Archive for April, 2012

Regulator permits OTE to relaunch retail and wholesale VDSL in Greece

Monday, April 30th, 2012

Economic conditions

Greece’s continuing period of economic difficulties provides little course for optimism. In return for two bailouts amounting to some €240 billion the government has been obliged to introduce a range of austerity measures, as well as sell many assets including a significant stake in the incumbent telco OTE. A recent debt sustainability report from the IMF, ECB and EC warned of a 160% GDP debt ratio by 2020 if Greece fails to deliver structural reforms including €3.3 billion in cuts for 2012 alone and further reductions in public sector jobs. Dwindling revenue from taxes as businesses fail effectively means that Greece has little chance of returning to growth in 2013, as the bailout providers hope. Indeed, new debt issued by the government in 2014/2015 depends on economic recovery, and since creditors are unlikely to purchase Greek debt if the economy falters the government is likely to require an additional €50 billion bailout after 2014.

Telecom revenue overview

Greece’s telecoms market has been significantly affected by the contracting economy, with a number of operators posting falling revenue and increased borrowing costs. The market has contracted since 2008, exacerbated by retail competition which has driven prices down, and the effects of a number of regulator measures. The market has been buoyed by the broadband and nascent mobile data sector, though operators should look to tough times for two to three years at least.

Broadband market

Greece’s internet market is underdeveloped by EU standards, with relatively low penetration rates. In the absence of an effective competing cable broadband platform, broadband is dominated by DSL though LLU has in recent years steadily eroded the market dominance of OTE. Consumers can expect faster services from mid-2012 when OTE is able to re-launch its VDSL offers suspended in 2011 over wholesale pricing and access issues. Delays in building a national FttX network – initially aimed at delivering 100Mb/s services to 40% of the population by 2015 –prompted a number of telcos in 2011 to discuss a shared open access network incorporating some or all of the operators’ existing duct and cable infrastructure.

Mobile market

The mobile market is dominated by Cosmote, Vodafone and Wind Hellas. The bankruptcy of Wind Hellas and its re-emergence in early 2011 under the auspices of a holding company, encouraged Vodafone briefly to consider buying the operator. Wind is investing in network upgrades in a bid to rebuild its business viability. Thus far, take-up of mobile broadband and high-end data services has been slow though the recent auction of 900MHz and 1800MHz spectrum should provide a boost for LTE services in coming years.

Greece– Key telecom parameters – 2010; 2013

Sector

2010

2013 (e)

Subscribers to telecoms services (million):
Fixed broadband

2.21

3.15

Mobile (SIM cards in service)

18.0

17.8

Mobile broadband

1.7

2.25

Fixed-line telephony

3.51

2.87

Market penetration by sector:
Fixed broadband

20%

26%

Fixed-line telephony

46%

41%

Mobile SIM (population) 118% 116%

(Source: BuddeComm)

Key Highlights

  • GSM licences due to expire were auctioned in early 2012 rather than offered for automatic renewal. The auction generated much needed revenue for the government, and will enable the three MNOs to pursue mobile broadband options in their bid to increase revenue in coming years.
  • OTE’s suspended VDSL deployment has been cleared for re-launch from mid-2012 following the regulator’s decisions on access and wholesale pricing. The move will boost the availability of higher broadband data speeds for consumers, so helping Greece catch up with its European neighbours.
  • The government’s national strategy for fibre access networks is aimed at building a nationwide open access FttH network providing 40% geographic coverage by the end of 2015 at an estimated cost of €2.1 billion (mostly derived from the private sector). Delays have pushed back delivery to 2018, while the regulator has since facilitated negotiations between six telcos to develop a cheaper national FttB network.

BuddeComm’s half-yearly publication Greece – Telecoms, IP Networks, Digital Media and Forecasts, provides a comprehensive overview of the trends and developments in the telecoms and digital media markets in Greece, including the regulator’s latest market data, operator data to the end of 2011 and market developments into 2012.

For detailed information, table of contents and pricing see: Greece – Telecoms, IP Networks, Digital Media and Forecasts

 

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Vodafone’s bid for C&W Worldwide reinforces need for fixed-line backhaul

Friday, April 27th, 2012

Vodafone’s recent bid for C&W Worldwide represents an astute move for a company which in recent years has expanded from its mobile sector roots to the fixed-line market, in the process becoming a significant player in the bundled services sector in several countries. These include Germany, Portugal (where it has a fibre network sharing agreement with Optimus) and Spain (where it currently has an 8% share of fixed-line subscribers).

In early 2012 C&W Worldwide came under scrutiny following a long period of poor investment, an overly complex management structure and high opex. The company reported stable revenue in the 2011 financial year but a 5% decline in the half-year to September 2011 (year-on-year) and an 11% fall in EBITDA. Nevertheless, revenue still reached £1.07 billion for the period. The operator sits on valuable assets, including an extensive international network, a stake in numerous cable systems and points-of-presence in some 35 countries (with partnerships which extends this to about 150 countries). Within the UK, it also manages an extensive fibre backbone, mainly used by the business market but covering more than half of the population.

On both counts, Vodafone sees this infrastructure as crucial for its global ambitions: within the mobile data sector, in order to avoid capacity limitations Vodafone needs an extensive fibre backhaul to offload traffic. Internationally, it can now carry much of its voice and data traffic in-house, so saving on peering fees currently paid to other providers. In the UK alone, Vodafone pays up to £200 million annually to lease BT’s lines.

For more analysis on these developments, see the updated reports:
United Kingdom – Mobile Market Insights, Statistics and Forecasts and
United Kingdom – Key Statistics, Telecom Market and Regulatory Overviews.

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Pyrrhic victory for AFL

Friday, April 27th, 2012

The victory that the AFL scored against Optus in its battle to stop the telco from enabling users to view recorded sporting events via the mobile phone network could have a serious long-term negative effect on that sporting organisation – the victory could ultimately turn into a defeat.

While the Federal Court might be right in ruling that Optus is actually doing the recording, and not individual users, and that as such the company is in breach of copyright, the reality is that the technology to record such events on mobile phones, tablets and smart TVs will allow for the development by some of the world’s two million application developers of new applications that enable users to do so directly, and in accordance with the ruling.

So, whether it is Optus or millions of individuals doing this, the end result for the AFL and other sporting codes will ultimately be the same. Most, if not all, of their traditional business models will need to be reviewed and changed in the wake of these developments – otherwise they will become yet another casualty on one of the information highways.

In our previous comments on this topic BuddeComm has questioned the effects of these recording services on the traditional sporting services. It is unlikely that users are going to gather en masse around smartphones to watch these games, so in that respect the value of the rights that Telstra bought will not be affected. Instead this application is an add-on, an opportunity for extra revenue, rather than one that is competing with their other services.

Nevertheless the long-term implications of new technologies will have an effect on the traditional services, with or without court rulings. Rather than wallowing in the false security of the ruling, content providers should start looking at the opportunities that are now becoming available through the use of new technologies and begin to explore potential business models around them.

The music industry is an excellent example. The traditional industry was devastated by the onslaught of the digital economy. It refused to adapt and entered into all sorts of legal battles trying to protect its traditional market. Ultimately it failed. In the meantime, those prepared to look forward rather than backward began to develop new models and since last year the music industry is – for the first time in close to a decade – growing once more.

And in the process Apple has become one of the largest players in this market, with 220 million iTunes users.

It will be impossible for any industry to stop the flow of technology and, rather than fighting it, they should start looking at how they can adapt and develop new revenue streams. So far no sector has been able to successfully stem the tide – there are plenty of examples in newspaper publishing, telecoms, the film industry, broadcasting, retailing and others that can be learned from.

Paul Budde

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Portugal’s fibre sector accounting for 75% of all new broadband subscribers

Friday, April 27th, 2012

Economic conditions

Portugal’s mid-sized telecom market provides one of the highest contributions to GDP in the EU, though this has fallen slightly during the last few years, reflecting the general economic malaise. And the stagnation of the sector country is among those in Europe most affected by the crisis. The government’s high proportion of debt to GDP has jeopardised public-funded telecom infrastructure upgrades and placed a greater burden on the private sector to deliver fibre-based infrastructure. The newly elected government has set budget deficit targets to 2015. Spending cuts required to achieve the fiscal overhaul, which are expected to cause Portugal’s economy to contract by 2% in 2012, will affect growth, consumer spend and business investment.

Telecoms overview

Broadband penetration is below the EU average while mobile penetration is among the highest. The incumbent Portugal Telecom has seen its share of the total traffic market (voice and internet) gradually fall in the face of competition, though it retains a dominant share in both the voice and DSL markets. Market revenue is expected to fall slightly to 2013, in line with lower sector investment, as operators face regulatory burdens compounded by consumers spending less on services. Operators have reported declining revenue for several quarters, and little respite is anticipated in the near future. PT has weathered the times better than competitors on the strength of its subsidiaries in Brazil.

Broadband

Vibrant competition in the broadband sector belies the fact that only four operators have about 94% share of the market by subscribers. The three MNOs also offer mobile broadband through their upgraded mobile networks. The number of broadband lines has grown substantially in recent years, and is expected to reach about 7% in 2012. The impressive fibre sector offers among Europe’s fastest services, with ZON Vodafone and Sonaecom providing 360Mb/s downloads, trumped by PT’s 400Mb/s Meo Fibra offer.

Key telecom parameters – 2010; 2013

Sector

2010

2013 (e)

Subscribers to telecom services (million):
Fixed broadband subscribers 2.07 2.5
Mobile broadband 16.47 17.12
Fixed-line telephony 4.48 4.61
Mobile (SIM cards) 16.47 16.15
Telecom penetration by service:
Fixed broadband 21% 31%
Mobile telephony 155% 164%
Fixed-line telephony 40% 43%

(Source: BuddeComm)

Market Highlights

  • Data revenue as a proportion of total mobile revenue continues to grow at 2-4% per year following a number of promotional efforts by operators to increase use of data services and promote wireless broadband solutions. The proportion of non-SMS related data services is also increasing.
  • All three MNOs have trialled LTE using 2.6GHz spectrum, a development which will significantly aid broadband connectivity in rural areas in coming years. In March 2012 TMN launched commercial LTE services, offering data at up to 100Mb/s, access to live TV channels through Meo Mobile and to music streaming through MusicBox. The service, was available to about 20% of the population at launch, will reach 90% coverage by the end of 2012 using the company’s 800MHz spectrum allocation.
  • Portugal’s market for bundled services and IP broadcasting has a strong base in the country’s broadband network: triple and quad play has become increasingly popular during the last two years as operators’ investment in infrastructure upgrades bear fruit and customers take advantage of faster bandwidth, single billing convenience and cheaper prices resulting from greater competition.
  • Portugal has developed an effective nationwide strategy for deploying fibre, involving the cooperation of multiple operators, the government, and public subsidies. As a result, FttX in early 2012 accounted to 10.6% of all broadband connections, compared to 6.1% a year earlier.

BuddeComm’s half-yearly publication, Portugal – Telecoms, IP Networks, Digital Media and Forecasts, provides a comprehensive overview of the trends and developments in the telecoms and digital media sectors in one of Europe’s smaller but progressive markets. It includes data from the regulator’s 2011 yearbook, market data updates for Q4 2011, telcos’ operational and financial data to end-2011 and market developments into 2012.

For detailed information, table of contents and pricing see: Portugal – Telecoms, IP Networks, Digital Media and Forecasts

 

 

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The NBN and the opportunity for ‘virtual’ players

Thursday, April 26th, 2012

One of the most interesting opportunities that the NBN has to offer the entrepreneurs of new applications, content and services is that they can deliver these services to their customers without having to be involved in any of the infrastructure technology, making this distribution facility far more accessible for non-telco and non-ISP providers.

The NBN allows for a total break with the old telco models and innovative entrepreneurs can build specific services of which access is only a minor part – more along the lines of the internet media companies, apps stores, social networks, online retailers, etc. However these activities will not happen until there is a large enough market for them, which will take place at around 10%-20% NBN penetration. In the meantime some of the content and service providers are already planning for this. They are using the NBN as a lab to develop new services and there are several incubators in operation for that purpose.

It was therefore interesting to see that the first virtual NBN player, AusBBS, positioned itself as an ISP – an NBN-only ISP. There is not yet enough information available on this new company’s business model, so this analysis has to take a more general approach.

In general, competing with the existing big telcos on basic services has proved to be hazardous to say the least. We have seen that again and again. By simply relying on competing on price, as most of them do – just broadly copying the traditional telco model – they can never achieve a large market share. Over the last 10-14 years virtual telcos and MVNOs followed that same model and they too were never able to attract more than a few hundred thousand customers. With such low penetration they were unable to built scale that would allow them to spend the marketing dollars needed to become a real threat to the larger players in the market. Even together these virtual companies never occupied more than a few percentages of the market.

There is nothing wrong with a smaller size operation as you can build a nice niche business around a well-developed customer base, but the point we want to make here is that on this scale they will not be able to compete with the big boys.

Alternatively, companies such as AusBBS could establish a different ISP model, eg, a triple play version, or a free model linked to a different business model, where revenues are generated in a different way (Google, Facebook, etc). If they are a first mover of a successful totally new business model – such as, for instance, those initiated by internet media companies – then, yes, they could build a disruptive new model and could become a threat to the traditional players who only offer a range of rather basic services.

Players such as iiNet, Internode and TPG played precisely such a disruptive role when they started to introduce internet services, and it took the traditional telephone telcos several years to develop their own business models around the internet – and look how successful these players are now! So there are certainly similar opportunities around the NBN.

New NBN-only players will most certainly arrive and they will become successful. But success will not be achieved by companies who simply copy traditional models such as the ISP one – they will have to be innovative and disruptive.

Paul Budde

See also:

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