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The June 17, 2003 Issue Provided by System Dynamics Inc.
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Banda Ancha - Broadband in Spain

We couldn't visit Spain without learning more about residential broadband there. Thanks to some of our obliging readers who invited us to meet with them after the Alcatel conference in Madrid, we got an inside peek into how "banda ancha" (broadband) is developing there.

Spending time away from your own country is always interesting and this trip served to remind us once again how the word "broadband" has significantly different connotations, depending on where you live--we've dubbed this the Broadband Rorschach Test. To us in the US, broadband connotes "high speed access with a PC". Everyone sees ads that promise "50 times faster than dial-up!".

In Spain and some other European countries, local dial-up telephone services are charged by the minute, and Internet use has been slowed by fear of how much a user will be spending to connect. The big selling point for broadband is having a flat-rate service to connect to the Internet. Services typically start at just 128 kbps and are marketed as "flat rate" rather than "high speed".

We were especially interested in the emergence of a competitive market and took the opportunity to meet with both the incumbent carrier and companies representing varied types of competitive thrusts.


Telefónica - A Forward Looking Incumbent

We have many readers at Telefónica, the largest company in Spain, and the world's sixth largest telecoms company by market cap. From its roots as Spain's incumbent fixed-line telephone carrier, Telefónica now has operations in almost 50 countries and derives less than 40% of its operating revenue and profit from its traditional business. Dave (with Prodigy at the time) first visited with Telefónica in 1992, when they were already interested in online services; Dave discussed with them how Prodigy could be launched in Spain with ADSL.

On this visit, we were shown their "Hogar Digital", several rooms of a digital home, complete with automated appliances, home networking, and advanced applications. Our hosts came from several different groups and included Jesús F. Lobo and Salvador Pérez from technology strategy, Ana Altadill Arregi from digital home services, Gracia Morales Godoy from TV services and Carlos Gavilanes from corporate strategy. From our conversations, it was clear that Telefónica is a competent incumbent that is investing in R&D and watches competitive markets closely as they develop their strategies.

We were interested to note how committed they are to the idea of an OSGi gateway as the mechanism for providing services to users. Their view of a user residence includes a user equipment housing which includes the DSL modem, gateway, telephone, TV and control terminations.

Health Care interface --> Click for larger pictureOne service of particular interest was their home health care system, which is in trial use with four patients today. We hope to run a future guest article about experience and learnings from using it. The system capabilities and interface include videoconferencing with medical staff, dietary information and much more. It includes reminder capabilities like a light that comes on to remind patients that it's time to take their medicine. Doctors can enter patient information at the patient's home or in the hospital. The system also interfaces with patient monitoring equipment to enable remote care-givers to assess progress. Another application thrust is distance education which they are cooperating on with Universidad Nacional de Educacion a Distancia. Health care monitoring --> Click for larger picture

TV user interface --> Click for larger pictureEntertainment is also a part of their digital home. Using multicast IP and ADSL with an IP set top box, they are providing the Imagenio service to 400 homes in Alicante, giving 22 channels, their program guide and VOD. These users are getting telephone, high speed Internet and TV services from Telefónica. The service we saw would probably not be competitive in the US, but may meet the needs of the Spanish market.


Broadband Competition

European public policy is strongly in favor of a competitive broadband market. The European Commission has been promoting competition as an important factor in accelerating the availability and use of broadband networks. Its earlier "eEurope 2002" plan resulted in regulatory changes; its new "eEurope 2005" plan, to be presented to the European Council later this week, is intended to enable "widespread availability of broadband services at competitive prices".

Although competition to the incumbent, Telefónica, is not a big factor in Spain's residential broadband market today, the glimmerings of new competitive thrusts are beginning to emerge. Since the incumbent passes virtually all households and has received all the revenues for telephone service, it is difficult to compete with them. Unlike in North America, where cable passes most homes, TV service over cable is more scattered in Spain, and most users get pay TV by satellite. Terrestrial TV is also viewed as pretty satisfactory by many.

The liberalization of the fixed-line telecommunications service market in Spain was completed in 1998. In addition to Telefónica, other players include Retevision, owned by Auna, and Uni 2, owned by France Telecom. Part of what we learned during our visits was that potential broadband competition may be coming from a variety of different companies and technologies. The following sections highlight some companies we visited; they are only a sampling of what's developing in Spanish broadband competition.


Euskaltel - Serving the Basque Country

Founded in 1995, Euskaltel has been building its own network to serve homes and businesses in Basque Country. Its shareholders include leading financial, telecomm and utility companies, including Endesa and Auna. The company's goal is to offer services over its own infrastructure and it has been aggressively increasing its network buildout. They offer the complete gamut of services including fixed and mobile telephony, Internet access and cable TV. Their network consists of extensive fiber infrastructure, while their last-mile connections include both twisted pair for telephony and coax for television. Their intent is to continue deploying both twisted pair and coax for residential wired connections.

The Basques consider their culture distinct from other Spanish regions and speak a language (called Euskara) which differs from other European language groups. Even the name for their area -- the Basque Autonomous Community -- emphasizes their uniqueness. It has historically been one of the richest areas in Spain and houses heavy industry, wealthy banks and large fishing ports. The region has about 2.1 million inhabitants, comprised of 700,000 households. We sensed that one of the reasons for Euskaltel's success has been the enthusiasm of the Basque people to adopt a Basque-provided service. This is not to detract from the accomplishments of the company, which in a relatively short time has increased their own network from 189,000 homes passed in 2001 to 296,000 in 2002, provides more than 50% of the Internet services used in its region, and turned EBITDA positive in 2001 despite the extensive network deployment expenditures.

Euskaltel hot zone --> Click for larger pictureAt Euskaltel, we met with Fernando Andreu Cabezón (Head of the Technology Department), and with Inés Castiñeira and Izaskun Alonso who are working on wireless broadband projects. We heard about their Wi-Fi/WISP service which was launched at the end of April. They are structuring the deployments so that Euskaltel provides the access control--authorization, service selection, and other back-end functions, and other companies provide the hardware and do the system integration. In phase 1 they are supporting deployment of public hot spots and corporations for private WLANs and in phase 2 will be expanding to SOHO and home services for remote and rural areas.

Because Euskaltel is a full service provider with fiber, twisted pair and HFC, they are in the interesting position of deploying both ADSL and cable modem service: they use ADSL for business customers and cable modems for residential customers. Their residential offer for telephone, data at 128 kb down and 64 kb up and basic TV channels costs 30 euros/month, although charges for telephone usage are additional. They have a variety of higher speed, higher cost data options, and additional digital TV options.

We were particularly interested in their Celeria pilot project, which is aimed at serving areas where they have not deployed HFC. These include both smaller towns and historical areas where it is impossible to deploy cable. Their wired infrastructure covers about 90 of 250 towns, representing more than 80% of the population. The solution they are trialing for the small towns is based on substituting LMDS-based broadband wireless for the connection from the node to served buildings in the town, using 112 MHz of bandwidth to provide wireless TV, data and VoIP over a range of about 1 1/2 km. Within the town, they use one antenna for each building and have deployed an all-digital cable box for TV reception. They operate DOCSIS over the wireless link, and are using VoIP rather than circuit-switched telephony. This project is currently deployed in Meicende and Derio. We have invited Euskaltel to write a guest article for a future issue of this report.


Afitel - Wi-Fi in Zamora

Ignacio at Afitel --> Click for larger pictureSeveral months ago, an article in Intel's Business Computing Newsletter caught our eye. It was titled "Case Study: Zamora" and the headline "Spain scores world first with public wireless Internet" got our attention. We were intrigued and decided that when we went to Spain to speak at the Alcatel conference, we should personally visit the project. Fast forward to May and we were in Madrid, sitting in the office of Ignacio Ozcariz, CEO of Wireless & Satellite Networks S.A. (WSN), which owns Afitel, the provider of Zamora's service.

WSN started business in 2000 using satellite to provide services to professionals in rural areas. Finding that satellite economics and latency were not acceptable, they switched to Wi-Fi as the delivery mechanism and launched in Zamora, an old city about 250 kilometers northwest of Madrid near the border with Portugal. Their service is intended to provide broadband access covering an entire town--rather than being limited to Wi-Fi hot spots.

Afitel promotion in Zamora --> Click for larger pictureThe current service in Zamora is geared to personal, not business, users. It is free now, and is scheduled to cost 9.9 euros per month. There are now 1250 homes connected and supports 400 simultaneous users with 300 access points. Depending on what happens with future financing, they plan to start providing services to areas of Madrid and Barcelona after the summer.

Ignacio described the network architecture, which has 3 wireless layers from the server and fiber connection to the individual home. Getting the service running involved some false starts as they moved the access points from street level to the light poles and finally to rooftops.

Ignacio does not think the current Zamora service represents the best that can be done with broadband wireless--he characterizes it as "our Windows 1.0" and is considering the technology evolution that will allow them to provide quality of service and higher bandwidth. As these plans are put into action, he says they will move to their "Windows 3.1" and later to "XP". During this evolution, each access point will move from having 4.5 Mbps capacity to 1.5 Gbps. The company currently has 18 employees and is working with two Spanish Universities.

Ignacio believes that flat rates and IP are givens in the future. His focus on Wi-Fi at the end device is based upon the high volume, mass-market availability of Wi-Fi cards. He is willing to trade off more network complexity to keep that end-user simplicity and low cost. His business model is based upon four agents who (1) build the network, (2) own the network, (3) operate the network, and (4) exploit the network by building services on top of it. Potential partners may be utilities, which in Spain have ownership positions in telecommunications companies.

Antenna outside pharmacy --> Click for larger pictureAfter hearing the descriptions of the Zamora network, we were eager to travel to Zamora to see and use it ourselves. We were surprised that our meeting point with the Zamora team was a pharmacy near the center of town. The second floor of the drug store is also the local Afitel office--José Manuel Reglero, who hosted the visit, is involved in both. As we got acquainted with the local team over coffee at the café around the corner from the pharmacy, Dave turned on our notebook PC and used the AirMagnet test tool to find 13 Afitel access points. Wi-Fi in Zamora --> Click for larger picture

Our hosts took us on a wonderful tour of the town. We visited each portion of the network architecture Ignacio had described, starting with the Afitel server and fiber connection next to the railroad station. José was sure we were the first to use Afitel's service to download our email from the grounds of the church of San Pedro and San Ildefonso, at the top of a very scenic lookout point Checking Wi-Fi access --> Click for larger picture.

We were surprised to see access points using more closely-spaced Wi-Fi channels than we expected. In the United States--where 11 Wi-Fi channels are available--the standard practice is to locate access points on channels 1, 6 and 11 to avoid overlap. Europe has 13 available Wi-Fi channels and we expected to see four widely-separated channels in use; instead, we recall seeing more closely-spaced channels.

As we concluded our visit, having a wonderful lunch in a small restaurant with our Afitel hosts, we mused on the connectedness of a world where we could read an email from Intel about Wi-Fi in Zamora--and several months later be in Zamora using the service and meeting the people who made it happen!


Tecnocom - Reconsidering PLC Access

Thankfully, our Tecnocom hosts were kind enough to wait for us after we missed a turn and got lost on our drive to their offices, about 30 minutes outside Madrid. Our GSM phone was a godsend as our hosts helped us navigate around the many roundabouts.

Tecnocom has two major businesses--a telecommunications group and an industrial motors group--and operates in nine countries. With annual revenues of $100 million in telecom, they are a systems integrator whose customers include service providers and electrical companies.

Our host Antonio Gómez, Managing Director of the Networking Solutions Division, reads our reports and had seen our article expressing doubts about the future of PLC access (see http://www.broadbandhomecentral.com/report/backissues/Report0304_3.html ). He said that Tecnocom is very bullish on PLC as a broadband access mechanism to the home. They are working with the utility Endesa (the largest in Spain and South America) to provide voice and data over PLC to 2500 homes in Zaragoza, with an average bandwidth of 2 Mbps. Another site has been running in Portugal for six months with Oni/EDP (Electricidad of Portugal) providing voice, data and video. He said these projects would move to full deployment this year, and that companies are also poised to activate PLC access systems in Latin America and China.

One of the reasons for Tecnocom's enthusiasm about PLC is a new chip technology from DS2, a chip company in Valencia, Spain. We heard favorable reports about DS2 in other meetings during our trip. Although we were not able to meet with DS2, we were told that their technology supports much higher transmission speeds than others on the market, and it working well. Endesa is one of DS2's shareholders.

We hope to have a guest article from Tecnocom in the future, containing more detail on the PLC deployments underway. The combination of higher bandwidth capabilities and opportunities in markets outside the US, in locations where DSL and cable are not deployed, might make us reconsider our views about the future of PLC access.


Aggaros - Community Broadband

Although geographic separation is still a fact of life, it sometimes surprises us how similar our experiences and ideas are to those of people in other countries. That was certainly the case in our meeting with Jaume Salvat and Pere Alemany of Aggaros. Our common experience with HFC networks and IP services, which they brought from their prior positions at Auna Cable, may be part of the reason.

In looking at the deployment of broadband in Spain, they see that there are still many municipalities which are unserved but want broadband. Many of these villages have only 1000-2000 inhabitants, but don't want to be left behind. Until recently municipalities have not taken an active role in fixing the problem, but this picture is starting to change. Regulators are loosening their positions which used to require operators to offer services over wider areas. The emerging view may be supportive of municipalities becoming "micro-operators" for their own areas. Jaume and Pere are actively working with some municipalities to pull together the expertise and support that will be required for such a process to succeed.

There are many questions about how a working model will evolve, including how the various key roles--building the broadband transport infrastructure, operating this infrastructure, and offering services built on it--should be divided between the municipalities and private companies. We noted that these same questions for municipal broadband are being addressed in locations as diverse as the Utopia project in Utah, some work in the Netherlands and in Spain.

Aggaros is technology agnostic and much will depend upon the budgets and requirements of specific areas. They are exploring the potential of PLC. However, technologies like those from Wave7 Optics (see the SCTE article later in this issue) suggest that the economics for fiber may finally be approaching the right range.

There's nothing specific to report yet on municipal projects in Spain, but our antennas are tuned to the fact that this path is being explored in parallel in many different locations. Jaume and Pere promised to keep us informed as the situation develops.


"Broadband Tapas"

We'll use the expression "broadband tapas" -- referring to the little plates that accompany visits to Spanish bars--to cover several other visits we'll mention briefly. One was with reader Fernando Gonzalez of Altran SDB, the Spanish high-tech division of a large French consulting company that owns 130 companies of various sizes, including Arthur D. Little in the US. Fernando has a long background in exploring the smart home. He introduced us to Javier Jiménez Leube, who is setting up a university-based multidisciplinary R&D center to look at the intersection of telecommunications and architecture. The group will combine telecommunications professors, architects, industrial engineers and informatics specialists and will work with businesses interested in implementing their ideas.

We also talked about the combination of broadband and architecture with another reader, Stefan Junestrand, CEO of Casadomo Soluciones S.L. Stefan holds a doctorate from the Royal Institute of Technology in Stockholm, and his studies crossed between architecture and technology. As we met Stefan for lunch in Madrid, we discovered that, like us, he is a fan of Christopher Alexander's book "A Pattern Language" and has written a paper on its application to future technologically-enabled homes.

Muchas gracias to all of our readers in Spain who took the time to meet with us and share their interests and learning about broadband!

( www.telefonica.es ) ( www.euskaltel.es ) ( www.afitel.com ) ( www.tecnocom.biz ) ( www.endesa.es ) ( www.portugaloffer.com/oni/ ) ( www.ds2.es ) ( www.aggaros.com ) ( www.altransdb.com ) ( www.casadomo.com )