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Overall telecoms market
The Australian telecoms market currently operates in a two-tiered fashion. By far the greatest attention of politicians and the media is focused on the national broadband market. Despite election promises, progress has been – as predicted by BuddeComm – slow. The specific analyses of the NBN are covered in a separate report.
The real market action in 2014 is again taking place in the mobile broadband market. Telstra has further strengthened its position as the clear leader. However, Optus and Vodafone – whose networks are now also ready for competition – have indicated that they will challenge Telstra and a price war is set to be unleashed in the mobile broadband market, with all three players battling it out over their new 4G LTE infrastructure. Unless the two challengers are successful there is the looming threat of monopolistic tendencies in this market.
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In the meantime, in many sectors the NBN is no longer the story. Instead it has created other new stories in the various sections of our society and our economy, many of which are highlighted in this report.
This report also contains a range of analyses on key developments in the international markets, written by our senior analysts. They have been selected for their relevance to the developments in Australia, or for their impact on the overall international developments in the mobile and fixed broadband, digital economy and telecommunications markets in general.
As overseas examples are often mentioned by Australian politicians it is also important to be aware of what is actually happening in these countries and what is not – and also, importantly, what is selective reporting or outright hype?
Furthermore, the telecoms market is unique in the sense that developments elsewhere have a direct effect on developments in other parts of the world. Also the technology is the same everywhere so innovations and trends in other parts of the globe are transportable to Australia and the other way round.
BuddeComm estimates that the overall telecoms services revenue was about $42.5 billion in 2013, slightly down on revenue in 2012, as a result of poorer results from Vodafone and Optus.
Growth has in fact been subdued since 2011, largely due to competitive pressure on pricing among operators, as well as the continuing economic uncertainty among some sectors of society which has reduced discretionary spend. This is expected to continue throughout 2014 and 2015, with revenue growth limited to about 1%-1.5% annually. Most fixed-line and mobile voice services are now at levels where consumers would not tolerate price increases, so opportunities to drive increases in consumer and business expenditure in the short term are limited to mobile broadband services based on 4G/long-term evolution (LTE) technologies, fibre, and cloud data-housing.
The Broadband Market
The recent NBN review showed that the uptake of high-speed broadband services is greater than expected. This had already become clear over the last few years with the rapid uptake of the interim satellite service. While in this case the coverage area remains around 7% (just under one million premises) the projected uptake of 230,000 premises was grossly underestimated, and obviously this has an effect on the capacity of the satellite and fixed wireless networks that are under construction.
The DSL sector continues to show resilience in the marketplace, bolstered in recent years by operators adopting new technologies which can deliver greater data capacity on legacy copper infrastructure. In conjunction with Telstra’s unbundled local loop service, which provides a platform for competitors to offer broadband services, the slow-down in the rollout of the NBN has also meant that the number of customers expected to migrate from copper to fibre-based services is far lower than initial NBN Co forecasts. Many telcos have installed their own DSLAM infrastructure, enabling them to provide fairly high-speed internet services via ADSL2+.
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In 2014 there are fewer than one million cable broadband subscribers, accounting for less than 8% of the total broadband market in Australia. However, most of these subscribers are high-end users providing relatively high ARPU for the cablecos.
After the September 2013 election in Australia, and with a new government in charge, a number of reviews were announced that will shape the future direction of the NBN. For a start, the Minister asked NBN Co to carry out its own review first, based on the original specifications of the NBN – it being a majority FttP rollout.
There will be some major changes made to the rollout.
Also, because of the overall continuation of the NBN many of the issues discussed previously remain unchanged, and so will require the attention of the government, and/or will need to be taken into account in future policy developments. BuddeComm has indicated support for certain changes to the NBN in relation to greenfield developments and multi-dwelling units (MDUs) and these issues will now receive significantly more attention than they have had in the past. Again, the comments and analyses made on these issues remain relevant under the new government.
The rollout has seen delays, but at this stage there are no indications that this will affect the longer-term outlook for completion of the project. The review will obviously shed more light on this, but so far the issues seem to be more one-off and/or resolvable – for instance, by being more flexible in the use of technology, for example in MDUs.
The Mobile Market
The mobile communications market in Australia has seen considerable activity from mobile network operators in the last year, with the results of that activity still coming to fruition. Yet some of the market-changing forces driving developments in the mobile sector, such as consumer demand, market saturation and the offering of faster-speed technologies in the fixed-broadband market, are also driving down revenue from subscribers.
The mobile handset market continues to be driven by consumer uptake of smartphones. This in turn is leading to greater usage of mobile broadband and mobile data, which has stimulated operators to fast-track their investment in LTE technologies. It is also encouraging the further development of over-the-top (OTT) applications, which are depriving MNOs of their traditional income streams.
Total mobile services revenue is expected to reach about $18.2 billion for 2014. Further growth is anticipated for 2015 but will be moderate given the introduction of lower network termination rates and the falling costs of monthly mobile broadband packages. In addition, the mid-2014 decision by the ACCC to regulate the wholesale SMS market will lead to a reduction in revenue derived from SMS services, to the benefit of consumers. There are considerable growth opportunities from the rapidly developing LTE sector, which has seen a significant number of devices marketed by operators. All three MNOs have extensive LTE networks in play, and with population coverage of above 98% anticipated by the end of 2016 there will soon be many more consumers able to tap into the high-end mobile data market. However, effective competition among MNOs will reduce their ability to charge premium rates for LTE services, and so mobile data revenue will not be proportional to growth in data traffic.
One of the key issues for the industry moving beyond 2015 is the need for more spectrum required to keep up with demand for mobile broadband services and the traffic carried on networks. Some of this will be addressed from early 2015 when Telstra and Optus are able to make use of the 700MHz concessions.
Mobile broadband access using 3G and 4G/LTE networks has expanded steadily as users continue to add tablets, modems and phones as alternative communication methods. Mobile broadband is also a key contributor to the economy, with a recent ACMA report finding that the Australian economy would have been $7.3 billion smaller between 2006 and 2013 without the additional productivity benefits of mobile broadband services.
By the end of 2014 it is anticipated that there will be some 6.6 million mobile broadband subscribers in Australia, and a growing proportion of them will be on the LTE networks of Telstra, Optus and Vodafone. These MNOs have invested in spectrum and network upgrades to bolster network capacity, while the geographic extension of LTE will see wider take-up from consumers in coming years. Although the MNOs will be expecting a greater return on their investments, partly by charging a premium for LTE services, BuddeComm expects that revenue growth will remain at 2%-3% annually, with ARPU continuing to decline in response to price competition.
This report also provides information and analysis on the broadcasting market as it moves towards 2015, as well as an overview of some of the important changes over the last couple of years. These changes include the finalisation of the rollout of digital TV in 2013 and the frequency retuning that is set to be completed by end-2014. The cessation of analogue TV transmission will allow the release of further spectrum that can be auctioned and reused as the ‘digital dividend’.
With subscription TV household penetration still under 30%, we are seeing more content available over-the-top through IPTV services. More content can also be seen on the additional FTA channels using digital TV, through catch-up apps or web-based access. And radio streaming online or on digital radio in the capital cities is attracting additional listeners to the radio market.
The online advertising industry in 2014 is seeing a greater spend in that sector and the ‘Big TV’ companies will now need to move faster if they are to remain viable beyond 2020 when the NBN rollout should see most Australians with fast broadband allowing full-streaming digital access. We preview some of the options that may see the broadcasting sector keep its viewers and revenues.
M2M and the Internet of Things
The internet of things – other names used include: M2M, pervasive internet and industrial internet – is going to be a real game-changer. It will transform every single sector of society and the economy and it will be out of this environment that new businesses – and indeed new industries – will be born. This is one of the reasons so many overseas ICT companies are increasing their presence in Australia. The LTE will take a leadership role in the development of M2M but the NBN is also an ideal test-bed for such developments. A great deal of attention is being paid to cloud computing and the NBN can be viewed as one gigantic cloud.
The number of connected M2M devices will grow to somewhere between 25 million and 50 million by 2020.
The traditional media industry has been under turmoil since the rise of digital media platforms which impacted significantly upon many aspects of the media industry of old. These changes led to much unrest in the media sector. Major competing sectors include TV and radio broadcasting, newspaper publishers, film, music and video industries.
The digital media companies are the clear leaders however, and to a certain extent there will be parallel developments: one driven by digital TV, using the traditional broadcasting networks and one driven by broadband, using new fixed and mobile telco infrastructure. In 2014 the advertising spending being directed towards digital media continues to grow, further escalating the problems for the traditional media.
This report broadly describes and analyses the effect that digital media and convergence is having on the media industry. It uses the long-standing book publishing industry as a case study of one example where digital media is having an enormous impact.
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