Five events to consider when planning your next telecom business

Five events to consider when planning your next telecom business

Photo credit: Telecom Antenna by Alberto Esenaro

I believe it was Winston Churchill who said “He who fails to plan, plans to fail”. Telecom business is no different.  For that, it is important to consider all events related to the industry. November, final month of Calderon´s Administration, events on the telecom industry have happened, and could open many opportunities.

1. Federal Telecommunications Agency (COFETEL) resolved to recommend before Ministry of Communications (SCT) the granting of satellite license to Tangerine Electronics for public telecom network, private telecom network and value added services. Satellite “Bicentenario” will be launched next December 19, to become first of three satellites in the MexSat Fleet. One of the objectives of MexSat will be to connect isolated and low-income areas of Mexico.

2. Sigma Networks México, Megacable, Metronet, NII Digital, IP Matrix and Corporación Universitaria para el Desarrollo de Internet (CUDI) announced the formation of an association for operating the first Internet Exchange Point (IXP) in Mexico, in order to reduce cost of traffic exchange and data latency. This is a private project, but will have full back from Ministry of Communications (SCT) and Federal Telecommunications Agency (COFETEL). The modest investment of $200,000 USD will make more cost-wise the transport of big data (if other IXP are successfully set up).

3. SCT freed spectrum frequencies from 5,470 to 5,600 MHz and 5,650 to 5,725 MHz, to be used by general public without need of license, permit or registration, and for setting up local area networks. However, devices must still be certified before COFETEL, for preventing interference with other frequencies. There are some restrictions of maximums of 250 mW broadcasting power and 1 W equivalent isotropically radiated power.

4. Currently, many telecom licenses contain different obligations and rights, depending upon the time they were granted. This is because the original Telecom Law was not technology neutral and had excessive controls from Government. Last months, SCT has been working on making a standard telecom license for operators that do not use the spectrum. Likewise, SCT has just made official a new proceeding for requesting a telecom license.

5. Sales of Mexican telecom industry grew up 15.1% during third quarter of 2012 (in relation to 2011). In same quarter, mobile broadband grew up 56.4% and prices to internet service dropped 13%.  These figures are announcing a bigger demand of bandwidth in the near future: the mobile broadband future.

Many other events and regulations will come with new administration of Mr. Peña Nieto, who has been very emphatic that will open the telecom market for telephony and free-to-air TV.  Let´s see what open means.

No Jobs, All the Opportunities

No Jobs, All the Opportunities

Photo credit: Job Search by Tax Credits

I already asked permission for hijacking this phrase from José Alberto Sanchis, a US-based serial entrepreneur I met at an alumni event early this year. Back then, global crisis seemed falling rock-bottom with little hope for a quick end.

“No jobs, all the opportunities” is so true in times of crisis. Not only for moguls with enough cash flow for shopping bargains, but for the increasing interest on start-ups from investors and entrepreneurs.

Tech startups are on the spotlight as a key business niche for economic recovery that even governments aggressively support them.

In Mexico, Federal Government has included IT industry into the lines of SMEs projects. E-Government Commission from Mexico City Government organizes Ciudad Movil DF, an IT event where coders access public data and write mobile apps for improving the City. Even, Telmex, Latam telephone mogul, has joined on the quest for finding profitable tech startups through its Innovation and Technology Center.

Business means risk. Startups are riskier by definition. Tech startups are riskiest by nature. Nobody knows if a project only has fantastic coding, magnetic GUI or real money behind it. Hopefully all of them.

Crisis forced us to slow down and rethink business models that were profitable before, and of course, made us think on new legal models for getting the deal through.

A lawyer is a risk filter for an investor to close a deal with a reasonable risk. Then, it is crucial for a pitch to learn about the lawyer´s vision. Here are some hints:

1.    Show trustworthy if you are. Lawyers hate mixed signs and contradictory documents. It is important to prepare a small brief of the business for the lawyer or write a specific legal risk section into the business plan, including of course, assets and guarantees to cover contigencies. Most probably, investors/buyers will require full disclosure of your sensitive information for assessing any funding or investment. Be prepared with a good non-disclosure agreement with specific provisions on how to identify confidential information, persons authorized to read and process such information, as well as an enforceable penalty.
2. Corporations are less risky. Corporations could be vessels to make a sell, a joint venture or secure a loan (with stock options, handover deals or the like). In my opinion corporations are more transparent in relation to liabilities than people. Laws have more controls on corporations, so it is cheaper, faster and more secure to perform a due diligence on a company than a person.
3. IP property is a must do. Tech business is all about IP and its legal protection. Tech startups might not have big budget already, but IP must be on the top of priority expenses. Having IP in good standing might not cheap, but not having it could be a deal breaker.
4. Put all agreements in writing. There will be a time when people want look back at negotiations for reference. Verbal agreements and handshakes are hard evidence to discover. Remember, any deal could end up in court, so be careful on reviewing terms in writing.
5. BYOL (Bring on Your Own Lawyer). Remember that all deals are unpredictable storms, and you will require an experienced team to maneuver to safe harbor. A lawyer from acquiring/investing party will not protect your interests. In fact, most probably will not advice you in order to prevent a complaint due to conflict of interest.

Before skipping 9 to 5, it is important to understand that a successful startup requires time, planning and talent to execute. Who knows? Maybe your project is the Internet’s next big thing? And honestly, I hope it is.

The 700 Mhz will be A5-APT

The 700 Mhz will be A5-APT

Photo credit: Moon and antenna by Marcello Semboli

I discussed in my previous post “A Tale of Two Bands and other telecom stories“, the status of the Bands 2.5 Ghz and 700 Mhz. Well, during the Ordinary Meeting of COFETE of September 19, 2012, it was unanimously recommended segmentation of band 698 to 806 Mhz according to the A5 (Asia-Pacific Telecomunity). The Band will be segmented in 2 parts of 45 Mhz with a separation space of 10 Mhz and guard bands.  The decision of recommending A5 versus the American Model was to adopt a model for lower investment and faster roll-out of mobile broadband.  According to the official date of COFETEL, the A5 Model requires an investment of $150 M USD with a roll-out time of 1.5 years, while the American Model requires $800 M USD and 2.5 years. In addition A5 Model allows portability from one network to another with the same band.

Still, there is no official information on how Ministry of Communications or COFETEL will recover the 700 Mhz, but it is obvious that there are already some negotiations in place to recover and then, launch the auction.  The war between Apple and Android, and the efforts of RIM and Windows Phone to get a market share will push operators and Government to expedite LTE in Mexico.  With 94 Million Mobile Users, who would not?

A Tale of Two Bands and other telecom stories

A Tale of Two Bands and other telecom stories

Photo credit: The first European antenna for ALMA is handed over to the observatory by European Southern Observatory

It was the best of times for MVS in 1989, now forth largest telecom operator in Mexico.  By then, it was awarded with a part of the 2.5 Ghz band of the spectrum.  With time, it negotiated and obtained 90% of the band that nobody wanted. Originally planned for microwave CATV, MVS pioneered in pre-wimax technology partnering with Intel and Clearwire on 2003.

By 2005 its first concession titles started to expire and engaged into negotiations with Ministry of Communications (SCT), and on 2008, MVS launched Dish in Mexico.  With billing help from Carlos Slim, this project successfully targeted low-income segment. On 2010, negotiations with SCT failed.

On 2011, MVS pitched to SCT a project called “Broadband for Everyone” (Banda Ancha Para Todos) teaming up Clearwire, Intel and Alestra (former Mexican Partner of ATT) to offer broadband under a carrier-of-carriers model. MVS had an estimate of 55 million of users.   The Project was upheld on negotiations until 2012, but received the approval from Anti-trust Commission (COFECO) and at first by Telecom Commission (COFETEL), which thereafter revoked.

It was the worst of times for MVS on August 8, 2012. SCT started the recovery of 2.5 Ghz band from all concessionaires, even those that expire on 2020.  This action would affect 11 telecom operators, heavily to MVS, owner of 190 Mhz.  The arguments were the low use of that band from MVS.   Thereafter, SCT argued consideration.  Supposedly, Government set price of renewal for $2 Billion USD and MVS offered $860 Million USD returning 50 Ghz. MVS further argues that it will pay a consideration adjusted to income per capita of Mexican consumer.

Aside from legal and technical arguments, MVS made serious accusations to Government on favouring Televisa with the recovery proceeding and future re-auction, but Government denied them. Furthermore, MVS escalated this proceeding associating the recovery with the firing/rehiring scandal of radio journalist Mrs. Carmen Aristegui during February 2011, adding up a freedom of speech element to the story.

Leaving aside scandals, the recall proceeding is on its way.  SCT has even declared that might resolve on making a partial recovery or not making it at all.  A Federal Court has already denied an injunction on the grounds of public interest of recovery for implementing new technologies, but there is still one pending to be resolved.  Mr. Vargas and his lawyers have anticipated a 5-year litigation with an uncertain outcome.  Other concessionaires have presented constitutional injunctions.

On the other side, we have the 700 Mhz band or “digital dividend”.  COFETEL already started works to segment that band.  Currently, Mexico uses most of that band for free-to-air TV, being Televisa a main player on that.  Supposedly, a document is being prepared by the Regulatory Prospective Unit and will be presented to COFETEL Commissioners for approval.  From official documents, it appears that the band will be used for mobile broadband, but timeframes, auction and recovery, if any, are yet to be determined. When digital TV is fully deployed by 2015, this band would be freed and re-auctioned.

Calderon Administration is leaving on December 2012, and there is not enough public information to foresee the outcome, but one thing is certain: if parties follow the way of the court, victory will be pyrrhic for either of them.

However, no matter what path SCT and COFETEL will follow, five key resolutions from Supreme Court will play main role on their forthcoming decisions on those bands:

  • Government has the right to recover spectrum for implementing new technologies. Will Government have the right timing and resources to overhaul telecom regulation before we face spectrum scarcity, and then price increases? Is carrier of carriers a feasible model for broadband? Again, Calderon administration is handing over to next one, and this process might affect the pace of telecom agenda.
  • Government has the right to receive a consideration for spectrum use.  Under official information, Government followed rules for setting up consideration based on average OECD income per capita. However, as MVS argues that such adjustment must be according to Mexican income.  Economists have wide debates over spectrum valuation and there is not a fair market price on that, so Mexico needs to develop its own valuation method rather than importing or referring to other countries auctions.
  • Renewals of concession titles are not automatic for radio and TV.  Right holders must participate in an auction against other competitors, but will have the right of first refusal on a tie-in.  Certainly, this criterion may be applied to other spectrum-based services, but it is a grey area whether or not could be applied to recovery proceeding.
  • Authorities must not privilege economic terms over benefits to society in spectrum auctions.  And here is where MVS, having a relatively small market share on CATV and barely any on broadband, may benefit its cause.
  • Internet is a basic service necessary for the development of the Country. In this resolution, Supreme Court makes a small cameo on declaring right to internet access.  This basic service status does not automatically translates into a universal service policy, but certainly, is a basis for supporting the need of expediting development of broadband infrastructure before mobile internet users breaks down operators backbones, again.

Mr. Peña Nieto´s incoming administration must accelerate pending telecom tasks such as implementation of service level interconnection agreement, evangelization for digital TV transition, universal internet access policy, media regulation, COFETEL autonomy, privacy policy, just to name a few.  Seems titanic, but in fact some public discussions have been around for a long time, and is just a matter of get things done.

Post-script

There seems a groom outlook going around believing that Mexican telecom industry is a war between a telephone tycoon and a media mogul. I believe it is more than that. It is certainly a contact sport with a political show on half time.

However, nobody is acknowledging three factors that are moving this industry ahead. The first, NGOs and organized citizens are demanding updates on regulation of telecom and media. The second, technology is not static and disruptive technologies, such as IP solutions, will eventually break the status quo. The last one, cost for content production has been dramatically reduced, and traditional media does not longer monopolize popular and marketable content.

Bottom line, the big data age is just a tool for the ideas age.  Now, content is king.  Think of that before you build your next business.

 

Welcome to the Fiberhood

Welcome to the Fiberhood

Photo credit: Mario at Google Fiber – Kansas City, MO by UCFFool

According to recent publication of OECD on internet speed, Japan and Sweden are the fastest countries with the impressive advertised average download 149,616 and 101,807 kbit/s, respectively. The US is at a 27,563 kbit/s speed. Mexico, has 5,325 kbit/s.
Since July 26, 2012, Google is officially challenging internet speed in Kansas City, KS and Kansas City, MO with bi-directional connectivity at around 1 gigabit per second.
As Google indicates, this is a joint effort between people, fiberhoods and Google to connect local homes, hospitals, libraries and schools.
Fiberhood is about belonging to a community. Google actually delegated the responsibiity to neighboors to engage into fiber project and enroll other neighboors for pre-registration. What is the incentive? Fiberhoods with most pre-registrations will receive fiber fist.
There must be a localized lesson for each city or community in the World. For Mexico, regulation of ISPs allows SMEs or start-ups, or even neighbors to adapt the fiberhood model. This is, they may associate for negotiating higher speeds at better prices, and maybe form an ISP for self-use.
Because for the rest of us, who do not live in Kansas or planning moving there, there is an underlying lesson here: Internet is not only about sharing content but to sharing access. That is what internet is made of.

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