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April 29, 2008

Money, Money, Money. 29th April 2008

Welcome to the all-new Telco 2.0 weekly update relating to financial wheeling and dealing in the TMT sector around a specific topic each week. Our aim is not to regurgitate earnings releases amply covered elsewhere, but to look at the financial world through the Telco 2.0 telescope. This week we look at the latest batch of results and data around handsets.

Apple Advancing

Apple released its 1st Quarter results to a rather mixed review and we’re much of the same opinion. The good news was that core business of Mac PCs and laptopsgained market share and produced a mind bending 35% growth in both units and revenues - amazing growth for such a mature product in a mature market. Obviously, there is a feel good factor happening from their music business.

iPod unit sales have stalled at 10.6m units for the quarter. iPod revenue is slightly up, but that is more because of the introduction of the high-end Touch. The big question is now whether the cellular handset market will destroy the music player market in much the way as its destroyed the stand-alone PDA market before it.

We believe Apple’s hedge against this is the iPhone, which shipped 1.7m devices in the quarter. This compares against Nokia’s industry estimate of 295m shipped in the global market for the quarter. Press gossip is that the European business model of a share of revenues in exchange for exclusivity in going away. Either way, the pricing arbitragers (aka box-breakers) of the mobile industry will ensure pricing is consistent across Europe.

SonyEricsson Sloth

A veteran of the industry, SonyEricsson, reported a much harder time with quarter-on-quarter revenue drop of 8% to €2.7bn and a staggering 48% drop in profits. SonyEricsson reported that at the top end there is a slowdown in demand. Whether this is consumer or operator led, it must be worrying to the whole of the handset industry. Still they managed to shift 9m Walkman phones in the quarter out of a total of 22.3m.

Interesting to us is SonyEricsson’s first foray into the Windows Mobile world with the forthcoming launch of the Xperia range. Will a change in operating system also invoke a new baseband supplier?

Motorola Misery

Nobody should be surprised with another set of appalling results from the Motorola handset division. Sales had dropped an incredible 39% year-on-year to US$3.3bn with US$418m of operating losses and only shipping 27.4m handsets. Global market share is now below 10%. Compare this to Q1 of 2006, when Motorola were at the peak of their powers with 46.1m handsets shipped for a 21% share of the global market.

Keen Koreans

In direct contrast both the Korean manufacturers, Samsung and LG seem to continue winning overall market share. Samsung unit sales were up 33% to 46.3m units with a reasonable ASP of US$141, which compares favourably to the Nokia figure of US$123 (€79). LG had smaller growth in unit volumes to 24.4m, but is now ahead of SonyEricsson in the unit stakes, although still trails them in revenue terms (approx US$3bn vs US$4.2bn)

Corporate Credentials

HTC & Microsoft look like to have hit a home run in the corporate market: HTC did 9,918k units in 2007 at a huge ASP of US$375. For comparison in the 12-months to Feb 2008, RIM and its Blackberries shipped 13.8m units , the ASP being US$346. It is interesting that RIM reported US$860.6m of service revenue, which as far as we are concerned is all at risk over the next couple of years as messaging charges becomes included in the general data bundle. It will be hard for RIM to compete with Microsoft if it keeps charging for push-email.

Japanese Jujitsu

The most interesting handset market remains Japan, where the local players dominate over international manufacturers by working closely with operator specifications. MMRI have released the latest market data for 2007 showing Sharp leading with 12.76m shipped out of a total for Japan of 51m. Sharp is followed by Panasonic, Fujitsu, Toshiba and NEC, before a global player (SonyEricsson) makes an appearance.

The Japanese market only represents around 3% of the total global market of around 1.15bn and yet local players have managed to carve out a profitable niche.

Fuzzy Future

The future is always difficult to predict and there is no certainty that the current status quo will remain especially as we enter a turbulent period with new generation of wireless standards being developed. Operators, such as Vodafone, are looking closely at self-branded phones. New entrants such as Apple and Garmin are arriving, whilst old players such as Motorola are imploding.

Watch out for further splintering of the market as the traditional IPR barriers to entry become less important compared to targetting specific market niches. The days of vertical end-to-end control of the value chain by the handset manufacturers seem to be over for everyone bar Nokia.

We live in interesting times…

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April 28, 2008

Ring! Ring! Hot News, 28th April 2008

Meet JIL; that’s the Joint Innovation Lab, a project worked out between Vodafone and China Mobile that’s meant to establish standards for mobile widgetry. Apart from the obvious point that only telcos could come up with anything like a standards body for widgets, what’s the betting the standard turns out to be a lot like the Nokia Web Runtime?

Perhaps more seriously, the head of Nokia R&D suggested there was an urgent need for a standard mobile platform, but it was more likely to be a de-facto one emerging from the chaos than a GSM-like technocratic solution. What Telco 2.0 liked in his speech was the reference to history:
“I feel like I’m been watching a movie I’ve seen three times before,” he said. Just as the IBM 360, the Digital VAX, and the IBM PC delivered standard platforms to hardware industries of yesteryear, Iannucci argued, some unseen mobile platform will deliver a standard in the age of handhelds.
We seem to have seen this idea somewhere else, right? He also mentioned a Nokia research project to generate traffic information by peer-to-peer monitoring of GPSes in phones; which suggests that the sensor APIs in such a solution will be more than interesting.

This is more than interesting. There’s been plenty of scepticism about Blyk, but the ad-funded MVNO-plus claims it’s signed up 100,000 customers six months ahead of schedule. That puts it well over the first hurdle of launching a successful MVNO; the next step will be extracting the value from this by cutting deals with the advertisers.

When Exradia - the company that claimed to protect you from THE RAYS by, ah, radiating more radio at you - turned up at 3GSM, a lot of people thought they were extracting something else. Maybe so; they certainly don’t seem to have extracted value. The UK-based operating company has been wound up, and the report to creditors says:
“In the view of the viability of the product, it is not considered to have any material value.”
Now there’s a surprise.

There’s almost certainly much more value in this: AT&T buys a ton of femtocells from IP.Access, with a view to selling them to their customers for $100 a throw. It’s a great little trick - your customers actually give you money to install base stations in their houses, and then they pay for the backhaul too, and you can even stuff other features in the box as well! That’s unless they realise that it’s…a mobile phone mast in their living room.

Stuart Henshall blogs about India, the world’s fastest-growing mobile market. Surprisingly, it’s being rumoured that Bharti Airtel isn’t satisfied with that - it may be planning to buy MTN, creating an emerging-market specialist of mammoth proportions. If the telco merger curse doesn’t get them, of course. Relatedly, their rivals Reliance Globalcomm are planning to invest heavily in WiMAX.

MTN, meanwhile, announced surging subscriber growth, especially in Iran and Afghanistan. So well is the Afghan network doing that it’s even downfaced the Taliban, whose attempt to force them off the air has apparently resulted in a popular backlash.

If you’re in Mumbai today, you might well be advised to check out Mobile Monday; this month’s session is on value-added services based on voice, which is surely very Telco 2.0 indeed (we call them “communications enabled business processes”, but who’s counting?).

In China, there are rumours that the long-awaited 3G licences will finally arrive sometime next year, and there are supposedly almost 60,000 TD-SCDMA handsets out there. We also happen to know that China Mobile had to be forced not to deploy a UMTS network, already.

Remember Skype? More specifically, remember the regular hype-waves about Skype on a mobile phone? Well, here’s Skype on a mobile phone for you. This time, it’s considerably better than the implementation 3’s X-Series got (no instant messaging, but no way for your friends to know this from your presence status). We’ll have to try this out - as soon as we’ve got tired of Truphone and Fring and all the other 70-odd Voice 2.0 players in the Voice & Messaging 2.0 report…

We’re trying to cut down on iPhone news - it’s a pity you can’t install the de-iPhoner on your brain - so we’ll just note that a 3G Blackberry is being held up to avoid clashing with the 3G iPhone, allegedly. And finally, a warning from South Korea: fibre is not enough - KT Corp profits are down 60% as the last few people get fibre.

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April 24, 2008

BBC and its paymasters: Cutting the Gordian knot

At the Telco 2.0 event last week there was much debate about whether online video (a fast growing phenomenon) would kill the ISP business, not only fixed, but mobile too. Our analysis of the real life effect of the BBC’s iPlayer on ISPs in the UK was used to challenge the optimism around mobile broadband. Two senior execs from the mobile world agreed that the issue was an important one and, no, their companies, and the industry in general didn’t have a solution…but needed one…pretty fast. They’re lucky, they have some time on their hands, relative to the fixed world.

So, here is some more analysis to fuel the debate:

In our recent report on future broadband business models we have several case studies on how you need to match the distribution system to the content — and how some people get it right (e.g. Sky), and others get it wrong (e.g. Joost).

The BBC is providing us with a fascinating experiment in the economics of distribution of digital goods. Who will pay for the postage and packing charges of all the content being delivered in future?

Decades-old business model

The BBC’s business model is a relatively simple one. In 2006/7 it had around 25 million licence payers paying £131.50 per year (around £11/month) generating total revenues of £3.2bn. It then spent this on acquiring, packaging and distributing content to the UK homes. 25 million payers represents nearly every home in the UK, and the licence fee would be called a tax in most economics textbooks, especially since the BBC is state owned.

The BBC has certain ancillary activities which fall under the general umbrella of BBC Worldwide, which had 2006/7 revenues of £810m. The general model is that content can be repackaged and distributed overseas for a profit (2006/7 profits of £111m) and the proceeds reinvested in content for the greater good of all the Licence Payers. BBC Worldwide is a bit of a misnomer as some of the activities are actually UK-specific, and encompass selling additional repackaged content to willing licence payers.

A simple example is the weekly production of a commercial TV guide which operates in a highly competitive space and manages to generate sales of £56m. Another example is the distribution of DVDs related to TV tie-ins with top sellers such as Planet Earth (>600k units) and Dr Who (>1.9m units). BBC also repackages archive TV content within the 10 channels of the UKTV Group on UK PayTV channels, both cable and satellite, with 2006/7 Revenues of £91m.

Confusing to Licence Payer

The simple truth is that it is getting more and more confusing to the licence payer what is included within the licence fee, what is charged for and what can be accessed without a licence fee. And this is before the BBC’s online activities are thrown into the melting pot.

The main BBC news website used to be ad-free and available for anyone to view worldwide. In 2006/7, bbc.co.uk had a weekly audience of 14.8m in the UK and an additional 13.5m overseas. However, in true web fashion now that the BBC has built an audience they now plan to start charging in the form of inserting adverts for overseas viewers.

The plan of action for the iPlayer, which allows viewing on a PC with a broadband connection, seems to be progressing in a slightly different direction. First, the BBC has built an audience for the iPlayer with the ad-free service covering a selection of content within a 7-day playback window. The service is only available in the UK. The next stage appears to be a ad-funded or pay-as-you-watch model in the UK, via the Kangeroo initiative, for content outside of the 7-day window, and will presumably include some or all of the vast BBC archives.

Beware the pirates

The big question is whether the Licence Payer will see Kangeroo as a legitimate extension of the BBC commercial activities, or something that should be included in the licence fee. The trouble for the BBC is that your average internet viewer is a lot more revolutionary than your average TV viewer. And they have been conditioned for accessing black market material whilst satisfying their thirst for music. The music industry provides a perfect blueprint for what happens when the black market proliferates and the supply chain is broken.

The BBC’s next problem is that the very companies who they will want to provide assistance in policing and protecting their content, namely the ISPs, are the very ones that the BBC is currently ignoring. It is doubly ironic that these are people suffering the pain of the cost of distribution of iPlayer material alone.

It is worth contrasting how the BBC deals with online distribution compared to other methods of distribution of its product. In 2006/7 the BBC paid a total of £101.4m and £42.6m to distribute its TV and Radio signals over its main Free To Air, Satellite and Cable platforms.

Analogue and Digital “Free to Air” Distribution

The equivalent of the last mile distributor here is Macquarie Communications, the monopoly provider of TV and radio broadcast services. The BBC happily pays them, and although the actual figure is not divulged it will make up the bulk of the £144m bill. The figure is also probably increasing at the cost of upgrading Macquarie infrastructure to cover the cost of the switch to digital is factored in.

The signal reaches the Macquarie broadcast towers via a combination of the old Energis fibre network (now owned by C&W) and satellite transponders.

The parallels with ISP business are clear, with the licence payer paying the BBC for both core and last mile distribution, whilst paying their own home equipment (aerial, set-top box, TV and intra-home distribution). In return they get to watch, listen and record a set number of channels for personal consumption.

Satellite distribution added to the mix

Here the BBC pays both core and last mile transmission fees to SES-Astra for delivery. Fees are in the range of £70k/MB/annum and with a “normal” DVB-S channel costing around £250k as a ballpark. The last time we looked the BBC had around 33 TV channels, 17 radio channels and some interactivity. The absolute maximum they must be paying is around £15m/p.a. which certainly looks a cheap option compared to the Free To Air (FTA) alternative.

The BBC also pays Sky for its Electronic Program Guide (EPG) listing and a contribution towards the platform cost, the big chunk of which is the subsidised set top box. We estimate that this adds another £10m/pa to the costs. All these charges relate to the FTA channels, however the UKTV channels are licensed to Sky and earn a carriage fee. This carriage fee is normally the subject of intense negotiation and is usually evaluated around the contribution to the overall desirability of the various PayTV packages.

Again, the parallel with the ISP business is clear — transmission fees are paid by the BBC, and for monetised content the BBC earns a share of the revenue. However, the standard FTA channels are free after the BBC has paid Sky a contribution to its platform costs.

Cable distribution too

Here the BBC pays to distribute the content to the cable head end, and we believe Virgin Media rebroadcasts it free of charge to the BBC. However, unlike Sky you have to subscribe to another paid for service (e.g. Phone) to get the FTA channels.

Once more, the parallels with the ISP are clear: core distribution is paid for by the BBC, however the last mile charges are “free” to the BBC and Virgin Media covers these costs by the revenue earnt in the bundle.

The situation is further complicated by the joint ownership of the UKTV channels by the BBC and Virgin Media.

The new distribution network: going online

For online distribution, the BBC pays Akamai a fee for effectively carrying the content across London. BBC spent £8.6m on online distribution in 2006/7 which admittedly was before the iPlayer costs kicked in and not all of which will end up with Akamai. Akamai is more like a first mile distribution and the ISP pays for the middle and final mile distribution to the home, effectively out of their ISP fees.

For the ISP, the parallel is more like the Virgin Media relationship with two major caveats:

  • the cost for Virgin Media to distribute the FTA BBC content is fixed per month. The BBC channels occupy a relatively small amount of bandwidth on the end-to-end network. However, the cost for ISPs are variable — the more popular the BBC content the more expensive for the ISP.
  • Virgin Media earns a share of the BBC revenues and asset value in the BBC paid for content through joint ownership of the UKTV channels. We don’t expect the BBC will be offering the ISPs either equity or a revenue share in Kangeroo anytime soon.

An uneven playing field

The BBC does not apply consistent logic around paying all of its distribution partners. It is also clear that the line between what is included within the licence fee and what is excluded is fairly blurred. Furthermore, whenever the internet touches an industry, it usually works out to pretty painful for the incumbents.

We would strongly argue that the disaster scenario for the BBC is not paying out a few tens of millions to the ISP industry for distribution of its content. Rather, it is the uncontrolled distribution of its content in the black market.

The apocalyptic scenario for the BBC is the loss of a universal licence fee from every UK home. As the BBC starts charging for more and more in the digital world, the BBC bundle starts looking less and less attractive.

Pulling is more disruptive than pushing

Broadcast is a world of “video pushed at you whether you want it or not”, whereas online downloading is a world of “video pulled by the user”. The strange thing is that to exercise choice or personalise the service, either via a PVR or online, is not only a more compelling option but a more expensive option than taking a preset feed. The old powers of aggregation via channels and controlling supply in the peak hour are rapidly diminishing. BBC One content will get unbundled much in same way as CDs got unbundled by iTunes. Any investor can tell how painful that is for the newspapers and music industry, but isn’t the BBC a public service and shouldn’t be too worried about such monetary matters?

Network neutrality follies

There is concern about users facing tiered fees by ISPs. The network neutrality debate grossly over-simplifies the nature of both the problem and likely solution. Every packet delivered is of variable value for both the sender and the receiver. Phone networks have always polarised into ‘calling party pays’ and ‘sending party pays’. The Internet, by avoiding having any charging mechanism baked in, potentially allows any kind of charging relationship between content host and consumer to be layered on top.

The outcome is likely to be messy, with a mixture of taxes (license fee), content provider payment, ISP revenue subsidy, and explicit end-user tiered charges (e.g. for HD video content). To minimise piracy and maximise ease of payment collection, the BBC should be courting the ISPs and helping to co-ordinate the development of their distribution platform and securing the end points. After all, it is the big ISP/media companies who are subsidising those set top boxes.

Or, as the US cable industry has taught us so many times, a hostile distribution channel can be fatal to your media business. There are few organisations in the UK with the political power to match the BBC. However an aggregation of licence payers have far more powers than the BBC and it would take a lot less than a 51% majority.

The internet provides a perfect reverse channel for both positive and negative feedback. The accumulation of negative feedback could ultimately break the Gordian knot between the UK licence payer and the BBC. The BBC has to think very carefully how to structure its business model in the digital era and more especially what is in and out of the Licence Payer bundle

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April 22, 2008

Another Kind of Platform: Telcos as Development Environments

Another common use of the word “platform” that sometimes confuses people is the way it’s used to describe the technology that goes around individual applications in a computer system. Like Microsoft Windows, Linux, Adobe Flash in the browser, Symbian S60 in a mobile phone, or what have you. IT people spend a lot of time arguing about them, which is probably less stupid than it sounds, because the history of IT has been the history of development platforms.

This is down to the very nature of computing. Alan Turing’s great insight was that a very simple processing function could be generalised to simulate essentially any conceivable task, and hence to do any job that consists of processing information. John von Neumann operationalised this with the notion of a computer as a collection of inputs and outputs feeding a storage device and a processor. This is, at bottom, why we want any of this stuff; computers (in the broadest sense) are general-purpose tools, rather like the famous quick-reconfigurable machine tools that made Toyota what it is.

So, this leads us to two conclusions; the first is that without applications, the computer is worthless. The second is, obviously enough, that the worth resides in the applications. And that implies that the guys with the best apps win. This pattern has repeated itself with every generation of computers; LEO Computers Ltd. in the 1950s, IBM System-360 in the 60s, UNIX in the 70s, Digital and Apple in the 80s, Microsoft in the 90s, and Google, Salesforce and your favourite open-source project right now. At each step, the people who attracted the most developers to work on their platform came out on top. (The geekosystem has always worked on the principle that brains move towards noise, so the best developers end up there as well.)

These are platform businesses just as much as container ports, stock exchanges, online gambling sites, Internet peering points, or dating sites are, and the same economics applies. Two factors attract developers; interesting projects, and customers. Customers, for their part, are attracted by the availability of new applications, which is governed by the size of the developer community. It’s not hard to see an increasing returns to scale process here - more interesting collaborators means still more developers, which means more projects, which means more customers, and so on and so forth.

So when Apple decided, back in the 1980s, to bill all its developers $10,000 to take part - well, the rest is history. Even if it didn’t scare off that many to begin with, it shifted enough of them towards Microsoft that the system rapidly flipped. This is another feature of platform businesses we’re familiar with from our past research; increasing returns to scale mean that competition tends to be non-linear. Apple never got back in the enterprise market and struggled for years to recover; the port of London moved to Felixstowe and the ships never came back.

When we think about the future of telcos, we think about not trying to divine what services the public wants but instead providing the enabling APIs for people who think they know to experiment with. We think about providing services that all kinds of businesses can use as part of their internal processes. Thomas Howe made the point at the Telco 2.0 event last week that these communications-enabled business processes aren’t even specifically “voice”; voice is a condiment, not the meat. The meat is the very specific information the people involved want to exchange; Howe makes his money creating small tailored applications to match very specific needs, and you can’t write an average of less than 100 lines of code per application without the support of an advanced developer environment.

Basically, Telco 2.0 is going to look much more like a development environment than a telco as we currently know it; James Aitken of telecom Web services specialist Aepona described it as the “programmable telco” at last week’s Telco 2.0 event. Interestingly, Aepona’s product will already permit a third-party developer to pass a complex query for processing on the telco side, rather than simply requesting a URL for (say) the location of telephone number X, a development which brings us closer to the software-agent model we’ve advocated before.

This can tell us a few things about where we should be going; we need to provide open standards for the APIs, we need to provide ways for the platform and the developers to share in the revenue, we need to nurture developer communities, and we need to build scale through partnerships among telcos. All of these are methods of creating an effective platform that have been proven over time to work.

However, there are many subtleties in turning these theoretical principles into commercial practicalities. That’s the focus of the next phase of our research…

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April 21, 2008

Ring! Ring! Hot News, 20th April 2008

In Today’s Issue: Online businesses crave telco capabilities (potentially…). Motorola rearranges the deckchairs. Nokia profits up 25%, but you wouldn’t want to see what went into that. Is Comes With Music a lossmaker? Nobody pays for the stuff anyway. Silverlight everywhere. And Moonlight. Is Microsoft IBM in 1993? 1,788 entries in the Android dev competition, but Google can’t keep a SIP server running. They can send a man to the moon… O2 users optimise radio network by whingeing. FTel+TeliaSonera=nightmare on Wall Street? Truphone gets a cash dump. UPS saves fuel with a platform. Pat Robertson, selfless crusader for your digital rights? AT&T fearmongering vs Andrew Odlyzko; there can only be one winner. Data centres in containers will eat the world. EBay finds giving away telephony is not a business. And there’s the day the YouTube died.

Ed Wray, CEO of Betfair, the world’s biggest betting exchange, came to last week’s Telco 2.0 Executive Brainstorm and told the assembled crowd of telcosians he would be delighted to pay a telco to solve his ‘digital logistics’ problems. Authentication is crucial to Betfair’s business, not just to prevent fraud but also to prevent Americans and the under-age from using the site, something which can lead to an executive jail problem. And telcos, he says, can provide it. At the moment, it’s costing him $22 to verify the identity of each new customer; with 1.5 million active customers, you could see how that might get expensive.

“There’s a tendency when building a platform business to do too much yourself - I come back to payments, I come back to authentication. People in this room can do this,” he said. A couple of telco execs came up to him afterwards to double check that he really was supporting the analysis on which the event was based.

In a keynote the day before, Sally Davies, CEO of BT Wholesale, described the 2-sided business model opportunity as “exciting and compelling”, but with many challenges in execution ahead. If there was a single theme of the conference, that was it; you couldn’t move for people who’d independently come to similar conclusions to those in the newly released the Voice & Messaging 2.0 and 2-Sided Business Model reports. The issue, of course, is how to disseminate these ideas more widely…

Much more analysis of last week’s Telco 2.0 event to come…

In the meantime, Motorola is reorganising its sick handsets division, so that in future the same manager will be responsible for both the hardware and software of a given gadget. We think it’s fair to say that if you were starting afresh, you probably wouldn’t have chosen to do it the other way…but Nokia has rather less to boast about than you might think.

The stock fell rather badly on the announcement of Q1 results, despite the rather good point that an increase in net profits of 25% is hardly disappointing. But the bottom line is a lot like a sausage; if you like sausages you might not want to see what goes into them. Volume was up around 10 per cent, but at the same time, the average selling price of the handsets fell by about €10 - so with an ASP last quarter of €89, the value in euros of Nokia handset shipments actually fell. Further, according to our calculations, Nokia’s sales have stalled in Japan and Latin America, and took a sharp fall in North America.

No wonder the ASP is falling; the volume growth came from the Middle East, Africa, India, and China, whilst the iPhone must have had an ugly effect on the top-of-the-range gadgets. Meanwhile, Nokia Siemens Networks clung to its share of a weak market for infrastructure, making a small loss; the German press this week is full of more revelations about bribery at Siemens and specifically its telecoms division during the 80s and 90s, with Der Spiegel going so far as to accuse them of falling behind technologically and making up for it by paying kickbacks.

If there’s anything in this story, you’d be forgiven for thinking they were trying the same trick with individual customers, by quite simply giving away music at a price supposedly not far off their total gross margin per handset. Well, it’s one way to shift units. Or not, as the case may be.

Nokia’s opening to Microsoft Silverlight doesn’t seem to have secured them any differentiation, either; MS is trying to push the Flash-like technology to every other vendor in town, and there’s an open-source implementation coming.

Speaking of Microsoft, here’s someone who thinks their problems are as bad as those of IBM pre-Gerstner. What we don’t understand is why a company whose biggest-selling product is called “Office” wants to buy a consumer-focused web advertising play like Yahoo!; they could buy Salesforce.com, you know…

Before the telco development platform finally gets here, we’ll have to content ourselves with Android; Google announced they had 1,788 entries to a competition for Android applications, which begins to sound like a start. It’s a pity they still haven’t integrated GrandCentral on their own infrastructure; last week saw the hosted IP-PBX provider fall over in a pool of its own credibility with a seven-hour outage, which occurred while the CEO was “hiking in the mountains”. (The Project Failure Blog says Gmail and Google Apps are sporky this morning as well.)

The reason given was that there had been a power failure in their colo facility; what, only one colo? No disaster recovery site? No Google Platform monster distributed operating system virtualised over thousands of home-made servers? No Amazon EC2? It’s a good job only geeks use it yet.

But without geeks, where would we be? Stuck with our HSDPA service throttled down to 128Kbits/s, is where. Hilariously, people at xda-developers.com have found that their data rate on O2 UK miraculously springs up from 115-140Kbits/ to 1Mbit/s+…if they just ring up and complain enough. It’s one way to manage backhaul demand, I suppose, but it’s terribly Telco 1.0 (Rule 1: This is your enemy - customers!) Similarly, why on earth don’t telcos offer landline numbers that can receive SMS?

They might not be able to do that, but telcos usually can cook up a really ill-advised monster merger. Think Vodafone/Mannesmann, the biggest-ever merger and one Vodafone is still taking exceptional charges for goodwill impairment on today, or Sprint-Nextel, which at the last count had successfully lost the entire value of Nextel. The latest candidates are rumoured to be France Telecom and TeliaSonera. Well, where do you start….it’s unlikely that putting two huge saturated-market, ex-growth Eurotelcos together is going to give you anything else than an even bigger bureaucratic behemoth, and this deal would involve no fewer than three governments as shareholders, to say nothing of the European Commission and a slack handful of national regulators. Just think of the billing system integration; after all, there’s all kinds of bizarre things like UK LLU and IPStream (and reseller PSTN) floating about in there. But it’s probably a better idea for TeliaSonera than “keep trying to get some money out of your Russian partners”.

No wonder Truphone had no trouble finding £16.5m in a second round of VC funding; the possible shareholder-value destruction involved in a FranceTeliaSonera deal makes punting on start-up voice & messaging firms look positively prudent.

If FTel and Telia are short of something to do, they could consider starting an alliance to create a Telco 2.0 VAS platform for Europe. Here’s an example of the things you could do with one of them; UPS’s new workflow system is just the beginning.

It’s probably fair to say that network neutrality crusaders are not usually people who hobnob with Reverend Pat Robertson, but sometimes, you have to take your allies where you find them, especially when the “where” is an FCC hearing. Comcast and others didn’t bother to show up, but AT&T did go for some truly epic Internet traffic hype. Andrew Odlyzko fisks.

Telco 2.0 has frequently drawn lessons from the history of containerisation. But this pprobably wasn’t quite what we were thinking: there’s a boom going in containerised data centres. It’s expected to further increase the scale and industrialisation of platform infrastructure; you can’t dodge infrastructure.

Renesys, meanwhile, critiques the telco business model, with music. Alternatively, you could try this: EBay apparently doesn’t want Skype any more.

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April 14, 2008

Stimulus for Telco 2.0 Brainstorm, MashUp Demos

We’ve been delighted by the effort the speakers are putting in to their ‘stimulus presentations’ for the Telco 2.0 Executive Brainstorm this week in London.

One or two have had their drafts sent back covered in red ink, but most have followed the detailed briefing, looking to bring new, fresh and relevant insights to help the brainstorm really hum. It’s now a mouth-watering line up and the event will be packed to the rafters.

To supplement the formal content we have some interesting start-upweb/telecoms ‘mashup’ companies demo-ing their wares too. Below is a list of some of them covering ‘Vocal IM’, ‘Single Sign On’, ‘Video Ringtones’, ‘SMS Management’, ‘Embedded Online Voice’, ‘Social Phonebook’, ‘Hosted Voice Messaging’:

Palringo
Palringo makes Instant Messaging work on mobile. The service combines walkie-talkie style voice (Vocal Instant Messaging) with the real-time text chat functionality of Instant Messaging and enriches communications further by offering the ability to share pictures within the context of a discussion. Palringo supports both one-on-one and relevant group discussions, and enables real-time dialogue that can incorporate users from across the globe using most mobile devices on any data network (2.5G, 3G, wi-fi)or connected PC. It is currently being used by consumers and businesses in over 50 countries.

Palringo offers a reliable connection to other popular Instant Messaging services and enables mobile users to send Vocal and Picture Messages along with the more common text messages with only one click!

Presence is the foundation of Palringo where the customer is always connected with a persistent on and off-line. The customer’s advertised presence offers a mix of user control and automation. Palringo allows community and communications to be integrated into a wide range of applications.

Clickpass
A single sign-on for consumer websites. It allows people to log into all of your company’s sites at a push of a button and doesn’t require any software download. All cutomers have to do is click the button.

Clickpass makes registration for new websites a simple, two-click process, removing the need for people to enter any of their details and even sending their profile photo. Clickpass is simple to install and based on the popular OpenID protocol.

The application improves loyalty, registration rates, mobile access and the ease with which you can introduce customers to new services.

Vringo
Vringo is making mobile Personalization 2.0 a reality by enabling users to experience rich media ringtones “Vringos” on a wide variety of mobile devices and, for the first time, to share that media with friends and communities. Vringos are video ringtones that play on a fellow-Vringo-member’s phone. As video clips or avatars or slide shows, however, they hold room for self-expression, entertainment and the freedom to match a specific Vringo to a friend. Users license their Vringo clips through the phone or online from a range of downloadable premium content. They may also download free promotional clips, or generate their own clips with the phone’s video camera. The Vringo medium - along with its multimedia messages - has spread virally through friends, interest groups, fan groups, on Facebook and other social networks, and serves the interests of content providers and carriers as well as mobile phone consumers. For more information, please see www.vringo.com.

Treasuremytext.com: the simple way to save your SMS online.

What is it?
Treasuremytext’s premise is simple: save, organise and share your SMS messages online. It’s for SMS fans everywhere, on any network, globally, and includes a suite of features from simple SMS backup to Text Streams - offering users the ability to publish their SMS diaries and mobile blogs. Users simply forward their favourite SMS messages to the service’s standard rate mobile number to make sure they’re kept safe forever. Treasuremytext treasures users’ messages and the new AJAX powered interface means viewing and organising is easy.

Who is it for?
Treasuremytext, initially launched in 2003 as a prototype, has seen steady growth of its loyal fan base of SMS users worldwide. Treasuremytext has broad appeal for a ‘non early adopter’ crowd of anyone anywhere who enjoys sending and receiving SMS, and who’s mobile content is important to them. Since its soft launch in April 2008 Treasuremytext 2.0 is seeing rapid growth in users (normal mobile users) globally.

What unmet user needs does it address?
Whilst more players are entering the personal archiving market, Treasuremytext has broad appeal and distinct ease of use advantages. It works on any phone, on any network , anywhere in the world (well, pretty much). Treasuremytext has also built up a wealth of knowledge about what, when and how people from all over the world send and save by SMS. Treasuremytext is for people who’s mobile content is important to them (a big market, worldwide). The service also lets people save and share messages socially, and offers low cost outbound international messaging.

Why is it interesting to Telcos?
Treasuremytext is a unique standalone product that can enhance any Telco offering. It is a user focussed service that has no technology prerequisites. Whist similar services have been developed by some telcos, Treasuremytext is a best in class, super simple to use Web application designed by people who know how to deliver great online experiences. Potential future plans for the service include opening our API, developing a white label version of the service, and developing client applications for handsets based on the success of our Treasuremytext for iPhone application.

PhoneFromHere.com delivers instant, verbal communication to Web users and communities with no requirement to surrender personal information or download software. Speech offers the most effective means for communication and PhoneFromHere.com delivers opportunities for person-to-person/group speech within the context of a Website.

The service include analysis and custom development ensuring the VoIP application is integrated in a way which best suits the existing website. PhoneFromHere.com has the potential to increase web traffic by delivering live voice chat opportunities online, but the solution is also flexible enough to include end-users on phones and mobiles. This creates new opportunities for telcos to capture the dynamism of the web and add value to their existing networks.

ZYB
ZYB’s Social Phonebook launching in Q2 2008 - sign up now!

The mobile address book is the feature on the phone that we use most often and is where most people store the contact information of the most important people in their lives - family, friends and close business colleagues. Yet, there has been no innovation around the mobile address book in over a decade. In fact, let’s be honest, whilst we’ve been able to interact with friends on the internet in ever more innovative ways, the mobile phone address book has remained a pretty dull and static experience. We want to change this.

Our developers have therefore been working hard on a new service that will transform our experience of our mobile phone address book - into a live and interactive experience of your contacts. The new service is called the ZYB Phonebook and we’re really excited about being able to share it with you in Q2 2008.

The ZYB Phonebook will, for example, enable you to:

- see the live physical location of your friends - if they want to share it with you!
- see their availability for a call including the time zone they are in if it’s a different time zone to yours - so you don’t wake them up in New York
- share your calendar with people - if you’re maybe working together at a conference for a week
- receive their online activity streams from services like Facebook and Twitter - getting the latest status of your closest friends whilst you’re away from your computer
- see the photos they have just posted on photo sharing sites like Flickr
- and of course, for the nearly quarter of a million of you who are already using ZYB, continue to receive auto-updates of your friends’ contact details as well as an online back up on zyb.com of all of the contacts, calendar events, photos and text messages on your mobile - so if you lose or change your mobile, you haven’t lost your most valuable data.

VoiceSage
VoiceSage is a provider of hosted Interactive Voice Messaging services to the enterprise sector. VoiceSage provides companies with the ability to augment specific business processes to remove costly communication and co-ordination drags. There are many instances throughout the organisation where you need to reach out and get the customer to confirm something or take an action. From appointment confirmations to credit and collections management we help companies to reach out to those customers and dramatically reduce metrics such as appointment “no shows” and “debtor days outstanding”.

Our primarily verticals are in Financial Services, Utilities, and Retail. However there is no reason why smaller companies could not also benefit from the service. Indeed, the VoiceSage API makes these “big company” processes available to other on-line and off-line service providers. VoiceSage can also be mashed up or embedded in other service offers and we are looking forward to developing more relationships to facilitate this.

We sell against a defined need because customers are already measuring the metrics we aim to improve. Due to the inherent flexibility of the service our customers in turn become creative in how it can be deployed in their organisation to remove the previously unreachable co-ordination drags. Our clients typically experience ROI’s in the hundreds of percent.

With more and more companies moving to Enterprise 2.0 communications services technologies top the list of early adoptions (IDC). As more and more data is released within and outside of the organisation, the challenge for VoiceSage and for Telco’s alike, is how to develop more intelligent messaging services.

We’ll be reporting from the event later in the week. If you can’t come, our new research reports - on which the event is based - are now out here.

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Ring! Ring! Hot News, 14th April 2008

In Today’s Issue: Data surge at 3UK; price war in Sweden; Vodafone (powered by BT); what next after Big Ben?; more Phorm horrors; Carphone vs BT vs OFCOM; BT vs WiMAX; UK 2.5GHz auction coming; Qualcomm: Is a Telco; flying femtocells and Truphone; bad science at NTT; Apple zaps SDKs; Opera for Android; mystery MVNOs; Sonopia is toast; Embarq embarks on Telco 2.0; big chip merger; Safaricom caught fibbing about subscribers; mobile banking hits Orascom

There’s been a surge in data traffic and revenue at 3UK after they launched their wave of HSPA dongles last year; can anyone guess their secret? That’s right, they radically cut prices, and guess what, demand went way up. While it’s certainly good news for anyone who wants mobile Hovisnet service (it’s the Net wi’ nowt taken out), how long will it be before they find themselves stuck between raging demand and yet another trip to see the nice man from Ericsson?

Another 3 data market is Sweden, where they have about as many customers as 3UK claim to have gained with dongles, at a considerably higher price point. Not that it’s going to last, though, as Tele2 has just kicked off a price war. They had to get over losing an expensive lawsuit against TeliaSonera somehow.

3UK is trying to digest the bitblitz by means of an infrastructure sharing deal with T-Mobile, their fellow mobile Hovisnet provider in the UK. (Well, O2 formally offers plain data, at a screaming 128Kbits/s. Which doesn’t really count.) Vodafone, meanwhile, is taking the whole thing a step further, with a giant contract with BT’s wholesale division; literally all Vodafone UK cell sites and BSCs/RNCs are getting an optical Ethernet feed from BT’s shiny new network. It makes sense; after all, if you’re a British mobile operator, you’re by definition BT’s best customer, and BT’s whole strategy of the last few years can be summed up as “great at wholesale”. It’s a pity, really, that rival NTL Telewest Business chose this week to claim that business has no confidence in 21CN. Well, for values of business not including Britain’s biggest firm…

Speaking of BT’s strategy, it was announced this week that Ben Verwaayen is standing down as CEO on the 1st of June. Britain’s most successful International Relations graduate is handing the job to Ian Livingstone, current BT Retail chief, whose first priorities will be to execute on 21CN, deal with the Government on fibre deployment, and (we sincerely hope) do something about the Phorm disaster before completely losing the Internet community’s confidence. Latest news is that the new design of the system - it keeps getting torn up and redesigned as more tentacled horrors are discovered - will make the DNS record for webwise.net effectively part of the UK critical national infrastructure. No DNS reply for webwise.net, no web for you!

We said there’s an issue of confidence here; that goes double for BT’s complex political relationship with OFCOM and the rival ISPs who use its wires via Openreach. The regulatory settlement is up for review, and BT wants to push up the price it charges for the use of an unbundled line; unsurprisingly, its competitor-customers like Carphone Warehouse are trying to work the regulator to prevent this, but of course they can’t go too far for fear of being roped into a government-backed fibre build. It’s complicated; it could be our motto.

Interestingly, there are signs that Ian Livingstone’s BT may go for WiMAX in a serious way. In Italy, where BT has a substantial enterprise operation, they’ve signed a deal to offer WiMAX connectivity to their business customers where the fibre doesn’t reach, and in an independent development, Livingstone is reported to be keen. BT’s been interested for a while; its response to the OFCOM consultation on the 2.6GHz band was highly positive, and quite a lot of 21CN planning envisaged reducing the access loops to two technologies, DSL and “WLAN or 802.16”.

Speaking of that spectrum, it’s now all systems go for the auction of up to 400MHz of technology-neutral, FDD and TDD spectrum between 2.5 and 2.69GHz across the UK. Gentlemen, start your engines. After all, you can now buy WiMAX Forum certified kit. If you can think of something useful to do with it all, that is. Maybe someone will want it for a MediaFLO or other mobile-TV net? Qualcomm just did, buying spectrum in the US to look after its own technology; in the future, everyone will be a telco for 15 minutes. If you do have a good idea, it looks like Aircom can help you with your WiMAX network planning.

Airlines, for example; the European Union has taken steps to permit the deployment of femtocells in planes. Stand by for fearsome roaming charges and planeloads of “nokia tune”. Alternatively, you could use Truphone, at least when you get there. The all-open-source mobile VoIPers just bought a company that sells cut-price roaming SIMs.

You think phones in the sky are annoying? NTT DoCoMo R&D is working on a phone with smelly effects. And this in Japan, a country where All Nippon Airways flies domestic routes with 747s stripped down and fitted with extra seats. 400 or more smellyphones going off at once in a jet in summer? Please. Fortunately, it looks like the market has spoken; NTT DoCoMo has lost its cherished status as owner of an actual majority of Japanese subscribers.

Apple seems to have decided it doesn’t want to risk developing a monopoly in smartphone software development. They’re preventing this by, well, having the iPhone SDK kill the device when it expires. It’s just yet another example of how difficult these hybrid developer environments are to get right; the Symbian Signed wars continue.

Opera, meanwhile, is the first application for Android we’re aware of.

Fascinatingly, Telephony Online reports that Apple originally planned to service the iPhones through an interesting form of MVNO. All iPhones would talk to a server at Apple - well, obviously they would, as an MVNO has its own HLR. But the clever bit is that Apple would have contracted with multiple operators for wholesale service, and the iPhone would roam onto the lowest cost operator at a given time and location. Neat, unless you’re a telco getting dynamically price-squeezed and also taken for revenue sharing on top of that. However, you have to wonder how badly it could have gone wrong, given Apple’s tendency to resort to tactical info-war on its iPhone customers.

Here’s an example; Sonopia, the US startup MVNE, is dead. It’s always looked like a good idea; MVNOs stand or fall by their differentiation, so the ideal MVNO would be small and hyper-specific….which would however make it tough to set it up. So there’s a niche for a business that does nothing but create small MVNOs, right? Well, they tried. Telco 2.0 has always suspected that this is probably a better idea as a telco business unit than an independent company, but you never know until you try.

It’s hard to avoid the conclusion that the new voice and messaging world is going through the inevitable adaptive radiation phase; the creatures who entered this new habitat are multiplying fast and speciating, but at some point the test will come, and bring with it a Darwinian shakeout. I mean, how many over-the-top IM clients with no apparent business plan can anyone possibly want?

Some people are serious about dramatically better voice and messaging; Embarq is launching a new product for its fixed-line customers, a cordless VoIP phone that provides online phone book/business directory service, visual voicemail, and news feeds. Disclosure; they are a Telco 2.0 client. And the US government is working on delivering emergency alerts to the public by SMS.

NXP and STMicro are getting together for their wireless products. A huge merger or JV? Bound to work. Rather as mergers and acquisitions are driven by fuzzy math and big talk, so are subscriber figures. This week it’s Safaricom (something of a Telco 2.0 darling) who’s been caught fibbing; turns out their subscriber numbers actually include everyone who’s ever been a subscriber. Imagine if Voda did that…

Safaricom is famous for its mobile banking system, M-PESA; it looks like emerging market specialists Orascom are going that way too.

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April 7, 2008

IVR search: a ‘Google’ for phone menus?

We’re putting together our Voice & Messaging 2.0 report, which includes a directory of all the interesting companies in the space we’ve come across. We’ll be presenting some of this at our event next week of course. But in the meantime, we’d like to tell you about one new company that’s extra-interesting.

When we speak about Voice & Messaging 2.0, we’re usually thinking in terms of services, software, or devices that offer… voice or messaging! But it doesn’t have to be limited to this. Our conception of the “ultimate communications experience” doesn’t imply that we’re looking for a killer app, a single, perfect integrated client; it could as well be provided by a school of independent, specialised but interoperable components. They might be within a common user interface, or might not.

So as well as new forms of telephony, we’re also interested in new auxiliary technologies. What, for example, is the new telephone directory? Web search engines are already great at digging out telephone numbers, but then again, numbers themselves are getting less important. When we’re using the phone to interact with an organisation, rather than an individual, anyway, the phone number is not particularly important. What we need to find is a function.

Many of the technologies we champion — BT Web21C, VoiceSage, NMS Communications’ VoiceXML — are there to address the need for a way of binding voice into the functions of a business, an organisation, or a machine. That’s all very well for the supply side, but what about the users? Search is a great way of finding more efficient paths — from your point of view — through the bureaucracy to the information you’re after. It’s pretty good at finding your way to the function you’re after, although it could be better (surely there’s a niche for a search engine for Web applications?). And even if you’re planning to invent something of your own, search is vitally important in finding the bits.

Nothing like this exists for user-to-organisation voice. IVR, the current voice interface, is a byword for user-hostility. So what if there was a Google for phone menus?

Turns out there is. We ran into Fonolo at this year’s eComm. It’s a genuinely brilliant idea. The rise of VoIP means it’s much easier to write programs that deal in telephony. And Fonolo wrote a web spider that visits large companies’ public phone numbers, and iterates through all the options on all the IVR menus from all the numbers, logging everything it finds.

Then it’s just a matter of plotting it all on a directed graph, and making the whole thing searchable and available on the Web. And then the bit we like. You click on the bit you want to get through to, and their system uses the map to dial and navigate the IVRs for you, thus “deep dialing” the user directly to the point in the IVR they need. Every time someone dials through Fonolo, they use the interaction to re-validate that path through the IVR. The search terms that users submit tell them which companies they need to go spider.

Better yet, Fonolo’s users (their few, lucky users - it’s still in closed beta) can note what happened at each menu and each number when they called it, so you can keep track of your interaction with the organisation behind them. So the website is also your notebook that you were promised a call back, or that the quoted price is $86.99, or the goods are out of stock.

What will be really interesting, though, will be what happens when they let their users share their experiences through the system itself; unless they can pass the Turing Test, there’s no way the spiders can find out what happens when the operator picks up the phone. Fonolo plans to let users annotate the call tree, and then they can share all these notes, Web2.0-wiki-social-media-style.

It could be a powerful tool for online activists. And it will probably have a profound effect on how call centres and voice-enabled business processes are organised. At the moment, customers are forced to be stupid. Being all channelled through the front-of-house phone number, they have to be forced through a succession of IVRs that only exist to classify and reroute them, precisely because the organisation won’t say which is the shortest path to the functions they need.

Further, incredibly, it’s still very rare for IVR systems to tell customers how long they can expect to hold, even though every call centre in the world considers this a key management metric and measures it in software. Fonolo, we predict, will either measure this or get its users to report it. (It reminds us quite closely of the super-2.0ish OrbitzTLC service giving real-time feedback from the public on the travel situation on the ground.)

We recommend you put the data you’ve got out as an API and come clean. IVR search, like Web search, will alter the balance of power between you and your customers. Don’t be on the wrong side of it.

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Ring! Ring! Hot News, 7th April 2008

LAST CHANCE TO JOIN 200 SENIOR EXECS AT THE 4TH TELCO 2.0 EXECUTIVE BRAINSTORM NEXT WEEK (16-17 APRIL, LONDON). ALL PARTICIPANTS GET A FREE COPY OF ONE OF NEW RESEARCH REPORTS. DETAILS HERE.

In Today’s Issue: 60 WAP sites - meh; Tellabs - beware big telcos; Google not buying Skype; Carphone Warehouse joins forces of Righteousness; cars! with periscopes!; Visto on the skids; Yahoo! Other people who searched for Yahoo! also searched for Yes!; unofficial iPhone SDK; cheap iPhones; new Nokia E90 firmware; WiMAX optimism; LTE promises; iClones; dumb terminals for your smartphone; 35 years of mobility

NBC Universal offers a thrilling new content play: “direct access to more than 60 WAP sites on your handset”, no less. We thought you already had “direct access” to considerably more than that. Of course, what they mean is that they’ll yuck up all the menus with ones they want you to visit so they can show you ads. So very 1999-dotcom-boom. Just don’t tell us there’s another bust coming…

Tellabs, meanwhile, can warn you of the pitfalls of dealing with the RBOCs. Recap: they got a big contract to supply GPON fibre-to-the-home kit to Verizon. Verizon is contracting again, but Tellabs doesn’t want them as a customer. There’s a serious problem for medium-sized vendors in that the big telcos’ market power is easily sufficient to crush their margins. At the other end of the scale, more and more commodity gear is being used. Verizon and AT&T are doing GPON, but everywhere else, fibre deployments are more likely to be Ethernet…and that’s a much less attractive business to be in, unless you’re doing something interesting like L2 VLAN switching or backbone Carrier Ethernet transport. Is “telco equipment manufacturer” an oxymoron in a world of big Cisco routers?

Rumour of the week: Google to buy Skype as a “foundation for scalable Web services”. How can we put this? Skype isn’t a Web service; it’s a standalone application that uses its own custom protocols over straight TCP or UDP. You wouldn’t think there’d be slow days on the stock market that need rumours like this in the current financial climate, but apparently…

Better one sinner who repenteth. Carphone Warehouse’s TalkTalk ISP operation started off as an enthusiast for the controversial Phorm adware system, then it said users would only be affected if they opted in. Now, the unlikely warriors for your digital rights are refusing to play ball with a scheme to cut off Internet access for people who download music illegally.

It’s CTIA Wireless week, so there must be at least one cool idea with no business model whatsoever floating around. Blue Dasher is taking detailed photos of Californian streets with the help of a fleet of cars with periscope-mounted cameras; what for has been left as an exercise for the public. They reckon real estate interests might be buyers — this sounds more than a little 2006, but perhaps they’ll use it to check which of their foreclosed properties has burned down.

In other crashed business model news, push e-mail company Visto is laying off staff. Being serious about this, there was never really enough that was new about push e-mail to warrant whole companies devoted to it. RIM got there first and is now frantically working to parlay this into a strong handset brand; once Microsoft pushed the support out as a software update to Exchange Server, the gig was up.

We’ve been snarky enough about the Microsoft-Yahoo merger; but Yahoo! has been producing some interesting ideas lately. After the OneConnect presence/sociability/location/general stalkerware client, now they’re looking at a voice-activated search engine with Semantic Web functions. The idea of using mobile devices’ voice functions for non-telephony applications is a good one; no more tapping at tiny keys and scrolling across a postage stamp screen. However, there might be a reason why nobody’s done a good one yet.

Perhaps it’s just too developer-hostile still. Speaking of which… Hostile developers have created a whole SDK for your hacked iPhone, as a rival to the official Apple one. Who’s betting it’ll end up “doing an OpenSolaris” and taking over from the “official”, proprietary evolution path? If you’re German, meanwhile, you can now score one for €99; sounds like someone’s getting rid of old stock. Relatedly, the big news in the Nokia developer world is that the E90 just got updated to support the Nokia Web Runtime and Adobe Flash Lite. Middleware (like databases, apps servers and message brokers) tends to be unglamorous, but very lucrative. Maybe OS-specific mobile apps really are doomed, and the rich web apps are about to conquer all.

Despite all the pain at Sprint, and the great Airspan vs Aussies row, sagely source Brough Turner is still a WiMAX optimist. With good reason: Ericsson showed off its LTE implementation, but there won’t be anything more than samples for three years at least. Even though Verizon wants it. What’s the equivalent of vaporware for a wireless network?

Motorola, unsurprisingly, is still bullish on WiMAX too — but they would be. Perhaps they have good reasons — the last time we checked, there were hardly any subscribers to Korea’s 802.16e networks, but Computerworld reports that things are very different now. And let’s not forget that the new Nokia N810 ships with WiMAX chips. (We’ve got one, and we like it. Although expect to be told off by your spouse for surfing news over breakfast.)

Qualcomm, however, has other ideas. Their Gobi chips will integrate GSM-to-HSPA in laptops; gone are the days of pushing EV-DO Rev.C (UMB as it is now) for the world, but you still don’t want to underestimate them.

In the future, everything will look vaguely like an iPhone: that is the only conclusion we can draw from this story. Alternatively, it’ll look like a desktop computer lashed to a mobile. Where will we find the pockets to put all this stuff?

And finally, 35 years ago on Thursday, it all began with the first ever cellular phone call.

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April 1, 2008

PNSol: Answer to the broadband riddle?

For some unknown reason, I have this mental image of 1940s actress Hedy Lamarr, glamorous co-inventor of spread spectrum radio, doing her work in some swanky Manhattan hotel suite. A grand piano sits in the corner, and servants flutter by. Who wouldn’t want to be a fly on the wall as an eye-catching actress chalks up one of the foundation stones of modern communications? And all over afternoon tea and cake.

Wait a few decades for the invention of the transistor, mix in some incomprehensible algebraic magic, et voila - CDMA radio, 3G and footie clips on your mobile.

In stark contrast, we’ve been down in an anonymous terraced house in Clapham in south London, quietly watching agape at a technology that could unleash a revolution of equal magnitude, only this time targeted firstly at fixed networks. Just as with CDMA, a bunch of boffins have applied some clever maths, and worked out how to get a ton more value out of your communications network.

The company is a tiny start-up, Predictable Network Solutions (PNSol). And it’s got “disruptive” written all over it in big neon capitals. We don’t have any shares. They’ve not paid us anything (although they’re generous with cups of tea). We’re just fans.

Broadband: nice for users, nasty for investors

Before we look at what they do, let’s take a moment to review the seemingly intractable problems of the broadband Internet market, since no greater love hath capital than to lay down its life for a competitive broadband access network.

In the days of vertically integrated products like voice and SMS, traffic, cost and revenue were tightly coupled. If you used a hundred times as much of the network’s capacity as your neighbour, expect to get a rather larger bill. Then we moved to dial-up Internet, and all of us became email and Web addicts (at least between 7pm and 11pm, until our bosses later understood how critical reading Dilbert at work was to our morale and thus productivity). We used just a few text-centric applications, and all had similar usage profiles. Flat rate pricing kept us with a need for speed, craving ever more capacity.

Then some people started snorting up gigabytes of P2P traffic, and others mainlined streaming video into the night. A small proportion of users had an online habit that had spiralled out of control. We’d all love to live in a world of end-to-end fibre, user-controlled lightpaths, and infinite capacity. The reality is significantly capacity-constrained copper almost everywhere. Your greedy behaviour drives a poorer experience for other users (just ask any TalkTalk broadband user if they’re enjoying the advertised 8 Mbit/sec in the evening…), and capex and opex by the ISP.

ISP = Internet Solvency Problem

The ISP’s problems are thus:

  1. Cost inflation due to P2P and streaming video traffic, but inability to raise prices enough to compensate.
  2. Divergent and unpredictable behaviour of users, causing inability to rationally price the product, segment users or shed the hogs.
  3. Revenue stagnation due to inability to tier traffic or guarantee quality of experience for voice and video. Skype works, but it doesn’t consistently work; many high-value business applications don’t fully migrate to broadband.
  4. Technical and political push-back from existing traffic shaping approaches. There’s a cat-and-mouse game between ISPs and their users.
  5. Hideous cost and lack of revenue model for IMS-like technologies that try to put the open Internet genie back into the bottle.

PNSol solves all of these by simply extracting the maximum possible value from a broadband connection, rather than over-provisioning the network (often implying massive capital expenditure). It doesn’t miraculously create new capacity, but lets you squeeze every bit of value out of what you’ve got.

The user also has a problem. When they are doing a VoIP or video call, and their kid fires up BitTorrent or the BBC iPlayer, this will necessarily contend for capacity and degrade the call quality. At present this is tricky to manage. Even if you prioritise one flow over the other in the home router, you are a long way from exploiting the total network capacity because these packets will remain contending with one another in the ISP’s networks. PNSol can solve this too. Your BitTorrent traffic has zero effect on the VoIP traffic. Indeed, it doesn’t even need to contend for capacity at all. No capex upgrades just to keep the Skype users happy and their heads above the sea of P2P.

A selectively stupid network

So where to start about PNSol? Well, a good place might be to take a look at our post from early last year on Paris Metro Pricing. What this does is divide up the broadband superhighway into “lanes”, and then charges different amounts for each lane, and lets the applications firing the packets dynamically decide which one balances price, delay and reliability.

PNSol strongly fits with our “slice and dice” and rich wholesale vision of how the broadband market will develop. Specifically, it allows for the “dicing” by quality, not just the “slicing” by quantity — and does it in a way acceptable to both users and ISPs.

Essentially, it’s Paris Metro Pricing with a twist: not all carriages are the same.

How does it work?

Their technology comprises two parts:

  • Software to go into the home hub, which pre-conditions traffic before it enters the ISP’s network.
  • A network element to go in the core of the ISP’s network that manages inbound traffic to the subscriber.

Unlike today’s traffic management approaches using DPI, PNSol does not allocate “bandwidth” or manage individual user sessions. Instead, it uses an advanced statistical model (repeat after me: stochastic finite-state automata) to allocate a budget for delay and loss between packet streams. Unlike with DPI, there’s no need to open up the packets, and it doesn’t matter if they are encrypted. The user’s can’t cheat by mis-representing their packets (e.g. tagging ‘premium VoIP’ as cheap P2P), since those VoIP packets will get the delay characteristics of the P2P ones (i.e. unusably slow and jittery).

What’s the secret sauce?

They model the properties of the broadband network itself, and carefully control the packets that are allowed onto it. They ensure that no queues build up within the network, and there are minimal losses within the network. The system works because although you don’t control the telco’s network (e.g. BT’s IPStream product), it turns out to be highly stable and predictable. Thus they can guarantee the application that it will get exactly the throughput, delay and loss characteristics is needs. It sounds simple, but it’s not.

Say that again, in English

If you’ve driven on the M25 orbital motorway around London, you might have come across the variable speed limits that smooth out traffic flows during peak periods. A step further is the entry control system for the M42 around Birmingham, which has traffic lights on the slip roads. Well, imagine that your car was picked up by a crane and inserted into the slow, middle or fast lane at just the right moment and at the right speed, such that congestion was minimised and road usage maximised. And then plucks the cars off at just the right moment too. That’s kind of how it works.

Does it work?

Yes, PNSol have set up their own ISP on BT’s wholesale network, with the kit at the Telehouse exchange in London. We saw superb 2-way video over a standard 2mbit/s DSL line, including to someone else in the UK on a 512kbit line (with full duplex video), and also to someone in the US. Far better quality than you’d usually see. And you can flick the BBC iPlayer on and off … with no effect on the real-time traffic.

So how does it solve the ISP’s problem, again?

  1. The user can run P2P as a ‘scavenger’ class of application, with huge total bandwidth and extremely low cost. This is because the traffic is pre-conditioned in a way that never increases the peak load on the network, and thus never causes any capital expense. You’ve only got the opex of the electricity to run the routers…
  2. The ISP can offer premium tiers of connectivity (by quality) at premium prices. A 2-way video stream is expected to cost 1-2p/minute based on current DSL wholesale pricing economics. This does not require the end points to speak any special IMS dialect. Indeed, they don’t need to talk SIP. Just need to make themselves identifiable using a port range or quality of service flag in the IP header. Thus the range of compatible applications is very high.
  3. There are few network neutrality issues, because the user is ultimately in total control. You’re just re-allocating the available capacity into multiple virtual networks with different delay, loss and throughput characteristics. The user decides what traffic goes at what priority. There’s no telco as ‘Internet highwayman’ because it doesn’t matter where the traffic is ultimately headed, or even what it really is. And the user has to live with the reality of jitter and latency anyway, so we’re giving them more than what vanilla best effort offers by offering them control over how that degradation is allocated.

Not all revolutions are welcome

PNSol technology won’t be welcome everywhere. If you’re selling big routers, your salesmen don’t get to go to Hawaii and the Chairman’s Club this year. Or next year. No need to throw capacity at every network contention problem. You can get a ton more value out of today’s kit. And an awful lot of NGN products look obsolete before launch. Why buy super-expensive IMS kit to reserve (99% empty) capacity on the network then “better than best effort” is available at a fraction of the price? It also doesn’t look good for MPLS-based networks, and could force a deep re-think at a lot of telcos, especially around the small business market.

The ISP re-education camp beckons

It’s going to be tough for ISPs to transition to this new kind of technology. How to package it up and retail it? [Ed - we’re here to help…] It’s a long education process as it involves thinking about the network in a new way. There’s no such thing as “bandwidth” - it’s just a colloquial metaphor. You’re in the business of maximising value of a network by pricing loss, jitter and latency among the competing uses and users: a logistics company for data, matching bulk, urgency and value to the available transport.

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