Archive for June, 2005

BROADBAND BENCHMARK STATS

Tuesday, June 21st, 2005

BuddeComm forecast: Broadband 2.5 million by 2006, 5 million before the end of the decade
Australia’s broadband ranking – mid-2005
Telstra’s about-turn on broadband has produced a very significant improvement in the broadband penetration in Australia, proving my point that Australia is no different from any other country – despite earlier assertions from Telstra that, for instance, Iceland has broadband because it is too cold do anything else!? Or the observations from the previous Minister for Communications that we didn’t need broadband that badly, since it was mainly associated with porn and gambling.

By September 2004 Australia reached the million subscriber market, a doubling of the numbers from the beginning of the year. While this certainly is a good result, regrettably this is happening to the detriment of competition.

Despite the turnaround in subscriber numbers Australia remains at the bottom of the international ranking and it will take at least two to three years for the country to catch up with its trading partners – but the gap is rapidly closing. The missing dynamic remains competition between telcos and cable TV operators; this according to the American telco regulator, FCC, has been the driver behind the broadband uptake in the USA.. With Telstra owning both the telco and the cable TV network these dynamics don’t exist in Australia.

Table 1 – Broadband access amongst Internet households – 2001 – 2005
Country
Broadband penetration in Internet HH

2001
2002
2003
2004
2005 (mid)

South Korea
65%
76%
85%
87%
89%

Hong Kong
8%
45%
65%
72%
75%

Canada
14%
32%
40%
64%
67%

Belgium
7%
22%
63%
65%
67%

Singapore
7%
35%
55%
63%
65%

Japan
15%
25%
41%
56%
62%

France
4%
16%
35%
55%
61%

Netherlands
15%
25%
48%
55%
57%

Taiwan
13%
28%
44%
51%
53%

Denmark
8%
15%
48%
52%
53%

Spain
8%
15%
37%
45%
48%

USA
17%
23%
35%
44%
46%

Sweden
10%
15%
30%
40%
43%

UK
2%
10%
21%
35%
38%

Switzerland
6%
14%
20%
36%
38%

Austria
13%
25%
27%
35%
37%

Australia
1.5%
5%
7%
25%
32%

Germany
8%
11%
25%
29%
31%

New Zealand
0.5%
1.5%
1.8%
2.5%
3%

(Source: Paul Budde Communication, www.budde.com.au)
Note: In every country in this table, 50% to 70% of all households have Internet access.

In 1999 I predicted that we would reach the 25% broadband penetration mark amongst Internet households within 18 months of Telstra seriously launching an affordable broadband service. In fact this happened within just one year after Telstra launched such a service. At that same time, back in 1999, I predicted that we would reach the 2.5 million users in the 2nd year after such an affordable service was launched, and that also turns out to have been conservative, as we estimate the current number of broadband subscribers at 1.7 million.

By 2007 we will have cleared the 3 million mark and towards the end of the decade we will easily have 5 million broadband users.

Next week BuddeComm will release its new broadband report:
2005 Global Broadband – The rise of DSL ($695 excl GST)

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SENSIS/FOXTEL MERGER?

Tuesday, June 21st, 2005

I would again like to raise the issue of finding a solution for the anomaly of Telstra’s 50% ownership of Foxtel.

This has been one of the main reasons that we were slow to embrace broadband and it is also a key reason our broadband services are proceeding at a relatively low pace. This has allowed Telstra to continue to protect its interest in Foxtel, hampering any moves towards a competitive environment.

The sad part of the story is that, with every passing year, the chances of turning Foxtel into a competitive alternative are disappearing. The company continues to lose money and will never become profitable without a separation from Telstra. Once the opportunity is lost for a competitive network to obtain a foothold in the market it will be hard to retrieve that advantage. By 2006 we will have 2.5 million broadband users, mainly on Telstra’s DSL network, and the longer we wait to turn Foxtel into a competitor the further Telstra will have penetrated this market.

However, it is not too late yet.

For some time I have been suggesting that the solution could be to put Telstra’s Foxtel business into Sensis and then float Sensis off as a separate media company. This would solve most of the problems in one go. For Telstra, Foxtel’s ownership remains a political hot potato. It doesn’t need it to grow its own business – the reason for maintaining ownership is a defensive one. Floating it off would generate new opportunities and a higher value for the business.

In general, telecoms and media companies don’t mix well. As a matter of fact, there have been many attempts to merge such businesses, but I am not aware of a significant success story anywhere in the world.

Again, there is more value in Sensis if it is separated from the telco. Not only would that be good for Telstra, it would also be good for competition in the cozy media environment. It is about time this market got a shake-up. It contains some very fat cats whose only concern is to protect their vested interests – they have no interest whatsoever in new media opportunities. Look at their pathetic attempts to prevent the arrival of digital TV in Australia. And what innovation do we ever see from them? What about interactive TV, datacasting, broadband TV, etc – nowhere do we see any action from the key media players.

Sensis could put the cat amongst the pigeons. It will be a totally new player in this space, and it has already shown that it has an appetite for other media acquisitions. The old media guard would definitely be put on notice by such a move.

Strategically, this would also be good for Telstra, since, no matter how you look at this market, in the long run the competition will evolve between the telcos and the media companies. By putting Sensis squarely into this space it will be competing with the media companies on their own media turf.

I received some fierce opposition about my views on this, mainly from some financial analysts and the Federal Government – surprisingly, not so much from Telstra.

I also believe that the appointment of Sensis chief, Bruce Akhurst, as the chairman of Foxtel is a wise move in this very interesting game. This could pave the way for a scenario such as the one I have painted above.

Bruce replaces Sam Chisholm. I have said on several occasions that there was far too great a conflict of interest here, with Sam serving several masters. When I made comments of this nature during the sacking of, first, Bob Mansfield and, later on, Ziggy, I was told by my journalist colleagues that I was one of the few people who dared to be openly critical of this powerful media personality, so I now feel somewhat vindicated.

The fact that he is still able to hang onto a Foxtel board position is a further demonstration of the power Sam Chisholm wields in today’s business world.

Paul

I offered Sensis the opportunity to respond to the above article, and here is their feedback.
Dear Paul
Thank you for the opportunity to comment on the proposed article you sent through to Karina White earlier today. Telstra would like to make the following comments.

First, it is simply not true that Telstra is hampering Foxtel’s development. Rather, Telstra has a very long track record of investing heavily in Foxtel in the interests of continually improving and enhancing this service. Telstra was instrumental in leading the digitisation of Foxtel and has worked harmoniously with all Foxtel shareholders to ensure the newest technologies and products are introduced to Foxtel’s subscribers at the most reasonable prices.

We believe you would be better advised to focus on the need for changes to current anti-siphoning rules so that PAY TV operators like Foxtel can ensure their services are even further enhanced by providing the best of content to our growing number of subscribers.

We also refute your comment that Telstra’s Foxtel shareholding is restricting broadband services and take-up, and the move towards a more competitive environment in the PAY TV and DSL industries. In fact, it is the reverse. Telstra actively supported the move to give Optus access to the Foxtel service, including Foxtel under-writing hundreds of millions of dollars of MSG obligations to allow this to happen under the original deal with Optus. In respect of Telstra’s own broadband service, far from suffering because of Telstra ownership, we have, in fact, led the industry take-up over the past 12 months to now have over one million subscribers; this is 15 months ahead of schedule.

Regarding organisational issues in relation to Foxtel and Sensis, these are matters for the Telstra Board and the Australian Federal Government. As we have said previously, there has been no decision to make any changes at this point in time.

Again, thank you very much for the opportunity to comment on your article and please don’t hesitate to call me if you want to discuss this further.

Kind regards,
Felicity Hand. General Manager Sensis Corporate Affairs and Government Accounts

Postscript from Paul
It was interesting to note that the response from Sensis did not touch upon my suggested solution of incorporating Sensis and Foxtel, but rather focussed on defending Telstra’s position in Foxtel.

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ENUM – MAY 2005

Saturday, June 18th, 2005

In September 2002 the ACA started to examine the introduction of a new approach to linking the Internet and traditional telecommunications services.

Through the communications protocol, called ENUM, one telephone number can be used for multiple contact points such as home phone, work phone, mobile, fax and email. Consumers will be able to choose how they want to be contacted and callers only need to remember the one number. The introduction of ENUM could improve telecommunications services for both residential and business users by enhancing the development and use of converging technologies or applications such as Voice over Internet protocol (VoIP).

The Internet Engineering Task Force, an international expert body, developed the ENUM protocol to provide a bridge between telephone numbering and Internet addressing.

In May 2005 the ACA choose Melbourne-based company AusRegistry International to run the first Australian trial of ENUM.

Exhibit 1 – AusRegistry
AusRegistry International is a wholly owned subsidiary of AusRegistry, the current registry operator and wholesale provider for all commercial.au domain names including .com.au and .net.au and the non-commercial domain names gov.au and .edu.au. During the trial, AusRegistry will be required to maintain a stable platform for other trial participants to develop and test new applications and services using ENUM. See: www.enum.com.au

The company will provide and operate a registry service for the one-year trial, which will involve providing links to data indicating the communications preferences for consumers who have registered their
phone numbers.

Using ENUM, phone numbers are converted to Internet addresses, allowing end users to link one or more communications services to their telephone number and providing a single point of contact for services such as Voice over IP (VoIP), email, presence and instant messaging.

ENUM is especially suited to VoIP applications and has the potential to assist in providing high-quality, end-to-end VoIP calls between different networks carried entirely over the Internet.

The advantages of this new solution are significant because it allows callers to contact people via Internet-based services while continuing to use familiar phone numbers.

See also:
Australia – Regulatory Environment – Numbering Issues

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BUILD AND THEY WILL COME – BACK IN FAVOUR

Saturday, June 11th, 2005

Over the years I have received a lot of flack over my belief in the mantra ‘build and they will come’ in relation to major telecommunications infrastructure. In self-defence I had to ease off on this issue during the telco crisis in the early 00s, but I now feel that I can safely come out of hiding again.

Not that I advocate this model as a matter of course. As in any other business situation, due diligence, sound decision-making and solid execution are essential.

But there are several examples that I can use that support the model …..

The Internet has created an unprecedented economic infrastructure; tens of billions of dollars’ worth of trade takes place over this network. We are still only seeing the beginning of this revolution, but around in the world, in countries such the USA, Japan and Korea, governments are now taking these developments into account in setting the economic policies for their countries.

This is a far cry from the predictions of the doomsayers, who spoke of the downfall of the Internet and the ISP model. They predicted the collapse of the telcos under the low cost structure of the Internet, and maintained that the Internet would not become a strong economic force, because of its far from robust structure.

Yet, despite all its problems, the Internet has turned out to be one of the most important social and economic developments of the last 50 years.

Then there is broadband. As recently as 2002, the then Minister for Communications in Australia argued that broadband was only involved with pornography and gambling and that Australia, therefore, didn’t need it.

This country was one of the last developed countries to get broadband, and within a year over 1.5 million people subscribed.

Not building infrastructure is like holding back the floodgates – once the infrastructure exists the subscribers will be there.

True, mistakes have been made in the past. When Optus rolled out its residential infrastructure, based on cable TV, Australian regulations didn’t stop Telstra from simply overbuilding Optus with exactly the same infrastructure.

Other countries, notably the USA and Canada, had protected their cable TV companies from this eventuality. Clearly Telstra’s overbuild had nothing to do with a sound business case – it was simply a misuse of its monopoly to spoil the Optus infrastructure roll-out, all nicely blessed by the government. This resulted in the destruction of close to $4 billion of scarce and valuable infrastructure capital.

The national and international roll-out of long-haul networks in the late 1990s and early 00s has caused a lot of pain to many players. During the course of that roll-out I argued that we were building 20-lane highways between countries, and within countries, but that the local roads were either not connected to this new highway structure or were full of potholes.

I argued that an urgent overhaul of these local access roads was essential if we wanted to attract more traffic to the 20-lane highways (and I am still arguing for that).

Another example is the purchase of 3G spectrum at ridiculously high prices. At that time it was already known, based on evidence from Japan and Korea, that customers were only interested in new mobile data services at very low prices; yet the mobile operators in Europe thought that they would be able to sell these services at premium prices and/or that 3G networks could replace fixed broadband networks.

Again, from the very start of that development (1998) it was my contention that this was a flawed model. Unfortunately I was a voice in the wilderness at that time, as the other reputable telco research institutions, as well as the financial telco analysts, worldwide, were backing the mobile data fantasy. While 3G is now finally rolled out I predict a very low profitability of these networks.

As with all business models, the ‘build and they will come’ model needs to be based on sound business principles. I am convinced that this model is still applicable for the further roll-out of broadband infrastructure over the next 10-15 years. And I am sure that the end result, being Fibre-to-the-Home, will be the predominant electronic information and entertainment highway infrastructure for the next 50 years.

Now, I realise that this a very bold statement, but I don’t mind sticking my neck out on this one.

Paul Budde

See also:
Global – Broadband – Infrastructure – FTTH Issues
Global – Broadband – Trends and Developments – Infrastructure
Technology – Infrastructure – Long Distance 1 – Fibre, WDM

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TECHNOLOGIES IN THE FARM – SEPTERMBER 2004

Friday, June 3rd, 2005

The following data has been obtained from questions included in the 2002-03 Agricultural Survey conducted by the Australian Bureau of Statistics (ABS). Information obtained was in respect of the year ended 30 June 2003.

Of the 132,983 Australian farms with an estimated value of agriculture earnings (EVAO) of $5,000 or more, an estimated 54% (or 71,936 farms) used a computer and 46% (or 60,459 farms) used the Internet as part of their business operations for the year ended 30 June 2003.
Western Australia reported the highest proportion of farms using a computer for business operations (67%) and the highest proportion using the Internet for business operations (59%), while Victoria reported the lowest proportions, with 49% and 40% respectively.

See also:
Australia – Internet Market – Statistical Overview
Australia – Business Market – Analyses and IT market

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