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| DSL Prime, the trade paper of an internet community
DSL Prime is always looking for news. Email Dave Burstein May 8, 2008
September, 2001 Larry Babbio, Verizon President, spoke about the possibility Verizon would fiber New York as their contribution to recovery after the Trade Center attack. He made no commitment, but said "Just watch what we will do." They have now agreed to offer FIOS to all 3.1M New York families by 2014. There is absolutely no subsidy involved, and Verizon will pay the standard 5% fee for access to the streets, etc. This is historic. Korea Telecom has promised 100 megs to "villages as small as 20 homes" but I know of no other large city in the West committed universal service at high speeds. In many areas, not even slow broadband is available to far too many. For example, Verizon's last figure left 10% of New York City without DSL. Will BT do London similarly? Right now, they are refusing while negotiating for government money. Madrid? Chicago, Houston, Toronto, Las Vegas? Let's hope this becomes a precedent. The rest of the agreement is predictably one-sided, but I'll bury that part of the story for now. I'm also holding over a story on the shameful U.S. DSL deployment. I don't want FIOS delayed to West 119th Street and Central Park West until 2014. ------ Craig McCaw just found the strongest possible partners to put $3B into his U.S. wireless network. Clearwire has great prospects in semi-mobile data, as partner Intel will make sure millions of portable computers carry Wimax (2009.) When they get the kinks out of Wimax voice, that could be big as well (2010-2012.) But nowhere in the world has wireless taken many home or business connections against DSL and cable. Anton Wahlman is one of the few who believes Clearwire will find a Wimax to home market, but he makes some interesting points. (Below) --------- Is France in danger of losing the broadband lead as it drops to four or possibly three main companies? The evidence from the U.S. is that falling from six to four in wireless has been very costly to consumers. Wireless prices may even have gone up since then. Investment in down. Service quality remains well below international norms. Broadband history has been made where competition is fierce. (at end) ------------ Cisco's U.S. service provider revenue was down 3%. Worldwide, provider orders were only up 6%. They have an difficult product cycle and have been losing share to Basil Alwen's Alcatel edge routers, but these figures suggest deeper capex cuts at carriers. Cisco dominates the core router business, implying carriers aren't spending on core or backhaul capacity. If traffic growth is hitting predictions, Cisco should show 15-25% gains in provider sales. This is only one datapoint, but significant enough I brought it up top. p2p Down to 20-25% of Traffic, US and UK Bandwidth cost rapidly dropping in UK U.S. p2p was about 40% of traffic last fall and flat to down, I reported. Apparently people have more music than they can listen to and video p2p hasn't taken off. A bittorent video download typically takes hours and occasionally longer than Netflix by mail. So most people don't bother. Now, Danny McPherson of Arbor Networks tells Om Malik they are seeing only 20% p2p on the many networks they monitor. Carphone Warehouse found p2p between 20% and 26% of peak traffic at TalkTalk before begin shaping in March. Streaming, largely YouTube, has taken up the slack. The strategy of stopping video piracy by making commercial video free and ad-supported seems to be working, although Daily Motion still is significant in French traffic, and the BBC iPlayer is catching on fast in the UK. Totally blocking bittorent cannot make a big dent in congestion problems, because the 20% traffic reduction would be erased in nine months by normal growth of 30-40% per year. Shaping traffic is a cheap bandaid. Also, the numbers floating around of p2p being 60-80% of traffic are either badly out of date, and/or mistaken because the carriers are holding back real data and the 2+2=5 crowd is spreading misinformation. Carphone Warehouse is coming strongly with their network buildout. It will give them a massive cost advantage over the ISPs relying on British Telecom for backhaul. CW Network costs per user went down about 30% during 2007, although they haven't deployed most of the new backhaul network yet. They are replacing inefficient 100 meg backhaul connections with GigE and finding that reduces the cost by 80% They were paying 115 pounds per megabit per year, and this will bring it down to 24 pounds per megabit. Including AOL, they have unbundled over 2,000 exchanges, well past 70% of the UK, and are ready to go to 90%. DSL Prime was wrong last year about how much of the UK can be efficiently unbundled, and I'll again apologize to Ed Richards for that mistake. CW peak demand per user has gone up 23% to 22K in the last nine months, That's perhaps 30% growth per year, a little lower than U.S. growth rates. The average CW user takes about 3 gigabytes today, about half what the more geek oriented Plusnet serves. The BBC iPlayer raised demand significantly, and they expect the growth rate to climb. DSL Down in Taiwan Joins Japan in the shift to fiber. Is Verizon next? DSL subscribers dropped from 3.9M to 3.64M in the fourth quarter as Hung extended direct fiber. Fiber connections grew by 33% to 550K, and overall fixed broadband to 4.64M. This confirms that many customers prefer higher speeds as long as the price is reasonable, despite recent claims otherwise by AT&T. The preference for higher speeds was first demonstrated in Japan when Malays Son sold “up to 6 meg” while NTT was lower. Even when NTT dropped prices, customers flocked to Son. As “up to 24” and “up to 40” were deployed, customers flocked to them although very few got close to the peak promised. Higher speeds also grabbed customers in France, Germany, and the U.K. FIND/IDEAS figures, via Digitimes. Net DSL at Verizon is approaching negative territory as well, with FIOS the connection of choice to ten million homes. Anton's Contrary View: Clearwire May Find Home Customers Will 5-10% turn off their data landline? Nowhere in the world has wireless taken many home or business connections against DSL and cable. Does anyone even remember Project Angel, Winstar, or the other failures that cost $billions? There never again will be large deployments of landlines anywhere, so wireless, probably Wimax, will dominate countries like India and Indonesia, as well as all of Africa. But where wires are already in place, the overwhelming consensus is wireless is ultimately too slow to compete. Cable is about to jump from 5 and 10 meg to 50 meg. So is Verizon FIOS. Wimax offers limited bandwidth, shared among many users. The “up to 5 megabits” speed claim is misleading when the networks are loaded. In a world of HD video, Wimax as planned today will choke. Anton Wahlman disagrees. He suggests that many people will drop their data landline just as they dropped their wireline phone. Mobile data is exploding, and Clearwire should have a good shot at that market. Someone who wants mobile data might turn off their landline if they don't use it very much, use the "mobile" connection at home, and only pay for one service. I believe the speed limits of mobile will keep the DSL/Cable modem turnoffs low, but it will be above zero. Anton also points out that once Clearwire has built out the network, their marginal cost per subscriber will be very low. They could therefore price around $15/month to win customers, perhaps making their margin on a bundled voice service. John Stanky at AT&T expects to take 10% of the customers from cable just by showing up. At least that many people hate cable and will switch. A big percentage hate telcos as well. That could be more customers for Clearwire. This won't be a major "third pipe into the home", but the effect may be somewhat more than most of us thought. They have ambitious plans for voice, although they have to get the kinks out of Wimax phones and the power requirements down (2010-2012.) Google will spend whatever it requires to make the Android phone successful. Clearwire is also targeting "The Internet of Things," also called M2M. Gas pumps, commercial washing machines, and possibly electric meters will be Internet connected in large numbers. Wimax is 2 years ahead of telco LTE. They have a chance. Tasmanian DSL Shut Down Blamed on High Backhaul Costs Internode claims sole-source Telstra charges 6x regular rates The half-million Tasmanians have a delightful temperate climate, 100 meter ancient trees, and a Green Party that claims the highest vote percentage in the world. Pending government action, they have only one fiber connection to the mainland, controlled by Telstra. Internode's Simon Hackett claims in a statement, “it is six times more expensive for Internode to transfer data between Melbourne and Hobart than between Melbourne and the United States.” Internode has stopped taking new orders for their highspeed residential on the island because they were near the limit of their backhaul capacity and buying more was too expensive. Commsday's Luke Coleman spoke with Telstra, who did not deny the pricing discrepancy but explained, “Tasmania is both a high-cost undersea installation and a low volume route,” adding, “the company has spent over $50 million on the Tasmanian cable, which brings far lower amounts of data than the US route.” Backhaul costs are modest at major carriers, with confirmed numbers between US $0.50 and $2 per month, per customer. If Internode has to pay six times that rate, it becomes a major problem. Similarly, Brett Glass in Wyoming tells me his bandwidth costs about 12 times what bandwidth costs in the big cities. No wonder he's threatened by traffic increases that companies like Verizon find easy to handle. Hackett write me Tasmania is a small part of Internode's business, and they are doing fine. Small and rural carriers are getting effed in many places. Many are failing or will soon drop out. In Canada, the UK, and possibly Japan, the incumbent and perhaps one or two others are the primary source of backhaul in much of the country. With most of the unbundling delays and regulatory battles now behind us, overpriced backhaul is becoming a key tool to put down independents. West Virginia's Smart Subsidy Law If enforced: minimal subsidy, only where needed West Virginia just passed a law to offer carriers 40% installation grants for broadband where subsidies actually are needed but not ridiculously expensive. If West Virginia doesn't get bamboozled by the carriers and their enablers, they will quickly get to 97% coverage at a meg or more. The total cost should be less than $10M. Not throwing money where it isn't needed sounds logical, but virtually every proposal like this spends most of the money where carriers can be profitable without a grant. The cost will be a fraction of what the state currently expects to spend expect. I'm strongly in favor of universal service, but believe the best way to deliver it is to cut out giveaways to companies that don't need them. It's generally easy to figure out if a subsidy makes sense. I'm working on a more detailed writeup, but generally any group of 20-30 homes within 16,000 feet of fiber is profitable DSL territory. 12 Port DSLAMs the size of a book go almost anywhere and pay for themselves in less than a year. In most of the developed world, small clusters like that are already covered. Britain is around 99% even in the Scottish islands, and France over 95%. Both Verizon and SBC in 2000 said places like that would be covered. West Virginia is particularly poorly served, because Verizon decided to sell their West Virginia lines and stopped installing DSL equipment several years ago. No subsidy if:
Subsidies need to be spent on the most affordable solution, not on a costplus basis. Homes 15,000 to 25,000 feet from fiber can be served with a $200 repeater, easily installed, as hundreds of rural telcos prove. 40% of the cost of the repeater + installation is about $150 and would cover the majority of homes which can't get service today. There are also inexpensive upgrades for many remote terminals. Similar small sums would allow the handful of analog cable systems to go digital (3% of the U.S.) or cover other inexpensive “best practices” operators have developed around the world. For example, most lines between 15,000 and 20,000 feet actually can be offered 1 megabit. The standard was designed to cover almost everyone within 18,000 feet, and ADSL2 advances upon that five years ago. BT tested all their lines years ago, and discovered bringing in the tester dramatically increases coverage. Connect Kentucky found fixed wireless could fill some of the remaining gaps, although West Virginia is pretty hilly. A strong argument can be made that no subsidy, broadband or voice, should go to obsolete copper networks. Higher quality networks - fiber or perhaps DOCSIS 3.0 - costs much less to operate and offer the customer more. Time to bring the 21st Century everywhere. For the record: I did a short briefing with Move Networks and may be doing some additional work for them. Briefs
Events May 19-22 Wisconsin State Telecommunications Association 2008 Annual Convention, Grand Geneva Resort on Lake Geneva http://guest.cvent.com/EVENTS/Info/Summary.aspx?e=6b542627-3f8c-4416-a72f-df49c87a1580 They've been doing this for 98 years. I'm speaking on How to Beat Cable. Ideas always welcome, and I have a few surprises. June 2 South San Francisco 4-6 p.m. Vietnam's PTT is hosted by the Telecom Council of Silicon Valley. Vietnam is one of the fastest growing DSL markets in the world, and wildly different than the U.S. stereotype. http://guest.cvent.com/EVENTS/Info/Summary.aspx?e=db3c4d11-1eda-4f4d-bf8c-aaab0d4a1066 Mercredi 25 juin Paris Xavier Niel doesn't speak in public that often, but will be on a panel with his peers form SFR and Neuf Cegetel. Dignitaries including Sarkozy are likely to make predictable speeches, but I don't think Xavier knows how to be boring. http://www.ebg.net/assemblee-generale.php Four is Not Enough For Ideal Competition Is France in danger of losing the broadband lead as it drops to four or possibly three main companies? The evidence from the U.S. is that falling from six to four in wireless has been very costly to consumers. Wireless prices may even have gone up since then. Investment in down. Service quality remains well below international norms. Broadband history has been made where competition is fierce. The first leader was the U.S., with 6 companies fighting in most cities in 1999-2000 (cable, the telcos, and typically four CLECs.) The CLECs died in 2000 and 2001, and the United States began falling behind. Korea took the lead, with Hanaro followed first by KT and then four+ other companies. By 2002, the President of SBC was saying “don't compare us to the Koreans.” Japan followed, as Masayoshi Son proved dropping prices could double the market amid a battle between NTT and five other ISPs. Nine major companies pushed France to European leadership and Free.fr was the first CLEC to drive their country to fiber. Today, Cegetel Neuf consolidated four of them and Telecom Italia Alice is being auctioned off. That leaves four, and Cegetel and Free.fr were talking merger. Competition doesn't work without competitors, Kevin Martin once said. A senior VP of one of the world's largest carriers explained “We don't have to meet to fix prices anymore. We all know the system. One of us makes a well publicized investor comment that prices are likely to rise, then we all listen for the others to publicly say something similar. If they do, one begins the price rise and watches to see if the others match. They usually do, and everyone now has higher margins.” Mike Armstrong of AT&T, then the biggest cable operator, set off a round in 2001 by telling Wall Street “This year, we're going to concentrate on higher profit margins instead of winning market share.” SBC took the hint, and soon after raised prices. Verizon and the cablecos followed quickly after, despite previous plans to cut prices to expand the market. U.S. broadband prices stayed high. U.S. wireless carriers proved they know the game, when all of them raised text messages from 5 cents to 10 cents at about the same time. Texting costs the carriers a small fraction of a penny, so the increase strongly suggests the carriers are not experiencing “the discipline of the market.” The French know that three carriers typically aren't enough. The three wireless carriers have been hit with hundreds of millions in competition fines but still generally believed to collude. The previous government decided a fourth carrier was absolutely necessary. Nicholas Sarkozy may have put plans for a fourth carrier on hold because one of the favored three is owned by his “best friend,” billionaire Martin Bouygues. Bouygues was a witness at Sarkozy's wedding, provided crucial support throughout his career, and even gave Sarkozy a job while he was briefly out of politics. There's another way to look at this, from Eli Noam. He calls countries with 2 main competitors and some minor ones as 2 ½ (U.S., Canada). Noam finds 2 ½ countries do significantly better than 1 ½ countries, with one dominant carrier. (Italy, Spain, Mexico.) That will especially be true if the 2 ½'s include cable, because DOCSIS 3.0 is so much faster than ADSL it should drive the telcos to upgrade in turn. There's no conflict with what I'm saying. Six competitors are better than four (if sustainable.) Four is better than 2 ½ or 3, which in turn is better than the 1 ½, a single leader. Looking at broadband take rates and prices confirms this. Editorial: Just Say Nein to Deutsche Telekom-Sprint It's time for Kevin Martin to say, “A T-Mobile-Sprint deal would require a very careful examination.” That's a true and sensible statement. After all, nearly everyone in D.C., including Kevin, spoke of their hope the recent auction would bring in more competition. It can't be right to accept less competition shortly afterwards. Neither company wants to get tied up in an FCC negotiation that will linger into a possible Democrat regime, so any suggestion of a long process would probably be enough to kill the deal. predecessor, Reed Hundt, killed the SBC/AT&T proposed in 1997 by calling it “unthinkable.” The high price the U.S. paid dropping from 6 to 4 wireless carriers should be a warning to countries like France where broadband providers are now dropping towards four as well. France became a world model because eight carriers invested to win the market (and because of Xavier Niel.) After the imminent sale of Telecom Italia Alice, there will only be Free.fr, FT/Orange, Cegetel Neuf, and cableco Numericable. Newspapers report Free.fr and Cegetel were talking a merger, bringing the players down to three. Danger, Nicholas Sarkozy. The U.S. experience shows four carriers are unlikely to compete with the vigor that made France the model for the West. France has levied hundreds of millions in competition fines against the three wireless carriers, to little effect. It's surely a mistake to let the wireline competition sink to that level. The evidence is overwhelming that Martin made a mistake allowing the Cingular/AT&T and Sprint/Nextel. Prices have actually gone up according to a careful survey by Bank of America. The U.S. remains far behind in wireless data and visitors can't believe how poor U.S. wireless voice quality is. The mergers were urged because “the larger companies could invest more,” but investment in wireless is down. Lynch calculated the increased margins from less competition at $2-4B per year, and that almost certainly understates the costs today. Less wireless competition and rates hikes in many states is the key to AT&T's recent profitability when you look at the numbers. They just got a major rate hike through in Missouri. Verizon hasn't been quite as efficient at raising rates, but Tobin says she's at every opportunity. The primary reason for the merger would be to bail out investors who overpaid, and to allow managers to exercise tens of millions in “golden parachutes” despite obvious failure. Sprint as a company is not failing, so rigorous antitrust review is required. The company has earned $1B/year for most of the last several years despite some of the most appallingly bad management in the business. Their sales are $40B/year, and their spectrum is worth almost as much as the market cap. A month ago, with Sprint at $16B, I suggested someone should buy them because the price is a bargain. Their Wimax build has a natural 2 year advantage over AT&T and Verizon 4G, so they may actually surprise. But it should be unthinkable Verizon, AT&T or Deutsche Telekom to take over. Evan Newmark in the Journal provided the Just Say Nein headline. He points out that mergers rarely live up to the hype. “The cost synergies and economies of scale that can be realized in a merger are almost always exaggerated. And they always take longer than expected.” Newmark knows the subject far too well. At Goldman and then Vodafone, he saw firsthand the Airtouch and Mannesman deals, eventually resulting in a $50B writedown and the biggest one year loss in British corporate history. The 2+2=5 crowd always claim that merged companies will be stronger, but the evidence is the other way. Sprint/Nextel is the latest failed merger, with AOL/Time Warner, AT&T/TCI and some other classics in recent memory. The SBC/Ameritech disasters apparently taught them well; AT&T/BellSouth is going remarkably smoothly for the company. Bill Smith, the respected BellSouth CTO, is now running AT&T's networks, while Ralph de la Vega, once BellSouth's DSL guy, is running AT&T wireless.
“When you dream what is possible, and add a knowledge of physics, you make it happen.” Charles Kohlhase, speaking of Arthur Clarke. “His visions helped bring about the future he longed to see.” Gerald Jonas, NYT Brian Roberts dropped the bomb: 50 megabit DOCSIS 3.0 available to 20 million homes in two years, upstream as well as down. Bravo to him for building a better network. The price is temporarily high ($150), but will likely come down. The marginal cost per home per month will be $10-12/month, virtually the same as today's cable modems. The price of 100 meg cable in France is about 20 euro. Verizon is pricing FIOS starting around $30, and they one day will unleash 200 megabit GPON. (Yes, GPON is that fast.) Randall at AT&T should be having nightmares. DOCSIS 3.0 real speed is 4 to 50 times as fast as any service AT&T will have for the better part of a decade. Their top tech people pointed out in 2003 that U-Verse was a big gamble, because it is far behind what DOCSIS 3.0 will deliver. Randall saved $10-20B not running fiber. AT&T's capex is 30% less than depreciation. Great for current earnings and cash flow, of course, and Whitacre made $100M+ in 2006 on his options and then retired. Underinvestment is not good for AT&T customers or the nation; still unproven what serves shareholders in the long run. Numericable in France is offering 50meg+ to 2M homes. Lots more on DOCSIS to come. Some of the technology isn't working, including the upstream, but it will soon be much better than you think. Stephen Conroy issued an RFP for the Australian National Broadband Network, which will deliver minimum download speeds of 12 megabits per second to 98% of Australian homes and businesses, Graeme Lynch reports as I go to press. This would have been a major advance a few years ago, but is far less than Australia needs to match Japan or even the U.S. for the coming decade. Conroy is dangling billions in government funds, enough to fiber the country. He shouldn't settle for a second rate network, running 80-95% slower than Singapore. Any of my friends over there who can explain why Australia is making such an obvious mistake, please email or call. Graeme followed with a note to me that the speeds to most homes will be much higher and I hope that's how it proves out. More news coming. China is continuing to grow at about the same rate, India has an RFP out for 8 million modems, Alcatel has some good sales, and the Point-Topic quarterly numbers are out. The Oman figures are much smaller, but I led with the Nizwa story to illustrate the long reach of DSL. If you can make the Columbia/Latin America event Monday, say hello to the round fellow with a beard. Next month, I'm presenting to the Wisconsin folks on "How to Beat Cable." Ideas always welcome. 992 new ADSL lines in Nizwa, Oman Installations proceeding in Al Dakhliyah and Al Dahirah Nizwa, an oasis on ancient trade routes, has a historic 17th Century fort surrounded by date palms. The Wali of Nizma still meets with subjects monthly at the fort. Goat auctions are held weekly. Alcatel has been providing 7300 model DSLAMs to Oman and Yemen. DSL is spreading in the middle east. Point-Topic reports Turkey added nearly 2M DSL lines in 2007 to over 4M. Algeria, Egypt, Morocco, and the UAE each have between 300,000 and 500,000 lines. Etisalat/Pakistan Telecom has just ordered 100,000 lines from Alcatel, which I hope begins good news for a beleaguered country. A remarkable percentage of the world's best engineers are Muslim. Many of the finest I meet in our field are from Pakistan, Egypt, and Palestine. *** Conexant's Xenon III is the world's first system-on chip (SoC) for GPON residential gateway applications processing capacity of more than 3.5 gigabits per second (Gb/s). Xenon III provides an economical, high-performance solution that allows them to quickly deliver bandwidth-intensive, voice, video, and data services. http://www.conexant.com/ (ad) Madness of Crowds on Wall Street: 24 Months From Now Doesn't Exist Distorting real world investments Wall Street didn't respond sensibly to Comcast's announcement they would accelerate the DOCSIS 3.0 rollout. That's a major problem for AT&T, so I was surprised AT&T went up after Comcast announced. Verizon, since it has invested in FIOS, should be better able to respond, yet the market gap between AT&T and Verizon widened significantly. 3.0 to tens of millions is big news, and DSL Prime was the only earlier report. Other than wireless, the coming DOCSIS 3.0 vs. U-Verse battle is the most significant factor in AT&T's earnings for the next five years, as well as the quality of the Internet. Hodulik at UBS and Janazzo at Merrill have been discussing why DOCSIS 3.0 matters for years, so investors should have been watching. The street has always been very short term oriented, but has gone to “madness of crowds” extremes lately. Among other things, they are putting extreme pressure on Comcast not to spend money, even if DOCSIS 3.0 is a wise investment. Brian showed courage by moving ahead. Fear of wall street and the London City is holding back necessary and sensible investments throughout telecom. In D.C., I learned that the carriers are all telling Congress they want to invest but can't so long as the market punishes them. The old economist had it right. Crisis in the realm of circulation (Wall Street) creates crisis in the realm of production (real world problems.) It's of course irrational to value a stock based only on the next quarter or year, but it's been a winning strategy since about 2004. That creates a cycle. Investors over-emphasize short term earnings because other investors do so. Smart analysts jump in and recommend stocks likely to jump in months and put aside their own long run forecasts. Collapsing home prices should remind us that bubbles always burst. This “forget the fundamental value of the company” approach is working well now. It will turn around, but I don't know when. In 1999, many got rich by buying tech stocks no matter what how ridiculous the price. Three years later, a trillion dollars was lost with that strategy. I can't tell whether we are at 1999 or 2002 on this one. My best guess is it will take a while to turn around. Note please: this prediction of big losses (one day) in stocks bought on current numbers alone is general, not about AT&T. To my surprise, Randall is doing many things right since he took over for big Ed. Arthur Clarke's Three Laws and Broadband History A genius died "When a distinguished but elderly scientist states that something is possible, he is almost certainly right. When he states that something is impossible, he is very probably wrong.”
***Monday April 14, twenty of the most distinguished Latin American scholars will join Raul Katz, Eli Noam, Robert Pepper, Jeffrey Sachs and more at CITI Columbia Future Scenarios for Latin American Communications http://www4.gsb.columbia.edu/citi/events/latinamerica2 (psa) If you care about the Internet in Latin America, this is one not to miss. More industry people need to cross over and exchange ideas with the academics. There are many people at AT&T, Verizon/MCI, Level3, and the manufacturers like Cisco and Broadcom who should hop a plane and come to New York Monday. Sure, some scholars are in an ivory tower, but others will amaze you with their experience. How We Won Freedom for WiFi Deregulation that creates competition For the George Mason conference The Genesis of Unlicensed Wireless Policy, Chuck Jackson and Tom Hazlett's group brought together Dewayne Hendricks, Mark Fowler, Michael Marcus and key FCC veterans for a perspective on why unlicensed happened and why it works so well. http://www.iep.gmu.edu/UnlicensedWireless.php. WiFi and other unlicensed spectrum is continuing to revolutionize communication, probably the finest example of how removing government barriers can be a smart move. Most DSL connections and personal computers support WiFi, and hundreds of millions of ports have shipped. Anton Wahlman believes the combination of wifi at home and traditional wireless out of home will transform mobile phones as well. Dewayne Hendricks and others are using unlicensed wireless bands to provide service, especially where phones don't reach. At the George Mason Conference, The Genesis of Unlicensed Wireless Policy, Chuck Jackson brought together many of the people responsible for creating this opportunity. Vic Hayes gave credit to the FCC decision in 1985 to open the 915 MHz, the 2.4 and 5.8 GHz bands designated for Industrial, Scientific and Medical (ISM) applications. Mike Marcus in turn traced that to Charlie Ferris in 1979. He asked the spectrum team to identify promising technologies that are blocked by anachronistic regulations, with a goal of getting out of the way. His science lead, Steve Lukasik, hired Mike Marcus after asking him, “What technologies might bloom if dated regulations were removed?” Twenty years later, the real world results of unlicensed are proven. That suggests extending unlicensed, spread spectrum David Farber and most of the FCC Technical Committee strongly advised providing much more spectrum for unlicensed use, but Powell and Martin rejected that proposal. The most promising technology currently held back is ultrawideband spread spectrum and related “white spaces” issues. The technology works well enough and is rapidly getting better. You can broadcast at low power using spread spectrum and cause minimal interference. Combine that with first checking for other active users, and the real interference will be minimal. Exclusive licenses for large amounts of spectrum are now technologically obsolete, except for very limited science and security applications. Deregulation results lately have been discouraging. The U.S. since 2001 has been the world leader in deregulation, and in that period fell from leader to also-ran in broadband. In 2000, five U.S. broadband networks had a substantial national build, with commitments for 90+% DSL coverage by 2004. As competition dies, telcos cut investment and only 82% was actually servable in 2007. Basic phone service charges have gone up, and even basic long distance charges have been increasing since 2005. Research and manufacturing have been more than decimated. What's the difference between policy that worked wonders in 1990 and seemingly similar ideas that failed miserably in 2005? My first answer is that the 1980-1995 dereg brought in new competitors in long distance and new technologies and vendors in wireless. The rules eliminated in 2001-2005 did the opposite. The U.S. eliminated protections that were necessary for new entrants to survive in broadband against carriers with enormous economies of scale. Japan and France maintained those protective rules, resulting in faster broadband growth and lower prices. Since 2005, many LD rates have gone up, because previously unthinkable mergers were allowed (AT&T/SBC, Verizon/MCI). If I were in D.C., I would make sure to check out the George Mason events, especially because the price is right (none.) They recently brought in Andrew Odlyzko, with the provocative writeup “"Internet traffic is doubling every three months,” wrote Business Week, on October 9, 2000. Others made similar claims from the head of the Federal Communications Commission to the CEOs of telecommunications companies. None of this was true, as many millions of investors discovered. Yet almost everyone repeated it, ad infinitum. Except for Andrew Odlyzko, a researcher at AT&T Labs. He knew and said otherwise.” Odlyzko is currently providing data that makes clear the web is highly unlikely to slow down because of video demand, despite what the 2+2=5 crowd keeps insisting. There have been major mistakes on this subject in the NY Times (front page), London Time, and the Guardian. L.I. is proving to be the most effective lobbyist in D.C.; I wish he was still working in the public sector. Open Range: $267M U.S. Rural Loan for Wimax Bill Beans' history Open Range intends to connect 500+ small towns via Wimax, and is getting strong support from the USDA Rural Loan program. This kind of deployment is what the RUS funding is designed for. Working with RBC Capital, they expect $100M of additional private funding. They are working with Globalstar to offer satellite service outside their developed area, including using terrestrial ATC bandwidth. Their business plan includes voice from the start, recognizing that most data-only providers around the world have failed. Making rural deployments profitable is hard, but Open Reach has a staff of experienced pros. While some details of their business plan remain confidential, I have enough information to conclude it is a sensible attempt to reach an unserved population. If successful, their strategy and the ATC bandwidth deal would allow them to profitably expand the business. The potential is large. Bill Beans, the founder and CEO, has 20 years of experience going back to Teleport. Beans also served as President and Chief Operating Officer of ICG in 2000, a company that went from $2B in market value to bankruptcy in less than two years. I have held over here a section here about Beans' tenure at ICG, waiting for some details of the application. Beans and ICG CEO Shelby Bryant settled a securities lawsuit for $18M. Those who need to know more should check http://securities.stanford.edu/1015/ICGX00/200627_r01o_001864.pdf or email me. These are very strong allegations, and I'm being especially careful as the deal has not yet closed. The USDA spokesman did get me some details of how Open Range would be monitored. Three full time people will be assigned, and they will review every funding requisition. They have a planned five year schedule, and will be regularly determining progress. Everyone at USDA/RUS is aware that 30% of loans like this quickly went into default in earlier programs, and they have expanded auditing. A mutual friend, respected in the industry, knew Beans professionally and writes “I think he has a fair point concerning his short (one year) involvement with ICG and therefore that he had little or nothing to do with ICG's problems. His TCG and MFS operating experience is certainly a strong point in Open Range's favor.” If you are actively involved in this, I urge you to check carefully and not rush to judgment. Beans graciously did call, but told me it was not an appropriate time for the company to comment. Errors: Move Networks is streaming the programming for ABC. They are testing but not yet using p2p technologies. Also, a calculation of costs for Comcast node splitting I made did not account for additional nodes that might have to be split after the first year. By then, DOCSIS 3.0 should be in place and a much better obvious solution. Quotes
Wall Street Kohlberg Kravis Roberts, the pioneering private equity house, failed to raise the $18B for their latest fund, and have closed slightly below that figure. P.E. Is about leverage, and that strategy is collapsing. James Greene at KKR leads their telecom investments, including Avago Technologies, Intermedia Communications, NuVox (NewSouth Communications). AT TDC Denmark, they have eliminated the R & D structure. Their largest deal was Reynolds Tobacco, which provides perspectives on their ethics.
March 8, 2008 The trade paper of an Internet community
Vivianne Reding at the EU might object to a subsidy to a dominant carrier. She deeply believes in making competition effective. To my surprise, she strongly recommends point-to-point fibre deployment rather than GPON or VDSL. “It is the only approach to next generation access that permits a completely open access policy with the unbundling that has put Europe in the lead today.” GPON has been the almost exclusive choice in the West (BT, Verizon, AT&T), but Amsterdam and Geneva want a more open system. Her battle with Germany over VDSL competition show how problematic that can be, and GPON could be even more trouble. Sorry this issue ran so long. I didn't have enough time to write anything shorter. Maybe some of you will be at Victor Harwood's Media Summit Wednesday and Thursday in New York. Say hello to the round fellow with a (temporarily diminished) beard. If I had the travel budget I'd be off to Ultrabroadband in Paris and Telco 2.0 in London, but for now they are an ocean too far. Stories not yet written The potential nightmare for telcos worldwide has begun in France. Numericable is offering DOCSIS 3.0 downstream (? 50 meg) to two million homes already. Their part owner, Carlyle, just hired Sarkozy's half brother Oliver, which should eliminate their regulatory problems. *** I'm glad to be working on a positive AT&T story. Ralph de la Vega comments AT&T will offer a reliable 25 megabit download, with actual speeds much higher than “up to 24 megabits” deceits. They've recently installed a million ports for U-Verse, so the subscriber count should head up quickly. *** I also have a positive Alcatel story. Ralph Penza is betting $700M Alcatel will come back because it's a “classic value investment.” *** Deutsche Telekom is offering unbundling with surprising terms. The press reports say it's based on 75K of backhaul, while other European carriers are already 250K or more. I'm checking with DT for details; 75K is not enough to compete in a video world. *** I still also owe Ikanos a write-up on their new chips, and have notes from both Infineon and Conexant financial reporting. *** How to serve West Burrafirth, Shetland Island and other remote towns *** Reply "subscribe" to be added, "un" to be dropped. A disagreement, not a correction: Comcast strongly asserts I should not have written the story that they intend for DOCSIS 3.0 to reach 50% of their subscribers in 2009. I'm waiting for them to get back to me with better information about what their real plans are for 2009 if that story is mistaken. I have indirect confirmation their build will come very rapidly, unless more technical problems come up. Moving fast is the best way to resolve some of their D.C. problems. DOCSIS 3.0 is at least 12 times faster than what they have now on the upstream, and even more compared to AT&T and Qwest. Trouble in Kennard's Hawaiian Paradise DSL subs actually fall DSL is a $60B business worldwide that will continue to grow overall. However, we've definitively passed "peak DSL." The growth rate will not come back. A solid majority of western carriers are seeing net adds drop. Korea has fewer than 10% of homes unconnected. Scandinavia with 20-30% unconnected has slow growth. Nations about half served typically grow faster than that. (France, U.K. U.S.) Few grow as fast as they did when 75% of homes had no broadband. Korea and Japan are actually seeing DSL subscribers fall as many switch to fiber. Hawaii is the first example I've seen of an actual drop in DSL numbers because of slow growth and a loss to cable. I was amazed at such a severe problem, because Bill Kennard at owner Carlyle is among the most brilliant and thoughtful people I've met in this industry. I remember an event at which he spoke after half a dozen senior CEOs, and clearly was thinking ahead of any of them. Hawaii Tel's problem is apparently that the private equity group is trying to pull out too much cash after overpaying when they bought the property from Verizon. Buyout firms for the last decade have developed a strategy of cutting expenditures dramatically and pulling out enough cash to guarantee a profit. They hope to raise efficiency enough to compensate, but that's not always possible. Hawaii Tel has serious service problems likely to become worse as they cut staff. They've upgraded to ADSL2 in some areas, but haven't invested in fiber or many remote cabinets. Bell Canada Takeover Hanging in the Wind Teachers Fund pushing ahead with high bid The kicker behind the Bell Canada story is that the company has been goosing profits by raising prices, including DSL. They have not made the capital investment to compete against Videotron's DOCSIS 3.0. Another wireless company is coming, likely to drive down prices. It will be very hard to sustain the profits the deal requires without politically unpopular further price increases. The stock market price of Bell Canada is now > 15% below the $48B buyout price, which means some very serious money does not expect the deal to go through. The CRTC has blocked the sale until they are assured Canadians would remain in control. Jeff Fan of UBS expects the obstacles to be overcome, which remains most likely. However, the PE firms Providence Equity (Mike Powell's gig these days) and Madison Dearborn would never make such a high bid today. The fourth partner is Merrill Lynch, which is currently reporting $10's of billions in losses and would presumably love to get out of the deal. Currently holding up the transaction are laws to protect Canada's cultural heritage. Many Canadian broadcasters and magazines have not been able to compete with the U.S. giants, resulting in limited Canadian production and news coverage. Canadian law requires 53.3% of the stock remain in Canadian hands so that not everything is taken over. Bell owns media and a broadcast satellite. The Canadian Press reports testimony “the structure of the holding company gives non-Canadian shareholders more control than their minority status because they have a veto right over fundamental changes.” CRTC chairman Konrad von Finckenstein wanted to make sure Canada had more than “paper control” The latest sticking point is that Ontario Teachers is proposing an odd way around the requirement they control no more than 30% of a company. They are giving a proxy for their shares to a retired executive, while implying he will follow their orders on how to vote. Finckenstein is requiring an approval from the pension regulator, which could tie up any deal for months. Everyone on Wall Street is wondering whether Merrill can still raise the $23B in debt for this deal. Will Providence and Madison Dearborn pay this price, when today's credit market suggests their bid is $5-10B too high? Or will they try to find a way to kill the deal? Bell Canada's DSL has been suffering. I joked a while back that if someone in Chicago wants decent broadband, they should move to Toronto. For years, the Canadian price was 30-40% less than the States, and the take rate much higher. More recently, Bell Canada actually raised their DSL prices with implicit support from Rogers and Shaw. The broadband net adds fell dramatically. Sabia and Cope want to sell now, getting a good price before trouble hits. Bell Canada also faces more wireless competition. The CRTC regulator has been very generous with the telcos, but recently made a very smart move that the U.S. could learn from. Jeffrey Fan of UBS reports “Industry Canada released the AWS auction rules that included 40 MHz of spectrum set aside for new entrants, mandated roaming (could range between 5-10 yrs) and tower sharing (both at commercial rates). Overall we thought the rules are generous for potential new entrants.” He's since looked at some of the details, which give the incumbents some advantages. The net result is likely to be a new national competitor and lower rates. *** CITI Columbia April 3-4, 2008 Telecom ParisTech University 46 Rue Barrault F-75013 Ultrabroadband: Innovation & Regulation Paris, France (Ecole Polytechnique - Telecom ParisTech - OrangeLabs) and is jointly organized with the Columbia Institute for Tele-Information (CITI), and Korea Telecom. April 14, 2008 Future Scenarios for Latin American Communications (II) Centro de Tecnología y Sociedad, Universidad de San Andrés (Argentina) Programa de Investigación en Telecomunicaciones, Centro de Investigación y Docencia Económica (México) Centro de Politicas, Direitto, Economia e Tecnologías de Comunicacoes, Universidade de Brasilia (Brasil), Enter, Instituto de Empresa (Spain) Columbia University 3022 Broadway New York (PSA) While everyone else is worrying about 100 meg, Professor Eli Noam is thinking about what happens when we have a gigabit of ultrabroadband. Seven Terabits, 10,000 Kilometers, $300M For New Pacific Fiber Cost to Google: $1-4 per megabit per month What Geeks Know sounds like an interesting subject. This is one example of the how the backbone will meet demand. Bharti Airtel, Global Transit, Google, KDDI Corporation, Pacnet and SingTel are building a new cable from Tokyo to Los Angeles, as Commsday first reported. The cable should be operational in about 24 months. There's no shortage of capacity on the route, but these companies decided it would be cheaper to lay their own cable. Cable laying ships built during the boom are now available at moderate cost, which also makes the East African cable economically attractive. If the full 7.68 Terabits per second (Tbps) of bandwidth were efficiently used (impractical), that would equal 7 million or so megabit connections. $300M over the standard 20 year lifetime of an IRU is $15M per year, or $2/megabit annual capital cost. Add operating and repair costs, as well as a factor for interest, and the cost is perhaps $6/year. Only part of the capacity will be used initially, and networks run well under peak capacity most of the time, so I'm setting the minimum per megabit cost at $10/year. For a more conservative ten year life, perhaps double that. Different utilization assumptions, and the cost goes higher. A final cost of even $4/megabit per month is less than half the high volume price of purchasing transit, and enables carrying a movie for a price in pennies. 32K or even 128K voice calls are a very small fraction of a penny. Upgrading dark fiber is considerably cheaper, so bandwidth costs should continue coming down. Google is making volume deals like this around the world to gain a strategic cost advantage against Microsoft, Yahoo, and even major telcos. Two years ago, Google engineers were told to plan video and other high-bandwidth projects “as though the bandwidth was free, because the entire cost could be covered by the requirements for Google Search.” While that is probably exaggerated, Google has driven down their bandwidth costs dramatically. That hasn't been enough to dominate the market, however. One of my bigger mistakes was projecting Google Video's low cost basis would quickly bring them to the top. In fact, they never gained traction and finally bought YouTube. Cable Capex “Freefall” Why do you think they need rules dropped in D.C. "Freefall,” Craig Moffett calls cable capital spending. The Bernstein analyst calculates Cablevision capex at 11.7 percent of revenues in the fourth quarter, versus 13.2 percent a year ago and 16.4 percent in the previous quarter,” reports Jeff Baumgartner at CDN. Time Warner Cable's CFO Robert Marcus wants to cut 7-8% per year. He says “CapEx as a percentage of revenues was 21.5% for 2007 a decline of roughly 160 basis points from the prior year. This is an important trend which we expect will continue. Baked into our free cash flow guidance is our expectation that capital expenditures will remain steady at approximately $3.5 billion both in the near term and over our long term. This would result in a reduction of CapEx as a percentage of revenues to approximately 20% in 2008 and this will continue to improve over the next few years.” The cable capex crunch may or may not delay DOCSIS 3.0 because the cost is relatively low. Tony Werner figures it will cost him the same to offer 100 meg as it now costs for 6. Steve Craddock called it so cheap “we could find the money in Bill Gates' couch.” Whether they move quickly to 3.0 and whether they price to win customers is the great unknown. The engineers are very optimistic, but the field deployments so far are limited. Is the economy dying like DSL CLECs in 2001? Enormous Risk, True Recession Fears. Be very scared The margin calls on part of Carlyle Group are an ominous sign. Carlyle has been one of the most successful buyout firms, running tens of billions and reporting profits so high they can handle a recession. If Carlyle is in trouble, are Providence and Madison Dearborn next? That kills the Bell Canada deal, among others. My smartest wall street friends don't expect good news. In 1999, “everyone” thought the good times would never end and took wild risks. What I'm seeing from the street looks so similar sensible people should be very, very scared. Rhythms NetConnections was a $3B company in 2000, and bankrupt soon after. Covad went from $10B to bankruptcy. Northpoint and a dozen others went from top of the world to out of business incredibly fast. U.S. financial markets have seen a similar meltdown. Wall street firms are firing people, expecting things to get much worse. Meanwhile, many of the “reassuring” comments show great ignorance. “Price declines of this magnitude ? over 10 points ? were not supposed to happen in the leveraged loan market,” comes from Bank of America “analysts.” Gibberish. Leveraged loans by their nature tend to be risky, which is why PE firms demand such high returns. Most bought companies at well above what the stock market considered fair value. Many PE firms then milked the companies the first few years to get all their capital out. The potential profits in PE are so high some spend like drunken cowboys. The result is a loan with substantial risk, of which some are guaranteed to go bad. I learned that the best forecasters are wildly unreliable. I'm no better, and suggesting prudence, not predicting a unstoppable massacres. I don't know. Briefs
People
To follow up on Viviane Reding's opinions on GPON and VDSL, check http://ec.europa.eu/commission_barroso/reding/docs/speeches/2008/brussels_20080114.pdf Martin Won't Agree to Go Tate, Adelstein in D.C. election year politics Debbie Tate's renomination at the FCC has been held up since last year, despite a deal that Republican Tate and Democrat Adelstein would be confirmed together. Ted Hearn now reports the problem is that Kevin Martin refuses to leave promptly if a Democrat is elected President. At the last changeover, from Clinton to Bush, Democrat Chair Kennard left early so that Republican Powell could begin to implement his program. FCC commissioners are nominated for a fixed term, so that by law Martin could continue serving as a commissioner even if an incoming Democratic President named a new chairman. That would maintain a Republican 3-2 majority on the FCC. Democratic Senate Leader Reid wants to make sure that doesn't happen, so is refusing to confirm Tate. Things are being held together with recess appointments and other odd procedures. If the stalemate continues, Tate and Copps would probably stay in office until the new regime takes over in January. A Democratic President could then renominate Adelstein and replace Tate with a Democrat, giving his/her party FCC control. (That's the first time in my life I've referred to a possible U.S. President as her. It's a good change.) Losing the very genial Tate while maintaining Kevin Martin could be a good thing. Martin has always been a smart, hardworking guy who has surprising depth on most issues. Kevin this year has made some gestures on open access, and made several consumer friendly decisions on the cable side. We haven't spoken lately, but my impression is he is finally learning some very important lessons: deregulation works well for some problems, but miserably for others. Lobbyists often lie, and their companies don't honor agreements. If he is becoming more thoughtful he could be the most pro-consumer Republican on the FCC in two decades. To be demonstrated. (More to come). Reliable Sources, D.C. Finding sources to trust is a crucial part of reporting, so I thought to give some thanks to people who've been straight with me. I'm often skeptical about the telcos, and my personal politics are to the left, so I thought to begin by acknowledging: David Young and Link Hoewing, Verizon lobbyists, understand the technical issues better than anyone else in D.C. who regularly speaks to reporters. Like their bosses Tom Tauke and Eric Rabe, they almost never lie, a policy that gives Verizon's lobbying team far more credibility than others. Verizon hires folks smart and informed enough to make their points without falsehoods. It's not their job to give you the whole story, of course. Ray Gifford of the Progress and Freedom Foundation is by far the best informed conservative on Internet issues. D.C. policy debates are poorer since he returned to private practice in Denver. PFF's new boss, Ken Ferree, proved to me he had a strong ethical sense when he worked at the FCC. Scott Wallsten has moved from PFF to iGrowthGlobal, and is a serious economist. Some folks more likely to agree with me include: Jessica Zufulo and Blair Levin, both friends, are by far the outstanding "investment analysts" in D.C., and typically the best informed sources willing to speak publicly. Blair was chief of staff for Reed Hundt at the FCC, and Zufulo represented the state regulators. They've earned the respect of almost all the people making policy, and have unmatched access to information. J.H. Snider has left the New America Foundation to form iSolon.org, dedicated to democratic reform including "Citizen Assemblies." He'll continue telecom work as an affiliate of Columbia's CITI. Jim has done important work on opening wireless to new providers (DTV transition, white spaces) and consumer's choice of devices (wireless Carterfone.) If only the FCC would listen more. The majority commissioners still haven't figured out that smart radios make nearly all their wireless policies technologically obsolete. Harold Feld is perhaps the most quotable of the "public interest advocates;" his blog, Notes from the Sausage Factory, can be very spirited. Feld had the best informed commentary on the 700 megahertz auctions. Reporters should never hesitate to ask FCC Commissioners for opinion directly. Most Commissioners and senior staff believe, rightly or wrongly, that the press ignores them. Both Republicans and Democrats have been helpful to me and other reporters. I haven't listed FCC and Congressional staffers here, because most are reluctant to speak on the record. Similarly, many of the best people (R.P.) aren't on the list because their job prevents them from freely talking with reporters. My follow-up article will be unreliable sources, which I'm factchecking more carefully. For now, a few types to distrust:
DSL Prime February 26, 2008 The trade paper of an Internet community “When one IP address is shut down, a hundred thousand spring up/When one identity is shut down, a hundred thousand spring up.” A Chinese protest against censorship, from WSJ. President Gloria Macapagal Arroyo fears a revolution and has stationed 3,000 elite Philippine soldiers with tanks around Malacañan Palace. A broadband scandal may bring enough people to the streets to force her out of office. Over $100M in bribes were apparently included by ZTE of China to win the $329-million National Broadband Network (NBN) contract for broadband between government offices. Some of the money went to her close associates. Over a million went to “First Gentleman Jose Miguel Arroyo,” according to one high official. A consultant testified the “First Family” was to get over $40M, and that half the money had been turned over to middlemen. Ms. Arroyo admitted Saturday to knowing about the payment, but left the deal open for five months. Read the Manila papers for the political details, below for some of the industry story. 50 megabit, upstream and down, available to half the homes in America in 2010? Brian Roberts of Comcast is leading the charge, planning to upgrade to DOCSIS 3.0 for ten million homes in 2009. That's half his network. Motorola believes they will be able to deliver that speed in the upstream as well as the downstream, with equipment everyone is hoping will ship by the end of this year. This could be a nightmare for AT&T, Bell Canada, Qwest, and British Telecom. Comcast will be 20 times as fast as U-Verse on the upstream, and easily twice as fast downstream. The manufacturers tell me they are ready to supply equipment for 30-60M U.S. homes by 2010 if the cablecos want to move quickly. While the CTOs are very excited, the CFOs haven't yet approved the spending in other U.S. cablecos. Randall of AT&T needs to fear first are the consequences of an astounding stock drop: $20B in two days and $30B in a week. I'm a wall street guru right now, because I wrote on January 18 “AT&T, Verizon: Up So High They Look Down Very Far” with lots of data. Christopher King of Stifel had the clearest analysis of what was to come. I still don't pick stocks, although I do think there's a good chance of a partial recovery. What happened last week was panic about a wireless price war that probably won't happen. More next issue. Another issue soon, I hope. All the DSL chip vendors have news, while they hope I won't discuss their financial reports. Jessica Zufolo should not be the only one to report the massive move of USF money from the rural carriers to the Bells in the latest USF proposals. I've asked Tauke and Cicconi how many of their lines would newly qualify, because no one outside their companies can calculate the number. Probably $Billions and no one is telling the story. The coming hype over how the wireless auction “solves the broadband problem” needs a reality check. Wall Street's current crowd madness, ignoring the company's future, is eating the heart out of several telcos. AT&T stock is gyrating like a dot.com (although the business is very profitable). I'm writing as fast as I can. Meanwhile, say hello to this round fellow with a beard at the Rayburn House Office Building on Friday. The iGrowthGlobal people are bringing me to D.C. for a forum at noon. I'll have time in D.C. Thursday and Friday afternoon. Anyone fancy a visit and conversation? Preferably about evidence-based analysis or something more interesting than NN. Jailed Saudi blogger Fouad Al Farhan is being kept in solitary confinement. This is a dangerous world. DOCSIS 3.0 With Upstream Likely Before Yearend Alan Lefkof at Motorola is optimistic things will go faster. His new SB6120 supports channel bonding of up to four downstream channels and four upstream channels, which allows an operator to offer its customers advanced multimedia services with downstream data throughput approximating 160 Mbps (shared) in DOCSIS mode and 195 Mbps in Euro-DOCSIS mode.. Motorola makes clear that their DOCSIS 3.0 CPE is also fully compliant with upstream channel bonding. DSL Prime believes that CableLabs will soon release new certification results for DOCSIS 3.0. Units, if certified soon, would probably ship in the second half of 2008. " TI's chip inside the Motorola modem is looking good. They have the bonding at the physical layer working. There's plenty more software and firmware to complete, and all the practical problems of a new chip in a new product. Dennis Rasmussen, who once wrote a book on DSL, is the TI lead for cable modem chips. 2007 Traffic Growth Rate: Early Data Shows No Increase Plusnet in the U.K. has shown virtually flat traffic for eight months. In June 2007 their average user required 6.40GB, in July 6.54GB. In December, the figure was 6.42GB, and in January 2008 6.74GB. This is remarkable, because traffic at nearly every carrier typically grows rapidly. Even the release of the BBC iPlayer hasn't caused a major jump in this ISP's load. The likely explanation of the slow growth is the very low bandwidth caps typical in the U.K. Medium sized ISPs like Plusnet have little choice, because BT's charges for wholesale backhaul are very high. Ed Richards at OFCOM should do something about that, but probably won't. Carphone Warehouse and BSkyB, Rupert Murdoch's satellite TV operation, have the potential to once again transform the U.K. market. They offered “free” and very low cost (5-10 pounds) broadband connections to their TV customers and recently passed 2M subscribers. BT and everyone else had no choice but to reduce prices. BSkyB is able to serve nearly 70% of the U.K. through unbundled local exchanges. David Goldie at the excellent Telco 2.0 conference mentioned to me he now has his own fiber for most of the network. That will allow him to increase bandwidth at very low costs. Most of the U.K. peers at LINX, the remarkable London Internet Exchange, keeping those costs low as well. I believe the logical move for Goldie would be to eliminate bandwidth caps for most of his customers. The U.S. and France carriers have few or no bandwidth limitations, proving that's a practical model for larger telcos. Goldie's move would inspire most U.K. carriers to follow, and eliminate the dreaded caps from one more country. He just smiled when I suggested that, and didn't offer any comment. One French carrier seems to be seeing a higher growth rate than 40%, but didn't have a firm number for me. I understand Japanese growth is also somewhat higher. I'll be on a D.C. panel Friday with Haruka Saito, Counselor for Telecom Policy, Embassy of Japan, and will try to get updated data. Because costs of the equipment needed generally go down with Moore's Law at a similar rate, the cost of bandwidth to most carriers has been flat to down. Small and rural carriers can be hurt, as well as those in countries with high backbone or international costs (South Africa except for the incumbent.) We're watching closely, because video could cause an acceleration in the growth rate. So far, it simply isn't in the data. ECI DSLAM Division for sale Even harsher news comes from Siemens, announcing another 7,000 layoffs. O Tempora O Mores: ZTE In Philippine Broadband Scandal I hope ZTE is innocent. I'm getting tired of writing about scandals in our business, and I'm sure you are tired of reading about them. Virtually every company in our business has been involved. ZTE's Howard Xue told AP the company "cannot allow itself to be dragged into any political circus. ZTE has neither done anything wrong, nor has it bribed anyone to get this project.” Several witnesses, including senior government officials have testified otherwise in televised hearings that threaten the government 30% would represent a major hike in the going rate for bribes. U.S. Congressman William Jefferson only had $90,000 in his refrigerator, and the total Nigerian influence payoffs apparently were in the low millions. Siemens $B or so in “improper payments” typically represented only 5-10% of the contract. The $18M Alcatel paid Costa Rican ex-Presidents was far less than 30%. Lucent has acknowledged spending for Saudi Arabia was only a few million for contracts in the hundreds of millions. ZTE's contracts in China and Europe are typically at very low prices, which means it's unlikely to pay large bribes as a regular practice. Western complaints of especially high levels of corruption in China are almost surely exaggerated, The prices China Telecom demands simply don't leave room for big payoffs. It's definitely a political circus, with the president's husband, Jose Miguel "Mike" Arroyo central and ex-elections commissioner Benjamin Abalos the accused bagman. Former Socioeconomic Planning Secretary Romulo Neri testified that Abalos offered him a bribe to approve the ZTE proposal. “More than 50 former Philippine officials called for President Gloria Macapagal Arroyo's cabinet to resign ... The officials from previous administrations, including former Arroyo cabinet members, made the public appeal after attending a Mass led by Roman Catholic groups and ex-President Corazon Aquino.” AP reports. The accused maintain their innocence and that the charges are politically inspired. The losing bidder and one of the accusers is AHI major stockholder Jose "Joey" De Venecia III. He's the son of then Speaker of the House of Representatives of the Philippines Jose de Venecia, Jr.. The opposition has previously tried three times to impeach Arroyo and politics in Manila are brutal. Does anyone have news of Christian Sapsizian, the Alcatel Executive grabbed by the FBI while changing planes in Miami? Facing ten years in jail for bribery, he agreed to provide evidence but there hasn't been news since. Alcatel always enjoys strong support from the French government and rarely would be challenged like this at home. Correction “The ability to deliver innovative new projects that excites customers is the life-blood of our industry.” Dan Artusi, Conexant Briefs * Ikanos' new chips are an important move forward for VDSL. I'll have more next issue Press * Broadcasting & Cable + Multichannel News is for sale by Reed Publishing. These are two of the primary sources in cable. In 1999, I was fascinated by broadband and decided to start this newsletter.I focused on DSL because magazines like these covered cable well and no one was covering DSL. The style of DSL Prime – informal, calling out leaders by name, allowing industry jargon – is based on Variety, Hollywood's favorite, which is also for sale. Wall Street * “Crisis grips European hedge funds” writes Louise Armitstead in the London Times. “A raft of European hedge funds have been forced to introduce emergency measures to protect their businesses from collapsing in the wake of the turmoil in financial markets.” Hedge fund performance is overall a sham. Hedge fund managers quickly have become very, very rich, but very, very few will have longterm results that support a fee of two and twenty. There are two important exceptions: high risk and inside information. Inside information is one of the key currencies on the street, part of any analyst's daily concern. The downside of risk has been brought home with hundreds of billions wall street has lost lately. People * Ivan's back! He spoke at the Merrill Lynch conference this week. Seidenberg has been keeping a very low profile since the union and the New York Times made him the poster boy for ridiculous CEO salaries. I've missed him; his comments on industry issues are usually thoughtful and interesting.
Policy at end I'm sick and tired of “net neutrality” debates, which are almost always boring and predictable. Most DSL Prime readers are in the industry. They oppose open access because they believe government interference is likely to do more harm than good. That's a reasonable opinion, but the D.C. crowd goes beyond reasonable opinions to ridiculous mistakes worth correcting. Happy to catch up with people in D.C. Friday, ideally to talk about any other subject. db In Boston Monday, true pioneers of the Internet enlivened an FCC hearing on the most boring topic in our business, open access. David Clarke and David Reed collaborated on the 1984 paper that defined the end to end architecture of the Internet. Comcast's David Cohen could have offered the ideal solution: an upgraded network that's at least 12 times as fast as what they have now. The real issue is not some abstract notion of neutral bits whether every Internet user can do what she wants, not some abstract idea of neutral bits. If Comcast and Verizon offer a 20 megabits without degradation, HD TV gets through. If they offer 50 mbps, several channels of HD and almost everything else is fine. We still need to address issues of affordability and universal access, of course, and plan for the day when 50 meg isn't enough. We also need to make sure that crippling video competition in other forms is unacceptable. The issue at hand, Comcast's traffic shaping, should be easy to resolve. Verizon confirmed Friday they don't shape or intend to, and AT&T tells similar to Om Malik. If Verizon doesn't need it, Tony Werner at Comcast can find a solution. He's a good engineer who has been directly involved with DOCSIS 3.0 for several years. Traffic shaping just doesn't save enough money to go to war, perhaps ten cents/month/subscriber. Verizon just confirmed don't shape traffic or expect to do so in the future. Everyone's fighting so hard because they are afraid of a bad precedent. Verizon, AT&T: We Don't Use or Need Traffic Management Comcast Case: Please Begin With Facts Here's a few simple things I believe true. If you have any facts to the contrary, please send them over. 1- "It is possible to run a large broadband network without traffic shaping like Comcast, because Verizon, AT&T, and Free.fr do it. A key Comcast claim in the FCC filing is that this is impossible. Source: Verizon SVP Tom Tauke, AT&T SVP Jim Cicconi, AT&T CEO testifying at the Senate, numerous technical sources. 2- "Internet growth rates per subscriber are little changed for the last five years at 35-45%, not increasing or a crisis brought on by video. Source: Odlyzko's excellent MINTS page and Comcast's filing with the 40% number for 2007 3- "Over that same period, the costs of delivering that bandwidth have gone down at a Moore's Law pace of 25-40% per year (switches, routers, etc.) The result is that the carrier's cost of bandwidth has been flat to down for five years. The total bandwidth cost is typically $1/month/customer. Multiple sources 4- "It is possible to affordably build a network that virtually never seriously degrades even demanding applications like high quality web video. It's probably impossible to build a network that never degrades even in emergencies like 9/11 or Katrina. Evidence: Free.fr, Verizon FIOS, AT&T U-Verse, and my home DSL line do that today, by company claim and all reports I've found. My conclusion, which allows one to be in favor or opposed to NN, is that neutral networks aren't free, but are practical at a definable price. I respect the opinion and others that getting the government involved could create even more problems. My opinion is grounded on my research that almost any likely scenario puts the maximum cost of upgrading to a neutral network less than $1/month, and it's easy to project costs of a few dimes on a $30-50 month service. Corrections welcome. Special thanks to Eric Rabe of Verizon, Charlie Douglas at Comcast, and the folks at Free Press who made an extra effort to help me get the facts straight even when our opinions differed, including on the weekend. Telecom, McCain, and Honest Politicians The New York Times had a nasty piece on John McCain. It suggested he was influenced by Vicki Iseman, who “represented telecommunications companies ... whose clients often had business before the Senate committee Mr. McCain led.” I checked a list of her clients for familiar names. According to official records only one of about 40 companies she represented were in telecom. Many were broadcasters. The Senator did write one <probably minor> letter for a TV station owner, who provided a ride on a private jet for them to a fundraiser. Steve Labaton followed up with more favors McCain had done for businesses that supported him, and the Washington Post discovered broadcaster Bud Paxton contradicts McCain's story. The article is controversial because near the top they talk about a romantic relationship between the Senator and the lobbyist, but they offer no proof and the parties deny it. The Times “public editor,” Clark Hoyt writes “if you cannot provide readers with some independent evidence, I think it is wrong to report the suppositions or concerns of anonymous aides about whether the boss is getting into the wrong bed.” The team later in the article wrote something worth correcting. “By 2002, he had succeeded in passing the McCain-Feingold Act, which transformed American politics by banning 'soft money,' the unlimited donations from corporations, unions and the rich that were funneled through the two political parties to get around previous laws.” American politics are still desperately tainted by money, despite the well-intentioned bill. They have not been transformed. In California, where AT&T has just announced price increases from 20% to 100% on some services, both Republican Governor Schwarzenegger and Democratic leader Fabian Núñez have very substantial financial ties to AT&T. Democratic Congressman Elliott Engel's wife works for a telco-funded advocate, and Verizon is usually his largest contributor. These two Democrats and one Republican have often supported telco legislation that I believe is not good for their constituents. Contrary to popular belief, many politicians are honest, as are all the leaders I've met at the FCC. Unfortunately, far too many in the U.S. are for sale. The headline story this week is corruption in Asia, but I could supply a dozen examples from the U.S.. Take a look at Democratic Congressman Bobby Rush, whose voting pattern is consistent with the million dollars from AT&T to his foundation. The U.S. candidates Hillary Clinton is a liberal Democrat whose positions are generally pro-consumer but too often superficial. On broadband, she talks like the proverbial politician, making empty promises. Supporting funding for rural service sounds good, but the proposals she endorses would actually put money in telco pockets while doing little for the areas that do need support. Barack Obama has consumer-friendly policies, with comments that suggest he has looked at the issues. Readers should know I personally strongly support Obama. I would also happily vote for Clinton, although the little I know suggests ambition too often overrides her beliefs. Ralph Nader has long been a key supporter of the open Internet. He received less than 1% of the vote in 2004 and will probably do no better this time. My personal politics are Democrat and on the left. Uninteresting Ethics: Travel from telcos, contribution to Lessig I also contributed to the Congressional campaign of Stanford Professor Larry Lessig, one of the most intelligent and decent folks I've met in this business. He ultimately decided not to run, so the money will instead go to the fight against political corruption. Larry's books are required reading for anyone considering Internet and technology policy. I have, and will, report on |