Archive for December, 2008

Vodafone New Zealand Ltd Analysis 2008

Monday, December 29th, 2008

Wholesale strategy – MVNO and LLU

By late 2008 Vodafone was poised to make some inroads into Telecom’s dominance of the wholesale market. This follows its acquisition of ihug, as well as its strategy to utilise MVNOs and to provide wholesale fixed-line voice and broadband products via LLU.

The company began its wholesale LLU strategy in Auckland, where it has been unbundling exchanges, and will then continue this strategy through the rest of the country. Vodafone currently offers fixed-line LLU services to Auckland residents.

Vodafone already has MVNO agreements in place with Compass, M2 and Orcon, yet these providers had failed to launch their retail services by late 2008. M2 is set to come to the market with its 3G post-paid mobile offering.

Vodafone will be offering two types of MVNOs. One is based on bulk minutes and data, which gives customers the choice to do what they want with their retail plans. The other offer will be a ‘lite MVNO’ where customers will white-label Vodafone’s existing products and pitch them differently to the retail sector.

The project has taken longer than expected as Vodafone has had to make a lot of adjustments to its network. The company has had to replicate retail systems for wholesale, which has involved the rebuilding of systems in some cases.

Product strategy

Vodafone has traditionally been focused on the consumer market in New Zealand but its fastest growth is now coming from the business space. The operator’s international roaming presence gives it an edge over Telecom in some key business customer segments. Business customers offer higher ARPUs with long sales term agreements giving more stable revenue. However, Telecom still dominates the business mobile sector.

As more and more consumers turn to their mobile devices as substitutes for iPods, PCs, cameras and TVs the opportunities exist for Vodafone to layer in advertising targeted at specific market segments. Its client base will prove to be a very valuable asset; in particular single people are attracted to Vodafone and are in a market segment that advertisers highly value.

If Vodafone can bring to market interactive advertising aimed at carefully targeted segments it potentially could out-perform Telecom in this sector. Customers could be enticed with free content, texts and voice minutes in exchange for accepting mobile advertising. The challenges for Vodafone will be to work out ways of delivering advertising in ways that appeal to customers, rather than irritate them.

Vodafone is also likely to target the space were the mobile sector converges with the PC, laptop and BlackBerry type devices. More and more laptops are now embedded with 3G and faster modems. Fixed-to-mobile convergence in both the residential and business sectors is another area that Vodafone has begun to tap into, aided by the acquisition of ihug.

Vodafone has a strategy in place of growing beyond the mobile-only market, with an aim of 10% of its revenue to be generated from additional non-mobile elements by early 2009.


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Remote surveillance by webcam

Tuesday, December 23rd, 2008

HomePatrol utilises your computers webcam to record video when motion is detected, sending an e-mail snapshot to a specified e-mail address or via FTP (File Transfer Protocol) to a remote location.

Multiple cameras can be supported at once with date and time overlay on snapshots and video, along with support for IP cameras and the ability to shrink video file sizes.

HomePatrol allows you to:

  • Record video when motion is detected
  • E-mail snapshots to a specified e-mail address
  • FTP snapshots to a remote location
  • Schedule when HomePatrol should monitor
  • Playback captured videos

HomePatrol features:

  • Support for almost any webcam
  • Sensitivity settings to determine when movement should be recorded
  • Support for multiple cameras at once
  • Date and time overlay on snapshots and video
  • Support for compression codecs to shrink video file sizes
  • Support for IP cameras

See also: Global Digital Media

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The submarine cable market 2008

Tuesday, December 23rd, 2008

The submarine cable market 2008

The demand for bandwidth continues to steadily increase. Around the world, the Internet is becoming more and more important to both the economy and society. Web 2.0 services have also fuelled the demand for bandwidth as users embrace online video, music and voice.

In response, there have been more announcements of proposed submarine cable system build-outs in recent years than in any other time since the last boom of 1998-2001. This activity in the submarine cable sector continued throughout 2008 with many cable build-out announcements coming from around the world. Network upgrades were also on the agenda for some existing systems.

The impact of the global credit crisis on the submarine cable sector in 2009 cannot yet be fully determined as many current projects are already funded. There are however many planned projects still to be funded that may well suffer as a result.

The credit crisis may well result in more collaboration, with companies working together to share building costs. The Unity Project is an example of such a model – Bharti Airtel, Global Transit, Google, KDDI Corporation, Pacnet and SingTel are sharing the cost of building an undersea cable from Tokyo to Los Angeles.

After the collapse of the previous submarine cable boom at the end of 2001, BuddeComm predicted a revival in this market before the end of the decade. The first signs began to appear in around 2004, coinciding with an increasing demand for bandwidth. We were reasonably confident in this prediction, as the submarine market is fairly predictable, due to its relatively lengthy planning and building cycles.

There was actually nothing wrong with the concept behind the dotcom era, but, as is now being demonstrated in the subprime housing market, greed can take over in the financial sector and ruin things, for a time at least.

Dotcom was all about new applications that would generate the next level of revenues for the ICT industry.

The subscription-based model for telephony and Internet services was approaching its due-by date and new models were needed. The dotcomers had the right vision at the time, but the infrastructure needed to deliver those applications was not available. And without the necessary national infrastructure the demand for international traffic declined, creating havoc in the submarine telecoms market.

But then broadband infrastructure became more available and applications such as Google, YouTube, MySpace and FaceBook became overnight successes. Then, of course, the demand for international networks returned and by 2007 new submarine networks started to appear on the agenda. On the Pacific route, for example, traffic is doubling every two years.

However, by then the telecoms business model had changed and those involved in the new market didn’t wish to operate in the international market in the same way the cosy cartels had been doing for over one hundred and fifty (!) years. But changes are also arriving in this market. For example, in relation to the proposed Unity Cable between Japan and the US, consortium members like Pacnet are allowed to operate fibre pairs independently in the system.

Companies like Google now depend for their revenue, and therefore their financial results, on people having access to good quality broadband, and that particular Internet media company – now one of the largest companies on earth – has a great deal of clout.

They are not at all interested in the old cartels; they want competition and innovation that will result in low cost access to their applications. Australia, in particular, is – due to a lack of competition in this market – suffering from relatively high international access charges. Because the Internet is an international system the telcos and ISPs who deliver local access are faced with very high international access bills, which they naturally pass on to their customers. This makes these services more expensive in Australia than in markets where there is more competition.

With its participation in the Unity Cable, Google is set to become a strategic player in the submarine business. It certainly doesn’t want to become a telco, but it is using its money and influence to steer the telco industry in the direction it wants. And, as well as being good for Google, this will also be good for future telco applications developments.

The company is in the same position regarding the US spectrum auctions, in relation to more competitive local access networks (eg wireless). The telcos would like to maintain the status quo, with them being the gatekeepers and toll collectors. But this is stifling competition and innovation, and we need companies the size of Google, News Limited and Microsoft to liberate us from the iron grip the incumbent telcos presently have on this market.

Pacnet is one of the other players in the Unity submarine consortium. This company is an international infrastructure operator, but it also has a thriving ISP business and, like Google, the latter requires good and affordable access to advance along the lines mentioned above.

The Pacnet combination of being involved in both international submarine networks and ISP business makes sense from that perspective. Over the last few years they moved their ISP business away from the consumer market to the business market and in that move they have also become a major provider of IP-based solutions, serving the carrier market as well as large enterprises and SMEs. However in coming years they may have to make a decision about which way to jump. Once the submarine business has become commoditised again it is in the interest of the ISP arm to seek the best possible deal, even though that may not be achieved through its own internationals infrastructure business.

The submarine telecoms industry is undergoing a transformation, and the two new developments around Google and PacNet are only the tip of the iceberg. Many more changes will follow and these will lead to a much healthier international telecoms environment than we have seen in the past.

Spotlight on Asia Pacific

For some years, the area of telecommunications infrastructure most in trouble across the Asia-Pacific region has been the struggling submarine cable business. In the late 1990s, companies such as Level 3, Asia Global Crossing and FLAG Telecom constructed a massive amount of capacity with billions of dollars in investments, only to find weakening demand and declining bandwidth prices.

The market moved into crisis in 2001 and major restructuring began to occur within the sector. The depressed market persisted even as prices continued to fall. The situation finally started to change in 2006, when a series of new submarine infrastructure projects for the Asia-Pacific region were announced. There were all the signs of recovery in the market with a significant increase in business activity occurring over the 2007/08 period.

It is estimated that Asia has been the recipient of about one third of the worldwide investment in submarine cabling. This has been a natural consequence of the number of islands to be joined and seas to be crossed. But more importantly, it has anticipated a massive future demand for bandwidth between the major Asian centres and between Asia and the rest of the world. And that will only be satisfied by undersea cables. While operators were re-writing their business plans as a consequence of the earlier slowdown that had occurred, it had nevertheless been self-evident that optical fibre submarine cabling would continue to play a major role in telecom infrastructure development in the Asia-Pacific region.

The general perception of a glut in bandwidth capacity on Asia-Pacific routes also caused some confusion in the market. It was certainly true that investment in submarine cables was no longer bringing the rapid returns it once did. Companies were finding it increasingly difficult to raise capital for undersea cable ventures as a consequence. At the same time, customers of undersea cable operators were finding it difficult at times to get enough capacity on Asia-Pacific undersea routes. Consequently operators built the largest possible cables to meet demand and gain a cost advantage over competitors. A combination of sluggish global and regional economies conditions, the perception of over-capacity on some routes, and questions about the level of return on investment inevitably saw a slowdown in the construction of submarine cables in the region.

The oversupply of submarine cable capacity in the region has been in the intra-regional networks rather than in the large regional and trans-Pacific cables. A significant number of new intra-regional cables have come into service over the last few years. These included FNAL (FLAG North Asian Loop), EAC (East Asia Crossing), APCN 2 and C2C, resulting in around 16Tb/s of extra capacity. Only a tiny fraction of this capacity was being used. On the other hand, the trans-Pacific routes were not seen to have this luxury of oversupply of capacity and the pressure to lay more such cables has been steadily mounting.

Despite the fact that market rationalisation was taking place in Asia, there remained a flood of capacity and regional carriers were still struggling. Cross-border capacity prices were continuing to slide throughout Asia.

The formation of Reach Ltd in 2000 saw a significant player enter the market. Comprising a 50-50 joint venture between Australia’s Telstra and Hong Kong’s PCCW, it resulted in the consolidation of a global network with a strong Asian focus. Reach gained an ownership interest in around 50 submarine cable systems. The operator signalled its intention to further consolidate its market position when, in late 2001, it acquired the Asian assets of Level 3 Communications. These included Level 3’s North Asian cable system and capacity on the Japan-US (J-US) cable system, as well as data centres in Hong Kong and Tokyo. It followed this up by signing major capacity leasing and interconnect deals with Level 3 to strengthen its global capability. However, the fragile nature of this market was highlighted when, in February 2003, Telstra and PCCW announced a dramatic write down of their Reach assets, after reduced demand and tough price competition seriously damaged revenues. The write-down totalled US$1.6 billion in value and, in Telstra’s case, an adjustment of US$546 million meant that the value of its stake in Reach had been reduced to zero.

Demand for international capacity continued to be the fundamental engine driving submarine cable system deployment in the Asia-Pacific region. The vast majority of that demand will result from data/Internet-related usage. The second ranked segment in terms of demand was corporate, but that only accounted for less than 10% of overall demand. The strong demand for bandwidth coming from India and China has resulted in a more aggressive involvement of operators from these two countries in the submarine cable market. From India in particular we have seen VSNL, Bharti Tele-ventures and Reliance Infocomm all moving into the business of international telecoms infrastructure, with a strong focus on submarine cables.

By early 2006, following several rough years, the global bandwidth market was showing signs of improved health in the form of supply equilibrium, price stability and competitor consolidation. Persistent international bandwidth demand growth has depleted the amount of spare capacity on many submarine cables. This resulted in many network operators, including VSNL, FLAG Telecom and Asia Netcom, among others, lighting additional wavelengths and fibre pairs on an ‘as-needed’ basis. This incremental approach to managing spare circuit inventories has meant that lit bandwidth supply and bandwidth demand were coming into balance. This did not mean, however, that a network construction boom was pending. Instead, operators needed to make more of what they already had. According to TeleGeography, by the end of 2006 little more than 14% of the potential capacity on major submarine cables around the world was lit.

By mid-2007, there were at least six new cable projects mooted to cross the Pacific and help meet a particular predicted shortfall in capacity between Asia and the US as Asia’s broadband usage increases. Asia Netcom CEO Bill Barney said that stocks then in existence may well be exhausted by as early as 2013 but he warned that should all six proposed cable systems come to market, competition would consign them all to failure. In September 2007, Level 3 was warning of a trans-Pacific capacity bubble by 2009, although not all carriers agreed with this view. Level 3 believed that with eight cables planned for deployment on the trans-Pacific route over a two-year period the risk of such a bubble was high. While there were real drivers for new Asia cables – revenues remained relatively high and there was an obvious need for diversity – there was also potential for over reaction. Plans already in place would see six new east-west cables – TPE, AAG, Asia Netcom, Flag, Japan-US and Unity – rolled out in 2008/09 and another two north-south from Telstra and Pipe Networks planned over the same period. From about 2Tb/s of lit capacity in place, the proposed cables were set to release as much as 6Tb/s of initial lit capacity on the market.

The level of activity in the sector may be curbed somewhat in 2009 in the wake of the financial crisis. The large telcos in Asia may take a more cautious approach to infrastructure investments.


For further information see separate reports:

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Morocco role model for future developments

Tuesday, December 23rd, 2008

Morocco is one of the most advanced telecommunications markets in Africa and often seen as a role model for future developments in other parts of the continent. It features a majority-privatised, highly profitable incumbent telco, three fixed and mobile network operators, as well as the highest penetration and some of the lowest prices on the continent for broadband Internet access. 2007 saw the introduction of 3G mobile broadband services, and within 18 months this sub-sector had taken almost a quarter of the broadband market. The boundaries between fixed and mobile are beginning to disappear as technologies and services converge. Innovative new services have been introduced such as the first commercial IPTV service on the continent. To accommodate the increasing amount of voice and Internet traffic, international connectivity and fibre optic national backbone networks are being expanded, and WiMAX is being rolled as the next-generation access technology.

For more info see: 2008 Africa – Telecoms, Mobile and Broadband in Northern Region

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Malta’s telecom market – looking beyond its island boundaries

Tuesday, December 23rd, 2008

Although it has one of Europe’s smallest telecom markets, Malta has impressively kept up with fast moving developments in the mobile and broadband sectors. The incumbent GO, fresh from its rebranding in 2007 and invigorated by capital from its parent Emirates International Telecommunications (EIT), became one of the region’s first quadruple-play operator, offering fixed line and mobile telephony, Internet and digital TV. The company has sought to expand beyond the necessarily limited economic potential of the island’s population, setting up a holding company with EIT which bought a 34% stake in Forthnet, a major Greek ISP. This marked GO’s first expansion in oversees markets. Another major player, Vodafone, chose Malta as its first European market to set up a WiMAX network, which now reaches most of the island. The move was part of Vodafone’s strategy, since repeated elsewhere in the region, to expand into the fixed-line and broadband sectors and so cushion the effect of overall declining mobile revenue.

Melita Cable has also pushed its influence beyond the cable TV business: in late 2007 Melita Cable signed an agreement with third 3G licensee, 3G Telecommunications, to roll out the mobile network and offer voice and data services. The addition of 3G Telecommunications will make Melita Cable a fully integrated quad play operator.

For more information, see the updated report Malta – Key Statistics, Telecom Market & Regulatory Overviews.

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