Archive | Broadband RSS feed for this section

NBN Co should NOT open its network to retail customers

9 Sep


It won’t come as a surprise that I follow what’s happening with Australia’s NBN Co with interest. After all, even if I’ve been highly critical of the plan’s implementation and it’s political weaknesses, it still is a national broadband network and as such worth looking into. But some things slip by me, and so it was with no amount of surprise that I read Paul Budde’s post on Linked In this morning entitled NBN Co Should Open Up Its Network to Others. I’ve met Paul and he’s generally been fighting the good fight in Australia on this issue, but I think it’s fair to say that in this instance I could not disagree more with the stance he is taking.

In essence, what Paul argues for is the ability for NBN Co to sell directly to retail customers. This is currently not easily feasible, he says, because NBN Co has 121 points of interconnection nationally and no wholesale product to connect these points of interconnection. It is also not allowed by the regulator ACCC.

To me this entirely undermines the point of structurally separating NBN Co in the first place. In the new regime NBN Co will have no retail contact with any customers, business or otherwise (apart from technical maintenance). They are a pure wholesale player. This is exactly as it should be. Any other regime recreates a publicly owned incumbent, one that has every incentive to act nefariously towards other market players and screw customers. There’s a reason retail monopolies were broken down, and NBN Co was designed in part to address the fact that Telstra post-liberalization was still too much of a retail monopoly.

I have often argued (unlike Paul) that the sin of the original NBN Co design was not that it had too many POIs but that it had too little. In order for competition to be healthy it needs to be able to optimise its costs, and the best way of doing that is to invest to get closer and closer to the customer. This substitutes a CAPEX-intensive model to an OPEX-intensive model and benefits the market. NBNCo is structurally designed to only offer an OPEX-intensive model and I think that’s a core issue.

I don’t have enough context on what’s going on here, and I need to dig deeper, but it seems to me that allowing NBNCo to offer products on the retail market would be detrimental on many levels: it would undermine the structural separation, if not deal a deadly blow to it; it would create distrust in the market between NBNCo and its customers. And ultimately it would require for NBNCo to be more than an infrastructure player. Considering how hard it’s been for the organisation to get to where it is today, I’m not sure that’s even sensible…

 Photo Credits: (CC) Geee Kay

Is Structural Separation in the UK really that risky?

21 Jul


I rarely disagree with the excellent Martyn Warwick, but sometimes there are exceptions. In an article in Telecom TV entitled BT Threatens Decades of Litigation Over Forced Sale of Openreach, Martin concludes that:

An ill-considered and badly executed sale of Openreach with no guarantees as to its future performance by a new owner would be a recipe for disaster with the buyer breaking promises and failing to make the investments necessary to make Broadband Britain a reality outside the major cities. Meanwhile, Virgin Media goes from strength-to-strength.

This misses, in my opinion, two major points that I wanted to reiterate here:

  • first, a sale is definitely not the way to go for structural separation. A spin-off, as implemented by Telecom NZ is the right approach for a number of reasons: first, it means that the shareholder structure only changes if the shareholders themselves want to sell their shares in the new vessel, so it’s not really a story of a single (and potentially evil according to Martin) buyer acquiring the crown jewels.
  • second, a structurally separated entity lives only on wholesale revenues. As a consequence it has every incentive to deploy better infrastructure, especially in a competitive environment where someone like Virgin is doing the same.

As Thomas Langer and myself discovered when we released our report late last year entitled Can Structural Separation via Spin-Offs Help Europe Achieve its Broadband Ambitions, there’s a lot of half-truths and outright lies that have been patiently spun by incumbent lobbyists about Structural Separation. In fact, Martin quotes BT’s CEO Gavin Patterson in his article in a way that is very telling:

“This is a commercial enterprise and if there’s uncertainty we will defend the rights of our shareholders, undoubtedly. It puts that investment very much at risk. At the end of it, and if we’re meant to be looking at the next ten years, what do you want to look back on? Do you want to look back at 10 years of litigation and arguments?”

The threat here is clear: a US style ‘litigate ’til they give up’ approach. But what about the shareholders?

As we demonstrate clearly in our report, there is every chance that a well executed structural separation via spin-off will result in two major achievements: increase value for shareholders and allow Openreach to extract enough cash-flow to envisage long-term infrastructure investment instead of the (at best) mid-term solutions currently put in place with VDSL and its upcoming life support.

The fact that this would be done by an entity with no financial ties to any market player and therefore would put every market player on a level playing field is, in many ways, the cherry on the cake. Indeed, it’s been seen to work very well for New Zealand, and the Czech Republic’s O2 is currently undergoing the same process. This is neither new nor rocket science.

The fact is that, if Gavin Patterson truly works for the shareholders, he should be considering Structural Separation very seriously instead of threatening the UK government.

Image Credit: 3D Judges Gavel (cc) Chris Potter

Exetel’s Magical Cost Accounting

16 Jun


Towards the tail-end of last week, tech journalist Juha Saarinen reported how Australian ISP Exetel was going to terminate the contracts of 400 heavy using customers. This surprised me, because I don’t think that’s legal in most western markets, but apparently it is in Australia. I engaged in conversation with Juha on twitter, and others joined. As part of that conversation, Information Age editor Ry Crozier pointed me to another article in PC World that has a bit more about the reasons for the decision. One passage in that article quoting Exetel struck me:

This has allegedly resulted in the ISP losing money on a number of accounts, including “one single user costing Exetel a loss of over $600.00 in a single month and more that 300 users costing us between $30 and well over $200.00 each in the Month of April and then repeating that sort of usage in May”.

I immediately asked myself how it was even possible for a single customer to cost AUD600 a month. I did one of the back of the napkin calculations I’m now infamous for, and this is what I came up with. Let’s assume for a minute that we’re only talking about traffic costs, not the whole wholesale access + infrastructure + overhead shebang (which should be no more than AUD30 anyway).

Transit in Sydney is very expensive (for reasons I won’t get into here, but might be worth examining in the future). Ballpark, in the upper end, it’s around USD15, AUD19. This is likely right for Exetel who is a small ISP.

If you attribute transit costs to a single customer, you have to assume that that customer is solely responsible for an increase in your peak transit (when you’re not peaking, the marginal cost is zero since your bill is based on peak capacity). That is already stretching believability, but let’s assume for a second that that’s even possible.

If that customer was responsible for an increase in peak traffic all by himself, he would be using 600/19, ie. 32Mbps of traffic all by himself. Throughout all peak hours of a whole month.

Since most of Exetel’s customers are ADSL customers, it’s safe to assume that this one is too. So at best, said customer has 15Mbps download capacity and 1Mbps upload capacity (if he lives next door to the central office). So 16Mbps is the maximum capacity this customer can possibly use on the network.

And yet cost accounting (if done with an understanding of the cost structure of transit) attributes him twice that in capacity used full time throughout the peak hours of the month.

This leads me to the unavoidable conclusion that Exetel’s accounting is terribly wrong. What they have most likely done is look at the overall cost of their transit and divided that by the amount of MB downloaded by each customer.

This is not about picking on Exetel specifically. There are still dozens, probably hundreds of ISPs worldwide who do just that. When we published our report on datacaps three years ago (Do Data Caps Punish the Wrong Users?) we hoped it would help the non-network people within ISPs to understand where the costs of transit really were. It seems that hasn’t worked as well as we hoped despite coverage in Techcrunch, Ars Technica, This Week in Tech, Wired and many others.

So we have decided to heavily discount the report, down to a measly €250. The data may be outdated, but the logic behind the cost accounting isn’t and, clearly, needs to be spread wider!

What’s faster than superfast ?

2 Jun

This morning I watched the above speech by Göran Marby of Swedish Regulator PTS. It meanders a bit, and (anecdotally) I was shocked by the apparent confusion between IP and Internet, but it makes some good points, and in particular it raises an important question about the future of networks. The assumption seems to be that the millions of devices that we predict to be connected will do so on the basis of a mobile (cellular) network framework. But most of these devices won’t move. In Fiber rich Sweden, the alternative (that they be connected on the basis of a fixed network paradigm) is appealing indeed.

This is something that interests me a lot, but I don’t think my thought process is quite mature enough to really address yet.

Instead I want to (slightly humorously) latch onto a joke Marby made in his speech about the UK’s “superfast” broadband. If 30Mbps is “superfast” he says, the standard 100 Mbps in Sweden should be called “superduperfast”.

We’re currently delving back into a project that’s been on the backburner for too long, with the aim of analyzing advertising messaging and strategies for FTTP.

If I was Virgin or Hyperoptic (or Sky / TalkTalk, assuming their fiber plans in York are actually moving forward), I would latch onto this concept and launch a campaign arguing that if BT is delivering superfast, then either of these other players are delivering superduperfast. Done well it would be funny, and would degrade the “superfast” tag, which frankly means nothing. If copper champions can devalue the advertising power of “fiber”, surely devaluing “superfast” is fair game?

(Note: I notice that Cityfibre used “ultra-fast” in their announcement, but I still think superduperfast would work better)

The Future of Telephony (or Lack Thereof)

13 Apr


I have long been wondering about the part of Telephony services in the classic triple-play mixes. The cost of offering phone service is still significant, but the interest from end-users is dwindling. Dean Bubley has a very interesting post on this topic with data entitled Past the point of Peak Telephony.

What does this mean from the classic Triple or Quadruple play offerings? It means that the perceived value from end-users is increasingly on the broadband and TV, and even the latter may be dwindling soon as more and more online alternatives emerge.

Isn’t it time a little bit more of the marketing effort went on the access part of the mix ?

Photo Credit: Tim G. Photography

Analyzing Broadband Usage in France and Portugal

2 Feb


Last year Diffraction Analysis worked in collaboration with the FTTH Council Europe on a study analyzing the behavior and attitudes of Swedish Broadband Users. In particular, we examined their satisfaction, their intentions to upgrade or migrate and their broadband usage. We recently published a thorough analysis of these results under the title Fiber broadband drives higher satisfaction and advanced usage.

The second wave of that study will be presented in Warsaw at the FTTH Council Europe’s Annual Conference. I will be presenting the findings for our France and Portugal studies on February 12th AM. This is a unique study that yielded fascinating and quite unique results. The full-fledged studies for France and Portugal will be published later this year, but for advanced insight into the behavior of FTTH and FTTB users in particular, I hope to see you in Warsaw!

The Disruptive Power of Wholesale Approaches

8 Dec


Steve Kamman’s blog Strong Views Lightly Held has come back to life. This is excellent news. Steve is both a top telecom market expert and a great disruptive thinker, a winning combination if you want to look at things a little differently. His latest blog post got my mind churning, connecting (as he often does) a number of previously unconnected dots in my mind.

The post is entitled US Wireless About to Get Interesting (and Ugly). I strongly encourage you to read it, but in a nutshell, Steve argues that DISH’s massive spectrum assets will be put to use to disrupt the US market in the very near future. Most interestingly though, Steve outlines one possible use of that spectrum that resonates a lot with me: building a wholesale wireless network centered around IoT rather than human communications.

Steve isn’t arguing that it should be solely able to deal with IoT (I think) but rather that it could be designed with IoT in mind from the get go, both from a technology standpoint and from a business model standpoint. One of the issues I raised in a number of speeches I made recently is that Cities are currently paying through the nose for sensor-based smart city applications because the network layer is sub-contracted to carriers who have no genuine interest in this market and are not adapting their pricing to its needs. While that might push Cities to consider alternatives (like deploying their own backbone fiber + wireless or even their own fiber to the home as a basis for smart city applications), the alternative Steve outlines could be a really interesting way of complementing that “self-reliance” scenario.

In fact, in combination with the recently announced Veniam products, a little Sigfox for low-level continuous data and deep fiber aggregation + wifi for upstream, you could totally see how cities could, with minimal investment, completely circumvent the traditional telecom ecosystem. Not to mention that, in the case of DISH, it could open up opportunities for traditional mobile telephony/data disruptors like Ting to expand their footprint and (possibly) make higher margins than with the current MVNO deals they’re getting. And there’s probably a way that open SIMs fit into this as well. If DISH was the first to fully embrace that in the US (T-Mobile is kinda there but not quite, as I understand it) the Verizons and AT&Ts could be in for a lot of trouble.

So, Steve, how do we make that pitch to Ergen ?


Photo: (cc) by Camilo Rueda López

An Example of Spin-Off

2 Dec

In the last few weeks, Thomas Langer and myself have been talking about structural separation via spin-off at length, and interestingly yesterday’s news gave us an illustration of what it might look like. I’ll let Thomas describe this to you in his own words:

Yesterday, one of Europe´s largest utilities, German e.on announced its plans to split into two publicly listed companies via a spin-off. This approach nicely corroborates our views of how fixed access spin offs could add value to the incumbent sector. Admittedly, market dynamics in the energy and communications markets are not comparable. Without going into the details of the motivation for the decision (excess capacity in the power generation market, repercussions of the decision by the German government to wind down nuclear power), a number of details of the proposed transaction highlight some of the aspects we discussed in our „Structural Separation“ study:

1. Even large European companies are considering spin-offs to release value for shareholders. The presentation to analysts mentions strategic, operational as well as financial benefits. These range from the creation of „more focused companies“, less complexity of organisational structures and a „better alignment between rewards and results“. Last , but not least the transaction „provides tow different and compelling investment opportunities.“

2. Interestingly, the spin-off will lead to structural separation between traditional power generation on the one side and green power and services on the other. Clearly this suggests that a shift in technology and a focus on service orientation both played a role.

3. The initial spin-off will take place in 2016, in less than two years. This illustrates that large organisations can execute a reorg. within a short time frame. Skeptics that look at structural separation in communications markets as too complicated should analyse this deal. It´s doable.

4. One slide of the presentation deck is entitled „Safguarding emloyees interests“. This corresponds ideally to our standpoint that a spin off must not be seen as a means for job cuts and larger downsizing. This would risk losing both internal support and consent of labour unions.

Ah yes: The e.on share was up by more than 4% by midday yesterday while the German Dax was slightly down.

So, not a telecoms sector example and not perfectly mappable, but interesting to examine. And remember, the best example out there is New Zealand, and we’ve described it at length in one of our reports entitled Can the New Zealand NGA Model be Replicated?

Diffraction Analysis in Crosstalk

1 Dec


Crosstalk is an Australian podcast on Telecom matters, and as one might expect, the Australian NBN is a frequent topic. Diffraction Analysis’ Benoît Felten is interviewed in the latest podcast, Doesn’t a 3030 Vision Need Fibre? Phil and Benoît discuss Structural Separation in the wake of the publication of our report Can Structural Separation Via Spin-Offs Help Europe Achieve its European Ambitions. Is Australia a good example of Structural Separation? (Spoiler: no) Could a classic Structural Separation model similar to that of New Zealand be implemented in Australia? And how future proof is the current “three networks” NBN plan exactly?

Photo: (CC) David Jenkins

DT didn’t shelf its variable rate plans…

28 Nov


There was an interesting and animated discussion on twitter yesterday about the fact that journalists systematically present network congestion due to Online Service Providers as a given. The discussion led to talk about Deutsche Telekom’s pay what you eat plans announced last year, and their apparent shelving. But Pál Zarandy pointed me to this article which suggests that the plans haven’t been shelved.

Essentially, and even though the wording is all but clear, what this suggests is that consumers will either be able to buy expensive “flat rate” plans, or cheaper variable-rate plans, the ones that DT believes would help them leverage their market power to coerce Online Service Providers into paying for zero-rating their content (as shown in the video I posted yesterday).

Now as Dean Bubley repeatedly stresses, this has exactly zero chance of happening… as long as there is significant competition in the market. Now the bid for further consolidation in-market appears more clearly as a part of this mad plan. I still believe the chances of it actually being implemented are zero, unless a stupid policy maker (EU Parliament who voted a non-binding motion to structurally separate Google, I’m looking at you) actually buys the argument…