Archive for August, 2006

Changing Internet business models

Monday, August 28th, 2006

Business models in the Internet economy are changing rapidly. With the arrival of Google, eBay, Skype, Yahoo, MySpace, YouTube, Flickr and many other similar Internet success stories it becomes clear that companies who want to play in this space will need to change their business models. This applies to telcos, media and IT companies alike.

We have seen BSkyB in the UK launch a free broadband access service, and now AOL Time Warner in the USA has decided to follow that model.

AOL was one of the last ISPs to whole-heartedly embrace broadband. Until a few years ago it argued that their target audience, families with children, would not need broadband. Furthermore, they believed that, through the merger with media giant Time Warner, they would be able to force their customers to use their business model of ‘walled gardens’ and that they would get away with charges for email and other services.

Their lack of understanding as to this market’s direction has cost them dearly. Financial analysts have estimated that the AOL-Time Warner merger, based as it is on unsound business models, has cost shareholders $200 billion.

Back in 2001, on the day of the merger announcement, we wrote an extensive analysis, explaining the flawed nature of the merger model.

Equally important is the fact that the company has lost a third of its customers over the last few years – customers that are, of course, desperately needed for the free Internet, paid advertising models.

As I have said in a recent analysis of Internet business models, companies need to build customer bases and to then follow their customers, and target them – providing them with services in which they are interested. Around these audiences new business models can be built, based on advertising, permission-based marketing and extra (paid for) premium services.

The music industry is a good early example. Here new niche markets are built around audiences as small as the fan club of one particular artist. Content and advertising is completely tailor-made for these audiences, also taking into account different devices that might be used by its customers at different times (ipods, mobile phones, laptops and PCs, digital vide recorders and HDTV).

Paul Budde

See also:
USA
Global Convergence

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NUS ANALYSIS OF TELEPHONE CALL CHARGES – 2005/2006

Saturday, August 26th, 2006

The National Utility Services’ (NUS) annual survey compares the prices of local, long-distance and international telephone calls together with telephone line costs between 14 industrialised nations. Below is their analysis for Australia.

Analysis of fixed call charges
In the second half of 2005, Telstra embarked on a renewed drive to win-back and secure customers. In order to improve its estimated remaining 55% share of the retail market, it has embarked on more aggressive pricing of its “packaged off-tariff fixed-term agreements”.

This new pricing has resulted in their becoming more competitive with other suppliers’ resale deals. As a result, there has been increased pressure from these other providers to offer “direct connect” solutions in order to try and maintain their competitive edge.

Optus is the main competitor in this regard with a 20% market share and with its own national back-bone network. The other major suppliers (AAPT, Primus, Commander, Macquarie Telecom, PowerTel etc) account for the remaining 25% of the retail market.

However, 90% of the market is still connected to Telstra’s local loop network either as a direct retail customer or in a wholesale capacity, as a customer of another service provider. In this regard, Telstra continues to dominate and, undeniably, influence the market as a whole.

Telstra’s marketing strategy of these “tailored” packages does not appear to have any degree of rationale as to the rates being offered in specific instances. It is very often the case of individually structuring the package depending on the customer’s traffic profile in an attempt to secure the business.

For example: –
A standard local call through Telstra is 20 cents (untimed). Commonly, 11.5 cents (untimed) is offered under these new deals and has even been seen as low as 8 cents (untimed).
A standard national call with Telstra ranges between 9 cents and 24 cents per minute (depending on distance) with a 27.73 cents flagfall (call connection fee). Under the new deals these rates are commonly 11.5 cents per minute with no flagfall and even as low as 9 cents per minute.
An international call to the US through Telstra’s standard rates is 28 cents per minute with a 27.73 cents flagfall. The majority of package deals charge around 19 cents per minute with no flagfall and, in some instances, rates as low as 9 cents per minute have been seen.

It is therefore imperative to consider the entire pricing package rather than individual rates in order to assess the overall impact.

Analysis of Mobile Charges
Mobile call costs remain relatively high but most providers now offer a range of “capped” plans. A typical example is a monthly access of $72 (which includes $72 worth of included calls) and up to $500 in calls capped at $72. Corporate plans commonly incorporate low or even free calls between company fleet mobiles on the same plan with the minimum call spend aggregated across the fleet. Monthly bonuses are also commonly offered were hardware upgrades are not involved in the deal.

Despite this new marketing, the four carriers’ market shares have remained fairly constant. According to the latest market figures, Telstra has 44% of the mobile market with Optus at 33%, Vodafone at 18% and Hutchison at 5%.

In light of the rate changes experienced over recent months, prices are expected to remain fairly stable over the next 12 months albeit, there may be some further re-balancing by Telstra’s competitors.

Fixed to mobile calls have seen limited price reductions due to the “inter-connect” charges levied by the four mobile carriers. However, further reductions are expected, in part, due to continuing pressure from the ACCC.

Mobile charges are likely to remain stable with suppliers continuing to promote their new “capped” plans and push the technology benefits of 3G over the conventional GSM and CDMA networks.

See also:
Australia – Analysis – Telecommunications Pricing
Australia – Telecommunications Services – Call charge Statistics

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Podcast by Paul Budde – The Realities of Fibre to the Home

Friday, August 25th, 2006

With little infrastructure based competition dynamics available there has not been a big push for fibre-based network. Ultimately these networks are going to replace the current copper-based and HFC-based telephone and cable TV networks. These upgrades will take 10-15 years to complete. The first large scale projects will be implemented between 2006 and 2008. I analyse migration models and makes suggestions on how to move forward.

Duration: 15 minutes

Download: The Realities of Fibre to the Home

For further information see:

This is a BuddeComm MP3 podcast. BuddeComm is an international telecommunications research company and produces over 2,000 research reports, covering 170 countries, 500 companies and over 200 technologies and application. Topics include telecommunications, mobile, Internet, broadband, convergence, digital media and content. These reports are available on the net as well as in pdf and printed formats. For more information visit us on our website www.budde.com.au.

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Fibre-to-the-Home beats cable and telco competition

Monday, August 21st, 2006

In Hillegom, a small town (7,431 homes) halfway between Amsterdam and The Hague, a 100% commercial FttH rollout began in March 2006 and will be completed in mid-October.

Investor, operator and service provider is Lijbrandt Telecom, recently acquired by Dutch billionaire Dik Wessels. He owns the investment firms Reggefiber and Reggeborgh and also the large construction company Volker Wessels Stevin. The latter has done, and continues to do, a lot of digging and construction for FttH projects like the one in Nuenen-Eindhoven.

Mr Wessels made a fortune when ISP World Online had its IPO. It is reported that he personally made a profit of around 800 million euros on that.

The project in Hillegom is known by the name of the CPE, the Kadaka (KAstje Dat Alles KAn, box that can do everything). So far they have passed 5,400 of the 7,431 homes, and of that 5,400 some 4,600 (or 85%) homes have subscribed to one or more services (TV, telephone, Internet). The uptake of TV is 3,950 homes (73%), a churn from local monopolist MSO Casema.

The uptake of the telephone service is 73% as well, a churn from Casema and local incumbent telco KPN. So in Hillegom Casema and KPN are left to battle it out for a potential market for their core products of 27%.

The Hillegom network is so successful that the company will start an FttH project in nearby Lisse in October (10,000 homes) and it has decided to roll out FttH in the whole ‘(Tulip) Bulb region’ (Bollenstreek in Dutch). That comprises 120,000 homes to be rolled out in the next 36 months in the very heart of the Randstad, the Netherland’s most populated area (Amsterdam, The Hague, Rotterdam, Utrecht and the territory between those cities).

Lijbrandt states that FttH connections cost them an investment per home of 1,200 euro, passive and active taken together. In the case of triple play, the ARPU per sub is about 550 euro per year.

Recently in the Netherlands cable MSOs Casema and Essent Kabelcom were both bought by Cinven and WarburgPincus at about 1,500 euro per subscriber. The take-up rate in Hillegom is similar to that of the FttH project in Nuenen.

There the fibre was rolled out with the help of a pilot broadband subsidy from the national government. After a year of free broadband people could decide whether or not to continue one or more services at a commercial rate. Some 7,200 homes (or 90%) subscribed to one or more services.

I am planning a broadband/ICT mission to the Netherlands in March 2007. I am waiting on confirmation from Minister Helen Coonan as to whether she will lead this mission. My intention is to include visits to Dutch FttH projects in the itinerary – the largest one being the one in Amsterdam, with 400,000 homes. For more info click here.
See also: The Netherlands

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VoIP – The Global Group

Wednesday, August 16th, 2006

Global Dial is one of Australia’s fastest growing telecommunications carriers specialising in the provision of telephone, mobile and Internet services for personal users to large corporate enterprises. The company’s client base includes the retail, mining, hospitality, media, government and corporate services sectors. Some of its clients include Alcoa, BankWest, Ministry of Justice, The Duxton Hotel Group, Centrelink, Mt Burgess Mining and Wizard Home Loans.

Global Dial commenced business as an ISP Global Web in 1994. The company changed its name to Global Dial to mark the launch of its bundled telephony and Internet businesses. It provides co-location services, technical support services, pre-selection, mobile plans/phones and wholesale bandwidth to other ISPs, and offers local call Internet access to over 150 countries worldwide.

The company was one of the first in Australia to launch a commercial grade VoIP service for businesses. Its prepaid telephone cards remain among the most popular brands for low-cost International calls. Global Dial has a distribution channel comprising over 7,000 outlets throughout the country. It is also one of the most widely used. Subsidiary brands such as No Frills and the Fish Cards will cement Global Dial as one of the key players in the prepaid telephone card and VoIP market in Australia.

The take-up of broadband by the personal and corporate sectors has fostered strong growth in Global Dial’s client base and revenue. The company has also launched a pre-selection telephone service to businesses, cutting most long-distance calls and interstate calls by at least 50%.

Global Dial has offices in Perth, Sydney and Melbourne.

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