With strong tourism and financial services sectors, Mauritius’ economy has been hit harder by the global economic crisis than many other African countries. However, IMF forecasts predict that after a dip to around 2% in 2009 and 2010, annual GDP growth will return to levels between 4% and 5% again from 2011. 

The incumbent telco, Mauritius Telecom (MT) has been partially privatised and all sectors of the market are open to competition. Served by a modern, digital fixed-line network, two fibre optic submarine cables for international connectivity, three mobile networks, various broadband and other service providers, Mauritius is actively pursuing a policy to make telecommunications the fifth pillar of its economy and to become a regional telecom hub with Singapore as a role model. 

At more than 80% penetration, the mobile market is approaching saturation. The 3G service segment is showing the highest growth rates for the two GSM-based networks – Orange (MT in partnership with France Telecom) and Emtel, operated by Millicom International. The strongest overall subscriber growth is currently seen by the third mobile network, Mahanagar (MTML), which is undercutting its competitors’ tariffs and offers an EV-DO broadband service through a CDMA-2000 network. MTML is also the country’s second fixed network operator. 

Mauritius was also one of the first countries in Africa to legalise Voice over Internet Protocol (VoIP) telephony. Combined with the well developed infrastructure this has led to the introduction of converged voice, Internet and broadband TV services which have been taken up by the majority of broadband users. Further improvements in this sector and lower prices are expected from the landing of the second international submarine fibre which will provide an alternative route to Europe in the near future. 

Table 11 – Mauritius Telecom Group financial results – 2004 – 2008

(Source: BuddeComm based on company data) 

For more info see: Mauritius Telecoms, Mobile and Broadband.

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The wholesale price of the NBN should be such that it reflects the government’s policies to stimulate the digital economy. In other words it should be affordable for organisations to build their own services on top. As a very rough guideline the price of the wholesale infrastructure service should be no more than 10% of the total price of the end-user application. Obviously this will depend on the nature of the application and there will no doubt be many exceptions to this rule. Another guideline is that the price of between €7and €13 in the Netherlands for a Layer 1 service is currently seen as too high. 

Also, on an open network some providers might want to include the infrastructure charge within the overall price of their service; or certain e-health and education services could be modelled around health insurance and taxation facilities. Energy companies could include smart meter services within their energy pricing models. All sectors and providers should be able to decide how they structure their pricing mechanism. There will not be one gatekeeper. 

The price should reflect the fact that the various sectors and providers can share the costs of the infrastructure. It would be unacceptable if all providers were to charge a basic access fee. 

A possibility here would be to set an appropriate basic connection/access charge – one that is low enough for all users to have access to a basic service (USO), with a subsidy available to those who can’t afford it. This could, in fact, be a tax or a ‘real estate’ fee for a lifetime connection. It could become part of the mortgage or part of a council charge. 

If amortised over 20 years the annual fee is rather small, perhaps as low as $60 per annum. This fee should provide a regulated service level that would allow for the delivery of basic services. It should be reviewed regularly, and adjusted when appropriate, in accordance with changes in society and technology. 

Once this pricing arrangement is in place the barrier is removed for others to use the utilities-based infrastructure to build their own independent business model for the delivery of their services to their end-users. Such a model would also stimulate the infrastructure company to deliver innovative new wholesale services above the basic offering, as that would positively affect their own revenue models – again, of course, working from a sound regulatory framework. 

It is also important to remember that the current telco price is based on speed, which is subject to the limitations of the copper network and as such is rather irrelevant to the fibre network. Many applications that will be delivered over the infrastructure won’t necessarily require a high speed. 

Other key elements of a fibre network are security, reliability and the low maintenance and running costs. 

As this price will be regulated it will be possible to adjust pricing over time to reflect changes in technology, society, the economy, etc. 

On top of the basic connection fee access prices can reflect heavy or specialised use. In other words, there could be categories of wholesale services that would apply to consumers, small businesses, corporates, etc. 

See all BuddeComm’s NBN reports.

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But of course, every year more and more customers will have the option to switch over to fibre as the fibre network is gradually rolled out. At that point in time customers can choose to either stick to their copper connection or move over to fibre. 

BuddeComm envisages that over time it will cost more to run services over the copper network than over fibre – in particular, the maintenance costs related to fibre are significantly lower. 

The early movers to fibre will be the customers who want to use services that can only be delivered over a fibre network because of the quality required, the level of security, reliability, etc. 

We have observed this pattern for 1G to 2G and now to 3G mobile services, and a similar process is at present underway in relation to digital TV. 

The operators of fibre-based services can use a variation of price, marketing and sales tools to encourage users to move over. However for at least the next ten years a forced transition is highly unlikely. 

As the fibre connection will deliver not just Internet and telephone access, but also healthcare, education, media and smart meter services, it could well be that some people will continue, at least for a while, to be connected to two networks. All of this is perfectly possible under the current scenario. 

We see that many ISPs are continuing to roll out DSLAM equipment which is used for the delivery of broadband services over the copper network. The fact that these companies keep investing in the copper network is a clear indication that nothing is going to happen overnight. 

Paul Budde 

See all BuddeComm’s NBN reports.

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In its Australia – Telecoms Industry – Statistics and Forecasts Report 2010/2011 BuddeComm expect the Australian economy to recover slowly and as such forecasts revenue growth of around 3.3% with total revenues reaching $40 billion for the first time. 

During 2010 dramatic changes will occur within the Australian telecoms market. The National Broadband Network Company (NBN Co) will start to take shape in order to build a nationwide high-speed network based on fibre-optic and wireless technologies. All of this will assist the industry to double its size to around $80 billion by 2020. 

A critical issue for the Australian telecommunications industry in 2010 is whether Telstra will be structurally separated into several separate firms in order to promote competition. 

There is a strong probability growth in the Australian economy may be fairly slow in 2010 and a smaller probability that growth may even be flat. Investments in the industry are still seriously down. This is likely to translate into stagnant or low growth in telecommunications. However as consumers and businesses scrutinise discretionary spending some telephony and Internet products may become more popular. 

The report provides revenue, revenue growth statistics and analysis for the telecommunications market between 2000 and 2008 by major telecommunications provider as well as our market forecasts for 2009 and 2010. Telstra still dominates the overall Australian telecom market with a massive 66% market share of overall revenues. By mid-2010, BuddeComm predicts that Telstra will still have 65% share of the overall revenue market. 

The second-tier market is on the verge of massive changes which will occur over the next few years. The critical factors are what changes to the regulatory environment will occur, and even more importantly, how the National Broadband Network (NBN) develops. 

Second-tier companies are likely to have to reposition themselves. These are usually virtual service providers to the mass market which purchase services on a wholesale basis from network operators. 

A number of second-tier firms are infrastructure operators of networks serving niche markets. Several second-tier firms offer a range of telephony services such as mobile and landlines, as well as internet access. A second group consists of firms which offer only one type of telephony service such as Vodafone or 3 with mobile voice and data services. 

Four of the second-tier players: AAPT, Commander, Vodafone and Hutchison now have annual revenues exceeding the $1 billion mark. The second-tier segment is very interesting in terms of mergers and acquisitions in Australia. In 2009 Vodafone and Hutchison (3) in Australia, the third and fourth largest mobile network operators merged their operations. M2 acquired People Telecom in mid 2009 to create the largest firm without significant infrastructure assets, and further consolidation is expected over the period to 2011. 

The total number of broadband subscribers reached 7.3 million by mid-2009, a 17% increase over the 12 months. Growth in recent years has been driven by further strong uptake of DSL subscribers, although recent growth has not as strong as the previous two years as the majority of the market has now made the transition from dial-up to broadband. In the longer term the development of a fibre optic network operated by a National Broadband operator is likely to have a significant impact on the take up of DSL or cable based services. 

The business market has been quick to embrace broadband – by 2009 the vast majority of the business sector had made the transition. Further growth is expected moving into 2010 despite difficult economic conditions in Australia. As business users gradually move to faster broadband access via ADSL2+ and, when it’s built, services from the fibre based national broadband network, businesses are increasingly embracing new broadband applications. 

Total mobile services revenue earned by the major mobile operators in the financial year to 2009 surged surprisingly despite difficult broader economic conditions in Australia. The industry as a whole earned around $14.3 billion in revenue from mobile services – a growth rate of nearly 10% year-on-year. 

Despite subscriber penetration rates being between 110% and 115% of the population, growth is likely to continue for the foreseeable future though the overall rate of growth may slow slightly. 

Between 2010 and 2012 revenue growth is expected to be influenced by the following three major factors. The broader economic environment is perhaps the largest influence and economic growth in 2011 and 2012 could well be subdued in Australia. 

Revenue growth will also be impacted because of price competition, especially in light of the merger between Vodafone and Hutchison (3) in Australia to form VHA. The extent to which new telephony services are developed will influence the pace of revenue growth. 

In the financial year 2009 Telstra earned more than $6 billion in revenue from mobile services and Optus earned more than $4 billion for the first time. Vodafone Australia earned just under $2.5 billion and Hutchison just over $1.5 billion. 

 In 2009 the merger between Vodafone and Hutchison in Australia will create a company with mobile services revenue approximately 5% lower than its nearest rival Optus. This will create an interesting market dynamic for the first time in Australia as VHA may aspire to a gaining market share at the expense of Optus. 

Australian operators are likely to have more than 25 million mobile subscribers in 2011 as migration and business adoption continue to drive growth. Growth in the number of services has also been boosted in Australia in 2009 by the effective use of economic stimulus. Telstra continues to dominate the market with more than ten million subscribers, Optus has around eight million and VHA has roughly six million subscribers. This report provides statistics and forecasts for 2010 as well as high-level commentary on the overall market, market shares by operator and detail of 2G and 3G and prepaid and postpaid usage. 

For more info see: Australia – Telecoms Industry – Statistics and Forecasts

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While questions certainly arise around the business model and investment strategies, widespread support exists for the visionary plan. During 2010 the business model needs to be developed, taking into account the socio-economic benefits the infrastructure can deliver to the country.

Economic and trans-sector innovations are now key items on the political agenda in other countries around the world but, thanks to government leadership, Australia was the first to get the vision right in terms of a national purpose.

After the vision comes the actual design and rollout of the national broadband network. There is no silver bullet for this and each situation generates its own unique alternative, which in turn informs others involved in similar national projects. Social and economic strategies need to be formulated and taken into account in the design and architecture of the infrastructure. Pragmatic solutions should be developed to maximise the use of existing infrastructure and other resources. Un(der)served areas need to receive priority and local communities and councils can play a key role in this. Wireless broadband can play a major role as well.

These early projects could also be an ideal testing ground for trans-sector applications. This is where NBN Co comes in. This open wholesale-only company will make the critical architectural and design decisions that will form the basis of this new infrastructure for at least the next 25 years.

The network must facilitate the vision laid down by the government, which includes multiple use of the network by other sectors such as healthcare, education, energy, etc. At the same time the company must ensure that it remains an infrastructure company and doesn’t become another telco.

The NBN is going to change the nature of competition. The government has published a far-reaching regulatory regime change that leaves no room for doubt that there is no way back to the old days, when the incumbent was able to game the regime by creating endless delays and stifling competition.

There will be a transitional period. During this time some of the old activities will continue but they will increasingly shift to the new environment. This will see the players realigning their operations and many will change their business plans well before that time in preparation for the new regime.

Negotiations and discussions are already taking place, aimed at shaping this new environment, and the new framework will be aligned with the goals of the NBN.

Soon after the government announced the NBN in April 2009 it became evident that Telstra had finally accepted that changes were inevitable and it reacted swiftly. A new management team was appointed, led by the new CEO, David Thodey. They immediately announced their support for the NBN and their willingness to work with the government. The company also put its weight behind the trans-sector concept as that would obviously be the avenue down which it could start generating new revenues. Negotiations were launched with the government exploring how Telstra could best participate. One of the options was for it to take a shareholding in NBN Co.

The NBN being a political project there will obviously be political activity involved in the process. Overall a very businesslike approach is being taken but elections, pork-barrelling, new ministers and governments will no doubt exert an influence on the NBN.

Some of this will be positive, since a trans-sector approach will require the government to commit other government sectors to participate.

While a full national launch will require thorough preparation, two large-scale projects were singled out to form a tangible start to the rollout. Tasmania became the first state to initiate the rollout and backbone projects will be launched before the end of 2009 in regional mainland areas.

The financial crisis has focused global attention on new infrastructure developments. Australia had already begun the national broadband network process before the crisis and it now also finds itself at the forefront of investigations into ways in which the new infrastructure can help to stimulate the economy.

Open access infrastructure offers the best way forward as it creates a multiplier effect that will assist developments in healthcare, education, energy and the environment, as well as in Internet and digital media. The Australian industry has embarked on a trans-sectoral campaign, convincing other sectors that an open network will give them the tools to save money and improve their service. At the same time this multiplier effect will create new jobs, perhaps as many as 25,000.

This cross-sector approach also applies to infrastructure projects – potential synergies exist between the building of roads, sewerage systems, water and gas pipe networks, as well as telecoms and electricity networks.

As the financing of the public health systems in Australia becomes increasingly costly the NBN opens up opportunities to lower costs through more effective use of web services for healthcare consumers. With widely available and cost-effective high-speed broadband infrastructure e-health may become an area where important killer applications emerge – applications that utilise truly high-speed broadband networks, enabling customers to benefit from advances in medical technology and medical services.

Early diagnosis and after-treatment patient monitoring are two areas where significant synergies may be found, using applications accessed by users in their homes. While broader economic conditions in Australia may be subdued until 2011 spending on e-health solutions is likely to be boosted as part of the larger economic stimulus packages the government is currently enacting.

The use of IT and telecommunications technology within educational environments is set to increase dramatically between 2010 and 2015 as the high-speed fibre-based broadband becomes widely available. Simultaneously the capability of Internet services for educational purposes is set to increase enormously over the next decade. Given its large landmass and relatively small population Australia is an ideal market for remote education services. Australia is already home to many successful e-education service providers, as well as being a fairly important market for e-education services.

The government provides citizens with relatively e-government services and, as with education, the establishment of a fibre-based broadband network may see the government improve and broaden the range of web services for which it is responsible. As such Australia is a fascinating and relatively advanced market for both e-education and e-government services.

Key highlights:

• The NBN is going to change the nature of competition;
• Telstra’s acceptance of the NBN and its reaction;
• Smart Grids, the electricity industry and NBN integration;
• Trans-sector opportunities to revolutionise e-education;
• ICT spending in healthcare must increase to keep pace as the population ages.

Data in this report is the latest available at the time of preparation and may not be for the current year.

Cost of this report is $795 (excl GST for Australian subscribers) for a PDF with a single user licence. Prices available on request for multi user licence and hardcopy.

For detailed information, table of contents and pricing see: Australia – The National Broadband Network

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Listening to some of the political discussions it is still unclear what the government’s real social and economic objectives are, to warrant this massive taxpayer-funded investment. The longer the government waits before making its trans-sector commitments the longer this confusion will persist. The infrastructure approach is a utility play but at the same time we have to realise that this must be demand driven by industry committed to the financial and economic benefits and the government acting on behalf of a range of social and commercial sectors. Therefore parallel development of the supply side and the demand side is needed, at least at a policy level at this stage, so that we all know what the ingredients are going to be. 

It is also not clear to many involved in the discussion that this is an infrastructure play and not a telco play. The NBN is not a Christmas gift to the already rather profitable telco industry. 

While, intuitively, we all see the enormous benefits of this trans-sector approach the industry (sectors) need to follow up with ideas, applications, content (as well as with proper market analyses), costings, sales and marketing plans and so on. However, we do need tangible government leadership and policies that will enable these sectors to move in this direction. Only when these are in place will the industry be able to develop its own plans. 

By now we should be moving the focus of the discussion to the business side of the plan, but an absence of that trans-sector commitment is stopping us from doing this. Without that commitment any business modelling is nothing more than a stab in the dark. It is not simply a case of ‘build and they will come’. Such an approach will not the deliver the investment and business commitment needed to build the NBN. 

Without the governments commitment we cannot properly assess the investments needed, and the risks and returns involved. Healthy discussions are also necessary to get the models right, so transparency and openness is a must. 

As indicated in our report: Global – Trans-sector strategies – an empirical approach we need to come up with more substantive quantifiable data to give justification to the process – and as with the vision, this needs to be well-communicated. 

The process should include several important facts:

• that business planning is an important discipline and part of investment decision-making;
• that vision and strategy without an implementation plan is flawed;
• that utility and infrastructure investments have become more focussed on market demand (both social and commercial), ahead of historical cost and technology considerations. 

As has been indicated by the Digital Economy Industry Work Group in their discussions with the Minister, this needs to be accompanied by a transparent governance plan that will engender confidence that there is proper coordination and control. 

The trans-sector approach will provide all those involved with a checklist to see if the project is indeed moving in the right direction – who is lagging behind, which parts are missing, and so on. There is no doubt that ongoing adjustments will need to be made and there is no doubt that we don’t have all the answers at this stage. However, if we have a good plan linked to good governance that will be our guide through this process. 

The Minister has clearly indicated that at this stage he is the person in charge of the strategy. At the same time NBN Co has indicated that they are ‘the plumbers’. This makes it very clear what decisions and directions we can expect from whom. 

However, NBN Co will need to be built on the trans-sector vision created by the government and it will have to facilitate the social and economic benefits that the government has indicated will flow from this investment. 

This approach will require NBN Co to look across the sector silos with an open mind, helping define and develop the new paradigm(s). Typically, as program managers and as an agent of change it will need to cut across traditional structures that rely on the long-established order of things, including stakeholder management, coordination and communications, and also through integration management (to name just a few):

• developing a control framework costing, evaluating, prioritising etc;
• integrating the divisive vested interests and agendas of industry;
• sifting through new, planned and competing technologies;
• identifying new end-to-end (cradle to grave) operations, systems and processes;
• assessing new resource needs, retraining and reskilling requirements;
• integrating capex vs opex maintenance dilemmas; and
• integrating existing and live networks.  

It is important to note that there will not be one business plan; every single sector involved in the NBN will have to go through exactly the same process. 

As soon as we have the government’s full commitment to this approach we can move into proper business planning. This will certainly also help push the project over the political hurdles that remain ahead. To guarantee its success the Opposition and others critical of the plan need to be persuaded with sound economic and social arguments, underpinned by sound economics. 

Paul Budde 

• Australia – National Broadband Network – Overview & Analysis
• Australia – National Broadband Network – Critical Considerations
• Australia – National Broadband Network – Competition and Regulations
• Australia – National Broadband Network – Design and Deployment Strategies
• Australia – National Broadband Network – Early Projects
• Australia – National Broadband Network – Industry at crossroads
• Australia – National Broadband Network – NBN Co and Infrastructure
• Australia – National Broadband Network – Overview & Analysis
• Australia – National Broadband Network – Telstra
• Australia – National Broadband Network based on Trans-sector model
• Australia – National Broadband Network Trans-sector projects

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Why did we start the NBN debate in the first place? This goes right back to the previous government. The Communications Minister at that time, Helen Coonan, had a good understanding of the two major problems that arose out of the privatisation of Telstra:

• lack of broadband access for people in regional Australia and
• lack of competition. 

Despite numerous warnings from consumer organisations, the telco industry and the wider Australian business community the previous government failed to secure solutions for these problems in the legislation that formed part of the privatisation process; instead they opted to try and solve this problem after the fact. 

This basically failed and was highlighted in the dismissal of the Telstra proposals in February 2007, which, if they had been accepted by the government, would have seen an FttN network from Telstra to approximately 55% of Australian households and a retail price for a very basic DSL service of between $85 to $95. 

This was even unacceptable to Minister Coonan and the negotiations with Telstra were terminated. The industry supported the Minister and had been able to establish a good working relationship with her in investigating alternatives. 

Telstra continued its obstructive and abusive behaviour which led to the broadband issue becoming a hot topic during the election campaign later that year. Both the then government and the then Opposition offered directions that were acceptable to the rest of the industry. Their plans, as mentioned, concentrated on regional broadband and competition. 

Labor’s broadband policy was certainly more ambitious than the one from the Coalition and this in the end helped them to win the election (obviously climate change was the main issue). Telstra maintained its unyielding position, which was obvious in the company’s appalling response to the government’s invitation for proposals from the industry. It completely sidelined itself and this gave the government and the rest of the industry the opportunity to develop a truly revolutionary broadband policy. 

It was thanks to the financial crisis that these plans were turned into a much bigger economic broadband stimulus package, aimed at using an open network that would allow for a trans-sector approach to the infrastructure; making it ideal for the delivery of healthcare, education, energy, environmental and other services. Again the government received the broad support of both the consumer and the business communities and, bolstered by the broad electorate mandate, it proceeded along these bold lines. This decisive policy led to a long overdue change of the guard at Telstra and under the new CEO the company quickly changed its attitude and started to support the NBN and the trans-sector policy attached to it. 

With the new alignment between the government and Telstra the country has a unique opportunity to create a win-win situation. But as had become clear very soon after the election the Opposition (especially the Liberal Party) was determined to ruin the party. They totally overturned the policies of their previous Minister Coonan and didn’t even bother to come up with any other ideas or suggestions. They simply launched a boycott campaign. 

However the National Party, which had been among the staunchest supporters of both regional broadband and competition under the Coalition government, has suddenly gone very quiet. It appears that it has been silenced by the obstructive behaviour of their Liberal colleagues and that it has abandoned the regional broadband issue. 

Why aren’t these politicians asking the question: why did we start this NBN in the first place? Wasn’t that for regional broadband? Weren’t they among the initiators of such a policy – where are they now? Equally, I can’t understand why the government hasn’t used the regional issue as a reason to try and win these National Party politicians over to support their policy. 

There are excellent opportunities with the NBN to actually propel regional Australia once again to the front line – where they were between 2005 and 2007. It was regional Australia that led the very successful broadband campaign at that time. 

In my report Australia – National Broadband Network – Design and Deployment Strategies I have argued for prioritising the rollout of the NBN in regional Australia. Significant parts of regional Australia will rely, for at least the next decade, on high-speed broadband delivered through wireless broadband. 

That technology is excellent. It is just slightly more expensive, but that’s why we have the NBN funds. It has been proved that wireless broadband (WiMAX) can be rolled out fairly quickly and could secure an early win for regional Australia. True, we need to make sure that the regional network is well-designed within the overall NBN plan; it is important to ensure that the entire NBN plan is implemented but this is certainly something that can be achieved with extra effort from the industry, working together with NBN Co. 

Action plan:

• Regional Australia should revive its campaign and lead the debate again to get the NBN rolled out in regional Australia, with priority.
• The National Party should put pressure on the government to make regional broadband a priority.
• The government should use this national benefit opportunity to obtain broader political support for the NBN.
• The debate should be lifted from telephony and Internet services to the importance of e-health, e-education, smart grids and other trans-sector service.
• We need to get a USO policy in place for these services rather than concentrating on guaranteeing a telephone service (which everybody already has). 

Paul Budde 

• Australia – National Broadband Network – Overview & Analysis
• Australia – National Broadband Network – Critical Considerations
• Australia – National Broadband Network – Competition and Regulations
• Australia – National Broadband Network – Design and Deployment Strategies
• Australia – National Broadband Network – Early Projects
• Australia – National Broadband Network – Industry at crossroads
• Australia – National Broadband Network – NBN Co and Infrastructure
• Australia – National Broadband Network – Overview & Analysis
• Australia – National Broadband Network – Telstra
• Australia – National Broadband Network based on Trans-sector model
• Australia – National Broadband Network Trans-sector projects

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Competition for MTL is also set to arrive in the fixed-line sector in early 2010 with the second operator Access Communications (ACL), already licensed in 2007. The company may eventually emerge as the country’s fourth mobile operator, since the CDMA-2000 technology it uses supports full mobility. Malawi’s telecoms regulator, MACRA has announced it plans to licence a fourth mobile network. 

The fixed-line sector itself has seen a revival following MTL’s privatisation and the introduction of CDMA-2000 fixed-wireless services. A national fibre backbone is being implemented, and the country is set to gain access to international submarine fibre optic cables for the first time in 2010 when a transit link via neighbouring countries is completed. Provided a suitable regulatory regime is put in place, this will bring down the cost of international bandwidth and deliver a boost to the broadband market. 

The Internet sector is reasonably competitive with 15 licensed ISPs, but the limited availability and high cost of international bandwidth has held back growth and kept broadband prices high. Several ISPs are rolling out WiMAX wireless broadband networks, and the CDMA-2000 networks of MTL and ACL support broadband speeds with the EV-DO technology being used. 

Mobile data services are currently limited to GPRS, third-generation (3G) systems have not yet been launched. 

Table 8 – Mobile penetration in Malawi and other countries in the region –2009

(Source: BuddeComm based on various sources) 

For more info on new BuddeComm Report see: http://www.budde.com.au/Research/Malawi-Telecoms-Market-Overview-Statistics.html

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True, Telstra is in a difficult position, as it faces significant challenges that cannot be addressed without making some major structural changes to the way the company operates and sees its future.

This restructuring will be extremely difficult – under the previous management this topic was taboo and so the company is now suddenly faced with having to make decisions on the run, which is never a good thing to do.

However, this is a problem of its own making. The rest of the industry and the government have been discussing these issues for five years and are therefore in a much better position to plan their future.

This is clearly evident in the government plans. These are well thought through and give Telstra (and the Opposition for that matter) little room to manoeuvre. There is no way that these issues can be solved without structural changes. Telstra knows this and intellectually accepts the fact.

This new situation gives the company a unique opportunity to do a whole-hearted job here – to seize the bull by the horns and develop a long-term strategic plan for the company, albeit under pressure.

There is no simple solution, nor would it be in the company’s interest to simply decide between an option A and B. The valuation is an interesting element of it but it has not encouraged me to look at the situation differently.

The fact remains that the copper network is steam train technology and it should be remembered that the best ever steam train was built right at the end of the steam era. It could travel at 120mph, which is still a good speed even by today’s standards. However that era was over by then, and those very fast steam trains were scrapped at a value far below their original cost.

The same situation exists in relation to the copper-based network. Whether it is right or wrong, good or bad, that is the reality and there is no doubt that this will form a key element of any valuation discussion.

The end of the steam train era didn’t mean the end of the basic railway infrastructure however. That had, and still has today, an enormous value.

The current circumstances offer Telstra an excellent opportunity to jump from the age of copper into the new fibre era. What a fantastic opportunity, since everybody agrees this is where the future lies. There are many choices available to it and many new financial opportunities. For this it will have to think outside the box and to a certain extent ignore the current political and shareholder kafuffle. Telstra should not use the misguided tactic of delay – this could be presented to them by the Opposition who doesn’t have either Telstra’s not the national interest at heart but whose goal simply is to derail the plan –to do a half-hearted job or to slide back into the comfort zone of the old copper era.

In the end it will come down to true leadership and nothing else. The question is: can the current leadership now make some important decisions quickly – decisions that will secure the company’s future and its future profitability. In my opinion the answer is yes.

Here are some of the options:

• It can sell certain parts of itself to NBN Co;
• It can still milk the copper network and generate profitable revenue for the next 3-5 years;
• It can divest the digital media elements of the company and create very significant new shareholders value;
• It can offer its infrastructure to NBN Co and take on outsource work for that company, which will deliver ongoing income;
• It can be the key builder of the value-added ICT infrastructure – on top of the basic pipes – needed for the various sectors that are going to form the basis of the digital economy;
• It can exploit the retail fact that it has 10 million customers;

…. and there are no doubt more options.

None of these options are mutually exclusive and combinations are possible. If Telstra plays it well I see more ups than downs.

Will this be easy? No. It will certainly require top quality leadership to guide the organisation through, and great vision will be needed to identify where the true value of the company lies and how to best develop strategies that will deliver the right outcome.

There is no doubt about the difficulty the organisation is experiencing, and I certainly don’t underestimate this. An acute juggling process will be needed to bring all the different elements together, but it can be done and I have faith in the capability of the current Telstra leadership.

Paul Budde.

See also:

• Australia – National Broadband Network – Competition and Regulations
• Australia – National Broadband Network – Design and Deployment Strategies
• Australia – National Broadband Network – Early Projects
• Australia – National Broadband Network – Industry at crossroads
• Australia – National Broadband Network – NBN Co and Infrastructure
• Australia – National Broadband Network – Overview & Analysis
• Australia – National Broadband Network – Telstra
• Australia – National Broadband Network based on Trans-sector model
• Australia – National Broadband Network Trans-sector projects

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While the economic slowdown is curbing e-commerce growth somewhat in most markets, there is evidence so far that the online retail market has remained steady due mostly to the lower prices and convenience offered via online shopping. Spending on online advertising also continues to grow in the face of economic uncertainty and in 2010 online advertising should account for around 13% of overall ad spending worldwide.  

Alternative payment systems are gaining much attention in 2009 as consumer demand grows for different payment methods other than credit cards. As online retailers expand globally they are also beginning to discover that cultural differences may impact upon payment method preferences. For example, in the developing markets where credit cards and bank accounts are scarcer, consumers may prefer to pay in person at a bank or by postal order. Electronic bank transfers and billing goods to phone accounts are other examples of alternative payment methods. As the complexities and security issues surrounding e-payments increase, some online retailers are turning to outsourced payment processing companies to manage their e-payment solutions. 

There is a massive change underway in the mobile media market as it becomes unshackled from the operators’ portals that have dominated it for a decade, all without having made any significant inroads into the content use of mobile users. The new capped data packages, fuelled by further competition, will see a total revamp of the mobile media market. It will no longer be based on portals but on direct services by content and services providers via open source phones and mobile-friendly Internet-based services. The next step is the continued emergence of m-commerce and in particular m-payment services. 

There is keen interest in m-payment and m-banking among mobile operators in developing countries such as Kenya, the Philippines and India. The revenues are indeed growing, but can this new business also be profitable? The often quoted pioneer success story is M-Pesa in Kenya. While M-Pesa by itself is not yet profitable, it is growing very fast and already makes up around 4% of the operator’s total revenues (up from only 0.6% in 2008). These developments will create a new e-payment system for the mobile market, away from the hefty charges the carriers put on Premium Rate SMS payment facilities. However, there is a limit to the mobile networks’ spectrum capacity, and we will have to wait for true IP-based wireless broadband to become available before the operators can fully deliver on the promise of mass market mobile broadband. 

In 2009 the interest surrounding Near Field Communications for m-commerce and m-payments continues unabated, with further trials being conducted around the world. Financial transactions via mobile phones are set to rise substantially in the coming years as banks and mobile operators continue to work together. 

Social media is becoming a key focus in the digital economy as the leading players in this sector look to expand their services and incorporate e-payment and m-payment services. This seems a logical move for companies such as Facebook, as they have built up large and loyal customer bases from social networking services. Around 20% of Facebook’s online users now access the service via mobile each month. Its online customer base sits at around 300 million and Facebook is expanding into e-payments/m-payments via partnerships with Zong and Boku.  

This report provides a valuable insight into the developments taking place in the digital economy in terms of e-commerce and m-commerce. It includes information and broad global market statistics for the e-commerce, e-payment, e-banking sectors as well as the m-commerce, m-payment and m-banking sectors. The report also includes brief case studies on some of the key markets identified for future growth such as the USA, China and Africa. Regional information on developments in North America, Latin America, Europe, Middle East, Africa and Asia Pacific are also included. 

Key highlights of the new BuddeComm Report:

• PayPal is still by far the most popular online payment system worldwide, with around 45% of its customers based outside of the US. Other interesting models are also emerging such as Twitter’s TwitPay.
• It is expected that PayPal will contribute around a third of eBay’s overall revenue in 2009.
• China now has more Internet users than the USA and these two markets, among others, now offer significant opportunities for those operating in the e-commerce space.
• In most global markets, online travel has been one of the most successful e-commerce categories.  

Online travel sector market summary

(Source: BuddeComm based on various industry sources, 2009) 

• E-commerce security concerns continue to persist with many consumers still reluctant to impart credit card information over the Internet and mobile devices.
• The developing markets of Kenya, Philippines and India are currently driving developments for micro-credits and micro-payments and it won’t be long before these models start arriving in the developed markets as well.
• Mobile banking also found its initial success in the developing world where financial services are poor. The sector was also stimulated by the high charges which banks demanded for conventional money transactions. In coming years, growth will also come from mature markets as consumers turn to mobile phones as an adjunct to popular online banking services.
• China’s m-commerce market reached RMB1.3 billion ($163 million) in 2006 and is forecast to reach RMB7.6 billion ($953 million) by 2010.  

For more information on the new BuddeComm report Global Digital Economy – E-Commerce and M-Commerce Trends and Statistics see: Global Digital Economy – E-Commerce and M-Commerce Trends and Statistics

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