Mark Evans

Canadians Love Text-Messaging

Although I have a Blackberry, I have to confess that I'm not really hip with the whole text-messaging phenomena. Why tap out a message when a simple phone call will do, right? There are, however, millions of Canadians - a majority of them probably teenagers - with a major addiction as more than 710 million text-messages were sent last year compared with 352 million in 2003. The wireless carriers have to be wildly cheering from the sidelines as text-messaging has become another pillar - along with e-mail, games, ring tones and Web access - in their aggressive data growth strategies. A simple back-of-the-napkin calculation suggests text-messaging generated about $100 million of high-margin business last year. The mobile messaging market in North America will take a major step forward in the next year or so as high-speed networks using 3G and EVDO are turned on. This will make it easier for consumers to send and receive photographs and video clips. You can bet carriers will be more than happy to charge a premium price for the honor.

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VOIP M&A Unlikely

Phone+ has an interesting story on the low chances of VOIP upstarts such as Vonage Holdings and 8×8 Inc. being snapped up by telephone carriers and cablecos because there is no competitive pressure to make a deal as the market is still emerging. With the exception of perhaps Vonage, this thesis is probably true because there isn't a start-up with features so compelling it attracts an offer. In other words, it's not like there is a VOIP version of Google that has taken the market by storm by offering something so different and wonderful from what's available now. Over the next couple of years, you will likely see carriers and cablecos try to build their own VOIP businesses. For carriers, it's a matter of elegantly and economically moving customers from circuit-switch systems to VOIP, while the cablecos charge ahead with Internet telephony.
At some point, however, a carrier or cableco will look at its VOIP strategy and decide it needs to be kick-started by acquiring Vonage and its large customer base. Clearly, price will be an issue given Vonage's value seems to be climbing with every new subscriber it adds. Then again, there are people such as Andy Abramson, who are starting to question Vonage's math.
The bottom line is M&A within VOIP from a service and software/hardware perspective has been, at best, minimal. Not sure if buyers and/or investors are waiting for more momentum before jumping on board but it's very un-dot-com like.

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Retail Rant

After spending far too much time aimlessly wandering the aisles of Home Depot last night, I got one of those “lightbulb” ideas. Wouldn't it be a great if you had a voice-activated handheld device to easily locate what you needed? To find a smoke detector, for example, you would talk into the device, which would then say “smoke detectors are located in aisle nine”. You would then walk to aisle nine and quickly complete your shopping. This “brilliant” use of technology could reduce costs because you wouldn't need as many employees on the floor, and it would improve customer service/satisfaction. To use the shopping helper device, customers would have to leave a credit card of driver's license. I figure this device would be great for any big box-retailer such as Costco, Sam's Club, Wal-Mart and Best Buy. The big obstacle would be loading the data to make the devices work but that's for IT guys to figure out.

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Hey, Nortel's Got Strategy

Woke up too early this morningÖ.had some time before the kids woke upÖ..needed to do something other than drink more coffee so decided to check out Nortel's SEC Q3 filing. Hey, guess what? Nortel's got strategy. It includes the following:
- “renewed commitment to practice and ethical conduct”.
Translation: no more cooking the books no matter how tempting the financial incentives;
- “a streamlined organization structure”.
Translation: possibly more layoffs but definitely no more martinis on the expense account
- “increased focus on enterprise market and customers”.
Translation: Convince people it's not all Cisco, all the time.
- “optimized R&D programs”.
Translation: more engineering jobs to China
- “establishment of chief strategy officer”.
Translation: we need to establish a strategy.
- “strategic review of embedded services to assess opportunities in the professional service business.
Translation: study Lucent's business strategy.
- “a distinct focus on government and defense customers”.
Translation: Call CEO Bill Owens' former colleagues and ask for some business.
Didn't see anything about strategic acquisitions or the sale of weaker units (i.e. optical) but perhaps that will come in the annual report.

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Yahoo Goes Shopping in Canada

Om Malik must be a happy man today after Ludicorp Research & Development Ltd. was acquired by Yahoo Inc. - a deal disclosed/predicted by Om, who wrote about the company last year in Business 2.0. Vancouver-based Ludicorp makes popular photo-sharing software called Flickr, which lets people share photos on the Internet. Flickr, which was started by the husband-and-wife team of Stewart Butterfield and Caterina Fake, is particularly popular with bloggers because you can “tag” photos and then easily share images with other people. Yahoo apparently scrouged up some loose change of US$30-million to US$35-million for Ludicorp, which can now be added to the growing list of North of the Border (NOTB) technology companies snapped up by cash-rich U.S. players.

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Nortel's High Asian Hopes

Ronald Gruia writes that Nortel is enthusiastic about its Asian prospects based on the belief China will finally issue 3G licenses before the end of the year. Nortel apparently believes its incumbent position with China Unicom and a joint venture LG will lead to big business. That said, there wasn't much positive news for Asia for Nortel in the third-quarter of 2004 as sales fell 37% to US$227-million. For all the deal-making Nortel has done in Asia in the past six months, most of its competitors have been pursuing the same strategy while domestic suppliers are becoming more aggressive in and out of market. Given the rough times ahead, the appointment of Gary Daichendt as Nortel's president and COO makes a lot of sense given he's an operations expert - i.e. he's going to find ways to reduce costs even further through exercises such as improved logistics.

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New FCC Sheriff Gunning for VOIP

In addition to Om Malik's posting on whether VOIP service providers will have to pay access fess to ILECs and CLECs, Voxilla's Carolyn Shuk writes the new FCC chair Kevin Martin is nowhere near as VOIP-friendly as his predecessor, Michael Powell. Martin apparently believes VOIP players should contribute to a universal service fund, which is used to subsidize basic phone services for high-cost rural areas and low-income consumers. It is kind of like a FCC-managed investment program for the PSTN system. VOIP service providers have two concerns: the costs to contribute could be seen as a tax on innovation and competition, and no USF money goes to other broadband operators like cablecos. I think what we're increasingly seeing is an aggressive push-back by ILECs who have been lobbying for years that VOIP is getting a free ride. That may true but ILECs are also developing their own VOIP services so there's a conflict there. This offers a huge opportunity for cablecos to gain a lot of VOIP momentum. As the ILECs go to war with VOIP, the cablecos - if they're smart - will push out their own services, while letting new VOIP players do their thing without much interference.

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Trouble on the horizon for VOIP?

As someone who enthusiastically waves the flag for VOIP, I'm troubled by Om Malik's posting on whether the FCC will let ILECs and CLECs charge access fees to VOIP service providers such as Vonage. These fees would be a major setback for VOIP because it will force many independent providers, particularly smaller, under-financed ones, out of the market and, in the process, kill a whole generation of innovators. Of course, the carriers would be happy because their telephony busineses are under siege and they argue rivals such as Vonage are getting a free ride on their networks. For regulators such as the FCC and Canada's CRTC, they have a tough job respecting the investments made by ILECs and CLECs while encouraging competition. I'm all for competition because that's how technology and markets move forward.
An even more troubling issue is how large companies are attempting to change the dynamics of the Internet by making it more difficult for new players to deliver services. Whether it's packet prioritization or accesss fees, the Internet is appears to be becoming less free and more corporate. Look at what Vonage is battling as some broadband service providers try to push its voice packets down the food chain. The folks at IP Inferno talk to this issue when it comes to new channels trying to get into the IP-TV world. IP Inferno argues digital television players will struggle because cablecos will prioritize their consumer broadband and VOIP services.
For a more sinister look at how ISPs are quietly going to undermine independent VOIP service providers, Robert Cringely has some interesting insight into how the rules will be bent to avoid FCC scorn. Looks like Vonage CEO Jeff Citron will have some lobbying to do in Washington.

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At Last, Nortel's Q3

Well, I guess Nortel must define “after the markets close” as sometime before midnight given the PR-challenged company finally issued its Q3 results late last night. Without belaboring the point, the “earlier than expected” release of its Q3s turned out to be yet another public relations/investor relations setback as people waited for the numbers to come out before they could head home for the weekend. The company's puzzling inability to publish the Q3s, which had been promised in a press release early yesterday morning, did nothing to score points with the investment community.
Conspiracy theorists, who may have thought Nortel was trying to hide something, will be disappointed - although the company was light on revenue while gross margins fell to 36%, compared with earlier estimates of 37%.
Nortel's historical financial performance - for what it matters - have been buffeted by its accounting scandal, which has distracted senior management, and tough market conditions in the telecom equipment market. Carriers, cablecos and corporate customers continue to be pragmatic about spending while return on investment (ROI) remains a paramount consideration. It is a challenging selling environment for everyone - let alone a company struggling to right itself internally. On a positive note, Gary Daichendt, Nortel's new president and chief operating officer, apparently impressed employees during town hall meetings, and insuated job cuts are not part of the strategic future. One wonders, however, where Daichendt is going to squeeze out more savings so Nortel can reduce its operating expenses.

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Nortel Stumbles Again

Why is it every time Nortel makes a step forward with investors (hiring Gary Daichendt as president and COO), it takes a step backward? Earlier today, the company said it would post its 2004 third-quarter results - 10 days ahead of its end of the month target - after the markets closed. Well, it's 5:30 p.m. and we're still waiting. (6 p.m update: the quasi-official word now is Nortel could delay its press release until Monday morning.)
This is just another PR/IR fiasco. You would have thought Nortel would have learned its lesson last year when it had to delay the release of financial restatement four times. A better route is under-promise and over-deliver as opposd to the Nortel Way, which is promise and fail to deliver.
Does anyone find it interesting that Nortel is not having a conference call with analysts to discuss the 3Q results but it was more than willing to host a call about a US$5.6 million contract it took away from Cisco to supply networkequipment to the city of San Jose - a victory that is heavily promoted throughout Nortel's Web site

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