Archive for June, 2013

Good rollout but few customers for UFB in New Zealand

Saturday, June 29th, 2013

Excellent progress has certainly been made with the rollout of the UFB network in New Zealand, but at the same time it is essentially unused. Nor are there indications that there will be any significant use of this infrastructure among consumers for several years to come.

The consumer broadband infrastructure is an FttN network with the same old copper-based last-mile linking it to people’s homes. This not only fails to deliver the benefits of FttH, but because of the delay in rolling out FttH New Zealand remains stuck with a dysfunctional copper network regulatory regime (see below) that significantly hampers innovation.

While it is commendable that schools and hospitals are increasingly being connected directly to the UFB, the real social and economic benefits will be realised when these institutions can use their capabilities to deliver innovative services to people in their homes – be it self-education facilities, aged-care monitoring, tele-medicine or e-commerce. The UFB will lift all of these services to a totally new level that will make their delivery secure, reliable and of a requisite quality – something that is hard to do over the current infrastructure.

In order to address the underlying economic and social complexities that all developed economies are facing – the need for new jobs, the need to be globally competitive, addressing the ballooning healthcare costs, changing the medieval education system, etc – it is essential that services, applications and interactions be brought to the people, rather than bringing people to government institutions, retirement villages, hospitals, etc.

These innovations cannot happen unless the digital infrastructure is linked to people’s homes. So far, the government has failed completely in getting this message across to the populace – there has been no campaign to promote the many social and economic benefits which the UFB is set to deliver to New Zealand.

So much for a significant taxpayer-funded infrastructure project.

A key element to this is affordability. From Day One of the UFB announcement BuddeComm has expressed concerns about the lack of affordability, as the government did not address this issue. Entry level FttH access needs to be priced at around $30 to attract 80%-90% penetration.

Based on an entry level price for the UFB of around $75, with more competitively priced DSL services at significantly lower price levels, we predict a very slow and lengthy uptake period – and we believe that even then (beyond let’s say 2016) it will not reach much more than 30%-40% penetration.

At the same time in Australia, with an entry level price of around A$29 a month, penetration in some of the first national broadband network (NBN) release sites is now (already within a 12-24 month period) climbing above 60%.

It will be interesting to see what the political consequences will be for New Zealand, with UFB penetration levels still well below 5%. One can argue that the aim is first to deliver to businesses, schools and hospitals, but we would expect that even the usually very patient and amenable New Zealanders will start asking questions about the promises made by their government in relation to the UFB. It looks as though the great work done by those rolling out the UFB will be undone by the regulatory conditions that are preventing any serious consumer take up of the service.

However, in the absence of any significant consumer progress in relation to the UFB a far more pressing short-term issue is the regulatory regime for the existing copper-based network. Chorus has reneged on the structural separation legislation that prescribes a cost-plus wholesale pricing structure rather than the current retail-plus model – all as per the determination of the regulator.

To everybody’s surprise the government has rejected the determination and agreed with Chorus. This is now throwing telecommunications regulation into disarray, with considerable uncertainty for everyone involved until the government clarifies its position, or starts a whole new round of telecom policies’ review.

For more details on the UFB see New Zealand – Ultra-Fast Broadband Network – Overview and Analysis

Paul Budde

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Latvia’s incumbent edging towards 75% fibre broadband coverage

Saturday, June 29th, 2013

Latvia’s telecom market has been shaped by the EU’s 2002 regulatory policies and the revised 2009 New Regulatory Framework. The country is also a member of the Economic and Monetary Union of the EU, but it is not expected to introduce the euro until 2014 at the earliest.

Although Latvia’s economy showed considerable growth following independence from Russia, this was swiftly halted in 2008 as a result of the economic crash. Real GDP contracted almost 18% in 2009, the highest among the EU27 member nations. This improved in 2010, and by 2011 GDP growth reached about 5%, before falling to about 2% in 2012. This cycle has had a profound effect on the telecoms market, with consumer confidence in the economy resulting in lower expenditure on telecom services. The incumbent, Lattelecom, as well as the main mobile network operators, has reported lower revenue since 2008, creating a knock-on effect in the ability to fund network upgrades. Nevertheless, in contrast to many other economic sectors, spending on telecom services will be buttressed by the utility nature of most services.

Latvia’s broadband market continues to suffer from inadequate progress on local loop unbundling, though the government has stepped up its efforts to build a national fibre broadband network, recently securing funding from the EC.

A healthy digital TV market is evident, with offerings available from established cable TV, satellite, digital terrestrial TV and broadband TV providers. Digital TV uptake is increasing rapidly, and although parallel analogue broadcasting exists, the switch to digital terrestrial TV was completed in mid-2010, many months earlier than originally scheduled.

Four GSM/CDMA/WCDMA mobile network operators vie for customers in a competitive market. LTE services have been launched commercially, while the recent auction of 2.6GHz spectrum will enable four players to use this band for LTE from 2014.

Key telecom parameters – 2010; 2013

Sector

2010

2013 (e)

Subscribers to telecoms services (thousand):
Fixed-line telephony 552 455
Fixed broadband 1,197 1,750
Mobile 2,340 2,330
Penetration of telecoms services:
Fixed-line telephony 26% 24%
Fixed broadband 22% 29%
Mobile SIM (population) 103% 104%

(Source: BuddeComm)

Market highlights:

  • Fibre rollouts are dominated by Lattelecom, which offers access at up to 500Mb/s. A small number of other operators offer services in greenfield sites and in some urban areas. Recent regulatory measures are aimed at facilitating access to the national broadband network. Lattelecom aims to provide 75% fibre coverage in coming years, having reached almost 60% coverage by mid-2013.
  • The telecom market’s contribution to GDP has fallen in recent years, from 4.6% in 2005 to 2.9% in 2011.
  • Increasing competition in the mobile broadband market is evident as all four mobile networks offer generous amounts of bundled data. The challenge for mobile operators in coming years will be maintaining service levels across networks under heavy traffic loads.
  • Limited LTE services were launched in 2011, and have since been extended. Following the auction of spectrum in the 2.6GHz band, these frequencies will be made available to the four licensees from early 2014. National coverage of LTE from LMT in the 1800MHz band should be reached by the end of 2012.
  • The EC’s approval of funding for fibre networks supports the government’ own programme to build a national network, to be largely completed by the end of 2013.
  • The regulator’s award of 2.3GHz spectrum to LMT and Bité in 2012 will go some way to further developing the mobile data market.
  • The auction of spectrum in the 800MHz band, following analogue switch-off, will greatly boost mobile broadband services

BuddeComm’s annual publication, Latvia – Telecoms, IP Networks and Digital Media and Forecasts, provides a comprehensive overview of the trends and developments in the telecoms market in on one the more progressive Baltic countries. It incorporates the regulator’s market data to 2011 as well as more recent public consultations, telcos’ operating and financial data to Q1 2013, and market developments to mid-2013. The report provides an overview of the telecoms market including the mobile voice and data, broadband and digital media sectors.

For detailed information, table of contents and pricing see:

Latvia – Telecoms, IP Networks, Digital Media and Forecasts

 

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Myanmar announces new telecom licences: Telenor and Ooredoo chosen to develop the country’s mobile network

Saturday, June 29th, 2013

Current situation

The Myanmar government announced the winners of the selection process for two new telecom operator licences on 27 June 2013 as planned.

The government said in a statement: ‘Telenor Mobile Communications and Ooredoo have been selected as the two successful applicants in the Nationwide Telecommunications Licence Award Process.’ It added that a consortium consisting of France Telecom-Orange and Marubeni Corporation was named the backup applicant in case one of the two successful applicants does not fulfil the post-selection requirements contained in the Invitation to Tender.

Norway’s Telenor and Qatar Telecom’s Ooredoo were two of the more than 90 original applicants who responded to the invitation to submit Expressions of Interest. The government had established an independent committee in late 2012 to conduct an objective and transparent process for the selection of two telecom operators. The committee issued the invitation to submit Expressions of Interest (EOIs) and from the huge roll call of applicants proceeded to shortlist 12 companies as pre-qualifying for the two concessions.

The announcement of the successful bidders had been much anticipated. At the last minute, it looked as if it would not happen as planned. Amid considerable confusion, it was being suggested that the parliament would somehow block the licensing process, the argument being put that the awarding of the licences should not take place until the new Myanmar telecommunications law has been enacted. That legislation is currently making its way through the parliament.

In any event, the selection process has gone ahead and delivered the all-important outcome of two winners. Now we move to the next stage, with the licence winners set to face enormous challenges.

Background

The country’s telecom needs

The government has been talking about figures like 80% telephone penetration by 2016. Anything like this would indeed be an ambitious target, probably quite unrealistic. By 2012 overall penetration (fixed and mobile) was still below 10%. At least the government has acknowledged that it needs outside help – capital, technology, expertise – to expand its telecom network and start the task of increasing overall penetration. The targets need to be realistic however and will probably best be finalised after negotiations with the two licence winners are complete. It should be kept in mind that the country still only has a GDP per capita of less than US$1,000.

Likely levels of investment

The level of investment will obviously need to be tied to the planned/agreed expansion/penetration targets. In any event, we are talking substantial figures given the anticipated targets. Ahead of the licensing process, a figure of between US$200 million and US$500 million was being mentioned as the likely cost of a concession; in the meantime, one bidder has been quoted as estimating the required spending to develop a network in Myanmar at US$2 billion. Total investment in the country’s telecoms sector over the next 3 years could be expected to come in at around US$4 billion to US$5 billion, the majority of which would be FDI.

One of the winners, Ooredoo, has already said it plans to spend US$15 billion over the 15-year licence period, including operational and capital expenditure, licence fees and taxes.

The challenges and risks for investors

One of the biggest risks for the new companies entering the Myanmar telecom market will be the newly opened market itself. The market has already gone through a rapid deregulation process and there is more to come. Although excellent progress has been made and the government has shown a willingness to support the regulatory changes it has already put in place, there will no doubt be tougher times ahead.

Two key examples of how the government must stick to its plans:

  • At the present time, the regulatory role is effectively being played by the Ministry of Communications and Information Technology (MCIT). The government intends this role to be taken over by a new industry regulator, due to be established in 2015. This regulator must be established as a truly independent entity and it must be set up without delay. Even 2015 will cause problems.
  • As part of the market reform, it is understood that the state-owned incumbent telecom operator MPT is slated for ‘dismantling’, whereby it would end up as an operator working without government funding. Whatever form this proposed new Myanmar Telecom is to take, its structure, funding and role must be clearly defined and fully transparent right from the start. This applies to any other licensed entities. In this context, the sudden recent emergence of the army-owned MECTel is cause for concern; its role in the market as a potential telecom operator is unknown at this stage.

In other words, the market is still in the process of being opened up and the two newly licensed players will be entering the market while process is still taking place and major reforms are yet to happen. There are obvious risks involved in such a situation.

Another risk for investors in the Myanmar telecom market is the one highlighted by the exit of the China Mobile-Vodafone alliance from the bidding process last month after having initially been shortlisted. Put simply, the consortium exited because of the high anticipated cost of setting up the required network in Myanmar and, as the companies said in a statement, ‘the opportunity does not meet the strict internal investment criteria to which Vodafone and China Mobile adhere.’ Clearly the sheer size of the investment, combined with the already mentioned uncertainties in the market, will be a major challenge for the newly licensed players. The country’s relatively immature legal framework and the legislative framework for the telecom sector in particular will clearly remain an issue that foreign investors will need to factor into their investment plans.

Finally, although the parliament was not able to stop the licensing process, the message coming from the legislature this week is also a worry for would-be investors. With the telecommunications bill still making its way through the parliament, a motion passed by Myanmar’s lower house the day before the winners were announced stipulated that licences should go only to bidders that had domestic companies as partners in a joint venture. If there is an attempt to impose such a requirement or any similar requirements retrospectively then this would give rise to real concerns and potentially derail investment programs.

Peter Evans

Senior Analyst, Asia

See also: Myanmar (Burma) – Telecoms, Mobile and Internet

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Mobile broadband and smartphones fill Bolivia’s fixed broadband gap

Friday, June 28th, 2013

Bolivia is one of the poorest and least developed nations in Latin America, with correspondingly low telecom indicators. For example, mobile penetration is the fourth lowest in the region after Cuba, Haiti, and Nicaragua. This, however, is no less than would be expected considering Bolivia’s GDP per capita is likewise the region’s fourth lowest.

The structure of Bolivia’s fixed telecom market is different from most other countries. Local services are provided primarily by 15 telecom cooperatives. These are non-profit-making companies privately owned and controlled by their users. Since liberalisation, the cooperatives also provide long-distance telephony, and several offer broadband and pay TV services.

Bolivia has a multicarrier system where consumers can choose a long-distance carrier for each call by dialling the carrier’s prefix. A number of operators have adopted VoIP, while others use fixed-wireless technologies, and some rent fibre-optic capacity.

State-owned Empresa Nacional de Telecomunicaciones (Entel) is the country’s incumbent long-distance operator. It also offers local telephony, ADSL broadband access, and satellite pay TV services. Its subsidiary Entel Movil is Bolivia’s largest mobile company.

Bolivia’s fixed broadband services remain the slowest and the most expensive in Latin America, and are unavailable even in some of the major urban areas. Being a landlocked country, Bolivia has no direct access to submarine cable networks. It must therefore connect to the rest of the world either via satellite or through terrestrial links across neighbouring countries.

Since it was renationalised in 2007, Entel has focused on providing telecom services in rural areas under a project known as ‘Territory with Total Coverage’. This project aims to increase telecom coverage through mobile rather than through fixed networks.

Bolivia has more than ten times as many mobile phones as fixed lines, and the trend towards fixed-mobile substitution continues. Besides Entel, another two companies offer mobile telephony: Tigo, wholly owned by Luxembourg-based Millicom International, and NuevaTel, trading as Viva and controlled by US firm Trilogy International.

All three mobile companies offer 3G services using UMTS technology. Due to the poor quality, high cost, and unavailability of ADSL, 3G has become an attractive alternative in Bolivia. The number of mobile broadband and smartphone accounts has escalated. Although there are no exact official figures, we estimate that at end-2012, Bolivia had about 870,000 internet accounts with connection speeds above 256Kb/s. Of this total, about 14% subscribed to ADSL or cable modem, 3% used fixed-wireless or satellite technologies, 25% connected through mobile broadband, and 58% accessed the internet over their mobile handsets.

Market highlights:

  • Under the ‘Territory with Total Coverage’ project, Entel has expanded its mobile network and installed more than 1,500 base stations, reaching 337 of Bolivia’s 339 municipalities.
  • Cooperative federation Fecotel has been striving to become Bolivia’s fourth mobile operator.
  • The state broadcasting network Bolivia TV has launched the country’s first digital terrestrial TV (DTT) services, initially in La Paz.

For detailed information, table of contents and pricing see: Bolivia – Telecoms, Mobile and Broadband

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Macedonia – Delayed LTE auction preps for mobile broadband expansion in 2014

Friday, June 28th, 2013

The former Yugoslav Republic of Macedonia (Macedonia) has been a European Union (EU) candidate country since 2005. As part of the EU pre-accession process, the country has built closer economic ties with the Union: the EU accounts for 60% of Macedonia’s exports and about half of its imports. Closer regulatory and administrative ties with European Commission (EC) institutions have done much to develop the telecom sector and prepare the market for the competitive environment encouraged in the EU.

As part of EU integration legislation has implemented the principles of the EU’s regulatory framework for communications, established an independent regulator and set out a number of provisions to provide for a competitive telecom market, including wholesale access to the incumbent’s fixed-line network. Although the fixed telephony market has been liberalised, the incumbent continues to dominate the sector. Broadband services are widely available, with effective competition between DSL and cable platforms complemented by wireless broadband and a nascent FttX sector.

Broadband services are available via DSL, fibre, cable and wireless and the incumbent has launched IPTV services in competition with well-established cable TV operators.

Macedonia’s mobile market is served by a triopoly of mobile network operators, two of which benefit from the technical know-how and financial resources of parent companies Deutsche Telekom and Telekom Austria. Mobile data services are also available and this market is also expected to become increasingly important as new subscriber additions fade in the maturing mobile voice market. With WCDMA/HSPA networks in place, the focus for mobile data has shifted to mobile broadband offerings.

Key telecom parameters – 2010; 2013

Sector

2010

2013 (e)

Subscribers to telecoms services (thousand):
Fixed-broadband 257 342
Fixed-line telephony 413 400
Mobile telephony 2,153 2,245
Subscriber penetration rate:
Fixed-broadband 11% 16%
Fixed-line telephony 20% 19%
Mobile SIM 105% 109%

(Source: BuddeComm)

Market highlights:

  • Competitors are making inroads into the fixed telephony market, with alternative operators representing a growing proportion of fixed lines. EU-mandated regulatory measures have improved market prospects for competitors.
  • Broadband uptake growth is expected to maintain momentum during the next few years, with the incumbent placing greater emphasis in FttX networks.
  • Digital TV is widely available via satellite, digital terrestrial TV and broadband TV. The incumbent’s IPTV subscriber base has grown steadily in the wake of upgraded network capabilities, which has contributed to fewer customers to satellite services.
  • Competition is intensifying in the mobile market. Mobile number portability has grown rapidly following a reduction in fees. Mobile voice penetration is on a par with the EU average, while high-end mobile data services represent a considerable growth area for MNOs in coming years.
  • The regulator’s tender for the use of frequencies for LTE was suspended through lack of interest among operators. A renewed tender was expected by the end of 2013.

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

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