"Australia needs to speed up broadband Internet access, introduce more sectoral competition"
Madanmohan Rao interviews Paul Budde, telecom consultant, Australia
Paul Budde is a leading consultant, analyst and commentator in the field of telecommunications and information highways. He specialises in the strategic planning of interactive services such as video media, Internet, multimedia and intelligent and value-added networks based on telecommunications, broadband and satellite networks. Paul holds a marketing degree from the Netherlands Institute for Marketing. He was involved in Europe's first interactive cable TV service in 1982.
Paul regularly makes information highway fact-finding tours through Asia, Africa, the South Pacific, the Americas and Europe in order to provide the latest information to his consultancy customers and publication subscribers. In 1996 he established the Electronic and Online Services Forum, comprising over 20 industry groups who have combined their efforts to address policy and industry issues.
Q: How is Australia faring on the digital commerce front?
For medium businesses, the rate of Internet connectivity has now reached 95%. Of the 25% of small businesses not connected to the Internet, 10% did not own a computer. Most significantly, a recent survey we conducted found that business culture was a major factor in the uptake of online technology. A real concern in the survey was that 43% of SMEs believed there was no potential in applying e-commerce to their business.
By 2001, there were 526 Commonwealth Government services available online and there are 188 more planned in the near future. The Commonwealth's Electronic Transactions Act gives digital interactions the same legal standing as paper transactions. In 2001, Accenture listed Australia on the number 5 position out of 22 countries that it researched on e-government visionaries. Almost 1.3 million adults accessed government services via the Internet for private purposes during 2000.
But Australia, unlike Europe, has long been lagging behind in smart card developments. Most projects listed in this report have seen little or no development since the late 1990s.
As for the data access markets, it looks like the average revenue per residential subscriber (ARPU) is consolidating around the $300 level per annum. Once broadband services start, indications are that the ARPU might increase to $400 and even $600 per annum. We estimate pent-up demand for high-speed Internet access as high as 80% amongst all business Internet users. All DSL operators in the market have waiting lists to connect new customers. This market will see an explosion over 2002/2003.
Q: What are your assessments of the competitive landscape in Australia for Internet infrastructure players?
In Australia Telstra controls both the local telecom access market (95% market share) and the cable TV market (80% market share), and the government has ensured that there will be no competition whatsoever via the digital TV/datacasting platform. Telstra has a near monopoly on all access technologies in this country.
An investment black hole would certainly be created if we had to run a range of different networks in rural Australia to establish a competitive environment in those areas. There are already at least 50 telcos investing in niche-market infrastructure, and companies such as NextGen are not small fry. In spite of the present unfavourable regulatory regime they are still prepared to invest.
However, it is totally unrealistic to believe that new infrastructure providers are going to deliver a significant amount of the national access requirements of residential users and SMEs. It will be Telstra that will always be by far the largest, and in most instances the only, provider. If we are to achieve competition in the market Telstra will have to make its network available under reasonable conditions and at commercially affordable prices, and this will never happen without regulatory support.
Dealing with anti-competitive conduct in the industry includes the all important interconnection and access regimes - and relevant provisions such as pre-selection of carriage service providers and number portability.
The cariers Telstra and Optus together have over 86% of the total market revenues. Telstra is the only company making any real profit - and just look at that profit! This is hardly an indication that robust competition exists. The country is lagging behind in the roll-out of residential broadband because there is simply no-one competing with Telstra.
New Zealand has more ADSL users than Australia and we are running two years behind the rest of the world. Telstra is on record as saying it will have 1 million users by 2005. If we wish to keep up with the rest of the world we should have at least 2.5 million users by that time.
There already exist precedents in Europe, where certain governments are being asked to bail out telcos that can no longer afford to finance some aspects of the national telecom networks. Furthermore, independent DSL infrastructure providers in the UK and US are exiting the market in droves, leaving the governments with new broadband monopolies that are not delivering the necessary communications infrastructure for our emerging e-society, especially to regional and rural communities.
We are one of the few countries in the world that doesn't have competition between the platforms networks and their operators. In Australia each technology segment is protected by technology-specific regulations, sheltering it from the possibility of competition from another segment (broadcasting, telecommunications, pay TV, datacasting, Internet). As a result we are being denied the market dynamics that have been achieved in other countries, where access technologies are treated equally and companies can apply them across the traditional boundaries.
The only way Australia could catch up would be through competition - competition between cable modems and DSL, and DSL competition between service providers on the telecommunications network. Australia is one of the only countries in the world where none of these levels of competition exist.
Q: How do you view the growth of the Internet advertising industry in Australia?
By early 2000, advertising on the Net had grown to above $40 million. www.consult estimated that this would grow to well over $100 million by the end of 2000. However, the fall of some of the dotcom companies in this market had a severe impact on this figure. Revenues for 2001, will therefore be below those of the previous year.
According to research conducted by www.consult, the initial Internet advertisers are a reflection of general industry advertising, with companies such as Intel, Microsoft, IBM and other IT companies being the major advertising group (23%). Banks and other financial institutions are another important group of advertisers (15%). The next group of advertising companies include car manufacturers and consumer electronic companies as well as, for example, Crown Casino. The top 10 advertisers generate over 50% of all revenues.
The two major recipients of this advertising revenue are Ninemsn and Yahoo, they both are estimated to have a 25% market share. Yahoo's revenues are more broadly spread; Ninemsn's revenue is coming from a few very large advertisers.
Q: How will Australia fare in the emerging broadband world, as compared to other countries?
Telecommunications is rapidly moving away from its traditional base of telephone services and data services towards corporate and government organisations. Before the end of this decade well over 85% of telecom revenues will come from broadband-based services.
The impetus for broadband can occur in three ways:
· A national vision translated into government policies (the governments of the Netherlands and Sweden are actively involved in the roll-out of broadband)
· Bold telcos and cable operators breaking new ground (Spain, Germany, Korea)
· Competition between delivery platforms such as telecoms, cable TV and digital TV (USA, UK, Hong Kong)
Australia does not have any of the above drivers. During 2000 it became abundantly clear that broadband was not growing as fast in Australia as it was in other parts of the world. So I decided that in 2001 would be my year of the broadband crusade. The major reason for the crusade was the announcement in late 2000, that Telstra was predicting a meagre 625,000 ADSL users by 2005 (1 million including cable modem users).
I see broadband as a critical element in the development of our country, from both a community and an economic perspective. In comparison to other countries we are currently running 18 months behind on the information superhighway, under Telstra's current plan this gap would increase to 3 years by 2005.
So versatile is this technology that it can be applied in many ways, in accordance with user demand For example, in Korea, the country with the highest broadband penetration in the world, the market is driven by tele-education. In the U.S., teleworking is operating as a key driver, while always-on high-speed Internet access is the favourite application in Europe. Gambling and porn are also very strong market drivers.
But the price has to be right There is no way that households will spend hundreds of dollars on communications. They already run up large bills - for example, an average telephone bill is at least Aus$60 per month. Their mobile bill also comes close to this amount; ISP charges are around $25; and some users have pay TV and so add another $50 a month to their bill.
This adds up to well over $150 per month, and there is little likelihood that they will be willing to pay a large sum on top of that for broadband access. As soon as the total of these costs hits the $100-plus the 'ouch' factor cuts in. People are becoming acutely aware of costs and $125 is the ceiling for most households.
The delivery mechanism of broadband is irrelevant - what Australian users want at this stage is affordable, always-on high-speed Internet access. At this stage, ISDN is still well suited in many situations, but is currently not affordable. ADSL, cable modems and wireless services such as satellite are other potential delivery mechanisms.
The collapse of OneTel is another indication that overall competition in the telecommunications market is dwindling. Telstra knows that it can easily delay the introduction of affordable broadband services aimed at the residential market, since nobody else will be able to match its national coverage. Competition, therefore, will be limited in the medium-term to the business market only.
I would like to challenge Telstra to show more leadership; to come up with a vision that will inspire the users to ask for broadband service and to put its full weight behind these developments. They could gear their marketing; sales and advertising strategies to educate the market about e-societies and e-economies.
The reality is that we, as a country, must find a way to share the infrastructure - for which a fair price will have to be paid to Telstra for the use of their network. To achieve this end a strong regulatory regime will be needed. I am not in favour of heavy-handed regulation, but unfortunately the various factions in the industry have so far been unable to solve their differences through self-regulation.
Q: And how about the wireless Internet market in Australia?
We estimate that the number of users of dedicated mobile data services such as GPRS and WAP will have grown from around 50,000 by the end of 2000 to approximately 500,000 by 2005.
All three GSM operators have introduced data services on their networks: Vodafone (which was the first to introduce mobile data applications running over their GSM network in early 1995), C&W Optus, and Telstra. Two new companies entered the market in 2000: Hutchison (which is also building a GSM/GPRS network that will be launched in 2002) and One.Tel (now defunct).
Youth market users will want to develop their own messaging, communications and animation applications rather than 'buying' them from the operators. There will be applications in the business market too: business travelers using WAP phones on both GSM and CDMA; and data services delivered via palmtops to professionals. New companies such as SkyNetGlobal are offering high-speed wireless data services in airports, hotels and conference centres around the globe.
As for m-commerce, I predict that m-commerce will constitute less than 5% of total mobile revenue by 2005. The killer app on the mobile phone is voice. Voice is a commodity and prices are dropping rapidly (20%-25% pa at current rates). Popular services will be transactions, bookings, banking and other applications - around easy-to-key-in numbers. Permission-based marketing activities will also enter the mobile market.
The writer can be reached at firstname.lastname@example.org
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