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European Research Notes |
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European Research Notes |
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Internet Strategies Europe
by Scott SmithEvent Summary
Consummating a two-year dating period, lastminute.com and AOL tied the knot this week in the form of a deal to make the popular travel site the main travel service provider to AOL's European properties. Press reports have estimated lastminute paid in the order of US$1 million for the deal, not a bad price for the increased channel to mid-market customers it will get via AOL in France, Germany, and the UK.
Market Impact
This deal was not surprising, but is a combination of two major brands on the European Internet landscape. For all of the criticism that has been leveled at it, lastminute has made the long, difficult climb to Internet brand Valhalla—the best known European dot-com to emerge in the last few years. Partnering with AOL gives it not only the recognition of its market leader position, but shows that travel still remains one of a handful of verticals that presents a killer application for the Web.
From the perspective of AOL, while it reports over 5 million users throughout Europe, it does not have the pan-regional Web brand it has in the United States. As a result, perhaps lastminute lends as much brand credibility as it gets from AOL.
Recommendations
Making these sorts of deals is what pushed AOL to such an unassailable position in the United States, and it knows well the formula for creating content and service alliances. Now is the time that content and service companies must pick their portal partner and run with them. We expect solid, long-term relationships to begin to consolidate between portals and content and service partners now that the ISP/portal market has consolidated, and dot-com shake-out has run most of its course.
Wireless/Mobile Europe
by Farid YunusTrend Summary
With cellular penetration approaching 80% in many European markets, far exceeding fixed line subscriptions, it has been widely assumed that wireless traffic will eventually surpass that of fixed networks.
Market Impact
The anticipated displacement of wireline traffic by wireless would appear a logical conclusion, considering that growth in fixed lines has stagnated in western Europe while the number of wireless users has nearly doubled every 18 months since 1997. Limited to one to two lines per household, fixed subscriptions cannot keep pace with what are essentially personal devices, now carried by almost 300 million people in a region of 390 million. Wireless usage is also showing signs of stabilizing, with users in the more mature Nordic markets generating between 70 to 90 outgoing minutes per month. If incoming traffic is also included, most European operators are reporting consistent monthly averages of 100–150 billable minutes per user. Rising users and stable consumption should therefore result in higher traffic volumes.
But a quick glance at fixed and wireless traffic volumes reveals that any real displacement still lies far beyond the horizon. Even in the Nordic countries, where wireless users have exceeded the number of installed fixed lines for some time, the discrepancy in traffic levels remains pronounced. In Denmark and Norway, total outgoing mobile traffic in 2000 was only 12% of fixed outgoing traffic, while in Sweden the wireless total was only one tenth of the 50.3 billion minutes carried over the country's landline networks. Demonstrating that this is not a localized anomaly, the UK regulator Oftel estimates the country's public switched network carried 247 billion minutes in 2000, as opposed to only 36 billion minutes of mobile calls. Admittedly, prior to 1997 fixed traffic volumes had begun to level out, and growth in recent years has been stimulated not by voice but by Internet data. But even voice traffic alone remains highly unequal. In Italy, where mobile penetration already exceeds 80%, the number of voice minutes carried over Telecom Italia's fixed network remains around 150% higher than that carried over its wireless network.
Conclusions/Recommendations
- Spectrum constraints will mean that wireline networks will garner the greater share of traffic, now and probably forever. The only environment in which any real substitution may occur is in the enterprise, where a wireless LAN plus mobile VPN would negate the need for fixed telephones. But even this would be entirely dependent on comparable pricing levels and quality of service.
- Wireless operators can, however, take some comfort in the fact that value is still being extracted from old copper wires. That traffic continues to rise in European public switched networks simply accentuates the potential for future wireless growth through data transport. But again, competitive prices and performance will be essential in migrating a proportion of escalating data usage from fixed over to mobile.
Convergent Communications Europe
by Hector DonisEvent
Telecom Italia (TI) is opening part of its fiber network to its competition, following new regulatory developments. In a complex quid pro quo, the Italian incumbent was forced to open its Socrate fiber network for use by its competitors in exchange for TI retaining its purchase of La7 (a national broadcast network). The acquisition had been under heavy regulatory scrutiny by the Italian Antitrust Authority for most of 2001 (as had the lack of access to the Socrate network).
Market Impact
The scarcity of competitive fiber and ducts in Italy is more likely to disappear with the opening of the Socrate network. The network was built as part of TI's ambitious plan to reach 60 cities with cable TV in the mid-1990s. The plan was later abandoned, but 2,500 km (1,554 miles) of tubes and ducts reaching 2 million of the 10 million homes planned remain. Competitive service providers now can use the Socrate infrastructure to extend their own network without digging.
Conclusions/Recommendations
- While ongoing legal wrangling over the scope and extent of access to TI's infrastructure is all but certain, the opening of Socrate's reach into metropolitan areas is already sufficient to dramatically increase competition in the delivery of broadband services to both homes and businesses.
- While FastWeb, e.Biscom's fiber infrastructure division, has already gained access to Socrate, operators such as ePlanet, Albacom, and EdisonTel have been unduly kept out until now with a series of excuses related to technical problems by the incumbent. Now these companies will be able to accelerate the rollout of their infrastructure and their ability to reach a wider potential customer base.
- However, all is not rosy for competitive operators. In the long term, TI's decision to keep its broadcast assets in exchange for opening its Socrate network means that it has come to terms with the end of its last monopoly, but also that it is readying itself to compete with powerful multimedia service offerings.
Convergent Communications Europe
by Hector DonisEvent
After expanding its presence into the Latin American markets, China-based Huawei Technologies, a telecommunications infrastructure provider, has entered the Spanish market. On November 27, 2001, the company announced that it reached an agreement with Grupalia, a Spanish ISP, to provide Internet access equipment. Huawei is also in talks with Spanish utility company Red Electrica de España to provide switching equipment for its fiber transport network.
Market Impact
With global sales for Huawei expected to nearly double this year, its timing could not be better. In fact, it can count on a strategy of aggressive pricing for its equipment because of the low-cost basis for manufacturing in China. Also, it caught most of its larger competitors such as Nortel, Cisco, and Lucent off guard, given the current financial difficulties these equipment vendors are facing.
Conclusions/Recommendations
- Huawei will be able to leverage its experience in the Spanish-speaking world and verify its case for further expansion in Europe.
- Alternative operators in Spain are coming off of a year of stalled competition, after investing in expensive network rollout. This will mean that service providers will be keen on seeking the most competitively priced equipment, rather than continued reliance on trusted brands.
- For Telefonica's smaller competitors, tapping SME demand for broadband services has been difficult, not least because of the high infrastructure investment required. However, aggressive price competition at the vendor level will help ease this constraint, and increase competition in this segment of the market.
Convergent Communications Europe
by Camille MendlerEvent
Sprint signed its first non-U.S. network partner during the week of November 26, initiating an indirect sales program to boost its international reach and penetration. The new partner, Riodata, is a privately held company targeting the corporate networking market in Germany and Switzerland.
Analysis
Sprint has rapidly scaled up its European operations since the breakup of Global One, its joint venture with France Telecom and Deutsche Telekom. It formerly ran a small European operation largely to leverage its minutes business, which nevertheless remains unexpectedly healthy after the collapse of several European voice resellers. Meanwhile, the company recognizes that minutes are not enough. Sprint will provide Riodata's corporate customers with global IP VPNs and security services across Sprint's global IP network.
Sprint currently operates an 11-city European network based on leased fiber. The issue for Sprint is how to deepen coverage in key European countries to retain and build a corporate and wholesale customer base. The number of Sprint's current U.S. customers with European network needs is not sufficient alone to sustain this expanded European operation. To win new European customers, Sprint must demonstrate commitment to the region, but like other operators, is under strict cost control. Strategic acquisitions may be considered, but strategic partnerships are more financially palatable.
Recommendations
- Service providers are realizing that no one can do it all, be it in breadth of service provision or network reach. The Sprint/Riodata deal is mutually attractive, giving the companies elements that each lacks without a heavy investment.
- Partnerships are not a trivial endeavor, however. Management of relationships, commission, joint branding, and customer ownership will require tight control in order to make such relationships successful in the long term.
- On paper, IP VPN services are ideal for joint marketing under such partnership programs. However, success will rely on coordinated technical integration between partner networks, which in today's fragmented and immature IP VPN market may prove a complex task.
Wireless/Mobile Europe
by Declan LonerganEvent
On November 19, mmO2, formerly the mobile division of BT, took its first steps toward adulthood when it was traded as a separate entity on the London and New York stock markets. The company's London share price remained relatively stable through to the middle of the week as the impact of some BT shareholders offloading the shares was offset by some encouraging demand from institutional and private shareholders.
Market Impact
The demerger of mmO2, and its subsequent performance on the stock exchange, provides a useful indicator of the prospects for both mmO2 and the European mobile communications sector as a whole. Its stable performance to date reaffirms our view that, while the downside potential for the sector may not be very great, the climb back toward the heady highs of early 2000 will be a long and painful one. Looking at mmO2's prospects, the company is a relatively small player in the European mobile service provisioning business, with operations in the UK, Germany, the Netherlands, and Ireland. Now that it is trading as an independent company, it once again becomes a viable takeover target. The name Telefonica continues to top the list of potential suitors. However, while the larger European operators continue to focus on cost-reduction measures, rather than further M&A activities, we do not expect mmO2 shareholders to be overwhelmed by a compelling takeover offer in the short term.
Conclusions
- On the whole, mmO2 will benefit from its separation from its parent BT. The most important factor influencing its future success will be the ability of the company's new management team to promote a new, more dynamic culture, and one that is more appropriate to the fast-moving sector in which it operates.
- Expectations for mmO2 are now sufficiently low enough to at least allow its share price to outperform the telecommunications sector. With the relatively low level of debt that it has assumed following the demerger, mmO2 will be able to focus on the underlying performance of its European businesses, and it will be capable of quickly translating any progress in those operations into improved shareholder value.
Microsoft Was Right: Market Forces Will Judge It
aispv1n7, Report, November, by Robert PerryWhere Does the Corporate Portal Go Next?
aispv1n8, Report, November, by Neal GoldmanContent Acceleration Tools: Solving Flaws in the Internet Architecture
aispv1n9, Report, November, by Neal GoldmanMobile Number Portability Arrives in Australia
wmapv2n16, Flash, November, by Rob PadgettAnother Mobile Commerce Forum
mcsv1n10, Flash, December, by Adam ZawelAsia-Pacific Web Hosting: Hong Kong
isapv2n14, Report, November, by Aditya PuriITV Advertising: Targeting a Mass Audience
isev3n15, Report, November, by Andy GreenmanCapital Roll Call—2001 U.S. Carrier Wireline Spending
cciv2n15, Report, November, by Nancee RuzickaService Resource Management (SRM), Part 2: The Supply Side
tebv2n16, Report, November, by Sanjay MewadaBack to Table of Contents
December 5, 2001
A Mobile Commerce Strategies Audio Conference
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A Carrier Convergence Infrastructure Audio Conference
Carrier Convergence: Where Truth Meets DareDecember 7, 2001
A Canadian Market Strategies Audio Conference
The 2001 Canadian Technologically Advanced Family®: An OverviewDecember 10, 2001
A Wireless/Mobile Europe Audio Conference
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