BuddeBlog

Australians are very much aware of the importance of telecommunications. Most Australians are not happy with the full privatisation of Telstra. Some 66% of Australians oppose privatisation and a mere 20% are in favour (Survey in early July 2002 in The Australian).

According to an ATUG survey even 50% of big business is against privatisation. Economic advisors such as Access Economics have also voiced their concern that the wider implications of privatisation are not being sufficiently addressed in the current process, and that this could negatively affect the economy in general.

I don’t think that privatisation itself is the issue – I think the problem is that both residential and business users consider that the current telecom infrastructure is not up to scratch, especially in view of the upcoming new broadband services for healthcare, education, community services, commerce and entertainment.

The government and Telstra have failed to address the question: ‘how are regional and rural Australians going to benefit from the advances in telecommunications services brought about by competition and new technologies?’ A comprehensive solution to this problem is urgently needed, in the form of a framework that identifies the infrastructure problems, what the possible solutions are, and how much it will cost to provide that level of equality.

Because there is no such framework in Australia we are working in the dark regarding the developments of new technologies and services and as a result, Australia is still at the bottom of the OECD list of broadband penetration.

The government has been criticised nationally and internationally for its lack of leadership in modernising the Australian telecoms economy (policies, regulations, infrastructure) with a view to creating the appropriate environment for social and economic innovations, the benefits of which will reach far beyond telecommunications. Australians are seriously concerned about this issue and unless the government faces up to this and produces a comprehensive framework for the modernisation of the national telecommunications infrastructure its voters will object to privatisation.

Imagine the opportunity that would be created for Australia if we were to free up Telstra Retail from its heavily regulated environment by encouraging it to become a truly national and international media company.

In doing this we would leave regulatory challenges with the network and create an open market at a wholesale level, bringing the industry together.

Through this strategy we would lay the foundation for Australia’s information economy.

I am sure that, like me, you are depressed by the continual talking down that takes place regarding Telstra. Sol Trujillo maintains that the lack of regulatory certainty is inhibiting the share price and the deliverance by the Telstra Board of shareholders value to its 1.6 million shareholders and to the Federal Treasury (in other words, to the rest of us).But, as long as the largest single network infrastructure in the country is locked up inside a vertically integrated structure that disregards policy and the rest of the industry, everyone suffers. Furthermore, the ongoing stalemate doesn’t only affect the Telstra shareholders – it also impedes Australia’s progress towards the Information Distribution Infrastructure required to fuel its domestic economy, and to create an export industry of content in the information age.

But a closer look will show that the regulatory challenges should, and do, lie solely in the wholesale side of Telstra’s business.

It is also clear that part of the problem is a reluctance on the part of the leadership to release the retail side of the Telstra business from these wholesale regulatory challenges and transform it into a modern media entity, one that is able to take on the globalised information age.

In an effort to resolve the Telstra saga, Senator Coonan has asked the rest of the industry to ‘think big’.

So how about this:

• transform and spin off the Telstra retail business into the information age;
• map the entire information infrastructure of the nation to create the most intelligently conceived network possible;
• connect the remaining Telstra wholesale business to the rest of the industry initiatives to provide the open, equal access network that the nation needs.

In this way Telstra’s existing shareholders will acquire a stake in a stable, regulated return from the nation’s largest single network, plus a stake in the nation’s newest, and arguably one of the best-placed, media companies.

It is my belief that we can only increase Telstra’s shareholders value if we unshackle it from its present structure. Carriers on the retail side of the business are coming to the realisation that their traditional product revenues are declining. Consumers are now looking more and more at spending their fixed disposable income on the media content delivered to them by the broadband infrastructure. They wish to spend less on the access and more on the content itself, and this completely supports the strategy I have outlined above.

In the context of current developments it is worth remarking that when I was talking to British financial analysts in June last year (operational separation of BT) it was their contention that their split hadn’t gone far enough and that only a further split would facilitate the unleashing of the real value of the company.

For the last five years I have been advocating major changes to the industry to enable us to reap the benefits of the changing market of convergence. In its present form Telstra is definitely not ready for this. It has clearly indicated that it wishes to move in that direction – that it is looking at the new media – but in its present structure any such move will be hampered by regulations.

Here also, I am on record as agreeing with Telstra on this issue. However, to date Telstra has failed to say what will be in it for customers and competitors if we do reduce regulation.

I say unshackle Telstra Retail and let them conquer the new opportunities in media convergence and, based on today’s market realities the share price is ready to rise.

Many times I have been told ‘this can’t be done’, but I am convinced that we now have a win-win solution for Telstra, the government and the industry.It won’t be easy, but I am 100% convinced that it can be done.

Paul Budde

Mobile substitution
Mobile operations of telcos are progressively overtaking fixed line operations. This is largely due to fixed-line operators not having introduced significant new products, services or cost-saving technologies in the same way that mobile operators have. However, despite retaining their role as cash cows for incumbent operators, fixed and mobile voice services are progressively being overtaken by broadband. Increasingly, operators will need to take a holistic view of the market, necessitating a total review of their business models.

Mobile growth
While high growth rates have been maintained globally until the present time, there is a massive shift taking place away from growth in developed markets to growth in the new emerging markets such as India, China, Africa and Latin America. By 2005, global growth stood at around 20%. Based on 2 billion subscribers, this is a massive development, and growth could lead to 5 billion subscribers over the next 15 to 25 years.

As more participants enter the mobile market, competition is increasing, with a subsequent decrease in prices and increase in services offered. To maintain the high growth of the mobile market, and counter falling prices, mobile carriers have started to offer services previously the domain of the fixed operators, and the fixed operators have had to respond.

Mobile revenues
In developed markets, mobile call charges are falling by 15%-20% per annum. While several countries in this market still see high growth in new mobile subscribers, they also see their overall revenue flattening because of the drop in call charges, as well as the fact that new subscribers are, in general, low-usage customers. As would be expected, markets with strong competition have seen a considerable drop in mobile call charges in developed markets through significant price competition around capped price plans. The others have retained declining but relatively high ARPUs. Since 2002, the low priced countries in this market have seen a levelling out of the mobile charges as they approach fixed call charges. These countries are stimulating further growth by developing mobile value added services.

In the new emerging markets, services are available for as low as $5 a month and call charges as low as 1 cent or even less per minute, with handsets available for $30 and 2nd hand ones even lower. It is easy to understand why the emerging market is seeing a mobile explosion.

Prepaid mobile services have rapidly increased their share of the total mobile market and are virtually the only option in emerging markets.

The future of MVNO remains uncertain, they are providers of mobile services independently from the operator that is supplying the network. With more competition and new services, operators will have to consider better MVNO deals in order to grow the market.

3G
2G based services will remain predominantly voice driven, with a few enhanced services (SMS), and is unlikely to be widely accepted for data applications. For users who are only interested in voice, 2G is seen as quite adequate. For those who want mobile data services, 3G is, at least by the operators, seen as the answer, and some companies have paid enormous sums of money to obtain spectrum to allow them to capture this market. Having paid enormous prices for 3G spectrum, companies are now looking for business opportunities to recoup at least some of the money that they have invested.

Despite the high prices paid for 3G spectrum, and the initial enthusiasm by the operators, the future of 3G is not as bright as originally thought. Its major problem is its unsuitability for carrying mobile data, the major hope for its future. Wireless broadband technologies such as WiMAX, which are designed for mobile data, are going to compete head-on with 3G for that space. Only in Japan, where 3G has now been around for close to five years, are we seeing some good penetration – around 30%. Italy follows with just over 10% penetration, and the other country worth mentioning is the UK, which has just over 5% 3G penetration.

The most visible of all companies in the 3G market is Hutchison with its 3 service. It has launched these services in several countries with optimistic subscriber targets, but to date these have not been met. In its attempts to win subscribers, it has attacked the high end of the market, taking share from the existing 2G and 2½G operators. This is already leading to price retaliation by the existing operators and, if Hutchison’s efforts are successful, could lead to an all-out price war.

Infrastructure
Despite promising growth, CDMA use is well below the early expectations. The US was slow to switch from analogue to digital services. In Asia, growth is slow except for Korea, although China is starting to show interest. For a while during the late 1990s, there was growing international interest in the upgrade of Digital AMPS known in the US as TDMA. There have been developments in CDMA to help bridge the gap to 3G, including cdmaOne and the various forms of CDMA2000, and their relative merits compared with the GSM technologies are discussed.

By late 2005, GSM allowed 1.6 billion mobile users to roam to more than 200 countries via over 750 networks making and receiving calls on one handset and with one global number. The technology now accounts for more than 77% of the world’s digital mobile phones. This market share is expected to grow even more with 3G systems, as more than 85% are expected to be 3G GSM/WCDMA (UMTS).

A low power short range radio technology is Bluetooth, which combines hardware, software and interoperability capabilities into a global standard that eliminates wires and cables between both stationary and mobile devices, facilitating data and voice communications between devices such as mobile phones and PCs. An attempt to combine it with UWB to create a better platform failed in 2006 when the parties could not agree on standards.

Mobile spectrum
Before 1990, it was only possible to use the UHF band and below, thereby limiting the speed of information transfer. Since then, governments have released more of the high frequency spectra, thereby allowing major advances in technology and service.

The latest trend is to develop more innovative and flexible spectrum management plans which would open up competition and allow for a whole new range of applications and providers.

Mobile equipment
The value of the telecommunications equipment market overall has declined considerably. Because of revolutionary new technologies and lower consumer prices due to competition, some equipment suppliers had to severely reduce their production facilities and/or outsource production to countries with lower labour costs. The mobile market has also been affected, but to a lesser extent.

The simple mobile phone that only made telephone calls is now a museum piece. As vendors fight for market share, and more bandwidth becomes available, mobile phones are incorporating a variety of new functions such as still and movie cameras, advanced messaging, access to the Internet etc. Sales of handsets slowed markedly following the industry downturn in 2001, but started to recover in early 2004, with rapid growth during the year, aided by the development of new equipment such as camera phones. The trend here is that the mobile and wireless broadband market will be driven by new devices that will be pushed onto the market by the vendors. Mobile operators will see their leading position here to drive this market severely curtailed. Nokia retains it dominant market share, with Samsung showing the fastest growth rate. It is expected that the IT and CE industries are going to take a more prominent role in the market of new wireless broadband devices.

Mobile Satellite Services
Since 2001, the satellite industry showed little or no growth, and growth is not expected to return in the near future. Despite the original optimism and huge cash injections, MSS has not yet succeeded in establishing itself as a competitive market segment. Iridium went into bankruptcy pending restructure within a year of launching its service and Globalstar, another major international player, suffered the same fate. During the past few years, many of the surviving operations were acquired by Teledesic which, in turn, has been mothballed. In 2005, some signs of returning life emerged.

Fourteen Global Telecommunications Reports
These revealing figures and forecasts are contained in the 14 Global and Technology Telecommunications Reports. Published this year for the 14th time. The Reports are a mine of information and statistical data on: fixed, mobile and broadband markets, including Internet, cable TV, cable modems.

2006 – Global Mobile Communications, Voice still the Killer App
Annual report covering: GSM, CDMA, 3G (analyses, technical issues, standards, market data), fixed-mobile substitution, Bluetooth, MVNO. Also contains industry analyses, issues and strategies, government policies, spectrum developments.
Detailed chapters on:
The future of voice
Technology information
Global overview and analysis
Trends and Developments
Marketing and Business Strategies
User statistics
Revenues, ARPU and forecasts
Approx. number of pages: 156

Price: Single-User PDF Licence: US$595.00

Executive summary and Table of Contents available from web site

The Dutch-Australia Broadband Roundtable will take place on 5 April at the Intercontinental Hotel in Sydney from 1400-1900 hours (including networking drinks).

Dutch Prime Minister, Mr Jan Peter Balkenende, will be present; he is visiting Australia to celebrate the 400th anniversary of the landing in Weipa of the VOC ship ‘Duijfken’ in 1606. There will also be a Dutch trade mission in Australia at that time and the delegates to this will both be present at the Roundtable, and will participate in the discussions.

After the official opening session with the Dutch Prime Minister, other officials from Australia and the Netherlands (Communications Minister Helen Coonan has been invited), there will be three seminar streams:

Broadband Infrastructure:-
CityNet Amsterdam – a FttH initiative of the City of Amsterdam.
Kenniswijk (knowledge suburb) large-scale FttH pilots in the cities of Eindhoven and Almere.

Broadband applications:-
IPTV and other applications – a presentation from De Telegraaf, the largest newspaper publisher in the Netherlands.
Tele-presence the killer app in video communication.
Dutch experience with FttH applications.

Social Care Broadband:-
Both Australia and the Netherlands have advanced broadband ‘care’ developments and a range of very interesting new applications will be presented and discussed.

The half-day event will finish with a one-hour Roundtable discussion between presenters and delegates, followed by networking drinks, hosted by the Dutch Government.

Please let me know if you are interested in receiving an invitation to the event. Depending on availability, official invitations will be sent out by the Dutch Government.

Paul Budde

See also:
Netherlands – Broadband Market – Overview & Statistics
Netherlands – Convergence – Triple Play & Digital TV

What’s your game plan for the government’s regional funds?
With some $3 billion becoming available for regional infrastructure over the next 3 to 5 years, the various organisations are showing a great deal of interest in dipping into the kitty.

However, the government appears to have learned from past experience and (through DCITA) is determined to use the money to maximise the reach of the funds. Therefore the industry will have to come up with very good plans before any money is made available.

DCITA has now had a good opportunity to look at the various proposals, and it has also had a chance to work out its own strategies for these funds.

At the Roundtable on 1 March we will be given a first-hand update on where the Department is at the moment. Damien Stevens will discuss this with us in detail.

There are two large infrastructure players in the regional market, one being Telstra Country Wide. This organisation probably has the best insight into what is required, having already developed a very comprehensive plan for the future-proofing of regional Australia.

It gives me great pleasure to announce that Doug Campbell will address the Roundtable, in his new position as Executive Adviser to Sol Trujillo.

This will be a great opportunity to learn about the ideas and strategies being discussed at the top.

The other large infrastructure provider in regional Australia is the utilities sector, and they have been combining their efforts to look at the opportunities coming out of Connect Australia. At the same time the utilities are very keen to work with the rest of the industry to build the possible business case.

Carl Gazia will discuss the prospects that present themselves in this area.

As you would be aware, I am very selective in whom I invite to speak at my Roundtable events, and I am still looking to fill one presentation position. I will let you know immediately our program is complete.

This Roundtable is also an ideal chance for the hardware and software suppliers to the industry to look at joint industry opportunities. Apart from the open discussion in the afternoon I have also organised a networking dinner on the preceding evening (28 February). This will ensure that everyone has a chance to network around these business opportunities.

I would like to invite you to register for this event and I look forward to seeing you there.

Paul

More details and information see: Regional Telecoms and Government Funding Roundtable