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Friday, December 08, 2006

Telefonica – Dumb Pipe

Sometimes I just want to bang my head against the wall – I spend a big chunk of my time and effort defending the mobile networks against being called “mere bit shifters” and then one goes and does something so stupid that you have to just concede that after all they might be consigned in the future to be earnings depressed bit shifters.
‘We are not sure about the format - that's why we are refraining from launching it. If you listen to the engineers, technically it (mobile TV) is working, so we can have full deployment of (the service) all over the world immediately, but if we listen to customers, they do not understand the value proposition -- is it a movie, is it a soccer event? So before launching massively we need to understand what the value proposition they (consumers) want us to have’ said Jose Maria Alvarez-Palette, Telefonica Chief Buffoon Officer.
‘We have spent a fortune developing and deploying network capability, but haven’t got a clue how to package content so that our customers will pay for it and the network will start to earn our shareholders a return’
Mind you, poor Jose Maria should not be too worried; it is not as if he is the only buffoon Telefonica has named in its first eleven. We had the recent comments from O2 (which is a division of Telefonica) CTO, Dave Williams, that MobileTV is only really possible with DVB-H technology at UHF frequencies. Perhaps, Peter Erksine should buy Dave an air ticket to pay a visit to Korea or the USA? However, I do note that he can’t have spent a lot of time studying MediaFlo technology because he mis-spells it “Media Flow” on his slides.

I find it slightly strange that the mobile operators are being so obsessive about UHF frequencies. The word on the street is that they have applied to OFCOM to kick aircraft radar off Channel 36 and for permission to build a shared network between them all. This flies in the wind of three very important principles: technology neutral licensing, auctioning of spectrum and competition between networks. The mobile networks have less than a zero probability of getting away with this. And anyhow what is wrong with L band spectrum? Could it possibly be that DVB-H technology doesn’t perform very well in the higher band spectrum? Why should the operators care about promoting DVB-H technology, shouldn't Nokia (the key Intellectual Property owner) be putting its own hand in the air and in its deep pockets?

I think the mobile operators are frightened of Sky, someone who knows how to build a profitable content business, something that the mobile operators have singularly failed at since starting to try and sell mobile content on handsets many years ago. I also suspect that the mobile operators are thinking of MobileTV as a feature on the handset rather than a service in its own right. What is wrong with someone selling a device that just does MobileTV and other data and doesn’t bother with Voice? Why is someone not asking the car manufacturers to put MobileTV in new entertainment systems in the top end models?

O2 are the worlds greatest in testing new technologies (remember 3G on the Isle of Man?), talking a lot about them (remember the DVB-H trial in Oxford?) and failing to commercialise them (who has the poorest 3G coverage and next to no 3G services and handsets?) Along with T-Mobile, they haven’t even bothered to launch a unicast MobileTV service on their extremely limited 3G network. If they are so interesting in finding a winning business model why don’t they at least experiment with different business models in different countries? I heard the Spanish experiment was free to air TV and they expected to make a profit on the advertising revenue.

Meanwhile, Sky is keeping quiet about the numbers paying £5/month for their mobile TV service (rumoured to be well in excess of 100k), they also didn’t blow their trumpet when 15k people paid £4/day to watch the Ryder Cup live on their mobiles. Agreed, this is small fry, but it is a new start – why publicise viewing figures if all the press are going to do is call it a disaster? They are starting to understand who watches what and how much they are prepared to pay. They are also the only company with Premiership Rights ready to go from next season. For the other immediate must have events, they have News Channels ready to go.

While the network operators are playing about lobbying to get spectrum; turning themselves into a pseudo-monopoly to minimize start-up costs and no doubt stamp on price innovation in the long run; and running desperate attempts to get DVB-H to work in non-UHF frequency, Sky is starting to fine tune its plans. The mobile operators do not have a chance. In fact, Sky might think it is better to partner with Google and Qualcomm as its technology and network partners.

It is even more interesting the business model that Qualcomm has taken by getting together with Sky. I also suspect that they are learning really quickly. I wouldn’t be surprised in the slightest if they sign a deal soon with the new owner of DirectTV to partner on the network and help its anchor tenant, Verizon Wireless, earn some money with decent programming and content. I’d also be extremely surprised if Qualcomm aren’t knocking on the doors of Vivendi, Bertlesmann and Sky Italia to develop the MobileTV business. After all, these companies don’t seem to have Nokia welded to them at the hip and probably know more about the limitations of DVB technology and will not have the wool pulled over their eyes like the mobile operators.

I also note that Google are going to be providing Sky with a lot of applications for its broadband service. It will be really embarrassing if the first people to get mobile video uploads to take off is Sky and Google, especially given all the years that the mobile operators have been pratting around and failing with MMS. I also note Google have just expanded their internet based advertising sales network to selling radio ads. I’m placing a large bet right now that it will not be long before Sky is experimenting with the service to sell TV ads on a couple of user-generated satellite TV stations and quite soon after launching MobileTV selling GPS-based ad sales. Qualcomm has the GPS technology and Google has the sales auctioning tools.

To be honest, I don't really mind if the mobile operators lose the fight in the end, I just want to them to put up a decent fight and not just rollover and accept their future as bit shifters - doesn't packaging, shifting and flogging the bits sound like a lot more interesting and profitable future?