Telcos are struggling between holding on to their old revenues while preparing themselves for a rapidly changing market place. After years of cost cutting the first telcos start to invest again, Australia is however, lagging behind. Key issues for the players are the decline in voice revenue and the emergence of VoIP. Also trying to move into media markets such as broadband TV and far more sophisticated delivery models (triple play) are providing the industry with plenty of challenge. In all of this the competition remains struggling, they might increase retail market share but not margins.

The market moving forwards into 2006
New telco business models for 2006
Structural Industry changes for 2006
Convergence - Massive media changes
From telecom to media monopoly
The Future of Voice (Fixed, Mobile, VoIP)
Market Developments and International Benchmarking
Operational Separation
Regulations - T3 reforms
AAPT, Commander, Hutchison, iiNet, Unwired and Vodafone - Company Analyses
Optus - Company Analysis 2005
Telstra - Company Analysis 2005


Executive Summary
Australia has never been a leader in new telecoms developments, it is a follower. It therefore is good to look abroad and thus predict what we can expect to happen in Australia over the next 12 months. Key developments involve triple play business models. VoIP will be the key element in such packages, but it is broadband TV that makes the product sticky. Wireless broadband offers new opportunities there were mobile data failed as well as in niche markets in competition with DSL.

The convergence of telecommunications, broadcasting, IT and consumer electronic markets are offering unprecedented opportunities for those organisations who understand these developments and are able to analyse what will work for them. However, it is obvious that these new opportunities require new business models. Media convergence driven by technology will cause problems for companies who have a vested interest in maintaining their own ‘old’ structure. The lack of change towards new business models is one of the major stumble blocks in the developments of a new economic viable market structure, which are needed to move the industry into 2006.

In order for the industry to move into 2006, some serious structural changes need to be made to align their current businesses towards the challenges of media convergence. Furthermore there are the cannibalisation effects of VoIP and on top that the access models are changing, which triple emerging as the model forward. The industry will have to align itself along one of the three key structures: infrastructure, content and appliances.

The media market is on the verge of massive changes. Several developments are taking place at once, driven by technologies. Broadband-based infrastructure is going to make the need for separate telecoms and broadband infrastructure obsolete. The consumer electronics market is pushing for changes driven by plasma screens and DVRs; thus increasing market demand for more and better entertainment services. There will be casualties, especially among traditional broadcasters, and new leaders will emerge on the telco side of the business.

The broadcasting market is much weaker and is already in self-destruct mode, so it won’t be too difficult for Telstra to dominate this market by providing the new entertainment services over its variety of broadband infrastructures. Developments, which started in late 2004, are pointing further into the direction of media monopolies. All eyes are now on the government’s media review in 2005.

In a different review the Minister put forward her plans for a regulatory overhaul of the telecoms market, prior to the further privatisation of Telstra. These plans contain some good elements – strategies that will promote progress. However, we have seen many sound plans in the past, and the devil is, as always, in the detail. Only when an enforceable implementation plan is generated, with measurable outcomes, will we see any real progress. Without this it will be just another whitewash, leaving us even further back on the information highway. However, the debate inevitably comes back to structural changes.

Company analyses are provided on: Telstra, Optus, AAPT, Vodafone, Commander, Hutchison, Unwired, Primus, Macquarie Telecom, PowerTel, SP Telemedia, iiNet and People Telecom.

1. THE MARKET MOVING FORWARDS INTO 2006
1.1 Triple play
1.1.1 After broadband, triple play will be the next battleground
1.1.2 VoIP the key in triple play
1.1.3 Broadband TV is sticky
1.1.4 Telcos learning at great cost
1.1.5 Hollywood coming to the party
1.1.6 The digital divide
1.2 Rapidly changing voice market
1.2.1 Milking the voice market
1.2.2 Mobile merging with wireless
1.2.3 Fixed mobile conversion
1.3 Digital TV
1.4 Regional developments forging ahead
2. NEW TELCO BUSINESS MODELS FOR 2006
2.1 Changing telco business models
2.1.1 Industry moving into 2006
2.1.2 Disruptive developments
2.1.3 Incumbents do need to change
2.1.4 Fresh leadership needed
2.1.5 New business processes
2.1.6 Customer service
2.1.7 More cost to cut
2.2 Mass customisation
2.2.1 Telcos stuck in commodity marketing
2.2.2 The collapse of share holders value
2.2.3 Focus on (real) customer value
2.2.4 Back office systems need to be in place
2.3 New models for the telco industry
2.3.1 Convergence requires integrated models
2.3.2 Technology based business models
2.3.3 Triple play
2.3.4 Adapt or perish
2.4 New business models for wider economy
2.4.1 Economic impact of global changes
2.4.2 Building new communities
2.4.3 New opportunities
3. STRUCTURAL INDUSTRY CHANGES FOR 2006
3.1 High-level industry structures
3.2 Three distinct segments
3.2.1 Infrastructure
3.2.2 Content
3.2.3 Appliances
3.3 Get a 360 degree vision
3.4 Separation and integration
3.5 Government policies and regulations
3.5.1 Privatisation of Telstra (T3)
3.5.2 Competition issues
3.5.3 Media reforms
3.5.4 Regional telecoms remains fragile
3.6 Urgent telco CEO blood transfusion needed
4. MASSIVE MEDIA CHANGES – ANALYSIS
4.1 Media reforms 2005
4.1.1 Jockeying well and truly underway
4.1.2 Packer moving into content
4.1.3 Telstra’s plans in disarray
4.1.4 News Limited – the digital TV gateway
4.1.5 Traps: concentration = less diversification and content monopoly
4.1.6 The key issues
4.2 Australia missing out on media market dynamics
4.3 Converging media services
4.3.1 User experience pushing up demand
4.3.2 Plasma screens
4.3.3 DVRs
4.4 Broadcasters losing out
4.4.1 Broadcasters should take their lead from the BBC
4.5 Google takes on the media giants
4.6 Good old radio – here to stay
4.7 The video rental business
4.8 Newspapers
4.9 Policies and strategies
4.9.1 Separation and integration
4.9.2 Structural separation is inevitable
4.9.3 Media reforms
5. FROM TELECOM TO MEDIA MONOPOLY
5.1 The ACCC on triple play monopolies
5.2 Media jockeying in early 2005
5.3 There is more to media than financial gains
5.4 Pay TV
5.4.1 New monopoly
5.5 Access, not content, is King
5.6 Broadcasters
5.6.1 Broadcasters self-destruct
5.6.2 Broadcasters don’t own content
5.6.3 Broadcasters don’t own infrastructure
5.7 Where to go from here?
5.7.1 The investigation into cross-media competition; another con job
6. THE FUTURE OF VOICE (FIXED, MOBILE, VOIP)
6.1 Telephone companies – experts in negative marketing
6.1.1 Don’t use the phone
6.1.2 Don’t use the mobile phone
6.1.3 Don’t use the fixed phone
6.1.4 The IP solution
6.2 Fixed voice market
6.2.1 Market under pressure
6.2.2 Rearguard skirmishes in the voice market
6.2.3 A neglected market
6.2.4 Fixed-line SMS
6.3 Fixed-mobile convergence
6.4 Mobile voice
6.4.1 Only option in developing countries
6.4.2 Mobile forced to move into commodity territory
6.4.3 Mobile companies failed to jump the S-curve
6.5 VoIP
6.6 Pricing strategies
6.6.1 Telecoms price developments
6.6.2 From bundling to triple play
6.6.3 New ways to measure ARPUs
7. INTERNATIONAL BENCHMARKING
7.1 Internet and broadband
7.1.1 Australia’s broadband ranking – mid-2005
7.1.2 Internet
7.1.3 Business usage of Internet and Internet commerce
7.2 Mobile
7.2.1 3G
7.2.2 Mobile call costs
7.3 Fixed-line call access
7.3.1 Analysis of Australian telephone call charges – 2005
7.3.2 Local call charges
7.3.3 National long-distance call charges
7.3.4 International call charges
7.3.5 Access and line rental charges
7.4 Major global operators
8. OPERATIONAL SEPARATION DEVELOPMENTS IN 2005
8.1 Government initiated regulation review – April 2005
8.2 Structural vs operational separation
8.3 A Telstra-driven operational separation?
8.4 Productivity Commission outlines Telstra break-up
8.4.1 ACCC submission to the PC Report
8.5 OECD supports industry calls for telco reforms
8.6 Ducking structural separation
8.7 The upcoming Sensis float
8.8 The broadband applications company
8.9 What’s in it for wholesale?
8.10 A win-win situation
8.11 Mobile structural separation
8.12 Structural separation in Britain
8.12.1 A frustrated regulator
8.12.2 Incumbent remains dominant despite 20 years of regulation
8.12.3 Equivalence
8.12.4 BT remains on notice
8.12.5 Ofcom recommendations/Roundtable recommendation
9. REGULATIONS – T3 REFORMS
9.1 Key issues
9.2 Introduction
9.3 Recommendations
9.4 Lessons from Britain
9.4.1 Good vibes travelling to Australia from BT
9.4.2 Progress in LLU
9.4.3 Separation makes good business sense
9.4.4 Minister is holding her ground
9.5 Very little regulatory reform
9.6 OFCOM decision boosts pro-competition camp in Australia
9.7 Regulations on hold during T3
9.8 Competition
9.9 Are the powers of the ACCC sufficient?
9.10 Operational separation
9.10.1 A Telstra-driven operational separation?
9.10.2 Operational separation how it can be done
9.11 Regional telecommunications
9.11.1 Future-proofing
9.11.2 HiBIS, good example for further developments
9.11.3 Competition remains fragile
9.11.4 Regional mobile
9.11.5 ‘Up to scratch’
9.11.6 T3 thumbs down from National Farmers’ Federation
9.12 Infrastructure issues
9.12.1 Contradictory policies?
9.12.2 Infrastructure-based competition
9.12.3 Government-guided infrastructure utility developments
9.12.4 How will the Minister convince Telstra to cooperate?
9.12.5 Barking up the wrong tree?
9.12.6 FttH – the end of infrastructure-based competition
9.12.7 Dumping the risks on states and local governments
9.12.8 Open networks
9.12.9 How to make progress in the regions?
9.13 Summary and conclusion
10. COMPETITION MOVING INTO 2006
10.1 Regulatory environment
10.1.1 Let’s abandon traditional telco regulations
10.1.2 Australia’s rear mirror vision
10.1.3 Flag falls, distance and time
10.1.4 Triple play, flat rates: focus on new applications
10.1.5 Efficiency cost savings on capex – 90%
10.1.6 Untapped economic benefits
10.2 Competition issues
10.2.1 Where is the competition?
10.2.2 Competition remains fragile
10.2.3 Infrastructure-based competition
10.2.4 FttH – the end of infrastructure-based competition
10.2.5 Open networks
11. COMPANY ANALYSES
11.1 AAPT
11.1.1 AAPT wants to take existing customers into the future
11.1.2 Is AAPT reaching the turning point? – March 2005
11.1.3 Uncertainty still rules at AAPT – October 2004
11.1.4 AAPT the shrinking violet – mid-2004
11.2 Commander Communications Limited
11.2.1 Commander will offer the PBA service a better business model – mid 2005
11.2.2 Commander needs to move into broadband
11.2.3 The VoIP race – Commander vs Telstra
11.3 Hutchison Telecommunications (Australia) Ltd
11.3.1 Hutchison – Analysis – mid-2005
11.3.2 Structural separation for Hutch in Italy – February 2005
11.3.3 Hutchison making progress, but not according to plan –January 2005
11.4 iiNet Limited
11.4.1 iiNet acquires OzEmail – 2005
11.4.2 iiNet steaming ahead in mid 2004
11.5 Macquarie Telecom
11.5.1 Macquarie makes a bold move to expand its network
11.6 Optus
11.6.1 Optus analysis – mid-2005
11.6.2 Optus and Ninemsn trialing new business models – mid 2005
11.6.3 Will Optus share its DSLAMs?
11.6.4 Optus fights back
11.6.5 What’s Optus doing with Foxtel?
11.7 People Telecom Ltd
11.7.1 People Telecom continues with a successful growth strategy – August 2005
11.8 PowerTel Limited
11.8.1 PowerTel consolidates on recent acquisitions – August 2005
11.9 Primus Telecommunications Australia
11.9.1 New strategic direction continues – August 2005
11.10 S P Telemedia Ltd
11.10.1 One of the most successful telcos – mid-2005
11.11 Telstra Corporation Limited
11.11.1 Corporate strategies analysis – 2005
11.11.2 Infrastructure analysis – 2005
11.11.3 Broadband analysis – 2005
11.12 Unwired Australia Pty Ltd
11.12.1 National WiMAX service? – mid 2005
11.12.2 Save Unwired – competition on trial once more
11.12.3 Crossroads for Unwired – May 2005
11.12.4 Unwired takes the gloves off on broadband – March 2005
11.12.5 David and Goliath – Unwired: 15,000 customers – February 2005
11.13 Vodafone Australia
11.13.1 Vodafone pushing for growth – July 2005
12. GLOSSARY OF ABBREVIATIONS


Exhibit 1 - Triple play pricing examples
Exhibit 2 – Mass customisation
Exhibit 3 – Massive restructuring is now overdue
Exhibit 4 - Triple play pricing examples
Exhibit 5 – Future-proofing Australia – measurable outcome
Exhibit 6 - Triple play pricing examples




Table 1 – The Knowledge Economy
Table 2 – Broadband lines by access in major countries – December 2004
Table 3 – Broadband access penetration amongst Internet households – 2001 - 2005
Table 4 – Active home Internet users by country – 2004, 2005
Table 5 – Proportion of businesses using the Internet – 2004
Table 6 – Proportion of businesses placing/receiving orders via the Internet or Web – 2004
Table 7 – Mobile subscribers by country – 2005
Table 8 – WCDMA subscribers by country – 2003 - 2004
Table 9 – 3G subscribers in Asia Pacific countries (excl Japan) – 2004, 2009
Table 10 – Mobile call cost comparisons – 2003 - 2005
Table 11 – Local Call cost comparison – 2003 - 2005
Table 12 – National Call cost comparison – 2003 - 2005
Table 13 – International call cost comparisons – 2003 - 2005
Table 14 – Fixed-line cost comparison – 2003 - 2005
Table 15 – Major global operators by revenue growth – 2001 - 2004