Germany: $8B for 6M Fiber Homes in Ill-served Germany

Deutsche Telecom is years behind Telefonica and Orange/FT bringing fiber to homes, leaving it vulnerable to challengers like Deutsche Glasfaser. OMERS, a Canadian pension fund, and EQT, an affiliate of the Wallenbergs. EQT is partially funded by pension funds.

Uwe Nickl, Group Managing Director, will "focus primarily on the white and gray spots that are still there today - regions that so far could only dream of sustainable and energy-efficient digitization and that we want to send into the fiber-optic age with at least 300 Mbit / s." If Nicki delivers as promised, that is the best news for the German Internet in more than a decade.

Amidst the noise about 5G, few have noticed how fast fiber is growing. France, Canada and Spain are mostly fibered, Italy, Britain & Germany are growing at 20% per year. While AT&T cut back, a nearly unique competitor, Sonic, has fibered much of San Francisco and neighboring areas. PC named them the best ISP in the US.

Of course, nothing compares to the 400 million fiber to the home in China.

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Historic: China Broadband Falls in December 2019

For the first time after a decade of growth, the Chinese giants actually lost fixed broadband subscribers in December. China Mobile lost 609,000 to 187,041.000 after adding more than 2 million a month earlier in the year. China Telecom dropped 620,000 to 153,130,000. China Unicom. Nearly a million turned off China Unicom, leaving 83,478,000. As recently as September, China added over 5 million. In December, the number fell by 2 million.

China's economy is growing by more than 5%, slower than before but still faster than any western country. Prices are flat or falling under a government mandate. There is no obvious explanation.  

Could this be the first sign of the long-expected switch from landline to mobile broadband? I've been looking for reduced growth and then a decline since 2011. China added 5 million 5G users in both November and December. The price for 30 gigabytes is $18/month, often discounted to as low as $12. However, the price goes up rapidly and would be high for typical users of over 100 gigabytes/month. 

One month does not make a trend. The companies many have cut promotions as 5G costs became important. They could have tightened payment terms to improve cash flow. 

Or this may be an early sign of a switch to mobile broadband.

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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