Australia | Aug 09 2006
If you believed what the TV and press are telling us then you could be forgiven for thinking that in a few years time the TV guide and the video shop would both be spoken about in the same breath as hand written letters and actually going to the bank in person, things long largely replaced by the wonder that is the internet.
But if sending an email or paying your gas bill took three or four hours how many of us would still perform these tasks electronically? This is the question analysts at Citigroup have been asking themselves following Telstra’s (TLS) decision to pull out of Fibre to the Node (FTTN) discussions with the ACCC.
The much heralded introduction of broadband TV and movies was supposed to revolutionise our TV viewing, but at current internet speeds it seems only a lucky few will be able to benefit from the offerings now available from Telstra’s bigpond.com and the newly launched Reeltime.tv (RMA).
These services, amongst others, offer customers the opportunity to download new release films for around $6 each, and increased offerings from different Internet Service Providers (ISP) were expected to mitigate churn. However, Telstra’s apparent decision to pull the plug on FTTN could well have a serious impact on these types of services as well as the business uses associated with the technology, such as much quicker networking of a company’s various offices.
Some commentators are arguing that the higher speeds offered by FTTN are not really necessary as ADSL2+ is still in the process of being rolled-out, and while FTTN offers speeds in excess of 50Mb/s, ADSL2+’s 24Mb/s is more than sufficient for these new technologies.
Wrong, says Citigroup, arguing that reliance on ADSL2+ as a technology substitute is "misguided." While it offers a theoretical maximum of 24Mb/s, which basically means you can download 3MB in around one second, "it is physically impossible for ADSL2+ to deliver 24Mb/s," due to constraints such as distance from the telephone exchange, home setups and cross talk".
On the broker’s calculations a more realistic average speed is likely to be around 3Mb/s, meaning download speeds of about 375KB/s. These numbers may mean very little to some, but when you think that an average film is around 1,200MB, at the theoretical speed this would take just six minutes to download, but at the more realistic number it would take 48 minutes, while at current ADSL top speeds of 1.5Mb/s it would take nearly three hours. Blockbuster and Videoezy owners must be sighing with relief.
So without FTTN, Citigroup expects price to become the key differentiator, expecting "severe" price and margin pressures to come. The early signs of this are already emerging, with several companies now rolling out ADSL2+ services, including Optus (SGT), internode and TPG, in addition to the already present offering from iiNet (IIN), and prices are already significantly lower than they were several months ago.
In light of the recent FTTN decision, Macquarie expects Telstra to launch its own ADSL2+ service, but like Citigroup feels the company may have to reconsider its FTTN decision, which is why the broker has left the capital expenditure associated with FTTN in its forecasts from 2008.
In the mean time Citigroup expects to see increased broadband take up and lower prices, which will result in smaller players being squeezed out of the longer term, leaving "an end game dominated by Telstra and 2-3 medium-sized competitors."
By Terry Hughes