UK lag

Hamadoun Touré of the ITU

The International Telecommunications Union (ITU) has turned the spotlight on governments at this year’s Mobile World Congress, arguing that “countries need robust national broadband plans to promote faster rollout of fibre networks”, according to this article in the Guardian.

It’s perhaps odd to hear the subject of fibre being raised at a conference dedicated to all things mobile, but Hamadoun Touré, the ITU’s Secretary General, was commenting on the importance of fixed-line infrastructure for mobile backhaul, especially as data traffic surges. He also urged governments to free up spectrum for new mobile-phone services.

The UK government, in particular, has come in for criticism in this area. Besides being slow to auction off new spectrum, it has still not launched four pilot projects announced in October as part of its national broadband plan.

Perhaps more troublingly, the UK’s broadband plan appears to lack ambition when compared with those in other countries. Our own recently released government broadband index (gBBi), which looks at countries on the basis of their national broadband plans, ranks the UK in the bottom three countries out of the 16 assessed.

The UK suffers in our index for setting relatively low targets for the speed of next-generation and universal broadband services, and for aiming to cover a smaller share of the population with superfast networks than governments elsewhere. What’s more, regulatory measures aimed at facilitating competition are less advanced than in other parts of Europe, and particularly neighbouring France.

Visit www.eiu.com/broadbandreport for more details of Full speed ahead: The government broadband index Q1 2011.

The need for speed

New broadband rankings seem to appear all the time, but here’s one with a difference. Instead of measuring current broadband capability, the Economist Intelligence Unit’s gBBi (for government broadband index) takes a look at public-sector planning amid a surge of government interest in the issue of broadband access. The results are revealing.

Perhaps the biggest surprise is just how badly Australia scores in the new index. Having unveiled a hugely ambitious public-sector broadband plan in April 2009, authorities will be disappointed to rank in the bottom half of the index. The huge cost to the public sector of Australia’s plan – at 7.6% of annual government budget revenues – saw it penalised in the gBBi.

The chart below is a pared-down version of one in the full report, comparing countries on speed and coverage targets, as well public-sector funding per household covered. Essentially, the further along both axes, and the smaller the bubble, the better. With ambitious goals for the speed and coverage of its next-generation network, but a low public-sector cost per household covered, South Korea is the clear leader.

More details of Full speed ahead: The government broadband index Q1 2011 are available at www.eiu.com/broadbandreport.

Quietly confident

Latest results from the Economist Intelligence Unit’s semi-annual Tech Sector Barometer indicate a slight decline in optimism among respondents over the past six months. This could, of course, reflect the shift from stimulus spending to the introduction of austerity measures.

Confidence remains high, however, with less than 10% of respondents forecasting a deterioration in demand conditions. The survey results also broadly reflect the latest forecasts from the Economist Intelligence Unit of modest growth in the global economy (a 2.7% increase in real GDP next year, compared with 3.5% in 2010) and no feared double-dip recession. They also support Economist Intelligence Unit forecasts that IT spending will grow at a rate of 4.4% next year—the same rate as in 2010.

Company forecasts suggest that there is some concern about demand for consumer electronics where GDP growth is also expected to be sluggish. The ongoing corporate refresh cycle is nevertheless a welcome development for many technology companies. Expectations of a deterioration in demand conditions are likely to be strongest among companies with exposure to the public sector, where cutbacks are under way.

To access a full copy of the free report, click here.

4G or not 4G?

Operators have been talking about 4G for so long that it might come as a surprise to learn the ITU, the telecoms standardisation body, has only recently approved two candidate technologies for possible classification as 4G standards. What’s more, neither exists in commercial form today.

So what’s with all the 4G hype? As our recent article points out (see Name calling), operators have been a little too eager to pounce on the 4G label, using it to describe a couple of competing technologies from which the ITU’s candidate 4G standards will eventually be developed. The reason seems to be a need to differentiate advances in mobile broadband technology from the original crop of 3G networks, whose performance now looks very disappointing. After resorting to 3.5G and even 3.9G, they finally laid claim to 4G – much to the ITU’s annoyance.

Does any of this really matter? We think it does for a couple of reasons. First, consumers have already grown distrustful of operators’ promises on speed, and the misuse of labels has made a bad situation worse. Having bred scepticism by describing their relatively slow mobile-broadband technologies as 4G, operators will find it much harder to sell the real 4G – which is supposed to be much, much faster than anything available today – when it comes along.

Second, it shows a lack of imagination on the part of the operators themselves. Resorting to technical jargon is bad enough (mobile broadband would be better, but it has become associated specifically with the use of dongles and laptops). Worse, many operators have talked up their ability to compete on services with the likes of Google and Apple. The marketing focus on network performance suggests they don’t really believe it.

Djezzy or not?

Alexander Izosimov (pictured), VimpelCom’s boss, is hanging on a decision of the Algerian government that could significantly alter the size and shape of the new-look Russia-based operator.

Djezzy, the Algerian phone company previously owned by Naguib Sawiris, is supposed to be a part of the deal that saw VimpelCom take a controlling stake in Mr Sawiris’ Weather Investments earlier this week (see Big enough to fail). But Algerian authorities look determined to take control of Djezzy themselves. Dmitry Medvedev, Russia’s president, is reportedly visiting Algeria today in an effort to convince them otherwise.

Mr Izosimov has insisted that Djezzy is not critical to the future business. But that is a surprising comment given its importance to Orascom Telecom, the Weather shareholding whose assets comprise the extent of the merger apart from Wind, Weather’s mobile-phone business in Italy. For the first six months of the year, Djezzy’s contribution to Orascom’s EBITDA was some US$475m – more than half the total.

That’s important because the VimpelCom deal does not include Orascom’s businesses in North Korea and Egypt, which are being demerged in a separate publicly listed company being referred to by Mr Sawiris as Orascom Telecom 2 (which will also include Wind Hellas, an operator in Greece).

Strip Orascom Telecom 2 and Djezzy out of the 2009 picture and Orascom Telecom would go from being an operator with nearly 90m subscribers to one serving just 49.5m. Its revenues would also drop from about US$5bn to US$2.2bn, while EBITDA then would fall to US$627m, from US$2.2bn previously.

VimpelCom had already factored in the absence of Egypt and North Korea. But without Djezzy the new VimpelCom would be only the sixth-biggest operator in the world by customer numbers – not the fifth biggest, as the company has been claiming. According to a rough calculation, based on VimpelCom’s investor presentation about the merger, revenues would also fall to about US$19.7bn from the company’s estimate of US$21.5bn, while EBITDA would drop to about US$8.4bn from an estimate of US$9.5bn.

More revealingly, Orascom would be contributing just 11% of group revenues and 7% of group EBITDA.

Indeed, leave out Egypt and Algeria and Orascom looks like a motley assortment of operations, covering Pakistan, Bangladesh, Canada, Zimbabwe, Tunisia, Burundi, the Central African Republic and Namibia.

The last five on that list are relatively small countries with populations of 12m or less, and penetration is already at 99% in Tunisia and 80% in Namibia. Zimbabwe looks like a place that any sensible business would avoid. Orascom’s investment in Canada, meanwhile, is a relatively recent one, but it has been called into question by financial analysts concerned about the costs of rolling out a brand new network in the face of competition from three powerful incumbents (Rogers, Telus and Bell).

That leaves Pakistan and Bangladesh. Revenues and EBITDA in both those markets are still growing at decent rates, but they are competitive markets gobbling up investment. Capital expenditure over the first half of 2010 more than doubled in Bangladesh and rose about 30% in Pakistan.

Of course, given the difficulties of operating in Algeria, an exit from that market could be seen in a favourable light if VimpelCom can negotiate a good price for the asset. The question then would be what to do about the rest of the Orascom business.

RIM follows the leader

All companies – and nowhere more so than in the hi-tech sector – can be classified as either originators or imitators. Canada’s Research in Motion (RIM) used to be an originator. Its Blackberry messaging device gave thumbs a workout on every part of the planet, and it remains hugely popular today. Yet the company’s days of original innovation look far behind it. The latest indication came this week with the release of the PlayBook – a tablet device obviously modelled on Apple’s iPad. The question is whether RIM can enjoy the same success as an imitator it so clearly enjoyed as an originator.

Financial analysts have responded positively to the PlayBook announcement. Despite concerns about the size of the screen and keypad, ratings agency Standard & Poor’s reckons the PlayBook will help RIM make further gains in the enterprise market. Gleacher & Co has also been won over by the product, arguing it serves an important segment of the market and already has a “healthy ecosystem”.

Even so, catching up with Apple will be tough. For all the so-called ‘iClones’ that appeared after the launch of the game-changing iPhone, Apple continues to advance into smartphone territory formerly controlled by the likes of Nokia, Motorola and, indeed, RIM. Nor does Apple appear to have been unduly rattled by Google’s efforts in this area, with its Android operating system for smartphones. It is easy to see the same thing happening again in the market for tablets.

RIM is also wrestling with definitions about business customers and consumers that do not appear to bother Apple. Although it is generally perceived to be a consumer electronics company, Apple has become popular among business customers since the iPhone first went on sale. The important thing is that Apple has never seemed to go out of its way to make a product appeal to a specific group. Because of its roots in the enterprise sector, RIM, on the other hand, has had to convince the much bigger consumer market that its products are sufficiently exciting. The growing popularity of the BlackBerry among teenagers proves it has had some success. But the company is now faced with the opposite problem – having to persuade enterprise users the PlayBook is for them, too. Despite S&P’s pronouncement of the PlayBook’s enterprise prospects, the product’s very name suggests it is not a tool for serious business.

Besides Apple, RIM is not the only company with interest in the tablets market. Motorola, Samsung, Dell and even Cisco are working on Android-enabled tablets, according to Gleacher & Co, and a few efforts seem bound to fall by the wayside (that is, after all, what has happened in the smartphone sector). With its brand and device expertise, RIM seems unlikely to be one of those. But even if it gives a good performance, the PlayBook will not calling the shots.

3G or 3.9G?

A few months ago Thailand’s National Telecommunications Commission (NTC) was widely reported to have decided to ‘leapfrog’ 3G technology – the licensing of which had been delayed for years – and move straight to an auction of spectrum for so-called 3.9G technology come September. By 3.9G, the NTC was said to be referring to the LTE and WiMax standards frequently called 4G technologies in other parts of the world. Perhaps it hoped the claim would compensate for its previous failures to get 3G off the ground, and maybe demonstrate its technological farsightedness. But the boast makes little sense, and even appears to be disingenuous.

At the time, the question most people in telecoms were asking was: why leapfrog 3G? Although they are extremely capable technologies, neither LTE nor WiMax has been widely deployed, and most of the world’s most popular wireless devices will not work on them even where they are available. In most cases, LTE is being rolled out by operators that have already made substantial investments in 3G, and pitched in the short term as a mobile broadband service for laptop users. Although the time will come when most devices can connect to LTE networks, it is not yet here.

In short, the 3.9G plan would mean the average long-suffering Thai telecoms consumer would be no better off with an Apple iPhone or Motorola Droid than he would be today. Operators would only be able to market the 3.9G service to those customers prepared to fork out the rather high prices for a very limited range of devices. As reported by the Bangkok Post, AIS, one of Thailand’s big three mobile-phone operators, has called the lack of 3.9G-compatible equipment and handsets a “barrier” to rollout. Skipping 3G would make no commercial sense whatsoever.

Another problem noted by AIS relates to spectrum. The NTC wants to auction off three allocations of paired 15MHz spectrum in the 2.1GHz band. That would suit 3G perfectly, but to realise the full benefits of LTE operators really need at least 20MHz. Moreover, WiMax is a technology that requires unpaired spectrum, and this does not appear to feature in the NTC’s plans.

More recently, the press reports have dropped much of the discussion about 3.9G. The auction, set to get underway on September 20th, is being described as a 3G one, with some reports saying operators will be able to provide technologies that can be upgraded to 3.9G in the future. It has also been claimed that the NTC will take a ‘technology-neutral’ stance, allowing operators to choose from a range of technology standards, although the NTC’s own literature on the auction process is rather vague in this area.

In any case, any 3G operator would claim it has an upgrade path to 3.9G (or 4G, as it might prefer to call it) – the whole concept of LTE was sold to operators on the basis that it represents an evolution of current 3G systems. But operators will certainly not be able to use the spectrum already being gobbled up by 3G services for LTE. Assuming the auction is, indeed, a technology-neutral one, it is hard to envisage any of the winners opting to roll out an LTE network in preference to a 3G one given all of LTE’s current shortcomings and status as a somewhat niche technology.

Will Elop flop?

Nokia’s decision to make Stephen Elop its new chief executive marks something of a watershed for the Finnish phone maker. Never before has the company looked to a non-Finn for leadership. Mr Elop happens to be Canadian. He is also a Canadian who admits to having “a great deal to learn about Finland”.

More worrying for Nokia’s shareholders may be Mr Elop’s comment that he also has “a great deal to learn about Nokia”. Although, in all likelihood, he was dutifully trying to play the role of the modest but eager-to-learn new manager, Mr Elop’s admission draws unwelcome attention to his ignorance of the world in which Nokia moves. Investors might have hoped someone with a North American background could help Nokia to crack the US market, where it has failed to make an impression. Yet Mr Elop has no connections with any of the big US operators that Nokia has been trying to court.

Nor does he know much about hardware. Mr Elop’s last role was with Microsoft, where he was head of the software giant’s business division. Before that he held jobs at Juniper Networks (a hardware company but not one in the devices business), Adobe (software) and Macromedia (software again).

This is all good news as far as some are concerned. One of Nokia’s biggest perceived shortcomings has been in the area of software and services – its Ovi suite of internet applications, in particular, is seen as a poor rival to Apple’s iTunes and app store. If Mr Elop can make a difference here, it could be critical to Nokia’s long-term prospects.

The peculiarity is that he comes directly from Microsoft, which has also struggled against Apple in the market for handheld devices. Indeed, Microsoft is seen by some industry observers as a long-term loser in the mobile-phone market, where its Windows Mobile operating system is now being challenged by Google’s Android as well as Apple.

The Royal Bank of Scotland has suggested that Nokia might abandon its own operating-system efforts and opt to use a third party’s software on its phones, such as Android. Doing so would substantially cut the company’s €2.9bn R&D bill, bolstering margins in the short term. But given Nokia’s previous commitment in this area, it would mark a more radical move than Mr Elop’s appointment. Among other things, if software and services are what drive sales of upmarket devices, it would tie Nokia’s fortunes to those of its supplier.

Beyond all these considerations, Mr Elop’s leadership skills will come under scrutiny at a very early stage. His track record is promising, and he could hardly fail to look better than the hapless Olli-Pekka Kallasvuo, his predecessor at Nokia, as a communicator. The question is whether he can stand up to Jorma Ollila, Nokia’s domineering chairman, and ultimately bring about a cultural change in what is a very cautiously run organisation.

Taking your apps on the road

While car companies are spending millions on making their cars greener, silicon valley start-ups are doing it for a whole lot less. Take the Virtual Vehicle Company, which was among the finalests of the Cleantech Open in California last week. The company has come up with an app for a phone which uses a GPS chip to monitor fuel consumption, average driving speed and other useful data all aimed at ensuring efficient (ie green) motoring.

Once downloaded, the app will also prove useful for drivers trying to decide which car was greenest – as this can be determined on a test drive. The company, which hopes to have its iPhone app out in November, sees business applications for the software as well. For example, companies running fleets of lorries will want a cheap way to monitor whether their drivers are driving efficiently. This will save them installing expensive electronics in their fleets or buying new lorries with the equipment built in.

Automakers, meanwhile, are betting that future car and lorry purchasers will want to spend for sophisticated electronics. Ford alone says it will sink US$4bn on mobile applications for its cars by 2012. It recently launched a developer network for its Sync communication platfom – developed by Microsoft – and plans to launch the 2011 Ford Fiesta with an optional software upgrade for owners of smartphones. Other automakers have similar plans – particularly BMW and Toyota. No matter who grabs this market – start-ups or big auto – the winner will be the driver who will soon know just how clean or dirty his vehicle is.

Net neutrality setback

Keep your friends close but your enemies closer. Even while exchanging verbal volleys in public over the subject of net neutrality, Google and Verizon appear to have been searching for a compromise in private. Neither has yet made a statement on the issue, but word is that an agreement could see Google paying Verizon for a faster internet service. In the meantime, FCC talks on the net neutrality issue appear to have stalled.

If Google has struck a deal with Verizon along these lines, then net-neutrality advocates will see it as something of a betrayal. The internet giant has previously been an outspoken critic of attempts by network operators like Verizon to prioritise some internet traffic at the expense of other content. Net neutrality lobbyists are already sounding extremely nervous about the consequences of any Google-Verizon deal. Some say it will lead to the emergence of a ‘two-tier’ internet, whereby any content that does not hold mass appeal – and be owned by a company prepared and able to pay operators for better treatment – will disappear off the radar screen.

Having bound itself to the net neutrality movement and seen a powerful ally in Google, the FCC may also feel betrayed by Google’s apparent about-face. It may be no coincidence that its talks on net neutrality have gone nowhere. If Google has come around to Verizon’s way of thinking, then any decision taken by the FCC may have been rendered obsolete by their agreement.

Despite all this, a deal between Google and Verizon of this nature would make sense for both parties. Google wants more bandwidth reserved for its video-based services, which do not function well in a ‘best-efforts’ internet environment. Verizon, for its part, has long insisted that internet companies demanding a higher-quality service should contribute to the investments being made in broadband infrastructure.

And despite the ‘enemies’ tag, Google and Verizon have plenty of common interests. The Android operating system for smartphones – Google’s answer to Apple’s iPhone – is available on various handsets that run on Verizon’s network. Ultimately, both want to get more consumers online – Google to shore up advertising revenues and Verizon to make more from broadband subscriptions. The question is whether any net-neutrality agreement will ultimately prove a help or a hindrance.