COMMENT: The real costs of FTTdp

Chastened by recognition that there is near zero political support for pervasive fibre to the home anymore, recent “fibre fanatic” campaigning has gone into promoting Fibre-To-The-Distribution Point or Fibre-to-the-Curb. Commentators such as Internet Australia and academic Mark Gregory say that FTTdp should replace planned FTTN installations at once on the grounds that it can support 100Mbps+ speeds, can be upgraded easily and that it only costs a little more than the FTTN it would replace.

But if something seems too good to be true then it probably is. Yesterday in the Australian, Gregory stated definitively that FTTdp would cost only $200 per home more than FTTN and that FTTdp could be upgraded to FTTH for less than $1,000 extra. Replacing all of the FTTN with FTTdp would only add $1.2-$1.5 billion to the cost of the NBN he opined, while further upgrades to FTTH could be absorbed within a further two to three years.

Sounds great. What a no-brainer! Except it is wrong. The definitive numbers, checked yesterday with NBN, are as follows: FTTH costs $4,400 based on real world numbers across a million lines, blended FTTN/B costs $2,200 based on the same scale sample. No one knows exactly what FTTdp will cost yet as it has yet to even complete a full-scale trial but best estimates at this stage suggest $2,800 per premises.

These are averages, distorted by the slightly inflated costs of FTTN in regional areas where there aren’t enough customers within sufficient radius to fill the 384 line capacity of nodes. In higher density cities, the cost of FTTN falls to $1,800. FTTdp, which pushes out fibre to within 30 to 200m of customers lacks similar scale advantages.

NOT TESTED: FTTdp hasn’t even been fully trialled yet. The experience with all other NBN technologies has been that the “on paper” costs swell in the field. It was the case for all five major technologies employed by the NBN to date and no doubt would be the same for a sixth one yet to be modelled outside of a spreadsheet.

But even in comparing a “modelled cost” with real observed costs, replacing FTTN would FTTdp across 6 million lines would more likely cost $3.6 billion in capital expenditure increases alone.

That’s not the sum of it. As the NBN cost benefit study of August 2014 clearly identified, much of the benefit from the multi-technology mix of the NBN comes from its speed to market. A benefit in the hand now is worth more than one in ten years time for a dollar spent now—a point which gets lost on NBN critics who seemingly care more about broadband in the year 2032 than the year 2017.

It takes NBN—or indeed any large broadband provider—about 12 to 18 months to complete the design, integration, IT, product and engineering requirements of a new network. The bulk of that work has already been completed for FTTN and that why that network is now being deployed at ever increasing scale. To bin all that and start again with an FTTdp topology which is only currently in trial status, would set back the NBN deployment by two years. So to replace FTTN with FTTdp across six million homes? Your real cost would not be $1.2 billion-$1.5 billion, but more likely $3.6 billion in additional capital cost and—assuming $42 monthly ARPU—about $1,000 of forgone revenue for every customer subject to a two year delay for connections. Six million customers delayed by two years means $6 billion of foregone revenue.

That is a $9.6 billion impact on the NBN business case. Hardly inconsiderable.

NBN is concentrating its planned 700K FTTdp line deployment in two specific segments: areas too sparse to be served by FTTN (because the economics of that technology depend on density and specifically whether there are 384 premises or less within a km of the node) and the Optus HFC network (where existing customers are used to 100Mbps headline plan claims and need to be upgraded to something superior for the NBN deployment to mean anything). The Optus HFC network requires considerably more node installation than the Telstra HFC network to reach NBN standards and its topology is ill-suited to an NBN network based on Telstra exchanges. FTTdp makes sense for these sporadic deployments.

MTM MORE FUTURE PROOF: The 2014 cost-benefit analysis of the NBN captured the overall issue quite well when it said “The MTM scenario leaves open more options for the future because it avoids high up‐front costs while still allowing the capture of benefits if, and when, they emerge. It is, in that sense, far more ‘future proof’ in economic terms: should future demand grow more slowly than expected, it avoids the high sunk costs of having deployed FTTP.”

“On the other hand, should future demand grow more rapidly than expected, the rapid deployment of the MTM scenario allows more of that growth to be secured early on, with the scope to then upgrade to ensure the network can support very high speeds once demand reaches those levels.”

While there is considerable noise advocating pervasive FTTdp, the arguments of these NBN antagonists fall apart under examination.

One argument is that FTTN cannot be upgraded. But copper lengths can be reduced and line speeds enhanced through use of 48 line micronodes, while the deployment of VPlus can increase normal FTTN speeds way beyond 100Mbps to 200Mbps or more. The technological path for VDSL is not dead.

Another argument is that in ten to fifteen years, all the investment in FTTN will have to be wasted. But FTTN will truly be a sunk cost by then and will be spinning off cash, benefiting from historical cost and speed to market advantages over the costlier, sluggish-to-build FTTH alternative. And, of course, the fibre to the node part of FTTN can be reused!

Then there is Gregory’s argument that you can just abolish the Connectivity Virtual Circuit and open the gates to maximum speeds. In fact, the whole idea of the CVC is to keep access fees for low end users cheaper: NBN uses it to offset about a third of access charging. Abolishing it would see a need to increase access charges by at least 50% to make up lost revenue. The best way to reduce the CVC is to suppress costs.

QUOTAS UNUSED: Gregory also argues that most NBN users are opting for small data quotas. Notwithstanding the fact that monthly usage is a different beast to speed (it reflects time online as much as the speed you have), average NBN households use 150Gb per month of data: most plans offer 500Gb or more. Typical users are not quota constrained. They simply have other things to do in their lives.

Then there is the argument that NBN needs to be “gigabit-ready” because you can buy gigabit plans in Singapore and Hong Kong. Again, complete rot. Gigabit plans in those cities are marketing gimmicks where, by very definition of what a broadband line can be used for, you will rarely exceed 5% use of your capacity and with compression advances unlikely to ever even half use in your lifetime. Not while TCP/IP remains a thing! Home gigabit is the broadband equivalent of a flashy sports car that cannot be driven legally at its top speed or George Michael or Andrew Ridgeley sticking shuttlecocks down their pants on stage. Nice to envy but not a genuine human right.

For an NBN that has to span millions of square kilometres of terrain, meet the market for legacy broadband services priced on a Telstra CAN valued at less than half the NBN cost and attempt to reduce risk to the taxpayer as much as possible, it shouldn’t even be thinking about gigabit. The object is to get the poor buggers numbering several millions off sub-10Mbps DSL tech that haven’t seen an upgrade in a decade.

The biggest lie of all is that we are all starved of speed, that proper broadband is some way off and we are all being denied our future because of Bill Morrow and Mitch Fifield. It’s what I, as an editor, identify as the “future tense” trick to deny the present reality. Between the Telstra and Optus HFC networks now and the existing live NBN FTTH/N network with over 2 million customers, there are several million people now able to access 50-100Mbps services. Nearly all medium to large businesses have access to fibre or wireless equivalents commercially (it is not in the NBN’s remit to service such customers). Have you noticed that sound of normality? The distinct lack of revolution? The sense that life continues on unchanged?

Indeed. Their lives have not been transformed by their new found superpowers. They are not clamouring for even more at state expense. Getting them to a gigabit is not and should not be a matter of policy focus.

Let’s worry about getting everyone else to 25-50 megabits at a price they can afford—both directly as customers and indirectly as taxpayers—for the genuinely deprived in what remains of this decade before we worry about 1000 megabits in decades hence.

That is simply good public policy. And that’s the mission of the NBN.

Grahame Lynch is the founder of CommsDay and a former global editorial director for America’s Network, Telecom Asia and Telecom China. He has reported and commentated in technology for 23 years


Labor to take FTTH to 39% of NBN

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The Australian Labor Party has revealed its hotly-awaited NBN election policy: a re-worked multi-technology mix with up to two million more households connected via FTTP than in the Coalition’s model, retaining the use of the Optus and Telstra HFC networks. The ALP has pledged to spend an extra A$3.4 billion in capex for the extra FTTP, following through on its earlier promises to roll out more fibre if elected, with a completion date of 30 June 2022. Government equity contributions would not be increased, meaning that the incremental funding would be drawn from additional debt; the entire total funding cost would also be hard-capped at A$57 billion, taking priority over the two million premise FTTP target if necessary.

Labor has also said that the model will save A$1.2 billion in opex out to build completion, and push the base internal rate of return to 2040 up to 3.9% from 2.7%. That last point will likely draw even more attention to NBN’s capacity-based pricing and underlying business model, which have become an increasingly public area of concern for key telco industry stakeholders. However, at least from opposition, the ALP has stopped short of diving into that vexed issue; its NBN election policy is focused almost solely on the access technology debate, with the party promising only that wholesale pricing will be “the same or lower” if it takes government and that it will monitor connectivity virtual circuit charges.

The current Coalition NBN policy would see about 20% of Australian homes and businesses connected with FTTP, with the rest using either FTTN, HFC, satellite or fixed wireless, and a total funding range of A$46-56 billion. The ALP policy – checked and tested by the Parliamentary Budget Office, and by an unnamed independent accounting firm – aims for around 39% FTTP coverage with a higher total price range of A$49-57 billion (with the high-end figure being a strict cap). The cost differential for the extra two million premises ties back to the difference in cost per premise for FTTP and FTTN in NBN’s most recent corporate plan, just over A$2,000, with the ALP also expecting FTTP costs to come down over time.

“One of the big mistakes Malcolm Turnbull made on this was he underestimated the cost of FTTN. In his strategic review, he thought that FTTN would be A$600 per house; the truth is it’s [almost] triple that, it’s gone up to A$1,600. The cost of the copper version of the NBN’s gone up, while we’re now seeing the cost of the fibre version of the NBN going down,” shadow communications minister Jason Clare told CommsDay in Western Sydney near Penrith, where he launched the policy alongside federal opposition leader Bill Shorten. “We’ve modelled this very conservatively at A$3,700. As you know, from the trials that were done in Ballarat last year – and NBN admitted this in evidence to an NBN committee only a couple of months ago – they’ve now got that down to around A$3,200-A$3,250. In the model that’s part of these documents, we’re assuming a 19% improvement on that price over time; very conservative, again, because look at what Chorus has done in New Zealand, something like 29% over twelve months.”

“The other point just to make on costs, [to be] very, very clear: to do what we are doing, the capex cost is high, about A$3.4 billion. But the opex cost, the cost of running this system, is less, about A$1.2 billion. Why is that? Because you don’t have the cost of fixing the old copper, and you also don’t have the electricity costs that come with running 30,000 nodes. Those 30,000 nodes that Malcolm Turnbull wants to build all around the country will cost, when they’re all set up, A$60 million a year to run. So you save on the operational costs.”

Labor also plans to phase out FTTN construction as the current pipeline of construction work is completed, making way for its additional FTTP; it has pledged to honour existing contracts and supply agreements, renegotiating or repurposing them as necessary and possible for the access technology change. “I don’t want people to think that if we win the election, we just click our fingers and all the nodes disappear. Malcolm Turnbull’s invested A$15 billion of taxpayers’ money in this second-rate version of the NBN over the last two and a half to three years, including rolling out FTTN; there are about 1.3 million homes at the moment where construction is underway on FTTN. So where we can, we stop FTTN and we roll out FTTP,” said Clare. In addition, Labor has said that the a government under Shorten would commission Infrastructure Australia “to manage the development of a plan that outlines how and when the parts of Australia left with Mr Turnbull’s second-rate NBN should be transitioned to FTTP.”

Clare added that many of the premises that would be connected with FTTP rather than FTTN under the ALP policy would be in “outer suburban parts of Australia, but also in regional Australia as well,” partly because Labor would stick to the current plan of using HFC with next-generation DOCSIS technology in major metro areas.

“One of the decisions we’ve made in putting this policy together is to keep the using the HFC network, the Foxtel network for want of a better description, that runs the street of about 3-4 million homes around Sydney, Brisbane and Melbourne as well as a few other parts of Australia,” he said.

“We’ve made the decision to keep that and upgrade it, as the government’s proposing to do, because when you weigh up that vs the copper version of the NBN, it is better than the copper version. Also, because Malcolm Turnbull has signed Telstra about the upgrade of that, they’ve invested millions of dollars into it. None of it’s been switched on yet; they promised 2.61 million homes would be connected to this HFC network by the end of the year, and none have been switched on yet, but the first one gets switched on soon… it’s one of the reasons we believe that the government’s slower, second-rate version of the NBN is not going to meet its deadline of December 2020; it’s going to blow out to Jun 2022.”

Labor has also committed to further exploring the potential of fibre to the distribution point, although the technology – still at a relatively early stage of maturity – does not form a definite part of its election policy.

STAYS AWAY FROM CVC: Clare said that the higher quality of service from greater proportion of FTTP under the new Labor model would increase revenues. “And the internal rate of return, the money back to taxpayers, goes up under this model from a minimum of 2.7 to 3.9%, because people are getting a better service,” he added.

That may, however, not wholly reassure senior telco industry stakeholders – such as MyNetFone CEO Rene Sugo, serial entrepreneur Bevan Slattery and most recently Optus corporate and regulatory affairs VP David Epstein – who have voiced concerns about NBN’s underlying business model and the way it extracts revenues from its RSP customers. Epstein, for instance, has suggested that even under the averaging model recently proposed for the capacity-based CVC charging structure, RSPs could pay a margin penalty for offering better tiers of NBN services than rivals at common price points – and that the relatively high CVC pricing could make it difficult to meet customers’ expectations of high speed services.

“Wholesale prices on the NBN will be the same or lower under a Shorten Labor Government as under the Liberals,” Clare’s office told CommsDay. “NBN Co’s wholesale prices are regulated by the Australian Competition and Consumer Commission under NBN Co’s Special Access Undertaking, approved in November 2013. Labor’s plan assumes that NBN Co’s wholesale prices will decrease in real terms, per the SAU.”

“Labor will monitor CVC charges in government to ensure the correct balance is struck between encouraging internet use and achieving the long term rate of return on taxpayer equity invested in this critical infrastructure project.”

COALITION RIDICULES LABOR: Communications minister Mitch Fifield attacked the new policy yesterday, describing the cost projections as a fantasy. “The last time the NBN looked at how much it would cost to do Labor’s FTTP rollout, NBN found it would cost around $30 billion more and would take six to eight years longer,” Fifield said. “Now Labor are out today saying that there will be little additional cost and that Labor’s roll out will be finished at roughly the same time – it’s a magic pudding! “Shortennomics” strikes again.”

“Consumers aren’t willing to pay for Labor’s high-price NBN. Four out of five users are purchasing NBN plans with speeds of 25Mbps or less. Labor’s FTTP network costs $4,400 per premise to connect to the NBN. In contrast, the Coalition’s FTTN network costs $2,300 per premise, and Hybrid-Fibre-Coax technology costs $1,800 per premise.”

Petroc Wilton


GRAHAME LYNCH ANALYSIS: Smoke and mirrors as ALP goes MTM

Labor has pulled off a spectacular double political coup with its NBN election policy announced in Penrith yesterday morning. For eight years its commitment to a 93% FTTH policy has been used by fibre zealots to smack away any sensible discussion of broadband technologies. To their credit, Bill Shorten and Jason Clare have combined to finally jettison Stephen Conroy’s 2009 fibre dream, having effectively adopted the Multi Technology Mix ethos which underlies the Coalition policy.

Fibre to the node? Tick. Existing connections to about 20 percent of the footprint will all be retained with their “upgrade path” to be pushed off to an Infrastructure Australia review. HFC? Tick. That stays. Fibre to the “premises” will be expanded to those premises currently slated for FTTN but not yet designed or under constructed, up to 2 million premises or another 20% or so. Essentially as much as you can buy for another $3.4 billion.

No definition was proffered as to what constitutes FTTP and I suspect it will likely involve a degree of FTTdp, the platform that takes fibre kerbside and then uses a copper lead-in. After all, this was already viewed as a solution for the 20% of premises still slated for FTTP connections which apparently have blocked ducts and cannot be fed with fibre easily. The skinny fibre solution which excited ALP senators earlier this year can be deployed across all platforms to feed nodes and, as a result, doesn’t preference any specific access medium.

In other words, Labor will build a network that won’t look radically different to the one the Coalition will build.

However, perception is everything. TV media emphasised a grab last night from Jason Clare saying “Malcolm Turnbull’s fraudband is over. We are replacing the copper with fibre.” Of course, FTTN also replaces most of the existing copper with fibre, especially the problematic bundles which feed exchanges and cause much of its exaggerated maintenance issues. But that doesn’t matter. Optics are everything if you pardon the pun. Clare had the best lines even if the details weren’t so convincing.

Clare spoke yesterday of the $60 million required to power an expected 30,000 nodes per year and how this cost would be saved under FTTH, referencing a citation which fed into his theme that overall opex savings offset about one third of the new capex funding requirement. I hope he can find a better source of savings than power. For a start, the ALP plan implies that 15,000 nodes or so will be retained so that claimed saving will only be $30 million a year.

But $60 million spread across 4m lines isn’t really a significant avoided cost anyway if you are adding over $3 billion of additional capex. This works out to $15 power cost per line a year. With an extra $2,000 capex required for FTTH, it would be 133 years before that extra cost is offset by the saved power requirement.

And besides, building a gold plated telecom network to avoid the costs imposed by over-priced gold plated power networks doesn’t necessarily have an overall economic benefit!

But the ALP has got away with it. The fibre zealots who dominate Whirlpool and Delimiter seem happy with a network that is resolutely 60% not FTTP.

Long time fibre advocate Mark Gregory who, bizarrely, is now the lead telecom commentator at Rupert Murdoch’s usually conservative flagship The Australian approves, as does Rod Tucker, an original NBN Expert Panellist.

The reality is that this policy is only a couple of faint shades of gray different to the Coalition’s. And with the way NBN was developing its skinny fibre and FTTdp platforms up until now, it is more than likely that the network will end up in a similar place should Malcolm Turnbull retain office anyway.

Of course, the whole access medium debate is misguided.

It’s easy to throw another few billion into the capex mix but that just incentivises the NBN to maintain its CVC congestion tax. This currently serves to restrict the actual amount of bandwidth requisitioned for all those lovely new FTTx connections to a fraction over one megabit per home. The whole 50Mbps vs 100Mbps debate is an enormous fraud perpetrated on the public in that regard.

A universal FTTN/HFC network with the requisite savings of several billion dollars could reduce contention—and congestion– to more overall economic benefit than that enjoyed by the 10% of people or less who want a largely illusory 100Mbps access plan.

For reasons such as this neither Labor or the Coalition want to talk too much about the NBN in this campaign. The contradictions of the NBN just pile up on themselves. Labor will be happy if its “replacing copper with fibre” meme takes hold, something made more likely by releasing the less-than-affirming fine print on a public holiday where everybody was thinking about Islamic terrorism and gun control.

One thing is for sure. This is likely to be the last election where a politician takes ownership of NBN futures. By the next election, there will be 20 billion reasons why commercial lenders to the NBN will be the ones determining what technology is used where and at what price.


ITU secretary general reveals US allies had second thoughts over rejecting 2012 ITRs

International Telecommunications Union secretary-general Houlin Zhao has revealed that some of the 54 countries who sided with the US in 2012 to reject a claimed intrusion of government into Internet governance via revised regulations have since reconsidered and asked to sign up.

The controversial International Telecommunications Regulations treaty was not signed by 55 countries who were concerned about the inclusion of implied mission creep that was being pushed by Russia and China, backed by a large number of African and Middle Eastern states. But Zhao told CommsDay on a visit to Sydney that he had resisted the overtures of those who wanted to subsequently adopt the regulations, fearing that such a move would spark fresh international tensions.

And Zhao said that the ITU itself had never sought to use the 2012 World Conference on International Telecommunications, where the rift occurred, to discuss internet governance matters – blaming “hijacking” by American media for distorting perceptions of the event.zhao

The tensions that built up through WCIT in 2012 erupted at the eleventh hour when the African bloc won a vote, called by Iran, to have its preferred form of words over the rights of member states to access telecoms networks accepted in the treaty.

The US and its allies saw that language as an attempt to open the ITRs up to governance and content regulation, and declared they would not sign the treaty. “The United States has consistently believed, and continues to believe, that the ITRs should be a high-level document and that the scope of the treaty does not extend to internet governance or content,” said US ambassador Terry Kramer at the time. “Other administrations have made it clear that they believe the treaty should be extended to cover those issues, and so we cannot be part of that consensus.”

Speaking to CommsDay this week, Zhao – who in 2012 was deputy secretary-general, under Hamadoun Toure as secretary-general – said that for the ITU itself, internet governance was never meant to be on the agenda. Kramer had made a similar point at the time, noting that provisions on internet governance had made it into the treaty despite the ITU’s statements that the conference was never meant to focus on internet issues.

“That meeting was designed to address the issue of international telecoms regulations; there was no plan to talk about internet governance related matters! And there was no plan to think about taking over internet governance, not at all,” said Zhao, adding that the previous set of ITRs had been agreed back in 1988 before the advent of the internet or mobile.

“ITU members agreed to have that meeting in Dubai in December 2012, with the goal very clear:  updating these international telecom regulations, with the hope to encourage investment into ICT and telecom businesses. Simply that.”

“Then it was unfortunately hijacked by American media, saying that the ITU wished to use this conference to take over internet governance – which was absolutely not true. With this kind of misperceptions, there were difficulties at the conference itself… at such kind of important communications conference, the word ‘internet’ could not be used, even!” he continued.

“Unimaginable, but that was the case. You could not talk about the internet, you could not use the word ‘internet’. For the telecom operators, they were fighting against spam… they wished to address the issue and at a global level, we also had to show our efforts in the fight against spam; and even the word ‘spam’ could not be used, it [was] not there… when we talked about the word cybersecurity, even the word ‘cybersecurity’ could not be used… so they managed to find the words ‘the robustness of the network’… [for fear that] if they used that [other] word, the ITU would take over internet governance! [Which was] absolutely wrong.”

“The majority of the members… tried very hard, our American friends also tried very hard… and finally, they all agreed. But then… in the approach to the end of the conference, unfortunately, tensions came up,” added Zhao.

According to the secretary-general, the head of the US delegation said after the conference that the country had refused to sign “not because of the contents, but because of the political tensions there, that there was a fight against America. And America did not want to be forced to sign something under such a kind of pressure.”

“So that was the US. But the US also mobilised its allies, particularly the European members,” continued Zhao. “While European members, some of them, immediately after the meeting told us – told me, even, in person! –  that they could have signed that one, [when asked] ‘why did you not sign that?’ they said ‘because we have to show solidarity with our American friends’.”  

CHANGE OF HEART: But more recently, said Zhao, some of those US allies have changed their minds. “Last year, I talked with them, and they also came back to me saying ‘what we can do, now we can sign that one’,” said the secretary-general. “I said no, no, no.”

“Even after a recent meeting with European ambassadors, the ambassadors raised that issue to me: ‘now you have two regulations; one is the 1988 regulation [on which] everybody agreed, and you have another regulation with 89 countries agreed, but still 53 countries did not sign that one. So what is the situation, what can we do; what happens if we have a conflict between the two regulations? What are we going to do? So can we sign that one?’ And I said ‘no, for the moment that is already there; if we encourage you to sign that one, one after the other, maybe [there will] be new tensions. I think it’s better to find opportunities to come together to look at this issue’.”

“But the problem that then I mentioned [was]: ‘If you already found that the text at that moment could be signed and you did not sign, why did you not raise your voice during the meeting, try to come up with some kind of compromise? Then everybody can accept, and people would have appreciated your voice; why didn’t you do that at that moment?’ So that was one of the lessons we learned; we should have everybody’s voice heard, and everybody should actively participate and then try to contribute.”

HARMONY: Today, according to Zhao, the climate amongst ITU members has subsequently become less tense. “Another thing, more important: immediately after the meeting, both sides realised that this was very unfortunate, not good, and both sides worked very hard to try to improve the environment,” he said.

“In 2013, in May, the ITU organised the World Telecom Policy Forum, with a clear mandate to address internet governance. You can imagine that should have been more difficult, but in fact we did not have any difficulties, because we followed the multi-stakeholder preparatory process, invited everyone to come together and talk, and both sides made an effort, saying ‘we have to change this situation, change the atmosphere’.”

“Therefore, in May 2013, the World Telecom Policy Forum adopted six options without any difficulties, and everybody appreciated the multi-stakeholder preparatory process. And that was not the end; after 2013, we had our World Telecom Development Conference in 2014 in March… [where] we also talked about internet governance, and nobody said ‘you cannot use the word internet!’ It appeared in the resolutions, everywhere. And again, we did not have any problems. And then in 2014, at our plenipotentiary conference, we again renewed resolutions concerning the internet… without any problems.”

“This is the good lesson people have already learned; they try to avoid these kinds of unnecessary divisions by creating a better environment. That is one of the reasons why, during my campaign for election as secretary-general, I [used] the word ‘harmony’. Harmony is very important; if you have harmonided atmosphere, people can come together to talk about the issues. If you have tensions, even issues that could have been agreed will not [be] agreed.”

Petroc Wilton


INTERVIEW: why the competition isn’t keeping Telstra CEO Andy Penn awake at night

Telstra’s competitors may be building scale, but CEO Andy Penn isn’t dwelling on his rivals. In his first round of sit-down interviews since taking the post in May, Penn spoke frankly to CommsDay about recent developments in the competitive landscape, his own acquisition strategy, NBN plans, and his aspirations for growth in Asia.

Communications Day: You took the reins in May, so you’re coming up to the five-month mark. Where have you been focusing your energies in the first five months?

Andy Penn: The first thing was really about teasing out this aspiration to be a world-class technology company; that’s very much the journey that we’ve been on… our strategy remains unchanged, which is about improving customer advocacy, driving value from the core of our business, and investing for growth. So it’s been firstly about getting those settings right, and secondly spending a lot of time with the teams and in the field… with a number of our technical people, and servicing customers from Darwin to Newcastle, Brisbane, the Gold Coast and the Sunshine Coast. And of course it was important we also delivered on our commitments for FY15, and delivered on our [financial] results.

CD: What’s your first response to the two big competitor deals we’ve seen this week: the M2-Vocus merger and the expansion of the TPG-Vodafone alliance?

AP: What I’d say is that we’ve been very pleased with the performance of our fixed broadband business over the last few years… our revenues were up more than 7% last year and we’ve continued to grow share in our business. My only comment is that it’s perhaps not surprising that some other players have been looking at ways to try and get scale to respond!

CD: There’s always been this perception of Optus and Telstra as the big arch-rivals, but TPG has been causing a lot of disruption in the competitive space in the last couple of years… what are your thoughts on the emerging David Teoh empire, and which of your competitors keep you awake at nights?

AP: None of them keep me awake at nights. I think that competition and innovation are fantastic for customers, and fantastic for the market. I don’t spend my time dwelling on competitors; I spend my time dwelling on what are the ways in which we can provide better experiences for customers, transform the experience for customers, better service customers? That’s where our innovation comes from and, ultimately, that’s what will enable us to be successful rather than focusing on what others are doing.
That’s not saying that I ignore others… but that’s not what drives me.

CD: You’ve taken over as CEO at a time when competition really is intensifying in both fixed and mobile… we seem to be seeing this shaping up of the industry into a few players, consolidating and gathering strength. Are we heading towards a ‘big four’ market?

AP: I think the competitive dynamics will look after themselves; what’s important to us is that we focus on providing world class customer service… world class technology, which is all about how we continue to innovate; and world class experiences, and we’re [providing] that increasingly with Telstra TV, the Apple streaming service, bundling various services together – ultimately all underpinned with a world class network. As you know, I announced an increase in our capex of another half a billion dollars, which will take our total investment in the mobile network to five billion by 2017 – which is all about continuing to provide customers the best network in Australia.

CD: You said at your annual results, as well, that if it was necessary to spend more you’d spend more… to really keep that mobile network superiority going forwards.

AP: But I think, also, it’s not just about that. It’s about maintaining Telstra as the best network in Australia, but that’s important and necessary for customers – because the volume of data is increasing very rapidly as customers leverage the network for a whole range of things.

CD: Mobile tends to be the big headline, but of course you’re also improving the fixed network. Do you see more of a chance going forwards to find synergies between your investments in fixed and mobile? It seems like your Wi-Fi network initiative is already blurring those boundaries.

AP: From a customer’s perspective, they really just want to be connected to high-speed broadband. Whether it’s a mobile network, Wi-Fi or fixed network, I don’t think the customers really mind; they just want that experience.
For customers to be able to migrate seamlessly between those networks is really important and, to your point, that’s exactly what our Wi-Fi network does. It enables customers to firstly access their fixed broadband allowance away from home, so it extends that value proposition; but then secondly they can do so using their mobile device as well. And we’ve just launched another service in the home where customers can use their mobile device for taking fixed-line calls. So we are seeing lots of different innovations where we integrate the networks together.

CD: Of course, in this climate of consolidation and gathering strength, the Australian Competition and Consumer Commission is keeping a very close eye on telco acquisitions. But it seems that Telstra’s acquisitions have been more focused on verticals you’ve highlighted as key growth sectors, like e-health and video. Is that likely to be where you’ll continue to focus your M&A thoughts, and your investment, going forwards?

AP: I think the opportunity to accelerate growth in those areas and/or acquire new capabilities is really what drives the M&A activities. If I take Pacnet as a good example, it’s doubled the scale of our submarine cable network, points of presence and datacentres in the APAC region; it’s doubled our customer numbers in the region, so there’s a very significant scale opportunity. But as importantly, it’s given us a very strategic platform from which to build our network applications and services business in the region.
Domestically, in Australia, NAS is now just under A$2.5 billion, and we achieve almost as much revenue from the services part of our business as we do from the carriage or the network revenue that basically we get from the same cohort of customers; that’s just showing how we’re able to leverage the core network and add value to that for customers. And that’s just going to grow in Asia.

CD: Are there any other particular verticals that you’d like to pursue more closely?

AP: In the machine-to-machine space, which really plays into the Internet of Things… the market’s still relatively small, but it’s growing very quickly. So transport and logistics plays a very significant role, mining, agriculture… and increasingly, in working with councils. We just signed up with the Brisbane City Council to put in just over 200 Wi-Fi hotspots… which is part of our Wi-Fi initiative, but also part of Brisbane City Council’s Smart City initiative, [which] will provide greater opportunities for sensors and other IoT-type devices.

CD: I guess the key question around the IoT is how and where a telco makes money – of course the revenue models are quite different, you’re looking at many more connections with much smaller [data] transactions.

AP: You shouldn’t look at it as separate from the broader range of network applications and services; to me, it’s just part of the overall dynamic. It’s about how an organisation uses technology to improve the efficiency of its business, and the value proposition it provides to its customers. And that includes integration of connectivity; for example, we signed a deal with Tesla to provide the SIM connection in all of their Model S cars in Australia. But it’s not just the M2M piece; it’s actually that integrated with the other aspects of the service. Whether it be the cloud, the infrastructure layer that sits beside it, or any sort of data analytics that go with it… I think telcos can play a role in all of those areas.

CD: Do you think it’s time for a change in how telecoms is regulated? We’ve had the Vertigan and Harper reviews, there’s an Australian Communications and Media Authority review underway…

AP: I think, philosophically, creating markets which are self-regulating is a more efficient system. But I also recognise that in certain sectors, such as telecoms, there are reasons why aspects of it have to be regulated. But any move you can make towards reducing aspects of regulation is obviously going to make the system more effective… I have strong points of view on specific decisions, like the interim final access determination [by the ACCC, with a 9.6% cut in regulated fixed access pricing] which is contrary to the fixed asset pricing principles that the ACCC’s got in the first place. That one’s difficult to understand the logic of.

CD: We are now, though, moving into the brave new NBN world of effective structural separation where you’d hope there’d be less need for regulation, now that you don’t have that vertically integrated monopoly…

AP: As I say, a move to a world where businesses are left to market forces and there’s a light regulatory touch, I think ultimately means a more efficient system. And as we migrate to an NBN world then Telstra no longer plays the role of being the access provider, and that requirement for regulation goes away.

CD: [On the NBN], are there any specific avenues you’ll be pursuing… to make sure that Telstra can win as a reseller on somebody else’s network?

AP: I think that’s just a function of how we compete in the market; we have been gaining market share in fixed broadband over the last 3-4 years, our market share is just under 50% and our market share in NBN is a bit over 50%. So we are performing at least in line with, if not slightly better than, our existing position in the market. And that’s about providing the range of services that I mentioned on fixed-line networks.

I think people just assume that all fixed is the same. And it’s not; it’s not. There’s a lot of difference out there; NBN will only take you to the home, and how you deploy it in the home, how you utilise it, how you connect the home [is important]. Telstra Platinum Service, which is about providing consultancy in the home, is another example of how we can make a big difference to how people experience their connectivity – which is really what matters.

CD: There’s a precedent for that type of [NBN home setup service] in places like Hong Kong…

AP: Yes, and in the US… I think that becomes increasingly important, because it’s not just providing fast broadband to an area.

As technology has more of an impact on everything we do and becomes increasingly more prevalent in the home, and more and more things become connected in the home with the IoT, how you get the best out of that is going to require a lot of support.

CD: What are your thoughts on the changes in Canberra in the last couple of weeks, and what they mean for the tech sector?

AP: Our vision is to be a world-class technology company… and that was our vision before there was a change in government! Without giving any political comment… the bottom line is that it’s great we’ve got a government that’s talking about technology, innovation, incubation and startups. Because those are the things that we’ve been focused on and active in, and think are very important in terms of making sure we achieve our vision. If you take that to a national level, I think the opportunity for Australia is significant.
Australia is very advanced; it’s got one of the highest rates for smartphone penetration in the world. One of the things that we’re able to do is provide our customers with a window into what’s possible with technology, because we have partnerships with some of the world’s largest companies like the Microsofts, Apples, Googles and Ciscos. And they see Australia as a really interesting market, because we’re technologically advanced; we co-collaborate, and we’re able to influence their product developments agendas to bring great solutions here.

CD: Your passion for Asia as a growth market is very well established; you said when we spoke after you were announced as CEO in February that you’d need to split your time between Asia and Australia. What’s on the immediate agenda for Asia? Of course, the Pacnet integration is still working through…

AP: Telstra’s been involved in Asia for a long time before I became involved; it’s an important part, but it’s still only a smaller part of our overall business. I don’t want people to get a disproportionate interpretation of how prominently it sits on my agenda. But I think also it does offer opportunity for growth.
You mentioned the Pacnet acquisition, but more important is what we can use the Pacnet acquisition to leverage: starting to provide cloud and managed network and security services into the region will be important. That whole sector is relatively nascent, so there’s an opportunity for us to get in early. For example, Pacnet gives us an IPVPN license and datacentre in China, and that’s an interesting asset to have; a lot of our Australian customers that are doing business internationally and want to do business in China would like to us to manage their datacentre for them. Likewise, in Indonesia, we’ve launched our first suite of managed network services there, and we’re following up with unified communications. We’ve got some software-as-a-service offerings as well.
So it’s an important growth area for us, but not the only one. I’m also investing in growing the core business and growing adjacencies in Australia, and looking at new areas for growth.

CD: Do you see more or less headroom for growth domestically vs internationally? The [Australian] mobile market… seems to be becoming fairly saturated…

AP: I think if you look at mobile in a conventional or traditional sense, but I don’t… every PC in Australia is an opportunity for a connected mobile device, and we talked about the Internet of Things. I think the capacity to broaden the scope of the market, in conjunction with the range of services that people use their devices for… [makes me] an optimist about the outlook for the market!
If you look at it through a conventional lens, you might convince yourself that there isn’t [headroom for growth], but I don’t look at it through a conventional lens; I look at it through the opportunity that technology provides in the future.

CD: Are you starting to encounter resistance from other large global telcos… the BTs and AT&Ts of the world?

AP: There’s always competition. The interesting thing about the enterprise services space, particularly in Asia, is that it’s relatively nascent; it’s a growing market. So it’s less about competing with others, and more about being able to grow with the market. But we’re happy to compete with others too.

Petroc Wilton


Minister Mitch to take NBN to 2016 poll

Senator Mitch Fifield has been selected by prime minister Malcolm Turnbull to take the communications ministry into an election year. Fifield previously represented Turnbull in the Senate and has considerable experience prosecuting the broadband case there for the Coalition. Significantly, Turnbull has abolished parliamentary secretaries, replaced them with assistant ministers and not appointed one for Fifield.

Fifield, 48, originally entered the Senate when he replaced Howard-era mainstay communications minister and deputy Liberal senate leader Richard Alston in 2004. He was previously the Assistant Minister for Social Services as well as manager of government business in the Senate, a position he retains. Prior to entering parliament, he worked as an adviser to former Treasurer Peter Costello as well as to NSW and Victorian state Liberal ministers. Prior to that he was a reservist in the Australian Army Psychology Corps and although raised and educated to bachelor degree level in Sydney, relocated to Victoria in 1992.

He is an interesting mix of wet and dry, opposing, for example, government-funded cycleways but supporting an Australian republic. Several years ago he published a Liberal Party policy journal called The Party Room in conjunction with fellow Victorian Liberal Andrew Robb.

Fifield is a surprise choice for the portfolio. CommsDay understands from sources at the highest levels that Senator Simon Birmingham was the original inside favourite for the position. But with a number of high-profile veteran politicians such as Joe Hockey and Bruce Billson pulling out of the ministry over the weekend, the final appointments were in flux until Sunday. Nevertheless, industry has reacted favourably to Fifield’s appointment which also sees him assisting the prime minister on digital government—a sign that Turnbull intends to keep his hand in the tech and digital economy sectors.

INDUSTRY RESPONSES: In representing the former communications minister in the Senate, Fifield is already familiar to those in the communications sector who deal with parliament – including senior authority members and managers of the Australian Communications and Media Authority and, as NBN CEO Bill Morrow pointed out, senior staff at the national network builder. “We welcome his appointment and look forward to working with our shareholder ministers, senator Fifield and (finance minister) Senator (Mathias) Cormann, to achieve our objective of eight million homes and businesses on the NBN by 2020,” said Morrow.

Vodafone CEO Inaki Berroeta, for his part, said he was confident that Fifield would build on the federal government’s work on the NBN and on the mobile blackspots program. “We’re pleased that the National Party has flagged that competition law reform and further pro-competition mobile blackspots are high on the government’s agenda,” he added. “We look forward to working with the minister to maximise the opportunities the digital revolution will deliver via improved mobile coverage and more consumer choice.”

Australian Mobile Telecommunications Association CEO Chris Althaus also welcomed the appointment, noting that Fifield was an “experienced operator” after managing government business in the Senate. But Althaus did note that the new minister would be under extra pressure without the benefit of an assisting parliamentary secretary, and having responsibility for the arts as well.

“From my point of view [this] will also mean a ramping up of our contact, having lost such experienced campaigners as Mr Turnbull and parliamentary secretary Paul Fletcher – who should also be congratulated firstly for what he did as parliamentary secretary and secondly for being appointed as minister for territories, local governments and major projects,” added the AMTA CEO.

“There’s a very strong additional signal that, as we’ve suspected, Malcolm Turnbull will be the prime minister for the portfolio in a sense – with Mitch Fifield also picking up and advisory role to the PM on digital government.”

“From an AMTA point of view, we have a strong expectation that the government will gather momentum around the spectrum review in particular; they have Stage 1 and then Stage 2 of the blackspots [program] to consider [as well]. I think the Digital Transformation Office and the fact that Malcolm Turnbull will keep a close eye on this portfolio is a good signal for the industry, and we look forward to having a new wave of initiatives coming through the government with NBN and other matters still very much on the books, but in a mature state.”

Optus corporate and regulatory affairs VP David Epstein extended his own welcome, highlighting the digital literacy credentials that he said Fifield had displayed in the social services portfolio. “The fact that he’s manager of government business in the Senate demonstrates that he’s a minister that the prime minister trusts to get things done,” added Epstein. “While relatively new to the ministry, he’s a person with long experience in Canberra, particularly as a senior advisor to Peter Costello. We’ve always found him approachable, and we look forward to working with him in the new portfolio.”

“We’ve also like to thank minister Turnbull for his work in the portfolio.”

Communications Alliance CEO John Stanton welcomed Fifield to the role and said he was looking forward to working with him – particularly on the very topical issue of the Internet of Things, for which Comms Alliance has set up a specialised think tank.  “We hope that the minister will engage with industry on our Internet of Things project, because this is a collaborative effort central to the prime minister’s ambition of realising an innovative, agile, Australia that can profit from technological disruption,” said Stanton.

Finally, Telstra also joined the chorus of positive response to Fifield’s appointment. “We welcome the appointment of Mitch Fifield and congratulate him on his appointment to Cabinet. We look forward to a constructive working relationship with him,” said a spokesman.

GRAHAME LYNCH AND PETROC WILTON


COMMENT: Fifield will be the minister for good NBN news

If Malcolm Turnbull hadn’t become prime minister last week and won a by-election over the weekend he still would have been lauding a beautiful set of numbers today. Because today is the long-planned day for NBN to release its results from its FTTN trial in the Hunter region and commercially launch services based on the platform. And a beautiful set of numbers, ones which effectively vindicate the multi-technology mix policy, are in.

Remember all those warnings about copper which was “literally rotting?” How Australian copper was smaller in diameter than overseas and thus overseas FTTN performance results would be irrelevant locally? How vast swathes of Australians would be stuck on 25Mbps forever? Well the trial results show that those within 400m of a node will get their full 100/40Mbps. Those within 750m or so will get 50Mbps. That is pretty much everyone in urban areas. The best estimates are that 60% of all Australians are within 400m of a copper node and 80% within 600m.

And as Alcatel-Lucent global president of fixed line networks Federico Guillen tells us today, the “gains” from VDSL vectoring are actually greater in the Australian context than have been observed overseas.

The new communications minister Mitch Fifield could not hope for a better first day on the job. He inherits a fully-developed policy which is now at mid-execution stage and has largely made good on its technical promises even if a little delayed. 2016 will prove to be a great year to be in the retail politics game as far as communications is concerned, as NBN brings a succession of mass market products to commercialisation and larger swathes of the population are connected to the 25-100Mbps grid.

Although this is a column which deals with telecommunications more than psephology, the NBN is ultimately about politics as much as technology and Fifield’s appointment should be seen in this light.

As a close ally of Turnbull, Fifield promises continuity in the portfolio—something not only reassuring to industry but also politically pragmatic for the new PM who would like to see the job he started in the portfolio finished to his satisfaction.

To my mind, the fact Fifield is from Victoria is most important—the Coalition trails the opposition badly in that state in polls and part of its problem there has been that its national leadership has under Tony Abbott and Joe Hockey, and continues to be under Turnbull and Scott Morrison, closely identified with Sydney. Fifield will be the good news minister, with the NBN long term satellite, HFC and FTTN services all set to deploy in a big way under his tenure. In addition, the fixed wireless service will be upgraded to 50Mbps and a cell site access service will be introduced—allowing the government to tie the NBN to its mobile blackspots program for the first time. This gives him a tremendous opportunity to gain a high media profile and help correct the Sydney-centric bias that attaches to the Coalition currently.

Finally there has been a meme going around the tech press this past week that Turnbull is a closet FTTH zealot & secret ALP NBN lover and will re-institute Stephen Conroy’s old universal FTTH policy. This is just utter hogwash for anyone paying the smallest attention to communications over the past two years. Turnbull has gone to the great empirical lengths, both through his own research and policy efforts and the results of myriad inquiries, to establish the economic credentials and validity of MTM. It would be a massive repudiation of his own credibility and integrity to reverse that.

As he wrote just several weeks ago, the latest NBN corporate plan showed that 93% FTTH would still cost $30 billion more and take 6 to 8 years longer than MTM. He opined “This means that a full FTTP deployment such as Labor has advocated would leave millions of Australians trapped with inadequate connectivity – or no fixed line connection at all, in many cases – for more than a decade. Delays of that length are simply not acceptable for the Government. We cannot afford to leave large numbers of Australians behind as we seek to accelerate the nation’s productivity and global competitiveness in an age of digital disruption.”

Turnbull and Fifield aim to have the NBN essentially completed by the election after next. Right now it looks like everyone bar the 3-4% on satellite and maybe another 4-5% at the fag end of FTTN copper loops will be able to obtain 50Mbps speeds at a bare minimum and 100Mbps in the main. Forget the comparisons to city-states such as Singapore or a place such as South Korea, where half the population live in one giant city. When a country with such dispersed rural settlements and comparatively low urban population densities as Australia can deliver 50Mbps minimum to 90% of the population and 100Mbps to 74% of the population at an affordable cost, it will be a powerful basis on which to mount the case for a prime ministership attuned to the opportunities of technology disruption and 21st century government. Pertinently, this case will be able to be made in the present and not the future tense.

GRAHAME LYNCH


LYNCH COMMENT: How television is disrupting the net

Tonight, about four million Australians will watch the deciding match of the 2015 State of Origin rugby league series on broadcast TV. That is about one in six of the maximum possible audience—all watching one broadcast from one outlet.

A slightly higher number—about five million Australians or less than one in five—live in a household which pays for subscription television, despite the massive expansion of free to air channels from five to effectively 24 in recent times. After just a few months of Netflix’s Australian operations, about 1.3 million Australians—about one in 19—live in a household which subscribes to a streaming video on demand service.

Who says plain old television viewing is dying? Old-fashioned, passive narrative-based entertainment and sports programming goes from strength to strength.

As American media commentator Michael Wolff points out in his new book “Television is Television—the triumph of old media in the digital age”, it wasn’t supposed to be this way.

Digital media would inevitably subsume old media’s revenues and methods. It has simply destroyed them in the case of classified advertising and recorded music, or more curiously, left them rather unscathed in the case of video and TV.

As the blurb to his book points out, “twenty years after the Netscape IPO, ten years after the birth of YouTube, and five years after the first iPad, the Internet has still not destroyed the giants of old media. CBS, News Corp, Disney, Comcast, Time Warner, and their peers are still alive, kicking, and making big bucks. The New York Times still earns far more from print ads than from digital ads. Super Bowl commercials are more valuable than ever. Banner ad space on Yahoo can be bought for a relative pittance.”

“We all know that Google and Facebook are thriving by selling online ads—but they’re aggregators, not content creators. As major brands conclude that banner ads next to text basically don’t work, the value of digital traffic to content-driven sites has plummeted, while the value of a television audience continues to rise. Even if millions now watch television on their phones via their Netflix, Hulu, and HBO GO apps, that doesn’t change the balance of power. Television by any other name is the game everybody is trying to win—including outlets like The Wall Street Journal that never used to play the game at all.”

NETFLIX: Wolff points out that the sexiest OTT player of the moment, Netflix, began life as a mail-order DVD distributor. Its great masterstroke was to re-define itself as a third distribution outlet for television—creating the new category of streaming video alongside existing free and pay TV cable options. Only a few million Americans go to see a movie every day, Wolff points out. 40 to 50m Americans watch TV re-runs every night. Netflix positioned itself right in the middle of a mode of existing consumer behaviour. And now it apparently accounts for more than half of all American data traffic every evening.

Yet as Wolff points out, Netflix is hailed as a “television industry killer.” It isn’t. It is merely the flagbearer of a trend which sees television disrupting the Internet.

iiNet CEO David Buckingham has been mocked by some in recent days for his alarm over how the streaming video data growth had exceeded all previously seen industry usage trends. He even inferred that Netflix may have added several hundred terabytes to data demand within months of its launch. Surely, the critics say, he could see it coming?

But the whole telecom industry has operated broadband nets on a completely different paradigm, the same one which defined voice and cable television before it: scarcity and the technological solution to it, which takes the form of network contention. Money was made on the services sold but not used as well as on elastic peak and cap-based pricing.

What has changed? Well for start, artificially-created retail competition via regulatory diktat has forced a race to the bottom, especially as formerly Telstra and now NBN inputs into retail broadband services render them comparatively monochrome. In order to maintain some differentiation and competitiveness, key applications such as Netflix are no longer included in data caps and are thus not priced according to their cost, even as they consume more and more bulk data.

Network provision is also intended to be separated from retail service provision, introducing the pathogen of negative synergy.

The nature of video streaming traffic—which requires a minimum constant bit rate measured in megabits– is very different to the bursty nature of prior forms of dominant net traffic such as web surfing, faster-than-realtime downloads and low resolution video.

Even the bandwidth evangelists who dominated Conrovian NBN rhetoric in the first half of this decade reflected the old paradigm. While they were busy smacking down the sobriety of this publication and others in regards to their wild forecasts of gigabit revolutions, the fine detail of their pricing and product sets showed otherwise,

The so-called Connectivity Virtual Circuit Charge—effectively a congestion or contention tax– was originally priced at $20 per megabit and kicked in after just 50 kbps of usage. This was considerably higher per bit than the Access Charge pricing, which for a gigabit retail plan fell as low as 15c per megabit and for Point of Interconnect charging which was priced as low as 10c per megabit. The CVC, even reduced now, is clearly a windfall revenue construct that induces retailers to choose between “budget” and “premium” network provision.

At a relatively high contention scenario—say 1 in 100 which was typically the dimensions of a dial-up or a DSL network—CVC charging might only add a dollar or two monthly to individual subscriber costs. But for a more modern paradigm reflecting business usage, or heavy residential video usage reliant on a committed bit rate of 2 megabits or more to each customer that monthly impost might rise to $40 or much higher.

CONTENTION CHARGES: Clearly NBN’s pricing and dimensioning constructs no longer work for a market where video streaming appears to be the number one generator of consumer data demand. Not only does the CVC need to come down but its arbitrary megabit per month construct probably should add a Megaport-style “burstable” or “temporary provision” product reflecting events such as, say, the annual day that Netflix dumps ten new episodes of House of Cards online. Television again disrupts the internet, not the other way around.

And it will keep on disrupting the internet as the smart money figures this out. Lots of money has poured into digital media firms that have yet to realise much in the way of real financial results. As Wolff points out, Buzzfeed’s 150m users generate more or less the same annual revenues as New York magazine’s 400,000 readers. Google’s $US66 billion global annual revenues sound impressive until one realises this represents less than 14c a day per user of revenue. Facebook generates less than 3c a day. Interestingly, Facebook sees video as its future.

The mainstay of much online digital media is advertising revenue and a surplus of inventory, click fraud, programmatic advertising techniques, SEO gaming and poor brand loyalty have conspired to bring typical revenues down to as low as a few cents per thousand impressions. Wolff claims the costs of securing these impressions is fast outpacing the rewards for them.

Meanwhile, the visual entertainment industry rolls on—cinema admissions in the US alone netted over $US10 billion in revenues in 2014, broadcast television $48 billion, satellite television $39 billion, cable television $56b, streaming video and VOD providers $7.5b and DVD sales $6.9b. Wolff estimates that margins in the US television industry are approaching 50%. That is all in the US alone. Broadband merely adds to distribution options and, singularly among content creators, it is TV and movie companies who have figured out how to successfully monetise direct users online.

And that, perhaps, is how the typical telco should now see itself. As a video distribution platform which needs to cost and price itself accordingly.

by Grahame Lynch

Television is the new Television by Michael Wolff is published by PenguinRandomHouse


Interview: New Optus CEO Allen Lew talks fixed/mobile integration

Optus CEO Allen Lew has revealed plans to transform his fixed business, mixing it with mobile as a key differentiator; unleash secret new products for his unique 2300MHz spectrum asset; and forge a new corporate identity around telco innovation.  Along with serious mobile network investment and a sustained customer focus, these are key elements of Lew’s grand campaign to take on Telstra and beat back challengers like iiNet and Vodafone.

\"optus\"Speaking frankly to CommsDay in one of his first sit-down interviews since taking the reins in October, Lew – appearing confident, determined, and intimately familiar with every aspect of his company – conceded that the Number 2 telco had been “a bit inward-focused” just prior to his appointment. “For the right reasons; we wanted to make sure that our cost structure, our customer experience would be able to carry us into the next generation of the mobile internet,” he added. “[But now] the most important thing… is that Optus is back in the market.”

Lew is no stranger to the Australian telco scene. He served as MD of both Optus Mobile and Optus Consumer Business until 2006, when he headed to Singapore to become CEO of Singtel’s local operations and then of the group’s new Digital L!fe business. But his departure and return have given him a new perspective on Optus’ future.

“Two anomalies in Australia [make it] very different from [other] developed markets… number one, the home broadband speeds… are actually quite low,” he said. “The second big difference is that pay-TV penetration is very low… if you put those two things together, what I see as a real opportunity for Optus is to move from being just a pure mobile player to become a mobile and integrated multimedia player.”

Lew is banking on customers’ hunger for bundles – from fixed broadband for heavy downloads and mobile for those on the go, to TV and other content. “Consumers and even SMBs want one person that provides them everything. Different types of content, different types of high-speed access to that content…whether they’re home, on their holidays, out and about, overseas, whatever. We believe we can fulfil that role,” he said. “And if we do that well, we cut the competition down to just us vs. you-know-who! The iiNets, the Vodafones, the TPGs,  they all become out of it; it becomes a straight fight between the two of us [who] will have that credibility to do that.”

But as Lew himself acknowledges, that means building up Optus’ fixed-line credibility. “When I came back, a lot of people told me that ‘Optus is a mobile company; your fixed-line, your home strategy tends to be flip-flopping’… [but] fixed cannot be a secondary product,” he said. “Optus has to do well in mobile and fixed.  Today, our revenue and our focus is very mobile-centric; we have about A$6 billion in revenue from mobile, A$1 billion from fixed. That has to balance out a lot more.”

“We will absolutely use NBN to get into the home, where it matters. We will also use our other networks: HFC, ULL, and where it makes sense our DSL as well,” he continued. “We have to change our operations and our business model. [In fixed], it used to be the case that you’d have to do a lot of capital investment and lay a lot of infrastructure. Now, with NBN and the change in the DSL model and ULL, it becomes for us… a wholesale model, essentially. We need to streamline our model and get cost efficiencies, so that we can operate within that.”

“And to that extent, a company like Optus benefits from being part of the Singtel group, for two reasons. One, Singtel and Singapore have gone through an NBN, we’ve operated within that model… also, we benefit from the scale of Singtel. The ability to negotiate as a group with a large footprint with vendors, that gives us a competitive advantage.”

MOBILE SPEND AND 2300MHZ: Lew is also intent on challenging Telstra’s mobile dominance – and that’s likely to be a more costly competition, even once Optus hits the 90% LTE coverage it’s aiming for by April.

“Unlike the fixed space, where we’re operating on the wholesale model…because we’re very much a [mobile] infrastructure provider, unfortunately we [have to] spend the capital at the end of the day,” he said. “The harsh reality on infrastructure and building networks is that you have to spend the money. You can come up with technological innovations, you can come up with partnerships, but those will [only] help you at the fringes; you’ve got no choice but to put up those towers.”

“When we announce our full-year results… we’ll also guide the market and give the public a better indication of what we’re going to be spending in the mobile network,” Lew added. “And the things that we’ve been doing, in terms of streamlining our operations over the last 2-3 years, will now give us the headroom that we need to convince our shareholders that we can use their funds and give them the right return.  And also, the way that we’ve restructured our plans and the public has shown that they’re willing to pay for data also helps to monetise the investment.”

Beyond the hard yards of raw capital spend, though, Lew has an ace up his sleeve: the 98MHz of 2300MHz spectrum that Optus, uniquely, holds in the market through its earlier acquisition of Vividwireless. While the telco is already using it to boost network coverage and speed via carrier aggregation, the CEO is now hinting at other uses, perhaps even in the fixed realm.

“The [98MHz] is our differentiator and to be very, very frank, we haven’t used it in a way that has led to customers looking at it and saying ‘wow, that’s very exciting’,” he admitted. “In a sense, [spectrum] is intangible to customers – unless, and until, you take that and put it somewhere that appears in a very friendly, simple way on their smartphones. Or in their homes.”

“So we’re now rejigging our development efforts… to bring back the zest to the Optus brand by delivering some of these things,” continued Lew. “This is not just about carrier aggregation and mobile – there are other opportunities we can use the spectrum for that we are exploring, and we’re developing products that will come out with something really exciting for Australians in the second half of the year.”

We will use [it], particularly in the capital cities, to come up with something exciting for our customers that can service their fixed broadband needs in the home.”
INNOVATION AGENDA: Atop the foundations of a focus on customer experience – something he says the firm has already been working well towards – and the fixed and mobile strengths he’s targeting, Lew is also out to build a new identity into Optus: that of a true telco innovator.

“While our big competitors are all about network and the smaller guys are all about price, we believe that the whole innovation space has not been occupied by a traditional telco. We believe we can deliver on that,” he said. “In the mobile space, in the home space, there really has not been a huge amount of innovation. We’ve been depending on the handset vendors to come up with smartphones and better form factors; we’ve been depending on our infrastructure providers to give us carrier aggregation so we can go faster and faster. But what have the operating companies really done in the innovation space? We believe, with things like Optus Cash, the My Optus app and IVR-to-chat, that we are leading in that space.”

“Using innovation to engage our customers, entertain our customers, and enhance their lives is where we want to sit,” added Lew. “Now, that’s not the message going out by my marketing people! But you ask me internally where we want to position ourselves – it’s there.”

Lew’s plan is to bring out not just new products, but new ways of dealing with customers. Optus is already running a lot of its interactions through the web or through apps, and Lew for example envisions a future where the My Optus app becomes an interaction point on the level of Facebook or Whatsapp. “This is something where, again, we benefit as Optus from being part of a bigger group,” he added. “I can leverage off what Group Digital L!fe is now doing in different parts of the world, as well as leverage off their presence in places like Israel, Silicon Valley.”

“For us, now, it’s all about reinvigorating Optus the brand externally; reinvigorating what we mean to our customers; and occupying that [innovation in telco] position that no-one has occupied yet in Australia.”

Petroc Wilton


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