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Friday, December 22, 2006

The TeleBusillis 2006 Awards

Unlike Time Magazine, I don’t cop out on my “Person of the Year” award – I give it to John Caudwell who managed to sell out for a fantastic £1.46bn at undoubtedly the peak of the market for mobile phone distributors and retailers. He even had the class to surprise his long term employees with a nice Christmas present. I hope he comes back into the mobile market soon – we need characters like him.

The “Disruptor of the Year” goes to Carphone Warehouse who dropped a nuclear bomb on home phone market (voice and broadband) when they launched their almost free broadband offer in April. They also deserve a mention for disrupting quality of service in the customer care market.

The “Damp Squib of the Year” once again goes to 3G technologies. This award is getting a little boring after 3G won it in 2003, 2004 & 2005. However, with the launch of Web ‘n’ Walk from T-Mobile and the X-Series from 3UK things look to be finally heating up and 3G might escape making it 5 years in a row in 2007.

The “Most Interesting Market of the Year” goes to Russia/CIS. This is due to Altimo/Alfa Bank seeming ability to pick a fight with anyone and everyone. I don’t believe there is one jot of truth in the rumour that Telenor and TeliaSonera Executives have asked Santa Claus for Polonium-210 detectors as this years stocking fillers.

The “Whinger of the Year” goes to the BBC. They have spent most of the year lobbying government for more money and more spectrum. Despite them losing out on both fronts, we shouldn’t feel too sorry for them: their competitors actually suffered revenue drops due to the collapse in the advertising market and they have plenty of spectrum to launch HDTV if they were willing to use existing spectrum more efficiently. The BBC need to appoint a new Chairman soon if they are to challenge for this award in 2007.

Best Album of the Year” goes to Muse for their monster – “Black Holes and Revelations”

Wednesday, December 20, 2006

Carphone loses another Voda Contract

This time it is in the wholesale business arm - Hugh Symons. Although, the wholesale business is not significant in the overall scale of the CPW empire, it will cause some pain and is an indicator how ruthless the networks in general and Voda specifically are becoming with their indirect distribution.

Mobile Today also contains a excellent comment piece from the head of Avenir Telecom, Tanny Price, who is one of the largest UK distributors advising her customers not to panic but prepare for the storm.
I don't think I've ever known a year when people are more anxious about their survival than 2007. There is lots of euphemistic talk of 'consolidation'. The brutal truth is that the volume game for indies is up, and the operators want their own shops to dominate consumer business.
There are also rumours of something happening which will do wonders for the networks churn figures, but will strike fear into any dealer:
An extra present is also being planned for customers – two-year contracts. As if 18 months was not long enough. It's hard to see this is a response to overwhelming customer demand. Again, networks are flexing their muscles because they sense they have the whip hand.
Currently, 2007 looks as if it is going to be a really, really tough year for the independents. However, we have been here several times before and then at the beginning of March, one of the networks breaks ranks with the realisation that their customer numbers are looking really, really bad.

Game on…

Vodafone Deja-Vu

Back in late 2003, Vodafone looked at swapping a minority in the market leading cellular operator in the US for complete ownership of the #3 operator. Three years on and if the rumours are correct Vodafone are thinking about doing the same in India.

Vodafone currently owns 10% of the market leader, Bharti Airtel. It appears that the Hutchison 67% stake in the #3 Operator, Hutchison Essar is up for sale. India is currently the fastest growing cellular market in the world and therefore the Hutchison stake is tempting for local players, international operators and financial institutions. It will be sold for an extremely high premium.

The negotiations will be extremely delicate as Vodafone has to convince the local Indian partner Essar that it is a worthy partner and has to make a graceful exit from the Bharti venture. Both Essar and Bharti have pre-emption rights on the respective stakes.

I actually believe that theoretically Vodafone should buy the Hutchison stake, given the normal caveats about price. It is much better to own 67% of the #3 player than 10% of the #1 with little chance of increasing this in the medium term. In fact, I don’t believe the gap is impossible to bridge especially given the growth remaining in India and the fact that the networks are still being built out.

The situation as it played out in the US was that the #2 player (Cingular) ended up buying the #3 player (AT&T) making it the #1 player but with large technological challenges to overcome. Since then financial institutions have been on the Vodafone case about selling up and exiting Verizon Wireless. The same outcome could occur in India with Reliance buying the Hutchison Essar stake and facing large technological challenges to overcome. In this scenario, Vodafone will remain in the #2 player (Bharti Airtel) which despite huge growth the financial institutions will be asking Vodafone to exit.

Vodafone needs to tread extremely carefully.

Tuesday, December 19, 2006

Great News: Digital Dividend

You have to congratulate bureaucrats when they make the right decisions. When they make the right decisions on the biggest of issues, you can forgive loads and loads of relatively minor mistakes from the past. Well done, OFCOM on the publication of the Digital Dividend Review.

It is absolutely fantastic to hear the bureaucrats who go to print with statements like:

In short, it is not possible for us as the regulator to ‘know’ the best use
Our analysis shows that if we pick preferred uses or users:
• we will distort incentives. The uses and users that get preferred access will have less incentive to use spectrum efficiently. They will tend to use too much, relative both to other potential users of the spectrum and their own use of other inputs to deliver services;
• we will reduce flexibility. If we pick a preferred use and user when we award the spectrum, we will have to impose extra constraints on the way the spectrum is used. There will be less flexibility for the way that spectrum is used to change if circumstances change – for example if demand for the preferred use turns out to be less than expected, or alternative uses turn out to be more valuable;
• we will risk distorting competition, because the preferred users may gain an advantage, and risk reducing the scope for innovation in uses that cannot get access to the spectrum; and
• we will risk getting it wrong, by picking a use or user that turns out not to be the best. This risk is larger the more uncertainty there is in the decision.
The long and short of it is that all the lobbying from the BBC and Channel 4 for free spectrum to deliver HD Television to the Middle to Upper Classes has come to nought. Similarly, the lobbying from the mobile operators for Channel 36 for DVB-H use has come to nought. Anybody can buy any spectrum if they bid enough at the auctions planned for late 2008.

uk-uhf band

The “interleaved” spectrum is where DTT services will be broadcast: the BBC has 3 multiplexes and Commercial Television has another 3. Each of these multiplexes uses 8MHz (1 channel) of bandwidth which means that only 48MHz (6 channels) out of the 256MHz (32 channels) are in use at any one location.

The reason for the gaps if because in a high power broadcast transmitter setup there needs to be gaps in frequencies to avoid interference. However, low power transmitters are possible. Hence, a certain amount of interleaved spectrum is available at different frequencies in different areas of the country. OFCOM say the use of primary use of this could be to deliver local TV. However, I can think of plenty of low power uses within the home / office to build wireless networks.

There is also totally “Cleared” contiguous spectrum of 112MHz (14 channels) which can be used for TV, Mobile TV, Mobile Broadband or anything really. There are two channels which remain including the infamous Channel 36 which is currently only used by one company (BAE) for radar. The big appeal of this spectrum is that once cleared it can immediately be used to launch a nationwide network. In practice if the mobile operators bid on this and win a nationwide DVB-H mobileTV could be up and running by mid-2009. In the other spectrum launch of new services would have to be coordinated with the regional Digital Switch Off dates which will only be complete in 2012. Immediately it can be seen that Channel 36 is potentially the most valuable block of spectrum.

This is effectively the first stage with OFCOM publishing its approach. Effectively nothing is certain until the lobbying is over and the legislation is written which is planned for mid-2008. The uses of the spectrum will not be known until the end of auction which will be towards the end of 2008.

Interesting times ahead…

Sony Ericsson London Store

A good joke about the new SonyEricsson store courtesy of Mobile Today.

Sony Ericsson opens its flagship store courtesy of Carphone - only there is one small problem


The ever entertaining SMSTextNews has the real lowdown.


It looks absolutely fantastic.

Monday, December 18, 2006

An online shopping trip

The James Bond Sony Ericsson 3G K800i is a hot phone this Christmas and is available for £245/ SIM free from Expansys. Expansys is one of the cheapest online sellers of SIM free handsets.

Of course, every operator will give you the phone for “free” if bundled with a contract. I’d thought I’d examine various websites to look at the levels of commitments required and where the biggest bargain can be found.


It is interesting that currently the cheapest way to acquire the handset is through Carphone Warehouse (CPW) on a Virgin Mobile £30/month tariff (200mins talk and 300 texts). CPW offer a £15/month cashback deal bringing the net cost to £15/month. This is far cheaper than Virgin Mobile is themselves offering.

On O2, a CPW cashback deal is cheaper than buying through o2 website. However, O2 do have the exclusive Silver K800i as featured in the film rather than the black model usually offered. It is also noticeable that the cheapest O2 package offers a different bundle than the CPW offer. Interestingly, buying through O2 allows the purchaser lots more options in terms of add-ons, although none of them are 3G related.

On Orange buying direct rather than through CPW definitely has an advantage. First of all it is far cheaper and includes options like a Magic Number which allows unlimited calls to a specific Orange Mobile number. Orange also offers a 3G option which is MobileTV.

T-Mobile also beats CPW on price. They also include a real 3G option – Web ‘n’ Walk – which is unlimited internet access for £7.50/month. I think it is a real value for money 3G option which leverages the network and the functionality. It makes zero sense to me selling an advanced 3G handset and only using it for voice, text and posing functionality.

3UK is very interesting because it is the only operator who activity encourage people to use 3G services with 25 mins of video calling and 5 free downloads included in their standard bundle. It is noticeable that they promote this on their own website but CPW don’t bother mentioning it. In fact, 3UK is so much cheaper on their own site, it beggars the question whether CPW is actually selling any 3UK contracts. I know for a fact that CPW has been uneconomic since Easter and doesn’t sell the latest and greatest 3UK offer, the X-Series. Although, Vodafone received the media attention when they withdrew from CPW, 3UK effectively withdrew much, much earlier.

Vodafone is not available through CPW and as my cyberbuddy, Martin Geddes of Telco 2.0 has pointed out, it is not simple to plough through the options offered by Vodafone. Mind you, courses are available to help you through the various options. Flippancy aside there is a serious point behind the Vodafone options and that is people do want choice: some want the cheapest price, some want more or basic services and some want advanced 3G services. In fact, one of the reasons given behind the Voda decision to terminate CPW is that CPW were not prepared to change their systems to offer the full range of Voda options.

This to me is the greatest challenge that CPW faces – the way they present sales. Any glance at their website indicates to me that their strategy is to sell to the “bargain hunter”. Admittedly, these bargain hunters make up a substantial proportional of the mobile community, but I suspect that they are less profitable to the networks than even the casual prepaid user. As the mobile market evolves CPW runs the risk of pricing the bargain hunters out of the market for anyone else but the lunatic fringe. There is no way that Virgin Mobile has the lowest unit costs on the market and anybody has to question how they can appear to be the cheapest in the contract market. Either they know something that no other operator understands or the new owners are pursuing growth at any cost.

In fact, the biggest challenge facing all the online properties is that the web is not the cheapest place for contracts. The dirtiest not-so-secret tip in the cellular industry is that the cheapest way to get a handset with a bundle is to ring your existing network and threaten to churn unless they match the best price in the market. Obviously, having decided on your handset and knowing the cheapest online price improves your negotiating position.

Mind you “Busillis, Tele Busillis” doesn’t quite have the same ring to it as “Bond, James Bond” and I prefer Vino Collapso to Vodka Martini’s. So I guess I’ll have to stick with my W810i for the time being…

Orange UK: Boringly Convergent

Bernard Ghillebaert, the head of Orange UK, made a presentation at last weeks France Telecom Investor Day. The following are my highlights and lowlights from the session.

In the UK market broadband churn (>25%) is rapidly catching up with mobile churn (>30%). Amazingly over £4bn in commission costs is spent among all operators with over 40% of mobile sales being made via the various indirect channels.

From the Orange supplied charts, I estimate their approximate UK market shares at the end of 3Q06 as: Broadband 9%, Narrowband 18%, Consumer Mobile 22%, Business Mobile 23%. In contract mobile, tariffs are segmented according to the animalistic behaviour of users wheras in prepay customer loyalty is rewarded via magic numbers and free calls. In broadband, Orange still have 700k narrowband customers remaining to up sell broadband into. Orange expect to have 500 unbundled exchanges by year end with 16% of base unbundled. New services for 2007 include a DTT/VOD TV service, presumably similar to BT Vision. Orange also plan a Fixed Line Rental and Calls from Home product which looks to me as if Orange will move into full unbundling. Orange expects to have 200k "converged" customers taking both broadband and mobile from them. In 2007 they will also launch converged products for both the Consumer (e.g. Unique) and the Business (e.g. virtual PBX) market segments.

The priorities for 2007 include: reducing churn in mobile and broadband; growth of ARPU and the shared base; and delivering cashflow targets. The vision for 2010 include: lowest churn in market; growth in new revenue stream driven by new & converged services; and transformed into a fully integrated operator.

In the Sanjiv Ahuja presentation, who is the head of the Orange Personal division, there were a few pointers for the UK Operation. Overall in the France Telecom Group commercial expenses (handset & equipment costs [52%], commissions & distribution subsidies [31%] and advertising & brand costs [17%]) were growing faster (€5bn [9M 2005] to €5.5bn [9M 2006]) than revenues and now represented 14.3% of revenues. 82% of the commercial expenses were made in the mobile arm of the business which now represented 22.7% of total revenues.

The strategy is “optimise” these expenses by: reducing device costs and optimising range; becoming a world class retailer and rebalancing acquisition and retention costs; and leveraging the benefits of a single Orange brand. In other words not to reduce them, but to spend on different areas.

In the UK, this translates to expanding controlled channels (stores, web & telesales) and “optimising efficiency” of indirect – rationalising non-performing dealers. They want to move to a longer term partnership with specialist retailers and enhance loyalty programme. This sounds remarkably like the exercise that Vodafone UK has been through this year looking at the life time profitability of each distribution partner.

My translation of all this is that the UK Operation in 2007 will be much more geared towards delivering cashflow targets rather than chasing market share: increasing revenue will be through selling more products to the base (e.g. broadband to mobile customers or fixed line to broadband customers); and decreasing costs will be driven by reducing churn and improving direct sales ratios.

On the product development side, I see nothing in the presentation and strategy which will frighten the other operators, whether broadband or mobile. On the distribution side, I see a lot that will scare the independent retailers; however it is one thing to say they will reduce churn and build a world class retailer and yet another to actually deliver. I have heard mobile operators since the beginning of time complain about the level of handset subsidies and dealer commissions. The reliance of Orange on the independent retailers means that Orange will have to be really careful not to shoot themselves in the foot in the no doubt fraught forthcoming contract negotiations with the independents.

Of course, nothing about pricing was revealed. Pricing has been the chosen weapon of competition for the last couple of years in both the broadband and mobile arenas and a lot of short term market share is derived from how aggressive the networks are in pricing. I guess the Pricing story will unfold over the year and I predict that Orange will continue to reactive to the price leaders (ie TalkTalk and 3UK) rather than proactive or will not develop especially innovative tariffs (e.g. Vodafone Family)

Also missing from the presentation is the Acquisition side of the coin and I definitely see Orange during the year being interested in bulking up the Broadband side of the business. Tiscali is available and a good fit. Although the price quoted at £600m is a fantasy land figure, especially given that AOL went for £370m and £120m of that was deferred. Beyond Tiscali, Orange might consider buying a SME specialist which will be far cheaper than a Tiscali buy. There also was an indication that Orange plan to play into the wholesale mobile market which may provide further competition especially to T-Mobile.

All in all, nothing of the old aspirational Orange and lots of dour old school incumbent strategies.

Sunday, December 17, 2006

Finland: MobileTV Struggles

I was struck this week by the news that Digita, the owner of the broadcast MobileTV license in Finland was struggling and had launched their network with extremely limited content and zero handsets. I was even more surprised when I discovered the technology used was DVB-H and the provider of the service platform was Nokia.
"Nokia is extremely pleased to see the start of commercial mobile TV roll outs that are based on open standards. Nokia strongly believes that mobile TV based on open standards prevents fragmentation of the DVB-H market and enables a healthy competitive open market,"
It is well documented that the release date of Nokia’s first Mobile TV phone, the N92, has slipped, but I wondered why Digita didn’t just go ahead and launch using the Samsung and LG models in use on the 3 Italia DVB-H network in Italy which after all had 145k paying subscribers on the 23rd August. The answer is that more than a DVB-H air interface is required to provide a mobile TV service.

GSM is much more than an Air Interface and contains two key functions: the ability to select a network and for that network to authenticate a user and authorise it for certain services; and the ability to encode and encrypt content in particular voice conservations.

Similarly, DVB-H needs similar functions for MobileTV to be attractive: channel selection and an Electronic Programme Guide (EPG) to assist in content selection and of course very few content providers would be happy if the content wasn’t encrypted.

The problem is that the DVB standard seems to have forked into two opposing camps with regard to these two functions. One approach is called CBMS and is led by the typical payTV conditional access providers such as NDS and Nagravision; Nokia use an approach called OAI which is based upon the OMA DRM v2.0 specification. The 3 Italia network uses the CBMS approach with Nagravision products and the Finnish one uses the OAI approach. Therefore the phones used in Italy will not work in Finland – so much for DVB-H being a single standard avoiding fragmentation.

The other important point is that openness in encryption may be the preferred approach by Nokia but it is frowned upon by the PayTV companies. The PayTV companies have to learnt to their expense the cost of having conditional access cracked. In 1999/2000 the infamous cracking of the Mediaguard system caused chaos as counterfeit cards flooded the market and a big dent was placed on the economics of several PayTV companies. This was not cracked by a spotty youth working away in his bedroom, in fact it was alleged that NDS, a subsidiary of News Corp, did the cracking and posted the results on the internet.

Despite the urban myths promoted by the media, it is rare that an encryption scheme is cracked without some sort of inside help and for this reason security companies are themselves extremely closed. The most famous cracking case, the breaking of the Enigma Code, was only possible with the undisputed brilliance of Alan Turing and just as importantly by mistakes by operators, procedural flaws, and the occasional captured machine or codebook.

It doesn’t help the Nokia case that the GSM encryption, A5, is so weak and has probably been cracked by every half decent intelligence agency in the world. Although most conversations are not worth monitoring and therefore the lack of security in the GSM system never features much in the news. Although, Vodafone found out recently that having people monitoring calls on networks can be expensive when discovered.

For the DAB-IP solution that BT Movio have launched in the UK, I believe their solution is based upon Safenet. They have gone down the proprietary route rather than the OMA DRM v2 route. It also appears that MediaFlo can support various proprietary security systems such as Nagravision.

In the future, I think security will be a key battle ground for infrastructure and handset manufacturers in the MobileTV arena and it will be interesting to see how this evolves. I think the utopian solution is that each broadcast network chooses its own security products and the various handset manufacturers’ support all these solutions. However, it appears we are some distance from this utopia, especially in the “almost-open” DVB-H standard.

For Sale: Tiscali UK

Hardly surprising and pretty sensible.

According to the Independent on Sunday

Tiscali, the giant Italian internet company, has put its UK division up for sale with a price tag of up to £600m.The company, which has 1.4 million broadband and 50,000 pay-TV customers in Britain, sent a memorandum of sale to potential buyers last week.

It is believed that Tiscali UK, headed by its chief executive, Mary Turner, generates profits of around £30m per year. It is likely to be the last big British internet player that comes up for sale as companies in the sector choose to bolster their competitive positions or bail out altogether.
It will be extremely interesting to see who buys Tiscali UK, my personal favourites are in reverse order: #3 Orange, #2 Telefonica/O2, #1 BT.

Friday, December 15, 2006

Lombard Lobs A Grenade

The CEO of France Telecom, Didier Lombard, gave an interview to the Financial Times about the new roaming charges:
…likened the proposals to Communist-style planning. "In the past it is only the eastern part of Europe which has been linked to this type of regulation,"
Ouch, that’s heavy. Anarchist – maybe, Populist – definitely, but even I wouldn’t insult someone by using the “C” word. I thought that word was banned in Europe since the fall of the Berlin Wall.

The EU came right back with a quote from Martin Selmayr:
“I have the impression that somebody needed to explain the difficulties and the lack of performance of a company that is according to this interview worse than that of other telecom companies in the EU. The EU is of course always a good scapegoat for these issues."
Ouch, you’re only crying because your rubbish.

I do notice that Martin Selmayr is a relatively youthful 36 – he might live to reject those rash words…

BSkyB : Acquiring Content

The Times is reporting that Sky is about to buy 365media (formerly known as UKBetting) for £94m. Back in October, ukbetting announced that they had received an approach. In the first six months of the year Group Turnover was £62.4m and profit before tax was £200k. Even with net cash of £12m, Sky is definitely paying a big premium for the goodwill/brand. The various sub-brands are admittedly well known with 9.3m unique visitors/month. I’m sure Football365 is the #1 football website in the UK.

365Media composes of two businesses:

Gambling (£54.9m turnover)

Sports content sites (£7.5m)

I presume that the strategy is to add the Games Sites to SkyBet and the Sports content sites will become part of SkySports.

When Sky bought Easynet the route for capturing a share of the estimated £4.7bn market in 2010 for Access was pretty clear. It was more uncertain how Sky was going to capture a share of the £4.1bn in advertising revenues. The relaunch of Sky Anytime, the deal with Google and a purchase of 365Media gives an indication of the planned route. The Sky strategy is becoming more and more clear and it looks like the strategy has a much bigger content and advertising element than any of the other major ISPs. Knowing Sky, they will be using the content sites to heavily promote the other Sky services.

The other intriguing part of the deal is that the Chairman and major shareholder in 365Media is none other than Peter Dubens, who just happens to the Chairman and major shareholder in of Pipex…

Thursday, December 14, 2006

China Mobile: Top 3 Consequences

The jungle telegraph is on fire tonight with Guy Kewney’s revelation that China Mobile is on the verge of buying HWL 3G operations in the UK and Italy. I’ve heard that fake press releases are on the run in Hong Kong and a very off-the-record quote that “...am more worried about my paypacket than my paymaster”

Anyway, I thought I’d add a little fuel to the fire with what I consider will be the greatest consequences of a bid by China Mobile:

Variety is the Spice of Life

Personally, I think it’ll be great if the Chinese state mobile company enters the UK market. A fresh faced well financed challenger from a different side of the world will add plenty of new ideas and services into the marketplace. Life will get a lot more interesting.

Disruptive Disequilibrium

After 3.5 years, I do not believe that 3 have enough size to be sustainable in any of its European Markets. Therefore, China Mobile will have to take some radical steps to try and achieve scale – the likelihood of price wars across Europe is extremely high. Together with the entry of TeliaSonera into Spain makes 3 of the top 5 EU markets in a dangerous state of competitive imbalance – not a good outlook for mobile shareholders.

Competitors Comeback

I do not expect the main European networks to take this lying down. HWL is after all is public quoted company and a lot of spoiling tactics can be played in the short term to delay and even reduce the probability of the Chinese entering the market. Given the stakes, I would be extremely surprised if someone somewhere didn’t play the protectionist card.

Some wider issues which are worth considering:
i) I cannot see Vodafone remaining a minority investor (3.25%) in China Mobile;
ii) I can see China Mobile also wanting to buy HTIL and get its hands on some juicy assets in real growth markets in Asia (India, Vietnam and Indonesia); and
iii) I think the level of disclosure to the Hong Kong markets about the transaction and how a potential counter bid is dealt with will be revealing indication for the future.

EasyMobile / Shimmerbright RIP

Well, the doors were closed at midnight and although there is still some cleaning up to accomplish with outstanding credits refunded, it is effectively goodnight & goodbye.

I think it fair to say that when the history of the UK Mobile Industry is written, Stelios will probably only feature as a mere footnote rather the big chapter he expected back in 2005.

Wednesday, December 13, 2006

Future of Radio

I have submitted my humble response to the OFCOM Future of Radio consultation.
I am disappointed that the BBC is outside the scope of the radio review. The BBC has a market share in excess of 50% in the overall radio market and in some segments (eg Radio Plays and Documentaries) has a far higher market share. In my opinion, rather than technology or the state of the advertising market, the BBC is the biggest constraint on the development of a healthy commercial radio sector. In addition, the BBC exhibits true monopolist tactics such as cross-subsidisation and promotion amongst its various media channels which makes it even harder for the commercial sector to compete. I seriously believe that an investigation by the Competition Commission into the behaviour of BBC Radio is necessary.

I believe OFCOM should focus on releasing as much digital spectrum as quickly as possible onto the market. This will reduce the scarcity value of radio spectrum. OFCOM should also focus on removing the bureaucracy associated with issuing and monitoring its licenses. It should allow license holders to broadcast whatever content they so desire. Furthermore, it should allow free trading in licenses. In summary, I believe OFCOM should focus on removing any barriers to entry to new competition and addressing the issue of limited spectrum availability. The audiences will ultimately determine the success and value of license holders.

I firmly believe that with the advent of cheap editing technologies and distribution methods should as podcasting and internet streaming an explosion in content is about to occur. The market will determine the popularity of such content and whether it is worthy of broadcasting. It is extremely important that OFCOM does not get involved in the regulation of this nascent market and allows the proliferation of individual ideas to compete against the BBC juggernaut.

OFCOM have historically spent a lot of money regulating local radio stations. I do not believe this is important in the internet era: diversity of opinion and content is far more important than locality. The market will determine whether ScarboroughRadio or FreeMarketRadio or both will succeed as a broadcasting model or will be resigned to serving its audience via internet streaming or podcasting.

Finally and most importantly, I do not believe that OFCOM should renew any analogue radio licenses and should negotiate a date for complete turn-off of all FM and MW stations and transition them into the digital era. It is scandalous that we are still broadcasting with such inefficient technologies and wasting so much spectrum.
The consultation closes tomorrow so I would urge everybody to speak now of forever hold your peace.

Mandatory MACs

OFCOM has spoken and MACs are to be mandatory from Valentine’s Day 2007. They have even included wholesale providers thereby trying to avoid a repeat of the Netservices/ Biscit fiasco. Fair enough.

OFCOM even seem to think that the absence of MAC codes is the root cause for the Tag on line problem for house movers. We shall see.

Tuesday, December 12, 2006

Pantech seeks Bankrupcy Protection

What is it with Helio and its handset suppliers? After VK Corp went bankrupt earlier in the year, Pantech looks as if it is following suit - that makes both of Helio handset providers in or about to go into bankrupcy protection. SK Telecom is a large shareholder in both Helio and Pantech.

In the UK, Pantech manufacturers the o2 Ice model and pulled out of UK distribution in early November.

Pantech, as BenQSiemens and VK Corp before it, highlights the problems that smaller handset manufacturers have in competing outside of niche markets like RIM and HTC. In fact, I’d add that the success of RIM and HTC just leads the larger handset makers and software providers to attack their markets and create huge pressures on them.

In fact, a question I posed earlier in the week to one of my more illustrious brethren was whether RIM would put itself up for sale before it was too late?

OFCOM: Telling Porkies

I immediately thumbed my way to the finance section of OFCOM - Draft Annual Plan 2007/08. I like to see how bureaucratic monsters grow unabated year on year. I was totally shell shocked to read the opening paragraph:
8.1 During 2007/8, we will maintain our commitment to providing stakeholders with value for money. In our first three years we have made significant efficiency savings which have enabled us to reduce our budget progressively. In 2004/5 our budget was 5 per cent less in real terms than the previous regulators' combined budgets (on a like-for-like basis). In 2005/6 our budget was reduced by a further 8 per cent in real terms. And for the current financial year, 2006/7, we set our budget a further 5 per cent lower in real terms.
I thought this was incredible news and worth examining how they had managed to cut costs. So I turned to the last set of published accounts which provided comparisons for 2005/6 to 2004/5 a period where the budget had been reduced by a whopping 8%, however I was going to examine actual costs.

Revenues in the period which is a combination of grants received from the Treasury and various taxes/charges on the industry had increased from £145.405m to £156.020m – an increase not decrease of 7%. Similarly, Cash Operating Costs had increased from £124.684m to £138.994m – again a whopping increase of 11% this time.

In the elusive search for savings, I thought I’d have a look at the line items. Other operating Costs had increased from £69.022m to £74.565m in the same period. However, Staff Costs had reduced from £53.900m to £49.841m – is this the elusive 8% decrease? Upon closer examination, this was a false hope because all the difference can be accounted for by redundancy costs decreasing by £4.173m, ongoing staff costs have actually increased. Despite the redundancies the headcount has been steadily increasing from 727 (Mar 2004) to 753 (March 2005) to 776 (March 2006). Over the same period the Remuneration of the OFCOM board had risen from £1.49m to £1.791m – a huge 20% increase.

I’m sure that somewhere in the arcane world of public sector beancounting there must be some explanation how an 8% cut in budget actually translates to large actual increases across the board, but the challenge to find it is beyond me.

Monday, December 11, 2006

Out of Africa 2.0

The Economist has a good story this week on the African Mobile Telecoms scene.

I would like to add my two pennies looking at Africa from a few different angles.

Arab Africa should be seen differently

Etisalat shocked the Mobile World when it bought the 3rd licence in Egypt for US$2.8bn. This is a staggering sum given the size of the economy and penetration levels of Egypt and cannot be accounted for by financial means alone. Personally, I see this as a definite case of the Arab investors getting carried away in bidding for Arab Assets. Etisalat is owned by the government of Dubai which also has a link with Tecom Investments who has just paid US$2.3bn for 35% of Tunisie Telecom.

It is in this context that I laughed when Vodacom mentioned at the recent Vodafone Emerging Markets Day that they planned on bidding for assets in Algeria. Of course, bidding on the privatisation of Algerie Telecom is a tempting proposition; especially given Algeria is the third largest economy in Africa after Egypt and South Africa. But realistically Vodacom have zero chance of winning once the Dubai companies show the size of their wallets and determination to pursue trophy assets.

Other interesting Arab assets that might come up for sale in the medium term (5 years) are:
  • Libya – I can’t see this country keeping its borders closed to the international mobile operators for too much longer;
  • Morocco – If Vivendi is ever broken up then this would be a very tasty morsel; and
  • Somali – If there is even a faint sign of peace breaking out then the international mobile investors will enter the country before the various militias have time to re-arm.

Orascom juggles its assets

Orascom which is controlled by the Egyptian Sawiris Family is an interesting case study.

Orascom jointly owns the #1 operator in Egypt, Mobilnet, with France Telecom. As they became more confident they started to expand where the assets were cheapest which was in sub-saharan Africa. Orascom managed to build up a reasonable portfolio of networks. However from 2003 to 2005, they have pulled out of Gabon, Benin, Togo, Niger, Burkina Faso, Zambia, Burundi, Uganda, Central African Republic, Sierra Leone, Chad, Congo Brazzaville and the Democratic Republic of Congo. They now have remaining a single network in Zimbabwe and that is probably only because no-one will take it off their hands.

Meanwhile in the Arab world they have launched networks in Algeria, Tunisia and Iraq and in the wider Muslim world bought networks in Pakistan and Bangladesh. There has been a set back along the way in Syria and a disposal in Jordan. Additionally, the Sawaris in a personal capacity have bought the Italian operator Wind. It seems to me that the Sawaris have pursued a strategy of replacement of lower-value assets to higher-value assets.

The lesson in all this is that Arab money in sub-Saharan networks may be a temporary phenomenon on the way to international credibility.

Ultra-Aggressive MTC

MTC have been the most aggressive acquirer of sub-saharan networks buying Celtel (Burkina Faso, Chad, DRC, Congo Brazaville, Gabon, Kenya, Malawi, Niger, Sierra Leone, Sudan, Tanzania, Uganda, Zambia) in Mar 2005. However even all of these networks didn’t satisfy the MTC appetite with further acquisitions in Dec 2005 of Madacom of Madagascar, Feb 2006 another 61% Mobitel of Sudan for $1.332bn and in Apr 2006 65% of V-Mobile of Nigeria for $1bn.

MTC has a very aggressive strategy of becoming a global mobile player by 2011. As part of this strategy it expects to establish MTC as a valued brand, therefore it is hardly surprising that they plan to drop the relationship with Vodafone who have partner networks with 100% MTC owned subsidiaries in Kuwait and Bahrain. If fact if I was Vodafone, I be thinking of testing the MTC commitment for sub-saharan Africa by getting Vodacom to put a bid in for adjacent networks in Zambia and Malawi. Personally I think that even with all the oil wealth in Kuwait, MTC will struggle to go global.

Vodacom said they were interested in entering the Nigerian market which is now dominated by three companies: MTC, MTN & Globacom. Globacom is privately held and I’m sure that this is the network that Vodacom is after. However, I don't believe Vodacom will make a move until the next President is in situ - an African country in the midst of a change of government is a tricky situation.

MTN – South African Lebanese Connection

MTN is the largest African mobile company by subscribers and this was before the African mega-acquisition of Investcom for US$5.5bn. The offer was partly in shares (32-36%) which was accepted by the majority shareholders of Investcom - the Lebanese Mikati family. This was an amazing price especially given that Investcom only had 5m subscribers, US$400m of EBITDA and operates in some of the riskiest countries in the world (Ghana, Benin, Liberia, Guinea Bissau, Guinea Republic, Syria, Yemen, Sudan, Afghanistan and Cyprus). MTN justified the price by saying it was buying further growth which is true, but at 14x earnings?

Additionally there is always the risk of some past “problems” crawling out of the woodwork and this appears to be the case in the most valuable asset in Ghana where two local businessmen are claiming that Investcom stole their ownership from them. This could be quite an expensive mistake as apparently MTN have already made a US$400m provision for losing this case.

I suspect the real reason that MTN need the Mikati’s because they have over-exposed themselves in Iran. Iran is one of biggest potential markets left to be explored in the world, however even the blindest of xenophobes will realize that carries some political risks. There is no doubt that Mikati’s with connections in both Syria and Iran will be able to provide MTN some assistance in this challenging country.

Three Remaining Non-mined Gems

What do Angola, Libya and Ethiopia have in common? They are all mainly closed to non-national mobile investment. When these countries eventually open up, I expect to see a big rush to purchase existing networks and spectrum.

Extracting Value

As I discussed in a previous post on Telenor and Bangladesh, I think there is going to be a big problem in extracting profits from these relatively poor countries. There is also a huge risk of political and economic stability throughout the continent. The only way to counter this risk is to have a large portfolio – both MTN and MTC are far ahead of the crowd in this respect. Personally, I think the Vodafone African Strategy is currently hopelessly over-exposed to South Africa, Egypt and Kenya. Although, Vodafone seem to have overcame the extraction of value problem in these countries – it adds partner risk to the equation.

Telenor: Bangladesh Valuation

Telenor reiterated its stance that GrameenPhone is worth US$3bn in a press release over the weekend attempting to calm the flames that GrameenBank have stoked. Telenor owns 62% of GrameenPhone worth US$1.86bn. At Friday’s close, the Telenor Market Cap was US$32.19bn so GrameenPhone is worth around 5% of Telenor. In the overall context Telenor assets GrameenPhone is not substantial, but not immaterial.

I look at the US$3bn and think how can even the dominant cellular provider in Bangladesh with 63% market share be valued so highly?

In the 3Q, GrameenPhone delivered US$105m of EBITDA and US$78m of Operating Profits. There can’t be many borrowings in the division because profit before taxes is within US1m of operating profits. If we annualise the EBITDA to US$420m, it puts GrameenPhone very roughly on an EV/EBITBA of 7x. This is in the ball-park that I’d expect given that GrammenPhone still seems to have quite a lot of growth left but that should be balanced with the risk of an emerging world asset. This is quite a traditional way for analysts to value mobile networks.

The true indicator of value is if Telenor is actually generating some cash from the investment and repatriating the cash back to the head office.

Telenor released a press release portraying that Grameenphone is a win-win for everyone stated:
Over the last 8 years, the company has had earnings (EBITDA) of USD 1.08 billion, and of this amount USD 1.06 billion is invested in the country.
As a shareholder, Telenor has received dividends amounting to approximately USD 55 million while investing a total of almost USD 87 million in shareholders capital. Accepting dividends from Grameenphone reflects the success the company has demonstrated in the Bangladeshi market and is a manifestation of Telenor’s belief in the future profitable growth of the company.
I think the emerging argument with Dr Yunus can be traced to the statement above. GrameenPhone is now probably entering excess cash generating mode. Telenor will want that cash paid out in dividends. It appears that Dr Yunus wants a completely different result. This is from his Noble Peace prize winning Speech:
Our vision was to ultimately convert this company into a social business by giving majority ownership to the poor women of Grameen Bank. We are working towards that goal. Someday Grameen Phone will become another example of a big enterprise owned by the poor.
I would in normal circumstances expect the main shareholder of Telenor, the Norwegian Government (54%) to support Telenor, but it does not appear to be the case:
Minister for International Development, Erik Solheim, says in a comment that it must be a goal to re-invest the profits in the nations where one has invested.
We soon reach a point in poorer nations where one achieves a much greater profit on Norwegian privaate investments than we give in development aid to the same countries, the Development Minister says. The controversy between Grameen Phone and Telenor visualizes difficulties that may arise when Norwegian companies withdraw large profits from poor nations, Solheim says. However, those who invest must be allowed to make a profit. But at the same time they must show maximum social responsibility.
Norway's government minister in charge of business and trade said he's staying out of the conflict, leaving it for Grameen Bank and Telenor to resolve on their own.

To be honest, I do not know what the end result will be, but even if the Dr Yunus vision of giving the company away to its subscribers is not realised, I seriously doubt whether any profits will be repatriated for a long, long time.

In my opinion given this uncertainly, the Telenor holding in GrameenPhone cannot be valued at anywhere near US$1.86bn.

On this my sympathies actually lie with Telenor and I think their problems in Bangladesh may be repeated over the coming years in a whole host of emerging countries for a whole series of operators.

Sunday, December 10, 2006

BT: The Elephant Dances

The ever excellent Gordon Cook seems to be a big fan of BTs 21CN and so am I, but not for the same reasons as him, BT is restoring my faith in elephants. As the great Charles Dickens once wrote:
“every man for himself and God for all of us” as the elephant said when he danced among the chickens.
Yes, BT is building itself a brand new core but the sole purpose of this core is to throw away the shackles of the old allowing BT to innovate at the application level.

I disagree with Gordon that BT is not innovating at the Wireless end. Here BT is busy convincing the some of largest local councils (municipalities) in the UK to allow it build municipal WiFi networks. Not for BT the pain of planning permission, site acquisition and cost of providing power – just use council assets with a nebulous promise to lower telecoms costs in the future. It is noticeable the services that BT are touting as the benefits – wireless CCTV and mobile calls. Both of these services are big ticket expense items for local councils and are both significant markets that BT has their eyes on with current poor market share

BT cannot be blamed for its plans for making CCTV in the UK more efficient. If Big Brother is watching us then I say the minimum BT can do is to make sure it costs us the tax payer the absolute minimum. And CCTV is not the only Big Brother scheme that BT is sniffing around at. The controversial government plans for identity cards are almost certainly on BTs list of must-have government projects, although BT are fully aware that this is a dangerous tightrope to walk.

The OECD estimates that public spending in the UK is 43% of total GDP and BT have big plans to secure a large part of the IT budget. BT has a central role in the largest IT project in Western Europe – the digitisation of the UK public health service. The NHS project will provide a template for future public sector projects which will elevate BT to being a key applications provider to the public sector rather than a mere bit shifter – it is moving up the stack and probably in the process guaranteeing high lower stack profits.

BT is also innovating at the application layer for the consumer market. The BTVision video-on-demand service has recently been in the news and is starting off pretty basic, however I’m sure there will be plenty of innovations in the pipeline. A more interesting vision of the BT consumer future is BTContact which is a personal communication hub currently in beta. If anyone doubts BT plans to reengineer its Retail division to the Application end of stack then the Light Reading interview of Stephen Sokols is an absolute must watch.

This leads to the biggest criticism of 21CN in that it is only going to deliver ADSL2+ to the home. This is true and I don’t believe Ben Verwaayen for one second when he said at the recent OFCOM conference that ADSL2+ was more than enough and we should wait until services are available that require more bandwidth.

I think the problem is that BT’s capital is limited and he would rather invest it developing differentiation and barriers to entry at the Application Layer. The 21CN will pay off in short (2-3 year) term, by just ridding the company of its legacy costs. This is exactly the sort of project that the City of London applauds. Once the 21CN is complete and BT has the competitive advantage at the application layer then the economics of the last mile becomes revamped.

There is another problem which will scare BT away from investment in the last mile and that is no-one knows how a consumer will behave once 100meg to the home is available. Furthermore, no-one knows what business models will be able to support this 100meg to the home. We are effectively in a trial and error phase and few in the City of London will invest in that proposition.

This is where BT is playing it smart, because if there is a large public demand for 100meg bandwidth BT will just say “We’d love to provide it, but the capital markets won’t allow us”. Logically, the next step is exactly the same step as it has taken in wireless arena – get the public sector or government to pay. This thought as a taxpayer completely terrifies me.

In my opinion this is the biggest challenge in UK Telecoms – “How do we finance replacing the copper local loop with fibre without resorting to public sector financing?” This is as big of a challenge as “What do we do with these huge public sector monopolies?” The answer to that question was to privatize and introduce competition and as Gordon Cook says this spawned a huge consulting industry in the UK. It is time to reinvigorate that consulting industry with a new vision.

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?

OFCOM – Doff my Cap

As much as it goes against my nature to compliment bureaucrats, I’m afraid to say that OFCOM has done a really good job with its price comparison scheme. I was worried when first heard rumours of this that OFCOM would try and replace the market by providing the calculator themselves which definitely would have been the wrong way to go. I really believe it will allow some really good innovative services to emerge with the backing of a credible stamp of approval.

If I was nit-picking, I would say the cost is too high. A set-up fee of £6k and an annual cost thereafter of £3k seems a tad excessive. However, I’ll give them the benefit of the doubt and believe they have taken a network operator approach leaving themselves with enough margins to continually cut prices as the service takes off.

I will be really interested to see if the comparison site uSwitch gets registered. The current mobile service is a complete joke with no mobile operators signed up and instead Carphone Warehouse prices are compared to the Phone Spot prices. I don’t consider a comparison of prices from two arms of the same retailer a comparison at all. In fact it is close to being a scam trying to fool the average consumer, which is not the approach you would expect from someone trying to protect the consumer. Taken with the exclusive deal that Carphone have done in Spain with Teliasonera, I get a funny feeling that Carphone only likes exclusives when it suits them.

Telenor and Altimo - Break Up

Well it looks as if Altimo (aka Alfa Bank) and Telenor are starting to negotiate a break up of their Russian/CIS Assets.

Personally, I think it’s too late to recover the situation. Both of them are going to find out that breaking up is hard to do and there ain’t no sunshine after divorce.

I remember when Telenor used to love its’ Russian partner, but nowadays they are definitely not in love.

Although Telenor may be thinking “Good Riddance” and that they will survive they will find that nothing compares to Alfa and that everybody hurts.

I know it’s silly, but after all it is Friday!

Thursday, December 07, 2006


Without wishing to blow my own trumpet too much, I have recently started writing occasional Freelance articles for the well known UK site – “The Motley Fool”

The format is around 500 words which does not permit me to meander on aimlessly as I frequently venture with more personal posts on my blog. I’ve been busy this writing about the BT Vision launch and the Vodafone Emerging Market Day. I plan on writing more detail on both here on my blog, especially about Vodafone’s expansion plans.

I also have the honour of some of my US quoted stock stories syndicated on the brilliant “Seeking Alpha” website.

Anyway, it should be obvious to all that I am quite happy to accept private assignments and if you want more information email me offline.

Also, feel free to keep emailing me with general industry Tittle Tattle – all gossip both welcome and encouraged.

Carphone Warehouse: More Woes

There was a lot of positive publicity in the City and generally in the national press for Carphone Warehouse with the announcement that Vodafone was allowing Carphone Warehouse to perform upgrades.

However, in the trade press a completely differently story is evolving:

1. Carphone upgrades are only 15% of the old business and there is no chance that Vodafone go back on the exclusive relationship with Phones4U. Phones4U has delivered exceptionally high volumes of Vodafone contract sales in recent weeks.
2. Carphone is really struggling to sell the Cath Kidston range.
3. Phones 4U are about to start selling “independent” broadband
4. Both Vodafone and Orange are putting the pressure on their store staff to sell more. Although, it is reported as a negative story, I believe long term this is the only way forward if the network operators are ever going to deliver decent volumes of direct sales and break the dependence on high indirect commissions.

I still believe there is huge pressure on Carphone to deliver value rather volume to the mobile operators and this will be the true indicator of its future position in the mobile value chain. It is also obvious that TalkTalk broadband is creating huge pressure with Carphone’s largest customers and that Carphone rivals are keen to exploit the problem. I also believe that Carphone is playing a really, really dangerous game with Vodafone, especially with Charles Dunstone comments being interpreted in the press as showing Vodafone are fools. I suspect Vodafone might be looking at the value that the Hugh Symons distribution arm of Carphone is bringing to Vodafone with a microscope. People in the trade are already gossiping that Vodafone will axe Hugh Symons soon and this would be a huge blow for Carphone.

Tuesday, December 05, 2006

Telekom Austria: Outbid Again

Telekom Austria has lost out on the auction of Telekom Srpske in Bosnia and Herzegovina. This is third auction loss out of the three for Telekom Austria in the 2006 auctions that they participated in. The winner of the auction was the Serbian-state owned operator Telekom Srbija who bid €646m against €467m from Telekom Austria. It seems strange to me to privatize an operator only for it to be bought by the Serbian government, but there we go.

Telekom Austria has not given up on Bosnia and said in the press release that they will back when opportunities arise. They also seem to imply in the press release that Telekom Srbija might have problems completing the transaction.

Telenor Fights Nobel Peace Price Winner

It is difficult to win a fight against a Nobel Peace Winner. When I originally saw that Yunus of Grameen Bank was to be awarded a Nobel Peace Prize for making financial loans, I suspected the invisible hand of Telenor in the process helping its partner out. Now, I’m not so sure.
Yunus insists that Telenor "agreed to give us majority ownership within six years. Our intent was to convert to a social business enterprise [where profits are reinvested in the company rather than taken out], but Telenor does not accept."
The Telenor CEO, Baksaas, denies that any such agreement ever took place. He is in Thailand where he is fighting the military dictatorship over ownership and control of Telenor’s Thai network.

Virgin Mobile Giving It Away

Virgin Mobile in their infinite wisdom have decided to give away SIM cards with £5 credit on them. I’ve even ordered a couple for myself even though I have no intention whatsoever of using them.

This is on top of the wheeze of subsidizing Pre-paid handsets and taking the premier role in the Carphone Christmas promotion for Cath Kidston designed handsets, which are rumoured not to be a big seller. I am waiting for a last minute slashing of the price of these handsets as confirmation.

I expect to see at Q4 reporting season, NTL saying Virgin Mobile subscribers are up and profits are down. I also expect NTL will not reveal how many post-paid or even quad play customers they have. I would argue that Virgin Mobile would not be giving away SIM cards if all was going well.

Virgin Mobile is going to the dogs extremely quickly.

MediaFlo – Jumps the First Hurdle

It is noticeable that Qualcomm have opened a tiny window onto the results of its MediaFlo trials with BSkyB. Personally I’m not that impressed – words are cheap, but a winning bid on L-band spectrum would immediately convert me into a true believer.

Sunday, December 03, 2006

Unlimited On-Net Calling Groups

I have noticed more and more of the UK operators moving towards differentiated on-net pricing. The grandest of these schemes is the Vodafone Family Plan, whereby regardless of pre or post pay someone can set up a four person calling group with unlimited monthly calls if a member of the group commits to paying £5/month. It can be extended to another two people for an extra £2/month.

The name of the plan is “Vodafone Family” because of its suitability for the atypical home of two adults, two kids and a pet, whereby Mum & Dad ensure the kids can call them at any time and the kids can pay personally for calls & texts to their friends. However, Vodafone doesn’t discriminate and it can be used by Students, Small Businesses – in fact anyone who wants to set up a calling group.

The beauty of this plan is that although call volumes will rise dramatically, all of the traffic will be on-net and therefore incrementally the costs will be zero. The plan may result in a drop of fixed-mobile traffic, because no-one will call their kids from a fixed line phone and instead will ring them from their mobile. It may also result a drop in revenue where a particular group are already exceeding £5/month in on-net revenue. However, the big bonus is three-fold:
  • it will result in more customers converting to the Vodafone Family making its network bigger and more valuable, especially as group members also make calls outside the group and other network customers call Vodafone Family members resulting in inbound revenue ;
  • it is an almost impossible plan for the MVNOs to match. People like Virgin Mobile who pay T-Mobile according to the volume of calls have to price accordingly and cannot offer unlimited call packages economically; and
  • it becomes a much bigger and complicated decision to churn.
O2 have a half way house product named “o2 Friends” where for £5/month, you get a 50% discount on calls and messages to three people.

It will be interesting to see if Vodafone picks up market share with the Vodafone Family. I suspect it will be a big winner in the marketplace and eventually force a reaction from the other networks.

EU Roaming: Mother of All Battles

Two of the key players involved in the EU Roaming legislation debate were at the OFCOM Convergence Conference and made important comments on their respective positions.

The first was Arun Sarin, CEO of Vodafone, the company who stands to lose the most from the EU roaming proposals not just in terms of revenue, but more crucially in the ability to innovate around pricing and bundling.

The second was Fabio Colasanti Director General of the Information Society and Media, who is the head bureaucrat behind the EU proposals. The more familiar name associated with the EU Roaming is Vyvyan Reding, who represents the unelected political side of the debate. Amusingly, the normally faceless EU bureaucrat coined the term “Mother of All Battles” which seems to indicate the level of noise over at the EU over roaming.

Arun Sarin fired the opening shot with his announcement that he believes that not only is the legislation not necessary given the price reductions occurring in the retail market, but that it is legally unfounded given that the legislation is not in line with the framework by which the EU operates. If true, this is an extremely powerful argument and could hold up any proposals for many years. Personally, I do not think this is an idle threat given Vodafone’s history of using EU Law to prove the UK government wrong with respect to Taxation Law and the amount of money and comparative advantages at risk for Vodafone.

Fabio Colosanti disagreed with Arun Sarin’s choice of words calling the proposed legislation “exceptional”. Also, he indicated the debate would focus of whose fault the proposed legislation was: an industry fault for overcharging or a discretionary proposal thought up on a whim by the EU. Presumably, his line is that if it is an industry fault then exceptional legislation is acceptable and deserved, whereas if it was thought up on a whim then it is unacceptable.

More interestingly was Fabio Colosanti statement about where the “lines in the sand” were drawn in the “mother of all battles”:
  • Retail regulation was mandatory. The mobile companies seem to have indicated all along that they would accept wholesale regulation of prices, but retail regulation of prices was a step too far. The only comment from Fabio Colosanti was that without retail regulation the legislation would not have teeth;
  • A sunrise clause was not necessary. The UK government have proposed a compromise that a sunrise clause should be inserted in the legislation, whereby if retail prices reduce to an acceptable level within a given time period through the natural operation of market forces then retail regulation would be unnecessary. The EU bureaucrats will not accept sunrise clauses claiming they are too complex for the Ministers and Parliament to understand. Not only is this line of argument weak, but incredibly condescending to elected Members of the EU Parliament; and
  • Applying cap’s at a average rate rather than for a peak rate. The example given was a holiday maker writing to The Sun complaining post-legislation that his charges whilst on holiday in Italy were still high. The only reply the EU could give was that the mobile operator was still within the legislation because a businessman who was using the phone on a far more frequent basis was paying a lot lower for the charges.
This last point rather gives the game away to me – it is the EU desire to publicise how wonderful they are in reducing mobile phone rates. There is a very valid economic reason why the businessman would pay a lower rate than the traveler, but this is bad for the EU politically.

My position is that the EU is desperate for positive publicity and wants to muscle in on the popularity of mobile phones. You only have to look at the incredible (and false) headlines written in the Newspapers whenever the EU proposes regulation of the Roaming market. I also believe that allowing the EU to determine retail prices in the mobile roaming market would set an important precedent for all sorts of other markets. In fact, the EU is already claiming responsibility for cheaper phone calls, which personally I think is a little premature. The following presentation funded by the EU gives an idea of the over inflated sense of worth they already feel for themselves.

Friday, December 01, 2006

X-Series Gold Bundle

It’s the end of the world as we know it and I feel fine…

For £25/month for the first 6 months and £40/month for next 12 months or a total minimum commitment of £580 over 18 months, you get:
  • Nokia N73 (worth £340 at nokia.co.uk)
  • 512MB Memory Stick
  • 300 voice minutes / month
  • 1000 texts/month
  • £5 free downloads/month (equivalent to 5 music tracks)
  • 50 video calling minutes / month
  • 50 MMS messages/month
  • 1GB per month. Also, your data usage doesn’t include using your mobile as a modem.
  • Windows Live Messenger won’t count towards your monthly data fair use limit but has its own limit of 10,000 messages per month.
  • Skype on 3 is 5,000 minutes per month. If you go over this you’ll need to wait until the start of the next bill month for the service to resume, however Skype calls can still be received.
  • Orb and Slingbox have a total combined limit of 80 hours a month.
  • Mobile access to Orb or Slingbox does not include using your mobile as a modem.
  • For Orb and Slingbox you’ll need minimum PC software, PC and router specification and broadband at home.
  • Slingbox and Orb are for personal use only and you mustn’t breach copyright or get around copyright protection.
  • To watch home TV on your mobile you need to have a TV service that you can legally view.
  • Slingbox is sold separately and contains a Freeview receiver so you’ll need a TV licence if you haven’t already got one.
  • The Slingbox is sold separately for £99

Even the Knights of Cydonia would struggle to sort this mess out.

OFCOM & Universal Service Directive

One of main topics picked up by the press is the prospect of a Universal Service Obligation for Broadband. Ever the pedant, I have looked at Ed Richards speech and this is what he said:

“In the UK we have helped begin a debate about the future of PSB. It’s a critical debate that will unfold in the next few years. At the same time we may need a wider, European debate about what happens next to public service content and genres that the market may not supply in sufficient quantity; and which the old PSB model is unable to sustain.
We will need to consider whether new interventions, and funding mechanisms, should be developed in response to the erosion of the old model.
The same is true in telecommunications of universal service obligations and the Commission proposes to review the current Universal Service Directive next year.”
I have already been warned about Ed Richards bizarre thoughts on Public Service Broadcasting, but that is a debate for another day.

However, I actually welcome the review of the Universal Service Directive.

The questions I'd ask are:
  • Is it relevant for voice service in today’s multi-network world?
  • Is BT the right company to impose the obligation on? All the evidence from the USA and other Emerging Economies is that it is actually cheap and consumers actually prefer mobile service.
  • How much does it cost and who should fund it?
If we move on data:
  • Is Universal Service for Data necessary?
  • What about Access Devices? Should we force a PC into every home?
  • Who should fund it?
  • Is broadband to the home is the best place to deliver universal service?
Personally, I think we should go back in time and recommend libraries as the best place to deliver universal data service. The question would then become one of capacity and opening times of the libraries.

On a side note, I nearly had a heart attack when I realized that a well known Marxist agreed with me that OFCOM had gone too far in the Junk Food ban. With the Junk Food ban, I see the Law of Unintended Consequences is at work with this morning’s announcement that Domino’s Pizza is to spend it’s marketing pounds on sponsoring the Great Britain Special Olympics Team. Now, I ask myself who is the better role model for Domino's Pizza: a fat slob like Homer Simpson or a highly trained Athlete?