Researchers:- Paul Budde, Henry Lancaster, Kylie Wansink Current publication date:- July 2014 (27th Edition)
Exploring new business and investment opportunities
Overall telecoms market
The Australian telecoms market currently operates in a two-tiered fashion. By far the greatest attention of politicians and the media is focused on the national broadband market. Despite election promises, progress has been – as predicted by BuddeComm – slow. The specific analyses of the NBN are covered in a separate report.
The real market action in 2014 is again taking place in the mobile broadband market. Telstra has further strengthened its position as the clear leader. However, Optus and Vodafone – whose networks are now also ready for competition – have indicated that they will challenge Telstra and a price war is set to be unleashed in the mobile broadband market, with all three players battling it out over their new 4G LTE infrastructure. Unless the two challengers are successful there is the looming threat of monopolistic tendencies in this market.
In the meantime, in many sectors the NBN is no longer the story. Instead it has created other new stories in the various sections of our society and our economy, many of which are highlighted in this report.
This report also contains a range of analyses on key developments in the international markets, written by our senior analysts. They have been selected for their relevance to the developments in Australia, or for their impact on the overall international developments in the mobile and fixed broadband, digital economy and telecommunications markets in general.
As overseas examples are often mentioned by Australian politicians it is also important to be aware of what is actually happening in these countries and what is not – and also, importantly, what is selective reporting or outright hype?
Furthermore, the telecoms market is unique in the sense that developments elsewhere have a direct effect on developments in other parts of the world. Also the technology is the same everywhere so innovations and trends in other parts of the globe are transportable to Australia and the other way round.
BuddeComm estimates that the overall telecoms services revenue was about $42.5 billion in 2013, slightly down on revenue in 2012, as a result of poorer results from Vodafone and Optus.
Growth has in fact been subdued since 2011, largely due to competitive pressure on pricing among operators, as well as the continuing economic uncertainty among some sectors of society which has reduced discretionary spend. This is expected to continue throughout 2014 and 2015, with revenue growth limited to about 1%-1.5% annually. Most fixed-line and mobile voice services are now at levels where consumers would not tolerate price increases, so opportunities to drive increases in consumer and business expenditure in the short term are limited to mobile broadband services based on 4G/long-term evolution (LTE) technologies, fibre, and cloud data-housing.
The Broadband Market
The recent NBN review showed that the uptake of high-speed broadband services is greater than expected. This had already become clear over the last few years with the rapid uptake of the interim satellite service. While in this case the coverage area remains around 7% (just under one million premises) the projected uptake of 230,000 premises was grossly underestimated, and obviously this has an effect on the capacity of the satellite and fixed wireless networks that are under construction.
The DSL sector continues to show resilience in the marketplace, bolstered in recent years by operators adopting new technologies which can deliver greater data capacity on legacy copper infrastructure. In conjunction with Telstra’s unbundled local loop service, which provides a platform for competitors to offer broadband services, the slow-down in the rollout of the NBN has also meant that the number of customers expected to migrate from copper to fibre-based services is far lower than initial NBN Co forecasts. Many telcos have installed their own DSLAM infrastructure, enabling them to provide fairly high-speed internet services via ADSL2+.
In 2014 there are fewer than one million cable broadband subscribers, accounting for less than 8% of the total broadband market in Australia. However, most of these subscribers are high-end users providing relatively high ARPU for the cablecos.
After the September 2013 election in Australia, and with a new government in charge, a number of reviews were announced that will shape the future direction of the NBN. For a start, the Minister asked NBN Co to carry out its own review first, based on the original specifications of the NBN – it being a majority FttP rollout.
There will be some major changes made to the rollout.
Also, because of the overall continuation of the NBN many of the issues discussed previously remain unchanged, and so will require the attention of the government, and/or will need to be taken into account in future policy developments. BuddeComm has indicated support for certain changes to the NBN in relation to greenfield developments and multi-dwelling units (MDUs) and these issues will now receive significantly more attention than they have had in the past. Again, the comments and analyses made on these issues remain relevant under the new government.
The rollout has seen delays, but at this stage there are no indications that this will affect the longer-term outlook for completion of the project. The review will obviously shed more light on this, but so far the issues seem to be more one-off and/or resolvable – for instance, by being more flexible in the use of technology, for example in MDUs.
The Mobile Market
The mobile communications market in Australia has seen considerable activity from mobile network operators in the last year, with the results of that activity still coming to fruition. Yet some of the market-changing forces driving developments in the mobile sector, such as consumer demand, market saturation and the offering of faster-speed technologies in the fixed-broadband market, are also driving down revenue from subscribers.
The mobile handset market continues to be driven by consumer uptake of smartphones. This in turn is leading to greater usage of mobile broadband and mobile data, which has stimulated operators to fast-track their investment in LTE technologies. It is also encouraging the further development of over-the-top (OTT) applications, which are depriving MNOs of their traditional income streams.
Total mobile services revenue is expected to reach about $18.2 billion for 2014. Further growth is anticipated for 2015 but will be moderate given the introduction of lower network termination rates and the falling costs of monthly mobile broadband packages. In addition, the mid-2014 decision by the ACCC to regulate the wholesale SMS market will lead to a reduction in revenue derived from SMS services, to the benefit of consumers. There are considerable growth opportunities from the rapidly developing LTE sector, which has seen a significant number of devices marketed by operators. All three MNOs have extensive LTE networks in play, and with population coverage of above 98% anticipated by the end of 2016 there will soon be many more consumers able to tap into the high-end mobile data market. However, effective competition among MNOs will reduce their ability to charge premium rates for LTE services, and so mobile data revenue will not be proportional to growth in data traffic.
One of the key issues for the industry moving beyond 2015 is the need for more spectrum required to keep up with demand for mobile broadband services and the traffic carried on networks. Some of this will be addressed from early 2015 when Telstra and Optus are able to make use of the 700MHz concessions.
Mobile broadband access using 3G and 4G/LTE networks has expanded steadily as users continue to add tablets, modems and phones as alternative communication methods. Mobile broadband is also a key contributor to the economy, with a recent ACMA report finding that the Australian economy would have been $7.3 billion smaller between 2006 and 2013 without the additional productivity benefits of mobile broadband services.
By the end of 2014 it is anticipated that there will be some 6.6 million mobile broadband subscribers in Australia, and a growing proportion of them will be on the LTE networks of Telstra, Optus and Vodafone. These MNOs have invested in spectrum and network upgrades to bolster network capacity, while the geographic extension of LTE will see wider take-up from consumers in coming years. Although the MNOs will be expecting a greater return on their investments, partly by charging a premium for LTE services, BuddeComm expects that revenue growth will remain at 2%-3% annually, with ARPU continuing to decline in response to price competition.
This report also provides information and analysis on the broadcasting market as it moves towards 2015, as well as an overview of some of the important changes over the last couple of years. These changes include the finalisation of the rollout of digital TV in 2013 and the frequency retuning that is set to be completed by end-2014. The cessation of analogue TV transmission will allow the release of further spectrum that can be auctioned and reused as the ‘digital dividend’.
With subscription TV household penetration still under 30%, we are seeing more content available over-the-top through IPTV services. More content can also be seen on the additional FTA channels using digital TV, through catch-up apps or web-based access. And radio streaming online or on digital radio in the capital cities is attracting additional listeners to the radio market.
The online advertising industry in 2014 is seeing a greater spend in that sector and the ‘Big TV’ companies will now need to move faster if they are to remain viable beyond 2020 when the NBN rollout should see most Australians with fast broadband allowing full-streaming digital access. We preview some of the options that may see the broadcasting sector keep its viewers and revenues.
M2M and the Internet of Things
The internet of things – other names used include: M2M, pervasive internet and industrial internet – is going to be a real game-changer. It will transform every single sector of society and the economy and it will be out of this environment that new businesses – and indeed new industries – will be born. This is one of the reasons so many overseas ICT companies are increasing their presence in Australia. The LTE will take a leadership role in the development of M2M but the NBN is also an ideal test-bed for such developments. A great deal of attention is being paid to cloud computing and the NBN can be viewed as one gigantic cloud.
The number of connected M2M devices will grow to somewhere between 25 million and 50 million by 2020.
The traditional media industry has been under turmoil since the rise of digital media platforms which impacted significantly upon many aspects of the media industry of old. These changes led to much unrest in the media sector. Major competing sectors include TV and radio broadcasting, newspaper publishers, 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 2014 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 of one example where digital media is having an enormous impact.
Data in this report is the latest available at the time of preparation and may not be for the current year
Table of Contents
1. Analyses Telecoms Market – mid 2014
1.1 Where are the economic policies and strategies
1.1.1 The world is passing Australia by
1.1.2 Government misses out on developing a smart economy
1.1.3 Lack of vision – politicians absorbed by costs of ageing economic models
1.1.4 Where is the economic plan for the post-manufacturing era?
1.2 Competition in the telecoms industry is dwindling
1.3 Digital Productivity Key to Transformation of Australian Economy
1.3.1 Smart Societies based on Artificial Intelligence
1.3.2 Sector and industry transformation
1.3.3 Has the internet reached the ‘too big to fail’ stage?
1.3.4 E-banking and M-banking
1.3.5 Advertising and Marketing in the Digital Age
1.3.6 Business Market – Trends and Statistics
1.3.7 Online Retailing
1.4 White Paper calls for National Telehealth Strategy
1.5 E-education developments need to move faster
1.6 Cloud services now mainstream
1.7 Tablets and other smart devices clear winners in a fragmenting entertainment market
1.8 The unstoppable move towards smart cities
1.8.1 Customer-driven smart cities
1.8.2 Economy-driven smart cities
1.8.3 Society-driven smart cities
1.8.4 Greenfields Opportunities
1.8.5 Brownfields Challenges
1.9 Smart Energy – Australian is right up with the international leaders
2. International Analyses Relevant to Australia
2.1 The changing roles of telecom operators and content providers
2.2 Telcos will need to lift their game on infrastructure
2.3 The demand and supply imbalance in telecoms
2.4 Market-led demand for FttH is picking up
2.5 Hanze, Silk Route and Gigabit Cities
2.6 Let American telcos and cablecos merge – but declare infrastructure a utility
2.7 Telecoms Investments
2.7.1 Telecoms still not seen as good infrastructure investment
2.7.2 Positive outlook for investments in backbones
2.8 UK – Fast broadband services influencing home-buying
2.9 Companies and governments get a bad rap
2.10 The battle to capture skilled expertise for deep learning efforts
2.11 Mobile Communications
2.11.1 Mobiles moving into fixed networks
2.11.2 A keen interest in VoLTE developing around the world
2.11.3 Mobile sector driving telecoms growth and OTT is the new normal
2.12 Mobile broadband – the key growth area for global telecoms industry
2.13 WiFi networks are taking off around the globe
2.14 Online advertising – four key sectors
2.15 Digital developments continue to direct the future of entertainment
2.16 Disruption – so what is next?
2.17 The disruptive e-healthcare market has arrived!
2.18 Education system will hit economic crisis point
2.18.1 Economic costs will force the system to change
2.18.2 Governments will be forced to stop costs spiralling out of control
2.19 The fickle nature of social networks – Twitters turn to feel the heat
2.20 Whatsapp and Permission Based Marketing
2.21 Improving customer analytics with subscriber data management
2.22 Scandals, Muck, Fear and Sensation vs. Quality News
2.22.1 Quality news moves to the internet
2.22.2 Further decline is envisaged
2.23 Shared and integrated ICT essential to achieve the sustainable development goals
2.23.1 Grassroots proof of success
2.23.2 Lack of strategic leadership
2.23.3 Death by pilots
2.23.4 How to move forward
3. Broadband Market in 2014
3.1 The National Broadband Network’s continuing evolution
3.2 Residential and business broadband markets: growing adoption of faster services
3.3 DSL and HFC markets: stable growth as copper plant survives within the NBN
3.4 Mobile broadband growth supported by Australia’s globally impressive LTE infrastructure
3.5 Statistical overview of the Australian Broadband and Digital Industry
3.6 Satellite and wireless broadband uptake greater than expected
3.7 Creative thinking required to address broadband issues
3.8 Video competition is heating up in Australia
3.9 Broadband and household income
3.9.1 The impact of broadband on income
3.9.2 Why broadband speed increases income
3.10 Aligning broadband and healthcare
4. National Broadband Network - Developments and Analyses 2014
4.1 NBN-related jobs increase by 248% since review
4.2 Market-led demand for FttH is picking up
4.3 TPG highlights the fragile NBN environment
4.3.1 Market-led vs. Government intervention
4.3.2 You cannot unravel the NBN
4.3.3 The fragility of the wholesale-only model
4.3.4 NBN is a finely balanced exercise
4.3.5 TPG exposes weaknesses in NBN retail models
4.4 NBN assessment April 2014
4.4.2 Reviewing the last few weeks
4.4.3 From reviews to leadership
4.4.4 Tension with the review commissions
4.4.5 The end goal will remain FttH
4.4.6 The NBN future looks bright
4.5 Is the government opening a NBN Pandora’s box?
4.5.1 Pandora’s Box
4.6 Aligning broadband and healthcare
4.7 Government reneges on election promises
4.8 Where is the economic plan for the post-manufacturing era?
4.9 No NBN cherry-picking – another step in the right direction
4.10 NBN debate continues in a policy vacuum
4.11 Regional councils concerns over the NBN changes
4.12 Privatisation of NBN is not popular
4.13 The NBN will always remain in Beta.
4.14 Will the NBN be unravelled?
4.14.1 The delicate nature of a wholesale-only model
4.14.2 Structural separation allows for wholesale-only model
4.14.3 No demand for fibre-based services?
4.14.4 National digital productivity
4.15 Analysis of NBN 2.0
4.15.1 Two competing NBN offerings
4.15.2 The multi-technology NBN
4.15.3 Design and rollout problems
4.15.4 Contracts, negotiations and regulations
4.15.5 The execution
4.15.6 Current FttH plan requires simplification
4.15.7 So on to the next review in 2016?
4.15.8 Still missing – a national vision
4.16 NBN Co given the opportunity to save the current NBN
4.17 Telstra’s cashflow may suffer from NBN rollout delays
4.18 What PRISM, credit card hacking and Chromecast have to do with FttH
4.19 Retirement of NBN Co’s first CEO
4.20 The pros and cons of vectoring
4.21 Will LTE steal the broadband revolution?
4.22 Multi Dwelling Unit broadband
4.23 Is the NBN Co business model flawed?
4.24 NBN – telecoms or digital infrastructure – a SAU question
4.25 Pilbara – a lost NBN opportunity
4.26 NBN leadership or NBN procrastination
4.27 The Dutch Disease, broadband and the mining boom
4.28 Comparisons with broadband plans from AT&T and BT (separate report)
4.29 NBN could slash telecoms maintenance costs
4.30 Broadband demand-side management
4.31 The NBN and the opportunity for ‘virtual’ players
4.32 Will infrastructure constrain the digital entertainment market?
4.33 Will the half-built HFC disaster be repeated?
4.34 Four million households within reach of the NBN by 2015
4.35 Digital infrastructure essential to manage the transition to the e-world
5. Mobile Communications – The Market in 2014
5.1 Market and industry analyses
5.1.1 Strong mobile competition
5.1.2 Competition moving forwards
5.1.3 Only structural change can save the mobile industry
5.1.4 High demand for mobile broadband
5.1.5 Mobile broadband – killer app for FttP
5.1.6 Spectrum key to broadband utility
5.1.7 Consumers ditching fixed-line for mobile
5.2 Mobile network operators overview
5.3 Overview of trends and developments
5.3.1 Mobile broadband
5.3.2 Mobile subscribers
5.3.3 Mobile voice
5.3.4 Network termination rates lowered may drive mobile competition
6. Mobile Broadband – Insights, Statistics and Forecasts
6.1 Market overview and analysis
6.1.1 Market overview
6.1.2 Uptake in 4G adds to mobile broadband users
6.1.3 Mobile data and messaging exceeds voice revenues
6.1.4 Globalgig hotspot local and international data roaming
6.1.5 Capital expenditure builds into the future
6.1.6 Overview of 4G frequency usage
6.1.7 Spectrum reallocations
6.1.8 Hardware drives applications
6.1.9 Mobile broadband to drive structural change
6.1.10 Mobile broadband slowly substitutes fixed services
6.1.11 The economic impact of mobile broadband
6.2 Mobile broadband market statistics
6.2.1 Mobile broadband subscribers
6.2.2 Mobile broadband revenues
6.2.3 Fixed wireless broadband market
6.3 Forecasts and other developments
6.3.1 Mobile advertising
6.3.2 M-payment services
6.3.4 Mobile broadband boom the killer app for FttP
6.3.5 Fixed/mobile call market
6.3.6 Revenue forecasts
7. The Broadcasting Market in 2014
7.1 Disruptive content is heating up the competition
7.2 International competition needs infrastructure
7.3 Free-to-Air TV still going strong
7.4 SVoD content coming from the FTA broadcasters
7.5 Should the Pay TV model be retained – even though it is wrong?
7.6 Fast-forward, re-wind, catch-up all aim to deliver content
As usual, you’ve done a splendid job of bringing an industry well and truly into the spotlight.
I think that without your input and passion, Australia would have barely scratched the surface of the benefits that can and will be achieved with the wholesale adoption of Smart Grid and Smart City concepts.