Archive for May, 2006

New Zealand – be ambitious, think big

Tuesday, May 30th, 2006

The new government reforms in New Zealand are also a blow for that club comprised of local monopolies in New Zealand (representing monopoly businesses in telecoms, airports, farming produce, power, etc), which hide behind the illustrious name of the New Zealand Institute for the Study of Competition and Regulation Inc.

Whenever I see names like this I think of the Democratic Republics of former East Germany, North Korea and Congo. It has been my experience that grand labels like this often mask a belief in exactly the opposite.

The New Zealand Institute for the Study of Competition and Regulation Inc has been a fierce opponent of the structural reforms that have now been implemented by the government, and their submissions over the years have been part of the reason the country is currently lagging so far behind in telecoms developments.

Telecom’s outgoing chairman, Roderick Dean, has long been a member of this exclusive club.

In my book they rate at about the same level as some of the farming lobby groups who, until recently, claimed they were happy with 256Kb/s, and that the government should leave poor Telecom alone (although I must qualify that comment by saying that this view was not endorsed by the National Farmers Federation).

I do, however, find it amazing that, in relation to other western countries, New Zealand has a relatively large number of business people who believe that a monopoly is the way forward. They seem to be afraid of competition and often hide themselves behind the low level of population and large size of the country to justify monopolies.

However, at the recent TUANZ telecoms conference, it was not just the New Zealand lefties who interpreted the OECD figures to their advantage. Here we had a senior official from the OECD who clearly debunked these New Zealand myths, using examples of Iceland, Denmark, Finland, Sweden and other comparable countries that are faring much better than New Zealand.

I am also disappointed in the tendency in New Zealand to aim low and think small, rather than being ambitious, setting high targets and thinking big.

During my presentation at TUANZ I challenged the country to set high targets, such as FttH to 75% of the population by 2015, equivalent services for the rest of the country, and a commitment to find $1 billion to future-proof its regional telecoms infrastructure.

Let’s hope that the next Telecom chairperson is someone who is forward-thinking, and not one who subscribes to the rhetoric of the New Zealand Institute for the Study of Competition and Regulation Inc.

Paul Budde

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Infrastructure Blueprint – Wholesale Access Network Industry Meeting 26th May

Tuesday, May 23rd, 2006

Following the regional wholesale access network initiative from Senator Helen Coonan, Minister for Communications IT and the Arts, which was launched in March 2006, the industry has formed the Wholesale Industry Group.

There are currently 70 members (telcos, vendors, regional representatives). This group has met twice and one of the projects they have launched is the mapping of regional telecoms infrastructure. Earlier this week the Minister provided further details of the government policy approach regarding the regional wholesale access network and her announcement was framed around a National Blueprint. The map is going to be an integral part of this blueprint. We are very pleased to announce that DCITA has indicated its intention to fund this project. This will allow us to include the maps of up to 20 infrastructure providers.

Participation in this funding will be on a first-come-first-served basis and only applies to wholesale- telcos, -ISPs and -wireless providers, who will all have to subscribe to the principle of ‘open networks’. If Telstra decides to be part of this mapping project it will be most welcome.

The actual map will be produced by Callpoint Pty Limited.

We understand that the government’s intention is that the majority of the funding will be directed towards a wholesale access network infrastructure. For that purpose the industry has suggested including infrastructure meet-me points. State and local funding, together with other local initiatives, could then take the project from that point on. At the Canberra meeting it was indicated that in most cases access to a competitively priced, very high-speed infrastructure wholesale access network from regional/local meet-me points will provide the right economic environment to then develop local access based on commercial investments.

We anticipate that access beyond these networks will still require satellite, and separate subsidies may be required to support this.

The industry group has started a register of ‘ready-to-go’ councils and regional communities, there are currently around 20 of these communities on the register.

There will also be presentations/discussions from the Optus-led group and from AUSalliance.

The next meeting of the Wholesale Industry Group is in Sydney on Friday, 26 May.

Paul Budde

P.S. I am the facilitator of this industry initiative. I have no commercial interest in these infrastructure projects – nor am I, or will I be, a participant in any of the consortia.

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Tuesday, May 16th, 2006

The telecoms industry continues to under-perform on all major stockmarkets around the world.

At the same time, not a day passes that doesn’t see the announcement of another interesting telecoms development. Billions of people around the globe can’t wait for telecoms products such as mobile, Internet, broadband, VoIP and so on.

So what’s wrong with this industry? Shouldn’t it be out-performing on those stockmarkets?

An estimated 500,000 companies around the world now generate more than 50% of their revenues via the Internet (e-commerce), a further indication of the value of the underlying telecoms infrastructure to the global economy. Why can’t we cash in on this success story?

Thousands of new companies are sprouting up around the telecoms and Internet industries. They can’t all be making the wrong bet on the wrong industry. So the potential for growth and financial success is most certainly there.

I remain convinced that most of the problems the industry is facing at the moment have to do with its current structure. Demand is certainly there, but the industry fails to deliver along the lines of customer expectations.

This applies to both the business and consumer markets.

Unless the industry restructures itself we will continue to have major problems of misalignment between demand and supply. With the market moving away from the one-size-fits-all voice product to a large number of broadband-based applications, specialists rather than generalists are needed in the industry. This applies to both the infrastructure and the end-user services.

In order to fuel the Internet economy the infrastructure providers (telcos) need to move much faster and deeper into NGN, IP and FttN, and to expand their infrastructure with what I call value-added infrastructure services. This what the Internet economy is looking for, and it includes data centres, content hosting, network management at a Layer 2 level, billing, outsourcing, back-office applications based on ASP, and so on.

This would help the telcos to reverse their downward spiral of shrinking margins.

Broadband delivers applications and there is a clear requirement for these applications to be delivered by a very large number of specialised content and service providers. As in any other consumer-based industry this necessitates a well-functioning business model. Such a distribution model (manufacturing, wholesale, retail) has not yet been properly developed in the telco industry, and unless this happens the industry will continue to under-perform.

There are too many bottlenecks in the old model that prevent the industry from being efficient and effective. Unless an environment is created that will allow these companies to deliver these services in economically viable models this market will be unable to achieve its full business and financial potential.

With 90% of all the industry profits in the hands of a few national operators – who, in the meantime, have seen their market share drop to 60% and lower –this is most certainly not the right balance for a well-functioning and ultimately prosperous industry.

The current vertically-integrated networks from these incumbents don’t allow other companies to utilise these networks in any viable way. They operate as huge bottlenecks in the Internet economy. For example, the content providers in the mobile market are unable to develop business models that stack up, because those engineering-focussed operators don’t really want them as independent sales and marketing companies on their network. A further complication, of course, is that the mobile networks can’t handle a large number of content providers – we need wireless broadband (IP) based networks for that.

In the broadband market new players are struggling to get proper wholesale services from the incumbents, to enable them to develop new innovative services on the fixed network.

It has finally become clear that, unless the incumbents change, or are forced to change, this situation will continue, to the detriment of the national economy and telco shareholders. So something will have to give, and it had better be sooner rather than later.

All the signs point to the incumbents having to give in. So, they should initiate their own structural changes, or they will be forced upon them.

The financial market sees the mismatch between what the market wants and what the industry delivers, and they don’t like it. Financial analysts in the UK believed that, for the benefit of the future of BT, the operational separation didn’t go far enough. Nevertheless, the first financial signs from BT are looking promising (large financial improvements in wholesale and value-added infrastructure service revenues in the half year following the operational separation).

It is to be hoped that other slow movers in this industry will see the light and begin to move in the direction of this long overdue restructuring.

Some of the investment companies are starting to get into the action also. They see an opportunity to step in where telcos fail to act. By buying themselves into these companies they are looking at structural separation models that are driven by commerce rather than by regulation. The ultimate result will be a deconstruction of the incumbent telcos, which will also include others –duopolists and many of the mobile companies – followed by a restructure which will see a flurry of mergers and acquisitions along the lines of the new converging industry and the market models that are emerging around the world.

In short, this is not an easy transition, and it will take many years. Some of the Europeans are on the right track. BT is leading, and France, Netherlands, Ireland, Sweden and some of the others are following. None of these models are ideal, but the restructuring has to start somewhere.

Those who have already begun to address the issue will need at least 2-3 years to make the transition and these companies could start seeing the light at the end of the tunnel in 2008. Others will follow after that.

While it will be a slow development, I wouldn’t be surprised if further intervention from the financial market led to a speeding-up of the process. I stand by my decade-old prediction that by the end of this decade more than 40% of the old incumbents will have gone. I may be a few years off, but the essence of that prediction remains in place.


See also: Global – Analysis – Telecommunications Industry

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Tuesday, May 16th, 2006

The Minister’s announcement regarding her wholesale access network initiative was a catalyst to bring the industry together, to discuss the possibilities of an open access platform that could be used to assist both the industry and the government in this development.

Twenty-six organisations responded to my invitation to attend the meeting, on very short notice. And 17 other organisations who couldn’t attend have expressed their interest in being part of this discussion forum.

This is a clear demonstration of the level of interest.

Based on advice from DCITA and the Minister’s Office I also put a lot of effort into including the various regional and state initiatives that are taking place. In my submission to the Regional Fund I had indicated that we needed an integrated approach that would cover both backbone networks and local access.

Of the 43 organisations that are now part of the discussion forum, close to 30 are companies operating in the wholesale field. Of these, approximately 10 are utilities and 20 telcos. The group represents both the fixed and wireless markets. ‘Wholesale’ was defined – ‘where companies are not selling to an end-user’ – as those companies not billing their end-users, or those who have an operationally separated wholesale division.

This was the first time that most participants had been involved in discussing industry cooperation at this level, and, with a great deal of vested interest at stake, a robust discussion took place on how we could cooperate. From the outset the group accepted that there would always be areas where the industry will not be able to achieve a consensus; however this was seen as a positive, as the group holds the notion of competition paramount.

The group also discussed the differences between utilities and telcos in relation to regulations, organisational structures, coverage areas and so on, as well as the challenges that exist to marry the two.

In relation to competition and cooperation an analogy was made to a quilt. In some areas there would be full-blown competition, in other areas limited competition, and in some areas no competition at all – and each of these areas would require a different approach to industry cooperation, government funding and so on.

It was also stressed that the government subsidies will only be available in areas of market failure, not in areas where the market already delivers commercial outcomes. So cooperation will be concentrated in those areas where there is currently a market failure.

The group also concluded that in order to be relevant to both the companies they represent and the government they first need to organise themselves so as to be able to represent the wholesale industry within the parameters to be laid down in a charter. The industry will first of all have to determine how it can collaborate within the competitive environment in which it operates. This includes streamlining interconnect and other arrangements.

The group decided to form a working committee of six to look at formulating a charter which potentially could form the basis of a wholesale industry association. This charter will be presented to the wider group, after which further decisions will be made regarding the next step in the process.

The meeting was also attended by DCITA, who again stressed the importance of industry cooperation. The initiative taken by the Minister requires extensive industry consultation and it would, of course, make sense for the government to be able to talk to an industry body rather than separately to all the individual parties involved.

The solutions the Minister is looking for include:
Raising the bar, more innovation, higher speeds, etc
Market-based outcomes for regional solutions (commitment to the region)
Facilitating e-health, education and other government initiatives (commitment from the government)
National solutions

These requirements and opportunities once again point to solutions that can only be achieved within cooperative models.

Members of the group (as well as others, of course) could, individually or in smaller or larger groups, reply to the government’s requests for tenders in relation to the wholesale access network. Geographically-specific solutions and vertically-integrated cooperative solutions were seen as some of the possible outcomes.

Local meet-me points were discussed that would provide a maximum level of competition at the local retail networks.

The afternoon session, which included representatives of telco retail organisations, local, regional and state representatives, as well as vendors, provided the group with input on how they would like to see cooperative models that also included them. The need to look at end-to-end solutions, including backbone and local access, was stressed in this respect. Here also, vendors can play a leading role in such projects.

The working committee will report back within the next few weeks, after which the next step in the process will be announced.

Paul Budde

Australia – Industry – Wholesale Services – 2006

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Mobile, IP & Digital Broadcasting

Monday, May 15th, 2006

Mobile TV
Broadcasting real-time and stored for replay sound, video and multimedia material to small handheld devices such as cellphones is the “Holy Grail” of both the telecommunications and broadcasting industries. We discuss the needs of such systems and the major approaches to achieving it: Eureka 147 T-DMB, DVB-H, ISDB-Tsb and Qualcomm’s promising MediaFlo. We also discuss the Japanese and South Korean MBSAT ‘T-DMB’ broadcast system.

MPEG 2 AAC and Video
We discuss Advanced Audio Coding (AAC) and how it improves on MP3. We explain enhancements to both AAC including Spectral Band Replication (SBR), Parametric Stereo and Scalable Lossless Coding. We discuss HILN parametric audio coding and voice compression algorithms including CELP. We also explain the process of MPEG-2 video compression, which is the basis of almost all digital television systems.

MPEG 4 Video and VRML
We explain how Advanced Video Coding (AVC/H.264) improves on MPEG-2 video compression. The MPEG-4 standards are of unprecedented scope, including animation, synthetic sound and video, VRML interactivity and Java. We introduce these technologies and discuss how they can be used together to provide services and communication systems far beyond the modes we are familiar with today. We also discuss the MPEG-7 metadata and MPEG-21 digital rights management standards.

Trends and Frequencies
As a prelude to detailed discussion of the various digital broadcasting technologies, we review the propagation of radio waves, the established analogue broadcasting techniques and the resulting spectrum management arrangements in which digital broadcasting takes place. We summarise the key technical and commercial trends and principles we believe characterise the digitisation of broadcasting.

Television – DVB and ISDB
We discuss the distinctions between digital broadcasting for stationary video receivers, for mobile receivers and for small handheld devices. We then introduce some of the major parts of the DVB standards which are used in most countries for digital video broadcasting. We also discuss the Japanese ARIB ISDB digital standards, which are similar in principle to DVB-T.

Television – ATSC and Middleware
We discuss the North American ATSC digital television broadcasting standard, which differs greatly from the DVB and ISDB techniques used in other countries. We consider technologies which affect broadcast television quality and usage, including real-time vs. offline compression and personal video recorders. We also discuss the MHEG and MHP middleware and transmission standards for digital television receivers.

Sound and Narrowband
We discuss three types of digital broadcasting for sound and data applications. Firstly, the low data rate systems RDS and DirectBand. Then we explain the capabilities and limitations of Digital Radio Mondaile and the two USA-based In Band On Channel HD Radio systems. Finally we discuss the major wideband audio broadcasting system Eureka 147 and the satellite systems of WorldSpace, Sirius and XM.

MPEG 1 and MP3
We discuss MPEG-1 and MPEG-2 audio compression (coding) and major non-MPEG audio coding systems including Real Audio, Windows Media and Vorbis. A detailed explanation of the internal mechanism of MP3 (MPEG-1 Audio Layer III) compression serves as a basis for understanding MP3pro and all other perceptual audio codecs, including AAC.

For further information see:

Technology – Audio-Visual Coding 1 – MPEG 1 and MP3

Technology – Audio-Visual Coding 2 – MPEG 2 AAC and Video

Technology – Audio-Visual Coding 3 – MPEG 4 Video and VRML

Technology – Digital Broadcasting 1 – Trends and Frequencies

Technology – Digital Broadcasting 2 – Television – DVB and ISDB

Technology – Digital Broadcasting 3 – Television – ATSC and Middleware

Technology – Digital Broadcasting 4 – Sound and Narrowband

Technology – Digital Broadcasting 5 – Mobile TV

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