Tag Archives: telco

DVRs Go Mainstream, but for how long?

chart050409-updated

The Silicon Alley Insider Chart of the Day (above) shows the great curve of DVR (Digital Video Recorders)  adoption in US, where almost one in three households already have one. This poses a threat to the advertising model of broadcast TVs, as DVRs are commonly used to fast-forward ads.

DVRs are clearly growing, but for how long? Take the analogy of answering machines. In the 80s and 90s, everyone had an answering machine at home. Then Voicemail Service arrived, managed by the telco, and now answering machines are not sold anymore.

Similarly network PVRs, or even further, Catch-Up TV, make the DVR at home irrelevant. Why program the DVR to record a show, when you can have it from the Catch-up catalog when you want and where you want, accessible from a laptop or a mobile handset?

And the good news for telcos and content owners: with a Catch-up TV service, you take back the control of ads.

It is the Hulu model taken to the three screens (TV, PC and mobile). If you have Hulu, why would you want to record a show in your DVR? why would you want a DVR at all if the content is always there available?

Telefonica Impressive Performance and Spanish Telecos

telefonica-eleconomista Via El Economista I found this table that shows the impressive performance of Telefonica over the past eight years since Cesar Alierta took over the CEO position from Juan Villalonga. Telefonica has gone from 15th place in 2000 to be the 3rd Telco worldwide in market capitalization after China Mobile and AT&T.   

Telefonica started its international expansion into Latin America in the 80s. Juan Villalonga continued it during the 90s. The bet on emerging markets, specially Brazil, and the long-term commitment to the region even after the Argentinian crisis in 99, is now paying off. After Cesar Alierta culminated Telefonica’s leadership in the area with the purchase of SBC operations in Latin America, Telefonica Group has now more than 250 million subscribers worldwide, and growing. Later, the acquisition of O2 operations put the Spanish telco in the European map, after the earlier disappointing ventures with the expensive UMTS licenses in Italy and Germany.

Beyond the impeccable execution of Telefonica’s top management, I have my own theory of what contributes to Telefonica being the biggest Spanish multinational: its people.

For years the telecom engineering schools in Spain have attracted the best students, with the promise of a secure job in a promising sector in a country where unemployment rates had 2 digits for decades, before construction boomed fuelled by the now bursting bubble.

For years telecom engineers in Spain, telecos, had a reputation of bright intelligent people. Telefonica has been the top choice for telecos, ahead of other multinationals like Alcatel, Lucent, Ericsson or IBM and HP. Talent well managed always pays back. Well done Telefonica! Good job Mr. Alierta!

Disclaimer: I am Spanish and teleco, so I could be biased 😉

Telecom at the Speed of Moore’s Law

While the IT industry has Moore’s law in their DNA, the Telecom industry (both telcos and vendors) have not yet been able to embrace the concept and many analyst keep raising doubts about the sustainability of Telecommunications decreasing margins.

Microprocessors, hard-drives and memory cards double its performance/cost ratio every year. The price of an 8GB SD card was $50 last year. Now you can get a 16GB SD card for the same money. The price of a mid-range laptop has been just under $1000 for many years, only that each year you get a substantially better machine.

The Telecom industry has not been able to find the trick. Voice has been the key revenue generator service for ages. With voice revenues clearly declining, the industry is only now, beginning to switch to fix monthly fee models with a cap on voice minutes. People use the phone more and more. So the focus of telcos is now to keep the monthly fee price level, but give more minutes for the same fee, instead of reducing tariffs. The model also applies to broadband. Mobile broadband is capped, but telcos will aim at sustaining the monthly fee price, and focus on adopting more performing technology that will enable to increase the volume cap every year while slightly increasing the monthly fee. On fixed broadband the game is not capping but increasing the bandwidth. If you plot the increase of broadband bandwidth over the past years the growth is also exponential, and telcos should not focus on capping, but on making sure the technology enables them to increase bandwidth every certain time.

Moore’s Law is the self-fulfilling prophecy that keeps the dynamism of the IT industry and a sustainable market. Consumers and enterprises are now used to renew their PCs even before those are 4 years old, so in mature markets the demand does not seem to decrease, but at least sustain. Add the next billion of PCs in emerging countries like China, India or south east Asia and judge if the industry is still healthy.

As IT and Telecom converge, can Moore’s Law bring the same dynamism to the Telecom vendors and operators? Will they be able to keep the pace?

The Future of Telecom: Clouds and Pipes

Internet is the paradigm of next generation communications. One of the wonders of Internet is that it allows to de-couple Services/Applications from the access network. e.g. Anyone still uses the email or hosting services from your broadband access supplier? Most people prefer these Services independent from the broadband provider. One may need to move to a new house or a new city, and it is better to change only your ISP if needed, than migrating your web page and your email account.

Most communication applications in the Internet world are global and independent of the access network. Social networks such as Facebook, photo sharing as Flickr, video sharing as YouTube, blogging as WordPress, and VoIP, such as Skype are global services we use to communicate with others, regardless their network access. Most of these applications reside in clouds accessible by any Internet Service Provider. The ISP just provides the pipes.

And services such as Skype or Fling post a threat to the voice business that telcos have (so far) managed to bundle with the pipe access. As Wireless Broadband becomes more and more available with EVDO, HSDPA and WiMAX, Mobile telcos will need to keep being imaginative to bundle voice minutes, as well as SMS before it is cannibalized by Instant Messaging over their own pipes.

The broadband pipes are also used today by iTunes, Amazon Unbox or Hulu to distribute music, movies and TV shows. 

Tier 1 telcos, such as Telefonica, AT&T, Orange or SingTel have built an IPTV infrastructure allowing them to bundle Pay-TV, Voice and Broadband in a single offer. These telcos are capitalizing on current constraints such as content rights negotiated by country, high bandwidth required by TV and HDTV, and a complex Home Network environment, to provide a complete Service entirely managed by the telco.

As global players (such as iTunes or Google) start to negotiate contents for worldwide distribution, as pipes become more powerful, and as open devices get easier to manage by users, Telcos will need to re-think themselves to stop global players in clouds to relegate them to pure Pipes suppliers.

In a Telecom world of Clouds, Pipes and Toys (user devices), telcos will need to be smart and learn to play the Cloud game as well as allying with Toy makers to make their services more valuable than just Pipes.

iPhone at $199? Why not?

TechCrunch echoes the rumor of an iPhone at $199, as it did one month ago, although this time saying it is a baseless rumor from reputated BSter Kevin Rose.

The $199 iPhone subsidized by AT&T is an old speculation.

And why not? Apple could well launch the 3G iPhone at $399 and keep the 2G iPhone 8GB at $199 with some AT&T subsidize. AT&T must be extremely happy with the high ARPU and high data usage of their iPhone customers. Now with a new 3G model for the high-end segment, why not keeping the 2G iPhone as a low-end model affordable by teenagers. Teenagers are THE early adopters of mobile apps. The kids will make a better use of iTunes, of Facebook access from Safari and of YouTube iPhone native client. This use will make happy to Apple, selling more songs, to AT&T selling more data usage and to the all the teenagers that dream of an iPhone but don’t have the 400 bucks. It is a win-win-win!

For Apple it means one more opportunity for dominance in a new segment. Apple would increase leverage to negotiate with telcos on revenue sharing, and would have a wider base to upsell iPhone applications and games downloads at $1.99 each, on top of the music tracks and videos at $0.99.

Maybe it is only a rumor, but it could well be another strategic move from Mr. Steve Jobs. You can picture the keynote: Now everybody can have an iPhone.

Mobile advertisement or mobile spam?

Advertisement can be an important source of revenue to Mobile telcos. And 2008 can be the year where it takes off at last. Still some of the mobile ads practices risk to be perceived as spam, specially SMS ads, where the telco should protect users with spamming filters.

While Mobile TV video ads insertion will seem justified by the user as a way to “pay” for content – following the free-to-air TV model -, I do not know anyone happy about the annoying SMS with a promotion to have a 10% discount on the purchase of a washing machine.

Starhub, one of the three mobile operators in Singapore, just launched a location-based ads service. Will location-based promotions be more successful than general promotion SMS spams by some merchants? Does the location info adds enough value to make the SMS welcome by the user? I have my doubts, but we will closely monitor the uptake of this service.

On the Mobile web advertisement, success is not yet there. While CPM, CPC and CPA show a higher value in mobile environment than in Web, the arrival of the iPhone and its Safari browser able to render regular websites, makes me wonder if mobile web ads will be any different from the web ads today. It is true that mobile operators theoretically have a lot of knowledge about their customers that could potentially make the ads more relevant, but I do not think that the current agreements of Yahoo and Google with mobile telcos are involving any customer info being offered by the operator.

GigaOM also wonders Are Personalize Mobile Ads Evil? Isn’t the screen too small to put ads?

How will Telcos fill the pipes?

Telcos keep investing in improving their broadband networks: from ASDL to ASDL2+ to VDSL and now  Fiber-to-the-home (FTTH). FTTH will enable bandwidths in the order of 100 Mbps, both for downlink and uplink.

Telcos are investing important sums to bring fiber to the users: Verizon, SBC and BellSouth plan multi-billion dollars investments in the next three years. NTT has reached 9 million subscribers in Japan for FTTH and target 30 million in 2010.

How will Telcos get a return on this massive investment? What applications can they deliver to justify it?

1) IPTV. This is the obvious answer. High Definition video will be the killer app, not only for video-on-demand but also for broadcast TV channels and live events. To deliver a HD channel requires around 10-15Mbps. With the trend of multiple set-top-boxes per family (in the living-room, in each of the bedrooms, in the kitchen), FTTH will enable multiple HD streams to reach each STB in the home with a different program. 3D HDTV is still in early stage, but will also provide a compelling reason for users to demand fiber. 

2) Interactive TV applications. Benefit from the high-bandwidth return channel to provide interactive TV applications on top of IPTV, like TV portals or participation TV (voting, messaging or video calls). Interactive Advertisement is one of the most promising applications for generating revenues. Targeted, relevant adds can be a reality on the TV, as the telco can have a detailed profile for their users, even measuring the response to campaigns. Interactive Advertisement will enable users to respond to the ads, e.g. by providing an email address, subscribing to the BMW channel, purchasing the product from the TV ad, setting up a video call to a sales agent or simply recommending the ad to a friend. The possibilities are end-less, and the potential to generate additional revenues huge.

3) High-Def Videoconferencing and evolution to 3D HD conferencing. Once multi-parties calls are set-up, the demand for bandwidth multiplies

4) Wholeselling to Internet players, like Google, Yahoo or Microsoft. High bandwidth/QoS demanding applications could be sold by Internet players, including the bandwidth required to deliver the application, purchased from the operator as a wholeseller. e.g. Google Earth Premium providing not only satellite pictures but also high quality live video, Rhapsody music service evolving to subscription-based video and music service through a QoS-aware sub-network “wholesold” by the telco, Premium YouTube HD with connectivity sold by YouTube, etc.

Having a FTTH network can provide Telcos an important competitive advantage and the means to provide new applications we can not even imagine now. Telcos need to keep focus on developing these applications.

Note:
Another alternative, not to be neglected, is to ask for government funding, given the social benefits Internet clearly provides. Renamed in the past as the Information Highway, there is no reason we should not have toll-free Information highways too. It worked in Korea and other Asian countries. It is a matter of understanding Internet as another public infrastructure.

Note 2:
See what Samsung envisions as the Ultra-High Definition (UD) 3D.  At 4096 x 2160 resolution it will require 300 Mbps of bandwidth. Not even current FTTH will be enough.