The Anonymous Analyst

Commenting on technology & communication issues around the world with focus on USA and India. Also ramblings on other subjects.

Monday, June 05, 2006

American Corporate Greed

I had posted earlier about this.

There is nothing new here. The capitalistic system promotes wealth accumulation and makes this the ultimate goal in life. I recently read Andy Kessler's book, Wall Street Meat, which is a pretty good expose of investment banking and the so-called expert analysts and it also shows how much influence (undeserved and unwarranted) they wield. They form an almost incestous nexus with company managements, high networth individuals, ultimately screwing the retail investor. Even if the retail investor does not invest directly, his mutual funds do and there too, at least in the US context, the winner is the MF Advisor, if one goes by the poor returns of the majority of the funds.

The recent option backdating is another example of this greed. Are CEOs really worth the hundreds of millions which they are given in salary, benefits and incentives? Why do they need so much, how much is really enough? $1 mn can give a monthly income of $5000, which can help maintain a decent lifestyle anywhere in the world (maybe most places except Tokyo, SFO etc). So how much is enough? Defintely not in the several hundred millions, but reduce it by a factor of 50 or so. Now the American business press is good at coming up new theories which support these obnoxious salaries, which they should since they gain from this.

The investing sage, Warren Buffett, is a major opponent of large pay packets for CEOs and his companies have not suffered for it - anyone who invested in Berkshire has only gained. Looks like all those who invested in Berkshire Hathaway have gained. Not sure if his employees have gained too.

But in the end, it is all about selling and making a fast buck, the emphasis being on 'fast'. It is this emphasis, which is the greatness of the capitalistic system as well as its bane. If you a smart (as in Brin, Gates, Dell, Cuban etc), you make lots of money. If you are dumb (as in the home flippers who got into the game in 2005, who got into the stock market in 99 end to 2000), you get burned. If you are in-between, you still make good. You make it really good, if you become a CEO or else you get fired as a CEO.

This is
a pretty good cover story from the Economist. These kind of inequalities will cause the re-rise of communism, in the long run.
Starting posting again


I decided to start blogging again. Now I have changed my focus a bit. It is going to be Telecom, Economics and Business issues. No more rants!
Vonage IPO and its aftermath

Om Malik, Andy Abramson, Andy Kessler, and others in the blogsphere have been talking about the Vonage IPO for months now and now that it has become a dud, it has gathered more force among the entire blogging community. I have found only a few balanced blogs, which try to list out things which Vonage has done right as well as wrong. Thanks to James Enck and Jon Arnold, we have heard about another VoIP provider, Telio, in Scandinavia, which went public recently.

Jon mentioned very relevant points in his post about how Vonage mktg is so old-school, a lot more of viral marketing would have helped. A lot more of incentives to current subscribers might have also helped. I take VoIP from Lingo, from Primus. I am not very satisfied with the service quality, but they have a lot of free calling to Western European landlines and a lower price of $20-21/ month. They have a very rudimentary referral program and they do not promote it a lot too. The main advantage from this service is the free unlimited US calling; I am not too concerned about E911 - I have mobile phones, which could help with that, besides as per regulation, the VoIP providers are E911 enabled.

Now, coming back to the subject of my posting, truly, it is very easy to throw mud on the Vonage management. A lot of the blogging community, which is predominantly analysts, academics, consultants, journalists, authors, technologists etc and not many executive types (apologies to Alec Saunders, Tom Evslin) has a natural tendancy to express their own opinion about the world outside and they have not in most cases got prior experience in doing the kind of stuff, which they write about. I am sure this is too much of a generalization, but I think I will go with it for now.

Also recently there was a comment from an analyst, who was instrumental in bringing Jeff Citron to Vonage and his comment was that the shares would be $24 in one year or so. I cannot locate the link now.

Now, all the statements about Vonage are based on the presumption that they are standing still while the Comcasts, CableVisions continue their VoIP rollout. But the experienced management team at Vonage including the 3i folks are very sharp folks and they are sure to be doing something soon. Which brings me to the core of this post, which is that VONAGE is building a MVNO service. This is from a pretty reliable source and I am sure that they are proceeding on this path. Now that would be a pretty good way to increase revenues, reduce churn, especially if they are able to provide an integrated service.

So who could Vonage tie up with - it has to be T-Mobile, beyond doubt. SprintNextel is in bed with the Cable MSOs, VerizonWireless and AT&T will not partner with someone who will take up their own revenues. So it has to be T-Mobile. They key point is what kind of integrated services Vonage might provide.

Wednesday, August 31, 2005

Thursday, March 17, 2005

American Corporate Greed

If one takes a look at corporate US today, it is characterised by extreme greed - people wanting to grab money in whatever means possible - CEOs getting unheard of salaries and bonuses, extremely large stock options, companies going in for mergers and aquisitions just for the board keeping their positions etc. The Bernie Ebbers, Kenneth Lays are the poster children of this class and unfortunately this has spread too much around. These top management folks then screw shareholders, middle management and workers by taking stupid decisions. Since they are in the know, they can sell their shares at the peak, leaving the lower strata holding the bag.

The top management increases their own salary & options, outsources jobs to cheaper climates, axes divisions etc - can they not reduce their own take and give more to their subordinates? Then they will have a more motivated worker class, which can come up with innovations and keep the corporate good in mind.

I think the US tech firm revolution can be easily traced more to top mgmt greed and incompetence than to anything else. The techies found out that they would not get any benefit for their ideas - the benefits will all go to senior mgmt. Hence they went out and started their own companies - most went down, but some succeeded.

This top mgmt greed has been exploited well by unions such as UAW which hold the auto industry at gun point today. If the big three top mgmt had not been greedy, the UAW would not have been able to take control so much. So what happenend? The unions negotiated very high wages and benefits, the ordinary white collar auto worker got shafted, the auto industry got even more shafted - result manufacturing in China/Mexico/India, job cuts, factory closures etc. The GM CEO is campaigning for lower benefits for retirees and workers, which is a valid point, but is also the result of the actions of his predecessors.

Seeing all this, the common man also wants to get rich via stocks, flipping houses and numerous other get-rich-quick schemes. But when it all tumbles down, as all things eventually do, the poor man in the street is left holding the pieces - the rich have long before exited with handsome gains. This is exactly what happened in the e-commerce meltdown and what will happen when the housing bubble bursts.

The data also supports this theory - the rich have been getting richer as per published studies. When a recession starts, the people worst affected are the low-income group. If the housing bubble breaks, all the folks who work in the construction industry and who have bought houses using interest only loans lose everything. The rich have already made their money in this housing boom and it is the poor who will be affected.

Will post more on this later......

Friday, February 25, 2005

Another issue I have been grappling with for some time now is the dire warnings of turmoil ahead for US and the world markets in 2005-2006 due to the unwieldy fiscal deficits. Pundits from Stephen Roach of Morgan Stanley, N Roubini, Financial Sense online have been warning of this for the past 6 months or more.

In summary, the US current and fiscal deficits are financed by foreign central banks, who have been buying dollars like crazy. The US is the demand for the products of these countries (chiefly China, Japan, Europe, south Asian countries). With low/zero savings, tax cuts and increased Govt spending, the US is living on money borrowed from the savings of Chinese and Japanese. This can vanish any time, though it will cause enormous trouble to these economies too if the dollar crashes in value - a 20% drop in the dollar can cause them to lose 20% of their assets (dollars), and their currencies will become stronger, which could adversely affect their exports. Financial Sense online has a blood chilling account of what could happen.

The US also has a peculiar problem of no savings - the average american is not saving, he/she is putting money into assets like property, which cannot go up to stratospheric limits and can come crashing down. In fact a property bubble has been talked off for months by various people including Fortune magazine. My personal experience has been that the rental prices are real low, my apt Mgr stated that he has never given such deals on rentals in the past 20 yrs.

While the US average joe happily goes on splurging on iPods, camera phones, plasma tv and the latest gizmo, charging his credit card merrily, opening a home equity loan, Alan Greenspan is not doing much, slowly increasing the lending rate, which can cause troubles in the mortgage market in the next 6 months or so. Meanwhile the sharp brains in the country have already sensed something wrong - Warren Buffet is betting against the dollar and so are a lot of rich people here. A run on the dollar will increase lending rates, inflation and costs (of gas, imports etc). Equities in the US will suffer, so the pundits say. This is giving me sleepless nights, for I have a few stocks and though they are of the best performing companies, I cannot accept a drop in prices. You would tell me, move into cash, but I see no value there.

So you see, it is a very uncertain future today. I am thinking of moving most of my funds offshore so that I can gain a lot in case of any dollar depreciation. Am evaluating all options and will keep you posted on my actions.

I really like to comment on the US urge for spending; I think it is a reflection of not having any adversities for the past 20-25 yrs. Other countries like China, Japan, Europe, India have seen a lot of adversities, which are still sharp in people's minds and hence they have a natural tendency to save. Savings is good, it builds up a kitty for a rainy day. Here, no savings. Naturally they have to depend on Social Security in their old age, which is going bankrupt just due to the changing demographics.

I think US is faced with multiple problems (multiple whammies) now:
  • Demographics - Social Security becoming bankrupt.
  • Burgeoning fiscal deficit.
  • Lack of savings
  • Corporate world manipulating the system for their own benefit.

What should the US do
  • Start a program to bring more people here - not by illegal immigration of the hispanics - but legally and from all over the world; otherwise Spanish will soon become a major language. The US should go back to the old times of how the italians, scots, irish settled this country; this time from all around the world.
  • Start production here of goods, not just imports.
  • Stop this culture of bullshit reality TV, rampant consumerism, stupid lawsuits.
  • Focus on education.
  • Increase taxes for the rich.
  • Do not allow CEOs to be paid like what is done today. CEOs of public corporations should be paid a high salary, but not as high as is done today. This will boost morale like anything. Today Enron, MCI, Tyco, HP are all solid examples of CEOs who have been paid exhorbitantly. There are a lot of companies which have performed well even though the CEO was not compensated so richly. If Japan and Europe can do this, why can't US?
Comcast has come out with their results and CMCSA and CMCSK have started surging - partly also due to the disclosure that Warren Buffet has doubled his stake in CMCSK - to 10 million shares (~320 mn USD). It is good times for Comcast.

Positives going for them
  • Their competitors are going in for huge investment when they have completed it.
  • SBC, Verizon will take quite some time - 4-5 yrs, several billion dollars and several fights before they have the infrastructure that Cable MSOs have
  • CableWorld magazine reports that higher speeds are possible on Cable without any change in infrastructure.
  • Verizon and SBC will have also the added pressures of the mergers with MCI (if it goes through) and AT&T resp.
Heartily recommend CMCSK and CMCSA to everyone.

Sunday, December 12, 2004

This blog will comment on issues of technology & communications around the world. The author is partial to the US and India because of her association with these countries. From time to time, I will also address other issues like economics, current affairs and politics.
RBOC and Cable MSO Triple Play Strategies

The next big fight in the US is between the Cable MSOs and RBOCs. Key in the RBOC arsenal is their control of wireless providers namely Cingular and Verizon Wireless.

Triple Play aims to concentrate the communication & entertainment dollars in one provider and with wireless, the RBOC becomes a one-stop shop - Phone, Internet access, Cable TV & Wireless. Cable MSOs do not have this luxury and they could try to do this by aligning with a wireless provider/ buying a wireless provider. WSJ had reported that the MSOs were looking into this. The options for partnership are only Sprint, Nextel and maybe T-Mobile. Sprint Nextel is better due to the larger coverage. Qualcomm and others might already be working on ways to make this convergence true.

To start with, Qualcomm's GPS location chips and systems make it possible to identify a mobile subscriber as being at home or elsewhere - if at home, only the landline phone will ring - all wireless calls will be forwarded to that. Presence software from Microsoft can make communication among teams, colleagues and friends very effective - if these techniques are combined with location determination, one can have a great experience with individualized content, accurate driving instructions, e-911 etc. Comcast has good relations with Microsoft and they are using Microsoft's IPTV solution in some markets.

The RBOCs have the wireless carriers, but their IPTV rollout plans might make them very late to the market.

Comcast is announcing details of their Triple Play strategy in Jan 2005 - this could be an inflexion point for Cable stocks. RBOC stocks might get hammered too.


Triple Play in the US
Triple Play means Voice, Video and Data coming into your home/office on a single line from a single provider. This is significant since it is the path most of the service providers worldwide are moving towards. It means bundling multiple services, thereby locking in customers - studies have proved that such a customer is less likely to churn out. It is also a means of increasing ARPUs, adding new revenue streams in an era of increase competition and changing business models. The Cable MSOs (Comcast, Time Warner Cable, Cox, Cablevision etc) & RBOCs (SBC, Verizon, Bellsouth etc) are working towards this and competition is bound to intensify in this space in the next 2-3 years.

Cable MSOs
The Cable MSOs have great deal of experience in video & content - Comcast and Time Warner Telecom own substantial content. For the past several years, they have been spending billions in upgrading their infrastructure, which can provide voice, video and data on the cable line today. CableVision is a leader in bundling voice, video and data with packages starting at $90. Their focus is more on the household market, but some like Cox have started targeting the Small Business Market.

RBOCs
The RBOCs have recently committed huge investments to replace the existing copper network with FTTN and FTTP - SBC estimates spending $5 bn for Project Lightspeed by 2007-2008. They have been working with bundling multiple services and with quite good success. They have a great deal of experience with enterprise customers - large and small. One bright spot with the RBOCs is their control of major wireless carriers - they could potentially provide "Quadraple Play" services.

Who will win?
Analysts predict that Cable MSOs stand to win in this game - they can provide Triple Play today and this means that they can undercut the RBOCs and gain customers. So the next 2-3 years will have major competition. The RBOCs are also committing a lot of investment since they need to replace their existing network and this is the only way to remain in the reckoning. The new products and services will require new OSS. If Cable MSOs wants the upperhand, they would have to focus on enterprise customers also - small businesses mainly.

Around the world the Triple Play space is very interesting one with multiple access technologies under consideration. Tata Indicom in India is focussed on Ethernet, Reliance Infocomm is trying out with FTTN, Cable Networks and Ethernet. BT in the UK is doing a major overhaul of their network - replacing the existing copper with an IP network and also doing other interesting things - like Fixed Mobile Convergence Project BluePhone.


Sprint-Nextel Merger

Sprint and Nextel are merging as reported. In this mature market consolidation is the name of the game - the existing players can only grow by joining up. This leaves Verizon, Cingular, Sprint-Nextel and T-Mobile as US's leading wireless players.

What would have happened if they remained separate:
  • Sprint was trying to get in bed with the Cable Providers - so that they could provide "Quadraple Play" services. This might have happened and it would have improved their fortunes.
  • Nextel was facing the technology upgrade choice and they most probably would have picked up CDMA2000 EVDO - then there would have been 3 CDMA players - Nextel, Verizon and Sprint.

What now

Sprint-Nextel might still work with the Cable MSOs. Qualcomm and CDMA is the big winner since 3 of the top 5 are CDMA plays - the CDMA providers have a good corporate customer base, better technology and stabler companies. Amdocs might also be a winner since Nextel has a very good systems and the combined company will do good to adopt those systems.


PIC
One of the major products introduced in recent times with a focus on developing countries is the PIC (Personal Internet Communicator) from AMD. This product is a stripped down, low-cost internet machine, running Windows CE and featuring an editor, spreadsheet, acrobat reader and powerpoint viewer. This is part of AMD's initiative called 50x15 - to enable affordable Internet access and computing capabilities for 50 percent of the world population by the year 2015. For more details, go to www.amd.com. The focus countries are India, China, Brazil etc - guess this will not be available in US much. In India, Tata Indicom, a leading Telecom Service Provider is a launch customer.

In the case of India, AMD could do well to tie up with Reliance Infocomm - they have launched internet access services recently and can easily help in making this a great success. RelianceInfo had recently started a tie-up with Intel for bunding their wireless card along with Intel PCs.

This is one of the products which target the low-end consumers - a market which is large and can be made very profitable by the correct products and strategies. For more read this seminal work by Prof. C.K Prahlad - The Fortune at the bottom of the Pyramid. He has also written a book of the same name - see it here at Amazon.com