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March 30, 2009

Ring! Ring! Hot News, 30th March 2009

In Today’s Issue: Sony Ericsson warns on profits, top exec quits - we reveal the Sharapova factor; new SE gadget advertised as “comes with BBC iPlayer”; Moto shuts down video store; high speeds with unfeasible numbers of copper lines; Blockbuster’s CPE video distribution play; Nokia cans $5bn worth of outsourcing contracts; CAPEX down 20%; horror numbers at China Telecom; rather good ones at Hutch; Skype, the world’s no.1 in international voice; Ovi Store presos; UK spectrum chess - T-Mobile caves on 2.6GHz, Orange offers 900MHz universal notbroadband; first Samsung WiMAX gadget; at last, a new CDMA 3G network; Vodafone & O2 share airconditioning; Arqiva to supply cell sites to MBNL; FTel/Vivendi row continues; Telecom Plus - that’s not quite what we meant by multiutility; Dell is an MVNO; CPW wants Tiscali for some reason; i-Plate pushed; Piratbyran’s VPN; CDNs are the solution; Akamai’s State of the Internet conclusions; US shamed on Internet routing clue; no more “sell it to Google”; Chinese secret police hackers!!!

Tennis star Maria Sharapova is the femme fatale of the mobile industry. Consider this: back in 2005, with Motorola riding the RAZR boom, they brought out a Maria Sharapova V3 (it was Schiaparelli-pink, with her signature). And look what happened since. Now, Sony Ericsson has signed her up. And you know, things aren’t so great there either. At least this gadget is actually a new product.

No wonder the president of SE in the USA is off. There was also a fairly dire profits warning.

In better SE news, this weekend we spotted the new Cybershot gadget being advertised with the USP that it works with the BBC iPlayer. Backhaul engineers, fasten your seatbelts; we’re in for a bumpy night. Relatedly, Motorola’s film download service is shutting down due to a lack of users, marketing, and everything else really. It certainly will be interesting to see how well the Samsung video store goes. If you’re shuddering with dread at the thought, you might be interested in new options for really high bandwidth on copper, but you have to wonder who there is who can afford 25 leased lines to their nodes but can’t afford to pull fibre instead and be secure for the foreseeable future.

We’ve often said that using set-top boxes and other CPE is a major opportunity in online video distribution; here’s an example. Blockbuster is offering its own PVR; in fact, it’s pushing a version of the TiVo which comes with its download service onto the local hard disk, selling them through its existing stores. As well as potentially being a major boost for the TiVo itself, which has fallen behind the field, it gives Blockbuster a considerable content caching capability…and aren’t TiVos devices that are meant to integrate with broadcast TV?

Meanwhile, the economic news continues grim. Nokia has decided to end outsourcing of its mobile phone “engine” manufacturing operations, as part of its cost-cutting drive as sales fall; iSuppli reckons it’s worth about $5bn to the existing subcontractors. UBS estimates that telco CAPEX fell by 20% in the first quarter of 2009. Presumably that may improve as the Verizon Wireless, China Unicom, and Turkcell megadeals start to show up in the numbers.

Horror numbers at China Telecom; 96% drop in net profits. Mostly this is accounted for by the tanking value of their WLL (Wireless Local Loop) not-quite-mobile business; with roaring GSM growth, and the arrival of 3G, it’s probably no surprise that this is being squeezed. Further, there’s the upheaval caused by the general reorganisation of the industry; CT took over the CDMA2000 network operated by China Unicom, which got the UMTS licence in exchange. Hutchison, however, reported a 39% drop in losses at 3 Group as its networks gradually make their way towards profitability.

3, of course, was the first mobile operator to make nice with Skype; according to Telegeography, Skype is now the biggest single provider of international voice minutes. In a sense, that doesn’t say much - after all, there are a couple of hundred territories in the world and most of them have more than one telco, so the maximum scale of an international voice network is inherently limited. Still, 8% of international voice and 33 billion minutes of use are very significant numbers, even if only 8 billion minutes were revenue-attracting SkypeIn/SkypeOut traffic.

Presentations on the Ovi Store are here at Alessandro Paces’ blog on Forum Nokia.

Meanwhile, in the UK, there’s been movement in the various interlocking spectrum games. T-Mobile has dropped its objection to the sale of the 2.6GHz band, aka the sweet spot for WiMAX and other mobile broadband things; Orange has offered to deliver the piddling 2Mbits universal service so beloved of Lord Carter if they get their hands on the refarmed 900MHz GSM band. 3UK has promised to sue Orange over that. So the unreported middle here might be that T-Mobile and O2 have dropped their objections to 2.6 in exchange for divvying up the 900s and cutting 3 in on the deal. (What did happen with the joint Orange/O2 UK trial of UMTS-TDD down in Bristol, anyway? We heard the results were good…)

In other mobile broadband/WiMAX news, the first Samsung WiMAX device on Clearwire/Sprint has been made public. It’s a big screen MID/web puck with a slideout keyboard. When we think of the US 700MHz band, we usually think of Sprint and Clearwire, but there is some other activity going on. Cox has a chunk of the spectrum, and they are putting together a team to build a CDMA network there - at last, a launch customer for Ultra Mobile Broadband! - which will make them a quad-play operator.

Details on the Vodafone/02 network sharing deal; apparently they are going to share space in cabinets, power, and air conditioning, which is nice-to-have but hardly sensational. It could be a start of deeper infrastructure sharing, although the major outsourcing contracts signed last week might go against that. Meanwhile, MBNL (T-Mobile UK/3UK) has tapped Arqiva to provide its cell sites.

We’ve said before that the bottom layers of the telecoms infrastructure - ducts and dark fibre - ought to be run as a utility maintenance business, in shared, neutral, or public ownership. In France, for example, duct access is a regulated product, and Iliad among others has been taking full advantage. (Note that despite this, FTel and Vivendi are still having a damn good row about structural separation.)

But we hadn’t envisaged that anyone would sell service as a multi-utility: Telecom Plus is doing just that, wrapping POTS and DSL service in with gas and electricity, and they seem to be doing pretty well, even if the name reminds us of Telecom Gold.

Meet Dell, the MVNO: they are launching one to provide HSPA connectivity bundled into laptops. Admittedly it’s in Japan only at the moment, but, well, watch out!

Meanwhile, Tiscali is on sale again, this time Carphone Warehouse is the bidder; it may prove hard to sell again, as the carrier is losing money and customers fast and is struggling to pay its debts. BT is pushing the i-Plate again - a filtering device that fits into the line socket and supposedly improves DSL performance dramatically. The science is pretty sensible - Claude Shannon again - but, y’know, it’s still not fibre to the home, is it?

The Pirate Bay has launched its effort to stay ahead of even national signals-intelligence agency snooping; it’s a version of the service provided over a strongly encrypted VPN. Relatedly, we recently read an OFCOM report on online video which made the rather good point that there is little point in trying to manage the video boom by traffic-shaping video, because video is the majority of the traffic. What they did find useful was content-delivery networking, and lots of it, the closer to the edge the better. That’s not so far from the conclusions of our new Online Video Market Study.

No surprises, then, that Akamai is still growing and so is the Internet. Odd fact of the day: according to Akamai’s numbers, Tunisia has the highest percentage of broadband connections in the world. Renesys, meanwhile, have been having some fun with the data in the Internet’s various routing registries.

One of the problems with Internet BGP routing is that there is no authentication that a router has any right to announce the prefixes it is announcing; one solution is to get Internet operators to record their routing policies in a big database, so that downstream networks can verify the routing updates they receive. The only problem is that there are at least 39 different routing registries. Renesys scraped them and compared the information in them with the true facts; it turns out that a depressingly large number of countries would do better to erase everything from the registry, because at least that wouldn’t be misleading.

Being European seems to help; if you filter the countries with less than 1000 prefixes (it’s much easier to keep 1 network in order than 100), the top 10 are Poland, Ukraine, Austria, Russia, Switzerland, Italy, Germany, the UK, and Romania. The United States is at 21, between Korea and Indonesia. Stelkom of Slovenia, AS43061, takes the cake; it has a 100% record for its seven prefixes.

Google has supposedly stopped collecting start-ups for the time being; does this mean the end of the classic “sell it to Google” (not-a)business model? Oh well, there’s always the option of selling your start-up to the Chinese secret police. It’s a pity, then, that the British government’s security advisors are apparently wedded to US rightwing scare stories about Huawei, when the real Chinese hackers are probably in their Windows PCs already.

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March 27, 2009

iFlood: How better mobile user interfaces demand Layer Zero openness

Networks guru Andrew Odlyzko recently estimated that a typical mobile user consumes 20MB of data a month for voice service, but that T-Mobile Netherlands reports their iPhone users consuming 640MB of data a month; so upgrading everyone to the Jesus Phone would increase the demand for IP bandwidth on cellular networks by a factor of 30.

It had in the past been estimated that major European cellular operators might be able to provide 500MB/user/month without another wave of network upgrades; if this calculation is at all typical, it looks like there is a substantial risk of an ”iPlayer event” hitting cellular in the near future. Recap: when the BBC placed vast amounts of its content on the Internet through its iPlayer service, DSL traffic in the UK spiked; or rather, it didn’t spike, the trend shifted permanently upwards.

That, of course, is much more worrying; because the marginal costs are set by the capacity needed to handle the peaks, a rise in average traffic means a boost to costs multiplied by the peak/mean ratio. An aggravating factor is the pricing structure for BT Wholesale backhaul service - the commits are 155Mbits/s, so if the new peak demand just exceeded your existing commit, you needed to buy a whole 155Mbits/s pipe. The impact on the UK unbundling/bitstream ISPs has been serious and the sector remains in a critical condition.

Traditionally, a mobile base station was provisioned with 2 E-1 leased lines, 2×2 Mbit/s capacity. There are 2,419,200 seconds in a month. Multiplied by 4, that’s 9,676,800 Mbits in a month. Divide by 8 to convert to MB, 1,181GB/1.15TB a month. Which means that a typical cell site could support at the most 1,832 users’ activity, or quite a lot less when you consider the peak/mean issue - typical values are 4:1 for GSM voice (458 users), but as high as 50:1 for IP (36!). Clearly, those operators who have had the foresight to pull fibre to the base stations and, especially, to acquire their own infrastructure will be at a major advantage. (Thanks to the commenter who corrected a mistake in the calculation.)

Click here to read more about the iPlayer, the iPhone, Iliad, and the infrastructure consequences of user interfaces

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March 26, 2009

Open Mobile Summit: Telco 2.0 CEO to speak

We don’t promote many events, but we like this one: the Open Mobile Summit, which is being held in London on the 10th-11th of June. Telco 2.0’s CEO will be speaking in the session on “How to make the business case for operators and open access” on day one, sharing some of the output from the Telco 2.0 Exec Brainstorm in May; and you might recognise our friend James Enck as well, who’s chairing the conference on that day.

Innovators from Yahoo!, RIM, TeliaSonera, DTAG, Opera Software, Google, Truphone, Access, Symbian, LiMo, Openmoko, Mozilla and many more are expected. And it’s going to be all about serving the needs of developers, content providers, advertisers and enterprises, while using the new opportunities open-source technologies provide and keeping operators wired into the value chains of the future.

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There’s a neat podcast here from last year’s show.

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Is Online Video commercially viable? new Online Video Market Study

As you’ll be aware from previous posts (“How does YouTube make money?” and more BBC i-Player analysis here), we’ve been researching the Online Video market for a while. We’re now pleased to report that our latest essay crisis is over and that we’ve now published the new 148 page Telco 2.0 Strategy Research Report Online Video Market Study: Options and Opportunities for Distributors in a time of massive disruption. The report identifies in detail the scenarios and strategies that Telcos and other distributors should adopt in the commercially challenged online video market.
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Key Report findings:

  1. Recent industry spats (e.g. Google / YouTube vs PRS) are a symptom of deeper business problems
  2. 3 competing future market scenarios identified: “Old Order”, “Pirate World”, “New World Order”
  3. Online Video Market forecast to grow from $2Bn to $28Bn in 5 years - but still less than 10% of traditional TV and Cinema
  4. For profitable growth Telecoms Operators need to take an active rather than a passive role in the distribution of online video, learning lessons from the example of FedEx and others in the physical distribution world.
Topics Covered
  1. Current market and variation across national markets
  2. Business Model Analysis: Hulu Vs YouTube
  3. Significant changes and trends in content production, aggregation and distribution
  4. Significant changes and trends in devices and end-user behaviour
  5. Detail on the scenarios and the likely market evolution
  6. Consequences of the changes by content genre (movies, music, sport, user-generated, adult)
  7. Strategies to prosper as the scenarios evolve

For more on the report see here or email contact@telco2.net. We’ll also be discussing the issues involved at the Telco 2.0 event in Nice, 6th-7th May.

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March 25, 2009

QQ: Quite Quality

Below is one of the case studies that our forthcoming Serving the Digital Generation report is founded on. QQ (a huge social network in China) is a key example of successfully understanding the participation needs of the digital generation, and one we should all be learning from.

QQ has claimed to be the world’s third-largest IM network (after MSN and Yahoo), based on a figure of 355 million ”active users” as at November, 2008. A further claim of 570 million ”users” exists from earlier that year.

QQ has claimed to be the world’s third-largest IM network, based on a figure of 355 million ”active users” as at November, 2008. A further claim of 570 million ”users” exists from earlier that year.

A lot more than Facebook
See: Facebook? What Facebook?

However, as always, IM userbase figures are to be taken with a high degree of scepticism; many are non-paying, low attachment users, the definitions of ”active” and ”user” vary widely between networks, and it is common for individuals to have multiple user names and possibly for user names to have multiple individuals. A more valid metric is peak concurrent users - i.e. the maximum number of users simultaneously logged in. Due to the engineering principle that you provision for the peak, it’s this metric that defines the network’s cost base. QQ gives their peak concurrent users for 2008 as 45.3 million.

So QQ has to serve at least 45.3 million concurrent users, plus growth, plus a margin of safety. How does the revenue side look? QQ claimed in 2007 to have 7.3 million paying users, which is both more likely to be a valid measurement and also a non-trivial achievement in the context of a business whose core product is free. The upshot was profits for the quarter to October 2008 of RMB737 million (£75m), on revenue of RMB2 billion, or a gross margin of 63.5%. For comparison, HP bases its investment decisions on so-called “fascinating margins”, defined as 45%, and Iliad achieves a margin of 70-80% on its FTTH business.

At the time of the figure of 7.3 million payers, the peak concurrent user figure was 12 million; that is to say, 60% of the people who could be said with certainty to use QQ had spent real money there. If the same percentage holds now, that would imply 27 million paying users, or an annual ARPU converted into sterling of around £10. This is genuinely impressive for an IM community; although it is roughly one-sixth that of the most aggressive emerging market GSM operators, they employ much, much more capital.

We analyse QQ’s success as being founded on strength in the following areas of the participation imperative:
  1. Creativity
  2. Feedback
  3. Directory
  4. Portability
  5. Peer Group
  6. Personalisation
  7. Payments

QQ caters to user creativity and the need for personalisation much more deeply than most social networks with the possible exception of Facebook; although officially proprietary, the system API is documented and QQ, the company, positively encourages a hacker ecosystem of interesting new applications. This goes some way beyond the skins and avatars most socnets offer. Similarly, you can’t offer more effective feedback than the ability to tinker with the works.

Recently, in another Telco 2.0 project, we identified three key strategies for two-sided businesses. Strategy One involves giving away services before and after a transaction, and collecting a percentage of the transaction. Think Amazon - or a casino. Strategy Two involves giving something away to create a trading hub, then selling something to the crowd. Think of the original Lloyds’ Coffee House - it didn’t write marine insurance itself, it sold coffee to the insurance brokers, who came for the liquidity and rumours, and stayed for the coffee. Strategy Three involves selling access for third parties to the trading hub - like BAA plc renting shops at Heathrow Airport, or Google giving away a whole range of services in order to create inventory it can sell adverts next to.

QQ straddles Strategies Two (selling to the crowd) and Three (charging for access) in the two-sided business model; it derives revenue from selling applications, other in-game goods, and extra services such as a blog, games, and a streaming music service, in return for its internal digital currency. This market creates a sink for the digital currency, and therefore gives it value, which creates a further demand for it as a gift and reputation good. It shares revenue from the store with the creators of in-game goods, thus feeding user creativity.

In Telco 2.0 terms, it’s collecting money from the downstream side and subsidising the upstream partners, in order to encourage the creation of saleable goods and the purchase of digital currency. At the same time, it is also pursuing Strategy Three (charging for access) by selling contextual advertising. In this case, it’s earning on the upstream side and subsidising access for users (which is free) to create a market for the advertisers.

Users get, in return for their participation, the core functions of the directory (where are all my friends? And my enemies? And who are their friends?) and the messaging layer to service their peer group and burnish their on-line identity.

Interestingly, QQ is practicing intergenerational price discrimination; the business version of the service (i.e. LinkedIn to its Facebook) is a paid-for application, reflecting that its users presumably already have an identity, or aren’t interested in impressing the QQ community, and are unlikely to spend extended periods of time browsing the community - which is what the advertisers want. Interestingly, the business version is branded ”Tencent Messenger” and uses a theme cloned from the look-and-feel of Microsoft Live Messenger. Sometimes, it seems, it’s necessary to be more boring.

Portability is simple enough - just look at the range of platforms, plus the catch-all browser and SMS versions. Privacy is something of a weakness - although it does have rich presence control, it’s only to be expected that turning your presence off will become a noticeable act, and there have been several waves of concern about Public Security Bureau (PSB) interference.

QQ’s internal currency and the app ecosystem is already dominating the business - 66% of revenue originates from VAS and only 11% from advertising, and VAS revenue is growing at 90+% a year, in line with total revenue, whereas ads are growing at ”only” 70+%. This is only likely to continue; one of the downsides of being hackable is that several unofficial clients for QQ exist that strip all advertising content, and efforts to stop this are unlikely to be successful for long (filtering of content for references to the Diaoyu Islands was actually abandoned due to a user revolt, even though the Shanghai PSB wanted it). This obviously tends to increase the relative importance of Strategy Two.

An interesting point which arises in the participation imperative framework is hybridisation. This is where you try to monetise by extending the digital business into the physical world - say, by selling tickets to live performances through your music streaming service - or vice versa. Hybridisation exists in QQ up to a point; for example, there is a QQ dating service, and a streaming music channel. This would appear to be an important field of development for both Strategy Two activities and also Strategy Three contextual advertising.

[Ed - we’ll be discussin the lessons of QQ and other new types of service providers at the Telco 2.0 exec brainstorm on 6-7 May, in Nice. Distance Participation packages available if you can’t make the trip but want the input/output]

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March 24, 2009

Device Evolution: Much More Power at the Edge

Below is more background analysis in preparation for the Devices 2.0 session at the 6th Telco 2.0 Exec Braintorm in May.

This article (from our new Executive Briefing subscription service) examines the role of “edge” devices that sit at the periphery of a telco’s network - products like mobile phones or broadband gateways that live in the user’s hand or home.

Formerly called “terminals”, with the inclusion of ever-better chips and software, such devices are now getting “smarter”. In particular, they are capable of absorbing many new functions and applications - and permit the user or operator to install additional software at a later point in time.

In fact, there is fairly incontrovertible evidence that “intelligence” always moves towards the edge of telecom networks, particularly when it can exploit the Internet and IP data connections. This has already been seen in PCs connected to fixed broadband, or in the shift from mainframes to client/server architectures in the enterprise. The trend is now becoming clearer in mobile, with the advent of the iPhone and other smartphones, as well as 3G-connected notebooks. Home networking boxes like set-tops, gaming consoles and gateways are further examples, which also get progressively more powerful.

This is all a consequence of Moore’s Law: as processors get faster and cheaper, there is a tendency for simple massmarket devices to gain more computing capability and take on new roles. Unsurprisingly, we therefore see a continued focus on the “edge” as a key battleground - who controls and harnesses that intelligence? Is it device vendors, operators, end users themselves, or 3rd-party application providers (“over-the-top players”, to use the derogatory slang term)? Is the control at a software, application or hardware level?

Can operators deploy a device strategy that complements their network capabilities, to strengthen their position within the digital value chain and foster two-sided business models? Do developments like Android and femtocells help? Should the focus be on dedicated single-application devices, or continued attempts to control the design, OS or browser of multi-purpose products like PCs and smartphones?

Where’s the horsepower?

First, an illustration of the power of the edge.

If we go back five years, the average mobile phone had a single processor, probably an ARM7, clocking perhaps 30MHz. Much of this was used for the underlying radio and telephony functions, with a little “left over” for some basic applications and UI tools, like Java games.

Today, many the higher-end devices have separate applications processors, and often graphics and other accelerators too. An iPhone has a 600MHz+ chip, and Toshiba recently announced one of the first devices with a 1GHz Qualcomm Snapdragon. Even midrange featurephones can have 200MHz+ to play with, most of which is actually usable for “cool stuff” rather than the radio. [note: 1,000,000,000,000MHz (Megahertz) = 1,000,000,000GHz (Gigahertz) = 1,000,000THz (Terahertz) = 1,000PHz (Petahertz) = 1EHz (Exahertz)] Now project forward another five years. The average device (in developed markets at least) will have 500MHz, with top-end devices at 2GHz+, especially if they are not phones but 3G-connected PCs or MIDs. (These numbers are simplified - in the real world there’s lots of complexity because of different sorts of chips like digital signal processors, graphics accelerators or multicore processors). Set-top boxes, PVRs, game consoles and other CPE devices are growing smarter in parallel.

Now multiply by (say) 8 billion endpoints - mobile handsets, connected PCs, broadband modems, smart consumer electronics and so forth. In developed markets, people may well have 2-4 such devices each. That’s 4 Exahertz (EHz, 1018) of application-capable computing power in people’s hands or home networks, without even considering ordinary PCs and “smart TVs” as well. And much - probably most - of that power will be uncontrolled by the operators, instead being the playground of user- or vendor-installed applications.

Even smart pipes are dumb in comparison

It’s tricky to calculate an equivalent figure for “the network”, but let’s take an approximation of 10 million network nodes (datapoint: there are 3 million cell sites worldwide), at a generous 5GHz each. That means there would be 50 Petahertz (PHz, 1015) in the carrier cloud. In other words, about an 80th of the collective compute power of the edge.

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Now clearly, it’s not quite as bad as that makes it sound - the network can obviously leverage intelligence in a few big control points in the core like DPI boxes, as traffic funnels through them.
But at the other end of the pipe is the Internet, with Google and Amazon’s and countless other companies’ servers and “cloud computing” infrastructures. Trying to calculate the aggregate computing power of the web isn’t easy either, but it’s likely to be in the Exahertz range too. Google is thought to have 0.5-1.0 million servers on its own, for example.

So one thing is certain - the word “terminal” is obsolete. Whatever else happens, the pipe will inevitably become “dumber” (OK, less smart) than the edge, irrespective of smart Telco 2.0 platforms and 4G/NGN networks.

Now, add in all the cool new “web telco” companies (eComm 2009 was full of them) like BT/Ribbit, Voxeo, Jaduka, IfByPhone, Adhearsion and the Telco 2.0 wings of longtime infrastructure players like Broadsoft and Metaswitch (not to mention Skype and Google Voice), and the legacy carrier network platforms look even further disadvantaged.

Intelligent mobile devices tend to be especially hard to control, because they can typically connect to multiple networks - the operator cellular domain, public or private WiFi, Bluetooth, USB and so forth - which makes it easier for applications to “arbitrage” between them for access, content and services - and price.

Click to subscribe and read the full article which contains analysis on the strategic options for operators and the best ways of thinking about them

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‘Social media guru’ and ‘web leader’ to stimulate 6th Telco 2.0 Exec Brainstorm, Nice, 6-7 May

We’re delighted to welcome Marc Davis, Chief Scientist at Yahoo! Connected Life, and ‘social media guru’ to the list of stimulus speakers at the next Telco 2.0 event in Nice on 6-7 May (more about him here). He’s been tempted over from the US by the promise of some high-octane business model brainstorming… and the allure of the Cote d’Azur in Spring.
Marc Davis

Marc’s fellow panellists will be: Brian Shepherd, President of Amdocs Interactive, Rainer Deutschmann, EVP Mobile Internet at T-Mobile International, and Telco 2.0 Associate Norman Lewis, who’ll be sharing a new concept for engaging ‘digital natives’ called the Customer Participation Framework’.

In the meantime, Anssi Vanjoki, one of the 25 “most influential people on the web” according to Business Week, and EVP of New Markets at Nokia, will be joining us in the ‘Devices 2.0’ session which follows the one above. On an initial briefing call last week he said he wanted to stimulate a debate on ‘openness’.

His view in summary:

The era of operator control is rapidly coming to an end. The telecoms industry as a whole, not just its business model, needs re-invention. Devices will become computers which will be impossible for any single company/or collection of companies (like telcos) to ‘own’. As such, the relevance of particular operating systems will decrease as applications reside higher up the software stack.

Telcos must therefore quickly align with the open source world to create truly open development environments. They must embrace this world, not fight against it. Those operators with fixed operations understand this imperative best having seen the impact on fixed broadband already. Many however still don’t, or only do partially. Telcos should recognise that their core competence lies in access, which has tremendous value if they can think about it creatively.

API programmes like the GSMA’s OneAPI and the OMTP’s BONDI still contain too much ‘old fashioned’, walled garden thinking. LiMO is better, but still lacks a fundamental understanding of the changing role of the operator.

Anssi promises to provide some statistics and examples to back up his argument. He’ll be on stage with Yves Maitre, SVP Global Devices, Orange-FT Group and Alberto Ciarniello, VP Telecom Italia and Board Member of OMTP, who’ll all be cajoled and prodded by Telco 2.0 Associate Dean Bubley.

Ed - if you can’t make it to Nice in May, but would like access to the research input, the stimulus material (presentations and videos) and the brainstorming output, do consider our new ‘Distance Participation Packages’, ideal for those on a travel ban or with limited budgets: details here.

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March 23, 2009

Ring! Ring! Hot News, 23rd March 2009

In Today’s Issue: Sony Ericsson without the Ericsson; the mid-market group of death; Eurovendors: still got it, as Ericsson ties up huge Chinese contract; ZTE’s good year; China Mobile profits up, obviously time for an unwise monster acquisition; Palm’s race with the graveyard; AT&T iPhone contract=$400; MS pushing Silverlight “Deep Zoom”; spreading fibre with big lasers (but no sharks); Vivendi wants Francopenreach; Iliad doesn’t care, just keeps generating cash, wants mobile licence; fibre-to-the-desk - wanted, telcos for new business model; pricing apps on the app store; Sony+Google=trouble for Amazon Kindle; Fennec out in beta; OFCOM makes BT very happy, again; building an open source BTS; Samsung sells online videos, network operators groan with dread; pretty UIs pull traffic through the system, with added Odlyzko; UK network sharing out, outsourcing in; Zain’s giant m-banking launch, without “remittance service providers”

Ericsson wants out of Sony Ericsson, German media are reporting. Apparently, they want to sell their half of the handsets operation to Sony, but this may be complicated by the fact that Sony is short of cash and might struggle to round up enough to pay the greenmail. We predicted back at MWC that SE was especially exposed to the world economic crisis; here’s some evidence of the pressure on the mid- and low- end handsets business.

If shipments are to fall 15% overall, with the top end holding steady, the rest of the market must fall more, and the other main support for it is emerging markets, so it’s the mid-market that’s being squeezed…and SE specialises in just that. Unsurprisingly, first quarter numbers were dire. In rather better news, the networks half of Ericsson announced a megadeal with China Unicom, under which Ericsson is going to build them a green-field UMTS network in 15 Chinese provinces and upgrade their GSM network in ten. Eurovendors; still got it, as they say, even if ZTE had a very good year. Telco 2.0 points to anyone who spotted that the boss of ZTE is talking about VAS platforms.

China Mobile, however, is looking a healthy shade of pink, with net profits up 11% in the quarter. It’s threatening acquisitions, as well, based on its huge cash flow. (Is anyone reminded of Vodafone in the 90s? You might want to step away from that share-printing machine…) And Telefonica is promising solid performance from its Latin American operations. You might almost think there was something in those James Enck credit crunch posts about the major telcos’ fundamental robustness.

Robustness is exactly what Palm lacks; it’s all down to whether they can get the Pre out of the door before the cash runs out now. You have to wonder whether relying on the Telco USSR as the launch customer was that good an idea; after all, Sprint is focusing heavily on a WiMAX network, and its existing network is CDMA, and the first lot of Pres are GSM/UMTS devices. So this choice forces them to develop two different versions of it, one of which has a strictly limited lifespan because of the coming of LTE…

Meanwhile, AT&T has provided us with some useful data: they’re offering no-contract iPhones for an extra $400. We can therefore conclude that the expected value of the business an iPhone user brings over the life of a contract is at least $400, and the handset subsidy is $400 minus Apple’s revenue share, and that Steve Jobs stole the telcos’ wallets. Again.

Speaking of iPhones, Microsoft reckons its Silverlight user interface language will trounce the arrogant scorpions of Cupertino with its Deep Zoom feature, which lets you zoom, er, deeply into web pages while keeping everything in focus. Well, maybe.

How can we get fibre-to-the-whatever further into the wilds without spending a ton of money? How about with a REALLY BIG LASER? Seriously; Australian scientists presented this as a solution for deploying GPON in rural Victoria. The science is fairly simple - like anything else, fibre systems have a link budget which is primarily determined by the error rate, just as Claude Shannon worked out all those years ago. And the further you go, the more you are exposed to entropy, and the higher the error rate, until you reach a distance at which the probability of effective communication falls below the acceptable level. This is your range limit. The Australians suggest cranking up the power and using a laser amplifier to pump the bits further - it’s cheaper than installing another repeater node.

It’s actually not a bad idea, even though it sounds more than a tad crazy; there’s what amounts to a HOWTO here. You do have to worry about wearing laser safety goggles and not pointing the end of a cut fibre at anyone…unless you really don’t like them.

Regarding fibre, the CEO of Vivendi wants France Telecom to spin off its fixed access network into a separate company, or at least an French Openreach, on the grounds that FTel has slurped up “85% of the available profit in the fixed-line market”. He may struggle with this; after all, look what’s happening down the round with Iliad. Our favourite ISP is looking for a mobile licence to go with its growing FTTH network, which is benefiting from regulated layer-zero access to FTel’s ducts and poles. And more to the point, Iliad is throwing off €300 million in free cash flow a year, crisis or no crisis. Their profits are up 30% as well; operational excellence wins.

Fibre is good for more than just your bowels. So why not lay it in buildings as well as outside? Fibre-to-the-desk, they’re calling it, and they reckon that among other things it can lead to big savings in CAPEX, OPEX, and electricity usage. A question - isn’t there a gap in the market for a business that would lay the fibre and monetise from the savings over time, perhaps sharing this with the client? Sounds a better idea than a YouTube application for S60 devices.

App stores are everywhere; Gabor Torok at Forum Nokia has an interesting post about how to price your applications. He suggests quite simply starting at $1 and either cranking up the price or going free depending on what happens next. Interestingly enough, something very like Smile emerges in the comments.

In other content news, the Amazon Kindle is about to bash into something hard; Sony has a deal with Google to stuff its e-books with the whole of Google’s inventory of digitised books, some 650,000 titles as against 245,000 in Amazon’s catalogue.

Mozilla’s Fennec mobile browser looks pretty and sounds like it could do a lot of good things for mobile user interfaces (recall that the Pre’s entire UI is essentially a browser). Still only available for the N810 though; apparently they’re planning to port it to Symbian, Windows Mobile etc later. This sounds more than a little backwards.

OFCOM seems to have been trying to make BT very happy recently; first there were the terms for wholesale access to the planned FTTC network, and now, there’s clearance for triple-play, which BT has never been allowed to do in the past. (They could sell telephony, Internet access, and IPTV, but they couldn’t bundle them. It must have made sense to somebody.)

In very different news, the OpenBTS project, which builds an open-source GSM base station using the Universal Software Radio Peripheral and an Asterisk PBX, has a blog.

Samsung, meanwhile, is llaunching an online shop for movie downloads onto its more video-centric devices. The initial 500 titles are on sale for £4.99 or 24-hour rental for £2.49, and the service launches first in the UK. Operators, stand by to see those BT backhaul pipes running hot; content may not be king of anything much, but the combination of content and user interface can certainly drive traffic. We saw this with the BBC iPlayer; we’re also seeing it with the Apple iPhone. Supposedly, Dutch T-Mobile users with iPhones are pulling 640MB per user per month, compared to a baseline of about 20MB for voice and messaging; watch out! (Thanks to Andrew Odlyzko for the numbers.)

As if in preparation for this, the rumours about another wave of infrastructure-sharing in the UK petered out; instead, Vodafone has decided to outsource its UK network operations over the next seven years to Ericsson, while Orange UK is doing the same with Nokia Siemens Networks. The Orange deal requires NSN to “manage, plan, expand, optimise, and maintain” Orange’s network - we can’t help thinking that it’s now a racing certainty that all that iPhone or Samsung-generated traffic will pass through a lot of brand new NSN gear.

Out in the wider world, Zain (that’s Celtel as was, before Mo Ibrahim took his coat and giant sack of oily lucre) is launching a mobile money transfer/m-banking service across the whole of its footprint in East Africa, some 100 megasubscribers. They integrated the HLRs and eliminated roaming fees between Kenya, Uganda, and Tanzania some time ago, thus making their airtime credits a de facto single currency; but now they’re taking it up a notch. Like Orange in West Africa, they are partnering with the banks, specifically Citigroup and emerging markets specialists Standard Chartered. No sign of “remittance service providers”, though.

And Iraq, of all places, gets mobile TV. No word on who the lucky operator is yet.

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March 16, 2009

Ring! Ring! Hot News, 16th March, 2009

In Today’s Issue: Microsoft app store and its developer tax; the crucial importance of ridiculous apps; Google Voice - you know, that thing from 2007; G-Checkout fees hiked; Reding after your data roaming margins; Skype for sale again; even more network-sharing in the UK; no DRM at Vodafone; Bill Morrow takes command of Clearwire; Clearwire presses on with WiMAX deployment; Vodafone Qatar to float; AT&T plans $17bn CAPEX; Ericsson sells Turkcell a network; all-IP MVNO at AT&T; yet more Russian ownership rows; Bharti Airtel CEO spooks the market; MTN’s stellar results; surge in mobile money transactions predicted; Orange/Barclaycard NFC; obscure niche handset meets some social network site or other; Felten: fibre in your diet keeps you open; 33 years of Ethernet

Here an app, there an app, everywhere an app store. This time it’s Microsoft who have started one up. Features and terms are similar to Apple, no surprises there, with the caveat that you have to pay to get in. There’s an annual fee of $99, which entitles you to submit five applications to the store, with any further ones being charged at $99 each. The idea is, apparently, to discourage “silly” applications like the ones for the iPhone that fart. Is this sensible? Well, it’s hard to avoid the parallel with Microsoft’s business-making decision back in the 80s to give its tools away to developers while Apple was charging (quite steeply) for them. That paid off spectacularly for MSFT - developers developers developers, as Steve Ballmer said.

And isn’t it just a tad judgemental to declare a whole swath of software “frivolous”? Frivolous applications have been a huge source of innovation for the IT industry since the students at MIT in 1962 hacked the mainframe so they could play spaceships. Producing frivolous things like computer games didn’t stop Electronic Arts from making money; neither did producing frivolous things like Walkmans stop Sony making money; neither did producing frivolous things like phones with cameras in stop Nokia making money. But then, Microsoft has always had trouble with fun. This is, after all, the company whose biggest selling product is called Office.

And if, as promised, two-thirds of the 20,000 apps MSFT wants to have on sale at launch are targeted at consumers, it’s hard to see where they are going to find enough Terribly Terribly Serious ones.

The wires were humming this week with the news of Google Voice. It seems almost churlish to point out that Google Voice is nothing but the free hosted IP-PBX service they bought back in the summer of 2007, Grandcentral. Yes, they’ve rebranded it, and they have searchable voicemail (i.e. “like Spinvox”). It would be very interesting if they were to integrate Google Talk in it, thus giving it the full richness of multiple clients, presence & availability, messaging, and extensibility that XMPP brings. But so far, all that marks it out from quite a lot of others is the Google name. Carriers should consider it another of Google’s small deterrent investments - a submarine, like Google Checkout (whose fees just went up). But remember that one of the main purposes of a personal IP PBX is to let your calls follow you - to encourage more voice minutes of use. Perhaps a really intelligent operator would seek to partner with Gvoice?

Preferably, do so before Viviane Reding gets your data roaming prices, which are one of the main barriers to just buying a big data bucket and logging into your IP PBX, Asterisk box, VoIP provider or whatever from there. The European Union seems determined to cram down price caps for data roaming, which has after all often been offered on terms that would make a Sicilian usurer look like the Red Cross. Interestingly, one of the affordances of things like Grandcentral, PBXes, and Asterisk is what might be called voice as voice-over-IP. If you can route calls to another number in the SS7 world, you can use ultracheap buckets of minutes as offered by, say, 3UK to hook up your mobile, for prices that beat your likely data bills or WLAN hotspot fees, and it doesn’t matter what local SIM-only deal you arrange because you still have the same number; and no carrier is ever going to try to stop you making SS7 calls.

Note that Skype is under the hammer again; no-one would bet on it reaching anything like the price EBay got it for.

No wonder, then, that the hunt for savings is going full power. O2 UK and Vodafone are the latest mobile operators to look at sharing infrastructure. And as well as them, Orange wants to join T-Mobile and 3UK’s MBNL joint venture. It seems that a structural separation model in UK mobile access is emerging from the bottom up - GSM/UMTS/LTE traffic will pass over a shared RAN which handles all operators’ bits on nondiscriminatory terms and earns a fixed return, while the operators compete like crazy at Layer 3 and above. It could be a great idea; Telco 2.0 was recently standing at the highest point in London, near Jack Straw’s Castle, where there are three Node-Bs in twenty yards of pavement, belonging respectively to Orange, T-Mobile, and 3. Just imagine how much we would have saved had they done this to begin with. (However, some scepticism is in order - despite the creation of MBNL, there were still two MBNL-owned installations at that spot.)

Meanwhile, Vodafone has taken the inevitable plunge and started selling music without DRM restrictions. On the Web, it’s already commonplace to offer bulk-licensed DRM-free content at a slight premium, and really there is no reason why anyone would want to get a whole lot of problems in order to save pence. Vodafone has apparently got licensing agreements with Universal, Sony and EMI, and will offer to exchange DRM tracks for their open equivalents free. It’s sense.

Speaking of Vodafone, former head of European and Japanese operations Bill Morrow is off to be CEO of Sprint’s partner and effective subcontractor in building the US WiMAX network, Clearwire. Despite everything, Clearwire is still planning to barge ahead with the build-out to 120 million people, which suggests that they could do with a gnarly old GSM network builder like Morrow around the place.

Perhaps the markets have bottomed out after all? Vodafone is looking at floating its network in Qatar on the stock market.

AT&T, meanwhile, is planning to spend $17bn in CAPEX this year; watch the vendors run after that one, especially now that Alcatel has demonstrated that the Eurovendors have “still got it”. Not only does AT&T still have work to do on UMTS deployment, it’s now heading for LTE, whilst also rolling out VDSL fibre-to-the-cabinet (uVerse), IPTV, and its own not-quite IMS switching and applications infrastructure. Ericsson joined in the Eurofest by selling Turkcell a turnkey HSPA net with all-IP backhaul.

Here’s something interesting; an all-IP MVNO, that provides a VoIP service over AT&T’s network. Clearly, Zer01 has a revenue-sharing deal with AT&T, because the data traffic is excluded from AT&T charging. Now that’s a more creative way to approach over-the-top players.

Turkcell is one of the companies involved in the great Alfa/Altimo ownership dispute saga, which blew up again this week as a court in rural Siberia froze Telenor’s stake in Vimpelcom. It’s more surprising that Telenor still has the stake to freeze after all these years of byzantine shenanigans. Most people would have given in and sold years ago, but there is a truly Viking determination at work here. Selling your shares, however, is something that involves careful timing. Look what happened when the CEO of Bharti Airtel decided to go liquid; although he only parted with 0.006% of the operator’s market cap, it was 100% of his holding, and the market gave him the bird, knocking 6% off the company. This may affect your estimate of his judgment; the fact he sold Bharti Airtel stock to buy property in these times perhaps ought to affect it even more. However, they have had some bad regulatory news regarding termination fees, and MVNOs are coming.

MTN, meanwhile, announced a storming set of results - revenues up 40%, profits up 43%, margins of 42%, subscribers up 48%. Most of the subs came from either Nigeria or Iran, where as predicted, MTN’s emerging market experts have torn into the incumbent players. However, ARPU was up as well, in South Africa as well as in their far-flung investments, and they even found 250 million rand to spend on a share of the new East African cable. And they’re building a shared fibre network with Vodacom and Neotel.

Informa analysts predict that mobile money transfers will rise 12-fold in the next five years, with the bulk coming from M-PESA-like mbanking services rather than the NFC ones beloved of European operators, which will still, however, get about 11% of the market. As if on cue, Orange UK and Barclaycard announced an NFC joint venture.

Some obscure social network or other has a client for the iPhone.

And Telco 2.0 ally Benoit Felten has a simple message: the success of fibre-to-the-home is driven by user adoption, not by ARPU, so open access is good for everyone.

And finally, 33 years of Ethernet.

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March 12, 2009

Credit Crisis, Part 8: Show Us Your Labs

This is the latest in our acclaimed series of articles on the global financial crisis and its impact on the Telecoms-Media-Tech sector. With estimates of losses in the value of financial assets in 2008 now at $50 trillion (c.70% of global GDP), and financial stress and unemployment rising, our previous interpretations of the prospects for telcos in the financial crisis seem open to challenge as being overly optimistic.

However, there is little evidence from company results of an impending crisis in demand for telco services, at least for now. Accordingly, telecom sector relative performance continues to be strong, particularly during the worst of the market downdraft. However, investors appear to be increasingly selective in defining what differentiates one telco from the next. Our attendance at a recent telco innovation conference leaves us convinced that there is a story waiting to be told around research and innovation - if the pieces can be properly aligned.

Our analyst writes this while enduring the pain of a swollen jaw, traumatized earlier as it fell, in shock, to hit the desk from which he types. All this pain could have been avoided had he only not looked at the offending headline on my Bloomberg screen - that a new study by the Asian Development Bank estimates total losses in the value of financial assets worldwide during 2008 at $50 trillion. It’s noteworthy that the “trillion” value has historically been so seldom-used (outside astronomy) that there isn’t really a familiar,user-friendly abbreviation; but it’s still early days, as any Zimbabwean will tell you.

The ADB reckons that the portion of the $50 trillion in losses attributable to developing Asia, at $9.6 trillion, is greater than the entire region’s GDP in 2008. We in the developed world may take small comfort in our relatively more robust economic and political institutions - the $50 trillion global figure works out at 70% of the estimated purchasing power parity (PPP) adjusted GDP figure for the entire world according to the 2008 CIA World Factbook, $71 trillion.

We wrote recently elsewhere that, apart from the appalling implications for individuals in the current crisis, there is an aspect of this which is perversely exhilarating, as arguably all of (or the vast majority of) humanity collectively faces a common challenge. Not that humanity will collectively see it that way - our analyst would expect quite the opposite in practice, with nationalism and protectionism as sadly natural safety blankets to turn to in times of crisis. Nevertheless, if the ADB study’s numbers are anywhere near correct, then our assumption has been broadly vindicated: the majority of the planet’s working men, women, and (sadly) children slaved away during 2008, only to see the fruits of 8.5 months of their labor obliterated by the implosion of global asset values. The lucky ones may continue, while many now face unemployment and uncertainty.

Clearly it is no secret that conditions have grown breathtakingly worse since our relatively more upbeat assessment of what was once called the credit crunch, some six months ago. As one might expect in a period of such intense anxiety, anecdotal evidence of belt-tightening is easy to find.

Yet, when asked in a more structured framework, it appears that two-thirds of telco customers would look to cut-back on, rather than cut, services. We thus repeat our Telco 2.0 mantra that the telco should sell itself through the downturn on the basis of good value for money, access to critical information, and affordable entertainment - it looks like most of your customers have reached the same conclusion.

The market also seems to have solidified its view, for now at least, of telecom as a relatively defensive sector. In our re-worked ranked returns chart for the benchmark STOXX 600 index industry groups, we present a ranking by one month performance to 9th March (in red) with year-to-date performance included for reference (in blue). It’s important to note that the one month decline to 9th March in the benchmark is 20.8%, and the year-to-date decline is 20.4%. As we have previously expected, telecom is indeed performing better during periods of market stress (we think -21% qualifies) than during more benign periods (in this case telecom ranks eighth through the up/down volatility period, and third during the falling-off-a-cliff phase).

DJ STOXX 600 Rankings By Sector, 9 March 2009 vs YTD

The market may be putting its money where its mouth is, but do recent company results give us any tangible evidence of the resilience of these businesses during this crisis? Interestingly, given cable’s assumed position as a victim of consumer downsizing, we find encouraging signs in a couple of fourth quarter reports from European cable operators.

Virgin Media’s Q4 2008 results showed a somewhat surprising decline in overall churn, with the largest reduction coming in non-pay churn, a counterintuitive result in the current climate. Broadband net adds were relatively weak for the fourth quarter, but were respectably flat on Q3’s level, and digital TV net adds continued the progress of the previous three quarters. Explosive growth it ain’t, but neither are there any signs of a consumer crisis in evidence. Pan-European cable giant UPC’s Q4 results showed pretty much the same trend, with broadband growth somewhat anemic, though not desultory, especially when we consider that UPC’s footprint contains economic hotspots such as Ireland, Austria, Hungary, and Romania. Digital TV net additions were down on the punchier growth rates of the first three quarters, but at 59% YoY, hardly offered any cause for alarm.

Virgin Media estimated churn trends by category

Admittedly, these are but two isolated examples, and what we don’t know is how sustainable these trends will remain as unemployment rises, but for now, at least, it looks as if the consumer, even in some very stressed economies, is standing by telco/cable services for the very reasons we have proposed previously. While this is encouraging, life is obviously anything but straightforward for the telcos, with growing disparity between operators in market sensitivities to credit risk profiles. The chart below shows market consensus forecast net debt/EBITDA levels for 2009 (in the case of BT and Vodafone it is for the March 2010 financial year), along with their credit default swap spreads, both as at 9th March. Without going into the intricacies of credit default swaps, the main point is that, the higher the number on the chart, the greater the perceived risk of significant ratings downgrade or default.

While some of the numbers are easily explainable (Telenor, OTE, Telekom Austria and Vodafone’s CDS spreads reflect their emerging market exposure), while others are less so. In an ideal world, KPN would probably be perceived as roughly on a par with BT, except that KPN has a formidable recent reputation for financial conservatism, while BT has a significant pension liability which distorts the fundamentals of its business performance.

Source: m Capital, from Bloomberg data

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March 11, 2009

Vodafone: “Smart Cooperation” = Telco 2.0

Vittorio Colao, CEO of Vodafone, has been saying this recently:
I don’t like the word ‘carrier’. A ‘carrier’ is not what Vodafone wants to be.”
Instead, he’s keen to become a provider of “smart pipes” and perhaps even of “NaaS” - that’s “Network as a Service” for fans of MLAs*. We’re not so sure about that bit - all telcos are providers of their network as a service, and they have been since the days of Alexander Graham Bell. But there’s a nice definition of it here, which in summary says:
Operators are finally moving towards exposing network intelligence to third parties - thus moving from closed network model (NetCo) to an open platform model (WebCo), often referred to as Telco 2.0

Most importantly, Colao has been talking about “smart cooperation”, the limits of walled gardens, and the need to seek new ways to monetise the services that run over your network.

We say: Yes! “Smart cooperation” sums up the essence of two-sided business models, which usually emerge at the frontier between competition and cooperation.

For example, only the biggest and richest companies could provide extensive Internet peering in the 1990s, and most of them didn’t want to. There was no way for competition to resolve this. Cooperation, though, in the form of the Internet exchanges, made it possible for many competing service providers to peer and for non-service providers to compete with the telco wholesale operations to supply their own interconnection needs. Immense value was created. Similarly, no stockbroker can compete their way to having a stock exchange; they must cooperate. At the same time, of course, it’s rare for monopolists to be especially innovative in the absence of competition. Hence the importance of two-sidedness.

It’s great news that Vodafone, as the biggest operator by revenues and a hugely influential leader in the industry, has recognised this, especially now that it’s partnering with China Mobile and keen on deploying LiMo handsets. In fact, the “Vodafone family” as they tend to call it is increasingly rich in Telco 2.0 activity - there is Verizon Wireless’s ODI, the P4P work at VZ itself, M-PESA at Safaricom, which is a Vodafone affiliate, the JIL development environment work, and more besides. Hopefully, now that the decision to go LTE means that there will be no technology barrier between VZW and Vodafone, we can expect some of the innovation there to diffuse through the entire group.

It’s also very good news that Vodafone recognises the problem with the walled garden; it’s not just that you usually can’t keep people in the garden, it’s that the garden itself won’t flourish in isolation from the rest of the world. It is part of both an ecosystem and an economy, and trying to replace those in an autarkic system is both very hard and expensive, and inevitably inferior to the real thing. (The history of actual gardens is telling; despite the huge amounts of money 18th century aristocrats spent on their gardens, they were very much dependent on importing plants raised by deeply middle-class Dutch experts’ businesses and on the work Kew did raising weird tropical plants in European conditions as experiments. On the other hand, as well as spending the money, they were also the leaders of fashion, which kept the Dutchmen in business and encouraged innovators.)

Hence the huge importance of both openness, and also setting up the commercial terms of business and the infrastructure that are needed for all sorts of innovative things to grow. This is why we like O2 Litmus; it’s not just about network APIs, although they are necessary, or handset ones, although they too are necessary, and it’s not just about having an app store, although you’ll need one of those too. It’s about the integration of all these things with a workable business model and a committed user and developer community.

It looks like 2009 is shaping up to be the year when operator APIs, developer communities, and the like move into an implementation phase. Projects are bubbling up all over the place, with operators, with vendors; a whole range of duelling standardisation efforts are on the go, from MEF’s Smart Pipes initiative, the TMF’s invaluable work on BSS/OSS and management information systems, to the GSMA’s OneAPI, RCS, and Mobile Ads projects, passing through a wealth of vendor and technology-driven activity. This slide from Telco 2.0 associate analyst, Dean Bubley, and presented at eComm last week, gives you a taste…

bubley-ecomm-apis.png

And, of course, Telco 2.0 won’t be left out.

For a start, later this year you can expect a major strategy report on open APIs and developer communities. And we’re also presently in discussions with a group of major European operators, fixed, mobile, and converged, about creating a forum for new business models in the telecoms industry. So far there’s been an enormous amount of work on technical interoperability and standardisation, but there’s been very little on the business side, and not even very much on the technical issues which bear more on the business side than on the pure network-engineering, packet pushing side.

Also, much existing activity is specific to one particular technology or protocol - we intend to be inclusive to a fault, as the great majority of Telco 2.0 concerns problems that affect the entire industry. As a result, at the next Telco 2.0 event, we’re staging an API session with representatives from the major trade bodies and also from interested operators in an effort to brainstorm a commercial model for this kind of business. You still have time to sign up.

*MLAs - Multiple Letter Acronyms. We’ve moved on from Three-Letter Acronyms

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Why a bank is like Lebara Mobile

This year’s MWC Mobile Money Transfer seminars were interesting, as usual. But the really interesting thing is what nobody said; there was a lot of talk about what you might call the transport layer, the long-haul section in the middle of the transaction, but surprisingly little about the user interface - the point at which the eventual customer pays money into the system or takes it out.

That’s especially odd, as the participants were all very keen to point out that they realised the vital importance of getting cash in and out. Cash is, in a sense, the killer application here; using mobile credit transfer for direct payments, sexy though it is, requires you to beat a powerful negative network effect. It’s the first fax problem; it’s useless until other people accept it, but there’s no reason for them to accept it until people start using it. But if you can convert this funny invisible stuff into cash immediately and without paying usurious commissions, there’s no reason not to accept it - because it’s as good as cash.

Further, many of the use cases for mobile money transfer are all about getting around the security problems of transporting cash. Take Afghan GSM operator Roshan; they recently licensed Safaricom’s hugely successful M-PESA system, and one of the first applications for it is paying the Afghan army.

You may recall that there was a steady stream of horrible massacres in Iraq which occurred precisely because there was no way of sending money from whichever corner of the country you were stationed in to your family, so Iraqi soldiers and police would travel in numbers by bus to deliver the cash in person. In a country full of insurgents, terrorists, and just old-fashioned highway robbers, this was an invitation to disaster. So, now, the Afghan army gets paid by M-PESA transfer, and they can send money on the same way.

This is a transport-layer problem, granted, but its solution is based in the user interface. Without the user interface - both the technical one of the application on the handset, and the commercial one of Roshan’s network of trusted airtime-selling agents who actually handle the cash - the GSM transport layer would be useless. Among other things, the fact that the recipient simply collects a cash transfer from their local agent means it’s not immediately obvious they are receiving money from the government, which could be a security problem in itself.

So, the ability to readily convert credit into cash is vital to get user and merchant adoption. Further, the ability to do the opposite is crucial to the success of mobile payment systems as businesses - they are the kind of two-sided businesses that make their money from transaction fees, and are therefore dependent on volume. Also, a significant chunk (15% on Orange’s West African systems) of the revenue for the telco comes from interest on the balances held with the banks. And a significant motivation for the banks to get on board is that it’s a source of deposits and hence capital, and also a driver of activity for their foreign exchange desk. But in the end, it all comes down to the user interface.

So far, interestingly enough, all the successful commercial deployments have recognised this. None of them have found it necessary to recruit third party service providers to handle the middle of the trip, although several have partnered with banks in order to deal with regulatory issues and the complexities of the business. What turns out to be crucial?

  1. The network of trusted agents collecting and paying out cash
  2. User experience - clients and terms of business
  3. Price and low marginal cost

After all, these things have always been true of finance; who knows or cares, outside the trade, about how SWIFT or BACS actually work? What matters is the performance of your local bank branch, the creditworthiness of the business as a whole, and the efficient performance of transactions. And, of course, banks don’t hold all your money in cash in a safe - imagine a bank branch that takes in roughly as much cash as it pays out. It doesn’t actually need to transfer very much cash - as long as the flows are roughly in balance, it’s all book-keeping transactions. (Think of it as rather like P4P.)

Of course, in the past a whole system of unofficial international remittances grew up that was entirely without a formal transport layer - we’re talking about the Islamic hawala here, where agents accept cash for transfer from the sender, and put the recipient in touch with their partner, who pays out the money. Only if there is a net imbalance which one of the agents can’t fund locally do the agents need to actually transfer funds; the rest relies on trust and reputation. There’s a risk that the agent will make off with the funds, but then, this is true of all financial systems.

So, the upshot is that telcos who are interested in mobile payments (which should be “all of them”) shouldn’t sweat the detail of international transfers, and should be sceptical of the claims of potential partners in this field. Instead, concentrate on the user experience, the agent network, and operational efficiency. As an example, think of Lebara Mobile, the migrant-focused MVNO that operates in Europe and especially around the Mediterranean. It’s an MVNO - it doesn’t own the transport layer. But its success is founded on building a trusted name and a trusted network of agents on both sides of the Mediterranean, in both the source and destination countries.

And, given that it deals with different network partners in each country and provides roaming, it’s already transferring money between those countries - if someone buys airtime credits in Morocco and uses them in Spain, this is a cash transfer to the Spanish wholesale operator. How long before they go into the money transfer business?

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March 10, 2009

Oh Yes, It’s YouTube vs the PRS!

YouTube - that is to say, Google - and the UK’s musical copyright agency, the PRS, are having a row. Since yesterday, Google is no longer serving high-quality videos covered by PRS licensing to end points in Britain. Telco 2.0 associate Alan Patrick has some interesting thoughts on the affair at his blog.

Alan, of course, helped prepare the scenarios in the Online Video Distribution report, which foresaw a rapid progression through a period of intense change and conflict (we called it Pirate World) as the old media economy broke up, but which would eventually result in a new value chain emerging as the problems of an all-pirate world made themselves felt.

We also had a look at the differences between YouTube and Hulu not so long ago. Hulu is, of course, the content owners’ answer to YouTube; we may just have seen YouTube’s answer to content owners. It’s also worth noting that (at least if you take YouTube’s explanation seriously) that it has some similarities to the ISP backhaul crunch; in both cases there is raging demand from the customer-facing players for a product that comes from a near-monopoly, but one of the constraints on the near-monopolist is the risk of putting the customer-facing players out of the game.

We will, of course, be discussing this in much more detail at the next Telco 2.0 event, where Alan Patrick will be presenting a taste of the research in our latest report, the Online Video Market Study.

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Defining the Digital Generation: Young Today, Grey Tomorrow

A new Telco 2.0 Strategy Report

We have been beavering away on another report, Serving the Digital Generation: Innovation for a new breed of customer. We believe that service providers need to engage with customers in a new way to reflect the changes in customer behaviour that have been enabled by the internet. Encouraging customers to actively participate with each other and with other service providers, via a Telco platform, builds value in the platform itself. In other words, the two-sided telecoms business model opportunity grows. In the article below, we describe our thesis and why it is increasingly relevant to all customers.

We will also be exploring this extensively at our next brainstorm in Nice where we will present our research in this area. We also have Richard Titus, Controller of Future Media at the BCC, and others presenting their views of how to serve customers going forward.

Customers are Currently Revenue and Profit Pools

Average Revenue per User (ARPU) remains the most important metric at most operators. Customers are measured only in terms of the revenue that can be extracted from them. But digital-savvy customers are starting to ‘pay’ in other ways: with their time, preferences, product reviews, product enhancements. In short, they are giving information and R&D capabilities back to providers that engage with them in the right way. Management in most operators has been late to wake up to this phenomenon and has been the ‘over the top’ internet players that have benefited most by engaging with customers in a more interactive manner.

Customer Participation: A new way for customers to Pay

Telco management tends to assume that these ‘Web 2.0 customer behaviours’ hold little value to their businesses. They also believe that customer behaviour change is a long-term trend and one that only becomes relevant over a number of years. But changes in user behaviour can happen rapidly. Consider the growth of the Internet and mobile telephony in the last ten years and the explosive growth in SMS at the turn of the century. The mobile internet is currently enjoying strong growth in many markets now which is allowing operators in Western Europe and North America to enjoy similar growth to that experienced by NTT DoCoMo of Japan in 1999 and 2000. The launch of i-Mode in 1999, for example, saw them gain 20 million customers in less than two years! This was a massive and rapid shift in user behaviour which shaped the evolution of the mobile industry globally.

In Serving the Digital Generation: Innovation for a new breed of customer, we analyse and explore the behaviour of the digital generation to show changes in how communication services are discovered, shared and consumed. Undoubtedly, some teenage and adolescent behaviour will alter as they move into adulthood. But while specific forms of behaviour will change, the centrality of participation and engagement in different forms of social interaction through digital media will, if anything, probably increase. Why? Because, the functionality and flexibility of digital communication media will continue to develop and so will further enable customers of all ages to interact more efficiently and more effectively than through non-digital media. Customers want to get involved, they want to contribute: with each other; with the evaluation of products and services; with the development and creation of new services. Gone are the days when customers passively wait to receive things from providers, the digital generation actively engage with providers. This process of interaction and engagement, we have termed the participation imperative.

Introducting the Customer Participation Framework

The report explains this behaviour and explores how the participation imperative represents a new opportunity for Telco value creation. To realise this opportunity, we have developed a new framework for future product development and services, The Customer Participation Framework( CPF). Developed initially as a template for validating new service or application ideas, the CPF is a tool that can be used to support different phases of the product or service innovation process:

  • At concept initiation, to validate ideas against customer needs;
  • During the development and trial phase, to ensure usability issues are properly addressed;
  • In the execution phase, as a means of feedback iteration and a measurement of success.

The CPF can help operators increase the value of Telco Value Added Services assets (the platform) and lead to entirely new ways of marketing Telco services (retail) to both upstream service providers/partners and end users.
We believe that The Customer Participation Framework represents an enormous opportunity for operators to increase the value of their platforms and retail strategies and thus help to realise the $375billion two-sided business opportunity discussed in previous STL Partners reports.

The myth of a youth-only digital world

Terms such as ‘Digital Kids’, ‘Digital Natives’ and ‘Digital Immigrants’ have been bandied around for the last few years in an attempt to distinguish people who are comfortable using the Internet, and adopting Web 2.0 solutions, from the rest of us who are generally considered sceptical grey-haired laggards. The former group are young and have been weaned on digital technologies; the latter are older and have discovered mobile telephony and the internet in their adult lives. Indeed, when STL Partners was planning our new report its working title was Digital Kids: Understanding the Customer of the Future.

So why did we switch title? Research by a non-profit think-tank, The Pew Internet Project, in the US suggests that associating digital culture with younger people is over-simplistic. Differences in internet usage and adoption of ‘Web 2.0 behaviour do not divide neatly between the younger and older generations. There are not only more and more ‘silver surfers’, but they are also displaying decidedly Web 2.0 tendencies.

Internet usage skewed towards young but oldies catching up

It is true that the younger adult generations (Generation X and Y, aged 33-44 and 18-32) are over-represented on the internet. However, Older Boomers (45-54), none of whom would have grown up with computers let alone the internet, are also over-represented. Indeed, dramatic under-use of the internet can only be found in the oldest segment (G.I. Generation, aged 73+) where, it is safe to say, age and infirmity will be preventing some people from using the internet.

digikids1.png

It is clear that there is a correlation between age and internet usage if we look at the proportion of each age segment that is online. Teens (excluded in the analysis above), lead the way, with 93% of all 12-17 year olds using the internet. They are closely followed by Gen Y (the next youngest group aged 18-32) with other segments following closely before a more substantial drop-off with those aged 64 and over.

digikids2.png

It is interesting to note the relatively small differences in internet usage between the ‘Digital Natives’ (Teens and Gen Y), who were born after the rise of the PC and Web, and the ‘Digital Immigrants’ (Gen X and Younger Boomers) who have become familiar with the digital world through their working lives. This begs the question whether internet usage is purely a function of life-stage with teens and workers using it to manage their lives and retirees finding it less useful. If this was the case, then it is likely that the older generations would be consistently under-represented over time and suggest that internet usage of today’s young will reduce as they get older.

However, this is not the case. As Chart 3 shows, internet usage has grown fastest in the least-penetrated older segments (the Silent and G.I Generations). In other words, they may be coming late to the internet party but they are coming. If we were to look at Chart 3 again in seven years time, STL Partners forecasts that there would be a gradual downward trend in internet use through the age groups and that the rapid fall-off that we currently see over age 60 would be pushed back to over 70.

digikids3.png

Different (Web 2.0) activities for different ages…

If all age groups or generations are moving online, albeit at varying speeds, they are doing so for different reasons and this is reflected in diverse behaviours. This is not to say that the ‘Web 2.0’ behaviours of participation and engagement (outlined in the last section) are the domain of the younger generation, only that each generation engages and participates in distinct ways. The Web 2.0 behaviour of the Gen Y segment is different to that of the Gen X and the Boomers, but both are Web 2.0 in that they involve active engagement from users…

To read the rest of this article subscribe to the new Telco 2.0 Executive Briefing service. The rest of the article (‘Analyst Note’) covers:

  • Similarities and differences in the digital activities of different age groups
  • Why some activities, such as Social Networking, only appeal to the young
  • How some activities, such as Product Reviewing and E-Auctions, will permeate across age groups
  • The eclectic tastes of the over 55 segment
  • Why we are all becoming part of the digital generation
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March 9, 2009

Ring! Ring! Hot News, 9th March 2009

In Today’s Issue: Huawei beats the recession with bizarre “low prices and good products” strategy; politics of standards in China; Google counts its money, cries out “Mine! All mine!”; music biz friendly version of YouTube on the pad; Tiscali looks increasingly doomed; BBC’s mystery atom smasher project; ZillionTV considered helpful, at least by Telephony Online; OFCOM greenlights UK FTTC, makes BT Wholesale very happy; UK cable ducts are quite often full of excrement - official; Ballmer in more conference fun’n’games; bishop goes after SMS and Facebook, leaves XMPP IM, Skype, Bebo out of it; Amazon Kindle on your iPhone, but do you need to pay for the data?; investors go wild with Palm Pre; ZTE’s $40 solar-charging gadget; more Nokia open-source code; wink at your mobile; three strikes is back in France; Kundra appointed US CTO.gov; Martin Geddes sends his familiar spirit to eComm in the form of a black cat

Let’s start with some bullish optimism; Huawei’s CMO boasts that the company is looking at $30bn worth of infrastructure contracts this year, many of them on the Chinese 3G rollout. Of course, it’s a racing certainty that the Chinese government will steer a lot of the work to its own vendors; but this alone cannot account for Huawei’s success. According to Societe Generale, they doubled their share of the world market last year, going from 7% in 2007 to 14.4% last year. We reckon the reasons include “low prices”, “hard work”, and “investment in products”.

The classic example of the Ministry of the Information Industry’s intervention in the vendor market is its support for TD-SCDMA, the homebrew 3G standard that has always been a couple of years behind the GSM/UMTS world. The repeated delays in 3G licencing were probably at least in part an effort to give it time to catch up; eventually, MII arranged the licences to force at least one national deployment, over the profound misgivings of China Mobile.

It looks like the problems are far from solved; China Mobile is offering foreign vendors cash in exchange for help getting the thing working. On the sidelines of MWC, it seems, China Mobile execs were quietly meeting with Nokia, Sony Ericsson, LG, and Samsung to discuss an arrangement under which the carrier would provide cash up front to fund R&D work on the technology, presumably also promising to buy the handsets that might result. Oh dear, oh dear; this national prestige project is getting less national and prestigious by the day. There’s also an interesting interview with Wang Jianzhou here.

OK, optimism spot over. Eric Schmidt of Google has a strategy for the recession: hoard cash. I’m surprised he didn’t suggest stockpiling krugerrands, toilet paper, and ammunition. At the same time, however, it looks like a Google-record industry deal is in progress to create a “content owners’ YouTube”.

Tiscali has been the UK DSL operators’ crisis club for a while, but now it’s seeking a chat with its banks after a deal with BSkyB fell through. The usual problems - roaring video traffic, no value-added revenue to speak of, exploding BT backhaul bills - are being compounded by the drop in the sterling-euro exchange rate, which renders its revenues from the UK less valuable.

However, there could be some hope in the offing; the rumblings continue about a BBC-driven effort to standardise integrated video delivery across Internet and broadcast systems. Worth noting that the Freesat project gives the Beeb a satellite delivery capability, historically the cheapest way to deliver masses of video content. And Telephony Online reports on an interesting targeted-ads and fancy CPE play in online video.

OFCOM finally made its mind up this week - BT’s fibre-to-the-cabinet build has got the green light, on condition that BT provide wholesale bitstream-like Ethernet access and make it possible for unbundlers to put their gear in the street cabinets. However, the regulators aren’t promising any price controls for wholesale access, arguing that this will be constrained by the market. Not an obvious conclusion, seeing as the only other national broadband operator doesn’t provide wholesale service and has no regulatory requirement to offer bitstream, unbundling, or indeed anything else.

At the same time, the regulator published a study of the potential for duct-sharing which showed that a majority of ducts have spare capacity, a surprisingly large percentage are entirely empty, but the spare capacity isn’t necessarily available all the way along the duct, and a remarkable number of installations are full of rainwater or worse, raw sewage. Enter your own regulator/incumbent joke below.

It’s not getting any better for Steve Ballmer; perhaps he should avoid conferences for a while? Or at least stop talking about iPhones? After his clash with John Strand at 3GSM, he put his foot in it again at a Microsoft event, while wearing a Windows Home Server sticker on his head. There is such a thing as dignity, and that’s not it. We’d be remiss if we didn’t mention the bishop who wants the youth to give up SMS and Facebook for Lent; oddly enough, he’s fine with Bebo, Jabber-based instant messaging, blogs, etc, so they won’t get bored.

Content is king, distribution is King Kong; Amazon always recognises this, and they’ve just announced an application that implements the Kindle’s functionality on iPhones. Pretty cool; more channels is usually good news, especially for a quintessential volume business like Amazon. Question, though; the crucial feature of the Kindle was the bundled data transport on Sprint’s network. This was both a brilliant and liberating idea, getting rid of a huge barrier to usage, and also a decision that seriously constrained the device - it meant that Kindles would be trapped in the United States.

Now, iPhones are GSM devices. So they certainly won’t be on Sprint; but does Amazon have a bulk data contract with AT&T? And what about the wider world? iPhones roam, and the App Store is global, so it’s possible they could pop up all over the place. Operators are likely to be delighted by the traffic. Hackers, meanwhile, can now sell unofficial iPhone applications through a kind of shadow App Store; everyone’s got one now!

An investor in Palm, meanwhile, is predicting the doom of the iPhone. We shall see.

Far from the frivolity of iPhone fandom, ZTE is focused on the poor; they have launched a $40 GSM device that includes a solar panel to charge itself in the sun. It beats cranking a Freeplay to charge up your mobile, and it will surely help GSM spread even further in Africa. Meanwhile, Nokia updates its SDKs, putting more code into open source. It will help you do things like this - an application that converts text messages into graphics. Right.

Crazy R&D project of the week; a user interface that uses facial expressions, so you can wink at your phone to start it playing back an MP3 file or whatever. Which could get you in trouble; after the French government’s record-industry inspired three-strikes plan failed in the European Parliament, they’ve brought it back at the national level.

Vivek Kundra becomes the US Government’s CTO; we’re not sure what that entails, but it’s got to be a better idea than hiring the people who got Motorola into this mess. Kundra used to run Washington, D.C.’s IT services and is apparently keen on mobile broadband; so no doubt the news that Clearwire is pushing on with the WiMAX deployments would cheer him.

Telco 2.0 alumnus Martin Geddes addressed eComm last week, speaking from the basement of BT headquarters. We suspect they projected him as a hologram, or something. The talk can be found here.

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March 5, 2009

ITV - the implosion of ad-funded broadcast TV

We’ve just watched the ITV results webcast and we’re still sat shaking from post-traumatic-stress-disorder. Fundamentally, the current ITV business model is a pure leveraged play on advertising spends. The scars may remain in the minds of investors even when the current economic cycle ends - basically the old way of ITV doing business is completely broken. And this is before the pressure of the continual shift to the plethora of choice - whether via cable & satellite penetration, or online. A comparison with the success of BSkyB in implementing a two-sided platform is instructive to say the least. We’ll be discussing some of the issues in this post at Telco 2.0 in Nice, 6th-7th May, and they are at the heart of our all-new Online Video Distribution Market Study.

Anyway, here are the key lowlights:

1. Advertising revenue in 2009

These are 17% down from the 2008 comparables (and outside the financial reporting period). Even worse, the spending by sector is down nearly completely across the board with the biggest spender, Retail (19%) being down 23%. The UK Government’s spend is up by 11%, but its speciality in “we are spying on you”, “grass-up your neighbour” and “nanny-state tells you today to…” advertising only accounts for 3% of the total.

ITV, with its huge fixed costs, debt and pension fund liabilities, cannot survive this downturn without taking the axe to costs.

2. Network Programming Spend

Network spend in 2008 - £1,125m, 2011 - £950m: a 16% drop.

This sums up the scale of the problem facing ITV - they are having to cut spending on content drastically when some competitors (ie BBC and BSkyB) won’t be. One can only assume this will lead to a drop in audience, and soon thereafter a further drop in advertising revenue. It is going to be really tough to break out of this descent into a vicious circle of decline.

Nowhere is this going to be seen more than in premium content/talent acquisition. It was noted that there is a provision on the Champions League/FA (FA Cup & England games) of £50m. Effectively, ITV are saying that they can’t monetise these rights. The recent PL (Premier League) auction highlight that the BBC and BSkyB are going to maintain their investment in crucial “hits” rights.

If ITV struggle in future auctions for the hits side of programming, the circle of decline could accelerate. To be fair, ITV said that they are going to focus upon peak-hour viewing, which sounded slightly strange given that there is an inexorable shift to personalized viewing driven by both PVR & Online.

The saddest news is the planned close of the old Yorkshire TV studios in Leeds - ITV’s glory years were built on the creativity and viewer (and advertiser) intimacy of the regional centres, which both competed to create compelling content for the national network and co-operated to run it. An output dominated from London with some token gestures thrown towards Manchester is frankly a completely empty gesture given the ITV heritage.

3. Online - scaled back

We always thought that ITV Local was doomed - so the closure of this and sale of Scoot is no surprise. Regional advertising, whether highlighted by the decline of print newspapers or local cinema advertising before them, is completely dead in the current market. We are sure the plethora of startups based upon location-based ad. funded models are doomed - just because they suffer the same economies of scale issues. Even Google might struggle with real local contextual economies of scale - think of national chains dominating.

The lesson for targeted ad insertion is less clear - apart from saying that people are only interested in a specific audience. There is a big probability that you get a huge premium for a small percentage of the audience and nothing for the rest, but you have to have the rest available - the dark side of the long tail. Our gut feel is that in the wash, targeting may end up with a smaller overall CPM - but a better service for the advertisers. Of course, if the service really is better there ought to be value in it.

The Friends Reunited “up-for-sale” sign should surprise no-one, and in fact we’ll be surprised if ITV realise anything for yesteryear’s social-networking tool (who remembers that socnets were invented in Britain?), which had an interesting subscription model, which ITV in their infinite wisdom broke.

Basically, ITV’s online ambitions are scaled back to low margin/cost on-demand replays of network programming. It looks as if the revenue run-rate is approximately £1.5m/month split evenly between video & standard banner advertising. They claim CPM’s of £35-£50 for video ads compared to the broadcast CPM’s of £4. To be honest, we’re dubious about the £4 broadcast CPM, because that is an average over 24-hours of ITV broadcast over a variety of channels. We’ll take a punt that the “hits” such as Champions League, Coronation St, and Emmerdale are way, way above the £4.

(Did we mention that out of those three, Coronation Street originated from Granada Studios in Manchester and Emmerdale from Yorkshire TV in Leeds, which was also ITV’s centre for sport?)

In fact, if we were personally selling advertising, we’d be moving towards more of a bundled approach where the access to the hits is conditional upon advertising with the turkeys. But we’re sure that ITV are way ahead of our beginners’ theories.

4. Summary

ITV, like many other ad-funded businesses, is going to emerge from the current business cycle in a much worse position than the payTV/subscription companies. The BBC is payTV imposed on every household in country by government mandate; BSkyB, Virgin and BT are payTV by consumer choice. The big variable is of course whatever schemes are being drawn up in Lord Carter’s Digital Britain bunker.

Lessons Learned

  • Media companies: Reliance on home-market advertisers and regulatory protection is not enough.
  • Online Video: all the “hits” are going to end up being controlled by either the original content owners, or aggregators who have bought them for a premium.
  • Telcos: the video market is a mine-field - better to sell platform services
    that help content owners deliver and monetise. Advertising revenue on its own is a poor alternative
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March 2, 2009

Ring! Ring! Hot News, 2nd March, 2009

In Today’s Issue: Waiting for the Fibrarians; Virgin Media decides distribution is the way; BBC looking at superbox video delivery; iPhones in Japan - can it work?; giving them away; reliability data on mobiles; Nokia 5800 FAIL; Motorola whistles happy tune; surprisingly good news at DTAG, Telefonica; mobile pirates dock in your city and want your money; USG wants $5bn from carriers; Trujillo back from Oz; Aussie censorplan wobbles; Phorm row; Chinese master censor nailed in anti-virus corruption scandal; mobile voice crypto wars, Skype troubles; white space spectrum on the Web; Isenberg on the stimulus; another take on long tail scepticism; SMS outage spoils Nepalis’ fun

On tenterhooks as rumours leak out of a major announcement regarding BT, OFCOM, and fibre. Presumably it refers to the previously-announced £1.5bn fibre-to-the-cabinet plan; perhaps BT, OFCOM and DBERR have reached agreement after 25 or so years? At the time of going to “press”, the preannounced announcement hadn’t happened.

Rival Virgin, meanwhile, is enjoying its status as the broadband operator that doesn’t have to wholesale; so much, in fact, that the ISP operation is taking over the business. Virgin wants to part with its TV channels, concentrating instead on providing delivery for other people’s content. As we keep saying, content is king but distribution is King Kong.

Virgin, after all, were the ones who responded to the Great iPlayer Flood by putting BBC iPlayer content into their cable broadcast system, thus turning it into an upsell opportunity and moving more bits through efficient broadcast rather than IP unicast streaming. How long before they come up with an interesting set-top box/DVR/router/whatever? They may need to hurry up, as the BBC is interested in advanced boxes and specifically, developing one that integrates broadcast and Internet delivery - just what the Telco 2.0 doctor ordered.

Will the iPhone sell in Japan? i-mode didn’t sell outside Japan; we’re not sure what this will tell us, except that bringing products into Japan or out of it is a mug’s game. There is also a good reason for scepticism - Japanese mobile culture became read/write very early, what with all those MMS-snapping schoolgirls. And the iPhone is optimised for the read side. Web browsing, iTunes, AppStore shopping. As this blogger points out, “with Nokia you are not just a consumer” - he noted that his data usage changed radically between the Nokia N95 and the iPhone. On the N95, he sent almost as much as he received; on the iPhone, he received 10 times as much as he sent.

There’s always one way to shift handsets, of course: spend a ton of money on subsidy. Softbank is now giving iPhones away for everyone who signs for a 2-year contract. Apple must be delighted.

LG, meanwhile, get the reliability booby prize from a poll of British users. Nokia and Motorola are in the lead; it looks like the RAZR experience taught someone a lesson. But what’s this? The Nokia 5800 XpressMusic for North America has been taken off the market amid complaints of poor radio performance. This seems to happen quite a lot at the moment; perhaps it’s just that the latest wave of shinies are encouraging users to pull data and therefore showing up the problems?

Motorola, eh. Here’s some uncharacteristic optimism from the crisis club; Greg Brown, “joint chief executive”, reckons that the handset business has reached the bottom, and better times are ahead. We shall see if pinning all their hopes on Google Android is a sensible strategy; we note that Moto is a founder member of LiMo, which makes this decision a little curious.

But unexpected optimism was this week’s theme; perhaps spring is making itself felt? T-Mobile UK claims to have stopped the rot in revenue, and credits the G1 Googlephone with this achievement. Deutsche Telekom beat its targets for 2008 and generally looks pinker than it did nine months ago after the quarter from hell. Telefonica had solid results, too, even with negative exchange rate effects. As predicted here, the eurotelcos are riding out the storm in reasonable comfort.

Hey, AT&T managed to make some serious money out of international roaming without going anywhere, too! It’s an interesting story - a chap working on a docked cruise liner brings along a laptop and a dongle, and uses same to watch a football game. He gets a bill for $28,067. Turns out he was actually pulling data from the ship’s own UMTS network, which is charged as international roaming. Question - why was the network active while the ship was in port? Second question - how many other people passing by were effectively the targets of a man-in-the-middle attack?

The US Government, meanwhile, wants to hit up the cellular operators for some cash as a spectrum “user fee”. Stand by for trouble with that! Especially as Sol Trujillo is back in the US and looking for a job after four years at Telstra.

As he leaves Australia, it looks like the plan for massive Internet filtering is doomed after a crucial senator changed his mind. Relatedly, there’s a row on about Phorm; when isn’t there? Which? got sued after publishing a survey Phorm didn’t like. In China, they do these things differently; here is a fascinating story about one of the people who runs the Great Firewall, and who was caught accepting bribes to frame an anti-virus expert.

A British company which provides strong encryption for your mobile calls is angry about government threatening to break their product; who wouldn’t be? We thought the crypto wars were over. Interestingly, this feeds into the story that Nokia will be shipping a native Skype implementation on the N97; Skype, you will recall, is strongly encrypted end-to-end, unlike the SS7 voice calls in the various existing mobile Skype services. As usual, some operators are going catatonic with voice horrors, others are keen, and the dividing line is between O2 and Orange on the one hand, 3 and T-Mobile on the other, with Vodafone being ambivalent. For some reason, mobile Internet things in the UK always seem to happen like that.

A Web service has appeared that catalogues the availability of white space spectrum in the US. Could be handy; especially if it’s anywhere near as nice as the New Zealand government’s broadband infrastructure map. On a similar theme, David Isenberg has an interesting look at the broadband provisions of the US stimulus bill.

Masood Mortazavi has an interesting alternative take on Long Tail scepticism; and finally, a major SMS outage in Nepal ruins Indian Idol.

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