Beeb Radio Podcasting

The BBC has released the May Radio Statistics and the Archers are the top of the pops!!

There were 756,730 requests for the Archers on-demand broadcasting during May. In other words, the Archers were listened to at various computers up and down the land 756,730 times when they couldn’t listen to the live or repeated shows. Obviously, there is quite a demand for time shifted Radio 4 content.

However, why does the Beeb not Podcast the Archers? I’m sure that your average Archers listener does not fit with the stereotypical spotty content thieving p2p addicted teenager. There can be no argument over ownership of rights. I think the likelihood of them turning up on some underground P2P network is pretty slight and even if they did, why would the Beeb care? I’m sure that a few (not me by the way) would rather catch up on the latest Archers episode on the way to work or doing the gardening or some other place where on-demand broadcasting is not possible. Why should the Beeb stop them? They are in all probability license payers after all.

To be fair, I can understand why the Beeb does not podcast for instance the excellent Radio2 Music Documentaries, because they don’t own the rights to the music. Fair enough. The top content that the Beeb podcasts also surprises me, because it seems to be news based and that is something that becomes out of date very rapidly.

Aside from the whinging about the Beeb, the interesting fact to me is the sheer amount of spoken word content rather than music in the on-demand charts. For instance who would guess a minority channel such as BBC7 would be thrashing mainstream stations such as Radio3 and Radio5 and is slightly ahead of Radio2?

Personally, I think the Beeb is proving that there is a big audience for time-shifted spoken word content. However, I think the Beeb should review their policy and make a lot more available on podcast (with none of that DRM nonsense) for Beeb commissioned works, after all most people listen to the radio whilst out and about and not sat in front of a computer.

Denny Strigl – Cellular Superstar

It is not very often that you see a company regularly and frequently outperform its’ peers quarter after quarter. It is also not very often you see that the company was formed by integrating four very different companies with four very different types of staff. It is also not very often that the company is in its’ 3^rd generation of technology and has remained the leader during all the generations. The first conclusion you must draw is that the guy in charge is doing an excellent job. The company is Verizon Wireless (VZW) and the guy in charge is Denny Strigl.

I was thinking of the guy’s brilliance as I was reading his speech at a Gartner Group conference. He basically said that customers don’t like early termination fees, the industry should remove them and VZW was going to lead the way with pro-rating them over the life of the contract. The reason this is brilliant is not because it is going to VZW some money in short term, but because it will be difficult for the competitors to match the offer. So if the competition doesn’t match the offer VZW has a key selling advantage in signing up new customers; if they do they will lose out because they have a higher churn rate and lower customer satisfaction factor than VZW. Regardless of what the competition does, VZW will reinforce its position as the consumers champion delivering another priceless notch on the VZW brand totem pole.

Denny Strigl has regularly used his annual speech at the Gartner conference to champion various causes for the consumer: abolishing Number Portability charges (and thereby benefiting VZW again because of the lower churn rate) and refusing to join the industries attempt to publish a Wireless Directory (again, the message was VZW value your privacy and this has been reinforced by VZW aggressively suing anyone who spams anything to the client base whether unsolicited calls or texts.)

Differentiation through being the consumers champion is very powerful in the marketplace and costs a lot less than differentiation through reliability (despite which VZW leads the industry on) and technology (despite which again VZW leads the industry on). Finally for the shareholders he differentiates from the competition in terms of cost: VZW is by far and away the cheapest operator in terms of opex per customer. What a guy!!!

Yesterday, Merrill Lynch released its’ quarterly estimates of “net adds” in the US cellular instry and it should be no surprise that once again VZW will be leading the industry if Merrill's crystal ball is functioning correctly.

If and when, Sir John Bond starts looking around for a new CEO, he should start at the US Joint Venture...

CDMA Tremours

Much has been blogged recently about withdrawal of Nokia from the CDMA market and its’ effect on Qualcomm. I would argue that the effect is actually a net positive for Qualcomm rather than a problem. After all, Nokia won’t be doing anything at all to grow the overall CDMA market and anyone who sells anything in CDMA has to pay Qualcomm Royalties. In addition, Nokia doesn’t buy chips from Qualcomm preferring TI. Further, there is the remote possibility that if Nokia was successful, then they would try and port part of its’ OS and UI to CDMA handsets, potential competing with Qualcomm in certain areas and thereby reducing Qualcomm take further. Most importantly, it’ll save the Qualcomm CEO quite a lot of earache from the whinging Finns.

However, the replacement by Telefonica of its’ Brasilian CDMA network with a GSM network or even worse the replacement of the Indian CDMA networks with GSM technology would be really, really painful.

Qualcomm faces two severe problems in the CDMA marketplace:

1. Its’ CDMA handsets are more expensive than the GSM equivalent. This is really, really important for operators as handset cost is one of the largest on-going expenses.
2. The spectral efficiency advantages that CDMA had over GSM is narrowing as CDMA technology is being deployed into GSM networks in the form of 3G.

Qualcomm’s response seems to be looking forward rather worrying about the past.

First of all, even if the CDMA market shrinks to zero over time, the replacement path which is basically W-CDMA means plenty more royalties payable to Qualcomm. The point worth fighting is to maintain the high level of royalties and this unfortunately probably going to the the courts.

Second, Qualcomm seems to be fighting real hard in the chip space and this is an area where it can definitely win market share away from TI and the rest.

Third, Qualcomm is showing an appetite for buying up the important patent real estate in the next generation of wireless technology (OFDM) witness the recent purchase of Flarion

Fourth, the rate of innovation and differentiation coming out of San Diego continues a plenty showing real daring with its’ multi-cast solution. One day I’ll get around to comparing R&D expense between the big manufacturers…

Personally, I think we are starting to see the start of the decline of CDMA technology, as we did with analogue and will eventually with GSM. However, I think Qualcomm is positioning itself to compete long into the future in whatever wireless technologies are the latest flavour as opposed to the one trick vendor of the past. This should be the real frightening thought for the new CEO of Nokia

Spectral Efficiency

If your most expensive and scarce resource is spectrum, then it makes economic sense to use it in an efficient manner and to keep seeking for even more efficient uses of the spectrum.

The brainiacs at Ericsson recently revealed to the world their view on what was coming out of the labs in the medium to long term.

The first shocker for the VOIP industry is that currently a VOIP call uses 5x the capacity of a circuit switched call on a 3G R99 network. In other words, the only way to get VOIP to be attractive to the price conscious public is if the MNOs incorrectly cost data and circuit switched bits and bytes.

The second shocker this time for the MNOs is the need to convert their networks quickly to all- IP, because in R7 of the 3GPP standards (ie the HSDPA release) VOIP is 40% more efficient than Circuit Switched calls (and probably a lot more efficient to manage once the initial learning curve has been overcome). In other words, there is a real benefit in the cut-throat pricing game and being earlier to convert to an all-IP network. This reinforces the comments made by Thomas Geitner in a recent Vodafone presentation.

Ericsson also showed their normal slide showing a regular and impressive upgrade cycle for all the operators and therefore calming their investors fears about future revenue. It was an investor day after all. I would advise taking the dates with a pinch of salt as the only regulate thing in cellular technology upgrades is that they are late.

They finished off with a nice slide showing the comparison of various access technologies. The important part missing in the slide is that mobile spectrum is shared amongst users in a cell and the bandwidth is limited by the amount of spectrum available.

It is noticeable that the LTE development time-frames fit in quite nicely with the “digital dividend” coming about in the UK because of the turning off of the Analogue TV. If I was the UK government and short of a few bob, I’d be scheming away at developing an auction for this spectrum to fit in with the bubble surrounding the forthcoming hype of LTE technology or 4G technology as it will be referred to in the press.

Export of Corporate War Technology

An extremely interesting phrase for the innocent bystander, but extremely painful if you are on the receiving end. Unfortunately for Teliasonera, they are feeling the pain of another blast from its’ Russian partner, Alfa Group. This time it is in Turkey and Alfa have led a boardroom coup leading to the exit of the Teliasonera favoured CEO with one much more friendly to the Russians. Teliasonera seems to have snatched defeat from the jaws of victory in Turkey with the Russians now effectively controlling the boardroom.

This is extremely worrying for the Swedes and the fights going on in Russia and Turkey will almost certainly spread to the rest of the Eurasian assets in Kazakhstan, Azerbaijan, Georgia and Moldova.

I’m not sure what the end game is going to be for Mikhail Fridman with his battles with Teliasonera, Telenor, the Russian Communications Minister and probably many others. However, I’m sure that the problem in Turkey gives an opportunity for Vodafone with its’ newest acquisition, Telsim, to make inroads in its’ current poor market share.

Even before the Russians entered the fray, the Turkish Cellular Market has an interesting history: Telsim itself was founded by the Uzan brothers, who Nokia and Motorola chased across the courtrooms of the globe filling many a lawyers pockets in the process. In the end, the Uzan empire crumbled and was grabbed by the state. Nokia and Motorola agreed to an auction of the assets and deep-pocketed Vodafone stepped in.

During the time Telsim was paralysed, Turkcell grabbed huge market share and in the process the Karamehmet family behind the financing became Turkish business heroes. Unfortunately, the Karamehmet empire also collapsed and the family teetered with bankruptcy avoiding the disaster that befell the Uzan’s. Teliasonera thought they had a brilliant (and cheap) deal to gain full control of Turkcell since they owned pre-emptive rights until Fridman dreamt up an even more brilliant scheme and brought Vladimir Putin along to seal the deal.

During all this time, the founder of Turkcell, Murat Vargi, has been hanging around with his 7% and probably now sit in the position of deal maker and breaker.

Who will get to eat the Turkish Delight in the end? Time will only tell, but it has the making of another great chapter in the history of European Cellular Markets.

Carphone pushing its' luck to the limit?

The architecture of the CPW TalkTalk Broadband Free Forever services is becoming more apparent. First, we had the confession in the presentation at the time of launch of the service that Carphone was using the Huawei Honets for Access, now we have details of the voice architecture which is “Opal will deploy the complete end-to-end Sonus technology, including its access server, call routing server, signaling gateway and management system to deliver primary line residential voice service.” This is going to be the biggest VOIP/IMS implementation in the UK so far and will no doubt add some technical risk to the venture.

Carphone's network division, Opal won a “corporate” GSM licence in April and it is no surprise that someone at Opal would one day start mentioning Fixed-Mobile Convergence. It is becoming more and more apparent as the mobile operators move into the broadband space and Carphone move into the mobile space that they there could be a clash between its’ traditional paymasters and its’ expansion plans. We can now add relationship risk to the Carphone business.

To summarize, Carphone on its’ broadband project have basically bet the farm and put a lot of things at risk:

- business model – that the economics of the ULL bundle works in the marketplace;

- project timing – on a CPS + Broadband Resale basis, CPW are losing money, they have to turn the ULL equipment on and have the provisioning complete ASAP;

- technological – Huawei MSANs + Sonus kit are going to be stress tested;

- relationship – are the mobile operators going to reduce CPW retail commissions as CPW compete more and more with the operators?

Personally, I’d be quite worried about the risk. Perhaps, the CFO who has an inside view is also worried and perhaps it is unrelated but has decided to cash in the majority of his chips by selling 1 million shares.

BBC Online Monopolist

The BBC site totally dominates Online World-Cup Viewing according to figures released by Nielsen Netratings.

· 3,004,174 people in the UK visited a sports or gambling website the week that finished with the day England beat Ecuador in the first knock-out round (Mon 19^th – Sunday 26^th June)

· This figure represents a 51% growth in audience to sports and gambling websites over the last four weeks

· 1,015,707 people visited a sports or gambling website on the day of England’s game against Ecuador – beating the 979,188 who visited on the Saturday England played Paraguay in their opening match

· BBC Sport was again the most popular sports website, this time with 1,585,237 Unique Visitors – a 58% share of the weekly sports and gambling audience

To be fair, I think the BBC are doing quite a good job and being quite innovative by broadcasting the matches live over broadband. Also, if you look and compare the BBC site to the second place site, Sky Sports News it is immediately apparent why people prefer the BBC just on content alone. I’m also sure a lot of quality of the BBC Site is due to media rights: Sky have resorted to reproducing artists impressions of goals.

However, my questions are “Is the World Cup really something that should be covered by a Public Broadcaster?” and more importantly “Why is the BBC monopolising the online rights?”

On the Public Broadcasting side the BBC and ITV jointly secured the rights to the World Cup in 2002 and 2006 for £160m. Note, the World Cup is a “listed event” and therefore can only be broadcast on the BBC, ITV or Channel4.

In terms of overall rights, the UK is paying around 12% of total rights, depending upon your £:$ conversion rate.

The BBC/ITV has since secured the rights for the 2010 and 2014 World Cup as part of a not-so-mega €1bn bid securing the rights across the world of Europe. So the BBC and ITV coverage is here to stay and is secured through both a non-competitive and non-transparent tender process. As far as I am aware, ITV and the BBC have not revealed how much the rights cost them individually. Personally, I feel the “listed event” mechanism is just a process to remove Sky from the bidding and secure broadcast rights at a lower than market price.

However, the online rights are not covered by any “listed events” constraints and therefore theoretically could be purchased by anyone. Of course, the BBC does not reveal how much it paid for the on-line rights. BBC has huge advantages in terms of the size of team (300) that it has sent out to Germany and no doubt a certain proportion of these are employed fully on BBC New Media work. But, more importantly is the relentless cross-promotion on every World Cup show and on numerous adverts showing up and coming events in between normal BBC programming. Obviously, it would be impossible for a non-broadcaster provider to replicate this promotion. It is also noteworthy that ITV appear nowhere in the online market share world and have no video content, obviously they didn’t buy the “new media” rights. In fact it shows the strength of the SkySports brand that they are beating ITV hands down in the online world.

Personally, I think the BBC is being allowed to be too aggressive in the online space. They currently dominant the news category and I would hate to them expand into other categories.

Alternative Broadband Strategy for Vodafone

Give it away for free* for life to all Pubs, Clubs and General Meeting Places…

*free equals Broadband Internet Access, subject to permission for installation of 3G Femtocell and perhaps PicoCell if demand is suffice.

It’s cheap and fits in with Voda's strength in the business sector.

Rather than an exercise in revenue generation, I see it more as an exercise in cost reduction. Vodafone will be able to blanket cover City Centers and the Suburbs with 3G coverage especially with the difficult to achieve indoor coverage and avoiding the expensive planning permission.

For sure, the idea is that people use 3G services more within the meeting places and Voda could even offer a bonus for allowing the installation of an external antenna.

For sure, Voda could also be extremely creative and offer with their mates from Sky a “Sports Video Jukebox” for those precious moments: I’m sure most pubs in Liverpool would watch a Golden Night in Istanbul 2005 time and time again; and the whole country would order a Golden Night in Berlin 2006 time and time again (please, please, please...)

Even better would be, if in the process, it puts another dagger in the heart of BT’s WiFi access scheme.

Channel 4 – Joins Inefficient World

Another UK broadcaster is offering its’ service over the internet. I can see hundreds of UK company networks grinding to a halt at 3:30pm every afternoon to the boyish grin of Des Lynam. Hopefully, the cost of putting on this service will be quickly be so prohibitive that ISPs up and down the land start turning on Multi-Cast Streaming for all the main TV stations.

In my opinion, they’d be much better putting some archives of their classic programming, such as The Comic Strip Presents, Drop the Dead Donkey, Father Ted and Black Books online instead. Although to be fair, I'm not sure whether Channel 4 actually owns the broadcast rights.

Tele2 - Take a turn to the East?

One of my favourite areas of interest is the shenanigans surrounding the Russian/CIS telecoms space. It is fascinating as a study not only in a maturing cellular market across a vast geographical area, but only a study in an emerging capitalist society.

Currently Tele2 seems to have abandoned its’ pursuit of fixed-line expansion in mainland Western Europe and must also be struggling with its’ CPS based fixed line business, given the shift towards broadband ULL and the recent exits from the UK & Czech Republic. The new strategy seems to be building a 4^th cellular network in Russia. The rumoured acquisitions follows on from a string of acquisitions during 2006. I much prefer this apparent change in strategy as it should be aware to all by now I’m no fan of the economics for MVNO and CPS providers, ULL is a totally different ball-game which I’m neutral on at the moment.

The Russian strategy although politically risky could present big rewards as a cellular market the size of Russia can easily support 4 operators. I would recommend against taking a local partner as their Scandinavian friends at Telenor and Teliasonera will verify. The key move that Tele2 will have to take soon is the acquisition of a licence in Moscow itself if the strategy is to bear fruit. I wait with interest further comments on Tele2’s change of strategy in its’ forthcoming Q2 results.

Tele2 has an extremely interesting history and is know for its’ disruptive power in markets across Europe. It may turn out to be even more famous for the incubation of two of the great disrupters of our time.

Tele2 is controlled by the AB Kinnevik group, which in turn is controlled by the Stenbeck family, which suffered a great loss with the demise of the driving force behind expansion into Telecoms when Jan Stenbeck died in 2002, control seems to have passed to his daughter Cristina. I have long suspected a change of focus within the group and a possible exit from telecoms altogether. The Emerging World mobile arm, Millicom, has recently been auctioned off with the Vodafone’s Chinese partner emerging as the surprise winner. I must admit to wondering whether the Russian venture is an attempt to bulk up value before a sale or an indicator of a long term commitment.

Tele2 is definitely a company worth keeping an eye on.

TMT Q2 Earnings Season

I've had the pleasure of working with Tim Poulus of Communications Breakdown on developing a Google Calendar Service which highlights the key dates in the Q2 reporting season. We plan on adding more dates as further information is disclosed from public companies.

Enjoy!!

There is also a permanent link in the right-hand column.

Not So Merry Go Round

Yesterday’s reports of the VATman impounding 60,000 Nokia 6230i’s and last week’s reports of the jailing of Mark Selby for 6 years for Carousel Fraud exposes how the practice is totally out of control and is distorting the UK and probably European market for handsets. Mark Selby’s company alone sold phone worth £326.5m in a one year period to 12 UK companies and accounted for £57m in missing VAT. This is big business, run by extremely intelligent people who can afford the best lawyers and tax consultants. Gordon Brown’s team in contrast are poorly paid and under-resourced.

Carousel Fraud has been around for a long time and basically exposes a loop-hole in the VAT rules. Estimates vary on the actual of fraud going on but it has reached such epic proportions that it is distorting the UK macroeconomic picture.

The reason that criminals target the UK mobile sector is that the phone itself is relatively small compared to its’ value (therefore cheap to transport) and more importantly the UK market has an extremely wide distribution chain with lots of intermediaries who are working on razor thin margins. If the average wholesale margin is about 2% and you avoid paying VAT of 17.5%, it is pretty obvious that you have a great advantage in the mobile bazaar. The other important factor in the UK market is that the end-user doesn’t care whether VAT has been paid on the handset or not. When a retailer has an exclusive on hot selling equipment, do distributors really have the time to investigate the “grey market” equipment they are buying to break the "exclusive" has had the VAT paid in full? (As an aside, LG had a great solution for the "grey marketeers" of the Chocolates) How many eBayers care whether VAT has been paid or not? Everyone just wants a cheap deal, it is not the end-users fault that the VAT system was designed by morons.

So what is the solution? Obviously Her Majesties Government is working on a fix, but the attempts are akin to putting their fingers in the dyke and the EU courts keep overruling any HMRC actions anyway. What is needed is a radical re-engineering of the VAT system throughout Europe.

In my opinion, what is needed is an electronic version of the duty paid stamp now featured on spirit bottles. Furthermore, the MNOs could gain a few Brownie points in the process by refusing to connect any equipment to their networks which doesn’t bear the VAT paid stamp. It would also have the added bonus of improving the MNOs control over the value chain and improving still further negotiating tactics with the handset providers.

Of course, the biggest flaw in the scheme is the UK government is completely useless at implementing any technology and would probably cock-up the scheme, but that is another story…

The Terminator

Arcep the French regulator has just become the first European regulator to set prices for Wholesale SMS Termination. The rates are €0.03 for Orange and SFR, and €0.035 for Bouygues Telecom. At a typical length of only 190 bytes (incl. protocol overhead), this equates to €166/MB and €195/MB respecitively – not bad business if you can get it. I expect to see the rest of regulators across Europe to rush to regulate this market after all every government in the Western World is desperate to appeal to tomorrow’s voters and nothing eats a youngsters wallet than the cost of texting.

OPTA, the Dutch regulator has just taken a chainsaw to their voice termination rates cutting them from the current 11 euro cents to 5.5 euro cents in July 2008 for KPN and Vodafone, and from 12.4 euro cents to 7.09 euro cents for Orange and T-Mobile. Ouch…

For reference purposes here are the current UK Termination Rates:

It hardly surprising that Vodafone are giving away 3G handsets especially to on-the-road Salesmen, who receive tons of calls during the day.

It is interested that the cost to terminate a 3G call is approx. 50x that of a fixed call.

o2 Broadband Everywhere

I’ve been thinking what will be o2’s product set now they have bought Be.

• Free Broadband for Life is taken;
• Total Broadband is gone; and
• 3G Broadband looks like being claimed.

The best my admittedly limited marketing braincells could come up with is “o2 broadband everywhere*” where * means subject to HSDPA coverage. The product would basically bundle hardware (WiFi router/hub for the home network, combi-3G/Wifi Card for the laptop) and internet connectivity via the hub t home and the HSDPA network whilst out and about. It would allow lots of play with the fact that oxygen is everywhere and not just constrained to a wire.

A variation of this is to build a UMA server into the router to allow a homezone voice product competing with the BT Fusion product and grabbing minutes off the fixed network.

I’m sure the o2 marketing department are having lots of fun brainstorming; I just think it will be even funnier if the blogosphere got there first. It can’t be that difficult given the size of the community and the limited options facing o2. If everyone posted their ideas and names on their own blogs, I'm sure that the end o2 product launch will have predicted well before the event.

I think that any product will only work if it open-access and thereby it will ultimately kill-off the walled-garden approach of i-mode.

NANOG – June 2006

NANOG people are basically the people who run the internet on a day-to-day basis, so their opinions count for a lot in my book. They have just had their 37^th meeting in San Diego and came up with a couple of gems - well, at least to me…

A guy from YouTube gave a short presentation and revealed some extremely interesting facts:

• YouTube serves over 50 million videos a day
• It is growing at approx 20% per month
• Its outbound traffic is 20Gb per second.

This is incredible traffic for a company that has only been in existence for a year. It is hardly surprising that YouTube were basically looking for peering suppliers.

The guru of peering, Bill Norton from Equinix, runs an annual survey of peering costs and from the last conference estimates that average peering costs are $25/Mbps with a high of $95Mbps and a low of $10Mbps. Obviously, the cost seems to be proportional to the size of the pipe.

Using the above as a guide, this means that YouTube’s ISP connectivity costs are theoretically in the order of US$512k/month for each 20Gbps connection. This will rise to US$3.8m/month for 148Gbps in one years time if traffic growth continues at the current pace. That is a lot of adverts required to make the service economic and this is before computing, power and engineering costs. Obviously YouTube will get a discount for bulk, but it provides an insight into the murky world of peering and shows a real world example of the type of connectivity costs that content providers face and the sort of revenues that the Tier1 ISP’s are earning.

Even more interesting is a set of predictions for 2010 that Bill Norton seems to think resonated amongst a couple of dozen ISP attendees.

"We are sitting around this table in 2010 at NANOG and we are commenting how remarkable the last few years have been, specifically that:"

1. We have 10G network interface(s) on laptops (I assumed wired, but someone else might have been thinking wireless)

2. $5/mbps is the common/standard price of transit (other prediction was $30/mbps)

3. Internet traffic is now so heavily localized (as in 75% of telephone calls are across town type of thing but for the Internet)

4. Ad revenue will cover the cost/or subsidize significantly of DSL

5. 90% of Internet bits will be video traffic

6. VoIP traffic exceeds the PSTN traffic

7. Private networks predominantly migrate to overlays over the Internet

8. Wireless Internet Service Providers (WISPs) are serious competitive threat to DSL and Cable Internet

9. Sprint is bought by Time Warner

10. Cable companies form cabal & hookup with Sprint or Level 3

11. Government passes Net Neutrality Law of some flavor

12. Earthlink successfully reinvents themselves as Wireless Metro player in Response to ATT and Verizon

13. 40% paid or subscription as opposed to Content Click Ads. Like Cable Company channel packages, folks will flock to subscriptions for Internet Content packages.

14. RIAA proposes surcharge on network access (like Canada tax on blank CDs)

15. NetFlix conversion to Internet delivery of movies to Tivo or PC, or open source set top box

16. ISPs will be in pain

17. Last mile (fiber, wireless, .) in metro will be funded by municipal bonds

18. Death of TV ads, Death of broadcast TV, Tivo & Tivo like appliances all use the Internet with emergence of targeted ads based on demographic profiles of viewer

19. Google in charge of 20% of ALL ads (TV, Radio, Billboards, .)

20. Ubiquitous wifi in every metro with wifi roaming agreements

21. Congestion issues drive selective customer acceptance of partial transit offerings

22. IPTV fully embraced by cable cos - VOD - no need for VDR and ala carte video services replace analog frequency

23. Near simultaneous release of movies to the theaters, DVDs for the home, PPV, and Internet download to meet needs of different demographics. (Some get dressed up for theater, others have kids and can't leave home, others wantto watch on the flight to Tokyo - all watch the new release movie at about the same time)

Now there is food for thought...

Spanish Gold

The o2 M&A team seem to be extremely busy at the moment. After yesterday’s purchase of Be Unlimited, today o2 have bought The Link for the miserly sum of £30m.

I know this is not going to win me any fans in the blogosphere, but I’m of the “Innovation is for show and Distribution is for dough” mentality. The acquisition of Be Unlimited is in the innovation category and will probably take a lot more investment to bear fruit, whereas the The Link acquisition is from the Distribution category and will provide a lot more immediate returns. I’m sure if the plan is executed correctly it will mean a short term transfer of value from Carphone Warehouse to Telefonica shareholders.

Carphone currently have a huge contract with o2 whereby they manage the o2 customers acquired via its’ own sales channel over the whole customer lifecycle providing billing and customer care functionality. This means that Carphone get a lot of recurring income from its’ o2 base. Carphone used to have a similar deal with Vodafone, but Vodafone cancelled the deal this year. The deal is really a throwback to a traditional Service Provider relationship. I don’t know whether o2 plan to cancel the contract at renewal time, but if they do it will cost Carphone a lot of money. Also, on the Carphone angle, why does o2 need Carphone now? For sure they are an extremely effective sales channel, but most of the Carphone publicity these days seems to be around the TalkTalk product set which competes directly with soon to be launched similar o2 products based around the acquired Be Unlimited capability. Even though, the Carphone share price has done wonders over the last 12 months, I would be seriously thinking now of reevaluating my positions.




Probably, the more important question is what do the o2 M&A team work on next? Personally, I would recommend a movement into the B2B mobile distribution game, strengthening o2 presence and sales capability. There are two juicy assets which would have any mobile CEO salivating: the first is Yes Telecom and the second is the mobile arm of Thus which has recently been acquired from Your Communications. The outstanding feature of both of these companies for o2 is not only their success but that they are huge distributors for Vodafone and therefore a purchase would be bring immediate market share benefits to o2.

I am of the school that the quickest route to improved profitability in the mobile business is simply through squeezing out the other players in the mobile value chain. The obvious candidates are the distributors since they are relatively weak. I also think the operators are using the Chinese manufacturers to squeeze margins out of the infrastructure providers and this is probably behind the mega-mergers which have happened in this space recently. I also think that any half decent mobile executive will be scheming how to reduce the take of the handset manufacturers and most importantly the taxman.

T-Mobile is falling down, falling down…

More World Cup woes, not this time from the accident prone BBC, but from mega-sponsor T-Mobile.

It is a great idea to erect huge screens for the fans to watch England progress across the land. However, when the fans turn up to see the one of Europe largest screens has collapsed in the winds, you can only expect a ton of abuse. You just have to watch the video courtesy of the equally hapless BBC. I can think of weeks of jokes around the famous German engineering skills. But, the best will be the football chants which are well known both for wit and vulgarity in equal measure.

I’ll start it off with a clean version of the old Nursery Rhyme “London Bridge is falling down”

T-Mobile is falling down,

Falling down, falling down,

T-Mobile is falling down,

Poor old Germans.

Built it up with subsidy,

subsidy, subsidy,

Built it up with subsidy,

Poor old Germans.

Subsidy will burn the cash,

burn the cash, burn the cash,

Subsidy will burn the cash,

Poor old Germans.

etc...

Keep Smiling - it is going to be a great World Cup

Onion Bharti

Vodafone’s Asian strategy is a complete mess and I’m not talking about the huge strategic error in exiting Japan. There is nowhere better to highlight this mess than Vodafone’s associate company, Bharti in India. Vodafone recently purchased 10% of the company, directly and indirectly, and allegedly exerts enough power to proportionally consolidate the results. Yeah right…

The local “promoter”, Sunil Mittal, was in Singapore yesterday spouting his usual inflammatory comments. My personal opinion is that he deliberates goes out to wind-up his overseas partners, Vodafone and Singtel, at every opportunity. His current view is that the time is right for Bharti to expand overseas and seeing that Indian Investment is not currently permitted in Pakistan, the main markets he is looking at are in Bangladesh and Sri Lanka. Bearing in mind that Vodafone already has just signed partner network in Sri Lanka and Singtel owns a subsidiary in Bangladesh, you can sense how much the hair on the back of Arun Sarin’s neck bristles every time his fellow countryman speaks.

This is on top of the Bharti investment’s in Telecom Seychelles and mre recently a start-up close to home in Jersey. Sarin must be wondering what is going on and whether the partnership will ultimately join TDC in the courts. At least he never invested in TDC the company, although I suspect there are a few Private Equity chaps who would be prepared to sell out to Vodafone for the right price.

On a more positive note, Bharti seems to be marking the right moves in the giant under penetrated India market. They are accelerating capital investment (increasing from US$1.5bn pa to US$2bn) and taking more than their fair share of gross adds (increasing market share from 21.8% now to 25% in 2010). The lessons from nearly every mobile market are that it is ultra-important to grab market share when demand is exploding as it is extremely to pick up share later.

Sarin should exert his power and tell Sunil Mittal to calm down and focus upon the Indian Market, even narrowing it down further to stop the investments in agriculture and supermarkets. That is unless, of course, Sunil can wind-up the Singaporeans so much, that they want to exit with naturally Vodafone buying the stake off them ;-)

Will it all end in tears?

LLU Temperature rising

O2 have bought Be Unlimited for around £50m. This puts into context the rumoured £600m that AOL UK is asking for its’ access division. Buying customers seems to be a great deal more expensive than buying network assets. I think this is a sensible mode of entry for o2 into the broadband market.

With Orange joining the “free” broadband rush, C&W exiting the consumer market and focussing on wholesaling, the mighty Sky yet to enter and BT responding with its’ “Total Broadband” package, the British LLU market is white hot at the moment.

A quick look at the State of Unbundling show two key indicators for me: Tiscali & Homechoice are being outgunned and run the risk of being outmarketed perhaps it is time to sell up before its’ too late? You can see this especially when looking at the individual dates when the exchanges were unbundled; and TalkTalk have a mega-aggressive service date of 31^st August for 1,018 exchanges.

I’m sure that I heard an interview with Iain Livingstone of BT Retail on Radio 4 this morning about the launch of "Total Broadband" with extra services bundled compared to TalkTalk. However, I can only find limited information on the net. BT's PR machine is rubbish - sometimes it is hard being the 600lb Gorilla.

I am extremely excited about Sky’s entry into the market, because I believe they’ll be bundling SkyTV and other content with the offering and will move the broadband on further.

Three’s a crowd…

If press rumours prove to be true, it looks as if the smallest of the High Street phone retailers, The Link, is about to be bought out by its’ minority shareholder, o2, from the Dixon Group. I would presume that o2’s strategy is to rebrand the stores in its own name. The Link has been struggling for quite a while and it is no surprise to me that o2 is going to re-brand the stores. I would think that a large part of the logic for o2 is to reduce the customer acquisition costs, by claiming a larger part of new customers & upgrades being provisioned by its’ own stores.

At the same time, it looks as if Caudwell is finally about to conclude the sale of his Phones4U empire to private equity. The purchasers must have a real plan and strategy is to improve profitability at the chain. I can only see this happening either via:

- market shares gains. Selling themselves as the only “pure” retailer and not competing against the MNOs. Carphone Warehouse currently competes with its’ broadband, voice & mvno products; or via

- new products. Selling broadband & home networking solutions on behalf of the various UK ISPs.

Although, I have no data to prove the point I suspect the supermarkets esp. Tesco’s are continuing to gain market share along with the specialists (e.g. Woolworths & Argos) who focus on prepay at key points in the calendar (e.g. Christmas & Easter).

Also, I suspect the independent retailer is continuing to shrink and probably is surviving by focussing on B2B sectors rather than the consumer sector.

The MNOs are continuing to expand their retail presence with both 3UK and T-Mobile planning major expansions this year.

I also think the direct mail specialists, Dial-a-phone, will struggle to compete with the online specialists. Dial-a-phone has heavy costs with daily ads in the major newspapers. Vodafone dropped them because of the cost of commissions and there is noise that Orange, T-Mobile and 3 are thinking of doing the same. This would be a blow for a retailer who alleged is competed with The Link for the 3^rd largest connector with between 60k & 80k per month and annual turnover of £195m.The MD exited in April and the future is looking bleak.

In the future, I see the on-line world growing and this will provide a lot of the innovation for the “value conscious” contract customer shopping cross-network. I suspect the physical world will shrink as the online phenoma expands and the MNOs push more customers into their own stores. I still think there is a need for at least one “independent” retailer who push contracts with large commissions, however I see prepay being dominated by the specialists and supermarkets. I see no reason why the online world cannot provide prepay handsets at a much cheaper price than the retail world and I see electronics specialists expanding into the prepay and SIM-free segment (e.g. Expansys and Ebuyer)

Over, the next 12 months the interesting trend will be how Carphone Warehouse handles the politics of competing with the Mobile Networks and how the mobile networks executives will deal with effectively subsidizing the Carphone Warehouse push into broadband. Also, interesting will be how Phones4U reinvents itself with a new owner. Finally, BT’s approach to retail so far has been to buy a large online property with a reputation for consumer electronics and ignore the physical world, I wonder if this will remain the same especially considered Iain Livingstone is an ex-Dixons employee and probably knows more about retailing on the high street than any other telecoms executive, with the exception of Charles Dunstone.

UK Online Cellular Stores

Due to popular demand, I’ve added a couple of links on the sidebar to the analysis of on-line real estate. These are both daily snapshots of space by operator and manufacturer. I’ve included on the graphics the names of the websites, I’m using. If anyone has the names of any other who have higher market share than these then please let me know.

The idea is to build up a database of information which will allow factual data to track industry events eg launch of 3UK and marketing events eg launch of Flexr. Once the data has built, I’ll prepare some trend-line type graphs.

Technical Support 0.2

I was in the middle of writing one of life’s great letters about fully understanding the difficulties of launching a new business, but please, please, please add extra capacity. I decide that the best method is to prove my technical heritage with various bytes of statistical data highlighting the poor performance. One problem I immediately see is that the data is not particularly bad and my stream of Jonesy’s Jukebox has been working non-interrupted post 8pm. I immediately take the ultimate speed test and find out things are not that bad either. However, some of my surfing is still struggling and then a light-bulb moment occurs…

I’ve now changed my DNS servers to point to another supplier from TalkTalk and everything appears fine. By the way, how do you manage to overload a DNS server?

A little tip for people using home networking, change the configuration on the router and not the PC and also flush the ip config on individual home network machines.

I’m going to be doing a nightly speedtest to provide real data to see how things are working across the week in future.

Keep Smiling

Customer Service 0.1

(Prehistoric version)
Well, if it wasn’t so frustrating I’d be laughing. I’ve just had a call centre operator recommend to me to go into a store tomorrow (on their busiest day, a Saturday no less), make a complaint and then they will call me back. It doesn’t take a Call Centre Technology Guru to hook up an automated callback system and free up a vital Saturday Salesman.

The reason for my call: basically the absolutely appalling TalkTalk Broadband service. The voice is great and completely reliable, the data element is terrible and this is before unbundling. Currently on my exchange (Moortown) TalkTalk is using the BT resale product for broadband, I know my line has been provisioned at 2Mbps (downstream only of course) During the day, the service is fine and quite often I get speeds approaching 1.8Mbps which gives me enough bandwidth to do anything I desire. However, during the evening (especially in the 8pm to 10pm window) the service drops off and quite often is so slow to render the Web unusable. In addition, my kids are making my life hell, calling me a cheapskate and yearning for a Wanadoo return. The technologist in me thinks that CPW have basically not bought enough backhaul capacity from BT for my exchange to cope with peak-hour traffic. What makes it worse is the service is getting worse day-by-day, presumably this is as TalkTalk add more broadband customers to a fixed backhaul. What makes it doubley worse is that my exchange is not due to be provisioned until 31st Aug (the same as every other exchange)

Recap on the complaints escalation procedure:
a) Email – reply comes back that the speed of line depends upon the distance from the exchange which whilst strictly speaking true is not exactly the solution I desire.
b) Telephone – 0800 line fault number – hold for 48 mins, a 6 min chat with an extremely pleasant operator who says I need the 0870 broadband whinge line and there are currently 60 people in the queue, performs a line test for me just because she wanted to be helpful, recommends nipping into the shop rather joining the queue. I ask her a few general questions anyway: no the queue length is not an indication of line faults but more an indication that people ring the 0800 number because it is free and the majority of calls are from people like me asking about broadband. I ask to be put into the broadband queue anyway, after all I’m watching the mighty Dutch play and its’ no big deal to me to spend forever listening to Thunderclap Newman. The phone rings and drops because of too many in the queue.
c) Telephone – 0870 rip-off number - although the kind operator above informed me it was free from TalkTalk lines – hold for a mere 23 minutes and speak to another lovely operator (although this time she sounded South African rather than Northern). Although extremely empathetic (an extremely good skill for an operator) ultimately she could do nothing and advised me to repeat step a) aka email. I said I’d already tried this and asked here to wait whilst I pulled up their answer, a couple of minutes later Gmail came back with the distance from the exchange malarkey and my point proven on speed. She agreed that I’d been provisioned at 2Mbps and said I was actually sharing the line with others, again although not helpful more relevant than the email. She then came up with a beauty and said all would be better when my line was fully unbundled. I said I was not prepared to wait until 31/8 as I feared for my sanity during a long hot summer at snail pace. Could I not complain to someone else and ask for more capacity to be added at the exchange on backhaul? She said she couldn’t do any more. I asked for the name of a manager to complain to, she said she didn’t have one to escalate the problem to, she then put me on hold and spoke to a supervisor and said the best thing is if I put my complaint in writing.

To cut a long story short, I’m in deep trouble for the rest of the summer evenings, along with I guess a lot of customers in my area. TalkTalk have very good call centre operators who are swamped with calls (witness the hold times) and really can’t do bugger all to help me. So I’ll follow the process and write a letter…

UK Subsidy War

The easiest way of looking who is currently paying the phone subsidies in the UK is a quick look through the Big Four retailers sites (Carphone Warehouse, Phones4U, The Link & Dial-a-Phone) and seeing who has the most Real Estate. It is also worth looking at the two big Carphone e-tailers, e2save & One Stop Phone Shop.

One would logically expect exclusives, the best sellers or the phones offering the highest margins to get the highest real estate on the front page. What is interesting is the way the real estate has changed over the last year: first of all, through most of 2005 3UK had almost blanket coverage; then early in 2006, T-Mobile hit back with the launch of its’ Flexr tariff whilst 3UK dropped its’ commissions and tried to discourage cashbacks; and now it looks as if T-Mobile is pulling back on the commissions and being severely warned by the retailers about its’ action.

In my humble opinion, a subtle shift is happening in the UK market: first of all much lower absolute tariffs so the big 4 MNOs compete with 3UK huge buckets; second, extended 18 month contracts to reduce churn; now the push for lower commissions thereby reducing SACs further; and finally I expect a huge effort to push the on-line community into the operators own portals. It will be extremely interesting to see how this trend plays out in the next 12 months of KPIs released by the MNOs, Retailers and Handset Manufacturers.

This on-going battle between operators, retailer and manufacturers is the front line battlefield for the operator dump-pipe avoidance schemes.

The on-line market is becoming a huge consumer sales channel. CPW itself sold £203.5m online compared to retail of £1,375.5m (across the whole CPWEuroPortfolio). Most of the above analysis is based upon gut feel. In an attempt to be a little more scientific, I’m going to start two new trackers Manufacturer@UKOnlineCellularStores and Operator@UKOnlineCellularStores both of which will cover only the main real estate of the retailers.

M.M.A.D. (Mobile Mutually Assured Destruction) – Round 4

The great thing about the Cold War is that nobody actually nuked anyone for fear of reprisal , if only that kind of sense was shown by the scenario planners of the major mobile operators. When, I first discovered James Enck’s study of M.A.Dness in the fixed line sector a couple of years ago, I thought that the EU mobile markets with their relatively huge termination costs and even higher barriers to entry with prevent a similar game being played out here even with disruptive technology thrown into the equation.

How wrong I was!

The governments of EU have seemingly entered into some kind of termination race whilst at the same time the mobile operators have developed a strange kind of game which basically involves periodic slashing of prices.

Today’s entry of Teliasonera into the Spanish market shows such utter stupidity that frankly I’m amazed that the shareholders are not in revolt already. Anyone will half-a-brain would think that Teliasonera would be thinking about re-building margin in Sweden and Finland and sorting out it’s long running partnership problems in Russia/CIS/Turkey. But, why do that when you can the Spanish and destroy the margins for everyone concerned?

Just to recap on Teliasonera’s expectations, they are basically initially paying €67m to increase its’ stake to 70% with a potential earn-out up to €270m. They also plan on investing (both opex + capex) €1bn over the next 5 years to take the company to Free Cash Flow positive. I presume Teliasonera’s share of this is 70%. They gave little details about the business plan apart from stating that they will follow the licence regulations (25% population coverage in Year 1), the economics have changed with the signing of National Roaming Agreement with Vodafone and the cost of the equipment has dramatically fallen over the last year. They straight-batted questions about the change of mood especially compared to previous comments about 3 Sweden (Spain is a different market) and the effect of entry of Saunalahti into Finland dropping Sonera’s margins from 40% to 20% (Spain is a different market and Teliasonera are a responsible operator not looking for quick exit). In other words it is a completely dubious venture at best – if this venture is Free Cash Flow positive in 5 years, I’ll eat my hat.

After the conference call, I'm still thinking perhaps it is just a huge game of bluff and Teliasonera really want Telefonica/Vodafone/Orange to pay them to go away. It is noticable that with VOD's exit from Sweden none of the 3 have operations in Teliasonera markets which can cause damage to the Teliasonera cash cows.

The new CEO of the Vodafone European Operations, Bill Morrow must be banging his head against the office wall. I wish I was good at Photoshop because I can just picture Oliver Hardy a.k.a Bill Morrow saying “That’s another fine mess, you got me into” to Stan Laurel a.k.a Arun Sarin.

A quick browse of the 2005/6 Vodafone Annual Report highlights just the type of problem he faces: assumptions in the financial model for the assessment of the write-off in Germany & Italy show the budgeted EBITDA growth over the next 5 years as 0.3% and -1.8% respectively. The only good thing I can possibly think of is that the price at buying out Verizon from Italy is going to go down in the future.

With a price war looming in 12 months in Spain with now both Orange and Teliasonera entering the market, I can only see EBIDTA going one way and with £10,571m of Spanish goodwill on the Balance Sheet, I fear that we can expect a Spanish goodwill write-off in the 3-5 year time frame. On the bright side, there is currently only £716m of goodwill on the UK Balance Sheet so far.

I expect the only end is sight is when the EU finally gets to regulate the prices across the whole of sector & manage the spectrum. I suppose then the economic rate of return will be approaching typical EU utility companies.

BBC Assistance for Network Managers

BBC has published a list of streams that can be blocked to avoid your network being swamped tomorrow. Personally, I think there are more network managers out there who will just block access to bbc.co.uk during the duration in protest, after all who wants a call saying the companies network has ground to a halt in the middle of an important game.

The First ISP victim

A small ISP has been hit by the BBC World Cup streaming effect and had to put in place emergency traffic shaping measures. You read the predication that this would happen first here.

Now if the BBC had got its' finger out and deployed multi-casting technology the problem would have been non-existant. I dread to think of the strain on the BBC's servers tomorrow evening at 5pm. I predict a crash and an England victory.

Beeb 2.0 – Help My Business Model Sucks

How would you like to be in a company where demand for their services is growing at an incredible rate?

The company would be the UK market leader by far.

It would also own a huge multi-media library, perhaps the biggest in the world.

It would also have market leading platforms in old media, where not only cross-promotion is allowed but it is free and actively encouraged.

Competition is not only fragmented but slow to react.

That is the upside, the downside is that:

• Revenues are more or less fixed and are regulated
• Costs are directly proportional to consumption
• The quality of services are poor compared to other platforms and need a big upgrade which will only increase costs further

The action that anyone would take is to try and alter their business model and the BBC is trying to do this with four key initiatives:

1. Change from a unicast environment to a multicast environment for live events and therefore change the cost model from being proportional to more or less fixed.
2. Get the consumers to pay for additional consumption themselves of on-demand broadcasting via the establishment of peer-to-peer networks. This is in addition to the annual licence fee charge.
3. Design a mechanism for non-UK residents to pay for services.
4. Lobby like fury for a huge increase in the regulated revenue.

Personally, I think the actions of the BBC in the internet deserve extremely close attention, especially as they try and break free from the straightjacket of their business model and seem to have an insatiable desire to dominate every Media channel.

Vodafone - The Alternate Strategy – part I

Now the share price is getting back to pre-Japan disposal levels, obviously the short term bribe and nebulous strategy didn’t have the desired effect.

Perhaps the best thing to do is to go back to basics and do the simple things well and there can nothing simpler for a communications company than communication itself.

I’ve always found that when the troops are eye deep in hell fighting their corner in the 21st Century Telco Trench War inane banter is not the order of the day and more likely to aggravate the troops rather than rally them.

“Go Vodafone” might work with an American High School Baseball Team, but it is just not going to work when your UK consumer division is getting overrun by T-Mobile. What you need is a decisive strategy; in fact it doesn’t matter if the strategy is wrong in short term, because any strategy clearly communicated is much better than inertia and slidewear.

The real question is does VOD:
- turn the situation into a war of attrition and fight back in the uk? Accepting again that there will be a drop in margins. If it gets really painful, the 5th MNO might have to exit the market.
- turn defense into offense and attack the T-Mobile Cash Cow ? Again it will hurt margins in the short term, but sometimes the 100lb Gorilla has to use its’ power to survive in the jungle.
- let the consumer market in the UK slip (for the time being) and focus on the corporate sector? Again, there will be probably a drop in margins as economies of scale are lost.

To me it is crazy to think of expanding into Broadband at a time when the consumer division is so weak. Fair enough in Germany, but fix the root cause of the problems in the UK before expanding into new territory. I don’t have my calculator handy, but I'm sure that even a bloodbath in the Mobile UK Consumer Market won’t reduce margins to broadband type levels.

Totti goes on the side of FMS

In the spirit of the World Cup and the new Vodafone Strategy, Francesco Totti has turned out on the side of Fixed-Mobile Substitution for Vodafone Italy. Some of the fixed line handsets in the video must be over 30 years old.

MVNO Hell

Buried deep within yesterday’s CPW figures were the results from its’ MVNO operations and what a horror of a year they seem to have had.


So the UK operation (Fresh) is losing £10m a year (before support costs, depreciation, amortization and cost of capital) and more than makes up the drop in overall net profits from £73.9m to £70.5m.

I think the problem arises from the spoiler campaign CPW launched in the UK against easyMobile. After many predictions of impending doom in the pre-pay market similar to Denmark (Telmore) and Finland (Saunalauhti) experience seems to have shown nothing much has happened. Both Telmore and Saunalauhti are the poster childs for the "rip-up the market and those with most to lose will buy you out at a big profit" style of business. EasyMobile have a total of only 68k customers across the whole of its’ operations (UK, Netherlands and Germany) according to the TDC Q1 figures.

In fact things are not looking up for Fresh or EasyMobile in the UK with the launch by its’ partner network, T-Mobile, of tariffs directly competing with and undercutting its’ partners. My guess is that both Fresh and EasyMobile will be mothballed during the year. EasyMobile after the Orange court case in November and Fresh will just quietly stop being promoted in the CPW stores. Both of these discount prepay operators compete against the ultra-aggressive 3 who did perhaps the most interesting launch so far in 2006 with its’ WePay product. In this, 3 share 5p/min of its’ outrageously high interconnect charges with the customer for inbound calls. Again, I suspect that this offer is only temporary until OFCOM finally get around to regulating 3’s interconnect charges as it already does with the other MNO’s.

The mystery vendor in the discount prepay category is TescoMobile, which is actually a JV between o2 and Tesco. Every now and again it publishes the inexorable rise in its’ customer figures which now stand at over a million. Nothing is published on profit, ARPU, SACs so I have no clue as to how they are really performing.

Virgin Mobile seems to have moved out of the discount prepay bracket with its’ push into postpaid. With the acquisition by ntl, it offers a quad-play future. I suspect with the exit of Tom Alexander from the scene, Virgin Mobile will start a slow decline as tends to happen to all of ntl’s businesses.

That leaves BT Mobile and its’ earth moving BT Fusion product. Well according to BT’s year end figures the number of consumers have declined from 187k to 127k year on year, so the product has not reached really changed anything yet. BT’s Business segment is doing rather better increasing its’ base from 185k to 214k, however the SME sector is definitely an area where BT has a much, much better sales distribution network than anyone else in the UK.

I suspect out of the MNOs with MVNOs, Vodafone is doing the best out of its’ relationship with BT, although as a percentage of revenues T-Mobile probably needs the contribution more than the others.

Probably the most interesting launch is yet to happen, which is the Extreme brand launching on the Vodafone network


In conclusion, I don’t think the UK MVNO offers a lot of prospects at the moment:
- The discount SIM-free model seems to be dying a death and supplanted by T-Mobile and 3 efforts;
- The status and profitability of TescoMobile is unknown;
- VirginMobile is undergoing a radical makeover; and
- BT is pressing ahead in the SME sector.

This is probably why Carphone Warehouse and Virgin are pinning their hopes on the French market.

The House that Subsidy Built

With the release of CPW results today, I thought it would be interesting to look how much money the UK’s leading alternative fixed line provider is making. I quickly found out it is almost impossible with the level of detail that CPW provide in their accounts and therefore a certain amount of guesswork is required. The first problem is that CPW co-mingle the results of the fixed line division with the mobile services division. They provide a separated out figure called “Contribution” which is an even worse metric than EBITDA since the support costs are not split out between the fixed & mobile divisions.

So, when the presentation of the results is slightly changed it reveals all is not well at Carphone Warehouses Services division which is basically an attempt to diversify away from operator subsidies.

In trying to discover the real return, it is probably worthwhile examining how much Carphone Warehouse has spent on this division.

Obviously, CPW has spent heavily investing in buying services businesses which currently is not providing a return. Please do not ignore the deferred consideration in the mental arithmetic of costs, because according to the accounts the Opal Telecom deferment of £18m was paid in full. The details of the goodwill calculation for Tele2 and One.tel will only be available later in the month when the published accounts are made available. However, it is worth noting that as at 1st April 2006, the CPW balance sheet contained £568m of Goodwill and £159m of “Other Intangible Assets”, this includes capitalized SAC costs. Although, the whole of these line items are not fully attributable to Telecom Services, I would guess a vast proportion is as the majority of historical acquisitions are in the services arena. All I can really say is that profits better start flowing soon from the fixed division or else exception write-offs will become the norm rather than exceptional in nature. The Vodafone CFO can potentially provide advice on the pain of annual impairment tests.

Of course, acquisitions do not provide the whole picture but as BT will testify the capital costs of continually upgrading the network is quite onerous. Again there are only partial clues to how much CPW is spending here.

However, the conclusion is clear Capex is exploding – this is a typical feature of a telco and does not fit into the typical retailer profile. It is also interesting that both the complexity of business is increasing (visible by an increase in IT development costs) and that Carphone Warehouse is now also joining the SAC game as opposed to just being a recipient of SACs via the subsidies that operator provide to the retail business.

All of this is before the LLU business was launched and Dunstone delivered the PR stunt of the year where the decimation of earnings for FY07 was presented as a great success. For sure, every customer is delirious, I’ve even bought the service myself, but the conundrum for the shareholder is why is Dunstone doing this?

I must admit to following the fortunes of CPW for most of this decade, this is primarily because Dunstone built a huge business out of nothing in an industry full of sharks and has emerged with a fantastic reputation: in other words I think he has done a fantastic job and deservedly built a fortune at the same time.

The big wild-card for me was the purchase of Opal and launch into the consumer altnet market with TalkTalk. I watched with amazement as he doubled the bet with the purchase of one.tel/tele2 and then doubled the bet again with the launch of “Free Broadband Forever”.

My initial impression was that he was desperate to diversify away from the dependency of his group on operator subsidies. After all, if every mobile operator is expanding their owned distribution network, proclaiming that subsidies have to be reduced and the market is saturated with everyone focusing on costs, even a laid back character like me would start to feel a little paranoid. However, to me it is becoming increasing apparent that a decent return in the fixed arena is going to become difficult to achieve.

I’m now completely of the belief that Dunstone is playing the asset value game and not at all worried about the short-term profit and loss. One thing that I’m certain about is that he will not leave it up to the Private Equity Companies to realize the value as the current Caudwell plan.

For instance, how much do you think that o2/telefonica, t-mobile/deutsche telecom, Vodafone will pay to become overnight the leading UK alternative provider??

I was extremely shocked in the conference call by the flippant comment that Charles Dunstone dismissed the current Orange/Wanadoo offer. After all it hardly the biggest secret on the planet that the key to getting the best mobile deal is walking down to local Carphone Warehouse, trying out the handsets, picking the best tariff and then ringing your current provider asking for a PAC code and then watch them beat the CPW offer. It is almost as if Charles is juggling with several bits of live Semtex, he could escape safely, but equally it could endup in tears.

If Dunstone makes the perfect final move and extracts a huge premium from one of the mobile operators for a low margin declining business covering all his past follies, I will doff my cap…