BuddeBlog

One of the great promises of the NBN is innovation and there is no doubt that this indeed will happen. The first small-scale examples of some of the digital economy pilot projects on the NBN are already showing good results; however at this stage they are most likely to remain small-scale only.

The reason for this is linked to the concern that BuddeComm has expressed ever since the current NBN Co business model was introduced – that the current design of the NBN will hamper innovation at least in the first 3-5 years of the project.

This is because the current design is basically a replica of the present telecoms model, which is a ‘me-too’ model. As it is very difficult for companies to develop national digital economy retail services on top of the NBN perhaps only three or four telcos can actually afford to make the necessarily large investment; and Telstra is without a doubt the most dominant of these. Through a second level of wholesale these few players, in a variety of (wholesale) arrangements, offer their services to another 40 or so smaller telcos and ISPs.

And most of these players offer ‘me-too’ products – much the same as the products they are currently offering, based on the DSL and mobile networks. The differences relate to what broadband capacity (speed) and (download and upload) conditions are packaged around a particular price point.

This is certainly not what BuddeComm calls innovation. History tells us that it is also most unlikely that these companies will in fact come up with truly innovative services – not now, and not in the foreseeable future. As we have seen throughout the history of the industry, disruptions from the outside are bringing in new companies who deliver true innovation to the telecoms market.

There are, of course, always exceptions to the rule and AARNet in particular deserves to be singled out as a provider of a whole range of innovative services. Others, such as Macquarie Telecom, are differentiating themselves with additional data centre and cloud computing facilities. But both of these organisations operate in the corporate and government markets, not the consumer market.

The problem for the true innovators is that the design of the NBN makes it far too costly for them to enter the market unless significant market penetration has occurred – hence my prediction of the 3-5 year period before we expect innovation to begin over the NBN. Once that happens the telcos will get a run for their money – similar to the developments that took place when the internet became available to the general public, and to what happened when smartphones and apps broke open the mobile market.

There is still time and room to change the NBN Co business model to allow the company to better attract innovative new players, but at this stage neither side of parliament seems to be interested in making the changes necessary for this to happen.

Once the wholesale entry barrier to the NBN has been lowered more non-telco companies will start exploring their opportunities. Another positive development here would be the provision of Layer 3 services on a wholesale basis. This would significantly increase the number of players on the NBN. At this stage, however, NBN Co has indicated that it doesn’t really want to have to deal directly with a potentially large number of wholesale costumers. It prefers to use the current telcos as middlemen (hopefully, as well as other middlemen – eg, in healthcare, smart grids, etc).

True service innovation over the NBN is indeed still some years away but it will happen eventually, and it will by then that we will finally get rid of the already far too many ‘me-too’ services on the NBN.

Paul Budde

See also:

Australia – National Broadband Network – Analyses mid 2013

Australia – National Broadband Network – Industry in transition

Australia – National Broadband Network – Changing the media model

Australia – National Broadband Network – Digital Economy

Australia – National Broadband Network – E-Health

Australia – National Broadband Network – Policies and Regulations

National fibre optic networks are the infrastructure required for our future. There simply is no other technology that can handle the capacity of data and applications that will be needed to run the cities and countries from today onwards. The infrastructure needs to be robust. It has to have enormous capacity. It needs to be secure and to be able to protect privacy. There is simply no other infrastructure technology that is up to that job.

Fibre-based infrastructure deployment requires vision and recognition of the fact that many of today’s social, economic and sustainability problems can only be solved with the assistance of ICT. This need will increase dramatically over the next 5 to 10 years as industries and whole sectors (healthcare, energy, media, retail) carry out the process of transforming themselves in order to much better address the challenges ahead.

More than 120 countries worldwide have now developed broadband policies, recognising that such infrastructure is critical to their development. None of these countries’ policies are identical; they are all different – they reflect the political, social, economical, financial and geographical conditions that prevail in each case. However all agree that a broadband infrastructure is needed to face the economic and social challenges that each country is facing – and the broadband infrastructure is perceived by all to be critical for the development of the digital economy, healthcare, education, e-government and so on.

The challenge now is to put these policies into practice and what is needed from politicians and other decision-makers is leadership. Leadership needs to be balanced against an endless process of procrastination and it is time to implement innovative solutions that enable us to advance as a society.

One can argue endlessly about what technologies should be applied and at what cost, but we believe that all signs point to Fibre-to-the-Home (FttH) networks as the best future-proof solution. One can debate about whether it is needed in 5,10 or 15 years – and again that depends on some of the differences between countries – but in the end FttH is the best final solution for all urban and many regional premises.

BuddeComm’s new report, Global Broadband – Fibre is the Infrastructure Required for the Future, provides important insights into the worldwide fixed broadband industry and includes trends, analyses, statistics and case studies. It provides insights into fibre network deployment and the growing importance of broadband to the telecoms sector. Information and statistics at a regional level is provided for North America, Europe, Middle East, Latin America, Africa and Asia Pacific, written by BuddeComm’s Senior Analysts.

Examples of key insights:

• From a financial and investment point of view broadband infrastructure should be treated as utility infrastructure.
• A National Broadband Network (NBN) should be based upon an open network as this makes it possible to offer the basic infrastructure on a utility basis to content and service providers. This in turn paves the way for the development of the digital economy.
• It looks as though 2013 will be remembered as the year when construction of new Greenfield HFC networks came to a halt. Of course, there will still be upgrades to existing networks but the cost of fibre deployment – linked to its much lower operational cost – is now convincing cablecos and telcos alike to build new fibre networks wherever possible. This is not necessarily directly driven by customer demand, but by network costs and network efficiencies.
• Telcos which do not suffer too much competition from cable companies will continue to upgrade their current DSL networks to FttN using VDSL, VDSL2 and VDSL2+ technologies wherever possible. Upgrades are done in a selective way, based on local geographic and market conditions.
• There is increasing evidence (e.g. Netherlands, China, Japan, Korea, France, Israel, Switzerland, Norway and Sweden) that customers will come forward once affordable FttX services become available.
• Africa’s international fibre bandwidth is expected to more than double again in 2014.
• Bandwidth is gradually increasing in most LAC countries, governments are implementing national broadband plans, and regulators are seeking measures to promote competition.
• Asia continues to be a leading broadband player, not only in the roll-out of broadband infrastructure, but also in promoting and applying the increased use of broadband to facilitate the digital economy.
• Improving International connectivity provides a boost for fibre rollouts in the Middle East.
• Along with an increasing number of governments around the world, the US has taken the view that a trans-sector use of broadband infrastructure is a key driver for economic growth.
• The share of all broadband subscribers held by HFC networks across Europe fell from 26% in 2002 to about 11% by mid-2013.
• By mid 2013 in Australia, NBN Co indicated that the national broadband rollout plan was now slightly above target.

For detailed information, table of contents and pricing see: Global Broadband – Fibre is the Infrastructure Required for the Future

The smallest country in Central America, though with the third largest population, El Salvador is burdened with considerable income inequality, poor infrastructure and inadequate social capital.

Despite these difficulties, the telecoms sector has been one of the more successful in the nation’s economy. This is particularly true of mobile services, which are emerging as the country’s preferred avenue of communication given the poor state of fixed-line infrastructure in many areas. The use of text messaging and multimedia has gained traction as an alternative for voice services, and there is a clear trend towards services supported by 3G networks as these are expanded by network operators.

El Salvador’s fixed-line teledensity is substantially lower than the Latin American and Caribbean average. However, there has been a significant drop in the number of fixed lines since 2010, largely due to the substitution for mobile-only alternatives.

Mobile penetration is remarkably high considering El Salvador’s economic indicators, being about 35% higher than average for Latin America and the Caribbean. Of the estimated total number of telephones in the country, 11% are fixed and 91% are mobile.

El Salvador’s telecom legislation is one of the more liberal in Latin America, encouraging competition in most aspects of the telecoms sector and permitting foreign investment in all areas. However, there are no regulations as yet which promote wholesale broadband, and thus the ADSL market remains a virtual monopoly for Claro. The only effective cross-platform competition in the broadband market comes from the few cable operators.

Although many companies launched services when the telecom sector was liberalised, the market has been undergoing a gradual process of consolidation, leaving a few dominant multinational operators (notably Millicom’s Tigo, América Móvil’s Claro, and Telefónica’s Movistar), which have managed to expand into almost all sectors through a process of convergence.

The mobile market is served by five operators: Tigo, Movistar, Claro, Digicel, and Intelfon.

The fastest growing sectors in coming years will continue to be pay TV and broadband (both fixed and mobile). The outlook is especially promising for mobile broadband, which could help to bolster the slipping mobile ARPU figures in the medium term. The longer-term prospect is also promising, particularly in the mobile sector where competition between Claro, Tigo, and Telefónica will oblige the operators to diversify services and reduce prices.

El Salvador – key telecom parameters – 2010; 2013

(Source: BuddeComm)

Market highlights:

• CTE Telecom, trading as Claro, is the incumbent fixed-line operator in the country. The CTE brand was discontinued in 2009, and all services were unified under the Claro brand name, including mobile and fixed-line telephony, ADSL and mobile broadband, as well as cable and satellite TV. Claro is the dominant fixed-line operator and ADSL provider in El Salvador.
• The main altnet Tigo has expanded from its original mobile telephony business, incorporating cable TV and other IP services through its acquisition of Amnet. In 2012 Amnet purchased Telefónica Multiservicios’s fixed telephony and internet clients.
• Movistar’s services, including fixed-line and fixed-wireless services, mobile services, cable broadband, and cable TV, have been unified under a single brand name.
• In 2011 América Móvil acquired Digicel’s network in El Salvador and Honduras in exchange for the latter’s operations in Jamaica. The Honduras and Jamaica parts of the deal were agreed by May 2012 though the El Salvador part has stalled on regulatory concerns on the surrender of spectrum.
• In late 2012 the regulator confirmed plans to complete ASO by 2018.

For detailed information, table of contents and pricing see:

El Salvador – Telecoms, IP Networks, Digital Media and Forecasts

A key concern for European mobile market regulators relates to competition, specifically the level of retail and wholesale pricing of roaming services. Roaming prices are considerably higher than the costs of carriage. Historically, roaming charges were initiated in 1992 when it was determined that the termination of international mobile calls using another provider qualified for sales tax. Since there was no precedent for this for mobile calls the tariff for fixed-line international calls was adopted.

Operators have assiduously exploited roaming tariffs as a cash-cow, particularly in the wake of the high cost of 3G licences during the auctions of 2000/1. Since then the EC has endeavoured to cap roaming charges, having established that most operators had excessive pricing or engaged in pricing collusion, and that there was no relationship between the prices charged for roaming and the costs incurred.

The EC’s Roaming Regulation came into force in 2007, with incremental reductions year-on-year. The regulation was due to expire in 2010, but was subsequently extended. Although the cost of calls for consumers has fallen significantly, the EC has been pressed by consumer groups to end roaming altogether. The EC, at least, is keen for mobile operators to remove the cost difference between roaming and national tariffs by 2015.

In anticipation of the next round of cuts which from mid-2014 will reduce roaming tariffs to €0.19 for calls made (compared to €0.49 in 2007) the EC is making more strident efforts to end them, and so clear up what has become a very messy system, compounded by the plethora of bundles on offer and the obscure complexity in pricing those bundles. Almost all consumers find this pricing incomprehensible.

 In addition to reduced tariffs, from mid-2014 MNOs will be required to open their networks to MVNOs, so encouraging competition and – in time – reducing MNO’s habit of regarding roaming revenue as their due.

While MNOs must now face up to the challenge of whether to embrace roaming MVNOs or do as little as they can while remaining within the terms of the EC’s regulations, there are cracks appearing as operators struggle to secure a competitive edge against rivals. Hutchison 3, operating in several of the region’s markets, has been one of the MNOs prepared to challenge consensus. In the UK it has been vocal since at least 2010 that roaming and termination tariffs should be reduced. It was also the first to allow mobile VoIP services (through a deal with Skype). 3 Denmark and 3 Sweden recently enabled their LTE customers to use voice and data services across their networks at the same rates as when at home. This extends the existing free roaming facility for 3 Denmark’s subscribers using 3 Sweden’s UMTS network.

Roaming remains too valuable to MNOs for consumers to expect to be given a break any time soon, but the efforts of consumer groups and the ease with which consumers can port to other providers which do not (or will not in future) charge extra for international roaming sends a clear message that the cash-cow is on wobbly legs.

Henry Lancaster
Senior Analyst

For more information see the report Europe – Mobile Market Insights, Statistics and Forecasts

The Network terminator Device (NTD) is also sometimes referred to as the Optical Network Terminal (ONT). It sits at the end of the FttH network – it is the connection to premises. From there the various services can be delivered to the end-users.

Some discussion took place in the early days regarding the preferable position of this device. NBN Co prefers to put the ONT on the outside of the house. The company has no relationship with the consumer and will try to avoid this at all costs. As a wholesale provider NBN Co wishes to be invisible. It will not have the resources to deal with consumers, to arrange appointments for access to customer premises for instance.

But the customers prefer to have it on the inside of house, as it is there that they will use it. However any device that goes indoors was seen by NBN Co as a RSP device. Their initial thoughts were that they would not need to have any contact with the end-user as that was the part of the operation the RSP had its responsibilities, bringing the NTD inside would put them in a position that they would have to make contact with the end-user.

However as the NBN moved ahead the issue became less sensitive and they have found a way to deal with the end-user, without upsetting their business model too much. Another positive for them was that the cost of NTDs which go inside the house has come down significantly and they are now cheaper than an outside device.

As things have developed most current NTD installations have so far been inside, with a smaller number being installed on the outside of residences. While there is no hard policy on this it looks as though this situation will continue, with the majority of the NTD being installed inside the house.

A third  reason why most devices are inside is also linked to the fact that providing customer access from the outside NTD to the interior of a dwelling presents a more serious problem. There are technical issues, such as drilling through walls. Experience has taught NBN Co that in most cases the NTD can simply be installed by using the existing Telstra copper cable link into the house.

In the case of multi-dwelling buildings NBN Co will always install the NTD within each unit.

One of the more problematic issues regrading installations on the outside is how one goes about bringing electric power to the NTD if it is placed on the outside of the building. An interesting solution could involve cooperation with the electricity company – it could provide power and at the same time use the NBN rollout to support its own smart meter rollout. But to date little progress has been made on a more collaborative approach.

By 2013 it now seems that, despite the early concerns regarding the placements of NTDs, the issue has largely been resolved and that cooperation between the customer, NBN Co and the RSP is delivering the best possible outcome for all those involved.

Interesting as well is the fact that customer access is provided on demand. Nearly everyone contacted by NBN Co opts to have the NTD; this despite early scaremongering, by politicians in particular. This positive result is very much in line with similar developments elsewhere in the world – if the NTD is provided free of charge the take-up rate is above 95%. NBN Co, together with the RSPs, developed an excellent information and education campaign that is launched as soon as work begins in a neighbourhood. Even people who do not see the need for the NBN service as such do recognise the value, if not of the service itself, then in terms of real estate value.

Paul Budde

See also: Australia – National Broadband Network – Infrastructure Plans and Contracts