Time to deliver the broadband promises

The Internet has given birth to a new dawn as we witness the convergence of voice and applications. These applications will have far-reaching implications, with many commentators saying the co-operation by industry players involved in the development and adoption of these technologies is essential.

The Internet industry in Australia is growing at an exponential rate, with consumers lapping up the new technologies, products and services.

Companies involved all see the massive business opportunities ahead as society moves online.

A recent survey from the Australian Bureau of Statistics shows that at the end of 2007 there were 7.1 million Internet subscribers in Australia. The survey also showed an increasing demand for higher speed broadband services.

Recent Roy Morgan data shows that nearly 60 percent of users have downloaded audio material, while more than 30 percent have either streamed or downloaded Internet video.

YouTube showed recently that nearly four million Australians visited the site in January – up 74 percent from the year before.

Increasingly, the Internet is being viewed by some as an essential facility – in much the same way as gas, electricity and the telephone.

A recent report by the Australian Communications and Media Authority (ACMA) showed that Australians already see the Internet as an essential part of their lives.

About 70 percent of household consumers indicated that broadband is a “critical service for the future”.

Australian Internet service providers are also poised on the threshold of a new high-speed national broadband network (NBN), to be built in the next couple of years, allowing for the development of a range of exciting services on the back of that network.

Commentators say the future technology that becomes available will very much depend on the rollout of this fibre to the node network (FTTN), with the emphasis and requirements for all new technologies dependent on speed.

The NBN project, being funded in part by the Rudd Government, is being hailed as the largest infrastructure project ever to be built in Australia, even eclipsing that of the Snowy Mountains Scheme in the 1950s and ’60s.

Originally the government said it would maintain a previous deal made by the Howard government to build such a network with the Optus- and Elders-led Opel consortium, but there was a lot of controversy generated surrounding its selection and the contract was consequently cancelled.

The Minister for Broadband, Communications and the Digital Economy, Senator Stephen Conroy, said the main reason the contract was cancelled was that it failed to provide adequate 90 percent Australia-wide coverage.

He said the new National Broadband Network was a major step towards delivering on the government’s election commitment to enable world-class, high-speed broadband for all Australians.

“The Australian Government has committed up to $4.7 billion and to considering any necessary regulatory changes to enable the roll-out of the network which will reach 98 percent of Australian homes and businesses,” Senator Conroy said.

“A co-operative approach between governments will assist in the effective use and evolution of the network,” he said.

“This framework will help position Australia as a competitive and innovative knowledge-based digital economy, and will focus on practical and achievable strategies to further develop and facilitate the use of broadband.”

Conroy said that the outline for the scope of the NBN was that it would provide minimum speeds of at least 12 megabits per second and genuine wholesale access for others to come in and build, provide and support network applications.

Minimum specifications proposed include the partnership with the private sector – the government is proposing to invest $4.7 billion in public money, but the network provider must put at least that figure again into the kitty.

And the fibre to the node topography would have to cover at least 98 percent of homes and businesses including regional Australia.

Conroy said the network would have to be rolled out and made operational progressively over five years and support high quality voice, data and video services including symmetric applications such as high-definition video-conferencing.

The network arrangement must facilitate competition in the telecoms sector through open access arrangements that allow all service providers access to the network on equivalent terms.

Hoping to fill the shoes of these requirements, out of the Opel ashes another group has arisen, Terria, also led by Optus, with members including iiNet, AAPT, Internode, PowerTel and iPrimus, bidding for the broadband network.

Michael Simmons, managing director of Terria said the consortium is preparing its bid.

“Our bid will have to go in some time before Christmas but we don’t know what will happen once the bid is in,” he said.

“What we are trying to build is the largest infrastructure ever undertaken in our history – the Snowy Mountains Scheme cost at current prices about $3 billion, whereas this network is set to cost around $10 billion to even $20 billion,” Simmons said.

“It is vital to the future prosperity of the country and everyone will be using it. So we have to have to get it right”

Simmons said the operational and access issues were most important.
“The correct operational needs and fairness as well as independence between access owner and seekers is imperative,” he said.

“So no one is in a position to dominate the market.

“However, with the country the size of Australia, the project has to be a monopolistic infrastructure because we can’t afford to build two of them and separation between owner and access seekers is essential.

“Telstra reckons vertical integration is the best way forward – that is to benefit the whole company – the one company. Competition should occur in downstream players with all parties on equivalent terms.”

The market for ISPs will reflect the outcome of the new network, which is set to deliver high-speed broadband with high-speed applications.

According to Steve Dalby, regulatory officer at ISP iiNet, new gadgets are continually being deployed such as the recently launched iPhone and consequent applications require significant Internet speeds.

“We can expect say by 2009, the deployment of next DSL standards, which are evolving into the next generation VDSL (very high speed) and VDSL 2 standards which by then will be ratified in Australia,” Dalby said.

He said many are predicting they will offer speeds of up to 60 or 70 megabits per second and providers will be scrambling to offer applications exploiting the bandwidth particularly in the cities.

Dalby said that the market strength is practically endless.

“In an overall position the economy is tightening for people spending on petrol and feeling the pinch of interest rates,” he said.

“But the Internet industry is counter cyclical as Internet access offers cheap entertainment and we are therefore not impacted negatively,” he said.

“I am confident about the market. Technology will continue to grow and we see life in product development in for instance ADSL where we are the market leader with products and services in ADSL 2+.”

Dalby said the market launched by iiNet – Naked DSL – was for a long time market dominated by one player.

“Previously broadband was dependent on buying a telephone from Telstra but we said we should be able to provide broadband “naked” without a telephone line associated with it.

“But if you have a mobile and want broadband why should you have to have a phone line? This has released a pent-up demand and we have been able to leverage our services off this. We are pleased with the result and believe it is priced well and we offer a stable and good service.”

He said the company has drawn its success on being able to build its own infrastructure using Ericsson equipment at the Telstra exchanges to connect into the copper loop.

He believes that iiNet has got that naked package right and said the market would grow by 30,000 in six months.

“We are not just reselling a service,” Dalby said.

“There are now about 400 to 500 ISPs operating in Australia and a great proportion of those reselling product for Telstra. But we don’t have to resort to selling those because we have Naked DSL.”

Dalby said while he does not know what the regulatory market will be like when the NBN is built he is sure there will be a market for products built on the back of it.

“In terms of access a lot of people are saying we will have open access, but I don’t really know what that means, but if we can access the infrastructure we are positive that we can develop products on the back of FttN,” he said.

“My concern is that it will cost a lot of money – up to $25 billion and if you inject that into providing broadband in Australia prices will have to go up.

“Our concern is the government objective of 12 megabits per second as we are already providing that.

If your building an FttN and injecting $25 billion is there any point if we end up with the same thing and more expensive?

“If you are going to spend the money build services for people that they are not getting today, regions such as black spots around Australia, let’s make sure the money spent gets to areas that need it rather than duplicating services around the capital cities.”

Asked what is on the horizon, Dalby said: “We can expect the deployment of next generation ADSL standards with DSL evolved through DSL2, DSL+, VDSL (very high speed) and VDSL 2 standards to be ratified in Australia 2009.

“Through this we will start to deploy equipment and offerings at speeds of up 60 or 70 megabits per second and start to see applications exploiting bandwidth in city CBDs.”

Steve Smith, managing director of wireless Internet provider Tomizone, said that the issue is not the technology but the experience of users.

“From my perspective the issue is that we often forget not about technology, but about the experience people have,” Smith said.

“They want it to work on the Internet and the next Gen services from Telstra are alienating customers who don’t have portability to move from their office,” he said.

“We have a vendor that does not seem to realise its customers don’t care whether it is WiMax or WiFi or the technology shifts, they just care about the experience.

“They basically want a seamless experience and the first thing they will back is high-speed data for home or portable devices.

“For instance when you are talking about either naked DSL from iiNet and portable devices or laptops and iPhones that allow users to download iTunes, the consumer is going to go for the type of technology that offers the best experience and not necessarily the brand new one.

“Next year we will see how other providers, ISPs and mobile players cater for stronger demand for high-speed services such as laptops.

“We have had a fast food addiction to fast delivery of technology and with this convergence bubble customers are actually demanding high-speed connections to devices.”

Independent telco analyst Paul Budde said the two major developments that are running in parallel include the preparation for NBN and FttN and also in improving the current availability of unbundled local loop (ULL) for Naked DSL providers such as iiNet.

“The first one eats up most of the time of the executives, strategists, politicians, media, etc,” Budde said.

“The great outcome so far is that the people in Australia are amongst the best informed people of the world in relation to broadband,” he said.

“Also our government vision is leading edge (e-health, tele-education, smart grids). This is setting us up well for further developments.

“But because of the self-regulatory regime – which allows Telstra to delay innovations by many years – we are a bit slow in the second development.
“ULL as a commercially viable product was finally launched late into Australia in 2007, compared to 2003 in the Netherlands. Nevertheless we are catching up with close to 10 percent of broadband lines now unbundled.”

Budde said this 10 percent is a critical number below which incumbents won’t react because it is more lucrative to keep the rest of the market on their terms than to start becoming more competitive.

“The fact that Telstra, after claiming victory, didn’t have to introduce ADSL2+ wholesale, now ‘voluntarily’ starts offering the service means that competition is starting to bite,” Budde said.

Budde said that competition in Australia is being driven by companies such as iiNet and Internode and to a lesser extent Optus, Primus and others.

“However, there is now an industry-wide groundswell taking place which Telstra can only stop through new tricks,” he said.

“But also as the regulator has become more clever it will be increasingly more difficult for Telstra to stop this through tricks.

They will have to become more competitive and customer-focused if they want to
move forwards.

“The key in the ‘future’ debate for the ULL providers is to get a good transition regime in place from copper- to fibre-based competition, otherwise they lose all of their gains.

“None of the two has anything to do with the current government, these are the long delayed result of the very slow working self-regulatory regime set in place by the previous government.

“The current government is focused on the future issue and it is absolutely critical that they do get that right.”

Group managing director of Telstra Wholesale, Kate McKenzie, said Telstra supported the open access to the NBN in Australia that is needed to keep up with the rest of the world, within the earliest timeframes.

McKenzie said robust and forward-thinking regulatory change needed to occur for Australia to reap the benefits of a truly national broadband network – including improved and innovative access to education, health care, information and entertainment services for consumers, and improved productivity for businesses.

“Building the NBN is an enormous task – the biggest infrastructure build ever undertaken in Australia. It will require billions of dollars of investment, more than 50,000 nodes and the rollout of more than 100, 000 kilometres of new fibre,” McKenzie said.

“Telstra stands ready to build it. We have the technology, the know-how, the expertise, the resources and the track record of getting things done, but the government needs to bed down the regulatory changes needed to attract
the investment.

“If this network is going to be built, the builder needs up-front certainty that its investment will not be undermined or given away by regulatory changes once a decision to invest is made.”

McKenzie also said that Telstra fully endorsed an open access NBN that would result in equivalent access to all retailers, providing a platform on which all providers, including Telstra, could innovate and differentiate the services they chose to offer, competing on service and value as well as price.

“The core wholesale services will be made available to access seekers on a basis equivalent to Telstra’s own business units,” Ms McKenzie said.

“Unlike the current network where access for competitors has to be retro-fitted to an existing system, the NBN will use automated processes to give all providers easier ways of offering products and services to their customers.”

A spokesman from Telstra Retail said that while he could not comment any further on the NBN due to Telstra’s bid before the government, he said that from a “retail” point of view Telstra had nearly half of all broadband users
in Australia.

“For users choosing BigPond, this is a choice our customers are making based on the value we offer – which is not just a full-service ISP, but also the unmetred entertainment such as movies, music, sport and games we offer our broadband members,” he said.

“We welcomed in February the regulatory certainty from the government that allowed us to enable ADSL2+ in a further 907 exchanges Australia-wide.
“When it comes to wireless broadband, it is a success for us. In February we announced revenue grew by 205 percent and we had 464,000 subscribers choosing Australia’s fastest nation-wide high-speed wireless broadband network.”

Andrew Sheridan, general manager regulatory affairs at rival Optus, said as of the end of March, Optus had 357 ULL exchanges.

He said when complete, the telco’s ULL coverage would include a total of 366 exchanges offering home phone and high-speed ADSL2 broadband services to 2.9 million premises across the country.

“At the end of June Optus met its target of providing 3G mobile coverage to 80 percent of the Australian population and we are currently on track to reach 96 percent of the population by the end of December 2008,” Sheridan said.

He said Optus’ 3G coverage recently provided competition for wireless broadband and 3G mobile services to Darwin for the first time as well as expanding competition to major regional areas throughout Australia such as Ballarat in Victoria, Rockhampton in Queensland and Tamworth in New South Wales.

Regarding the new NBN, he said Optus was leading the Terria consortium in putting forward a bid but he was not able to comment in detail given a “government gag order on bidders restricted to what they could say on
the proposal”.

“What we can say is for us it goes to the heart of the whole issue: as we move to a fibre world, competition and protection goes to the heart of whether services on the net are available to consumers and whether it can deliver the sorts of policies the government is trying to achieve,” Sheridan said.

“A number have been rolling out their own networks using Telstra copper loops in its exchanges,” he said.

“We also offer direct broadband and other services such as that offered by iiNet and Internode.

“We have 357 equipment exchanges across metro Australia with 2.5 million customers and this competition is a recent development emerging offering new and innovative services and cheaper than broadband.

“The problem is that you run the danger of becoming stranded in a new single national network,” he said.

“We want genuine open access with the same prices and terms and conditions and our group says if NBN goes forward we must have robust competition – without that you won’t get the benefits the network is designed to deliver.”

He said ISPs using the current equipment would have to migrate to an NBN platform and offer equivalent services.

“A lot will depend on the regulatory environment and how regulated it is,” Sheridan said.

“The Optus model being pushed by Terria is one in which everyone will win and a pro-consumer model that will drive the maximum users to use the network, while providing an environment for innovative services.”