Ugly chart of the day: Morgan Stanley

I promise this is not turning into a financial blog, but I have experienced in my career four events which I would classify as significant market corrections, and I have never seen anything like what is happening now. Today's horror story is Morgan Stanley's share price graph, grabbed a few minutes ago. I think this is what they call "conviction selling." For those unfamiliar with technicals, this is a candlestick chart, and the candlesticks at the top are the intra-day trading range of the stock, bars at the bottom are volume. What is striking, apart from the sheer magnitude of the drop, is the huge price swings in the last couple of sessions, and also the volume. It's not total capitulation, but it's damned close.

UPDATE at 10:50 PM London: MS has staged a late rally back into positive territory, which is of course great news, but I wonder what underpins it. Funds refusing to lend stock to shorts, rumors of rescue packages, etc. - maybe positive for the firm specifically, but do these really alter the fundamental landscape? I would say no.

Imax sized iPhone

How cool would this have been if they'd set this up to actually display a (moderated) stream of photos taken with iPhones all over the world, akin to Flickr's "Everyone's Photos" RSS feed? That would have been both HUGE and interesting... (FYI, this is the Imax cinema near Waterloo Station, and the entire facade of the building is wrapped in iPhone/O2 advertising.)

Appeal for help

Monday after the TEN panel which I chaired, a couple of sell-side analysts, whose names I knew but had never met, approached me for a chat (nice to meet you guys, and thanks for the support). One of them stated that he thought this blog was quite widely read by analysts on the buy-side, which was news to me. I monitor my traffic with interest, but this only offers limited insight into readers' identities. In any event, if you are on the buy-side, covering or investing in telecoms (credit or equity), I'd like to ask for your assistance in a research project I'm working on at the moment. It would involve either a chat on the phone to cover a few questions, or responding to a few questions via email. All responses will be treated with complete discretion and confidentiality, though you may end up being quoted or paraphrased anonymously. Ping me here if you're interested.

Ugly Chart of the Day: And Then There Were Two

CDS spreads on Goldman Sachs and Morgan Stanley. Goldman at 620 over on CDS, and equity down 14% at today's close (having been down much more earlier in the session), both absolutely unthinkable a year ago (some would say it couldn't happen to a nicer group of people). Morgan Stanley (which is apparently talking to Wachovia and HSBC) at an even more unthinkable 998 over on CDS (i.e., roughly in line with a typical distressed cable/altnet company), with equity down 24% today. Double ouch...

Ouch of the day: One Lilliputian Liverpudlian family wanted

This story isn't very good press for English builders. Bring on the Olympics!

Via a charter Palladium Club mega-uber value reader.

From the ashes of disaster...

The U.S. government has clarified its stance on "moral hazard" by allowing a major investment bank to fail. The International Swaps and Derivatives Association is so focused on orchestrating an orderly unwind of Lehman's positions that it held a special trading session on Sunday and has even canceled its own members conference, which should have taken place today (perhaps they were afraid that the offer of a free lunch might trigger a riot).

AIG now appears to be on its knees, and apart from the human consequences for its 100,000 employees and consumers of its more conventional insurance and re-insurance products, its demise would make the credit derivatives market significantly more complicated. Sparing readers the tedious technical details, this is significant because: a) the market is huge - Moody's estimated credit default swaps at $62 trillion back in May (that's the nominal, but replacement cost, which they think is more relevant, was a mere $2 trillion - in any event, as CDS has evolved to be a speculative trading, rather than commercial hedging, instrument, the contracts outstanding outstrip the underlying assets many times over, which may bring some problems of its own in time), and b) transactions are off-market, with limited visibility as to who's doing what, and with whom. So it's only when the music stops that we learn which counterparties are exposed, and I assume an AIG implosion would cascade through similarly positioned insurers, hedge funds, and the remaining prop desks in a very ugly fashion.

We're now more than $500bn down the road in the inappropriately named "credit crunch." I say inappropriately named because, to me, "crunch" implies a sharp, ephemeral episode of pain or distress, but this is more akin to a pandemic wasting disease, and I think it represents a fundamental realignment of the way capital will be sourced and allocated in future. Why should the denizens of Telcoland care? Well, because, as with most crises, there will be huge challenges and opportunities ahead.

First, the challenges.

1) Confidence, be it within the corporates (as we can see in the spike in inter-bank lending rates) or among consumers, is firmly in the toilet, ready to be flushed. Prepare for an aversion to spending, and for some of your customers to disappear.

2) Liquidity, where it exists at all, is going to be more scarce and costly. Given where LIBOR is at the moment, this could get very ugly indeed - in desperate cases, say where the margin over LIBOR is 1000 basis points or more, companies will be staring down the barrel of 17% annual interest rates. For the more creditworthy, things won't be so dire, but it still will be a noticeable uptick. I trawled quickly through some Bloomberg data on debt maturities for six telcos (Vodafone, DT, FT, Telefonica, BT, and Telecom Italia), and it is interesting to note that the average fixed coupon for this group's current debt is just over 6%, i.e., below the level where banks are currently willing to lend to one another, let alone anyone else. However, these six companies combined have EUR37.5bn in debt maturing in 2009 - 10. It will get refinanced, but every 100 basis point increment above where coupons are now adds EUR375m in interest payments. Not crippling, but not trivial either. Do you grow dividends at the expense of capex?

3) Speaking of capex, a friend earlier today described it as the elephant in the room. If we assume that the industry globally needs a $1 trillion access overhaul, as some are already under competitive pressure to provide, then something's got to give. Do you play "squeeze the vendor" as your only card, defer certain projects, or find creative alternative structures to keep it off your balance sheet in the near term? Do you suddenly find that the municipal broadband "hippies" are worth talking to afterall? Some of them might have access to cheaper finance...

4) Back to liquidity more generally. It seems clear that those investment banks which do survive are likely to be constrained by commercial and financial realities, and possibly by regulation, to a narrower mandate in future. So those with a business falling outside the "suitable for widows and orphans" category probably won't be able to reach out to the principal investing units of Wall Street nearly as easily as they could before. Hedge funds with dry powder can always fill that gap, I suppose, but it won't be cheap money. And the hedge funds themselves aren't exactly setting the world on fire as a group (keep in mind that this table may look different depending on when you read it, but at this writing, the Credit Suisse/Tremont AllHedge Index is down 6.07% year-to-date as of the week ending 8th September, i.e., before the most recent round of carnage). There's always private equity, but as I pointed out yesterday, we might actually find a bias towards disposal of assets here in some cases, and in any event, with the markets in the state they're in currently, it is inconceivable that PE firms will achieve the kind of exit IRRs they might have envisaged two or three years back (I'm thinking here of some of the European cable deals which got done at eye-watering multiples - in some cases they're very decent companies, but I can't see an easy exit for any of them.). And it's probably really bad if you're an early-stage company. Everything I hear tells me that there is not that much happening in early stage among the VC community, particularly in Europe, and those who are active can be extremely selective. I expect a good number of the later-stage venture-backed companies may also struggle to attract fresh capital, especially if their funding is premised upon the promise of a traditional exit. It ain't gonna happen, at least not at 10x revenues, unless you've got something really special. I should think that the outlook is particularly poor for companies created to speculatively build large communities, in the hope of finding a revenue model down the road. Don't get me wrong, I love the value and benefit that these sites bring, but in a time of severe capital constraints, it's going to be a hard story to sell. That pretty much leaves sovereign wealth funds (I don't know about the IMF, but I think $3 trillion is a lot of money) and family offices, but they will know that they are in the driver's seat and can be highly selective.

Okay, I think that's a sufficient dose of pain on the challenges side. What about the opportunities? I know times also seem hard in Telcoland, but let's face it, your margins are still at a level other industries would kill for, and it is not uncommon for even relatively small companies to produce EUR2 - 3bn in free cash flow annually. In the land of the broke, the man with one euro is king, so how might you deploy some of your relative wealth in a way that might really make a difference?

1) People - The collective stupidity of Wall Street should not obscure the real talent and intellect that rests with some of its individuals. As these firms implode, they will release some very bright people, some of whom have an intimate knowledge of their own industry and industries they have covered/invested in/done business with. Take this chance to diversify your telco DNA, particularly if you really have aspirations of competing with the likes of IBM.

2) Assets - Clearly, there is going to be a lot of distressed selling of assets. Fancy a Bulgarian incumbent or a Dutch cable company? I might just have the deal for you. But it won't just be big iron assets. As I pointed out earlier, I think a lot of venture-backed companies are going to end up in distress, and some of them may possess technology platforms and/or communities that you as a telco actually can monetize. However, you may need an outside perspective to do this (going back to my previous point), or you may need to radically change the way you think about where to take your business and how to get there. There will be huge opportunities, but it will require something other than conventional telco thinking, because the best answers will not be the obvious ones.

3) Engagement - Rather than simply waiting for companies to end up here before acting, why not partially fill the void left by the capital markets? I'm not suggesting that telcos should play the pure VC role, but I do think there is a great case for aligning strategic development goals with equity investment in companies that have something you can't (or don't want to) create yourself. There is some of this going on in the industry, but not nearly enough, in my view. Some of the companies which can help you reposition yourself are too small and young to be considered as suppliers - they typically can't get in the door of corporate HQ. What might you be overlooking? Encourage your workforce and your customers to find and evangelize interesting companies, and create a framework for vetting them, finding operational sponsorship for the suitable ones, and create a side-pocket for equity investments to let them develop.

All the evidence suggests that we're all in for a fairly brutal couple of years, with the possible exception of talented distressed investors. Next spring may be short on roses (lyrics here), but they will come in time. Now go and start planting your garden.

UPDATE 17 Sept.: Since posting this, AIG has been effectively nationalized, bringing us back from the brink temporarily. However, that this was the final outcome is a symptom of just how dire things are, and does not fundamentally change the dynamic in the market, in my view. We dodged a bullet this time, but there will be more similar situations which do end badly, and my central thesis still holds.

Ugly chart of the day

Credit default swap spread on AIG - ouch.

Thanks Dave!

Dave Burstein at the ever-excellent DSLPrime has name-checked me very kindly in his most recent edition published today. I am truly humbled.

One used incumbent, anyone?

All those who predicted the end of the world last week with the commissioning of the LHC at Cern, were wrong. As we can see, the world will be ending this week, and it's only Monday. From a telco perspective, I'm curious as to whether BTC ends up in the AIG firesale. I looked very closely at the debt syndication late last year, which of course ended up as a busted deal due to the state of the market. It wasn't particularly appealing at the time, but I assume some telco buyers may now be willing to try a lowball bid and take advantage of AIG's distress.

UPDATE: I would also expect to find some bargains among the Lehman VC investments.

Hitting back

UPC is answering the FTTH challenge in the Netherlands, with a DOCSIS 3.0 deployment promising 120Mbps and branded "Fiber Power 120." Don't get me wrong, stuck here in the land of Access 1.0, I wouldn't turn it down, but how can it compete with GigE to the home, particularly if KPN ends up in the driving seat at Reggefiber? Plus, it's still a hugely asymmetrical service, which might turn off power users. Then again, as Vincent Dekker points out (welcome to the blogosphere!), in the short term, this really is the final nail in KPN's FTTC plans (appalling translation here). An interesting inclusion in Vincent's post, but omitted from the press release, is that the first deployments will be in Amsterdam and Almere, places where Reggefiber's investment has so far been concentrated. It looks like in this case the market genuinely will drive investment towards full-blown FTTH, at least on a highly localized basis - a dynamic I look forward to seeing in other cases where incumbents have opted for FTTC.

The other (r)evolution

In all the hoopla and anti-hoopla surrounding last week's BSG report release, the cost analysis of which featured prominently in the Caio report, I didn't see much representation in the blog world from those on the sharp end of the "access divide" (I prefer this to "digital divide" in this case) - that is, until now. This is a good, passionate post, and I think it raises a number of valid criticisms. Most importantly, it is written from the perspective of someone actually living the broadband nightmare which many of us are lucky enough to have avoided.

You've been noticed, and that's good!

Occasionally, covering this space, one comes across something which brings about an unsolicited flood of mean-spirited surrealistic thoughts. Such is the case with the upcoming CCF European Call Centre Awards 2008. Imagine an event organized by, and for, the industry which invariably makes the lives of ordinary people a journey to the innermost circle of hell. What could we envisage if such quaint concepts as karma actually held true in the real world?

Presenter: "It's my pleasure to award Company X 2008 call centre operator of the year! But before I can complete the award, I just need to confirm your full name, the first line of your address and your memorable security word... Thank you, let me now pass you to my colleagues in Awards Distribution, please hold - this will cost you 35p per minute..."

[Muzak]

Awards Distribution department: "Thank you for holding, may I please have your your full name, the first line of your address and your memorable security word? I'm sorry, the system's gone down, can I please ask you to come back to the podium later?"

Okay, admittedly that's a cheap shot at a difficult industry, but nevertheless one which, time and again, proves to be a costly and frustrating Achilles heel for telcos (or substitute the consumer-facing industry of your choosing), and a hideous and alienating experience for consumers. It may be deeply unsexy to the outsider, but the potential for transformation is huge, and deeply sexy in financial terms.

It turns out that my good friends at VoiceSage in Ireland have ended up as finalists in the category "Best Product at Call Centre Expo," which I'm very sure they deserve. However, I think it's shortsighted to pigeon-hole this company in the call centre space, as their thinking goes way outside the conventional box (please see Paul Sweeney's very interesting blog for more insight into what goes on under the hood), and is based much more around the concept of addressing customer psychology and transforming business processes.

Well done guys, and best of luck next Tuesday!

Shameless self-promotion 3.1

I'm very happy to have been asked to speak at the upcoming Society for Computers and Law event - Legislating for Web 2.0 - Preparing for the Communications Act? - which will take place on 22nd/23rd September in London. Apart from me, it's a very impressive list of speakers, and damned good value at only £600 for both days for non-members - at the current rate of Sterling devaluation, that should be something like EUR50 by the actual date ;-(... Organizer/curator/ringmaster Chris Marsden, who has craftily already taken the best title in the event, "May the Phorm be With You," has placed me in the first panel, which is either a blessing or a curse, I'm still not sure. In any event, I hope to see you there.

Misery loves company

So the old adage goes, but I'm thinking more of this sort of misery, or perhaps the Amityville Horror with a spin (instead of "For God's sake, get out!" it would be "Fix my broadband first for God's sake, then - but only then - get out!"). This is an amazing story, and one the telecom industry should perversely be proud of. You've achieved something which only a handful of industries (electricity, gas, water, food, tobacco, alcohol, gambling) have cracked - creating a product that customers consider absolutely indispensible once it's embedded in their lives (note that the poor unhinged customer in question had a huge backlog of work to deal with, and her career is clearly deeply dependent on working from home). They almost certainly don't love you, but you don't have to give them reasons to hate you.

Via the excellent Hermes Project

More Chrome trivia

Google Analytics is now showing Chrome at 7.8% of my site traffic from yesterday, for what it's worth.

The state we're in

It's time for another installment in Akamai's ongoing series of quarterly reports on the state of the internet, catchily entitled, "The State of the Internet" (registration required, but it's worth it). It's the usual compendium of DNS hijacks, DDOS attacks, site hacks and other web nightmares, with a lot of connectivity data by country as well. Standouts which surprised me were that Japan tops the list of countries of origin for attacks this time (もーれつ!), and that Akamai's analysis seems to show no obvious correlation between percentage of high bandwidth users (defined as >5Mbps) and proportion of attacks. Most appalling to me, as a (lapsed) American is the revelation that 16% of internet users seen by Akamai in Washington D.C. appeared to have access speeds below 256k, i.e., on a par with Malaysia and a few points worse than Colombia. In an election year where the internet has proven to be such a powerful tool, to have nearly a fifth of people in the capitol of the world's (currently) most influential nation muddling through with glorified dial-up speeds (regardless of what the FCC says) is/should be the source of a profound sense of shame.

Chrome trivia

As you may be aware, Google Analytics breaks out Google's own newly-released Chrome browser (in case you have been on another planet for the past week) in its breakdown of visitor browsers. Two days ago Chrome accounted for 1.5% of my site traffic, and today it is over 3%. I don't know how representative my readership is of internet users generally, but the quantum of the growth is quite interesting to me, especially considering that Safari is consistently in the 6 - 7% range. I'm intrigued to see how this trend develops.

New BSG report on costs of fiber deployments

The UK Broadband Stakeholder Group (BSG) has just this morning released a report from Analysys Mason on the likely costs of fiber access in the UK. I've only had a chance to read the summary conclusions so far, but it all seems pretty consistent with what we've seen elsewhere:

• FTTC is likely to dominate at least initially
  
• FTTH will initially probably only be deployed in areas of new build
  
• infrastructure sharing with other utilities (ahem) may materially reduce civil costs
  
• OFCOM should consider the long-term implications of "stranded" investment by multiple operators at street cabinet level
  
• 1/3 of the UK population may not be economically viable to cover without some creative public/private coordination.

More comments as I wade through this beast.

UPDATE: Very interesting "geotype"-based cost analysis contained here, which seems to bear out what I've heard anecdotally from a number of people actively involved in fiber deployments - namely that the cost differential between PON and P2P is on the order of only 10 - 15%, at least in high density areas. That's the good news. The bad news is that someone is going to have to come up with £25 - 30bn for universal national PON/P2P coverage - that's the equivalent of 8 - 10 years of capex for BT at the current run-rate. On the positive side, 2/3 of the country could be covered for a more modest £10 - 12bn (for perspective, BT's market cap is currently £13.5bn). Obviously, FTTC/VDSL is dramatically cheaper, apparently allowing coverage of 60% of the country for £2bn, which puts it within BT's capex envelope and unsurprisingly is the direction the company has taken so far.

For the remaining 1/3 of the country which I assume will be left out in the near term, in more normal economic conditions, I would assume that local initiatives and entrepreneurial capital could fill the gaps (we have seen it before and there are other examples taking shape elsewhere) to some extent, but I'm struggling to see that happening in the UK in the current climate. Nor do I envisage much political vision given the current Punch-n-Judy state of UK politics. My initial sense is that, in the absence of the kind of partial mutualization of infrastructure between BT and Virgin envisaged as one scenario in the report, what we are likely to end up with for the foreseeable future is an urban-focused battle between FTTC and DOCSIS 3.0, with BT opportunistically cherry-picking desirable areas with FTTH, and Virgin, carrying four turns of leverage, having not a lot of scope to respond. I hope I'm wrong...

It's official - Snap Shots do in fact suck

I've seen enough in the survey results - 92.3% of you apparently think they are annoying and distracting, and a few of you have been kind enough to leave some highly amusing comments, such as, "They suck hard - if you have to ask, you already know..." Another points out that the experience is particularly painful on a mobile browser. Fair enough, Snap Shots are hereby banished into Room 101.

More squandered opportunities

I've moaned about this previously, albeit a bit more under the radar, but the extensive gas network refurbishment work going on in our area continues. A lot of trenches are being dug, and a lot of disruption created, but not one strand of fiber in sight.

Yours in coax,

Disgusted of Dulwich

The week ahead

Assuming the world doesn't actually come to an end on Wednesday, this should be an interesting week. I'm catching up with a number of fascinating people I haven't seen in some time, and I am determined to post in a more consistent manner. Should also be another challenging week in the financial markets, on the heels of some exceptionally nasty developments (this latter example is really discouraging, considering that cars were strictly rationed in the UK until 1968 - just kidding).

Do Snap Shots suck?

I've been using Snap Shots previews on this blog for some time now, but I have received an impassioned email from a Platinum Club mega-uber value reader imploring me to remove the service from the site. I've previously thought that it was helpful for readers to be able to preview links, and that the ability to play video clips, etc., without leaving the site was pretty handy. However, if they are a distraction to the readership, then perhaps I need to think again. Let me know - take the EuroTelcoblog survey.

Got 15 minutes?

The good and clever people over at Telco 2.0 have a survey they'd like you to fill out, on the topic of internet video distribution and its implications, a theme which we spent a lot of time working on when I was part of the Thundering Herd. We looked at a number of interesting investment opportunities in the value chain, but could never get comfortable enough to commit, preferring instead to look at some of the enablers, beneficiaries, and potential victims of the phenomenon. Anyway, enough about me - please help out and take the survey, and in return, you'll receive the summary survey results when it's completed.

Ouch of the day, 3rd September

When I first joined an unnamed previous employer a number of years ago, I was on the receiving end of a corporate email experience like this, but the executive in question had erroneously circulated a list of potential hires (with highly personal comments and salary details), rather than fires. To make matters worse, the message was accidentally copied to a large number of clients as well as employees. This email genius has since gone from strength to strength in the company, demonstrating the frequently inverse relationship between basic technical competency and career development.

Feeling defensive?

One of the few good things about getting sacked from a bank is that, if you're a Bloomberg user, you occasionally get a free trial subscription to the service for 60 days after your "right-sizing". Mine was just activated today, and it's nice to be able to play around with this wonderful tool again after a hiatus (one strange aspect of the "consultation period" in UK employment law being that, once identified as being "at risk of redundancy", you are sometimes thereafter treated as a de facto outsider, and barred from accessing corporate IT, at least this was the case for me - really gives you a warm, fuzzy sort of feeling...).

Anyway, rant aside, I was getting back in the loop of market technicals today, and downloaded this chart of ranked returns in the DJ STOXX 600 industry groups. Historically, I think many analysts, including yours truly on some occasions in the past, have argued that telco is a defensive sector in a market downturn (as it was at least for three months following 9/11). It's therefore interesting to note that telco, on a year-to-date basis, is 14th out of 18 sectors (down 26%), and the ones below it are non-bank financials (i.e., consumer credit, et al), construction and construction materials, retail, and banks.

In other words, telco is just managing to outperform the four sectors universally acknowledged as obvious casualties of the credit hangover. But wait, broadband and mobile are established as essential services, like electricity and water - what's going on here? De-leveraging is complete, the era of stupid M&A (DT aside) is over, "market repair" is complete or underway in a number of markets, so what's the problem?

I'll be honest and say I don't really know. Looking at the rankings on a one month basis, telco rates 12th out of 18, on a three-month basis it's number seven, and on six months, number 14. So clearly there's a lot of volatility in investor sentiment, but in all four cases, the financials are somewhere close in the rankings. I'm sure telcos would love to be acknowledged as serious financial services players, but there are no examples yet in Europe to warrant such an association - and I can't see any obvious factors to explain such an apparently strong correlation.

Shameless self-promotion, 3.0

The good people at TEN in the UK have invited me to moderate their upcoming event, tantalizingly entitled "The Broadband Customer Expectation Dilemma: Why What You See Isn’t What You Get." With a title like that, especially in the UK market, one could easily expect the discussion to cover a couple of days, but sadly it's limited to a single evening, 15th September. Should be a colorful exchange. Hope to see you there.

What's in the AlcaLu chalice?

Apart from the Franco-American culture clash poison with which Pat and Serge consummated their suicide pact, I'm not really sure. I have an awful lot of respect for Ben Verwaayen and the turnaround he achieved at BT, but that was a very different kettle of fish and chips. Yes, it was an overstretched, over-leveraged empire which had engaged in a lot of strange M&A and joint ventures with very strange put/call terms with partners. An aggressive 3G license acquisition strategy certainly didn't help the balance sheet - in fact BT's decline from net cash position to rescue rights issue and de-merger of O2 was nothing short of stunning, if only for the sheer velocity with which it occurred.

But, apart from all the crap, underlying the company was a (relatively) stable, cash-generative, regulated monopoly business in the UK, with smarter management and more customer inertia than many might have thought at the time, which gave it some sort of visibility on restructuring, repositioning and continuity. I wouldn't want to trivialize the turnaround of BT - it wasn't a lay-up - nor by any means would I judge it an unmitigated success (21C, Fusion, anyone?). But financially speaking, it's a historical fact, and one that Mr. Verwaayen can be proud of.

Then again, BT didn't have private, national champion competitors in its core market with presumably near-infinite financing sources. I hear through the grapevine that it is not uncommon for pricing in competitive situations to be 30% below the lowest bid from the usual suspects, with vendor financing well north of 100%. I think this is bound to be an intractable problem at AlcaLucatel. We may recall that three years ago, many commentators cited this as precisely the situation which ultimately ensured Marconi's demise, in the tender process for - wait for it, BT's 21C. I trust Mr. Verwaayen has a good appreciation of historical irony, but I don't envy his position.

Ouch of the day

I've met quite a few people over the years who came out of Oracle and went on to do interesting things, but never anyone who went back - particularly not after only nine months with one of the "hottest companies on the planet" (which was apparently ready to reward stamina). God knows what's behind this, but it can't be very pleasant or satisfying for either side.

Family Affair

For anyone interested in the changing dynamic of how companies in search of growth capital will access funds in a time of mounting financial pain, there is an interesting piece in the second half of the BBC World Service's Business Daily show today (UPDATE NOTE on 9 September 2008: originally this link pointed to the specific program in question, but as far as I can see, the BBC posts links to this show on a seven-day rolling basis, meaning that old content apparently just disappears - STUPID. If anyone knows otherwise, please let me know, but I can't find the original broadcast.) focusing on the growing numbers of foreign family offices setting up in London. Coupled with the sovereign fund wild-card and those hedge funds with both dry powder and imagination, I assume these investors are going to disproportionately reap the rewards of what's happening now. Presumably, if anyone were interested (which I think is questionable), there's more than enough raw material out there now to build a brand new investment banking franchise from scratch...

Rudolf is Sub-Zero

I imagine young Mr. Van Der Berg will be getting some colorful email in response to this little gem. I have so few points on which to disagree here that it's not worth adding anything. Just read and enjoy, unless you're one of the many large and possibly deluded organizations which he consigns to the Uncool Vortex.

Presentations partially restored

I am working to restore a number of links to presentations and reports/notes, which can be found here and here. Only those which point to Scribd are live - I'm struggling to locate some of the older ones, to my dismay. I'll amend as (and if) I am able, though going back through the blog and trying to re-do individual links is probably above my tedium threshold.

From the bottom of Lake Woeisme

What passes for summer in the UK has ended, the kids are back to school next week, and frankly I've been feeling a little sub-prime in confronting my new status, or lack thereof. None of this is helped in the least by newsflow. The Centre for Management Buy-out Research at Nottingham University last week released stats (oddly, not on their site yet) showing that the value of private equity transactions in Europe was down by nearly two-thirds in the first half of 2008. Disheartening, but hardly unexpected. European venture investing is tracking historic lows. We're all facing some very ugly systemic problems in the credit markets (check out the very scary charts on credit spreads in this particularly gloomy read from the ever-excellent John Mauldin), and Christmas is definitely going to be canceled for an awful lot of people in my industry as the investment banks aggressively eviscerate themselves and engage in M&A (either under political duress, or out of desperation). You could be forgiven for thinking we were on the eve of destruction, living on a dead-end street - and you may yet be right.

However, at times like these, we have to take delight in small pleasures and rare snippets of good news. Taking a break from my dark reflections to check my site traffic earlier today, I saw a number of hits from two sources I haven't seen in ages. Old blog buddy Dean Bubley claims I was an inspiration, which I consider very gratifying, to say the least. There I was thinking that I was just one in 4,000, or maybe even just half a man, but Martin Geddes, the godfather of disruption, says I'm "The One". Don't know how I will ever live up to that, but it's just the ray of light at the bottom of the black lagoon which I needed to see right about now. Many thanks gents, you don't know what it means.

These go to 11

BT's latest HomeHub billboard assault. Caption reads: "Up to twice the wireless range of any other UK broadband provider, so you get a better connection." Available in black - very heavy metal.

What's Swedish for "I remember when you were cool"?

Today we made a day trip across the water to southern Sweden, stopping off in the lovely town of Lund. Snapped this along the way, the mighty Bredbands Bolaget, now branded under Telenor's limp, three-winged roomarang. More normal blog service should resume next week, when I'm back in the Big Smoke. Meanwhile, thanks to the ever-impressive Benoit for the kind words (one of my proudest moments was in hounding him into blogging in the first place, and he has never once let me down!), as well as to Dan York and Alec Saunders. Whoever said nobody loves you when you're down and out was waaaaay off target.

Fiber, to a thatched cottage near you

FTTH, to a thatched cottage near you
Originally uploaded by jimiinc

I'm with the family in a rented summer house in the forest in North Zealand in Denmark, about an hour north of Copenhagen. While I'm having a mostly self-imposed web hiatus during the holiday, I figured I might as well blog this as I was posting the photos to Flickr. This photo was taken in the village of Vejby (my guess is there are maybe 100 households), where the unfortunately named Dong Energy is apparently in the midst of a fiber roll. I have seen similar scenes in other nearby villages, and am highly impressed, even envious.

Hangin' in the WiHood

Podcast, moi? When I was cut down in my subprime and returned to this humble bloglet, I determined that I wanted to do things differently this time around. As a case in point, here's an interview with Thomas Anglero, a friend and passionate entrepreneur, about his new venture, WiHood. WiHood weds e-learning with SaaS and cloud computing, delivering a unique, portable, virtual desktop aimed at students, and I think it deserves a lot more attention than it is getting so far. Thomas has a lot of interesting things to say about the process of establishing a start-up, cutting through the noise, dealing with VCs and staying motivated. There's obviously a lot more he could have said about the specifics of WiHood, but we wanted to try to keep it light. Hope you enjoy it.

Interview, 31:57 (warning, performance is variable may be slow to load)

WiHood promo video

New addition to the English language

Thanks Damien, for "uberbolloxmegashame". I couldn't agree more, but couldn't find the words to articulate it - until now!

Every time it rains, it rains...

Eurodata from heaven... A super-prime polyglot Palladium Class mega-uber value reader thankfully responded to my plea for pan-European data on subscriber satisfaction/network performance data, with some interesting input on France and Germany.

France: Grenouille has some very detailed and assiduously-maintained measurements and rankings, including some fairly damning assessments of Numericable's 100 Mbps offering. What the hell, never mind the leverage, it's Pierre's problem now...

Germany: An interesting and comprehensive ranking of operators here. I'm intrigued to see cable operators, which have historically suffered from a hugely asymmetrical funding and capex legacy, scoring on a par with, or slightly better than, many of their DSL competitors (on a 1-to-5 ranking). In particular, the results turn up as: Kabel BW (cable) 4.1, ish (cable) 3.6, Primacom (cable) 3.4, Kabel Deustchland (cable) 3.3, Unitymedia (cable) 3.1, iesy (cable) 2.9. In contrast, many of the DSL players rate below 3.0 (i.e., average), including DT's own offerings. Not hugely impressive. I am particularly depressed to see Versatel at a ranking of 2.2, given that many regard this company as the jewel in the crown in any German infrastructure roll-up scenario - the company has unparalleled infrastructure assets in its four major regional markets, but has significant issues on the retail front, an unwelcome challenge for Apax, who are presumably looking for a get-out-of-jail card sooner rather than later.

Speaking of which, am I alone in assuming that there must eventually emerge an unholy alliance between the alternative DSL players and the Level 3/4 cable players in Germany to create an alternative to DT's monolithic infrastructure "vision"? Perhaps I'm a conspiracy theorist, but I find it really interesting that Kai-Uwe Ricke, former CEO of DT (whose DNA is very definitely magenta), left the company under pressure (God knows the CEO role at DT is something you would only wish on your worst enemy), and ran straight into the arms of private equity (as an advisor to BC Partners, majority shareholder in Unitymedia, and as an advisor to KabelBW) and also earlier this year joined the advisory board of United Internet, DT's major irritant. Dr. Ricke is nobody's fool, and I'm sure he doesn't hang out with German cable and altnet companies just for the comic value. Something is going to happen here, mark my words.

Who knows what lurks in the heart of your ISP?

Sam knows, at least in the UK. I assume a number of other countries have similar sites/services, so please send me some links, no matter how insurmountable the language barrier may seem. I'd be particularly interested in seeing some performance comparisons between cable and DSL in the German market, if anyone knows of such data, and also anything from Eastern Europe/Turkey would also be appreciated.

Shameless self-promotion, revisited

Well, my newfound idleness has already resulted in a couple of invitations to speak at conferences, the dates for which I will provide nearer the time. One presentation is to focus on my old flame, FTTH, with an emphasis on real-world issues. So, if you're involved in a real-world FTTH project, or are trying to get one funded, I'd be interested in speaking with you in order to make your experience part of my message. Ping me.

James Enck, 3.0, beta

Dearest mega-uber-value readers, the last time I wrote anything serious here was in April 2007, as I was embarking upon an amazing journey into the world of principal investing within a major Wall Street bank. Recently you might have noticed that I started posting again, albeit in a fairly sparse, cryptic and non-committal way. This was because I wanted to prime the pump for a return in a non-controversial way while waiting for the paperwork to be signed off and final paychecks to clear. Well, this has all come to pass without a hitch now, so I can do a bit of explaining, to the extent that I am able.

I think a number of you seemed to work out that a job-imposed hiatus from blogging, followed by a sudden return, probably pointed to impending unemployment - and you were right on the money. In July I was "right-sized", along with a number of my team. Many of you have sent me some very kind messages welcoming me back to the blogosmos, and while I share your sense of enthusiasm, it is far from a straightforward thing for me emotionally, as I feel intensely frustrated and disappointed at the ultimate outcome of my "reinvention" - not to mention the fact that I now find myself unemployed for the first time ever.

No matter, I will resolve this in time, potentially with your help. For now, perhaps I should try to paint a picture, for those who are interested (I must assume that most of you who seek this site out are to some extent interested in the person behind it), of what has transpired (to the extent that I am actually free to speak) in the past 16 months since we last met. I have spoken with or corresponded with a number of you during that period, and I have frequently encountered confusion as to the precise nature of my role, such that I eventually determined that the best way to answer questions was in the form of - duh - Q&A. So, I hope this helps to give some useful background. Apologies to those with a more sophisticated knowledge of the financial markets - I have assumed a very low level of knowledge in this regard.

Q: Why did you stop blogging?

A: I was hired in April 2007 by the Principal Credit Group of Merrill Lynch (a.k.a. Merrill Lynch PCG - typically a low-profile group, though some limited internet footprint exists), and while my bosses and colleagues there seemed to be hip to the value of blogging and the ensuing potential network effects in the investment process, Merrill Lynch has some very clear policies which prohibit this. This is entirely understandable, given the potential abuses which could arise across the firm, but I guess this also illustrates the extent to which a firm-wide dragnet internet policy is also potentially counterproductive in terms of its effects on individual business units. In any event, the blog had to die.

Q: What was the Principal Credit Group of Merrill Lynch?

A: This was a unit set up in 2002, to look for investment opportunities in the distressed end of the market, i.e., good companies with troubled finances, or bad companies with valuable assets which were undervalued due to the lack of market confidence in the management or market dynamics. For those of you too young to remember, 2002 pretty much marked the nadir of the post-dot.bomb era, and Merrill Lynch made a financial commitment to allow this group to invest the firm's own capital to focus on this space to maximize returns in its favor. In other words, it was an internally-funded hedge fund, or in Wall Street parlance, a "balance sheet group," "principal investing group," or "prop desk". Our Chief Investment Officer was a great guy named Boris Ehsani, and I reported to the fabulous Mark Devonshire, who was an absolute joy to work with. While the group started out as a primarily credit (i.e., corporate debt)-focused unit, as pricing in the credit markets became more questionable, and the credit market became more crowded with newcomers who further exacerbated these distortions, the group gravitated more towards public and private equity situations, which is where I came into the mix.

Q: So, how did you end up as part of this team?

A: In the summer of 2004, I got an email from a great man named Tim McDonald, from Merrill Lynch PCG, who expressed an admiration for my humble bloglet and an interest in maintaining a dialogue. Tim had previously written his own extremely impressive blog, and seemed to understand what I was trying to do as a sell-side analyst. We continued to speak regularly, and when I ended up in NYC as a presenter at a Columbia University event in autumn 2004, I had a chance to meet him and Boris in person. Beyond the ongoing dialogue and friendship which developed between Tim and me, there were a number of informal meetings which took place over the next two years, during which it seems Tim championed my cause internally. All this culminated in a formal interview process in late 2006, and finally a job offer at the beginning of 2007.

Q: Why you?

A: You'd have to ask the individuals involved, to be honest. However, if I had to make a guess, it would be that (to a large extent due to this blog) I had/have a network of contacts which could/can deliver interesting and funky proprietary investment opportunities, independent of a major investment bank advisor or private equity sponsor. Looking back at my transaction pipeline, I determine that my own personal network alone delivered over $300m in investment opportunities during my time in the group, roughly 1/3 of which I would describe as "high conviction".

Q: So, how was it?

A: I loved every minute of it, apart from the getting fired bit. I genuinely loved working with my colleagues (respect, people, if you're reading this), our bosses were great, the atmosphere was one of mutual respect and intellectual rigor. It was a fundamental research-driven approach, at heart, which on one or two occasions was frustrating when I could see purely short-term speculative investment cases being compelling, but that was the DNA of the group, and its track record (as portrayed in this article) was hard to argue with. As my bosses used to chant at opportune moments, we were investors, not traders.

Q: So, what did you actually do?

A: I had a beautifully wide mandate. While I was brought in to diversify investment opportunities on the private equity side of things, as one of the team of global sector analysts, my other duty was to identify and analyze opportunities in the public credit/equity markets. In practice, >85% of my time was spent developing investment opportunities in the private equity space from my own network, and the remainder was spent looking at secondary public market positions in credit and equity, as well as a handful of primary deals (keep in mind that, of course, the primary markets were mostly closed within a few months of my arrival on the scene). Opportunities I focused on (please note that I am under NDA with a wide range of companies) include, generically: energy-efficient datacenters with a bias towards managed services in the virtualization space; datacenter virtualization OS developers; WAN optimization solutions for financial trading platforms; next-gen satcomm; P2P-assisted CDNs; wireless towers; 4G wireless; a variety of FTTH deployments; account provisioning systems for open-access FTTH networks; P2P video platforms; targeted ad-insertion platforms for telco IPTV deployments; enterprise 2.0 voice and messaging platforms; a couple of take-private scenarios for busted (i.e., zero liquidity) tech IPOs; and one broadband roll-up vehicle in an unnamed European market.

Q: What did you enjoy most about it?

A: Apart from the people I worked with, the thing which really impressed me about being part of the Thundering Herd was the extent to which being associated with a credible brand could open doors and command people's attention. What I personally liked most was getting interesting young companies/entrepreneurs in through the door and spending hours talking about what makes them tick. One gets a very rich education from people who have spent years working in a particular industry vertical, which in turn makes one's holistic understanding of the industry much richer. And hopefully those on the other side of the table got something out of it too, in the form of advice, contacts, brainstorming, or maybe just free coffee! I'm proud to now call a number of these individuals friends, so something good must have been happening. Most of all, I viewed the eclectic nature of the role, ranging from quasi-venture to traditional private equity, as well as public equity and credit, as being an exciting and fulfilling mix.

Q: So what now?

A: Good question. I'm having a number of interesting discussions with a number of interesting people, as you might expect. My ideal scenario would be to resume the sort of role I had within PCG (i.e., free reign across the capital structure, globally, public and private) with a properly funded, understanding, and supportive structure behind me. I enjoy the investment process and believe I am well-suited to it. Moreover, I think we're entering an era of tremendous upheaval, which will present the prepared mind (and well-stocked wallet) with huge opportunity. However, I remain open-minded overall - the point for me is to find THE job, as opposed to A job. Any ideas/suggestions would be warmly welcomed. For now, I'd like to extend thanks to the good people from ML PCG - I loved working with you and wish we'd gotten to where we had hoped to go.

Baaad mutha

It may be "fibre optic" service (disclaimer: I am actually very happy with my Virgin connectivity), but the billing system behind this broadband juggernaut canceled my direct debit payments for no good reason in June. According to the call center operator, this seems to have coincided with a billing system consolidation/migration exercise. The old jokes are always the best...

(UPDATE: I neglected to mention that my friends over at VoiceSage have some slick routines for dealing with these sorts of scenarios, keeping the customer informed and engaged, rather than shocked and annoyed.)

I am... already bored

Unspeakably large billboard at the corner of Oxford Street and Charing Cross Road/Tottenham Court Road. The future was once bright, now it's just baffling and silly...

My fortune cookie today

Macabre sense of humor, these Chinese waiters...

The way we were

If, like me, you find yourself with a bit of time on your hands, and, like me, you also spend some of that time pondering the erosion of American economic hegemony in the world, you might like to take a bittersweet journey through the outstanding Prelinger Archives, one of my favorite stops on this Interweb thingy. Thrill to swinging futuristic commercials, fascinating history lessons, cutting-edge technological innovation, and hard-hitting exposes of life in other cultures. Enjoy.

We interrupt this silence to bring you breaking news...

Mega-uber value readers of the world (if there are any of you left out there), following 15 months of dormancy, EuroTelcoblog (and little brother Chaotica) will soon be making a comeback. There are some outstanding logistical issues which make a precise date impossible to define at this point, but please watch this space for more info as it becomes available. The best is yet to come, I hope...

While you're on hold, please enjoy these audio nuggets from a happier bygone era in telecom:

Nortel corporate musical, circa 1996 - 27 minutes and 46 seconds of pure torture - my favorite is "I Want an OC192 for Christmas"

Female employee chorus of KPN, late '60's - they really rock Hava Naguila!

James Enck 2.0

Mega-uber value readers of the world, by now it is probably blindingly obvious to even the most forgiving among you that the volume of posts to this blog has dropped dramatically since early February. As you may have detected from some relatively unsubtle hints, there is a reason for this, which I have already shared with many of you with whom I have more direct contact. I am now ready to come clean, as all the t's are now finally crossed.

After six-and-a-half years, I left Daiwa eleven days ago, and will next week take up a new role within the principal investing team of a well-known Wall Street investment bank. One reason I find this a particularly gratifying turn of events is that, just as I may be no ordinary analyst, this is also no ordinary team. It has developed deep industry expertise and generally applies a greater level of focus in its investment process. It has been very successful in recent years investing in metropolitan fiber assets and portable/mobile broadband (two areas, you probably realize, which are near and dear to my heart). I think it's clear that my future colleagues do their homework and get involved early, well before the consensus has formed specific views on a space, and they take a broad thematic view across the full value chain (another nice area of fit) for investment opportunities, and search far and wide to find unique sources of information and market views. Perhaps most interestingly to me, the team has the mandate to invest in both public and private securities.

To say that I am very excited by this opportunity would be an understatement of epic proportions. However, one side effect of this move is that this humble bloglet, which ironically celebrated its third birthday on 30 March, the same day I said goodbye to my fellow Daiwans, must cease publication.

Judging from the reactions from those of you whom I have already briefed on this development, there may be a fair amount of dissatisfaction about this turn of events. I consider this to be a wonderful compliment. To think that (judging from the Bloglines subscription data I have, and my own tracking of site traffic) several hundred of you per day have given even a few precious minutes in your busy days to my ramblings over the past three years is more than enough – the thought that the blog might actually be missed is almost inconceivable to one who started with essentially no expectations. Recall that in my inaugural post I stated that the blog was essentially an experiment, an expression of frustration, a cry for help. That it has ended up being anything more significant to any of you is, if I'm honest, pretty damned surprising, and extremely gratifying.

However, lest we get caught up in the potentially negative interpretations of the move to a non-blogging me, let me explain a little about why I think this development is actually a very positive outcome within the confines of the "Web 2.0" weltaunschaung.

About six months after EuroTelcoblog moved from being an email blast to an online point of presence, I got an email out of the blue from the fund manager who was ultimately responsible for bringing me onboard at my future employers. He had stumbled across the site and found it useful. At the time it was just one of many interesting contacts which were coming my way from the blog – bright, inspired people with whom I would have almost certainly never had any contact if not for the fact that I had, via the blog, become visible (and accessible) to the world outside the confines of the investment banking research walled garden.

However, as was thankfully the case with many of the contacts which came my way via the blog, this particular dialogue became a sustained exchange of information and opinions. This process eventually led to some face-to-face meetings and culminated in a formal recruitment process, which brings us to the current situation. I hope that the other ongoing dialogues which have also arisen from this adventure in the blogosphere will also continue in the days ahead. Indeed, for those individuals and companies intent on innovation and disruption, there is probably, now more than ever before, a rationale for us to connect and share ideas and opinions.

But back for a moment to my statement that my current situation constitutes a positive outcome within the confines of the "Web 2.0" weltaunschaung. My view is that none of this would have been possible in the absence of a parallel social dynamic, and the tools which have accompanied/enabled it, towards a decentralization of information flows. The effects of this ongoing trend are pretty much impossible to predict from a macro perspective, but from where I sit, very much at the micro end of the spectrum, the message seems to be all too clear. Whoever you are, whatever your situation, if you have ideas which you are passionate about, and if you can find a voice with which to adequately express them, then the tools are there in abundance to do so, and the results may end up being surprising and life-transforming, so you might as well have a go and see where it leads.

So, that's pretty much it in a nutshell. I want to extend my respect and eternal gratitude to each and every one of you who has ever been kind enough to drop in, even to those of you who have vehemently disagreed with what I have said. I genuinely, literally, could not have kept this up for the past three years without your suggestions and ideas. I also wish to thank those individuals at Daiwa (you know who you are/were) who were supportive of some fairly unconventional research approaches on my part over the past four years, once I awoke to the need to do things differently.

As a parting gesture, I will be upgrading all mega-uber value readers to full Palladium Club status at no additional charge, as a sign of my undying appreciation. :-) Ping me if you're interested, and I'll let you know my future coordinates and contact details. Hopefully, at some future date, I may return to the blogosphere, and if so, trust that I will find some way to make my presence known. Until then, many thanks to all of you for a most wonderful and enriching three years. I've never known anything like it. It's had a profound effect on my life, and that's the whole point.

UPDATE on 11 April: When I was a kid, my mother used to regularly lecture me about always wanting to have the last word, but this really is the last word. I am truly humbled by the huge number of emails coming in, many from people I have never communicated with before. Thank you, and stay in touch! JE

No peace in the valley

My last remaining grandparent died last week, and I spent the week in the States for the funeral, entirely offline. So I know there was a lot I missed (my bet is on Deutsche Telekom), much of which is past its shelf-life for commentary. However, in catching up with my emails, the following items have caught my eye, FWIW:

• A mega-uber value reader in Finland alerts me to a tender (Swedish) underway in the tiny island municipalities of Brando and Kumlinge for an open FTTH network. Apparently it's envisaged that customer premises will only be connected to the network if they agree to subscribe to at least one service on offer from one of the service providers who are hoped to materialize. Entry level pricing is said to be EUR16 per month. Yet another example of local activism looking to plug the holes in incumbent broadband rollouts.
• I notice with interest that the Tor project has secured funding from Google for a handful of developer spots at Summer of Code. Interesting contrast in light of anxiety over a Net Neutrality about-face from the Big G. A good friend also points out that it's counterintuitive for Google to be investing time and money in something which could facilitate skamming AdSense - maybe this is about threat intelligence.
  
• Jeremy Penston at IPDevNet has been on a bit of a hotstreak, producing a couple of interesting and informative pieces on online video. Well worth the read.
  
• Adobe has gone live with a public alpha of Apollo, a video preview of which I linked to here. I agree with Dean that there is some very exciting stuff ahead.
  
• UNESCO has published what looks to be an interesting report on the ethical implications of new technologies, now added to my pile of must read material.
  

Lost and found

Sky ad 03 07
Originally uploaded by jimiinc.

I know I haven't posted anything in some time. I've had a lot of loose ends to tie up and have been otherwise distracted, so apologies. On the bus to a meeting today I passed a lot of very prominent Sky advertising like this, which highlights that Virgin Media customers in the UK are to lose content like "Lost" and "24" due to the public bust-up between Virgin and Sky. One other billboard I saw pulled no punches: "Get Jack Back," it screamed, followed by a succinct explanation about Virgin's apparent decision to drop Sky content and ending with the message "To subscribe to Sky, call..." What amazes me about all of this is the sheer speed with which Sky has been able to move. What was a public spat a week ago has been turned into a national ad campaign virtually overnight. At lunch today someone reminded me that this is exactly the sort of advertising at which Richard Branson excelled ten years ago during his bitter war with British Airways.

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