Because of my current research interests, most of my meetings at MWC 2010 in Barcelona were about mobile broadband and in particular, the crunch that network operators experience as usage soars.

At his press conference, Ericsson’s CEO seemed to breeze by the issue in a “Brave New World” speech (why do these always remind me of films from the 1939 New York World’s Fair?). But it came up in meetings with the rest of his company and with every other vendor I met with from Tier 1 network vendors (Alcatel-Lucent, NSN, Huawei), to OSS vendors (Amdocs, Comverse, Convergys, Telcordia), to mobile backhaul vendors (RAD, Cambridge) and of course with Femtocell vendors (Airvana) and specialists like Allot. It was the “elephant in the living room” in a Telecom TV panel discussion I did on WiFi and it even came up in a discussion with over-the-air TV chip maker Telegent who proposes their solution as a way to off-load streaming TV traffic from the mobile network.

In every meeting the following question either arose naturally out of the discussion or I forced the issue and asked it directly:

Are dongles (mobile broadband modems) or smartphones to blame for the problem?

Hardly surprising that the answers were almost equally balanced between the one and the other i.e. both are to blame. But depending on the country, the principal blame will lie ether with smartphones or with dongles.

In developed markets like North America and Western Europe, the blame lies with smartphones. Sometimes it is bad protocols or bad settings and so sometimes just a software refresh by the device manufacturer gets things under control. But most of the damage is done by apps that constantly poll the network for new information. As the king of the app ecosystem, the Apple gets singled out but the issue isn’t the iPhone per se but the types of applications advanced smartphones like the iPhone encourage users to install.

In emerging markets like Latin America or Eastern Europe or developing Asia Pacific, the issue is dongles. Lack of adequate fixed broadband and heavy marketing by mobile operators mean that 3G wireless connections are increasingly the primary means of accessing the internet in these countries. As I have written elsewhere, that means the devices are stationary instead of in motion, connected for long periods of time instead of just for brief dips into an app or for a quick search and they are often used for heavy video or even peer-to-peer traffic. To state the obvious, this is not the kind of use-case the 3GPP standards bodies had in mind.

The solutions are many but they basically boil down to variations of the following

1. Optimization of device protocols
2. Traffic shaping and prioritization
3. Pricing schemes beyond flat-rate that encourage economic use of mobile broadband
4. Off-loading fixed-use case traffic to fixed networks
5. Waiting for LTE

Of these only “Waiting for LTE” is anything more than a stop-gap, a way to slow down traffic growth and hope that LTE arrives before the seemingly inevitable crash of 3G networks.

Just over 10 days ago, America Movil (AMX) announced a reverse takeover of parent company Grupo Carso Telecom and the consequent purchase of sister-company, the fixed line and cable TV operator Telmex.

The press was rife with speculation what this might mean. Grupo Carso majority owner Carlos Slim was quoted about convergence so the telecom press mostly went off in search of the Holy Grail of converged triple and quad everything. (Grupo Carso is the holding company for all of Slim’s investments from retailers like Sanborn’s and Sears Mexico to bank Inbursa to Grupo Carso Telecom.) The popular press – especially in Mexico – tended to focus on the consolidation of major players and wondered out loud if this was a good thing for customers or not.

Predictably – given the very high market share of both Telmex and Telcel (America Movil’s flagship) – the Mexican competitors cried for government intervention to prevent further monopolization and the Mexican government said they would study the matter.

Frankly, I thought from the beginning that this was more about financial engineering than re-engineering. Complicated transactions like this one (reverse takeover, partial or complete buyout of minority investors) are usually trying to solve some technical financial problem like weak ratios in some part of the group, inconsistent bond ratings or elimination of a holding company discount. In particular, Grupo Carso Telecom, as a holding company with no direct operating activities, could trade at a discount of up to 10% to the expected “sum of parts” valuation. It really has no “raison d’être” and so some sort of reverse takeover was inevitable. The surprise perhaps was that it took so long to happen.

More importantly Slim’s overall management style leverages very focused units with clear mandates and clear performance measurement. As I have written on other occasions, America Movil and Telmex seem blissfully unaware or unconcerned about competitors’ efforts to bundle and package fixed, mobile, broadband and TV. Telmex sells triple play offers aggressively outside of Mexico (and would in Mexico if permitted to offer TV) but so far mobile has never entered the equation even where permitted by regulation. The two companies have shown little interest in network synergies although likewise they never strike deals with strangers. Finally, merging Telmex and America Movil’s quite different corporate cultures – despite their common roots – would have been a strategic flip and probably a management distraction with little positive to show for it.

But this is just my theory and I wanted some empirical evidence. What was the “smart money” saying?

The bond rating agencies were generally delighted putting America Movil on “credit watch with positive indications” a backhanded way of saying “we think this is probably a good thing”. Bond holders are worried about cash flow. Bring together companies with significant cash flow on their own to create a single huge cash generator and they are generally happy. Bigger cash flow means less volatility and more sources to cover loan payments and bond coupons.

Equity investors were decidedly negative. It’s a rule of thumb on Wall Steet that one should “buy on rumor and sell on news”. As the chart below shows, that certainly happened: America Movil stock rose from about New Years until the announcement and then dropped like a stone: from US$50 the day before the announcement to just under US$44 today. (The red line is America Movil’s stock price indexed to its value on January 4th, 2010. The black vertical line marks the peak on January 13, 2010.)

Usually investors punish the buyer and reward the seller. In this case all three participants in the deal, America Movil (AMX), Telmex (TMX) and Grupo Carso Telecom (TELECOMA1.MX), are all affected. This shows that investors have little faith either in cost synergies or upside from convergence. All they know is that buyers – especially those attempting to restructure, especially those trying to take out minority shareholders – usually wind up overpaying.

Admittedly this has been a rough month for Telecom stocks: AT&T, Verizon and Vodafone are all down and Telefonica has received a series of bad news of the kind that makes investors decidedly nervous (steep devaluation in Venezuela, rumors of squabbles among the Telecom Italia ownership group of which Telefonica is the leading shareholder, orders for Telecom Italia to divest Telecom Argentina).

The final nail in the coffin of convergence at America Movil / Telmex came recently when Slim told reporters that they would NOT be bundling fixed and mobile in Mexico anytime soon. Clearly he was thinking about the difficult regulatory and political situation for his companies in that country, although he seemed to dismiss the bundling idea generally even in countries where he legally can offer all four services either alone or in bundles.

For all the excitement created in the press – aided and abetted by the analyst community – this was a strategy devised by lawyers and finance types. Convergence was just a bit of spin-doctoring that eventually backfired.

Farewell to the Noughties, a decade sandwiched between two crises: The dotcom bust and the current – but sputtering – downturn.  In that time, Europe accomplished much: The Euro was adopted, DSL went mainstream and telcos went NGN.

Not least, consumers woke up to the pleasures of mobile content, although it’s questionable whether MNOs will ever see a fair return for their expensive 3G licenses. Roaming charge crackdowns and market saturation haven’t helped financials either.

Time again to put a nebudchadnezzar on ice? There’s plenty under the tree for 2010:

1. Ethernet will be everywhere. Ethernet is in the LAN, it’s in the WAN, it’s transforming mobile backhaul economics, and it’s converging the datacenter. Fiber remains best, but clever vendors (see Hatteras, Actelis) are delivering copper-bonded Ethernet in the first mile. And new Ethernet exchanges (see CENX and Equinix) aim to speed order to cash with their interconnect services. Want a unifying communications fabric? Well duh!

2. The CDN bubble will burst. Telco CDNs can offer compelling features, but how many service providers can the market sustain, even if video traffic is exploding? Many partnerships are already in place: Tata Communications with BitGravity, Verizon with Velocix, Deutsche Telekom with EdgeCast and Global Crossing with Limelight Networks and EdgeCast. If you’re not in the game now, you’ll need deep pockets to buy in.

3. The cloud’s hot air will expand. Resilient, liquid (and probably Ethernet-based) connectivity is going to save the outage-prone cloud. To invest in cloud services enterprises require robust network as well as applications-specific SLAs, as well as network redundancy, say Yankee Group enterprise surveys. Offering on-demand VPN connectivity to cloud services (on a wholesale or retail basis) could help defuse concerns about their security and resilience.

4. Equipment vendors will want to be your new best friend. The ratio of CAPEX to revenue currently stands at 12.6 percent among European operators, according to Yankee Group analysis. It’s not going to recover much. That’s why European equipment vendors like Alcatel Lucent, Ericsson and Nokia Siemens Networks are on a charm offensive with managed services propositions and aims to transform telco business models. Listen to their pitch. And talk to Huawei:  With a new SDP partner program and growing software division, it’s got more in its arsenal than cheap kit.

5. Smart wholesale will become sexier than dumb wholesale. Get big, get niche or get out. Embrace revenue-sharing models with non-traditional partners. And work mobile angles: International remittances, GRX to IPX interconnect, content transcoding, white-label mobile UC and M2M are among many rich avenues of investigation.

Best wishes for the New Year – and decade – look forward to continuing the conversation!

It took slightly longer than two full sessions on femto cells at 4G World, but someone finally asked the all-important question. Paraphrasing here a little but the question went something like, “I’m already paying for 22 Mbps downstream and 5 Mbps upstream. I’ve got WiFi coverage all over my house. Why do I need to buy a femto cell so that you can have better coverage?”
Behind the question lies an even more fundamental issue for any service provider exploring the idea of using femtos to fill in those last few gaps of indoor coverage. Is the femto a consumer device or an extension of the network? As a network product operated and controlled by the service provider, femtos present a challenging business model proposition in that they’re not likely to generate enough usage to justify the current costs. As a consumer product, the challenge is even more daunting given consumers’ reticence to purchase additional boxes that don’t provide a well defined benefit. That’s to say nothing of the control issue as in who controls the femto and who gets the call when there are any issues.
Among the more interesting thoughts thrown out at this week’s show was flip flopping the entire equation by not only offering femtos for free, but providing incentives such as steeply discounted or free service to users willing to install them and open them up for usage by others. In such a scenario, the femto remains a network device controlled by the service provider but gives users the perceive benefit of additional indoor coverage.
Until service providers can resolve some of these basic issues, femtos will remain more fodder for panel discussions and less products deployed in the real world.

Making a quick trip to and from Paris for the Broadband World Forum last week, I got in a nice visit with Vivek Badrinath, EVP of Networks Carriers & Platforms, and Didier Duriez, SVP, International and Backbone Network, with France Telecom/Orange.  Between bites of orange gummi bears, we talked about operator progress in converging fixed and wireless networks — creating the Anywhere Network that Yankee Group sees as essential to a more relevant future for network providers.

Pink staplers (c) Bunny Hill Designs

“At Orange, we got the first step behind us early on — converged billing,” said Vivek. “It was a step forward from what I called Level 0 convergence — the stapler.”  I laughed and we talked about the challenges in integrating disparate billing systems. He pointed out that it’s not just integration that holds some operators back; a single bill can create some unwelcome consumer sticker shock when the customer sees the household’s entire connectivity spend in one place.

“The next thing we did was converged voicemail. Amazing how popular it’s been.” It’s not amazing to me; given how much I dislike voicemail, I’d be happy to have mine reduced to just one inbox from two. One less place to look for stuff I have to do.

But its broader popularity in the Orange network at least suggests a clear appetite for both consumers and businesses for a more seamless network experience — which is good, considering that the users of the network don’t always see the broader potential that lies ahead. So that’s pushing networks to move beyond the stapler, right?

“Sadly, some providers get tangled up in tough issues when it comes to improving the customer’s experience with converging networks. You can’t always invest in all parts of the network at the same time. So you end up with difficult questions like, ‘Should we improve our customers’ mobile broadband experience, or should we work on WiFi support?’  It can become a theological debate.”

The selfish answer for some operators to that particular question has been to focus mobile broadband, since WiFi has seemed like a threat to their business model, billing for minutes used on their proprietary networks. “At Orange we asked ourselves, ‘What’s better for the customer?’  And the answer was WiFi — they know it, have it, and like it.” The result for Orange was a big move to UMA, to enable seamless handoff of calls from the Orange mobile network to local WiFi hotspots.

There is some justice out there; turns out that doing the right thing for the customer in this case was doing the right thing for the operator, too. As mobile broadband pricing went to flat-rate in many markets to awaken latent demand, that demand dutifully exploded — so networks began needing a way to offload traffic. Voila — WiFi and UMA. With increasing numbers of handsets with UMA capability from RIM, Nokia, Samsung, and Sony Ericsson, it’s ready for prime-time. “It has been a big boost for Orange in markets like the U.K. and France,” said Vivek.

So what does this mean for other local wireless technologies like femto cells?  Another theological debate, says Vivek. “There doesn’t seem to be much of a value proposition for the consumer.”  If by offering it, the operator is admitting that the consumer’s coverage isn’t good enough, there are competitors out there who’d like win that consumer over to their network. So how do you ask the consumer to spend over $100 on the problem?  One last dig from Vivek: “Besides all that, the ones I’ve seen run pretty hot. I call them expensive seatwarmers.”

It’s no secret that media and telecoms group Grupo Clarin and the ruling “First Family” of Argentina (the Fernandez-Kirchners) don’t like each other. From best buddies a couple of years ago, the relationship has soured considerably. Clarin uses its media power in print and television to criticize the government and the government uses its control of regulatory organs to “punish” Clarin whenever it can.

Clarin bought struggling cable operator Multicanal years ago and wanted to officially merge it with their own cable operations. They received agreement from the government in December 2007 (during the “best buddy” phase) but late last week the broadcasting regulator denied the merger citing duplication of licenses.

Forgive me for pointing out my prescience but in a July 2006 report entitled “Populism and Public Services” I said that the leftward shift in Latin American governments would mean more populism and intervention in regulatory decisions. The focus of that report was mobile and I can quote a long list of items in that regard especially in interconnection pricing. Television has always been heavily regulated and the cable television industry sometimes suffered — and sometimes benefited — from a lack of separation between regulation of content and regulation of carriage.

There was a time when regulators fiercely demonstrated their independence from politics. The goal was to emulate well-regarded “technical” regulators like the FCC in the US or Offcom in the UK. Osiptel in Peru and SubTel in Chile come closest to that standard. Anatel in Brazil has struggled with Ministers of Communications in the Lula government throughout its tenure. But the rest of the region’s regulators are either under the direct control of the presidential palace (Argentina, Bolivia, Colombia, Ecuador, Venezuela) or discredited and bypassed by other more politically oriented bodies (Mexico).

Grupo Clarin deserves no sympathy. When times were good, it used its relationship with the Kirchners to further its telecom agenda. Now the worm has turned.

But I don’t like the precedent and I like the tendency even less. As I said in 2006, operators must pay more attention to their public positioning — to be seen as good corporate citizens — and must beef up their lobbying capability. Technical arguments — however well developed — are necessary but not sufficient.

Business as usual at CTIA Wireless 2009. The show floor is abound with flashy new devices, 4G infrastructure, and booth demonstrations of every possible technology and service. Much like the attendance at this year’s show (dare I say down 20%), the devices lacked any wow factor, 4G equipment looks just like 3G gear, and many of the floor demonstrations were shown at earlier shows. There is a general lull to CTIA that is analogous to the economy in general.

But, there is a budding new technology that has exploded in show space this year, each booth complete with real products and live demonstrations: femtocells. It’s true that femto isn’t exactly a new technology or concept – it’s been around for several years. What is new is the maturity of the market, evolving from ideas and lab trials to real, tangible products that actually work in the field demo. There are several takeaways from this observation: 

•          Femto vendors are all grown up. These former start-ups and base station suppliers are now driving enough real business to purchase booth space. Gone are the days of lurking at the Food Court or Starbucks outside the exhibit hall to lure strategic partners.

•          Femto technology is maturing. Femtocells are no longer a technology that’s confined to a lab. Each and every femto vendor exhibiting at CTIA had real products functioning in real time. Motorola, Alcatel Lucent, Airvana, AirWalk, Continuous Computing, Tatara Systems, Acme Packet and Ubiquisys all participated in live demos at the show.

•          The market cares about femto. Even as foot traffic was dramatically light compared to previous CTIAs, the femto booths were jam packed. And, crowds were forming without the typical gimmicks used to draw attention (i.e., Lamborghini showcasing, espresso tastings).

Femto growth opportunities are promising even though few carriers are biting. No major operator announcements around femtocells were launched during the show. Although, from private discussions with service providers, many are cautiously optimistic about the technology. Expect femto to play a major role in 4G network architectures as operators seek to drive CAPEX efficiencies, optimize in-home and in-building wireless performance, and identify new revenue opportunities inside the home and small business.

In the meantime, I predict a full-blown technology “pavillion” dedicated to femtocells at CTIA 2010.

Day one of the National Cable & Telecommunications Association’s annual convention, now simply dubbed The Cable Show, is in the books and there are a multitude of key take away items of note.

• The economy clearly is hurting the trade show business. I’ve heard several “official” reports of attendance being down 10% to around 10,000. Based on foot traffic in the hall today, which had the odd opening hours of 3 p.m to 6 p.m., it would appear 10,000 is being very generous. Also missing is ANY evidence of the traditional “D list stars” that populate exhibits. Maybe Washington DC isn’t as much of a draw without the president in town?
• If not insightful, at least the keynote was more interesting than normal. Instead of the typical CEO speech from a Brian Roberts or Glenn Britt or (name your favorite leader of a large MSO here), the opening keynote was a panel of Roberts, Cox’s Pat Esser, Suddenlink (formerly with Charter) Jerry Kent and wireless luminary and Clearwire Chairman Craig McCaw. Moderating was former FCC chair and current Carlyle director Bill Kennard.
• Wireless could be the most divisive issue among MSOs. While Roberts, Esser and McCaw all played up the ability of wireless to mobilize bandwidth, Kent spoke for a quiet but still large group in the industry that isn’t convinced wireless has a place in the bundle. The different approaches Cox and Comcast are taking to wireless were mentioned but hardly explored.
• McCaw, not known as the most dynamic speaker, had the best analogy of the panel by declaring “If what we’re competing with are regional jets, we’re trying to be triple 7s.”
• Business services are hot…again. Cox Business said today that it’s aiming to be a $1 billion business by the end of next year. After paying lip service to the SMB market, it appears most MSOs are finally getting serious about attacking it at a time when residential growth is hard to generate.
• Tru2Way is hot…still. What started as a regulatory requirement to separate security from physical hardware has evolved into a platform for future applications. Vendors are rushing into the space and throwing as many ideas as they can against the wall.

How many customers does it take to matter in the world of wireless infrastructure? Well, if you are trying to partner with customers on the product roadmap for an important technology, maybe one is enough. And if it’s one of the biggest operators in the world, even better. So Mary Chan, president of Alcatel-Lucent’s 4G/LTE group is excited to have won the Verizon deal. It has given them a real goal to execute on this ambitious transformation for the industry.

Most operators would prefer to work with one partner who can share the risk and reward of a multi year technology roll out. ALU is betting on that as it rolls out its wireless LTE plans. The desire to be seen as an end to end player in this technology space is a differentiating factor for ALU as highlighted in the diagram below.

I spoke to Mary Chan earlier this week and here is what I learnt about their wireless/LTE plans:

• Create one organization within Alcatel Lucent to provide end to end service on the wireless LTE technologies.
• Leverage its strength in IP wireline products and technology and bring it to bear for the IP mobility solutions and achieve scale. Focus on adding policy management, mobility management features to the Evolved Packet Core (EPC) architecture.
• Go it alone and not co-develop the RAN aspects of the architecture with NEC.
• Launched the ngConnect program last month to allow partners to develop applications on the LTE technology platform.

The streamlined organization structure within ALU creates a point of differentiation for them. My belief is that this was one of the reasons for Verizon choosing to partner with ALU. Given that LTE is the next big wave in infrastructure spending, it is a crucial win for ALU to remain competitive.

Although there is a risk of sending mixed messages by not partnering with NEC on the core Radio Access Network (RAN) architecture  and yet being open to partnerships under the  ngConnect umbrella, it makes business sense. ALU is focusing on what they are known for- solid proven engineering of the wireline and wireless products and solutions. It demonstrates the ability to focus on their strengths and change what was not working that well in the first place.

They must pay careful attention to managing this “open’ eco system to truly encourage greater innovation and creativity rather than apply a heavy hand in the management of the program.

One customer win is a solid start to make the LTE possibilities real. I am looking forward to hearing more details of their wireless LTE strategy as CTIA concludes this week.

The downturn is forcing tough decisions about what remains core. In the past week, three telecom operators made their choice: KPN’s Belgian subsidiary BASE is outsourcing network operations to Alcatel Lucent; Nokia Siemens Networks will run Orange’s UK and Spanish networks; and Vodafone UK will hand over network maintenance and operations to Ericsson along with 350 employees.

They are not alone: Globally, deals are escalating in size, scope and length, according to our historical analysis of more than 800 telco outsourcing transactions since 2002. Operators will double annual expenditure on outsourced and managed services from $16 billion today to $32 billion by 2013, as noted in my report, Redefining the Core: Outsourcing and the Virtual Telco.

But let’s not get carried away. Outsourcing can bring rapid balance sheet results, but that doesn’t automatically translate into long-term business value. There’s a vast difference between externalizing to achieve financial re-engineering versus business transformation. Yet this is exactly where many operators and their investors are getting confused.

Scattergun usage of outsourcing as a weapon to cure all corporate ills is more than unwise, it’s dangerous. A vendor can nearly always be found to undercut internal operational costs – and how attractive if they can also rebadge employees, or pay a success fee up front to win the business.

While this might improve the bottom line, it won’t drive top line growth. That’s the real issue that operators must address – with or without external help.