Archive for October, 2004


Tuesday, October 26th, 2004

In early August, I was initially pleasantly surprised by the fresh approach that the new Minister for Communications, Helen Coonan, was taking towards structural separation. However, the very next day she made comments that were basically the reverse of those made on the previous day.

On 3 August, the Sydney Morning Herald quoted from a leaked report that she had written, along the following lines:

‘Splitting Telstra in two could appease concerns over the Government’s plan to sell off its remaining 51% in Telstra.’

‘I can see how that has appeal… addressing resistance to the privatization of Telstra in rural and regional Australia, by more or less saying the Government is putting its arms around the infrastructure part of the business and providing the necessary assurances.’

Questioned in Parliament on her remarks, she executed a 180º about-face.

‘There are many people around who do advocate structural separation, vertical separation, spin-offs from Telstra, hollowing out Telstra…’‘None of that really addresses what kind of industry you would have if you actually did that.’

Even on a subset of a structural separation policy (the divestiture of Foxtel) she is not putting the national interest first.

‘My view is that at this stage it’s difficult to see that there is any compelling case that would warrant Telstra divesting itself of its interest in Foxtel.’

‘As far as I’ve been able to tell, there’s been no cost benefit analysis that actually indicates that there would be any net benefit if Telstra was required to divest itself of its interest in Foxtel.’

The most charitable spin I can put on this is that Ms Coonan is completely uninformed.

Overwhelming evidence from around the world shows that, in all countries where telcos and cable TV companies compete with each other, broadband penetration is at least three times higher than it is in Australia. And politicians in all these countries agree that broadband has very significant economic and social benefits (including President Bush in the USA and Prime Minister Tony Blair from the UK).

But, after only a few days in her new job, our new Minister apparently knows better.

If you can make sense of all this please, enlighten me, as I am at a loss to understand her telecoms policy.

For more than five years I have argued that the absence of a solid government vision on the future of telecoms infrastructure in Australia – and regional Australia in particular –would make it impossible to swing public opinion behind the full privatisation of Telstra.

In 1999 I indicated that the government should come up with a vision before they launched the bid for the full privatisation of Telstra. They had plenty of time to do this and I believed that the then Minister for Communications, Richard Alston, a veteran telecoms minister with a first-class understanding of the telecoms market, was capable of producing that vision.

But, year after year, he failed to come up with a vision, and I began to think this was due to the lack of support from his boss, the Prime Minster, and the Treasurer, Peter Costello. Given the recent conflicting statements from the new minister, are we now seeing a repeat of this scenario? Did Coonan think it was a good idea, only to be whistled back by her superiors?

By separating the infrastructure from the rest of Telstra, and keeping it under government control, she could create the right environment to privatise everything but the infrastructure, as was evident from her initial comments.

Another very promising part of her policy is her strong support for competition. This, of course, is easy to say – all her predecessors have taken the same position, but so far her colleagues have failed to deliver. But, based again on her initial comments, her approach towards competition, taken in conjunction with her statements about structural separation, would indeed most probably deliver equal access to the ‘government-owned’ infrastructure. And this would open the way for competition where we would like to see it – on a ‘services to the customers’ level.

Telstra and Hutchison made the first move towards infrastructure-sharing voluntarily, demonstrating that there obviously must be benefits in such arrangements. It is about time the government recognised this and stopped ignoring the issue.

So, Minister, could you please explain what your real telecoms policy is?

Paul Budde

See also:
Australia – Government Policies – 2002-2004
Australia – Privatisation of Telstra
Telstra – Private or Public – an analysis
Australia – Structural Separation

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Tuesday, October 19th, 2004

Back in 1996, I stated to question to regulatory regimes that were implemented around the globe. I stated that I didn’t believe that the regulatory regimes from the various governments would deliver more competition in the market.

In general terms these regimes were in one way or another reliant on the cooperation of the incumbents, but I was always extremely doubtful that these companies would voluntarily assist in decreasing their position in the market. The market-based regulatory regimes provided them with the ideal environment to delay the introduction of competition. In 1997 I indicated that it would take regulators at least two years to come to grips with these situations – and I was called a pessimist at that time.

Little did we know then that by 2004 the situation would have deteriorated to such an extent that regulators basically had to admit defeat in their aim to establish sustainable competition in their telecoms market.

Towards the end of the last decade I began to explore different solutions. By the early 2000s the OECD and European Union began to shift their policy focus from market regulation to industry regulation – the industry basically being the incumbent carriers; which still dominate 85%-plus of the national telecoms markets all around the world.

I first spoke about the concept of structural separation around 2001 and the OECD published a report on the issue. Not long afterwards Professor Fels, the then ACCC chairman in Australia, also presented an excellent paper on the subject.

The idea was received with great hostility by the vertical integrated telcos. Financial analysts also complained that it would be impossible to do this and that it would lead to massive capital destruction.

At that time I predicted that the issue would not go away and would need to be addressed properly in order to analyse the pros and cons. While the discussion, at that time, faded away I predicted that it would soon be back on the agenda. It looks as though that time has arrived, as more and more articles are now resurfacing on the subject.

More and more regulators and government authorities involved in competition issues are indicating that we need to seriously address the possibility of the structural separation of the national incumbents.

And, surprisingly, some of the financial analysts also started to accept one of the issues I addressed in 2002.

At that time I stated that a structurally separated incumbent would deliver a number of much more focused companies, all of which would have a very strong business focus on their own market, without the crippling procrastinating activities that a vertically-integrated national telco frequently forces upon them. Combined, the value of these new lean and mean companies would eventually be worth more than that of a vertically-integrated company – around the world many of these vertically-integrated companies are facing negative growth.

There are many roads leading to structural regulation. In the United Kingdom, BT, under pressure from Oftel, is taking the lead. Some companies are being forced to look into the question because of their precarious debt situation, while others will simply be forced by their regulators to move in this direction.

My preferred option is that the incumbents themselves lead the process of change, rather than leaving the matter in the hands of government regulation.

Paul Budde

See also:
Global – Infrastructure – Regulatory – Privatisation, Structural Separation
Global – Analysis – Industry – Structural Separation
Global – Infrastructure – Regulatory – Deregulation
Global – Infrastructure – Regulatory – Key Issues

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Saturday, October 16th, 2004

By Maurie Dobbin
The introduction of tariff bundles by Hutchison to promote their 3 service has begun to take hold in the market as in mid 2004, first Vodafone followed by Telstra have jumped on the bandwagon to promote flagging services.

When Hutchison launched their 3 network in April 2003 they offered a very attractive voice tariff plan based on a $99 per month charge with free included calls up to 1000 minutes per month. This plan was aimed squarely at high users on other networks and coupled with the back up 2G roaming on the Vodafone network was easily the best deal in the market. This offer has since been withdrawn and replaced with the current ‘Hot for 3’ plan that reduces the cap to 500 minutes.

This is understandable considering the interconnect cost to 3 of users roaming on the Vodafone network, particularly when it is known that many 3 users have chosen to switch to 2G phones that can’t use the 3 network at all and are permanently roamed on Vodafone. However 3 has tried to sweeten the change by offering a number of bonuses that can be coupled to any plan such as 150 free SMS/Free Voicemail and most recently a $200 credit to any customer that brings their own mobile phone number. All of these offers recognize that in a saturated market most of your potential customers are already on another network.

With the success on 3 Hutchison has recently extended the tariff bundle to the Orange network with capped plans available from $29 to $199. The latter plan includes 2000 minutes of talk time with any additional charges at 15 cents per 30 seconds. However the ‘free’ usage is limited to the first 10 minutes for calls to fixed numbers and the first five minutes of calls to mobile numbers.

The fact that this strategy has begun to bite is evidenced by similar tariff bundles emerging from the established operators. Telstra, for example has launched Telstra Talk Plan $99 and Telstra Talk Plan $125 for customers on their CDMA network. These plans provide for $400 and $500 of included calls respectively. However as with all tariff plans it pays to look at the detail as Telstra is charges 30 cents for a 30 second block and applies a 25 cent flagfall making sure that the allowance is used quite quickly.

The best offer around from Telstra at the moment is for their new ‘push-to-talk’ service. From June 21, 2004 to September 30, 2004 Telstra is offering 500 minutes of talk free. Charges for the service will begin from October and will include ‘unlimited’ usage for $50 per month or 1 cent a second for person-to-person calls and 2 cents a second for person-to-group calls.

Vodafone is also expected to launch a pricing bundle shortly to complement their RedSIM prepaid plans. The new plans will include the ability for consumers to switch, upgrade or downgrade plans depending on their mobile phone usage. This is different to most other service providers who generally want to lock their users into 12 or 24-month contracts with penalties for early termination.

Vodafone’s intention to stimulate usage on their network and to attract new customers was signaled some months ago during a visit by Arun Sarin, Vodafone Group CEO. Whilst what he said was in the context of Vodafone’s plans to launch a 3G network during 2005 it is clear that Vodafone needs to start drawing customers before the launch. Sarin instanced the fact that US consumers are already using more than eight times the number of minutes on their mobile phones as Australians. He also made it clear that his target was convincing consumers to use their mobile phones in preference to a fixed call.

See also:
Australia – Mobile Communications – Pricing and Churn
Australia – Mobile Communications – Industry Trends and Analysis 2004
Australia – Mobile Communications – Subscriber Statistics

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Wednesday, October 13th, 2004

As in last year’s survey, 13 of 14 countries evaluated operate in a generally deregulated, competitive environment, the exception again being South Africa. While the other countries attempt to meet the needs of both consumers and providers in a difficult world economy, balancing market power and keeping consumer costs to a minimum while maintaining provider profitability, South Africa continues to wait on the sidelines for competition, all the while watching many of its telecom price indexes rise steadily. This is according to the 2003/2004 annual survey of standard telephone prices carried out by international cost analysts, NUS International.

An interesting trend this past year has been that while calling charges have been consistently reduced, fixed-line costs have risen. Interconnection fees charged by operators to connect calls between mobile phones and landlines have no doubt played a role in the increase of these charges. The impact of rising fixed-line costs for businesses has been felt most in the Netherlands, Italy and the United Kingdom.

The introduction of mobile number portability in Europe and North America has had some positive influence in lowering prices. Most consumers remained with their current provider as the primary incentives for changing service pertain to equipment and new technology (ie Web-enabled phones) rather than price. As our experience has shown, the eventual driving-force behind any price reductions resulting from number portability is the consumer. Countries have either hit a plateau in cellular sales or are quickly reaching it and as the market becomes more saturated with mobile phone users companies will have to create new options and services to attract clientele.

Looming mergers, increased competition and a rising demand for more efficient and technological systems will shape the market over the coming year. In some countries, for example Finland, mergers may mean better, more comprehensive service for consumers and more financial stability for the providers themselves.

The survey compares the prices of local, long-distance and international telephone calls together with telephone line costs between 14 industrialised nations: Australia, Belgium, Canada, France, Germany, the Netherlands, Italy, Japan, Sweden, UK, Finland, Spain, South Africa, Denmark and the United States. The survey was based on prices (excluding taxes) as at February 2004, and for calls of a standard three-minute duration. National calls were costed at a distance rate of 320km.

For a full statistical overview see: Global – Infrastructure – Fixed Networks – Tariffs, Inter-connect.

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Tuesday, October 12th, 2004

AT&T, one the world’s greatest and oldest telcos, has had problems for almost two decades – ever since the legendary Bell System was broken up and AT&T was deprived of its local phone monopoly.

A constant shift in strategies over that period clearly indicates that the company has been drifting. It has tried everything – from cable TV to broadbanding, mobile and VoIP. And at every turn the company lost some of its former glory and drifted further down the track.

Is this the end of the line?

It certainly is a massive retreat this time. It has turned its back on the residential market, basically turning itself into a niche market operator in the business market. Of course, there is a lot of spin-doctoring happening, but the fact remains that this will be a much smaller AT&T.

It is also a clear victory for the almighty RBOCs. While neither AT&T nor the RBOCs ever shied away from utilising their monopolistic position, in the end it was the RBOCs that outmanoeuvred AT&T.

Not that I blame the RBOcs for AT&T’s downfall. In the end it was due to that company’s lack of vision about its position in the market – it failed to recognise where its opportunities lay. It will maintain that it has a vision, but it has certainly failed to follow through its (perceived) vision with strong strategies. Its continual wavering will be the ultimate reason for its demise.

One regrettable outcome of all this, however, is that AT&T’s demise constitutes a major setback for competition in the USA. Since the 1996 Telecoms Act the incumbents have been able to strengthen their position, mainly through legal challenges to the Act. They have successfully hindered the course of progress and, by delaying the introduction of competition, they have also made sure that many of the new telcos had to surrender, simply because they couldn’t keep up with the never-ending litigation instituted by the incumbent.

All this time the incumbents have been indirectly supported by the government and the regulators, neither of which have acted decisively enough to ensure the outcome desired by the Act. And this situation is worsening as I write. The incumbents feel even more protected, and they are using blackmail to secure even tighter monopolies. If they don’t get it, they will delay the development of new telecoms infrastructure in the USA (FttH), and it looks as though the government is willing to give in to their demands.

However, in the end it will mean that the government will have to officially recognise the existence of the monopoly, and be forced to do the unthinkable and investigate the structural separation of the incumbents – separate the infrastructure from the service. And, given that the infrastructure is a natural monopoly, that will require regulation to ensure equal access to the national infrastructure by all service providers.

Without a decisive policy to secure competition, the USA will continue to lag in the broadband economy. It has already dropped out of the top ten broadband economies and the absence of telecoms competition could see them slip even further down the international table.

Paul Budde

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