Saturday, 19 June 2010

How much do you want... name your price

I must apologize. First to an innocent telephony representative who sat in the "Future of Internet"-session I was in yesterday and then to all of you and to the world. I may have delayed fibre roll outs by 5 - 15 years. I'm sorry, I shouldn't have done that.

What happened? In one of the break out sessions the representative of the old PTT did the standard telecom thing and argue that there wasn't a business case for them to invest in new networks, because all the benefits of the new network fell somewhere else. He gave the impression that this was unfair. He was probably honestly feeling like that and I reacted with a knee jerk reaction. The one many readers of my blog would have fallen for too. Certainly some of the pundits in the session had the same reaction in their faces, but I had the fastest tongue. I explained the man he was wrong. How you could make money on the network. How Reggefiber was doing it. How it was a real estate play, how the electricity companies can do it etc. And I was right! I've been right all the time, every time I argued it. Honest people can make honest money and invest in new networks.

However I have to apologize... and many of you will have to as well. You too fell into this trap. Some of you have written papers about it to prove you were right. I did too! Why do we need to apologize? Because our insistence on being right is stopping everything. We're not getting FTTH, ubiquitous wireless etc. etc. not because they are stubborn, but because we are stubborn.It is us, not them. And we need to realize that.

What we're saying is; I want the best utility for a reasonable price. With reasonable, we mean an 8% return on capital, like OPTA promised Reggefiber. Nice money. Stable income, inflation adjusted. The kind of investment pension funds dream about. The nice and boring pension fund people would love such an investment but they are slow and cautious.  And we're right in thinking this is reasonable. It's only fair that they make 2 times as much interest than we would normally do. We say this because at heart all us fiber loving hippies are just that; Fiber Loving Hippies. Hippies share and love and are grouchy at an unfair and unbalanced world; a bit high on love and a bit low on reality you could say. And just like the hippies, we're wrong. We got our incentives wrong.You cannot get good, fast and cheap. We need to pick two.

Give them the money! 
Our reaction should have been: "I see your point. You're right. It isn't fair that you are building the best thing in the world and you don't get something in return. How much do you want?". Those are the magic 5 words: "How much do you want?" and then give it to them. In all reasonableness. If my Telco wants 10 euro per month in net profit more for an unlimited 1Gbit/s FTTH network connection, in perpetuity, why am I against it? 20 euro? 30 euro? I'm paying 200 a month on energy! (Please Tim, James, you know the numbers we're looking for)

Let's give them what they want and then require them to build it.  Let's make it such a sweet deal that every investor will want it. Let's give them a monopoly on the network in a region. Let's tell every investor that if they put a network in a region, that they can make 20% net profit every year for every euro they invest in it. For those networks that already have shareholders, like Telstra our KPN, we promise their shareholders that in stead of the current dismal 6.5% dividend and then some increase in share price, we will give them 15% or 20% dividend on every euro they have in the company.

In return we get a wholesale network. An enormous bitpipe with antenna's on top. Anybody can access it. Anybody can sell services over it. And to keep the networks honest and not too fat, we'll benchmark them internationally. Every year they will assessed based on performance. We will compare them with other regional telcos. If things go well and the telcos do a good job at both being efficient and at scaling the network well, keeping it running and implementing new features, the shareholders get a bonus dividend, if not, then a deduction. And all the whining about the return on invest will stop. Because every shareholder knows that there hasn't been a better investment than buying telco stock.

So regulators change your modus operandi. Don't ask how a theoretical efficient company would be run and then add only 8% ROI on top of it. Do it differently. Look at effective efficient companies and put a ridiculous bonus ROI on it. Pundits, don't tell how cheap it could be: you're not selling to Joe the Plumber, you're selling to Sam the Shareholder. Make someone rich and revel in the knowledge that  for 20 euro per sub per month extra you've created a platform that will billions each month.

2 comments:

  1. stefano quintarelli19 June 2010 at 10:51

    here, we've been talikng about 13%... but any percentage you talk is not enough. any guarantee you can think of is not enough. a monopoly at wholesale is not enough. you should put a cap on competitor's retail market share as well. possibly decreasing over time.

    then, maybe, they'll agree.

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  2. I've to say I agree with Stefano...


    cheers...
    http://telecomnew-s.blogspot.com/

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