Singapore-Japan cable system

This article over at Telecommunications Online announced a new cable project, so I collected it here with my other similar announcements. Quoting the article:

Several Asian telcos and Google are to invest US$400million in a new subsea cable linking South East Asia to Japan aimed at providing the highest capacity connection link to-date. The South East Asia Japan Cable System (SJC) has a design capacity of 17 terabits per second with provision to be ramped up to 23 Tbps. As an example of its capacity, the bandwidth allows the SJC submarine cable system to handle 30 million high definition videos simultaneously.

The 8,300 km cable will link Singapore to Japan with branches to Indonesia, Philippines and Hong Kong initially. From Japan, it will be plugged into the recently commissioned trans-Pacific Unity cable to the USA, besides a branching link to Guam which is becoming an alternative cable junction linking Asia to USA.

Comprising 6-fiber pairs, the SJC cable is scheduled to be completed by the second quarter of 2012, and is believed to be modeled after the Unity business concept providing autonomy in operation for partners to the initiative.

The decision to proceed with this landmark project, no doubt, has been prompted by growing demand not only from Internet traffic but also from the surge in telco TV, games and enterprise data.

An earlier report by TeleGeography shows that international Internet traffic has not been affected by the recent economic meltdown. In fact, international traffic growth was up 79 percent in 2009, from 61 percent in 2008.

By end 2009, fixed broadband in the Asia Pacific is expected to grow 17.3 percent to 182 million subscribers clocking billings of US$44.8 billion, according to Frost & Sullivan. The next generation networks in progress in South Korea, Malaysia, Singapore and Australia will further fuel growth in fixed broadband, not counting the phenomenal surge in mobile broadband.

So this cable will cost a bit over $48,000 per kilometer. This is the first time I have seen the capacity of the cable described in terms of the number of HD television streams that can be supported; previously, it was always the number of simultaneous telephone calls.

Telecom cost estimates

This is my latest installment in my continuing effort to collect information on the cost of telecom system deployment. NATOA filed these comments with the FCC that contain some case studies on fiber deployment to "anchor tenants" in communities. Perhaps you will find this interesting or useful.

Internet censorship as restraint of trade?

I found this item interesting, though I have yet to read the full report. It reminds me of how telecom reform in the EU was developed and pushed under the guise of competition policy rather than communications policy in the early 1990s. In similar fashion, the US FCC introduced competition into telecommunications not as a common carrier matter but as a frequency allocation matter (the "Above-890" decision in the late 1950s). It clearly matters how you frame the question!

"Censorship is the most important non-tariff barrier to the provision of online services, and a case might clarify the circumstances in which different forms of censorship are WTO-consistent," said the study by Brian Hindley and Hosuk Lee-Makiyama.

Wireless carriers and applications

This article from GigaOm is interesting. Basically, the article explains that carriers are benefiting from consumer interest in social networking, which has migrated to wireless platforms. Interestingly, this was not an application carriers had in mind when they made investments in 3G infrastructure. How will carriers justify their upcoming investments in 4G?

The nature of telecommunications is that large investments must be made before revenues can be realized. The telecom network has to be largely built out before it becomes valuable to consumers. As a result, investments have traditionally been conservative and tied to applications. The telephone network was tied to voice communications and associated services, etc. A significant exception was the Internet, which was built with no particular application in mind, but then it was also built with government funding. It wasn't privatized until a commercially interesting application set emerged (email and the web).

The phenomenon that this article describes indicates that unexpected applications (social networking) are a significant new revenue source for carriers. Will this change their investment model? The other thing that is addressed, though not explicitly, is that these applications require collective action from independent entities whose interests are partly common and partly at odds. Applications need broadband and want it to be cheap. Social networking works better with smart phones, which are more costly than "regular" ones. So manufacturers need joint marketing agreements with carriers, yet they want the ability for users to control applications and configuration.

If high-revenue end user applications can no longer be predicted or managed by telecom carriers, how will their investments be justified? It seems that carriers need a strategy and a set of tools for managing investment risk. Physical commodities have futures markets for this purpose.

One of the reasons why I am interested in markets for capacity (most recently spectrum) is that derivatives (such as futures) are possible, which allow for industry restructuring. In the absence of explicit risk management, carriers will integrate applications with carriage, which leads to "network neutrality" concerns.

Is It the Dawn of the Reregulation Era?

I found this article over at BusinessWeek interesting (even if it didn't explicitly discuss telecom). I think this article supports R.B. Horwitz's contention that regulation is often introduced at the behest of the regulated industry to stabilize markets. Pure capitalism results in large uncertainties and almost demands periodic business failures as a form of market discipline. Regulation works to ease those pressures and, if done well, provides a predictable marketplace (which is generally supportive of investment).

So, if this article is correct, the recent market turmoil may usher in an era of increased regulation. Will telecom be included in this trend?

Payphones again

In reading the EU Household Usage report I blogged about earlier, I came across their study of payphone usage in the EU. So, to follow up on this item, consider what the EU found. The percentage of people reporting that the "sometimes" use payphones ranges from a high of 34% (Austria) to a low of 3% (Cyprus) with an EU mean of 22%. 44% of payphone users report doing so because their mobile phone is out of range or its battery has run out, while 19% report not having a mobile phone and needing to place a call while travelling and 16% report not using their mobile phone due to high international tariffs.

Very interesting. I will have to search out similar data in the US. Anecdotal evidence is that payphones are disappearing in the US, which would make it difficult to use them! Do you have any data about payphone use elsewhere in the world?

Telecom complaints at the FCC

The FCC regularly reports the complaints from consumers that they receive. Here is the latest report. I compiled the summary data into this graph (note that they vertical axis is logarithmic):



There was obviously something going on in January and April that stimulated complaints!

US Telecom revenues by source

You might find this graph interesting, which was derived from data reported on FCC Form 499-A. I think it shows what we have all been experiencing ... declining wireline and increasing wireless. The data are in $US millions and the y axis is logarithmic. I do not believe that these are in constant dollars.


Note the decline in payphone revenues, wireline, and toll revenues and the increase in revenues for companies classified as wireline competitors (my words, not the FCC's) and, of course wireless providers. This data has wireless providers' revenues exceeding wireline ... I think that is because it is aggregated data.

Update on the Fairpoint case

I thought you might be interested in an update of this item, posted earlier. As Forbes reported today, the Maine PUC approved Fairpoint's acquisition of Verizon's lines in its state. Recall that Vermont did not approve this.

Questions about appropriate regulation or inappropriate micromanagement aside, I think this case provides an interesting window into the machinations necessary in telecom for commercial transactions such as this. These kinds of processes are not required in other industries and adds to the "friction" of these markets, which leads to economic inefficiency. Quoting the article:

The deal also requires approval from Vermont and New Hampshire regulators. On Dec. 21, Vermont's Public Service Board rejected the deal but invited the company to submit a revised application. New Hampshire's PUC staff recommended against the initial proposal, but it is also willing to consider a revised deal.

The deal is subject to review by the Federal Communications Commission.

Maine's PUC attached several conditions to its approval. The commission suggested reducing FairPoint's debt to Verizon by $100 million by scaling back fees FairPoint will pay to lease equipment from Verizon Communications.

Verizon general counsel Don Boecke dismissed that approach as "pretty much a nonstarter," but left the door open to an alternative. FairPoint Chief Executive Officer Gene Johnson then told the PUC a number of options that would have the same financial impact were available.

Some of those include reducing dividends, selling noncore assets, selling more stock and suspending dividends if necessary, he said.

Other conditions ordered by the PUC included having FairPoint develop and implement a policy protecting customers' privacy, and not having the other two states' regulators materially change FairPoint's financial condition.

Johnson said he did not see the latter condition as a problem, saying he believes the agreement approved in Maine will serve as a "roadmap" in New Hampshire and Vermont.

Update (2008-1-15): The FCC approved this transaction (see the order for details):

In accordance with the terms of sections 214(a) and 310(d), we must determine whether the Applicants have demonstrated that the proposed transactions would serve the public interest, convenience, and necessity. Based on the record before us, we find that the transaction meets this standard. We conclude that it is unlikely the merger will result in any anticompetitive effects or other public interest harms. Specifically, the Applicants do not compete in any of the relevant local exchanges. Moreover, after consummation of the transaction, the Applicants will compete for large business and long distance customers. The transaction also is likely to produce public interest benefits, including the accelerated deployment of broadband throughout the region.

Note that the FCC's analysis is motivated by a different set of concerns than the states' ... the latter group is interested (at least on paper) in the viability of Fairpoint after the transaction. This difference can be seen in Commissioner Copps's dissent.

Miscellaneous topics ...

I had a few items that I wanted to blog about over the past couple of weeks. So, in an effort to clear out my backlog, let me summarize them here.

• The US GAO published this report, which is fairly critical of the US FCC and other agencies with regard to the upcoming conversion to digital television. The "switch off" is just over one year away, and consumer education has been basically non-existent.
  

  Update (2008-01-03): The FCC published their Third Periodic Review of the digital TV transition. No mention of the GAO report that I could find ...



• On a similar note, the UK regulator Ofcom issued this report that examines alternatives for using the "digital dividend", which arises from the sale of the spectrum formerly used by analog television.


• Changing gears a bit ... this article in BusinessWeek gives hope to the fans of Municipal Wireless. The Spanish WiFi operator FON seems poised to enter the void that Earthlink is leaving after it reevaluated its participation in this market. They have a different business model. Will they find more success?


• There are a couple of interesting items on the international front.
  
  
  
  • Take a look at this (from Swivel, one of my favorite sites), which shows the dominance of prepaid wireless in China's market.
  
  
  • Gordon Cook unearthed a fascinating, detailed report on providing wireless to Nepal. See Gordon's post here. I have been unable to locate it on the World Bank's website.
  
  
  • In this article, the possibility of a "natural limit" to Kenya's mobile market is raised. I am always suspicious of these kinds of projections, because they normally assume that the future will be driven by forces similar to those driving the markets today. History has shown us the disruptive power of wireless technology, after all ...
  
  
• Speaking of natural limits, I have been interested in the pending conversion to IPv6, which has been prophesized for several years already but which has not yet happened. This article over at CircleID provides more grist for this mill. Is it different this time, or should we expect more of the same?

Happy New Year, dear readers!

Australia censoring the Internet?

This article over at TechCrunch reports on a new law in Australia designed to provide a "clean feed" of Internet content into the country. This law is an initiative of the newly elected Labor government. I had blogged earlier about the implications of this election on telecoms ... but I hadn't been aware of this element of the electoral campaign.

I think this points to the tension between information openness and social preferences that every country has to deal with in the Internet age. Do you think that censorship of this kind is an effective way of dealing with it?

Regulation or micromanagement?

This item from Forbes reports on the process of gaining regulatory clearance for a sale of access lines. FairPoint Communications had agreed to purchase Verizon's 1.6 million landline operations in northern New England for US$2.7 billion (or about US$1700 per access line). Transactions such as this are subject to regulatory approval because they involve the transfer of an operating license. According to the article,

An MPUC staff report last month recommended that the proposal be rejected unless the companies satisfy dozens of conditions.

The most controversial conditions would require Verizon to lower the selling price by $600 million and make FairPoint cut its dividends to shareholders by 30 percent, spend more to expand high-speed Internet and meet stronger quality standards for service.

According to the Examiner's Report, this recommendation is a result of concerns about FairPoint's ability to meet the needs of the residents, i.e., FairPoint is highly leveraged, and so will be limited in its ability to accommodate adverse results. This despite the fact that the examiner's report mentions that the price of the transaction is "considerably less than the price of other recent transactions".

Do you think that this is reasonable regulation, or is this micromanagement by a governmental agency? If this transaction is not approved, would the citizens of Maine be better off with an operator who (apparently) does not want this business (since they are selling it for a low price), or with one who wants to be there and isn't financially as solid as regulators would like them to be?

Update (2007-12-27): According to this article in Forbes, Vermont regulators have rejected the Fairpoint bid. Quoting the article:

The ruling by the Vermont Public Service Board cited FairPoint's financial viability.

"The Board found that FairPoint had not demonstrated that it would be financially sound as it seeks to operate the newly-acquired territories in Vermont, Maine and New Hampshire -- a service territory that has five times the number of access lines as Fairpoint presently has," the board said in a prepared statement.

FairPoint, based in Charlotte, N.C., would have to borrow $2.5 billion to complete the transaction, the debt service on which could exert "significant financial pressure" when combined with operating costs and revenue projections, the board said.

State regulators, however, left the door open to a revised bid.

The article mentions that the union representing some of the employees was opposed to the sale. This also comes through in the papers from Maine. I wonder if they were shareholders ...

Undersea Cable to Serve South America

Since the topic of undersea cables came up in class recently, you might find this item briefly describing a cable project between Guyana and Trinidad of interest. I think what is most useful are the cost and schedule details. Quoting the article:

Atlantic Tele-Network Inc., based in the U.S. Virgin Islands and Salem, Mass., expects to invest $35 million in the new cable, which will provide improved service to Guyana, Suriname and Brazil, the company said. It is expected to be completed in 2009. The region is currently served by an undersea cable between Florida and French Guiana, but many people in the region complain of slow Internet service and difficulty making international calls.

The distance covered by the cable is approximately 500km, so this project is estimated to cost US$70,000/km. How does this compare to other published cable costs?

700 MHz auctions, Google and more

There has been a bit of talk over the past months on Google's wireless ambitions. Certainly, Android is a part of it, but the speculation has also centered on Google's ambitions to be a wireless operator. To that end, this item over at GigaOm was the most insightful analysis that I have yet read. Om Malik concludes that it is unlikely that Google will become a wireless operator, and is instead using the upcoming 700 MHz auction to beat current carriers up over their network policies.

To that end, the NY Times is anticipating higher auction returns in this article because of the WRC agreement that was just concluded. I really doubt it, because there is no tangible value that the WRC reallocation added for US carriers.

Finally, I found this item, also from GigaOm intriguing. If Google is indeed making its own 10 Gbps switches, it seems as though we may be witnessing the re-incarnation of the vertically integrated Bell System (albeit without the market power). Interesting how times change ... I think there is little doubt that the Bell System benefitted from having a captive R&D and manufacturing capability. Is Google discovering that as well?

Update (2007-11-20): You might find this item interesting. Do you think Google should pay attention to analysts?

AT&T Technology timeline ... from the telephone to today

You might find

this website interesting. I do wonder about how topics for inclusion were selected ... but it is interesting nonetheless.

EU announces new (proposed) telecom regulation framework

In case you missed it, you might find this of interest. If you follow the links, you can get to the (draft) legislative documents. Note that these documents do not represent final policy, though it seems likely that the final policy will be close to what is published today.

• As expected, functional separation is one of the options available to regulators. Do you think that this will be widely used?
• The framework proposes a "European Telecom Market Authority". How do you think this will play out, especially with regard to NRAs?
• What about the spectrum reform proposals? Will they help?

Anyway ... enjoy your reading!

Update (2007-11-14): Here is Forbes' take on this announcement and here is CNET's. Interestingly, few of the major news outlets reported on this.

Update (2007-11-15): This item reports that French and German regulators question the need for the Telecom Market Authority. Will this reform proposal face a long road to adoption?

Vivian Reding on Telecoms regulation

You might find this speech by EU Commsioner for Information Society and Media interesting. Here are some points from her speech:

I have come to the conclusion that the instrument of functional separation should be added to the remedies tool box of national telecom regulators ...

... a symbol for the single market for telecoms is the creation of the new European Telecom Market Authority which will be an integral part of the reform package.

As you would expect, there are many caveats to those points in the speech. It clearly is a preview to the new regulatory frameork that will be forthcoming in the next month.

Operational Separation of Telecom in New Zealand

You might find this item of interest. This kind of separation has been proposed as a possible solution to the "net neut" concerns, and BT in the UK is proposing to do this voluntarily. Forbes has reported on this as well (see this). New Zealand will (once again) be a laboratory for advanced ideas in telecom policy.

Returns from Verizon's FiOS investment

The telecommunications industry is one that is characterized by large up front investments with uncertain future revenue streams. Verizon's FiOS project, is a classic example of such investment. I have blogged about this before (see this and this).  As this article points out, the early returns are encouraging for Verizon.

This article also points out the relationship between long term strategic investment, investor relations and competition.  Prior to this investment, Verizon had twisted pair loops that prevented them from offering "triple play" services. 

But this has not been without controversy, especially given the current regulatory climate in the US.  The short story is that Verizon is not required to offer these services on an unbundled basis.  Observers have reported that Verizon is killing the copper loops replaced by FiOS, preventing people from reverting to copper later, and also eliminating their requirement to offer unbundled loop elements to broadband competitors (see this, for example).  So Verizon is forestalling competition with both their own (older) technology and with potential competitors who might use this infrastructure. 

Do you think that this behavior should be regulated?  Some have argued that the public "owns" the infrastructure because they have paid for it through regulated rates for many years.  Do you agree with this?  If so, is Verizon right to remove the older infrastructure?

Google as a telecom carrier

This item is most interesting, and adds weight to some speculation I blogged about earlier (see this, for example). If this happens as reported, Google begins becoming both a service provider and a transport provider. If Google does bid on (and win) spectrum in the upcoming auction, they have the ability to move further in this direction.

How does this play in the structural separation model?

Update (2007-09-24): Nicholas Carr posted this item on his blog, which raises some interesting questions, not so much for Google, but for the kinds of industry trends posited by John Hagel and others.