Archive for June, 2009

The emerging Australian Smart Grid Market

Monday, June 29th, 2009

The Australian electricity market will undergo a massive transformation over the next decade. The transformation will be caused by environmental and climate change developments, as well as the fact that production of fossil fuels has reached its peak due to unprecedented demand. This will result in significant price increases which will accelerate the development of alternative energy resources.

The electricity industry is therefore on the eve of the most important overhaul in its existence. It is one of the last industries to face digitalisation – this is essential to manage the above mentioned pressures.

Furthermore, with higher end-user energy prices, customers will become more vocal and will need better ways to manage their own energy use and their carbon footprint. All of this leads to developments around intelligent electricity infrastructure or smart grids. These developments will bring with them enormous challenges, but also untold new business opportunities. Our report provides general background information on the electricity utilities market, focussing on the communications aspects.

While privatisation will assist companies to be better prepared for these developments, major government policy initiatives are required to give clear direction to the market.

Smart grids support the delivery of electricity to consumers using digital communications technology to improve efficiency and reduce costs. The next few years will be a crunch years for smart grids. Fortunately the implementation of the government’s smart meter project, planned for 2007 has been delayed till 2009, enabling the utilities involved to review their plans, while at the same time allowing for a national review of the regulatory regime. This needs to be changed so that utilities will be encouraged to invest in smart grids rather than just in smart meters. Victoria took the leadership in smart meters and that made many utilities also focus on the underlying infrastructure; building on this we will start seeing the first smart grids arriving in Australia in 2009.

The major players building smart grids in Australia are mostly large energy retailers and producers supported by IT and telecommunications firms. Country Energy and EnergyAustralia are perhaps the most active in this area. The period over 2009 and 2010 is likely to see significant development by firms relating to smart grids driven by government initiatives.

Slowly some of the CO2 policies such as the Cap and Trade system as well as policies in relation to renewable energy started to become clearer. Intensive lobbying aimed at risk aversion rather than at looking towards new opportunities, is making it more difficult to drive changes through new technologies for renewable energy and for smart grids. It could well be that in the end, clean energy policies driven by photovoltaics are going to be the catalyst for the development of smart grids.

Utilising the momentum of this development the government has earmarked a $100 million investment in a smart grid demonstration project which will be linked to the National Broadband Network initiative in Australia.

This is a significant shift away from the smart meter debate which originated in 2004. This initiative was around the utilities’ need to be able to capture electricity usage in 30-minute intervals. This enables differential pricing by time-of-day and enables utilities to discourage certain types of ‘non-time-critical’ use during periods of high demand. Reducing peaks has a major impact on electricity generation costs – alleviating the need for new power plants and cutting down on damaging greenhouse emissions. However, based on the latest environmental policies, the debate needs to be shifted to smart grids.

Key highlights of the new BuddeComm Report:

  • In 2009 new business models are beginning to emerge as the players entering the smart grid space begin to seriously take note.
  • The market is shifting from a focus on energy savings to one on facilitating the feed in and the management of renewable energy.
  • This is closely linked to the rapid developments in photovoltaic technologies.
  • The government is supporting this with a $100 million trans-sector demo project which involves the Departments of the Environment, Energy and Broadband.
  • Until recently the market was stuck within the rather narrow context of smart meters. Good progress has been made, with Victoria now leading this development.
  • Utilities are also involved in the NBN and in particular plans to invest $250 million in the backbone network for this project.
  • Country Energy is set two launch two large scale smart grid projects in 2009. Most other utilities are now at least looking at pilot projects.

BuddeComm’s latest publication Australia – Smart Grid Market profiles this emerging market. It provides policy and strategy analysis as well comprehensive market overviews on the electricity utility market and the added smart grid eco system that is rapidly developing around it.

For more information see: Australia – Smart Grid Market

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Mobile’s need for fibre

Monday, June 29th, 2009

It was interesting to see that in New Zealand Vodafone had second thoughts and decided to come up with its own proposal of forming a consortium of network operators, rather than simply supporting the government’s announcement of its FttH plans.

BuddeComm’s analysis of this change of mind is that mobile operators increasingly need fibre networks to sustain the enormous growth in mobile broadband.

Most mobile stations around the world are not connected to a fibre network.

Driven by developments such as iPhone and Android, and in particular the applications that are possible with these devices, the operators are pushed to upgrade their network so as to be able to cater for all the extra capacity needed for these new services. You only have to look at those awesome Android applications that let you point your mobile phone camera (with an inbuilt radar device) at the buildings in a street to see which are for sale, in which of them business jobs are available, and where restaurants, shops, etc are all linked to Google maps, street view and other applications.

After a decade of failing to develop this market themselves it has become clear that the mobile operators are no longer in charge – they are being pushed in this new direction by the applications and mobile device providers. Backhaul demand created by mobile broadband applications will lead to a rather rapid upgrade to LTE networks. Capacity demand on such networks could be anything from 300Mb/s to 1Gb/s per cell site.

The scramble for iPhones, and soon no doubt the Androids also, is turning the operators from mobile leaders to mobile followers. This has been predicted by us for more than a decade (since the arrival of WAP in 1997).

The problem for mobile operators in saturated markets is that the service revenue predictions for the next five years are looking rather flat, while at the same time they are being forced to continue to invest more and more into their network; more mobile stations and, more importantly, a fibre-based backbone. Rolling out fibre takes time and wireless broadband is growing fast, so before long the mobile operators will also be faced with a timing problem. For them, national fibre optic networks, especially open networks based on wholesale, can’t come quickly enough.

The mobile-only operators have great difficulty getting attractive access prices for their fibre optic backbone needs. They need to be able to use these networks on a utilities basis, rather than one that is based on the premium rates charged by the vertically-integrated fixed operators.

And so it doesn’t come as a surprise that when the opportunity arises the mobile operators will begin to become involved in any large-scale fibre optic infrastructure developments.

Paul Budde

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End to the telecoms boom in Lithuania

Monday, June 29th, 2009

Since independence, Lithuania embraced market reform and joined the European Union, overseeing rapid economic growth characterised by large real wage increases driven by declining unemployment and emigration, EU sourced development funds and extremely rapid credit growth. Like its Baltic neighbours to the north the global financial turmoil brought a sudden end to Lithuania’s boom, with eight years of consistent annual growth giving way to forecasts of a 10% contraction of the economy in 2009.

Despite the difficult conditions the telecoms market is expected to fare well given the essential nature of most telecom services although it may accelerate ongoing trends such as fixed mobile substitution, evident by an annual decrease in fixed telephony revenue and lines in service.

Internet services are widely available in Lithuania, with broadband representing 99% of Internet connections. Healthy infrastructure-based competition is evident by the falling fixed broadband access average revenue per user levels of telecoms incumbent TEO, which is the largest ISP with 50% of total fixed broadband subscriptions. Alternative broadband access platforms include cable, fibre and wireless.

However the competitive landscape continues to evolve as mobile network operators aggressively price mobile broadband services at rates competitive to those of fixed-line services. With broadband access becoming increasingly commoditised, service providers are shifting focus to Internet-based convergence services such as broadband TV (IPTV) or bundling of separate services to increase ARPU levels.

Widespread Internet usage is forming the basis of an Internet economy, characterised by businesses and government bodies operating online in hopes of reaping benefits such as improved efficiency, convenience, and accessibility. Take up of such services is expected to increase as the number of Internet users rises and familiarity with such services grows.

Lithuania’s mobile sector remains the largest despite its share of total telecom market revenue falling from 47% to 44%. SIM card penetration has surpassed 100% with GSM/WCDMA services available via several mobile network operators and mobile virtual network operators. To grow revenue service providers are focusing on increasing usage and hence revenue per subscriber, mainly in the form of minutes of use and marketing of HSDPA-based mobile broadband services. The latter holds much promise given the current low mobile broadband penetration levels and hence strong annual growth rates of mobile broadband take up.

Market and industry highlights:

  • Broadband accounts for almost 100% of all fixed Internet subscriptions. Rapid growth has elevated fibre to the second most popular fixed broadband access platform. Rural broadband has received a boost following completion of a publicly funded rural fibre backbone network, the Rural Area Information Technology Broadband Network (RAIN). An open access philosophy ensures all operators can access the network on a wholesale basis only, with approximately 7,000km of fibre on the network rented as of early 2009. Future efforts centre on developing beneficial administrative, educational, commercial, administrative and culture online services.
  • Widespread business usage of e-government services is evident, with 75% uptake as businesses take advantage of the ability obtain information, forms and return forms online. Private uptake of e-government lags but is expected to grow on the back of increased awareness and recognition of its benefits. Similar initiatives extend to the health and education sectors, with the scope of such initiatives expected to broaden due to EU commitments to online services.
  • IPTV is the most popular method of access digital TV. Telecoms incumbent TEO is well positioned to take advantage of the growing interest and uptake of digital TV services, given that it offers both IPTV and digital terrestrial TV services. The proportion of cable TV subscribers on digital services is low, presenting an opportunity for cable TV operators to introduce improved and potentially higher-priced service offerings.
  • Mobile broadband is the next growth opportunity for mobile network operators, with take up of HSDPA-based mobile broadband penetration at only 6%. Competition will increase as mobile WiMAX services are available from Lithuanian Radio and TV Centre (LRTC) and cable TV operator Balticum TV. The future growth path of mobile broadband take up is expected to emulate that of the mobile voice market over the coming years as the cost of access and capable handsets decrease and end user awareness and ease of use increases, in turn leading to some cannibalisation of broadband subscribers between the fixed and mobile markets.

BuddeComm’s Annual Publication, ‘Telecoms, Mobile, Broadband and Forecasts in Lithuania‘, provides a comprehensive overview of the trends, developments and market forecasts in the telecommunications and converging media markets in Lithuania.

For more info see: Lithuania – telecoms, Mobile, Broadband and Forecasts.

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The demise of Nortel

Monday, June 29th, 2009

While the deal between Nortel and Nokia Siemens Networks (NSN) is still far from certain BuddeComm generally supports the move because it will keep this successful element of the Nortel business alive.

Nortel had a good reputation. It had good products and a strategic forward plan for LTE, and all of this seems to be secured under the deal. This is good for the customers as well as for the broader industry developments. Nevertheless it is still sad to see Nortel disappearing, as it has been a company that gave strong support to the emerging second- and third-tier telcos that began arriving in the market during the 1980s and 1990s.

NSN is not as strong on the North American market so it makes good sense for them to buy the wireless CDMA and LTE assets from Nortel. It will significantly boost its position in this market. It will also keep up the pressure on the competition since there will still be five major players in this market, and as such it will hopefully speed up LTE developments.

The sale of this business by Nortel is an indication that its demise is indeed approaching – it is the beginning of the end for this once most respected company. The fact that they couldn’t sell the whole company is an indication that they will struggle with the sale of other assets now that the crown jewels have gone.

Other assets that they could sell off will more or less disappear within the divisions of the companies that might acquire them and these assets will only be judged for the relative minor value they may add to the strategic position of those who buy them. Siemens and Avaya might be interested in some parts of the Enterprise assets, but Nortel will have difficulty fetching good prices for them.

It could end up more like a fire sale.


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Trans-sector report presented to Minister Joyce

Monday, June 29th, 2009

A report presented to Minister Joyce by industry analyst Paul Budde might assist the country to unlock significant economic and social benefits that the $1.5 billion fibre investment can deliver.

It is clear that you can’t build an FttH business model based simply on high-speed Internet. Even supplemented by TV the business models won’t stack up.

At the same time there is little opposition to the premise that FttH is the future.

Also, for a long time it has been accepted that FttH can deliver health, education and smart grid applications – however, other than an ongoing number of pilots, not much progress has been made on this front.

Trans-sector thinking is needed to break through this barrier. We need to see FttH investments as infrastructure investments in e-health and tele-education as well as for telecoms purposes.

Together with a group of international experts Paul Budde has written a report on trans-sector thinking. This has now been presented to the governments of four countries: USA, Australia, Netherlands and New Zealand.

All these four governments acknowledge the importance of the trans-sector concept and are looking at this approach within the context of their own country. The way they will go forward will most certainly be different in each country, but that means we can all learn from each other.

For more information please see: Australia – Trans-sector thinking leading to smart communities

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