BuddeBlog

Meeting at Ericsson
While recently in Sweden I enjoyed a day with Ericsson, an important part of which was spent acquiring a better understanding of IMS.

This was accomplished via a number of discussions and demonstrations. I always find Ericsson very responsive to my preference for in-depth discussions with their key experts, rather than powerpoint presentations.

As many of my colleagues will know, spending an hour or so with broadband guru Martin Harriman is always invigorating.

But back to IMS …..

The role of IMS
First of all, it is important to place IMS within the context of other developments, such as NGN and FttH.

NGN, FttH and IMS

• NGN is a concept that addresses the access and integration of core systems – from billing to network management and from mobile to fixed.
• FttH addresses the user access to these systems and, through them, to the many applications and services.
• IMS is a technology standard that organises all of the applications stored within the NGN systems.

IMS allows telcos to offer the users the same or probably a better user experience than they currently get from the new media companies through web-based systems.

Managing the digital media
While one could argue that IP alone can also create such an environment it could be in the interest of the telcos to themselves develop a network that could provide such an experience. This would most certainly have added value, and it would also enable them to offer these ‘application organisation’ services to the content and service providers. As an IP machine IMS offers a framework for global IP applications, interoperability and access to mass markets, while the alternative doesn’t deliver that framework.

With their national and international reach telcos can create much larger networks than the new media companies. However, the longer they wait to generate their NGN-IMS-FttH strategies the more market share they will give away to the new media companies.

In the past, the incumbent companies could afford to allow these newcomers get a foothold in the market, and just buy them up later, but this is no longer an easy option. Telcos can no longer buy up companies willy-nilly – some simply can’t afford this anymore, and some of the newcomers have grown to such levels that they could easily gobble up a few telcos if they wanted to.

Key tool for telcos
The interoperability of applications over the various networks is a very powerful tool for telcos in their battle to maintain their position in the market. Yet they have been slow to seize this opportunity; to date no more than half a dozen of them are seriously involved, while, as usual, the others have test beds and pilots but very little action.

Yet the companies that have implemented IMS are also the leaders in securing their share of the application management market. They include Telefonica, Sprint, Swisscom and Softbank. The key reason has been that IMS delivers good cost savings, and this is the first thing that telcos need to realise if they wish to compete with the Internet media companies.

While each implementation is very different, as I have said on other occasions, an average of 30% cost saving is the minimum a telco should aim for when looking at IMS. Once that is in place telcos can move on and use IMS to improve the customer experience through multimedia, and to expand their revenue base through new applications, clever billing and packaging options.

From mobile to fixed networks
Interestingly, although IMS was first seen as a major tool for mobile operators it has been the fixed operators who have taken the lead. Mobile operators are even further behind in embracing the brave new world of applications – their efforts to date have mainly been aimed at protecting their extremely lucrative mobile phone business

It will be impossible to replicate that level of profitability in any other part of the telco industry and they will try for as long as possible to milk the current market before moving more seriously into other applications.

NGN would be the ideal system for IMS to operate on, but it also works on the existing environment. It can link broadcasting, PCs/Internet, 2G and 3G systems.

IMS tool for new business models
Of course, new IMS business models will, like the Internet, have to look at advertising and permission-based models. But, here also, there is now enough evidence that these are becoming sustainable business models. Furthermore, based on their national and interactive operability, telcos’ networks will have clear advantages that they could exploit, both for content providers and advertisers.

While the opportunities are endless I did pick up on a few applications that might not be well-known at this stage, such as:

• A service that allows remote parental control. Services are controlled via the TV set-top box, but a child can ask parental permission to watch content that is blocked and the parent can, via the mobile phone, provide (or not) the requested permission
• In healthcare, an SMS or message can be sent to a patient to double-check that they have taken their medication.

Paul Budde

See also: Global – Telecommunications Infrastructure and Fixed Voice

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New auctions were conducted in November 2000. Optus had established a subsidiary company, Agility Networks for the purpose of participating in the LMDS auction. The company is interested in LMDS as an access technology which provides an opportunity to expand reach and access new customers.

They obtained 500MHz of spectrum in all areas. Shin Satellite obtained 150MHz of spectrum in regional Western Australia and regional South Australia.

In an interesting industry coup the service went live, only a few days after they had acquired the spectrum! They had used their test licence and the engineering services of their supplier to roll out a ‘real’ network that could be switched on as soon as the licences were acquired. In the process that had taken the first movers advantage away from AAPT. As there will be a limited number of ‘early adopter’ business customers over the next few years, being the first operator in this niche market is a great advantage.

Optus, through Agility will use LMDS to overcome the access problem involved in delivering high-speed services to their customers.

The technology, supplied by Alcatel and used by Agility can be classified as 2nd Generation (2G). It is much more reliable. During the recent storms in Dubbo and the Gold Coast the service remained in operation – in Dubbo the LMDS dish survived even when the roof next door was ripped to pieces by the storm.

By 2001 they had 35 wholesale sites in place. In that same year Agility was rolled back into Optus’s xDSL subsidiary XYZed.

By 2005 Optus was using a range of wireless broadband technologies such as UPStarcom, Alvarion and iBurst from PBA. It was also considering using the Unwired spectrum and technology options.

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A Whirlpool web site user survey of 16,500 Australian broadband users has found that the broadband market is maturing and that value for money in 2005 has not grown as much as it did in 2004.

The survey found:

• Broadband users are shying away from long contracts, and will switch ISPs if they find a better deal, or a better service;

• VoIP usage has also increased overall;

• Just 37% thought competition is working well in broadband;

• Just 18% thought the ACCC is doing a good job;

• And less than 2% thought that Telstra’s management team is doing a good job;

• Some 82% agreed that ISPs needed to reduce their reliance on Telstra.

The survey contained good news for metropolitan city wireless networks:

• Some 56% thought a wireless broadband offering would be useful;

• 40% would be prepared to pay a $10 monthly premium;

• 18% an extra $20.

In terms of pricing, BigPond, Netspace and People Telecom experienced drops in satisfaction, with Optus registering a sharp increase after recent plan revamps, found the survey. Customers on Telstra and Optus Digital Subscriber Line (DSL) are not happy with the speed of their connection in contrast to their cable counterparts, the survey found.

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The University of New England, TransGrid, Country Energy and AARNet signed a memorandum of understanding in August 2002 for a new, high-speed telecommunications link between Armidale and Sydney.

Building on Commonwealth funding from the Department of Education, Science and Technology, the University of New England (UNE) has now increased its capacity to the AARNet hub in Sydney by almost 20 times from 8Mb/s to 155Mb/s using optical fibre provided by TransGrid. This link will allow the UNE to establish a telecommunications hub at Armidale that would have the potential to accommodate activities undertaken by New England TAFE and New England Area Health Service, as well as a future technology park.

AARNet acted as the nominated carrier for the TransGrid fibre link between Armidale and the AARNet’s Sydney hub-site at the University of Technology, Sydney.

Country Energy provided an optical fibre link between TransGrid’s substation in Armidale and UNE, and will explore ways in which UNE’s telecommunications hub can be used in the provision of high-speed telecommunications services in Armidale and the surrounding district. BPL would also be trialled at Armidale as a pilot project.

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With new services popping up on a regular basis offering to send you video over the Internet, the network operators feel that small clips are fine, but TV quality and especially high-definition programming could make the Internet choke.

If home users start to get away from the common home Internet use of an email here and a web page there, instead watching streaming video like they watch TV – for hours at a time, that puts a strain on the Internet. The Internet wasn’t designed for that, and beefing up the Internet’s capacity to prevent that will be expensive.

To offset that cost, telcos and ISPs want to start charging content providers to ensure delivery of large video files. Internet activists and consumer groups are vehemently against those plans. They want legislation to guarantee a neutral Internet.

The solution, of course, is to make the pipes connecting to the Internet fatter. Developments in several countries around the world are addressing this issue. There are now new fibre initiatives in many countries, Japan, Korea, Netherlands and USA are leading here.

The EU has developed guidelines for regional developments in Europe and in Australia the government is working with the industry to build a state-of-the-art alternative regional high-speed wholesale access network.

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The broadband ISP market underwent significant changes during 2005 and 2006.

The key development has been the aggressive charge by Telstra into the overall broadband market. This certainly has increased awareness and increased penetration, which, of course, is good for the country. However, at the same time, Telstra’s strategies have also resulted in a sharp drop of ARPU and that is seriously affecting the more vulnerable competitors, who don’t have a $4 billion profit buffer. At the same time wholesale costs over that period have not decreased. Margins in this market have dropped to 20%. This is not enough to cover the costs involved in customer acquisition and a good quality customer service.

Telstra is offering baby broadband (256Kb/s) for $29.95, with a $19.95 monthly charge for the first 12 months, based on a 2-year contract. At the same time the company is able to throw in other services, such as exclusive access to certain content. Within the current market structures it is virtually impossible for competing ISPs to come even close to the content offerings that Telstra can throw in. The ACCC is keeping a close watch on this situation – it has flagged it as being of serious concern.

Under competitive pressure ISPs are also forced to ‘throw in’ free installations and free modems, making economically viable business models even more precarious. While ARPUs are coming down the cost of customer acquisition is going up.

Table 5 – Residential Broadband ARPU and change – 2004-2006

Year ARPU pm Change

2004 $55 -40%

2005 $42 -24%

2006 (e) $35 -17%

(Source: Paul Budde Communication)

The price busters at the bottom of the market have ARPUs as low as $25pm.

The only way for the broadband resellers to survive in the residential market is to live off the ‘penalties’ that customers have to pay when they go over their broadband limits – not the best way to create a bond of trust with your customers. The other alternative is, of course, to move into the business market. While the margins are significantly better in this segment, customer expectations are also higher and only ‘the best’ are able to survive.

Still, most ISPs are ‘trapped’ in the customer acquisition cycle. With dwindling ARPUs more customers are needed to sustain the business. In this vicious circle they are focusing totally on access and have little time or money to spend on market segmentation, customer service and value-added services. This has resulted in yet another year where more than 90% of ISP revenues depend on ‘commodity’ access.

On the market side, the only way forward for the industry is to move into triple play models, providing voice, data and video services. To be able to deliver a QoS product of this type requires a minimum of ADSL2+ capacity.

On the industry side, the only way forward in the ISP market is consolidation, and with ARPUs continuing to fall this is not a sustainable way forward. This applies to both 2nd and 3rd tier players in the market. Merger and acquisition announcements are taking place across the market every week.

It is actually amazing that, despite the onslaught that is taking place in this competitive market, since Telstra started the campaign in 2005 it has only been able to increase its retail market share from approximately 40% to 43%.

Dial-up Internet

By late 2005 nearly half of all the Internet subscribers had moved to broadband. Dial-up in the business market is negligible.

Table 6 – Residential Dial UP Internet ARPU and change – 2004-2006

Year ARPU pm Change

2004 $18 -28%

2005 $16 -11%

2006 (e) $13 -19%

(Source: Paul Budde Communication)

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Analysis of the deal part 1

Telstra’s relentless and aggressive move into the media is forcing media players such as News Ltd and PBL to reconsider their alignment with the incumbent. They are uneasy partners in Foxtel, and with that experience behind them there is little hope that any further significant media deals will be signed between these three players.

It will be interesting to see whether the Optus/PBL deal is a genuine new development. We first saw the network-sharing arrangement with Vodafone, another move in the direction of structural separation between infrastructure/technology on the one hand and content on the other.

It is most encouraging to see that Optus is beginning to position itself as a really different player, a far cry from the duopolist position it has taken so far. However, ‘one swallow does not a summer make’ and it will be tempting for Optus to stick as far as possible to the easy duopolist model.

I have earmarked Optus as being in the box seat to profit from this development – eventually, hopefully, beyond the current mobile content deal it signed with PBL in June 2005. It certainly can work, but it will be interesting to see if Optus has enough to offer to PBL, since it has very limited infrastructure in the market in which PBL is interested.

As I have argued before, it would be great to see if such a relationship were to push Optus back into infrastructure development. A very large part of the company’s Hybrid Fibre Coax (HFC) network is fibre-based, which could be used to build out a Fibre-to-the-Home (FttH) network. However, the current regulatory environment is not very conducive to this. With the government extending Telstra’s monopolies, any new infrastructure development in the residential market would be suicide.

The present relationship between the media and the telco company should be judged as a strategic move; the current mobile play is (hopefully) a sideshow, which will result in bigger and better development in wireless and fixed broadband.

A new deal with Telstra? Part 2

Following the Google smoogle announcement in 2005 it appears that Telstra has decided not to follow suit and snipe at Microsoft. Rather than take them on as well it has decided to have a look at how others are moving into the digital media, as it was reported in March 2006 that Telstra and ninemsn are plotting a new relationship.

While the nature of that relationship is still very much a question mark it will be most interesting to see how Telstra is going to fit this new relationship into its already crowded and confusing new media activities. One possible option is a merger between ninemsn and Sensis. But I doubt if ninemsn wants the restriction connected to Telstra’s ownership of BigPond. Foxtel would be an even bigger loser in such a deal and its complaints about the Internet would only increase.

Over the last few months we have seen Telstra BigPond moving into IPTV; we have seen Foxtel complaining about the threat of the Internet to its pay TV business; and we even seen the Minister weighing in with (God forbid) new regulations.

Without this ninemsn development Telstra already has a range of conflicting interests which it will need to solve before it can secure its future position in this market.

• Telstra versus Foxtel –neither company will be able to reach its full potential under the current structure.

• Telstra’s return on its $10 billion infrastructure investment cannot be maximised if it blocks wholesale companies from using this infrastructure in an economically viable way.

• Sensis can’t grow into a fully-fledged media company while it forms an integral part of Telstra – there will always be conflicts of interest to prevent this company from maximising its position in the market.

Whatever way I look at a possible ninemsn deal I can’t help but see it conflicting, overlapping with or distracting from one or more of the company’s other activities in the market.

It looks as though Telstra again wants to try and control as much as possible of the vertical market in digital media: infrastructure, portal, content and services. I wouldn’t be surprised if this is one of those new media constructions that the Australian Competition and Consumer Commission (ACCC) referred to as ‘keeping a close watch on’.

PBL/ninemsn has its own sets of conflicting interests. It is also involved in Foxtel and it already has a new media deal with Telstra’s archrival Optus.

Paul Budde

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Overview

Regional Internet Australia (RIA) is an innovative ISP based in Townsville North Queensland, with a strategy of delivering triple play services via ADSL2+ and wireless 3G broadband to residential and business subscribers in regional and rural Australia.

The telco is building out a regional ADLS2+ broadband network in Northern Queensland. By early 2006 it expects to have installed DSLAMs in several main towns across Northern Queensland, including Cairns, Townsville, Mackay and Mount Isa.

It has chosen Ericsson to roll out the network. Following this are plans for a full triple play service and plans to supply 3G wireless broadband network using UMTS-TDD technology which RIA intends to use to complement its ADSL network.

Ericsson’s EDA DSL equipment, including IP-DSLAMs, is provisioned to offer RIA customers high-quality Internet services. The vendor’s IP-DSLAMs support the latest ADSL2+ standards, with speeds of up to 24Mb/s speeds.

In July 2006 RIA escalated its rollout plans for ADSL2+ deployment down Australia’s east coast, utilising Ericsson’s ADSL2+ broadband equipment. In June 2006 RIA launched triple play services into its second Queensland market of Cairns, following Townsville and by July 2006 was extending its services down the coast servicing regional Australia, either alone or in tandem with other telecommunications partners or interested entities.

Demand for its services has been very high and has spurred the carrier into accelerating its build into new areas such as Mackay and Rockhampton, Gladstone, Dalby in addition to smaller under-serviced regional centres in between. The addition of video on demand services is expected to follow later in 2006.

IPTV rollout

Together with their systems integrator CombiTel RIA selected IPTV company Kasenna’s PortalTV to deploy advanced TV, VOD services and MPEG-4 ready IPTV applications for Triple Play services over its broadband networks.

The initial roll-out, started in September 2006, and provides Broadcast IPTV and advanced VODservices in addition to highspeed Internet to about 20,000 subscribers in two regional cities, Townsville and Cairns, with further expansion planned into other towns.

PortalTV, Kasenna’s blueprint for integrated delivery of Television and Internet video content, is built on a standards-based web services platform, enabling service providers to rapidly deploy IPTV services for immediate revenue generation while positioning them for Internet video content delivery.

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In November 2005, Australian telecommunications research and analysis firm Telsyte launched a new research publication, The Australian Internet Market: Narrowband and Broadband Services.

The report finds that current trends of consolidation and flattening growth are set to continue between now and 2010.

Other findings include:

• Narrowband (dial-up) Internet services have now peaked in Australia and will decline to fewer than 800,000 services by 2010;

• The migration of broadband customers towards higher-speed services has already begun. Telsyte expects services at 1.5Mb/s or greater to dominate the subscriber demographic by 2010;

• Towards the end of the decade, customer growth will decline as the penetration of Internet services aligns with the growth in the number of households.

The residential market will remain the engine-room of broadband growth. Telsyte expects broadband customers to continue to migrate to high-speed services so that by 2010 most will have abandoned entry-level 256Kb/s broadband. Services at 1.5Mb/s or faster will then comprise the largest single customer demographic.

Overall Internet penetration is currently at more than 6.2 million subscribers. In the short term, the huge customer churn from dial-up services to broadband will mask the relatively flat overall growth in subscriber numbers.

As penetration nears its peak and market growth falls into line with the growth in the number of households, ISPs will have to focus on improving the profitability of their existing customer base rather than recruiting new customers.

The need to build the future on your existing customer base will make the next two to three years vital to any ISP that wants to guarantee its future success. In the broadband market especially, providers have only a relatively short time to recruit and secure this customer base.

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In September 2005, to put forward its case for the company’s future, Telstra produced statistical information on competition in the broadband market.

The company has taken into account retail services provided by Optus’s HFC network and DSL Access Multiplexer (DSLAM) operators – areas that are not accessible for broadband because of pair gain are not earmarked as ready for service, and, as such, are not included in these statistics.

It is obvious that Telstra is arguing that this proves that competition is alive and well, and that no further regulatory changes are therefore necessary.

On a retail level that certainly is the case. In the Internet market Telstra has approx. a 25% market share of the dial-up retail market and in broadband they have a 40% market share.

Table 1 – Competitor Infrastructure Coverage in Metro Areas – 2005

State Metro Services in Operation (M) Metro Competitor coverage (M) % Metro competitor coverage

Brisbane 0.59 0.40 67%

Sydney 1.55 1.30 84%

Melbourne 1.23 1.01 82%

Adelaide 0.44 0.37 83%

Perth 0.61 0.56 92%

Total Retail 4.42 3.64 82%

(Source: Telstra)

Table 2 – Competitor Infrastructure Regional Coverage – 2005

State Regional Services in Operation (M) Regional competitor coverage (M) % Regional competitor coverage

Queensland 1.20 0.08 6%

New South Wales 1.99 0.01 1%

Victoria 1.33 0.04 3%

South Australia 0.41 0.003 1%

Western Australia 0.47 0 0%

ACT 0.14 0.10 72%

Tasmania 0.25 0.01 3%

Total Telstra Retail 5.79 0.24 4%

(Source: Telstra)

Table 3 – Competitor Infrastructure Coverage Total Market – 2005

State Total Services in Operation (M) Total Competitor Coverage (M) Total % Competitor Coverage

Queensland 1.80 0.47 26%

New South Wales 3.54 1.32 37%

Victoria 2.56 1.05 41%

South Australia 0.85 0.37 44%

Western Australia 1.09 0.56 52%

ACT 0.14 0.10 72%

Tasmania 0.25 0.01 3%

Total Telstra Retail 10.23 3.88 38%

(Source: Telstra)

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