Telecom New Zealand (TCNZ) and Australia's Telstra are spending billions of dollars constructing next generation networks (NGNs) to beat off growing competition in their home markets. This symmetry has more than one layer. To date the biggest threat to TCNZ's New Zealand market dominance comes from Telstra-owned TelstraClear. To date the second biggest threat to Telstra's Australia's market dominance comes from TCNZ-owned AAPT.

TCNZ's NGN plans
At the end of last week TCNZ outlined the next phase of its NZ$1bn investment in the NGN and the new services it was planning for business and residential customers. "We’re well advanced with the work we’re doing with Alcatel to roll out a totally new network infrastructure across New Zealand", TCNZ chief operating officer Simon Moutter said. "Over the next few years we will deliver a host of new services for customers. We’ve recently made some key decisions about the next steps in this 10-year investment programme. They include not just the background infrastructure, which in time will deliver exponentially increasing bandwidth to customers, but also the timeframes for the pilots and commercial roll-outs of new services".

Among the initiatives unveiled by Moutter were:

• an additional NZ$120mn in spending on fibre to the curb (FTTC) over the next five years;
• a new NZ$10mn fibre to the premises (FTTP) pilot for residential and business customers; the pilot will test the technologies to deliver services over a fibre infrastructure and TCNZ will use the pilot to make decisions about the possible future extension of FTTC to customer premises;
• the earmarking of an additional NZ$110mn to enhance data services over the copper cable network over the next three years;
• and the investment of some NZ$25mn a year over five years to increase the capacity of the core fibre network.

Moutter also revealed that detailed planning was underway to replace 600 exchanges and remote line concentrators with new IP technology over the next eight years.

Telstra spending down but still strong
Across the Tasman Sea, although down on its average annual A$4bn CAPEX for the previous five years, Telstra is anticipating the investment of A$2.9bn in fiscal 2003/2004. Again, although wary of definitive medium term investment predictions given the volatility of markets and technologies, in July group managing director for Telstra Technology, Innovation and Product (TTIP) Ted Pretty said that Telstra would maintain a domestic CAPEX spend in the 2005 financial year of about A$3bn, excluding any possible accelerated commitment to 3G investment. Among the short term Telstra goals are:

• making ADSL available to around 90% of premises within two years (up from 81% in mid-2004);
• further enhancements to the Telstra broadband DSL network to support speeds of up to 1.5Mbits/s plus for services up to 4 km from an exchange;
• an additional A$34mn investment in a FTTP pilot (including all-digital multi-channel video);
• an A$320mn plan to reduce fault levels in the customer access network (CAN);
• the launch in the December quarter of 2004 of new GSM-based 2.5G mobile data services using the i-Mode content delivery platform;
• the addition of new voice-activated products such as Telstra Personal Assistant that will enable customers to leverage a network-based personal address book;
• a commitment to launch 3G WCDMA consumer services during 2005, either through a paced rollout or an infrastructure sharing arrangement;
• an accelerated migration to packet switched networking, including the rollout of an IP MPLS core network as a central platform to carry voice and data traffic and support high performance business services;
• an A$50mn rollout of 3G EVDO on Telstra's CDMA network which, when launched later in 2004, will provide customers in major cities and selected regional centres with broadband connectivity at between 300kbits/s and 500kbits/s;
• the completion of the rollout of 1xRTT to 1,400 CDMA base stations;
• a trial of Flarion services as a wireless broadband access product for fixed PCs;
• and a 12-month program to extend the coverage of existing GSM and CDMA networks by adding 500 base stations to the more than 7,000 base stations already in operation.

Pretty also disclosed that Telstra was well advanced in its plans for the deployment in early 2005 of soft switch technology to support the provision of VoIP services. "While VoIP has been described as a competitive threat for Telstra, the company will respond in a measured way", he said. "We believe the maximum net revenue effect on Telstra over the next 18 to 24 months is unlikely to be material in the context of our traditional voice revenues".

Way to go
While such investments are clearly not unrelated to the growth of, and need to combat, local competition, any pretenders to serious chunks of the TCNZ and Telstra crowns appear to have very steep hills to climb.

It's not that easy to get a precise handle on the size of TCNZ's current market leadership but, as of 30 June, 2004, for example, it was thought to operate over 60% of New Zealand's residential access lines. Reports also suggested TCNZ had 'only' around 46% of mobile subscribers at the beginning of this year (although Vodafone apparently had a larger percentage).

In this general context the recent decision by New Zealand Minister of Communications Paul Swain to accept the national Telecommunications Commissioner's recommendations and move to implement local loop bitstream unbundling by regulation was not found helpful by some. TelstraClear's chief executive Rosemary Howard, for example, characterised it as 'a real slap in the face'. "Our shareholder and each and every one of our 1,200 staff remain committed to providing choice and competition in New Zealand. Without unbundling it will take longer than it should, but we will continue to make a difference", she stated.

Telstra' s position in the Australian market was examined in a recent report on the state of the Australian telecommunications network by the Senate Environment, Communications, Information Technology and the Arts References Committee (click here). This report concluded that Telstra is by far the largest participant in the Australian telecommunications market. "With some 65% overall market share, it continues to dominate the key sectors of the network, including the provision of infrastructure and the public switched telephone network, and is the Universal Service Provider", recorded the report's authors. Telstra was also found to have 45% of the Australian mobile market share.
John Williamson