Executive Summary

Stagnation in telecoms market set to continue in 2014

Revenues are stagnating
BuddeComm estimates that the overall telecoms services revenue passed was about $42.5 billion in 2013, slightly
down on 2012 as a result of lower revenue from Vodafone and Optus. Indeed, growth has been subdued since 2011,
largely due to competitive pressure on pricing among operators, as well as continuing economic uncertainty among
some sectors of society which has lessened discretionary spend. This is expected to continue into 2014 and 2015,
with revenue either stagnating all together or only slightly growing 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 data services based on
4G/Long-term Evolution (LTE) technologies, fibre, and cloud-data housing.
At the same time as fixed-line telephony is declining, the mobile broadband market is growing steadily and is set to
become a major income revenue stream for providers. Nevertheless, mobile broadband data revenue growth will be
far short of the growth anticipated from mobile broadband data on networks. While mobile voice remains the
dominant source of revenue for Mobile Network Operators (MNOs), it will soon be overtaken by mobile data revenue.
In time, much of the voice traffic will be data packet via technologies such as Voice over Long-term Evolution
(VoLTE). Data traffic caused network constraints on 3G networks over the last couple of years, since the
infrastructure was not designed for the rapid increase of traffic, and so MNOs have had to invest in network upgrades
to ensure that customers receive a reliable service.
The release of 4G/LTE mobile broadband and increased uptake by consumers and businesses will certai nly ease the
issue in the short term, but as user uptake increases so will the amount of bandwidth consumed. Mobile data usage
increased by nearly 80% year-on-year to mid-2012 with nearly seven terabytes downloaded over the air in a three-
month period.
Telstra continues to dominate the overall Australian telecom market with about 60% market share of overall revenue
in 2013. This market share has been falling steadily since the highs that it held in the early 2000s, of around 80%.
The 2
nd
tier market
Developments in this market have been dominated by industry consolidation, a process that is set to continue over
coming years. Moving towards a structurally separated regulatory environment with a NBN at the horizon, size really
does matter.
The other important development has been Telstras aggressive activities to increase its market share, particularly in
the mobile and broadband sectors. This has been detrimental to a number of 2nd tier players, as has been reflected
in their declining revenue in 2013. Nevertheless, there was an overall recovery in total revenue among these players
in 2013, reflecting the benefits of scale brought about by market consolidation. Overall revenue for these operators, of
about $3.9 billion, still accounts for less than 10% of the total telecoms market in Australia.
This report provides an overview of some of the larger 2nd-tier market players with key revenue figures for the market
with brief financial and operational overview on the companies with analysis and data provided in several formats
including easy-to-read charts and tables.
Broadband
The NBN will become the predominant infrastructure, and as a utilities-based network it will also provide its services
to other sectors, such as healthcare, education and business. With these sectors involved we will see the industry
developing specific new business models around infrastructure, ICT and retail. IPTV and other media and
entertainment applications will also begin to play a more important role. The question remains how successful will
the telcos be in retail space?
With the uncertainty over the NBN a key concern moving forward is how far operators should invest in DSLAM
infrastructure: the National Broadband Network (NBN) structure initially would have rendered DSLAMs obsolete with
Fibre-to-the-Premises (FttP) networks in place. However, with the NBN under a strategic review, and with the
Coalition government determined to promote a Fibre-to-the-Node (FttN) architecture, supplemented by copper-based
VDSL technologies, the transition from DSL to fibre-based infrastructure is likely to be on a far smaller scale.
Business broadband expansion continues with many individual employees now also being connected to mobile
broadband, smartphones and tablets are increasingly becoming a part of the business ICT environment. Wireless
broadband uptake by business has also seen an increase of numbers into 2013, while business with fast fibre
spreads greater than 24Mb/s have seen a huge uptake over the past year.
This report also provides insight into a range of topics covering the usage of internet and broadband services in the
residential sector, including overall statistics of the $19 billion residential telecoms market. It also includes
BuddeComm estimates of the market as well as data from a number of market surveys covering consumer usage
and behavioural patterns, in addition to internet and broadband usage statistics.
Mobile Market
Overall mobile services revenue growth by the MNOs over the last financial year has fallen year-on-year. We should
expect to see slower revenue growth from Telstra and Optus into 2014, with revenue again negative for Vodafone.
While the issues that saw Vodafone revenues slide are unique, the company will continue to be affected by the loss
of subscribers, price competitiveness and the cost of investing in infrastructure as it struggles to compete in the LTE-
arena.
The number of mobile subscribers continues to grow steadily, and by mid-2013 mobile penetration had reached more
than 130% as a significant proportion of subscribers make use of multiple phones or SIM cards. While growth is likely
to continue in the next few years in as subscribers take to smartphones, this will slow in line with higher penetration,
being about 2% into 2014.
Telstra remains the market leader with more than 14 million subscribers, Optus has around 9.5 million subscribers,
and Vodafone has seen subscriber number fall to just over three million.
In 2013 there are more than 5.5 billion mobile broadband subscribers. The release of additional 4G networks and
increases in capital expenditure by the mobile network operators will see increased market penetration of the
availability of these 4G/LTE networks. The MNOs will be expecting a greater return on their investments, but
BuddeComm expects that uptake will slow down to an annual growth rate of around 3% with ARPU continually falling
as market pricing drives uptake.
- See more at: http://www.budde.com.au/Research/Australia-Telecoms-Industry-Statistics-and-
Forecasts.html#sthash.i7PfnQPG.dpuf


Executive Summary
NBN set to survive, Mobile Broadband booms, but Revenues down
Analysis Telecoms Market mid-2013
This report provides expert insights into the Australian telecoms market. It goes beyond the hype and the spin and
analyses all the key developments in this market, highlighting where the opportunities are and where to look out for
the pitfalls.
It is important to be aware that the market currently operates in a two-tiered fashion. First, by far the greatest
attention of politicians and the media is focused on the national broadband market. After five years of political
skirmishing the Coalitions NBN policy is now very close to the policy that supports the network currently being rolled
out. Very large parts of it now have bipartisan support. Few politicians will actually admit this, but the future existence
of the NBN is secure.
However, at another level, the real market action in 2013 is taking place in the mobile broadband market. The
spectrum auctions have seen Telstra as the clear winner and it is set to dominate the 4G LTE market. This will have
serious consequences for the other players in the market, especially Optus, whose future depends on mobile. It wont
be too long before we start seeing monopolistic tendencies in this market.
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.
Because of all of this the telecoms industry is involved in a massive transformation. Since the arrival of the internet,
the focus of the industry has moved from providing defined end-products to becoming a facilitator in the development
of a range of new products, companies, and indeed new industries.
The question is whether they will be able to embrace the developments around the digital economy. Trans-sector
services such as e-health, tele-education, e-government, smart grids and IoT (M2M), all require a utilities-based
wholesale infrastructure that is separated from the retail services that will be carried over them.
Obviously the Australian market and in particular the ICT market does not operate in isolation, so it is important to
look at what impact international developments have on mobile and fixed broadband, the 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.
This report provides a brief global analysis and then moves into the American, European, New Zealand, Asian and
Africa the hottest but perhaps less relevant market to Australia, but nevertheless one which has attracted the
greatest attention from investors around the globe, including some from Australia.
After this we report in detail on the specific Hot Trends in Australia.
The Hot Trends
National Broadband Network
At the start of 2013 NBN Co indicated that the rollout plan was now slightly above target. This bodes well for a rapid
rollout of the network, to reach close to four million connections by 2015. With all the major foundations now in place
it should be reasonably plain sailing from here. As more detailed information becomes available from the Opposition,
while there remain strong areas of disagreement, the reality is that despite the possibility of a change of government
in late 2013 the NBN is here to stay.
Mobile Communications
The mobile market is being driven by smartphone uptake and this is also driving mobile broadband usage and the
increase of over-the-top applications that are now depriving the MNOs of their traditional income streams. The power
in the market has shifted from the operators to the smartphone vendors and app developers.
Total mobile services revenue is expected to grow to nearly $18 billion in 2012, but with the introduction of the lower
network termination rates, decreasing the cost of monthly mobile broadband to consumers, growth may be slowed.
Mobile Broadband
In 2013 there are more than 5.5 billion mobile broadband subscribers. The release of additional 4G networks and
increases in capital expenditure by the mobile network operators will see increased market penetration with the
availability of these 4G/LTE networks.
M2M and the Internet of Things
With the NBN and LTE now well and truly underway it is important to look at what will be the real value of this new
infrastructure. The infrastructure that is now being built offers a range of features such as ubiquitousness,
affordability, low latency, high speed and high capacity. It will link millions of devices, such as sensors, that will
enable us to more efficiently and effectively manage our environment, traffic, infrastructures, and our society as a
whole. This hot trend 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.
Digital TV, Pay TV, IPTV, Smart TV
With subscription TV household penetration under 30%, we are seeing more content available online through IPTV
and we can also view additional FTA channels using digital TV, and listen to radio streaming online or on digital radio
in the capital cities. We are now waiting for the next generation of smart TVs. They will most likely challenge the
current IPTV developments.
- See more at: http://www.budde.com.au/Research/2013-Australia-Telecoms-Market-Analysis-Top-Trends-Moving-
into-2014.html#sthash.p6a8xCAc.dpuf