BuddeBlog

In March, 2000 Excite@Home announced that the company is combining its Australian Excite (with Liberty One) and @Home (with C&W Optus) operations into the existing @Home ventures, which has been renamed Excite@Home Australia Pty Limited. Mirroring the corporate US strategy, the company will leverage combined operations, singular content programming and joint distribution arrangements. Excite@Home Australia will assume the management of Excite Australia (www.excite.com.au), and incorporate Excite’s technology and content into both the recently launched broadband service Optus@Home and into the Optus dial-up service Optus Internet (www.optusnet.com.au).

In addition, Excite@Home has agreed to grant Liberty One, the former partner of Excite in Australia and Asia-Pacific, the option to increase its ownership position in certain Asia-Pacific territories from 50% to 60%, under the former Excite Asia-Pacific venture.

LibertyOne will also receive approximately $15.5 million for the sale of its stake in the original Excite Asia Pacific joint venture and the repayment of $4 million loan it made to the venture. Excite@Home will be a 40% owner of the new Excite Asia-Pacific entity.

About Excite@Home

Excite@Home, the leader in broadband, offers media services through Excite Network (www.excite.com, www.bluemountain.com and other properties), and broadband subscription services through @Home (www.home.com) and @Work (www.work.home.net). The company has a worldwide footprint of 72 million cable homes under long-term contract. Excite@Home’s MatchLogic subsidiary (www.matchlogic.com) offers marketers industry-leading digital advertising solutions including rich media production, targeted ad and e-mail services, and datamart management and analysis.

While I have discussed this topic before, it has gained renewed interest as currently financial analysts are now finally joining business analysts, such as myself, questioning the value of the vertical integrated business model used by most incumbent operators in the world. However, Australia’s liberal policies towards the incumbent allows Telstra to be one of the most vertical integrated companies in the world.

I discuss below my vision on how the telecommunications equipment industry and the telecommunications carriers (infrastructure) will merge over time to form one industry. This trend is part of a more wide-ranging trend that will see the five industries, currently making up the IT&T, merge into three industries. This issue was addressed in the Telecommunications Outlook Study from the University of Southern California, in which I participated.

This study identified the following current industries:

- Pages (Photography);

- Text (Publishing);

- Voice (Telecommunications);

- Data (Computing);

- Audio/video (Entertainment).

All of these industries have their own functions:

- create and collect content;

- distribution and transport;

- processing and applications;

- storage (memory devices);

- display (devices).

What will happen is that over the next 5-10 years these industries will be totally realigned from vertical integrated to horizontal function-based organisations. The three converged industries will be:

- Information content;

- Information highways;

- Information appliances.

All three industries will be global and multimedia in nature, and incorporate voice, images, data, text and audio/video. The prime drivers behind this change are the digitalisation of technology and the personalisation of marketing. There will no longer be any difference between text, an image or a video, nor will there be a mass market either. These trends are supported by other dramatic changes currently taking place in the telecommunications and computing industries.

The large fixed costs, in manufacturing and in infrastructure development, will see an early merging of these types of industries as addressed below.

Companies that will thrive in this environment are those:

- who have a bias towards personal rather than institutional markets;

- who have expertise and experience with digital media/technologies;

- who have a functional edge (experts in a niche market);

- whose experience is tilted towards video (rather than text/image).

Vertical vs. Functional Business Models

Vertical Integration Model

Resist efforts to force network open to third party content and service providers.

Establish own ISP service and fight to win customers from other ISPs, providing all the support functions that go with a diverse range of Internet users.

Try to limit customer’s choice to (own) products and services in order to maximize revenue per customer.

Strive to uphold pricing of bandwidth as a multiple of telephony capacity.

Where wholesaling capacity to third parties erect ‘Chinese walls’ but compete vigorously at the retail layer.

Lose a customer whenever they churn to another provider’s service.

Amortize the cost of the network over only (own) products and services.

Functional Model

Welcome all third party service and content providers to give real choice to the consumer.

Partner with many major ISPs and cooperate in enhancing service to their tens of thousands of established customers through provision of broadband access.

Promote broadest possible array of services and products in order to optimise the value of broadband connection to the maximum number of customers.

‘Lead the charge’ in introducing broadband communications capacity at prices designed to foster higher usage.

In collaboration with service providers, promote all products and services that are available through the network and share in the resultant revenues.

Amortize the cost of the network over multiple service streams, service providers and services.

Australia is in for a shock when it becomes the focus of world attention in September 2000.

In general terms our attitude as a nation can be insular and rather self-congratulatory and we tend to do very little reality checking against the rest of the world.

When I travel I love to discuss social and political issues with my friends, colleagues and overseas journalists. Below is a collection of some of my observations:

One recurring misapprehension is that people don’t think that Australia has an IT&T industry. They still see us as sheep farmers and miners and as a holiday destination. Even though we have a high level of Internet penetration, other countries don’t perceive us as leaders in this field. On the other hand, because the issue had such wide coverage internationally, all the journos knew that the Australian government tries to regulate pornography on the Internet. This is a pity, since some of our government’s e-commerce initiatives are world-class.

While other leaders such as Tony Blair and Bill Clinton put a lot of effort into promoting their country’s hi-tech status, our Prime Minister is seen – by the few people who actually know anything about him – as an ‘old-world’ leader. Even within our country the government is not using the PR opportunities afforded by the spectacular growth of telecommunications in Australia. In the latest Budget the industry hardly got a mention. No wonder the latest ABS figures indicate that our Australian-based IT&T industry is in severe decline. We buy a lot from overseas but develop very little Down Under.

Currently we are a laughing stock in the international business press, as they try to explain in their articles how Australia has selected a triple-standard for digital TV, has split the technology into three separate parts, and, to top it off, is trying to regulate each individual segment of it – what a great way to kill an industry and make sure that we will never develop any export products for this market.

And then we have Senator Alston still saying that we have the best broadcasting system in the world. It is embarrassing to hear him say this year after year – we have one of the most mediocre TV services in the world.

Other questions that were asked by international (Asian and Afro-American) journalists during my recent trips related to whether our government (Prime Minister) still supported Pauline Hanson – they didn’t know that this issue has been extinct for over a year. The telecommunications journalists I spoke to were also very aware of the Reconciliation issue and Howard’s refusal to say ‘sorry’. While in Brazil last month I watched a half-hour documentary on the Olympic Games in Sydney, complete with interviews with Prime Minister Howard, and more than 70% of the program and questions related to where we stood on the plight of the Aborigines and the ‘not sorry’ policy from the government.

The only positive comments I heard overseas related to our role in East Timor – we certainly earned some international brownie points there.

It is disappointing to realise what a negative international image Australia appears to have. What a terrible waste of excellent opportunities to promote a vision of our country; to describe our objectives and to focus on all our fantastic achievements. John Howard seems to want a confrontation and a confrontation is what he will get. The BBC, CNN and others are well-briefed and prepared to do battle! The world will focus on these controversies and will use every opportunity to expose to the world the sad story of our Aboriginal people and the country’s lack of leadership, courage and vision to properly address this issue.

At the Olympic Games we have been given a once-in-a-lifetime opportunity to promote our great country, but I fear it will be squandered by an old-world Prime Minister, a general lack of vision and a total lack of insight into how to use this golden opportunity.

Paul Budde

It is good to see some more real opposition to the government’s ill-fated digital TV policy.

TV and VCR manufacturers have warned the introduction of digital TV in Australia could stall if ‘free to air’ broadcasting lobbyists succeed in moves to impose technical standards unique to Australia. Legislation to mandate digital TV and datacasting standards is before the Senate.

Viable digital TV by the Government’s scheduled start up date of 1 January 2001 is only ‘maybe’, not a ‘yes’, according to the Australian Electrical and Electronic Manufacturers’ Association (AEEMA).

Signals may be broadcast, but the real question is whether Australian consumers will be able to buy equipment to receive them.

There are real doubts over whether it is possible to supply digital TV equipment into the consumer market in any meaningful quantity by 1 January. Indeed, there are real doubts about whether it can be supplied at all by that date.

Digital TV has a long way to go before it becomes a ubiquitous consumer proposition in Australia. That is why it is essential that AEEMA aligns itself with international standards wherever possible. Digital TV is currently niche of a niche in the premium consumer electronic market.

Some ‘free to air’ lobbyists seem to ignore this. FACTS advocacy of AC3-only audio is a case in point. For the uninitiated, AC3 is dolby digital sound of the sort used in movie cinemas. Demand does not warrant a premium stand-alone audio standard for Australia. Nor do usage patterns.

How many families can sit down mute for a couple of hours every night to enjoy the full benefits of an AC3 capable surround sound home theatre system? How many can afford it?

Manufacturers have no objection to offering provision for Dolby AC3 audio to consumers who want it. Indeed it will undoubtedly be offered on premium home theatre-style digital TV products.

Why should Australia make AC3 mandatory when it remains a premium option in other digital television markets? It will hardly promote the transition to digital TV, so one must question why some ‘free to air’ lobbyists are so insistent on it. DVB in Europe is an MPEG system, with AC3 as an option. If broadcasters want to use AC3 audio in Australia, they should be prepared to simulcast it alongside the normal MPEG sound incorporated in the DVB system.

Ever since the ill-fated government policy on digital TV was launched we have been extremely vocal in our opposition.

Back in 1998 we warned that the ABA’s advice to the government was totally wrong and that departing chief Peter Webb had provided the free-to-air broadcasting industry with a ‘golden’ monopoly on digital TV.

We have made submissions to the various Inquiries and discussed the issue on radio and TV, as well as in the printed press. The Productivity Commission spent many millions of dollars on an exhaustive Inquiry and reached the same conclusion. Yet the government has ignored all this advice and persisted in following the directions of the ABA.

There are only two companies in Australia who are happy with the current policy – Channel 9 and Channel 10 – and for the benefit of these two companies the government is turning digital TV into a totally non-viable industry through its absurd triple standard solution, non-standardised and very expensive audio standard and the most incredible TV content divisions ever invented. The result is that it will be impossible to deliver multichannel services and interactive service – and this, after all, is what digital TV is all about.

Senator Alston is claiming that the proposed triple standard will be affordable to all Australians. Yet even the most basic format will cost the consumer $1000, compared with $300-$500 in Europe and the UK. There is no way that any manufacturer will be able to deliver a more competitive product and there is no way that anyone will want to spend $1000 on a product that has no consumer appeal whatsoever.

Until recently Senator Alston was raving about HDTV as being the most fantastic development since the invention of the wheel. If this is so, why were less than 3,000 of these ground-breaking HDTV sets sold globally last year? Get real, Senator, and scrap HDTV.

Initially the industry conducted its lobbying campaign in a very cautious and restrained manner, in an effort to influence the government to change its policy. Now, finally, their voices are being raised in loud complaint. I predicted last December that the government would perceive that it was on the wrong track and would change directions but, as we know, it is very difficult for our elected leaders to admit they were wrong. And so, ignoring the wishes of the majority of its voters, the government appears to be going ahead with the implementation of a totally unworkable and commercially unviable model – in the process derailing digital TV in Australia for the foreseeable future.

Currently the Senate is looking at the issues involved and it is to be hoped that they will see the light and immediately scrap the current policy. The normally very conservative manufacturing industry is now also loudly arguing against the policy, as is the pay TV industry and the datacasting industry.

The government is in total isolation. Surely it must be wondering if two TV stations are worth all this trouble!