Archive for February, 2004

NEW ACCESS REGIME – MINUS THE LEGAL EAGLES

Tuesday, February 24th, 2004

Back in September, I said that I believed the new access price plans proposed by the ACCC could be a turning point for the industry, as the signs I was picking up at that point seemed to indicate that Telstra would not challenge the ACCC on this matter.

So, it was with great relief and renewed hope for the future of competition in Australia that I learned in November that this was confirmed – when the new prices were indeed accepted without being challenged by Telstra. This is the first time that such a major regulatory issue has been resolved without any further legal action.

This is not only good for competition; it is also good for Telstra’s wholesale division, which is currently seeing an influx of customers wanting to explore the new business opportunities that will arise from this development.

Optus was the first cab off the rank and, even before Telstra made its own official announcement, Optus had already issued a press release indicating it had reached agreement with Telstra over its access prices for its roll-out DSL services throughout the country.

But a number of other DSL providers are also planning new actions. With the growing popularity of broadband, a range of other services are now within reach, and I predict that local loop unbundling and line-sharing will reach a new level of prominence in the market. The business models associated with these wholesale services from Telstra, coupled with the broadband opportunities in the market, will produce a significant growth in the market over the next 6 to 12 months. Key new developments here include broadband service above 2Mb/s, VoIP and DSL TV.

The industry now has a set of standard ‘rack rate’ prices, terms and conditions for access to the Telstra network. The spectrum-sharing undertaking price is set at $15. Telstra is already negotiating with its wholesale customers regarding discounts for wholesale customers below the rack rate, based on the value of their business to Telstra.

I am convinced that this new development marks the beginning of further improvements in the terms, conditions and pricing of the wholesale services.

Paul Budde

See also:
Australia – Access Regime
Australia – Unbundling of the Local Loop (ULL)
Australia – Regulations-driven developments in 2003
Australia – Interconnect
Australia – Broadband – xDSL – Overview and Stats

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THE FUTURE OF VOICE 230204

Monday, February 23rd, 2004

Developments in fixed analogue voice, mobile voice and VoIP have been amalgamated and combined into one report called Global – Analysis – The Future of Voice (Fixed, Mobile, VoIP).

Increasingly operators will need to take a holistic view of this market. While basic costs in fixed voice will drop by 80% or more, there is still an opportunity to increase ARPU. This requires a total review of this 100-year-old product. There is certainly room for new premium voice services, based on more intuitive navigation, CD sound quality and interactivity between handset and TV. Broadband will combine voice and video, again opening up a number of new voice markets.

Most of the first level of voice services (calls, messaging, enhanced voice, access) is driven by price.

All of these applications will be used if the price is right. For example, look at the i-mode services in Japan, where enhanced voice services (including video messages) are offered for a matter of cents.

In a different application segment, an example would be the price packages such as ‘Family and Friends’. You are phoning these people anyway, so why not use an offer to do this at a lower cost?

While outside the direct voice example, the cable/pay TV bundle is a further example of a commodity product, where price is the most critical element on which customers base their decision: you are already using cable TV you get a discount for that product bundled with voice services. This is a no-brainer for the customer, so you bundle them and give a discount. It doesn’t stimulate higher or more innovative usage, but the advantage for the operator is that it discourages churn.

Transaction services are another interesting segment. It is not only the time convenience that plays a role here, the ‘I am in charge’ element is also important – no ‘interference’ from bank staff, etc.

Age is a factor. For the under 35s the Internet (or SMS for that matter) would be the preferred option, for the over 35s, telephone banking would still be more popular. However, it all comes back to personal preference and letting the customer make the decision that he/she feels most comfortable with, rather than trying to move her/him in a particular direction. This applies to a range of straightforward action-based behaviours, such as transactions, some information and messaging – the more complex the action the less likely people are to go that one step further from voice to online based communication.

However, the telephone has a major disadvantage. It is misused by organisations to deliver very poor quality customer service, long call centre queues etc. This is making the telephone a less popular option than online, especially with always-on broadband becoming more generally available.

While VoIP is certainly going to open up the voice market to innovations, I doubt if audio-conferencing will get a new lease of life from it. Beyond some niche markets, it is not widely used, although it is widely available, and at reasonable prices. An application such as community voice (chatting) would not be successful. It requires too much organisation – everybody has to be available at a specific time and, from a user point of view, participating in such an event is boring because you can’t all talk at the same time and there can be no social chatting in the background between a few people etc.

The cost of calls (especially internationally) is already so low that price is not a driver here either, so VoIP is not critical. The advantage of the Internet is that in most situations delayed communication is fine (85% of all voice interactions would be OK if there is a delayed response – hence the success of messagebanks and answering machines.

I am sure there will be niche markets for always-on voice services such as healthcare, babysitting, etc. However, the local call structure already allows for such services and I am not aware of an overwhelming (mis)use of this; which would indicate high levels of demand. However, add video to a voice call and the scenario is totally different, there will be a market for such a product and the new IP based broadband technologies combined with access deregulation policies will see a range of new innovations here.

In a ‘voice’ sense, the extra value of VoIP could lie in developing further innovations linked to the social, value-added experience of certain voice calls. In situations where you don’t want to establish delayed communications, the quality of the event/experience (whether it is a business call to clinch a deal or a chat with your mum) outweighs the actual cost of the call. I believe that there is room to build on that ‘quality experience’ element, resulting in some new innovative premium voice services entering the market.

Voice will also play a key role in broadband, where it will be linked with video communication.

See: Global – Analysis – The Future of Voice (Fixed, Mobile, VoIP)

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CHANGES IN CHINESE MEDIA LANDSCAPE – 160204

Monday, February 16th, 2004

In February 2004, the Chinese Government announced significant changes to their media policies.

Wide-range media reforms will see an opening up of the Chinese media market, which will see overseas investors becoming financially involved in the Chinese market – which, in turn, will lead to an increase in quality and quantity for a market that is in desperate need of more and better content. Up until now foreign companies were only allowed to operate in association with Chinese companies, but were not able to take up any equity in these organisations.

The money is there and Chinese customers are ready to spend. There is also a rapidly growing advertising industry. The TV, film, cinema, and printed media markets will now be opened up and as a result major growth will no doubt occur.

This will also lead to some significant structural changes in the industry, basically separating content from infrastructure. The brunt of the restructuring will be borne by the state TV operator, CCTV.

CCTV in profile
Market share Chinese TV market
30% plus

Revenues
Rmb 8 billion (US$1billion)

Staff
15,000

TV channels
15

Established
1958

This media company will have to divest production units, content divisions and, in general, all non-core broadcasting units. The spin-offs will form the first companies that will be able to independently develop themselves into new media empires.

However, there is also room for new companies to enter the market and this will also increase competition, especially on the content side. While an initial separation will see the new content company selling to the incumbent operator, over time the operator will be able to acquire a variety of content. The development of new pay TV channels, in conjunction with overseas partners, is another key area that has been earmarked for growth.

CCTV will be required to support these spin-offs for three years, after which it is envisaged that they will become profitable.

In all, it is anticipated that hundreds of new channels will be developed in the coming years. The increasingly affluent Chinese middle class has an insatiable appetite – particularly for new TV content – and this group has been disgruntled by the poor quality of entertainment provided by the state operators.

It is envisaged that this level of commercialisation will also lead to more interesting products for the export market. There are very large Chinese communities around the world and, while most of them nowadays do have access to the government-controlled services of CCTV, the service is in no way comparable to what these viewers are accustomed to from other operators. An increase in quality will certainly lead to an increase in export revenues for Chinese content.

It will not just be overseas companies that will profit from these changes. Content providers in the education and healthcare sectors are likely new entrants, as well as the weather bureaus, sporting organisations and a number of others.

Some of the onerous regulations will also disappear, with the government slowly loosening its grip on this market. However, overall control on a more supervisory level will remain in place, and all players will have to follow the guidelines set by the Communist Party.

Strong regulations on foreign ownership of the actual broadcasting operators will also largely remain in place.

This is an excellent development for China, as well as for the industry. True, there will be a lot of opposition amongst the employees, who currently operate within a very large bureaucracy. But running a media company of that size stifles innovation, breeds inefficiencies, and is inevitably doomed to failure. Already council- and province-based TV stations are making significant inroads into CCTV’s market and they, also, will profit from the new regulations.

This is further proof that China is set to become the leading player in basically all facets of life and commerce – it is only a matter of time. The media industry is an exemplary industry. It has a very high profile and restructuring this industry will have far-reaching implications for Chinese society, as well as for the Chinese economy.

See also:
China – Broadcasting – Terrestrial TV
China – Broadcasting – Cable TV
China – Broadcasting – Satellite TV and MMDS
China – Broadband Networks and Services

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INCREASING MOBILE COMPETITION IN THE MIDDLE EAST – 090204

Monday, February 9th, 2004

Change is on the way in the mobile markets of the Middle East, which generally up until now have not been characterised by a high degree of competition. Oman, Saudi Arabia and Iran are all currently engaged in selling a second GSM licence, Lebanon has recently put a licence sale on hold, three licences were awarded for Iraq in late 2003 and Bahrain awarded a second licence in April 2003. Kuwait, Jordan and the Yemen have had two players in their mobile markets for some years but they are by far in the minority for the region.

Oman is the most recent Middle Eastern country to begin preparations to issue a second GSM mobile licence. The winner will compete with government-owned OmanTel, which has a monopoly of fixed-line, mobile and Internet services. In December 2003 it was announced that PriceWaterhouseCoopers had been appointed as adviser and the licence would be issued by mid-2004.

Iran launched its tender for a second licence in October 2003. In mid-January 2004 the government announced it had short-listed six bidders for the licence. All bidders were to submit their business proposals by 9 February, and the winner is to be announced on 23 February. The short-list was made up of the Irancell consortium, led by Turkish mobile operator Turkcell, Egypt’s Orascom Telecom, Mobilkom of Austria, Deutsche Telekom and the South Africans MTN and Vodacom. Vodacom withdrew shortly afterwards leaving five contenders. The government promised that the legal framework would be in place to ensure the licence winner would be able to interconnect to incumbent TCI’s mobile and fixed-line networks on favourable terms.

Saudi Arabia started proceedings with the issue of a consultation document in late 2003. Pre-qualification documents listing the requirements for potential bidders were then issued in January, with bidders having until 7 March 2004 to respond. The proposed networks are planned to be operational by late 2004.

Lebanon has just abandoned (whether temporarily or permanently remains to be seen) a process that has been ongoing in several waves since late 2001. However, as the process began with the controversial early cancelling of the BOT contracts of the two incumbent operators and has been dogged throughout by a difference of opinion over policy between the Prime Minister, who favoured a privatisation solution, and the President and the Communications Minister, both of who favoured a state-owned solution, the failure would have surprised few. Despite seven companies expressing an interest in May 2003, the number of real applicants fell to two by the time bids closed in January 2004 – both of them connected to the incumbent operators. The privatisation proceeds were desperately needed to reduce some of Lebanon’s huge debt burden.

Kuwait’s two mobile operators, Mobile Telecommunications Co ( operating as MTC Vodafone – it has a partner agreement with Vodafone Group plc) and National Mobile Telecommunication Co (operating as Wataniya Telecom) have been the major winners of new licences in the region. Both were part of winning consortia for Iraq’s licences and MTC Vodafone was the major investor in the consortium that won the Bahrain second licence.

It is to be hoped that Oman, Saudi Arabia and Iran follow the example of the smooth path in Bahrain rather than the bumpy trail of Lebanon.

See also:
Iran;
Iraq;
Kuwait;
Lebanon;
Oman;
Saudi Arabia.

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DATAFAST TELECOMMUNICATIONS RISES FROM THE ASHES – 020204

Monday, February 2nd, 2004

Datafast began in 1999 as a trunked radio network operator in Victoria. Between 1999 and 2001, it built a 34Mb/s ATM microwave backbone network in western Victoria, with a hub in Melbourne and links to the other state capitals. The network vendor, Lucent, provided the finance.

In 2001, the company acquired a VoIP telecommunications company and a wholesale ISP company. It bundled VoIP telephony with Internet access for retail and wholesale customers in Victoria.

In 2001, the company began to experience significant competition, resulting in lower demand than expected for dial-up and broadband services, and falling prices for its wholesale business. This caused a declining return on its network investment and continued burn on cash reserves.

In November 2002, Datafast warded off the imminent threat from its creditors by negotiating a merger agreement with Perth-based ISP and broadband telecommunications carrier, EFTel. Approved by Datafast shareholders in December 2002, the merger gave EFTel shareholders an 80% stake in Datafast. However it gave Datafast $1 million in new capital, which it used to pay off the final $750,000 debt to its network vendor, Lucent.

The merger effectively doubled the size of the company. Size matters in a consolidating industry, and it gave Datafast greater economies of scale and reduced the excess capacity on its network.

In 2003, Datafast reduced its network operating costs and established a national Layer-2 national ADSL service. These changes positioned the company to participate in the two great industry trends; consolidation and the takeup of customers moving from dial-up to broadband Internet access.

The market capitalisation of the company rose from $1 million in December 2002 to $10 million in August 2003.

In January 2004, Datafast acquired two ISPs, KeyPoint and EZ Web. This increased its customer base of active accounts to 85,000, and ranked the company amongst the ten largest ISPs in Australia.

With a unique Layer-2 ADSL offering bundled with VoIP telephony, and with cash in hand, Datafast is focused on expanding into NSW and Queensland competing head-to-head with the major players in the industry.

Datafast has risen from the ashes to become a leader in its industry.

See also:
Datafast Telecommunications
Australia – ISP Market – Revenues
Australia – ISP Market – Statistical Overview
Australia – ISP Market – Industry Issues, Take-overs

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