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CHIRGWIN COMMENT The rise and rise of Skype highlights issues of what voice traffic is these days
FRIDAY 27 MARCH 2009 Australasia’s telecommunications daily, founded 1994 ISSUE 3477
Telstra Wholesale customers hail Caesar with caution
The appointment of new Telstra Wholesale GMD Nerida Caesar has been met with a cautious response from major customers of the unit. Telstra CEO Sol Trujillo announced the promotion of Caesar to the role from her previous position as executive director of national sales at Telstra’s enterprise and government division, effective March 30. Outgoing head Kate McKenzie is moving to the strategic marketing director role. “Telstra Wholesale is one of the most exciting and issues-rich parts of the company, and I am very excited to have the opportunity to lead the division at an important time in its history,” said Caesar (right). “Telstra values its wholesale customers and I hope to build on the strong relationships that Kate McKenzie forged during her time in the role.” Ceasar assumes the top job at the $2.5b business unit after joining Telstra in 2006. Prior to that she worked for 20 years at IBM. Reacting to news of the announcement, some of Telstra Wholesale’s highestprofile customers were less sanguine regarding the division’s attitude to date and hoped that Caesar’s ascension might herald a new tack. “It’s great to see that Telstra has appointed somebody with a sales background to run wholesale, rather than a lawyer,” Internode’s carrier relations manager John Lindsay told CommsDay. “I hope that’s a sign that Telstra would once again like to find ways to sell things to their wholesale customers, rather than prevent them buying things that they need.” “I would like to see Telstra Wholesale look on its wholesale customers as a legitimate source of business, rather than as competitors,” agreed iiNet’s regulatory and corporate affairs GM Stephen Dalby. “There are opportunities for Telstra Wholesale to grow its business on the success of its customers, and I don’t think they see it that way.... [Caesar] seems to have come from a retail background, rather than a regulatory or legal background. If she has a mindset of caring about developing customers’ business, then that could be a good sign. But I’m sure that the attitude that Telstra Wholesale has today comes from the top, it doesn’t necessarily come from within the wholesale business.” “In my own dealings with the Telstra Wholesale team, right from Kate to Glenn Osborne, it’s been excellent dealing with them – but they’ve had brakes on, everyone knows that. Hopefully this signifies that the brakes will be now lifted,” added Primus CEO Ravi Bhatia. “Basically, they don’t have the entire range of Telstra product available to them in wholesale and as a result they’re not competitive in the market anymore.... under Sol’s leadership, they’ve been kind of ambivalent about the whole thing, and I’m putting it mildly. The company has an opportunity now, and whether they avail [themselves] of it, time will tell.”
Telstra CFO moves to reassure investors
Telstra CFO John Stanhope has moved to reassure investors of the company’s strengths after a disastrous week for Telstra’s share price. Addressing the Credit Suisse Asian Investment Conference in Hong Kong, Stanhope said that while speculation and “scaremongering” on potential National Broadband Network outcomes had impacted the company, Telstra’s business remained sound. Despite Telstra shares trading below the $3 mark last week, Stanhope said Telstra was funda-
mentally in good shape. “But fundamentals seem to matter little at present. Added to that, disclosure obligations in Australia seem a little lopsided at the moment, so we are constantly trying to determine what is genuinely leaked Government information, and what is just analyst and media scaremongering,” he said. The CFO said that at the $3 mark, Telstra shares were at a “33% discount to the consensus stand-alone valuation, which is about $4.50 per share.” He said that analysts were likely to claim Telstra was underestimating risks from potential regulatory outcomes of the NBN, but added Telstra knew its own business better than any external parties. Analysts have written of “regulatory armageddon” emanating from the NBN, with a potential $1.75 per share price hit the result. But Stanhope told investors to ask what problem the NBN seeks to solve in Australia – “If it is competition, let me remind you that Australia has among the most ISPs per head of any OECD country, around 170 licensed carriers and some of the lowest wholesale prices anywhere. If it is underinvestment, you need look no further than the UK to see the disconnect between overbearing regulatory remedies and reduced capital investment.” Stanhope even took a view on separation, saying that analysts were so divided on its potential impact, estimates ranged from a 4c slug to Telstra’s share price to a 93c drop – “a $10 billion valuation difference!,” he said. “With all the complexity and scenarios people are jumping at shadows trying to value the impact on Telstra of a 3rd party NBN build, so investor concern is understandable,” Stanhope said. But while doomsday predictions for Telstra’s share price continue, he said the company is more than confident in its own ability to compete – regardless of the NBN outcome. “In every case our worst case scenarios do not get close to the downside claimed by some and probably the most important reason is that we can and will continue to compete hard in the retail market.”
Telstra: 200Mbps HFC on upgrade path
Telstra has said it is already investigating pushing its HFC network to hit speeds of 200Mbps in the next two years. Continuing its attempts to paint the putative National Broadband Network as a likely inferior platform, Telstra has claimed its ramped-up HFC network is actually more efficient and environmentally friendly than a FTTN rollout – despite having a much more limited reach. Telstra network and technology executive director Michael Lawrey said the HFC network will be able to run 200Mbps as soon as home equipment is ready. “DOCSIS 3 right now allows you to do four and eight channel bonding. The CPE [customer premise equipment] available right now is basically that, bonding four channels together so you get 4 times 35 megabits – which theoretically gives you 140Mbps. You get a little bit of loss in overheads so we’ve quoted 100Mbps,” he said. “As you go forward with eight bonded channels on the downstream side... you can do the maths there. Now that CPE is not currently available in commercial quantities, but we think that will be 2010 sometime.” Telstra CTO Hugh Bradlow said the company is already looking at services which will utilise the high-speed HFC network, taking aim at the planned NBN for falling short of end-user needs. “People who say that 12Mbps is going to be fine for the foreseeable future are really somewhat equivalent to Microsoft in the 80s saying that PCs will never need more than 640kb [of] memory,” he said. “There are a whole lot of additional services that we can already see moving forward. Who would have thought 5 years ago that a high-definition video camera would have been a consumer item? YouTube at 320x240 is a complete anachronism when consumers are actually producing video at 1080i,” said Bradlow. “You may recall what it was like going from dial-up to broadband... that was ten to fifteen years ago when that transition occurred... the people who say you don’t need speed are actually luddites.” But competitors have questioned whether HFC can truly compete with a rival NBN. While HFC speeds would likely exceed NBN speeds many times over, the network only reaches some 2.5 million homes – a far cry from the 98% of the population anticipated by a nationwide fibre rollout.
COMMUNICATIONS DAY 27 March 2009 Page 2
Filter vendors aiming for school PCs
The Federal Government’s laptops-for-students plan could create a plethora of security risks and rampant pornography access without proper security measures, vendors have warned. Security firm Blue Coat is already lobbying state and federal governments to have its free security and content filtering software installed on student laptops, warning of dire consequences if the policy is handled poorly. Blue Coat ANZ sales manager Wayne Neich told CommsDay that if students are given laptops without proper security precautions, school networks could be clogged with malware and illicit material, slowing down networks. “What they’re worried about is the Kevin ’07 initiative with laptops could become the biggest pornography initiative that this country’s ever undertaken and sanctioned as a Government,” Neich said. “What they’re all looking for is a solution [because] when that laptop leaves the school boundaries, it’s going to be our minister that’s going to have to explain what that kid was looking at, at home.” Neich said BlueCoat is already in talks with PC makers to have software pre-installed on netbooks. “If our client’s on that laptop... when it shuts down from being on the school network, it then locks itself into the exact policy that it had when it was on the school network – and that policy means that no matter where they go, they can’t go to porn, they can’t go to gambling, they can’t go to all those other places.” The software also includes reporting capabilities and acceleration techniques. The catch? While the software is completely free, it must be backed up by Blue Coat’s hardware in school networks. “Education has become a major market for Blue Coat, particularly in Australia,” Neich said. The system is already widely deployed across enterprises, with Neich saying a mix of network visibility, security and filtering, and acceleration software allows the Blue Coat system to speed up networks by blocking out unwanted content.
Conroy keeps an eye on piracy battles
Communications minister Stephen Conroy is keeping a close eye on court battles being forged over peer-to-peer file sharing and how they may affect the larger digital economy. In the same week as iiNet faced up to Hollywood studios in the Federal Court, Conroy told the Communications and Media Law Association the outcome of the case will likely influence the online rules of the future. “Content companies are increasingly experimenting with new online distribution and commercialisation models,” Conroy said. “But the digital confidence of the content industry is undermined by reports that indicate that a large amount of internet traffic is peer-to-peer file sharing. They have a concern that a large proportion of that activity may be infringing content ownership rights. This level of infringement would be difficult to replicate in the offline world and, if it did occur, would
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likely be dealt with by laws and norms.” “But in the online space, the activity persists in ways that potentially undermine the commercial sustainability of the entertainment industry and promote an uncivil disregard for law. The question becomes – how do we establish the norms to quell infringing activity online?” he asked. iiNet is up against film content owners under the auspices of the Australian Federation against Copyright Theft. The two parties faced off in court this week, with AFACT alleging that iiNet knowingly allowed pirated films to be distributed across its network. While the minister did not yet offer any solutions to the problem, he said the iiNet case may act as an agenda-setter for future cases. “This legal battle and the broader debate it forms part of, looms large in the digital economy. It symbolises the important challenge we face today. It embodies the challenge of how to lay down the rules for tomorrow. The Government is obviously watching developments with interest.”
Dig deeper for search metrics, urges Datalicious
Online search remains the prime channel for drawing traffic to websites but companies must get smarter in evaluating the success of their search management efforts, argues Datalicious MD Christian Bartens. The firm, which aims to improve search campaign management and optimisation through via its Omniture platform, has already scored a high-profile win in the Australian telco space via a contract with Vodafone. “Everybody starts their session online with search. That’s the most important channel, whether it be paid search or organic search, to get traffic; and there are so many things that companies can still optimise and do better,” Bartens told CommsDay. “[There are] common mistakes companies make; one of those is having your web analytics package, where you have all the insight on what is working and converting for you, separated from your search management platform, the one that decides how much to spend on each keyword. Because you have these silos, this separation, you lose a lot of insight and you waste a lot of money.” Bartens highlighted several advantages arising from integrating the two systems, including the ability to build custom metrics for all parts of the online conversion process rather than just the final stage, and the opportunity to differentiate between results from paid and organic search. “If I’m looking at a platform that only helps me report and optimise the paid results, I’m missing out on what’s happening in the organic area, which is where a great majority of search responses originate from,” he said. Other benefits, suggested Bartens, included the capacity to concatenate campaign responses and examine cross-channel behaviour rather than just attributing success to the first or last touch point, and to eliminate the duplication of conversion results that could arise through the use of multiple discrete reporting tools. “If you keep these campaign platforms separated, you will never be able to get true de-duplication; you will never be able to find out what channels need to work together to achieve the final result; and you will never have this rich set of metrics to determine whether your campaign result was a success or not,” he concluded. Bartens will be speaking at the SMX Sydney conference next week.
Carr flags business opportunities in satellite project
Innovation, Industry, Science and Research minister Kim Carr is encouraging industry to get behind the $110 million Australian Square Kilometre Array Pathfinder project, promising wideranging economic benefits for participating businesses. Carr addressed Western Australian firms in Perth on the opportunities presented both by the project and the Australian bid to host the international Square Kilometre Array – the international bid to link an array of thousands of radio telescopes into a telescope of unprecedented size and power, for which ASKAP serves as a precursor. In addition to significant employment opportunities, Carr positioned involvement in the ASKAP project as an asset to firms competing for supply opportunities in the SKA itself. Australia is one of two countries remaining in the shortlist to host the SKA, along with South Africa. “Businesses that are involved in the ASKAP will be in an ideal position to develop the products, COMMUNICATIONS DAY 27 March 2009 Page 4
services and expertise that will assist them to compete for supply opportunities for the much larger SKA project,” noted a release on the Minister’s website. “The infrastructure, materials and technology required to support the SKA project currently represent a $2.9 billion investment. As one of two places being considered to host the core SKA site, the potential benefits for Western Australia are enormous, scientifically and economically.” “Businesses can get involved now by applying for contracts to commence construction of ASKAP. Employment opportunities arising from the ASKAP will be significant and range from providing infrastructure and construction to electronics and high-performance computing.” The Commonwealth Scientific and Industrial Research Organisation has set up an online ASKAP Opportunities Register to enable interested businesses to identify areas for contribution within the ASKAP project.
ispOne buys services from Optus Wholesale
ispOne has locked in a deal with Optus to bring wholesale mobile and broadband services to new and existing customers using Optus high speed 3G dual band network. ispOne director Zac Swindells said the agreement is an opportunity for new and existing customers to enjoy a variety of internet and mobile products, as well as avail the benefits of mobile broadband. “Innovation and development of information communication technology (ICT) means that mobile broadband is rapidly becoming a cost-effective and user-friendly alternative to fixed line broadband. It has been acknowledged that mobile broadband sales will surge in 2009 and will surpass that of fixed line broadband in the next three to four years,” Swindells added. ispOne believes that the partnership with Optus Wholesale will enable them to meet the demands for a stronger product suite of customers in the regional and rural Australia. Optus Wholesale managing director Vicki Brady said the agreement with ispOne will help them realise their goal of continuously supporting ISPs to service regional and rural Australia.
Optus solicits help from mobile giants
Optus is seeking to capitalise on its freshly-expanded 3G network, holding a pow-wow for mobile giants in Sydney. In the recently held Device Summit, Optus has invited representatives from Google, HTC, Huawei, LG, Motorola, Netgear, Nokia, Qualcomm, Samsung, Sony Ericsson and other related organisations in the device ecosystem. The event was spearheaded by Optus CEO Paul O’ Sullivan and Optus products and delivery managing director Andrew Buay (pictured here with Netgear’s Patrick Lo). The event revolved around the company’s mobile strategy and its plans for the coming year. Buay said working with Optus’ mobile partners enables it to bring more handsets to the market with features that will make the most of their capabilities. “By sharing our strategy with our device partners, we aim to provide Optus customers with an even greater range of devices and offers, ensuring their needs are front and centre in the minds of device manufacturers as they develop and execute on their product roadmaps.” Buay added that the previous year has moved the company to open many opportunities for wireless broadband in Australia, such as the extension of 3G/HSPA network to 96% of the Australian population.
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Comment by Richard Chirgwin
Skype, international calls and user behaviour
What’s interesting about Telegeography’s report that Skype is the biggest international minutes carrier is not the methodological question, but how it fits into the market as a whole. Mind you, there are things in the methodology that are worth looking at. Should Skype’s on-network minutes be counted as part of the overall market for international telephony? Regardless of whether the answer is yes or no, further questions follow. If the answer is “yes”, then the supplementary question is whether other on-network VoIP minutes are included in the whole market. Skype may be the largest, but not the only provider of cross-border Internet-based voice calls, and the only way to get an accurate picture is to include all VoIP conversations in the calculation. A “no” leads to a more philosophical discussion: what is international telephony? A distinction between VoIP and circuit-switched telephony may already be obsolete; if it's not, then it soon will be. We don’t know what underlying network protocol is used for every cross-border minute, but it's reasonable to assume that IP is at the bottom of a reasonable number of international circuits. So I’m happy to accept that Skype should be counted, and therefore to ask what other kinds of voice traffic exist that aren’t counted by Telegeography. Instant messenger chats are an obvious starting point, but what about the online gaming wildcard? If people are spending hours talking to other people while playing cross-border games of Counter-Strike, they’re sending voice over an IP connection. It’s an emerging problem in definition that should – if we’re paying attention – confound analysts for some time to come: any distinction between different types of voice traffic is bound to become increasingly arbitrary and inaccurate. If our purpose is to measure the performance of particular companies or business models, that arbitrary distinction is justifiable to a degree; but it blinds us to the wider world. CHANGE & OPPORTUNITY: In particular – and here, belatedly, I move towards looking at the market as a whole – we can easily miss the behavioural changes that represent new opportunities. Skype’s big impact has been in changing both user behaviour and user expectation. It hasn’t grabbed a huge slice of a limited market, because both Skype and carrier international voice minutes have grown. In other words, you could hypothesise that the huge growth of VoIP has changed user behaviour in a way that benefits the telco market. More users have become more habituated to making international calls because Skype let them do so cheaply; but having formed the habit, people also make more traditional international calls, because not everybody in the world is a Skype user. That’s just a hypothesis, of course, and it would need a lot of good research to demonstrate one way or the other. But it’s also a handy illustration of what I have in mind when I argue against taking markets in isolation. For all that the media affects a world-weary disdain for apparently trivial developments like Facebook and Twitter (particularly the latter), they represent a behavioural change in the users – even when there’s not great leap of technology (and not much of a leap in the application). It's the behaviour that's the story. The problem is that history is a poor predictor of behavioural changes. I could point you to the Skype example, of international minutes growing in spite of (or because of) a new competitor, but that doesn't teach us what opportunities other applications might create. Behavioural change is in the nature of a singularity – the point at which old rules cease to apply and new rules take their place. To be the beneficiary of behavioural change demands imagination and risk – all of which are out there somewhere.
COMMUNICATIONS DAY 27 March 2009 Page 6
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