As many of you might know, Qwest Communications has won the contract to provide network services to both political conventions. The Democratic National Convention finished up last night with Barack Obama's acceptance speech at Invesco Field at Mile High Stadium. By all accounts, the 6,000 voice and data lines and video equipment (see http://press.qwestapps.com/index.cfm?fa=press.view&pressReleaseId=56825) that Qwest provisioned at Mile High Stadium/Invesco Field, as well as the Pepsi Center, did not experience much, if any, issues or downtime. This should score in the win column for Qwest. But most outsiders would say that, being in Denver, which is where Qwest headquarters are located, this was expected. So Qwest was basically in a situation where it could not pull off a big-time win - just a big-time loss, which did not happen.

As we turn toward the Republican National Convention in St. Paul, Minnesota, next week, Qwest, again, will be providing voice, data and video capabilities to the Xcel Energy Center in St. Paul (see http://press.qwestapps.com/index.cfm?fa=press.view&pressReleaseId=56820). Again, since Qwest is the predominant local provider in that region, it will be expected to deliver flawless service, and it will find it tough to gain positive credibility for a job well done.

Submit a Comment | Permalink

This week, the networking industry learned about the tragic loss of Cisco's Ben Goldman. Ben was murdered while in Detroit for what was supposed to be a quick, one-day business trip - the kind of trip that many of us take for granted - it's the modern equivalent of hopping on a bus. Those of us that knew Ben are shocked and saddened by a turn of events that is difficult to make sense of.

I've had the pleasure of interacting with Ben for a number of years, and while I can't claim to be a personal friend, I had developed a great deal of respect for him. When I knew Ben was going to be involved in a call or face-to-face meeting, I knew it would be a productive one. I came to look forward to these interactions, and we both learned from them. Ben had a great passion for Cisco (he was a 16-year veteran). But he never let that passion get in the way of the issues at hand. He never took Cisco's position for granted and was always willing to listen to and learn from different points of view and debate the issues. In times when the discussion became a little more confrontational (as they can between analyst and vendor), Ben was always a voice of reason. His thoughtful, open style had a strong steadying influence on everyone.

The link provides a more complete and fitting tribute to Ben's memory: http://www.mercurynews.com/ci_10309586?IADID=Search-www.mercurynews.com-www.mercurynews.com.

While this is a loss for our industry and for his colleagues at Cisco, our thoughts must focus on the young family he leaves behind.

1 Comment | Submit a Comment | Permalink

This week, Virgin Mobile USA completed its takeover of Helio in a merger of mobile virtual network operators (MVNOs) from very different corners of the mature U.S. mobile market. Virgin, the second-largest MVNO specializing in young, tech-savvy but still lower-spending prepaid customers, had felt some pain in recent quarters; Helio, arguably the largest high-end service providing the latest data connectivity to the upper end of the postpaid spectrum, had been struggling toward a break-even number that was still years in its future. Both were well-known brands. Was this a simple case of bigger is better?

Helio was clearly a relative "heavyweight" in terms of its support infrastructure. In an MVNO market where many competitors provided little besides a brand name and an idea, Helio leveraged the strength of its investors SKT and EarthLink to provide its own backbone, support systems, handset distribution, retail kiosks and much more. This seemed appropriate for a company that wanted to provide bandwidth-hungry, high-cost applications and services to its customers, but the number of subscribers needed was just too high. SKT, which has consistently maintained it wants to seek growth outside its home market, is essentially trading in equity control of 85,000 Helio subscribers for a 17% share in Virgin's customer base (4.9 million as of the half-year report); that would translate to 833,000 equity subscribers, nearly a 10 times increase. Virgin, in return, gets first crack at about the same number of subscribers in Helio at one go, which is more than it earned with a year's worth of effort since the end of June 2007.

Virgin also acquires a company with the tools and infrastructure to support the immediate rollout of postpaid service. It's interesting that Helio had already dispensed with its retail stores, which certainly dragged on costs and might have pulled in a tough new direction. Because Virgin emphasizes that nearly half its customers are older, it's pretty clear that it has needed to move up the chain, and this could be a very appropriate offering. Helio, like Virgin, was "hip" and put attention on bringing connections that early adopters and high-usage customers wanted. It remains to be seen whether the new company can maintain that kind of leading-edge influence in a cost-effective fashion (and remember, Helio never proved it could turn a profit).

Overall, the U.S. mobile market remains brutally competitive, with far more failures than successes on the landscape. Virtual operators seem to have carved out a niche in several areas, showing that success is possible, at least up to a certain size (where we assume the network-based Big Four would become interested in a purchase). These success areas include:

• The low-end, prepaid customer of simple voice and messaging, with no frills and an emphasis on price (such as Tracfone)
• The interesting niche player with a special value proposition, still too small to attract MNO attention (such as kajeet)
• A well-articulated sub-brand that uses MNO capabilities while putting a different face to the market (such as Sprint's Boost)

And then there's Virgin Mobile USA. The immediate future for this company should be quite interesting - and possibly instructive about the future of the virtual operator as a stand-alone model.

Submit a Comment | Permalink

A recent report from Reuters indicates that Turkey's telecommunications regulator is considering regulations to allow mobile virtual network operators (MVNOs) to gain licenses to operate within the country by this winter. This feature of the more developed markets is now appearing in certain larger emerging markets as well, and it's interesting to note the differences. Turkey, which is perhaps a half-step behind South Africa in general terms of liberalization and advancement, is also behind in this regard, because there have been MVNOs functioning in South Africa for almost two years.

The difference is that the South African regulators have never said anything to clarify this fact, and actually forbade virtual operators as recently as four years ago. What's happened since then? I would say this is one of a number of issues where the regulator (or actually regulators, as there are several bodies with a say in telecom) has gradually fallen silent, enervated by infighting and uncertainty over the future direction of the regime. The Electronic Communications Act of recent times, in truth, does allow for licenses that can be interpreted to mean facilities-free competition. But there is quite a bit of confusion over this, as in several other areas, including self-provisioning, access to international bandwidth (regulation of submarine cable landing sites) and the ever-popular fixed-wireless technologies.

Ideally, one should handle things the way the Turkish authorities appear to be. The regulator makes a clear statement, and then the licenses come in. South Africa's "muddy waters" around regulation have competitors trying things and hoping for the best. With the World Cup 2010 on the way, I presume authorities will have the wisdom not to stand in the way of a company that is getting things done. But South Africa's heritage is facilities-based, and so I'm guessing the goodwill won't extend beyond the players that are putting in fiber, or launching new satellites, or bringing in the submarine cables. Virtual operators occupy an interesting niche, but right now, they compete in South Africa under uncertain conditions.

I call upon the South African regulators to meet behind closed doors, hammer out a consensus and then issue it for all to see. It could be that on many issues - self-provisioning of competitive players, fixed-wireless licenses, essential facilities and open access - they'd simply be repeating themselves, and possibly on others they won't be able to agree yet (in which case they should say that, and state the governing principles for review and arbitration). But the market is at a crucial point, and now's the time to establish as much clarity as possible for all concerned. I wish them well, and we'll continue to keep an eye on this emerging model telecom market.

Submit a Comment | Permalink

Nortel this week announced the acquisition of Pingtel's software-based unified communications (UC) system from Bluesocket - an enterprise mobility solution provider. The financial terms were not disclosed.

Pingtel is known as an open-source UC vendor with solutions based on interoperable software that can run on a range of hardware platforms. Pingtel will provide new software capabilities to Nortel's enterprise UC portfolio, as well as additional research and development capabilities. This transaction brings Pingtel's existing original equipment manufacturer (OEM) relationship with Nortel in-house, gives Nortel ownership of the Pingtel technology and furthers the company's ambitions to become more software-centric.

Nortel will use the Pingtel software capabilities to continue to deliver UC solutions to enterprise customers of all segments, but initially for the more cost-sensitive SMB market, as well as for some custom vertical markets. Initial plans will bring additional Pingtel open-source software elements to Nortel's SCS500 (Software Communication System 500) solution, which targets up to 500 users and has been available since April 2008.

This is a good example of Nortel evolving to a software and services-focused business, as evidenced by the 10+ IT platforms the SCS500 is currently supported on through Dell, IBM and most recently HP.

We expect that over time SIPfoundry - the open-source community in which both vendors are active participants - will be leveraged into the core Nortel architecture, including the Nortel MCS 5100. This will also provide a good SIP-proxy-type approach.

If you are an enterprise communications planner, this offers a significantly more open alternative that will interoperate with the rest of your broader communications and collaboration investments, with less lock-in (see "Developing an Enterprise Unified Communications Road Map" and "Key Issues for Voice Applications, 2008".)

Submit a Comment | Permalink

Traditional wireline carriers have long played on a relatively even playing field, offering such services as voice, private line, frame relay, IP and Ethernet. These larger carriers - AT&T, Verizon, BT, Orange and T-Systems - have been achieving marginal (not dominant) differentiation through the offering of more complex ICT services. Newer megacarrier services now include WAN acceleration, security, contact center, LAN management and desktop support. In comparison, the midtier players - Global Crossing, XO, Paetec and Level 3 - focus on the core network services and a limited base of ICT services.

However, the ability of the select megacarriers to offer combined wireline/wireless offerings will accelerate this differentiation. In the U.S., both AT&T and Verizon are enabling their larger customers to pool their revenue commitments across wireline/wireless services. Both Orange and T-Systems have similar potential in Europe, as does Bell Canada in Canada. Sprint also has the opportunity to exploit this trend, should it be able to inspire market confidence by shoring up its financial and management issues.

Trends toward integrated wireline/wireless contracts will put pressure on the single-play providers. Companies like Qwest, Paetec, Level 3, Global Crossing and XO may not make it to the shortlist on some RFPs. In other instances, sage buyers will focus on price and thereby reduce the margins on single-play providers.

See "Forecast: Enterprise Network Services, North America, 2006-2012" for more.

1 Comment | Submit a Comment | Permalink

I've been following the challenge faced by host countries as they broadcast live global sporting events such as the World Cup and Olympics, and naturally, all eyes are on China during these Olympics. China has declared its intention to present a "high-tech Olympics," and the manifestations of that have been myriad. If you were one of the gazillions who tuned into the opening ceremonies, you saw high-tech LEDs, fabrics and much more (who'd have figured the Chinese would do fireworks!). But my focus has been on the communications and broadcasting sectors, and there's been much to think about there as well.

One major theme is access to video, live and on tape, and to various end-user devices. Mobile TV continues to grow, and we have seen partnerships between host broadcaster NBC and numerous companies, from SinglePoint up to AT&T and Microsoft, bringing it to us, in any flavor you could dream up. But with all the emphasis on live video delivered to where you are, I think we're losing sight of the amazing growth in flexible, easy access to video content on the PC screen. Here in the U.S., I can access the NBC Olympics Web site and scroll through dozens of choices for video from the various arenas: Sure, it's not live, but all I have to do is delay reading the morning paper and I can still thrill to the exploits of fencers, skeet shooters, divers and beach volleyball players at any time, in high quality on my PC screen. I'm too old (and nearsighted) to want to watch sports on a two-inch mobile screen, but for the millions who do (including Chinese subscribers who are using the freshly homegrown SC-TDMA standard), you can choose from live clips to alerts and daily digests of the highlights. Does anyone out there still think an unlimited data plan is a frill?

There's been a lot of talk about the use of IPv6 at these games. China, which by some accounts will be the first country threatened by the shortage of IPv4 addresses, has certainly invested heavily in the technology, but indications are that its deployment has been exclusively in the security camera systems set up around the venues. Attendees and media in Beijing, while they can access video as well as the Internet from "e-booths" set up by China Netcom around the area, will likely not be directly experiencing any superior quality that the new standard can supply. In the end, it looks like the jury is still out on the need for the world to convert to IPv6, and we may not get conclusive results of its performance qualities out of Beijing. Meanwhile, broadcasters calling the play-by-play as well as their listeners at home will have touch-screen access to player stats and data to assist their efforts, split-screen view options, and numerous other incremental advances in technology.

As you might imagine, the traffic flows around the media and broadcast center are potentially enormous. Throw in the call centers to field multilingual inquiries on everything from directions to lost tickets, as well as the internal communications needs of the staff running the games, and you might find it easier to believe Atos Origin's staggering claim to have conducted no less than 200,000 hours of testing on the command center systems needed for these purposes.

How well will these enormous efforts translate to later venues and events? I'm somewhat skeptical that, for example, South Africa (in preparing for the World Cup in 2010) will be able to draw too close a connection between the specific offerings and technologies in Beijing and its own situation. The demographics of course are at opposite ends of the spectrum, but it might surprise you to note that the World Cup in soccer is just about the equal of the Olympics in terms of the size of the broadcasting effort. Certainly for now, the Olympics can serve as an indicator to South African regulators and service providers of what is possible — and, by inference, of the barriers to greater takeup that lie in the way at home. Imagine South African consumers trying to figure out which videos to watch online, when their accounts are capped at 3GB per month. The country has just under two years to go, and we'll be watching with great interest. For more on the effort to host the first World Cup soccer tournament in a developing nation, see "Dataquest Insight: World Cup Will Advance South Africa's Telecom Network."

Submit a Comment | Permalink

Wireless licenses will be auctioned, and the process is expected to be completed three to four months from now, which means that the commercial launch of 3G services would happen by 1H09. To start with, the Department of Telecom would permit up to five operators in each circle to operate. However, the limit is three for metros like Delhi and Mumbai. Government-owned service providers Bharat Sanchar Nigam Ltd. (BSNL) and Mahanagar Telephone Nigam Ltd. (MTNL) will each receive a license, gaining a head start of several months over competitors in rolling out 3G services. The license has been allocated to BSNL and MTNL with only one condition: The license fees must be equal to the highest bid made during the auction of licenses. This allocation has given them the advantage in terms of time to market versus the private operators. One could expect, for instance, that MTNL will launch service within four to five months. The government's surprise announcement heartened CDMA operators that worried that the guidelines would only cover GSM services in the 3G market. The GSM version of 2G services here were launched about three years before CDMA. At least two CDMA operators will be allowed to offer 3G services in each license area. The licenses will last 20 years. Spectrum for EV-DO data services will be auctioned in the 450MHz and 800MHz bands, and eventually in the 1,900MHz band, the statement said. Auctions will be overseen by an agency to be appointed by the Indian government.

3G services are all set to give a boost to the value-added service industry in India, which Gartner estimated was standing at about US$1.5 billion in 2007. Going ahead with Gartner estimates, by 2012, every fifth wireless connection would be on 3G and the operators can expect to generate nonvoice revenue to about US$5.5 billion.

Submit a Comment | Permalink

Recent news that the convenience store food chain 7-Eleven is expanding its MVNO service beyond the U.S. and Canada - first to Taiwan and now to Singapore - caught our eye this week. It's just the latest entry in a long line of food stores offering phone service (see the list below), and it got us thinking about what the MVNO model needs to succeed. Even as content-oriented MVNOs have fallen by the wayside, and high-spending MVNOs have either failed or been merged away from their pure approach, simple prepaid phones, SIMs and cards seem to be working just fine for grocery stores across the developed world:

• Tesco based in the U.K., with branches in Europe
• Aldi based in Germany, with branches around the world
• Auchan in France
• Carrefour ranging across much of Europe
• Kroger in the U.S., Canada and elsewhere
• Plus several other smaller examples

In each case, the food store has emphasized cost savings, simplicity or both for its base brand offerings, and it has tailored the phone service to match. High-end handsets generally are not offered, and customers don't get to do much with pictures, video or live multimedia content: They just phone and text at prices close to the bottom of the market. Certainly, these are low-end customers who are unlikely to attract the MVNO players that are providing the access and other services needed by these branded operations. But the match has real synergy on a number of levels:

• People who like to save money usually like to save money on everything.
• Staffing costs for these simple prepaid phones are nonexistent for the food chains, which compares favorably to the costs of dedicated staff at major-carrier kiosks. Similarly, follow-up customer care is minimized by the fact that it is a simple, low-end service, and customers who come in to shop for food twice a week will have little trouble finding the customer service desk with any questions or problems they have. Alternately, they can make use of call centers in the manner of other MVNOs, run by the network operator or run independently.
• Low-end phones, SIMs and prepaid cards can be bought or topped off in an off-the-shelf fashion, such as for the store's other products.
• Unlike many other retail MVNOs, those associated with large grocery chains have the distribution network to really challenge the carriers in terms of convenience and reach.
• Again, as a result of their size and scale, grocery store MVNOs may not need to move up the value chain, because mobile service margins already compare favorably to margins of many kinds of food, and the incremental cost of stocking these items is fairly low.

While we have yet to see any MVNO really challenging for market leadership (and we don't think any ever will), it's very likely that this version of player could have a long "shelf life," to abuse the phrase. What will be truly interesting is to see whether any of these chains exploit the potential for synergy with customers who use their phones and buy their food. The opportunities to gather data and effectively cross-market are both obvious and substantial, and there is some evidence that folks would be less resentful of a marketing attempt through their grocers than they would be of the carriers behind them. Here is where most chains will likely need substantial assistance to execute properly, with either the MVNO or an MVNE. Either of those partners will also need to develop their listening and partnership skills in order to craft out a mutually beneficial exchange.

Submit a Comment | Permalink

RADVision - a provider of video network infrastructure and developer tools for unified visual communications over IP, 3G and emerging next-generation IMS networks - recently announced that it is providing integrated video communications for Cisco's Unified Customer Voice Portal (CVP). Cisco Unified CVP will leverage the Scopia Interactive Video Platform's (IVP's) video communications capabilities.

The Scopia IVP is a universal video media server platform that provides processing building blocks and ubiquitous device connectivity and supports the creation of a wide range of video-related applications and services. The video-integrated Cisco CVP solution utilizes RADVision's iCONTACT, a contact center video-enabling software component running in conjunction with the Scopia IVP. Together, Scopia IVP and iCONTACT offer a comprehensive solution that enables system integrators (SIs) and contact center equipment vendors to develop and deploy visual communications services to contact centers.

With RADVision's Scopia IVP, Cisco Unified CVP can support video interactions, including self-service, queuing and agents, and it can provide the following features and benefits to help change the nature of customer interactions:

• Video menus for a more intuitive caller experience
• Video self-service where prerecorded or live videos can be played, enabling richer interactions
• Video queuing where videos can be played while waiting for an agent
• Video agent support, providing a unique customer service experience that builds trust
• Video agents' ability to "push" additional prerecorded or live video content to callers, providing an efficient, standardized method for sharing information and instructions
• Support for 3G video-enabled mobile devices and video kiosks for broad user access and reach

The use of video in contact centers is still embryonic, and there are few applications deployed - but there are benefits for some contact center applications. For instance, it can be useful where live demonstrations or personalized interactions are helpful. Proprietary protocols and technical complexity have limited deployment to consumer environments; however, increased adoption of webcams may increase adoption of this form of interaction. Some examples of use include:

• Financial services - using video by financial services contact centers to assist in credit rating of prospects. Nonverbal cues can contribute to positive or negative decisions on the creditworthiness of the prospect.
• Healthcare - assisting in the assessment of the emotional and physical well-being of homebound patients.
• Retail - using kiosks with video to assist in purchasing decisions (the kiosks may be placed in locations where it would not be cost-effective to have live agents).

Video sometimes is included in interactive voice response (IVR) applications (an area this announcement addresses), enabling users with properly equipped mobile devices to access video. The applications resemble mobile Web/video, except that they are implemented as part of a phone service, rather than a Web service (see "Hype Cycle for Contact Center Infrastructure, 2008" and "Hype Cycle for Enterprise Communication Applications, 2008").

Submit a Comment | Permalink

A U.S. Federal Court of Appeals ruled this week that top U.S. cable operator Cablevision Systems, of Bethpage, New York, would not directly infringe the copyrights of program content owners if it allowed its subscribers to use network-based digital video recording (DVR) technology. The ruling reverses a lower court ruling in March 2007 that prevented the cable operator from implementing the network-based DVR technology - called remote storage digital video recorder (RS-DVR) - that would enable customers to record and store TV programs using the cable operator's own network servers across its 4.6-million-home footprint in the greater New York, northern New Jersey and Connecticut service areas.

The ruling lifts an injunction that prevented the MSO from implementing its RS-DVR without obtaining a separate license from content owners. Various network programmers and movie studios, including Time Warner, 20th Century Fox, Universal Studios, Paramount Pictures, Walt Disney, as well as broadcast networks ABC, CBS and NBC, sued Cablevision in May 2006, when the MSO announced its intention to roll out the technology to consumers. The content owners argued that, because the RS-DVR service involved recording and storing of programs at Cablevision's facilities, Cablevision, and not its subscribers, would be making the copies when a consumer recorded a program with RS-DVR, and a consumer's replaying of programs recorded with RS-DVR would be a "public performance." Both of which would require a separate license from the content owners.

This case made for some strange bedfellows. Last year, a number of industry associations and lobbying groups, including the Consumer Electronics Association (CEA), USTelecom (USTA - which represents telephone companies such as AT&T and Verizon, the latter being a key rival to Cablevision with its FiOS Internet and TV service offerings), as well as the Electronic Frontier Foundation, joined together to file a court brief in support of Cablevision's appeal.

The ruling now frees Cablevision to use the network-based hardware and software solutions that will enable cable customers with existing digital set-top boxes (STBs) to time-shift their favorite programs, instead of using more expensive locally based storage solutions. DVRs are highly popular with U.S. pay-TV households of all distribution modalities - satellite, telco/IPTV and cable -and are now increasingly being incorporated into cable advanced digital STBs.

Although this is positive for both consumers and cable operators, the long-term implications may be less positive for set-top box manufacturers such as Motorola, Cisco, Pace, Thomson and others that are shipping large quantities of advanced STBs that incorporate storage capacity for time-shifted TV, and that are also a source of higher margins than generic digital set-top devices. The news could be good for video server vendors, as well as suppliers such as BigBand Networks that provided some of the initial RS-DVR equipment the company used at the time of the proposed trial before it was shut down.

Cablevision's subscriber base of digital customers was almost 90% at the end of 1H08, so the ruling comes at a good time for the MSO because DVRs are an increasingly important competitive service element for pay-TV service providers. Although network DVR is a less costly solution, especially because it enables a whole-home DVR solution in every room, it does nothing to enable a comprehensive solution for "whole-house video" or "networked video," especially one that incorporates video originating from sources other than the operator's network, such as from PCs or other storage devices/home servers.

It is unclear when Cablevision might start rolling out the network-based DVR service, but the path is now cleared for all cable operators to move forward with this technology option for time-shifted television.

(Suggested reading: "Hype Cycle for Network Service Provider Infrastructure 2008")

Submit a Comment | Permalink

Before the Beijing 2008 Olympic Games open, Nortel has won the race to be a Tier 1 sponsor for the Olympic Games to be held in London in 2012 (see http://www2.nortel.com/go/news_detail.jsp?cat_id=-8055&oid=100243943&locale=en-US).
Nortel gained this status by donating a huge and diverse stack of communications equipment to the games through BT, London 2012's Communications Services Partner. Following a set of heats, the final matchup, we believe, was between Nortel and Cisco. Nortel most likely won for several reasons. Energy efficiency was important, because sustainability is a key theme for these games. Nortel has made low energy a theme in recent advertising, and it continues to invest to maintain this differentiator. Nortel's close partnership with Microsoft through the Innovative Communications Alliance (ICA) helped, and Nortel's Olympic track record was also important - its network is already up and running for the Vancouver 2010 Winter Olympics. But, most of all, we think Nortel won because it wanted it more.

"Greening the Enterprise Network" explains three steps to minimize the environmental footprint of enterprise networks. This research was part of a broader research analysis, "Green IT: The New Industry Shock Wave," which explains how IT organizations have an opportunity to improve the environmental footprints of their IT infrastructures.

"Microsoft-Nortel ICA UC Solutions Are Late But Finally Market Ready" is a recent update on this vendor alliance.

The technology and market forces that are enabling UC are causing significant shifts in legacy stand-alone communications markets, several of which are more than $10 billion. Vendors, including Nortel, must prepare themselves to face new competitors in their existing market strongholds and to compete in the emerging new markets. The London 2012 Olympics give Nortel a great platform from which to showcase its ability to deliver mission-critical communications solutions. But, more importantly, it is a great marketing platform for Nortel to rebrand and position itself in what may prove to be a changed role for communications solutions.

For customers, Nortel's selection for the Olympics is reassurance that - in the presence of good alternatives - their choice of Nortel is sound.

Nortel would not say how much this will cost, but I speculate that it will cost the company several tens of millions in pounds. This will take a big chunk of its marketing budget during the next few years - more reason for Nortel to talk to you about it at every chance it gets.

We have said in the past that Nortel must invest more in marketing, so it would be perverse to criticize it for going for gold at the London 2012 Olympics. All it has to do now is to execute flawlessly.

Gartner "Vendor Rating: Nortel Networks" and "Dataquest SWOT: Nortel, Enterprise Communications Applications, Worldwide, 2008" provide some recent analysis of Nortel.

Submit a Comment | Permalink

France Telecom (FT) made public its 1H08 results on 31 July. The stock exchanges welcomed the announcement. The stock price increased over 2% in one day. This appears mainly due to the predictability and stability of the group. The results are in line with the forecasts, and an interim dividend of 0.6 euro per share will be paid in September. Year over year, the actual revenue growth is at 1.5% due to a reduction of the perimeter mainly in the Netherlands and due to the negative impact of currency changes (high euro). When removing the impact of these factors, on a comparable basis (CB), the operational revenue growth is 3.9%. Yet with inflation at 4.1% in the eurozone, this translates into a contraction of the real revenue level by 2.6%. These results are positive within the current worldwide economic context, with the currency variations and the pressure existing on prices from regulators.

For 1H08, the consolidated net income after tax is at 2.996 billion euros on revenues of 26.3 billion euros, showing a net margin of 11.4%. At the gross operational margin (GOM) level, this means 9.675 billion euros (up 2.75%) and a GOM margin of 36.8% (up 0.5 percentage points). (Note: The GOM is calculated before restructuring costs and employee profit share.) The net income dropped by 17.33%, and the net income margin is now at a still healthy 11.4%, down from 14.0% a year ago. The change in net income is due mainly to higher taxes (impact -700 million euros), higher restructuring costs (-150) and lower depreciation (+200) in 1H08. On the other hand, it is also due to higher gains from disposal of assets (-400) in 1H07. Excluding the impact of disposal and exceptional deferred taxes and the free shares program for employees of 2007, net income for the group shows an improvement in 1H08 over 1H07.

For enterprise customers, the results are also rather welcome. In 1H08, the enterprise segment shows revenues of 3.840 billion euros, up 1.05% year over year in actual terms (2.92% on a comparable basis). The integration and professional services generated revenues of 637 million euros, up by a very healthy 18.4%. This segment generated a GOM of 19.4%. The profitability of the enterprise segment is well above the EBITDA margin shown for instance by BT Global Services, which is at 9.5% for the last quarter. France Telecom enterprise services activity appears to focus on margins and cautiously manages expansion. Indeed, the GOM for enterprise services increased 15.1% in actual terms (18.6% on a comparable basis).

Most of the group's growth comes from the mobile segment (called Personal), with total Personal revenue up 7% CB and 1.9% actual due to the changes in currency exchange rates and disposal of the operation in the Netherlands. Poland was up 22% CB and 11.1% actual. U.K. was up 9.7% CB and -4.4% actual. France was up 4.8%. Spain was up 2.3% CB and up 0.2% actual.

The group's strategy is to focus on value customers both in Spain and in the U.K. Connection growth in the U.K. doesn't compare so well with O2 and Vodafone, while revenue growth is better. Similarly, Telefonica and Vodafone did better in connection growth in Spain. Direct distribution is improving, with more store openings planned in the second half in Spain. Emerging markets are doing well. However, we believe there is a need for stronger marketing.

The home segment is up 1.8% actual but flat at 0.3% CB. The French domestic revenues grew 1.2% CB and 1.5% actual. The downward trend of traditional telephony is offset by broadband access and voice over IP.

The group has achieved a strong presence abroad, with France now accounting for 53% of the group's revenues. Recent new operations targeted Guinea-Bissau, Niger and Kenya, but a significant presence in some large countries is missing.

The France Telecom group offers enterprises and investors a safe company. With a market capitalization around 53.8 billion euros and net income around 6 billion euros, the return on invested capital is around 11.1% today, well above inflation in eurozone and long-term interest rates. However, compared to assets of 99 billion euros, the return is meager.

In the medium to long term, a growth below the inflation rate impacts the value of a company. We believe a stronger growth strategy will be required, involving revenue growth, synergies and profitability.

Submit a Comment | Permalink

Polycom (www.polycom.com) recently announced the Polycom Converged Management Application (CMA), designed to simplify the deployment and management of enterprise video networks and the use of desktop, group and telepresence solutions for users (see "MarketScope for Video Telepresence Solutions, 2008"). A key component of the solution is CMA Desktop, an integrated enterprise desktop video application. The new solutions provide the foundation for future, enhanced integration with Polycom strategic UC partners, including Avaya, IBM, Microsoft and Nortel.

Polycom CMA supports hardware and software endpoints (desktop, group and telepresence) and infrastructure systems (bridges, recording and streaming servers, and so on), and it is designed to seamlessly integrate with IT best practices, policies and existing directories. For example, CMA supports Active Directory and LDAP/H.350 directory services; offers integrated scheduling through Microsoft Outlook, IBM Lotus Notes or a Web interface; and supports standards-based provisioning through XML and standards-based presence through XMPP. Secure conferencing is ensured through AES media encryption and TLS certificates for secure signaling.

Polycom CMA allows Polycom video devices to share presence information as a part of user contact lists (desktop, group and telepresence) either on their endpoint or within the CMA Desktop application. Users can click on the name to launch a call. All call specifications are provisioned based on profiles previously defined by the IT administrator.

Polycom CMA Desktop is a scalable, PC-based desktop video software application that allows users to create contact lists from a corporate directory and then launch video calls by clicking on contacts. The application allows users to see presence details (such as online, offline, available and busy) for software and hardware video devices and then to connect to other users, or other standards-based videoconferencing systems, including personal, room and immersive telepresence solutions. It supports standards-based, high-quality visual communications, including support for HD video, HD voice and multimedia content (H.239 content sharing — presentations, videos and images) in full, native resolution (see "High-Definition Videoconferencing Moves to the Forefront").

Because Polycom CMA Desktop is a tightly integrated component of the Polycom CMA management application, it gives administrators increased control over desktop video on their networks. Previously, desktop video applications were often deployed as individual software clients that operated with limited management control over activity or bandwidth usage. With Polycom CMA Desktop, IT administrators can use a standard Microsoft Installer (MSI) file to deploy the client across the campus or can send it out as a simple download. This enables IT administrators to apply policy-based provisioning for desktop video as part of a common, centralized management application - just as they do for other video solutions. Polycom CMA - which includes seat licenses that can be used for endpoints, infrastructure and CMA Desktop - is planned for availability in October, with a starting manufacturer's suggested retail price of $20,000.

This is a major product announcement for Polycom, as it looks to position CMA as its video management application of the future in order to suit more open IT environments, take better advantage of new server technology, and support the evolving unified communications market. CMA offers enhancements over Polycom's existing SE200 management application, such as support for Windows Server 2003, standards-based profile provisioning, standards-based presence capability, LDAP/H.350 directory services, multiple and tiered directories, and support for up to 5,000 registered users. It will support the H.323 standard in the initial release, with plans for SIP support in 2009, and it should help Polycom boost its appeal in the video endpoint management area versus competitors like Tandberg TMS (www.tandberg.com). Polycom will also offer existing customers with current service agreements licensing and hardware incentives to move to CMA.

1 Comment | Submit a Comment | Permalink

On Monday July 21st, 2008 Fabio Colasanti, Director General for the Information Society and Media at the European Commission said the Commission was reluctant to impose a cap on wireless data roaming charges in Europe. He added that a cap on wholesale charges in such an emerging market could have unintended consequences. This statement must be put in the following perspective.

1) The European Commission always waits until a market has demonstrated the need for a regulation. The waiting time can easily be five to 10 years or more. Some may regret this attitude but it is also relatively wise. Europe wants stable regulation and is waiting until enough evidence can generate a broad consensus among policy makers.

2) Mobile data is indeed an immature and fast evolving market. Several technologies are used by providers, from GPRS to HSPA and later LTE (Long Term Evolution). The capacity of each generation of technology increases tremendously. The architecture of the network, in particular the future LTE, will be very different from current wireless network. In addition carriers in Europe have different levels of maturity and data rates. Hence the cost per gigabyte (GB) varies a lot. Today between a GPRS network and an HSPA network the cost per GB may vary by a factor of 10. In such a situation, regulators have difficulties identifying the exact cost and hence putting a cap on it.

3) However, there are other ways to regulate roaming prices. The main issue is not so much the domestic price of mobile data, which are coming down nicely in many cases. What irritates many companies and consumers abroad is the high cost of mobile data roaming. What could the EC do about it? Exactly what it did with European payment systems: the price for an international payment should be similar to the price of a domestic payment. How could this principle be applied for mobile data today? It seems the regulator could require mobile roaming prices to be aligned with the domestic price of the operator used abroad plus any additional transaction costs. That would also require operators to show the data cost to the users abroad as Mr. Colosanti has rightly suggested.

Submit a Comment | Permalink

On May 26, 2008, Reliance opened talks with MTN to explore the opportunity of a deal to create the world's second-largest private telecom giant, after Vodafone, with operations spread over more than 10 high-growth nations and 120 million subscribers. This interest was expressed after Bharti Airtel called off its talks with MTN, primarily because the deal would have caused Bharti to become a subsidiary of an international company and lose its identity, operational power and mission to become a globally proficient Indian telecom company.

Now after almost two months of histrionics, MTN has walked away from India, without any strategic partner or deal. Reliance Industries Limited (RIL), led by Mukesh Ambani, slapped a RoFR (Right of First Refusal) on Reliance Communications (RCom) headed by Anil Ambani, according to the non-compete agreement signed a few years ago by the brothers when distributing their father's wealth. According to the RoFR RIL would have a first right to the 66% stake ownership of RCom instead of MTN. This intervention eventually led to a failure of the talks.

The share swap would have resulted in Reliance Communications becoming a subsidiary entity under MTN (although Anil Ambani could have remained in control through stock repurchase). Strangely, when the talks ended the market capitalization of both companies had dropped; MTN by more than 20% from $38 billion to $31 billion and RCom even further, from $28 billion to $20 billion. The share prices of both companies also took a big hit, having far-reaching effects on investor expectations of a premium which would have been the obvious outcome of such a deal. Even if the reverse merger had gone through, there would have been a negative impact on the ratio of the share swap, and this would have adversely affected the stake controlled by Anil Ambani in MTN. Another obstacle would have been the South African regulators. With a track record of delayed approvals in merger deals on account of inconsistent and inflexible regulatory framework, they have caused loss of shareholder value in the past as with the case of the BCX-Telkom proposed merger, which took them 18 months to finally deny.

Had this deal clicked, would have opened up the fastest growing Indian telecom markets to the South African player and at the same time granted access to the potential high growth regions of Africa for spreading the Indian telecom footprint. Together with the cost efficiency and vast subscriber pool, MTN-Reliance could have been the forerunner of telecom leadership in the world.

MTN runs a highly complex operation and has certain extravagant strategies, making it difficult to run streamlined businesses. It does not have tight control over its capital expenditure, as indicated by higher average revenue per user (ARPU) in some of the African nations where it operates, ranging from $30 to $40. In fact it has previously backed out of several final stage talks with telcos across the world. This problem of high capital expenditure would have been lowered with the enormous experience of RCom, which has been working with leaner processes and lower capital expenditures for several years and managing to generate brilliant ARPUs from its business. Now, with the deal off, MTN might look to Chinese markets for an appropriate expansion move in order to exploit the benefits of probably the largest subscriber growth in the future, a chance that India clearly lost out on, first with Bharti and now with Reliance. There are also rumors that Vimplecom from Russia may have an interest, and several companies from the Persian Gulf region are on the list of "usual suspects."

Reliance Communications, on the other hand, was looking at the effort to get a meatier share of subscribers in the highly competitive Indian telecom space, which apart from the market leaders like Airtel and Vodafone has gradually observed increasing dominance of smaller players like BSNL, Tata and Idea (after the Spice acquisition). It was also looking for fresher resources to rollout its 3G services in the wake of intense rivalry, expensive operations and complex regulations. RCom had even delayed its GSM rollout in the hopes of benefitting from the cost effectiveness that would have emerged due to this alliance, and now it will suffer the cost of delay in its failed venture for a new arena. Reliance was clearly betting heavily on this deal as a way to bail itself out of stiff competition and complexities at home.

In India, the feud between the two Ambani brothers has to be resolved as soon as possible, probably by political parties playing a mediator's role, or else it might result in the company becoming an unattractive option for future strategic and reorganization strategies. It can also have far-reaching effects on the current legal battles between the entities with respect to the KG basin, among others, which is a national issue.

South Africa, meanwhile, has feuds of its own between regulatory agencies in the government, and thus continues to show more failures than successes to the outside world as a communications partner. The opportunity for growth, both in basic service extension and more sophisticated service and capability roll out, is there in this unique market, but time and again difficulties (primarily of a regulatory nature) have slowed moves to merge or acquire within the borders. These are hugely difficult steps to take and South Africa has unique social imperatives that have made the process even more complex. For further research on related topics see "Dataquest Insight: World Cup Will Advance South Africa's Telecom Network" and "Vanco Deal Should Bolster Reliance Globalcom's Managed Services."

1 Comment | Submit a Comment | Permalink

The European Commission (EC) wants to regulate the price of international SMS. This raises a number of questions:

• Should the prices be regulated? In theory, competition is the way to regulate market and prices. The theory says that competition will bring prices down to the marginal cost of production. But the economic theory and games theories have demonstrated that the lack of full competition leads to higher prices. This is precisely what happens with SMS prices today in Europe and, in particular, with international roaming prices for SMS. With price apparently up to 10 times the cost, it is hard to say that we get close to the marginal production cost.

• When competition is not playing its role or not well enough, what should be done and by whom? If market prices are going out of range, is there a case for a legal or regulatory action? It is hard to say no, because that means that you do not support competition as the foundation of the economy.

• Could self-regulation work? Well, the EC just wanted that to happen. Carriers had a lot of time to demonstrate their willingness to bring prices down. A year ago, they got a warning. After one year, very little has changed. The ball is now in the camp of the EC.

• Could the public regulator now make a price regulation in the interest of the buyers? In the case of SMS, the difference between the prices and the costs seems so high that a regulatory intervention looks very much possible. However, regulators are not perfect. They may put caps on prices that would be too low or too high and would not take into account local costs, which may depend on labor costs. We have to accept that this will proceed by trial and perhaps by errors.

• What does an international SMS price regulation mean for consumers and business? Lowering the cost of short messages and data streams will stimulate the use of mobile text communications and, from there, probably new technologies like instant messaging and possibly also picture messaging. Much more than simply controlling SMS prices, the commission is paving the way to a much more flexible wireless data future for European wireless subscribers. For businesses, the impact may be small, but it is also a step in the right direction to bring the cost of wireless data down in roaming conditions. Again, this can only boost the use of wireless data for business activities throughout the European Union. This will benefit SMBs, in particular, because they are more sensitive to costs. So this will make SMBs more able to compete outside their country market.

• What does the new EC policy mean for telecom operators and their shareholders? Operators and shareholders should keep in mind that their market position is the result of a licensing process that both opens the market and limits the number of players. In particular, the market for wireless operators is restricted by the awarded spectrum. It does not appear possible to have full competition with many operators. A maximum of three to five operators owning infrastructure and spectrum seems to work for a given territory. Carriers should anticipate regulatory actions when prices get out of range. This may lead to price caps or to more operators in the market. Companies that are exercising market dominance with 25% or 50% and more of a market should not be surprised if a public regulators start to worry. That is precisely what is happening with the initial hearings about Google's dominance in advertising. More than ever, carriers and IT companies need to go beyond cozy market shares and look for innovation that brings new customer value. For information on current regulatory issues that carriers face, see "Dataquest Insight: Telecom Policy Plans of Key Regulators" .

Submit a Comment | Permalink

A company called ICG (for Internet Connectivity Group) offers digital signage for indoor and outdoor signs. The data is sent to the sign via a 3G network and is cached on the sign to be played later. The company believes it impacts commercial venues more than noncommercial venues because it is able to influence the buyer at the point of sale. Some of the advantages of such signs are that they can offer time- or location-specific information, target buyer segments, be changed very quickly, and be shared among various vendors. The reduced cost of big video screens has made this business model more viable. In addition, the company sends its data during off-peak times of 12 a.m. to 6 a.m.

Some other interesting applications: The service can double as a billable Wi-Fi router with a splash page that enables additional advertising, and potential services include Bluetooth interaction that will enable retail outlets or brands to signal loyal customers of upcoming sales. This can add advertising revenue to the retail store.

This service can also be used in noncommercial settings such as transportation depots (bus stations, train stations and so forth) or factories to relay updated information. Most outside signs already have electrical power sent to them for lighting, and indoor signs can use existing outlets, so powering up the infrastructure is not an issue. Most of the signs are in populous areas where there is 3G coverage. But the wireless aspect takes a lot of the telecommunication wiring costs out of the equation.

This is a good use of 3G technology, and it shows one of the ways that 3G networks will be used other than for peer-to-peer communications. It helps advertisers by enabling them to better target their customers or to influence their buying decisions. Consumer backlash is not expected, because these signs will replace existing signs and they give customers more up-to-date or targeted information. However, because of the portable nature of these signs, they may be put in areas where the residents do not want them and attract some backlash there.

Submit a Comment | Permalink

Based on conversations with several operators in Asia/Pacific, we've found that there is somewhere between 2 and 3 million original iPhones that were purchased in North America, and then jailbroken, unlocked and activated so that they could be used on overseas networks. This usually involves modifying the phone's firmware using one of several tools freely available on the Internet, a process that takes only a few minutes. (Note: "Jailbreak" stands for enabling the installation of third-party applications independent of Apple; "unlock" stands for removing the SIM locking so that you can use a SIM from another carrier; and "activate" stands for enabling the unlocked phone to register itself with iTunes for music, TV and video content synchronization.)

With the introduction of Exchange ActiveSync support in version 2.0 iPhone firmware, not to mention the rapidly growing collection of applications available over the air via the iPhone's App Store client, many of these early (and presumably loyal) iPhone owners want to upgrade to version 2.0 firmware and become "legal" with the operators that they are already using.

The version 2.0 upgrade is simple - users just need to accept the offer to update the next time they synchronize their iPhones with iTunes. However, in the process, iTunes installs the latest firmware, which once again locks down and deactivates the phone. The iPhone can be activated (via iTunes) only with the assistance of an operator - and the operators I have spoken to are either unwilling to do so or are totally unaware of the problem.

Surely, the enthusiasm and potential App Store and mobile data spending power of 2 to 3 million enthusiastic but lost children are worth trying to recapture? I think so, because I am one of them!

One thing is for sure, in any market where there is more than one licensed operator, the first to offer an iPhone activation "amnesty" will instantly capture a big chunk of the installed base of original iPhones.

What do you think? Is this Apple's problem or the operators'?

Submit a Comment | Permalink

Deloitte's global organization has chosen Nortel (www.nortel.com) as a global managed services provider for telepresence, videoconferencing and associated multimedia services. Under a new managed services agreement just announced with Nortel, Deloitte's global organization and as many as 130 Deloitte member firm located around the world will be able to obtain telepresence and standards-based videoconferencing services. In addition to implementation, Nortel's services-powered telepresence solution handles the setup and operation of video meetings, allowing Deloitte professionals to walk into the conference room and focus on the meeting, rather than the mechanics.

Nortel's global infrastructure of multimedia network operations centers (MNOCs) includes proactive network monitoring and 24/7 support for carrier-grade reliability, network performance management, and concierge amenities such as assisted scheduling and conference setup. It can interoperate systems from multiple equipment providers, allowing customers to take advantage of investments in both new and existing video systems.

For a room-based telepresence solution, the service cost is likely to be several thousand dollars per month for the network connectivity and the service and support to deliver the videoconferencing equivalent of moves, adds and changes. A few telepresence vendors offer this kind of managed service directly to customers, while others deliver it via a third-party partner. In this case, Nortel is offering managed Polycom telepresence solutions (see "MarketScope for Video Telepresence Solutions, 2008"). For enterprises that regard videoconferencing as an important business tool, the need for stronger service levels, improved service features and managed services should be considered instead of further investment in in-house skills and tools. Gartner estimates that as many as 40% (and rising) of enterprises use some form of managed video service provider (MVSP; see "Managed Videoconferencing Services").

Submit a Comment | Permalink