BuddeBlog

Whoever wins the upcoming federal election will have to articulate why Australian as a nation needs an NBN. And they will need to clearly convey why the government needs to be involved in this.  At the moment there is no clarity on the subject and this leaves room for the confusion that is exploited by politicians and some parts of the media.

The NBN is an investment that extends for the next 30 years, so we also need a vision that looks beyond the current term of government, and at present that vision – linked to clear policies – is still missing.

In BuddeComm’s opinion the reason the government should be involved in national broadband infrastructure is because of:

• national economic policy – to create digital productivity;
• social policy reasons – in order to be better-placed to address some of the enormous challenges that our society is facing (sustainability, environment, energy, healthcare, education and so on).

None of these challenges can be solved by broadband alone – but, equally, none of them can be solved without a first-class broadband infrastructure. Governments should supply the vision and the policies that will guide our society and our economy in that direction. This will give a clear direction for all those involved, in all sectors, to then develop the best possible infrastructure/ICT solutions.

These policies should also be used to break through many of the costly, inefficient and unproductive sector and industry silos. As we see elsewhere, the digital economy is able to take significant costs out of the economy, sometimes in the order of between 60%-80%. This is essential in order to address many of the current economic and financial problems being faced by western economies.

The current political debate – in particular from the Coalition’s perspective – is still mainly  focused on the plumbing. If that continues we will end up with a flawed plan for the future. Equally, the present government will have to quite dramatically change the financial foundations of NBN Co and put a far greater focus on the value of the transformative nature of the NBN, and better recognise the social and economic benefits it will bring to the nation.

Once the politicians involved (infrastructure, healthcare, energy, education, business, etc), together with their experts, have made an holistic national assessment they will need to develop trans-sector policies aimed at achieving horizontal social and economic benefits – let us say over a 10 to 20 year period (sector and industry transformations take a long time). Only then will it be possible to provide a brief to the ICT industry to come up with technical solutions.

Exhibit 1 – NBN policy focus beyond the election

 In the end (10 years from now) the basic infrastructure (national FttH/5G mobile networks) will be a national utility. It is extremely unlikely that there will be room for competing FttH networks.

5G will bring mobile towers to every corner of every street – totally integrated with the fixed FttH infrastructure. The costs of this deployment will gravitate towards mobile infrastructure dominance; look how much spectrum Telstra could afford to buy – it will soon be dominant in 4G infrastructure.

Only when the political parties are prepared to develop an holistic social and economic vision for our country – one that will take into account the tremendous technological capabilities that new ICT  developments are able to offer our society and our economy – will we be able to reap the full benefits of the national investment in the NBN.

There is still four months until the election and it would be great if, during that time, both Minister Conroy and Shadow Minister Turnbull could direct their NBN campaigns towards the issues mentioned above.

Australia is fortunate in having two of the most well-informed ICT Ministers in the world, and it would be regrettable if their expertise, insight and leadership were not directed in a more positive way towards those all-important national issues. After all, the Coalition has now come very close to the original NBN concept, so there should be much more room for a positive debate aimed at how to shape the NBN after the election.

Paul Budde

See also:

• Australia – National Broadband Network – mid 2013
• Australia – National Broadband Network and the Opposition
• Australia – National Broadband Network – Digital Economy

We have reported in the past on the rapid decline of the copper telecoms network in the USA. A decade ago BuddeComm predicted that it would be impossible to move two customer access networks in parallel towards the new fibre future, the one operated by the telcos and the other operated by the cable companies. At that stage we indicated that a possible outcome could be that the telcos would upgrade their networks to FttH and that the cable companies would become the key tenants on that network.

This however, turned out not to be the case. The telcos were late moving into broadband, while the cablecos embraced these new opportunities and rapidly obtained a 50%+ share in the broadband market. For a long time the market anticipated that the telcos would fight back and regain their share: this never happened and the cablecos were able to extend their lead further. With 90% cable penetration in the country they had a captive market.

Cablecos have also made considerable investments in network upgrades since 1996, including the rebuilding of around 1.6 million kilometres of cable plant. The vast majority of this infrastructure uses DOCSIS3.0 technology, which is far superior to the DSL products which telcos offer. The latest cable upgrade to DOCSIS3.1 promises a significant enhancement, which should be a great concern to telcos which, having failed to invest in FttH networks, are unable to compete with the technical ability of cable networks. Last year the telcos declared defeat and indicated that they would start closing down parts of the PSTN.

Interestingly, these developments align with the discussions I had over the last few years with the newly nominated FCC chairman Tom Wheeler. He is also on the public record on this issue, believing that the PSTN would end its life around 2018 and that the cable companies would become the key broadband providers. Of course, with his extensive background in the mobile industry he also sees a golden future for mobile communications, since these players would start taking over large parts of the PSTN, especially for telephony services.

One of the most serious problems that the telcos are facing is the escalating cost of maintaining copper plant – this is estimated to increase from $2.72 per line in 2007 to $17.50 by 2018. This rapid rise is a combination of real cost increases, because of the aging nature of the network, as also because telcos are actively reducing the number of users and so the cost has to be shared among fewer customers. Another reason for the rapid increase is that for decades past maintenance as been deferred.

Clearly the telcos are not closing down all of the PSTN willy-nilly. They do have good quality infrastructure that can deliver quality DSL services, and they will milk that infrastructure for as long as possible. This will specifically be targeted in areas where it is relatively cheaper to maintain the copper network. The main casualty here will be areas of rural America, where maintenance costs are higher and where there are relatively few competing cablecos operating. As a result, many of these telcos’ customers will only have mobile networks to access both voice and data services.

Another, perhaps even more serious issue – and one that the new FCC chair will have to face – is the rapid monopolization of the fixed broadband sector, with one cableco being the sole provider. These companies operate within franchises, so there is no competition between them. Currently there are no policies in place that regulate this situation, and with the American plutocracy in full force it will be interesting to see if any action will (or can) be taken by the FCC to rein in this emerging monopoly.

In the meantime the telcos are also under attack from companies such as Google: Google alone has refigured the landscape, having invested in FttH networks with great success. These companies’ high take-up rate is worrying both the telcos and the cable companies, who all charge exorbitantly high prices for services similar to the ones that Google now offers at close to half the price. They are increasingly working with municipalities around the country, many of whom either operate FttH networks or would like to do so but are blocked by court rulings forced upon them through the lobbying of vested telco and cable interests. Based on the strong American conviction that government (including local government) should not be involved in telecoms infrastructure, they get away with it. Increasingly however, citizens are asking why local councils can be involved in electricity infrastructure but not in telecoms infrastructure. There is a growing political groundswell that is providing municipalities with greater freedom to be involved in such infrastructure developments.

This could become a turning point in the American telecoms industry. Potentially it could also see the telcos returning to the market rather than retreating from it, this time starting from scratch by building new fibre infrastructure.

Paul Budde

For more information on these developments, see the reports

USA – Fixed and Wireless Broadband Market – Insights Statistics and Forecasts;

USA – Fibre to the Home (FttH) Market – Insights, Statistics and Forecasts.

The traditional media industry has been in turmoil since the rise of digital media platforms, which have impacted upon many aspects of the media industry of old. These changes, combined with an economic downturn, have led to much unrest in the media sector. Major competing sectors include TV and radio broadcasting, newspaper publishers, and the film, music and video industries.

The digital media companies are the clear leaders however, and to a certain extent there will be parallel developments: one driven by digital TV, using the traditional broadcasting networks; and one driven by broadband, using new fixed and mobile telco infrastructure. In 2013 the advertising spending being directed towards digital media continues to grow, further escalating the problems for the traditional media.

This report broadly describes and analyses the effect that digital media and convergence is having on the media industry. It uses the long-standing book publishing industry as a case study – one example of the enormous impact of digital media.

The report largely analyses information drawn from the results of several surveys relating to digital media usage in Australia over the period 2008-2013.

National Broadband Network – Changing the media model

For more than a decade the traditional media has been on notice regarding the changes to be faced because of developments in the digital media market. So far it has failed to take decisive action – partly because it was afraid of cannibalisation and partly because its business models do not cater for swift business action. This has brought about a decline in revenues but, far more importantly, it has failed to seize a share of the new market, which is now dominated by relative newcomers such as Google, YouTube and Facebook.

The national broadband network is the next stage. Again the media has largely been absent from this debate, but the national broadband network will create new changes with new options. The traditional media players can take a leadership role, looking at the trans-sector opportunities the network has on offer – or they can simply copy their outdated models onto it, perhaps by using the wholesale services of a telco.

Initial indications are that they are looking at more of the same rather than moving towards media innovation. The media companies do have strong brands and millions of customers, but how can they utilise this advantage?

The new Digital and Mobile Media

Often internet and mobile users connect purely for entertainment purposes – from updating social networks, browsing interesting websites, watching online videos, downloading and listening to music to trialling new apps and participating in games and gambling, the online and mobile platforms now offer countless services based on entertainment.

It is mobile broadband apps in particular that have attracted much attention over the past couple of years. A stream of new apps and services are now continually being released to the market and the entertainment and leisure sector is often the focus of these apps.

This report provides global and national overviews of the key areas for entertainment on mobile and fixed internet. It includes information and statistics on social networks, photo messaging, online and mobile gambling and gaming and digital music. In addition it provides a brief key study on selected companies and a look at the leading app stores.

The following sectors all have their own chapters in this publication as well as an overview of all the key players in that market:IPTV, Mobile Media , Apps, Premium SMS, Portals, Digital Entertainment, Music, Social Networks, Gaming, Mobile TV, Newspapers, Books

Smartphones and Tablets

Despite its phenomenal growth, which will continue for many years to come, the smartphone is set to eventually become a utility product.

This will first emerge in the developed markets, where smartphone penetration is now reaching levels of 60%-75%. This is mainly driven by Samsung and other Android-based smartphones, with Apple operating at the top end in the market, where people are prepared to pay a premium for the iPhone.

Touchscreen tablets have also become very popular, the most widely-known being the Apple iPad. The iPad has competitive threats, however, from the many tablet devices now on the market and the rising threat of Android.

The next frontier will be new markets that can be built on the smartphone platform. Of course this market is already well and truly underway. The limitations of the mobile broadband infrastructure are another threat to the smartphone business. One can develop all these new applications and services but there will be little use for them if the infrastructure cannot handle the capacity. Developed markets are now eating up new spectrum with a voracious appetite.

A new BuddeComm report provides overall global statistics and forecasts for mobile smartphones and handsets, including growth, sales and revenue. Current and historical global market share for the top handset suppliers is also included. The report also provides information on Touchscreen tablets, including the major devices and operating system market share. A case study in the key market of China has also been included.

For detailed information, table of contents and pricing see: Australia – Digital Entertainment and Media Market

After a political and administrative process of more than a month Tom Wheeler was finally been nominated by President Obama as the new chairman of the FCC with the full support of Congress. Unlike other regulators around the world the FCC is directly accountable to the American Congress, making it a far more political body than most other regulators.

I have known Tom since 1983. He is an enormously energetic person and has been involved in the ICT industry for most of his working life, holding very senior positions within the American industry.

Currently he is the managing director at the Washington DC venture capital firm, Core Capital Partners, and before that, from 1979 to 1984, he served as president of the National Cable Television Association (NCTA) and as CEO of mobile carrier trade group CTIA from 1992 to 2004.

During all those years we have remained in touch and this connection was further strengthened when Barack Obama became President in 2008. As long as I have known Tom he has played a very active role in the Democratic Party and on one occasion I was invited to attend one of their events, which was quite an experience.

After the Obama win Tom became part of the Transition Team, overseeing the broad scale of technology, science and media. Before the election I had already discussed with Tom the idea that, if Obama were to win, I would be interested in sharing my views on telecoms with him. He took me up on that and put me in contact with Professor Susan Crawford who became the President’s advisor on telecommunications. Together with an elite group of telecoms experts from America and Europe we produced several reports on telecoms infrastructure, structural separation, digital innovation and productivity.

There was also great interest in America in the developments around the Australian NBN and in 2009 I was invited to do a presentation on my views on this at a meeting in the White House. And our reports were used by the people within the FCC who wrote the American National Broadband Plan in 2010. It is interesting to see that many of the suggestions we made appeared in their plan.

The fact that Tom was part of the Transition Team, and the fact that he has shown great interest in different approaches to telecommunications, gives me a positive feeling about his appointment. Obviously an appointment like this is eliciting very strong comment in the USA – there are some who don’t like the fact that Tom has such close links with the industry, while others see that as an advantage.

It is obvious that America is America, and that the political situation and the attitude to private and government investments is rather different from those in Europe and Australia. Theirs will not be an NBN along the lines that developed in Australia, not even the tuned down-version of the Coalition.

As an American Tom is also a very strong proponent of reduced government involvement and strong support for commercial investments. While I do not always agree with his views on telecoms issues I have always been able to have very open discussions with him. My views are sometimes slightly more radical than his, but I have learned that the American way of thinking is indeed different and I can understand and respect that.

Tom’s involvement in the mobile industry also gave him insight into spectrum issues, currently a hot topic in America. In the past he has challenged the broadcasters to become more active in the digital media and more innovative in using their spectrum for, among other things, mobile TV. So we can expect some fireworks there.

Of course, the really big issue in telecoms in the USA, as elsewhere, is the dominance of the vested interests and, particularly in America, their enormous influence in government policies (plutocracy). It will be interesting to see how Tom will handle these tricky issues. He will need all his diplomatic and negotiation skills to navigate a straightforward course through them.

I would like to take this opportunity to wish Tom wisdom and success in his new role.

Paul Budde

See Also:

• USA – Telecoms, IP Networks, Digital Media and Forecasts
• USA – Fibre to the Home (FttH) Market – Insights, Statistics and Forecasts
• USA – Fixed and Wireless Broadband Market – Insights Statistics and Forecasts
• USA – Mobile Market Insights, Statistics and Forecasts
• USA – National Broadband Plan – Overview and Analysis
• USA – Smart Grid – Statistics and Surveys – 2013
• USA – VoIP Market – Analysis, Statistics and Forecasts

In our assessment of the Coalition’s NBN plan a couple of weeks ago we indicated that we saw it as a step in the right direction, but that there were still plenty of questions that needed to be raised and answered.

We did not expect that a couple of weeks later Malcolm Turnbull would come up with further explanations.

While there are still plenty of uncertainties in their plan the good thing is that the Coalition has constantly moved forward and that is very encouraging.

In all reality, if the Coalition were to have launched its $30 billion plan back in 2007 everybody would have been most enthusiastic, and the plan as it stands now would have received the same positive welcome that the government’s NBN plan received in 2009. There would also have been a good chance that if this plan had been presented at that time they actually could have won that election. So the will of the people – who at least partly voted for Labor because of their NBN plan – was clearly ahead of the political will of the Coalition.

Of course, just like there is today, there would have been strong political opposition from the other side, but, as is the case with the current NBN plan, the majority of people (some 70%) supports this type of investment, so at that time – looked at it in isolation – that plan would have received a similar level of support.

In reality most of details of the investments, and the technical elements discussed ad nauseam by politicians and industry people both then and now, go straight over the heads of 90% of the population. People simply want better access to internet and are more than happy to leave the details to the experts. However, at the same time, based on our experiences with the broader public, they also very much understand the need for a long-term infrastructure investment – they clearly understand that this is a nation-building exercise and that it should not be a quick and cheap fix.

 As Labor NBN deployment is now well and truly underway the problem for the Coalition is that they will have to sell the Australian people on the fact that, under their government, they will end up with an inferior service. A question we would like to ask here is – will it really make such a huge difference that, over a period of 10-15 years, we are investing $14 bn more on a national infrastructure plan? So far there is no indication that much more than perhaps 20%-25% of the population would see that as a major problem, and that will mainly be based solely on political conviction. Also no direct budget consequences are applicable, as it is a long-term national investment.

Returning to the additional explanations on Malcolm Turnbull’s blog, most of them make sense. The only comment we would make is that their promises, assumptions and plans are equally risky. As to their assumptions that the government’s plans might blow out, and might be further delayed – these risks apply equally to the promises in their plans. There is no guarantee that the Coalition promises are any more reliable than those of the government.

The key points that I took away from the latest information is a much clearer view and explanation on how the Coalition is taking into account the planning towards FttH via the in-between step of fibre-to-the-node. While I am not a financial expert the information given on what the financial advantages could be does make sense. Also a firm confirmation that the Coalition will continue the rollout of the current NBN, and only begin to make major changes once they have properly assessed the situation, is important.

Further ideas on how to incorporate HFC, and the background information they have gathered on the quality of the copper network – backed up by comments from Telstra’s CEO – are appreciated.

While we had already made positive conclusions along these lines based on previous announcements, it is good to see these confirmed and explained in more detail by the Coalition.

We look forward to the next instalment.

Paul Budde

See also:

• Australia – National Broadband Network and the Opposition
• Australia – National Broadband Network – in early 2013
• Australia – National Broadband Network – Policies and Regulations
• Australia – National Broadband Network – Telstra
• Australia – National Broadband Network – The FttH Rollout