DSL Prime: Europe and Asia

Big plans across Europe and Asia are a good sign, but the news from Pakistan is not good at all.

by Dave Burstein of DSL Prime and Future of TV [June 29, 2005]

Pakistan at the barricades
More than an engineering problem
Brandishing machine guns, soldiers have taken over offices of Pakistan Telecom, while workers fearing 30,000 layoffs occupy buildings in protest. Several have sworn to immolate themselves and their families in front of PTCL headquarters if privatization goes through. This New York writer doesn't know the solution for Pakistan, but hopes a peaceful solution is found that also protects the workers. PTCL is strongly profitable, so could afford to employ their staff to install broadband across the country.

Privatization sometimes works well, but is no panacea. In Mexico, the Wall Street Journal notes, "Mexico's earlier attempts to overhaul state companies ended up in disaster for average Mexicans—and huge profits for a handful of wealthy investors. Businessman Carlos Slim, who bought Mexico's former state telephone monopoly, has since become the world's third-richest man with a fortune estimated at $24 billion, while Mexicans now pay among the world's highest prices for phone service."

It's easy to imagine how 30,000 PTCL workers could be organized to build a great Internet for their country; much harder, to create a system that will do it. I don't have the answer. In the U.S., auditors find enormous waste in well-intentioned government programs, soon to include USF (if they do a good job). Private near monopolies are not always better—Dilbert works at a phone company (author Scott Addams worked for PacTel). Given economies of scale, competition needs more support than is usually politically possible; building multiple networks may cost more than the efficiency produced.

British Telecom: Every home with DSL
"We will be the first telco to switch off the PSTN"
Paul Reynolds didn't hedge in a great interview by Eric Krapf. "We will haul lots of bits and we make a lot of money off it." Matt Bross, his CTO, added that BT faced two choices: "Screw it down and go for cash, or go for growth."

Krapf adds, "BT has chosen to do, at a high level, what the RBOCs couldn't even be compelled by law to do: Open up the network, modernize the infrastructure and fundamentally reshape the industry in their home market."

Reynolds was one of the first to realize it's now cheaper to connect everyone to broadband rather than hooking up their line when the order comes in, at least in new builds. At the price he's paying for DSLAMs, that's an easy call. The same should be true anywhere the network is efficiently controlled by a softswitch which allows VoIP savings. BT has gone its own way on other choices as well, especially the decision not to offer "triple play" with a me-too offering.

BT is launching Bluephone, a combination unit that is ordinary mobile while outside but 802.11 or Bluetooth when in reach of a network. Because a huge percentage of mobile calls are made from home, there's a huge saving in mobile costs and bandwidth, as well as higher quality calls. That's especially important for BT, Qwest, and soon the cable companies that don't own their own wireless networks, as well as a useful spectrum enhancement for any wireless carrier. When phone prices and power requirements come down, around 2007, much of the world will be following BT's lead.

Deutsche Telecom cuts prices in half
14.95 euros for most popular service
Xavier Neil wrote me recently he has over 800,000 voice customers at Free.fr, creating the trend that's scaring T-Online's Rainer Beaujean. Boris Groendahl of Reuters quotes Beaujean, "We have learned in France that FT Wanadoo waited for too long. We learned from that and act faster." Beaujean estimates it will cost 400 million euro in revenues, because the new price will be offered to both old and new customers. Groendahl adds "Vodafone's Arcor unit stepped up an already fierce price war earlier this month, undercutting T-Online's prices by as much as 80 percent." DT's pricing is complex, with volume caps and requirements for ISDN telephone lines fees, so I need more facts to put the price in perspective.

DT's billion euro first quarter profit was "driven by strong results in broadband," Kai-Uwe Ricke notes. Their 6.4 million DSL customers grew 2 million in the year ending March 31. They can't afford to lose to competitors their key growth engine. But they overreached themselves recently, asking Matthias Kurth of RegTP to let them raise loop prices. Kurth instead dropped them to 10.65 Euros, knowing Germany had some of the weakest competition—and highest prices—in the developed world. When Kurth spoke in New York, he had to defend his previous policy of "raising prices to protect competition." He's changed course, and Germany is better for it. He now has to look closely at the T-Online pricing, and make sure the wholesale price is set low enough to leave room for others.

France: "Up to 20 Mbps" 15 to 17 euro
Neuf, DT/Club looking to catch Free.fr
Free.fr's 1.2 million subscribers have inspired the most intense broadband competition in the Western world. Free.fr charges 30 euro for "up to" 7 Mbps DSL, unlimited calls across France, and 60 television channels.

Deutsche Telekom, France Telecom, Telecom Italia, and Neuf/Cegetel need to play catch-up. All are deploying ADSL2+ across most of France, and offering great prices and promotions (6 euros for the first three months) to win customers.

The low prices typically apply only in the unbundled areas, with much slower speeds and typically higher prices where the DSL provider resells FT service. This model—high rural prices because the volume doesn't support competition—is becoming common.

30 million in China
Up 5.34 million in 5 months
MII figures are presumably accurate, and they confirm the data from my favorite source, Point-topic, which had 28.3 million for March 31. Nearly all these broadband customers are DSL, although there are surprisingly many fiber to the basement and similar deployments in China.

Despite that growth, wireline investment decreased 13.7 percent to RMB 53.95 billion, ($6.7 billion), China Knowledge Online adds from the MII report. That confirms the equipment sales dip reported by UTStarcom and ZTE. They and Huawei have enormous capacity and are committed to continuing growth despite the domestic slowdown, making them even more aggressive seeking international business.

The situation at the Chinese telcos is currently unpredictable, with enormous anxiety at the top. Late last year, the government shuffled management at the four major carriers, concerned competition had become too wasteful and central mandates ignored. They've sent in government auditors to China Telecom, and in a decentralized company that big they will almost surely find waste if they look. One typically well-informed vendor believes equipment expense has dropped because management is prettying up quarterly numbers, including taking physical delivery of some gear and asking the vendor to hold the bill for a few months. But this is all speculation; paramount is that rapid growth (including 5 million wireless added recently) continues. First half 2006 broadband figures will show net adds similar to the U.S., slightly lower than forecast.

Yahoo BB "ready to harvest our work"
Now EBITDA positive with bonds above par
"In ADSL, for a long time we appeared to be walking in the fog before I was confident of success. Now, we have completed climbing the hill in upfront efforts," Masayoshi Son believes, after losses in the billions. A Q1 $20M EBIDTA return on a multi-billion dollar investment is modest, but Son believes that will quickly scale, especially as his security, TV, and voice revenues grow. A remarkable 4.5 million customers have subscribed to voice over IP, and a million pay (modestly) for his 802.11 wireless LAN.

Son is doubling up, putting another $2 billion or more in for Japan Telecom, acquiring a wireless license, and promising to convert his DSL customers to fiber to the basement.

Copyright 2005 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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