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Consumer Market Convergence
by Dominic AinscoughEvent Summary
On February 14, EarthLink announced a promotional discount for its home networking solution, offering the basic gateway hardware free of charge through March 31. Consisting of both a price reduction and rebate, the discount removes the up-front cost of the phoneline and Ethernet-based HomePortal gateway and cuts the price of the wireless 802.11b option in half to $150. However, broadband customers must continue to purchase the requisite network adaptors at the original price point, pay the monthly $9.95 shared access charge, and commit to a 12-month service agreement.
Market Impact
As service providers, including ISPs, telcos, and cable operators continue to market a technologically undifferentiated home networking product, EarthLink's alternative pricing model is a creative means of improving the value proposition of their in-home connectivity offering. Providers must respond to increasing price sensitivity as they target more mass-market consumer segments. However, limiting up-front costs will not result in greater penetration of home networks without an equally aggressive focus on articulating the utility of connectivity and developing additional applications that further the value of networking. According to the Yankee Group's 2001 Networked Home Survey, 70% of households not interested in connectivity do not perceive a need for in-home networks, while only 20% of respondents cite price as the primary reason for lack of interest. Increases in consumer adoption are not just a function of lowering prices but also require significant investment in marketing and improving usability of home networking solutions.
Conclusions
- Price is a core element of the home networking offering, especially as the addressable consumer market expands beyond early-adopter segments. However, reduced initial hardware cost to the consumer must be coupled with increased marketing emphasis on utility and applications to effectively create a compelling value proposition and further adoption.
- While 22% of U.S. households have multiple PCs in the home, which provides the minimum component base required for a simple network, in-home connectivity penetration continues to be limited by slowing growth in broadband subscribers.
- As service providers will become the most effective distribution channel for home networking solutions among mass-market consumers, they should deepen relationships with networking device manufacturers and application developers to increase the functionality embedded in the gateway.
Media & Entertainment Strategies
by Mike GoodmanNews Event
On February 8, Walt Disney Internet Group (WDIG) and BellSouth announced an agreement under which WDIG will license selected online content on a non-exclusive basis to BellSouth for re-distribution via BellSouth's Internet Service portal. Video, audio, and text content from ABCNews.com, Disney.com, and Family.com will be featured; but missing from this mix is ESPN.
Market Impact
Consumers are primarily interested in subscribing to broadband for the technology. According to the Yankee Group's Technologically Advanced Family® Survey, the top two reasons PC households would subscribe to a high-speed Internet service are "a faster connection" (36%) and "not tying up the phone line" (26%). Content barely registers as a reason for subscribing to broadband.
This focus on technology ultimately casts broadband as a commodity—and one that is susceptible to customer churn. Broadband subscribers are not particularly loyal—51% of PC households interested in subscribing to broadband do not have a preferred provider and among current broadband subscribers 26% would be willing to switch providers if presented with a better choice.
By providing consumers with more than just access, BellSouth is strengthening its relationship with the consumer, making the access service less susceptible to churn and potentially creating new revenue streams.
Conclusions
Leverage the Disney name. Consumers do not associate BellSouth with entertainment, therefore it is necessary for DSL providers to partner with companies that have strong brand recognition in the entertainment space if they wish to provide this type of content.
BellSouth should leverage the Disney name and brand by giving it high visibility on its Web page. Additionally, BellSouth should seek exclusive content to attract consumers, though partners such as Disney are likely to loath exclusive agreements, as it will not want to be tied to a single provider.
Content is king. To continue to grow BellSouth must offer more than just fast access. While fast Internet access is sufficient to attract early adopters, content is necessary to reach a mass audience as well as create new revenue streams. This partnership is a step in that direction.
Networks are important as well. While Disney is strong in content, it requires partners such as the MSOs or DBS for distribution. More deals with local telephone companies like BellSouth have the potential to foster new distribution channels in the future.
Wireless/Mobile Technologies
by David BerndtEvent Summary
On February 12, Apple, Ericsson, and Sun Microsystems announced a relationship focused on enabling network operators to deliver standardized multimedia content to a variety of wireless devices including mobile phones and PDAs. This relationship draws on Apple's expertise in content creation, Sun's expertise in content delivery, and Ericsson's experience in wireless infrastructure. Through the Ericsson Content Delivery Solution (CDS), this alliance hopes to expand the market for streaming media, opening new distribution channels for content providers.
Their standards-based solution is an end-to-end platform that includes the following ingredients: Apple's QuickTime for content creation and encoding, Sun's software and systems to enable content distribution, and Ericsson's mobile operator infrastructure and services solution. Ericsson's CDS will provide users with multimedia services such as movie clips and instant news on-demand.
Market Impact
This cooperation of Ericsson with Apple and Sun ensures the availability of new types and avenues of multimedia content. While there has been significant discussion within the mobile community about the introduction of multimedia into the wireless world (both through next-generation wireless networks and MMS platforms), gaps have remained in terms of actually creating the content. Apple has always had strong relationships with the content developer and artistic developer community. This new alliance helps to close the gaps and bridge the media industry with the mobile community.
Ericsson's choice of Apple's QuickTime for the Content Delivery Solution also opens up some interesting possibilities for wireless developers. QuickTime is widely used by content developers, and the Mac is the platform of choice for the creative community. The Apple community will now take a greater interest in the potential of wireless multimedia opportunities.
Analysis/Conclusions
- This announcement brings Apple into the wide-area wireless community for the first time in a significant way. Up until now, its wireless focus has been in the local-area networking arena. It is important for Apple to ensure that it creates real momentum for itself out of this announcement. Otherwise, it will be dismissed as just another company with "another announcement" to create the appearance that it's in the wireless space.
- While Apple's share of the PC market remains small, it does have significant mind share among the developer communities. Apple must leverage those relationships if it wants to become a more substantive player in the wireless market. Potentially, it can have a huge impact on the market over the next few years.
- Finally, other companies that were not part of this announcement (such as QUALCOMM) must keep an eye on this part of the world. While BREW offers interesting opportunities for developers, a whole other segment of the developer community has grown up with Apple. There is a potential for this alliance to get ahead of others in the area of wireless multimedia development.
Wireless/Mobile Services
by Roberta WigginsEvent
On February 13, Wireless Village, a consortium of wireless companies including Motorola, Nokia, and Ericsson, released the first specifications for interoperable Instant Messaging and Presence Service (IMPS) in the wireless environment. Established in 2001, Wireless Village is an initiative to define and promote universal specifications for wireless instant messaging (WIM) and presence services, and create a community of supporters.
Market Impact
WIM has the potential to be a critical messaging application, second to e-mail, for both consumers and business users in the wireless environment. Next-generation networks will enable users to be always connected, and allow WIM to extend beyond text to multimedia support. Wireless Village further provides standards to extend presence and availability features to wireless.
A global standard of IM connectivity for cell phones, mobile computing devices, and PCs is critical for the success of WIM. However, in addition to Wireless Village, several different standards groups, including the Presence and Availability Management (PAM) Forum, have taken on the challenge. While these different initiatives may not actually be competing but overlapping (and many even share members), to date there has not been a tremendous amount of cooperation.Conclusions
- Before WIM can really take off, interoperability issues must be resolved and consensus achieved among the diverse initiatives. This is no easy feat as highlighted by IM vendors' inability to agree on interoperability in the wired environment, with different initiatives emerging, including Internet Engineering Task Force's (IETF's) Instant Messaging and Presence Protocol (IMPP), and IMUnified (backed by AT&T, MSN, Odigo, Openwave, Prodigy, and Yahoo).
- Critical to the success of Wireless Village is its ability to attract the support of additional handset vendors, solutions providers, and carriers. While it claims to have a community of nearly 100 supporters; this support must translate into real commitment.
- While Wireless Village is addressing device compatibility issues, there are also cross network (wireless and wireline) and islands of service (e.g., AOL, Yahoo, MSN) connectivity requirements before WIM can realize its full potential. Therefore, Wireless Village also must promote cooperation with other WIM/IM interoperability initiatives.
Telecom E-Business
by Sharon BallardTrend Analysis
At the end of 2000, there were at least 10 different vendors offering electronic bonding (software that enables CSPs to electronically exchange service orders) solutions primarily to the competitive communication service provider market (i.e., CLECs, IXCs, ISPs, etc). At the beginning of 2002, just over one year later, this software market has contracted considerably—mirroring the consolidation in the overall CLEC/CSP market. For the vendors that have survived, the trend in offerings has moved toward providing CSPs an outsourced "service" solution and not a traditional license software product.
Market Impact
Overall, there is a growing trend in the communications industry toward outsourcing non-core business processes and software such as billing, customer care, IT operations, and interconnection gateway software/operations—especially during periods of economic downturn. BellSouth, AT&T, and Nextel have all made recent announcements on outsourcing arrangements with systems integrators. The cost and complexity involved in maintaining and tracking the exchange of CSP service orders with large incumbent CSPs and other trading partners is acknowledged by the success of these interconnection gateway vendors that offer a hosted or business process solution. Vendors such as Accenture, NightFire, Telcordia, and Illuminet are best positioned to capture a significant share of the over $400 million dollar addressable market for interconnection gateway solutions in North America.
Conclusions
- CSPs must recognize all costs involved in using manual processes as well as managing the inter-carrier service order process—be it IT, systems integration expenses, or lost customer revenue from misplaced orders delaying provisioning cycles. CSP adoption of e-bonding solutions (either licensed or hosted offerings) offers CSPs the opportunity to create efficiencies in operating processes and ultimately reduce operating expenses. This opportunity to both reduce operating expenses and increase revenue recognition by improving the provisioning of customer orders requires an understanding and commitment to managing the inter-carrier interconnection process.
- Vendors' biggest competitive challenge in this space will continue to be CSP insistence on using manual processes to send service orders to trading partners—and not recognizing all the costs involved in doing so. Continued consolidation in the CSP space and urgency to decrease operating expenses will hasten the adoption of e-bonding solutions.
- In the midst of this consolidating market, the entrance of the low-cost hosted offering by BizTelOne, which leverages the software of DSET, provides cost-conscious CSPs an opportunity to automate the interconnection process. However, BizTelOne will face significant challenges not only from entrenched competitors but also from the learning curve involved in mastering the inter-carrier interconnection process.
Wireless/Mobile Asia-Pacific, Japan Market Strategies
by Naoto NakagawaEvent Summary
NTT DoCoMo has announced it will introduce its new wireless portal service “Infogate” targeting PDA users beginning March 1. At a monthly charge of about US$0.75 cents (¥100), Infogate will enable both cellular (PDC and W-CDMA) and PHS users to navigate through a variety of content and applications developed specifically for PDAs. In general, the service and business model will operate much like its cellular phone-based predecessor, i-mode. In fact, Infogate is a PDA i-mode.
Market Impact
For i-mode users the ability to navigate, view, and download content, and access services has been limited due to restrictions of the handset design, such as the smaller display and the need to use the ten keypad to input information. With the use of PDAs, these limitations and others will be greatly modified, and users will be able to, and most likely compelled to, access multimedia-rich content.
Today, we are seeing an increasing number of Web sites designed for PDA users, including those developed by PDA manufacturers, major ISPs, network service providers, and PC-browser vendors. However the market is still small, since demand thus far has been limited. The current market size of active PDA users in Japan including users of WinCE, Palm, Zaurus, and others is estimated around 1 million. Notwithstanding this size, we believe there is significant potential demand for mobile Internet services that are not restricted by the dimensions of the wireless handset.
Recommendation/Outlook
- The prices of the leading PDAs in Japan have been falling, thus increasing demand. In addition, demand for CF card type PHS terminals is rising.
- Infogate will create new channels of distribution for content that was previously unsuited for the wireless handset, due to the screen size limitation. Considering the success of some i-mode content companies, companies may find it alluring to modify and develop content designed for the new PDA i-mode service. However, success is not a guarantee. Content companies for both consumer and business markets will need to examine carefully the business models and revenue sharing opportunities with the carrier.
- PDA users have generally used the devices mainly as a personal organizer and nothing more. With the added communications capability, usage patterns will change, and successful PDA vendors will be those who develop products that will enhance the user experience in this area.
Billing & Payment Application Strategies
by Jason BriggsEvent
Originally announced in November of 2001, Convergys has completed the implementation of Geneva's Active Revenue Management product with Compaq Corp. Geneva will support both enterprise and consumer services deployed over the Compaq iPAQ handheld wireless product.
Market Impact
Under the terms of the agreement, Convergys signed a three-year service bureau contract with Compaq initially supporting wireless solution sets aimed at the large corporate enterprise. Subsequent to the enterprise, wireless content services to the consumer will likely be the next revenue stream as the iPAQ device (as all PDAs) offers a larger, more interactive screen than its wireless handset cousins.
Recommendations/Conclusions
- This marks the first instance of the Geneva product implemented in the Convergys service bureau environment as well as one of the first modular offerings using the Geneva rating engine and the Convergys credit and collections module. This type of flexibility will continue to be paramount in winning new billing software business and demonstrating growth in 2002.
- Convergys has long touted the synergies between its call center business and its family of billing solutions. However, it appears that these synergies may be more important than ever as the concept of Mobile Virtual Network Operators (MVNOs) begin to permeate U.S. society. With these arrangements, the MVNO (in this case Compaq) packages service offerings for the end users (enterprises and consumers) while utilizing the wireless service of an underlying network service provider (Verizon Wireless, Sprint PCS, etc.). However, in many cases, the MVNO may have a savvy marketing group and brand, however, it may not be in the business of operating call centers and maintaining billing relationships. Hence, we see this as a tremendous opportunity for Convergys to capitalize on both sides of the business.
Wireless/Mobile Europe
by Farid YunusEvent Summary
Cable & Wireless (C&W) announced on February 13 that BT Cellnet had become the latest operator to commit to using its GPRS roaming exchange (GRX). Since officially launching the service in May 2001, Cable & Wireless claims it now has sixteen commercial GRX customers.
Market Impact
By opting for a centralized IP routing network, BT Cellnet and all other wireless carriers will avoid having to negotiate hundreds of individual agreements for point-to-point links with their counterparts worldwide—the traditional method of extending roaming coverage in the circuit-switched GSM world. C&W can potentially offer its GRX services in 70 countries over its own IP backbone, but through peering agreements with other GRX providers and its network partners, which include IBM, Infonet, and Equant, access nodes for GPRS traffic will be nearly ubiquitous.
Conclusions/Recommendations
- As the number of wireless operators offering packet-based services increases, connecting to a single GRX will be the most cost-effective and expedient solution to achieving broad roaming coverage. Existing roaming models are inadequate for coping with data and the increased billing complexities, while the main alternative of tunnelling through the public Internet lacks the same security, scalability, and service reliability.
- Enabling GPRS roaming will be a key determinant for corporate adoption of GPRS services. Though roaming traffic still constitutes a small proportion of the total wireless pie, the ability to access the same services while abroad is considered essential by a small but lucrative market segment. This is already a critical requirement for European business users, and any solution that facilitates rapid time-to-market should be embraced.
- C&W is publicly committed to working with other GPRS exchanges, and the twenty or so prospective providers should echo this sentiment. Failures and consolidation will be inevitable, but the viability of those that remain will depend on a steady increase in GPRS usage. Roaming blocs with discriminatory pricing will do nothing but hinder the universal and affordable roaming access required to stimulate greater use of packet data services.
Wholesale Communications Services
by Seth LibbyEvent Summary
On February 11, Universal Access (UA), a provider of specialized connectivity and network information services, announced its intention to purchase the fiber-optic network assets of Sphera Optical Networks (Sphera), a metropolitan carriers' carrier, in several major U.S. cities. The notice of intent was submitted as part of Sphera's Chapter 11 protection filing, and has the backing of Sphera's major investor.
Market Impact
If approved, the purchase would give UA dense connectivity to major carrier facilities in five distinct metropolitan markets: New York City, Washington, D.C., Dallas, Chicago, and Los Angeles. UA already serves dozens of carrier customers in these cities through its Universal Transport Exchanges (UTX). The acquisition will immediately improve UA's operations in the specified cities in two key respects. First, it will enable UA to consolidate disparate customers to a self-owned network, significantly reducing the recurring monthly costs paid for leased local lines. Second, it will enable UA to easily extend its suite services to other major telecom facilities in these markets—sparing carriers the expense and effort of having to build out to UA.
Conclusions/Recommendations
- The timing of this acquisition underscores UA's focused and well-executed growth strategy. UA wisely resisted the allure of owning fiber facilities until it had built sufficient traffic volume/recurring revenues to justify the cost. And by acting now, when the market is awash with distressed telecom assets, UA has greatly increased its buying power. UA will pay approximately $9 million for assets that reportedly cost Sphera upwards of $35 million to construct.
- Bandwidth trading as envisioned by Enron is defunct. Yet, interest in a capacity market remains. By coupling its already powerful connectivity services and comprehensive data base with metro fiber, UA fulfills the promise of the "virtual pooling point" and positions itself as a significant enabler of an open capacity market.
- Large capacity buyers and sellers should, at a minimum, understand UA and the advantages (including recurring revenues for capacity, greater operational efficiencies and savings for off-net capacity deals, circuit inventory management capabilities, and carrier-neutral interconnection) that it can provide.
Communications Services for the New E-conomy
by Nicholas MaynardEvent Summary
On January 16, metro Ethernet provider Telseon secured $20 million in equity financing, bringing the total to $295 million including only $75 million from vendor financing. Telseon's good fortune, however, has not been the trend. Sigma Networks, another metro Ethernet start-up, is in the process of closing its doors and selling its assets and customers. Sigma secured $435 million in financing only last year, of which $290 million was vendor financing. With a vendor/equity ratio of 2-to-1, Sigma's interest payments were unsustainable and ultimately pushed the company into liquidation.
Market Impact
The Tier 1 metro markets have been particularly volatile over the last 18 months, forcing several providers to close shop and liquidate. Competing for large enterprise and service provider customers has proven to be a difficult strategy to execute, with too many providers in a crowded market. Consolidation may have been inevitable, but both Telseon and Sigma were viewed as market leaders. Both companies had well-respected management teams, which helped attract their sizable funding rounds. Both companies also had smart strategies of becoming profitable within their initial markets before expanding into additional cities. But while Telseon relied mostly on equity financing, Sigma had the burden of vendor financing, predominately from Cisco, which made fast customer acquisition a requirement for survival. With any new company, cash flow problems will arise quickly with a heavy reliance on debt financing and few telecom start-ups with large debt loads have avoided bankruptcy or restructuring. As the Yankee Group wrote in its March 2001 Communications Services for the New E-conomy Report "Metro GigE Providers: Opening the Funding Floodgates,” vendor financing can be even harder to cope with than traditional debt; a vendor will be more likely to write-off the equipment and walk away from a start-up than a typical bond or equity holder. If a vendor decides to shut off the financing, this can spell doom for struggling companies, quickly pushing them into bankruptcy, as was the case with Winstar Communications and Lucent and now with Sigma and Cisco.
Recommendations
- Service providers planning to acquire assets should avoid debt-heavy start-ups prior to bankruptcy at all costs. Assets can be obtained more cheaply once the distressed provider has filed Chapter 7 and is liquidating.
- Investors should avoid throwing good money after bad. Metro service providers worth additional investment should have a clear differentiator versus their competition, a short path to positive cash flow, and a targeted business strategy. This is discussed in the upcoming Small and Medium Business Communications/Communications Services for the New E-conomy Report on the competitive carriers.
- Enterprises should know their service providers and keep track of their financial status. A multivendor solution for critical services should be considered in order to avoid being left without service due to a bankruptcy.
Mexico Market Strategies
by Daniel GalindoEvent Summary
In the second week of February, Mexican incumbent Telmex announced its 4Q01 financial results. The company's global revenues increased 4.1% from 106.6 billion pesos (US$11.7 billion) million in 2000 to 111 billion pesos (US$12.2 billion) in 2001. EBITDA increased 1.2% from 59.1 billion pesos (US$6.5 billion) in 2000 to 59.9 billion pesos (US$6.5 billion) in 2001. Telmex serves 13.4 million fixed lines in Mexico, a 10% growth over 2000, 913,000 Internet accesses representing 44% growth, and 1.6 million equivalent data transmission lines, a 57.8% year-over-year growth.
Market Impact
Telmex managed to perform well in the Mexican market in 4Q01, despite a very difficult quarter and year overall, due to the worldwide economic crisis and the slowdown of investments in the industry after September 11. The most important growth in Telmex revenues came from interconnection revenues, mainly due to the growth in the mobile market in general, and in revenue from the "calling party pays" billing environment in particular. The company also experienced impressive growth in its data sector, highlighting the high-growth potential for this sector in 2002. In addition to the market growth, it is important to highlight that Telmex's international long-distance minutes fell from 1.3 to 1.1 billion minutes in the fourth quarter, a trend that represents the slowdown of international economic activity.
Conclusions
- Telmex has shown consistency. Telmex's management has proven itself once more by maintaining solid growth even with an unfavorable economic environment. Nevertheless, this year represents an important challenge since there have been important changes in the regulatory, political and economic environments. In order to maintain its undisputable first place position in the Mexican market, Telmex will have to overcome the obstacles of a new telecom revenues tax, a new telecom law, and aggressive competition in data and long-distance services.
- Competitors have a long way to go, and must continue being aggressive. The financial results of Telmex reflect the fact that competition has not impacted the operational gains of the company. Competition must continue to innovate, differentiate their services, and focus on niche markets.
- Telmex must focus on growing EBITDA margin. As the telecommunications market matures, the sector growth will naturally slow. Therefore, Telmex must focus not only on capturing new clients and promoting market growth, but also on reducing costs through more efficient operations in order to maintain a high EBITDA margin. Telmex's EBITDA margin decreased over the year 2001, highlighting the need to focus on this area.
Carrier Convergence Infrastructure
by Mindy HiebertTrend Summary
During the past six months, heightened interest from cable multiple service operators (MSOs) internationally, in North America as well as Korea for instance, have increased competition for packetized voice technology vendors that initially came to market with initiatives focused on the MSO market. Early market entrants include Syndeo and Nuera. Incoming competitors include next-generation vendors, such as VocalData, as well as incumbent vendors such as Nortel, which recently highlighted its initiative with a partnership announcement with Motorola.
Market Impact
- For the MSOs such as Comcast, Cox, and Charter, which are evaluating vendors to offer primary line services, vendors must conform to the stringent requirements for CALEA/lawful intercept, E911, and LNP services. Overall, MSOs have a strong interest in secondary services such as interactive gaming and video-on-demand, which for vendors translates to less stringent carrier grade requirements than primary line services, easing product development and advancing time-to-market.
- The standards development efforts for MSO deployments are centralized within PacketCable, a division of CableLabs. The focus on deployment standards benefits MSOs and vendors in areas from design to implementation, easing partner interoperability issues as well as vendors' time-to-market and MSOs' time-to-revenue initiatives.
Conclusions
- Trials for primary line and secondary line services have begun by MSOs such as AOL/Time Warner, Armstrong, and Charter, and we expect testing and technology revisions to extend throughout 2002 with commercial deployment announcements in mid to late 2003. Secondary line implementations, specifically, will drive enhanced applications to end users far sooner than expected from other service providers.
- While developments within the IETF and ITU are critical to enhance the functionality of protocols, often these organizations also enhance the complexity of product development and implementation. While the International Softswitch Consortium (ISC) is attempting to serve as a forum within the carrier and vendor communities, CableLabs, which recently announced the trial dates of its specifications, has received wider involvement and endorsement by MSOs than has the ISC of service providers. Clearly a matter of legacy telephony market perspective, such service providers have yet to realize the scope to which packetized voice technologies will impact their margins. The competitive environment is redefining itself today, preparing to encroach on traditional presumptions and hubris in the not-too-distant future.
Internet Strategies Latin America
by Grant SmithReport Summary
In 1997, Hotmail's Web-based e-mail service caused a sensation among users in Latin America. By breaking the paradigm of ISP-assigned e-mail accounts accessed through SMTP mail clients, the portable e-mail account became the first mass-market Web service to take off in the region.
Now, a second consumer Web services revolution is underway in Latin America. Microsoft Network's (MSN) joint ventured with Telmex has produced stealth subscriber growth through the T1MSN Explorer in Mexico. This proprietary interface is available to any ISP's subscriber. After download and installation, it serves as a convenient "integrated environment" of a Web browser, e-mail (Hotmail), multimedia player, chat, and other key applications. The MSN Explorer and commercial strategy of future joint ventures has the potential to alter the ISP landscape of Hispanic markets, and is the subject of our upcoming Report on T1MSN's proprietary bid for the Hispanic market.
Market Impact
Latin American subscriber markets are poised to grow 21.6% in narrowband access and 49% in broadband per year through 2006. Portals such as Yahoo are now competing by offering Internet access, while ISPs seek robust multimedia content capabilities and more attractive content to hold users. In Latin America, the MSN Explorer is currently localized for Mexico and Brazil. MSN and local market partners will be able to harvest content, commerce, and online consumer intelligence while disintermediating rival ISPs and portals.
Recommendations
- Tier 1 ISPs in second- and third-tier markets should evaluate an MSN Explorer strategy. While all ISPs will continue to be able to modify and customize Microsoft's Internet Explorer to highlight their content and commerce to customers, MSN Explorer opportunities will be exclusive in many markets.
- The Hotmail user base has now exceeded 100 million worldwide and is culled for inactivity monthly. This attractive Internet user base will continue to be an important feeder to future MSN Explorer joint ventures.
For more information, see our upcoming Report on T1MSN's proprietary bid for the Hispanic market.
Wireless/Mobile Enterprise & Commerce
by Eugene SignoriniEvent Summary
On February 4, wireless data software provider Geoworks announced that it was reducing its staff by 45% and seeking to sell its AirBoss Application Platform technology. The technology was designed to allow the delivery of applications to multiple wireless devices across a variety of wireless networks, and was purchased by Geoworks from Telcordia in July 2001.
Market Impact
Geoworks is only the latest wireless middleware/application service provider (ASP) to succumb to difficult market conditions. While the company was not new to the wireless market (it was founded in 1983), it suffered from an identity crisis. It's original mission was to provide an OSS to portable computing devices. Geowork's purchase of the AirBoss technology represented a repositioning as a platform provider. Yet Geoworks had difficulty focusing that initiative, alternating between targeting the AirBoss platform to carriers, which would then use the technology to deliver both consumer and enterprise wireless data applications, and selling directly to enterprise customers. However, carriers were reluctant to select an exclusive vendor of an emerging technology for large-scale implementations. Even deals with carriers such as the UK's BT Cellnet were not enough to provide sustainable revenue. On the enterprise side, adoption of wireless data solutions has been slow.
As if those forces were not enough to place the company in peril, the wireless middleware/ASP space was—and still is—crowded with multiple emerging companies, offering solutions that were difficult for carriers and enterprises to differentiate. Additionally, traditional enterprise solution providers, such as IBM and Oracle, have included wireless capability within their application delivery platforms.
Recommendations
- It may be too late for Geoworks to reinvent itself, but other companies have an opportunity to survive, but only by developing a distinct capability. For example, Aether Systems has exhibited expertise in developing and enabling applications within particular market segments (government and financial services). Ultimately, the application expertise may help differentiate these companies more than their platform technologies. However, even vertically-focused ASPs will have to operate with reduced cash flows for at least a year before wireless enterprise initiatives take off.
- As we previously predicted, the fallout among wireless middleware vendors and ASPs will continue, with at least five of the top ten vendors disappearing in 2002. Competitive pressure will continue to increase from the large enterprise software vendors (IBM, Microsoft, Oracle) as well as systems integrators. For the pure platform providers, survival will come via partnering with SI's as the preferred technology vendor, or licensing software to the larger vendors.
Internet Strategies Latin America
by Felipe GonzalezEvent Summary
On February 6, Todito.com, a Mexico-based ISP and portal targeting Mexican and U.S. Hispanic markets, reported that it closed 2001 with an accelerated growth over year 2000 both in sales (105%), and EBITDA (1,564%).
This performance was a result of an evolving marketing and product strategy and a series of complementary strategic alliances established with related companies.
Market Impact
With total sales of $10.7 million, and a $3.5 million (33% of sales) EBITDA, Todito.com shows positive results where pure-play portals have produced red ink. Todito made several strategic turns during 2001, evolving from being a pure horizontal portal one year ago; it became an ISP, first in an only-prepaid Internet access, then as a traditional monthly subscription access provider. No other major ISP is offering prepaid access service in Mexico. Since Todito.com launched it last April, it sold 75,000 cards.
Todito.com is owned in equal parts by national broadcast television TV Azteca, and DataFlux, an IT distributor and training company. Though independent of each other, both companies are controlled by the same family, the owners of Elektra (a chain of furniture and electronic appliance stores with nationwide presence in Mexico and Central America) and Unefon (a PCS operator). All these companies have developed a matrix of complementary strategies, with TV Azteca as a common publicity channel and Elektra providing a pervasive network of points of sale.
Last year's growth was a result of Todito.com taking advantage of these synergies, leveraging 660 Elektra stores that offer Internet kiosks, prepaid cards, and PCs with the "Todito" brand. All sales have been driven by intense advertising campaigns over the TV Azteca's channels.
Recommendations
- With 75,000 cards sold in nine months, Todito.com's market share is still small. Nevertheless, its sales growth—2,000 in April versus 30,000 in November—shows there is a viable market for prepaid Internet access services. Other ISPs should consider this payment option carefully with an eye toward how it transformed wireless mobile service providers strategy Latin America.
- In addition to physical points of sale for its cards, Todito.com should evaluate implementing other distribution channels, such as ATMs or virtual cards by phone with a credit card.
- Todito.com's general strategy clearly leverages marketing, distribution, and sales infrastructure. In telecom infrastructure, the company is virtual: its ISP services are provided through a third party. Other portals making the leap to access, such as Yahoo, which recently entered the ISP space in Argentina, should study the Todito strategy for success.
Japan Market Strategies, Wireless/Mobile Asia-Pacific
by Koji OkiEvent Summary
On February 8, Tokyo Electric Power Co. (TEPCO) was awarded a Type I telecommunications business license by the Japanese government to provide facilities-based telecommunications services over its fiber-optic network. According to the Japanese business daily, the Nihon Keizai Shimbun, TEPCO plans to introduce a 100-Mbps fiber-to-the-home (FTTH) services as early as this April for around ¥10,000 (US$75) per month.
Market Impact
In granting the license to TEPCO, the government placed a number of conditions on the company to ensure fair market competition, and prevent it from extending its existing customer base from its electric utility business to its new broadband business.
Usen Broad Networks and NTT are already offering FTTH services, however, their service coverage is limited to only parts of the major metropolitan areas. Although TEPCO's entry into the FTTH market will result in more broadband service options to consumers and make the FTTH service more affordable through price-based competition, it will be at least another three years until FTTH service providers complete deployment of their fiber-optic cables across the entire country. Also, it will take at least five to seven years for FTTH operators to gain a substantial market share in Japan's broadband market, as they are competing against rapidly growing ADSL and cable modem services.
Recommendations
- Price-based competition has been the most important driver for ADSL and cable modem providers, and has helped push users to change from dial-up to high-speed Internet access services. However, given the huge upfront buildout and other operational and maintenance costs of fiber-optic networks, it is economically unfeasible for FTTH providers to reduce their service charge to as low as those of ADSL providers (around ¥2,500 [US$20]).
- Given their limited ability to resort to price-based competition, FTTH providers should develop strategies that allow them to position content and applications as the key differentiator.
Review the 2001 CTAF® Survey
cmsv6n1, Report, February 2002, by Tosia MankaLatin American Handset Forecast: Battling Against Economic Downturns and a Limited Addressable Market
wmlav3n4, Report, February 2002, by Andy CastonguayApproaches to the Regulation of Electronic Commerce Around the World: Issues and Ongoing Challenges
grsv2n1, Report, January 2002, by Dianne NorthfieldCable MSOs Get Down to Business
enbav3n2, Report, February 2002, by Lindsay SchrothWestern Europe: An Internet Subscriber Update
isev4n1, Report, February 2002, by Andy Greenman
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