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Not exactly Uber-innovative

22 Jun

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Uber is, or at least was, until recently, presented as a paragon of innovation. The company is, we have read many times, revolutionizing the transportation for hire industry through radical innovation.

I’ve had an instinctive distate for Uber from the start, failing to see how the various players in the ecosystem they built could make decent money. There is no doubt that Uber’s model ensured Uber was making money, but I had the feeling that the drivers certainly couldn’t, long term.

When their bully PR tactics emerged last year, my distate turned into frank dislike, but then what does that matter to anyone? The fact that I don’t use them doesn’t make an iota of difference. I did however get increasingly annoyed at them being used as an example of radical innovation. Let’s look into that for an instant:

Is the innovation in their app allowing you to hire a driver using the app on your phone? Sure that’s neat, but every large taxi company in the world matched that within months of Uber launching in their market. Could they have done it earlier? Sure. But the fact that it was so easily matched shows that that’s clearly not where the innovation lies.

Is it in the dynamic pricing? Beyond the fact that dynamic pricing is hardly a new thing in general (even if it hadn’t been applied to that industry until Uber did it), it doesn’t seem to be such a big selling point for users. Furthermore, at least according to one economist quoted in this fascinating article on Daily Finance, it’s ripe for abuse and will likely backfire as a consequence.

Uber is often presented as a great example of the “sharing economy”, is that where the innovation lies? Actually, Uber drivers are usually taxi drivers who moved to Uber, so there’s no “sharing” there, not more than there used to be. UberPop is a proper sharing platform, but it’s undermining the main Uber driver’s income, possibly undermining the whole business model. So how is that smart innovation? I’d say it rather gives sharing a bad name.

No, the innovation is in one simple, and as yet unadressed (at least until last week) regulatory issue: Uber has designed a model that allows it to completely avoid the labor and fiscal burden of employed drivers. Uber’s innovation, in a nutshell, is in fiscal evasion.

And the most amazing thing this about it is that everybody knows it: when the California Labor Commission last week decided to treat Uber drivers as employees every analyst and tech journalist on the planet said Uber was screwed.

Labor laws exist for a reason. They may seem frustrating to entrepreneurs (I should know) but they are, for the most part, individual rights earned after long labor battles. They protect workers, and they help finance the help needed by those who lose their jobs. Circumventing labor laws isn’t innovation, it’s just morally despicable.

So let’s forget about Uber as an innovator and focus on companies that truly are innovating, for the benefit of all rather than simply for the benefit of their own wallets.

Exetel’s Magical Cost Accounting

16 Jun

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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!

Free Webinar on French Broadband Usage and Satisfaction

10 Jun

On Tuesday June 16th 11 AM CET, Diffraction Analysis will present the high-level results of a study undertaken with the FTTH Council Europe on the French Market. This is a Free Webinar which you can join by registering here.

The results of the study will be presented by Benoît Felten, CEO of Diffraction Analysis and the session moderated by Joeri Van Bogart of the FTTH Council Europe. In it, we will answer questions such as:

  • Are FTTH users in France more satisfied with their broadband than DSL users ?
  • How do broadband users in general perceive the different broadband platforms ?
  • Do FTTH users do more things or different things online compared to DSL users ?

Join the discussion!

Free Webinar on Portuguese Broadband Usage and Satisfaction

25 May

On Tuesday May 26th 11 AM CET, Diffraction Analysis will present the high-level results of a study undertaken with the FTTH Council Europe on the Portuguese Market. This is a Free Webinar which you can join by registering here.

The results of the study will be presented by Benoît Felten, CEO of Diffraction Analysis and the session moderated by Jan Schindler of the FTTH Council Europe. In it, we will answer questions such as:

  • Are FTTH users in Portugal more satisfied with their broadband than DSL users ?
  • How do broadband users in general perceive the different broadband platforms ?
  • Do FTTH users do more things or different things online compared to DSL users ?

Join the discussion!

Is access competition enough to ensure Net Neutrality?

4 Feb

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In an opinion piece published recently, The Economist argues that the Net Neutrality problem is really a competition problem. I have argued the same in the past. On paper, the argument makes sense.

If there is no underlying cost reason to selectively throttle internet traffic (and there isn’t) then economic theory suggests that in a competitive environment, at least one of the players will go for the option that’s best for consumers (because he will benefit from it in customer acquisition and loyalty). Theory suggests again that others will follow until no one discriminates.

That’s the theory.

In practice, I’m no longer convinced that’s true. At the very least I think you need something in addition to competition to make it work. Before I discuss that though, here’s the the reason why economic theory (or at least the above application thereof) may be wrong in this case.

Everybody understands now (and the Economist piece is thankfully not rehashing the old cliché of “traffic costs going through the roof”) that service providers who want net discrimination want it because it puts them in a position of arbitration and they believe that that arbitration can be monetized. In other words, it’s an artificial way to generate extra revenues from access at a time when market growth is no longer the main driver as most people buy access products already.

Except it’s not. Any rational way you look at it, the revenue opportunity is at best minute, and most likely offset by complex systems, awkward customer relations and bad reputation. If you don’t believe this, go and purchase Dean Bubley’s recently updated Non-Neutral Mobile Data Monetisation Report.

The worse is that I suspect telcos know this. You cannot push that hard – and invest that much money into lobbying – without having done the math. I am somewhat at a loss as to understand why they’re still pushing for this, but it leads me to believe that there is nothing rational about this. And as a consequence, competition or no competition, they will keep pushing because they’re blinding themselves.

In addition, the restructured European telco market that the incumbents are (also) lobbying for would have a very small number of players present in most markets in varying positions. If there were ever ideal conditions for cartels to emerge, this would be it. I’m convinced therefore that competition would be nowhere near enough.

Now there is an argument to be made for a combination of competition and abundance. If markets are competitive and users have more than enough bandwidth to satisfy their needs, then the (misguided) rationale disappears. There is no arbitration position when bandwidth is abundant because there is no need for arbitration. That may not have been the end goal anyway, but if the rationale goes away, it becomes virtually impossible to argue the need for the arbitration role.

Considering abundance is (slowly but surely) emerging, do I conclude, as The Economist does, that regulation / legislation is a bad idea? Yes and no.

In the US, I think The Economist is flat out wrong. Title II is necessary and it should have been in place from day one. It’s not even regulation in the active sense, it’s just the only regime that applies under US law to ensure the ongoing survival of a service as vital as the Internet has become.

In Europe, I think we could do without a law or regulation. The UK example of the Net Neutrality Pledge shows that there are non binding ways to make the problem if not disappear, at the very least become minor. At the European level though, I fear it’s too late for that. The lobbying of incumbent operators, and the extreme positions they have pushed have been so fierce that the pushback is here, and will most likely be more extreme than anything the incumbent operators (and sadly probably the other operators too) will be comfortable with.

I (and others) have been saying for years that this whole debate has been a waste of breath on the incumbent telco’s part: they have nothing to gain and everything to lose. They pushed for laws that would put them in a position to arbitrate (because they knew they’d never be in that position in a free market), they might end-up with laws that block them from doing even common sense network management on services they offer.

It’s a sad state of affairs, but one entirely of their own doing. I for one won’t be weeping for them.

Photo: Race to the Checkout (cc) David Blackwell

The Disruptive Power of Wholesale Approaches

8 Dec

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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

The Incumbents’ Net Discrimination Plan Exposed

27 Nov

I was just pointed to this fantastic German video that ‘unveils’ Deutsche Telekom’s plans with internet discrimination. It’s both funny (because it turns every creepy aspect of it into a ‘feature’, like “you will no longer be bothered by these thousands of services you could never figure out“) and scary, because from all I can gather in discussions with Incumbents across Europe and the US, this is exactly what they hope to achieve. Seriously worth watching.

Oh, and since I always insist on the lobbyists working for Big Telecom being exposed, the guys behind this are Internet activists, and you can find them on http://www.netzneutralitaet.cc/.

Mister Oettinger and the Natural Monopoly

17 Nov

Dear Mr Oettinger,

I hope you don’t mind my writing to you in such a direct way, but we like to be informal in the technology world. I’m addressing you to commend you for the conceptual leap you nearly made in your first blog post as Digital Czar (or whatever the official title is.) It’s entitled Connected Europe? Broadband for All is the Answer, and while I’ve heard snappier titles, it’s actually the contents that are worth discussing.

In this blog post you argue that the digital divide is intolerable, and that we need to be thinking outside the box to connect rural areas with high-speed internet. I couldn’t agree with you more, and it’s nice to see you come out of the gate with such a strong will to break the mold. You may not be aware how much the mold has been cast by telecom lobbyists, but I’m sure you’ll find out soon enough.

You then argue that because the cost of deploying infrastructure in rural areas is so high and the expectation of revenue so low, we should consider granting monopolies to operators who agree to go there. In economic terms, they call this kind of situation a natural monopoly, and it’s good to hear you state clearly that yes, infrastructure is a natural monopoly. As you dig in deeper on these issues, you will actually discover that this doesn’t just apply to rural areas, but to 99% of most European countries.

But I digress.

The only issue with your proposal is that you don’t actually have to sacrifice the rights of citizens to choose their providers to achieve what you want. The reason is very simple: the natural monopoly is actually the infrastructure, not the service. And we in Europe (unlike our American friends) have been running multiple services on shared copper infrastructure for years. It’s very simple to do.

So since we’re thinking really outside the box, why not consider infrastructure and services as separate issues? There are several ways this can be (and has been) done:

  • we could establish an infrastructure company for rural areas that would have all kinds of public and private shareholders (including operators, local governments, investment banks, long-term financial funds, etc.) This company would wholesale access to their network to all market players, thus allowing rural areas to have connectivity and choice.
  • if we’re a little bolder, we could look at what New Zealand did and actually separate the incumbent’s infrastructure and service arms. Make them into two companies with no financial ties between them. One company would be focused on long-term investment and operations, the other would be focused on short-term service retailing.

This last concept is called structural separation. It was never discussed by the previous commission because, well, it’s a “taboo”. One of those taboos that millions of Euros of lobbying money has kept silent at the bottom of a deep, dark, hole.

Yet I and a number of colleagues believe that it could actually help solve the issue of underinvestment in broadband infrastructure at very little (if any) cost to the European taxpayer. And it wouldn’t just solve it for rural areas, it would solve it for Europe.

Tomorrow, my colleague Thomas Langer and I are running a webinar to present our findings in this area. We have modeled a structurally separated market in one country in Europe you know well and found that the resulting capacity for investment was vastly higher than current investment while at the same time representing significant financial upswing for the shareholders of the incumbent. It’s free to attend and we hope you or members of your staff will join this webinar. It should not be “taboo” to ask such questions and start a public discussion on them.

Yours,

Benoît Felten

Let’s Discuss Structural Separation

12 Nov

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At Diffraction Analysis, we (ie. Thomas Langer and Benoît Felten) have been busy these last few months working on a series of reports on structural separation. Our starting point is not that it should happen because of market fairness issues, but simply that it should happen because it makes financial sense. Furthermore by clarifying the investment horizon of both the network and the service entities, it could revive much needed long-term investment in fixed networks, the kind that vertically integrated entities currently deem “unworkable”.

We released a first report a couple of months ago entitled Can Structural Separation via Spinoffs help Europe Achieve its Broadband Ambitions. We will be presenting the results of this initial report during a live webinar hosted by the FTTH Council Europe on Tuesday November 19th. The webinar is entitled Structural Separation: A Solution to Boost FTTH Investment? It is free to join, and you can do so by registering here.

We are hard at work on a follow-up report that actually breaks down the numbers for the main European countries and looks at both the benefits of separation to shareholders and the investment potential unlocked on the network side.

 

Photo: Separation ou Retrouvailles (cc) Geoff Llerena

Has Eircom unearthed a Pot of Gold?

7 Nov

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Last week both the Fiberevolution blog and the Diffraction Analysis website crashed spectacularly, for which I apologise. It also means that I wasn’t able to comment this piece of news at the time of its release, but I think it’s worth discussing nonetheless, so I’ll comment it now. The Irish Times relayed Eircom’s announcement about FTTH deployment in an article entitled Eircom to offer extra-fast fiber broadband.

I’m normally quick to applaud such announcements, but in this particular case, I have a number of alarm bells ringing that I thought I would share.

The first, and most significant one, is that Eircom is broke. Or is that was broke? Maybe they have hired a good number of Leprechauns who all have invested their respective pots of gold in the company? More seriously, I’d have to see a pretty convincing business and financing plan before I’ll believe this announcement.

The other thing is that the announcement is a thinly veiled response to the recently vetted ESB / Vodafone collaboration to deploy FTTB in urban Ireland. Now that project is going ahead, but it’s a relatively small scale project as far as these things go: a €450m investment will get you (roughly) into 450k homes at best, which is about a quarter of Irish households. Not bad if they get that far, but not a massive deployment either. Also, direct competition with UPC in all of those areas most likely. So why would Eircom in response go into 66 towns and cities including (if the Irish Times piece is to be trusted) rural ones?

And incidentally, what happened to FTTC? That’s a very recent investment for Eircom. Should we assume it’s not working? Not that I’d be surprised, but still, it’d be nice to know…

I’m sorry but I just don’t buy it. Maybe I should be quite so affirmative, but this smells of Fiber to the Press Release to me.

If you have data that points to the contrary, please let me know, but until then, I’ll treat this one with extreme caution.

 

Photo: Clover (cc) Steve Corey