BuddeBlog

Over the last half year we have seen a range of interesting developments in New Zealand….

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 Telecom, 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.

Paul Budde

See also:
Telecom Corporation New Zealand – Company Overview;
Telecom Corporation New Zealand – Financial Statistics;
Telecom Corporation of New Zealand – Company Analyses.

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During an information and entertainment campaign on MySpace Paramount Studios received 2 billion ad impressions.

It is so effective that it is reasonable to start talking about a revolution in advertising, driven by the digital media.

This is just one example of the digital media transformation that is taking place quietly, under the radar of most telco and ISP executives. No wonder many organisations are looking at using the digital media, exploring new methods of engaging with their customers in ways that suit the customer, not the advertisers.

This business model is basically the opposite to that used in the traditional advertising sector.

And increasingly the telcos are creating a bottleneck in the process, trying to hang onto their inflexible and outdated business models, which don’t allow for the sharing environment needed to take full advantage of business opportunities in the digital media market.

For Paramount – and all the other ‘advertisers’ using MySpace and other social network services – to contact their customers, the efficiency gains (quite apart from the effectiveness gains) are enormous.

MySpace has succeeded in developing business models that are acceptable to, and even enjoyed by, their 150-million-strong customer bases, and they have been able, at the same time, to create ways to generate a good revenue stream.

The ‘Social Network user’ is a highly critical customer base and certainly not the easiest group to address through advertising.

Remember all those telco and financial market people who talked about the destructive development of free Internet, free content, etc? It is becoming increasingly clear that this digital media market is not a market for telcos and ISPs, but for media companies – and News Limited is clearly showing what it takes to make changes.

It’s amazing to see what a company led by a visionary like Rupert Murdoch can do to completely change the industry – and even to change social behaviour.

We can all learn a lesson from this.

See also: Global – Digital Media

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During an information and entertainment campaign on MySpace Paramount Studios received 2 billion ad impressions.

It is so effective that it is reasonable to start talking about a revolution in advertising, driven by the digital media.

This is just one example of the digital media transformation that is taking place quietly, under the radar of most telco and ISP executives. No wonder many organisations are looking at using the digital media, exploring new methods of engaging with their customers in ways that suit the customer, not the advertisers.

This business model is basically the opposite to that used in the traditional advertising sector.

And increasingly the telcos are creating a bottleneck in the process, trying to hang onto their inflexible and outdated business models, which don’t allow for the sharing environment needed to take full advantage of business opportunities in the digital media market.

For Paramount – and all the other ‘advertisers’ using MySpace and other social network services – to contact their customers, the efficiency gains (quite apart from the effectiveness gains) are enormous.

MySpace has succeeded in developing business models that are acceptable to, and even enjoyed by, their 150-million-strong customer bases, and they have been able, at the same time, to create ways to generate a good revenue stream.

The ‘Social Network user’ is a highly critical customer base and certainly not the easiest group to address through advertising.

Remember all those telco and financial market people who talked about the destructive development of free Internet, free content, etc? It is becoming increasingly clear that this digital media market is not a market for telcos and ISPs, but for media companies – and News Limited is clearly showing what it takes to make changes.

It’s amazing to see what a company led by a visionary like Rupert Murdoch can do to completely change the industry – and even to change social behaviour.

We can all learn a lesson from this.

And that is why I have organised the Social Networks and User Generated Content Roundtable, which will take place on 1 March.

If the subject matter is not within your direct field of interest, I would greatly appreciate it if you would forward this email to any marketing and advertising colleagues who might be interested in the event.(

Roundtable with Paul Budde and the Experts – Thursday 1 March 2007
Social Networks and User Generated Content
The Observatory Hotel, 89-113 Kent Street, Sydney
Online registration: http://www.budde.com.au/consultancy/public-workshops-seminars.html

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Irish company PLIBA has announced the launch of the world’s first generic booking system for mobile internet users. PLIBA.mobi is designed to allow anyone with a GPRS or 3G phone to book anything simply and quickly on any mobile phone and on any wireless network worldwide.

PLIBA stands for ‘Please Let It Be Available’, referring to anything that people are looking to book or reserve, and has been in development for the past year in Dublin and Galway, Ireland.

Companies in 12 countries agreed to trial PLIBA.mobi to see if making their services available for mobile web booking would increase business, and in each case enabling customers to book from a mobile phone without having to make a call was effective. In just a few minutes they could register as a Service and simply tell some of their customers to start using PLIBA.mobi to book them instead of calling them or having to go to a PC to get online. It is expected the companies taking part in the trial will move fully to PLIBA.mobi as more of their existing customers become familiar with the mobile web. They receive bookings via email or SMS text, and Accept or Decline as they wish.

The biggest bookers so far appear to be teenagers booking haircuts and taxis, but it is expected the user base and the kinds of services booked will grow vastly and quickly since PLIBA is currently free to everyone.

The long-term strategy involves building in a small per booking fee on the service owner, probably a fixed fee well below that taken for bookings currently made via sites such as travel portals.

See also: Global Mobile Data

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To better manage electricity networks – All round the world energy companies are increasingly beginning to deploy Broadband Powerline infrastructure (BPL). A major factor in this trend, of course, is the current global warming debate.

The focus of BPL has changed within the last year from broadband connectivity to smart meters on broadband infrastructure, which allow householders to reduce energy costs and energy companies to better manage their network.

Network management is a critical issue. An electricity utility can lose 30 days of profit in a 30-minute electricity spike.

If that’s not an incentive to do something, then I don’t know what would be.

As I have reported in previous analyses of smart meter deployments; if information about the individual electricity usage of a household is made available to the owner, energy savings of up to 15% begin to occur – simply by letting people know what they use, and how they rate in comparison with neighbours, the street, the suburb, etc.

Information about linking individual energy savings to saving trees and reduction in carbon emissions also creates awareness and provides an incentive to change old habits. With the right political will a national BPL network established for this purpose alone could earn itself back in five to ten years. And, of course, much more can be done with such a network.

Looming shortage in local access capacity
Electricity companies already have very extensive telecoms networks in place and for a long time they have sold off their extra capacity to telecoms companies.

A similar development is envisaged with BPL. To provide an optimal BPL service electricity companies will drive fibre as deep as possible into their network, limiting BPL to inhouse deployment, and perhaps a few hundred metres between the house and the distribution network. This can be designed on a ‘needs’ basis – some areas with more or less fibre, some with faster or slower fibre upgrades.

By the end of this year it will become evident, globally, that the telcos simply don’t have enough capacity in their local access networks to cater for all the new services that people are using, especially video-based applications.

The electricity companies have a role to play here as well. They can make available some of their BPL capacity to alleviate the looming local access capacity problems. Every little bit of local access relief will be welcome.

Tackling global warming
However, as mentioned above, the big driver at the moment is global warming. Several states in the USA now have energy-saving commitments in place – for example, no new power plants. Such initiatives will create problems if we don’t start using the energy produced by existing power plants more cleverly (for the purpose of this article alternative energy sources are not taken into account). States such as California, Michigan and Wisconsin are leading some of these developments.

In Europe, Germany and Spain are still ahead of the rest, but interesting developments are also taking place in the Balkans.

BPL in developing countries
The developing world is also moving forward. Mexico has nine very ambitious regional plans and Venezuela and Costa Rica are also starting trials.

An interesting problem has arisen in Brazil. In that country 40% of electricity is illegally tapped off. Smart meters could assist in preventing this, but nothing is being done as it would be too disruptive for Brazil’s fragile social fabric.

BPL – better than wireless
BPL is also winning over wireless. During the last decade thousands of WiFi systems have been installed on campuses around the world. However, because of natural features (hills, trees) or building materials (concrete, steel), the original wireless deployment eventually often ended up twice the size of the initial plan, making it far more expensive than originally envisaged. Furthermore, the backhaul from these campuses through the fixed network is also an expensive exercise. Some of these systems in the USA are now being replaced by BPL. Nevertheless there will of course be plenty of room for both technologies to co-exist.

Smart Meter Summit – Sydney, 4 April 2007
On 4 April we will explore what smart meters can do for Australia. The Smart Meter Summit has attracted the attention of the Labour Opposition and they have indicated their willingness to show leadership on the issue. After their keynote address the Roundtable participants will discuss possible future directions for this technology.

For more information, see: http://www.budde.com.au/conferences/public-workshop-details/public-workshop-4Apr2007.html

Paul Budde

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To better manage electricity networks – All round the world energy companies are increasingly beginning to deploy Broadband Powerline infrastructure (BPL). A major factor in this trend, of course, is the current global warming debate.

The focus of BPL has changed within the last year from broadband connectivity to smart meters on broadband infrastructure, which allow householders to reduce energy costs and energy companies to better manage their network.

Network management is a critical issue. An electricity utility can lose 30 days of profit in a 30-minute electricity spike.

If that’s not an incentive to do something, then I don’t know what would be.

As I have reported in previous analyses of smart meter deployments; if information about the individual electricity usage of a household is made available to the owner, energy savings of up to 15% begin to occur – simply by letting people know what they use, and how they rate in comparison with neighbours, the street, the suburb, etc.

Information about linking individual energy savings to saving trees and reduction in carbon emissions also creates awareness and provides an incentive to change old habits. With the right political will a national BPL network established for this purpose alone could earn itself back in five to ten years. And, of course, much more can be done with such a network.

Looming shortage in local access capacity
Electricity companies already have very extensive telecoms networks in place and for a long time they have sold off their extra capacity to telecoms companies.

A similar development is envisaged with BPL. To provide an optimal BPL service electricity companies will drive fibre as deep as possible into their network, limiting BPL to inhouse deployment, and perhaps a few hundred metres between the house and the distribution network. This can be designed on a ‘needs’ basis – some areas with more or less fibre, some with faster or slower fibre upgrades.

By the end of this year it will become evident, globally, that the telcos simply don’t have enough capacity in their local access networks to cater for all the new services that people are using, especially video-based applications.

The electricity companies have a role to play here as well. They can make available some of their BPL capacity to alleviate the looming local access capacity problems. Every little bit of local access relief will be welcome.

Tackling global warming
However, as mentioned above, the big driver at the moment is global warming. Several states in the USA now have energy-saving commitments in place – for example, no new power plants. Such initiatives will create problems if we don’t start using the energy produced by existing power plants more cleverly (for the purpose of this article alternative energy sources are not taken into account). States such as California, Michigan and Wisconsin are leading some of these developments.

In Europe, Germany and Spain are still ahead of the rest, but interesting developments are also taking place in the Balkans.

BPL in developing countries
The developing world is also moving forward. Mexico has nine very ambitious regional plans and Venezuela and Costa Rica are also starting trials.

An interesting problem has arisen in Brazil. In that country 40% of electricity is illegally tapped off. Smart meters could assist in preventing this, but nothing is being done as it would be too disruptive for Brazil’s fragile social fabric.

BPL – better than wireless
BPL is also winning over wireless. During the last decade thousands of WiFi systems have been installed on campuses around the world. However, because of natural features (hills, trees) or building materials (concrete, steel), the original wireless deployment eventually often ended up twice the size of the initial plan, making it far more expensive than originally envisaged. Furthermore, the backhaul from these campuses through the fixed network is also an expensive exercise. Some of these systems in the USA are now being replaced by BPL. Nevertheless there will of course be plenty of room for both technologies to co-exist.

Smart Meter Summit – Sydney, 4 April 2007
On 4 April we will explore what smart meters can do for Australia. The Smart Meter Summit has attracted the attention of the Labour Opposition and they have indicated their willingness to show leadership on the issue. After their keynote address the Roundtable participants will discuss possible future directions for this technology.

For more information, see: http://www.budde.com.au/conferences/public-workshop-details/public-workshop-4Apr2007.html

Paul Budde

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With almost three-quarters of India’s population living in rural areas that often lack a reliable power supply a pilot project in Pune, Maharashtra, India has commenced. Indian mobile operator Idea Cellular, Ericsson and the GSM Association’s Development Fund have teamed up to develop biofuels as a source of power for wireless networks in rural India. The three organizations will begin using biofuels to power mobile base stations located beyond the reach of the electricity grid.

The first phase of the project, which is testing the feasibility of non-edible plant-based fuels, such as cotton and jatropha, is nearing completion. The second phase of the project will entail setting up a supply chain using locally grown crops to produce biodiesel to power between five and 10 base stations in the Maharashtra region. The goal is to have these base stations powered by cotton or jatropha by mid-2007.

Biodiesel has several important advantages over conventional diesel as a power source for base stations. Biodiesel can be produced locally, creating employment in rural areas, while reducing the need for transportation, related logistics and security. Biodiesel has a much lower impact on the environment than conventional diesel. The cleaner burning fuel results in fewer site visits and also extends the life of the base station generator, reducing operators’ costs.

The Indian government is encouraging companies in India to adopt biofuels and India has the potential to become a leading exponent of this alternative power source. The early adoption of biofuels will give Idea a pioneering role in the development of cost-effective and environmentally-sustainable mobile networks to serve rural communities

See also : India

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With almost three-quarters of India’s population living in rural areas that often lack a reliable power supply a pilot project in Pune, Maharashtra, India has commenced. Indian mobile operator Idea Cellular, Ericsson and the GSM Association’s Development Fund have teamed up to develop biofuels as a source of power for wireless networks in rural India. The three organizations will begin using biofuels to power mobile base stations located beyond the reach of the electricity grid.

The first phase of the project, which is testing the feasibility of non-edible plant-based fuels, such as cotton and jatropha, is nearing completion. The second phase of the project will entail setting up a supply chain using locally grown crops to produce biodiesel to power between five and 10 base stations in the Maharashtra region. The goal is to have these base stations powered by cotton or jatropha by mid-2007.

Biodiesel has several important advantages over conventional diesel as a power source for base stations. Biodiesel can be produced locally, creating employment in rural areas, while reducing the need for transportation, related logistics and security. Biodiesel has a much lower impact on the environment than conventional diesel. The cleaner burning fuel results in fewer site visits and also extends the life of the base station generator, reducing operators’ costs.

The Indian government is encouraging companies in India to adopt biofuels and India has the potential to become a leading exponent of this alternative power source. The early adoption of biofuels will give Idea a pioneering role in the development of cost-effective and environmentally-sustainable mobile networks to serve rural communities

See also : India

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Blue Freeway aims to serve as a central sales and access point for its member companies, which it claims will provide a total online and mobile marketing solution. The firm is targeting top 1,000 corporate and government agencies, both of which are increasingly using online channels not only to advertise but to interact with consumers.

The company says they can help brands connect with a consumer audience that is increasingly segmented as a result of new service take-up.

Their largest acquisition is the $19 million buy-out of Destra Hosting, an already successful business with some 13,000 customers. They have also taken a 100% interest in Forty Two International, a content management specialist, 50.1% stakes in MassMedia Studios, Spin Comm, Deepend Sydney, Agency Fusion and Ixion Interactive, as well as 20% shares in Communicator Interactive, Cogentis and eHound.

They recently announced that Destra Hosting has completed an upgrade for Emap Australia to support a radical increase in online readership and the launch of new multimedia products.

Blue Freeway claims to be the country’s “largest specialist digital and interactive marketing group” with more than 800 clients and 200 staff.

See also: Australia Digital Media

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Global infrastructure nearing collapse – We are rapidly entering a panic-driven boom and bust cycle in infrastructure building.

However, unlike the last few international traffic-driven cycles, this one will be concentrated on local access.

At the moment 50% of the traffic is consumed by less than 5% of Internet users. And, with an ongoing range of new services like Joost, Apple TV and INUK being added to services such as MySpace, BitTorrent, Google, Yahoo, MSN and YouTube, it is only a matter of time before the other 95% catch up.

There is, of course, no way that the global telecoms network would be able to handle that, and this time it will be the local access network that will suffer.

Wild growth in local access
Over the next five years we will see a wild growth of local infrastructure projects, using whatever technology can be used and whichever service provider is willing to offer local access.

I am concerned that even within our industry there are still people who believe that it is not going to be a major problem, as compression technologies will allow more capacity over existing technology. Believe me, we do need these technologies, but the broadbanded countries will still run out of capacity as early as the end of this year.

Dark fibre providers setting the scene
There are a number of quiet achievers who have been adhering to the message over the last few years, and who have started to look at solutions.

These are the providers and users of dark fibre networks.

Dark fibre networks are super-efficient and super-cheap networks that will now need to be deployed beyond their current niche markets. These networks are presently deployed in some cities (Stockholm since 1990). Many universities and hospitals have their own networks.

This will become the future model for nationwide last-mile access as well. Continuing to resist it will only aggravate the pain the incumbents are enduring, as well as hampering the economic growth of the countries involved.

Expect the bust in 2012/2013
As in previous cycles, this will attract plenty of cowboys, and we will once again see a lot of grief, from investors and from customers who will find themselves stranded with a rogue provider.

I expect the bust to take place around 2012/2013. However, I hope that by then we will have structurally separated infrastructure providers who can mop up the various stranded local access infrastructure assets.

I am pleased to report that there is now more global consensus that the real solution is structural separation, which will lead to the development of very focused, cost-efficient infrastructure operators.

You might recall that I started to call for this solution back in 2000. For a long time I was a voice in the wilderness, with just a few supporters in the OECD.

Financial world getting on board
At that time, my comments inspired some abusive reactions from the financial market, since they didn’t see this as being in the interest of the shareholder. But things have changed, and now it is only the incumbents who are trying to stop the waves. And not even all of them are resisting – in Europe, in particular, at least half a dozen incumbents are preparing for structural changes and, according to my analysis, Telecom New Zealand is doing the same.

US regulatory model is bankrupt
For the last few years I have also seriously criticised the American telecoms environment.

For a leading economy the USA is performing poorly in areas such as mobile and broadband, and for many years I have argued that this is due to the FCC’s flawed regulatory models.

The USA, which was way ahead of the rest of the world in liberalising its telecoms environment, is now one of the most monopolised markets (a duopoly between cable and telecoms companies). This is a very unhealthy situation. I was accused of heresy when I argued a few years ago that even in the USA I could see structural separation taking place. And I predicted that, in the end, AT&T and Verizon would become the infrastructure operators, and that the cable operators would use them for their entertainment distribution

I am now, at last, receiving support from more and more of the American financial analysts, who are beginning to argue for highly specialised infrastructure providers.

One minute to midnight
It is most regrettable that the decision-makers in our industry are coming to that conclusion so late in the day. I don’t think that we will be able to hold back the tide of municipalities, local ISPs and others who are beginning to involve themselves in local access infrastructure – well beyond their level of understanding of this market.

In that respect I agree with the telcos, who are saying that they are much better-suited to do this. However, most of them believe the solution is to revert to a monopoly (net neutrality, regulatory holidays, etc). This is no longer acceptable in today’s world; they can complain for as long as they want but that era has gone forever.

The only way to prepare for the incredible boom in the demand for local access is to create highly efficient infrastructure.

We urgently need operators who can build these networks at the lowest possible cost. And, as I have said many times, this a national interest issue. However, with the financial market now coming on board new, more helpful, financial models are being developed. And the financial market is awash with private equity capital. What a great way to use this money – for important national infrastructure investment.

Paul Budde

See also:
Global – Telecommunications Industry and Regulations

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