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2006 Australia - Telecoms Analyses and Forecasts

Attention: There is an updated edition available for this report.

This report analyses all the key issues in the Australian market. The conclusions reached define market and industry development for 2007 and beyond. The report explains where the business opportunities are - and where the pitfalls are. It debunks industry hype and identifies which technological developments will succeed and which will not. The report is a must for those involved in the decision-making processes around telecommunications and digital media.

The market moving towards 2007
Competition Issues
New telco business models
Operational Separation of Telstra
NGN - VoIP - Stats, Overview, Analyses
Mobile Communications
Industry Trends and Analysis
3G - Overview, Statistics, Analyses
Broadband - Developments and Analysis
FTTH Analyses and Developments
Wireless Broadband - Analysis, statistics and forecasts
Digital Media - Analyses, Issues, Developments

Industry and competition analyses
Telcos are struggling to hold on to their old revenues while preparing themselves for a rapidly changing market place. After years of cost cutting the first telcos are starting to invest again; however, Australia is lagging behind. Key issues for the players are the decline in voice revenue and the emergence of VoIP. Also trying to move into media markets such as broadband TV and far more sophisticated delivery models (triple play) are providing the industry with plenty of challenges. In all of this the competition continues to struggle - they might increase retail market share but not margins.

We therefore argue for the abandoning, or at least lessening, of the regulation of traditional voice telco services. Too much time and effort is being wasted on this. Instead, let us concentrate on proactive competition policies that will see the rapid deployment of broadband, VoIP, NGN, triple play and the convergence of technologies, media and companies to deliver the next level of telecommunications products and services. The situation has dramatically deteriorated during 2005/06 and several companies are fighting for survival.

This has also been recognised by the government and after several years of aborted discussion, the government in September 2005 announced the operational separation of Telstra. Australia is only the second country after the UK where such far reaching regulatory reforms have been introduced. However, the government has indicated that the implementation of the reforms has been given to Telstra with the Minister in charge of monitoring this situation.

Mobile communications
We examine the Australian mobile communications market, identifying a number of important trends on both the demand and side supply side. The killer application on mobile remains voice and beyond voice, there will not be a lot of room for growth apart from the current niche market for mobile data in business.

With the growing maturity of digital cellular systems around the world, attention has increasingly turned to the development of 3G cellular systems. The main objective of 3G systems is to provide a more robust network with a range of data and multimedia services. When 3G was first conceived in the late 1980s and early 1990s there was little or no discussion on issues such as wireless broadband services driven by the Internet. With mobile failing to open up more data revenues, personal wireless broadband could well take over this market, leaving 3G behind. By mid-2006 there were still only just around 1.5 million subscribers (8%).

The report also analyses the activities of the major players - Telstra, Optus, Vodafone and Hutchison. Hutchison continues to outperform its competitors in terms of market growth, but competition is heating up in the 3G arena.

The broadband battles have moved on from the lack of availability of broadband services to the lack of true broadband (speeds of 2Mb+), competitive prices for such high speed services and new applications such as IPTV and VoIP over broadband. In the meantime penetration is on the rise and is set to continue to do so throughout 2006 and 2007. Broadband Australia funding has attracted a number of new industry initiatives.

Key to the new multi media services that will be delivered are Next Generation Networks (NGNs).By the mid-2000s NGNs had become an integral part of the corporate networks. Many of them had used the millennium bug scare to seriously review their IT systems. By 2006 the majority of corporates had fully-deployed NGNs in place. While cannibalising other telecoms revenues the NGN market is set to grow to close to $1 billion by 2007. This is fuelled by Telstra’s ambitious NGN plans to overhaul the public network. The report explores and analyses the developments around this massive project. Other key players in the market include Optus, Soul, Macquarie Telecom, iiNet and Nextgen Networks.

IP based NGNs will become the core not just of the current DSL based networks but also of the fibre and wireless networks. Countries that recognise the importance of a fibre optic telecoms infrastructure for healthcare, education and e-government, as well as for their economy, are leading developments in Fibre-to-the-Home (FttH). The Australian government is currently in the process of joining this group of visionaries. However, despite its excellent plans and strategies in this field, Telstra has so far refused to roll out its planned FttN (Node) network. This report analyses the importance of FttH and examines the situation in Australia.

Wireless broadband
After years of waiting, the WiMAX standard was finally ratified in late 2005 and by early 2006 the first certified products had begun to arrive. Full commercial deployment is expected in 2007/08. WiMAX will be deployed in regional areas where fixed networks are less or not economically viable and also in those areas were the copper based networks are of a low quality. However, if the technology lives up to its promise, it will also generate a wireless mobile revolution between 2008 and 2010; delivering personal wireless broadband services. The reports analyses the latest developments and provides some initial statistics and forecasts of the market.

Convergence and the digital media
The convergence of telecommunications, media, IT and consumer electronic markets is offering unprecedented opportunities for those organisations who understand these developments and are able to analyse what will work for them. However, it is obvious that these new opportunities require new business models. Media convergence driven by technology will cause problems for companies that have a vested interest in maintaining their own ‘old’ structure. The lack of change towards new business models is one of the major stumbling blocks in the developments of a new economically viable market structure, which is needed to move the industry into 2007.

The first result from the convergence is the arrival of the new Digital Media. Led by the Internet, a new range of Internet Media is developing and these in turn are stimulating other industry sectors to also change their business models to better align them with the new emerging Internet economy. For this to happen it is essential that we have open networks. The success of the Internet shows the way forward here.

1.1 Industry investment issues
1.1.1 Investments led by global trends
1.1.2 Clear trend away from monopolies
1.1.3 Strong government policies = strong investments
1.1.4 Public investments leads the privite market
1.1.5 National interest vs. shareholders value
1.2 Triple play
1.2.1 After broadband, triple play will be the next battleground
1.2.2 VoIP the key in triple play
1.2.3 Broadband TV is sticky
1.2.4 Telcos learning at great cost
1.2.5 Hollywood coming to the party
1.2.6 The digital divide
1.3 Rapidly changing voice market
1.3.1 Milking the voice market
1.3.2 Mobile merging with wireless
1.3.3 Fixed mobile conversion
1.4 Digital TV
1.5 Regional developments forging ahead
2.1 The end of competition in Australia
2.1.1 Political focus is on the wrong problems
2.1.2 Why should we bother?
2.1.3 Competition dying in front of our eyes
2.1.4 Government deliberately lets Telstra play games with the regulator
2.1.5 Telco march to Canberra
2.1.6 Am I exaggerating?
2.2 Metro competition undermined
2.3 The big telco policy confusion
2.4 Telstra is upset
2.5 Regulatory environment
2.5.1 Let’s abandon traditional telco regulations
2.5.2 Australia’s rear mirror vision
2.5.3 Flag falls, distance and time
2.5.4 Triple play, flat rates: focus on new applications
2.5.5 Efficiency cost savings on capex - 90%
2.5.6 Untapped economic benefits
2.6 Now is the time for the industry to unite
3.1 Changing telco business models
3.1.1 Industry moving into 2006
3.1.2 Disruptive developments
3.1.3 Incumbents do need to change
3.1.4 Fresh leadership needed
3.1.5 New business processes
3.1.6 Customer service
3.1.7 More cost to cut
3.2 Mass customisation
3.2.1 Telcos stuck in commodity marketing
3.2.2 The collapse of shareholders value
3.2.3 Focus on (real) customer value
3.2.4 Back office systems need to be in place
3.3 New models for the telco industry
3.3.1 Convergence requires integrated models
3.3.2 Technology-based business models
3.3.3 Triple play
3.3.4 Adapt or perish
3.4 Digital media - industry business models
3.5 New business models for wider economy
3.5.1 Economic impact of global changes
3.5.2 Building new communities
3.5.3 New opportunities
4.1 Telstra’s plans accepted by government
4.1.1 Analysis of Telstra’s plans - June 2006
4.1.2 Telstra’s initial response to Ministerial Directions - Feb 2006
4.2 Operational separation win-win in UK
4.3 Government plans
4.3.1 Green light for operational separation
4.3.2 Equivalence and transparency 4.3.3 Outline of the plan 4.3.4 Compliance reporting 4.3.5 Organisational arrangements associated with compliance 4.3.6 Provision of information to the ACCC
4.4 Expect five more years of regulatory delays - analysis
4.5 Execution of the new Telecoms Bill - analysis
4.5.1 Telstra asked for more regulation through uncooperative behaviour
4.5.2 Yes, we do have too much regulation
4.5.3 Government’s verdict: Telstra is dominant and has a monopoly
4.5.4 Are we creating another digital TV mess?
4.6 New structural opportunities in telecom reforms
4.7 Structural vs operational separation
4.8 A Telstra-driven operational separation
4.9 Productivity Commission outlines Telstra break-up
4.9.1 ACCC submission to the PC Report
4.10 OECD supports industry calls for telco reforms
4.11 Ducking structural separation
4.12 Separation of Sensis
4.13 What’s in it for wholesale?
4.14 Mobile structural separation
5.1 Statistical overviews
5.1.1 ISPs push into voice market
5.1.2 VoIP good growth but no money
5.1.3 Switch to VoIP - survey 2006
5.1.4 Survey reveals businesses are unprepared for VoIP security threats
5.1.5 The ACCC on VoIP
5.1.6 Residential market
5.1.7 VoIP can slash phone bills by $500
5.1.8 Forecast from IDC - 2004/05
5.1.9 Managed network services
5.2 IT and telecoms no happy convergence
5.3 Market analysis
5.3.1 Is there a strategy behind Telstra’s bucket plan?
5.3.2 VoIP over-hyped
5.3.3 VoIP - not all it’s cracked up to be
5.3.4 VoIP - a case of evolution, rather than revolution
5.3.5 Major battleground: SME market
5.4 Regulatory issues
5.4.1 Light-touch VoIP regulations
5.4.2 VoIP emergency calls
5.4.3 Consumer VoIP fact sheet
6.1 Industry trends and analysis 2006
6.1.1 The mobile market - mid-2006
6.1.2 Strong Vodafone performance but challenging road ahead
6.1.3 Hutchison still star performer but 3G arena heating up
6.1.4 Australian mobile market reaching saturation
6.1.5 Fixed-to-mobile substitution - a growing trend
6.1.6 3G will open up new niche revenue streams
6.1.7 Mobile networks not ideal for carrying data
6.1.8 Fixed line players move into mobile operator’s territory
6.1.9 3G prices will drop forcing down ARPUs
6.1.10 The future of mobile - analysis mid-2006
6.1.11 Goodbye Virgin Mobile
6.1.12 Mobile market monopolistic tendencies
6.1.13 How many mobile networks is too many?
6.1.14 Mobile structural separation needed for survival
6.2 3G - Overview, statistics, analyses
6.2.1 Statistical overview
6.2.2 Cannibalisation and convergence
6.2.3 Discount war drives down 3G ARPU
6.2.4 3G is dead - long live WiMAX
6.2.5 Network sharing and cost cutting
6.2.6 Analysis of Australia’s first 3G launch
6.2.7 Business modelling
7.1 Australia is catching up
7.2 Key broadband developments
7.2.1 Government broadband inventory
7.2.2 Metro blackspots fund
7.2.3 Broadband speed record
7.2.4 Fibre-to-the-Node (FttN)
7.3 Mid year analysis - June 2006
7.3.1 Telstra sobbing over ULL
7.3.2 Telstra clawing back market share
7.3.3 Telstra retracting from IPTV market
7.3.4 Telstra delaying ADSL2+
7.3.5 Video-friendly broadband - 90% penetration
7.3.6 Media battles
7.3.7 Structural separation between infrastructure and media
7.3.8 Infrastructure-based competition
7.3.9 ‘Growing broke’ with broadband
7.4 The regional backhaul problem
8.1 FttH analysis mid-2006
8.1.1 Who are the leaders and why?
8.1.2 FttH social benefit - healthcare
8.1.3 FttH social benefit - education
8.1.4 No e-government without fibre
8.1.5 Entertainment
8.1.6 Australia
8.1.7 Greenfield developments
8.2 Telstra’s and other fibre plans
8.3 Slow move towards fibre - analysis
8.3.1 Mexican standoff
8.3.2 From HFC to FttH
8.3.3 The Foxtel anomaly
8.3.4 Iron grip on facilities
8.3.5 Still running behind
8.3.6 Telstra obstacles
8.3.7 Government leadership
8.3.8 Industry scenarios
8.3.9 Don’t expect miracles
9.1 Personal wireless broadband
9.1.1 Business models more important than technologies
9.1.2 Competition needed to change the mobile model
9.1.3 Will WiMAX deliver?
9.1.4 Not being seen to be bored
9.1.5 Smart wireless devices
9.1.6 Fixed wireless
9.2 From WiMAX and 3G to 4G mobile
9.2.1 Service evolution
9.2.2 How to move forward?
9.2.3 Vindicated, 4G is arriving earlier
9.3 Key years for wireless broadband: 2007/2008
9.3.1 Fixed wireless
9.3.2 Wireless mobility
9.3.3 Who are the key players in this market?
9.3.4 Shame on you, wireless industry
9.3.5 The promise of regional funding
9.3.6 Various standards
9.4 User case study (Paul’s)
9.5 Competition analysis
9.5.1 Pre-launch skirmishes
9.6 Historic analyses
9.6.1 The cold realities of competition
9.6.2 Telstra’s spoiling tactics - EVDO dead-end street
9.6.3 Unwired neutralised by Telstra in Sydney broadband market
9.7 Market statistics
9.8 Market forecasts
10.1 Canon Digital Lifestyle Index
10.1.1 Introduction
10.1.2 Increased spending on digital media
10.1.3 Key findings
10.1.4 The disruptive effects of the digital media
10.2 Judiciary needs to reform itself in the wake of the new media
10.2.1 Judiciary needs to become involved
10.2.2 Cultural changes needed
10.2.3 More legislation is not the solutions
10.2.4 Become engaged
10.3 The rise and rise of digital media
10.4 The Internet
10.4.1 The killer app
10.4.2 High-speed, always-on Internet
10.5 It’s worthwhile fighting for open networks
10.5.1 Structural changes to the industry are overdue
10.5.2 Alcatel puts its weight behind the monopoly
10.5.3 The farce of infrastructure-based competition
10.5.4 We should stand firm on open networks
10.5.5 The telcos failed for 30 years - Internet succeeded in 10
10.5.6 Open networks engine for innovation and growth
10.5.7 Large economic benefits
10.5.8 BT leading the way
10.5.9 Safe harbours undermine the Internet economy
10.5.10 Bill of Internet Rights
10.6 Digital content
10.6.1 Introduction
10.6.2 Digital Content Industry Action Agenda
10.7 The end of an era
10.7.1 The passing of Kerry Packer
10.7.2 Media initiated government policies
10.7.3 From bullying to cooperation
10.7.4 Media need to pull up their socks
10.7.5 Watch out for the Internet media companies
11.1 By markets
11.2 By products
11.3 Overall market
11.4 Access market
11.5 Voice market
11.6 Content
11.7 By industry
11.8 Where to go from here?
Exhibit 1 - Triple play pricing examples
Exhibit 2 - Key regulatory and policy issues, as I see them
Exhibit 3 - Triple play pricing examples
Exhibit 4 - Mass customisation
Exhibit 5 - Designated services
Exhibit 6 - VoIP issues
Exhibit 7 - Some application bit rates
Exhibit 8 - Drivers of high-speed Internet
Exhibit 9 - DSL, 1Gb/s, DWDM transmission speeds - what does it mean?
Exhibit 10 - Key revenue trends - period to 2015

Table 1 - The Knowledge Economy
Table 2 - Vodafone Group subscriber and revenue growth - Australia vs selected countries - 2005 - 2006
Table 3 - Subscribers to 3G networks - 2003 - 2006
Table 4 - 2G, 3G ARPU comparison - 2006
Table 5 - Subscriber statistics by operator - mid-2006
Table 6 - Wireless penetration as percent of fixed broadband - forecast 2005; 2010; 2015
Table 7 - Digital media spending by product category - 2nd half 2005
Table 8 - Telecommunications services revenue by market - 2005; 2010; 2015
Table 9 - Telecommunications services revenue by product - 2005; 2010; 2015
Table 10 - Access revenue - 2000; 2005; 2010; 2015
Table 11 - Triple play* revenues - 2005; 2010; 2015
Table 12 - Access % of total telecoms spend - 2000; 2005; 2010; 2015
Table 13 - Voice revenue (fixed, VoIP, mobile) - 2000; 2005; 2010; 2015
Table 14 - Voice % total telecoms revenues - 2000; 2005; 2010; 2015
Table 15 - Content/Advertising % total telecoms spend - 2000; 2005; 2010; 2015
Table 16 - Telecommunications services revenue by industry group - 2005; 2010; 2015

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