I’m coming back to a topic I dicussed already a few months ago, namely video-communication and the role that telcos could play in it. As you probably know if you read me, I’m convinced that TV6centric Video-Communication is as close as a killer app of FTTP we’ll ever find, and I’m repeatedly frustrated and astounded that telcos who are moving towards FTTP are not looking at bringing this on the market anytime soon.

I already mentioned that Skype’s move into that field represented a serious threat, but in recent weeks, we have seen a much more serious one emerge: Apple. I admit I was stunned (in a good way) when I first saw the iPhone 4 video-communication ad (it’s called Facetime by Apple, by the way). First of all, because it’s good. Second because it’s a rare example of a mostly international advert that works (although the soldier character looks a bit too American for some parts of the world, maybe…) If you haven’t seen it, here’s an extended version (the one on French TV is a little shorter):

Most importantly though, I was stunned because Apple is doing what the telcos should have started doing months ago: winning the hearts and minds. Apple is effectively saying to customers: the terminal for video-communication is the iPhone. Forget the TV, forget the PC, forget any dedicated device anyone could sell you, this is how you do video-communication.

The telco minded people will argue that it’s wi-fi only, that previous attemps at video-communication over mobile failed, and all of these are valid arguments in the microcosm of the telecom industry, but the public sees a worldwide advert that showcases exactly why video-communication is a compelling product, focusing on the emotions it generates.

Why does this matter? Because the telcos are once more going to see none of this business. Facetime operates over wi-fi because the image quality is too high to be delivered over 3G. But also because that’s the simplest way to operate it through the internet and without any telco involvement.

Instead of taking the lead (even at the risk of being on a slow market for a few years) and establishing their brand as the one delivering a quality video-communication experience, the telcos are once again letting one of the guys operating above them put his stake in the ground and say “I’ll be the leader of this, thank you very much, and if you want a piece of it, you’ll have to come and talk to me…”

In other words, Apple is (once again) disintermediating the telcos faster than they can spell ‘over the top’…

At least it does in San Francisco!

This is a photo of a couple of San Francisco taxis taken back in late April. I hadn’t processed them until now. I’m a little puzzled about the advertising efficiency of such a campaign even though I understand that the B2B market is significant for Citrix, and that this is San Francisco and maybe wouldn’t even be attempted elsewhere.

Still, there it is: mainstream virtualization.

These last two days, I was in Seoul, attending the 5th FTTH Council APAC Annual Conference in Seoul. I still need to digest a lot of what I’ve seen or heard and follow-up with some people, but it’s been really interesting to be confronted to the diversity of situations of a region which is on average the most developed when it comes to next generation access but with great disparities of development.

My overall feeling after the conference was that the Council APAC itself was in transition, reflecting perhaps a generational shift in FTTH plans. Japan and Korea have led the pack for over ten years, and naturally the early council was dominated by representatives of these  two countries. Yet the fact that FTTH was happening in Japan and Korea meant that the advocacy role of the council was limited, more so than it is in Europe or the USA.

This year’s conference seemed to highlight the fact that Japan and Korea are no longer where efforts are needed, and that the Council’s mission needs to shift from a technology focus to a focus on meaning and implications. It’s not an easy transition, but I saw ample evidence in Seoul that it was underway.

Highlights of the conference for me included:

• A presentation by NTT that went way beyond sharing the latest numbers and instead highlighted the profound transformation that deploying FTTH has brought upon the company. It was the first time I heard a Telco candidly addressing the transformation that abundant bandwidth drives and the challenges of navigating that transformation,

• On a related topic, the representative from Etisalat mentioned something that I quote here: “The biggest challenge of FTTH deployment is not technology. Technology you solve by throwing money at it. The biggest challenge is changing your employee’s mindsets.” Again, refreshing to see a service provider admit that and put it front and center,

• Examining the  advancement of IDA’s plans in Singapore was also interesting, even though the picture that was painted by the officials in presence might have been a little rosy if the conversations heard in the halls and on the booths are too be trusted,

• Hearing for the first time ‘from the horse’s mouth’ about TM’s deployment in Kuala Lumpur was very interesting. TM’s approach and service offerings seem to have nothing to be ashamed of compared with most of the developed market offerings,

• Hearing repeatedly from Korean officials that they are not content with their achievements was interesting as well, even though the picture of what they are doing to address their insatisfactions was less clear to me. Korea is moving (or intends to move) to a Gbps universal service, but I’m still unclear on how they get there,

• The presentation on the Australian situation was a little frustrating to me and lacked a clear picture of how things are progressing. The enthusiasm still seems to be there, but I feel like a lot of time has been wasted not taking decisions. I hope to be proven wrong in my perception of this. More generally, Australia and New Zealand were noticeably under-represented, to my surprise.

In addition to the great content, I had the pleasure of reconnecting or connecting with people in the region that I have been in touch with for a good while but hadn’t seen in a long time, if ever. This includes (but is not limited to) the amazingly polyglottous John Nixon of Light My Fibre fame.

The conference next year will be in New Dehli, India. I sure hope to be able to attend!

One of the big interrogations I have about Google’s FTTH experimentation is whether someone (not necessarily Google) would be able to deliver live TV over IP to their potential customers. The issue is not so much technical (with 1Gb/s there shouldn’t be any QoS issues, even if I doubt Google’s capacity to actually deliver a consistent Gb/s) as it is regulatory. Content distribution rights in the US are constrained fifteen different ways and delivering TV the “traditional” way for a project on that scale is probably not economically viable. Even Hulu is not an option because they are barred from delivering content to the TV.

So a couple of questions have been on my mind for some weeks now:

• Would a significant proportion of customers accept alternative TV (VoD, net streamed content, etc.) as a substitute to live TV ?

• Could Google reach a workable penetration rate delivering only internet access ?

Google’s announcement yesterday about their Google TV product (which, it seems is going to be nothing like this gem) may prove to be a sign that they rely on the first option. Please note that I’m not suggesting the Google TV product was designed for their FTTH experimentation specifically, not at all. I’m just saying that knowing the Google TV product was coming, the FTTH people within Google might have thought that the likely inability to deliver TV in the traditional way could perhaps be counterbalanced.

I’m not so sure.

It seems that a large part of the value of the Google TV product will be to allow you to find content you want to watch amongst the hundreds of live channels and thousands of non-live pieces of content available. If you don’t get live channels (and remember, Hulu is off-limits for legal reasons) that diminishes the value of Google’s proposition greatly.

What you’re left with is a box that will more or less do what TiVo does.

Still, it will be interesting to see if this new service from Google actually sparks a massive alternate content industry that will be more amenable to such distribution and if enough customers find that palatable. A recent report written by my colleagues Vince Vittore and Dmitriy Molchanov entitled Consumers Consider Axing the Coax examines the trends towards video cord-cutting. No doubt Google TV, if successful, will only accelerate these trends.

I’ve been following the iPad story for a good while, with a mix of fascination and defiance. And despite the fact that it’s not my dream tablet by a long stretch, I feel sorely tempted if only to finally kill PDF printing at home (hundreds of page a month…) and have a decent portable system to view and sort my photos when traveling (I still need to check whether it understands RAW format…)

But that’s not the purpose of this particular piece. What I want to talk about today is budgetary choices when it comes to high-tech. As you all know too well, the biggest issue with FTTH, at least in this early market stage, is the business model. The costs are very significant, which weighs on investment decisions and slows down the market.

One of the ways to circumvent – or at least minimize – that issue is for end-users to pay part of the cost of deployment to their home as a set-up fee. This has been used extensively in the Nordic countries in Europe where people seem to be willing to pay several hundred Euros, sometimes upwards of a thousand for FTTH access.

Now I should stress that it’s easy to view this as a universal policy from the outside, and it’s no such thing. Many FTTH projects in Sweden and elsewhere still have comparatively low take-up rates, and the introduction of significant set-up fees might explain that in part. Having said that, there are some examples of high take-up with high set-up fees, like Lyse in Norway and Mälarenergi in Sweden. So it is possible.

What’s the connection with the iPad, you ask? Well, here’s how I see it: an iPad in itself allows you to do very little. Sure, it has some desktop substitution apps pre-loaded, but that’s definitely not in itself a reason to buy it. It’s expensive too, nearly $500. But the fact is that you’re buying an enabler for future apps and services, online or offline, more than you’re buying a self-contained device.

In that sense, it’s not all that different from a super-high-speed broadband connection. In itself, it has no value, it’s the huge potential of applications, services and content that it allows you to access or use that generates its value. And yet service providers around the world (Nordics excepted) seem convinced that there is no way end-users would be willing to pay a significant set-up fee.

And yet think about how better the business model would look if end-users
were willing to pay $500 for the connection? In most dense urban areas
(which are about the only areas potentially targeted, at least in the
Western World) , that would cut the costs by half or more. Isn’t that
worth exploring different models of ownership or at least of usage?
(Note that the French word I want to use here is not usage it’s
usufruit, which Google translates to usufruct, but since I’ve never
heard the word used in English…)

Admittedly, the situation is a little different for FTTH. For one thing, when you spend $500 on an iPad, it’s your iPad. You might still need to pay significantly more for connectivity and/or apps, but at no point in time are you wondering who it belongs to. With FTTH, ownership of the fiber drop is theoretically not with the home-owners, even though Bill StArnaud, Derek Slater and Tim Wu have theorized (and even trialled) such models.

Is that such a big issue though? Presumably, customers couldn’t care less about owning a bit of fiber that is effectively useless without a service provider at the other end. They do care about two things though:

• the ability to value that connection if and when they’re going to resell their home. In effect, that’s a given as soon as the home is connected to the network (and incidentally, existing research suggests that potential buyers and real estate people value that at way more than $500…)
• the ability to switch service providers if a better or cheaper one turns up.

Now we’re back to good old telco revulsion for open access. Which might explain why FTTH deployment is stalled by this particular issue (amongst others). But that leaves space for a disruptive player to introduce both open access and end-user contribution to deployment. Seems like a virtuous model to me.

The only remaining issue is marketing. The iPad, we’re told, sold upwards of 300k in the first week-end alone. That’s not just because it’s a great piece of gear, it’s first and foremost because Apple’s marketing machine is powerful and well-oiled. At the end of the day, marketing may end-up beying the single biggest issue with FTTH deployment. And by being lousy marketeers, service providers shut out windows of opportunity… like dividing your payback period in half…

I felt really weird this morning when I found out about this, only a couple of days after running a webinar on FTTH in Emerging Markets.

The Bill and Melinda Gates Foudation has announced that they were building a fund destined to co-invest in fiber to the home projects in impoverished economies.

It’s not all that surprising when you think about it. Gates is an IT man and every fiber of his being knows that broadband and economic growth go hand in hand. He’s been working actively on trying to help third world countries and economies in a variety of ways through his foundation in the last few years, and this is the latest scheme.

It’s not a tiny fund either, since the foundation is announcing $30bn set aside to co-invest in FTTH projects. It’s not clear at this stage if this is only Gates Foundation money or if other wealthy doners like Warren Buffet will be involved. In an approach not dissimilar to Google’s recent FTTH announcement (more on that below), Gates is requesting project concepts to evaluate their feasibility and their contribution to economic growth. The foundation says that depending on the project scale and the choice of countries, the number of projects they could help launch will vary.

Says Gates in a youtube video release this morning:

“This is something I’ve been thinking about for a long time. With our foundation, we have done a lot so far to address serious issues in the third world like malaria. But I can’t help but think that if we could help these countries become stronger economically, some of these problems would simply go. In other words, cure the problems, not the symptoms…“

Gates also states that he’s not looking for the fund to make money in the short term, but he wants to see this as an investment for the fund that will ultimately repay itself and feed into the fund for further roll-outs:

“I don’t understand why telcos don’t get this. Sure, you’re investing long-term, but if the money is available it’s a guaranteed payback and it will keep paying for itself many times over. The issue in many emerging markets is that the funds are not there. What we’re hoping to do is initiate the Fiber to the Home deployments with this fund and let the private market take over the rest of the necessary investment and effort. Look at this as seed money on a very large scale.“

While the scale of the investments in terms of coverage are hard to estimate, Gates makes a quick calculation:

“A leading Indian operator says the cost per home for them could be as little as $100 because cost of labour is so low. Assume we’re funding a third of the endeavour, with $30bn we could bring a billion homes from emerging markets into the digital age, make these people participate into the world economy and society. It won’t solve all the world’s problems, but it’s probably the biggest step towards that ever!“

He’s not humble, this Bill Gates, but I gotta say I like what he’s doing all the same…

Beyond the huge potential impact of this announcement, what I find really interesting here is the fact that

• this comes only a couple of months after Google made its FTTH play public
• Microsoft hates Google, and even if Gates is no longer a Microsoft man in theory, you can’t help but wonder is this is not a roundabout way of positioning Microsoft in the service in the cloud play, maybe with more of an emerging market slant. I don’t know quite how, but I’m a little suspiscious of corporate philantropy!

Still, as Gates says himself in the video, this is a momentous announcement:

“This date will be a date to remember… Just like every year!”

See the press release here.

Assumptions about Anywhere Network® deployment opportunities and constraints often break down when looking at emerging markets. Developed market constraints might not exist and costs might be much lower, but market conditions and prices are also very different. Is fiber to the home (FTTH) a marginal phenomenon for emerging markets, or could it be an interesting solution to help many of these markets leapfrog the copper era?

Earlier today, I was joined by Wally Swain for a webinar in which we detailed existing FTTx deployments in emerging markets, examined opportunities for existing or new players to enter the next-generation access market and explored the implications for technology vendors. The audience was terrific, with lots of pointed and insightful questions–tune in below for the replay.

The webinar runs about an hour: audio (mp3) and slides (pdf)

I’ve been musing about policy a lot these last few weeks.

I sense a shift in the way European institutions in particular are looking at the issue of policy and FTTH deployment incentives.

In North America, there’s a clear trope that says that the only policy that will spur on FTTH investment is a guaranteed regulatory holiday. It seems to me to be a somewhat inverted view but it goes something like this: Verizon was given a regulatory holiday on FTTH, Verizon invested in FTTH hence Regularory Holidays drive FTTH deployment.

Of course, it’s at the very least a shortcut. Verizon’s incentive didn’t come from the regulatory holiday. Verizon demanded a regulatory holiday for its FTTH plans, but the incentive was there already: they wanted to go after the cable-owned market of TV distribution. In other words, Verizon didn’t invest in fiber because of the regulatory holiday, they invested in fiber because they had a solid business plan to do so (long-term though it may be). Once they had decided that this is what they wanted to do, they turned to the FCC and said “I’ll only do this if you give me a regulatory holiday”.

It’s a classic confusion of causes and effects, but unfortunately, it has subsconsciously affected regulators and policy makers the world over. In Europe in particular, even though complete regulatory holidays remained unpalatable, there has been an unspoken view that since incumbents were the only ones with the financial capacity to invest in FTTH, they needed to be “given a break”. Two examples:

• The French regulator didn’t impose any form of open access, passive or active to incumbent France Telecom (or indeed any of the other FTTH-deploying operators) except for the in-building network sharing, and even that only came to be because Landlords pressured for it.

• The Spanish regulator gave an explicit regulatory holiday to Telefonica on any service delivering more than 30Mb/s under the pretence that since the market didn’t exist yet, it didn’t need to be competitive.

It’s interesting to compare the effects of these two decisions: in France, deployment is happening (albeit slowly), in Spain it’s not (with some minor exceptions). If the regulatory conditions were such an incentive, then surely that wouldn’t be the case ?

The fact is that the regulatory conditions in France have very little bearing on France Telecom’s decision to deploy. France Telecom decided to deploy for competitive reasons (just like Verizon) and then lobbied for favourable regulatory conditions (just like Verizon) and obtained them (just like Verizon). In Spain, Telefonica has neither competitive pressure nor new addressable market incentive to deploy, hence it’s lack of enthusiasm no matter how favourable the regulatory conditions.

But if there is no cause and effect between regulatory conditions and investment incentive, isn’t it time for regulators to reconsider their position? Admittedly, since 2008 there’s been a lot of pressure from the governments and the markets to be nice to incumbents. As illustrated in France by the “suicide wave”, incumbents are dinosaur structures that are struggling with transformation. When the economic situation is booming, they stay afloat, but when things go sour, they suffer more than others. Governments in Europe have acted to try and protect their incumbents.

The fact is though that the favourable regulatory conditions in Europe for incumbents have not spurred on FTTx investment. In the few countries where FTTx is being deployed, the causes are a combination of competitive pressure and government money. The policy track taken, it seems to me, has largely failed.

I see an illustration of a growing awareness of this failure at EU level in the State Aid conditions that were published late last year. These conditions gave more leeway to public authorities in investing in next-generation infrastructure when private operators aren’t. Why? Because local authorities can represent a form of competition to operators. It’s an incentive shift. My understanding of it is “We gave you a good deal, you didn’t take it, now we’ll give your potential competitors a good deal.”

My guess is it’s not going far enough yet. I’m involved with a few local governments looking into this and believe me, the hurdles to a simple deployment are staggering. If local governments are to be encouraged to look into filling the market gap themselves, the Commission needs to do a number of things:

• They need to define Next-Generation Access more stringently. The commission understandably wants to steer clear of technology choices, but imposing minimal upload and download rates for the access line should be a minimum, and these should be significantly higher than what ADSL2+ offers. Incidentally, there should also be some thought devoted to the differences between what vendors promise and what technologies deliver…

• They need to define coverage more accurately. Coverage (existing or planned) is only based on service provider declarations, usually at a high level of geographic aggregation. Business and residential coverage are also not distinguished even though needs are evidently different.

• The need to be explicit as to the information that a service provider needs to present to prove deployment plans. The burden of proof is on them, but what exactly is expected of a service provider.

Interestingly, I’m told (because I haven’t read it myself yet) that the FCC Broadband Plan includes a recommendation that a Federal law allow municipalities in the US to invest in fiber infrastructure even if State law forbids it. This would have to pass through Congress, so is by no means a guarantee, but it’s recognition from the US regulator at least that some form of competitive play is the only thing that spurs on investment in networks…

The second interview I managed to do in Lisbon was of Sue White, who is in charge of Alcatel Lucent’s recently unveiled HLN strategy. I asked Sue to explain what HLN was and how it affected Next Generation Access deployment strategies.

I apologise for the intense shakiness on this video. Definitely need to get a zi8!

Ever since the Google FTTH announcement a couple of weeks ago, the internet (and indeed the real world, for a change) has been abuzz with rumours, analysis, speculation and downright madness in some instances. In the meantime, I have written and published my own analysis of the announcement, accessible to Yankee Group customers under the title Google’s FTTH Experiment Could Profoundly Reshape US Wireline Landscape.

This has led me to also take a deeper look at how bloggers, newspapers and tweeters have dealt with this piece of news and I was surprised and – to a certain extent – dismayed as well to see how polarizing Google’s image is. I guess it’s not surprising that a company so successful should generate such strong passions for or against it but I guess I never realised quite how profound the adulation or the hatred could be.

Here are a few of the arguments, rants, points, or just wild guesses that I’ve come accross in the last few weeks on this topic:

• Google’s FTTH experiment will mean nothing because they will pick a place where it’s easy, and that’s not the situation in most of the US.

• Google is after broadband stimulus money.

• Google will purchase on the cheap from Chinese vendors and the pressure on US Telcos as a consequence will push them in the arms of these self-same Chinese vendors, which will in turn kill the US vendors.

• In order for Google to choose your town you just have to change your town name (and that, IMO has got to be the stupidest thing I’ve seen politicians do in a looooooong time…)

• Google will dissapoint so many towns by not picking them that they’ll end up with a PR nightmare on their hands.

• Google’s plan is a conspiracy to kill incumbents by dictating policy goals of Gb/s bandwidth to local server farms that will be (or already are) owned by Google.

Now some of these might be reasonable assumptions, others verge on crackpot theories. What I find interesting is that I saw very little commentary focus on what was actually in the announcement which, until proven otherwise, is still the most likely course of action for Google.

But perhaps more importantly, this exercice of scanning what is being said on this made me realise that Google has a PR problem on their hands. While there is still a lot of goodwill towards the brand out there, it seems to me that there’s also the seeds of a Microsoft syndrom. An increasing number of people think (and say) that Google is after nothing else than world domination and the Orwellian state. Once that starts, it only takes so long for people to start repeating it.

One thing I heard in nearly every discussion, for example, is that Google as your ISP is a really bad idea, they would know everything about your online self. That’s actually sensible, which is probably why Google clearly stated they had no intention of being the ISP. Strangely enough, many people seemed to disregard that particular aspect of the announcement…

What this really highlights to me is that Google has some serious PR work to do. There’s been a history of disregard for people’s concern around personal information, and while Google has (I think) been relatively careful in the way it’s been using that data so far (whereas the late Phorm hadn’t) the fact that Google has or could have access to usage data is enough to make a lot of people freak out.

I wouldn’t want to be in that place, and it certainly suggests to me that if their FTTH Experiment is to be successful, radical transparency might be necessary. But is that something Google can operate with ?