Big telcos' profits rise on flat turnover

The big UK telcos (in which I now include Sky as a multi-platform operator) are doing well - BT's pension deficit is eroding fast, it has increased profit on lower turnover, and its shares are bumping along. It is a relatively well-managed utility rolling out VDSL at a satisfactory rate. Virgin media, the cableco, is turning over almost £4b/annum but still making net losses. Meanwhile Sky is making £878m/annum based on a slightly higher revenue than BT (about £6b), revealing how nicely their wholesale business is doing pre-regulation. Between them they have cash flow of over £15b, and only BT Wholesale is really price-regulated.
Sky is having something of a High-Definition TV windfall, getting customers to pay significant premiums for HD channels. In the UK, Sky gets away in its duopolistic market with its HD premiums of £10/month ($16CAN) for 18 channels plus sports/movies. To a Canadian, this looks odd - Canada (Videotron in Montreal) gives 37 HD channels (including the main French language sports channel for hockey, and 2 movie channels) for $3/month (under £2), and the HD boxes cost no more than $200 (though listed at $300, stores are discounting).
It will be fascinating to see how ESPN and BT Vision compete with Sky and Virgin - but given Sky's marketing ability, bundling of Tivo-type services and 8m customer base, they may be able to resist price cuts and approach that magic "special offer" (sic) $99US/month including broadband that Comcast is presenting to its customers as a bargain! Of course as Sky gives away basic broadband with a puny 2GB cap, it does provide some value compared to Comcast - in LLU areas.

Magnificent post by Internet-thought on telco CEOs

Required reading - especially parts on why telco execs pretend to be competing with Google and Apple to justufy their huge salaries for running a utility (ahem, like regulators who pretend not to be regulating utilities), then invest in IT service companies because they screwed up content (Endemol, movie companies, web portals):
"IT-services companies are the construction companies of the digital age. IT companies are just like your local builders. They are lying, thieving, unprofessional, shoddy bastards you can't do without. Everything would be better if you could Do It Yourself, except that you don't have the time and the expertise and you've seen too many DIY projects fail horribly. So you hire a bastard IT-company (builder). Really there is no difference between a construction company and an IT company. Both make life hard for the customer and the supplier. An IT company is always faced with a customer who underestimates the work, but who still rather pays someone else to do it, than do it themselves. So whoever the customer chooses, it is generally the one with the second lowest price. This is the guy who didn't calculate all the contingencies well, but was at least able to name some to comfort the customer, who knows there will be contingencies. Then the customer and the supplier set off on a perilous journey of over expectation for both the end product and end profit. Half way through they know the journey is impossible and neither are going to get what they want. For the remainder of the journey they fight over all the extra work that needs to be done. In the end neither is happy, both claim they paid too much and got too little etc. So low margins, high hassle. And this is the market telcos want to get into, because somehow it fits their high margin business.."

Win-win-win: Amazon describes FRAND

I have always enjoyed Amazon's forays into net neutrality - and since 2006, they have argued for negative net neutrality, as have I. Now Paul Misener argue for FRAND - allcomers can access higher QoS so long as that does not slow regular traffic. How does that work? Simples - increased capacity to match that new QoS traffic. Its exactly what I described in the book, and if it is to happen, its not just Amazon who will celebrate.
"Why should one Web site be able to pay for better performance when others do not or cannot pay? The answer is simple: the improved performance of this Web site has not come at the expense of any other Web sites, and the same enhancements were available to everyone else. One site paid for performance enhancement, but others didn't suffer degradation. If paid performance enhancement for some content is equally available and does not degrade the performance of other content, then it should be permissible. And, following this principle, in addition to moving, leasing private lines, and edge caching, Internet content providers (and consumers) should be able to purchase "quality of service" or "managed services" from network operators on the same basis--equal availability and no harm to other content. At a recent conference, this approach to Net neutrality was described, and another speaker remarked that, at a completely full network bottleneck, it is impossible to favor some content without degrading other content. This is right, but only in a static network, i.e., one that is not growing."

Ofcom speech analysis: video QoS yes? Skype-blocking no?

Your guess might be better than mine - what do you think of this passage from Ed Richards' UCL speech last week? The speech is particularly interesting elsehwere than in this bit, which obviously had to be bland to conform to the ongoing consultation. Its certainly less interventionist on openness and interoperability than the European Commissioner whom he followed:

Here in the UK, there have been no formal complaints about anti-competitive discrimination, although there have been a number of modest disagreements between content/service providers and ISPs/mobile operators. It is in this vein that we do not currently see a compelling reason for preventing, ex ante, all forms of discrimination using our sector-specific regulatory powers. But if genuine problems of anti-competitive practices in relation to traffic management emerged, we would of course have the ability to intervene applying our full range of ex post competition powers as appropriate. 

This allows us to take a measured approach, allowing certain practices – such as permitting operators and ISPs to set differentiated quality of service – which may prove beneficial to consumers, but which could be caught by a blanket prohibition, whilst at the same time being able to take effective action to curb any genuinely anti-competitive practices that may emerge. Although the evidence at this stage suggests a blanket prohibition is undesirable, our initial stance in this debate is that consumer transparency must be guaranteed wherever traffic management occurs. Consumers need to have information available to them. They need to know what policy their internet provider applies, and how this affects the service they receive. In a competitive market, they can then exercise choice including this criterion. Developing some basic principles around transparency, and ensuring that operators and ISPs comply with these principles, is consistent with our broader functions and duties as a sector regulator.

I take it that they'll allow traffic management for video in most circumstances - maybe with a spat with Sky -  but if leant on by Brussels will stop outright VOIP blocking by the mobiles (who instead would have to compete with Skype by offering digital voice as a differentiated premium product). Small mercies for consumers, it looks like there will be greater attention paid to transparency of practices at least. That is all - expect more from the EC if anyone.

Electrification and Soviet Power Part II - or why we're all the same?

Dave Burstein crunches the new OECD figures - which show that most of the G7 has 25-30% broadband despite huge differences between cable market shares (e.g. DSL market share 13% Canada, 11% US, 16% Belgium and 29% France). So if we're all the same, what's all the argument about?
Well, first its about catch-up - most of those countries with very little cable have achieved remarkable competition on the DSL line up to now. Most cable countries have not done much on DSL competition. Italy and Spain lag far behind at 21% but did not start the race until years later. So whereas Germany, US and Canada were the only players in the game in the late 1990s, within 10 years the UK and France have got ahead. The even better examples are countries with cable and competition in DSL - the Far East, Scandinavia, Netherlands, where penetration is much higher. And one other thing...
Competition brings speed. Cable can achieve 50-100 Mbps faster and cheaper than DSL can roll out VDSL. But then another leapfrog can occur where DSL is upgraded to FTTP - as in Japan, and we soon have Gigabit Ethernet. Is this moving from battery power to AC electrical grids, or something much less important? Cloud enthusiasts say the former, copyright holders the latter, and the truth will, as Mao said, not be known for several hundred years. But would you move backwards in speed in your workplace or university environment? Thought not.
You might get some answers at the 38th Telecoms Policy Research Conference panel on broadband strategies 1-3 October. Try this session with Eli Noam and Rob Frieden in particular, plus this EU-Korea-Japan discussion - and say hi for me, its the first I have to miss for a few years (honeymoon calls).

Chile: net neutrality and parental filters in one Bill

Chile has been debating its new Internet law for three years and 4 months and it finally passed on 14 July, amending its Telecommunications Law. While I know very little about the debate, clearly universal access to broadband is key to development for a middle-income country with such a diverse geography as Chile, as the Minister stated at the passing of the Bill.

The law lays out five duties on ISPs (Google translate):

1. Prohibition to interfere, to discriminate or to interfere in any way with content, applications or services unless they are proven measures to ensure the privacy of users, virus protection and security of the network;
2. provide parental control service;
3. provide clients with written evidence to correctly identify the contracted service (transparency);
4. ensure user privacy, virus protection and network security, and
5. ensure access to all types of content, services or applications and offer a service that does not distinguish between content, applications or services. It also prohibits activities that restrict users' freedom to use the content or services unless at the specific request of users. 

The details are laid out in Memorandum 8874 to the President, detailing ISPs' duties.

a) May not arbitrarily block, interfere with, discriminate against, hinder or restrict the right of anyone on the Internet to use, send, receive or provide any content, application or service over the Internet legal and any other activity or use made legal across the network.

However, [ISPs] may take the measures or actions needed for traffic management and network management ... provided that this not designed to perform actions that affect or could affect competition. 

b) No law may limit a user to enter or use any class of instruments, devices or appliances on the network, provided they are legal and that they do not damage or harm the network or service quality. 

c) They must offer, at the expense of users who request services, parental controls for content that violate the law, morality or decency, if the user is informed in advance and clearly and precisely about the scope of such services. 

d) To be published on its website, all information on the features offered Internet access, speed, link quality, differentiating between domestic and international connections, as well as the nature and service guarantees.

Article 24 I. - For the protection of the rights of Internet users, the Ministry, through the Secretary, shall punish infringements of the legal or regulatory obligations associated with the implementation, operation and performance of network neutrality [using] the procedure referred to in Article 28a of Act No. 18 168, General of Telecommunications. 

J. Article 24 - A regulation will establish the minimum conditions to be met by providers of Internet access service on the obligation to maintain and update published on its website information regarding the level of the service, to include routing criteria, access speeds available, or oversold level of aggregation of the link, link availability in time and reset time, the use of management tools or traffic management, as well as those factors specific to the type of services offered and corresponding to international quality standards of general application. Also, the regulations will establish the actions to be considered restrictive practices to freedom of use of content, applications or services provided through the Internet, according to the provisions of Article 24 H. 

This is very obviously legislation to enshrine net neutrality, and is a world first (though all 27 EU countries must follow by May 2011) - of course how it is enforced will be critical.

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Response to EC consultation on 'Open Internet and Network neutrality in Europe'

Not surprisingly, I tend towards the co-regulatory rather than self-regulatory, and consumer transparency rather than 'where are the dead bodies?' approach towards net neutrality. The full submission is here. Here's a flavour:

The European Commission is to be congratulated on its broad terms of reference for its ‘Public Consultation on the Open Internet and Net Neutrality in Europe’, acknowledging the role of an open and interoperable Internet for the future of digital innovation in the knowledge economy. This is very well captured in Commissioner Kroes’ Speech 10/300 at Open Forum Europe 2010 Summit: 'Openness at the heart of the EU Digital Agenda' Brussels, 10th June 2010. My response attempts to map my answers to both the specific questions and the overall framework for interoperability and transparency set out by Commissioner Kroes in this and other public speeches.

This broad consultation stands in stark contrast to the very limited telecommunications economics oriented consultations conducted by the UK Ofcom[1] and other national regulators within the BEREC consultations. This reflects the paucity of network neutrality information supplied by most national governments as published in the 15^th Implementation Report[2].  The issues surrounding network neutrality are far too broad to be captured by such narrow approaches, and the consultations carried out by BEREC members are therefore unlikely to produce useful outcomes from the perspectives of COM(2010) 245 and the European Union’s Digital Strategy.

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[1] http://chrismarsden.blogspot.com/2010/06/draft-reply-to-ofcom-network-neutrality.html

[2] http://chrismarsden.blogspot.com/2010/05/uk-to-ec-no-net-neutrality-issues-that.html

Now back to the book...