Quad Play

Interesting article from Point Research on the pricing of different Broadband options (seen in Ars Tech):

Around the globe, DSL remains far more expensive for the speed you get, but it has also shown the greatest drop in price. Between the first and third quarters of 2008, DSL dropped from $25 per megabit to $18 per megabit.

Cable prices haven't fallen nearly as much, but cable service remains a far better value on average. While DSL still costs about $1 8per megabit, cable is only $6-7 per megabit. Some of this excellent performance is driven by smaller European operators, which offer both lower prices and faster speeds than they used to. In the US, however, the report notes that "speeds have gone up but the price hasn't changed."

Fiber remains the best value—if you can get it—but it's also the most expensive option. Average cost per megabit is a mere dollar or two, but the average bill is $65. Countries like South Korea and Japan are largely driving the worldwide growth of fiber to the home, though companies like Verizon offer it in parts of the US as well.

This is all very interesting - as they point out, the reason DSL is so high on aggregate si that it is the only available system in many developing countries, but is highly priced:

Middle Eastern and African countries, for instance, are paying a whopping price for DSL service: $46 per megabit. In Western Europe, the cost is about $6 per megabit. Because phone lines are much more widely installed around the globe than are cable systems, DSL is one of the few viable delivery systems for Internet access in many countries, even when expensive, and is one reasons for DSL's high worldwide price.

Now the other side of this coin - Fibre is very cheap, but is very hard to get - and tends to mainly occur in countries where the government has stepped in to drive the market (Japan, Korea). We believe that intervening like this to drive the price down will confer massive digital logistics advantages to those countries, so it is with some concern we note the OfCom believes broadband buildout in the UK should be a private sector affair.

Notes Read/Write web:

Joost, the desktop-based long-form video service that aims to take on the old TV model with a large pile of venture capital*, is scrapping one of its defining features built in-house, inline chat, and replacing it with outside chat service Meebo. Essentially, the announcement means that users will be able to chat with all their friends on MSN, Yahoo Messenger, AIM and GoogleTalk while watching the high-resolution, professional video content on Joost.

Or just chat instead of watching the Ads

Still, its good that they realised that Metcalfe's Law applies to them as well.

And why Meebo of all people?

Meebo is a VC darling as well - this is the kind of deal that high-powered investors can help make happen, a great example of why people say it's as much about the connections as it is about the cash.

Quite. The market still has to buy it though.....

* And all the same old content.

...cos we weren't blogging at the time. We were a little bit sarky here though, if proof were needed that we thought it wasn't the brightest idea.

Anyway, its now finally been officially admitted that it was a crap deal

From CNet at the time:

Company executives said Monday that eBay plans to pay $1.3 billion in cash and $1.3 billion in stock to the global communications company. It has agreed to hand over up to an extra $1.5 billion, for a total payout of more than $4 billion, if Skype meets certain financial targets by 2008, according to a presentation to investors on Monday morning.

Well, apparently the earnout will be capped at $ 0.5bn, but that's still $2.6bn handed over including $1.3 bn of cash - for a c $60m turnover company.

Lesson - if any was needed - not to hand over so much of the loot upfront.

Mind you, it is very entertaining to go back and read the blogs at the time justifying why the deal was such a great one and how they "got" what eBay was up to

Those rumours that 3 is for sale just won't go away......John Hauxwell pinged me this afternoon with his post here. I had in the meantime picked up this one from the Inquirer picking up a Mail on Sunday story. (The Mail on Sunday also reported last last month that 130 managers were to be sacked at 3 UK, though 3 UK claimed that headcount will go up in 2007)

To be honest, I haven't heard anything about this, this time around, and was a bit wary of saying anything after the last time when the rumours of sale were immediately followed by that of a 3G price reduction to near 3G datacard levels - I thought I had got a bum steer.

Also, to try to crash the market just before you punt the company seems...errrm....odd?

Mind you, this is Planet Mobile where economic rationality is not always the first thing on the agenda (I will do a Big Blog on the Myriad Myths of Mobile Multimedia Moneymaking soon)

Still, you can't keep a good meme down......

Rumours are flying today that 3 UK is to be sold soon...its not just me that heard this, here is another swallow

No surprises really, its been clear for quite a while that the business model is bust, looks like Hutchison's deep pockets have finally been emptied. Very hard to compete in a hypercompetitive market like the UK, especially as 3G has been so slow to take off

So, who will buy?

It is now traditional in the UK for a foreign Telco to buy a UK mobile company, and we don't have a US one yet - but maybe BT could use it given its complementary assets - IPTV, DSL, Fusion et al.

Or maybe Google, as they say that YouTube will go Mobile and Yahoo and Vodafone have just eloped.

Or even Carphone Warehouse? Ntl and Virgin have got together so thats them out probably

Now we think Sky might be a good fit, after all this would give them a Quad play, and maybe all those MySpace users can get a free phone too

Interesting Times....................just a rumour of course

Postscript - Hutchison have apparently denied this rumour, and will instead announce a new business model for 3 UK tomorrow - more to follow later.....

Post Postcript - 3 UK announced today on their website that they are launching a new service model called "X - series". I quote:

It will extend several of the core applications and uses of the broadband internet to the mobile handset, with a new pricing model. The X-Series from 3 will be supported by the leading internet companies, cutting-edge handsets from the world's leading mobile manufacturers and premium customer service.

Customers will be able to make unlimited calls from their mobile using Skype, watch their home television via their mobile using Sling, access their home PC remotely using Orb and have access to the best of internet and messaging services from Yahoo!, Windows Live Messenger and Google.

The X-Series from 3 will be priced like fixed line broadband. It will offer use of mobile internet services free at the time of use, for a flat fee. The X-Series from 3 will be available in the UK from the 1st December 2006 and in 3's other markets around the world in early 2007.

So - a new pricing model, based on a flat fee from the 1st of December. US mobile companies are already doing "as much as you can eat" deals, so this is a welcomed plan. What has held the UK mobile media industry back vis a vis the 'Net are:

(i) adhering to a walled garden model, which guarantees a large % of a small pie rather than a small % of a big one. Didn't work on the Internet, it is not sustainable here - the mobile music market went elsewhere, and so will the video market under current conditions. Over the last 3 years new web 2.0 technologies and faster fixed line (and wifi) broadband have made mobile data services increasingly dated.

(ii) unrealistic pricing of services vs physical and internet based media (the dreaded "sticker shock" effect - £1.50 for the song, £5 for the download).

It does not look like the service is fully open, and as yet no details on the prices.

If the prices are set at Internet level then this is attempting to massively disrupt (crash?) the mobile 3G services market - not so much selling the company, as betting it!

Broadlogic announced the awaited TeraPIX video processor today, which (theoretically) enables cable operators to "triple their digital spectrum available." In theory, this device reclaims about 450 MHz of a 750 MHz spectrum by converting analogue cable channels to digital, thus freeing up bandwidth for lots of other new services to be run through the pipes.

As GigaOm notes, it:

allows cable operators to better utilize the spectrum inside the coaxial cables, triple the digital spectrum and basically give the plain old coax capabilities to take fiber to the home (FTTH) technologies head on, at least for now.

More than just that though...it potentially gives Cable companies a new play against DSL based services, including IPTV.

It does not require the user to invest in a new set top box, but the catch is that the Cable Co's have to supply a new residential gateway architecture built with these chips. Not sure yet about the economics of individual suburban houses, but in apartment blocks in major conurbations the battle between Cable and IPTV could get quite interesting.

So, after the dust settled this week it looks like Carphone Warehouse is no longer a mobile phone retailing warehouse cum Telco but a major ISP and network comms warehouse cum Telco. What is going on?

We came up with 3 possibilities for the AOL deal:

(i) Dumb money chasing an (apparently) cheap asset
(ii) An attempt to get out of their current hole
(iii) A cunning strategy that we have yet to grasp

Dumb money thesis first - on the surface, the AOL access business looks fairly cheap - £370m for 1.6 m customers, 2/3 of whom are broadband, all paying at least fifteen quid a month each in theory, so about 1 - 1.5 x revenue. Problem is that (i) a lot of this revenue goes out the door as cost already, and (ii) this market is only going one direction, and thats towards free - led by Carphone Warehouse among others. Even though AOL typically has the "family" market who traditionally are fairly 'net naive and slow to move, Free service will eventually triumph. This is so glaringly obvious that even the densest strategists must have seen it, so I rule out the dumb money option on that basis - for now, anyway - and assume they are trying to solve a wider problem.

So, that brings us to the second option - getting out of the current hole. Carphone started a Free (so long as you buy an £20+ per month bundled phone service) broadband service, which has been so succesful that they apparently are signing 15,000 people a week - only problem is they can't connect them, 200,000 out of 620,000 subs are still not connected. Those they can connect they annoy with lousy customer service in those fraught early setup times, hardly a smart play in a commodity game with low switching costs. The broadband service is expected to have lost £70m this year, and is subsidised by the juicy margins of its mobile customers. And, if its lost £70m on 400,000 broadband customers its not clear that doubling or trebling that is a Good Thing with their current infrastructure.

Right now this is being subsidised by the healthy nargins of flogging cellphones and voice telephony - but mobile is no longer a growth business, Vodafone has just pulled its distributor deal with Carphone and Orange will allegedly pull its deal later in the year, no doubt to get their hands on that revenue as they face leaner times. Ditto voice....VoiP is coming - so the margin money may well disappear fairly fast. Acquiring all those AOL users adds scale, short term revenue gain and no doubt the business case shows Significant Synergies, and margins of £30-40m are predicted by Carphone (which in practice are much, much harder to get of course ).

But access is a low margin business at best now, and neither AOL nor Carphone own the backbone side yet so are paying others for bulk haulage. So, after the dust is settled that is one huge future cash sink acquired and one huge cash source lost. Seems like this is at best an "if I dig fast enough maybe the old hole will fill in before anyone notices I have a bigger new one here" strategy.

Or is there actually a cunning plan behind all this. On Carphone's website, Charles Dunstone, CEO of Carphone Warehouse, said:

“The acquisition of AOL's UK Internet access business is transformational for our broadband business. This deal gives us significant scale to complement the rapid organic growth of our free broadband proposition. In addition, the joint development of AOL's already successful audience platform will bring us new advertising and content revenues in a proven and low risk manner.”

Ummmm.....but AOL still keeps all the content and thus the advertising power, so this is at best a point-through to Another Guy's Portal, guys. And who is this new revenue coming from - AOL takes but a small share of all the Ad money, Google, MSN and Yahoo take a lot more of it. The TechCrunch UK team have similar questions, comparing this deal with BT's position with BT Yahoo. (In defense of BT though, as the Previous Management had just spent all the family silver on Mobile licences it was having to flog whatever it could to keep the Manor in the family). Or did Carphone know the Voda blow was coming and were determined to Do Something before it happened?

At any rate, if there is a cunning plan I don't think its in the access business *as such*.

No, I think the cunning plan has been more about a bundle and sell strategy. Carphone Warehouse is rumoured to be in the sights of a number of Private Equity dealmeisters, and in PE land there are a lot of people looking, but far fewer decent deals, so even half decent ones get big premiums - how about a nice big triple play story?

Does it get sexier with a video play I wonder.....?