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Monday, February 26, 2007

Carphone: It is getting painful

O2 contract

A lovely quote from Peter Erksine of O2:
'We've leveraged [Voda pulling out of Carphone] quite heavily. We've come to a good agreement with Carphone where we get more volume, and overall therefore Charles [Dunstone] gets a lot of cash but overall but per connection it works out better for us. But we've got to keep squeezing the acquisition costs.'
We can all argue about semantics until we are blue in the face and while technically the above does not constitute a guarantee of volume for O2, it is pretty clear that if Carphone doesn’t deliver the volume, the commissions from O2 won’t be anything to brag about. For Telefonica, the parent company of O2, the words from Erksine must be music to their ears – not only lower unit acquisition costs, but more or less a clad iron guarantee that the pressure is going to kept on in the future for further cuts.

I always felt that Andrew Harrison was splitting hairs in his motivational message to the troops post-Voda loss:
We will always sell phones on the basis of what is the right and best for our customers, not on the basis of guaranteeing volumes of sales for networks
I think those words are going to come back and haunt him, because the impression I get right now the humbling message coming out of Carphone is:
We're here to sell whatever the networks want us to sell

Orange contract

Yet again Mobile Today had the scoop this morning with details of the new Orange / Carphone contract with three startling concessions from Carphone:

a) Restrictions on the amount of Tele and Web Sales.

It is the one of the worlds worst kept secrets that the quality of customers coming through any web channels is terrible or rephrasing “the web produces low margin contract customers, when customer acquisition is through third parties”. A brief glance to Carphone "discount" main websites: e2save, onestopphoneshop and thephonespot show heavily discounted airtime packages featuring huge cashback. It is also noticable that the Orange presence has more or less dropped from the sites. I can almost guarantee that the majority of people who buy these types of deals will just look for the next greatest and best deal 12 months on – regardless of network.

Mobile Today estimate 40% of Carphone sales comes through these type of channels – this is a huge amount of business. Remember in the UK, Carphone did 442,795 new subscriptions from Apr to Sep 2006. It is not just Carphone that is under pressure in this market segment – all retailers whether retail, call centre or web based are under intense pressure to quit the cashback offers. What is going to happen to all these contract customers at the contract renewal stage? This segment of the market is used to extremely cheap minutes packages and I’m not sure where they are going to go. I suspect a lot of them are youngsters or low income who just can’t afford the entry level monthly-commitment of a £25/month bundle.

I think 2007 might see an operator address this market with a cheap minute / text bundle with no subsidized handset and no third party commissions. In other words only available direct. This is exactly the type of price innovation that is T-Mobile and Virgin Mobile territory.

b) Selling Orange Broadband.

This is new territory for Carphone – selling other home packages in addition to TalkTalk. Personally, I can’t really see this delivering a lot of volume to Orange, but agree that it is worth experimenting and breaking an important precedent. Both Virgin Mobile and O2 will watching closely and wondering whether they want their products in the Carphone shops as well.

c) Cashflow effects

This is potentially the most painful for Carphone – less money upfront and more over the contract lifetime according to profitability. Orange is no doubt Carphone’s second biggest customers in the UK and deferring a lot of payment will have a considerable impact on Carphone and with debt levels rising fast at the parent group due to heavy investments in broadband – debts stood at £850m at year end with a significant £120m still owed to AOL. I’m also unsure about the effect on revenue recognition - if a larger element is dependant upon contract performance, I’m not exactly sure how much commission Carphone can actually recognize at Sales times. Mind you, if cashbacks are eliminated, the difficult “provisions” aspect of the Carphone accounts will be cleared up.

Down the Line

The Carphone challenges do not end with the networks. Recent events will also have shifted power slightly towards the handset manufacturers. In the past, Carphone could have negotiated with manufacturers who would have known that giving Carphone an “exclusive” would still permit the handset to be sold on all networks – now this is not the case. Furthermore, a manufacturer of a hot forthcoming handset only needs to mention that Phones4U are negotiating for an exclusive to add a couple of pounds to Carphone wholesale price.


Carphone in the past has always managed to stay one step ahead of the competition, networks and manufacturers. All I can see at the moment is negotiating power swinging back to the networks and manufacturers. However, I’m sure that the trading brains at Carphone are working overtime trying to dream up some new schemes to get them out of the current predicament.

Saturday, February 24, 2007


Well, the polls have closed and the votes have been counted and I reveal the ridiculous:
We the undersigned petition the Prime Minister to force Ofcom to allocate the unused radio spectrum after the analogue switchover to HDTV services.
received a meager 4,893 votes – that means that only a small proportion of people who work, directly and indirectly, for the BBC voted for poll. Too funny…

It also goes a small way to prove my suspicions that despite the noise generated in the media, obscure spectrum related issues just do not register on the antennae of the Great British Public. Certainly when I bring up forthcoming spectrum auctions in my local bar, no-one seems particularly interested to join the debate.

To put this vote in perspective, look at this e-petition from the inspired single-issue saynoto0870.com site:
We the undersigned petition the Prime Minister to compel all organizations using non-geographic numbers (e.g. 0845, 087* prefixes) to also publicize an equivalent geographic number (e.g. 01* / 02* prefixes) where they can be reached (and which can usually be called more cheaply than an 0845 / 087* number).
is at the time of writing at 17,939 votes.

However, I do believe that the market will function correctly and it will not be long before people start publishing the geographical number alongside the non-geographical number. I see more and more that people are fed up with being ripped off with 0870 charges. The trend in telecoms is towards fixed price bundles and it won’t be long before the hidden cost of customer support is included in the bundle.

I had to laugh the other day when calling British Gas on a Home Care issue: on the letterhead was a non-geographical number and directly under it was a geographical number for “international” callers. As if, I would use the non-geographical number which costs me money and contributes to Charles Dunstone retirement fund…

Friday, February 23, 2007

More Sky and Virgin Media Fisticuffs

The God of Bloggers is looking down smiling on us, whilst we prepare our sacrifices for the gift of the Sky & Virgin Media War.

Muhammad Ali famously refused to respond whenever anyone called him Cassius Clay. In fact, when Ernie Terrell called him “Cassius Clay”, Ali responded by delivered 45 minutes of brutal punishment, whilst repeatedly shouting “"What's my name, Uncle Tom ... What's my name."

Pathetically, Virgin Media respond to the Sky taunts of referring to them as “NTL/Virgin” by serving a writ on them telling them to call them "Virgin Media" in the future.

Similarly today, when the breaking news is that 4 Sky channels (Sky One, Two, News and Sports News) will be pulled from the cable platform, Sir Richard Branson comes out crying like a little baby claiming Sky have picked up their ball and gone home. Instead I view it as Virgin Media is so obviously being outmaneuvered in the content stakes by Sky.

As far as I can see it, a couple of weeks ago Sky successfully negotiated a cut in Flextech rates (which has been rebranded Virgin Media Television) from just under 40p per subscriber a month for Living TV, Bravo, Challenge and Trouble, to under new agreements less than 10p per subscriber for carriage on the Sky satellite platform. 30p/subscriber/month for 8.4m Sky subscribers will be around £30m per year. This is a big cut that Virgin Media agreed to and there is no way this would have happened if the content had been attracting good viewing figures. I think it also puts the old Flextech division into a loss making position.

Sky on the other hand is trying to earn more money from Virgin Media for carrying their content on Virgin Media's cable network. Actually, throwing in Sky Arts and HD channels is actually a really good negotiating tactic – increase the size of bundle and therefore get a higher price. However, I do have a lot of sympathy to the Virgin Media opinion that Sky were never interested in doing a deal and wanted to pull content from the Virgin Media platform.

Ultimately, the easiest way to differentiate on a TV platform is through Content. Sky have historically also managed to differentiate themselves on the basis of coverage and customer support, but Virgin Media have plans to narrow the gap on customer support. Therefore to me given the relative size of wallets – I expect Sky to hammer home content differentiation as a selling point for the Satellite platform over the cable platform. I don’t believe this is a short term strategy and Virgin Media may be in for a few shocks in the future when other content deals are up for renewal. For instance, Sky own stakes in the following channels:
  • Nickelodeon UK - 40%
  • The History Channel (UK) - 50%
  • Paramount UK - 25%
  • MUTV Limited - 33.33%
  • National Geographic Channel - 50%
  • Attheraces Holdings Limited - 47.50%
  • Chelsea Digital Media Limited - 35%
I expect these channels to threaten to withdraw their content in the future. Sky could also try for exclusive deals with other non-owned channels. Of course, the only way for Virgin Media to compete going forward is through buying exclusive content. The price of content seems to be going only one way in the future and that is up!

The Guardian quotes analysts as saying the current Sky cable TV carriage deal costs Virgin Media £20-£30m per year. This is a drop in the ocean compared to the overall BSkyB revenues of £4.1bn per annum and if you take Sky ARPUs of £400pa, this equates to 50k – 75k subscribers. The Guardian adds in to this another £50m in potential lost ad revenues which equates to a more painful 125k subscribers. In other words, Virgin Media have 3.3m million customers and Sky will have to churn around 200k of them or 6% to break even. I seriously doubt given the content that is planned to be withdrawn that many will churn and think once again Sky is planning to take short term pain for the benefit of long term gain.

This is the problem that is raised time and time again whenever I speak to analysts about BSkyB as a stock. The market is continually worried about what is the next investment round the corner and know that Sky will always make sacrifices to short term earnings.

I believe that Steve Burch landed the most painful blow of the day when he called Sky a schoolyard bully. The Great British Public loves an underdog and despises a bully. Sky really needs to get its PR in order, because it cannot risk the bully moniker taking hold. One of the reasons that Muhammad Ali is held even today in such great esteem by the Great British Public is that he did take a punch or two and even lost a couple of fights. Sky could learn a little from the great man…

Thursday, February 22, 2007

More UK Distribution Disruption

Yesterdays breaking news from the ever excellent Mobile Today that o2 have decided to drop Phones 4U is a huge move which vindicates the Voda UK strategy and one that continues to indicate that the network operators are doing everything in their power in reduce subsidies.

The next step is obviously in the court of T-Mobile and Orange, but further pressure on both Carphone Warehouse and Phones4U is to be expected. As far as I am concerned if no retail chain can offer every single network, it is more likely that people will shop around and therefore increase the probability of people buying phones from the network’s own shops. I am expecting to see a lot more network operators offering “specials” only through their own stores and therefore driving even more traffic to their shops. In fact, H3G UK is already following this strategy with their X-Series only available through their own stores. The handset manufacturers themselves are admitting that the operators are becoming a lot more professional in retail.

The 800lb gorilla of UK Retailing, Tesco, has also just revealed plans for opening 100 Tesco Telecom stores up and down the country. This definitely shows that there is still a lot of value in the telecom retailing and a sign that Tesco is not going to roll over and let Carphone dominate the prepay market. This is an extremely worrying sign for Carphone as prepay has been the main source of volume growth over the last couple of years. Carphone now seem to be in the middle of a giant pincer movement: with the operators wanting to reduce commissions and reduce sales in contract through retailers; and Tesco wanting a larger slice of the prepay market.

It reminds of a great quote from John Malone about Al Gore - "You can't win in a pissing contest with a skunk".

Carphone needs a new strategy fast.

HTIL – Indian Cash Use

HTIL announced this morning its plans for the US$11.1bn Voda lucre:
  • US$4.1bn Special Dividend
  • US$1.8bn Repayment of Debt
  • US$5bn in Vietnam, Indonesia and Sri Lanka + “New Opportunties”
Post completion the proforma net cash is US$8.4bn with the remaining group providing pro-forma EBITDA of US$650m in 2006. However in 2007, there should be big investments and start-up losses in both Vietnam and Indonesia.

It is almost as if Orascom have nothing to complain about. They asked for a special dividend and have gotten one. In yesterdays Hong Kong Standard there was rumours that Orascom might buy the emerging assets in Sri Lanka, Vietnam and Indonesia.

HTIL also put in perspective the Indian home-run compared to the Hutchison Whampoa previous two telecoms home runs with investment in Orange (UK + Other) and Voicestream(USA).

In terms of Capital Gains:
  • Orange = HK$168bn
  • Voicestream = HK$30bn
  • Hutchison Essar = HK$75bn
My initial speculation that HWL might inject the 3G assets into HTIL have proved to be extremely wide of the mark. I still think this story has some way to run, the next stage being a statement from Orascom on whether they plan on staying in HTIL. If they exit, HWL will have a lot more flexibility. In fact, I think part of the strategy of reminding everyone how brilliant HWL have been with telecoms investments in the past is to prepare people to what might happen with the loss making 3G assets in the future.

UK Communications 2006 Advertising Spend

Marketing Magazine has revealed the Top 100 UK Advertisers for 2006. Here is extract featuring the UK Communications sector companies:

7 Orange £74,161k y-o-y: -16.1%
8 BSkyB £73,964k y-o-y: -5.7%
12 BT £64,827k y-o-y: +2.0%
14 Vodafone £61,929k y-o-y: +26.9%
19 T-Mobile £44,185k y-o-y: -2.0%
24 O2 £41,357k y-o-y: -3.0%
49 Hutchison 3G £26,270k y-o-y: +4.4%
58 Yell £23,764k y-o-y: +19.3%
66 Samsung UK £21,536k y-o-y: +39.2%
67 AOL £21,453k y-o-y: -1.8%
90 Nokia £17,106k y-o-y: -16.2%
95 NTL £16,553k y-o-y:+281.3%
Position, Name, Spend, Year-on-Year change
In the mobile telecoms market, Vodafone stands out with a 27% rise in adspend to £62m; Orange, T-Mobile and O2 all cut their budgets. However, the current data does not show spend on digital advertising, which is calculated later in the year. According to Dominic Chambers, head of brand and marketing communications at Vodafone UK, the company's digital spend has doubled for each of the past three years. 'Our priority is digital,' he admits. 'It allows us to reach discrete audiences and create a richer experience by creating interaction.'

Vodafone more than doubled its radio spend to nearly £12m, placing it second only to the COI in the category. 'About 25% of radio listening is now online, and radio is a great way to reach people on the move,' says Chambers. The company also increased its outdoor spend by 39% to £19m, making it the medium's second-biggest user, marginally behind Unilever.

Wednesday, February 21, 2007

Thinkbroad Broadband Speeds

Thinkbroadband have written a telling article which gives an insight into actual delivered broadband speeds. Most interesting is the shape of the TalkTalk curve, which shows how few customers are getting anywhere near the advertised 8Mbps service – this exactly, mirrors my personal experience. Sky Broadband appears to be delivering much, much faster speeds to its customers. The other main ADSL 2+ suppliers Be Unlimited (o2) and Bulldog are also putting TalkTalk to shame.

8 more months and all I will be is another TalkTalk churn statistic.

Tuesday, February 20, 2007

Vodafone India: Partnership Problems Already

As each day goes by more and more revelations seem to break about the issues that Voda are going to have dealing with Essar in India. In yesterdays Financial Times, we had a long interview with Naguib Sawiris of Orascom and Weather Investments saying that Voda should buy Essar out because they are a royal pain in the neck.

Overnight from India, we have an interview with Vikash Saraf the CEO of Essar Teleholdings saying that the Essars want equal management footing with Voda. We also have the revelation in the Times that the Essar want to unravel the deal with Bharti and the Essars themselves provide the long distance and international transport for the network calls. There was also talk at the weekend of the Essars wanting a put option guaranteeing an exit price. I'm expecting soon to hear that Essar want keep their name and not Voda's on the venture.

This is before we hit the big issue which is what to do with BPL Mumbai. BPL Mumbai has been a poor performer over the last twelve months and was a source of many of the frictions with HTIL. It makes no sense for the Essars to be competing against Voda in any key city or circle and still remain a partner.

Arun Sarin talked last week of wanting Essar to remain as a partner. I said then and still believe today that Voda would prefer the Essars out of Voda India. Arun Sarin also said his Plan B was to buy the Essars out at the same price as HTIL, which is something that I believe that the Essar do not want – unbelievably I think they want a premium to HTIL and by being a founder member of the awkward squad that they will get that premium. I hope that Arun has a Plan C which is a way to force the Essars out at a reasonable price.

Arun Sarin has not put a foot wrong so far in phase 3 of his Indian adventure, (phase 1 – RPG Cellcom was a disaster, phase 2 – Bharti seems to have worked out in the end) but he probably knew all along that dealing with the Essars would be the hardest part of the deal. I believe that Voda have enough challenges going forward without having partners causing trouble at every turn and with every decision the board wish to make.

The other partnership problem that Voda have is with the silent partners, Analjit Singh (8.75%) and Asim Ghosh (6.25%) who received loans from HTIL when they bought out the Kotak Bank group’s stake in early 2006. There is a good possibility that Vodafone might rollover the funding for the additional stake buyout. I think this is slightly strange with Voda providing loans for someone to buy equity in the joint venture. I know the original issue was that HTIL needed local partners to keep within the Indian foreign ownership limits. However it would be strange for Voda to be providing loans for the future CEO of Voda India, Asim Ghosh, especially when his stake in the venture is valued at around US$1bn given the EV of the Voda transaction – that is unless there are some big conditions on the loan. For instance, they must immediately sell at the “market price” to Voda if the foreign ownership laws change - a little bit of transparency on the size and terms of these loans would be nice...

Monday, February 19, 2007

Visto Suing Stakes

Well, it looks as if Visto has raised its litigation fund as is ready to go, who do the punters feel will be first against the wall? The runners and riders with odds are:
  • RIM Evens
  • Nokia 3-1
  • Microsoft 5-1
  • All Three at once 10-1

Friday, February 16, 2007

OFCOM enquiry on Sky DTT platform proposal

OFCOM have announced they are going to investigate the proposed Sky DTT service with the following terms of reference:

Firstly, the impact on consumers of Sky's proposal to use MPEG4 compression technology via new set-top boxes, in order to increase the amount of content which can be carried. Ofcom would need to assess:
  • The potential benefit of a rapid migration from the current compression standard MPEG2, to MPEG4 which will ultimately increase the number of channels available on digital terrestrial television;
  • The potential detriment associated with a reduction in the number of channels received by existing set-top boxes or digital televisions;
  • The risk that existing set-top boxes or digital televisions might be incompatible with multiplexes broadcast using a combination of MPEG2 and MPEG4 coding;
  • The overall effect on consumer confidence in the digital switchover process.
Secondly, whether any variation to the channel line-up might unacceptably diminish the appeal of the channels to a variety of tastes and interests and whether a reduction in the current range of free-to-air channels would be compensated for by the proposed introduction of the new pay television channels.

Finally, the effect of any change to existing licence conditions and / or the need to include any new licence conditions to ensure fair and effective competition for the benefit of consumers.

Personally, I’ve thought that Sky DTT plans are twofold:
  • throw the spanner in the works for TopUpTV and Setanta. The last thing Sky needs right now is another competitive PayTV platform; and
  • prove compression works over DTT and therefore add weight for the PSBs needs no more spectrum and can broadcast HDTV through existing allocated spectrum.
Without wishing to second guess the enquiry, I suspect that OFCOM are going to reject allowing Sky to develop a new payTV platform on DTT and therefore Sky will come right back with TopUpTV shouldn’t be allowed either then. In other words only half a victory.

Is it just me or are Sky getting really good at spoiling tactics?

Nokia: A Couple of Strange Events

First, the Korean press are reporting that Nokia have chosen the Infineon chipset , the E-GOLDvoice, for use in some future handsets. As far as I am aware this is the first time that NOK have strayed away from Texas Instruments in a long, long time. However, dual sourcing makes sense especially for someone as large as Nokia.

Second, Phone News are reporting that Nokia, Qualcomm and Sprint have scheduled a press conference for Wednesday. This could be very big news indeed. Phone News seem to think it could be NOK returning to CDMA handset production with QCOM chipsets. Racking my brain I think the more likely outcome is licensing some of QCOMs technology for interoperability with the next generation Sprint network build out of WiMax.

My personal favourite would be the announcement of the world cellular heavyweight smackdown in the spring with Sprint as the referee with a world record purse up for grabs in the form of future CDMA Royalty Rates.

Thursday, February 15, 2007

Telenor: Short of the Century

There are so many adjustments going on in the Telenor accounts, I feel as if you need a PhD in Crystal Ball reading to understand the underlying performance of the business.

Here are some low points from the results:
  • The rollout of HDTV seems to have destroyed earnings in the broadcast division, I don’t know enough about the Scandinavian TV market to say whether this is just a blip or a longer term problem.
  • Telenor Sweden is going nowhere and margins in Q4 actually fell on marginal net adds. This business just does not have the market share (17%) to compete. If operating losses continue through 2007, a write-down on the carrying value must be expected. Time might prove Vodafone correct in selling out.
  • Pakistan looks great with revenues up 45% and market share to 14%, but operating losses have remained at around US$125m. Unfortunately for Telenor and not discussed at all in the conference call was the fact that China Mobile are coming having just bought Paktel (Market share 4%). China Mobile is known for vicious price wars - I expect a bloodbath in the second half of 2007.
  • Russia and the Ukraine look as if they are about to go ex-growth in terms of penetration. The growth in the Ukraine has underpinned valuations for quite a while now. It is noticeable that in the Ukraine there are still two operators, one owned by Teliasonera/Turkcell and the other by Vimpelcom/Altimo which are both sub-scale. This normally means only one thing – price wars.
  • I do not think there is a possibility of a resolution of the disputes with Altimo, in fact I predict they will get worse in 2007. Telenor are very quick to blame Altimo for their legal disputes, but I don’t see Telenor being conciliatory and trying to resolve the issues. Today’s drop in the share price of 10% should serve as a warning to Telenor to get this dispute resolved quick.
  • The political risk in Bangladesh and Thailand is getting worse. The comment that collapse of democracy in Bangladesh will have no effect on telecommunications did nothing to convince me, especially with the news that Nobel Peace Winner and Telenor Partner in GrameenPhone is about to launch into politics. It could be a horrible lose-lose situation for Telenor: the existing political parties will go all out to destroy Yunus and if he wins he will get his way and force GrameenPhone into a “social” company.
  • The incredulity from Bakaas in the call that Thailand and Malaysia still want Telenor to reduce its ownership to 49% after all the investments that Telenor have pumped into the economy shows incredible naivety.

To balance it out, here are some highlights:
  • It looks as if the situation at ONE in Austria is probably finally going to resolved in the year.
  • Serbia looks as if it is of to a good start, but they need to improve to justify the acquisition price.
  • Norwegian Mobile performance looks exceptional with a US$160m increase in operating profits year-on-year.
  • The Danish mobile market looks as if it is getting less competitive.
The shares are only for the brave and if sentiment changes they have an extremely long way to fall.

Tele2: Going Nowhere Slowly

“Going forward, we have decided to evaluate our MVNO business to make sure that shareholder value is maximized.”
In other words, if the price is right Tele2 will sell all MVNO operations. Listen to the sound of another nail being hammered into the MVNO coffin…

The rest of the Tele2 results didn’t appeal too much with a slight loss in Q4 and net cash flow. It is hard to work out exactly what is going on in the various operations, but it looks as if Russia & The Baltics is the only region delivering any sort of growth. Even in those regions, ultimately Tele2 are sub-scale and risk being squeezed out by the major players. The Nordic countries look like roadkill, but that is nothing new. The Benelux figures are meaningless after the Tele2/Versatel deal. Central Europe, especially Germany, doesn’t really have a future. Southern Europe is the same as ever – a drain on cash.

The sooner this hotch-potch of assets is broken up the better.

By the way, does anybody know of anybody else who doesn't bother to webcast their conference call?

Sarin: Signs of Losing the Plot

The past few days of celebrations seems to have loosened the tongue of Arun Sarin and he is making a few comments of late that probably will come back to haunt him.

#1 Tongue Slip

His repeated and continual statements that Voda has paid a premium for control for Hutchison Essar and therefore Essar’s rights as a minority will be limited. Majority owners of Voda associates in the USA (Verizon), France (Vivendi), Poland (various) and China (Chinese Government) will be dreaming for a copy of the Voda-Essar shareholder agreement – if it ever materializes. I think Voda is playing a double bluff with Essar and instead really hope that they exit the venture.

#2 Tongue Slip
"In China, government holds 85% and while the general public holds the rest. We have 3.25% only. But we gave them our experience, technology and expertise in 3G."
It appears that the Chinese have gone down a completely different road to Voda in choosing TD-SCDMA technology for its experimental 3G network. Either the Chinese have ignored Voda’s advice or Voda have advised not to go down the WCDMA route.

#3 Tongue Slip
“CDMA is like spaghetti. There are too many parts to it. Why do you need it when you have such a clean global standard like GSM? For someone who is already on CDMA, it makes sense to graduate to GSM and may be get out of CDMA eventually. The short answer to that is no. We will not consider CDMA.”

Ouch, what does this say to Verizon Wireless? Who is going to be the first person to ask Arun:
“Seeing that you believe Verizon Wireless is implementing the wrong technology and you have only limited rights as a minority when are you going to exit? And also seeing that you don’t believe in paying premiums to minorities, how will you get top dollar when you exit?”
It is also factually incorrect: CDMA technology is now embedded within the GSM technology roadmap and an important part of delivering broadband wireless. The pure 3GPP2 route (CDMA) has actually less spaghetti strands than 3GPP (GSM/WCDMA).

Obviously the comment was aimed squarely at Reliance Communications, the #2 in the Indian market, but will have reverberations around the world. I expect the Voda PR army is already in damage control mode.

The PR people are probably still busy dealing with the fallout from his slagging of Wimax technology and call for the GSM community to get their act together and speed up development of LTE technology. I'm sure the CDMA people in San Diego have something in their locker which could be developed much faster and easier than the fighting over future patent revenues that seems to take most time in technology development in the GSM/3GPP world.

Wednesday, February 14, 2007

HTIL: Indian Fallout

HTIL shares fell 15% yesterday with uncertainty over its’ plans for the US$11.1bn cash that Voda is about to input to company after the sale of around of 80% of its asset base. The prime operations remaining are mature assets in Hong Kong and Israel with early stage operations in Indonesia, Vietnam, Sri Lanka, Thailand and Ghana.

HTIL had net debt of HKD32,476bn (US$4.1bn) at the interims in June 2006 with approx US$2bn of the debt in the Indian operations. I think HTIL will be left with net cash of around US9bn at the close of the transaction. This is assuming that the transaction is tax free.

If I was in Hutchison Whampoa’s position I would seriously think about pumping the HWL 3G assets into HTIL: UK & Ireland, Italy, Scandinavia, Austria and Australia may finally find a home. HWL has tried and failed in the past to float some of its 3G operations and this is probably a once in a lifetime opportunity. If this was to happen, I expect there would be squeals of protest from minorities in HTIL, but given that HWL is the controlling owner of HTIL they probably could do nothing about it. The “independent” valuation of the 3G assets is the key to the transaction. The reaction of Naguib Sawiris of Orascom and the largest minority shareholder in HTIL should be something to behold especially after his cocky statements yesterday.

The answer will be revealed on the 22nd Feburary – I’m expecting a surprise or two.

TeliaSonera: Creating Shareholder Value in the East

What message does that send to the arch-nemesis of Scandinavian telcos? To me it means: “Offer us a good price and Russia, Turkey, Kazakhstan, Azerbaijan, Georgia and Moldova is yours”

The analysts seem to have missed the point completely with questions about how long TeliaSonera will wait until they exit if they don’t have operational control. Altimo will basically look at price that the Eastern properties are valued by analysts, add a premium to create “value” for shareholders and decide whether or not to make an offer.

The real question for TeliaSonera would have been: “Why the change of mind?”

The standard off the cuff answer would have been the “We are continually looking at opportunities to create shareholder value”. Anders Igel could have given Arun Sarin a ring for lessons in positive spin in the sale of mobile properties. I think the lack of enthusiasm in the conference call for the statement signifies this isn't really the answer.

However, the Anders Igel guard momentarily slipped during the conference call when he mentioned the Russian market was reaching a plateau and Turkey was about to enter a phase of increased competition. In other words, Teliasonera don’t see much growth going forward. However, if TeliaSonera manage to acquire increasing control and equity ownership in phases, the impetus for earnings is potentially huge and in a single blow would solve all the problems with stagnation in Scandinavia.

I feel the real answer may be that Anders Igel is under severe political pressure. The new Swedish government has expressed a desire of selling its 45.3% stake in Teliasonera. Realistically the government will want to maximise the price achieved for the stake and that means making sure the assets are valued by the market at a “correct price” before the placing of their holding. If the Teliasonera don’t want to play ball, the government could threaten a doomsday scenario for the management of merging assets with Altimo and then disposing of the smaller stake. Altimo have continually suggested that they are looking for a Western partner.

The Teliasonera board may have chosen the least worst scenario and decided to dispose of Eastern assets.

There could be a twist in the tale: Altimo could get together with whoever actually owns Megafon and decide that they didn’t get where they are today by paying anywhere near market rates for assets. A years worth of depressed earnings at Turkcell and Megafon will destroy the market value for the assets and therefore they can ultimately collude to acquire the assets at bargain basement prices.

Teliasonera looks tired of fighting for its Eastern assets, I suspect that Altimo doesn’t think the time is right yet to move in for the kill.

Tuesday, February 13, 2007

Finally some good news for Cellular VAS

Interesting news from the land of the 187,888 lakes, especially as the Finns tend to be the trend leader for the rest of Europe in Cellular terms.

elisa - mobile trends

Apart from the healthy increase in six months of people actually using the service, the numbers of people who plan to use the services are fascinating. I’ve always thought that the use of maps with location would be an extremely strong application and it is in this context that I am slightly disappointed that Voda has surrendered to Google on this service. Nokia will be more disappointed than me, especially given their map product Smart2Go has now gone free for all.

It is also noticeable that my personal prediction for #1 Value Added Service of the future, MobileTV, was not included in the survey. Perhaps, it is because the Finns have cocked-up on the implementation?

A reason given for the results was that the increased sale of 3G capable phones.

elisa - mobile trends2

Elisa seems to be ripping apart the Finnish market (both cellular and broadband) especially when compared to Teliasonera’s performance.

Sunday, February 11, 2007

Vodafone India: Seemingly Smart Maneouvre

Vodafone announces it has agreed to acquire companies that control a 67% interest in Hutch Essar from Hutchison Telecom International Limited (“HTIL”) for a cash consideration of US$11.1bn. Vodafone will assume net debt of approximately US$2.0 bn. The transaction implies an enterprise value of US$18.8 billion (£9.6 billion) for Hutch Essar. Vodafone has also offered to buy the 33% stake of the Essar Group and made arrangement with local partners to keep within the government 74% foreign holding limit if Essar decide to sell out. This is significantly lower than some of the US$20bn+ valuations placed on Hutchison Essar by some analysts.

One item of the transaction that definitely seems appealing on the surface is the unwinding of the 10% ownership in the #1 Indian Operator, Bharti. First, Vodafone has granted an option to sell its direct 5.6% investment for US$1.6bn to the local partner Bharti. Vodafone seems to have granted deferred payment terms for the 5.6% stake over the next 18 months. This leaves Voda with an indirect stake of 4.4% worth around US$1.3bn based upon an initial investment of US$0.8bn for the whole of the 10% stake.

India - mrktshare
India - abs subs

As part of this transaction, Voda has immediately allayed fear about the capital costs of roll-out of rural GSM in India. It seems that the #3 (Hutch Essar) and #1 (Bharti) will share infrastructure and which will make the investment look at lot more attractive than rolling out infrastructure solo. This potentially gives this partnership a huge advantage over the #1 CDMA operator, Reliance, and the state owned #2, BSNL and MTNL, in the GSM market.

The local major shareholder of Bharti, Sunil Mittal, seems to be making very positive noises about the partnership going forward and it does seem at first glance like a huge win-win for both parties. I would expect the other overseas operator with a shareholding in Bharti, Singtel, will be extremely disappointed that they have not picked up the Vodafone stake, however the fears will be allayed by the network sharing deal. The #1 CDMA Operator, Reliance, will be extremely disappointed that they have not won the deal, but their infrastructure partner, Qualcomm, will probably be extremely happy as they should now reinforce their commitment to CDMA technologies.

In the short term, the pressure will be on for Voda:
  • to improve the market performance at Hutch Essar: the Voda press release indicates a market share (presumably by revenue) of 25% by FY2012;
  • to rollout the Voda brand and services; and
  • to rollout the network to the 6 circles where there is currently no service.

hutch essar india

Even more important is the resolution of the issue of the local partner. In the press release Voda have indicated they have offered to the Essar Group terms to buy them out. The Essar Group have made noises all along in the auction process that they would try and use pre-emption rights to buy the HTIL stake that Voda have bought. It is also fair to say that the relationship between Essar and Hutchison Whampoa was extremely strained. It is really important to reduce the risk for Voda to sort out this problem as soon as possible.

In the medium to long term, Voda will no doubt look at acquiring some of the smaller Indian GSM players to gain market share. Ultimately, the aim must be to be #1 in the market.

For me, this is a stunning transaction which will transform the Voda Group growth prospects in one swoop. Voda have also managed to complete the transaction on a lower cost than some of the rumours in the press. Voda have also immediately addressed the situation with Bharti. The only potential problem is the current minority 33% holder, Essar Group. I expect to see a short term uplift in the Voda shareprice when the markets open in the morning.

Saturday, February 10, 2007

OFCOM: Shocking Statements on FTTH

ZDNET are reporting that the OFCOM chairman, Lord Currie, made some shocking statements in a speech to a trade association of comms users in business, Communications Management Association.
"For customers who live too far from an exchange, technically this is a problem that could be solved by fibre. But the services are not yet defined, the technology is not yet stable, and so it is too early for a regulatory approach. The case for digging up the road is a rather weak one."
When challenged by conference delegates, Currie admitted there might be a case for deploying fibre as far as street cabinets, but stood by his opinions over fibre being laid as far as individual homes and businesses.
I am horrified and I believe that it is so against the OFCOM policy of being technology neutral that I can only believe that the Chairmans comments have been misunderstood. I think it might be similar to the shocking widely reported statement from Google that Video over the internet will not work, until you actually read the fine print of the Google speech which meant they were talking about the copper bottleneck in the last mile which incidentally could potentially be solved by FTTH.

OFCOM are normally pretty good about placing important speeches on their website. I await the fine print from Lord Currie’s speech and any clarification.

The problem is that 41% of businesses cannot get broadband because of their distance from the exchanges. This has always been the case and the solution nearly always has been to lay fibre to the businesses and deploy leased lines. The problem is that this is really expensive and only the largest and more profitable businesses could afford these type of solutions. Silicon economics, technical innovation and the world towards an all-IP world have radically brought down the costs, however the economics are uncertain.

What is certain is that more and more Fibre to the Home and Business is being deployed throughtout the world, it technically works and supports more and more services including every comms application that a business currently would want to running.

Friday, February 09, 2007

Telebusillis In The Running For Mobile Post Of The Year

I am honored to be selected as one of this year's finalists for Carnival Of The Mobilist's Mobile Post of the Year.

Carnival of the Mobilists- Khosla Ventures Post of the Year

The top 10 finalists (in no particular order)

1. Casual Mobile Snacks for Everyone
2. Mobile Gaming Blog
3. WAP 2006 Review
4. Murder of the iPod
5. Mobile Youth interviews
6.Qualcomm's legal shenanigans
7.Pay Per Click advertising for the physical world
8. Current and future mobile applications
9.Problems with Coltan, the magic dust
10. A mobile phone better than the $100 laptop?

To vote for your favorite post, click here the password is mobilists

I would like to thank Khosla Ventures for sponsoring this event. Kudos go out to Russell and Carlo for bringing together some of the best mobile bloggers and creating a one stop shop for provocative mobile thinking.

I also would like to thank The Pondering Primate, from which this content has been hacked from.

For what it is worth, my post was on Qualcomm.

Vodafone: MySpace + YouTube + eBay = Not Enough

There is no doubt that Voda is looking at its endemic market share in the UK youth market and planning a spring or summer offensive. O2 is currently the youngsters networks of choice and Voda will have to work a lot harder to make them churn.

Personally, I think the key tool for the youth is messaging – currently they use SMS on the phone, MSN instant messaging at home on the computer and HotMail for email. HotMail can be delivered via Voda branded push email technology. Seeing that Voda’s revenues from this segment is currently limited, it hardly runs the risk of cannibalising its own revenues and therefore can do something radical like bundling all three together and fixing the price. Also, in terms of pricing monthly charging is only of use where parents are paying, why not offer a weekly fee which could be paid via the top-up network or even paypal which is turning into the internets currency of choice.

The next important point is the handset. Most youngsters would rather die than have a naff handset. Why don’t Voda do something different and a little risky? They now have Huawei as a vendor who will basically build anything that Voda requests. Or Voda could go and break the T-Mobile/Danger partnership with the Sidekick. What seems incredibly important is that Voda puts a lot of investment in making the device “trendy” and used by the style gurus. It is not having a large range that is important, just a couple of handsets one aimed at each sex will be suffice.

The next thing that is important is Music and the youth don’t like paying for it. It would be impossible for Voda to put an application like Limewire on the handset, because p2p networks will not be economic over the air and Voda would spend the best part of the next decade in courts being sued by the record companies. The next best thing and the clean hands approach is to provide access to home computers. Orb is the perfect tool for this and Voda have experience of it in Germany. One this they must not do is to price data out of the market and they must think of matching T-Mobile Web ‘n’ Walk pricing.

MySpace will add street credibility, but it will hardly make people churn from current networks. And this must be Voda's aim - an increase in market share in the Youth market. The YouTube deal is a bit of a joke with only a selection of the videos available. The eBay access is hardly earth shattering and probably more applicable to non-Youth segments.

I would also consider doing something really radical like only making the product available over from Voda Internet Store to cut distribution costs and make customer support only available via text or email.

3 have basically developed and priced the X-Series to target the Tech Savvy Segment, Voda needs to put its own package together to target the Trendy Teen Segment. I believe it is an interesting market because every year 600k new users enter the market and also they have very little loyalty and therefore will churn if a great package is offered. Now the mobile market is maturing we will increasingly see packages of services developed to met different customer segments.

TalkTalk at Sainsbo’s

Just been down to my local Sainsbury’s to top up the Vino Collapso Collection and surprise, surprise there was two agents accosting shoppers browsing the latest and greatest snacks. Of course, I listened to the sales patter which was all about CPS voice not broadband, the look on the poor guy’s face when I revealed I was already with TalkTalk was priceless. He pleaded ignorance when I asked if the new sales drive had anything to do with BT winning customers back. He also pleaded ignorance when I asked if sales were poor at the local Carphone Warehouse store which is around a mile away. He looked visibly irked if I asked if he was getting a lot of complaints about TalkTalk Not-So-Free Broadband, so I decided to move along to the Wine before he punched me.

I was thinking on the journey home about Virgin Media’s comments that they are set to announce a tie-up with a major retailer. If this is not Carphone it will be bad news and mean Carphone have even less cellular product to shift. If it is Carphone, it will be quite a coop and good news.

Also, by putting 1 + 1 together and getting 10, I was thinking that perhaps Carphone might be able to offload the whole of the TalkTalk nightmare onto Virgin Media. It would immediately bring scale to the Virgin off-net plans and also cement their position as the UK’s #1 broadband company and #2 voice company. There must be economies of scale especially in the backbone and back-office field.

I also heard from a cyberbuddy that there is a rumour going around the city that Carphone is going to get exclusivity on the iPhone. He put the rumour down to desperation from the bears. Apple needs the operators to provide the subsidy and give them a share of the on-going revenues and isn’t going to give exclusivity to Carphone unless every mobile operator tells them where to go. My money is still on O2 getting the exclusivity.

Virgin Media: The Gloves are Off

The first thirty seconds of the hour long Virgin Media launch (NASDAQ: VMED) was basically slagging off the competition:
  • “Talk, Talk Hot Air”
  • “Satellite Pictures shaking with Wind and Air”
  • “Orange: Dolphin, Canary, Panther, Barking…”
  • “See, Speak, Surf – Slow, Stuck, Suffer”
We then had Jim Mooney, who looks as if he has just walked off the set of “The Sopranos”, threatening that he would everything possible within the current legislative system to fight the structural flaws in the UK PayTV market:
“A competitor who systemically suppresses anyone who wishes to compete in content needs to dealt with”.
Basically he is picking a fight with Sky and the Murdochs, Jim also paraphrased James Murdoch and the insulting comments about Virgin Media with the “nothing changes by getting handed a company from your father and pretending to have a new company”. Ouch – this fight has now become completely personalized – young turk prove you are worthy of your fathers reputation!

The only interesting disclosure in the launch was the plan for off-net services (ie via BT’s local loop) to also deliver the quad play to 97% of the UK population by November 2007. This is basically rubbish and I’ll eat my hat if Virgin Media manage to accomplish this. Yes, they might deliver an uneconomic Video-on-Demand/Broadband/Voice service as a BT reseller, but there is no way they can build out economically a LLU infrastructure to 97% of the UK which will be around 4-5k exchanges. There is also no way they can deliver usable IPTV to 97% of the UK. ie Mission Impossible.

However, I do think Virgin Media will manage to generate a lot of noise about the excessive power of BSkyB in the corridors of power, whether the government will do anything about it is a completely different matter. I suspect that OFCOM in the next twelve months will be under a mega amount of pressure as they are caught in the crossfire to referee a UK communications market which will rapidly descend into a state of anarchy in the home market. The stakes for both Virgin Media and BSkyB have become too high. I'm can't wait for the online calculator to appear comparing the damage that the Virgin empire causes to the planet compared to the carbon neutral utopia of BSkyB.

BT can probably avoid serious damage because of its wholesale business and reputation for quality. All the rest of players in broadband market are going to really feel some hard core pain – this includes Orange, Tiscali and Carphone Warehouse. Personally, if I was Vodafone, O2 or T-Mobile I would stay well clear of the home market in terms of fixed line provision of voice and video, because the temperature is about to rise to boiling point.

Wednesday, February 07, 2007

KPN: When in a hole stop digging

KPN continue to be super confident about the performance of its overseas mobile operations in 2006. However, I have believed all along that their strategy is fatally flawed, only has a limited lifespan and now I believe that closing time is nearly upon them.

Basically back in 2002, BASE in Belgium was a complete basket case and losing money. KPN decided to slash costs, develop a wholesale and multi-brand offering and compete on price in the prepaid market. There can be no doubt that this has been successful: BASE is now making reasonable margins, but still it has only 15% market share in a three player market. The problem for BASE is that the price conscious prepaid market is only of a certain size and typically exhibits the lowest loyalty of any market segment.

KPN admit they need to look at new areas of growth in Belgium and are targeting the SOHO segment: unfortunately this segment requires a lot of investment in the distribution channel and also a lot of investment in handset subsidies. This goes “contra” to the original “keep it simple” approach of BASE that delivered the turnaround. This is also exactly the same market segment that the second mobile player, Mobistar, plan to target in 2007. I think that BASE are rapidly running out of steam.

It is interesting to compare the BASE strategy to the Telfort strategy in KPN’s home market of Holland. In 2003, O2 sold the Dutch basketcase, Telfort, to private equity for €25m. Telfort then proceeded to pursue exactly the strategy in Holland as BASE in Belgium. In 2005 having slashed costs, acquired the bargain hunters as customers and caused more than a little pain for the major players, Telfort was bought by KPN for around €1bn.

The interesting part of the story is that the private equity behind Telfort realized that moving to the next stage required a lot more money and the bigger value was for an existing player to buy the traffic and realize further economies of scale through the network effect.

In nearly every mobile market in the world, the challenger is nearly always more aggressive on pricing than the larger player, but faces a floor in pricing and that is roughly when prices equals termination rates. However, larger players can go further down the pricing curve, because of the amount of on-net traffic carried. On-net traffic obviously does not incur termination rates.

The BASE team moved onto the next basketcase in the KPN portfolio: e-plus in Germany. To the surprise of nobody, they basically repeated the strategy of BASE and the turnaround in e-plus figures are evident.

The difference is that Germany is the biggest mobile market in Europe and contains two of the biggest beasts in the mobile world, T-Mobile and Vodafone, who do not like to be humiliated by upstarts. Both T-Mobile and Vodafone have begun the fightback lowering prices and playing the bundle card. It is extremely difficult for marginal players to match the bundle, again because of the amount of off-net traffic they carry.

Also, a minority in Germany such as the Turkish community would represent a majority in other markets and therefore becomes more appealing for a major to target; especially when they own a Turkish network and can again offer deals that e-plus will just not be able to economically match. I expect a lot of this to occur in 2007, Voda and T-Mobile targeting the e-plus niches. T-Mobile are also playing this strategy developing products which deliberately target and cause pain to the other player o2 with its T-Mobile@Home aimed directly at the o2 Genion product.

To draw a comparison with the UK, the four majors (Voda, O2, Orange and T-Mobile) were drawn into a bloodbath in defending their shares against the newcomer H3G UK. At the start of 2007, it appears that a bloodbath is developing in Germany with Voda and T-Mobile fighting their corner against O2 and KPN. Six months ago, I would have said that the only conclusion would have been for H3G UK to be sold in the UK and O2/KPN merging in Germany. However, in the UK it appears that H3G UK has completely changed its strategy and the other operators are desperately trying to reduce distribution and SAC costs to restore UK profitability to European norms. Of the four operators in Germany, KPN is the least able to withstand a bloodbath, especially given most of its base is now made up of ultra-price conscious segment. O2 now has a parent with deep pockets, experience of bloodbaths in Latin America and more importantly is deploying a strategy based upon differentiation through the brand and innovation rather than price.

My conclusion is that KPN needs to sell up fast in both Germany and Belgium to realize some value for shareholders. They could then use that money to turnaround two other European basketcases that they are sniffing around: Sunrise in Switzerland and Connect in Austria. However, I seriously doubt whether KPN will follow this strategy, they are more likely to buy Sunrise and Connect and at the same time keep e-plus and Base. This is the beginning of a Pan-Intraeuropean Subscale Strategy. This is exactly the type of strategy they followed with the investment in pan-European altnet KPNQwest in the bubble years. That investment ended in tears for KPN shareholders.

Personally, I don’t think KPN have learnt their lesson and the KPN shareholders will pay the price for the folly of corporate strategy.

TalkTalk Unbundled

I was switched onto the TalkTalk network last night and everything went as promised. The service came down at 0:55am (voice and data) and by lunchtime today the telephony was up and running. I tested the internet connection at 5pm and everything was functioning correctly after a reboot of the router. The raw DSL speed is 448 Kbps Upstream, 3360 Kbps Downstream.I am getting 365 Kbps Upstream, 2593 Kbps Downstream at the IP level according to Speedtest and 360 Kbps Upstream, 2131 Kbps Downstream at the IP level according to Think Broadband.

Amazingly, I am actually pretty pleased so far with the experience and hoping my speed will settle higher once the rate adaption phase of provisioning is over. I’m also dreaming of a stable TalkTalk DNS.

Tuesday, February 06, 2007

Most Exaggerated Quad Play Claim

The current leader in 2007 goes to Rob Shardlow of Virgin Mobile:
“…the ability of the business to offer customers digital TV, broadband, mobile and home phone products under the Virgin brand would 'transform' the business, taking it 'ahead of Vodafone, BT and Sky', and encouraging more customers to sign up to other Virgin products”
Mind you, he also said:
“…A retailer selling Virgin Mobile will be able to sell TV and broadband from the same store, making more money and benefiting from the strength of the Virgin brand.”
I wonder if Carphone Warehouse will take him up on this exciting offer?


Our poor beleaguered set of Public Service Broadcasters and TV Manufacturers have bandied together to pay for a PR agency to lobby for free spectrum.

I love the way a set of interested parties can claim us the taxpayer are suffering because they are not going to be given a scarce resource for free. My stance is that they or anyone else has the right to bid for the spectrum and broadcast HD TV. In fact, the BBC is already renting satellite capacity from SES-Astra to broadcast “free” HD signals on the Freesat platform.

At least, they have chosen the government’s latest tool for ignoring the Great British Public – epetitions – which must have sounded like a great idea on a powerpoint slide until the British people decided they would like most of all to repeal planned taxes, current taxes and abandon legislation. Currently, the top three current petitions are to:
  • scrap the planned vehicle tracking and road pricing policy (708,255 votes)
  • ensure that inheritance tax is scrapped in this year's Budget (27,946 votes)
  • repeal the Hunting Act 2004 (22,639 votes)
Currently, at 784 votes the grand theft lobby has a long way to go before 21st Feb to even appear on the e-petition radar. In fact, there are lots of other looney causes which seems to have gathered a load of votes for instance, the petition for the Prime Minister to stand on his head and juggle ice cream.

Video Update

Rather than cluttering this site with embedded Flash Video players, I have created a sister site called VideoBusillis which has made a debut this afternoon.

It is going to be a collection of various telecommunications related videos that I think are interesting in one way of another. Output will be sporadic and if anyone is interested, I would advise burning the feed into your favourite reader.

If anyone wishes to contribute just email the Jungle Grapevine with your video links.

Monday, February 05, 2007

Artsworld to rebrand as SkyArts

It is becoming more and more difficult to brand Sky as low-brow.

The latest and greatest part of the turnaround is the planned rebrand of Artsworld. I don’t think anyone can argue about commitment since Sky saved Artsworld from extinction. It has ploughed money into the channel, withdrawn the monthly fee – it is now part of the "Style & Culture" bundle. I thought at the time of the takeover that Sky was merely paying a “toff’s tax”, but the ongoing investment has made me revise my initial thoughts and now I think it is part of the grand scheme of Sky’s strategy in throwing out bait to catch the Long Tail and addict them to the wonder of the network: Opera and Ballet, are not my cup of tea, however I enjoy watching The Book Show especially now as I can Sky+ it and watch it at my leisure. I also think it is incredibly important that classic films are converted into a HD (High Definition) format. I totally support the sponsorship of the BFI, although I think the initial choice of movies leave a little to be desired.

It seems slightly ironic that the BBC output seems to be becoming more and more limited to BBC Four which although produces fantastic documentaries does not compare to Artsworld in depth of coverage. Melvyn Bragg seems to be desperately trying to find an output for the vast archives of The South Bank Show at ITV, perhaps the new minority shareholder might be able to help out. Channel4 seems to be focusing on antagonism rather than art at the moment. Who knows about Virgin Media plans? But to me throwing a man out of an aeroplane dressed in a wedding dress is not supporting the Arts.

And the best is that Artsworld becomes SkyArts HD. This is perhaps a sign that the Long Tail of Art afficiando's can be profitable and does not require a Public Service Broadcasting remit.

iPhone Processor Source : Cambridge, UK 5 - California, USA 0

Forgive me as a true Brit, a little gloating in the iPhone processor source stakes:
Also just to rub salt in the Californian wounds, I believe the Head of Design at Apple is actually a Geordie.

Even more interesting is the last time that Apple launched a product predominately based upon Acorn technology – it turned out to be one of the biggest flops in computer industry history and paved the way for the return of Jobs.

Will it be flop #2 or a testament to timing and marketing brilliance of Jobs? Tune in this time, next year for the answer…

Friday, February 02, 2007

How to Build an Ultra-Cheap Mobile Network

1. Use Unlicensed Spectrum

2. Get City Councils to give free Rights of Way and Power in Major City Centres

3. Get Users to Build Out Network in the Suburbs and Rural Area

4. Give away some crappy handsets

5. Get the Regulator to allow for Higher Power on Base Stations built in 2. & 3, once coverage is found to be appalling

However, once built how are they going to make money from it and deal with quality issues?

Oranges are not the only Loons

My cyberbuddy, James Enck over at Eurotelcoblog, has been following the same calls as me. The difference is that last night I gave up on the deadly dull France Telecom call as not only was listening giving me a migrane but any rare half-decent question was the dealt with the perfect forward defensive - “we will reveal that on March 6th”. At least with Voda, they have the decency of giving out enough information to allow a couple of hours of spreadsheet gaming to break the tedium. Of course as an Opensourcer, the great advantage I have over James is that I can give up and leave it to someone else.

As with James I was struck with the appalling Orange net adds and my thoughts wandered to the Carphone twofor prepaid Christmas offers – they obviously didn’t sell a lot - net. Even more noticeable was the T-Mobile UK net adds which I think included Virgin Mobile figures on the prepaid side and were also noticeably extremely light. Seeing that Carphone reported huge prepaid sales figures, the only answers to this interesting conundrum are the dreaded churn or even worse box breaking. The new Virgin Media call will be interesting on the mobile side.

On the Orange postpaid side, I plan on opening a book on how long it will be before the mobile operators to realize that bundling of fixed and mobile products for the consumer market is a really stupid idea that only consultants are interested in. Average Joe Public is only interested in cheap calls on the mobile, they would prefer to pay less without having their fixed line or broadband line added to the bill. In fact, Joe Public would love to ditch the fixed line if the mobile was cheap enough and just use the fixed line for broadband.

I also spent a while looking at graphs of the sterling/euro exchange rates and wondering how much the Orange revenues actually dropped in Sterling. Given all the above, unless Orange dream up a new strategy fast, I think their only function in 2007 will be to increase the size of Charles Dunstone’s Wallet.

I was intrigued by the Sky call and although the strategy is proving to be really expensive, I still think it is the right one. I didn’t like the jokes about Virgin Media but couldn’t resist a little chortle about "... there is more to the business than throwing someone out of a plane with a wedding dress on." I don’t think the real competitor is Virgin Media which to be honest should be so easy to beat that it will look like Sky is playing the role of bully. I think the real competition is the BBC and BT which are much more difficult beasts to best.

Here are four examples where Sky is playing an extremely smart game and beating the rest hands down:
  • Sky+ - this is a killer product when tied with the vast bandwidth Sky have and it is already in 2 million homes. BT Vision is a good start to compete but Sky are so far ahead they may be unbeatable. The addition of Sky Anytime functionality and pricing strategy is pure genius. When Sky links the Sky router to the Sky+ box - it is game over. Forget the joke iPlayer, BT Vision and whatever Virgin Media will end up calling its box . Sky already has captured the high roller market - the rest are fighting over scraps.
  • MobileTV – on the call Murdoch revealed 230k paying subs as a throw away comment. No-one in the press has picked up on this preferring instead to report the disastrous Virgin/BT Lobster product. By the time the L band is auctioned Sky will have enough customers to make it economical, although with some of the comments about future investment strategy they may need a partner with deep pockets to roll out the infrastructure.
  • Environment – I think James’s comment about this is spot on. I also think the strategy is very hard to replicate. Can you imagine how much it would cost BT to go carbon neutral? – they must power 30 million fixed line phones in the UK alone. The BBC who in typical fashion are very good at lecturing the British Public how shameful they are in destroying the environment yet does nothing themselves about it - Jeremy Paxman has taken up the case. The idea of giving out a couple of light-bulbs on each engineers visit is not only a killer approach, but is dirt cheap and shows intellectual dexterity.
  • Email - I'm going to discuss this in another post but the deal with Google is also pure genius and will have the other ISPs scratching their heads and wondering why they have been haemorraging cash on email services for so long.
We live in interesting times.

Thursday, February 01, 2007

Another MVNO bites the dust…

TeliaSonera is to buy debitel the Danish MVNO for a minimum of €95m and maximum of €140m depending upon performance.

debitel is not a pure mobile mvno (300k subs) and also offers fixed (110k) and dial-up internet services (27k), so a pure valuation of the MVNO is impossible to work out. In addition, debitel has said they will also transfer other MVNO traffic, presumably in germany, onto the Teliasonera network. Annual Sales for the business was approx. €130m of which 66% was mobile, profits were not declared.

This means that the big three mvno’s in denmark: telmore, cbb and debitel are now all owned by the big three networks: tdc, sonofon (aka telenor) and teliasonera.


The Rajar’s are the listening figures for radio in the UK and they have just released the audience figures for Q4.

The overall trend is that the BBC is down (0.3%) whereas Commercial Radio is up (1.5%), although to be fair the trend is not statistically significant. However, it is noticeable that the BBC is only listened to by a mere 28,711k people. Obviously, there is a vast chunk of the great British public who attach zero value to this element of the BBC bundle. However, I confess I’m not one of them and actually attach more value to the Radio than the vastly overpriced BBC TV output.

Another small interesting factoid within the detail is that Radio3 has an audience of only 2,028k which is an embarrassingly small figure especially when compared to the commercial rival, Classic FM which has 5,757k listeners. It makes me think that the hot air generated by OFCOM and the BBC Trust about making available the BBC Orchestra material as non-DRMed downloads was just a waste of energy and a diversion from the real principles at stake.

It is noticeable and pleasing that the fastest growing radio is XFM which is dedicated to indie music and the fastest growing Digital only station is Planet Rock which is dedicated to all rock dinosaurs ;-)


Some fan of the beeb has emailed me whinging, so I’d better make myself clear. The 28,711k figure is listeners to BBC National Network Radio, if we include the Local Stations total listeners increase to 32,810k.

Also, the Rajar survey is only for people aged 15+, so the total potential audience is around 50 million.

Apologies for any confusion caused. It is heartening to know that the British Bolshevik Corporation have people monitoring the blogosphere.