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Netflix’s horror show, Amazon’s profits slow, and could Verizon’s copper go? - Telco 2.0 News Review

[Ed. It’s now just two weeks to the London Brainstorm (9th-10th November). Key themes are: strategies for defending and extending voice, Customer Experience 2.0, M-Commerce 2.0, Cloud 2.0, M2M 2.0, CDNs, Payments 2.0 and dealing with the disruptors - Google, Apple, Facebook, Microsoft/Skype, and Amazon. We look forward to seeing some of our readers there!]

Netflix’s Q3 numbers are out, and we take a quick look below at just how bad a day it was for the US outfit. (NB We will shortly be publishing a detailed analysis of this business model change in new reseach, plus you can join us to discuss this at the EMEA Digital Entertainment 2.0 workshop at our London Brainstorm in a fortnight.) Netflix is also going to launch in the UK in 2012, but its going to stick to the streaming rather than diving into a head-to-head with Lovefilm.

So, after the results announcement on Monday, Netflix shareholders suffered another traumatic day with the share price down 35% to $77 from a peak of $305 in July - the stock has turned from ‘hero to zero’ in three horrible months. The problem is twofold: a 60% price rise has been met by cries of pain by users, some of whom have left the service in disgust; and international expansion plans in the New Year to UK & Ireland in 2012 will drive Netflix into red ink and losses. The reputation of the Netflix CEO, Reed Hastings, lies in tatters. The larger, rarely mentioned, problem is that the transition from an analogue (DVD-by-Mail) to digital (Streaming) business model appears to be destroying margins (we’ll examine this in detail in our analysis).

Netflix shares plummet

Meanwhile, over at Amazon, the future is a little cloudy - and we don’t just mean in the sense of services provided from huge data centres.

For sure, sales registered an extremely healthy 44% year-on-year growth to $10.88bn, but operating income is an anaemic $79m - or less than 1% of sales. Free Cash Flow also dropped 17% to US$1.5bn as Amazon continues to invest in new data centres and fulfilment centres to support the growth. The CEO, Jeff Bezos, as a former analyst must be aware that he is driving analysts mad with the lack of detail in the results, especially around the progress from the analogue (shipping physical products) world to the digital (Kindle, AWS) world.

Amazon share price

In other video news, Cisco made yet another acquisition, buying up BNI Video for $99 million as they prepare a full-service video delivery platform for the telco market. And a new player, Qwilt has closed $24m of VC funding for its media-service product.

All that video implies broadband, of course. Verizon announced respectable results for Q3, and promised that FiOS net adds would pick up sharply as a backlog from the CWU strike earlier this year was cleared. Telco 2.0’s Keith McMahon notes that they are cooperating with DirecTV to create a dual-mode, LTE and DTH customer device that would provide both wireless broadband and satellite TV. He wonders if the upshot of this is that VZ is thinking about giving up on the copper network entirely, using fixed-wireless LTE to deliver voice and Internet service and partnering with DirecTV to provide the TV element via satellite.

Interestingly, a study shows that wireless-only households are common in rural America. The moment when FCC chief Julius Genachowski hands down the decision on the future of the Universal Service Fund is approaching, and the role of wireless is going to be an important issue. As is the AT&T-T-Mobile merger, of course. AT&T has tried hard to present it as benefiting rural customers, and it looks like they overstepped the mark by pushing charities that receive donations from the AT&T Foundation to write to the FCC.

A group of congressmen, meanwhile, lobbied Genachowski to remind him of the National Broadband Plan’s commitment to getting gigabit and above service to “anchor institutions” like schools, libraries, and town halls.

Benoit Felten reports on Hyperoptic’s first 1Gbps subscribers going live, and points us to a new blog of note

Meanwhile, Telenor completes its HSPA+ rollout and saves 15GWh of electricity a year.

An unintended consequence of energy saving, meanwhile, from the 3G & 4G Wireless Blog - Elisa discovered that a major use case for femtocells is providing service inside Finland’s cosiest buildings. Where there’s an air path into the building there’s usually a radio path, and the key to green architecture is controlling the air flow. And the nano-tech coatings used on modern window glass (Pilkingtons of St. Helens aren’t some bunch of hamfisted northern lunks, you know) are killers for radio propagation (30 dB attenuation per layer - 90 dB for a tripleglazed unit). Oh, and modern wall insulation includes a nice layer of aluminium.

Unsurprisingly, they’re keen on WLAN offload. Isn’t everyone these days?

India’s rollout of GSM and its drive towards wireless broadband have largely been financed by outsourced tower-sharing companies. Third-party investors acquire the land, and multiple operators rent space on the towers. Or an operator builds them, and then sells them to a towerco, which then gets others to move in. However, the Times of India reports, investors are cooling on the business in the aftermath of the hugely overbid 3G auction and a range of operational problems, notably the old industry chestnut of people pinching the diesel from the generators.

But just be glad you’re not an Indian radio planner, as the Indian government has demanded that at least two mobile operators urgently roll out 3G into parts of India controlled by Maoist guerrillas as part of its counter-insurgency strategy. One of the two state operators, BSNL, has already refused this attractive business opportunity. What can possibly have put them off? Actually, it’s not the prospect of ending up as a hostage but rather, a regulatory issue. This is the telecoms industry after all.

BSNL executives continue to maintain that rolling out cellular networks in Maoist districts is not commercially viable for the cash-strapped telco without 100% central subsidy

Cut my head off if you like, but don’t take my universal service fund subsidy… Quote of the week, surely. Meanwhile, Reliance Comms sues in a bid to kill the “2G Scam” charges.

Tomi Ahonen argues that Apple is in line for a “stellar” Christmas, while Nokia’s surprisingly good Q3 (smartphone sales were just in positive territory) actually reveals underlying weakness, as margins and the percentage of the business made up of smartphones are falling. He argues that if the N9 is assumed to do as well everywhere as it does where it’s been released, Nokia could get back to profitability just by giving it a global launch.

As well as Ahonen, Telco 2.0 Associate Horace Dediu was also caught out by seasonal variation in iPhone sales. He offers that rare and valuable thing, a “I was wrong” post by an analyst. Well worth reading - and you can join Horace at our EMEA event in London in two weeks (9-10 Nov), where he’s presenting his perspective on the ‘OS Wars’ - Android / iOS / Windows etc.

Meanwhile, Dirk Schmidt looks at major tech companies’ CAPEX, and notes that HTC and Apple are both some of the heaviest spenders and also some of the most effective. Google and HP’s numbers are not strictly comparable (much of Google’s is related to the core search business, HP’s is equipment it leases to customers), and the only player that outspends Apple is Samsung. But Samsung doesn’t seem to get the same bang for the buck.

As you’ve probably heard, Steve Jobs vowed to “destroy Android”. On the other hand, Android is spreading in enterprises remarkably quickly.

Wonder why? Here’s the answer: developers, developers, developers, which is ironic as the developers in question mostly used to work on Microsoft Windows Mobile. A must-read, especially for this link to a prototype Android.

Further, here’s a richly detailed tour of the latest Android release, with an interview with Hiroshi Lockheimer, Google’s chief engineer for Android.

Mind you, fairly soon you might be able to run whatever mobile OS you like in a hypervisor.

RIM had its devcon this week and took the opportunity to launch its new OS, BBX, as well as a heavy round of updates for their developer tools. Interestingly, gaming seems to be the focus of the native element, while everything else is concentrating on HTML5/WebWorks.

But then, RIM’s developer offerings have always had a great feature list. Whether anybody cares is the big issue, and that’s up to Alec Saunders, whose presentation can be found here.

BlackBerry still really does command its users’ mindshare, though. After all, it looks like BlackBerryFail coincided with a significant drop in road accidents. But just think of the e-mail that went unanswered for as many as two days! Mind you, at least they still don’t give you cancer.

HTC’s Radar Winphone, reviewed.

Mobile payments and banking are a major Telco 2.0 theme. PayPal is seeing strong growth again, but they’re being very careful about NFC, Connected Planet reports. Meanwhile, the GSMA MMU Blog rounds up m-banking deployments in Latin America, and CGAP Technology Blog reports on a detailed study of MMT users in Tanzania.

Meet Google Trader, an SMS-based classified ads service that just launched in Ghana.

And Connected Planet points us to the latest IEEE newsletter, which argues strongly for M2M as an integral part of the smart grid.

Is Siri a useful product? Horace links to an interesting talk about the problems of voice-recognition and indeed product development in general. There’s a bit more from Rory Cellan-Jones.

Dan York has a rant about the WebRTC standardisation process, and worries that it’s becoming too closely coupled with the existing Internet telephony technology base. We recently spoke to a major voice technology vendor and they had the same concern. Telco 2.0’s Dean Bubley also has a rant about what he calls “RCS-z”. Click through to find out what the z stands for.

Does Facebook want to be an app store for HTML5? Whether it does or not, NSN wants Facebook to be part of your self-care system.

Here’s an interview with Casey Oppenheim, cofounder with a team of ex-Googlers of a startup that produces tools to let you control what Facebook knows about you. Hacking Skype address books - there’s a browser inside the new versions, you can style your status with HTML, so what happens if you add JavaScript code to your profile? Whoops. And The Register accidentally leaks 46,500 users’ e-mail addresses.

Apple poaches Scott Noteboom, Yahoo! datacentre guru. Early SQL Server 2012 on Amazon Web Services.

Meet the ARM Cortex A15 processor, in excessive detail, with bonus Steve Jobs anecdotes. A review of Ubuntu 11.10. Reviewing the original iPod 10 years on.

Microsoft’s YouTube channel gets hacked. Anonymous goes after child-porn host. Reporting back from the Guardian hackday. Mozilla ports Firefox for Android into native code. A successful public IT project!

The cheapest ways to get an iPhone 4S in the UK.

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