Telefonica Selling Copper Lines to Macquarie

Telefónica is selling part of its copper network to the Macquarie fund for 200 million euros. 

It might seem a curious transaction, as the copper access lines are described as “obsolete infrastructure.” It is not clear how many access lines are part of the deal. 

But Macquarie plans to upgrade those copper lines with optical fiber access, betting it can assure itself a long-term stable source of cash flow, functioning as an alternative asset in its portfolio. 

Separately, many other telcos with copper assets have concluded they need to upgrade copper access to  fiber-to-home rapidly, as a matter of protecting asset value and revenues. In substantial part, all internet access providers are having to consider similar moves to keep pace with the competition, including BT and Virgin in the United Kingdom, for example. 

In May 2021, for example, 40 percent of U.K. homes (11.6 million) had access to gigabit-capable broadband, according to Ofcom. About 24 percent were covered by FTTH access facilities, according to S&P Global Intelligence. 

As BT steps up its FTTH deployments, competitors believe they must get there first, or get there to stay competitive. 

Monk Seal Visits #PTC22

I realize this looks like a piece of drift wood. It actually is a Hawaiian monk seal the hauled up on the beach in fron of the Hilton Hawaiian Villiage, where #PTC22 is being held, Sunday earcly evening.  

In more than 20-some years of attending PTC, this is the second time I've seen one on Waikiki. 

They don't do much but sleep when they come ashore. 

Some say this is just a log. The Hilton staff who surrounded it with traffic cones and barrier tape did not believe it was a log. 

The Hawaiian monk seal is one of the most endangered seal species in the world, according to the National Oceanic and Atmospheric Administration.

Marine Mammal Center

The population overall had been declining for six decades and current numbers, though increasing, are only about a third of historic population levels.

Hawaiian monk seals are found in the Hawaiian archipelago which includes both the main and Northwestern Hawaiian Islands and rarely at Johnston Atoll which lies nearly 1,000 miles southwest of Hawai'i. These monk seals are endemic to these islands, occurring nowhere else in the world. Hawaiian monk seals are protected under the Endangered Species Act, the Marine Mammal Protection Act, and State of Hawai'i law.

One Downside of Hybrid Business Events

One of the issues with hybird trade shows and buisness conferences is how to take a group photo when half the people are remotely attending. The Pacific Telecommunications Council head its first Advisory Council meeting of the year at PTC'22 and most attendees were attending virtually, including AC members, legal counsel, chair of the Board of Governors. 

Yali Liu, Bert Crinks, Felix Seda, Patricia Paoletta, Darren Yong, Gary Kim, Nico Grove, Jim Poole (sitting in for Alex Vaxmonsky, Isabel Paradis and Nakul Rege are in front of the screen. 

Secretariat members Sharon Nakama, Liane Kobayashi, Jancie Spencer and Nicole Fuertes also attended, as did Tara Giunta, John Gasparini, Sean Bergin, Stephan BeckertThomas “Tom” Cooper, Mark Dando, Joe Zhu, Brandon Amber, Mohamed Elagazy, John Garret, Heng Lu, Robert Mitchell, Francis Pereira, Masaaki Sakamaki, Muhammad Rashid Shafi and Una Zheng were others on the call, as I recall. 

We got our work done, but it really is harder than when we are all face-to-face in the same room. 

Home Broadband Costs in U.K. are Low, But Vary by Average Monthly Income

With the caveat that entry-level home broadband is different from the typical level of service most people purchase, or the highest-performing tier of service available, entry-level broadband prices in the United Kingdom show the relative cost of entry-level  home broadband as a percentage of monthly income. 

source: Point Topic 

Those prices range from a low of 0.35 percent of monthly income in London to about 1.4 percent of monthly income in the most-costly area. Much of the disparity is caused by differences in typical monthly income. 

With fixed prices, higher income leads to lower costs as a percentage of income.

"On Demand" is the Key for Anything "As a Service"

It never is quite clear whether connectivity as a service is “something new” or simply a new way of restating an older value proposition known as outsourcing. The traditional value of outsourcing is that it converts capital and human resources investment into a managed service.

In place of enterprises owning and managing their own resources, they shifted hardware, software and human resources to a third party. The upside for enterprises was supposed to be lower capex cost, access to the latest upgrades and fewer management chores. 

The advantage for outsourcers was creation of managed services revenues with a hoped-for higher value content and therefore higher revenues in what might otherwise be a profit-challenged business. 

The traditional issue has been that outsourcing makes more sense for a smaller entity than for a larger entity, especially when license fees are set on a per-user or per-instance model. While outsourcing (or connectivity as a service) often makes sense for small entities without the resources to manage infrastructure, it typically becomes uneconomical for a large enterprise. 

The economics of owning unified communications platforms versus buying “communications as a service” provide a clear example. A small entity often can justify paying per-user license fees for a managed service rather than owning a switch. A large enterprise always does better owning its own switches, given the alternative of many license purchases. 

Small entity Wi-Fi almost always is easy to set up and own. Larger enterprise deployments entail more engineering, so a managed approach can make sense. Still, while it might make sense to contract for site engineering, it might not make sense to use a managed services contract for maintenance. 

Perhaps a better case can be made for management of more-complicated environments where connectivity has varying quality-of-service parameters, where private networks anda public network access coexist or where application customization is required, and can be provided by the “as a service” provider. 

As always, customized software requires domain expertise beyond “connectivity.” Higher-value “as a service” helps increase offer value, but also requires supplier expertise that is costly and specialized. 

But recent moves by major connectivity providers to essentially outsource or buy “computing as a service” to support core 5G networks provides another illustration of when “as a service” has perceived advantages over “do it yourself.”

One way of illustrating complexity is the difference between onboarding “cloud computing” capabilities and ensuring “connectivity” across national boundaries and usage settings. Many enterprise or business users might want to have a simple, transparent way to add connectivity of any type by clicking on an order menu, much as they can order compute services. 

That “network as a service” capability might be as much a matter of provisioning ease as anything else. The key concept is “on demand.” Ideally, customers can dial up or dial down services and features, quality of service levels, performance levels, pricing and rating options, at any location, for any service term, on demand. 

Still, it remains debatable how much value most connectivity providers can deliver, beyond core connectivity. That is simply an acknowledgement of the traditional value of scale in a connectivity provider’s business.

It makes more sense to scale functions and features horizontally (connectivity of any type, anywhere)  than vertically (customization by industry, for example).

No matter how much talk there might be of “customization,” a few key core capabilities--privacy, security, identity; quality-assured bandwidth and latency; on-demand provisioning and “connectivity anywhere I need it” are the horizontal foundations. 

The irony is that connectivity most often has been a “service” (though sometimes it is created on a “do it yourself” basis by enterprises). The really novel change here is not “outsourcing” or even “management” but the ability to order up anything “on demand.”

“On demand” has been the industry objective for five decades, no matter what we call it.

Telefónica Colombia, KKR FTTH Deal

Telefónica Colombia and KKR have formed a new company to build a new wholesale fiber to the home (FTTH) network in Colombia, covering locations in nearly 90 cities in the country in the next three years. 

The network will cover 4.3 million Passed Property Units (PDUs).

The new company will be 60 percent owned by KKR and 40 percent by Telefónica Colombia. Telefónica will contribute its current FTTH infrastructure, which already reaches 50 cities and municipalities covering 1.2 million homes.

The new company is valued at US$ 0.5 billion, representing 20 times pro forma operating income, or US$ 410 in enterprise value per location. 

The company presently has adoption of about 32 percent of passings. KKR, it might be argued, seems to believe penetration can be increased, both by Telefónica as well as third party wholesale customers. 

Telefónica Colombia will receive a payment of US $0.2 billion and will be eligible for a performance-based consideration of up to US $0.1 billion as part of the deal. That is a minimum of $166 per location passed, assuming zero contribution from performance payments, or $250 if the performance bonus is earned. 

Of course, in addition to the upfront cash injection, Telefónica Colombia will reduce its capital investment exposure, but also presumably its revenue upside from FTTH. Telefónica Colombia has done similar investment sharing deals elsewhere in South America.

FTTH Business Case Changes

Fiber to the home seems to boost AT&T’s internet access market share by about 10 percent, AT&T has claimed. That is a big deal, as where telcos use digital subscriber line platforms, they tend to have about 30 percent installed base share, compared to cable with 70 percent. 

In an FTTH scenario, AT&T might get 40 percent of the installed base, reducing cable’s share almost immediately to 60 percent. 

Longer term, AT&T expects to reach installed base share closer to 50 percent, in areas where it uses FTTH and has been marketing for three full years. 

But that will require prodigious deployment of FTTH facilities. Traditionally, FTTH deployment by telcos has been limited enough that most cable companies still competed against DSL facilities. 

Some smaller telcos estimate it costs about $500 to $600 to pass a home with FTTH, in areas with the most-favorable economics. Costs to reach less-desirable areas might rise to as much as $1,000 per location. 

By most estimates, it costs up to $725 to connect to a subscribing customer’s location. 

So it might cost $1,325 per customer location to activate an FTTH account. The net cost could well be lower, in the future, for a number of reasons. As AT&T creates a denser optical fiber backhaul capability for its 5G network, that is likely to reduce backhaul costs for other use cases, such as business internet access and FTTH. 

Then there will be some impact from government subsidies for serving low-income customers or providing service in high-cost areas, beyond what traditionally has been available. On the demand side, internet service providers sometimes will see a $30 per month subsidy. On the supply side, there will be one-time subsidies for extending coverage, possibly in the $300 per location range. 

Also, the payback model for optical fiber access now is more complicated, with value being driven in part by non-consumer upside, such as 5G small cell transmission networks, edge computing and business broadband. 

The point is that payback for dense fiber networks is based on numerous value drivers, not just consumer broadband or commercial revenues. The subsidy regime has changed as well.