Paul Budde outlines the challenges faced by Australia’s primary communications carrier, Telstra, as it develops IPTV. The company’s complex media holdings have caused competition concerns As telcos around the world have launched IPTV services - or are in the process of doing so - service providers in Australia are trying to determine where the new business opportunities are. The thinking here is that if companies can establish themselves as portals, gateways and distribution outlets, there are opportunities for both advertising concepts and subscription-based services.

Higher speeds

We have been predicting that as soon as the first 10-15 per cent of the population was on high-speed broadband there would automatically be a need for content. This often starts with family pictures, video clips and downloads of music and entertainment services. Yet, the services available in Australia and New Zealand to date have been way below these requirements. By early 2006, we had estimated a pent-up demand in Australia of about 500,000 customers for higher speed broadband services, increasing to 750,000 by year-end. To satisfy this demand, service providers will have to offer triple-play packages at between AU$30 and AU$60 a month. The top packages will include ‘all-you-can-eat’ voice, which will be delivered as VoIP. Lower-end packages will see charges for all-you-can-eat VoIP between $10 and $15 per month. These packages will also include anywhere between 20 and 100 TV channels. Depending on the package, a certain broadband quality/speed choice will be offered, e.g. 2Mbps or 4Mbps services and, from there on, 6Mbps and 10Mbps towards 2010.

Telstra questions

The service providers in the process of offering IPTV in Australia include communications giant Telstra as well as Foxtel, TransACT and several others. This article focuses on Telstra and its relationships with content providers, while the second and concluding part of this report, looking at other Australian providers, will run in the July issue of IPTV News Analyst.

Telstra, the largest telephone carrier in Australia, raised questions when it announced in late 2005 that it intends to streamline its operations. One related to its infrastructure, which will improve as it implements ADSL2+ and optical fibre in its network, making IPTV and other media content services more viable. However, the upgrade must be rationalised by consumer acceptance of these content-based services. Other questions arise from mixed signals relating to Telstra’s offering of video services from among its complex media holdings, including whether or not Telstra would offer content from its own media holdings in competition with its content partners.

Telstra has a relationship with Foxtel, which is a joint venture with ownership consisting of 50 per cent from Telstra, and 50 per cent from a 50-50 partnership between News Corporation and Sydney-based Publishing and Broadcasting Ltd (PBL). At the same time, Telstra has its own media organisation called Telstra BigPond Media which came into being in May 2004 when it merged its main media groups, BigPond Internet and Telstra Media. This entity holds broadband streaming content services, its online music and its DVD rentals businesses - the latter of which is in partnership with NetFlix and could eventually be made available over the company’s broadband network. BigPond Media also holds Telstra’s investment in Foxtel. In November 2005, BigPond signed a deal with Sony Pictures Entertainment that would give BigPond Movies customers access to more than 7,000 titles from Columbia, TriStar, Screen Gems, Sony Classics, MGM and UA films - all distributed in Australia by Sony Pictures Entertainment in the pay-per-view window after local video release. However, the rights only allow them to deliver this service to PCs. The service was in launch mode during the first half of 2006.

Broadcast competition

Telstra’s TV Plus service was set up in 2004 as a major expansion of its BigPond content offer, with the plan to offer 1,000 TV shows, movies and sports programmes by 2005. The aim was to attract new broadband customers and lock-in existing subscribers. However, this move created the appearance that Telstra was moving closer to a competitive collision with the broadcasters, and with IPTV it would also hamper Foxtel from becoming a viable player in its own right.

When Foxtel launched its digital Pay TV service, its interactive services looked impressive but we quickly saw that the service and its associated technologies could pit it directly against Telstra BigPond Media. When the Foxtel venture was launched, we believed that Telstra’s BigPond venture would eventually come to an end, as it was seen as anti-competitive. However, it seems to have had the effect, intended or not, of keeping News Ltd and PBL out of the telecoms market.

Content retreat?

If Telstra’s late 2005 announcements did indeed signal Telstra’s retreat from the IPTV wholesale content market, in favour of promoting competition, so much the better. Niche market players would have a much better opportunity to include proper triple-play services (as distinct from plain access), including local and regional video services (local museums, events, local government, etc). Market-based ISPs could also offer triple-play models based on their customers’ profiles. Telstra likely has little interest in assisting its wholesale broadband customers to move deeper into this market. Opening up its lines to ADSL2+ and offering 4, 6 and maybe 12Mbps bandwidth would mean it would have to offer this service to all, and potentially spend money on infrastructure only to lose customers to the competition. In fact, a group of service providers including Optus, Macquarie Telecom, PowerTel, Primus, Soul and TransACT offered to help fund a Telstra network upgrade and were rebuffed.

The outcome remains uncertain. Telstra’s content moves may be an indication of what its competitors can expect. Australian regulatory entities have the power to stop Telstra from impeding progress here and many cases may end up in Australia’s High Court, which, in my opinion, could cause delays of five years or more. Paul Budde concludes his Australia review in July.