Discussion papers and thoughts

Asset valuation. A discussion of asset valuation work/ideas, including a beginner's guide

This should be of use to many in telecoms who are working on asset valuations. Valuations are central to many decisions and to understanding the business. Managers, investors, accountants, regulators and consultants may benefit from this report. The report includes additional thoughts and experiences that make the report both wide ranging and slightly unconventional. The report also discusses Copper valuations - a full report on this can be requested, subject to contractual agreements. A full QA on text typos et al could not be completed. An updated version may be issued

WACCy thoughts. A discussion of issues related to the cost of capital and WACC

This is an unconventional discussion of WACC related issues. It is designed to provoke thoughts and discussions to help anyone involved in cost modelling and pricing, that needs to consider WACC values. This is not a tutorial. No claim is made for the accuracy of any statement - some may even be made up!

Broadband capacity needed - a guide to network modelling with varying customer traffic demands

This paper examines three methods used to model fixed and mobile broadband. A normal (conventional) approach based on traffic statistics, an approach based on erlang theory and switched circuits, or modelling using oversell (overbooking factors). The first is easy and reflects reality, if basic parameters are understood. Erlangs can provide useful results even if broadband systems rarely use switched circuits, so it is not normally a robust method. Oversell factors could be reasonable but have a high risk of large errors. Managers can benefit from understanding these modelling foundations. Those starting to understand and make network models will find it useful.

Duct/digging and fibre-to-premise infrastructure are major growth areas

Many telcos are hoping for lower costs and new revenues from increasing investment levels in infrastructure. The lower costs are shifting business plans. This is happening but seems less discussed than (say) on-line services and 5G "use cases" that do not relate to revenues that most telcos can address. Digging cables is a priority area that impacts governments, investors, regulators and both fixed and mobile players.

Analysis of Vodafone trading data

This report looks at Vodafone Group and country-specific numbers. The performance is not good but there is no major decline. The Fixed line business has grown to compensate for Mobile declines. Covid has not caused a boost. 5G has not provided a major boost. It is used to add capacity and reduce costs. Vodafone has a longer term strategy for fixed, and 5G. It is (sensibly?) not drawn into downstream applications and Internet services. It focusses on being a telco, not a content or on-line service provider. The reality is counter to some expectations for 5G "transformational changes," as these are beyond the telecom-market's reach. The report is relevant to most markets, operators, industry leaders and analysts.

Notes on telecoms claims and confirmation of a basic network modelling formula

This paper examines claims based on a LinkedIn discussion. The paper has additional material. It highlights the need for decision makers to understand if sources use robust analysis and to have a full understanding of market trends and traffic impacts. If not done, investment mistakes may happen - possibly persuaded by incorrect claims.

Rural Fixed Wireless Access has a role but this is limited in developed-internet countries

This paper examines the key factors that limit FWA in rural areas. The potential is limited due to the traffic volumes and mast-capacity related issues. This paper includes graphical analysis to help understand the key factors and how they are related. The paper also notes a general business concern: claims that are factually correct yet can also be false/misleading.

Satellites have huge potential but traffic limits mean that established F&M players are not worried

This paper looks at traffic and geographic limits. This shows that satellites cannot carry more than a small percentage of developed-market broadband traffic. So the focus is on under-served areas and demand. This is a positive addition to the markets. Significant substitution is not feasible. This is in line with Elon Musk comments. A deeper question is, why anyone claims major developed-market telcos will be adversely affected? Since posting this paper I noticed the numbers & points fit (of course) with the strategic points of a McKinsey paper.

Professional service companies need to develop better business ethics

The global political landscape changes and moral standards in business may have weakened. This implies that we all need new frameworks for when work is accepted. This paper argues that we need to say "No" more often. This ethical improvement is strategic. It adds on to the need to improve both the details of what is done within a project and how reports or analyses are carried out, as discussed in the paper below on telecom claims.

Discussion of telecoms claims and how they impact professional services

Telecoms is a complex industry and there are often different views on many different subjects. This is normal and healthy. Early in 2020 there were some new claims related to the Covid-19 virus outbreak. This highlighted how some claims are fanciful. Telzed has issued this report to look at these, and other claims. The report shows a need for more-careful actions and measured statements from consultants and analysts. Opinions are still valid, but more care is probably required by everyone involved. The paper is intended to promote thought and debate.

UK Market data provides insights that are useful elsewhere

The 2019 Ofcom market data has been reviewed. Most of the same trends and issues seen in the Telzed 2012 review remain (see below). Key highlights include:

Revenue is almost static.
Speed increases per year in fixed broad have slowed significantly, despite moves to FTTC and FTTP. This is counter to Ofcom/DCMS plans/targets. It is counter to Nielsen’s law. There is a logical explanation.
Mobile has made no significant in-roads to fixed broadband. Fixed growth is undiminished (#lines and #Gbyte). Mobile traffic grows but remains consistently less than 4% of the total. This is counter to “mobile and 4G/5G is the future” claims.
We use mobile more often and it plays a bigger part in life/work: many more web sites or apps per Gbyte are used. But mobile networks are driven by the traffic volume, so significant substitution of fixed lines remains unlikely/impossible.
Mobile coverage with 4G is as much an issue as it was with 3G.

The deeper implications of these are discussed. Such understandings are needed in every country, even if the local situations can be quite different. Variations of the insights should be relevant globally. Since posting the paper, Ofcom has published an in depth analysis of smart phone usage. This emphasises that mobile networks are not used much - most smart phone device usage is over fixed/WiFi (69% of time and ~80% of the devices' traffic). Another subsequent EU paper shows similar outcomes (using Cisco data: see 4G & 5G offloading). This shows how a mobile dominant market is fanciful in UK-like countries. Other reports show that huge numbers of new masts might be needed, but with negligible revenue increases including lack of IoT monies so far, and the obvious inability of 5G to give always-on signals in a wide area or in buildings, the real potential is more clear. A key message is that 5G devices increase fixed line usage more than mobile use - they are "WiFi devices, occasionally used on mobile networks." This can be discussed further by contact with R Steele.

Mobile and 5G claims

Mobile grows and plays a bigger role in life. 5G continues this trend but there are also claims that there will be transformational changes in the industry and ways that mobile is used. The below papers show that some claims for mass substitution of fixed lines and fixed broadband traffic are very unlikely in developed markets like the UK - technical limits show that huge mast numbers would be needed. This July 2019 paper highlights a few of the claims. If some claims are clearly fanciful, then are other claims also in doubt? Furthermore, why are some questionable claims being made?

This May 2019 paper looks further at when mobile or FWA can substitute for fixed line broadband. This builds on earlier papers and looks more closely at how current markets impact the outcomes.

Submission to Ofcom's Broadband USO Consultation December 2018

This 2019 paper discusses the definition of a broadband USO service and enhances the proposed Ofcom definition. It avoids the use of contention ratio values that do not fit with the monthly download and speed definitions. Target speed and download values are defined to change over time to reflect market changes. The paper provides two formulae that assist with dimensioning any network to deliver a known traffic volume per month, to customers, given the limitations of capacity of a mast or street concentration system. This has wider application than USO. The paper ignores the many other questions raised by the Consultation to focus on the USO service definition - a definition that can be adjusted to other countries' requirements. NB the discussion on why it is not sensible to split a 50Mbit/s mast to 5 x 10Mbit/s services, is not strictly correct as it over-simplifies the analysis while trying to keep network statistics out of the paper, but the main message that splitting a resource usually reduces the number of customers or potential amounts of traffic, is generally true.

The need for speed: a discussion on broadband internet speed requirements to assist with strategic plans

The needed or desired broadband speed is a hotly debated subject. Recent claims have been made that 5G will deliver in excess of 1Gbit/s. Average speeds in fixed or mobile are currently far below that value. The analysis must include the average usage in the busy period, that is related to the monthly downloads (see guide to broadband usage below). As the subject is controversial, the issues and any values are open to debate: feedback and discussions are welcomed.

Mobile demand and site numbers

More mobile traffic often requires more sites. This is a major cost issue for the mobile operators, and similar cost drivers impact Fixed Wireless Access (FWA) plans. The impact of site numbers on 5G is significant - as identified by a 2018 McKinskey report. This Telzed paper identifies the key numbers and strategic issues, building on the below Telzed guide to broadband usage. It aligns with the McKinsey numbers and insights.

Broadband strategic issues

This paper follows on from the Broadband Usage paper below, issued in April 2017. This new paper discusses how the fixed and mobile usage levels affect strategic options. It discusses if fixed or mobile can substitute and how the solutions can converge. Different strategies are seen likely for developed markets, city states and emerging markets. Lessons from history are included to emphasise the risks as major mobile (5G) and fixed (FTTH) investments are being planned.

Broadband usage is discussed in this paper. This shows that the broadband speed is not the only measure that matters - the monthly downloads and the effective average download speed in the busy period are critical. This drives the network capacity costs. Understanding this is vital for all decision makers. This usage also means that mobile networks will often struggle to have the performance of fixed networks and cannot substitute for fixed line services, for more than a limited percentage of consumers. UK data shows that huge changes are required in mobile networks to "take on" fixed-line broadband as mobile usage is so far behind that of fixed, and the required cell numbers and capacities would have to be very large. Some other countries could be more centred on mobile broadband. A convergence of fixed and mobile networks is noted and a combined fixed-mobile strategy is sensible. This has profound implications for policies, business planners and regulators.

Analysis of the implications of Ofcom's conclusions from the Digital Strategy Review

Ofcom published its initial conclusions on 25th February 2016. This Telzed report looks at the implications of some of the key conclusions. The new strategy will have some major impacts on the development of investment and competition. This will affect the strategies of many businesses in the UK. The approach is also be of interest to other countries. Since publication of the conclusions and the initial Telzed analysis, Ofcom has released the final Business Connectivity Market Review, which seems to contradict some of the strategy as duct access is now not for general business-access. See the approach for duct access, which seems to clearly support business use in the strategy, but it is not a remedy in the BCMR. The reasons seem to be that duct access is to be only for "mass market" broadband fibre, and not for big business. There are some obvious issues with the approach, such as definition of mass-market and where duct can be legitimately used for smaller businesses that are part of the local "mass market" deployment.

In December 2016 Ofcom suggested a further update to its planned approach that might further reduce some of the restrictions on the use of duct. See: the Ofcom Wholesale Access Market Review. This post dates this Telzed analysis.

The UK Prime Minister announced a broadband Universal Service Obligation in November 2015

After the Ofcom Consultation on the future strategy closed (see below), the PM announced a new USO. This announcement did not give details on how it would be applied. In this Telzed discussion, the USO announcement is discussed. Although it raises many issues, the net impact may not be as large as some might expect. This Telzed discussion paper is intended to provoke discussions - it is more of a "blog" than other papers on this page. Since then, the government has announced a consultation on the USO, in March 2016.

Telzed submission to Ofcom, October 2015 for the Ofcom Strategic Review Consultation

Telzed has submitted a study into the UK markets and outcomes, with a focus on broadband and on attracting investment. This confirms that the UK is comparable to many countries but is not setting a global lead, and the broadband speed increases are only in line with almost all developed countries. Some outcomes could have been better. As investment is now a key requirement, a new approach is proposed to make broadband investment more attractive. This allows some protections and controls for the local monopoly provision that inevitably occurs in most of the country where two or more NGA providers cannot exist (except in some mostly urban areas). USO options are examined and BT structural separation is discussed. A key gap is the lack of a national policy on government funding and targets for broadband. This gives the strategy review major problems as the government and EC have not set a direction or defined the tools or limitations within which Ofcom has to work. This is a serious gap, but not one that is totally within Ofcom's control.

This paper is focussed on the Ofcom and UK needs, but there are lessons that can be adapted for other countries.

Comment on the EC draft Recommendation on NGA costing and non-discrimination
Following on from the EC questionnaire and policy statement (see below: Costing and pricing of access networks), a draft Recommendation has been issued on NGA costing and non-discrimination regulation. See: http://ec.europa.eu/digital-agenda/en/news/commission-seeks-berec-opinion-draft-recommendation-consistent-non-discrimination-obligations. Some Telzed comments on this Recommendation are available below. Subsequently, in early March 2013 BEREC provided support for some of the Recommendations principles and aims (see: http://berec.europa.eu/eng/document_register/subject_matter/berec/press_releases/?doc=1222), but these are mostly high level and the points made by BEREC are non-controversial. The BEREC detailed reply on the Recommendation details was then issued later in March: http://berec.europa.eu/eng/document_register/subject_matter/berec/opinions/?doc=1244.
It should be noted that BEREC extensively re-wrote the recommendation.
In September 2013, the final Recommendation was issued on the EC Digital Agenda site. Readers can decide for themselves how much this has been improved since the draft was issued.

ITU paper on Broadband Strategies
Telzed was commissioned to deliver a paper to help define strategies and regulations that will help broadband developments. This paper was issued in December 2012. It provides guidance and insights to help promote broadband and so help countries develop the wider economy that benefits from having widely-available broadband services. Please download this paper from the ITU site: http://www.itu.int/ITU-D/finance/ or from the link below. There are other useful papers on the ITU web site e.g.: http://www.itu.int/en/ITU-D/Pages/default.aspx or http://www.itu.int/en/ITU-D/Regulatory-Market/Pages/Studies.aspx. The paper was presented in Cairo, Mexico and Tokyo.

How to build a "Do It Yourself" cost model
This document provides guidance for making a cost and profit model without using a proprietary ABC tool. A non-proprietary model can meet many business needs and can deliver sophisticated solutions for commercial managers or regulatory accounting. Issues identified in this paper can also help those planning to use a specialist ABC system. If your telecoms business does not have any costing analysis system, then you probably need to consider this option, even if you then choose a different approach. Please also look at the other costing papers on this web site. Telzed can build this system for you.

The UK Ofcom Communications Market Report 2012
This document was issued in July 2012. This provides useful data that can also benefit decision makers in other countries. There are important implications for strategists, investors, planner and regulators that can be derived. Telzed has studied the deeper implications beyond the numbers themselves. This work is summarised in the document below. Many of the points are highly relevant to other countries as similar trends and issues are being faced or because the contrasts to the UK situation help to clarify the local problems.

Costing and pricing of access networks
The 2011 EC Questionnaire on access costing methods, was discussed at conferences and in other meetings. See: http://ec.europa.eu/information_society/policy/ecomm/library/public_consult/cost_accounting/index_en.htm. A Telzed paper (click below to download) looks at some of the issues raised by the Questionnaire and the replies given. This is not a full analysis, but it aims only to highlight the need for a revised approach and a new consultation before a final recommendation is made. Since that Consultation and the below Telzed paper was issued, there has been a Policy paper published - see http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/12/554&format=HTML&aged=0&language=EN&guiLanguage=en (July 2012). A Telzed discussion paper on the EC Policy statement is also available below.
The latest related output from the EC is a Recommendation on NGA costing and non-discrimination regulation issued in September 2013 (see above).

Dangers of access fibre deployment (updated April 2013)
For many years access fibre services have been discussed, and they are finally becoming a reality. The prices and costs have been examined and discussed in a number of papers. Whilst fibre is desired and it is the best technology for high speed services, the business case is far from settled. R Steele has flagged up the risks at some conferences and his discussions with telco experts shows that others are also concerned about the possibility of some major financial problems for those that get the calculations wrong. This paper discusses the issues and the very real possibility of telco failures. Investors should not forget that telcos can make big mistakes - think back some 10 years. Updates from the 2012 version include issues that local/regional broadband business ventures should consider.

A one page PowerPoint telco report on costs and profits
Reporting complex information is rarely easy. This paper describes a one page diagram that provides a powerful view on the performance of a telecom business. Underlying the slide, some sophisticated cost, volume and revenue processing may be required. Such processing systems can be developed. The one page report provides a high level basis for decisions and planning actions.