if connected

This year I learnt a pile of new things:

At least one hospital cares little about mobile phone use. As my son was being born, a phone rang in the corner of the operating theatre. My other half started blaming me, but the consultant answered her phone so ending the argument.

Hospital walls are too thick for good 3g reception. I spent many a night browsing online with my laptop in a hospital room on mobile broadband, but it kept falling back to 2G.

Some cameraphones really do have good enough cameras. On an increasing number of occasions I have left my real camera at home, instead taking a mobile. I even went to a wedding with just my cameraphone.

Working for a company that is bought by a larger competitor has plus sides. Can’t talk in detail here.

Flash/SSD drives for laptops transform the convenience of using laptops. It’s their quietness as much as their speed that makes them a pleasure to use. Hopefully in 2009 I’ll be saying how much better their reliability is as well. It’s too soon to say now.

TV set-top boxes are becoming louder than PCs. Plus, they crash about as often, based on my experience with a UK pay TV DVR supported by a little Google searching.

Babies can be distracted from using your laptop with a fake keyboard. But only a real mobile phone will satisfy them.

WiFi works better for location finding in cities than GPS. Mobile handset GPS’ have particularly poor reception indoors. Even dedicated GPS units struggle.

Dell’s next day on-site repair is less convenient than a drop off service. Having to wait at home for several days in succession during a repeated failure to repair a PC is a much greater waste of time than using a repair centre.

Yesterday VirginMedia announced it would cut 2200 jobs, 15% of its workforce, to take effect around the end of 2009.
On the radio, I heard this reported as being a result of the current downturn in the UK (in the third quarter the UK experienced negative growth). But VirginMedia’s reasoning is not the result of a change in consumer spending.
The problem VirginMedia face is that they have been carrying billions in debt generated during the rapid expansion of cable networks in the UK during the 90s.
Over the last few years, the level of market competition that VirginMedia has faced has limited VirginMedia’s ability to generate significant enough revenues to retrieve their position. The vaunted multi-play that has been at the core of VirginMedia’s strategy has resulted in a war on multiple fronts: in TV against Freeview and Sky; broadband versus Carphone Warehouse, BT, Orange, Sky, Tiscali; and home phone against Carphone, BT, and numerous others.
VirginMedia’s announcement was a hangover from last time’s problems, combined now with the greater difficulty in raising capital and sustaining existing debts caused by the credit crunch. Effects of changes in consumer spending will take longer to come through. There may be more pain to come.
Read related research on the economic downturn from us. More will follow soon.

VirginMedia has secured iPlayer content for its VOD service. This is an approach I advised Internet video suppliers to take in this report. It’s great to see that traditional TV industry players like VirginMedia better understand the potential for free Internet VOD than do two out of the three leading games console makers, despite those games console makers’ video strategies.
There are two reasons offering iPlayer on the normal TV VOD platform makes sense for VirginMedia:
1. Offers VirginMedia’s users better picture quality than the PC Internet version of iPlayer and displays the programmes on the TV through the normal cable set-top box. This increases the value of VirginMedia’s TV offering to consumers and should help customer retention.
2. Reduces the pressure on VirginMedia’s overstretched broadband system. More here, under fig 3, especially.

This is a follow-up to yesterday’s post on understanding the game console makers’ strategies.
The console owners approach to video on demand (VOD) and TV also highlights their divergent marketing:
PS3 and Sony – See the PS3 as a TV and video hub, with content available for remote access using a PSP. They will launch a digital TV tuner later this year that will enable consumers to record TV onto the console’s hard drive (but the availability date has slipped), and will help expose the PS3′s video abilities to consumers. On demand is also a key focus, as is securing pay TV operator partnerships. But, Sony are uninterested, so they say, in securing BBC iPlayer content.
Microsoft Xbox 360 – Have an on demand platform live in the US and UK with pay per view movies and TV. Separately, they’ve also struck a VOD deal with BT so Xbox can act as a player for BT’s video on demand content. Microsoft have little free, or no, on demand TV content with which to grow the consoles video audience. They are trying to monetise a nascent activity — video consumption on consoles — before developing a video-watching console audience. Like Sony, Microsoft appear ambivalent to building Xbox360 iPlayer support.
Nintendo Wii – Say video and TV is not a core focus, and the Wii is all about games and expanding the games market. However, together with the BBC, Nintendo have enabled BBC iPlayer support, which Nintendo plan to draw consumers to use their Wii’s more. In particular, like the Wii news or weather channel, iPlayer will encourage members of Wii-owning households who do not use the Wii for games, to try it, thus securing more games revenues…
With >1 million weekly users of the PC version of iPlayer, just months after launch, I know which of the above strategies makes more sense.
Unfortunately for ISPs, all of the above will increase their broadband cost base… as consumers watch more high quality Internet-delivered video… which hits ISP networks and for which ISPs currently have no revenue-driving value chain position. More on this point later.

The debate raging between ISPs and the BBC over the iPlayer catch-up TV service highlights the strain that ISP business models are under.
In essence, a combination of fierce inter-ISP competition and the confusing marketing of broadband packages, has led to a tailspin of residential broadband pricing as consumers choose the cheapest offer. ISPs are simply receiving less and less (broadband Internet) revenue from each consumer, so they are seeking revenues from other sources such as content providers ie the net neutrality debate (read this net neutrality report), or through behavioural advertising models (e.g. Phorm and soon others), or through multiplay bundles (read this report on multiplay).
Alongside this declining per user revenue, Internet traffic is increasing due especially to the rise of video services such as iPlayer (UK), Hulu (US), 4oD (UK), Sky Anytime (UK), Joost, Babelgum, Youtube, Flickr, etc. etc. as well as the pirating of tv programmes and movies using peer to peer networks. So, ISPs’ bandwidth costs are rising.
ISPs are attempting to control these traffic costs. Some ISPs have opted to impose explicit data volume usage limits on broadband users. Others have increased the degree of traffic management they deploy so reducing broadband speeds for consumers that exceed (sometimes secret) preset thresholds, or lowering speeds for certain applications (e.g. p2p) . Some of the ISPs that used the above tactics, have continued to market their broadband as ‘unlimited’, or in a couple of cases as fibre optic. Both of these tactics are misleading and encourage consumers to pick the cheapest broadband product available.
So, it’s not a surprise that Tiscali are complaining about iPlayer and are looking to achieve revenues from content providers rather than consumers. As a service, iPlayer has gone from having zero users to a reported more than a million weekly users in just nine months.
Unless either: (1) ISPs can agree on a way to market broadband clearly, so consumers can differentiate between them, and understand the benefits of more expensive packages; or (2) charge content providers for priority carriage, then ISPs will continue to struggle to make any money out of broadband directly and will have to reply on other parts of a bundle to drive profitability.
iPlayer could be the final nail in the coffin for pure-play ISPs. I don’t see blocking or degrading iPlayer as being a viable option for any ISP as it is a BBC service. So, iPlayer could drive further ISP consolidation and lead to less consumer choice.
Most pure play ISPs are small operations, Tiscali are alone among the UK’s main ISPs in being mainly a broadband play: Carphone Warehouse have a stated strategy to use broadband to drive profits from the bundled telephone service with broadband serving as an acqusition carrot; likewise VirginMedia see broadband as an acquisition tool for the other parts of their quad play; Sky plan to use broadband to deliver on demand TV; BT likewise, see broadband as a strategic plank of their business and central to retaining retail customers; Orange and O2 seek to do fixed-mobile bundles and will in time attempt to offload mobile traffic onto consumer DSL connections.
Only Tiscali is a classic ISP business and tellingly they are almost certainly up for sale.

Today, VirginMedia report their q4 2007 results. As usual, as an industry analyst I’ll comment solely on the operationals. Note – this is being written ahead of the conference call.
Key points:
- Broadband customers are up year-on-year to 3.5m using VirginMedia’s hybrid coax-fibre (HFC) network — plus another 287k using DSL — and also up compared with the previous quarter. But the growth is slow, especially when compared with arch-rival Sky’s recent broadband successes.
- Cable triple play penetration increases further. Double play is now 79% of customers, and triple is almost half.
- Churn down to a monthly 1.4%, from the flat 1.8% -> 1.6% -> 1.8% -> 1.7% of each the previous four quarters. This quarter’s churn may be a blip. Certainly, across the previous four quarters churn was flat while the penetration of bundled customers was increasing. Churn levels remain far too high.
- Telephony customers and total customers fell. I suspect the latter is due to the former as VirginMedia has more telephony customers than either TV or broadband subcribers. Remember, unlike many cable companies, VirginMedia is effectively a home telephony incumbent that is at risk from cheap VoIP and CPS offers, rather than a cable company that could benefit with increased ARPU.
- Per customer [home] ARPU is slightly down to £42.24 from £42.82 a year earlier. Given the penetration of bundled customers has increased during the same period, this reflects the tremendous competitive dynamics of the UK market in driving down prices (broadband especially) has proved a more significant factor than bundling.
- No reporting of quad play penetration that I can see. I presume it is either not at a significant level yet, or is not progressing as well as VirginMedia would like.
Outlook – this is a challenging market for a cable company. VirginMedia must execute well, or Sky and BT will continue to cause VirginMedia problems.
There will be more analysis on the relationship between churn and multiplay in a forthcoming Jupiter report.

Moving on from the crazy UK situation on fibre, Orange in France offers real fibre broadband at 100Mbps (download speed), complete with a full IPTV service, and VoIP telephony.
Unlike fibre wannabe’s, Orange’s upload speed is also staggeringly fast at 10Mbps, which makes the service ideal for uploading high quality videos to websites.
This is a commercial service that is already available to 147,000 homes. Full details are published in Orange’s annual results. France has become one of the most interesting broadband markets in Europe and continues to far outpace the UK.