are none more black.

If you can detach yourself from the fear and anxiety permeating the world at the moment, it's actually quite exhilarating to think that we, the human race, are in totally uncharted economic waters, though the climate change campaigners would yawn and rightly say that we've been there for years - it's only when there's an abstraction like money at stake that people sit up and take notice. 

For anyone born in the West after 1945, up to now, no matter how bad things were at home, the truly bad stuff always happened elsewhere. Globalization, however, is one hell of a leveller. How we handle the current crisis will define how we see ourselves as a civilization for decades to come, and indeed whether there actually are decades to come as a civilization. 

So far, I'm not encouraged. Seeing Ben Bernanke yesterday being interrogated by a group of Senators whom I would describe collectively as relatively ill-informed and inarticulate at best (one stumbled several times over the word "chaos", which he apparently encountered unprepared in the statement written by his aides, which he was obviously reading for the first time during the hearing) really drove home how little policy-makers seem to grasp the mechanics of the capital markets and banking world - yet they seem all-too-eager to prescribe remedies and feel-good soundbites. 

I also had the dubious pleasure yesterday of reading a note from Bob Janjuah of RBS, who is glumly entertaining to read. Cutting to the chase, he's talking about a 4% contraction in G7 GDP in 2009, followed by 0% in 2010, S&P 500 at 550 (vs. 765, where it closed today), multiple credit rating downgrades for "solid" investment grade credits, etc. I would add that the market still doesn't seem as worried at present as it should be about company pension blackholes, nor does anyone really know where a huge amount of senior corporate debt on the balance sheets of banks is actually marked - my guess is unrealistically high. 

And I had a fascinating meeting today with someone in the restructuring space, who made the interesting observation that the severity of the current downturn may eradicate the relatively rational, consensual niceties which surrounded restructurings in the previous downturn, in favor of more aggressive, irrational behavior and litigation. Good news for bankruptcy lawyers, but I'm not entirely sure what existing investors or other stakeholders can make of all this.    

So what does this mean to the average geek? Apple-obsession, gadget-porn, Google-worship/bashing, et al, are nice pastimes, but sadly they don't count for much in the very difficult meatspace we all occupy now. I have written previously about the defensiveness of telecom and the potential for meaningful reinvention arising from the current nightmare, but reading it again today, nearly six months on, it seems a bit contentious. I also produced a piece a few months ago, which was fundamentally satire, but underpinned by a genuine concern that this problem could end up being much more serious than anyone was willing to admit at the time. 

Between the two pieces, given the evidence to date, I would now have to clearly fall on the side of the latter. In other words, while I firmly would like to believe that mobile and broadband are fundamentally services which should easily displace other forms of discretionary spending under "normal" conditions of duress, what remains highly uncertain is the denominator - i.e., how much consumers will have to spend in the first place. Or, indeed, how many "consumers" there actually will be out there a year from now, and how they are captured and retained. Over to you telecom - good night and good luck.

Monday, February 16, 2009

Fiber, schmiber

In the wake of the Copenhagen fiber love-in last week, a multi-platinum mega-uber value reader alerts me to a review of the event published by NLkabel, the cable trade association previously known as VECAI. My Dutch isn't what it used to be, but my source tells me that the main conclusions are - wait for it - that there are no new services for fiber, that the social and economic benefits are unquantified, and that the main driver of fiber deployment to date has been the competitive dynamic in markets where it has occurred.

I'm more intrigued by the choice of images in the report. Look at the photo on page 2 - don't you think that the attitude of the woman's shoulders betrays an underlying depression, because fiber events are boring and the whole endeavour is ultimately pointless and doomed? Or the picture on page 3 of the man looking wistfully into the middle distance from his perch at an empty display stand, wishing he'd had the foresight to train as a CATV installation technician - instead of becoming a lonely FTTH-loving loser... Or the two photos at the bottom of page 3, which definitively prove that a) video looks blurry over fiber, and b) fiber dudes are misfits who look like they come from the ranks of a ZZ Top tribute band.

It's subtle stuff...

Meanwhile, if you, like me, are skeptical that we will see any meaningful deployment of fiber in the UK before the ending of this song, then you probably won't be any more encouraged after reading this news snippet. I have often heard it said (and indeed have said it myself) that BT is a gargantuan pension fund with a small telco attached, but this really brings things into perspective, or as Spinal Tap would say, too much perspective. Should the worst happen, what do you suppose the government's appetite for a £30bn fiber deployment could be once it has absorbed BT and crystallized its financial obligation under the Crown Guarantee?

Wednesday, February 11, 2009

Distracted 2.0

Well, mega-uber value readers, it looks like I'm failing miserably in my intention to post more frequently. It just happens that I'm preoccupied with pre-launch preparations, investor meetings, and the like. Very exciting stuff, and I promise to share what I can in due course.

Greetings to all my erstwhile fiber geek friends whom I'm missing this week in Copenhagen. This is the first conference I've missed in four years, so please don't have too much fun without me, though in Copenhagen in February, that may not be too much of an ask...

However bad it might be in Copenhagen (disclaimer: actually it is a wonderful city - I'm just jealous), at least there's more fun to be had than in some corridors of power in Brussels, where it appears that a cat-fight may be developing between Ms. Reding and "Nickel" Neelie Kroes. Dutch version is here, Google translated English here. I have no real insight into the implied allegations contained here, but no doubt if there is any substance to them, then it is pretty explosive stuff.

In any event, given that I have little to say, and that any market commentary from me would be mostly negative, I thought it might be best to focus on the ridiculous, for a change. So, here goes.

Firstly, via the NANOG list, check out this amazing gallery of cabling nightmares. Words fail me.

Secondly, I recently stumbled across this bizarre collection of lovingly-crafted Dictionaraoke tracks. AC/DC fans click here, Black Sabbath fans here, Beatles fans here, Smiths fans here.

Lastly, I have rarely laughed so hard that I both cried and choked at the same time, but this piece of video from the incomparable geniuses at The Onion takes the prize. If you're easily offended by strong language, or are a member of the Sony legal team, you should skip it. For everyone else, and for anyone who has ever struggled with the installation of a piece of consumer electronic paraphernalia (Sony or otherwise), take a deep breath and enjoy.

Friday, February 06, 2009

Watch your back

Happy Friday. If you're finished reading your copy of the Financial Times, whatever you do, don't give it to a friend or colleague - you might find yourself on the wrong end of a lawsuit... Silly me, it looks like dramatically different rules apply between the physical and virtual worlds, to cover identical content. The disclaimer in my physical copy of the paper only talks about copying, not about sharing. Still, this sort of thing is good news for IP lawyers, or at least those who haven't moved over into bankruptcy practice, where all the real fun is. Not that IP lawyers have any shortage of career options, at least not in the US, where government beckons for some. It's intriguing to think about what's going on inside an administration apparently committed to universal availability of broadband and net neutrality (whatever that really means), but with a legal team like this on the bench. How do you spell change?

Wednesday, February 04, 2009

Taking the fiber challenge

It's not often that I copy and paste an entire press release, but it's not on the site yet, so here goes. This is another very clever (though not entirely unexpected) move by KPN, which is a nice incumbent validation of point-to-point fiber and more generally of open networks. And one has to assume that this is very unwelcome news for UPC, which still derives around 15% of EBITDA (at a nice margin) in the Dutch market, centered on Amsterdam. 

KPN participates in fiber roll-out in Amsterdam

KPN announces that it will participate in the fiber network roll-out in Amsterdam through its Reggefiber joint venture. For this purpose, the Reggefiber joint venture takes a majority stake in Glasvezelnet Amsterdam (GNA), an existing joint venture with the municipality of Amsterdam and several housing corporations. The Reggefiber joint venture does not require additional cash contributions from KPN for increasing its stake.

In the coming years, GNA will be responsible for a further and gradual fiber network roll-out based on Fiber-to-the-Home (FttH). During the first stage, it intends to realize some 100,000 homes passed on FttH in the next years. KPN intends to offer services on this network.

For KPN, participation in GNA via the Reggefiber joint venture is a next step following the establishment of a joint venture with fiber construction company Reggefiber in 2008. This joint venture is focused on the roll-out of FttH networks in the Netherlands and the company will roll out the Amsterdam network as well. Just like Reggefiber’s other fiber networks, the network in Amsterdam will be opened up to KPN and other service providers.

KPN is currently involved in pilots in ten cities for fiber, five of them with FttH. In the second half of 2009, the results of the pilots will be used to determine the speed and direction of a possible further fiber roll-out. After delivering the first 100,000 connections in Amsterdam, it will be assessed if and how a further roll-out in Amsterdam would be appropriate.

The proposed joint venture is subject to approval from the competition authorities. 

Sunday, February 01, 2009

Snowy Sunday

Tomorrow may be Stormy Monday (at least that's what they call it), but this evening we are having heavy snow in London, which is quite surprising given that snow has been rationed here since 1943. 

I have been very quiet of late, largely because my focus has been on setting up the new fund. So most of my time in the past couple of weeks has been absorbed in working on the pipeline, doing some writing, and taking in the sheer immensity of the problems facing the market. Without saying too much, I think it's sufficient to note that we are seeing some situations (admittedly not in telecom) which are stunning in the rapidity of their deterioration, and we are also seeing some pieces of capital structures trading which don't trade in normal circumstances - suggesting that there may be a further unwinding of positions (possibly under duress) taking place.

On top of these sorts of capital market-centric indications of what's going wrong, there is plenty of other evidence in support of the view that we are in for many nasty new surprises. Which makes it surprising to me to read that 33% of respondents to a survey on distressed investing seem to think that the bottom is upon us now. 

I disagree, and the moment of epiphany for me last week was reading that NBC's final unsold Super Bowl commercial slot went to a glorified pawn broker. Super Bowl ad slots have historically been a showcase for global consumer brands to make their most memorable statements for the year ahead. During the boom/bubble era of extravagance, the easy-going zeitgeist was reflected in the ads - now we have an interloper in the form of a company serving people feeling frightened and vulnerable enough to sell their gold for cash, despite the fact that the "smart money" is actually doing the opposite

I was also somewhat taken aback (though, in retrospect, I'm not sure why) by a release from Equifax (not yet on the site at this writing) suggesting that a large proportion of UK respondents have at most a one-month financial cushion in the event of redundancy. It's not pretty, and thus I don't buy all this talk of a second-half recovery, because I think the stress in the system, at the small business and personal level, is perhaps more negative than many are taking into account at present. And none of this seems to take into account the specter of new nationalism and grassroots anti-globalization, which has never been a particularly positive force.

I am worried, but what the hell, it's a new week ahead. No doubt there will be worse and more ridiculous to come.

If you're finding it hard to get to sleep, here's some recommended reading material:

I will endeavour to post more frequently!