Archive for March, 2004


Monday, March 29th, 2004


Subscriber Identity Model (SIM) kits

Ever since the development of GSM in the early 1990s, each GSM phone has a Subscriber Identity Model (SIM) card. This card makes it possible to develop a range of value-added services. During most of the 1990s, however, this market has failed to get off the ground, as most operators did not agree to link their networks to allow roaming services to operate. Furthermore, they were too busy providing basic access, and did not bother at that time to look at the more complex Value Added Mobile Services (VAMS). It was not until competition started to bite into the ARPU that operators started to pay more attention to VAMS. By that time, others such as the virtual mobile operators had started to develop more sophisticated VAMS based on SIM kits. It will be interesting to see if the large incumbent celcos will ever be able to offer the level of sophisticated customer service that is necessary to successfully operate in this market.

Dual slot applications

Dual Slot Technology for Mobile Handsets – a second SIM card is simply added to the mobile phone, operating as a ‘set-top’ box to provide access to applications.

Proprietary based services

In order to profit from the emerging e-mobile services markets, new platforms need to be added to the traditional infrastructure. Companies that can offer a ‘Dual Slot Technology for Mobile Handsets’ based on the SMS for GSM are now jockeying themselves into position.

These applications-based platforms can be rapidly configured to facilitate a range of applications; banking, ticketing, enhanced voice, call re-routing, online information services and so on. All these applications can be ordered from the operator’s (or the customer company’s) Internet Website. From here, the application can be activated over the GSM network.

As in most telecommunications markets, the battle will take place between proprietary-based services operated by the incumbent telcos (using their proprietary SMS systems) that are trying to protect their markets and open systems introduced by new companies. In the long run, however, the open systems will, of course, have a much better chance of surviving and thriving.

Open systems

Pioneers, such as Australian-based Newcom, started to launch open systems for other companies (content providers) to participate in the new world. In September 1999, this company introduced its platform Funge in Italy, with a large financial institution introducing Funge-based applications to its customers. However, in order to grow the business, the owner took the technology to the USA in early 2001, looking for funds to further develop Funge into m-commerce applications. However they failed, and the company filed for bankruptcy (see chapter 7.2.5).

Incumbents often see content providers as potential competitors, and therefore either start operating content services themselves, or try to monopolise the market is such a way that the customers’ content gets packaged into the telco content, and is then sold as a so-called telco product.

Increasingly, this strategy is losing ground as more and more content providers begin to treat telecommunications as a strategic business tool, and require far greater control over their products and services that are based on these networks. This is exactly where open systems come in. They provide an open platform for mobile e-services. Not surprisingly, their major competitors are either the telcos that want to operate proprietary services (SingTel, Sonera, Telstra), or their suppliers that are only too happy to build proprietary systems for their key customers (Motorola, Alcatel, etc).

Lack of user-friendly technologies

As cash-rich telcos are eager to get involved, they spend big money on proprietary developments and are therefore in a good position to hamper the developments initiated by independent companies that built their systems on open architecture.

Telcos, however, will have to accept that their major customers don’t want to wrap their e-services around telco-branded products and services. Furthermore, customers who understand the strategic value of e-services want to be independent for the reasons mentioned above, as well as for security and management reasons. Increasingly, therefore, we will see companies endeavouring to extend their reach for new e-customers, and implement their own e-strategies based on wireless, Internet, information highways, e-commerce etc.

Several of the current mobile data applications (eg SMS and WAP) are severely hampered by very unfriendly technologies – only totally dedicated users will be willing to spend the time necessary to familiarise themselves with these technologies, and only frequent users will be capable of mastering them.

Operating SMS is more difficult than operating a VCR. 80% of VCR users don’t know how to program their recorder – a bad omen for SMS operators.

New business models are needed

Platforms such as the now defunct Funge were also moving away from the traditional time-based telco services. The trend is very much towards flat-based charges. Services and applications such as share trading, brokerage deals, transactions and ticketing are often already charged on a flat fee basis. It is the content and service providers that want to stay in control of the application. They want access to the networks to provide such service, but don’t necessarily want to hand over the application to the telco for them to run and operate the service.

Depending on the nature of the actual service and the level of service required by the end-users, these packages are often available at different price levels. Dual Slot based applications can be packaged similarly to the way companies currently market their services to their customers. Free applications can be provided under the permission based marketing model (see separate report Global – Mobile – Marketing and Business Developments).

In most situations, the telecommunications cost element is a minor part of the overall costs of the application. In a large number of situations, customers will make the Dual Slot ‘set-top’ box available at no extra cost to their customers as it is packaged into the overall service and the overall price. On the other hand, in the competitive telco market, bureaux facilitating Dual Slot services can negotiate very attractive deals with the operators for bulk airtime, messages, etc.

Currently, market action for ‘Dual Slot Technologies ‘is taking place in Europe, especially in those GSM countries with a minimum of 4/5 competitors. Some Asian countries, like Hong Kong and Singapore for example, are also offering good potential and for a market like China, with a monthly growth of one million GSM subscribers, the sky is the limit!

The Funge Smartcard (defunct)

While the company filed for bankruptcy in June 2001, the concept is sound and can be used as an example for the push for open systems.

The Funge Smartcard, aimed to be customised for any application developers, was meant to unlock preferred services and content, acting as a credit, debit or stored e-purse facilitator and recognised the consumer as a preferred customer anywhere in the world. Developers could access source code to the Funge platform for a $1.00 fee, which ensured the developer take up the file structure and e-purse of the Funge system. Application developers using the Funge system would not be charged a merchant’s fee, but would receive $0.30 for every wireless transaction performed. Consumers utilising the new transaction platform would pay $0.50 for a wireless transaction and nothing for a wired transaction. The flat fee structure would be simple to administer and transparent to all who use it (prices are based on the 1998/1999 market situation, and are used as an illustration).

The Funge Smartcard would be able to be used through the existing international ATM network, as well as enabling transfer of funds from bank to bank and payment for services directly without going through credit card systems. When used in conjunction with the Funge dual-SIM multi-slot mobile phone back, it would be able to immediate display current information and services, such as stock market figures and airline flight availability and ticketing. It would also free mobile commerce users from the constraints of relying on only one carrier, allowing the consumer the ability to choose a carrier for each transaction or call made on their mobile device.

The Funge transaction infrastructure was secured through the latest encryption technology from Certicom, and has been developed on an open platform that can interface with any existing transaction system. After the bankruptcy, it therefore did not come to a surprise that a brawl erupted over the intellectual property rights of Funge.

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Wednesday, March 10th, 2004

New technology that will extend the viability of modems has been approved by ITU. Dial-up access continues to be the primary means of access to online services. And its continued support in communications networks is imperative for this reason. Many millions of people have no access to broadband connections, either because they cannot afford them or because the facility is not available. Modems are also used in enterprises for a variety of purposes including remote system administration, access to some specialized services, and communication with systems that cannot be accessed via the Internet.

Modem over IP (MoIP) technology ensures that as networks move to a ‘pure IP’ infrastructure they will still be able to efficiently handle calls generated by modems. And it will give network providers the ability to deploy with confidence IP access Gateways that will provide full coverage for all types of traffic.

The challenge has been to create a standard that will allow IP network operators to support dial-up modem calls. Modems are much more sensitive than voice to IP network impairments such as delay, jitter and packet loss, and may fall back to slower rates or even disconnect when encountering the variability of IP networks. The one per cent packet-loss that can often be found in IP networks could significantly downgrade the effectiveness of this popular method of accessing online services.

The new standards will enable network providers to maximize network efficiency and reliability while giving modem users the ability to carry on using their modems to the full extent of their capabilities on both circuit switched as well as packet networks.

For end-users, MoIP will mean that as operators migrate to packet based networks, they will be able to continue to use their dial-up modems with the same quality of service that they enjoy today. And importantly they will be unaware of any change.

Completion of this Recommendation by the ITU-T is the first coordinated approach to addressing this issue, and it allows manufacturers to offer interoperable IP access gateways in a competitive market and gives operators a wider choice of equipment to choose from.

The two ITU-T Recommendations that deal with MoIP are V.150.0 and V.151.1. They were created in response to industry demand for consensus on a modem access protocol for IP networks. Modem access in IP networks is not a new idea, but up until now there has been no standard protocol for doing this. As a result, the access options available to users have been limited. ITU-T’s work will ensure that standardized solutions are available to network operators. Competition should also ensure that prices stay low. A widely adopted standard will benefit vendors, service providers and end users alike.

See also:
Technology – Internet 2 – TCP, UDP
Technology – Internet 8 – Telephony and Voice over IP
Australia – PCs and Modems

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Tuesday, March 9th, 2004

Recently I reported on the Battlespace program. (see box below). This time I would like to update you on some further developments whereby the Australian industry should tale a lead position. As indicated in my previous article I am worried that these very significant contracts will to a large extend disappear overseas, with local companies being involved in the execution of the contract but not in the management and the innovations parts of it.

Exhibit 1 – Battlespace Communications System
In 2003, the Department was planning its Battlespace Communications System (BCS). The project involves digitalising the Australian Defence Force’s (ADF) land communications network. The whole project was costed at $700 million. The first phase, up for tender in mid-2003, was worth $97.9 million and involved seeking a prime systems integrator to handle the BCS architecture. The five phases of the project have the following indicative costs:
Phase 1: $97.9 million;
Phase 2: $200-250 million;
Phase 3: $100-150 million;
Phase 4: $75-100 million;
Phase 5: $75-100 million.

How it all started. In mid 2003 the Optus C1 satellite deployed, its biggest customer being the Department of Defence has $500 million worth of capacity booked on this satellite.

The bandwidth is required for a range of new warfare systems. Following the launch two major tenders were launched that would make use of the extra capacity

As part of the western defence force alliance further satellite capacity is used from the Iridium telecoms group.

If it rains its pours: the Defence Materiel Organisation, through its electronic system division, issued this tender.

Exhibit 2 – JP 2089
The Defence Material Organisation (DMO) through Electronic Systems Division (ESD) is seeking to contract with a suitably qualified organisation to conduct a Project Definition Study of the ADF’s requirements for Tactical Information Exchange (TIE). At a minimum, the scope of Phase 1 work includes:
A study into the infrastructure requirements for the ADF TIE including equipment, facilities, training, testing, resources and logistic support systems;
Developing and proposing an implementation plan for the upgrading of legacy systems to TIE standards;
Identification of risk areas pertaining to technology, integration, interfacing, operational support and sustainment of capability and development of mitigation strategies;
Detail studies identifying the specific TIE and integration requirements for each legacy system;

Identification and costing of candidate equipment fits for JP 2089 Phase 2;
Production of the final TIE Capability Definition Documents and Capability Options Document for JP 2089 Phase 2;
Impact on current doctrine and consideration to the development of new doctrine and procedures in support of network enabled operations; and
Address acquisition and industry issues.

The ADF claims it cannot afford to junk it’s legacy equipment this might indicate that the DoD doesn’t have a complete handle on what their current equipment is, and what it’s capabilities and/or potential for modification might be. They seem to think that now the world’s armies are back in business, and the major defence suppliers in Europe and North America have full order books, that by rattling the trees in Australia the government will want to keep up with the Jones’s and their new toys.

This makes me conclude that the current Defence telecoms tenders (and their careful briefings of selected journalists)are as much a domestic political exercise as a technical and operational one.

Their simple solution is to buy what Australia’s allies have, which will bring us up to date – which they need to be if you’re sitting at the frontline. Successive Australian governments for over 20 years have acknowledged this reality and largely created their defence policies around it.

The government has two choices here
Outsource the whole project to US/European suppliers
Let the current under-utilised resources of the Australian manufacturing and tech sectors integrate the IP and specialised equipment here. It’s the same budget.

The second option would create lots of sustainable jobs in Australia. Although there are billions of dollars in current and pending defence and aerospace projects in Australia, all of which require system integration with legacy systems and civil systems, it’s not complicated. And if the government considers that the legacy systems and civil systems were all put together in Australia, the risk factors are removed – because all the new specialist defence equipment is off the shelf and plug & play.

However, the real problem in the long-term is that if the government sells Telstra, and the controlling interest isn’t acquired by another Australian company, then as the network is upgraded and/or maintained, the overseas purchaser is going to replace whatever is here with what he uses overseas. The rest of the network is already owned by Singapore (Optus) and New Zealand (AAPT), so there will be no Australian ICT industry.

People have very short memories. Up to 20 years ago, Telecom had a monopoly in Australia. But it also had a policy (for 100 years) of ensuring Australia’s major manufacturers remained viable – so work wasalways split between them. When Telstra is sold overseas, the new owner won’t have any interest in maintaining that policy. Regardless of individual views on the civil networks, this should pose some concerns for the defence networks, particularly when all the new defence strategies are built upon the network capabilities.

The obvious logical solution to their not being an establishednational system integrator of sufficient size and reliability is to simply create one.

Paul Budde

See also:
Australia – Government Markets – Market Overview
Australia – Industry – Outsourcing
Global – Analysis – Industry – Transforming telco models in 2003

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Monday, March 8th, 2004

Things have gone awfully quiet regarding the ACCC investigation into mobile termination and roaming charges. Nothing has been heard on this issue since the release of a paper in September 2003.

Yet there is overwhelming evidence that the carriers are using their cosy agreements to hit customers with exorbitantly high charges. Since the September report there has been no evidence whatsoever that the industry has got together to try and come up with self-regulatory changes in an effort to prevent regulations being imposed.

How much longer does the ACCC want to wait?

ATUG estimates there will be a $750 million per annum benefit to end-users if the ACCC decides to reduce mobile termination rates to a cost-based price of 10 cents per minute, compared with the current 20c per minute wholesale rate. Consumers should see direct benefits from any reduction to the fixed-to-mobile charges, which now form about 30% of the voice communications spend.

In other countries this decision has forced innovation from the mobile carriers, and end-users seem to spend the same amount on communication services in total – but they get better value for their money! In the UK, the Commerce Commission decided, in January 2003, that prices were 30%-40% higher than they should be and reduced them by 45% over the three years to March 2006.

After more than ten years of competition in mobiles, users expect termination charges to be based on costs rather than on what the operators can charge each other – unknown and unseen by the users and, in the absence of effective competition, unregulated by the ACCC.

Admittedly, the issue is not simple, but at some stage the ACCC and the industry will have to bite the bullet. If the ACCC doesn’t have sufficient powers it might be worthwhile asking the Opposition to start a debate on this issue in order to get things moving.

See also:
Australia – Mobile – Termination, Roaming, Fixed-to-Mobile Charges
Australia – Mobile Communications – Government Policies and Issues
Australia – Mobile Communications – Industry Trends and Analysis
Australia – Mobile Communications – Pricing and Churn

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Tuesday, March 2nd, 2004

This is one of the truly amazing success stories in telecommunications competition and it shows that it is possible to take on the incumbent and win.

In late 2003 the company became the largest mobile operator in the country, dethroning the incumbent Telecom.

This all happened in a relatively short period of time. It was not until 1998 that the company entered the New Zealand market and bought the operation from Bell South, which had not been very active at all. At a time when most countries in the western world had mobile penetration levels of 40%-plus, New Zealand was hovering under 20%. Telecom was fast asleep and in no hurry to bring more and better services to the New Zealanders who, like everybody else in the world, were very interested in taking up mobile services.

In fact, the situation was not dissimilar from what is happening today in the broadband market in New Zealand.

But in 1998 Vodafone decided to beat the lethargy and became a fierce competitor with innovative prices and services. Telecom was far too slow to react and as a result it has now handed over leadership to Vodafone. Being a uni-focused company, it is in a far better position to service the mobile market than the vertically-integrated Telecom, which has many more products and services to manage. On top of that, Telecom is struggling with three mobile strategies: an analogue one; a digital one, and a 3G one.

All of this together will secure a good future for Vodafone in New Zealand, If it wasn’t for the success in New Zealand I doubt very much if the company would still be in the region. In Australia the company is struggling to keep up with Telstra and Optus and is clearly under-performing. By streamlining the Asia Pacific operation Vodafone is still able to keep its business in Australia open, but further rationalisation is needed in Australia to secure a long-term position in the region. A lot depends on the success in New Zealand.

A more local problem is the fact that there is no room for three mobile operators in New Zealand. Apart from Telecom and Vodafone, TelstraClear has indicated it wants to enter the market, with a 3G service no less. Furthermore there is Econet; however it is not making much progress at all.

Consolidation amongst the three (potential) 3G players is essential and in 2004 it will become clearer what the likely outcome will be. In this process it does, of course, make sense to take the broader Trans-Tasman situation into account as well; however, this also further complicates the negotiations. There clearly is more synergy between Vodafone and TelstraClear, but so far negotiations have failed to deliver a solution that is acceptable to both sides.

It is too early to make a call, but certainly three competing 3G services is not the way to go.

See also:
Vodafone New Zealand
TelstraClear Limited – Overview
Telecom Corporation of New Zealand – Company Analyses (2001-2003)
New Zealand – Wireless Communications – Mobile Market Overview
New Zealand – Wireless Communications – Major Mobile Operators
New Zealand – Wireless Communications – Mobile Services
New Zealand – Wireless Communications – Wireless Broadband

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