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FttB competition, Telstra back to dominance: the unravelling of the NBN 17 Sep 2014

As we mentioned As far back as 3 years ago, when the current government was in opposition and started to talk about an alternative broadband plan we began to warn that once the key elements of the NBN plan are tinkered with it could easily unravel entirely.

We argued that, instead of doing this, the government should stay with the original plan, but with adjustments that would see:

  • fibre-to-the-basement (FttB) for multi-dwelling units (MDUs);
  • extend the life of the HFC networks; and
  • delay upgrading the areas where there is already good quality ADSL2+ access.

This would allow the project to be spread out over, for example, another five years.

We also argued that NBN Co should review its fibre-to-the-premises (FttP) plans based on the new fibre technologies that have been developed in the USA and Europe. These reviews did happen but unfortunately they were not given a great deal of public exposure by both the previous government and, more noticeably, by the current government. As a result of that, by the time the new government came to power,  NBN Co had already started an FttP simplification process. Just before his departure the previous NBN Co CEO, Mike Quigley, indicated that the costs of FttP had already been slashed in half.

The simplification process was based on NBN Co’s experience in Tasmania and the first mainland sites, a similar process happened in rollouts in the USA and Europe. Once the fibre construction companies get going and start to understand what is involved considerable savings are made – perhaps the best illustrated case study is the one from Verizon in the USA. It is interesting to note that the Boston Consultancy Group experts, assembled from all over the world, were very supportive of these revised FttP NBN Co plans.

These NBN developments were further tested in trials in Menton Victoria which started last year and were finalised this year. But, despite early positive comments from the current NBN Co chief Bill Morrow, the results of these tests were quickly swept under the carpet by the minister, clearly showing that he is not interested in providing Australians with the best long-term, future-proof, high quality broadband infrastructure – that his plan is purely based on party ideology.

If I have questions about my ideas, views and visions I go, not to the people who agree with my position, but to those who genuinely (as opposed to ideologically) have different views. Only in that way can I improve on my own ideas or, if necessary, simply abandon them. If you only listen to those who share your opinions you will never arrive at an independent and objective perspective.

However if views and vision are based on ideology then, like trying to have a sensible discussion with a religious fanatic, there will never be room for a sophisticated exchange of ideas.

There is a team of over 20 highly-qualified and respected engineers, strategists and academics that could be tapped into by the minister to test the government’s ideas and suggestions, but the minister avoids any   consultation with these people. This is most regrettable as a proper public debate about the pros and cons of both sides would be helpful in achieving a more open and transparent evaluation. Simply participating in ‘love-ins’ with like-minded friends does not provide a good basis for a sound national plan.

Based on the NBN Co FttP data from the trials, plus the advice he has received from overseas FttP players, the minister could have initiated a radically redesigned FTTP plan. Australia could probably get the original – and far superior – FttP strategy for roughly the same cost of the halfway-house approach based on the multi-technology mix (MTM), which, even according to the minister himself, is not the ideal end solution.

If the minister were genuinely interested in delivering the best possible solution he would have invited consultation with other experts as well, to see what can be done to get that better quality network. But he doesn’t seem to be even trying to plan with that end goal in mind.

Without such a future-proof plan the government can do little but allow others such as TPG and Telstra to start building on the proper broadband networks that will deliver the better quality, as these companies do see the commercial opportunities. As we have said before, this will undermine the NBN Co business plan, but as NBN Co is not allowed to offer all Australians the best solution their position is severely constrained. If the government had remained with the original plan (with the adjustments mentioned above) it could have taken the higher ground on the FttB issue and simply closed the loophole. However, condemning Australians to an inferior outcome while commercial companies are willing and able to deliver the superior solution would be a totally wrong decision to make, as this would be directly against the country’s best interest and the government very well understands this.

At the same time, more and more concessions and help are needed from Telstra in order to push the MTM solution through – all of this, of course, at a price. So it is no wonder that companies such as Optus and iiNet are worried about the renewed dominance that is being conferred on Telstra by the government. The industry will no longer simply be protected by the structural separation of Telstra – all of the extra money the company is now receiving, on top of the very lucrative earlier financial commitments, will make Telstra financially and commercially insurmountable in whatever part of the telecoms market it wishes to invest its newly-gained cash.

And this is what I meant, all those years ago, when I began to warn about the unravelling of the NBN.

Paul Budde

See also:

Australia – National Broadband Network – Developments and Analyses 2014

Australia – National Broadband Network – Infrastructure Analysis

Australia – National Broadband Network – NBN Co 2.0

Australia – The National Broadband Network

Scope of Telekom Slovenije privatisation uncertain following 2014 elections 17 Sep 2014

Slovenia’s telecom market remains dominated by the incumbent operator Telekom Slovenije. The company is majority owned by the state, and although successive governments have expressed a commitment to selling the state’s holding in the company, along with a number of assets, the privatisation process may be delayed following the July 2014 elections. Parties which make up the new coalition government are known to oppose the privatisation of the incumbent, though a solution may be to complete the sale of the company’s businesses while retaining control of its infrastructure.

In response to competition Telekom Slovenije has followed the path of many European incumbents and expanded internationally, focusing predominantly on the Balkans region and morphing into a regional provider of IT and multimedia services rather than a national telco.

In broadband market DSL has a strong but diminishing share of accesses as customers migrate to upgraded cable networks and to fibre offerings.

The competitive mobile market has four mobile network operators and a small number of MVNOs. With high mobile SIM card penetration, these players have shifted focus to defending market share and to increasing ARPU by encouraging prepaid users to take up postpaid services as well as adopt mobile broadband and data services. HSPA and LTE networks have been deployed to support the delivery of these services, while competing network deployments have led to increased transfer speeds. The multi-spectrum auction held in 2014 will go far in expanding mobile broadband services nationally over the coming three years.

This report offers statistics and analyses on the fixed-line telecom sector, as well as the fixed and wireless broadband market, including subscriber forecasts to 2020. It covers the major players, as well as regulatory and infrastructural developments. The report in addition offers insights and statistics on the mobile market, including updates on the operating and financial performance of the main players, and the market effects of regulatory measures.

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

Can Foxtel revive the pay TV market? 16 Sep 2014

FtA and premium Pay TV (Foxtel) remain the dominant video-based entertainment services, but as yet no one can claim the high ground in the new digital developments; none of the existing and new models (e.g. IPTV and OTT) are mutually exclusive and users will trial different services and/or have access to them at their convenience on a range of different devices. There will no longer be the one-size-fits-all model. The market will further splinter as advances in technology and shifting customer behaviours provide opportunities for new and innovative players.

While sometimes complex and confusing for the customer – after decades of monopolistic behaviour by the incumbents – this new environment is finally delivering customers choice, affordability and innovation. They are now in the driver’s seat. And this is only the beginning of the revolution – expect far more to come.

Pay TV in Australia has basically become a niche market operation for sports fans, as much as 75% of Foxtel subscribers are sport fanatics and, while they grumble about the high price they have to pay for all the other channels they have to buy but don’t use, they have no alternative and therefore pay the extraordinarily high charge. This makes Foxtel the pay TV service with the highest ARPU in developed entertainment markets. With little or no competition on the horizon on the sporting front there is no reason to doubt that Foxtel will be able to hang on to this lucrative business.

Just to clearly define pay TV within the broader context of the video entertainment market, pay TV refers to encrypted subscription-based television services that can include the delivery of cable TV (via RF), satellite TV, or IPTV. Foxtel is the largest pay TV operator in Australia, but more recently Fetch TV and Telstra T-Box are now also defined as pay TV services.

Foxtel’s 50% ownership by Telstra has been the major obstacle to the company (and the pay TV industry in general) venturing into new markets. Telstra took the shareholding in the first place as a defensive weapon against any competition from News Corp. Its move into triple play is equally hampered and limited by what Telstra will allow or not, and the high wholesale charges it pays Telstra for broadband access.

Another problem is that in Australia there has been a generally lacklustre interest in pay TV. Australia has one of the highest cost pay TV services in the world and as a result also has one of the lowest overall pay TV penetration levels in the developed markets. Foxtel set the scene for this all those years ago when, as a result of an industry bidding war, they had to commit A$6 billion over 25 years to the Hollywood studios for their content (those contracts have since been renegotiated downward, but content remains relatively expensive in Australia).

As predicted by us as far back as the 1990s, pay TV never received a penetration level of more than about 25%-30%. Our rationale at that time was very simple and our forecast remains unchanged – if you charge much more than $25 per month for a basic package you will never reach mass market penetration (in the 1990s Foxtel predicted 75% penetration and in the mid-00s they revised that down to 40%). By now, 2014, that price point of $25 will need to be revised further downward. The fact that Foxtel Presto has now dropped its price to $9.95 is a clear indication of this. When Foxtel launched its services in the 1990s the cost for a basic cable TV package in the USA and Europe was around $15 per month; obviously extra pay TV content could be purchased on top of that.

Finally, nearly twenty years after the launch, it foreshadowed that in November 2014 it will make $25 the basic access price for its traditional pay TV service. It will be very interesting to see if this will enable the company to finally turn the tide and increase its number of pay TV subscribers.

While Australia has so far not suffered that much from a phenomenon that is known in the industry as ‘cutting the cord’, Foxtel’s churn rate of 13%, indicates that over 300,000 users are discontinuing the service each year.  Internationally there has been a more serious net decline in pay TV services (around 6%) because customers are simply disconnecting and using either broadband-based OTT / IPTV services or new expanded FtA digital TV services. The drastic price cut from Foxtel might have averted that situation from happening in Australia.

Paul Budde

See our new report: Australia - Competition is hotting up in the Video Entertainment market

Czech Republic - MNOs prepare to reap benefits of LTE network sharing agreements 15 Sep 2014

The Czech Republic’s small but mature telecom market enjoys effective competition in all segments, with alternative operators gaining size and strength through organic growth. Merger and acquisition activity continues, while the incumbent O2 CR was in early 2014 acquired by the investment firm PPF, bringing to an end Telefónica’s longstanding involvement in the market.

O2 CR is facing the increasingly challenging task of stabilising revenue as fixed-line traffic continues to migrate to mobile operators and competing fixed-line operators. Mobile penetration in the Czech Republic is among the highest in Central European nations. With mobile voice markets saturated, the established operators have focused on growing revenue by marketing mobile broadband and other value-added services such as mobile content and applications.

The Czech Republic’s media market is evolving under the weight of digital TV and convergence trends, with over half the population now receiving TV services digitally. The uptake of IPTV services is growing on the back of more affordable broadband access while the cable TV market has undergone consolidation to create a major player sizeable enough to compete effectively against the telecoms incumbent.

The country’s fixed-line broadband market continues to experience growth, though this has begun to slow in response to higher consumer penetration of services. The sector has more recently seen stronger growth in the cable sector as the proportion of DSL lines has begun to slide as customers migrate to fibre networks which are being built out by a number of telcos. Fixed wireless broadband remains strong, with penetration among the highest in the EU. Widespread broadband access has laid the foundation for a developing internet society, with a range of online services and activities taking place.

Key developments:

O2 Czech becomes part of the investment group PPF; banking group acquires 6% of O2 CR from smaller investors; VOLNY transfers DSL subscribers to O2 CR; stagnant economy affecting consumer spend on telecom services; regulator consults on the tender for additional frequencies in the 800MHz, 1800MHz and 2600MHz bands; O2 CR and T-Mobile CR agree a national LTE network sharing deal, Vodafone negotiates to join as well; MNOs promote m-payment services; T-Mobile CR launches DC-HSPA+ offering 42Mb/s as well as the country’s first LTE-A service; Vodafone upgrades network HSPA+; spectrum auction in 800MHz band results; mobile ARPU continues to fall; MVNO market developing with new players; MTRs reduced for incumbent MNOs; Vodafone launches VDSL2 services; RIO Media building one of the largest FttP networks; BPL in Prague a success through SmartCity Platform; cloud computing used by 20% of businesses; SkyLink bought by M7 Group; DVB-T2 reaches two-thirds population coverage; UPC plans to create separate infrastructure and services divisions; regulator’s 2013 annual report and market data updates; telcos’ operating and financial data to Q2 2014; market developments into 2014.

Companies and subsidiaries mentioned in this report include:

O2 Czech Republic, T-Mobile Czech Republic, GTS Czech, Èeské Radiokomunikace, MobilKom, T-Systems Czech Republic, BT, ÈD-Telematika, ÈEZ ICT Services, UPC Èeská republika, Vodafone CR, Air Telekom (MobilKom), UPC, DigiTV, CRa, CDG, Nej TV, RIO Media

For detailed information, table of contents and pricing see: Czech Republic - Telecoms, IP Networks, Digital Media and Forecasts

Municipal fibre deployments help push up fibre penetration in Italy 12 Sep 2014

Italy’s large telecom market boasts one of the highest rates for mobile penetration in Europe, while the fibre-optic sector has seen significant development in recent years, both in operator investment and in regulatory measures to encourage network sharing. Broadband uptake is growing steadily as a result of fibre and ADSL2+ infrastructure upgrades, though the country still lags behind benchmark countries for average broadband access speeds. The fixed-line sector continues to dwindle as consumers adopt mobile-only solutions and VoIP.

The broadband market has a competitive the DSL sector. In the absence of effective cross-platform competition from cable networks, services based on upgraded DSL networks have benefited from the market entry of new players such as Vodafone. Several operators have invested in ADSL2+ and VDSL infrastructure, propelling the market for high-bandwidth bundled services. Although the DSL sector has benefited from investment and technology upgrades, the need to deliver faster services will encourage a deeper emphasis on fibre deployments. Here, operator efforts have been supplemented by investment from regional governments. Regulatory measures have also been taken to ease access to NGNs.

Italy’s market for bundled services and converging media applications has been strengthened by the excellent DSL broadband network and the expanding fibre footprint. The digital TV market has progressed well, with a number of regions having switched to digital terrestrial TV and with broadcasters having set up a second DTH satellite platform to compete with SKY Italia. Satellite TV remains the main pay TV platform in the absence of cable TV, while IPTV has an increasing presence strengthened by upgraded fixed-line delivery networks. This report analyses Italy’s market for bundled services and digital media, providing an overview of the country’s digital TV markets and an assessment of regulatory and market measures following analogue switchover.

Italy’s vibrant mobile market is dominated by three operators, TIM, Vodafone Italia and Wind, while the fourth player 3 Italia has steadily made progress with customer growth. All four providers now operate LTE networks, and significant investments in network upgrades have provided rich opportunities for mobile data use among consumers.

A new BuddeComm report analyses the key aspects of the Italian telecom market, providing the latest data and statistics on the country and the fixed network services sector. It also reviews the key regulatory issues including number portability and local loop unbundling. The report also provides statistics on the wireless and fixed-line broadband market, including the burgeoning fibre sector. On the mobile market it provides statistics, an assessment of key regulatory issues and of mobile data services, and also profiles the major providers and the likely impact of emerging technologies on their strategies for coming years.

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

Open up the metropolitan NBN market to competition 11 Sep 2014

It was most interesting to learn that the ACCC has decided not to intervene in TPG’s plans to deliver very high-speed broadband services to some 500,000 multi-dwelling units in the various capital cities of Australia, by using infrastructure known as fibre-to-the-basement (FttB).

This is a serious problem for NBN Co, as these ‘low-hanging fruits’ are a very important part of its business model. This decision will create serious competition for it in the lucrative multi-dwelling units (MDU) market and will leave a significant hole in its budget.

To be honest, I am of two minds about the decision. Under the original NBN plan, which would have provided all Australians with a super fast broadband network, I would have been less than positive about it. Under that plan it would have made sense to ensure that all connections – both the easy and the more difficult – would be covered under the one plan, since the outcome of that plan would have been a super-fast high quality service for all Australians.

But this is no longer the case. Some Australians will get that super-duper service, but a large proportion will have an inferior service, as the government has basically indicated that even as far ahead as 2023 a service quality of 15Mb/s will be good enough for most Australians. At this point in time most people in the USA, as well as those in most European counties, already (in 2014) have a service of 25Mb/s or more, and over 50% of all of the new NBN FttP (fibre-to-the-premises) connections in Australia are opting for a service of 50Mb/s+.

So those Australian government assumptions fly in the face of what is already the reality, let alone what it will be in 2023.

As the government has decided to give Australia a second-rate broadband solution I am in favour of ending NBN Co’s infrastructure monopoly, at least in metropolitan areas. While everybody (including the minister) agrees that FttP is the end goal, there is no clear path towards that solution.

Under the current monopolistic NBN Co infrastructure regime, and given the reluctance of the government to provide a pathway to FttP, there is a serious possibility that Australia will be stuck for a very long time with a broadband halfway house, since the revised plan is based on a multi-technology mix (MTM), using the existing copper and HFC networks. Some of these technologies will provide good quality broadband but other parts might not, and the lack of universally good quality services will hamper the delivery of many new broadband services – and will affect services that require national rollouts that need that superior quality, such as e-health and e-education.

There is no incentive for NBN Co to move beyond the MTM – as a matter of fact, under new legislation there are no options whatsoever for NBN Co to invest in new FttP rollouts. This being the case, for Australia to make progress towards digital productivity, universal e-health and education services, etc, we need to look at other options.

This gap between what the government wants to provide and what the market demands could potentially be filled by competition. I would suggest that now the government has opted for the inferior MTM solution it should open up the market to companies that are willing to make the investment to improve on this. Let commercial companies decide what speeds, quality and services they believe customers want, rather than come up with government-sanctioned quality of service.

In this respect I see the TPG decision as an opportunity to open up that debate and to stimulate infrastructure-based competition in the metro markets. Obviously I remain very concerned that the rest of Australia will then be left behind with the inferior MTM solution, as there is absolutely no way that infrastructure-based competition will reach those areas. And another very serious concern is the economic viability of NBN Co once TPG gets the go-ahead. Telstra has already indicated that it is also in the market for MDU customers, and others might follow. All of this will further undermine NBN Co’s business model.

However the government went into all of this with its eyes wide open, and it was warned that by changing the fundamentals of the original plan the whole project could easily unravel.

The minister’s foreshadowed new licensing condition for telecommunications carriers, which will force them to provide these FttB services on a wholesale basis, offers a certain amount of protection to NBN Co, but TPG had already indicated that it was willing to do that. In this respect it will be very much a first mover’s advantage and companies such as TPG and Telstra are well-positioned to grasp that lead.

It would be most regrettable if the government’s ideological and dogmatic approach regarding FttP were to stop the country from getting the best quality broadband network that is currently available; if the government doesn’t want to provide such a service then it will have to open the market up again to infrastructure-based competition. Hopefully this will not end up with another investigation being launched by the minister that will take up to a year to resolve.

Paul Budde

See also:

Canada - Cablecos’ 200Mb/s services stimulating fibre network builds to compete for customers 11 Sep 2014

Broadband and wireless revenues are continuing to underpin Canada’s telecom sector, offsetting the decline in the fixed-voice segment. Operators investing in fibre networks are migrating customer to IP for voice and other services as part of a systematic overhaul of the country’s telecom infrastructure. A stimulus for FttP expansion among telcos has come from cablecos whose upgraded networks now commonly offer up to 200Mb/s.

Comparatively low mobile penetration provides further room for growth in the mobile voice and particularly data markets. The government has endeavoured to encourage market competition by ensuring that blocks of spectrum have been reserved for new entrants, while blocking deals which would have concentrated spectrum either regionally or nationally among the three main network operators. Operators have been upgrading their networks with HSPA+ and LTE technologies, and have seen a steady migration among subscribers from feature phones to smartphones. About 75% of contract subscribers now have smartphones, and with higher data use this has resulted in a slower decline in ARPU. Operators have also been able to capitalise on their recently awarded concessions in the 700MHz band, with a view to extending their LTE network footprints to about 99% of the population.

Canada has one of the highest broadband penetration rates among the OECD nations. Government policy has encouraged widespread broadband availability, particularly in rural and regional areas, resulting in near comprehensive accessibility to broadband services. Cable still leads DSL in terms of subscriber numbers, though fibre deployments are also gaining momentum. The regulator has also upgraded the targets for basic broadband, which must reach a minimum of 5Mb/s by the end of 2015. This should lead to a period of sustained development in the Canadian regional broadband sector.

A new BuddeComm report provides a broad range of key statistical data on the major telecoms segments, including e-commerce and e-health developments as well as policies which support the progress of smart meter adoption and smart grids. It provides an analysis of market developments and an assessment of operator strategies relating to the fixed-line, mobile, broadband and broadcasting sectors.

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

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