Australia telecoms market
Australia has a mature telecoms market with high internet penetration rates, a healthy mobile business and a strong incumbent in Telstra.
However, the government’s proposal in November 2009 to construct a National Broadband Network (NBN) has the potential to shake up the established market and could lead to the separation of Telstra’s wholesale and retail branches. As well as coping with these planned developments, the country has recently had to contend with the huge infrastructural damage caused by the devastating floods in the north east.
In 2009, the Australian government formed the NBN Co to handle the construction and operation of a new A$43 billion network – the largest infrastructure investment made by a government in the country’s history. The aim of the project is to reach 93% of households with fibre broadband providing speeds of up to 100Mbps. NBN Co predicts that it will reach 1.7 million premises by June 2013.
The project has been the subject of controversy since it was first announced due to its cost and potential impact on competition. Richard Chirgwin from analyst firm Market Clarity says: “Unfortunately, the NBN has politicised the telecommunications debate in Australia, so that one’s position on the NBN is too often interpreted as indicating one’s voting preference.” Despite any political controversies, the implementation of a fibre network will improve nationwide communications.
Patrick Tapper, CEO of the national internet service provider Internode believes the introduction of the NBN will secure Australia’s infrastructure for the future. “While the telecoms technology used on the network will be upgraded regularly, the optical fibre cable that NBN is rolling out will provide a practically infinite communications channel Australia-wide for the foreseeable future,” he says.
The new legislation accompanying the NBN requires Telstra to separate its retail and wholesale divisions, causing a complete restructuring of the Australian telecoms industry. Paul Budde, MD of BuddeComm says: “The structural separation of the incumbent Telstra is going to change the industry forever and will set an example about the future of telecoms to the rest of the world.”
Telstra customers will gradually move to the NBN, thereby creating a wholesale-only broadband network and the structural separation of Telstra. The financial agreement made between the Australian government and Telstra, which still requires legislation to be passed as well as shareholder approval, would the company with a post-tax net value of almost A$11 billion. Apart from the huge financial gain to Telstra, Karina Keisler, principal advisor for Telstra Media Relations, says: “The major change would be that Telstra, like the rest of the industry, would acquire fixed-line access from NBN Co to provide our customers with voice and broadband services previously provided over copper and HFC.”
Telstra has approximately 65% market share of Australia’s overall telecoms revenue. The only telco that comes close to rivalling the incumbent is the SingTel subsidiary, Optus. At the end of 2009, Telstra had generated revenues of over US$6 billion from mobile services whereas Optus, for the first time, surpassed US$4 billion; the nearest competitors were Vodafone Australia (generating US$2.5 billion) and Hutchison (generating US$1.5 billion). However, in June 2009 Hutchison and Vodafone merged their businesses (3 and Vodafone Australia) in a 50-50 joint venture called Vodafone Hutchison Australia Pty Limited, creating a company with mobile services revenues approximately 5% lower than Optus, and a more interesting market dynamic.
As is common with many mature markets, Australia is trying to come to terms with increasing amounts of data traffic, and Telstra has upgraded 90% of its network to Ethernet. “In the medium to long term, the demand for data is good news for Telstra because there is an enormous need for our wireless and IP networks,” says Keisler. “In the short term, this new demand is a challenge because no telecommunications company in the world has yet created the business model to fully monetise that new demand.”
In July 2010, Optus became the first mobile operator to acquire new regional spectrum licences to increase its 3G capabilities. Andrew Buay, MD for Optus Products and Delivery, said that this will strengthen the company’s position. “It will help us to continue to transform the playing field in the regional communications market as well as strengthen our position to challenge the incumbent by improving capacity and coverage in previously under-serviced areas,” he says.
With these changes set to take place over the next few years, a previously quiet market will start to make a lot of noise. Budde says: “The opportunities are enormous; it comes down to execution which will require an enormous effort from all parties.”
At the end of November 2010, Australia was hit by some of the worst and most devastating tropical storms the country has ever experienced.
The estimated cost of the damage to the telecoms infrastructure, at the time of going to print, stood at $50 million. Karina Keisler, spokesperson for Telstra, says: “The full extent of the damage won’t be known until flood waters recede and people return to their homes and businesses.”
The other challenge facing operators was the potential power outage from battery-powered generators; areas of severe flooding were inaccessible to engineers and therefore could not be restored, thus potentially creating network black spots.
Optus admitted that although it was coping with the floods it would be some time before the network could resume its normal level of functioning.