The $10 billion investment opens up the Fibre-to-the-Home market.
As predicted by us, massive job cuts have been announced by Telstra.
While this will certainly cause significant social pain, it is an inevitable outcome in an industry that is rapidly changing from one that is telecoms-driven to one that is Internet-driven. The transformation from a switched telephone network to a national computer network will reduce the equipment needed by 60%, and the required floor space by 80%. Obviously this means that only a fraction of the operational staff and associated support structure will be needed.
What this means for customers is that more new services will become available over this new network, at significantly lower cost. Over the next decade less than 10% of consumers’ telecoms costs will be based on traditional telephone charges. However, instead of spending the money on voice calls (mobile or fixed) customers will spend the same, or even slightly more, on a range of new TIME services (Telecoms, Information, Media and Entertainment).
The new network will allow Telstra to make that transition.
The $10 billion investment plan allows for Telstra to move more quickly into fibre-based networks. It will begin to drive fibre further into the customer access network (CAN) – initially to the curb and then to the home. This will allow the company to increase the broadband speeds it can deliver over these networks. However, I predict that they will be metro-based, not national (regional).
These new networks will start reaching between 30% and 50% of the population within the next 3 to 5 years.
Regional Australia will rely on the Regional Fund.
While this is a predictable strategy it places much more pressure on the government to get the implementation of the fund right. There is no room for error here and certainly no room for pork-barrelling. While metro Australia will be able to count on the expertise of Telstra, not only for the technology but also for the planning and implementation, regional Australia could become the victim of fragmentation, politicking, infighting and simple incompetence
Back in 2000 we questioned Telstra’s move into CDMA. By operating two different technologies (CDMA and GSM) Telstra created an extra set of costs, which were unnecessary. This has now been rectified by the amalgamation of the CDMA and GSM networks.
This makes a lot of sense and I don’t foresee any negative impact on regional customers here.
As Telstra doesn’t have access to spectrum that could be used for wireless broadband it will be forced to use its mobile spectrum, and it has announced innovative plans to increase the capacity on the 3G network that will see the introduction of a range of new mobility services. (See: Australia – Mobility Market Overview, forecasts).
It will be interesting to see how Telstra fares in this wireless broadband space, once competing WiMAX networks become available from regional players such as Austar.
Customer focus still wrong
While the bulk of the announcements were in relation to infrastructure (which I very much applaud) at the same time Telstra continued its attack on the regulator and the government in relation to competition policies. Instead of embracing the new world of IT-based wholesale services, the company continues to speak of improved customer service at a retail level.
Sol is putting out the same message on this as the one advocated by Ziggy Switkowski in the late 1990s – and in the early 1990s by Frank Blount, his predecessor. Over all those 15 years the telephone queues at Telstra’s customer service call centres have only increased. The complaints to the TIO have not lessened and daily we read and hear about more customer service horror stories.
How is Sol going to change this entrenched culture? I would venture to say that it’s impossible, as the company is an engineering-driven organisation.
Telstra track record here is appalling and I can’t see this improving, particularly in the wake of the massive corporate effort needed to keep the company on track, in a technology sense, during the massive changes it now envisages.
Instead, I believe that they should have invited the service, information and content providers to become involved in providing new services. These wholesale customers should, at a retail level, be allowed to look after their own customers who are linked to their services through the Telstra network. Unfortunately, Telstra takes the opposing view, and argues for regulatory limitations to such developments. In the long run this will be detrimental to the financial future of the company.
Retail competition already a lost cause
It is most unlikely that the government will give in to Telstra’s bullying and this will mean that retail competition, especially in the broadband market, will flourish. This, in turn, will lead to the broadband service providers capturing a much larger share of the retail market from Telstra in the broadband market.
At the same time the incumbent is basing some of its future scenarios on the outcome of this in my eyes shaky retail strategy. As an outcome of that on the financial side they predict ‘only’ a 30% drop in profits and 2%-2½% annual growth. At present Telstra’s counterparts are registering zero, and even negative, growth – and, again based on a comparison with Telstra’s international counterparts, a 50% drop in profit over the next few years is, in my opinion, more likely.
It is certainly an exciting and ambitious plan. It goes a long way down the route I have been advocating for well over a decade, and creates the best possible scenario for Telstra’s infrastructure-based future, particularly in relation to the fibre optic developments foreshadowed above.
So full marks to Telstra in this respect!
At the same time, I remain cautious about the company’s future direction. This should be based on infrastructure and wholesale, and not on retail. There are companies far better-equipped to provide the new services needed in the new Internet economy.
You only have to look at the success of Google, Yahoo, eBay, Skype and ninemsn. How does Telstra think it will be able compete with them in the Internet retail space? Sensis and Foxtel could be positioned as good components of the new Internet economy, but certainly not within the constrains of their current vertical integration in Telstra.
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