It is good fun to stir up the self delusional dreamers sitting in their arm chairs and wheel chairs make believing about the NeverBuiltNetwork.
The writing on the wall is plain for all to see that are capable of seeing the obvious. Telstra (in connivance with the Coalition) is already planning to take over what little there is built by the incompetent bloated bureaucracy of the NeverBuiltNetwork. Here’s the deal for Telstra and NBNJohn McDuling PUBLISHED: 11 Aug 2012 00:01:22 | UPDATED: 11 Aug 2012 07:30:20
It was a catastrophic error in judgment that cost a CEO his job and almost brought down a multibillion-dollar company.
At Christmas 2010, just months after the release of a new model of Apple’s hugely popular iPhone, Vodafone’s strategy to scrimp on its mobile network and compete primarily on price came crashing down to earth. Buckling under the pressure of unprecedented demand for data, its mobile network went into meltdown, leaving its customers unable to call, send texts or access the web at the worst possible time.
But Vodafone’s disaster was Telstra’s opportunity. The incumbent telco was in the early stages of agreeing to surrender its fixed line monopoly to the government’s national broadband network for $11 billion.
It needed to grab market share in mobiles, and as Vodafone drowned, it whipped up the waves by plunging $1 billion into handset subsidies to entice customers onto its superior network.
Two-and-a-half years later, Vodafone has racked up more than $500 million in losses and replaced its CEO, Nigel Dews, with American turnaround specialist Bill Morrow.
Over that period, more than 3 million customers have joined Telstra, which during the week resumed profit growth for the first time since 2009, driven primarily by growth in its mobile business.
One senior regulatory source involved in the fallout from Vodafone’s network issues says: “It was amazing the reputational harm Vodafone did to [itself] over that period. And the reverse side of that is Telstra ate [its] lunch completely.”
From its ruthless routing of Vodafone, Telstra gained valuable insights it will use to transform itself from big, lumbering telco into a genuine information technology services provider.
As demand for information ascends on a sharp upward trajectory, Telstra CEO David Thodey signalled during the week it will ride the data wave on the back of the NBN, revealing Telstra will spend $100 million to speed up the build of a key aspect of the project.
Buried behind the announcement of its cap ex increase was its decision to speed up the integration of key parts of its network that would be leased to NBN Co to move the biggest amounts of data.
Win win and win. Thodey gets his foot on the data future, NBN Co chief executive Mike Quiqley gets wind in his broadband sails and Communications Minister Stephen Conroy reaps the political rewards.
Australians are communicating as never before. According to a study by Cicso released in May, internet traffic in Australia reached 120 petrabytes a month in 2011. Between 2011 and 2016, internet traffic is expected to increase fourfold, at which point data equivalent to the size of every movie ever made will move through mobile and fixed line networks every 11 hours.
Few, if any, companies in Australia have rivalled Telstra in extracting value from the insatiable popular appetite for data and associated growth in connected devices. And it is this very dynamic where the interests of one former government monopoly, and those of its nascent successor – the NBN – coalesce.
NBN Co’s entire business case – an updated version of which Conroy released during the week – depends on this demand for data continuing to increase exponentially.
It will cost $37.4 billion to extend 206,000 kilometres of fibre optic lines across the country over the next decade.
NBN Co must recover those costs, and deliver a 7 per cent annualised return over a 30-year period to stay off the federal budget.
Its ability to do so is hotly contested, but ultimately built on the assumption that new services will emerge requiring the ultra-fast speeds its fibre optic technology can deliver. NBN estimates that by 2040, about 60 per cent of its customers will be on lightning-fast speeds above 100 megabits a second, speeds that are rarely needed today but could be useful in an era of ultra-high definition television.
Telstra has decided to accelerate investment in its network by $500 million over the next two years. Most of the money will be spent on the extension of super-fast 4G services to suburban and regional areas. But about $100 million will be spent on speeding up the construction of fibre links that will form the backbone of the NBN.
The decision could not have come at a better time for NBN Co, which also confirmed an embarrassing $1.5 billion blowout in projected costs over its decade-long construction period. With increased operating expenses, this means taxpayers will have to tip in an extra $2.9 billion in funding to complete the contentious project.
But it is a shrewd move by Telstra. Once the transit network is completed, it will lock NBN Co into a 30-year lease, the estimated value of which to Telstra is $2 billion.
This windfall could in theory be at risk if there were a change in government next year. Although any incoming government would be loath to upset an army of 1.4 million shareholders, in this light, expenditure of $100 million looks eminently sensible.
The politically precarious position the NBN finds itself in was highlighted by the fact it now expects to have just 54,000 customers linked up to fibre in the months leading up to the election – less than 10 per cent of its previous forecast.
A Coaltion victory would still lead to much of the NBN being scaled back dramatically. So, after months of industry scuttlebutt about Telstra dragging its heels over the transition to the NBN, it is now doing everything in its power to see as much of the project completed, and as quickly possible.“We are going to continue to see opportunities to collaborate with NBN Co as they work their roll-out schedule,” Thodey said.
“We think there are some opportunities – which we are going to allude today – to accelerate that transit build because we think that’s important in terms of the overall relationship and structure of the NBN.”
The transit network will be the backbone of the NBN, carrying traffic between the 121 access points around the country at which wholesale customers will link up to the network.It will also most likely be used as “backhaul” for mobile providers. It was a lack of investment in backhaul, which is used to transmit information between mobile towers and base stations, that was ultimately to blame for Vodafone’s network problems (Telstra and Optus link up mobile towers and base stations with fibre, while Vodafone is believed to use less robust radio and microwave signals).
And it is clear that mobility will be a crucial characteristic of the next phase of growth in data consumption. After all, Australia’s insatiable appetite for data, which is broadly in line with international trends, has ultimately been driven by the incredible popularity of “smart” mobile devices. On this front, Australia is a true leader, with the world’s second highest smartphone penetration rate (behind Singapore) and the second highest iPhone adoption rate (behind Switzerland), according to Google.
The next of these blockbuster devices, Apple’s iPhone 5, is expected to be released within months. The new version of the product could be enabled for super fast 4G or “long-term evolution” services, where Telstra is looking at extending its advantage over its rivals.
“4G” or LTE is a technology that offers speeds more than twice as fast as those of its predecessor, 3G, but more efficiently, both in terms of costs and in use of spectrum, the valuable airspace used to transmit wireless signals.
It is likely to enable consumers to view highly bandwidth-intensive video, such as live sport, via cellular towers, at home, or on the bus or train into work.
Thodey has announced that Telstra will expand investment on its network to $1.2 billion next year, upgrading as many as 1500 base stations in suburban and regional areas to the superfast technology. This comes just a week after Optus turned on its 4G offering for business customers in Sydney and Perth.
“We need to maintain that network advantage because we’re seeing such a strong demand for it and, very importantly, the LTE technology carries information at about half the cost of previous technologies,” Thodey said of the investment.
If Telstra is the only carrier with a widespread 4G offering activated at the time of the iPhone 5 launch, its lead in the mobile industry, where it already has about a 44 per cent market share, could prove to be unassailable.
It is Telstra’s investment in its mobile network that has made it one of the few Australian companies to benefit from the rise of a connected society – a shift that caught at least one of its rivals off guard and wreaked havoc on consumer-exposed sections of the economy, including retail and media. Whether that was by luck or design remains an open question but by taking the lead on 4G the telco is looking to extend its dominance.
“Mobile networks were built for voice and SMS services,” Deutsche Bank’s telecoms analyst Vikas Gour says. “It would have been difficult to envisage the sort of data growth that iPhone and other smartphones managed to generate. [But] Telstra did a very good job of future-proofing its network to cope with the data tsunami.”
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