BuddeBlog

Sweden is among the top-ranked countries for broadband penetration, with about half of all households subscribing to the service. The government has been keen to promote the country as one of the world’s ICT leaders, and to reach the level of penetration enjoyed by its near neighbours Iceland and The Netherlands.

To this end the government has been guided by its ICT policy, formulated in late 2005, which included allocating SEK600 million (€64 million) to deliver broadband to all areas of the country during 2006 and 2007.

In an important update to this policy, the Swedish regulator in February 2007 published its strategy to deliver broadband of at least 2Mb/s (itself an indication of customer expectations) nationally by 2010. Part of the strategy is aimed at addressing poor broadband availability in a number of rural areas (representing about 136,000 households and businesses), as well as the lack of competition in areas served by a single provider.

The nuts and bolts include continuing government support of SEK1.135 billion to roll out broadband infrastructure, of which EU structural funds would account for SEK567.5 million. Being publicly funded, such infrastructure should meet the minimum transmission capacity, and be open to other service providers.

The key lies in how the regulator intends to provide this open access network. It has taken two cues from the UK model, by which the structural separation of BT resulted in the creation of a separate wholesale division, BT Openreach as a provider of broadband access to all service providers on equal terms. BT Openreach is hugely successful: having started operations in January 2006, the division closed the year with more than 1.3 million lines supplied to customers via more than 200 local loop unbundlers.

At present, LLU in Sweden is still characterised by discriminatory behaviour on the part of the incumbent, TeliaSonera. The regulator has made some headway in providing other operators with increased access to TeliaSonera’s network via LLU since 2000, yet take-up has been stifled by pricing levels which leave little reasonable profit for most new entrants. Although connection prices for fully unbundled loops have fallen since 2004 they remain among the highest in the EU. In addition, TeliaSonera has for the last two years challenged the regulator’s order to include bitstream in its wholesale offering to competitors. A recent court ruling (this month) refusing the company leave to appeal the order, and denying it any other legal option, will go some way to increasing competition and reducing broadband prices.

Given the incumbent’s intransigence, the regulator has understandably become more bold. Its plan is to make the LLU market competition-neutral by separating TeliaSonera’s wholesale division from its retail operations. This new division, most likely the unit managing fixed assets (copper pairs, optical fibre, etc.), would be formed as a separate entity from the rest of the company, to focus solely on wholesale, and be provided with separate buildings and staff.

A second borrowing from the UK model is the notion of Equivalence of Input, by which TeliaSonera would be obliged to provide competitors and its own retail operations with wholesale products on equivalent terms. On a legal level, the regulator envisaged amending the 2003 Electronic Communications Act (EkomL) to bring about structural separation by 2009 at the latest.

The regulator also has is sights on a similar treatment of the country’s fibre networks. Sweden has one of Europe’s strongest fibre platforms, the importance of which will increase in coming years as a result of greater demand for transmission capacity, particularly if technical progress in cable and DSL does not keep pace with demand. Given the cost of fibre rollouts, it is generally unfeasible commercially to install parallel fibre networks at an access line level, and thus the regulator proposed opening fibre networks at an infrastructural level. Although the country’s Competition Authority cannot now force companies to open their networks to other providers, the regulator is prepared to suggest legislating for open fibre if necessary. This would be particularly relevant with networks funded by state or EU funds, or managed by municipalities.

These moves have sound precedence. Openreach has shown how profitable a well-managed wholesale division can become, albeit in a far larger market, while the open fibre network, as is being built by KPN in The Netherlands, must be considered in terms of national interests (economic well-being, job creation) as well as social benefits (almost limitless)

Henry Lancaster – Senior Analyst Europe BuddeComm

See also:
Sweden – Broadband Market – Overview, Statistics & Forecasts;
Sweden – Key Statistics, Telecom Market & Regulatory Overviews;
Europe – Broadband Market – Overview & Statistics;
Europe – Regulatory Environment.

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Double play and triple play models have been on the table since the early 1990s, when cable telephony was added to cable TV offerings. Around the world, various telcos and media companies have attempted mergers, alliances and partnerships to move into this new area. However, the full digitalisation of their networks and increased broadband penetration was necessary before a more economically viable model could be developed.

One of the first companies to explore triple play models in this new environment was FASTWEB in Milan, Italy. Back in 1999 it began to use FttH networks, and has since expanded into DSL networks as well.

TransACT in Australia was also one of the pioneers of the model, using a VDSL network solution.

Australia also saw the first merger between a TV company and a telephone company. This was mainly aimed at an infrastructure level, but in 2005 a combined media and telco company, Soul (SP Telemedia Ltd) (see separate report), began expanding rapidly and entered the triple play market. Today Soul has the largest data network and voice network after Telstra, the largest fully converged voice, video and data IP-based access network in regional Australia and the largest voice-enabled IP network.

Japan and Korea were other early adopters of the triple play model and they have made significant progress, which has spilled over into Hong Kong, Taiwan and other South East Asian markets. For more information, see separate reports:

·         Japan – Convergence – Triple Play & Digital TV;

·         South Korea – Convergence – Triple Play & Digital TV.

Hong Kong Broadband Network Ltd (HKBN) has traditionally been a leader in this field, and was one of the early companies to offer a pay TV service over its broadband network. Today more than 35 countries offer broadband TV services. The service can be used on TV sets and PCs, and is very competitively priced against other pay TV services.

It was in 2004 that further progress was made in Europe, when the regulatory regimes started to deliver more commercially viable ULL services. During 2006 the triple play model in Europe saw widespread deployment by a number of network operators and providers. Through mergers and buyouts, the year also saw the first quad-play offers, notably in the UK, with mobile telecoms added to existing bundles of fixed-voice, Internet and TV. For more information, see separate report: Europe – Convergence – Triple play and Digital TV.

Italy is one of the core countries in Europe for triple play and converging media applications, and its large population offers enormous potential for content providers. The delivery of triple play services through broadband has been helped by the country having one of the fastest growing broadband sectors in the EU. For more information, see separate report: Italy – Convergence – Triple Play & Digital TV.

In mid-2006 the Netherlands, after Denmark, had the highest level of broadband penetration amongst the Organisation for Economic Co-operation and Development (OECD) countries. One of the country’s major media companies Talpa (John de Mol, the inventor of Big Brother and other shows) had a 40% share in one of the country’s leading new telcos, Versatel, since sold to Telia Sweden. This company rapidly developed triple play models; however it was only in late 2006 that Versatel surpassed the 100,000-subscriber mark it had initially hoped to reach at the end of 2005.

The killer application in the Netherlands is football, with Versatel owning the live TV rights for all the important games. For more information on the Netherlands, see separate report: Netherlands – Convergence – Triple Play & Digital TV.

In the US, RBOCs and Multiple System Operators (MSOs) compete to be chosen as the pipeline into the home to deliver triple play services. According to a report published by Business Week, by November 2005, Comcast and the other MSOs with their triple play bundles, had taken 4.4 million phone customers from the four RBOCs. For more information on triple play in the US, see separate report: USA – Convergence – Triple Play & Quadruple Play.

In terms of pricing, basic access to all three services should be made available for around US$50/€50, with extra services being made available at small incremental charges – for instance, US$5 for all-you-can-eat calls, US$10 for a higher broadband speed, US$5 for a games package, US$10 for a set of broadband TV channels, etc.

It was in 2006 that we saw the emergence of quadruple play (quad-play) models that incorporate fixed-voice, Internet and TV with mobile communications as well. More players are planning to enter this market throughout 2007.

Paul Budde

Updated February 2007

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The enterprise IP telephony market grew by nearly 98% in 2004, according to a report from IDC. Also the Australian enterprise IP telephony market grew 29% during the second quarter of 2004 compared with the first quarter.

The Australia Quarterly IP Telephony Enterprise Equipment Tracker, which records sales of IP phones, single-mode IP PBXs and dual-mode IP PBXs, also found that IP phone sales more than doubled in 2004, growing by 176% year-on-year, with over 200,000 IP Phones shipped in 2004.

IDC expected the enterprise IP telephony market to reach more than $500 million in 2008, fuelled by increased IP phones shipments and Pure and Enabled IP-PBX revenue growth.

All segments of the market grew by more than 15% and as expected, IP phones experienced the highest growth with 44% sequentially. More IP phone vendors are entering this market – such as Zultys – which are offering competitively priced Session Initiation Protocol (SIP) phones.

The majority of the projects continued to be greenfield deployments and end-of-life PABX replacements, but implementations were boosted by the end of financial year and the Y2K LAN refresh cycle. The finance sector was a great contributor to growth, with some large financial institutions initiating deployments of IP telephony.

Managed IP telephony offerings by telecom carriers and systems integrators were also helping the rapid adoption of VoIP in enterprises. Handset subsidies, like those offered by Optus were also proving to be quite successful.

Most vendors in 2004 experienced double-digit growth. Notable deals for the year included Westpac with Cisco, Ernst & Young with Alcatel, and Victoria Office Telephony Service with NEC.

In 2005 IDC predicts more strategic partnerships between equipment vendors, service providers/ISPs and systems integrators.

Cisco maintained its lead of the local market in both IP PBX and IP phones, with 37% overall market share. The company is continuing its focus on medium-to-large users, whilst addressing the smaller end of the market with its IPFX product. Avaya was placed second with 22% of the overall market.

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There are already hundreds of electronic versions of newspapers and magazines on the web.

Some of these operate on a subscription basis, but the majority have taken the longer-term view and are experimenting with the new technology, to enable them to develop a more profitable business further down the track.

However, in general these organisations are maintaining a defensive position. Most of them initially failed to embrace the new technology, but they have now begun to accept change more readily. In this respect 2006 was a turning point, and more interesting developments are expected for 2007 and beyond.

These changes have largely been stimulated by the success of social network and user-generated content sites such at MySpace (and the many local versions of such services that exist around the world) – and also, of course, by the success of Google, Yahoo and others.

New business models are now emerging, giving the industry the confidence to begin changing their more traditional models. An equally important factor is that this is backed up by a phenomenal growth in online advertising revenues – these are now well above $1 billion.

However, for most organisations it is still difficult to generate profitable business from the Internet. They play it safe and only use Internet strategies to build brand and product awareness, and to acquire e-commerce expertise and build new customer bases. More integrated multimedia and multimodal business models are needed before really successful services can be built.

Benefits of web marketing (advertising):

• direct and instantaneous communication with end-users;
• creation of databases of user demographics;
• more informative, less intrusive messages;
• information always up-to-date;
• communication built around segmentation of markets, brands, products, etc;
• many free services that are upgradeable to premium, chargeable versions.

The top 25 brands also deliver the top 10 online advertisers. While the market stalled during the dotcom era a significant recovery began in 2003, and by 2006 the advertising market had quadrupled.

In 2007 some 6.5 million people will, at one time or another, have bought something over the Internet.

We will cover all of this in the next Roundtable.
Social networks and user generated content
Roundtable with Paul Budde and experts – Thursday 1 March 2007
The Observatory Hotel, 89-113 Kent Street, Sydney
For more info and online registration

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Broadband essential to maintain public health system
E-health is rapidly shaping up as one of the key killer apps on the truly high-speed broadband networks. Judging from the amount of health-related SPAM it is apparent that people have a fascination with e-health. While we all hate SPAM, one thing is certain – these spammers know where the interest of people lies, and health is certainly a key area.

Around the western world we are facing a massive dilemma in relation to healthcare. New technologies are increasing life expectations and are improving our lifestyle. The cost of this, however, is enormous and we simply can no longer afford to finance the huge advances through the public health systems.

In countries with proper broadband infrastructure we see e-health shaping up as a way that will allow us to enjoy these advances in medical technology and medical services, at a more affordable cost.

Aged care services at home
Aged care services are at the forefront of developments. With a rapidly ageing population there simply won’t be enough nurses and retirement villages to cater for the enormous growth. The key solution here, of course, is homecare services. Video-based broadband connections allow people to stay at home and still have access to medical staff through what is called video nurse services. These are medical call centres with qualified nurses on call, 24/7. These nurses maintain contact with people who need medical assistance, and other medical specialists can be brought in via the video link. Certain diagnostic facilities such as heart rate, blood pressure and urine samples are linked to the broadband service, and other diagnostic tools can be implemented through these links.

Social networking through video cams
Interestingly, first experiences with these video call centres are that 80% of the calls don’t have an actual medical element, but are more of a socio/psychological nature. People feel lonely. As more and more people are connected to high-speed broadband family and friends can be brought in through video links. Most of the video call centres now also have lists of volunteers who are happy to have a video chat with those who feel a bit lonely.

And these new broadband communication technologies will be tremendously helpful to the millions of carers around the world, whose contributions often pass unnoticed but who are, themselves, under great pressure.

Public education and public debate need to start now
These social connections are going to transform the way we communicate with each other. There will always be naysayers, who claim that this will lead to reduced personal contact; however, during my discussions with e-health providers and users in Europe I have not come across any evidence that children are visiting their parents less because they now also have a direct video connection with them. All indications are that it is seen as a huge contribution to social communication.

Privacy has been another issue that, of course, is often mentioned. Certainly that is an issue, but many elderly people using the services are even requesting that a video cam be placed in their bathroom, as this is the most likely spot for an emergency to arise.

Online patient record systems
Another hot potato privacy issue is the online patient record system that needs to be available to all those with the authorisation to use it. People in countries with little experience in high-speed broadband and the e-health applications that can be available over it will encounter ignorant politicians, who will make an unnecessary fuss about privacy.

The lack of progress in Australia will certainly lead to some of this paranoia, and this will make a proper debate on the issue more difficult. It is therefore essential for Australia to press on with the broadbanding of Australia, so that we can begin to experiment with the sort of system that will suit our society.

Digital health care appointment system
A totally different application is a digital health care appointment system. With the current overload in most, if not all, of the world’s medical systems, waiting times are increasing and valuable time is being wasted. In Europe several general practice and other medical service organisations are trialling systems whereby video consultation is provided to their clients. One very basic service is an appointment service, where you can check dates and times for appointments.

At this stage more advances are being made in the private healthcare sector, where patients and medical practitioners have a greater freedom to use such services. However, there is no doubt in my mind that over time these will be implemented into the public healthcare system as well.

Video consultation and monitoring
Within that private sector, many medical support services are now also provided online through video links. Consultations with dieticians, exercise trainers, opticians, mental health services and so on.

Another growing e-health area is the monitoring of patients – from pregnant women to mental health patients. The monitoring of heart patients and diabetes is also being trialled.

There simply is no alternative to e-health
Another issue often mentioned in this debate is that older people have a problem with technology. My response to this is that when you get older you don’t necessarily get dumber. And technology can be learned. However, having said this, many systems operate via the TV, with simple set-top boxes – sometimes as simple as one with a black and a red button that connects you to the service.

The alternative to not embracing e-health is to accept a significantly inferior heathcare service in the future. Countries that are lagging in these broadband infrastructure developments are going to face, not just a telecoms dilemma – more importantly, they are going to face a health crisis.

There is no doubt that e-health is going to totally transform the national healthcare system and that society will need time to make the adjustment. Training is vital, and not just of medical professionals. Equally important is the training of other carers, volunteers, and the patients themselves.

Australia and New Zealand are currently three years behind Europe in these developments and a far more active government policy is required to ensure that the e-health infrastructure will also be extended in these countries. The emphasis so far has been to build the infrastructure between the medical organisations and facilities. The real imperative, however, is to build this out to the users of these services, which includes everyone.

E-health visit to the Netherlands
The Netherlands is leading the development in e-health and, at the invitation of the Dutch Minister for Health, the Australian Broadband and ICT mission to the Netherlands in March 2007, will have a special part of the program dedicated to e-health, with discussions with government officials and some of the early e-health pioneers. Work visits will be included.

I will try to facilitate arrangements for those who care to indicate their special interest in this area.

Paul Budde

The next Roundtable will address these new developments.
Roundtable with Paul Budde and experts – Thursday 1 March 2007
Social networks and user generated content
Expert speakers are:

• Pippa Leary – Product and Marketing Director, News and Information – Fairfax Digital
• Tom Kennedy, Director Digital Strategy, Legion Interactive
• Anna Daniel, PriceWaterhouseCoopers
• Nigel Dews, CEO 3 Australia

For more info see: Social networks and user generated content

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Reasons for online advertising

A survey based on interviews with 150 Australian advertisers by Roy Morgan International in November 2003, projected that online advertising budgets would be allocated to the following sources in 2004:

• Internet classifieds – 11%;

• Search and directories – 22%;

• General Internet advertising – 67%.

The survey also found that the top reasons why advertisers in Australia choose to advertise online were as follows:

Table 11 – Top reasons why advertisers choose to advertise online

Reason Percentage

Targeting capabilities 31.4%

Customers / target audiences are online 25.7%

Cost effective 21.9%

To direct traffic to website 15.2%

Suitable environment for products/services 11.4%

Branding / product development 9.5%

As a trial 9.5%

Important to be part of new media 8.6%

Important part of an integrated marketing campaign 6.7%

To build brand awareness 6.7%

(Source: Roy Morgan International)

Jupiter Research expects the Australian online classified market to increase from $96 million in 2003 to $228 million in 2008.

Over the last few years Sensis has become one of the key players in this market. In early 2005 it had a 30% market share of the online advertising market. The company has an overall share of the national adverting market of 13%!

Online ads $300m in 2004

The Australian online advertising market grew 41% in 2003, to reach $236 million, according to the ABVS 2003 Online Advertising Expenditure Report. Spending grew 51% to $137 million in the six months to December 31.

Personal banking and the finance industry generally was the top spender in general advertising but the recruitment industry maintained its position at number one for classifieds.

Full year 2003 revenues for general advertising grew 30% to $80.7 million. Classifieds revenues grew 44% to $86.3 million while search and directories advertising increased 53% to $69 million.

General advertising grew 64% in the second half of 2003. Classifieds grew 24% and search and directories grew 31%.

The online advertising market was expected to break through the $300 million barrier during 2004.

Key market segments include:

• Paid searches;

• Classifieds;

• Display ads.

The largest growth area for 2004/2005 has been the market for paid searches.

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Triple play business models will also deliver more transparent billing.

Instead of the complex charging mechanisms (minutes, seconds and bytes) used by the incumbents, which result in a surcharge to customers of approximately 15%, they should look at new pricing models. As a rule, customers end up with a price plan that is higher than the one they need. The three (triple) key services, voice, video and Internet (data), will be delivered over the one access line and all-you-can-eat calls, games, video, TV, etc, will be offered at an incremental ‘fixed’ charge, rather than per minute, second, kilo or megabyte.

The development of such new models through competition will put an end to the telco scam. As stated above, the proposed caps, etc, will only add to the complexity and will indirectly assist the telcos to continue their scams.

For more information, see separate report: Global – Analysis – Industry – Telecoms moving into 2005.

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Rehame MediaStream, launched in March 2006, delivers targeted streamed footage from a web portal or email to subscribers allowing them to access media intelligence through any computer that is connected to the internet.

Radio and television broadcast coverage from over 2,000 television and radio sources in metropolitan and regional areas across Australia will be available through MediaStream.

The service records news and current affairs programs continuously and provides summarised reports to customers by email or through a dedicated web portal. Streaming audio and video files are available to customers within minutes of the media intelligence going to air.

The company was an early pioneer in providing print media intelligence service in a digital format and is now Australia’s first company to offer customers flat fee monthly retainers which provide unlimited access to broadcast coverage for a fixed monthly retainer.

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Texas Instruments is developing technology to allow phone companies to offer high-definition television and voice over high-speed Internet lines within about three years. The technology will increase the capacity of DSLs to make the phone companies’ broadband offerings more competitive with cable-modem services.

Cable already offers video and is cutting into the US phone companies business by adding voice services.

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Farewell Teresa Gattung
The government announced the operational separation of Telecom and the company finally started to see some results from its retaliation against Vodafone in the mobile market. We have seen Alan Freeth lamenting the appalling condition of TelstraClear and through the acquisition of ihug, Vodafone moved into the fixed market.

Teresa Gattung’s period in office must be seen as the end of Telecom’s era as a monopolist, and her brief (from her – former – chairman) was to maximise that monopolistic position. While many of us may not have liked it, that was the job she had to do for Telecom’s shareholders, and some of the decisions made by her should be judged from that perspective.

It is very easy for a monopolist to fall asleep at the wheel, and this is what happened when Vodafone bought the Bell South mobile operation and quickly overtook Telecom in that all-important market. The failure of the AAPT acquisition, also, is clearly something for which Gattung is responsible – again taking an arrogant monopolistic approach, thinking the best way to proceed was to integrate the challenger AAPT into the incumbent Telecom, a strategic error of the highest order.

The PowerTel acquisition is Telecom’s third attempt at achieving new growth, which I agree can only come from other markets such as Australia. We have heard some colourful language from Teresa Gattung, which was not well received (especially in political circles) and perhaps that moment in time can be pinpointed as the start of her downfall.

However I am glad it was she who supervised the period following the government’s announcement on operational separation, and I accept that, with a clear new direction in place, a change of CEO is the appropriate decision to make.

What is that new direction?
With the upcoming sale of Yellow Pages and the outsourcing of digital media activities to Yahoo in Australia, I conclude that Telecom is going to concentrate increasingly on its infrastructure. It has brought the timeframe of its infrastructure upgrade forwards from 2012 to 2008 and I predict that the money from Yellow Pages will be used to fund some of the new infrastructure plans.

As I have been saying for the last 15 years, the company has underinvested in its local access network and it is now paying the price for this. Its customers are unhappy – either about the lack of broadband or about the quality of those services.

This situation can’t not be solved by putting a pretty face on television and talking up all the good things Telecom has done in the past. It needs hard work and the delivery of a network that can offer its customers good broadband services.

Telecom must start delivering on its promises.

And this will take time – there is no quick fix – so I think Telecom will continue to cop a lot of flak on these issues for many years to come.

Leading the structural change of Telecom
So the challenge for the new CEO is not the PR or marketing activities but setting up this all-important structural change program, speeding it up and making sure that it stays on course. There are literally hundreds of different systems and projects, all with their own self-interested perspectives, that must be amalgamated into an integrated structure and this is the most difficult operation any telecom operator can face.

Telecom needs to change from a subscription-based telephone company to a wholesale-based/Internet economy/infrastructure company. Its main customers will be those companies whose future rests in digital media and other Internet-based operations. This will include the government, healthcare, education, big business and media, as well as many of the few hundred thousand small businesses in the country.

And the cultural change will be as significant as the technical change. A very firm CEO is needed – one who can lead this process in what may have to be a rather internal ruthless style.

One positive aspect is that this CEO cannot try to operate from a position of monopoly – which is the way Telstra in Australia, for instance, is handling this change. The New Zealand Government has clearly blocked off that avenue and it is important they reinforce this at every opportunity, to prevent Telecom from reverting to its original monopolistic mind-set.

Can-do approach
The fact that Telecom is able to win new mobile customers; the fact that it has made a strategic move in relation to PowerTel; and the fact that it is, I believe, working towards a first-class infrastructure company, indicates to me that they can succeed. But it won’t be easy. Teresa Gattung is certainly leaving behind some unwelcome baggage, but she is a can-do person and I hope that the new CEO will build on her energetic approach.

This is not just in the interest of Telecom and its shareholders. Perhaps even more importantly, it is in the interest of the whole country.
See also:
New Zealand telecommunications market overview
2007 Telecoms Overview, Statistics and Analyses in New Zealand
2007 Mobile and Broadband in New Zealand

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