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2007 Australia - Converging Industries

This report provides high-level overviews and strategic analyses of the developments in the converging markets, industries and technologies.

The subjects covered in the report include:-

Transition to a Digital Industry
Telco, ISP and IT Industries
Internet Media Companies
Triple Play Models
Analyses of Media reforms
Net Neutrality Analysis
Home Media Centres
Home Networking

In 2006 BuddeComm’s best seller was our new report on digital media developments.

This year we have produced four reports on this topic, an indication of the enormous developments that are taking place in this market.

It is interesting to note that we are rapidly moving from ‘convergence’ to ‘digital media’. It was not so long ago that we began to talk seriously about converging markets, industries and technologies. However that time has passed and we are now talking about the results of convergence rather than the process.

The traditional companies involved are still struggling with the transition. They are being forced to deal with the Internet media companies, who simply skipped the convergence phase and jumped straight into the digital media market.

During the process of establishing themselves in this market these new companies were confronted by a hostile traditional industry that maintained the attitude - ‘you must accept our business models and conditions and we will give you some of the crumbs that fall off the table.’

The music industry was the first to find out that it could be bypassed, and now it is the film and video industry that is scrambling to come up with an answer. Rather than embracing the brave new world of digital media they responded in the same way as the music industry - with denial and law suits against the Internet companies. Their money would have been better spent creating their own models, instead of wasting time in court.

The converging industry needs to look at new business models that will increasingly be led by their customers. The ‘take-it-or-leave-it’ approach will no longer suffice. Subscription models need to be changed, and new models such as triple play must be developed further.

The government, also, has to deal with this convergence, and it will need to align its policies accordingly. Government is not well-known for leading change, so we are now facing a situation in which the digital media are developing much faster than the related policies.

Interesting developments are also taking place within the home environment. Here the convergence between the various consumer products has just started, and a major battle will take place over the next five years. Industries involved include: IT, telecoms, media, utilities and consumer electronics, as well as services industry such as networks, securities, etc.

Key Highlights:
To a large degree convergence has been bypassed by the digital media that have arrived in the market, driven by the Internet media companies.

Significant work still needs to be done by the traditional players to better position themselves as leaders in this market.

The telcos need to quickly get their house in order and Telstra’s NGN program is a major factor in this. Also, that company’s rollout of FttN is crucial to their preparations for the digital age.

The movement of services closer to the edge of the network is becoming possible by the extraordinary growth in the capability of chips and software, and by much higher bandwidth capacities. Not only will new networks consist of federations of connected software and storage ‘objects’ concentrated in completely new network locations; mobile ‘service in a box’ devices will also appear.

The traditional media companies are slowly moving forward. They are using their traditional media such as TV, newspapers, magazine as a launching platform for a range of extra (niche market) multimedia services.

The Internet media companies came out nowhere and are now leading the field. They include: Google, Yahoo, Skype, eBay, MySpace, Second Life, Flickr - and, locally, Sensis, ninemsn, Fairfax Digital, Legion and Destra.

Net neutrality may not be a big issue in Australia at the moment, but under a monopolistic or duopolistic market structure, it could rear its ugly head.

Government policies should be aimed at stimulating the development of applications, particularly in the social, healthcare, education and energy sectors.

Year Home-networked Households
2005 2%
2007 (e) 5%
2010 (e) 15%
2015 (e) 35%

This report provides high-level overviews and strategic analyses of the developments in the converging markets, industries and technologies. It gives further information on:

Possible scenarios for the digital industry, where services move further to the edge and to more central server farms.

New models that need to be deployed for the convergence between telecommunication, media and IT markets.

The changes in the telecommunication and media markets that are being forced upon the industry by the new emerging Internet companies.

The business model that will deliver these integrated products - known as the triple play model, in which voice, video and data applications are delivered over one single access subscription.

The media reforms that have been discussed for over a decade; the watered-down version that was accepted in 2006 but has still not been implemented in 2007.

The principle of network neutrality which allows Internet users to access any web content or applications they choose, without restriction or limitation.

Media centres, which are at the heart of a digital home.

Home networking is trailing residential broadband take-up rates by around five years, but they are slowly penetrating deeper into the market, utilising wireless and broadband power line technologies as well as the more traditional Ethernet.

1.1 Introduction
1.2 Transition issues
1.2.1 Horizontal value chains
1.2.2 The value chains are no longer in one direction: from supplier to consumer
1.2.3 Bandwidth demand will continue to go up
1.2.4 ‘Services’ are not a separate layer but are part of every layer
1.2.5 Because of more intelligence in devices the ‘place’ of services is shifting.
1.2.6 Another big sudden jump-transition, in fact two at the same time is to G4 mobile &FttH
1.3 New kinds of innovations
1.4 What may be next after WMesh+fiberman
1.5 Postsciptum
2.1 The telcos
2.1.1 The role of the telcos
2.1.2 Incumbent telcos and media companies - the cracks are appearing
2.1.3 Financial market a victim of privatisation
2.1.4 Traditional businesses models are done for
2.1.5 Structural reforms are the only way forward
2.1.6 Keep an eye on BT and Internet companies
2.1.7 The Internet is rapidly becoming a national asset
2.2 Internet companies taking over the bat
2.2.1 Telcos operators of Internet economy infrastructure
2.2.2 Internet strategies around core business
2.2.3 Niche marketing for smaller telcos
2.2.4 The Internet business models
2.2.5 New virtual business models
2.2.6 Wholesale to the Internet companies
2.2.7 Spinning off into the Internet economy
2.2.8 IP is upsetting the telcos
2.3 The role of the IT industry
2.3.1 Introduction
2.3.2 The IT industry
2.3.3 Consumer electronics
2.3.4 Software companies
3.1 Digital Content Industry
3.1.1 Overview of the industry
3.1.2 Google industry leader
3.1.3 Digital media applications
3.1.4 Industry sectors
3.1.5 Industry statistics
3.2 From old to new media
3.3 Google
3.3.1 Innovations keep Google in lead - analysis
3.3.2 Google merger and alliance examples
3.3.3 Google in Australia
3.4 Yahoo!7
3.4.1 Introduction
3.4.2 Yahoo!7 growing strongly
3.4.3 Mobile services
3.4.4 VoIP services
3.4.5 Video services
3.5 PBL - Nine - ninemsn
3.5.1 Analysis of PBL’s global media play
3.5.2 ninemsn - Internet pioneer
3.5.3 ninemsn
3.5.4 Optus and ninemsn
3.5.5 Telstra and Nine
3.5.6 Analysis of the deal part 1
3.5.7 A new deal with Telstra? Part 2
3.6 News Corp and subsidiaries
3.6.1 Not a leader in move to convergence
3.6.2 News moving into content niches
3.6.3 News Digital Media
3.7 Telstra Sensis
3.7.1 Telstra’s three pronged approach
3.7.2 Sensis - online directories
3.7.3 Trading Post
3.7.4 Other online activities
3.7.5 Analysis of Telstra’s plans
3.8 John Fairfax
3.8.1 Digital gateway for local communities
3.8.2 TradeMe
3.8.3 Fairfax-Optus content deal
3.8.4 Fairfax - Unwired content deal
3.8.5 Telcos hampering growth of Internet economy
3.9 eBay Australia
3.10 Ten Network
3.11 Austereo online
4.1 What went wrong with triple play?
4.1.1 VoIP and video - hard nuts to crack
4.1.2 TV camera in front of radio programs
4.1.3 FASTWEB is leading the charge, for change
4.1.4 Triple play soon to be forgotten
4.2 Triple play and beyond
4.3 Three distinct markets
4.3.1 Infrastructure market
4.3.2 Content market
4.3.3 Appliances and services market
4.4 Triple play a new pricing model
4.4.1 Lower costs open up access to new models
4.4.2 Triple play pricing
4.5 Killer apps
.5.1 Killer app one: always-on, affordable high-speed Internet access
4.5.2 Killer app two: broadband video
4.5.3 Killer app three: broadband VoIP
4.6 Telco’s arrogant stand on content
4.6.1 Changing market
4.6.2 Triple play makes it impossible for telcos to dominate content
4.6.3 Video services will be delivered by the Internet companies, not the telcos
4.6.4 Tele-presence will be the killer app
4.6.5 Triple play is an access product
4.6.6 Content providers are fighting back
4.6.7 Customer service is not what the industry wants to deliver
4.6.8 Internet companies might take over the telcos
4.7 Triple play in cable TV
4.7.1 Digital upgrades
4.7.2 Global dynamics cable vs telco
4.7.3 Role of cable
4.7.4 The future of infrastructure-based competition
4.8 Triple play pioneers in Australia
4.8.1 TransACT
4.8.2 Optus
4.8.3 Adam Internet
4.8.4 Soul
4.8.5 Skype and other web apps for a flat fee from Hutchison
4.9 Triple play in telecoms
4.9.1 Broadband providers are taking the lead
4.10 Triple play will deliver transparent bills
4.11 The ACCC on triple play monopolies
4.12 The future of triple play
4.12.1 New technologies
4.12.2 FttH - ultimate triple play infrastructure
4.12.3 Media centres in the home
4.12.4 Separation and integration
4.13 Triple play developments around the world
4.13.1 Australia in context with global developments
4.13.2 International benchmarking
5.1 Media reform the aftermath
5.1.1 Developments in late 2006
5.1.2 Media shake-up - the Prime Minister failed to take charge
5.1.3 Minister is embarrassing the new media industry
5.1.4 Prime Minister and not Minister should have end up with egg on his face
5.1.5 Media poker
5.2 Disappointing media reforms
5.2.1 There is nothing in it to spearhead the digital media
5.2.2 There is nothing in it for the customers
5.2.3 Will the old media barons bother
5.2.4 Don’t buy your digital TV yet
5.2.5 Digital TV policy could cost the government $1 billion
5.3 Media reforms - who could get what?
5.3.1 Internet media companies (separate report)
5.3.2 News Corp and Foxtel
5.3.3 PBL/Nine
5.3.4 Seven
5.3.5 Ten
5.3.6 Telstra
5.3.7 Regional operators
5.3.8 Customers
5.4 Analysis of the government media policies - 1996 - 2007
5.4.1 Prelude
5.4.2 Media reform plans
5.4.3 Plans presented in 2006
5.4.4 Lack of cooperation shame on the Australian media
5.4.5 Minister had the right views
5.5 Technology might solve cross-media laws
5.6 More dynamic media market needed
5.6.1 Australia missing out on market dynamics
5.6.2 Converging and supplementing media services
5.7 Customer demand driving changes
5.7.1 User experience pushing up demand
5.7.2 Plasma screens
5.7.3 DVRs
5.8 Structural changes are needed
5.8.1 Separation and integration
5.8.2 Structural separation is inevitable
6.1 Introduction
6.1.1 Commercial expansion of the Internet
6.2 Network neutrality - a global issue
6.3 Carriers in competition with content providers
6.4 Developments in the USA
6.4.1 Competition answer to net neutrality threat
6.4.2 In the global context
6.4.3 Net neutrality - the Americans still don’t get it
6.5 No-one owns the Internet
7.1 Market overview
7.2 Broadband revives the concept
7.3 Key players
7.3.1 Viiv from Intel
7.3.2 Microsoft’s Media Centre
7.4 Trialing Viiv - mid 2006
7.5 Case study Paul’s home
7.5.1 The difference speeds makes
7.5.2 Budde family technology review
7.5.3 Saving money with VoIP
7.5.4 The Sebastian link
7.5.5 Movie downloads
7.5.6 Home movies
7.5.7 Internet radio
7.5.8 Photo library
7.5.9 Still a long way to go…
7.6 Market Analysis
7.6.1 Catalyst for new business opportunities
7.6.2 Stragglers will be left behind
7.6.3 Overhaul of the lounge room
7.6.4 Content providers are coming to the party
7.7 Television advertising
7.8 Forecasts
8.1 Statistics and forecasts
8.1.1 Slow but steady growth throughout 2007
8.1.2 IDC report mid-2006
8.1.3 Connected home technologies
8.1.4 Home networking market forecast - IDC
8.2 Home networking
8.2.1 Broadband-enabled connected homes
8.2.2 Home automation market
8.2.3 Smart Wired House - survey findings
8.2.4 Home wireless market
8.3 W Home (BigAir)
8.3.1 Overview
8.3.2 Customer base
8.3.3 Powerline broadband
8.3.4 Examination of W Home’s business model
8.4 Telstra gearing up to offer digital home gateway
8.5 HomePlug
8.5.1 Introduction
8.5.2 Every socket a telco outlet
8.5.3 Orthogonal Frequency Division Multiplexing (OFDM)
8.5.4 56 bit DES
8.5.5 Interoperability
8.5.6 Reach - with and beyond each home
8.5.7 HomePlug Powerline Alliance
Exhibit 1 - Tillevision Model for ICT Infrastructure
Exhibit 2 - Tillevision Model
Exhibit 3 - Conjecture Subsidiarty
Exhibit 4 - Fractal repetition of the Internet paradigm
Exhibit 5 - Rural Tellet mobile voice-mail devices
Exhibit 6 - Telecommunication convergence
Exhibit 7 - Media centre devices
Exhibit 8 - Intermix Media and MySpace
Exhibit 9 - The key issues still remain the same
Exhibit 10 - Media diversity
Exhibit 11 - Implications of ending net neutrality
Exhibit 12 - Multi-dwelling units

Table 1 - Media advertising expenditure - 2002 - 2005
Table 2 - Australia - triple play pricing - 2005
Table 3 - Percentage of operators globally offering unlimited nationwide fixed-line calls - 2005
Table 4 - Triple play pricing with per-minute call charges - 2005
Table 5 - Double play pricing (voice and data) with per-minute call charges - 2005
Table 6 - Bit caps and corresponding service limits from off-network sources - 2005
Table 7 - Media centre penetration forecasts Australia - 2005; 2007; 2010; 2015
Table 8 - Home network penetration of households - 2005; 2007; 2010; 2015
Table 9 - Australian multi dwelling units (100+) - 2003 - 2008
Table 10 - Revenue forecasts - Australian home automation market - 2003 - 2008

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