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European Research Notes |
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Internet Strategies Europe
by Andy GreenmanEvent Summary
Scandinavia Online's (SOL) major shareholders, Telenor, Telia, and Schibsted, have issued a letter of intent stating they will sell their share in the Scandinavia Internet portal. Together these companies own 76% of SOL's working share capital. The new comes not long after SOL released financial data showing a 15% drop in revenues, a 10% increase in operating costs and a drop in page views.
Market Impact
If the three major investors do sell, the most positive outcome will be independence for SOL—it will have greater flexibility to change its business model and pursue its own aims. It has a solid base from which to work, including a number of popular consumer portal brands in Scandinavia, (e.g., Passagen.se, Everka.fi, Sol.no, and Sol.dk). SOL is attracting 7.5 million page views to its Web properties per day and boasts the number one consumer Web site in Norway. All of this is a good start, but it will face competition.
In Norway, this competition will come from media company Schibsted itself, which operates Startsiden—the number two consumer portal in Norway. Likewise in Sweden, the largest market in Scandinavia, SOL faces competition from Telia, the leading consumer ISP. Finally, SOL has a weak presence in Denmark and Finland.
The immediate changes to the portal market will be minimal. However, by the first quarter of 2002, we expect Telia, Telenor, and Schibsted will increase their Internet activities, creating powerful competition to SOL's attempt to become the leading portal brand in Scandinavia. SOL also faces competition from local media companies (in particular Sweden's newspaper Aftonbladet), and U.S. portals MSN and Yahoo.
Conclusion/Recommendations
- If the letter of intent is followed by action, SOL will become the master of its own destiny. However there is a massive opportunity cost, most importantly the loss of solid financial backers which in turn will become competition.
- SOL along with Tiscali, AOL Europe, Lycos, Excite, and Yahoo have been trying to build strong pan-regional brands. In some cases this has proved a successful strategy. However, many of the pan-regional brands have encountered impossibly strong competition from local portals (especially those with ISP/Telco parents such as Wanadoo and T-Online). With the exception of Tiscali, there are no other ISPs in Europe creating a pan-regional portal.
- If there is one sub-region of Europe where a pan-regional portal could succeed it is Scandinavia. Internet usage is high in all the countries, and each of the countries share strong cultural, economic, and linguistic bonds. However, SOL has lost three strong Scandinavian partners. We suspect tough times may have led them to lose faith in the concept of a pan-regional business in order to retrench in their immediate domestic market.
- SOL's success depends on whether it can combine killer content, communications, and commerce offerings into a compelling consumer experience. However, this is exactly the strategy of their competition. Given low online advertising spending and limited e-commerce revenues, and the loss of strong financial backers, SOL faces a long Nordic winter of struggle against well funded competitors, (e.g., AOL, MSN, Startsiden in Norway, Opasia in Denmark).
Convergent Communications Europe
by Jonathan DoranMarket Event
Speculation of a takeover of Telekom Austria has heightened with mounting rumors that Telecom Italia will sell its 29.8% stake in the company. Two financial investment companies—Kohlberg Kravis Roberts and Co. (KKR) and Providence Equity Partners have reportedly expressed interest in acquiring Telecom Italia's holding with backup funding available from Apax Partners and Bank of America. The state-owned holding company, OelAG, has a 47.8% stake in Telekom Austria, while the remaining 22.4% is publicly owned. Telecom Italia has neither confirmed nor denied plans to sell its holding.
Analysis
Prospects that a Telecom Italia sale—along with a mooted reduction of OeIAG's holding—would leave it open to control by a third party, have helped boost Telekom Austria's share price by 41% this year to US$7.57 (€8.40 )—against the market trend elsewhere. OeIAG wants the company's share prices to rise above US$8.11 (€9) before it considers extending privatization. Moreover, the Austrian government is not expected to allow the incumbent to be taken over by an investment firm or consortium, but, would more likely consider offers from other telcos, which could bring the strategic benefits and market expertise necessary to maintain the company's performance. Potential strategic investors include Deutsche Telekom and France Telecom, which already hold Austrian cellular interests. But, like Telecom Italia, these two major incumbents are preoccupied with reducing debt, making their interest in such an acquisition unlikely.
Recommendations
- Finding a solvent PTT as a strategic investment partner will prove difficult in the current climate. Swisscom is one rare example that springs to mind. Telia, with its interest in east European assets might also be tempted, but this would be a long shot.
- It would benefit shareholders to further increase Telekom Austria's value by prolonging current speculation, while highlighting the company's relatively low indebtedness and continuing profitability since liberalization began.
- The Austrian government might reconsider the prospect of selling to an investment outfit, whose financial management skills may well improve the telco's market performance and could prove to be the vital ingredient missing from the boards of traditional incumbent telcos. With so few telcos in buying mood, indeed, it may have little option.
Convergent Communications Europe
by Justin Neville-RolfeThe Story:
Netario, a small UK-based Bluetooth service provider, has announced plans to start 70 "hotspots" in Manchester, England, based on the recently finalized Bluetooth protocol. A hotspot is an area close to a transceiver that allows users to connect their laptop to the public Internet, typically in cafés, airports, stations, and other public places. Netario uses Blue2Space's (of Sweden) hardware to allow connections up to 100 meters away. Users pay £20 (US$28.40) per month, plus £5 (US$7.10) per hour for up to 400-Kbps symmetric Internet access. The monthly charge is comparable to the charges in Internet booths found in public places such as airports, but much more than Internet cafés charge.
Analysis:
Hotspots are fraught with problems. In the UK, commercial sale of unlicensed spectrum—which Bluetooth operates in—is illegal, so they will need to take care in the wording of contracts to emphasize that they are selling connectivity, not airtime. Oftel has been putting pressure on the Radiocommunications Agency (RA) to change this law, and this may have happened by the planned launch date in February 2002.
Moreover, the economics of hotspots is at yet unproven, with early entrants in the United States (e.g., MobileStar) failing. End users require a significant number of hotspots to be available so that they can regularly make use of the service, especially at the high prices that Netario is planning. This will require roaming agreements between hotspot service providers to be in place and working well. At present, there are no other operators to roam on, and it is unlikely that many other operators will come onto the scene. The ignominious failure of CT2 wireless technology a decade ago stands as a reminder of what can go wrong with new mobile services.
On the other hand, the economies may be better in the UK than in the United States. The installation of transceiver equipment and backhaul is more likely to follow the building service provider (BSP) model: in the United States, BSPs paid landlords to connect a building, but the European trend has been toward cost-share and revenue-share agreements.
Wireless LAN (WLAN) using the 802.11b protocol, which copes with faster speeds and more users, may be a more natural choice for PC laptop users and is already in operation in some Best Western Hotels and other places. Some other European hotspot services, such as those from Telenor and Sonera, are based on GSM technologies.
Nevertheless, Bluetooth may well be part of the solution for mobile phone users. Users' hardware, though currently costing about $100, will drop fast if the technology makes a real impact, so that it could quickly become a standard component in laptops, PDAs, and mobile phones (though WLAN transceivers are already standard components in many new laptops). 3G, which is slower and likely to be more expensive, will run in parallel as is it truly an anywhere technology.
Recommendations:
- It will be essential for Netario to spread the reach of Bluetooth to increase the addressable market and the value of the service to each end user. Whether Netario has the capital to build out remains to be seen. A similar player, Red-M, which is launching service for train stations via Bluetooth, is going in with the capital backing of BT Ignite.
- Netario will be better advised to incorporate WLAN technology into their transceivers, as there is an installed base of WLAN in end-user transceivers. This will increase their addressable customer base without significantly increasing their costs. Manufacturers of Bluetooth equipment should realize that 100-meter range services are a potential market, and make equipment capable of stretching regular chips to that distance.
Wireless/Mobile Europe
by Farid YunusEvent Summary
On November 4, the UK telecoms regulator, OFTEL, released the results of its most recent market survey. Conducted in August and early September 2001, the study included mobile usage patterns within 816 small and medium enterprises (SMEs) with between 1–250 employees.
Market ImpactWith the enterprise market becoming the central focus for mobile data applications, and with large corporations generally more attuned to their communications requirements, the SME sector will be the crucial proving ground for many a mobile business plan. Without delving into the integrity or accuracy of the OFTEL study, a few unsettling trends are evident. Of the 61% of SMEs that owned a mobile phone in August 2001, the number of handsets in use ranged from 1 to 23. Even within medium-sized companies (101-250 employees) the average number was only 17. Using the median company size (175), this implies a penetration rate of less than 10% of the workforce. For the privileged few granted the use of company phones, the average monthly spend per mobile (all SMEs) fell between May and August 2001 from US$75 to US$67 (£51 to £46), while total expenditure dropped from US$324 to US$283 (£221 to £193). While some of this decline is attributable to mid-year tariff reductions, it nevertheless points to a significant drop in mobile communications spending within the space of only three months.
Conclusions/Recommendations
- Given the low penetration, it is clear that sales and mid/upper management currently constitute the bulk of enterprise mobile users, and this situation is unlikely to change in future. Developers and providers putting all their eggs into an enterprise basket should reconcile themselves to a potential market of only 10–20% of all business employees. Ultimately, the data companies likely to thrive will be those with a product set that also addresses mass consumer wants.
- Even at around US$15 (£10) a month, Vodafone's recently announced OfficeLive mobilizing Lotus Notes solution will increase the average SME bill by 22%. With enterprise average revenues falling faster than overall ARPU, this will clearly be a hard sell. A clear business benefit and ROI will therefore have to be demonstrated to completely justify the increased expense.
- While the results of this survey obviously cannot be used as an absolute benchmark for other mobile markets, the British economy is currently faring better than all other G7 countries, growing by 2.4% in the third quarter. It is also expected to post the fastest economic growth in 2001 and 2002, and thus any decline in consumer spending is likely to exaggerated in other European markets. So despite some operators now reporting ARPU stabilization, further drops in the most lucrative customer segment should be expected as businesses cut back further.
Wireless/Mobile Europe
by Declan LonerganEvent
On November 6, Telefonica Moviles released its third quarter results, which beat market expectations. For the group as a whole, EBITDA was up by 36% from the same nine-month period of 2000. The company's domestic business in Spain was the star performer, with EBITDA increasing by a whopping 56% in the same period. Here, we focus on those Spanish results and examine some of the underlying factors that contributed to the strong performance of Telefonica Moviles Espana.
Market Impact
Regardless of which indicators we use to measure success during the first nine months of 2001, the performance of Telefonica's Spanish mobile business is pretty impressive:
- Its customer base increased by 22%, bringing the total to 15.6 million.
- The annualized customer churn rate is now 12.6%, which compares very favorably with most European mobile businesses.
- Customer acquisition costs have been reduced by 40% on an annualized basis, in no small part due to reduced subsidization of prepaid handsets.
- Average minutes of use (MOU) increased by five minutes per user per month in third quarter, compared with the fourth quarter 2000. Total airtime minutes between January and September this year were 30% higher than during the same period of 2000.
- SMS traffic continues to soar, with a 192% increase in billable SMS messages in the nine months up to September. Telefonica now claims that 40% of all client communications with mobile phones are done by means of short messages.
- Data services accounted for 13% of revenues in third quarter, compared with 8% in third quarter of 2000.
- Most significantly, ARPU in the third quarter was 3% higher than in second quarter. However, in year-on-year terms, ARPU fell by 8%, but this is a significant improvement on the 23% reduction seen between the third quarter of 1999 and the third quarter of 2000.
Conclusions
- The most impressive feature of Telefonica's results in Spain has been the company's ability to deliver improvements in most operational performance metrics despite a 22% increase in its customer base. With such a high customer growth rate, we would expect metrics like MOU and ARPU to have been diluted significantly due to the typically low-usage profile of these new customers, but Telefonica has largely managed to avoid this.
- In keeping with the third quarter results posted by a number of other European mobile operators, Telefonica's performance indicates a company with impressive operational credentials, but one that continues to be penalized by a heavy debt burden. As more European mobile operators break free of their incumbent landline parents and gradually address debt repayments, they can look forward to a steady improvement in their fortunes and their market valuations.
Convergent Communications Europe
by Hector DonisEvent Summary
Spanish ISP Terra Lycos, Telefonica's Internet division, announced on October 26 that it has reached 100,000 customers for its ADSL service. In a release, the company said it has signed up 10,000 new customers since it recently launched its ADSL Plus promotion, which includes 30,000 free modems and connection for $38 per month. Its ADSL service offers a 256-Kbps downstream connection, a free Web page and five e-mail accounts with 25 megabytes of storage capacity.
Market Impact
Spain is lagging in Internet penetration, still anchored at 15% of households, while ADSL is being heavily marketed by the incumbent. In an attempt to capitalize on the early stages of broadband adoption, Terra is implementing its parent company's decision to capture a large share of the residential demand for faster connections before its competition does. Given the recent rate of new ADSL additions, nearly 1,500 users per day during its promotional period, Terra is well on its way to make an important contribution to Telefonica's goal of 360,000 ADSL connections by year-end 2001 for the group.
Conclusions/Recommendations
- ISDN aside, Spain still must show that it can go beyond the early adopter stage if broadband demand is to continue to flourish. Without a spike in household Internet penetration, expectations of more than 1.2 million ADSL connections (10% of households) by 2003 appear exaggerated.
- While Terra claims that 80% of phone lines in Spain are ready to receive ADSL services without major new investments in infrastructure, important problems exist within potential segments for this market (for example, SMEs still showing resistance to broadband adoption).
- Terra has been plagued by heavy losses of US$503 million (€556.4 million) at year-end 2000, and is in dire need of restructuring its service offerings. As well as achieving rapid uptake of its ADSL access service at the residential level, the ISP must find more substantial revenue streams to compensate for the fall in Internet advertising. This can come only through pushing premium access, storage, and by restricting access to original broadband content only to paying customers.
Convergent Communications Europe
by Hector DonisEvent Summary
The Italian Communication Authority, Autorità per le Garanzie Nelle Comunicazioni (AGCOM) has outlined a plan to boost competition in the LMDS sector, primarily by excluding Telecom Italia from exploiting any license granted for four years. The actual auction and granting of LMDS licenses will follow soon. There will be ten licenses distributed per region, seven of 56 MHz in the 24.5–26.5-GHz band and three of 112 MHz in the 27.5–29.5-GHz band. Each will last 15 years with the option to renew.
Market Impact
The most important measure taken by AGCOM is the exclusion of Telecom Italia from launching LMDS services until four years after acquiring licenses. Over the same period, competitors will be able to put in place new fiber infrastructure and installations without being pressured out of the market by the incumbent's natural advantage. The delay imposed on Telecom Italia underscores the critical role of LMDS in a country that still has very little alternative access infrastructure outside of the incumbent's copper wire—in particular, almost no cable TV networks.
Conclusions/Recommendations
- Incumbent participation. AGCOM was right in keeping some asymmetrical measures to favor competition while allowing Telecom Italia to participate in the LMDS auction in a deregulated market. However, the failure of LMDS services in other European countries and lack of cash may mean that, ultimately, the incumbent will still emerge as the major provider of services based on LMDS.
- VDSL strategy. The delay imposed on Telecom Italia is not likely to have a substantial impact on the incumbent's position. The capillary reach of its existing copper network and its strategy based on quick ADSL and VDSL rollout will allow it to offer broadband and data services to most parts of the country in the meantime.
- Competition. After nearly two years of delays in the LMDS auction process, the Ministry of Communication must realize that any further delay in LMDS licensing will only allow Telecom Italia to solidify its xDSL strategy and capture even more users that might have selected an alternative solution had it been available.
Wireless/Mobile Europe
by Farid YunusEvent Summary
On October 29, Vodafone announced the addition of Lotus Notes to its Vodafone OfficeLive portfolio. Available at the end of the November 2001 and initially marketed in the UK, the service will provide enterprise users with managed access to their Lotus e-mail, calendar, and directory information through any WAP-enabled device.
Market Impact
This partnership with IBM builds upon the earlier agreement with Microsoft, announced last July, when the OfficeLive solution was launched. Now with the addition of Notes to Microsoft's Outlook, Vodafone can effectively target the vast majority of enterprises wishing to extend desktop productivity applications into the wireless domain. The Yankee Group has consistently argued that the efficiency gains and practicality of enabling mobile access to enterprise systems is a compelling proposition, but few companies have so far put money on it. Understandably, and especially in the current environment, a demonstrable return on investment will be necessary to convince decision makers. Here, Vodafone claims a 10% reduction in unproductive dead time can result in a 1% increase in revenue contribution per employee. Systems integration will be performed initially by Lotus Notes Professional Services while other SI's are being accredited, but the shrink-wrapped nature of Notes and widespread familiarity eliminates much of the complexity that has so far been one of the major barriers to mobile office enablement. The other major obstacle has been cost, but with a recommended monthly subscription fee of $13-$16 per user per month, the service is relatively affordable and is in fact cheaper than BT's similarly targeted PocketNet Office. Usage and one-off installation charges, however, also apply.
Recommendations
- It is commonly accepted that WAP in its present incarnation has been a failure and a more compelling product would have been Notes on an EPOC, Palm, or Pocket PC device. Providing real-time access to remote information, as opposed to caching and synchronization between server and client, will assure Vodafone of higher airtime revenues, we would question the attractiveness of WAP as an access interface.
- For harried executives, the latency and data speeds of current GSM networks are also a deterrent, and it would be advisable to wait for GPRS networks and handsets to become more widely available before embarking on a concerted attack on the enterprise.
- But ultimately, the greatest value that these two companies bring to the partnership is their size and presence within the enterprise. As market leaders in their respective industries, if they can’t break into the mass wireless office market, then perhaps no one can.
Optimizing Performance in the Customer Contact Center Through E-Learning and Agent Empower
crmv3n11, Report, November, by Devon SheaCRM and Professional Services: Re-evaluating the Role of Services and Consulting Firms in Delivering Successful Implementations
crmv3n12, Report, November, by Sheryl KingstoneWatt's Up with Powerline Communications?
wcsv1n12, Report, October, by Seth LibbyRegional Networks Expand in Partnership
wcsv1n13, Flash, November, by Mary Regan
The Evolving Supply Chain: Visibility and Event Management
bcav6n14, Report, November, by Kosin HuangIBM Unifies Important BtoB Integration Components with CrossWorlds Software Acquisition
bcav6n15, Flash, November, by Jon Derome
Fiber-to-the-Curb, Fiber-to-the-Home, Fixed Wireless, and Powerline Communications: Threatening Cable Modem's and DSL's Hegemony?
cmcv18n13, Report, November, Imran KhanWeb Collaboration: An Opportunity in the Consumer Market
cmcv18n14, Report, November, by Aurica YenGlobal Network Strategies Survey 2001: The Multinationals Speak in a Conservative Tone
csnev2n13, Report, November, by Sandra PalumboIncorporating Billing and CRM: Examining the Combined Entity of Amdocs and Clarify
bpasv2n14, Flash, November, by Paul HughesWeb Application Performance Management, Part 1
aispv1n5, Report, November, by Amy PrehnBeyond Consolidation: Opportunities in Tomorrow's xSP Market
essv11n14, Report, November, by Carrie LewisDigital Rights Management: Securing New Content Revenue Streams
mesv5n15, Report, November, by Steven Vonder HaarToday's Television Networks, Part 2: Next-Generation Video Content Distribution from Source to Set-Top
mesv5n16, Report, November, by Ryan JonesE911 and Spectrum Update: Will This Cloudy Sky Ever Clear?
wmsv2n14, Flash, November, by Eugene SignoriniThe Brazilian Pay TV Case: Obstacles and Opportunities Ahead
bmsv2n21 Report, November, by Raphael DuailibiThe Brazilian Pay TV Case: Obstacles and Opportunities Ahead
cclav2n15, Report, November, by Raphael DuailibiArgentine SMBs, Part 1: Customer Churn and Loyalty
cclav2n16, Flash, November, by Ignacio PerroneBack to Table of Contents
November 19 2001
A Convergent Communications Latin America Audio Conference
Local Loop Unbundling (LLU) in Latin America: Drivers and ObstaclesNovember 21 2001
An E-Networks and Broadband Access Audio Conference
Enterprise Benefits of MPLSNovember 26 2001
An Internet Strategies Latin America Audio Conference
Latin America's Hosting Service Market: The Race for RevenueNovember 28 2001
A Wireless/Mobile Latin America Audio Conference
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