Archive for May, 2004

REPORT ON VOIP ROUNDTABLE – 22/03/04

Tuesday, May 25th, 2004

Another lively industry event took place last week, which attracted maximum capacity in a show of confidence that new developments in the industry are going to push the market forwards.

The message from the Roundtable was clear – VoIP is here and it’s not going away.

Comindico’s CEO, John Stuckey, gave an enthusiastic overview of his first experiences with a commercial service. AAPT’s Marketing Manager, Jennifer Tejada, provided a customer focused perspective of the new developments and on the same day, AAPT launched its own new VoIP service.

It was clear that VoIP’s frontline action is taking place in the corporate and medium-sized business markets, where all tenders for PABXs and VPNs now include VoIP elements. Within the next 12 to 18 months approximately 50% of Australian corporate and government networks will have IP elements in their networks.

Peter Bouquet from Cisco provided good statistical information that backed up these developments and his organisation, as well as others in the market, now has products priced at levels that make it attractive to consider VoIP at the desktop.

All these developments will open up an enormous market for new application. IT=IP and VoIP makes it possible to seamlessly integrate voice, data and video applications. It is distance-independent and allows for true diversification of resources in always-on connections.

Chris Roberts from Request brought in the broadband element and discussed the merger of voice on DSL. This will start the opening up of the SME market and, soon after that, the residential markets. With lower DSL margins, ISPs and BSPs will be forced to be more innovative and start finding ways to generate new revenues, and for them VoIP will be the most obvious way to go as a first step.

While John Stuckey indicated that his company on its own doesn’t have the market power to launch VoIP deeper into the market, if you multiply the VoIP push by the various other DSL and VoIP players (Optus, AAPT, Primus, PWT/Request, iiNet and UEC) you will start to see that this development is going to make bigger waves in the market. There are good reasons to believe that the current 500,000 DSL users in Australia will be interested in looking at VoIP over DSL, which would save them significant costs. Initially they would want to keep their POTS line, but eventually they will be the ones making the choice as to whether these multiple access points are needed.

While it is very hard to put a date on when the critical time of this development will be, I would be inclined to bet on a point 12 to 18 months in the future. If, however, Telstra is successful in frustrating the wholesale market, regulatory delays could easily add another year or so to this. However, I doubt if Telstra will be able to get away with 3-5 year delays as it did during the 1990s.

For the time being, however, the industry is busy supplying the corporate and SME markets, where the low-hanging fruit is. Telstra is in a very weak position here. Having sold the Commander business it suddenly finds itself with a large hole in the SME market.

Momentum is clearly building up, and the combination of VoIP, DSL, regulatory changes and better wholesale prices are now producing real business opportunities for Telstra’s competitors in the retail space.

On the day BuddeComm also launched its: Global VoIP Report – 2004. The pdf-based report costs $595 excl.GST and provides a range of market and industry analyses and discusses the technology and developments around the globe.
Some of the highlights of the 100+ page report include:
During 2004, 25% of US international calls are going to use VoIP.
MCI and Sprint signed a deal with Time Warner Cable to send phone calls over cable TV lines. Time Warner plans to offer the service by the end of 2004 in the 27 states that it serves.
With no vested local call market to protect AT&T has launched a large-scale introduction of VoIP
Internet phone company Skype has attracted about 8.5 million customers.
By the end of 2003, Japan had already 5.3 million VoIP customers.

Paul Budde

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FIBRE-TO-THE-HOME FROM TELSTRA – 15/03/04

Tuesday, May 25th, 2004

I am very pleased with Telstra’s announcement foreshadowing the launch of its first Fibre-to-the-Home (FttH) projects.

Only a few months ago I reported that Telstra had denied any interest in rolling out FttH, so it is great that the company has finally bitten the bullet and is joining in with the 100 or so other projects around the world where fibre-to-the-home is being rolled out.

Japan is leading the world, with close to a million homes connected to FttH systems. However, some of the most exciting projects are currently taking place in Korea. Bright in Perth was the first company in Australia to roll out FttH and a pilot is currently underway there.

At several occasions Telstra has indicated that it is not interested in FttH it has labeled it as ‘uneconomic for the foreseeable future’. With its extensive legacy copper network Telstra will always have to develop an incremental approach towards FttH. The way forward for its legacy network (after the ADSL technology hits its limit) would be VDSL on existing copper. Could it be that competition is now driving Telstra more rapidly into the FttH direction? Apart from Bright other utilities are also pushing for FttH solutions and I have also reported several times on the FttH push in Victoria where 5 councils have indicated they want this for all new developments in their areas.

In the USA, close to 50 small-scale projects are underway, with FttH connections varying from a few hundred to several thousand. But the exciting news was announced last year, when the telcos committed to a $75 billion investment in FttH. This, of course, got everybody excited – especially the manufacturers – and the result will be (as I have predicted for some time) that in 2004 the cost of deploying FttH in greenfield operations will be equal to the costs of deploying copper cable

While Telstra is being very careful not to create too high an expectation, I envisage that, if these trials in south-east Queensland (280 multi-dwellings in new estates in Springfield and Emerald Lakes) are successful, from then on the company will predominantly roll out FttH in greenfield developments. This should start happening from mid-2005 onwards.

Success in this field will also put pressure on Telstra to begin looking at existing infrastructure, where technical problems like so-called pair gain and RIM systems are making it impossible for over a million Australian households to gain access to broadband services.

Telstra itself has indicated that its copper network is reaching its use-by date; however, we will have to be realistic here, as a nationwide replacement of the old copper network will take a few decades to complete. As I have said before, roughly a third of the network replacement is in economically unviable areas and this will need to financed in one way or another. The government will have to play a significant role in this, and I estimate the costs to be around $5 billion. It will not necessarily have to be FttH – other technologies might be more appropriate for regional and rural areas.

I am rather surprised that Telstra is asking for financial contributions from developers to roll out FttH.. This has not happened in other roll-out programs and it will be interesting to see how long they are able to do this. The FttH project in Victoria drew the interest of 73 providers I am sure that if Telstra is serious about its activities here it will have to come back with a better deal, otherwise others will most certainly offer a more attractive package to councils and developers.

Telstra has selected Alcatel as its technical partner. The company will deploy an BPON Network (Ftth based on ATM). From June onwards, dwellings in the pilot areas will be connected to the fibre network through a box that will provide them with access to four telephone lines, digital pay TV (Foxtel) and Ethernet connection.

While other projects provide users with access to 10Mb/s and even 100Mb/s, Telstra is being a bit of a Scrooge here – it is starting with only 1.5Mb/s. It appears that it is going to follow a similar path as it did with DSL access. Other operators would like to encourage users to use as many services as possible, but Telstra appears to want to disadvantage such usage. For example, for good broadband TV, speeds of 4-6Mb/s are required. Why not make that available in a basic package so that people can start experimenting with it?

It was good to learn that the company will begin trialing wholesale services as well; a wholesale ISP will be a partner in this project. Customers will be charged for the service and various price packages will be tested during the pilot.

We will be producing a brand new report on Fibre-to-the-Home within the next few weeks.

See also:
Australia – FTTH Analyses and Developments
Global – Broadband – FTTH first deployments
Global – Broadband – FTTH Infrastructure issues
Japan – Broadband – Cable, Wireless LAN, FTTH
South Korea – Broadband Networks and Services
Technology – Infrastructure – Last Mile 2 – Fibre, FTTH, PON, Metro Ethernet
Technology – Infrastructure – Last Mile 5 – FTTC, VDSL

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Higher Bandwidth Incentive Scheme (HiBIS)

Sunday, May 2nd, 2004

The affordability of broadband is crucial to its take-up in regional Australia. A government inquiry recommended that the government establish an incentive scheme for the provision of higher bandwidth services to regional, rural and remote areas, to enable all Australians to have access to services at prices comparable to those in metropolitan areas.

In 2004, the government indicated it would spend $107.8 million over four years on the HiBIS. The scheme provides financial incentives to higher bandwidth service providers to offer services in rural and remote areas at prices reasonably equitable with those available in urban areas.

HiBIS is promoted as a pro-competitive and transparent scheme. A one-off ‘per customer’ payment is made to providers of higher bandwidth data services in areas where a defined minimum level of service, in terms of price and functionality, is not likely to be provided commercially in the immediate future. To receive the payment, providers need to offer services at prices broadly comparable to prices charged in urban areas.

Not so pro-competitive

Unfortunately, in the implementation of HiBIS the Department had set the broadband mark for the scheme extremely low – at 256/64Kb/s, ‘coincidentally’ at the lowest rate at which Telstra can offer its ADSL service. The company, therefore, is basically guaranteed to pick up the bulk of this scheme without providing Australians with what other countries see as broadband – 2Mb/s-plus.

Until mid 2006 Telstra was able to deliver ADSL under this scheme, and many rural exchanges were upgraded using this Government subsidy.

Some have argued that HiBIS widened the gap between regional Australia and metro areas, as the scheme has made it economically more difficult to build true broadband networks in competition with Telstra’s ADSL network. A combined effort is needed to get a proper competitive broadband infrastructure in place, and HiBIS, possibly unwittingly, has been undermining this process. Its successor, Broadband Connect, will try to address that issue. For more information see separate report: Australia – Broadband Connect – Historical Overview.

A more competitive environment is essential. Broadband can add billions of dollars of extra economic activity to regional Australia – without broadband it will not be able to develop viable businesses in these areas.

Where would regional Australia be if it was only accessible via dirt roads or steamboats? From a telecoms point of view, copper-based telecoms are equivalent to these old and inadequate forms of infrastructure.

With more taxpayers’ money to be used, such funds should be made available for a more future-proof investment. Previous government schemes, such as Networking the Nation (NTN), have already seen far too many investments that were not future-proof (approximately 75% of all NTN grants) we clearly see the role of government as a provider/facilitator of future-based infrastructure to regional areas (areas where, without government assistance, no new infrastructure developments will take place – and approximately 30% of the country falls into economically unviable areas).

While HiBIS, from a new point of view, has been successful, most of its extremely valuable funds have ended up in the coffers of one of the richest and most profitable companies in Australia, and indeed, the world. Surely taxpayers’ money can be spent in a much better way. If Telstra is not excluded from Broadband Connect, it should at least be obliged to develop true broadband services for regional Australia.

As it also looks like Broadband Connect ignores new developments in broadbanding – developments whereby local communities are taking the lead to broadband their local council area, etc. We are involved in dozens of such projects around Australia, where local councils are taking on a leading role in their own local broadbanding projects. There is a clear groundswell of activities in this field and this new scheme does nothing for these grassroots developments. Around the globe the local broadbanding concept is seen as the key tool in broadbanding regional areas, yet this scheme totally ignores this very important factor.

ISP subsidies

Under the scheme the Australian Government registered service providers. Internet Service Providers (ISPs) that registered received a one-off incentive payment for providing customers in regional Australia with a higher bandwidth service at a price comparable to that in metropolitan Australia. There are two payments, of $1,540 or $3,300 in areas where installing broadband access involves higher costs.

First results

During 2004/05 Telstra received over 65% of all the HiBIS subsidies and used it mainly to upgrade its DSL network. This of course is very painful for any (potential) infrastructure provider in competition with the incumbent; however it helped many remote communities.

On the satellite side of the business Telstra took approx 30% of all the new satellite connections, which were running at 500 per week at the end of 2004.

On the one hand are the government policies aimed at improving broadband in regional Australia, and this is certainly being stimulated by the HiBIS s. It was also noted that on an international level this is one of the first government schemes that basically addresses the Universal Service Obligation (USO) requirements in relation to broadband.

The government needs to improve the coordination between the various broadband programs. For example, the program that provides broadband to schools and other government buildings often fails to lead to improved broadband in the wider communities surrounding these facilities. Furthermore, the Demand Aggregation Policy is not delivering the required outcomes and should be urgently reviewed. But the most important issue the government needs to review is the anti-competitive nature of the scheme.

Flaws in HiBIS

In September 2005 the Victorian Government released a report that showed the HiBIS is significantly flawed. ACIL Tasman was commissioned to analyse the potential impact of the HiBIS on Victoria. While the report indicated positive aspects, it also indicated that areas of real need may be missing out.

The ACIL Tasman report claimed to show that half of the new subscribers under HiBIS were in areas where there was enough demand to justify broadband services without subsidy. Telstra successfully used the scheme to receive subsidies for updating its exchanges for DSL rollouts. At the same time, large numbers of metropolitan households cannot access metropolitan equivalent services but are excluded from the HiBIS program.

The report also questions that it may not be sustainable for some of the services to be continued once the subsidy is finished.

Do-It-Yourself System For Remote Communities

At the Rural BASH conference in Coffs harbour in 2004, organised by Badja Interconnect, some interesting data was made available regarding satellite opportunities in remote communities.  This data is still applicable today.

Given the cost of the wireless technology and the current cost of satellite access for very remote access Badja estimates that the following figures apply to cover a sparsely populated area of 30 users:

  • $3,000 – for three meshed wireless units each with 1km radius overlapping (community to supply power and sites) – a one-off cost;
  • $600 per month for two or more satellite service to provide 1.5Mb/750Kb – monthly cost for uncapped service.

Even with all users online at the same time, the solution provides a minimum of 50Kb to all users.  With a 1/12 contention normally expected, users would statistically expect around 600Kb throughput and during quiet periods – up to 1.5Mb:

  • Base costs per user would be $100 installation (less under the HiBIS scheme);
  • 802.11 external USB box (simplest installation) – say $100;
  • Monthly costs would be $20 per user.

Although it is expected that rural communities could provide this service amongst themselves, there are certainly pitfalls and the potential for disputes. Technology barriers will also stop some towns from using such a service. Communities would also have to gain exemptions from the regulator for any do-it-yourself model. High levels of redundancy are possible with this base configuration such that a single device failure will only slow the service down to some or all users, but not stop it.

The inclusion of an ISP/carrier to oversee the service will increase costs significantly, but will give a high level of peace of mind over the processes as well as a strong legal and regulatory position when trouble strikes. Badja expects that an ISP would provide the uncapped service for around $45 per month.

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THREE NEW PROVISIONAL LICENCES GRANTED FOR INTERNATIONAL FIXED-LINE SERVICES IN ISRAEL – MAY 2004

Saturday, May 1st, 2004

The Communications Ministry has granted provisional licences to provide international fixed-line services to ISPs Internet Gold and Netvision and to US-Israeli company Xfone Inc. Before being awarded full licences the three must prepare and submit strategies for providing services. The Ministry assigned dialling codes for the three but said the allocation of the codes did not mean they would receive full licences. Internet Gold was established in 1996 and is majority owned by Eurocom Communications. NetVision was founded in 1994 and is now owned 100% by Discount Investment Corp, itself part of the IDB Group.

The international calls market was further opened to competition in April 2004. New operators must have proven capital of NIS20 million, pay the ministry NIS10 million for the licence, establish two switches and a call centre in Israel, and provide universal service to all foreign countries and to all networks – cellular, fixed-line and broadband. The mobile operators are not allowed to apply for licences.

There are already three operators in the international calls sector, with almost equal market shares. Bezeq is the original incumbent, providing local, long-distance and international calls. It is currently approximately 49% state owned but further privatisation is imminent. Competitors Barak and Golden Lines began offering international telecommunications services in 1997. Barak’s shareholders include Sprint (25%), Deutsche Telekom and France Telecom (10.5% each), Clalcom (a subsidiary of Clal Industries and Investments, which is itself a subsidiary of IDB, with 44%), and Matav-Cable Systems Media Ltd (10%). Since launching international telecom services in 1997, Golden Lines has gained a market share of around 30%. It is owned by the Fishman Group with 73.6% and Telecom Italia with 26.4%. Competition between the three operators has led to reduced costs for the consumer but little profit for the providers.

See also:
Israel – Key Statistics, Telecommunications Market and Regulatory Overviews;
Israel – Mobile Communications and Broadcasting;
Deutsche Telekom AG;
France Telecom;
Telecom Italia.

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BAHRAIN’S BATELCO MAY BE COMPLETELY PRIVATISED – MAY 2004

Saturday, May 1st, 2004

It has been reported in the Bahrain Tribune that the government has appointed HSBC Group as a consultant for the proposed sale of its 36.6% share of Batelco. The exercise was expected to take three to four months. The move is described as part of the government’s ongoing initiative to enhance the role of the private sector in major companies.

Bahrain has been at the forefront of the wave of telecoms liberalisation that is currently taking place in the Arab Middle East, awarding a second GSM mobile licence in April 2003. The 2002 Telecommunications Law set out a timetable for the complete liberalisation of the communications market.

Batelco already has lower government ownership than any other Arab Middle East incumbent fixed-line operator. Jordan is the only other market where the government share is below 50%. Other major Batelco shareholders are Cable & Wireless plc with 20% and the Pension Fund Commission with 10%.

See also:
Bahrain – Telecoms Market Overview & Statistics;
Cable & Wireless plc.

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