Event
Summary
In October
1999, MCI WorldCom (NASDAQ- WCOM ) and Sprint (NYSE - FON, FON PR, FON PRA,
FXN, PCS) announced a merger agreement that will bring together two giant telecommunications
companies with complementary capabilities. SPRINT offers wireless PCS networking
while MCI WorldCom has an expanding fiber optics network.
Coupled
with this is the announcement of the deployment of MMDS (Multi channel Multi-point
Distribution Services) by both SPRINT and MCI WorldCom later in 2000. MMDS will
enable rural and small town areas to have high-speed Internet access where DSL
(Digital Subscriber Line) and cable are not available.
In
addition, packages for end customers in which long distance and local calling
are bundled into single price packages means the ability for MCI WorldCom to
provide both local and long distance access to its customers (this is a result
of the 1996 Telecommunications Act which effectively deregulated the industry).
DBSP's Benefit
What
has this to do with Digital Business Service Providers (DBSP)? Plenty. DBSPs
in all sized markets can benefit from this, particularly in such verticals as
agriculture, mining, forestry, and related industries. The expansion also means
keeping the likes of AOL happy. AOL is MCI WorldCom's single largest customer,
and the Time Warner merger has put pressure on expanding broadband and wireless
services. Smaller ISP's, and MCI WorldCom's own (rather surprisingly crude)
ISP service will also benefit from this.
MMDS
brings the capability of on-line performance in the larger cities where the
availability of high bandwidth has transformed the business landscape. It also
raises the high probability of new dot-com's springing up in more remote corners
of the U.S. to support much of the new infrastructure that is likely to develop,
as evidenced from Internet history to date.
There is Competition
Competing
for the mobile business are also the satellite companies like Iridium LLC. Unfortunately,
the Iridium project was planned and conceived in the days before the Internet
took off, and was directed at cell phone voice and messaging. With the Internet,
the need for broadband has become apparent, and the laying of fiber and microwave
repeater networks has made Iridium's technology less attractive.
Currently
it is on the verge of bankruptcy and is now under the financial glare of telecom
mogul Craig McCaw, who is assessing Iridium's status. Craig McCaw is also chairman
of Teledesic LLC, which is building a global broadband Internet-in-the-Sky satellite
communications network that should be fully operational sometime in 2004 with
288 satellites.
In
1999 Teledesic completed a major agreement with Motorola to design and build
the satellite network, with LockHeed Martin as the satellite builder and launcher.
According to Teledesic, "On Day One of service, Teledesic will enable broadband
connectivity for businesses, schools, and individuals everywhere on the planet."
This month (March 2000), the GlobalStar network of satellites will go commercial,
using the current 24 satellites it has launched out of the 48 to be eventually
launched. The Globalstar system provides data services as well as voice, but
is not broadband.
What
the Future Holds
By 2004, there will be 31 separate satellite commercial communications systems
blanketing the earth with over a thousand satellites mostly in low earth or
mid-earth orbit, with varying bandwidth capabilities. Additionally, many of
these satellite systems will be tied together through GMSS (Geostationary Mobile
Satellite Standard).
This means that in any country where GMSS is offered, customers of these companies
will be able to use their mobile phones. The battle of Satellite, Wireless,
and Fiber will be well underway, as will the battle for the applications providers
and DBSP's. Implications of the Nokia and Visa Agreement Added to this is the
newest piece in the puzzle - the agreement between Nokia and Visa, to develop
applications using WAP (Wireless Applications Protocol). WAP is an open global
application standard for mobile systems that integrates telephony services with
micro-web browsing.
WAP
is currently in use for making hotel reservations in Asia and Europe. Other
applications are remote ATM banking, as well as a large number of other applications
under test. Motorola currently has over 20 projects planned in Europe and the
Middle East.
Market
Impact
MCI/SPRINT Merger
The MCI/SPRINT merger has implications for small and medium sized businesses
in the rural and under-served areas in the states of the Southeast, the Southwest,
the Pacific Northwest, and the Great Plains.
The number of farms alone in this area is over two million, and this does not
include the small businesses as well as larger companies with offices - mobile
or not - in the towns and cities, many of whom are already linked on MCI's fiber
network. High speed and wireless access to the internet can transform these
backwaters into live connectivity sites, increasing both the volume on the network,
and on the pressure to create new websites and web-based businesses for these
rural communities. The pre-eminent industry that is likely to benefit from this
is Agriculture.
MCI
WorldCom technology partners include IXL and USWEB, two DBSP's. If these companies
have handled things right in their partnering with MCI WorldCom (shortly to
become New WorldCom with Sprint in the fold), they stand in a good position
to expand into the wireless market particularly rural America, and where the
giants of other industries (Chemicals, Pharmaceuticals & Fertilizer, and seed
industry giants like Monsanto) also play.
These
DBSPs already see the potential. However, it means that these companies must
gear up rapidly.
Another
player that is happy with this announcement is MCI's largest customer - AOL.
The wireless and broadband access to more homes and businesses provides AOL
with more customers to its portal. In turn, this enables AOL to link to other
ISP's and new markets that could spring up as a result of the expansion of broadband
services.
Overall,
the MCI WorldCom / SPRINT merger move will not have a significant impact on
the Service Providers' market while it gears up and re-organizes over the next
6-12 months, and begins to deploy MMDS services later this year. After that,
a significant amount of activity is likely to be generated (probability 90%)
in the next year-and-a-half, with Internet speed. However, the gear up time
for DBSPs is three to six months.
VISA/NOKIA
Deal
Combined
with the availability of Satellite communication resources, mobile connectivity
has implications for all users in the consumer space. The recent announcement
of the VISA/NOKIA deal gives the basis for mobile e-commerce worldwide, and
will again provide impetus to wireless (low bandwidth) application service providers,
and businesses looking to capture this part of the worldwide market.
DBSP
Alliances
The positioning of DBSP's with a third tier of broadband and wireless data services,
as well as applications providers for the Internet means these service providers
will have a leg up as the network expands through rural U.S., as well as in
the smaller cities.
Proxicom,
for example, has recently forged (February 10, 2000) a strategic alliance with
wireless applications provider Aether Systems, while Puma technologies has teamed
with Agency.com. Both team-ups are directed at building infrastructures that
are tailored to hand-held devices such as mobile phones, PDAs, Palmtops, and
other hand-held devices.
The
Immediate Future
Some
estimates are that by 2001, 25% of accesses to the Internet will be through
hand-held devices. Though we think this picture is a little optimistic (less
than or about 20% is our estimate), hand-held isn't the only device to need
access to the Internet. According to a Merrill Lynch report, wireless data will
overtake voice data by 2004, and wireless voice is to increase sevenfold from
1999.
Caterpillar,
for example, has provided remote monitoring of engines, and can call farmer
Joe up to let him know his engine needs an oil change - because the oil sensor
has detected metal shavings in it. Another wireless example is a coke machine
that you can call for a coke if you don't have change - it adds the seventy-five
cents to your phone bill (and hopefully delivers the coke).
The
prospects obviously raise a host of concerns - including of course data security
and billing issues (maybe you rang the wrong number and got the coke machine?).
Another existing application is GM's OnStar service that can notify a GM service
center automatically if an air bag deploys in the car, and locate the car through
its GPS system.
Remote
sensing and data will eventually play a major role in the agricultural industry.
A corporation could, for example, monitor the micro-status of animal stock or
crops on every ranch it owns or has an interest in, or various marts specific
to an area can arise. One existing market is for farm equipment parts at http://www.agpartsonline.com/.
We predict in 3 or 4 years, such applications will be ubiquitous.
However,
our suspicion is that vertical market DBSP's will spring up to accommodate these
needs, provided they can find the skill sets. For example,WorldCo.com http://www.theworldco.com/
is a website builder in Regina, Saskatchewan with offices located across the
prairie provinces and across the border into the States. It is an NT/UNIX hosting
organization largely serving prairie-based industries. Indeed there are already
significant inroads in this area with Beef Cattle websites, for example, (see
for example http://www.agriculture.com/
or http://www.agview.com/ for an overview
of agriculture sites).
The
Internet will provide a boost to rural areas where jobs are scarce, and high
technology is generally lacking, provided skill sets are available to drive
it. This is likely to follow in other parts of the world as they are opened
up with wireless and broadband coverage, albeit much more slowly in developing
countries.
International
Activity
Europe and Asia have not been overlooked by U.S. based DBSP's, since it is in
these regions mobile phone use is expected to skyrocket first (I should add,
it already is).
Razorfish
has entered the European scene through acquisition of Swedish Spray Ventures
AB with laboratory facilities in Finland. Agency.com has offices in several
parts of Europe, and Proxicom has linked up with the likes of Ericsson in Italy.
Lante is busy opening an office in Singapore where Agency.com is already present
with a wireless practice, while USWEB is taking the global picture and wants
to spread everywhere - it is even advertising for overseas partners on its website.
Then,
of course, there are the international consulting houses and systems integrators
scrambling for pieces of the action, among them EDS, Cap Gemini, Deloitte Consulting,
CSC, and Anderson Consulting.
Market Threats
Three
possible threats to this market exist.
The first is that regulatory bodies in local areas may effect the distribution
and costs to subscribers, reducing the demand on at least B2C services.
In the U.S., the Telecommunications Act of 1996 essentially deregulated local
and long distance service providers, making it easier for competition to exist
between long distance and local carriers. The effect has been for many carriers
to bundle and package local and long distance services, and this trend will
continue, making it attractive for the end user.
In Europe, the regulatory situation is more complex, and creates artificially
high subscriber rates for local calls: it is one reason the Internet has not
taken off as much as in the U.S., and wireless (with packaged deals) is taking
off.
The
second threat is a lack of standardization of services among telecommunications
networks. This is slowly being addressed in the U.S. Internationally, large
mergers are likely to force greater standardization. Countries like China have
yet to define their standards; this will impact the availability of wireless
and broadband within their country.
The
third threat comes from perceived and potential health risks of flooding the
environment with microwave radiation. Thus far this has had minimal impact on
the distribution of repeaters, though a number of repeaters have been removed
from, for example, church and school rooftops (often the high points in small
towns) due to local protests. It remains to be seen if these pose a serious
threat to the spread of wireless communications.
Vendor
Winners/Losers
Vendors
that have chosen to build up early in this space stand to be ready for incorporating
mobile and broadband applications into the digital business structures of their
clients within the next year will stand a greater chance to absorb some of the
energy of the Tsunami.
This
includes vendors such as Agency.com, Razorfish, and Proxicom. Large international
consulting organizations and systems integrators such as Deloitte, Anderson,
EDS, CSC, and others have proclaimed expertise in broadband and wireless, and
their international presence can only aid in assisting clients.
Further,
they are likely better prepared from the quality assurance perspective to respond
to an international mobile audience. An international presence will assist in
the U.S. for those clients who foresee international clientele, since the U.S.
lacks in this context.
Other
clear winners are companies like Puma and Aether who have a commanding lead
as product developers in the wireless domain.
Vendor
Recommendations
First
we need to look at the current situation, see Figure 1.
Figure 1 schematically illustrates what we believe is the current situation.
Products already exist for broadband and wireless applications - MP3, AOLTV,
TiViO, and Microsoft's own MSN Mobile 2.0 (announced February 28, 2000), spring
to mind. For wireless, currently only a few companies provide products to seriously
service this market and this makes training and technical ramp up easier for
the moment for most common applications.
However,
other applications are likely to appear on the horizon, with the potential for
new competitors. Think for example of the GM's OnStar system improved to call
local medical help in the event of an accident, or a Coke machine informing
base that it its getting low (and for the user to find the next nearest one
that still has some!). There are also an estimated 45 million mobile users in
the US alone.
If
the vendor believes that the mobile and wireless sector represents a significant
value add to its business, then it should be thinking of positioning itself
now in this market place. It is likely several months of tooling and training
of selected personnel will be required because of familiarization with international
standards such as WAP, and various telecommunications standards around the world.
Additional time and effort is called for in order to rollout the services through
your organization.
An
alternative - and supplement - to this is to partner with an existing complementary
product developer and service provider such as Puma or Aether, Laplink.com,
and DataViz (for MAC and Palm top.) Unfortunately, there no clear industry leaders
for infrared or other technologies related to remote data exchange and other
areas of wireless communications to Intranets or the Internet.
User
Recommendations
The expansion of broadband and wireless services can only increase demand for
DBSP services.
Rural and Remote Sites
Currently,
users in rural farm communities and industries with remote sites such as mining,
oil drilling, and power utilities, requiring Internet access, have limited capability
in remote areas. However, they should determine what infrastructure plans there
are from telecommunications carriers to get early into the planning stage. It
is our belief that only a few DBSPs are in a position to take full advantage
of the telecom companies' broadband and wireless services expansion plans at
this point. Users who are ready to move forward with their projects early in
the game have a distinct advantage.
Large
Companies
Large companies should certainly be looking at the opportunities posed by Telecom
company expansions now - and where they are expanding and providing integrated
services wireless/broadband services - and the opportunities it may have on
cost cutting and business efficiencies on longer-term operations, as well as
new business opportunities posed by agreements such as the NOKIA/VISA arrangement.
Smaller
Companies
For
smaller companies and mom-and-pop operations, local web site creators are likely
to get busier. For those considering "Agromarts", for example, more opportunities
are on the horizon, possibly acting as B2B2C middlemen for information services,
and agriculture community interests. For MCI WorldCom customers, the focus is
in the south and western U.S.
Tourism
Another industry worth mentioning is of course tourism, which is currently well
represented in catalog-style static websites. Broadband and local web hosting
are likely to provide additional advantages for the ambitious country getaway
owner, and this will add to the business activity in their communities. This
industry is likely to be slower on the uptake (probability 90%) since the catalog
style is largely adequate, and costs for building more dynamic sites are high.
However, look out for bundled and packaged services.
Other
User Considerations
Other
considerations for the user are the vertical market specializations, experience
of the vendor, and its international presence.
Larger
companies can leverage the partnership with an experienced vendor and be able
to maintain their own staff to cut future outsourcing costs. It is expected
that the cost of these outsource vendors will be high. However, you may not
have much choice, unless you intend to build up your in-house expertise from
scratch. In that case you may find yourself seriously competing for talent with
attractive high paying DBSP's. International presence can assist if you want
to serve an international market - a whole other issue outside the scope of
this analysis.
For
the user of DBSP services in this domain, the time is now, not later. There
is limited manpower and expertise, which is one reason companies such as Razorfish
are expanding into Europe and building the capability for skills and knowledge
transfer and sharing expertise among international offices.
A
skills shortage will mean it will become hard to find the right DBSP when you
need it, and the DBSP's is likely to prove picky in the customers they want.
Several DBSP's have already expressed to us how they currently filter their
clients for those that are most rewarding to them over the long term, and as
the demand heats up, the filter meshes will get tighter.
Glossary
AOL:
America OnLine
DBSP:
Digital Business Service Provider. This is a service provider who incorporates
or provides at least one of (1) translating business strategies into digital
business strategies, usually implying connectivity to the Internet, (2) web
creative design and architecture, (3) implementation, and systems integration,
backend development, firewalls, and (4) continued support and digital business
solution maintenance.
End-to-end
DBSP: Provides a complete suite of DBSP services
EES:
End-to-End Services
DSL:
Digital Subscriber Line
GMSS:
Geostationary Mobile Satellite Standard
ISP: Internet Service Provider
MMDS:
Multi-channel Multi-point Distribution Services
PCS:
Personal Communications Service
WAP:
Wireless Applications Protocol