Telcotrash

Google Laying Fiber Across the Pacific?

According to Commsday, a news website covering the telecoms industry in the APAC region, rumor has it that Google is part of a consortium building a cable with terabit capacity called "Unity" that stretches  over the from America over the Pacific to Asia - a final route apparently hasn't been determined yet.

"Google would get access to a fibre pair at build cost handing it a tremendous cost advantage over rivals such as MSN and Yahoo, and also potentially enabling it to peer with Asia ISPs behind their international gateways - considerably improving the affordability of Internet services across Asia Pacific."

Mmh, not so sure about that. While International Internet traffic (the demand side) has consistently been growing (see graph, data compares mid-year measurements, courtesy of Telegeography) the supply has kept up by lighting up new fiber and the ability to squeeze ever more Lambdas into a lightwave (see Infinera's recent trans-oceanic 40G trial)

Trans-big water capacity is a commodity with cut-throat margins on capex-heavy networks and backbone carriers of the likes of a Level 3 (LVLT), Global Crossing (GLBC), AboveNet (ABVT) and XO Communications (XOHO) bringing in one quarterly loss after the other, and it's likely to stay that way.
So rather than going through the complex burden of building and running an undersea cable, any buyer of bandwidth would be better off by purchasing that capacity on the spot market.
But Google being Google, there must be other reasons for them to get into this business, and my assumption is they do it for business flexibility reasons. If you own the network, you can do a lot more stuff around it than just sending data packets back and forth. It starts with the fact that you don't need to go to your purchasing director and ask for approval to buy more bandwidth and then wait until that happens. Instead, you simply walk down the hall to fiber-dude and ask him to switch on more Lambdas for you.
On a different page, I sometimes don't understand why people get so frantic about Google and fiber - there seems to be no mystery. Plus, there already is a big Internet portal out there that has its very own backbone network, and that is  - AOL. AOL is running its data centers on top of the AOL Data Transit Network, and they're not small either, as ADTN is one of nine global Tier-1 backbone networks.
Now AOL might not be relevant anymore in the battle for the Internet that's fought between Google, Microsoft and Yahoo to some extent, but as for the backbone, they are already doing what Google is apparently trying to do.
For some more background on submarine cables and a list of all cables, see these Terabit Consulting presentations.

How About a Piece of the 700 MHz Spectrum?

Today a colleague of mine and I had a great day at BarCamp in Palo Alto. The spirit and the atmosphere were amazing - people brought food, drinks, cookies, and we had some very insightful and inspiring conversations with incredibly smart people. Kudos to Tara and everybody else who pitched in for organizing the event!

To finish the day off, we decided to grab some food at Madison & 5th on University Av. (try the Sauvignon Blanc they have on their wine menu, highly recommendable...), which is where I'm sitting right now while writing this post.

While we were discussing trends in the social media world, my colleague pointed out the website of MyFootballClub - a perfect example of reaching scale by pooling the masses. So while I was looking at the website and of course joining my colleague in joining MyFootballClub, we thought about how we could replicate the approach to acquire spectrum in the U.S.....   

The question is: could we pool enough people and money to enter the 700 MHz auctions that are soon to be held, buy a slice of the spectrum, and make "open access" a reality? So let's just say we could raise the money (we're talking about ~$5B and more...), then what would it take in terms of legal requirements to participate in the auctions, and what would be the operating model, etc.? Thoughts?

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.

Verint System Acquire Witness Systems for $950M

Verint Systems (VRNT.PK), a 57% subsidiary of Comverse Technology, is acquiring Witness Systems (WITS) in cash for $27.50 per share (press release), a premium of roughly 23% or $5.20 per share compared to yesterday's closing price of $22.27, however not too far from it's last 52 week high of $25.48 back in April 2006. The deal puts an enterprise value of about $950M on Witness Systems, excluding the cash, and with estimated sales of $223M for 2006 that's a revenue multiple of 4.26x. Gross margins are around 70% and revenue growth for the next two years is predicted to be around 15-20% p.a. Witness itself recently acquired its two competitors Exametric and Demos.

Verint Systems' parent Comverse Technology (CMVT.PK) was recently banned to the Pink Sheets (and along with it VRNT) after it had failed to deliver its financial statements on time to the SEC due to an options probe.

Telecom Stocks for 2007

So I've decided to disclose my own personal investments - as long as they are related to the tech/telecom sector. I plan to continue this as I look into new stocks and take positions (or not, for that matter), plus I'll provide updates on positions I took.

The first two stocks are American Tower (AMT) and InPhonic (INPC). I will provide more detailed (financial) analyis during the next days, but here are some initial thoughts.

I took a position in AMT, an operator of wireless cell towers, already back in 2004. My principal reasoning behind this investment was that with the expansion of 2G networks and the roll-out of 3G and potentially even 4G, the installed base had to grow. Plus, new spectrum in the higher frequencies with shorter reach was to be put up for auction, with new players to enter the market, so again more cell towers would have to be built. Another factor that would contribute to a growth in the installed based was increasing call and data volume. Spectrum efficiency of 2G networks is too low to handle that volume with traditional multiplexing, so the cell density would have to be increased. So after the frenzy of 2000 and the subsequent downfall all the way to 2002, there were a lot of good reasons to look into the cell tower sector, and AMT was the leader of the pack with the biggest portfolio of towers in prime locations. Plus, while you can say a lot of bad things about the big telcos, they do have big pockets and pay their bills on time - and while they need more cell towers, they do not really like to see them on their balance sheets.

InPhonic, a provider of wireless services and devices, is a company whose stock I bought in January 2007. In the U.S., each year some 70M service contracts incl. a phone are sold. While the growth in service contracts is slowing down as penetration reaches saturation, the replacement market is growing. Here is a great presentation by Nokia on the North American cellphone market (link).

The average lifetime of a phone is some 18 months. In 2006, about 10% of all handsets were purchased online. While five years ago that number was only about 1%, it's expected to grow to 20% of the next three to four years. What actually happens is that 85% of all cell phone shoppers go online to do research before they buy a phone, and each year more of them stick to the online channel instead of going into a bricks-and-mortar shop. (see the Compete Inc. blog for more great market data). As products become more commoditized, people go online and shop for price and convenience. On a website, you can compare prices across carriers and vendors with a single mouse-click in five minutes - try that by walking into different carrier shops, it will consume an entire weekend. There are enough great websites out there that provide un-biased reviews of cellphones, so there is no real need to go into a shop and seek advice from a sales clerk whose job in the first place is to sell you a plan, and not a phone. So there is a case for online retail of wireless phones.

But back to the online world of buying phones. Currently, approximately 50% of the phones sold online are sold over the carriers' websites, and apparently InPhonic manages to capture the lion share of the other half, as 10% go their competitors like Letstalk.com, and some 40% go to InPhonic. InPhonic runs numerous retail websites, the best known is probably Wirefly. It also manages the cellphone websites for BestBuy and Amazon.com. As the Gorilla in the market, InPhonic is well positioned to profit from the growth in online sales of cellphones.

Another stock that is on my watchlist is Anadigics (ANAD). Anadigics produces chips for wireless, cable and fiber networks. Unfortunately there was some recent pure speculative movement around ANAD, as Michael Cahill from Chilton Funds mentioned in an interview that his fund has a 11.5% stake in ANAD, so I've decided to keep my fingers off that stock for the moment.

The next posts will cover the financials. Full Disclosure: I own stock of American Tower and InPhonic, I do not own any stock of Anadigics, Amazon.com, BestBuy or Nokia and am not an investor in Chilton Funds.

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.

German Social Networking Site StudiVZ Sold for 100 Mio. Euro

StudiVZ, the German clone of Facebook, has been sold to the German publishing group Holtzbrinck, apparently for more than 100 Mio. Euro according to the news magazine Spiegel Online. The founders of StudiVZ confirm the sale to Holtzbrinck on their blog.

StudiVZ was funded mainly with money from Holtzbrinck itself through Holtzbrinck Ventures and the European Founders Fund (profile on alarm:clock), which is run by the Samwer brothers, who themselves have a start-up background with Alando (acquired by Ebay) and Jamba! (acquired by VeriSign). A completely list of the StudiVZ backers is available on the StudiVZ blog. According to the blog, StudiVZ was funded with only 2.5 Mio. Euro, of which Holtzbrinck Ventures provided the lion share with 2 Mio. Euro. Spreadshirt.com founder Lukasz Gadowski pitched in 5,000 Euro.

StudiVZ is reported to have some 1 Mio. registered users as of November 2006 (more from from Spiegel Online in English).

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.

The Phone of The Future

The Economist recently published an article on what the future phone might look like. Here's a very interesting quote from the article on the concept of presence:

“When I try to make predictions, I don't look at what I see in the technical realm, I look at what I see in the social realm,” says Mr Norman. He has recently been investigating how children interact with each other and with technology. “They are never alone with their own thoughts,” he says. Instead, they listen to music while texting and talking with friends next to them. “We are learning that we never have to be away from people,” says Mr Norman.

GoodmailSystems Raises Additional $12M

GoodmailSystems has raised $12 million from SoftBank Capital (press release), in addition to the $8 million it received from DCM Doll Capital Management and Emergence Capital Partners in October 2005.

Goodmail is an accreditation service for email - your marketing emails will principally pass users' spam filters if you adhere to a number of rules, rather than spamming the world. Goodmail previsously raised eyebrows from marketers who looked sceptically at the solution. eWeek.com has a good take on why Goodmail is misunderstood.