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Saturday, September 30, 2006

9Cegetel EasyGate – Yet more innovation in France

9Cegetel have developed a product which is targeting the late adopters with broadband access ie the 50% of French households who do not have a PC.


Interestingly, the EasyGate is a hybrid device based upon OpenSource software: it has an Intel M600 CPU and chipset, with a Broadcom Router/ DSL chipset built in. Also it comes with 512MB of RAM and 512MB of Flash Memory (and therefore doesn’t have a hard disk). The OS is based upon Linux and all the layered software will be revealed soon as the source code will be published. There seems to be a full package of security software, browser and office productivity applications. Different user interfaces are provided depending upon the level of skill of the user. There seems to be sufficient I/O ports including 2 ethernet ports - one is aimed for the 9cegetel TV set-top box and the other for a PC.

The support package has been put together with more than a little thought at the target market with a Free Helpline, a remote management capability which allows 9cegetel to download upgrades, a pro-active fault diagnostics service and a 48hour replacement cycle for hardware faults.

The cost is €40/month which includes max. 8Mbps broadband and bundled fixed calls. Also, there is a €100 initial charge for the monitor, keyboard, mouse and webcam.

It will be interesting to see how many people adopt this PC/Broadband rental bundle and more importantly how long it takes for the model to spread to the UK. I expect Sky and the Mobile Companies who understand how the subsidy game is played will be looking on with interest.

Thursday, September 28, 2006

Music Download Royalties – Deal Nearly Done

It looks as if the fight between Artist’s and Music Distributors is coming to a close on the eve of entering a costly court battle. The joint announcement today between the MCPS-PRS alliance, BPI, Apple, o2, Vodafone, T-Mobile and Orange signifies a final settlement is close.

Under terms of the deal, Apple Computer Inc. and four mobile operators will pay 8 percent of gross revenue, excluding VAT, for all music sold digitally excluding ringtones. A lower 6.5 percent rate was agreed for non-on-demand services such as streaming…
Also included in the deal is the agreement of a minimum price rate which ensures the music creators would still receive a rate, even if the price of music drops significantly…
Jamieson and Adam Singer, the Alliance's outgoing Chief Executive, told Reuters there were still some small unresolved issues regarding the definition of revenue and these would be examined at a later date in November.
It is interesting that only Apple is represented from the online world: although Apple claim to have a 80% market share, I would have other outlets such as HMV, Virgin and Napster would be happy to put the case behind them. For each 79p Apple download the artists will get 5.38p.

Surprisingly from the mobile world, H3G UK, are not part of the deal: they are the people who are bundling “free downloads” as part of their service and presumably would have to part a minimum price going forward. H3G UK claim to be the biggest download service in the UK mobile space. On a Vodafone 99p full track download, the artists will earn 6.74p, who knows for the H3G UK bundled type approach.


The BBC Top Brass was over in Seattle today signing a mysterious “understanding” with Microsoft. I expect a lot of people to hit the BBC with Freedom of Information requests over the next couple of weeks to see exactly what they are up to.

Yet last week the launch of OFCOM’s MIA (Market Impact Assessment) study was launched with very little background noise. In my opinion, it is far more important to debate the scope of the BBC rather the technology they use to deploy the services. The big question for me is do we want the BBC to launch these services?
• Seven day catch-up TV over the internet;
• Seven day catch-up TV over cable and Homechoice;
• Simulcast TV over the internet; and
• Non-DRM audio downloads over the internet.
I expect some heavy hitters from the both the online and broadcast world to object strongly to the BBC launching these services. I lean towards BBC making the streams and content available to any aggregator – I do not think the BBC should serve as aggregator, packager or distributor in the online world. I object strongly to the BBC DRMing any video or audio content that has already been paid for by the license payer.

However, I expect the BBC to win the debate and get to do whatever it pleases and anything that the OFCOM raises in the MIA study to be counterbalanced by the PVA (Public Value Assessment) study performed by the BBC Trust (ie BBC board of directors - hardly impartial) and the overall decision will be taken by this body not the OFCOM. I don’t know how the BBC gets away with self-regulation. Come the revolution this would be the first thing to go…

Once a decision has been made on whether the BBC should launch the services, then it should be up to the BBC to decide how to deploy the service. The relevant technologies and companies/standards the BBC used in its’ various trials are as follows:
• Peer to peer distribution (Kontiki)
• Digital Rights Management (Microsoft)
• IP Geography (Quova)
• Multicasting – IGMP (Video: Real (365Kbps) WMV (365Kbps), H264 (1.25Mbps) & Audio: Real, AAC)
• Unicast (Video: Real & WMV, Audio: Real, WMV and AAC)
• Media players (iMP – HTML based)

I don’t think the BBC have decided on any specific technologies yet, however I expect a lot of lobbying and discounting from the suppliers and open-source communities given the importance of the BBC. A lot of people in the UK today only use RealPlayer because of the BBC RadioPlayer.

If any good at all in to come from the forthcoming BBC dominance, I’d like the BBC to invest a lot of time and effort in some of the really boring techno-stuff like: agreeing meta-data eg EPG, content filtering and rating with the other UK broadcasters; pushing ISPs to deploy multi-cast technology within their network and publishing full details of network technologies and configurations used; and opening up the iMP to 3rd party developers and content providers.

Wednesday, September 27, 2006

UK LLU: Pump Up the Volume

OpenReach is picking up the pace of LLU unbundling and in the week ending 24-Sep unbundled a record weekly total of 32,340 lines to bring the cumulative to 809,489 lines. In addition, it looks as if they have got the partial unbundling processes cracked with 99.76% of the orders processed within agreed deadlines - average 9 days, however for full unbundling only 90% are delivered on time with the average being 12 days. What is the amazing detail in the statistics is the percentage of fully unbundled orders rejected – 24.44% non-fatally and 5.58% fatally. A huge 30% of all full unbundling orders are being rejected.

I wonder which full unbundler is providing naff data to OpenReach?

Admittedly, it is not a mega-expensive mistake with OpenReach only charging £10 for each fatal rejection and another £10 for each order amendment (non-fatal), but these charges add-up over time.

BT selects Vision Editor

I find it really interesting that BT has placed a contract of unspecified value to a magazine publisher. This suggests a much higher level of interactivity than traditional TV programming.
Under this agreement, Future will supply BT Vision’s editorial requirements for the TV service to be launched later this year and the BT Vision online store. Future will provide news, independent reviews of entertainment and programme listings for the film, TV and music services.
Future will also support the editorial requirements of BT Vision’s interactive services as they develop, including community forums, special-interest areas and reader-generated content along with user ratings and popularity charts. Future is putting together an eleven-strong editorial team to provide these services to BT Vision.
I think BT realise that to be successful Vision needs to radically different from broadcast, cable or satellite TV.

Although I am sure there will be one or two surprises up BT’s sleeves, the current public line-up of the service, , is:
• TV - access to over 30 Freeview channels
• Entertainment on demand - a huge library of movies, comedy, music and kids shows.
• Catch-up TV – enabling viewers to watch a selection of shows they may have missed, subject to rights agreements
• Digital Video Recorder – ability to store up to 80 hours of programming without tapes, timers or disks
• Communication and converged services - instant messaging, chat and video telephony all through the TV to commence after launch.
• The BT Vision Download store
It will be interesting to see if BT has anything unique at launch time from Sky or whether price is the key differentiator. Also interesting will be to see whether the BT service is visible to more than a tiny percentage of the country.

Tuesday, September 26, 2006

PlusNet VIP Treatment for Max Product

PlusNet have around 11k customers in the queue waiting to be upgraded to the BT resold max 8 Mbps product and it is estimated that it will take 8-10 weeks to get rid of the queue given that they are processing 1k orders per week at BT. However, from tomorrow PlusNet are offering a jump the queue option for a £5 fee to be processed within 3 days.

Is it me or does anyone else think this is outrageous? PlusNet have created the queue by not having labour not the customers. In addition, you may actually be at a high place in the backlog queue and was due to be provisioned within 3 days anyway. Finally, you are pushing someone unknown further down the list. Personally, I think this is mean and will attract a lot of controversy.

I also think another cheapskate ISP will be looking on with interest. They have an even bigger queue and a £5 charge for instant provisioning would be a significant amount of revenue. They then could charge the user another, say, £10 to be LLUed with a throttled account and then they charge another £10 to have the speed ramped up to something other than snail pace.

UK Cellular Industry: Lack of Innovation

Rather than doing the obvious and spoofing the new Orange product for its’ lack of Uniqueness, I’d really like to focus on the lack of innovation by the UK Cellular Operators. All the innovation seems to be coming from BT, whether it be UMA phones (yes, the Fusion was well before the Uniq and probably the Uniq wouldn’t exist if BT didn’t form the UMA standards committees) or MobileTV (with BT pushing its’ DAB-IP solution for Virgin). It is interesting that Leeds City Council a big user (4,000 handsets) of Orange chose the BT product over the Orange one.

Part of the answer may lie in the ownership of the operators: for instance the Uniq will be available next week in France, but only in November in the UK. Whether my fellow Brits like it or not, France is a much more important market for Orange than the UK and probably most if not all research and development is performed in France.

The freaky bit is that it has been argued that the early announcement of the Uniq on May 31st was in direct response to the 9cegetel announcement of the launch of SIP-enabled FMC phone on its’ MVNO with SFR. This is interesting on three fronts: the technology is completely different to the Orange UMA phones; the handset maker is a small Taiwanese ODM and Vodafone has a small indirect interest in 9cegetel.

It is to be noted that French innovation does not stop at the mobile market: 9cegetel and Illiad are also big innovators in the Broadband field as well – it is hardly surprising that France Telecom is suffering in its’ home market. Also, Orange in the UK with its’ broadband service development seem to lag well behind Orange in France.

A similar story could be developed around T-Mobile when comparing the UK market with the German market. Although it is understandable that T-Mobile hasn’t launched a FMC (fixed mobile convergence) product given the lack of a broadband access network, it is a complete mystery why T-Mobile hasn’t launched a FMS (fixed-mobile substitute) produced, especially given the apparent success of its @home service in Germany.

O2 is even more bizarre with its’ FMS product, Genion being launched in Germany in 1999 and probably saved the German subsidiaries existence during the darker days of o2’s existence. It still hasn’t seen the light of day in the UK. However with o2, I’m waiting with baited breath for something spectacular to be launched after its’ acquisition of Be.

I think Vodafone takes the award for the weirdest operator with most new products seemingly launched in Germany. An example of this is the Zuhause product family. I’m really hoping for the delay in the UK to be worth waiting for with something really different from the masses to be launched in the UK – a Femtocell approach perhaps?

Even new born H3G seems to be left with a strategy of fastcopy of successful products for Italy: the recently awarded SeeMeTV is a direct copy of a similar Italian service.

I wonder why?

Monday, September 25, 2006

Broadband: IT Support Services

BT have announced today that are launching a new Home IT service which costs £75/1st hour and £25/30mins thereafter. This is in addition to the “Virtual Engineer” which costs £25/incident over the phone. Apparently, they have trained up a team of 2,000 engineers to meet the potential demand. I’d have a little more faith in BT’s capabilities if they hadn’t outsourced their own in-house PC services.

BT are competing against the TechGuys from the Dixon Group (owners of PC World) – on first glance they seem to have a much more comprehensive service offering and have a menu of services whether home based or instore.

But the best laugh of all is that apparently Carphone Warehouse is in talks with BestBuy to launch Geek Squad in the UK. I’d don’t know if anyone has ever spoken to a TalkTalk customer care attendant, but it is pretty obvious they are completely clueless about PC’s, networks or anything else that isn’t scripted in from of them. My advice would be to hold back on the service until the Customer Care problems at TalkTalk are fixed.

Although these services are not for me, I can imagine a reasonable sized percentage of the higher income home owners going for the service.

Sunday, September 24, 2006

L-Band UK Spectrum Auction

There is a big auction coming up in the UK for the 1452MHz – 1492MHz spectrum (aka L-Band) in the first quarter of next year. Although, the L-Band was originally intended for Satellite use, it appears that OFCOM will conduct a technology agnostic auction.

Theoretically this spectrum could be used for a variety of services, but more than likely it will be used for MobileTV and there is a big potential for a battle of standards:
• BT is the main backer of the proprietary Movio standard which is based upon DAB technology. Korea also has a mobile TV solution based upon DAB standards called T-DMB. Arqiva is currently running a trial in London featuring comparing both of these technologies. I expect this consortium: BT & the Korean Government to be one of the bidders;
• Sky is also running a trial with Arqiva in Cambridge featuring another technology trial this time comparing the MediaFlo and DVB-H technologies. It will be extremely interested to see the choice that BT makes; and
• O2 have also recently run a trial of DVB-H in a single UHF channel in the 470Mhz-854MHz range. However, given that OFCOM do not currently plan to release the digital dividend UHF frequencies until 2012 and a likely competitor will be High Definition DTT services from the BBC, any strategy based upon this spectrum is probably doomed. The Spanish parent of O2 has heavily tested DVB-H technology as well.

I think BT and Sky are almost definitely going to bid and probably there is more than enough spectrum for two or even three broadcast networks for MobileTV in the UK however I doubt there is a business case for more than two networks. I see Qualcomm being quite comfortable in assisting with the Sky funding to get a foothold in Europe. Similarly I also see the Korean Government (via LG or Samsung) providing a helping hand for BT, if (and it is a big if) BT chose the Korean technology.

What will be interesting is to see whether a DVB-H alliance will step forward? I doubt whether Nokia would provide funding, although they would guarantee handset availability. Arqiva could theoretically get together with a cash strapped broadcast network (eg ITV) and offer to build the network if a couple of operators would sign-up in a partnership.

I would say the decision of Sky would be the most interesting, after all they have the data of the success (or not) of the MobileTV promotional on Vodafone and more importantly they have years of experience of DVB technology with Sky’s digital satellite based upon a variant of the technology. Likewise BT will have a few months experience of actual consumption of MobileTV services after the launch on Virgin Mobile. I seriously doubt whether this is a long term solution because of spectrum limitations in the Band III VHF frequency used by current DAB Radio broadcasting.

I doubt the auction is going to be a mega-earner for the UK government, but the partnerships and choice of technology will have huge long term consequences and will offer another interesting insight into the commercialization of technologies.

Thursday, September 21, 2006

Dutch Auction

The longer the sale of AOL UK goes on, the more it looks like a Dutch auction as opposed to a English auction it was designed to be.

If the press rumours are to be believed Orange has pulled out of the auction and that leaves two companies:
• Carphone Warehouse – who in my opinion don’t have the cash to pay for the deal without new equity; and
• BSkyB – who have the cash but probably don’t like the terms (ie AOL retain the portal business) and TimeWarner are probably reluctant to sell to BSkyB because of the potential embarrassment of the Murdoch clan making a good business out of a bad one.

I feel the longer the haggling goes on the cheaper the final price will be.

The Times article also puts forward a theory that Ben Verwaayen has been studying the hovering habits of his home PTT, KPN, in the broadband field and is passing his slide-rule over the Tiscali UK operations. This doesn’t make sense to me: Tiscali have just done the deal with Homechoice in the UK and with the recent sale of its’ Dutch operation doesn’t need the cash right now - Tiscali seem to specialise in distressed sales to me.

However, If the Times article said Tiscali recently offered on the quiet both its’ Dutch and UK operations, but has withdrew the sale of its’ UK operations – this would make more sense to me. After all, who wouldn’t try and improve its’ negotiating position with the limited Dutch buyers? More importantly, in the short term BT will revamp the LLU economics with re-pricing of its’ IPStream product. Also, the dropping of the 21CN nuclear bomb onto the market is only a couple of years away. Then will be the time for BT to buy arguing to the Monopolies Commission that there is plenty of competition from ntl and Sky.

This to me this is the UK broadband end-game: 3 network providers with a plethora of specialist resellers.

Wednesday, September 20, 2006

Sprint: Dazed & Confused

I listened to the webcast of Sprint CEO, Gary Forsee, speaking at the Communacopia Networking Fest in New York today primarily to understand the logic behind the SpectrumCo placing winning bids of US$2.4bn in the AWS auction of which Sprint owns 5%. This is despite the raison d’etre of the Sprint/Nextel merger being that they owned a huge 90MHz of spectrum in the 2.5GHz band in 85 of the top 100 USA markets to launch future 4G wireless services.

Gary Forsee said that Sprint was comfortable with its positioning with the business sector: Sprint’s IP/MPLS fibre backbone coupled with iDEN & CDMA wireless, he believed was a compelling offer now and in the future - presumably with 4G services.

However, there was a problem in the consumer sector and Sprint saw the need to offer something together the cable companies. They therefore cut a deal with Comcast, Time Warner, Cox and BrightHouse. Sprint’s portfolio of rural telephony providers was bundled together and spun-off presumably they were seen as a competitor to the cable companies and although a nice earner problematic with the long term vision.

According to Gary Forsee, it has taken approximately a year, which is much longer than expected, to get the functionality associated with the cable companies working: the cable companies will manage the customer interface and have their branding on the phones. In my planet this sounds a lot like a simple MVNO deal: except it is not public knowledge the level of commitment by the cable companies to buy capacity or share start-up expenses.

During all this time the cable companies had been involved in the 4G technology and business case discussions. According to Forsee, Sprint offered the Cable Companies the opportunity to use the 4G at current MVNO pricing or even buy-in to the business case at cost. It seems to that the Cable Companies took the decision to buy spectrum and potentially build their own local wireless networks. This must have been a huge body blow to Sprint and the type of reversal in fortune that needs heads to roll.

The Sprint 5% investment in SpectrumCo was to paraphrase Gary Forsee “tag-along and reinforce that doing things together would be an important market place decision”

Some people are immediately going to interpret that the cable companies do not believe in the 4G Wimax solution proposed by Intel, Motorola and Samsung and that is probably fair in the marketing hype that is starting to fly around on the 4G battlefield.

My personal interpretation from the other side of the pond is that the cable companies really want to own Sprint as a long term asset fighting against the Verizon and AT&T networks. Even if the cable companies believed in the 4G technology decision, it is probably beneficial to see current Sprint shareholders to bear the brunt of the cost of the Sprint, Nextel and Affiliates consolidation and more importantly the cost of launching a new technology before the cable companies step in and buy Sprint on the cheap. According to the master of ceremonies from Goldman Sachs, Sprint is currently valued upon zero growth: given the troubles they face this is probably fair, however the Cable Companies presumably want an even better bargain.

In my opinion, given that the Sprint market capitalization is US$52bn: a mere US$2.4bn investment in spectrum should be seen as only a down payment on the final goal and a valid punt to keep the price reasonable.

Out of the Frying Pan into the Furnace

Sir Julian Horn-Smith had a long and distinguished career at Vodafone. I would have thought that towards the end the political shenanigans would have been driving him crazy. I would have guessed that he would have been looking forward to a quiet semi-retirement serving as a non-executive director at a small select group of companies.

Imagine my surprise that barely two months into retirement, he turns up along with Douglas Hurd on the board of Altimo. Altimo is the holding company for Alfa Group telecom assets and is currently fighting both Teliasonera and Telenor. Once these battles have been resolved, Altimo has frequently discussed taking a different Western partner and floating in London – I wonder which will be the first door that Altimo knocks on?

Life in the Slow Lane: ASA is wrong.

Ntl recently complained to the UK Advertising Standards Authority (ASA) about the ex-Bulldog adverts claiming 8Mbs broadband speed.

ASA ruled “We asked Bulldog to indicate prominently in future ads (for example in the body copy of non-broadcast ads) that top speeds varied significantly, in particular because of a user's distance from their local exchange.”

I have a real problem with this ruling because it is just plain wrong:
1. For RADSL services, bandwidth is directly proportional to line attenuation.
2. For ADSL2plus services, bandwidth is directly proportional to line signal to noise ratio.

These factors can be proportional to the distance from the exchange, but also can be due to poor quality cable and/or shielding, poor quality splicing or large “internal” exchange cabling which really are OpenReach problems, but they quite also be due to poor quality filters which the ISP are bundling with the offer or even poor quality internal extension wiring or interference in the home.

The only way to confirm the expected bandwidth is to perform a line test from home or from the exchange. OFCOM should step in and force the ISP industry in general to provide tools for the home user to perform a proper line test: in the absence of this, OpenReach should step up to the plate and make such testing tools generally available. A lot of home routers already provide attenuation and SNR information and it is a matter of educating the public.

In my opinion, it is better to tell truth: ie getting maximum speed is dependant upon several factors rather than telling another half-truth.

Ntl are perfectly within their right to complain about such blatant mis-selling. However, I’m sure their senior management are focussed upon more pressing issues. There was a report in the FT this week that the Private Equity buyers had pulled out of negotiations - quote - One adviser close to the consortium's discussions said: "It's a big price. A couple of months ago we were nowhere near $US34, and the business has got worse, not better."


Tuesday, September 19, 2006

BBC – DTT Mega Contract Placed

The BBC have placed a £1.8bn contract with Arqiva for the “design, deployment, and operation of its new high-power digital terrestrial television (DTT) network” The contract also contains a few add-ons for DAB radio.

Whilst the headline figure looks big the contract length stretches to 2031, so the costs will be well under £100m/year which I think from looking at the BBC Accounts is cheaper than the Transmission costs for the soon to be decommissioned Analogue Network. I’m hoping for a “digital dividend” rebate on my BBC license fee, but I suspect I’ll be waiting a lot longer than 2031.

Arquiva have an excellent website which details the Digital Switch Over project. However, it has a long way to go to beat “The Transmission Gallery” which is heaven on the web for the UK Wireless Anorak Army. As a self-confessed member of this army: my local transmitter is Emley Moor which has a fascinating history full documented on the website.

Monday, September 18, 2006

UK Broadband Economics: Part I - Reseller

The great thing about BT is that the price list is in the public domain, so the average punter can examine and estimate the profits (or losses) that their ISP is making. The price list provides a clue as to why some ISPs are making a mad rush into LLU, however you need a crystal ball to explain why Vodafone are not following Orange and O2 into the battle.

Extremely simplistically, the way BT’s IPStream product functions is that an ISP effectively rents a pipe onto the BT IP Network (aka Colossus) and then asks BT to provide a connection for a specific end-user copper pair identified by a phone number and which can be shared with BT voice services. BT & the ISP configure the end-to-end connection for the pipe and then anytime “a_user@a_isp” requests a dsl connection, access is granted (aka authentication) by validating details on the ISP's (for the User) & BT’s (for the ISP) user database (aka radius).

BT ReSeller Architecture

Unfortunately, BT’s network is very much last century with inefficient ATM and L2TP tunneling featuring heavily. Fortunately, the BT network is rock solid and assuming that the ISP rents enough capacity into Collossus (aka BT Centrals) then the end-user will be extremely happy. Unfortunately, BT Centrals are extremely expensive.

Bt ReSeller Costs

All the costs above are quoted net of VAT and only represent a portion of the ISPs cost. I have excluded connection or migration costs. ISP's also have significant network, peering, IT, marketing, personnel and overhead costs.

Again simplifying, there are two type of BT Centrals either 155Mbps or 622 Mbps, with the former being the most popular and both involving huge upfront costs and financial commitments. BT have a family of products which attempt to reduce these commitments and allow for smaller ISPs to enter and transition the market.

It is interesting to note that the costs do not vary according to line card. In other words the price paid to BT is the same whether the card is configured to 1MBps, 2MBps or max 8MBps. The variable element of the equation is in the cost of BT Centrals and these are expensive: a 622Mbps link costs a mammouth £1,496,760 (ex VAT) per annum and this is where the Quality of Service of the ISPs kicks in.

ISPs are basically reliant on their users being inactive for large periods of the day. For instance, if an ISP was guaranteeing 2Mbps connectivity to 275 users at peak hour, this would cost the ISP £453/month/customer. Immediately you can see why ISPs (but not BT Wholesale) hate bandwidth hogging applications such as P2P video downloads. You can also see why some ISPs turn a blind eye to P2Pers filling the pipe in the middle of the night – “nobody is using the pipe so I don’t mind if the naughty boys fill it in the depth of the night”

However, some unscrupulous ISPs are deliberately not buying enough capacity to provide a “reasonable” service in peak hour which match their marketing “promises” and worse still are using tricks like idle time disconnects to force more connections into the pipe.

There is another problem with BT’s Central architecture and that is the L2TP overhead:

L2TP Tunnelling Overhead

If you look at the diagram above, an IP packet sent from a typical application carries 42 bytes of L2TP overhead, which is quite substantial for short and long packets. IP configuration on most PCs set the MTU (maximum transmission unit) as 1500 bytes which means they get fragmented: most PCs using BT resale should set the MTU to 1458 bytes. This means another reduction in the size of BT Central Pipe actually dedicated to the transmission of end-user IP datagrams.

Given this and the prices that TalkTalk and Sky are quoted, it would seem an extremely foolish person not to jump on the LLU bandwagon.

  • BT is only permitted by the UK regulator, OFCOM, to revise its’ IPStream pricing when total LLU customers reach 1.5m – given present take-up a big reduction should be on the cards within the year;
  • BT's 21CN network is nearly upon us. BT’s “IP over ATM” Collossus Solution is going to disappear and be replaced with something much more interesting and efficient.
  • BT plan to deploy ADSL2plus by Jan 2008 (to all MSANs) and thereby 99.9999% of the UK population: interconnection to a mere 100 metro-nodes will give redundant access to all 5.5k BT MSANs.
  • BT plan to hold network intelligence at the i-node and perhaps this is the future expensive bit (application access) rather than current expensive bit (physical access)
Ergo, the evolution of BT with the deployment of the 21CN in the next couple of years will turn the economics of last mile on its’ head.

In my opinion, the broadband wars have only just started and we are in the initial phase where the battlefield is being shaped and currently we are in a WWI trench warfare battle; BT are probably hoping on deploying a WWII 21CN nuclear device forcing the opposition to surrender; and maybe Vodafone is sat on the sidelines committing minimal resources hoping to win the peace with a Marshall-esque plan which will convert the BT 21CN into something more red, rock solid and restless.

Then again, perhaps everyone is firing random bullets in a darkened room...

AWS-1 Auction – Game Over

After 28 days and 161 rounds the mega-auction is over.

I’m sure there is a huge breath of relief in Germany as T-Mobile USA has secured effectively nationwide coverage in most cities of 20MHz at historically low prices. I expect to see an extremely aggressive build-out of the spectrum not only in current areas, but also to infill on current network dead spots where roaming costs are high. This time next year T-Mobile 3G network will be up and running in the major cities.

I’m also sure that Verizon Wireless will be extremely happy with the 4 mega-licenses they won (+ Hawaii + whole State coverage of Louisiana). I’m sure they will be bidding aggressively for the rest in the sparsely populated area of the USA in the 700MHz auction in 2008.

I’m a little baffled about the cable companies’ strategy and it will be interesting to see how the relationship with Sprint now works out in the long run.

Cingular will also be relatively happy although they haven’t spent (relatively) a lot of money.

It will be interesting to see what the Tier 2 companies, Leap Wireless and MetroPCS, do with their spectrum. They seem to building “value” brands and now have spectrum to roll-out in a lot more markets. My own suspicion is that if they are successful with the value strategy one of them will end up being acquired by Verizon Wireless in the long run and rolled out nationwide as the VZW value brand. This will only happen when the general growth in US wireless is over and the Euro multi-brand strategy is exported or perhaps one of them gets in severe financial trouble and the bargain is too tempting for Verizon Wireless.

Even more interesting will be what happens to EchoStar and DirectTV after their early exit, they still need a reverse link and their options are now severely reduced.

Also, I was surprised that Alltel Wireless was completely absent from the auction. Admittedly they are currently busy digesting Western Wireless, I suspect their short to medium strategy is for acquisitions to fill-in their gaps in coverage.

Anyway time for reflection and letting the dust settle before doing a full analysis. My immediate belief is that the spectrum was extremely cheap and the “spectrum speculators” will be the big winners in the medium term.

Saturday, September 16, 2006

Universal prepares for a fight

If the economics of unicasting are not difficult enough for YouTube to overcome, a bigger beast and cost is about to threaten their business model: the music industry lawyers.

Universal, the biggest beast in the music jungle claim “We believe these new businesses are copyright infringers and owe us tens of millions of dollars...” If YouTube was the only company being threatened life might become terminal for the popular service, however Universal is also going after MySpace which adds a completely new dimension to the fight. I’d buy a front row seat to see Murdoch v Morris (CEO Universal) and my money would be on Murdoch – the situation is nowhere near as clear cut as the Universal CEO is making out. After all I’m sure most of the Universal Artists are loading content onto MySpace and really this is who Universal should be suing: Universal is already suing its’ customers, why not sue its’ suppliers as well?

Litigation is inevitable end product of any industry run by lawyers and the music industry is run by lawyers with big ego’s.

Tiscali Buys Itself Some Time

The short term cash squeeze on Tiscali is over: Tiscali has managed to sell the Dutch operations to KPN for an approximate €255m Enterprise Value. The closing cash received by Tiscali will be dependant on the number of ADSL customers at close and bank borrowings.

Tiscali made the following comment about the Dutch Operation “…which is one of the most successful operations of the Tiscali Group but in a mature and highly competitive market”. My interpretation of this is that Tiscali feels that its potential in the Netherlands has peaked. The ECTU placed The Netherlands 2nd in the list of EU countries in terms of broadband penetration. However, I suspect the real reason is twofold:
• KPN have recently been hovering up smaller ISPs, (such as Thus, Speedling, CistroN and Freeler) and offered a good price; and
• The Dutch market looks as if it is entering a new phase of investment with Fiber to the Home projects being muted. My cyberbuddy, James Enck, has been banging on about this phenomenon for many months and more especially the feature of municipalities getting involved.

This cash allows Tiscali to support the UK’s growth and launch of Video on Demand services. More pressing questions will be how growth can be accelerated in the home market of Italy and more importantly will Tiscali take the decision to invest heavily in Germany to turn around the operation or will it be sold as well.

The lesson which Broadband ISPs in the UK should bear in mind is the Dutch experience: the wave of investment in LLU will be replaced by a wave of investment in Fiber to the Home projects which effectively could mean that decent returns on LLU investment will never be realised. This has always been the case in Telecoms and it is really noticeable that Vodafone who have surfed several waves in the wireless arena is taking an infrastructure light approach to Broadband. Vodafone must have looked at buying Tiscali before deciding to resell BT (UK) and FastWeb (Italy) services - I await with interest to see what Vodafone next step will be in the more mature market of the Netherlands and the less mature market in Spain.

Friday, September 15, 2006

Tiscali - Financial Riddles

Tiscali reported yesterday a really mixed bag of performance in its' interim results and the riddle about Tiscali’s finances has not yet been solved. The cash burn for the first six months was €44m with the major items being incoming EBITDA at €64m offset by outgoing Capex at €92m and Interest payments of €10m. The Capex figure itself was remarkable with €70.5m being intangible and related to capitalised customer acquisition costs and some new IRU contracts. The tangible assets additions were only €21.5m which is remarkable given the amount of exchanges unbundled in the period – 192 in the UK and 73 in Italy.

Tiscali say revenues growing by 17% to €412.5m with the UK accounting for 50%, Italy 26%, Netherlands 13%, Germany 9% and others 3%. The split in growth was remarkable with the UK accounting for 39%, Italy 7%, Netherlands 5% and Germany -14%. Clearly, the only place which is showing good growth is in the UK. In terms of profitability the results were also varied:
• UK made €34.5m of EBITDA (up from €22.1m), but operating profit was still a negative €6.6m;
• Italy made €14.5m of EBITDA (down from €15.5m), but operating profit was still a negative €8.7m
• Netherlands made big gains with €23.1m of EBITDA (up from €12.2m), with operating profits of €9.7m
• Germany had a nightmare at roughly EBITDA breakeven (down from €5.7m), but operating profit was a negative €10.5m and a further €30m write-down of asset due to poor trading.
• Czech Republic made EBITDA losses of €03.m (compare to plus €0.4m), WITH operating profit a negative €1.9m

I think the write-down in Germany means it is due to be sold off, perhaps with the Czech Republic which is also is decline. The Netherlands position improved sharply even showing operating profits and it is noticeable that the entire Dutch customer base connects to the LLU infrastructure. It would be nice to see a higher rate of growth in the customer base than 10% (26k to 276k). I was extremely surprised to see Italy in decline, Tiscali blamed this on higher marketing expenditure, but the growth is well below equivalent Fastweb figures – I think there is a potential huge problem here. The UK is showing great growth, but my worry would be the cash position of the parent will be holding the subsid back especially with the integration of HomeChoice to complete and roll-out of Video-on-Demand services.

The forthcoming key dates in the calendar are on Sept 26th when the equity linked bonds mature. The share price is the key variable in the equity/cash ratio equation, with the ratio current €65m equity to €145m cash. After this, it seems the new Business Plan will be revealed to the Market in the week commencing October 9th. I presume this will detail any disposals, new partners & possible new equity and the business plan to support the current levels of debt. This is the key announcement which will determine whether Tiscali continues to survive as an independent European ISP.

Wednesday, September 13, 2006

Pipex – The tackiness sinks to new depths

Pipex have decided to release David Hasselhoff’s new single 'Jump in My Car' onto the unsuspecting British public.

Mike Read, the famously asinine DJ from the 1970s and allegedly now Pipex CEO said “David needed no encouragement when we approached him about the release of 'Jump in My Car'. He is delighted that fans liked the Pipex ad and said he'd love to release 'Jump in My Car' in the UK.” The car in question is Hasselhoff’s equally crass KITT from the TV series 'Knight Rider'. The car actually out-acts Hasselhoff in the video.

Whatever happened to technical innovation? This is the sort of marketing trick you'd expect from someone used to selling youngsters silly T-Shirts - after all that's how the Pipex Chairman, Peter Dubens, made his fortune.

Tuesday, September 12, 2006

Vodafone Basque

With all the noise about the Vodafone UK Broadband Reseller deal, something much more important for the bottom line seems to have passed relatively un-noticed at the VodaEuro growth engine ie España.

Vodafone has signed a MVNO deal with Euskaltel. For those who don’t already know Euskaltel was already a reseller of Amena (now owned by France Telecom) in the Basque region of Spain and has 460k customers. Unfortunately, this leaves Amena in a world of pain: not only does it potentially lose the 460k customers, but it loses distribution in the Basque region and is left looking stupid with a minority position in a company buying services from the competition. The fall-out from this deal will be probably make a few Spanish lawyers a little richer.

The interesting part of the deal to me is that Euskatel probably put its’ traffic and distribution out for bids and Vodafone probably won with the lowest bid. After all the marginal cost of this traffic is probably extremely low for Vodafone, its improves the ARPU metric (Vodafone counts MVNO's as 1 customer regardless of actual customers) and probably will increase penetration in the fiercely nationalistic Basque region.

This process of moving traffic is something I expected to occur quite regularly in the MVNO space. However, I’m aware of only one other deal where a MVNO put its’ minutes out to tender: BT in the UK, which was also won by Vodafone from O2. In the UK it is obvious that because of the historical minority ownership by the networks (O2 & T-Mobile) renowned penny-pinchers such as Tesco and Virgin Mobile have not put their traffic out for tender. Carphone Warehouse has 100% ownership of its’ Fresh MVNO, which is a frequent money-loser - I wonder why Charles Dunstone has never tried to swap networks.

Speaking of Virgin Mobile, they seem to have lost another of original team with the exit of Graeme Hutchison. My money is on Virgin Mobile turning into a complete disaster in the medium term for ntl.

Telecom Italia: Doing a Materazzi?

The jungle grapevine is working overtime with analysis of the comments out of Milan last night.

After the World Cup final, nearly everyone in the world knows that the Italians like to feign injury with the slightest pressure. My own slightly twisted interpretation of the Tronchetti move is that it could be the world’s biggest (and potentially most rewarding) bluff. Obviously, I’m in favour of administering a healthy dose of capitalist medicine to the Italian telecommunications sector, but I can’t see the Italian government liking the cure at all.

Could you imagine?
• The whole of the mobile sector owned by foreigners;
• Potentially the local loop being owned by hedge funds; and
• The second largest media company owned by someone viewed (in some Italian eyes) worse than Berlusconi.

The backlash is already starting with the Prime Minister, Infrastructure Minister, Economy Minister, Unions and every other man and his dog wading in expressing shock and horror.

Tronchetti is no fool and I think he would have been expecting this backlash all along. Perhaps Telecom Italia will in the end not being broken up after Tronchetti wrings a few “little promises” from the government. In this scenario: how could the regulator actually force Telecom Italia to lower prices or play fair with the competition?

I don’t think Tronchetti cares too much about public opinion and has history in changing his mind. In March 2004 he said buying the rest of TIM did not make strategic sense; in December he wrote a €20bn cheque to buy out TIM minorities saying 100% ownership was vital to exploit synergies.

The Telecom Italia position in Brasil is even more confusing. As far as I can remember, TIM cannot sell its mobile assets whole and will have auction them off piece by piece with no doubt Americas Movil, Telefonica and some local pension funds entering a cheap feeding frenzy. That is unless Tronchetti plans on getting Lula to change the Brasilian Law.

BlueLeaf bites the Dust

Another small ISP appears to have bit the dust. This time pushed over the edge by Your Communications rather than BT. Your Communications itself has only just been bought by Thus. Again, it is the customers feeling the pain with no MAC-codes being provided. That makes 3 small ISP’s going under in the last few weeks, I’m almost certain we will reach double figures by year-end.

Thus which is a medium sized alt-net which seems to be avoiding the worst of the consumer broadband war even though it owns two well known broadband brands in Demon Internet & Legend Communications both of which focus on the SME sector.

Monday, September 11, 2006

Iliad Annoucements - applicability to the UK?

The torrent of information coming out of Iliad, the second largest broadband player in France, obviously raises questions about the UK market:
1) The French Consumer market is narrowing to three key players: France Telecom, Neuf Cegetel and Iliad. It looks as if Telecom Italia (via Alice) and Deutsche Telekom (via Club Internet) will be left with sub-optimal market share - perhaps they will exit the market soon;

2) The whole basis of the theory of natural monopoly in the copper local loop is turned on its’ head with a non-incumbent investing in fibre. However, I note that some of Iliad’s PR can be interpreted as a call for Local Authorities to financially assist them in the build-out;

3) A pure national operator such as Iliad can gain a leap on the much larger multi-nationals through aggressive pricing, innovation and apparently a lack of focus on quality - compare and contrast with the TalkTalk strategy. I wonder if Charles Dunstone at TalkTalk (aka Carphone Warehouse) will strike a deal with his entrepreneurial soul mate Xavier Niel at Iliad on technology sharing, especially in the Set Top Box / ADSL modem hardware arena;

4) Perhaps there is another dimension to the Vodafone Wholesale DSL decision: if Vodafone believe Fibre to the Home or even VDSL is due to be deployed by BT in the near future, it will mean a big write-off for a proportion of the LLUers investment: read Bulldog (aka C&W), TalkTalk (aka Carphone Warehouse), Easynet (aka BskyB), Orange (aka France Telecom), O2/Be (aka Telefonica); and

5) Why should there be a lot more broadband players in the UK compared to France? Perhaps, there could be a few exits from the UK market over the medium term.

Vodafone DSL Deal: More Questions than Answers

Back in July, Vodafone announced a total communications service for SME’s based upon re-sold voice from Energis (now C&W) and resold DSL from Viatel.

Today, Vodafone has announced they are resell BT broadband product for consumers before the year-end.

The deal with BT asks a lot more questions about the Vodafone product set than it answers:
1) What will the differentiated consumer product look like?
2) What will happen to the Vodafone SME products?
3) Will Vodafone start to be more aggressive with Fixed Line products in the Corporate Sector?

Also it raises a lot more questions about the wholesale LLU market:
1) Does Vodafone believe coverage is more important than cost?
2) Does Vodafone believe the problems (witness Bulldog, Tiscali & TalkTalk) with LLU provision will continue?
3) Does Vodafone believe BT Wholesale will make significant price reductions when total LLUers reach 1.5m and BT can then revise its’ IPStream prices.

I also wonder how much weight was attached to strategic medium term thinking behind the Vodafone decision. After all, once BT’s & Vodafone’s networks become all-IP then there is a plethora of new IMS-type services both can offer regardless of access method - Copper, fibre or Wireless. I also suspect with O2 and Orange committing to build their own access networks then with this deal Vodafone is guaranteed the BT MVNO custom for the foreseeable future. Of course, the tempting long term consequence is that the economics of combining Vodafone and BT become stronger as integration of the networks becomes tighter.

The biggest loser in the deal appears to C&W, who slowly but surely is seeing its’ wholesale DSL strategy unraveling. Last week, C&W announced a tie-up with Pipex and I’m sure the timing of this release and the Vodafone announcement is related. C&W desperately needs another couple of significant customers to prove that their LLU infrastructure is not going to be idle for a substantial proportion of the day.

Sunday, September 10, 2006

Pipex – The Early Years

Unipalm was a very early computer networking software company founded in Feburary 1986 by Pete Dawe specialising in the emerging TCP/IP protocol. The company was already profitable when it decided to expand into corporate email in 1991 and set up Pipex as a subsidiary to specialise in providing internet connections to corporate customers. By 1994, the Pipex business was growing rapidly, needed capital and floated on the UK stock market. In 1995, the largest US ISP, UUNET decided to expand into Europe and one of its’ first investments was Unipalm/Pipex which it bought with the early founders leaving the company with millions in their pockets.

UUNET made other acquisitions in Europe, invested in infrastructure and won more market share. UUNET was eventually bought by MFS, who was bought by Worldcom, who was bought by its’ current owner, Verizon, in a series of mega-acquisitions. After all these years the rump of original Pipex business is still #1 in providing dedicated access to FTSE350 companies according to Backdoor research with 18.5% of the market.

In 2001, whilst Dave Rickards was working for Worldcom, the UK consumer market was in turmoil: Freeserve had entered the market and was offering free access for consumers and many of the traditional players like Pipex, who marketed services to Joe Public were really suffering. Pipex was a very small but troubled part of mega-troubled Worldcom who focussed on the corporate market. Dave Rickards in partnership with his wife bought Pipex from Worldcom: it is rumoured that the price was as low as £1. I would guess they immediately felt the benefit of being free from the huge overheads that come with being part of a multinational telco giant.

In January 2002, they decided to invest £5m offering a subsidised self-install ADSL 512Kbps product at £29.95/month for 40k customers. They were swamped by demand and had huge customer care problems dealing with demand and the new technology, but nevertheless sales were extremely good.

In as little as two years, the Rickards built a customer base of 120k. Pipex made around £10.1m in profit in the year and had £20m cash in the bank. The company was sold to a Peter Dubens company, GX Networks, in 2003 netting the Rickards a cool £55m. Peter Dubens previous claim to fame was the selling of heat-sensitive T-shirts to party-goers in the Madchester Dance music era.

In two incarnations Pipex has made serious money for two of its’ owners, both of the owners were true innovators in the ISP area: one by being the first commercial ISP in the UK and the other by being the first to offer mass-market broadband products to the public.

With today’s incarnation of Pipex I don’t see any of this innovation: I see a market-follower rather than innovator with the owner basically following a growth by acquisition strategy. It will be interesting to see the return that Peter Dubens ultimately makes with this change of approach.

Friday, September 08, 2006

AWS-1 Hawaiian Fun

After being quiet for so long, the mega-powerful Verizon Wireless yesterday went back into action in Hawaii.

hawaii round 97

The BEA and REA licensees cover the whole of the Hawaiian Archipelago, so we can see that currently T-Mobile has 30MHz, SpectrumCo (who own the local CableTV franchise) has 20MHz, Verizon Wireless 20MHz and Cingular has 20MHz on the main island. A private company, Cavalier Wireless, has 20MHz in a variety of smaller islands for US$201k.

Verizon Wireless also placed their toe into water into other smaller BEA licenses in Louisiana, which is right on the edge of the Central license / Mississippi Valley mega-franchise. Verizon Wireless have almost certainly lost the bid on the Central license to T-Mobile. Currently Verizon Wireless is not the high bidder, but could re-enter the fray.

Verizon Wireless still has around 7.9m bidding units available and they could use these to either:
  • buy spectrum in the central & west regions where are currently spectrally challenged;
  • force competitors to pay realistic prices;
  • force out speculators who are buying spectrum on the cheap; or
  • keep the auction going to keep the status-quo going for as long as possible.
It is a little bizarre that Verizon Wireless played the opening-game and seems now to be playing in the end-game, but ignored the middle-game.

Thursday, September 07, 2006

Carphone: It never rains it pours

Carphone Warehouse got fined £245k today by the FSA for mis-selling of mobile insurance policies. Charles claims the regulator has used a “sledgehammer to crack a nut”, but I would say the regulator’s fine is a more like a “drop in the ocean” After all, the CPW insurance empire had a turnover of £116.1m in the year to 31/3/06 with a rather large “contribution” of £45.5m. I don’t know enough about the insurance business to comment whether these “gross profits” are high, but it looks that £245k is hardly going to place a dent on the figures.

It is getting bad for Charles Dunstone when TalkTalk is featured in the “investigative” section of the Daily Mirror. I love the fact that they have discovered the trick with free broadband "I think the catch is that their customer service and technical support teams do not exist. The phone numbers are merely a way for the company to earn money at 10p a minute while customers listen to endless repeats of a record from 1969." The irregulator, OFCOM, even confirms that this is an acceptable part of their business model.

On a personal front, I haven’t had voice service since Monday afternoon and my broadband connection is reaching new lows with download speeds at 751kbps.

Pipex – growth by acquisition

Despite Pipex’s claims that the Hoff has come through for them – with a rise in Broadband connections of 50% and an increased brand awareness of 50% from the £3m campaign, the truth seems to indicate that the vast majority of the growth is down to acquisitions.

After today’s acquisition of Toucan (185k) and Bulldog (110k) customer bases, Pipex claim a customer base of 1.140k which net of acquisitions is 845k. In the last trading update, Pipex claimed total customer figures at 30 June of 832k, which basically gives organic net adds of 13k in just over 2 months. In this period the broadband base has grown from 399k to 570k today, however it is uncertain how much of this is acquired via Bulldog (nearly all will be Broadband) or Toucan (most will be low-quality CPS voice).

If we go back to the time of the Homecall acquisition on 3rd April, Broadband customers were at 390k which grew to 399k by the 30th June - again hardly awe-inspiring organic growth.

In fact no long term Pipex followers should be surprised at this as Pipex has a history of two acquisitions per year, one in spring and one in autumn.
- 7 Sep 2006 – Toucan (£24m) and Bulldog (£12.5m)
- 3 Apr 2006 – Homecall (£43m)
- 18th Oct 2005 – Freedom2Surf (£10m)
- 24th Apr 2005 – Donhost (£5.9m)
- 9th Aug 2004 – Nildram (£12.9m)
- Apr 2004 – Host Europe (£31.18m)
- Oct 2003 – GX Networks reversed into Pipex (£55m)

On first glance the acquisitions of Toucan and Bulldog look quite cheap especially compared to cost of previous acquisitions. The slight concern should be how much of future revenues have Pipex agreed to share with Toucan (via a voice termination deal) and C&W (via a “potentially” £250m deal over 5 years for LLU wholesaling)

Furthermore, neither of these companies is experiencing growth:
  • Information on Toucan is sparse, IDT the parent company indicated 186k customers on 30th Apr taking 212k services (voice, line rental, broadband + mobile) so again the base has been static/slightly declining. Note, that Toucan has a MVNO deal with T-Mobile; and
  • C&W reported 118k Bulldog customers on 31st March and actually stopped selling on 1st July. Given that Bulldog was asking for 6 month contract lengths and the legendary historical customer service problems, it might be difficult for Pipex to hold onto this base.
To make matters worse for Pipex, Bulldog attracted the tech savvy, early adopting broadband speed freaks. These customers consume a lot of bandwidth and tend to be heavy users of p2p technology. The history of Pipex with placing bandwidth caps and throttling p2p at Nildram and Freedom2Surf does not bode well for a loving relationship. It is noted that Pipex bought the Bulldog brand, website & customer base not the employees, so I would imagine that support could a future issue also. Already, throughout the various forums there are threats of walking (seemingly the consensus seems to that Be/o2 is the next victim) at the first sign of throttling.

The bonus For Peter Dubens, the Chairman of Pipex (who is also behind ukbetting) of announcing acquisitions at the same time as results is that it reduces the focus on the operational results – no such luck for him in this blog.

The first thing to note is that Pipex, just like Tiscali is cash-strapped. At 30th June, Pipex had £37.8m in cash and net debt of £52.2m. With £32.5m of this cash going out of the door with the Bulldog (£12.5m) and Toucan (£20m), this does not leave Pipex a lot of headroom.

This would not be a problem if the overall business was generating decent cashflow – it isn’t. In the 6 months to June 2006, £1.854m was generated compared to £5.382m generated in the previous year. Worst still, the interest bill for the £91.5m of convertible bonds issued at 3.875% will probably eat all this cashflow. Obviously being in the middle of a war with deep-pocketed companies such as BSkyB, Orange and O2, it helps not to be cash-strapped.

It makes me wonder what Intel are thinking about their US$25m investment in the Wimax arm of Pipex. I seriously doubt whether Pipex can afford a nationwide rollout, start-up losses and triggering a price war with Vodafone who are currently the UK kings of the wireless data card market. Personally, I think Pipex are on the go slow with Wimax deployment and commitments hoping that Clearwire and/or Sprint in the US will generate a “bubble” of interest leading to an easy gain in asset value. I think a UK nationwide rollout of Wimax needs BTesque deep pockets.

Operationally, Pipex is still losing money with £4.8m of net losses in the six months compared to £4.1m in the previous year. Interestingly, Pipex also booked £9.7m of unrealized losses due to the Wimax JV to bring the total losses to £14.5m. I presume this is because Intel bought in at a price below the Pipex Net Asset Value.

To be fair if I was a Pipex shareholder I wouldn’t be too worried about the operating losses. The bet with Pipex was always whether Peter Dubens could drive value through well-timed acquisitions giving a critical mass and then sell the company at a premium. I don’t think this is the case in the broadband area since the wars began; the hosting business is looking good and the Wimax business is a serious wildcard. In other words the jury is still out.

Mobile Earth

Vodafone Germany have launched Mobile Earth which is a mapping product from LocatioNet with data provided by TeleAtlas who also provide the data for the TomTom and Google Maps service. There is a demo online available and the product looks remarkably like the Google Maps service.

Personally, I feel this is a good start for Vodafone, but Mobile Earth must be linked to Location Based Services to be really useful. For instance if I was using a laptop on the road with connection provided via. HSDPA I would almost certainly use the Google maps service, however if the Vodafone Mobile Earth knew automatically where I was and could provide directions or locate the nearest shop etc, I would prefer that service.

I suppose the point I am trying to make is that it is one thing to copy the same service as someone else, but to get people to churn you need to offer a better/faster/cheaper service. I'm not sure whether Vodafone have missed the boat here and need to fight hard to regain lost momentum.

Wednesday, September 06, 2006

Carousel Gang gets Jail Time

The trial has finished and one of the many carousel gangs gets serious jail-time and the promise of more if they don’t pay back the £12m they swindled. It also turns out they were box-breaking as well:
The court heard that two Nottinghamshire men, Steven Chapman and Neil Walker set up a company called Intercom Espana 96 SL in 1996 near Benidorm, Spain. They initially sourced SIM locked mobile phones locked into the Spanish 'Telefonica' network. The phones were obtained at a cheap rate, being subsidised by the network. They were shipped to the UK and unlocked by a series of 'unlockers' and sold into the UK market in bulk.

The phones were sold through UK based 'missing traders', set up and controlled by Chapman and Walker, to major UK mobile phone distributors. The VAT charged by the 'missing traders' was not paid over to HM Customs & Excise, (now HMRC), and a classic MTIC fraud was born.

A lengthy and complex investigation started in early 1997 and a series of trials followed in September 2002, October 2003, November 2004 and July 2006. The investigation has led to enquiries in numerous countries including Ireland, France, Spain, Holland, Belgium, Germany, Sweden, Denmark, Switzerland, Hong Kong, USA, Isle of Man and the Channel Islands.
I suspect that they cost Telefonica a lot more than £12m in lost handset subsidy.

Tuesday, September 05, 2006

The Return of Vittorio Collao

This will be extremely interesting and raises more questions than answers.

As someone who freely admits to copying good ideas, I’ve made a poll over at Ning over who people think will be the best leader.

My money is on Vittorio.

AWS-1 Bargain or Rip-off

With the AWS-1 Auction winding-up and almost certainly bidding in the Supa-Regional auctions is over, it is worth crystal ball gazing as to whether the bids were too low or too high.

Acquiring spectrum is only one part of the cellular business model, albeit an extremely expensive one on the capital side of the equation. It should be noted that other variable’s such as pricing, usage, equipment costs, operating costs, interest rates & taxation are equally important and not considered in this analysis.

aws-1 value

In determining value of spectrum, the most important consideration is the spectral efficiency of the deployed system and of course this is inextricably linked to the chosen technology. I have used the EV-DO roadmap as an example, but please bear in mind some of the technology is already deployed and some is still being worked on in the labs and therefore the results are not guaranteed. The USA is obviously going to be the battle ground to prove which system is the best in practice with WCDMA, EV-DO and Wimax planned to be deployed. As a European Consumer, I wish companies themselves had a vote on the technological winners and losers but currently they have to rely on some decision made by some anonymous bureaucrat and politicians many years before.

Wireless spectrum is obviously shared between authenticated users in a given cell, so on an engineering basis we have to really look at estimated peak-hour usage and cell size in a variety of urban, suburban and rural locations to give an idea of what bandwidth can ultimately be offered in a huge variety of locations.

I expect in the medium term as customers actually start using the AWS spectrum a huge marketing battle developing as to which wireless operator offers the best “quality” speeds. The figures quoted by all equipment manufacturers and standards bodies tend to be theoretical layer-1 speeds (ie physical) rather than figures that have any meaning to users e.g. actual download times (ie application level) or streaming success (ie without pausing for buffering) The 802.11b ratios are roughly about 1:2 for actual vs declared speed and this estimate is before considering congested access points in which performance drops off dramatically. Basically, the whole upcoming confusion is a license to print money for independent assessors.

If we look at the spectrum cost on a per population basis, I believe the important point is showing the importance of current market share as a barrier to bidding. For instance, Verizon Wireless bid US$1.335bn for the whole of the North West area. I’m not sure of the market share of VZW in the North East, I’d guess it is actually greater than 20%. At 20% the cost of a 15 year license is US$133/20% pop customer. To me this highlights one of the main reasons why the auction failed to attract a low of bids from new entrants: just because of existing market share the incumbents have developed huge barriers to entry.

The most important variable as far as profitability is concerned is competition. The experience of 3G auctions here in the UK, I believe show that sunk costs (ie auction fees) are immaterial compared to increased levels of competition. At first glance, the AWS-1 auction seems to be a failure on increasing competition.

Monday, September 04, 2006

AWS-1 Auction - Round 73 Summary

AWS-1 Round 73

Auction #66 is in the process of wrapping up with just 66 licenses being fought over. These licenses are predominately in the CMA band with 51 bids and with only 7 bids for the BEA B band and 8 bids for BEA C band. The biggest of these bids is for Memphis with a $19.7m bid. 53 bids are for under $1m.

The spectrum is nearly all assigned in the BEA bands with currently the only FCC held licenses in the rural areas of Lincoln, NE and Wausan, WI. Again in the CMA band nearly all the remaining spectrum (39 licenses) held by the FCC is in sparsely populated areas.

Despite, the fact there has been zero activity on the regional licenses, the auction has raised just over $2.2bn in the last two weeks. I seriously doubt that the Auction will now reach US$14bn.

Carphone Warehouse : Pulling my hair out

My personal woes with TalkTalk continue and my home broadband has been out-of-action since 8pm Sunday evening. The comedians in the customer service continue with their implausible scripted nonsense.

On a call to report a line fault: “I have a clicking sound in the background, whenever I use the phone”. “I can send a BT engineer out, but if the fault is yours, it will cost you £80”. Perhaps, BT should help TalkTalk with the engineering of their network, because Opal Telecom (the CPW subsid) obviously doesn’t have a clue.

On the broadband outage: “We have no outages at your exchange and I cannot answer any further questions because you are not using the supplied TalkTalk modem.” - I’m using a fairly standard D-Link Wireless Router. I asked if they have had any outages in the last two weeks – No. These gems cost me £1.

On a call to OFCOM complaining about TalkTalk not providing fault information and charging for rubbish support: “They don’t have to provide Fault Information and some companies charge £1.50/minute for helplines”. In other words, OFCOM can’t/won’t do anything about it.

I was even more upset when I found out the new CPW policy – “People over the age of 70 must be accompanied by a child to explain the small print” before they sign-up. If only they would have refused my application to join, my life would have been a lot easier now.

Charles Dunsontes quote from his blog springs to mind “As things start to improve, I hope people will appreciate that what we did was for the best for all consumers, and whilst giving birth to free broadband was painful, it is now turning out to be a beautiful child.”

I can’t believe this, even the most blinkered parents would not say that the terrible voice and broadband service quality and even worse customer service quality does not constitute a beautiful child.

Friday, September 01, 2006

Thumbs Up to PlusNet

An avid reader sent me an email speculating whether my PlusNet article of yesterday had been plagiarised by a Web 1.0 hack even down to naming of the fired executives and the liberal use of “uk broadband wars” term. To be perfectly honestly, I think life is too short to go on worrying about such trivia and at least the Web 1.0 guy had the decency to ring PlusNet and get a great quote from the Marco Potesta, the PlusNet Marketing Director - “We came clean real quick on that one, but I don't see Tiscali coming clean on that, I don't see other people coming clean.”

Given all the potential culprits to pick on, I’m slightly surprised that Mark decided to use his LLU partner. Perhaps, the relationship between LLU wholesaler and reseller is a little strained at the moment. However, I’m 100% in agreement with the general prinicple from Mark and this is one of the reasons why I am publishing my personal SpeedNet results – it is blatantly obvious that TalkTalk is ripping me off on the speed front and they are also pretty naff on the latency front.

I also think that PlusNet should be awarded 10 out of 10 for honesty and openness – I can’t think of a single medium or large sized ISP who comes anywhere close for transparency especially when there is a problem. I am firm believer that transparency is the only way for success in the bulletin board web world that we live in. PlusNet have even published their Capex plans and yes I firmly believe that replacement of Intel servers with cluster of T2000’s was an extremely wise choice. I’m quite a fan of the new Sun range of servers and I can think of a few ISPs who come from a broadcasting background who will be taking more than a passing glance at the unbelievable value offered by Sun’s new Media Servers for the forthcoming Video-on-Demand broadband services.

However, I do stand by my original statement that the small to medium ISP’s face an extremely difficult winter. In fact even if TalkTalk, Sky and the rest of the LLUers make a complete mess and the broadband industry faces churn on a Cellular scale, I think people will return to the dependable and trusted BT rather the smaller players.

By the way, if anyone feels the need to dish the dirt on the ISP or Mobile industry: feel free to email me, I can guarantee confidentiality and much better customer service than the Web 1.0’ers.

I am especially interested in the roll-out of LLU equipment and given todays comments from OTA about the poor performance of delivery of co-located LLU equipment and the graph of backhaul delivery I can guarantee that there will be a few executives are pulling their hair out.


I also saw that the adjudicator noted that bulk migration throughput volumes have dropped in the last few weeks primarily due to specific systems, process & infrastructure problems. Didn’t Charles Dunstone with typical bravado at the launch of TalkTalk broadband say he’d sue BT for each penny that Carphone Warehouse lost due to late delivery? Let’s see if he walks the walk or it is just hot air. He even admits he is hurting to quote from his latest blog entry:
"It's been a bruising experience for everyone at Carphone Warehouse; we are used to being 'the good guys' and it's tough when things don't go as well as we'd hoped."

Charles had better up the speed soon or else he may be discovering a few new bruises.