New Coronavirus Already Affecting Telecom

The new coronavirus is already one of the worst infections of our lifetime. Let us hope and pray the massive containment effort is effective. Most of China is on lock down this week and next, with preparations underway in case six more weeks are required. Update Feb 2 NY Times estimates actual cases are over 100,000, with official counts only reflecting severe cases seeking medical attention.

One of the least significant problems of the virus is the effect on our industry. The iPhone and nearly all other phones (except Samsung) are mostly produced in China. Two weeks of production and store closings can be recovered. Six weeks more is could have a severe impact.

Skyworks, which supplies radio frequency parts to nearly every phone manufacturer, just said

To date, we've seen no material impact in our supply chain or with demand signals. However, the situation is evolving. So we've reflected some added risk, as I mentioned, to our March guide, including, as you'll notice, a wider range of outcomes. So to your question, likewise, we're thinking about potential effects into the June quarter. And even though our channels are lean, we are concerned about how this plays out because we just don't know. (Emphasis added.)

 I reported AIDs for two years at the height of the epidemic. So far, the new coronavirus is not at that level.  

But I'm scared.

Equinix/Packet Deal Bringing Cloud Everywhere

Zac Smith of Packet recently introduced me to an entire market I hadn't realized existed: the massive "private clouds" being built by company after company. I had assumed most cloud needs would be well served by the giants, Amazon, Google, ... They have the scale to keep prices low and tens of thousands of engineers ensuring their technology is better than almost everyone else.

Packet is doing very well and has strong products and a growing customer base. Equinix, a $50 billion company, presumably paid a generous price. Equinix's P/E ratio of ~100 requires rapid and profitable growth. Packet can deliver that, initially by serving Equinix's existing customer base.

Packet can deploy private networks for Equinix clients in weeks across a dozen data centers worldwide. Perhaps more interesting is Packet's ability to extend Equinix from the data center to inside carrier networks, towers, and ultimately customer sites. All of that is part of today's Edge design, also called a hybrid cloud. Packet is already there.

Zac is selling "bare metal servers" in large numbers to companies that had particular needs or security concerns the big outfits couldn't meet. Call Packet, and in days or weeks you can have 100's of Linux servers installed almost anywhere in the developed world, ready to go and well configured with software. More

Understanding Telco People

A consulting client, expanding rapidly in the cloud, asked me for advice on how to understand the culture at phone companies. In the cloud/webscale world, mistakes happen often and are fixed quickly. That's usually impossible in telecom. Networks take years to build. A fast 5G rollout is 3-4 years. 5 years or more is common. You can't turnaround quickly.

Don't underestimate the tech people in telecom. Almost all very smart and capable. Few have fancy degrees, Almost all have worked their way to the top against a thousand others. Most are lifers and have spent many years at the same company. They believe outsiders don't understand the business. They are usually right.

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Slumbering giants not needed

Deutsche Telekom wants to take over Orange/FT to become even bigger. Iain Morris reports, "Europe desperately needs telco giants." Actually, DT is already a giant and captures almost all the economies of sale. Like most CEOs, Timotheus Höttges wants a bigger empire. His policy and pr budget is enough to guarantee many echo his call. Does the world, and especially the Internet, need more behemoths? 

When I look at which companies are actually succeeding and investing, medium-sized often telcos do better than giants. The three Koreans, a fraction of the size of Deutsche Telecom, are the world leaders in 5G. Little Switzerland is the European leader in 5G, with relatively small Sunrise already connecting 350 small towns and villages. In the US, the largest 5G offering as I write is from #4 Sprint, although the larger companies will soon come in.

In fiber, Orange and Telefonica Spain are far ahead of the US giants, Verizon and AT&T. The best fiber network in the US is being built in Northern California by Sonic, where a symmetrical gigabit sells for about $50/month.

In the fight for customers, #3 T-Mobile USA has been clobbering AT&T & Verizon for years. In Korean 5G, LG Uplus, the smallest, is gaining market share.

In finances, giant China Mobile is suffering, while relatively small Telstra is one of the most profitable.

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Q2 worldwide: 18M new terrestrial connections

75% of the growth was in Asia, mostly China. It's the slowest quarter in several years, as many people are now going wireless-only for data. The world total is 1.1 billion, which doesn't include cellular 4G. Point Topic, a highly respected source, reports a continued shift from DSL to FTTH, led by China. Nearly all of China's 400 million connections are now FTTH. 

FTTH was up 19% on the year; all copper, down 7%. The growth in fiber astounded me, but I have confirmed the expansion at about 20% from several sources. China is almost done, but France and Spain are going quickly. England, Germany, and Italy are now joining in. I believe the 50M planned by Reliance Jio in India will mostly be FTTH, not just to the basement.

As you see in the chart at left, Asia and Latin America are about 65% of connections. India, which has less than 35M landlines, has well over 400 million 4G connections. 4G and the better 3G are fast enough for HD TV and should be included in broadband in my opinion. Including all wireless, about three-quarters of Internet connections are in the Global South. The gap is widening.

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Wrong, Elliott! AT&T has one of the best managements in world telecom

AT&T's Randall Stephenson, John Stankey, John Donovan, Ralph de la Vega and Bill Smith were probably the most effective telecom management of the last decade. Paul Singer and Jesse Cohn of Elliott Management - or whomever they brought in - could never match the record of the current management they want to displace. The contentions in the letter (below) are often misleading and in some cases simply errors. The best pros, like Craig Moffett, don't see a potential for big gains in T.

For example, Singer writes

"AT&T today is in prime position to be the early market leader in 5G given its premier spectrum positioning, ... We believe AT&T will be able to quickly move forward while its main competitors remain either spectrum-disadvantaged or distracted as they integrate major transactions. However, while AT&T is well positioned, success in 5G will require meaningful investment and improved execution; anything less and AT&T risks missing this opportunity and falling behind again."

That's nonsense for two reasons. First, Verizon and Sprint have better 5G spectrum positions than AT&T. AT&T and Verizon have similar low band spectrum. Verizon has 800 MHz of 28 GHz mmWave spectrum, more and better than AT&T's mmWave. Sprint's 160 MHz at 2.6 GHz is providing exceptional reach. It currently has covered over 11% of the U.S., more than any one else in the U.S. and could rapidly expand - with or without the merger.

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Adtran will build PON in Egypt

Adtran is entering a joint manufacturing deal with the Arab Organization for Industrialization (AOI,) a large manufacturer controlled by the Egyptian military. AOI assembles tanks and jet aircraft. It produces AK-47's. The company is diversifying into solar energy and communications. A GPON box is much simpler than a supersonic jet; Egypt should have no problem with the manufacture.

Egypt has a strong industrial base that was first developed by Muhammad Ali at the beginning of the 19th century. It was stifled under British colonization until 1952. It exports widely and has respected universities. 

As Chinese wages have gone up, manufacturers have been moving to find lower labor costs. Vietnam has enjoyed a mini-boom. Egypt's nominal per capita income is about midway between Vietnam and China, low enough that wages will be competitive.

For the last two years, FTTH has increased by 20% or more each year.

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From $10: Jio expects 35M FTTH

15 million Indians have put in reservations for Jio fibre. Starting Sept 5, Jio will be connecting millions of people. With 300,000 kilometres of fibre in place and 500,000 "trial" customers, deployments will begin in 1,500 cities. Jio will expand rapidly from there.

Prices begin at ~US$10 for 100 Mbps. Other offerings, including video services and much more, will be priced up to $150. Ambani promises that next year he will include Bollywood films on the same day they open in theatres.

Reliance Jio in three years has connected 340M Indians to 4G, more Internet subscribers than the US has people. Neither I nor many other people believe that possible. I'm no longer a doubter.

He's invested over $30 billion to build the network and reached (modest) profitability. Reliance sold 20% of its refining business to Saudi Aramco for $15 billion. Towers and fibre assets are likely to be sold for more cash. The funds are there to manage $billions in initial losses.

Jio bought several cable companies to have people on the ground for installations and an initial customer base. It has a massive retail presence that will help sales.

The Internet is no longer a Western lake.