The six countries of the Gulf Cooperation Council (GCC) all have penetration rates well in excess of 100%, with the UAE, Bahrain and Qatar nearer 200%. This is due to intense competition and to multi-SIM ownership as subscribers aim to maximise special offers and different deals. The large and transient expatriate populations in the Gulf countries are also a factor in encouraging competition, and thus growth and penetration rates – with a fluid population new operators stand a better chance of gaining market share. Inevitably there must also be a significant number of inactive prepaid SIM-cards. 

Growth rates are also high in the less developed markets of Iraq, Iran and Lebanon. Amongst the lower growth countries, Turkey was hit hard by the Global Financial Crisis, leading to a recession and a fall in mobile penetration. Israel has also seen low growth rates, partly due to much a much lesser economic slowdown and partly to saturated markets and perhaps distraction due to considerable industry structural changes. 

The region is home to some very large international players. Etisalat of the UAE and Zain of Kuwait have been particularly aggressive buyers of both new licences and existing operators in Africa, the Middle East and Asia. Qtel of Qatar, STC of Saudi Arabia and Batelco of Bahrain have also taken this route for growth. 

In the more developed Gulf countries and Israel, operators are pinning their growth hopes on persuading their mobile subscribers to take up data and broadband services. Customers want the latest in high-end handsets and have the income to pay for them. 3G services in these countries are well established, together with HSPA. Outside the Gulf countries, Israel and Turkey, no operator has launched 3G or HSPA although Jordan issued a licence to Orange in August 2009. 

Mobile subscribers, annual change and penetration rates in the Middle East – June 2009

(Source: BuddeComm based on Global Mobile data) 

For more information on this new BuddeComm report see: Middle Eastern Mobile Voice and Operators Market

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More than half of this is taking place in Asia. In my discussion with Jai Rajaraman, senior director, services at the GSMA mentioned to me that over the last two years close to 300 mobile operators in 120 countries have launched mobile broadband networks (using the 3G HSPA technology) and some 70 of these are already planning the next upgrade of their networks using the LTE technology – the first $5 billion of investment money has been committed to that technology.

The two countries that are ahead of the pack in this are – where else but in Scandinavia? – Sweden and Norway.

Japan and Korea are also moving in this direction but they are using different technologies.

Within that same short time period over 200 million subscribers have embraced mobile broadband and, as we have reported previously, this has caught many mobile operators unprepared. They were still peddling their mobile portals while the apps available on smart phones almost instantly overtook a market that the mobile operators had been trying to build up for ten years.

Because of the success of this market mobile operators are now scrambling to keep up with an enormous demand for mobile broadband access. They are eager to get at least their share of the access market and competition is driving them to charge ever less for simple broadband access.  As a result of this the margins available for mobile operators are being squeezed more and more.

Does that mean that mobile operators will be relegated to becoming pipe suppliers? Not necessarily. They have a number of very powerful tools that they can use. They know mobile customers better than anybody else and they are able to provide a very reliable and secure service – so much so that banks are using their networks to deliver financial services. This has built a powerful trust relationship between operators and some very key service providers. The mobile operators are the only ones who have a very secure identity management service on their networks that can be used by these financial institutions, and (if the mobile operators permit) by others also.

Furthermore, mobile networks are excellent for mobility applications such as GIS, location-based navigation, etc. Again, the mobile operators are currently the only ones who have access to this user information.

It then comes down to whether the mobile operators will be able this time round to also develop business plans that are going to make it attractive for other providers to utilise the network. This will require open networks, wholesale, MVNOs, etc.  The question is will they indeed this time around do change their business models, or will they again wait for others to eat their lunch.

Mobile operators and their supporters all talk about a range of essential services such healthcare, education, public safety and so on. Lessons learned from the past will hopefully encourage operators to open up their networks to these public sectors. It is not too difficult to predict that, if this does not happen and consumers want to make more use of mobile broadband infrastructure for such services, regulation will be used to force the operators to open up to these new social and economic opportunities.

What might change their attitude this time is the fact that they now nearly all operate in saturated markets. There are very few new users that can be connected – certainly in the developed markets. So today there is certainly more urgency among the mobile operators to change their business models to cater for the new opportunities. Also, it will only be a matter of time before OTT providers such as Google, Facebook, Twitter, Amazon, eBay, Skype and others will have more sophisticated applications in competition with the mobile operators.

One of the main problems still being experienced by operators at the moment is a lack of sophisticated middleware that would allow them to deliver these new applications more efficiently and effectively. For instance, the many BSS/OSS systems within the mobile operators’ organisations are making it very difficult to deliver real-time and on-demand services.

Who will win?

The judges are still out on this. There are the smart device operators like Apple, with their proprietary applications; companies like Google and Microsoft, with devices based on Operating System (OS) innovations; and the mobile operators, who recently formed an alliance to also develop their own apps stores. This broad level of competition will drive innovation and those who are able to deliver the best customer experience are going to be in the lead here.

Over the next few years the mobile market will pass the $1 trillion revenue mark. The stakes are high, the rewards are great, and the future looks very bright indeed. So may the best one win.

Paul Budde

See also:

• Global – Key Telecoms, Mobile and Broadband Statistics
• Global Mobile Communications – Statistics, Trends & Forecasts
• Global – Mobile Media – Mobile TV & Video
• Global – Mobile Broadband – HSPA, LTE, WiMAX & IMS
• Global – Mobile Broadband – Key Trends, Products & Services
• Global – Mobile Broadband – Statistics and Trends

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In relation to the telecommunications industry specifically, industry growth has long outpaced broader economic growth. Annualised growth for the nine months to 30 September 2009 was a healthy 13% compared to a GDP contraction of 9%, yet this was around half the sector’s growth rate for the previous year. In fact, in 2009 the telecommunications industry grew at its slowest rate since 2002. The outlook for 2010/11 is for the industry to remain in double digit annual growth in the mid-teens and it is expected to take between 24 to 48 months before the sector returns to the robust twenty-something percentage points growth rates which it enjoyed in 2004/05 and 2007/08. 

The planned wireless spectrum auction in mid-2010 is expected to boost growth and competition in the mobile market and facilitate the launch of next generation mobile technology. The predominance of mobile phones over fixed lines, prevalent in all of Latin America, is expected to continue in Mexico. The satellite TV broadcasting sector will continue to enjoy robust growth in 2010/11 with recent entrant Dish Mexico enjoying rapid subscriber growth and regulatory approval for a third competitor to enter the market. Similarly, the cable TV companies will continue to drive the growth in VoIP and triple play services. 

This report contains overviews, analyses and detailed statistics of the Mexican fixed-line, mobile and broadband markets including developments in emerging technologies such as wireless broadband and VoIP and scenario forecasts for the fixed-line, mobile, and broadband markets. 

Market highlights:

• During 2009 and early 2010 Mexico’s telecommunications industry maintained double figure annual growth despite the deep economic recession.
• Mexico remains the last country in the OECD yet to unbundle its local loop. Thus despite liberalisation, Telmex still dominates the fixed-line market with around 90% of lines. Thus Mexico’s growth in fixed lines has been steadily declining for the past eight years, from 13% annual growth in 2000 to negligible growth in 2009. Accordingly, teledensity in early 2010 continued to languish at approximately 18%, around average for Latin America. Moreover, there are significant disparities in fixed-line penetration between urban and rural areas.
• The mobile sector remains one of the main drivers of telecom industry growth. Driven by a booming GSM sector, Mexico’s mobile industry grew at approximately 17% per annum, achieving more than 80% penetration by early 2010.
• By early 2010 Telmex’s sister company, América Móvil (Telcel), still accounted for around 72% of the mobile market. However, 2010 promises to bring a shift in the competitive landscape with 3G and WiMAX spectrum auctions offering the chance for new entry and the strengthening of competitors such as Telefonica’s Movistar. In addition, the proposed acquisition by the media giant Grupo Televisa of a stake in Nextel de México would, if it proceeds, add significant strength to the fourth placed competitor.
• Broadband is the other principal driver of growth in Mexico’s telecommunications market. Both cable modem and ADSL continued to enjoy strong subscriber growth in 2009 at a combined average growth rate of around 35%. Telmex’s ADSL product, Prodigy Infinitum, posted very high growth rates for the year and is expected to continue to do so during 2010/11.
• The main cable TV providers, Megacable, Cablemás and Cablevisión, were making strong gains by successfully incentivising the purchase of triple play bundles of cable TV, broadband and telephony. As a result their broadband subscriber base and in particular their VoIP subscriber numbers witnessed healthy growth during 2009 and into early 2010.
• Despite the economic downturn, it is expected that during 2009 broadband growth will remain in double figures as there is still significant scope for additional growth given Mexico’s broadband penetration is still only around one-third of the OECD average.
• During 2009 the DTH satellite TV market enjoyed some of its highest growth rates for the decade, following the entry in November 2008 of Dish Mexico. During 2010 sectoral growth is expected to remain strong, particularly if Axtel utilises its regulatory approval to become the third provider of satellite TV.
• On the regulatory front, the CFC declarations of Telmex and Telcel as dominant players in the fixed line and mobile sector respectively, pave the way for more stringent regulation of those companies. However, regulatory gamesmanship continues to typify the sector. For instance, in early 2009 when Cofetel published new interconnection regulations (known as PTFII) requiring all operators to provide third party access, Telmex responded by cutting planned investments in 2009 by a third.
• Thus Cofetel still requires greater independence and regulatory power in order to be able to properly foster a more competitive market. Calls for increased competition in the sector continue to mount. This appeared more likely than ever when, in early 2010, the Calderon government reiterated its willingness to pass legislation to strengthen the power of regulations and regulators. 

Forecast mobile subscribers and penetration rate – lower growth scenario – 2011 – 2016

(Source: BuddeComm, forecasts)

Notes: BYE is Base Year Estimate. 

BuddeComm’s annual publication, ‘Mexico – Telecoms, Mobile, Broadband and Forecasts’, profiles the fixed-line, mobile and broadband markets in Mexico. The publication also examines the convergence of these technologies with each other and with digital media such as digital TV and the emergence of new telecommunication services such as VoIP. For more information:

Mexico – Telecoms, Mobile, Broadband and Forecasts

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Ukraine’s historical and economic ties with Russia are evident as it is its largest trading partner, is home to a significant Russian ethnic minority and the Russian language is spoken by the general population, particularly in the Eastern regions. In recent years Ukraine has sought an increasingly close relationship with the EU, and has voiced aspirations to eventually join the EU. 

Ukraine previously held formalised relations with the EU through the latter’s European Neighbourhood Policy (ENP), through which financial assistance is offered in exchange for observing strict conditions of government and/or economic reform. As part of the ENP, an EU-Ukraine ENP Action Plan was adopted by both countries in February 2005. 

The ENP Action Plan established strategic development objectives which encompasses among other, the area of telecoms and information society. Telecoms and information society development objectives included:

• Ensure fair competition in the electronic communications markets.
• Adopt a regulatory framework encompassing licensing, interconnection, numbering and generally accessible telecommunications services
• Adopt the State Program “e-Ukraine” for the development of the Information Society and explore possible support by the EU for its implementation. This includes promoting e-commerce, e-government, e-health, e-learning initiatives via the provision of advanced infrastructures, the development of local content and the introduction of pilot projects
• Improve ICT literacy among the general public through computer training programs for the general public. 

Mirroring the general economy, Ukraine’s overall telecoms industry has grown consistently. Market liberalisation has opened up the entire communications market to competition; the success of this policy is evident in the broadband and mobile markets but not as such in the fixed telephony market, where the incumbent still dominates the market. 

Ukraine possesses a sizeable Internet market, with broadband representing a growing proportion of total Internet access subscriptions. Broadband services are available via ADSL, cable, FttH, LAN and wireless platforms such as WiFi and WiMAX, with competition predominantly infrastructure-based. Digital TV is accessible due to wide reaching cable TV networks, a number of satellite pay TV platforms, broadband TV and digital terrestrial TV. 

Ukraine’s mobile market is highly competitive due to a number of mobile operators offering services via GSM, CDMA and WCDMA/HSDPA networks. Mobile broadband services present the next growth opportunity given the saturated mobile voice market although the major GSM operators are hampered by lack of licences to offer 3G services. Into this market opportunity has stepped Ukraine’s CDMA operators, which initially offered fixed-line services but have since moved into the mobile market, launching mobile broadband services. Ukraine is also home to a nascent mobile content and applications market, with future growth largely dependant on mobile data take up. 

Market highlights:

• Market competition is expected to improve after the regulator introduced regulation to define the overall telecoms market into specific markets in line with EU principles, each of which will undergo analysis in future years to determine the level of competition.
• Fixed broadband holds much growth potential in 2010, given it currently represents a quarter of total Internet access subscriptions. Competition is predominantly infrastructure based due to lack of an effective network access regime. Existing service providers with established brands, networks and customers are well positioned in the market, with cable TV and mobile operators notable examples.
• Digital TV is available via cable, satellite, IPTV and DTTV. Availability is expanding as new players enter the market and launch services.
• Ukraine’s mobile market has undergone consolidation, strengthening the position of largest operator. Mobile SIM card penetration is in excess of 100% with future revenue growth in mobile broadband dependent on delayed 3G licence allocations. 

Ukraine – key telecom parameters – 2009 – 2010

(Source: BuddeComm based on industry data) 

For more information see: Ukraine – Telecoms, Mobile, Broadband and Forecasts

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Chairman and CEO of China Mobile Wang Jianzhou said he is confident the deal would win the required clearances of the raft of regulatory agencies that supervise two companies’ businesses. The investment requires approval from China’s banking regulator CBRC, securities watchdog CSRC and the state-owned assets agency SASAC as well as SPD Bank shareholders. 

Under the deal, Guangdong Mobile – China Mobile’s biggest subsidiary – will purchase 2.2 billion new A Shares in SPD Bank for cash, becoming the second largest shareholder in SPD Bank after Shanghai International Group and its affiliates. China Mobile parent China Mobile Communications (CMCC), which owns 74.22% of the Hong Kong-listed company, has “indicated that it would approve the share subscription agreement” and is advising remaining shareholders to do the same. 

Guangdong Mobile has signed a Memorandum of Understanding (MoU) with SPD Bank “to closely cooperate in the joint development of mobile finance and mobile e-commerce businesses.” This Mobile-Bank partnership promises mobile finance services including mobile bank cards and payment services. The investment presents China Mobile a platform to offer mobile banking services to more than 527 million customers in the world’s fastest-growing major economy. 

A senior SASAC official said that the agency was opposed to state-owned enterprises (SOE) buying into non-core businesses. It also would not accept government industrial enterprises buying into banks. However, Wang has dismissed reports of SASAC opposition to the deal and claimed that it met all regulatory stipulations. He denied that China Mobile had received government instruction to invest in SPD Bank, but said the firm has no plans to invest in real estate or other non-core businesses. The deal is expected to increase China Mobile’s earnings per share by 2%. China Mobile has agreed not to divest its SPD Bank stake for at least 36 months, but has no plans to raise its stake above 20%. It can elect three directors to the bank’s board. 

Telecommunications technology has rapidly evolved and customer demand for the mobility and portability of products is increasing. Mobile handsets have transformed from a simple tool for communications to a valuable device for communications, entertainment and shopping. Along with the rapid development of China’s macro-economy and the increasing penetration of mobile Internet, mobile phone payments and mobile e-Commerce will become one of the major means that people handle their spending in the future This presents unprecedented development opportunities to mobile telecommunications operators in China. Through this agreement with SPD Bank, China Mobile can further develop mobile phone payments and its mobile e-Commerce businesses as well as promoting B2C and C2C e-Commerce services using mobile handsets as the terminal. The e-commerce market in China is currently dominated by the Alibaba Group. 

According to Mr. Wang Jianzhou, “As mobile handset becomes more multi-functional, it serves an increasingly important role in peoples’ daily living. Following the rapid development of China’s economy, a growing wide application of mobile e- Commerce is expected. The cooperation between China Mobile and SPD Bank signifies the exploration of a closer integration between mobile communications and e-Commerce applications. Our aim is to provide safer, faster and more convenient services to our customers and improve peoples’ quality of life. I believe this cooperation will open up a “blue ocean” for both parties and result in a win-win situation.” 

Mr. JI Xiaohui, Chairman of SPD Bank said, “We are very pleased to become a strategic partner of China Mobile, the world’s largest mobile communications operator. Along with the continuously growing per capita consumption in China and the increasing popularisation of electronic payments, mobile finance and mobile e-Commerce will rapidly grow and become sizeable operations. It will become an important strategic market for mobile communications operators and commercial banks. As one of the nationwide commercial banks, the cooperation between SPD Bank and China Mobile will benefit both parties as we jointly seize and develop this emerging business opportunity. This will also enhance the market competitiveness of SPD Bank.” 

For SPD Bank, as a regional bank, it will definitely have a positive effect as they introduce China Mobile as a strategic investor. However, as for China Mobile, if it further develops the mobile commerce business, it should search for a partner with a wider branch network. 

It is questionable whether China Mobile actually needs to buy into a bank to get into mobile banking. If that is their end game then one surely has to ask how far removed banking is from their core competency of telecommunications. The company’s previous ‘blue ocean’ strategy into rural China perfectly leveraged their capability platform while just expanding into new markets. 

However, it could be, that there is something different about this new ‘blue ocean’. Telecommunications operators worldwide are struggling to increase or even maintain ARPU and increasingly see revenue being siphoned away to 3^rd party applications providers. Banks though have an opportunity to investigate digital storage where they look after customer digital data securely – much like an old fashioned vault. Banks are built on relationships of trust and who better to trust with your digital data than your bank? Of course it raises questions about how much of a stretch this is from core competence, but it may well be that China Mobile (with its over 527 million subscribers) has seen this link and is going to actively engage in creating this new market. 

See: China – Broadband Market – Overview and Statistics

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Headed by what had been a runaway mobile sector which passed 100% penetration in early 2002, and a strong but declining fixed-line telephone sector with a penetration of over 55%, the market continues to find new ways to grow. Taiwan has been very progressive in its efforts to liberalise the telecommunications industry and to create a positive regulatory regime. First there was the strong push for competition to Chunghwa Telecom. The focus then moved to privatising the incumbent. Taiwan’s telecommunication infrastructure has been upgraded significantly, undergoing a series of network modernisation projects over the last decade. 

Taiwan has rapidly become a significant player in broadband Internet access. The government has been especially busy promoting the benefits of broadband and has committed the country to being on a par with the US by 2010. Going into 2010, the total broadband penetration had been lifted to over 35% when considering both fixed-line and wireless. The proportion of the population who are Internet users has exceeded 65%. Some 80% of all homes in Taiwan own PCs and around 75% of homes have Internet connections. The market has also been rapidly moving away from dial-up access to broadband and over 80% of all Internet connections are broadband. 

Taiwan has a competitive mobile environment. Although high broadband take-up was expected during 2009 with new WiMAX rollouts, numerous delays resulted in commercialisation being deferred into 2010 for many operators. Taiwan has high expectations for WiMAX and there is significant investment in this area underpinned by the government and companies among which is Intel. In addition there is a growing proportion of data services as a percentage of revenues, as the take-up for 3G increases. 3G subscribers now account for over 50% of the total mobile subscriber base. 

However, many telecoms sub-sectors are at or near saturation which constrain the scope for growth. While the market has been liberalised, there is still limited competition in the local access market which is dominated by Chunghwa Telecom. Overall, there are still low levels of foreign direct investment. Competition has meant more focus on leading edge, often bundled services to subscribers, who have considerably more choice in operator and service selection. 

The 2008 financial crisis and subsequent economic slowdown in 2009 had an impact on many of the operators’ strategies. Faced with diminishing opportunities in the home market, Chunghwa Telecom continues to look for acquisitions overseas, despite the weaker economic conditions, concentrating its efforts in China and emerging markets as a part of its mid-term strategy. 

Market highlights of new BuddeComm report:

• Total mobile sector revenues again reached over US$7 billion in 2009 as the highly penetrated market saw operators introducing more value-added, higher-margin products. The blended Average Revenue per User for mobile services was still dropping per operator at an average of 5%. Revenue from mobile data increased but not at a rapid enough rate to offset the declines in 2G ARPU.
• Taiwan’s mobile operators had signed up close to 15 million 3G handset users going into 2010. 3G handset users account for more than 50% of all mobile subscribers in Taiwan, though many customers with 3G-capable phones are still connected via 2G tariffs, meaning the actual 3G user base is lower than the total given by the operators.
• Chunghwa Telecom’s Optical Era Project involves an investment of approximately US$1.8 billion to construct an island-wide fibre-optic network over five years. By end 2010 it aims to provide fibre access to 2.4 million residential and business subscribers. Chunghwa forecasts that its number of fibre-to-the-home/building/kerb (FTTx) subscribers will increase to over 3 million by 2013 and that FTTx will overtake its ADSL platform in terms of service capacity and number of subscribers in 2011.
• Taiwan expects the total investment in WiMAX networks on the island to reach US$644 million by end 2010. The country’s government aims to make Taiwan a ‘role model’ for wireless broadband development in Asia. By 2009 the global economic downturn forced a number of players to hold off launching WiMAX until the second half of the year and into 2010. The NCC postponed its tender process for nationwide WiMAX licences, due to the marked lack of progress by existing regional operators in deploying their networks and launching services.
• Over the five years to 2011, the government is to appropriate NT$55.6 billion in funds, with NT$11.3 billion for the promotion of new applications that will play a role in the everyday lives of people, such as food, residence, travelling, education and entertainment. Another NT$26.5 billion will be used to promote new e-government related services. The remaining funds will be used to create equal digital opportunities and technology service industries.
• In early 2010, the NCC announcing plans to issue two mobile TV concessions by year-end. A nationwide network of mobile TV services would require the deployment of ten high-power base stations, 20-30 mid-power base stations and 500-600 low-power base stations, an outlay of around NT$1 billion (US$31 million). The two licensees will be allowed to adopt either the Qualcomm-developed MediaFLO or DVB-H as their mobile TV standard.  

Taiwan – key performance indicators – 2008 – 2009

(Source: BuddeComm based on industry data) 

For those needing high level objective analysis on Taiwan, this new BuddeComm report Taiwan – Telecoms, Mobile and Broadband  is essential reading and gives further information on:

• Chunghwa Telecom’s ambitious CAPEX program, which includes increasing the penetration rate of its fibre-optic network to at least 25% of Taiwan’s households over a five year period. The company expects to maintain capital expenditure at 15% of revenue over the next five years and for 20% of the revenue to come from overseas by 2013.
• A warming of relations between China and Taiwan in recent years, raising the prospect of significant investment flows. In 2009 Chunghwa Telecom and China Telecom announced plans to lay a submarine cable across the Taiwan Strait.
• FarEasTone’s plans to form a joint venture in China with China Mobile in the first quarter of 2010. China Mobile previously announced that it would pay US$529 million for a 12% stake in FarEasTone. The deal was the first direct investment in the island by a mainland-based company in over 60 years.
• Chunghwa Telecom and SingTel setting up a joint venture in 2008 to build the ST-2 satellite that is scheduled to be launched in the fourth quarter of 2010.
• Analogue switch off beginning in the remote islands during 2008 and then in the eastern area of Taiwan in December 2009, with the completion of analogue switchover during December 2010.
• The viability of PHS operations being in doubt as many users opt out and defect to 2G or 3G services. Simultaneously, 2G subscribers continue to decline as more users shift to 3G. The licenses granted by the ROC government authorities for operating 2G mobile services on the GSM 900MHz and 1800MHz spectrum will expire in 2012 and 2013 respectively. All 2G mobile operators have asked the government regulators to extend the licenses.
• No official policy shift to switch current focus from WiMAX to Long-term evolution despite a number of the leading telecom equipment providers urging the Taiwan government to look at the development of LTE technology. The government had previously earmarked a total of NT$7 billion (US$199.4 million) to push the Mobile Taiwan (M-Taiwan) program aiming at greater WiMAX coverage on the island.
• Chunghwa Telecom planning to upgrade its mobile infrastructure to HSPA+ technology and launch the service over its networks by 2010, and then build an LTE network in 2011. The company is already experimenting with 4G technology and collaborating with a number of other companies to develop LTE products and solutions suited to Taiwan’s market.
• Chunghwa Telecom entering a partnership with Microsoft in late 2009 to collaborate on cloud services and applications for end users. Chunghwa Telecom is to establish a NT$13 billion data centre using new Microsoft technology named Microsoft Global Foundation Services.
• Aggressive deployments of 3.5G infrastructure by VIBO in 2009 and expecting its capital expenditure to top NT$2 billion (US$62.9 million) in 2010, potentially reaching NT$3 billion as the company upgrades its networks. 

For more information see: Taiwan – Telecoms, Mobile and Broadband

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So far we have heard wholesale figures varying from $70 to $200 per household for fast broadband access based on the FttH plan. In fact a wholesale price nearer the $25 mark will be required to make it an affordable service. Even if some form of entertainment is thrown in less than 25% of the population will be able to afford services above the $100 per month. This can be verified by checking similar rollouts elsewhere in the world. However, to balance this information both the Minister and Michael Quigley have indicated that these higher mentioned prices are not what they are planning to introduce. 

However, if we want truly affordable low access prices for end users, the government either has to make a decision to subsidise fast broadband access or it should start looking at other revenue streams to support the costing model. 

BuddeComm would argue that subsidies at such levels will be very hard to achieve, especially in the current political environment. The only solution – one that we have been advocating for the past few years – is to apply the trans-sector approach. Get other sectors (healthcare, education, public safety, energy, environment, etc) to participate. They will share in the infrastructure costs and this will reduce the wholesale price to nearer the $25 figure. 

A very promising development is taking place at the five mainland pilot sites that NBN Co has announced. Here NBN Co is engaging the utilities in trying to find a cooperative way to roll out the NBN in conjunction with smart grids. If this is done on a national level close to $2 billion could be saved. 

An e-health implementation plan could see $10 billion being diverted to the NBN over a ten-year period – imagine what such an injection would do for the business model of the NBN! 

Unless the government can magically pull some rabbits out of a hat they will have to become more serious about their trans-sector approach. They certainly subscribe to the model. The Prime Minister and several of his Ministers (including Minister Tanner of Finance, Minister Gillard from Education and Minister Conroy from Broadband) have all spoken of it. However they will now have to commit to a massive reallocation of infrastructure funds within some of the other sectors, towards the NBN infrastructure. This can only be led from the top by the Prime Minister, and some urgent action is required here to avoid more political backlash. 

NBN Co wants to roll out as basic an NBN as possible, as quickly as possible. In principle we have no argument with that, but to ensure the viability of the business model of these other sectors (as well as that of the NBN) it would be necessary for them to be able to use the infrastructure, both technically and commercially, in the most efficient and effective way. Certainly good progress has been made by NBN Co in this direction but firm plans need to be made available to judge if the NBN both technically and commercially will be able to support this trans-sector approach. 

This can only be done through the active participation of these sectors in the design and architecture of the NBN. 

NBN Co and Smart Grid Australia (SGA) have been able to form a working relationship that will see SGA becoming proactively involved in providing input on what is required in the design of the NBN, from a smart grid perspective. 

Similar approaches are also needed in relation to the other sectors, such as healthcare and education. Interestingly, in the USA it will be the public safety sector that will be the first trans-sector based initiative within their National Broadband Plan. To date we haven’t heard this sector mentioned at all in relation to the NBN in Australia. 

If we depend on these other sectors for the financial viability of the NBN we also have to accept that changes might be required in order to facilitate this. The earlier these sectors become involved the better. We are talking here mainly about government sectors, and so the same government who brought us the NBN will now also have to ensure that the business model stacks up; and their urgent action is needed to push the trans-sector approach along further. 

Paul Budde 

• Australia – National Broadband Network – Changing the media model
• Australia – National Broadband Network – Overview & Analysis
• Australia – National Broadband Network – Critical Considerations
• Australia – National Broadband Network – Competition and Regulations
• Australia – National Broadband Network – 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
• Australia – National Broadband Network – Government’s Trans-Sector Conference

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Free-to-Air Broadcasting

Market conditions and changes to technology have impacted the broadcasting industry over the past 12 months and more so than any other year in the past decade. These conditions are expected to continue to impact the industry through intense competition for viewers and advertising. While the global financial crisis has left its mark on all media, Free TV in Australia weathered the storm better than expected. The formation of Freeview, the launch of Free TV’s new multi-channels and the expansion of the networks’ online and cross platform offerings are set to impact significantly on the industry’s free-to-air offering. 

Over the next five years, digital technologies are set to spread across all segments of the entertainment and media as the digital migrations continue to expand. The FTA networks are expected to see intense competition for viewers and advertising in 2010 and beyond, which will impact on their cost margins as they will be forced to put more money into programming and marketing. TV stations will be forced to market themselves more aggressively due to threats from the new media sector. 

Since 2001, all of the FTA broadcasters have been simulcasting their primary channels in both analogue and digital however, eventually, the analogue transmission will be switched off. The switch-off will be phased throughout Australia, commencing in the first half of 2010 and continuing through until 2013. 

Digital technology like the internet, mobiles and PVRs are providing even more ways for consumers to engage with their favourite shows, complementing the primary broadcast and include additional broadcast broadband offerings such as ABC’s iView. 

Pay TV Broadcasting

Due to the high cost of infrastructure, and intense competition from the free-to-air counterparts the two pay TV companies are battling it out to turn revenues into profits. However, the net losses of pay TV’s past are now narrowing and profits being restored. ARPU of both Austar and Foxtel continue to improve, driven by higher tier packages. 

There are more than 90 English-language television services or channels currently available to subscribers of the three major local subscription television groups. The three major local pay TV providers are Foxtel and Optus TV (each of which operate in the metropolitan markets) and Austar (which operates in regional markets). Between them these three operators had a total of more than 2.3 million household subscribers to pay TV broadcasting services in Australia up from 2.2 million household subscribers at 30 June 2008. 

By mid-2009 pay TV penetration had reached 33%, and while growth is expected to continue modestly during 2010 Australian figures are well below those of the developed markets around the world. 

While it is still not impossible for Foxtel to reach the 40% penetration mark, the company can only reach these targets if it either starts offering more attractive price packages or includes a broadband offering within an affordable priced package. 

With the advent of digital television and the launch of a number of new digital free-to-air channels, Australian pay TV operators have been feeling the squeeze as viewers were quick to take advantage of the new conditions. However, in competition Foxtel and Austar have served up to 30 new channels in a bid to attract FTA viewers to their subscriber base. Meanwhile the growing uptake of the iQ recorder is strengthening the value of Foxtel, as subscribers have slightly higher ARPUs. 

The main regulatory issues faced by the industry include the break up of Telstra and anti-hording provisions. Telstra is set for shake-up, its biggest challenge since privatisation, as a result of Federal Government plans that will see the telco split and the introduction of sterner consumer safeguards. Federal Communications Minister Senator Stephen Conroy shocked the industry with his announcement late 2009 that Telstra must structurally separate voluntarily – and if not the Government would force a split under a new regulatory regime. 

Digital TV

By 2009 Digital TV penetration had passed the 50% mark ands steady growth is expected to continue. The free-to-air TV stations have increased their promotion of their digital TV channels and slowly but steadily there is more awareness among the viewers. However, it remains the question if the new channels will attract enough new advertising money to warrant the new investments. Another interesting development to watch is the National Broadband Network, the broadcasters have already shown their interest in the new infrastructure. Increasingly the borders between Digital TV and broadband-based video services will start to blur. 

Interactive TV, IPTV, STBs and Electronic Program Guides have all struggled to gain widespread popularity in Australia. IPTV services are being launched by a number of ISP’s and media companies such as Foxtel and EPGs continue to evolve as mass market content. However concerns remain relating to the emergence of a sustainable revenue model. Targeted advertisements may ultimately prove popular but significant technical and regulatory hurdles remain. 

Radio broadcasting

Radio is available over AM and FM frequencies, and almost three-quarters of all radio is commercially operated. The ABC accounts for almost all of the remaining radio audience. There are five major commercial radio broadcasters: Austereo, the Australian Radio Network, Fairfax Media / Southern Cross Broadcasting, DMG Radio Australia and Macquarie Radio Network. All five have established national networks through aggregation. 

The latest statistics on radio usage patterns include a survey on the commercial radio industry. Although its advertising base is growing, the radio market is losing share to other media sectors such as TV. Over the longer term the eventual introduction of digital radio could further pose a threat to the financial viability of the industry. 

Digital radio launched in Australia in 2009 after years of commercial trials. The launch has started in capital cities and will roll-out progressively to other broadcast centres. The cost to the radio industry to provide digital radio services is expected to be roughly between $300 and $400 million. By that time many industry experts believe that the radio industry could be overtaken by new technologies such as wireless Internet radio. Australian commercial radio broadcasters have agreed to adopt the new DAB+ standard for the implementation of digital radio. This annual publication provides an overview of digital radio functionality as well as market analysis and historic information on the development of digital radio in Australia. 

The Digital Media Industry

Most of the media companies have a vested interest in protecting their traditional businesses. Over the last 50 years they have been able to obtain certain political advantages that have allowed them to carve our monopolistic markets. The new digital media are undermining their privileges and their grip on their monopolies. Forced by these changes they are now all jockeying for a position in the new Internet economy. The industry has turned the corner and is now well and truly underway to also dominate the digital media market, launching events using their traditional media and supplementing them through new media activities. However, they will increasingly receive more competition from overseas media companies as well as from the emerging broadband based media companies (blogs, social media and the Internet in general). 

Quality content is now crucial as digital platforms are becoming relatively commoditised. Telcos tried to claim this territory but continue to struggle to leverage their natural advantages. In Australia, alongside the ABC and News, Fairfax Digital has continued to compete for digital viewers. Others include: News Limited, PBL, Seven, Yahoo!7, Ten, Macquarie Southern Cross Media, WIN and Austereo. 

The Advertising Market

Defying market expectations, expenditure on online advertisements in Australia grew 18.5% year-on-year. Unabated by the current poor economic environment sales increased to $1.8 billion at the end of the 2009 financial year according to figures from PricewaterhouseCoopers (PwC). More specifically Australia’s online search advertising market achieved a 30% growth rate during 2008/09, with both revenues per ad and the amount of search ads served continuing to rise. 

Buoyed by the increased use of multimedia advertising on the back of improvements in broadband availability has seen advertisers continue to experiment with new formats. 2010 may see increased use of targeted advertising delivered over the internet as well as increased use of mobile internet advertising by firms which has been driven by advances in the capability of multimedia handsets, the increasing use of mobile data services and the fall in the associated costs to the user. 

For more information on this new BuddeComm report see: Australia – Broadcasting and Pay TV

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Depending on your country, the Internet has been available for ten years or more, and for individuals – at least in the developed world – it has since become ingrained in psyches as an essential commodity, akin to access to fixed-line telephony, electricity and potable water. For a growing number, the Internet is essential for work, for a greater number it is the first port of call for problem solving and information (Wiki and online Yellow pages come to mind) or getting things done (banking, finding out timetables for travel, etc). Most governments, too, now take the Internet as a key component of infrastructure, crucial to a nation’s future socio-economic potential. 

What governments may do with the Internet is another matter. A decade’s experience and use of the service has enabled a growing number of governments to manhandle the potential dangers of hacking, fraud and privacy as a means to tighten the screws on their own control of access, and of their nationals’ use of it. This is rightly opposed by the users themselves, over half of whom surveyed for the BBC believing that no government should be empowered to regulate the Internet. 

In Europe, the ‘three strikes rule’ threatens to become more fashionable, following measures first proposed in France: there, the Création et Internet Bill failed in 2009 when France’s Conseil Constitutionnel ruled that it leaned too much to ‘guilty until proven innocent’ and that it threatened major sanctions (Internet disconnection and a national blacklist on access) without judicial oversight. Nevertheless, the government shoehorned the Bill a second time, which this month came before the National Assembly for debate. 

The Bill proposes that the scheme be administered by a newly formed group called HADOPI. ISPs notified about alleged file-sharing would be required to send an e-mail to the customer involved, a registered letter at the second alleged offence and, for a third offence, terminate access for up to a year. A database managed by HADOPI could presumably prevent blocked users from switching ISPs. 

Italy looks like adopting a similar approach. Having in 2009 sued the Swedish The Pirate Bay site and attempted to force ISPs to block access to its content, the more recent charging of Google executives with criminal charges resulting from YouTube content denotes a government leaning towards authoritarianism regarding the Internet. The Italian three-strikes proposal would be complemented by a requirement that all blogs register with the government. 

In the UK, meanwhile, the government is pushing through its controversial Digital Economy Bill, which proposes empowering regulators to disconnect or slow down Internet connections of persistent illegal file-sharers. Amendments to the Bill passed this month at the report stage at the House of Lords before its third and final reading in the House of Commons, could in theory force sites such as YouTube which host copyright-infringing material to be blocked or forced offline. The UK’s three-strikes rule is similar in its essentials to those of France and the UK, with disconnection following two warnings. 

At the European Union level, the European Parliament was initially critical of the three-strikes schemes, largely due to the absence of judicial review. However, this month the Anti-Counterfeiting Trade Agreement (ACTA) was put forward for debate between the US, the EC, Japan, Switzerland, Australia, New Zealand, South Korea, Canada and Mexico. Aimed at preventing online counterfeiting, it threatens to punish ISPs for content delivered. 

Polls show the sincerity of popular regard for a free Internet, and suggest that to tackle piracy other solutions than blocking ISPs and throwing citizens offline should be considered. Until they are considered, citizens should, as always, be vigilant about what their governments are legislating, lest they find themselves with a thoroughly policed Internet far removed from what they now know it to be. 

For more information on the Internet markets in Europe, see:

• Germany – Broadband Market – Overview, Statistics & Forecasts;
• United Kingdom – Broadband – Fixed Network Overview, Statistics & Forecasts;
• Italy – Broadband Market – Overview, Statistics & Forecasts;
• Europe – Broadband Market – Overview & Statistics;
• Europe – Regulatory Environment.

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Third generation (3G) mobile technologies, coupled with improvements in international fibre and national backbone network infrastructure are now capable of delivering broadband Internet access to a wider part of the continent’s close to one billion population. However, the price of end user devices will be a key factor. The prepaid mass market will only adopt advanced services on a broad scale once prices for 3G handsets and modems as well as personal computers have reached affordable levels. 

Like elsewhere in the world, Short Message Service (SMS) still accounts for the bulk of Africa’s mobile data traffic and revenue, but in recent years there has also been an increasing interest in Multimedia Messaging Service (MMS) and other forms of mobile messaging and social media, downloads of ring tones, logos, music and games, as well as SMS-based information and lifestyle services. Premium rate and bulk SMS services are generating millions in revenues. Third parties are continuously developing new value-added services and applications. 

Mobile TV services have been launched in at least ten African countries. A boost for these services is expected from the FIFA World Cup to be hosted in South Africa in 2010. 

M-payments and mobile banking is another key growth area that is revolutionising Africa’s financial sector, where only a small percentage of the population has access to traditional banking system. In the continent’s most advanced markets, m-commerce, mobile content, applications and media have reached a level of development that is beginning to foster an associated advertising and marketing industry. 

Market highlights of new BuddeComm Report:

• 3G mobile networks have been launched in more than 20 African countries, with rollouts in progress in many others;
• Most operators have included High-Speed Packet Access (HSPA) mobile broadband in their service offerings;
• There are more 3G mobile broadband users than ADSL subscribers in key African markets;
• The first 20Mb/s mobile broadband service is expected in Africa in 2010;
• African mobile operators make up to 13% of their revenues with mobile data services;
• Non-messaging mobile data revenue grew by 70% in South Africa in 2009 while overall mobile data revenue increased by 30%;
• Mobile data services have helped to reverse declining average revenue per user (ARPU) in some markets;
• The UMTS Forum forecasts that revenues of African 3G operators will exceed US$7 billion in 2010;
• The 2010 FIFA World Cup in South Africa is expected to deliver a boost to Mobile TV services which have been launched in at least ten African countries;
• Some African banks have more customers using mobile banking than online banking;
• More than 10% of Kenya’s GDP pass through the M-Pesa mobile payment and banking service, which has more users than there are bank account holders in the country. 

For more information see: African Mobile Broadband, Data and Mobile Media Market

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