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Event Summary
On January 28, Global Crossing announced that it has filed for bankruptcy protection to restructure its balance sheet. Global Crossing will receive a $750 million investment from Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte. Ltd., contingent upon the successful restructuring of the company's capital structure. While the specific financial details have not been released, the company expects the process to be completed by August 2002.
Market Impact
Under the terms of the proposed investment agreement, Singapore Technologies and Hutchison Whampoa become majority stakeholders, squeezing out current equity investors. Global Crossing hopes the restructuring will significantly reduce its current interest payments.
Three factors contributing to Global Crossing's financial difficulties were the company's high debt load incurred from its international network development, shrinking margins in its wholesale segment, and low penetration of the lucrative enterprise market.
The restructuring affects Global Crossing's customers and investors much more than its competitors and the telecommunications industry. In the retail segment, Global Crossing has yet to establish itself as a serious competitor to companies such as WorldCom, Equant, and AT&T. In the carriers' carrier segment, declining wholesale margins have devalued Global Crossing's premier position in the subsea capacity market, but it is not alone; companies such as Level 3 have experienced similar declines in business.
Conclusions/Recommendations
Convergent Communications Asia-Pacific
by Christopher SlaughterEvent Summary
On January 28, as international carrier Global Crossing filed for bankruptcy protection, Hong Kong conglomerate Hutchison Whampoa and Singapore's number-two local telecom operator Singapore Technologies Telemedia (STT) announced a joint US$750 million bid to take over up to 80% of the faltering U.S. firm.
Market Implications
For Hutchison and STT, the deal is a tremendous opportunity to extend beyond their domestic markets in the fixed-line business. Each company already operates its own joint-venture with Global Crossing's regional subsidiary, Asia Global Crossing, to provide local-loop and backhaul services in their respective home markets. Presumably, control of Global Crossing would bring with it control of the Asia Global Crossing subsidiary, which is well-positioned and quite competitive in the region.
A pattern seems to be emerging: the Global Crossing offer follows just weeks after a similar deal whereby the PCCW-Telstra joint-venture Reach acquired the operations of distressed carrier Level 3 at a bargain-basement price. These deals could partly be the result of the region's growing importance in global telecoms, but are also partly because Asian operators have largely lagged in infrastructure buildout in recent decades.
For Hutchison, already a global player in the wireless arena, the deal allows it to begin fixed-line forays outside its home market, Hong Kong. However, Hutchison Chairman Li Ka-Shing is well-known worldwide for his canny dealsmanship, and it would come as no surprise should Global Crossing's new owners decide to engage in a bit of well-placed asset-flipping, should the opportunity arise.
STT has been looking for its own strategic niche, as its StarHub telecommunications subsidiary faces increasing competition in a limited domestic market of roughly 3 million people. Going international gives it a better chance to grow, although it runs the risk—as does Hutchison—of finding itself in markets where there are no apparent synergies with its current business, and for which it is not particularly well-suited to develop strategies.
Recommendations
- Creditors should be prepared to take a significant "haircut" on their Global Crossing exposure, and should realize that a reduced piece of a manageable company is better than the fire-sale that will otherwise ensue.
- Hutchison and STT should explore whether extending their operations outside the region is really in their strategic best interest. Using the deal to bolster their respective regional presences might be sufficient, while forays further afield could prove to be ill-conceived.
- Don't expect a resolution overnight—the courts have given an August deadline for a deal to be reached, and not only could terms of the offer change as restructuring gets underway, but other potential bidders could come forward in the next eight months to further complicate matters.
Canadian Market Strategies
by Tosia MankaReport Summary
The Canadian Technologically Advanced Family® (CTAF®) Survey, in its third year, has been a key tool for understanding the Canadian consumer and their interests and demands, as well as understanding the positioning of various products, services, and service providers in today's marketplace. A Yankee Group report, to be published next month, will provide highlights of this year's survey covering the areas of home entertainment, computing and broadband, and wireless services.
Market Impact
The CTAF® Survey main value proposition is in segmenting the population into three distinct groups: Technologically Advanced Families (TAFs®), Near-TAFs®, and Non-TAFs®. For marketers of high-tech products, the purchasing habits and behaviors of TAFs® are of most interest as they are the early adopters of new technologies, the trendsetters. Not only will they adopt products sooner, but TAFs® will also hold an important role as educators—educating their friends of the benefits of new products.
TAFs® will always be the forefront of any new product and service, and a great deal of marketing attention is initially given to these early adopters. They are less hesitant in adopting products, will likely adopt new products quickly, and they represent the largest dollar segment across the board. However, there are many other ways to look at the market place, and if providers are to have a holistic view of the consumer base in general it is necessary to examine them from every angle—adopters and non-adopters. It is also important to understand these other segments because once the TAF® segment is exhausted in terms of penetration of new products and services, it is these other two segments (Near-TAFs® and Non-TAFs®) that will become the target group. It is therefore important to understand key demographic information and purchasing behaviors of these segments in order to market products effectively to them.
Conclusions
- With so many new products and services (i.e., Internet, satellite, digital television, wireless phones, digital cameras, etc.), and so much competition in the air, it is essential to have a well-rounded understanding of all targeted consumers if a provider is to take full advantage of the marketing potential in Canada.
- Though much focus is placed on current TAFs®, today's young adults hold an interesting position among the technology market. They are the generation who do not know a world without computers, the Internet, or wireless phones. They may not have the disposable income to purchase high-tech items on their own, but they do possess a great deal of knowledge of the importance of products to a given lifestyle. As such, they are likely to hold some influence as to the products their parents may purchase. These young individuals will become the TAFs® of the future, and it is important to gain their loyalty while young.
- As markets grow increasingly crowded, service providers and technology vendors are forced to identify and establish sustainable competitive advantages. This data is essential to predicting consumer behavior across a variety of product and service categories.
Wireless/Mobile Services
by Roger EntnerEvent Summary
On January 28, AT&T Wireless and Cingular Wireless announced a joint venture to expand their buildout of GSM/GPRS network coverage along 3,000 miles of interstate highways in predominantly Midwestern and Western states. This joint venture will be the first to provide GSM/GPRS wireless technology to customers along major interstate routes in Arizona, Colorado, Kansas, Minnesota, New Mexico, Nebraska, Oklahoma, Texas, and Utah.
Market Impact
The true focus of the AT&T/Cingular joint venture is to reduce roaming expenditures to rural carriers. The advent of large or unlimited night and weekend promotions has become the Achilles' heel of the large carriers. Their urban customers reside in their own footprint, but often spend nights and especially weekends in rural areas, where the large carriers have no coverage. The Big Six carriers pay between $0.10 and $0.45 per minute in roaming expenditures when one of their customers uses a rural carrier's network. At an average gross profit of roughly $30 per month per customer, roaming charges can quickly turn into a money loser.
Analysis
- As predicted in the Yankee Group's November 2001 Report, "State of the Wireless Union—2001 Edition," rural carriers that depend significantly on roaming revenues should see the writing on the wall. Dobson Wireless's roaming revenues are 42% of its overall revenue, and Western Wireless depends more than 20% on roaming revenues. Almost immediately after the announcement, shares of Western Wireless—which has coverage in the markets targeted by the joint venture—dropped by roughly 30%. Investors are realizing that the decline in roaming will make rural wireless carriers' business models unsustainable for the future.
- The joint venture will also benefit many rural communities along the major interstates in the heartland of America by giving them access to 2G and 2.5G technology, bringing them wireless amenities such as voice mail, caller ID, and three-way calling as well as data services—thereby narrowing the services gap and user experience between rural and urban customers.
- Depending on FCC approval, this could mean the end of analog for GSM carriers. By discontinuing the use of analog, their spectrum problems will ease since the spectrum that is currently dedicated to analog can be re-utilized for GSM/GPRS; and they can enjoy a subsequent increase in usage and revenues resulting from the improved user experience.
Wireless/Mobile Europe
by Farid YunusEvent Summary
In the week of January 28 both Orange and Vodafone published their results for the 2001 calendar year. Users and revenues for both continued to grow healthily, while mixed results were achieved in raising the average revenue per user (ARPU).
Market Impact
As the two largest wireless groups in the world, Orange and Vodafone are important barometers for the wider mobile industry, and based on their figures the winds are indeed changing. In every market the rate of ARPU decline has slowed, with Orange even posting a second successive quarterly increase in its UK operations. Rising postpaid ARPU is becoming the norm, while the decline in the prepaid sector has slowed in conjunction with fewer new prepaid additions.
These reassuring figures are precisely as we predicted, and in the Yankee Group's new quarterly forecast update, we have maintained our regional ARPU forecast of US$28 per month in 2002, down a mere US$0.10 on the annual average in 2001. Following this period of stabilization, if we remain consistent, total ARPU in Western Europe will rise to US$34 by 2006.
Conclusions/Recommendations
- The trough will bottom out this year, and an overall improvement in ARPU will become evident in 2003. But higher ARPU is not an end in itself, and profitability can still be improved through further reductions in subscriber acquisition and retention costs, and operational efficiencies.
- New 3G entrants must compete on product, not price. A measure of price competition will undoubtedly occur, but the same historically severe erosion would not be sustainable. Ultimately, it would be in their own best interests to maintain healthy margins, since market saturation will prevent rapid user and revenue growth.
- Great potential still exists for mobile communications to enrich and improve our everyday lives. And that is the point—the potential remains unfulfilled. Forget killer applications and implausible scenarios; naysayers need look no further than the old copper networks, where public-switched traffic has seen extraordinary growth in recent years. The Internet has driven this growth, and if even a small proportion of this IP traffic migrates to wireless, the visionaries will be vindicated.
Convergent Communications Asia-Pacific
by Agatha PoonEvent Summary
On January 29, Sprint International announced a financial commitment to build two new network operation centers in Seoul and Taipei this year. On the network capacity side, however, Sprint is taking a more cautious approach, announcing no plans to acquire any new network assets at this time.
Market Impact
Since the dissolution of Global One, Sprint has followed a "bandwidth-on-demand" strategy for its Asia-Pacific activities. Instead of making a significant investment in network buildout, Sprint has relied on regional bandwidth providers to handle Asian traffic for its global customers. Currently, Sprint is one of the bandwidth users on FLAG Telecom's intra-regional routes.
Given the steep price drops on wholesale capacity, it makes sense for network players like Sprint to take advantage of bargain bandwidth prices. More importantly, continued market consolidation among key infrastructure providers will help facilitate network integration efforts among players who have a collection of different networks inherited through acquisitions.
Recommendations
- In times of economic uncertainty, we expect to see more network players follow Sprint's lead to ensure cost performance. Although Sprint expects a surge of corporate demand for IP, the real differentiator for the carrier will be its capability of supporting MNCs with multiple classes of services while delivering IP-based services.
- With global deregulation and liberalization taking hold, competition among network operators is inevitable. Instead of exploiting all resources straight away, service providers must be flexible enough to map out both short-term and long-term business plans and address the specific needs of targeted segments at the right time with the right vehicle.
Carrier Convergence Infrastructure
by Mindy HiebertTrend Summary
Gluon Networks and Telica recently closed venture capital (VC) funding rounds for $50 million and $60 million, respectively. Other media gateway and softswitch vendors are also seeking funding, and further announcements are expected within the coming weeks.
Market Impact
During mid to late 2001, VCs were bullish to invest in telecommunications companies in general and furthermore, exhibited a heightened concern for vendors that based sales forecasts on uncertain trends, particularly when focused on voice-over-packet (VoP) technologies. Nevertheless, early 2002 is witnessing several funding announcements, and rumors abound that more VoP technology vendors are near closing additional VC rounds as well.
Conclusions
- The recent funding announcements demonstrate that VCs are reassured in the market confidence that, in spite of the downturn in 2001, VoP technology provides a compelling business case for carriers, and thus represents a viable, long-term venture.
- The investments will serve to advance the market by enabling vendors to extend resources in developments beyond core trunking and Internet offload applications. For instance, vendors will utilize the resources to concentrate on building more functionality-intensive capabilities, such as those required for Class 5 solutions and enhanced services.
- The year 2002 will bear witness to more funding announcements from VoP technology vendors as well as product announcements for Class 5 functionality and enhanced services. Technical lab trials for these solutions have already begun and will continue throughout the year, as carriers adamantly test the products to ensure that new solutions offer the same fault resiliency, security, and quality of service as traditional systems.
Wireless/Mobile Asia-Pacific
by Shiv PutchaEvent Summary
On January 23, QUALCOMM announced licensing agreements with 11 more Chinese handset vendors, bringing the total number of domestic CDMA handset manufacturers to 17. The deals are based on royalty agreements, although specific financial details have not been released. China is already the world's largest cellular market, with 147.6 million subscribers at year-end 2001, and despite slowing year-on-year growth rates, the mainland is currently projected to grow to a staggering 355.9 million subscribers by 2006.
Market Impact
The deal significantly increments QUALCOMM's entry strategy into China. With Motorola's large production facilities in China, and potential imports from Korean vendors, the stage is set for a steady supply of CDMA handsets. This would go a long way toward avoiding the supply-side bottlenecks that have slowed down GPRS commercial launches.
However, the deal does not go so far as to cement QUALCOMM's CDMA future in the Chinese market. A significant weakness with QUALCOMM's royalty-based strategy is that it hinges on the CDMA standard aggressively attracting new subscribers. This reliance on evolving technologies could easily run aground in China. China Unicom's CDMA network represents the foundation of QUALCOMM's hopes from the Chinese market, but Unicom is targeting high-end users with its new CDMA service. Therefore, success for QUALCOMM's CDMA standard will depend not on a continuous supply of handsets, but on whether the CDMA service will attract large numbers of subscribers.
Recommendations/Conclusions
- With China's new cellular additions coming largely from prepaid, Unicom's current strategy could run aground. The stakes are high for both Unicom and QUALCOMM's strategy. Unicom's CDMA service will need to both attract new subscribers and wean current high-end users from China Mobile. Failure to do so will likely precipitate Unicom offering prepaid on its CDMA service.
- China's domestic handset vendors have not succeeded in gaining sufficient traction yet in their efforts to make a dent in the market share of the big global three of Nokia, Motorola, and Ericsson. The large number of CDMA licensees masks the fact that none of them may have sufficient economies of scale to compete with the big three. Consolidation may be inevitable in the short term, which could adversely affect QUALCOMM's revenues in China.
Internet Strategies Europe
by Scott SmithEvent
Pace Micro Technology, developer of set-top boxes and home gateway hardware, has announced two trials of its new wireless home gateway technology for broadband with the UK's two main cable broadband providers, Telewest and NTL. Using two components, Pace's Gateway Expander at the set-top box, and pcConnect units at each PC, consumers will be able to skip stringing wire around their homes and simply create a wireless connection between the set-top "hub" and each PC of up to 512 Kbps. The technology uses the DECT standard typically used for digital phones. These are the first trials Pace has conducted anywhere of this technology.
Market Impact
While they will be minimal in their overall impact as these are pilots, the results of Pace's tests with NTL and Telewest could prove enlightening. Both Nokia and Microsoft have been talking about similar technologies recently, which demonstrates that lessons are already being learned about lowering the pain threshold for broadband users' self-provisioning—not every user wants to wire their own home. It also points to the need for flexibility in placement of networked devices in the home. We expect a lot of parties will be looking to see if the technology performs well, as many service providers are currently struggling to lower barriers to broadband take-up in Europe.
Recommendations
Service providers, content companies, and hardware manufacturers interested in accelerating broadband usage in Europe and worldwide would do well to take notes from these trials. British users probably represent among Europe's most techno-skeptical consumers. If this works for Telewest and NTL, it should fly elsewhere.
Competitors Nokia, Microsoft, and others will want to be prepared to take advantage of the results, positive or negative. Either wireless home networking will be shown in a limited way to be a promising route, or Nokia and Microsoft can pounce on Pace's technology as a non-starter.
Software providers and driver developers should be considering how this technology can open up broadband to a range of devices in the home. European consumers are not as likely to have multiple PCs, due to space constraints, but could be interested in network appliances, mobile devices, etc., having access to broadband.
Mexico Market Strategies
by Daniel GalindoEvent Summary
In 2001, the Mexican government launched the "e-Mexico" project to increase online citizen services and increase Internet access. The target is to provide Internet access to 10,000 underserved communities through Digital Community Centers by the end of the Fox administration. In its first stage (2001-2002), e-Mexico would transform 2,443 post and telegraph offices into digital centers.
Market Impact
The e-Mexico project is a splendid vision, but the real question is how the project will be funded. The 2002 federal government budget incorporates a telecommunications social coverage fund (Fondo de Cobertura Social de Telecomunicaciones) with a total of US$81.5 million (750 million pesos) that will be administered by the Secretariat of Communications and Transport, the entity in charge of the e-Mexico project. This fund's objective and distribution will be announced before April 15, 2002. To date, there is no publicly announced allocation for the e-Mexico project. However, in recent months, government officials have discussed donations and private contributions to e-Mexico.
Recommendations/Conclusions
- The e-Mexico project needs commitment. The government must focus on becoming more efficient, strengthening federalism, and providing better public services. For e-Mexico, the country will have to strive for a high degree of budgetary transparency to send clear signals to service providers and developers. The e-Mexico project will not have a real impact if the government does not commit to this project and assign a budget, look for international cooperation, and offer concessions to foster private investment.
- Government portals must create coordinated, useful transactional citizen services. When e-Mexico is launched, a growing array of government service providers should be trained on how to create and maintain citizen services that are trustworthy and easy-to-use, in order to justify annual e-Mexico allocations.
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Australasian Broadband Access, Part 2: The Suppliers
amsv2n2, Report, January 2002, by Geoff LettsAustralasian Broadband Access, Part 3: Consumer and Demand
amsv2n3, Report, January 2002, by Geoff LettsEnterprise Services Management: ERP Giants Move In
bcav7n2, Report, January 2002, by Kosin HuangDeveloping Inter-Enterprise Collaborative Commerce
bcav7n3, Report, January 2002, by Kosin HuangCapacity Trading: An Answer to Europe's Wholesale Market Distress?
ccev2n3, Report, January 2002, by Camille MendlerNetwork Element "Secret Agents": Starting at the Bottom
cciv3n1, Report, January 2002, by Nancee RuzickaUnlicensed Fixed Wireless: Setting the Stage for Greater Broadband Availability?
cmcv19n1, Report, January 2002, by Imran Khan2002 Spending Priorities for Customer Contact Center Managers: Taking Agent Performance and Training More Seriously
crmv4n2, Report, January 2002, by Devon SheaEnterprise Streaming Media: Case Studies in the Financial Services Industry
imsv8n2, Report, January 2002, by Paul RitterAustralasian Broadband Access, Part 2: The Suppliers
isapv3n2, Report, January 2002, by Geoff LettsAustralasian Broadband Access, Part 3: Consumer and Demand
isapv3n3, Report, January 2002, by Geoff Letts
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February 12, 2002
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In-Building Wireless: Developments in Capabilities and ConvergenceFebruary 15, 2002
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