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Friday, June 29, 2007

Murdoch Musings On Broadband

There is a fascinating interview in the recent edition of Time magazine about the WSJ acquisition process, but a particular paragraph stood out for me:
When Murdoch talks about the future of newspapers, you get a sense of how contemporary he really is. Circulation and advertising revenues are ebbing away everywhere, he notes, proportional to broadband penetration. "You've really got to worry," he says. "Tribune Co.'s revenues [in May] dropped 11% across broadcasting and newspapers. That's huge. The Times dropped 8.5%. Half of men under 30 aren't reading print newspapers, and there's no sign that they come back as they age."
If you think about the Murdoch Snr musings on broadband, you can see immediately why Murdoch Jnr is investing huge sums on developing a broadband future in the UK.

Now look at the recent Q1 estimate of UK Advertising Spend:

q1 2007 adspend

The surge in internet spending in incredible and while I am the first to admit that the growth cannot go on for much longer at these levels it certainly is impressive.

Even more impressive is when we look at the Google UK revenues which were £290m (US$578m) in Q1 2007 compared to £171m (US$343m) in Q1 2006 a y-o-y growth rate of 70%. Remember this is before the DoubleClick acquisition and accounts for a huge 45% of UK Internet Ad market if the WARC estimates are correct.

No wonder the Murdoch empire is scheming of ways to take traffic off the Google platform and onto his - witness the recent launch of MySpace.tv as direct competition to YouTube. Also, it will be extremely interesting to follow the BSkyB acquisition strategy in internet content rather than access. The acquisitions of 365Media, MyKindaPlace and the Aura Sports Ad Sales Agency together with the Google alliance and the beefed up SkyNews site are a very interesting start.

Wednesday, June 27, 2007

PSP Boondoggle Miraculously Finds a Leader

Tom Loosemore is the lucky appointed one.

For those not in the know he is currently Project Director for Web 2.0 at the beeb, including responsibility for the iPlayer. As per normal, MediaGuardian have some great quotes:
"I think it is healthy to have public media produced natively, and I have been interested in the idea of a public service publisher from the outset. It is my dream gig."
I think anyone would love to swap a job with responsibility for actually having to deliver something for a job playing Santa Claus giving away £50m -£100m of tax payers money per YEAR.

However, the best quote is left to Ashley Highfield his old boss at the beeb:
“I hope to continue discussions with Tom over the PSP and work with Ofcom over whether the PSP is a workable proposition."
Ouch, even his old boss at the taxpayer funded beeb seems to think that the PSP might be a gravy train too far.

Iliad and Differentiation

Dave Burnstein produces without doubt the must read newsletter for the worldwide broadband industry, which has the added bonus of being free and available via an email subscription. In the most recent edition, he reveals that the French broadband operator, Iliad, has integrated some Broadcom software, called DSLSafe into its network.

Iliad explain the benefits of the technology in its Press Release:
The quality of a broadband connection mainly depends on the intrinsic quality of the telephone lines: the distance between the subscriber and the telephone exchange, the quality of the cabling and parasitic sources such as the electro-magnetic environment. All such factors cause errors in data transmission on telephone lines that in turn interfere with the signal quality and slow down the connection.

With the new software based on Broadcom’s Phy-R (TM) technology, the error rate measured on lines has been reduced by a factor of 10 - the connection speed has improved considerably without any increase in latency (ping). By contrast, whilst prior to the introduction of this software solution 50% of lines used to record around 10 errors per hour, with this new protocol the residual error rate has dropped to 5%
Iliad is very interesting, well at least to me, because they take a huge amount of technology risks compared to the average broadband operator. They actually develop and deploy their own dslams and customer modems/routers/set-top boxes based upon leading manufacturers’ silicon, linux, other other open source software and contract manufacturing. Although risky, this strategy has the advantage that Iliad can easily differentiate their network compared the other operators “pipes”. Top download speed for Iliad is in fact 28-meg as opposed to ADSL2+ speeds of 24-meg and now they have a “quality differentiator”.

Obviously, any advantage is only temporary as the big equipment providers usually catch-up, but leads to Iliad being seen as the market “technical innovator” which obviously helps the brand out considerably with a certain segment of broadband users.

It is a real shame that we do not see similar examples of technical innovation in the UK broadband sector.

Fortress Europe: MobileTV

It should come to no surprise to anyone that are reports that Viviane Reding is about to recommend the use of DVB-H technology across Europe.

In a speech given in March at the CeBIT conference, she laid out the official EU stance:
I am convinced that the use of widely recognised open standards is of paramount importance to achieve economies of scale. Only with economies of scale will we have an efficient use of spectrum, affordable handsets and rapid consumer take-up. Therefore, I am prepared to give strong support to European standardised solutions, such as DVB-H, on the condition that they provide certainty about technology licensing terms and conditions. Without this certainty and predictability, it will be impossible to invest with confidence in new innovative technologies. Industry should therefore foster work in this direction.

European industry has developed and exported worldwide successful standards already in the past, as we currently do in South America and Asia to export DVB-T as the best open standard for digital television. I am therefore confident that on the basis of DVB-H, economies of scale will develop for the take-up of Mobile TV in Europe and around the world.

For all practical purposes this is going to firmly shut the door on alternative technologies such as MediaFlo and DMB-T. How this will be achieved is not necessarily via the route used in getting universal adoption of GSM technology in 1990s throughout Europe – ie tying spectrum to a specific technology. It would take an extremely brave and foolhardy mobile operator to go against the grain and choose some other technology whatever the perceived advantages are.

Given the powerful forces behind MediaFlo technology (Qualcomm of the US) and T-DMB (South Korean Manufacturers), I am fully expecting the issue to develop into another Airbus – Boeing type brawl ending up at the World Trade Organisation. The WTO will not change anything, because it will take years for the saga to be resolved and by then DVB-H will be deployed and the game will be over, but the WTO will set a precedent for future technology decisions and therefore the process will be important.

The UK here is a complete laggard and because of our sin of sloth for clearing and licensing spectrum the UK people were always going to be dealt with at a minimum a de-facto standard rather than a variety of technology choices or even one technology determined by the market which is best for the UK economy and population in general.

For instance, although T-DMB is seen as a South Korean promoted technology, important patents are held by the BBC and various British Universities and of course BT has spent, no doubt, a fortune in developing and deploying their own variant of the technology.

Qualcomm’s MediaFlo is a totally different kettle of fish, but results of trials in the UK, USA and Japan seen to indicate that it is far more spectrally efficient than DVB-H with lower cost to deploy and more capacity. The recent decision of AT&T in the USA to deploy in a WCDMA network and it looks as if Softbank in Japan will deploy in another WCDMA network shows to me at least that MediaFlo is a really viable option.

The window is still fractionally ajar for Qualcomm in the UK, but that involve them bidding for spectrum and finding local partners with the content, brand and bravery to do something different – realistically BSkyB is the only potential premium partner. The other potential ally would be National Grid Wireless / Arguiva would have the sites to allow a quick rollout of the technology if any spectrum is acquired. However, it would cost Qualcomm a lot of money just to establish a beachhead in Europe with a potentially long payback.

The wider debate is whether it is beneficial for EU citizens for the unelected EU commissioners to be setting de-jure standards and promoting EU industry champions.

In the UK, we have tried these types of policies in the past and they have been disastrous for our economy. In other EU countries, such as France, this has been a major part of industrial policy for many years and many French would argue the policy has been extremely successful.

Tuesday, June 26, 2007

Sky: More Cunning than a Fox

OFCOM announced the Sky DTT investigation this morning – there were two surprises and an element of shame:

The first surprise is that Sky has convinced National Grid Wireless (NGW) to come on board. Although largely unknown to the general public, National Grid Wireless is a key stakeholder in the UK communications industry. Basically, once the Macquarie merger with Arquiva gets the go ahead the combined NGW/Arquiva is the monopoly supplier of transmission sites and engineering services to the whole of the UK Broadcast industry with huge contracts for DTT transmission until 2025-2030. More importantly, it also owns leases for 33% of the UK DTT Spectrum.

Both Sky and NGW own 20% each in the DTT marketing venture, Freeview. The other 20% shareholders being ITV, C4 and the BBC. If Sky makes ITV an offer they can't refuse to come aboard the Sky/NGW DTT payTV train, then the majority of the Freeview shareholders will be in favour of DTT PayTV and this would be a killer consortium.

Top-Up TV and Setanta can whinge as much as they want to OFCOM, but basically they have zero rights to become a monopoly provider of a PayTV platform. BT and Tiscali will be in an even worse position than Top-Up TV & Setanta not even owning any spectrum.

In addition another complaint about the use of MPEG-4 technology has been taken out of the equation, because both Sky/NGW have said they will not use it initially.

The element of shame is that OFCOM will not start the consultation until the autumn and the consultation is due to last 10 weeks. Clearly this is anti-competitive and gives TopUpTV/Setanta a unfair head start in launching subscription services for the next Premier League season. If I was Sky/NGW, I would seek an injunction on the TopUpTV/Setanta product to prevent launch until the OFCOM consultation is completed.

I look forward to reading the responses in the fullness of time, but they won’t change anything – basically yet again Sky has yet again outsmarted the rest of the TV industry.

T-Mobile UK – Swimming against the Tide

Unbelievably, T-Mobile UK is actually increasing their prepaid tariffs:
  • The basic X-net tariff (Everyone) goes up from 12p to 15p /minute and their flavour of on-net pricing (Mates rates) goes up from 5p to 8p /minute;
  • Text prices remain static; and
  • Browsing (Web ‘n’ Walk) charges are increased to a flat £1/day, rather than being usage based up to £1/day.
T-Mobile has recently been very aggressive in prepaid pricing, however I think it is too early to call an end to the overall industry deflationary price spiral in UK Cellular.

I think T-Mobile's current advantages lie in the relative strength of the Flext package and their first mover advantage in the Web 'n' Walk initiative. I'm not sure that they are abandoning the prepay market, but more treating the base as a bit of a cash cow.

I’m guessing that the real reason for these price rises is that T-Mobile UK is under severe pressure from the parent to deliver substantial increased cash based earnings this year. A more obvious sign that this is the case is the reduced presence in the indirect contract acquisition market.

It will be extremely interesting to see if any of the other major players react.

Thursday, June 21, 2007


You just have to love James Tagg, CEO of Truphone, and his over the top rhetoric:

"This affects every new entrant into mobile telecommunications because the only company that can facilitate interconnection with T-Mobile is T-Mobile. To refuse is therefore an abuse of its position. It amounts to T-Mobile being able to veto a new entrant into the market. This would put telephony back 100 years, to a time when interconnections were not assured."

Telephony back a hundred years, when interconnections were not assured?

I’m sorry but even today; the biggest UK VOIP telephony players, Skype and MSN Messenger, do not allow any Tom, Dick and Harry to connect to their networks at any rate which any third party deem to pay.

Perhaps if we look at the Truphone request in a slightly different context it becomes more obvious: SPAMcity want to connect to the whole of the Truphone meager mobile VOIP UK base with SMS messages – averaging 1 message per minute to every Truphone customer and SPAMcity is willing to pay £100 per month for that access, however Truphone must guarantee delivery of the messages. Does anyone really believe that Truphone would allow SPAMcity to connect to their network?

It is not the case that ANY new entrant is allowed to connect to ANY telephony network in the world today, let alone 100-years ago. I honestly don’t believe any mobile operator in the UK is required to connect to any network. The only network required to connect to anyone “authorized” by OFCOM is BT.

Normally, mobile operators come to some sort of mutually beneficial agreement with other networks. In effect, James Tagg and his embryonic not-so-Truphone company can “facilitate interconnection” just as easily as T-Mobile, by agreeing to the T-Mobile proposed rates. I believe that if Truphone can’t negotiate an interconnect agreement then T-Mobile are not under any legal obligation whatsoever to interconnect. And I think Truphone will find that OFCOM will agree with me. If they want to spend tonnes of dosh arguing the case then they should brief their lawyers, fight the current UK telecommunications law and good luck to them and their shareholders.

However, the story gets more complicated when you look at the numbering schemes that Truphone currently use – 07624 - these numbers actually don’t belong to Truphone but belong to Manx Telecom which is the Isle of Man subsidiary of O2. Of course, wholesaling of numbers and capacity is nothing new – in fact o2 themselves has a huge arrangement with Tesco Mobile which involves well over a million numbers.

The perplexing part to me is that Manx Telecom although strictly speaking being offshore and attracting different rates than calling UK numbers and definitely being outside of the normal mobile X-net bundles will have interconnect agreements with O2 (obviously), Voda, Orange, T-Mobile and Three. I believe the 07624 numbers are in fact “beta” numbers.

However, Truphone want to launch with 07978 numbers which are not currently listed on the OFCOM website as an allocated set of numbers. I wonder how many of the operators that Truphone actually have an interconnect agreement with?

BT is mandatory but I can’t find a list of rates on the BT Wholesale site. T-Mobile is obviously in the news. But, I actually wonder if Truphone have agreements with the other operators such as O2, Voda, Orange, TalkTalk and the rest of the motley crew.

Obviously, Truphone generated a little publicity by claiming Voda and Orange crippled the Nokia N95 and is now moving onto the next target, T-Mobile interconnect rates. As far as I know, Truphone have made zero advances with the N95 publicity and are probably not going to advance any further with this interconnection noise.

The real question is when are the backers of Truphone going to realize that lining the pockets of PR agencies are going to generate less than zero returns on their investment.

Wednesday, June 20, 2007

Plusnet Adds more BT Central Capacity

Plusnet, which is now part of BT, has announced that it has added a STM-1 BT Central to compliment its current five STM-4’s. This gives a raw capacity of 3,265-meg of BT Centrals. Of course all of this is not usable to end-users because of the overhead which I explained in more detail here.

A STM-4 central costs on the new BT pricing £1,162.6k per annum rental in addition to the £175k install charge and a STM-1 (actually a STM-4 set at STM-1 speeds) costs £290.2k per annum rental in addition to the £175k install charge; this means that Plusnet is paying BT Wholesale £6.1m per annum in BT Central costs alone.

In addition to this, Plusnet will be paying £7.63 per month line rental per customer with a £1.24 per month per customer rebate for customers using the busiest 1,016 BT exchanges. Installation costs for each customer stands at £34.86.

Plusnet in its last reported accounts (Jun-06) said that it had 196k broadband customers some of which would have been unbundled on the Tiscali LLU deal.

I have worked out some scenario’s allowing for growth in the Plusnet base since Jun-06 for average BT Wholesale charges per customer and assuming a 70% line rebate take-up:
  • 200k customers - £9.31/month (ex-VAT) - BT Wholesale Annual Revenues - £22.3m
  • 250k customers - £8.80/month (ex-VAT) - BT Wholesale Annual Revenues - £26.4m
  • 300k customers - £8.46/month (ex-VAT) - BT Wholesale Annual Revenues - £30.4m

This is before any IP-Transit costs, own Internet Infrastructure, Customer Acquisition Costs, Back Office or Admin Costs.

In other words, life is still extremely tough for IPStream and no doubt DataStream communications providers.

Goldman Sachs, UBS and Pipex

Goldman Sachs have issued a buy note on Pipex saying:
“The market is taking too bearish a view of the company’s strategic value in a consolidating broadband market, while its solid operating performance and potential for cost savings limit the downside risk.” Goldman also noted that Ofcom had proposed lifting restrictions on a rival wireless internet operator, making Pipex’s competing unit more valuable. Shares rose ½p to 13p.”
Personally I’ve not read the research, but I’m sure it is full of the normal plethora of caveats that come with any research reports. However, the most important fact about Pipex is that UBS (16.01%) and Goldman Sachs (11.19%) are two of the largest shareholders. The other important pressure point for Pipex is the £91.5m convertible bonds of which I’m currently unsure of the ownership. In fact UBS has so much influence that it is running the current strategic review of the group which will determine the sale or not of certain of the Pipex assets.

Basically, I have no problems with Goldman Sachs or UBS issuing research, but I do think that The Times or any other paper should disclose in their articles that Goldman Sachs own 11.19% of Pipex. Similary, when newspapers, such as the Telegraph describe UBS as Pipex's adviser, I think they also should describe them as a major shareholder.

Tuesday, June 19, 2007

Carphone denies unbundling Voice only Services… deliberately

Carphone Warehouse (TalkTalk) have issued a statement to the consumers friend, Thinkbroadband, basically denying that they are unbundling voice only services
“We naturally take reports of customer 'poaching' extremely seriously. We don't connect anyone to our unbundled network unless our records how that they have ordered TalkTalk broadband and we can confirm that we don't migrate voice-only customers to our unbundled network.”
Fair enough and looks very clear. However the fact remains that two ISPs Zen and PlusNet, now part of BT, are reporting that TalkTalk voice only customers are being ported to their LLU platform and their resold ADSL broadband is cut in the process. In replies to the Register and Thinkbroadband articles individuals have claimed that they have been affected by this type of process. So either:
  • Zen and PlusNet are wrong; or
  • Someone at TalkTalk cocked up provisioning the CPS services and instead entered it as a LLU order on the TalkTalk systems.
Hmmm, I know where my money is. Any Communications Provider can issue a standard API call to BT Wholesale checking the status of any non-LLUed line, whether broadband is provisioned and who the ISP is, so there is really no excuses.

TalkTalk then go on to blow any sort of credibility in the rest of the reply.
"Our network is based on a more advanced technology of Next Generation Network (NGN), similar to BT's 21CN."
I can personally testify that TalkTalk’s network does indeed look like a 21CN on a powerpoint slide, however the actual performance is somewhat lacking especially with regard to availability and performance of basic data services. It is more a late 1980’s network than a 21CN.
"This technology (known as MPF) means that broadband services can be transferred between one provider and another without the need for a MAC code, as detailed by OFCOM in General Condition 14."
General Condition 14 is actually about code of practice and dispute resolution and there was a specific consultation back in 2004 which dealt with slamming or mis-selling or poaching CPS customers but it didn’t mention broadband once.

General Condition 22 is actually the one that deals with broadband migrations and is the result of a lengthy consultation. Here is the relevant bit about full unbundling

1.17 Where the MAC process does not apply (for example, for migrations to and from connections based on MPF, for home moves, or where there is no live broadband connection), the high-level obligations in General Condition 22.2 will require broadband providers to:
a) facilitate the migration (or where applicable, connection) of the Broadband Service in a manner that is fair and reasonable;
b) ensure that the migration (or where applicable, connection) of the Broadband Service is carried out within a reasonable period;
c) ensure that the migration (or where applicable, connection) of the Broadband Service is carried out with minimal loss of the Broadband Service; and
d) assist with, and facilitate requests for, the migration (or where applicable, connection) of a Broadband Service provided by another Communications Provider, in instances where the other Communications Provider has failed to, or
refused to, comply with the MAC Broadband Migrations Process, in a manner
that is fair and reasonable.
Whereas the MAC process is defined and well understood by all ISPs, there is in fact nothing but the above woolly statement about full unbundling (MPF)

In my personal interpretation, TalkTalk or any other full unbundler, would be fully justified in just provisioning the line if a customer has ordered “Free Broadband” without any communication whatsoever with the existing voice (BT or CPS) or data (resold ADSL).

Currently the majority of traffic one-way ie onto the TalkTalk service, I have a feeling that the real fun and games will start in Oct when people start coming out of the 18-month contracts and decide to go for Sky, the upcoming O2 service or even back to BT. Would it perfectly legitimate for the migrations team at TalkTalk to consist of one person on the plains of Outer Mongolia? Or would it perfectly legitimate for Sky/O2/BT or whatever to just grab the line in the same manner as TalkTalk is currently doing?

I predict chaos in 2008 and our light touch regulator, OFCOM, will once again be in the firing line over broadband migrations.
"However, we reiterate that we don't connect anyone to our unbundled network without an order for the broadband service."
Well not on purpose at least…
"TalkTalk currently operates at significantly below the industry average for alleged incidents of this kind and we are working with our industry partners to address these concerns and will undertake a full investigation of any issues raised with us."
I’m not sure what the “incidents of this kind” actually mean. It can’t possibly mean error in MPF line provision because currently TalkTalk are the only player and therefore by definition they ARE the industry average. TalkTalk however are probably below the industry average in slamming data, but we don’t know because despite OFCOM preparing a slamming blacklist they keep the data safely under lock and key and away from the prying eyes of actual consumers. And this is despite being hit by various Freedom of Information notices.

However, Carphone Warehouse was found to be in contravention of General Condition 1.2 back in 2005 (pdf) relating to preventing churn in their CPS line of business:
Carphone Warehouse has used and is using this information (the identity of transferring customers) which is acquired from another communications provider in connection with the provision of CPS for a purpose other than that for which that information was supplied (facilitating CPS transfer), namely undertaking CPS Save Activity which could provide Carphone Warehouse with a competitive advantage.
Hmmm, it is going to get really interesting in October.

ps: my internet services have been up and down all night (not voice and not adsl line problems) so I'll be one of the first fighting the TalkTalk migration process.

Mobile Broadband in the UK

Vodafone announced today a reduction in Data Card pricing to £25/month for 3GB/month from around £45/month. Whilst not exactly coming close to the "free" home broadband pricing depths, data cards are starting to become affordable especially for the SME and fat personal wallet segments.

In the Press Release, Voda claim over 280k UK Data Cards which if average ARPU is £21.27 (ex-VAT) equates to a £64m/annum business. This scale of revenues is barely more than a blip on the Voda UK revenue radar (2006/7 - £5,124m) However with the Voda UK’s 2006/7 Free Cash Flow being £794m and revenue growth in voice drying up – data could either be a significant growth or protection story going forward.

Voda does not mention speed anywhere in the press release. Obviously with wireless spectrum being a shared resource, rates being proportional to distance from the cell site and rates varying with type and quantity of obstacles whether natural or manmade, any sort of quality of service is hard to guarantee. There is definitively fun to be had for some well resourced magazines to do bake-offs comparing data rates between the various mobile networks and wifi providers.

Network coverage is mentioned at 80% of the population which is pretty naff and probably means that outside of the major conurbations snail like and unusable GPRS is the only carrier.

The other side of the coin which some people will remember from the early days of mobile voice services in the UK is that you needed the muscles of Arnold Alois Schwarzenegger and the wallet of a City Trader to sign up for a mobile contract. It took three years after launch before Voda UK managed in 1986/7 to turnover £67m and five for voda uk to break the 300k subscriber count and become the largest cellular operator in the world in 1988/9.

In this historical perspective, the mobile data access business isn’t doing too badly at all.

The growth rate for data card subscriptions and revenues are not in the public domain, but voda uk publish the number of 3G devices connected as 190k by March 2005, 1,033k by Mar 2006 and 1,938k by 2007. Obviously the majority of these devices are handset rather than data cards, but I suspect 100% overall annual growth is not far short of the mark.

The billion dollar question is how big can the mobile broadband market be in the UK?

This is important not only for industry anoraks, but also for shareholders and most importantly for the value placed upon the spectrum about to be released and auctioned which has the potential of providing the bandwidth to take mobile broadband mainstream.

I can see the laptop market growing for the foreseeable future and my own gut feel is that once the £10/month access fee is reached then mobile broadband will become a mainstream proposition which (eventually) 10% of the population will take up. Even if we account for average fees being (ex-vat) £15/month taking into account heavy users – this only yields a total market of £1bn to be shared across all the mobile operators.

It is relatively simple to play with market penetration, ARPU and player variables but the truth is that standalone mobile broadband access will only represent a small proportion compared to the overall mobile market which includes both voice and data.

Of course there is the far bigger market, which is also less bandwidth intensive, of people occasionally accessing the internet with their primary voice, texting and timing device – the mobile handset. Here we have a totally different dynamic because I honestly believe the end game is that access will be ultimately be unlimited for all services whether voice, messaging or browsing. Content acquisition whether by broadcast, streaming or download is a totally different equation.

So the pertinent economics are how fast voice, messaging, device and operating costs can be reduced to ensure that browsing can be added to the “monthly bundle” rather than modeling browsing as additional revenues.

This is my own personal apocalyptic vision for the embryonic Wimax / WiFi industry – I just can’t see how on earth they can buy the spectrum, build a network with decent coverage, reach economies of scale with device costs and then sell and market differentiating services from the mobile industry.

Monday, June 18, 2007

TalkTalk: Why Unbundle VoiceOnly Customers?

A couple of readers were confused as to why TalkTalk would begin unbundling voice only customers – the answer of course is in (potential) profit.

Monthly Rental for a Fully Unbundled Line is £6.67/month whereas Wholesale Line Rental is £8.39/month. TalkTalk charge £8.51/month line rental (£10 inc.VAT) so the ongoing margins are quite different.

Additionally, TalkTalk will get:
• all the voice termination fees if the line is unbundled – this can be as much as £1/month;
• retain all the call feature revenues (eg 1471 services) at a nearly 100% margin; and
• presumably the cost of operation of the TalkTalk VOIP platform is lower than circuit switched one.

I would estimate the cost of back office support of the customer would be broadly similar. Therefore the approximate profit difference would be about £3/month on an average spend of about £18/month.

On the downside, TalkTalk have to make some upfront investments: the Openreach cost of line provision is £34.86 as opposed to £2 for WLR. Also, an unbundled line will use a tie-cable and a line card in the TalkTalk MSAN. I would estimate that the incremental setup fees are around £60.

In other words, I guesstimate the breakeven for the service is around 20 months. This is quite a bit in excess of the normal TalkTalk voice contract length of 12 months.

And this assumes everything goes perfectly and the customer doesn’t become upset and cancels within the 30-day period and doesn’t ask for the money back. The Openreach price for MPF is a minimum 12-month period.

Of course, this discounts the biggest benefit which is TalkTalk on an unbundled line becomes the ONLY potential supplier of broadband - a customer can’t go to a third party for broadband services.

Personally, I can how TalkTalk would believe the economics would work. However, they run a big risk in a big churn environment and also are running the risk of a big backlash in the press. It will also be extremely interesting to see what if anything OFCOM does about this.

Friday, June 15, 2007

TalkTalk – extremely sharp unbundling practices

PlusNet are reporting that TalkTalk are porting people over to LLU even when they only sign up for WLR. This effectively kills any ADSL service on the line if it is provided by a reseller. Effectively, TalkTalk are using the fact that LLU is currently outside of the MAC process to the extreme. This is going to cause a lot of bad feeling in the ISP community and further damage the TalkTalk brand.

I feel an OFCOM ruling coming along after about 12-months of consultations.

Vodacom – Promising Outlook

Vodacom South Africa (50% owned by Vodafone, 50% owned by state PTT, Telkom) presented its results for the year to Mar 2007 the other day. The results showed spectacular growth for the #1 mobile operator in #1 African market by GDP: Revenues up 21% y-o-y to ZAR41,146m (£2,9bn), EBITDA up 20% to ZAR14,227m (£998m), Net Profit up 28% to ZAR6,560m (£460m), Dividends up to ZAR5.4bn (£380m), Free Cash Flow up 14% to ZAR3.7bn (£260m). Basically Vodacom is a star performer with everything moving in the right direction at a good speed.

The vast chunk of revenues and profits came from the South African market but with mobile penetration standing at 84% the mobile business must be getting close to penetration and so the way forward to keep growth going involves moving into adjacent markets.

Obviously, Vodacom plan on expanding its data services and it claims that its HSDPA (139k customers) services are the most heavily used in terms of volume in the world which implies to me that the customers are using wireless as the primary mechanism for accessing the internet. Vodacom plans to expand way beyond WCDMA and they have investments in WiMax and WiFi companies. In the conference call, the jovial CEO, Alan Knott-Craig mentioned that probably the next step was buying an ISP as this was the logical way in rapidly acquiring the skills and services needed to play in the data game. This puts Vodacom on a collision course with its 50% operator, Telkom.

Vodacom also plan on leveraging its entry into MobileTV (33k customers) by reselling the #1 satellite TV service. Vodacom say this is a natural progression for the company, but it would be a stretch for European Cellular Companies. Obviously, fixed companies in Europe are in various states of entry into the broadcast TV market and again the 50% shareholder is planning on launching its own broadcast TV in competition with #1 South African payTV company, Multichoice. Multichoice is Vodacoms partner and again this puts Vodacom on a collision course with its 50% shareholder.

The sale of payTV highlights Vodacoms two great competitive strengths: the #2 brand in South Africa behind Coca Cola; and the best distribution channel is the whole of South Africa. The quality of Vodacom’s distribution channel makes it a natural partner for anyone in the consumer space. In Europe, analysts typically undervalue distribution networks and I continually hear analysts questioning the logic and expense of building out MNO owned shops and online properties. Carphone Warehouse and Tesco Mobile continually show the value of distribution networks and my only surprise is that it is taken the MNOs in the UK so long to place serious investments in their own stores.

Even more scarily for Telkom is that Vodacom have now acquired an international gateway licence for overseas calls and a fixed licence. Vodacom plan on starting building metropolitan fibre rings this year not only solving Vodacoms own requirement for backhaul, but allowing the resale of the capacity for the corporate market. This should scare Telkom a lot: Vodacom have the Free Cash Flow to invest huge sums in infrastructure, it also has the internal traffic to justify the investment on a standalone basis; and it can cherry pick the high value customers and telco services to target.

There was a lovely moment in the results presentation who the CEO said on presenting a typically busy slide showing all the adjacent services that were possible: “I don’t understand the slide, but I basically think it means that there is a whole bunch on things that we can do. Next”

Vodacom didn’t mention in the presentation its own credit card business or a movement into cellular supported micro-payments. But it obvious that financial services is another area that Vodacom is planning on moving into.

My conclusion is two fold: Vodacom see no business as off limits and despite saturation approaching there is plenty of opportunity for further growth; Telkom will not stay a shareholder for long; and the relationship will probably end up in tears with Vodafone picking up the baton, probably with some element of a local float thereby appeasing the politicals.

In terms of non-South African markets Vodacom seems to be doing really well in Tanzania, DRC and Lesotho. Mozambique is still a problem area in terms of losses although growth looks good in the current year. Of course, no mention was made of the recent sale of part of Mozambique business to local businessmen who are allegedly extremely close to the President. Despite, South Afica still being the engine overseas properties are now accounting for around 10% of revenues and profits.

What I like about the Vodacom approach is that they are being extremely patient in their approach to acquisitions in other African markets. I do believe that businesses will start to become available at reasonable rates once the Middle Eastern investors, who have recently spent a fortune, become disappointed at the lack of returns.

In summary, I think Vodacom is going to be a great investment for Vodafone is the coming years.

Thursday, June 14, 2007

Singing Phone Salesman

Carphone Warehouse has a singing phone salesman, Paul Potts, from the Valleys. He seems pretty good to me and I wish him all the best in the competition.

Virgin Mobile – More Exits

As the one year anniversary of the takeover by ntl approaches – Virgin Mobile has lost Alan Gow (one of the original staff seconded from one2one) and Joe Steel who was the commercial director. This means that more or less all the senior executive team from the independent days has gone.

Alan Gow admitted in an interview with Mobile Today:
'The market has gone more downhill than we thought which is why being part of a big group is good.'

In other words, the competition from O2, Orange and Voda is proving extremely tough at the moment in the prepaid segment that Virgin Mobile target. Anybody let alone a MVNO would struggle with some of the on-net deals currently being offered.

Unlike some, I think there is zero possibility that the pressure from the MNOs will be released over the rest of the year. I also don’t think that additional subscribers from the quad play will make up for the prepay losses. Apart from the sales channel into the cable base, Virgin Mobile's distribution is extremely weak and opening up a few stores here and there won't make a big difference. The only potential bright spot is the recent Comet deal.

I expect Virgin Mobile to continue losing subscribers throughout 2007.

Wednesday, June 13, 2007

OFCOM PSP BoonDoggle still being designed by committee

The usual array of sycophants has wasted a huge amount of brain power replying to the OFCON PSP paper. Most of the 76 responses were basically a refinement of OFCOMs vision with the aim of giving the respondents more than their fair share of the taxpayers bounty; OFCON is a happy bunny and gives the respondants a general thumbs up.

Anyway here are my personal favourite extracts:
An extract from Saul Albert about a gathering down at OFCOMs palatial offices down at the Riverside:
I worked out what my civic duty was going to be when the 'creative' director at Wanadoo suggested that the PSP's 100M budget should be given to the telcos and ISPs for their wonderful PSP-like job of carrying peer to peer network traffic, and nobody batted an eyelid.
WEL Jackson can’t resist having a pop at one of the editors of the UK few new media success stories (The Register) which didn't get a penny of the taxpayers bounty to help them out when times were tough:
As a self-actualizing media node, I welcome this redistribution of government funds from provincial luddites to new media 'creative' Sohoites.
Cool Britannia lives! The creative industries initiative was good but didn't radically empower young creatives and their 360-degree thinking. Unleash the collective wisdom of new media and see us swarm!
If Tony had done this when he first got in (and I know how hard you tried, Ed) then thousands of people could already be employed - let's use those redundant factories to turn out polyphonic ringtones.
Critics - like Orlowski at The Register - will complain that this is pork-barrel politics for tech. utopians. That this has no relevance to' 'ordinary' people and their lives.
Well, I've had enough of that patronising rubbish. I've launched a post-ironic web brand - nar.ciss.us - that was created using the competitively-priced labour of redundant industrial workers. It shows that anyone can 'get' asynchronous java - even people from the North.
If anyone wants to brainstorm this - then twitter/IM/SMS/Skype/email me. I'm up for an 'emergent conference'.
Ed Richards's initiative 'gets' new media on so many levels. Let's flashmob this bitch up to escape velocity.
Dr Stephen Jones hits OFCOM with brute logic:
The consultation document is founded on several dubious premises.
The report states that new media displaces old media, and that public service material should therefore be targeted at new platforms. However, as commentators have pointed out, new media enhances old media. Nor is there a rationale for public investment in platforms where the barriers to entry are already low,and where private investment is plentiful. The PSP idea in its current form is little more than a taxpayer-funded subsidy for web production houses. OFCOM should instead fulfill its commitment to strengthening public service broadcast material.
I didn’t know we had a King, but it didn’t stop him having a totally unrelated pop at Sky, which although completely irrelevant OFCOM decided to give the Public Service Publishing treatment:
I read that Sky are seeking to run pay per view services on the Digital terrestrial platform. I strongly believe that Sky have enough means to broadcast at the moment and I think this is anti choice and competition. I also think that we all should have access to quality High Definition content without the need to subscribe to the sky service. This would create real choice and real competition.
A career limiting move by Mark Splinter - too truthful for any bureaucrat to agree with:
A horse designed by committee
As a freelance designer working in the music industry since 1999, I have plenty of experience of listening to clueless executives struggling to understand the complexities of the internet. It is an ancient problem for creative people that they require the approval of the incumbent bureaucracy in order to disseminate their work widely. The internet has only partially solved this problem, and is dominated anyway by large corporations who own the very blogging and social networking services that are supposedly destroying them.
I will be brief, and summarise the problem as follows:
The Suits don't know how to create, but they try anyway.
Good for Teletext - the last cries of a dying beast past its sell by date:
Teletext does not believe that there is currently enough evidence that there is need or public desire for a new media Public Service Publisher.
Styles managed to sum up my personal feelings admirably:
I am vigorously opposed to:
a) the setting up of a boondoggle financing the new media
b) the continued existence of Channel 4, never mind it getting any money from this new boondoggle.
The only appropriate approach to Channel 4 is to salt the earth and flog off the freqencies. The justification for Channel 4 in its genesis in the Open Channel mentioned in the Annan report no longer applies, and there is nothing in the nonsense it broadcasts that justifies a privileged status and government ownership.
It is ironic that this nonsense is being touted at roughly the same time that the BBC Trust has suspended BBC Jam, presumably because its use of licence payers money is viewed as 'unfair' by the same people hoping to benefit from this pot of taxpayers' money
Anyway, if someone has a spare hour or two to kill and wants a laugh especially at the amount of effort that Channel 4 obviously put in its reply check the responses out here.

Sunday, June 10, 2007

A good week for Virgin Media

Virgin Media have updated its guidance for Q2 saying that TV subscribers would be flat. Although the cost of retentions deals hasn’t been revealed, I think this is good news for the beleaguered Virgin Media shareholders. Usually, it is far more expensive to acquire a subscriber than hold onto one.

Even better news is that it seems as if Virgin Media plan to invest in content differentiation. I was totally amazed when I looked at the BARB viewing figures that Sky Sports News had better figures than Sky News, so it is hardly surprising that Virgin Media are planning on launching a Sports News channel.

It is also interesting to see that Virgin Media are considering a tie-up with Warner for first dibs on their TV output. This represents a growing trend with the big US TV Networks: ITV have a deal with NBC; C4 with ABC; Sky’s has an obvious association with Fox; and Five have a big deal with the #1 CBS show, CSI. It doesn’t take a mathematical genius to calculate that the big five US networks can find a partner with the major five UK networks – freezing BBC out in the cold. Personally, I don’t think this would be a bad thing for UK TV effectively forcing BBC to do joint productions with the cable TV innovators such as HBO and the Discovery Channel.

On PayTV it looks as if the biggest differentiators (excluding price) are Virgin Media with its on-demand service and Sky with coverage and interactive TV. Virgin Media is obviously investing a lot in trying to address the brand and content advantage of Sky.


Sky presented a high level view of the UK TV market in a recent Merrill Lynch Media Conference and it shows to me that there is plenty of growth available for both Sky and Virgin Media – payTV penetration is still at less than 50% of UK homes.

Even with only 20% of the current payTV refuseniks being converted in the run up to Digital Switch Over, it would only represent a 55% payTV penetration of UK homes. This additional 20% would yield 2.4m homes or 100k new payTV subscribers per quarter for the next six years for the payTV industry. In a six year timeframe it is very difficult to believe that Virgin Media won’t get its act together and start adding new TV subscribers.

Virgin Media are still forecasting a net loss of overall customers in the Q2 quarter and this is more a reflection on the weaknesses with telephony only customers than either broadband or TV. There is a telephony tariff refresh promised at the end of the summer which will probably finally halt the decline and will probably see Virgin Media in Q4 move to overall net customer additions.

Thursday, June 07, 2007

Orange & T-Mobile Asset Trade

T-Mobile Netherlands has acquired Orange Netherlands and Orange Espana has acquired Deutsche Telekom’s Spanish DSL business, ya.com. I had a little problem a couple of weeks ago with premature blogging not realising the value of the bundle in the Eurotelco M&A world.

A couple of points spring to mind:

In the space of a couple of years, the ultra-competitive Dutch (both mobile and fixed) market has evolved into an oligopolists field of dreams. I can see the same trend developing with a slight British flavour in our green and pleasant land.

The converged PTT monopolies are not going to allow Voda build a pan-euroDSL network with the same ease that they built a pan-euroGSM network. Currently, the Voda pan-euroDSL network is strong in Germany and France and expansion plans in Italy (Fastweb) and Spain (Ya.com) have both now been railroaded by ex-PTTs with larger chequebooks.

OFCOM spiralling out of control

The news in the Guardian that H3G, O2 and BT are unhappy about mobile termination fees and taken the ruling to the competition appeal tribunal is hardly surprising given the amount of money at stake; however it illustrates the growing trend of industry dissent at the UK Communications regulator and basically ignoring its judgements.

Personally, I think the most radical recent example was Virgin Media’s decision to resort to law even before OFCOM had published its verdict on the PayTV market; this is despite OFCOM publicly stating that a vibrant cable industry is needed to counterbalance the powers of the copper and satellite networks.

Even more amazingly, it is not just the big boys who decide to go to court rather than listen to the regulator; the miniscule Rapture TV has decided to ignore the OFCOM rulings that Sky’s £80k annual access charges are reasonable and decided to pursue it further at the Competition Tribunal. (pdf CAT summary).

Also, I feel OFCOM has lost control of the outcome of “Digital Dividend Review” and the key players are already ignoring their process and instead directly lobbying the politicians. I feel whatever outcome OFCOM decides upon will inenvitably end up in the Courts of Law.

OFCOM presents an image of being a light touch regulator which is free from political influence. This is patent nonsense; anyone spending more than a nanosecond looking at the volume and content of its output will bear witness that OFCOM crawls over the every breath that the Communications Industry takes. The background of the OFCOM senior executives and direct politician lobbying translates into politics playing just as bigger role as it always has in deciding the future of the UK communications industry. Unfortunately, light touch non-political regulation is pure spin.

Most people would advise any government quango riding a huge gravy train is to keep out of the glare of the Great British Public. Unfortunately, OFCOM seems to love throwing fuel onto the fires of public opinion, with notable controversial interventions into Big Brother, Participation TV and Junk Food advertising. All of these polarise opinion and therefore any judgement is bound to annoy around half of the public. It only takes three or four decisions for OFCOM to have completely annoyed the whole of the UK.

Even worse, I think OFCOM is actively creating huge barriers to entry to anyone wishing to provide telephony and broadband services. It seems to me that unless someone has the large amounts of capital required to invest in unbundling with a decent coverage that they face a limited lifespan as a player in the residential market. The other side of this coin is that people choosing to live in a rural area will face a much more limited and more expensive choice of services – equivalence and universal service is about to bite the dust as a general concept.

Things wouldn’t be all bad if OFCOM kept a tight leash on the de-facto rural monopolist and forced them to keep prices reasonable and invest in vital new technologies. Unfortunately, OFCOM takes the exact opposite approach allowing BT to set whatever prices it dreams up and even more unbelievably echoes the sentiment of BT that fibre is only possible with a huge investment by UK plc ie the uk taxpayer.

Wednesday, June 06, 2007

Bouygues Telecom

The perennial change of ownership favourite and the smallest of the three French cellular operators has just reported Q1 results:
Bouygues Telecom's net profit in the first quarter of 2007 stood at 143 million euros (up 55%) and EBITDA came to 360 million euros, up 18% compared with the first quarter of 2006, when the Neo and Exprima call plans were successfully launched.
This improved profitability was due to growth in sales (up 5%) which outstripped that of the market and lower subscriber acquisition costs.
In addition the operating profit came in at €217m which is a 53% increase y-o-y. Annualising the Q1 EBITDA and using a 8.5x EV/EBITDA valuation metric gives an approximate value of €12.2bn.

Bloomberg is reporting Sawiris owner of Wind in Italy and part owner with Orange of Mobinil in Egypt is considering a bid.

An auction for Bouygues Telecom would certainly add some spice to the quiet summer months: I could almost guarantee that Deutsche Telekom, Telefonica and KPN would also get involved in any auction. However, I don’t think a sale will occur and even if did it would be conducted far away from the public glaze.

iPhone in Europe

There was an interesting revelation by Charles Dunstone, CEO of Carphone Warehouse, in the annual results webcast yesterday regarding the iPhone. That is in order for the iPhone to function correctly there is a requirement for Apple servers to be placed deep in the operators network.

My personal guess is that these will be used for authentication and email services rather than doing any clever music or video content distribution. Music and Video distribution may come later with future models upgrading to HSPA capabilities. I think this is quite a clever move by Apple, because network services will justify a share of the ongoing revenues in much the same way as Blackberry has justified a share of the ongoing messaging revenues with the operators acting as collection agents. Also by building in effect a walled garden within GSM, Apple will keep a much tighter control on the operator network distribution model.

This also guards against the standard European market tricks of unlocking and reflashing phone operating systems to get around operator device tie-ins. If Apple have got a non-GSM non-standard way of authenticating the device then operators will be much more comfortable in subsidising the handset sale price than the equivalent Nokia, SonyEricsson, Samsung or Motorola devices. This will be a key competitive advantage in the future when the device is less unique and has to duke it out around a dozen or so functionality and style matching devices.

This is probably one of reasons that Carphone has tempered its enthusiasm for the device, but the main reason is the chosen sales channels that at&t/Apple have chosen for their route to market: ie own stores, internet and at&t call centres. There is a distinct possibility that whatever operator(s) Apple choses to partner with in Europe, Carphone will be frozen out of retail distribution of what is beginning to look like the 2007 must-have Christmas Stocking Filler.

Carphone is already noting that fashion phones are going to have a huge impact going forward and this is proven with the success of low spec good looking phones such as the LG Prada and Nokia 6300. He also noted with typical bravado that the “white coats” in the operators do not understand the value of fashion brands and this is a key current advantage for Carphone is grabbing retail market share. However, if the operators partner with the techno-style icon of the 21st century…

Much more on Carphone's results at the weekend, if I can ever get my mind round the dynamics in voice pricing, unbundling and offnet broadbrand.

Tuesday, June 05, 2007

Sky Content Acquisition

Surprise, surprise Sky has acquired the rights to Prison Break from Fox in the States. I actually am quite in awe of this strategy of buying rights from popular TV series shown on terrestrial TV. It certainly creates another good reason for some of the refuseniks to move over to the paid side. Of course, I say this theoretically because every eyeball seems to have a price in the TV content game and the price of the Prison Break deal was undisclosed. But for the sake of all BSkyB shareholders, I hope that James Murdoch got a good family discount.

On a less flippant note, content acquisition is one of reasons why I believe that Sky will never earn some of mega-operating profit margins that some analysts have in their future earnings models for Sky. I honestly believe that Sky will surely and steadily keep investing in content until they have become the #1 group of entertainment channels. This is a long run strategy and may only be accomplished once James Murdoch reaches his pensionable age, but I think that Sky will persist.

The first reason that I believe Sky will keep margins within acceptable levels is political expediency. Sky will probably be under regulatory pressure for ever in the highly politicised UK TV industry and high margins attract long, turgid and expensive competition commission inquiries. It is a better strategy to grow the revenues through organic expansion keeping margins at a reasonable level.

The second reason is historical behaviour: Fox have over the years grown from being the worst US network to being on equal footing with the orginal networks these days. This has been accomplished in the old fashioned way by commissioning more hit shows than the rest. I expect Sky to use a combination of buying in shows from the US and commissioning shows in the UK to accomplish the same. I think the critically successful Hogfather and Kemp on Gangs is the start of the journey rather the end.

The third reason is digital switch over: the viewing behavioural change that this will bring to the UK market is immense and almost certainly will be value destroying for ITV, C4 and Five. I think in the medium term Sky will have an ad-supported general entertainment channel which will certainly rival C4 and Five. I also think that this will be used as the sampler and promotion engine for the satellite payTV service which will steadily increase penetration in a similar way as the US cable TV industry. Demographics and the Long Tail of public taste work in favour of the payTV model and against the public service broadcasting model.

All of this makes me wonder if Sky will be shedding crocodile tears if the politicians rule against them launching a DTT payTV service and make them dispose of the ITV stake. By the time the appeals will have run through the UK and European Courts we will probably be knocking on the door of the next decade, DSO will be in full swing, Virgin Media will still be limping along and BT will be on their third attempt to design a working alternative business model for payTV market.

Monday, June 04, 2007

BT nukes UK residential telephony market.

There are 6.2m CPS customers in the UK and BT is chasing these customers with a vengeance with its latest offer of twelve months free evening and weekend calls to uk geographical numbers for all returning customers. After that the cost is just £3.45/month for six months.

TalkTalk has immediately responded by offering 12-months free to all churners and £3.89/month thereafter. Tesco is offering a similar package at £3.87/month, but with no free 12-months.

In the broader market of unlimited UK geographical calls, BT has reduced its package to £7.95/month with three months free out of a 12 month contract. The equivalents are: TalkTalk - £8.99/month; Tesco - £9.87/month and Sky - £5/month.

BT has three main advantages in this market and is playing its advantage to the maximum:
  • biggest network of users – BT incurs zero termination rates for most calls, other networks will all be net termination payers. Even though the rates are a lot lower than in the mobile world, the effect is identical – favouring the latest network with a multiplier effect.
  • largest and most loyal base – BT has 11.4m customers who have not signed up a cheaper package either because of extremely low call volumes or extreme laziness. The probabilty of these people moving to another tariff or supplier is low. BT is actually punishing this base has actually increased the prices. In comparison, BT only has 2.3m lines of unlimited evening/weekend calls and 835k on unlimited calls. BT is targeting the majority of customers who shop around for the best deal here.
  • moment of weakness for competitors – the adverse publicity surrounding “free broadband” has created a lot of negativity for non-BT home telephony. BT will be calculating that there is a lot of pent of demand for a return to “quality”, if the price is right.
I think the biggest loser in the market will be TalkTalk who has nearly 2m voice-only customers alone – most of which will not be within a contract period. The revenue loss will be quite severe because a line loss will involve the loss of line rental at £11/month and incremental calls to mobile, non-geographical and other add-ons. On a more important note with the cost of calls being now so low and the margins so limited, I cannot see how anyone can make a decent return with a standalone non-bundled voice product.

Also, it should be noticed that several Virgin Media customers will now be thinking about their telephony only deals with BT now cheaper than the equivalent Virgin Media M, L and XL packages. Again, the answer is lowering prices, just at the time Virgin Media needs all the margin they can muster.

The bigger question was whether this was what OFCOM had in mind when it freed of BT from regulatory constraints on pricing. I cannot for the life of me see how BT is going to make any money on these returning customers over 18-month contract even with the incremental add-ons. This is very, very close to predatory pricing and I suspect that several companies with nothing to lose may be thinking of taking BT to the competition commission.

In fact if I was Sky, I would be giving careful consideration to doing just that – if BT can take Sky to the competition commission for the PayTV market with the reasons still be kept secret, Sky probably has a stronger case in the residential telephony market. This would also increase the possibility of people looking at a more complete “converged” market rather than just a standalone telephony, broadband or PayTV market.

Companies with much more to lose such as Carphone and Vonage UK may just pre-empt any possible Sky move and decide the last rites of the residential voice market may just be best served by litigation.

I am reminded of one of the more famous Sir Christopher Bland quotes relating to the settlement with OFCOM:
“We sued for peace and won…”

Amp’d – Rectif’d

So, it looks as if the Amp’d investors who pumped in $360m have decided to throw in the towel and file for bankruptcy. Amp’d themselves are claiming not all is lost and they plan to continue the good fight. I would suspect that the whole future of Amp’d is now in the hands of its biggest creditor and airtime provider, Verizon Wireless, who is listed at being owed US$33m. A normal MVNO agreement will have clauses to deal with bankruptcy and basically it shouldn't be looking good for Amp’d. I expect to see Verizon Wireless picking up the customer base and brand for literally microcents on the dollar. In the absence of new money, realistically it will be a Verizon Wireless decision whether to continue the brand by beefing up the backoffice and distribution by integrating Amp'd into Verizon Wireless.

In the wider scheme of things it is hardly surprising and something, MVNO doommeister, Telebusillis has been publicly predicting since last year. The big question now is what will happen to the other three reasonably sized USA MVNOs:
  • Virgin Mobile USAthe ipo has been filed and they need a cash injection. The failure of amp’d will probably mean the ipo will be much more difficult to get away at a reasonable price.
  • Helio – the next financing of this amp’d lookalike is probably only just around the corner and the appetite from the owners, SK Telecom and Earthlink, is probably going to be seriously tested.
  • Tracfone is probably the only MVNO in the USA making any money and therefore is not under any short term pressure. The owner, Americas Movil, is also bigger than most players in US telecoms and has by far the deepest pockets of any MVNO owner. It owns the #1 mobile network in Latin America and therefore understands the wireless game better than most. Personally, I guess there will be quite a few people in Mexico City studying how to transform Tracfone from a MVNO to a MNO with an appropriate acquisition or two.