if connected

Today, Vodafone announced first half results. Unsurprisingly, mobile broadband was a key part of their strategy to maintain revenues as mobile voice and sms increasingly head towards becoming free.
They reported very fast mobile broadband growth, built upon aggressive pricing by other operators in European markets. Vodafone — not aiming to be the cheapest priced — reported an 84% increase in mobile PC connectivity devices and reckons about half of those are consumer buys. Given the early stage of the consumer mobile broadband market, that’s an impressive result. Data-related revenues will be harder to secure: they rose by just 27%.
In the UK alone, Vodafone reported >500k mobile PC devices. This would place Vodafone among the leading ISPs if compared with home broadband, and with growth levels that only Sky could approach (but not match).
Note to non-European readers, pricing for mobile broadband is as low as 10ukp for one months’ use on a pre-pay SIM, or 5ukp if an add-on to an existing contract plan. This isn’t in every country, but in some where low prices exist, the market is moving extremely quickly.
There will be much more mobile broadband adoption to come as data spreads into emerging markets. Both Vodafone, and all of the operators I heard speak at last weeks’ FT Telecoms conference, were sure this would happen very soon. Most, thought the opportunity is even greater than in Europe.
Vodafone’s CEO: “In emerging markets: The Internet will be mobile.”
Given the strength of some of the early mobile broadband take-up and of the arrival of numerous laptop-mobile subsidy sale models in retail, I think that’s too narrow a statement, should read:
Ian: “The Internet will be mobile.”
By that I mean that everyone, retailers, PC makers, home broadband providers, website owners, everyone… will have to adjust to the arrival of mobile/cellular in their businesses. Increasing numbers of consumers will go online using laptop PCs on relatively slow mobile broadband connections — including very small netbooks — leading to website design tweaks. Where and when people go online will change. Operators, retailers and device makers will have to embrace mobile industry pricing and packaging with subsidies and tight contract lock-ins. Additionally, and in parallel, phone handset Internet access is on the rise too.
I see any attempt to write about fixed and mobile Internet in isolation, or home broadband and mobile broadband on their own, as doomed to failure. Strategies must embrace both.
There is now one Internet, although with a few different flavours.
Exciting times.

BT Digital Vault Offline

Sky’s ‘See, Speak, Surf’ marketing wins: Sky reaches 1 million broadband customers.
But while Sky report that “around 70% of Sky Broadband customers are taking a paid-for [broadband] option”, the actual revenue impact will be fairly modest for now. The paid broadband options are only £5 a month or £10 a month incremental.
Much more importantly for Sky is this metric: “Around 30% of customers who have joined Sky Broadband so far are new Sky TV customers.”
What of the cable companies that have had a head start of more than five years of marketing triple play, although with much more modest results?
Well, VirginMedia is altering its strategy away from bundles (!), away from pay TV, and instead plans to focus on high speed broadband. This is a sign of weakness from VirginMedia. Their long cherished differentiator of triple play simply isn’t unique any more, and as usual, Sky is following through on its stated bundle strategy with tremendous efficiency.
VirginMedia’s cable broadband does have some advantages over Sky’s DSL, but the cable operator must come much closer to matching Sky’s ability to execute on its strategy. Otherwise, Sky will continue to extend its lead.

Ms Turner [CEO, Tiscali UK] said that unless they could agree a strategy with the BBC to share network costs, Tiscali would have to restrict users’ access to the iPlayer.
A senior insider at BT added: “It is certainly a live debate between ISPs [internet service providers] and the BBC. If the BBC gets the numbers it wants for iPlayer then network capacity could become an issue.”

I don’t usually do this, but I told you.
(and more background: iPlayer and ISPs, Broadband as a Trojan Horse for ISPs, or broadband quality and net neutrality, more here on ISP broadband revenues).

What iPlayer, 4oD, Joost, Babelgum and a number of other peer to peer content distribution networks are doing in essence is: they are lowering the cost of online video distribution by transferring a large part of that cost from the publisher onto the ISP (or on to the consumer if the consumer is on a metered broadband package).

If ISPs had healthy margins for broadband, this wouldn’t matter anything like as much. But European consumers are highly price sensitive on broadband access, so ISP margins are poor. ISPs have done an atrocious job of explaining why a consumer should pay more for a higher quality broadband service.

Plus, most large ISPs now have their own TV services. So, these Internet delivered TV offers both push up ISPs’ bandwidth and network costs, and they potentially undermine the ISPs’ own TV services. So ISPs vocally use the issue of higher costs, while ISPs are also concerned about revenue protection for their TV services.

Media coverage on the views of BT, Carphone Warehouse and Tiscali (three of the UK’s largest ISPs):
- FT:- ISPs warn BBC over new iPlayer service.
- Mail on Sunday:- Pay up if you jam the web, BBC warned.
- Independent on Sunday:- Internet groups warn BBC over iPlayer plans

The full impacts of all of this are still evolving. Clients must read our Net Neutrality in Europe report now, especially content owners, rich media/video aggregators, advertisers seeking to profit from this move to Internet TV distribution, and ISPs.

Virgin Media, the largest UK cable ISP, have announced a tight peak time usage policy:
“Virgin have announced that at peak times from 4pm to midnight, those users will find their speeds will be ‘moderated’ (i.e. slowed down). The extent of the traffic management will depend on which package you’re subscribed to. If you are slowed down, this will last for four hours from when the traffic management is applied.

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Here’s the irony: While Virgin Media have tried to market the consistent performance of cable broadband and higher top speeds — against the more popular DSL which is limited by telephone quality — they are now introducing peak time speed drops triggered by customer usage. For Virgin, this policy undermines their broadband market positioning.
The problem for Joost, Babelgum, or any other online video streaming services is that it will not be just the top 5 percent of Internet users that will hit these slow downs. Many many video consumers will hit them if they are watching online TV at the natural time of the day to watch.

Today’s news is for new builds only, in Sweden, and with one specific construction firm.
This is the low hanging fruit of FTTx roll outs. If an operator is digging up streets or accessing ducting it’s almost as easy to use fibre as copper. The harder business case is for upgrading existing areas.
The planned 100Mbps per home service indicates just how great a game changer fibre will prove.

Operators must view the new Apple TV box as a platform and not a single product. Already, Apple offers on demand TV downloads at slightly below standard definition broadcast quality. The version 1 Apple TV box hardware is capable of HDTV quality complete with HDMI output: it must be a matter of time before HD is available through the Apple iTunes store.
Even worse news for operators is that it is becoming increasingly clear that the Apple TV box is both flexible and powerful. Mossberg reports it runs a cut down version of Apple’s Mac OS X. Initial disassembly by an enthusiast website indicates that the hardware is little different from a low end laptop: an Intel ULV Pentium M CPU running at up to 1Ghz; 256Mb main memory; Nvidia Go7300 3D graphics with 64Mb dedicated graphics RAM; 2.5 inch hard drive; and an Intel 945G chipset. On that hardware, Apple does not need to cut back OS X very much, and could enable most of OS X’s features, if Apple saw a customer benefit.
What this means is that Apple has the capability to extend the feature set pretty easily: Either through updates to the onboard software with the current hardware, or through a version two box that includes more capable components as hardware costs inevitably fall. Even more intriguing is whether there is the possibility to extend the capabilities of the current Apple box with additional USB hard drives, or perhaps even with third party digital TV tuners (many of which already work with Intel-based Macs running OS X). Apple has created an ecosystem of third parties with the iPod, could it do the same with Apple TV? Probably, but only if the economies of scale are there for third parties to profit.
Ironically, Apple’s download and play back approach will operate with almost any broadband Internet connection, unlike more traditional TV on demand services. While the traditional VOD approach delivers instant playback, this benefit requires additional VOD and broadband infrastructure which reduces the availability footprint of those services. (Example: many European cable networks are still not fully two way while DSL-based IPTV VOD still requires expensive VOD servers.) If consumers have bought a season pass for a TV show, then this immediacy benefit could vanish: Apple could copy the approach of Valve’s Steam game distribution system which offers advance downloading of pre-release games. The Apple TV box could download future TV episodes of a show already purchased on a season pass, keep them locked until the end of the embargo, and then present them ready for viewing instantaneously as soon as the show has been broadcast.
Apple TV uses costly broadband bandwidth and could compete with operators’ own cable or IPTV on demand services. The short term impact on operators will be small. But operators must view Apple TV as a platform play which will evolve. Apple has already outflanked ISPs’ digital music stores with iTunes+iPod. Operators must adjust both their broadband and TV strategies to ensure the same does not happen to their on demand TV services as video becomes the crucible for net neutrality debates and the planning of operator business models.
Clients – please ask us how to plan around new threats such as Apple TV, or how to take advantage of the new opportunities presented.