February 2012

Wireless wholesale networks – can we make them work?

Wireless wholesale networks

So far wholesale networks have not worked in the USA and as far as we can see in Europe, the winners in wholesale deals have been the MVNOs, not the wholesale providers which are usually the national provider turned national enemy with a regulator hell bent on creating competition by constraining the incumbent.   In Australia and New Zealand the governments have taken strong positions to create a wholesale market.  It is early days, but certainly an exciting approach which is designed to offer all consumers broadband access.  Despite the complete lack of evidence that a wholesale carrier can exist and thrive, we are big proponents of the wholesale model.

Economics of wholesale:

Wireless networks are like railways.  If you want to get the prices for consumers down you ensure there is competition.  But there are many forms of competition.  Would prices go down if a new railway company simply put another set of rails right next to the existing railway?  Maybe they could take some shortcuts or change the rail gauge to make the trains faster and safer?  I don’t think so.  It would probably be prudent to simply have more than one train company using the same set of rails?

Telecoms is similar and none more  so than in wireless, where a competitors network can cause interference and reduce the performance of all networks.  The predominant model in the world is build your own network and compete. But let’s examine where else this happens;  How many electrical wires are run into homes?  One.  How many water and gas supplies are run into your house?  Again one of each.  Urban homes my have one telecom line and one cable line and although they perform similar functions, they were not run into homes with that understanding.   It seems like the predominant model in infrastructure is one supply.   One might argue that wireless is less like roads and more like air travel, but here again although there are many airlines, there are few airports that are mostly shared.  There is no need to beat on this drum anymore, we think you get the point.

So why build what you can share?  Well there is the spectrum thing, which makes it pretty difficult to share and then which incumbent wants to drop the biggest barrier to entry for a new possibly more nimble competitor?  None, right.   So we have to find a way where wholesale networks can survive and even thrive without onerous regulation.  Some incumbents argue that network quality is at the core of what they do.  We disagree – please see Wireless network quality myths.

So assuming carriers cannot differentiate on network, how can we make it in their best interest to share?  We have a few thoughts:

  • Make is a requirement for winning additional spectrum or do a spectrum set-aside for wholesale networks only?
  • Reward carriers with tax incentives to invest in shared infrastructure
  • Cost plus or retail minus based wholesale price regulation
  • Discount the cost of wholesale spectrum vs. retail spectrum.
  • Require industry structural separation?

While none of these is very appealing, we believe it is too early to give up on wholesale wireless and would encourage everyone to contribute their ideas on how we can make this work.

Good luck to both LightSquared and Clearwire.  (c) Alphasynb

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Wireless network quality myths

Wireless network quality myths:

In the past companies like Verizon in the USA and Rogers in Canada built their brand and customer base on the back of superior networks, but shortly after Virgin Mobile launched the first MNVO on T-Mobile’s UK network, a third party customer satisfaction survey revealed some startling results:  Virgin was rated as having the best network of all the operators by their users and T-Mobile was rated as the worst of the five networks.  So despite being on the same network, customer’s perceptions varied greatly.  The conclusion we came to was that how your marketing department markets your network is more important than the underlying network itself.  This of course assumes that you have a reasonable network that is telco grade 5-9s and does not drop calls frequently.  Verizon and Rogers were both pretty good at marketing the advantages of their networks.  Interestingly, Bell and Telus ran on the same network technology as Verizon but could not convince customers their network was better until they deployed their joint HSPA network.  On the other hand AT&T had the same network technology as Rogers, yet they were unable to convince the American public of their network quality and Rogers did so very effectively.  Moving forward it seems like there are fewer choices in network standards, vendors and topologies, so we expect that in the fullness of time all networks will basically be IP only data networks that operators will find no longer be a point of differentiation.    Do you agree or do you think consumers will measure and purchase based on ping times, lost packets and data network rates?

We believe that actual network quality differences between well capitalized incumbents will not be discernable to the average punter who just wants a great high speed wireless data pipe.  What do you think?

In the future wireless network quality will probably not be a differentiator?  (c) Alphasynb

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Lightsquared CEO quits – but why?

LightSquared CEO quits

In a letter to the board Sanjiv Ahuja has resigned as CEO of LightSquared.  We find it interesting that he gave no reason other than his contract had expired.   It seems he may continue to serve on the board.  Sanjiv is a smart guy and must have many options globally but we really thought that LightSquared could have been his calling.  Not that he needs to prove himself, his track record is fantastic.  So why quit now?  He must have known that the technology had risks and it was going to take time and persistence to ensure success in a venture where they were going after the mighty AT&T and Verizon?  So a small little hitch like the US regulators withdrawing launch permission is enough for him to throw in the towel?    It does not make sense, he likes a challenge, has vision, experience and is probably well paid, so why not stick it out?

Could it be that there is something wrong with the economics of building a wholesale network?  Or he realized the technology would never work?  Or could Harbinger have panicked after already investing $2bn of the originally committed $14bn?

We will explore all of these alternatives over the next few days, starting with the myths of a wireless network performance.  (c) Alphasynb


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Mobile Commerce – e=mc2

e=mc2 ?

Does this mean that e-Commerce is equal to m-Commerce squared?  For that to be true, mobile operators and banks had better starting getting their stuff together and provide something that just works, or else someone else will rewrite their equations.

It seems that operators have not learned any lessons from past mistakes:

When data networks arrived we finally had networks that were capable of providing a wide range of new services like picture messaging, video conferencing , music and TV.  But instead of agreeing common standards for all of these like they did for roaming (which created GSM as the global standard) and SMS which could be sent and received on any phone over any network, they all decided to compete for customers by launching proprietary services.  Who were the winners:

  • Music = Apple
  • Video Conferencing = Skype and Apple
  • Picture messaging = free IM, Whatsapp and Apple
  • TV = still no perfect global solution, but old fashioned streaming seams to be the de facto standard, which is not network friendly.  Europe, Asia and America have all had their broadcast solutions, but a single standard would have gone a long way.

Yes, no carriers won!

The lesson I take out of this, is if the industry had worked together, everyone would have been better off, except maybe Apple.  Even the music industry would have been better off, since their music would not have been as discounted and they would not depend on one distribution channel so much.  It has been good for consumers however, since artists have had to go back to concerts to make money.

So what have we learned about working together as an industry when it comes to mCommerce?  Ah…nothing.  In fact things in m-commerce are worse, because banks have to be involved in these conversations and it is not just one part of the bank.  Merchant acquirers need to be involved, issuers need to be involved, the payment networks (Visa, Mastercard, American Express, Discover, JCB and debit systems) and of course handset manufacturers need to be involved.

Then the issue is who owns the customer?  The banks do not want to give up their monopoly on payments, and neither will not VISA and Mastercard.  The mobile operators want a piece of the pie and so does every part of the old and new value chain.

So what is happening and why is it taking so long?

In the USA:

Verizon, AT&T and T-Mobile teamed up to form Isis.  (Not to be confused with Isis the Egyptian goddess of religious beliefs, or the International Species Information System).  Unfortunately they left out Sprint and the other smaller players.  They have also included some but not many card issuers, Chase, Capital One and Barclaycard.  It will be available in two cities, Salt Lake City and Austin, Texas.   Last summer they announced deals with Discover, VISA, Mastercard and American Express, so at least this will not be a constraint.  While the mobile wallet will work with existing near field terminals, deployment of these has been slow, as they have to be funded by merchants or merchant acquirers and those are the two that do not really benefit in this new world.

So if you have the right phone, the right carrier, live in one of two cities, have an account with one of three banks and happen to visit a merchant who has a wireless payment terminal, you are in luck, this summer you can use your mobile wallet.

In Vodafone countries:

But Verizon wireless is a joint venture between Verizon and Vodafone.  And today, Vodafone also made an announcement, saying they had partnered with VISA and will offer a mobile wallet based on a prepaid VISA card that will be rolled out globally this fall.   So at least you will not be constrained by who you have your bank account with.  They are going head to head with card issuing banks.

In the UK:

Vodafone (again), O2 and Everything Everywhere have teamed up to form a joint mobile payment platform in the UK called project Oscar.  They have excluded Three, a mobile carrier in the UK.  Together they will submit a proposal to Brussels for a mobile payment system that includes advertising and mobile commerce.  Three is playing spoiler tactics.

In Google:

Then there is Google, who announced a deal with Citibank in the USA.  I believe they will also offer their own prepaid cards.  The Google wallet will work on any Android phone with NFC and they plan to integrate offers into their payment solution.  It also works online through Google buy and Google checkout.  There was an apparent security breach with their solution, but who honestly knows how valid this was.

In Canada:

We have Zoompass.  Which is a joint venture between Rogers, Bell and TELUS.   To my knowledge all new entrants have been excluded, but I could be wrong.  Zoompass has teamed-up with Western Union for international transfers, Mastercard for a prepaid card and also offers person to person payments like Paypal.   It does not seem to have integration into offers like the Google solution or into advertising like the UK consortium.   Also the mobile phone version does not work with any NCF phones yet, so you can’t actually use it in a store yet, but you can use your prepaid Zoompass Mastercard card!  Awesome.

Separately Rogers applied for a banking license and there are many banks that are frantically trying to be first to market.

In Africa:

In 2007 M-PESA was launched in Kenya.  They have over 23,000 agents who effectively convert cash into M-PESA accounts.  You can also withdraw cash at these agents or through an ATM.  You can pay bills, transfer money via Western Union, buy airtime and manage your account from your phone.  They also have mobile ticketing for travel, hotels and taxis.  Even businesses can process bulk payments and receive payments for goods or services using M-PESA.   M-PESA has nearly 15 million users in Kenya alone.   The service has launched in other countries including neighboring Tanzania, South Africa and Afghanistan, but it seems that it has struggled to get the same traction.


Although this is by no means an exhaustive list of all of the ongoing m-commerce initiatives, indeed we did not even mention Bump, Paypal or Starbucks, the message is clear:

The banks can do this without the carriers, and the carriers can do it without the banks.  The merchants only benefit if the transaction costs go down and this is unlikely since VISA and Mastercard seem to be at the heart of all solutions.   Consumers get to carry one less vital object around, but this will not work until m-commerce is ubiquitous.   Wouldn’t it be easy to solve the car key and house key thing and then we can leave the keys at home on purpose?

If the wireless carriers do not team up and agree a set of standards, they will not participate in the future opportunity.  Payments are global so we need a global solution.  We cannot afford to exclude any carriers and should not take sides with individual banks.

If the banks want to be part of this, go around the carriers and team up.  But you have to be quick.  You are not competing with other slow moving banks, but rather with wireless carriers that create more new products a day than most banks do in a year.  How many extra customers do you think you will get if you launch first?  And what if they leave their mortgage at their current bank and jump ship back to their mortgage provider when they too have a mobile solution?

Too many variables make it impossible for merchants and consumers, so hurry before Google and Apple solve the problem for you. And keep it simple.

It seems like it will be a while before e=mc2?  What do you think?


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US rollout of LTE phone networks accelerates – FT.com

This article suggests that Verizon is already considering VoLTE.  Very exciting.  US rollout of LTE phone networks accelerates – FT.com.

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BELL CANADA | Bell committed to bringing the latest broadband wireless services to rural Canada

This is a different way of looking at things:  First he says if Bell cannot compete on a fair basis for spectrum, that they will be forced to concentrate their resources on urban to compete.  Then in the next sentence he says they have the resources to bring the best of global wireless to every region in Canada.  Surely if the new entrants could only afford to compete in urban, Bell would benefit from no competition in rural and thus concentrate resources there?  BELL CANADA | Bell committed to bringing the latest broadband wireless services to rural Canada.

Update:  We have added a piece on wholesale wireless networks.  Maybe the best way around the rural issue is to share networks and halve the build costs?

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Smartphone growth sparks investment call – FT.com

$800bn needed in next four years for LTE networks!  More mobile connections than people in the world.  Smartphone growth sparks investment call – FT.com.

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European telecoms woes grow – FT.com

Outlook for T-Mobile down, port results at Telecom Italia, reduced dividends at Telekom Austria, Telefonica and warning of lower dividends at France Telecom.  So why are Rogers, Bell and Telus all raising their dividends?  European telecoms woes grow – FT.com.

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MetroPCS – Investor Relations – Press Release

MetroPCS has produced over 1 million net new subscribers for 6 years in a row – well done.  Note that the MetroPCS EBITDA margin was 31.9% for 2011, compared with Telus at 39.7%, Bell at 34.8% and Rogers at 42.2%  MetroPCS – Investor Relations – Press Release.

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Sprint Board Rejected MetroPCS Takeover – WSJ.com

Interesting in light of what is a happening with our new entrants in Canada.  MetroPCS has done incredibly well, adding over 1 million net subs for many years in a row.  Sprint Board Rejected MetroPCS Takeover – WSJ.com.

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