Telcotrash

Mino Wireless Gets $7M From Canaan Partners

Mino Wireless, a mobile VoIP service providers which can be put into the "minute stealer" category, has pocketed $7M from Canaan Partners. Mino was founded in 2004 and passed the 100,000 user mark in September 2006 (press release). Previous investors include TNP on the Road (Japan/Silicon Valley Fund), Freeze LLC, AWE net, and "a few angel investors in Silicon Valley and Asia." (Via VentureWire, requires subscription)

Update: here's the announcement on Canaan Partner's website.

In 2008 New 3G Spectrum Auctions in Germany

The newspaper "Berliner Zeitung" reports that the German Federal Network Agency plans to put additional spectrum in the 2.6 GHz frequencies up for auction in 2008.

The Agency's president Matthias Kurth discloses in an interview with the newspaper that the preparations for the auction will kick-off this year, with the goal to sell "a major part" of the un-allocated frequencies for the use of UMTS services. Kurth expects not only the incumbent operators Vodafone, T-Mobile, E-plus and O2 to participate, but also new entrants such as AT&T and Hutchison Whampoa with its 3 brand.

I do not really think that AT&T and Hutchison Whampoa have directly disclosed any interest in UMTS frequencies to the Agency. Given Kurth's mission to encourage more competition, I rather believe that this is an open invitation to these two operators to become active in what is Europe's biggest mobile market. The Agency has quite a track record in establishing competition in the fixed line business, where Deutsche Telekom has seen its market share for DSL lines erode from 90% in 2002 to 50% in 2006. Prices for national and international PSTN calls have fallen below the 1 Cent per minute level due to aggressive pricing by niche service providers (check out the online calculator on billiger-telefonieren.de - and yes that's 1 Cent or 0,01 Euro per Minute).

The two market leaders in Germany Vodafone and T-Mobile already compete with AT&T on the U.S. market (Vodafone through a stake in Verizon Wireless), so the auctions might be a good opportunity for pay-back time, as well as for the next growth story for Wall Street.

With a population of 80M and an ARPU somewhere around 21 Euro/Month, Germany is Europe's biggest market, but also a highly competitive one - mobile penetration is to reach 100% in 2007. However, there is still room to grow and market potential for 3G services. Coverage is still not complete, e.g. T-Mobile started its roll-out in May 2004 and just passed the 50% coverage mark in January 2007 according to TelecomWeb and general UMTS penetration in Western Europe is expected to reach not more than 60% by 2010 according to Deutsche Bank Research (pdf) - still a far cry from the 100% GSM penetration. (see also a report (pdf) from Nokia on the 3G Business Prospects in Western Europe). Additional competition can be expected from the WiMAX players in Germany, among them Clearwire.

WiMAX Frequency Auctions in Germany - And The Winner Is....

Apparently this has gone unnoticed, since I haven't seen it on any of the "usual suspect" blogs: In Germany, the frequencies in the 3.5 GHz have been auctioned during the last days. Clearwire (US) has pulled it off again, the other successful bidders are Inquam Broadband,  the Deutsche Breitbanddienste DBS (Germany) ("German Broadband Services"), Televersa Online (Germany)  and MGM Productions (Italy). However, the only bidders with national coverage are Clearwire, Inquam and DBS. Results can be seen from the RSS feed, or from the press release (in German, of course, who would like to know the results in English anyhow???)

The following blocks were up for sale:

 

Clearwire bought licenses the block A frequencies for all 28 regions, and so did Inquam for the block B frequencies. DBS bougth all frequencies of the block C, except for region, where the block D frequencies were purchased. Televersa bought the block D frequencies in regions 25 and 28, MGM the block D frequencies in the region 27. Where these regions are can be seen from p. 4 onward in the decision by the Bundestnetzagentur, the German regulator, to put the 3.5 GHz frequencies up for auction (pdf). The frequencies were sold for a total of 56 Mio. Euro.

A Measurement of Mobile Internet Usage

ComScore and Telephia, two consumer research companies, have teamed up to provide better audience measurements for mobile and PC based Internet usage. In a press release, they've published their first analysis for September 2006. And apparently the type of service next to email that users request the most when mobile is, well, weather.

So from a general perspective, the mobile services that seem to stick are email, search, sports and weather. For sports, I would reckon that the results are driven by Mobile ESPN, which will go out of business as of December 31, 2006. That leaves email, search and weather on the table.

When looking at the index, it turns out that AccuWeather.com is by far the most popular service relative to the PC based audience. AccuWeather has a dedicated wireless channel, called - surprise - AccuWeather.com Wireless.

The fact that ESPN's vertical offering has failed and that AcciWeather Wireless is so successful in the mobile space (in relative terms, and note that that doesn't mean it's profitable) is in my view just one more example that trying to vertically integrate the network and the service just won't cut it. Take a look at all the operators that AccuWeather Wireless supports. Did anybody say choice?

Same applies for the Weather Channel, which also has a dedicated mobile offering. While The Weather Channel "only" supports seven carriers, it includes all the ones with a national footprint, which is far better than being forced to go e.g. with a Mobile ESPN MVNO.

The index also tells us that there is still a lot of upside for the traditional web-based email providers except for Gmail, which has managed to reach a higher mobile audience share. One reason for that might be that Gmail is still a much much small player compared to Hotmail and Yahoo! Mail, with a user base that is somewhat more technophil and hence more "connected".

For more on Off Portal Content, see also the transcript of a discussion on Wireless Week from May 24, 2006.

JaJah is going mobile

The Austrian-born and Mountain View, CA based VoIP start-up JaJAH today announced on their blog JaJAH Mobile: calls with JaJAH can now be initiated from a mobile phone (if you are a lucky owner of a phone that runs Symbian™ or Java (J2ME), that is).
JaJAH is funded by Sequoia Capital and Globespan Capital Partners.

FON Economics and thoughts on strategy

The German news magazin "Der Spiegel" has published an interview with Martin Varsavsky (blog), founder and CEO of FON, the company that calls itself the world's largest WiFi community. FON sells WLAN routers for a mere 5 Euro; in exchange for this heavily subsidized offer, FON users ("Foneros") have to make their WiFi network accessible for free to other Foneros. As I write these lines, there are 83,469 Foneros signed up.

FON is backed with some $22 Mio. in venture funding by Google, Skype, Sequoia Capital and Index Ventures. WiFi wizard Glenn Fleishman had some doubts on FON's business model back in February 2006 when the funding was announced.

Here are the main take-aways from the interview:

• FON's only revenue source for now are the so-called "Aliens": These are folks who do not offer a FON hotspot, but who purchase a pass to go online through the FON network. Passes are available for 3 Euro/24 hours or in a bundle of five such day-passes for 10 Euro.
• As of September 2006, FON has signed up some 5000 Aliens.
• FON is spending 500,000 Euro per month more than they generate in revenues.
• Break-even is assumed to occur at 500,000 FON hotspots, based on 1 Euro monthly revenue per hotspot.
• Varsavky predicts that the FON network will reach the 500,000 hotspot-mark by the end of 2007.
• FON plans to bring a Skype/FON phone to the market in November 2006. The phone automatically connects with any FON hotspot. The price for the phone will be around 150 Euro.
• For December 2007, the "FON Liberator" is planned, which principally is a router with a USB interface and sufficient internal memory to store music and videos.

So at their current cash burn rate, FON probably has money for some three years. That would give a comfortable cushion of one and a half years compared to December 2007 when break-even is planned.

In the meantime, Varsavsky can hope to benefit from the momentum of a generally growing market for WiFi equipment and services (via Andy), which could have to effects: prices for equipment might further be driven down, so the cost of subsidizing the routers would decrease, but more importantly the number of people who are familiar with the use of WiFi will grow significantly, a fundamental success factor in FON's business model. As it can be seen from the subscriber figures, only the very early innovators are using FON right now.

One logical step to take would be to target the Skype user base. With Skype online users fluctuating somewhere between 4-6 Mio., the 500,000 mark could be reached with a 10% penetration of these users.

To reach a broader audience, another possible channel would be to sell the router and the Skype/Fon device over Ebay. Package it with discounted Skype-Out minutes, feature it on ebay.com with an ad, have Ebay offer free shipping and purchase the right AdWords on Google (no such thing as of now...) to get even more eye-balls. The only cash expense would be the free shipping, everything else should come for free, as Skype (and hence I would assume Ebay) and Google are among FON's backers.

Google Wi-Fi Economics

The location of Google's Mountain View access points can now be seen here (via Niall and GigaOM). Since counting access points on maps is one of life's simple pleasures (right after software and porn): there seem to be 364 of them (any other bean counter out there besides me?), though apparently Google (GOOG) officially reported 350 nodes (see Dennis Cheung). Tropos Networks is the royal supplier for the access points, for backhauling GoogleFi is using Alvarion (ALVR) equipment - not surprising, since Alvarion and Tropos have teamed up together to conquer the municipal Wi-Fi market. There are three Alvarion BreezeACCESS™ cells and one in seven mesh nodes acts as a gateway and connects back to those cells.
So let's do a little back-of-the-envelope Google Wi-Fi Economics. In Wi-Fi for the Masses (via Glenn), the retail price of a Tropos mesh router (that's the official marketing term Tropos uses for its Wi-Fi routers) is reported to be US$ 3,500. One might wonder why Tropos access points (some background) are so much more expensive than other carrier-grade equipment, e.g. a Cisco Outdoor Aironet access point costs around US$900-1000 on the web. Tropos charges dearly for their mesh algorithm, their secret sauce, so Tropos is actually somewhat more of a software company with a hardware shop in the basement, similar to Cisco.

But subtract a ~40% wholesale discount from the retail price and we're in the US$ 2,000 region which I think is realistic if you go out there and buy 364 access points. The Alvarion equipment will probably be in the US$10,000 range per unit, incl. all add-on hardware like antennae. Tropos says that installing a node only takes some 15 minutes, but I think it's more than that, considering that also the wiring for a node has to be taken care of. So for truck rolls and power wiring US$500 per node seems reasonable. Add another $60,000 for IT infrastructure and network control, and the total cost for installing the mesh network is US$ 1 Mio.

                                               

Component	Units	Unit price	Total
Tropos access points	364	$ 2,000	$ 728,000
Alvarion Breezemax stations	3	$ 10,000	$ 30,000
Truck rolls and installation	367	$ 500	$ 183,500
IT infrastructure	1	$ 60,000	$ 60,000
Total			$1,001,500

According to the latest US Census data (via Wikipedia), there are some 70,000 people in 31,000 households (2.3 pop/household) living in Mountain View, spread across a surface of about 12 sqm. So Google is spending US$83,500 per square-mile and US$33 per household passed (for your reference, DSL and cable are usually in the US$80-90 range...), and if we assume that each person in each household is connected and can enjoy the maximally possible 1 Mbit/s, then the Capex per usable Mbit of bandwidth is US$14.31, whereas Cable and DSL would be in the US$40 range. Of couse these figures can vary depending on offering and oversubcription factors, and there would have to be some additional capex items to be considered for the Google network too really be precise and comparable, but the point is that for these KPIs cable and DSL seem to be roughly at least twice as expensive (if my calculations are correct, that is), so wireless mesh has a clear cost advantage.

Google's plan is to recover the costs through advertising, hence ad clicks by users (let's ignore the paid premium service for the moment). Assuming that 30% of Mountain View's households will use Google's service (21,000 users) and that the initial investment has to be recovered over two years (US$42,000 per month), then on a per-user-basis this turns out to be a very low US$2.0 per user and month (that ignores opex, and the estimates might be completely far from reality). I'll cover in a follow-up post if that is financable through advertising and if there will also be enough room to cover the opex of the network.

Clearwire calls IPO off and gets US$900 Mio. from Motorola and Intel Capital

Apparently Clearwire has called its IPO off - a move which I completely understand, given that Motorola and Intel Capital are pitching in US$300 Mio. and US$600 Mio. respectively to fund Clearwire's future expansion (Motorola ress release, Intel Capital press release). Intel Capital had previously invested in Clearwire.

With the US$300 Mio., Motorola is buying out NextNet Wireless, Clearwire's wireless equipment subsidiary. Intel Capital is taking a direct equity stake, which seems to be a change in Intel Capital's strategy, as previous investment were considerably smaller.

Intel seems to have got tired of waiting for large scale WiMAX deployments by incument CellCos, and decided to give it a shot on its own (read: through Clearwire). Another fear probably was that any WiMAX service by the CellCos would have been priced too high to quickly become a mass market play, as the CellCos certainly have no interest to cannibalize their 3G investments. And looking at Intel's stock price, which has dropped from the US$28 to the US$18 range in the last 12 months, Intel management might have decided that helping a green-field provider with no legacy infrastructure such as Clearwire to roll-out its network is the best way to revive the wireless broadband market and sell more wireless broadband chips.

What could Clearwire do with this money, apart from acquiring spectrum in the upcoming AWS auctions? At a maximum cost of US$100,000 per base station, Clearwire could build at least 9,000 additional base stations.

That's a lot of base stations for new markets - though certainly not enough to cover the entire US. A simple calculation: the FCC's cellular market areas (map, census data) cover a land area of about 3,482,688 sqm, of which the surface is equal to a square with a side length of roughly 1800 miles if the squareroot function in my Excel works correctly. A seamless coverage of such a square with WiMAX base stations with a cell radius of 3 miles (positive thinking...) would require 90,000 base stations (note: I used the formula r=(1/(2n))*√2*L which gives you the radius r for n^2 cells to cover a square-shaped area with a side length of L. See Smura p.83), which is not financable with Clearwire's funds.

The point I'm trying to make here with these very simple numbers is that the truth of Clearwire's ultimate roll-out goal must be somewhere between covering white spots in the US broadband market (Clearwire's initial goal some three years ago when the company was founded) and the entire US population. In this basic math example, with a minimum of 9,000 additional stations Clearwire would cover at least 10% of the US' surface, and carefully selected depending on household density and broadband penetration, a lot higher percentage of the US population (my guess is ~ 25% over the next three years) with room for broadband growth.  And that still would leave it with the US$125 Mio. of cash it had on it balance sheet as of December 2005, which should be enough to fund operations for some three years (US$40 Mio. per year, >US$3 Mio. per month).

Wireless Wars

June 29, the date of the FCC Auction 66, is approaching, and numerous non-industry players could potentially line up to acquire spectrum licenses in the 1710-1755 MHz and 2110-2155 MHz band. The permissible operations of this band comprise what the FCC calls "Advanced Wireless Services", which is

"the collective term used for new and innovative fixed and mobile terrestrial wireless applications using bandwidth that is sufficient for the provision of a variety of applications including those using voice and data (such as internet browsing, message services, and full-motion video) content"

In other words, there are virtually no limitations in terms of what technology and services can be deployed, which drives the option value of this spectrum (here and here) up. In fact, Clearwire's IPO seems to have been timed in a manner to allow McCaw's venture to use the IPO proceeds for acquiring spectrum in the AWS auction, at least so writes Business Week. I previously mentioned how TimeWarner has filed an application for the AWS auction, Business Weeks extends the list of the possible participants to Microsoft, News Corp, Leap Wireless and - tada - Google, though not directly, but through EarthLink, which declined to comment on any participation in the auction.

Bottom line is that possibly a lot of money might be thrown at these frequencies, with new players othern than the CellCos entering the market. My prediction though is that whatever services these companies are looking to deploy, voice will be among them. And given that the winners of the frequencies might turn out to be non-traditional wireless carriers, it could be a huge opportunity for wireless VoIP.

In addition, what I also find interesting is the Business Week article mentioning that Comsearch, a cosulting firm, is working with several of the bidders. The FCC rules prohibit that bidders communicate with each other, be it directly or through an intermediary. Comsearch better have some big Chinese Walls...

Clearwire IPO

Wireless broadband operator Clearwire is going public (link to the S-1 filing), with a proposed maximum offering price of $400 Mio. Om Malik has the complete story.

Some key 2005 data from the S-1 filing:

• $33.5 Mio. Revenues (of which only $8.5 service revenues, the rest comes from equipment sales, which I assume are related to NextNet)
• Total opex $160.7 Mio.
• Operating loss $127,2 Mio.
• Net loss $139,50 Mio.
• Net loss per common share $0.66
• Capex $132.7 Mio. (cumulative since October 27, 2003 ~$145 Mio.)
• Covered population in the US: 3.8 Mio
• Covered households in the US: 1.5 Mio
• Subscribers: 562,000

Some more math on these figures to follow.