telecommunicaitons infrastructures in australia 2001

Telecommunication Infrastructures in Australia 2001

A Research Report

prepared for

ACCC

Technology Applications Group BIS Shrapnel Global marketing intelligence and forecasting

© BIS Shrapnel Pty Limited December, 2001

The information contained in this report is the property of BIS Shrapnel Pty Limited and the ACCC.

While every effort has been taken to ensure that the information set out in this publication is accurate, the ACCC and BIS Shrapnel do not accept any responsibility whether in contract, tort, equity or otherwise for any action taken as a result of reading any part, or all, of the information in this publication or for any error in or omission from this publication.

All rights reserved.

Contact persons: Kevin McDonald Director & General Manager Technology Applications Group (TAG) BIS Shrapnel Pty Ltd Level 24, Rialto North Tower 525 Collins Street Melbourne VIC 3000 Australia

Joe Leong Senior Consultant

Tel. (03) 9614 0011 Fax (03) 9614 0033 Email: [email protected]

Job no. TG3794/JL/KMc/sl


© Technology Applications Group, December 2001 iii

CONTENTS

1. Report Highlights ........................................................................................................1

1.1 Telecommunications Market in Australia........................................................................... 1

1.2 Telecommunication Network Operator ............................................................................... 3

1.3 Telecommunication Technology Overview .......................................................................... 6

1.4 Customer Access Technology (Local Loop Network).......................................................... 12

1.5 Backbone Transmission Technology (Trunk Network)...................................................... 23

2. PSTN Copper Network..............................................................................................28

2.1 General Overview ............................................................................................................. 28

2.2 PSTN Network Infrastructure and Coverage.................................................................... 29

2.3 PSTN Copper Network Improvement ............................................................................... 31

3. ISDN Network.............................................................................................................33

3.1 Technology Overview ........................................................................................................ 33

3.2 The Deployment of ISDN in Australia .............................................................................. 35

3.3 ISDN Network Rollout...................................................................................................... 37

3.4 ISDN Service Applications and User ................................................................................ 41

3.5 Market Perspective ........................................................................................................... 45

4. Conditioned PSTN Technology – DSL Network ..................................................49

4.1 DSL Technology Overview ................................................................................................ 49

4.2 The Deployment of DSL in Australia ................................................................................ 53

4.3 DSL Network Rollout........................................................................................................ 56

4.4 XDSL Service and User..................................................................................................... 64

4.5 XDSL Market Perspective in Australia............................................................................. 69

5. Fibre OPTIC Network ...............................................................................................73

5.1 Technology Overview ........................................................................................................ 73

5.2 The Deployment of Optic Fibre in Australia ..................................................................... 79

5.3 Optic Fibre Network Rollout ............................................................................................. 81

5.4 Fibre Network Service and User ....................................................................................... 88

5.5 Fibre Market Perspective in Australia.............................................................................. 92


© Technology Applications Group, December 2001 iv

6. Hybrid Fibre Coax (HFC) Network.........................................................................95

6.1 Hybrid Fibre Coax (HFC) Technology Overview ............................................................... 95

6.2 The Deployment of HFC Network..................................................................................... 97

6.3 HFC Network Deployment................................................................................................ 99

6.4 HFC Market Perspective................................................................................................. 102

7. Cellular Mobile Network ........................................................................................104

7.1 Cellular Technology Overview ........................................................................................ 104

7.2 The Development of Cellular Mobile Network in Australia ............................................ 110

7.3 Cellular Network Rollout................................................................................................ 112

7.4 Cellular Mobile Service and User.................................................................................... 118

7.5 Cellular Market Perspective in Australia ....................................................................... 121

8. Microwave Network ................................................................................................125

8.1 Microwave Technology Overview .................................................................................... 125

8.2 The Deployment of Microwave Network in Australia ..................................................... 127

8.3 Microwave Network Rollout............................................................................................ 129

8.4 Microwave Service and User ........................................................................................... 133

8.5 Microwave Network Market Perspective in Australia .................................................... 135

9. Broadband Wireless Network (LMDS and MMDS) ...........................................138

9.1 Broadband Wireless Technology Overview ..................................................................... 138

9.2 The Deployment of Broadband Wireless LMDS and MMDS in Australia ....................... 140

9.3 LMDS and MMDS Network Rollout................................................................................ 142

9.4 LMDS/MMDS Service and User...................................................................................... 144

9.5 LMDS/MMDS Market Perspective in Australia.............................................................. 145

10. Satellite Network .....................................................................................................151

10.1 Technology Overview ...................................................................................................... 151

10.2 The Deployment of Satellite Technology in Australia ..................................................... 154

10.3 C&W Optus’ Satellite Network ....................................................................................... 156

10.4 Market Perspective ......................................................................................................... 166


© Technology Applications Group, December 2001 v

Bibliography................................................................................................................Biblio-i

Appendix A: Comparative Cost of ISDN Services...................................... Appendix A-i

Appendix B: xDSL Technologies Discussed................................................Appendix B-i

Appendix C: Selected DSL Products and Services ....................................Appendix C-i

Appendix D: Satellite Operators Profile .....................................................Appendix D-i

Appendix E: The Phase Out Analogue Network ........................................ Appendix E-i

Appendix F: Participant List......................................................................... Appendix F-i


© Technology Applications Group, December 2001 vi

LIST OF EXHIBITS

Exhibit 1-1: Key Telecommunication Indicators in Australia (1996-2000) .......................... 2 Exhibit 1-2: Telecommunication Carrier Licensees ............................................................. 3 Exhibit 1-3: Telecommunication Technology Overview ....................................................... 6 Exhibit 1-4: Telecommunication Technology Overview and Comparison ............................ 8 Exhibit 1-5: Local Access Network Operator Overview ..................................................... 13 Exhibit 1-6: Carriers with Networks in Capital City CBDs (inc. planned)........................ 17 Exhibit 1-7: Customer Access Networks in Capital Cities (Metro areas) .......................... 20 Exhibit 1-8: Local Access Network Providers in Regional Australia ................................. 22 Exhibit 1-9: Backbone Transmission Network Operator Overview ................................... 23 Exhibit 1-10: Carriers with Networks between Major Capital Cities .................................. 25 Exhibit 2-1: Telstra’s Services in Operation at 30 June 2000 (millions)............................ 28 Exhibit 2-2: Telstra’s Exchange Sites (by State) ................................................................ 29 Exhibit 2-3: Telstra’s PSTN Network Coverage – National............................................... 30 Exhibit 2-4: Telstra’s PSTN Copper Network .................................................................... 32 Exhibit 3-1: Access Tails Joined to a Service Provider’s Network ..................................... 34 Exhibit 3-2: Telstra’s ISDN Network Overview ................................................................. 35 Exhibit 3-3: Telstra Digital Data Equivalent Lines ........................................................... 36 Exhibit 3-4: Telstra’s ISDN Network Migration from an Overlay Network

to a Composite Network ................................................................................. 38 Exhibit 3-5: ISDN Deployment by Sites and Services at 1997-1999 .................................. 40 Exhibit 3-6: Telstra Basic Rate ISDN Demand Forecast (Microlink and On Ramp) ......... 44 Exhibit 3-7: Maturity Curve for DSL Technologies............................................................ 47 Exhibit 3-8: Telstra’s ISDN User Forecasts ....................................................................... 48 Exhibit 4-1: Copper Access Transmission Technologies (DSL) .......................................... 50 Exhibit 4-2: Maturity Curve for DSL Technologies............................................................ 51 Exhibit 4-3: ADSL Access Network .................................................................................... 52 Exhibit 4-4: XDSL Operator Overview............................................................................... 54 Exhibit 4-5: XDSL Network Overview ............................................................................... 56 Exhibit 4-6: XDSL Network Traffic and Application (2001 to 2003).................................. 66 Exhibit 4-7: XDSL Coverage Focus and Target User ......................................................... 68 Exhibit 4-8: XDSL Forecasts .............................................................................................. 72 Exhibit 5-1: Four Basic Parts of a Optic Fibre System ...................................................... 74 Exhibit 5-2: Optic Fibre Network Operator Overview ....................................................... 80 Exhibit 5-3: Backbone Fibre Optic Network Rollout.......................................................... 82 Exhibit 5-4: Backbone Fibre Optic Network – Incumbent Operators

(Telstra, C&W Optus and PowerTel).............................................................. 83 Exhibit 5-5: Backbone Fibre Optic Network – New Operators

(Amcom, Nextgen, AFN, Reef Network and Nava Network) ......................... 84 Exhibit 5-6: Local Access Fibre Optic Network Rollout ..................................................... 86 Exhibit 5-7: Local Access Fibre Optic Network Coverage .................................................. 87 Exhibit 5-8: Target User and Service by Fibre Backbone Network Operator.................... 89 Exhibit 5-9: Target User and Service by Fibre Local Network Operator........................... 91 Exhibit 6-1: HFC Architecture ........................................................................................... 96 Exhibit 6-2: HFC Network Operator Overview.................................................................. 98 Exhibit 6-3: HFC Network Rollout................................................................................... 100 Exhibit 6-4: Sydney HFC Network................................................................................... 101 Exhibit 6-5: Melbourne HFC Network ............................................................................. 101 Exhibit 6-6: Brisbane HFC Network ................................................................................ 101 Exhibit 6-7: HFC Network User Overview....................................................................... 103 Exhibit 7-1: Cell Coverage in a Cellular Network............................................................ 104 Exhibit 7-2: Cellular Network Operation ......................................................................... 105 Exhibit 7-3: Evolution of Cellular Systems ...................................................................... 106


© Technology Applications Group, December 2001 vii

Exhibit 7-4: Overview on the Cellular Operators in Australia ........................................ 110 Exhibit 7-5: Successful Bidders for the 3G Service Licenses ........................................... 111 Exhibit 7-6: Cellular Network Overview.......................................................................... 113 Exhibit 7-7: Cellular Network Coverage Map – Telstra................................................... 114 Exhibit 7-8: Cellular Network Coverage Map – C&W Optus........................................... 115 Exhibit 7-9: Cellular Network Coverage Map – Vodafone ............................................... 116 Exhibit 7-10: Cellular Market Segmentation (Residential/Small to Medium

Business/Corporate)...................................................................................... 118 Exhibit 7-11: Traffic Volume of Mobile Phone Network..................................................... 120 Exhibit 7-12: Cellular User Base in Australia (1992-2001) ............................................... 121 Exhibit 7-13: Cellular Market Share 2000 ......................................................................... 122 Exhibit 7-14: Cellular Penetration Table (Selected Countries).......................................... 124 Exhibit 8-1: Microwave Network Operator Overview ...................................................... 128 Exhibit 8-2: Microwave Network Overview...................................................................... 129 Exhibit 8-3: Microwave Network Coverage Map – Incumbent Operators

(Telstra, Macrocom and Soul Pattinson) ...................................................... 131 Exhibit 8-4: Microwave Network Coverage Map – New Operators

(ntl, Telecaster and Datafast)....................................................................... 132 Exhibit 8-5: Microwave Backbone Network User............................................................. 133 Exhibit 8-6: Microwave Local Network User.................................................................... 134 Exhibit 9-1: Types of Broadband Wireless System........................................................... 138 Exhibit 9-2: LMDS/MMDS Network ................................................................................ 139 Exhibit 9-3: Broadband Wireless Operator Overview ...................................................... 141 Exhibit 9-4: LMDS and MMDS Network Overview ......................................................... 143 Exhibit 9-5: LMDS and MMDS Coverage Map ................................................................ 143 Exhibit 9-6: Market Development Scenario for Broadband Wireless .............................. 150 Exhibit 10-1: Satellite Operator Overview ......................................................................... 155 Exhibit 10-2: C&W Optus’ Existing Satellite Network ...................................................... 158 Exhibit 10-3: C&W Optus’ Earth Station Access ............................................................... 159 Exhibit 10-4: C&W Optus’ Satellite Network Target User ................................................ 164 Exhibit 10-5: C&W Optus’ Satellite Network Traffic......................................................... 164 Exhibit 10-6: Network Capacity Utilisation....................................................................... 165


© Technology Applications Group, December 2001 1

1. REPORT HIGHLIGHTS

1.1 Telecommunications Market in Australia

The development of telecommunications in Australia has been dominated by the need to provide services to a population congregated in cities separated by long distances, while reaching remote areas with basic services and linking the cities with high capacity trunk services.

Over the last decade, the Australian telecommunications industry has evolved from a single carrier to a dual carrier and finally a multiple carrier and carriage service provider structure. Since deregulation in 1997, the telecommunications market in Australia has experienced a period of rapid growth. The removal of certain carrier and technology restrictions have made way for a more competitive market environment.

The competition has been fuelled by the entry of new players. This includes service providers purchasing infrastructure from carriers and on-selling it to their own customers. The competition, both at carrier and service provider level has provided consumers with more choice and more competitive telecommunication prices.

The telecommunications industry in Australia generated revenues of A$26bn p.a. in 1999. The industry as a whole has been growing at a rate of 15% a year with the market size reaching A$30bn by the year 2000.

The cellular mobile phone market has been growing at an impressive rate of 33% for the past year, with a cellular penetration rate reaching 54% compared to fixed teledensity of 60% in the year 2000.

The data transmission component of the sector is a significant area of growth which is estimated to be growing at almost 30% per annum. An independent report by KPMG Consulting (2000) has estimated that the total accessible Australian market for fibre optic cabling in metropolitan and regional centres will be worth around A$3.8 billion in 2000/2001.

Exhibit 1-1 provides an overview of key telecommunication indicators in terms of market size and user base in Australia.



Exhibit 1-1: Key Telecommunication Indicators in Australia (1996-2000)

1996 1997 1998 1999 2000

TELECOMMUNICATION SERVICE REVENUE

A$18.3bn A$20.0bn A$22.5bn A$26bn A$30bn

Service Revenue (by market)

Local telephone service A$3.3bn A$4.0bn A$4.5bn A$4.7bn A$5bn

Long distance telephone service A$4.3bn A$4.5bn A$4.7bn A$4.9bn A$5.0bn to A$5.5bn

International call service A$1.6bn A$2.0bn A$2.2bn A$2.4bn A$2.5bn

Cellular service A$3.3bn A$4.0bn A$5.4bn A$6.5bn A$7.2bn

Paging service A$0.1bn A$0.1bn A$0.1bn A$0.1bn A$0.1bn

Value Added service A$3.0bn A$3.0bn A$5.1bn A$6.0bn A$7-A$7.5bn

Service Revenue (by service)

Fixed voice A$10.0bn A$10.2bn A$10.8bn A$11.2bn A$12.0bn

Mobile A$3.32bn A$4.0bn A$5.4bn A$6.5bn A$7.2bn

Data A$2.7bn A$3.2bn A$4.2bn A$5.3bn A$7.0bn

TELECOMMUNICATION USER BASE (TELEDENSITY)*

51% 53% 55% 57% 59%

User Base (by service)

Telephone (fixed) 9.3m 9.5m 9.9m 10.4m 10.7m

Cellular mobile phone 4.5m 5.2m 5.9m 7.7m 9.3m

Pager 0.30m 0.27m 0.25m 0.22m 0.20m

Internet Access (household) 0.3m 0.5m 1m 2m 2.7m

Fixed Telephone User Base (by segment)

Residential Metro 4.1m 4.2m 4.4m 4.6m 4.8m

Residential Country 2.4m 2.4m 2.5m 2.6m 2.7m

Business Metro – 1.8m 1.9m 2.0m 2.1m

Business Country – 0.9m 1.0m 1.05m 1.1m

Business SME – 2.4m 2.5m 2.7m 2.8m

Business Corporate – 0.36m 0.37m 0.39m 0.42m

Source: BIS Shrapnel, Productivity Commission, ABS and Paul Budde *Teledensity = fixed telephone penetration per 100 population.



1.2 Telecommunication Network Operator

The telecommunications legislation in force from 1 July 1997 opened up the opportunity for new carriers to build and operate communications infrastructure. The legislation removes the past legislative barriers to market entry, as well as a number of artificial regulatory distinctions, such as between mobile and fixed carrier licences.

A carrier licence authorises the operation of specified facilities (called ‘network units’) to supply telecommunications services to the public. Licence conditions oblige carriers to meet a number of specified requirements including contributing toward the cost of universal service provision, fulfilment of industry development plans and compliance with the telecommunications access regime. However, it is not necessary to have a carrier licence to provide the public with some carriage services (such as phone or Internet access), or content services (such as an electronic newspaper or pay television). Service provider licences with appropriate conditions will cover these activities, and the legislation provides some general rules.†

Since the market deregulation in 1997, the number of license carriers has increased from 14 in 1997 to 70 in year 2000. Exhibit 1-2 profiles the list of carrier licences in Australia.

Exhibit 1-2: Telecommunication Carrier Licensees

No. Carrier Licence Granted To: Licence Granted:

1 AAPT Limited (formerly AAP Telecommunications Pty Ltd) 1 Jul 1997

2 AARNet Pty Ltd 27 Nov 2000

3 ACN 008 889 230 Limited (formerly Neighbourhood Cable Ltd) 17 Dec 1999

4 Agile Pty Ltd 15 May 1998

5 Agility Networks Pty Ltd 21 Nov 2000

6 AirNet Commercial Australia Pty Ltd May 2000

7 Amcom Telecommunications Pty Ltd formerly Amcom Pty Ltd) 28 Jul 1998

8 ARBT Pty Ltd (Heartland Communication) 9 Aug 2000

9 Australia-Japan Cable (Australia) Limited 11 Dec 2000

10 Australian Network Company Pty Ltd 9 Jan 2001

11 Boeing Australia Ltd 27 Nov 2000

12 Broadband Access Pty Ltd 2 May 2000

13 Cable & Telecoms Pty Ltd (formerly Commcord Pty Ld) 29 Jun 1999

† The Guide to Carrier Licence and Nominated Carrier Declaration Issue No. 2, August 1999, under the

Telecommunications Act 1997.




14 Cable and Telephone Limited 11 Sep 2000

15 Central Exchange Limited 1 May 2000

16 Chariot Internet Limited 25 Jan 2001

17 Chime Communications Pty Ltd (formerly iiTel Pty Ltd) 8 Mar 2000

18 Datafast Carrier Services Pty Ltd (formerly Wideband Access Pty Ltd)

6 Jul 1999

19 Davnet Telecommunications Pty Ltd (formerly Davnet Pty Ltd) 1 Sep 1998

20 ECOM Communications Pty Limited 16 Jan 2001

21 Eftel Radio Pty Ltd (trading as Radiowan) 20 Dec 2000

22 ETSA Utilities 13 Nov 2000

23 Global Dial Pty Ltd 17 Feb 2000

24 Horizon Telecommunications Pty Ltd 25 Jul 1997

25 Hutchison Telecommunications (Australia) Ltd 30 Sep 1998

26 Ipera Pty Ltd 3 Apr 2000

27 Iridium South Pacific Ltd (carrier licence surrendered 16 June 2000)

2 Apr 1998

28 Macquarie Corporate Telecommunications Network Carrier Services Pty Ltd

27 Oct 2000

29 Macrocom Pty Ltd 18 Dec 1997

30 MCI WorldCom Australia Pty Limited (formerly WorldCom Australia Pty Ltd)

24 Mar 1998

31 National Power Services 25 Jan 2001

32 Netcare Telecommunications Pty Ltd 9 Aug 2000

33 NetComm Limited 18 Oct 2000

34 NewTel Networks Pty Ltd (formerly Xinhua Telecommunications Pty Ltd)

2 Jun 1998

35 Nextgen Networks Pty Limited 11 Sep 2000

36 Northgate Communications Australia – Ballarat Pty Ltd (carrier licence surrendered 8 March 2000)

3 Dec 1997

37 nti Telecommunications 13 Nov 2000

38 OMNIconnect Pty Ltd 19 Aug 1997

39 One.Tel GSM 1800 Pty Ltd 25 Mar 1999

40 Opentec Pty Limited 1 Jun 2000

41 Optus Mobile Pty Ltd 1 Jul 1997

42 Optus Networks Pty Ltd 1 Jul 1997

43 Optus Vision Pty Ltd 1 Jul 1997

44 Oz Telecom Pty Ltd 2 Mar 1998

45 Ozitel Network Pty Ltd (formerly Communication Site Rentals Pty Ltd)

1 Jul 1999

46 Pacific Telco Australia Ltd 17 Nov 2000

47 Pahth Communications Limited 9 Feb 2001

48 PanAmSat Asia Carrier Services Inc 1 May 1998

49 PowerTel Ltd (formerly Spectrum Network Systems Ltd) 6 May 1998

50 Primus Telecommunications Pty Ltd 1 Jul 1997

51 Pulsat Communications Ltd 7 Jan 2000

52 QALA (Australia) Pty Ltd 21 Dec 2000




53 RequestDSL Ltd 2 May 2000

54 SCCL Australia Ltd 22 Sep 1998

55 Smart Radio Systems Pty Ltd 3 Apr 2000

56 Soul Pattinson Telecommunications Pty Ltd 19 Mar 1999

57 Swiftel Communications Pty Ltd 8 Mar 2000

58 Telecasters Communications Pty Ltd 27 Nov 2000

59 Telstra Corporation Ltd 1 Jul 1997

60 Telstra Multimedia Pty Ltd 1 Jul 1997

61 Third Rail Australia Pty Ltd (formerly AMX Communications Pty Ltd) 11 Sep 2000

62 TransACT Capital Communications Pty Limited 11 Sep 2000

63 TransAct Carrier Pty Ltd 26 Feb 1999

64 UE Comm Pty Ltd (formerly United Energy Telecommunications Pty Ltd)

27 Aug 1997

65 Ue Comm Operations Pty Ltd 11 Oct 2000

66 Victorian Rail Track (trading as VicTrack) 20 Sep 2000

67 Vodafone Pacific Pty Ltd (formerly Vodafone Pty Ltd) 1 Jul 1997

68 West Coast Radio Pty Ltd 22 Dec 1999

69 Windytide Pty Ltd 4 Sep 1997

70 XYZed Pty Ltd 23 Jun 2000

Source: ACA



1.3 Telecommunication Technology Overview

This research report covers a whole range of telecommunication technologies, both wired or wireless in the local access networks and long distance backbone transmission networks in Australia.

Exhibit 1-3: Telecommunication Technology Overview

Technology Network Chapter

PSTN Copper Access and Backbone Chapter 2

ISDN Access Chapter 3

Conditioned PSTN Copper (DSL) Access Chapter 4

Optic Fibre Access and Backbone Chapter 5

Wired

HFC(Hybrid Coaxial Cable) Access Chapter 6

Cellular Mobile Access Chapter 7

Microwave Backbone Chapter 8

Broadband Wireless (LMDS and MMDS)

Access Chapter 9

Wireless

Satellite Access and Backbone Chapter 10

Network infrastructure installed by carriers to provide telecommunications services, can be seen as having two components – backbone carriage networks and access networks. The entire network (backbone and access), available for use by the general public, is called the Public Switched Telephone Network (PSTN).

First, there is the extensive customer access network (CAN), comprising the cables (usually copper wire pairs) that connect customer premises to their local exchange. Some of the network – mainly in parts of rural and remote Australia – uses technologies such as radio or satellite. This network, also known as the ‘local loop’ or ‘the last mile’, is predominantly owned by Telstra with other carriers connecting to it.

Second, there is the backbone, or trunk, network, predominantly composed of optical fibre cables, which connects exchanges within and between cities and states. Backbone carriage networks operate between switching centres (exchanges) operated by the carriers. These may be copper wires, radio links, fibre-optic cables, microwave or satellite links, or a combination of these technologies.



There are also private networks which may also interconnect with the public network.†

With the rapid development of many new network technologies there are opportunities to install new infrastructure that is more cost-effective and better suited to the communications needs of regional, rural and remote communities. Examples of rapidly developing options include satellite technologies, and various kinds of wireless, land-based systems.

Each technology, wired or wireless, has its own set of advantages and disadvantages in the customer access or backbone networks. It is expected that over time, there will be a coexistence of the different technologies, rather than the complete displacement of one by another.

In the fixed telecommunications arena, there are competing wireline technologies for broadband delivery. Fibre to the home might ultimately be the best solution but there are cost and implementation issues.

HFC is well suited to TV and broadcast style applications but more limited in two-way interactivity potential. DSL systems on the other hand are ideal for interactive applications with each user having their own non-shared capacity. However, conventional DSL approaches face problems because of the variation in length and condition of existing copper loops. Most telcos are now experimenting with some variant of ADSL although struggling to offer even 1.5Mbps to their customers at present. In addition, ADSL falls well short of the bandwidth needed to meet even the demand of near-term applications (such as HDTV and medical imaging).

Chapters 2 to 10 provide a detailed discussion of each of the technologies listed in Exhibit 1-3.

Exhibit 1-4 provides a summary of the advantages and disadvantages of each of the technology.

† The private networks which is not part of the PSTN network are not covered in the study. These are usually dedicated (unswitched) connections over private lines used by the corporate and government sectors using technologies (wired and wireless) that allow higher bandwidth than conventional copper wire.



Exhibit 1-4: Telecommunication Technology Overview and Comparison

Technology Advantages Disadvantages

PSTN Copper – wired – 32Kbps bandwidth

• Mature technology.

• Ubiquity – being a mature technology, copper network is well established, covering 99% of the Australian population.

• As the copper network is well established, the cost involved in optimisation and improvement is relatively low.

• Low data speed at 32Kbps.

• Low bandwidth.

• Copper network is used primarily for voice but is not suitable for high-speed data and multimedia applications.

ISDN – wired – 64Kbps bandwidth

• Being a mature technology, it is more widely available. About 96% of Australia population is covered by ISDN.

• A reliable and mature technology which is proven to support a multiple of services. Unlike DSL, it is not a distance sensitive technology.

• Global interoperability.

• Low bandwidth – 64Kbps, which is only twice of that of ordinary dial up.

• High equipment cost with expensive customer premises equipment.

DSL – wired – 1.5Mbps to 8Mbps bandwidth

• High bandwidth – with about 1.5Mbps, it is able to support high-speed Internet and video services.

• DSL require no new wiring as it works on existing copper/fibre lines. Multiplexer and modem are installed at the supplier and user sites.

• Dedicated connection – unlike cable architecture, DSL user has a dedicated copper connection and receives only the information they request.

• Scalability and cost effective – unlike HFC, MMDS, and optic fibre, which must be installed on an area wide basis, DSL installation require a modest investment to equip serving centres with multiplexer. DSL access is scalable and can be deployed one subscriber at a time as demand increases.

• Need to acquire access to the tail ends or exchanges of incumbent operators. This could involve time, interconnection and operational cost.

• Limited range (2km to 5km) and DSL is not available to areas where exchanges are out of range. Only 90% of population in Australia is accessible to DSL.

• The performances of some DSLs (ADSL and VDSL) are distance sensitive. The DSL connection work better when users are closer to exchanges.

• Sharing the copper medium which leads to restrictions in technology and speeds, and issues relating to interference.




Optic Fibre – wired –10Gbps to 100Gbps bandwidth

• Greater bandwidth – 10Gbps which is unmatched by other technology. It is a long-term solution for the future bandwidth hungry information superhighway society.

• Scalability and capacity – with enabling technologies like SDH and DWDM, capacity can be increased (up to 100Gpbs) without having to lay new fibres.

• Unlike wireless technology which is susceptible to weather condition, there is minimal interference in cable technology as it is buried underground.

• High deployment cost – digging trenches and laying cable involve high costs in terms of material and labour.

• Costs of building the network are sunk before any users are connected.

• Slow deployment – applying for access duct, council permit and work involved in laying cable are time consuming. Hence, a slower return in investment.

HFC (Cable Modem) – wired – 768Kbps to 30Mbps bandwidth

• Provide high speed (5MHz to 450MHz) and always on service using cable TV lines.

• Cost effective – a single pipe for the delivery of all services (voice, data and TV video).

• Unlike wireless technology which is susceptible to weather condition, there is minimal interference in cable technology because it is buried underground.

• Able to support network speeds comparable to those of DSL.

• Being a broadcasting technology, the network speed upstream to Internet will be slower than downstream to the home or office.

• Unlike some DSL services, which offer dedicated local bandwidth, cable modem service involves locally share bandwidth. This means the realised performance of a user’s cable will depend on the number of user in a particular local area.

• High deployment cost – digging trenches and laying cable involve high costs in terms of material and labour. Costs of building the network are sunk before any users are connected.

• Slow deployment – applying for access duct, council permit and work involved in laying cable are time consuming. Hence, a slower return on investment.




Cellular – wireless – 9.6Kbps bandwidth

• It provides communications on a mobile basis. Users can take their phones everywhere with them to make or receive calls.

• International roaming – users are able to make/receive calls while overseas.

• Cellular technology can provide a large capacity service in an area (30km2) compared to other wireless technology.

• Low data capability rate (9.6Kbps).

• Cellular is designed mainly for voice with limited capability for high-speed data and video application.

• High deployment cost, as it must be installed on an area wide basis to provide service coverage.

Microwave – wireless – 35Mbps bandwidth

• Mature technology

• Lower cost of deployment than wired technology in terms of materials and labour.

• Speedy deployment – faster network deployment than wired technology without the need to duct tranches and lay cable. Hence, a rapid return on investment.

• Greater scalability – unlike wired technology where capital costs of building the network are sunk before any users are connected, cost only incurred until the user is connected in a wireless network.

• Flexibility – equipment can be redeployed if customers change their services.

• The need of line of sight means coverage is dependent on geography, weather and the density of building. Poor weather condition (rain and snow) could affect performance.

• Performance is distance dependant, to increase network reliability; stronger transmitters need to be located closely.

• Customer misconception that the performance of wireless technology is inferior to fixed technology.

• Compared to Fibre (10Gbps), it has a low bandwidth of about 35Mbps to 155Mbps.

Broadband Wireless (LMDS and MMDS) – wireless – 100Mbps bandwidth

• Lower cost of deployment than wired technology in terms of materials and labour.

• Speedy deployment – faster network deployment than wired technology without the need to dig trenches and lay cable. Hence, a rapid return on investment. A new user site can be connected within 10 days.

• Ease of deployment – unlike wired network, it requires minimal infrastructure consists of an antenna and NIU which are installed on the user’s rooftop. It requires no rewiring and has minimal impact on user sites.

• High bandwidth which is able to provide up to 100Mbps.

• Greater scalability – unlike wired technology where capital costs of building the network are sunk before any users are connected, cost only incurred until the user is connected in a wireless network.

• Flexibility – equipment can be redeployed if customers change their services. For cable network, cost is sunk at the moment of deployment.

• The need of line of sight means coverage is dependent on geography, weather and the density of building. Poor weather condition (rain and snow) could affect performance.

• Limited range (about 5 km) and the distance is dependence on geographical and climatic condition.

• New and unproven technology which lack test bed result, international standard and reliability. This impairs user acceptance.

• Customer misconception that the performance of broadband wireless is naturally inferior to wired technologies.

• Being a new technology, the equipment cost could be high due to the lack of mass production.

• Antennas require professional installation to work effectively, which can increase the cost of services significantly.

• Cost involved in spectrum license acquisition could be high.




Satellites – wireless – 0.6Gbps bandwidth

• Greater coverage with the potential of covering 100% of Australian population.

• Unlike DSL and LMDS, its performance is not distance dependant and its suitable for rural or remote areas.

• Dedicated connection – unlike cable architecture, user has a dedicated connection and speed won’t drop when others use it at the same time.

• Greater scalability – unlike wired technology where capital costs of building the network are sunk before any users are connected, cost only incurred until the user is connected to the satellites network.

• High deployment cost.

• Low bandwidth – 0.6Gbps, compared to fibre (10Gbps).

• As a broadcast technology, which is not designed for 2 ways communications, satellite access generally requires an extra line and modem for outgoing traffic.

• It is suitable to provide access services to users 20km beyond local exchanges. Satellite is more expensive to deploy in metro areas than other technologies.

Section 1-4 and Section 1-5 provide an overview of the various technologies deployed in the customer access and backbone networks.



1.4 Customer Access Technology (Local Loop Network)

1.4.1 The Players

Like many countries in the Asia-Pacific, the major bottleneck in telecommunications continues to be the link between the user and its local telephone exchange – the so-called last mile or local loop. Consisting mostly of twisted copper pairs, these connections have offered relatively limited speeds and data-carrying capacities.

Since the early 1990s, a wide range of new technologies have been used to provide local access to the end-user, including optic fibre, broadband wireless (LMDS and MMDS), DSL and laser.

Market opportunity in the local access market in Australia is sizeable ($6bn), representing about 60% of the total fixed telephone revenue. Being an incumbent, Telstra has 90% of the access market, followed by C & W Optus with 6%.

The declaration of the unconditioned local loop (ULL) access by the ACCC, the spectrum auction for MMDS, LMDS and WLL, and the increasing maturity of satellite technology, have opened up options for new telecommunications carriers and service providers to gain access to the customer local loop market.

Exhibit 1-5 provides an overview on the local access technologies deployed by telecom operators in Australia.



Exhibit 1-5: Local Access Network Operator Overview

Technology Operator Launch Coverage

PSTN Copper Telstra Since 1900 Nationwide (99.5% of population covered)

PSTN Copper TransACT 1999 A local network in Canberra

DSL AAPT 2001 CBDs in Sydney, Melbourne, Brisbane(c), Adelaide(c), Perth(c) and Hobart(c) 60 Metro cities (2002/3)

DSL Agile 2001 CBD areas in Adelaide

DSL C&W Optus (XYZed)

2000 6 CBDs (Sydney, Melbourne, Brisbane, Canberra, Adelaide and Perth)

DSL Davnet Late 2000 CBDs in Melbourne and Sydney

DSL ecom 2001 CBD and metro areas in Sydney, Melbourne and Brisbane (constructing)

DSL Flowcom 2001/02 Metro areas in Melbourne, Sydney, Brisbane and Perth (planning)

DSL iiNet Reseller iiNet is currently reselling Telstra’s ADSL service

DSL Macquarie 2001 CBD areas in Melbourne and Sydney

DSL Netcomm 2002 Metro areas in Melbourne and Sydney (Planning)

DSL One.Tel 2001 Metro areas in Sydney and Melbourne (planning for Adelaide, Perth and Brisbane)

DSL Pacnet Reseller Pacnet is currently reselling Telstra’s ADSL service

DSL Pahth 2002 Perth CBD (2001/2)

DSL Primus Early 2001 CBDs in Melbourne and Sydney

DSL Qala 2002 CBD areas in Sydney and Melbourne (planning)

DSL RequestDSL Late 2000 Metro areas in Melbourne, Sydney, Perth, Brisbane and Adelaide

DSL Telstra 1999 Urban areas in Sydney, Melbourne, Canberra, Brisbane, Adelaide, Perth, Darwin and Hobart, Toowoomba, Launceston and Bunbury (40 regional towns)

DSL TransACT Early 2001 Canberra Metro and Urban areas

Optic Fibre AAPT 6 CBDs (Sydney, Melbourne, Canberra, Brisbane, Adelaide and Perth) 3 rural cities in Victoria (2002)

Optic Fibre Agile 2000 Adelaide CBD

Optic Fibre Amcom (Fibertel)

1998 4 CBDs (Adelaide, Darwin, Perth and Hobart) 30 cities excluding Melbourne & Sydney in 2003

Optic Fibre C&W Optus 1993 9 CBDs (Sydney, Melbourne, Brisbane, Canberra, Adelaide, Perth, Darwin, Hobart and Launceston)

Optic Fibre Davnet 1999 4 CBDs (Melbourne, Sydney, Brisbane and Perth) Others CBDs (Hobart and Adelaide) in 2003

Optic Fibre Ipera 2000 Newcastle Metro

Optic Fibre PowerTel 1999 CBDs (Sydney, Melbourne, Brisbane, Gold Coast, Canberra(p) and Newcastle(p))




Optic Fibre Primus 2000 CBDs in Melbourne and Sydney

Optic Fibre Smart Radio System

2000 Cooma

Optic Fibre Swiftel 2000 Perth CBD

Optic Fibre Telstra 1990 CBD in Sydney, Melbourne, Brisbane, Canberra, Adelaide, Perth and Hobart

Optic Fibre TransACT 1999 Canberra Metro

Optic Fibre Ue Comm 1999 CBDs (Sydney, Melbourne, Brisbane, Gold Coast and Perth)

Optic Fibre WorldCom 2000 Sydney CBD and Melbourne CBD

HFC Austar (Windytide)

1999 Darwin

HFC C&W Optus 1995 Metro and Urban areas in Sydney, Melbourne and Brisbane.

HFC Neighbourhood Cable

1999 Mildura, Ballarat, Bendigo(c) and Albury-Wodonga(c)

HFC Telstra 1995 6 Metro and Urban areas (Sydney, Melbourne, Brisbane, Gold Coast, Adelaide and Perth)

HFC West Coast Radio (iiNet)

2000 Perth (Ellenbrook area)

Cellular AAPT 2001 (terminated)

Network deployment was terminated in 2001

Cellular Hutchison 2000 Sydney, Melbourne, Brisbane, Perth and Adelaide

Cellular One.Tel 2001 (terminated)

Sydney, Melbourne, Brisbane, Perth and Adelaide

Cellular C&W Optus 1993 Nationwide (94% of population covered)

Cellular Telstra 1987 Nationwide (96% of population covered)

Cellular Vodafone 1993 Nationwide (93% of population covered and 100% coverage with Globastar Satellites)

LMDS AAPT Early 2001 6 CBDs (Sydney, Melbourne, Canberra, Brisbane, Adelaide and Perth) 3 rural cities in Victoria (2002)

LMDS/MMDS AUSTAR 2001 Adelaide, Melbourne, Sydney, Brisbane, Canberra and Perth (planning)

LMDS C&W Optus (XYZed formerly Agility)

2001 CBD areas (where complimentary to its DSL and fibre coverage) in Sydney, Melbourne, Brisbane, Adelaide, Perth and Hobart

LMDS/MMDS Akal 2001 Metro areas and regional Australia (planning)

Microwave AAPT 1998 CBD and metro areas in Melbourne, Sydney, Brisbane, Adelaide, Perth and Canberra

Microwave Airnet 1999 A small network in Adelaide

Microwave Agile 2000 Adelaide and regional areas in SA

Microwave BushTel 2000 Rural and remote areas

Microwave Datafast 2000 Melbourne CBD

Microwave Davnet 1999 CBD and metro areas in Sydney, Melbourne, Perth and Brisbane




Microwave Netcare (Paladin Resources)

2000 Perth

Microwave ntl Telecom 2000 Providing regional access in country VIC and NSW

Microwave OMNI connect Melbourne CBD

Microwave Pulsat 2000 Metro areas in Perth, Melbourne, Sydney and Brisbane

Microwave Third Rail (AMX Resources)

2001 Tamworth

Satellite C&W Optus Since 1992 Rural and remote areas in Australia

Satellite Austar 1999 Regional areas in Australia

Satellite Bincom Rural areas in Perth

Satellite Heartland 2000 Rural and remote areas

c = constructing p = planning

Note: Not all of the operators listed above have succeeded in rolling out their network. Some operators like Heartland, Cellular One/AAPT and One.Tel have delayed or terminated their network rollouts.



1.4.2 New Access Technologies

The access regime and market deregulation has resulted in the development of access-based and facilities-based competition in the telecommunications market. The mix of these two forms of competition reflects the underlying characteristics of the markets where they have developed. Looking forward, falling infrastructure costs and higher-value services might be expected to tip the balance in favour of greater infrastructure investment.

One of the most important developments in access technology in Australia at the moment is digital subscriber line (DSL) technology, offering speeds of up to 8Mbps – significantly faster than existing modem technology. DSL works by separating digital traffic from regular calls. Equipment is installed at the exchange and the subscriber’s premises, allowing data traffic to bypass the switches and achieve higher speeds. Telstra and a host of start-up operators are launching their DSL networks mainly in the metropolitan areas targeting business users. (see Chapter 4)

Another local access technology gaining popularity, particularly among new market entrants, involves providing alternative local loop access using broadband wireless systems like LMDS and MMDS. This is particularly attractive for new players, as it allows them to completely avoid incumbent networks and reach customers directly. (see Chapter 9)

The ACA (2000) has found in its process of assessing the efficient costs of providing USO services – that fixed copper networks and wireless networks were suited to providing services to customers within 20kms of local exchanges. Satellite is suited to provide services to customers 20km beyond local exchanges. It is therefore generally suitable for providing telephony and data services in rural and regional areas. Satellite is considerably more expensive to deploy in CBD and metropolitan areas than copper and wireless local loop networks.

The declaration of the Local Loop in 2000 was a positive sign for the industry in the context of fair access to the last mile. However, based on the prices set for customer access to ULL copper, it is currently uneconomical to launch a broadband access product to the residential market segment, and of questionable feasibility to the low end of the Small to Medium business segment.



1.4.3 CBD Access Network

The most intensive deployment of networks by new carriers has been in CBDs, mainly to provide bandwidth for corporate users of data and Internet services. Just as most backbone infrastructure has centred on the Melbourne-Sydney-Brisbane corridor, similarly many new carriers have built infrastructure in the CBDs of these cities (Exhibit 1-6). The less populous cities of Adelaide and Perth have also attracted eight or more CBD network providers, and together with the network deployments of TransACT in the CBD of Canberra provide some competition to Telstra and C&W Optus.

Exhibit 1-6: Carriers with Networks in Capital City CBDs (inc. planned)

Operator Sydney Melbourne Brisbane Adelaide Perth Hobart Canberra Darwin

Telstra C/O/D C/O/D C/O/D C/O/D C/O/D

C/O/D C/O/D C/O/D

C&W Optus

O/D/W O/D/W O/D/W O/W O/D/W

O/W O/W O/W

AAPT O/D/W O/D/W O/D/W O/D/W O/D/W

O/D/W

Primus O/D O/D

PowerTel O O O O*

WorldCom O O

Ue Comm O O O O*

Swiftel O

TransACT C/O/D

Macrocom D/W D/W D/W D/W

Agile O/D/W

Davnet O/D/W O/D/W O/D*/W O/D*/W

Pulsat W W W W W

AirNet W

Request DSL

D D D* D* D*

Netcare W

ecom D* D* D*

Macquarie D* D*

One.Tel D D D* D* D*

C = copper O = optic fibre D = DSL W = Wireless Technologies (including microwave, LMDS and MMDS) * Nearing completion



The coverage and technology of the CBD networks deployed differ between carriers. For example, some carriers (like C&W Optus and AAPT) have rolled out fibre optic rings in one or more CBDs, others (like Davnet and Ue Comm) have wired individual buildings, while others have built LMDS (microwave) or mixed (fibre and microwave) networks to service CBD customers.

There are also some niche operators which provide direct high-speed telecommunications connection for CBD buildings through an integrated communications infrastructure. Davnet, Ue Comm and Primus are some of the companies focussing on the so-called building-centric local exchange carrier (BLEC) or the in-building carrier. Such companies provide broadband connectivity to major commercial buildings by special arrangement with building management.

The BLEC market in Australia has been growing at about 20% to 30% for the past two years. The growth of Internet and the increased demand for high bandwidth applications are the major factors contributing to the market growth.

The major dampening factors for the BLEC industry is the difficulty in gaining access to buildings and the high access fees charged by building/ property managements in Australia.

However, since early 2001, ACIF (Australian Communications Industry Forum), the Property Council of Australia and Telecommunication User Groups have jointly developed a solution to look into the standardised process for the installation of telecommunications infrastructure in multi-tenanted buildings. (The Building Access Operations and Installation DR ACIF C571 is available at http://www.acif.org.au/OCRP_WC20/dksplay/DOCUMENTS)



1.4.4 Metro and Urban Access Network†

Telstra’s ubiquitous copper network serves virtually all Australian homes and most Australian businesses. To provide for the uptake of broadband services (such as high speed Internet, video on demand, and pay TV), infrastructure providers are deploying a range of cable-based and wireless networks in capital cities and major regional centres.

Both Telstra and C&W Optus have rolled out HFC cable networks, which are now being used to deliver services other than pay TV. These services include telephony and high speed Internet in Melbourne, Sydney and Brisbane, Adelaide and Perth.

In Canberra, TransACT is rolling out a fibre optic network which is planned to pass approximately 100,000 homes and 14,000 businesses throughout the ACT (by 2001/02).

WA-based carrier. West Coast Radio has rolled out an HFC network in the new housing estate of Ellenbrook in Perth – which will eventually have 10,500 homesites and 30,000 people in the next 15 years.

AAPT has obtained spectrum in the 28-31GHz range, and is building a wireless LMDS network to provide high speed data services in major metropolitan (and regional) areas where buildings are difficult to access and deployment of fibre is uneconomic. Most recently, Agility Networks (now XYZed, a subsidiary of C&W Optus) acquired spectrum in the 27GHz bandwidth, which it will use to roll out a LMDS customer access network across Australia, focussing on the business districts of most capital cities metropolitan areas and many regional centres.

Other new carriers such as Akal and AMX Communications (Third Rail Australia) have also chosen to deploy wireless networks.

Telstra and a number of other carriers are in the process of rolling out DSL networks to provide high-speed services over the existing Telstra copper local loop. Most of the DSL service providers are targeting the business market in the CBD areas. Telstra is aiming for the broadest geographic coverage, offering wholesale and retail services, and supplying business and residential customers, covering 90% of Australian population by 2002.

† This section is based on the report – Telecommunications Competition Regulation, (www.pc.gov.au).



Exhibit 1-7 provides an overview on the customer access networks in the metro areas.

Exhibit 1-7: Customer Access Networks in Capital Cities (Metro areas)

Type of Network Carrier Network Summary

Copper wire Telstra A ubiquitous fixed wire local loop network in all capital cities and regional towns (100% coverage in metro areas).

Telstra Cable network passing 3 million homes including most of Sydney, Melbourne, Brisbane, the Gold Coast, plus parts of Adelaide and Perth.

C&W Optus Cable network passing 2.2 million homes in Sydney, Melbourne and Brisbane.

Windytide (Austar) Cable network in Darwin (including the adjacent town of Palmerston) passing 18,000 homes.

West Coast Radio Rolling out a cable network in WA’s largest new residential development (Ellenbrook in Perth).

Hybrid fibre coaxial (HFC)

iiNet (iiTel) Plans to jointly develop cable networks in Perth residential estates with West Coast Radio (Broadcast Engineering Services).

TransACT Rolling out a fibre optic network in Canberra, with ‘fibre to the curb’ (FTTC) network architecture and VDSL technology, passing 100,000 homes.

Fibre optic

Ipera Newcastle

AAPT Rolling out a LMDS network in major metropolitan and regional areas.

Pulsat Metro areas in Melbourne, Perth, Brisbane and Sydney.

XYZed (C&W Optus)

Deploying a LMDS network in metro areas of capital cities (where complementary with DSL and fibre deployment).

Netcare Planning to install microwave links in metropolitan area of Perth and in the southwest region of WA.

Wireless

AMX (Third Rail) Planning to deploy a nationwide microwave network, using a wireless local loop (WLL) for last mile delivery.

Telstra Rolling out national ADSL services from August 2000, targeting wholesale and retail markets.

XYZed (C&W Optus)

Planning a national DSL rollout offering wholesale DSL services in metro areas of Australia.

Primus Launched ADSL services during 2000 to business (BizJET) and residential (HomeJET) customers.

Agile Trialing ADSL in Adelaide and Port Augusta.

RequestDSL Rolling out DSL services in Perth and ultimately nationwide.

Flowcom Metro areas in Melbourne, Sydney, Perth, Brisbane and Perth.

Macquarie Corporate

Planning to roll out DSL services in selected markets.

DSL over Telstra’s copper wire

NetComm Planning to roll out DSL services in selected markets.

Source: Productivity Commission and BIS Shrapnel.



1.4.5 Regional and Rural Access Network†

While most of the new network infrastructure has been deployed in inter-capital backbone routes, CBDs and metropolitan areas of the capital cities, some newer carriers (like Austar, Neighbourhood Cable, Heartland and SPT) have targeted regional and rural areas to build infrastructure.

Several carriers are rolling out HFC or fibre optic customer access networks to deliver broadband services – for example, Neighbourhood Cable in Mildura and Ballarat and Smart Radio Systems in Cooma.

There are also some examples of plans to deploy wireless networks and wireless local loop solutions to deliver broadband services – for example, Akal and AMX Communications. Some other organisations have also announced plans to roll out services in regional Australia, including:

• COMindico – plans to deploy Australia’s first pure IP network by installing nodes in all 66 Telstra call charging areas throughout Australia, to provide converged voice, data and multimedia services. COMindico and Pulsat have entered into a memorandum of understanding under which COMindico’s intelligent network services will be delivered over Pulsat’s wireless local loop network.

• Bush Telegraph (BushTel) – plans to use non-line-of-sight wireless local loop equipment interconnected to the COMindico pure IP backbone network to provide telephony and high speed Internet access to regional centres in WA and the NT.

• BinCom Satellite Systems – based in Perth, BinCom is planning to use a satellite-based network and VSAT equipment to provide telephony and broadband services to rural Australia. BinCom recently announced that it had cancelled its initial public offering because the minimum subscription amount it was seeking to build the rural VSAT network had not been received by the offer close date.

• SouthTel – is planning a fibre backbone from Sydney to Bega with microwave extensions to Eden and smaller centres along the route.

Exhibit 1-8 provides an overview on the local access network providers in regional Australia.

† This section is based on the report – Telecommunications Competition Regulation, (www.pc.gov.au).



Exhibit 1-8: Local Access Network Providers in Regional Australia

Type of Network Carrier Network Summary

Copper wire Telstra Fixed wire local loop networks in all regional cities and towns (99.7% coverage in regional Australia).

Neighbourhood Cable

HFC cable networks in Mildura and Ballarat and plans for other regional Victorian cities, including Bendigo and Albury-Wodonga.

Cable

Smart Radio Systems

Rolling out a fibre optic network in Cooma using a fibre-to-the-home (FTTH) architecture.

Soul Pattinson Microwave network linking Sydney and Brisbane, with spurring to regional centres along the route.

Pulsat/Comindico Building a nationwide wireless network to provide high quality services to regional Australia.

Agile Deploying a microwave network to provide broadband services to the Coorong region, south-east of Adelaide.

iiTel Deploying mainly wireless technologies to deliver services in remote, regional and suburban centres in WA.

Swiftel Plans a wireless network to service regional areas of WA and a fibre optic rollout in Perth.

AAPT Plans to target regional and other users with a new LMDS network.

Netcare Planning a microwave rollout in rural and regional areas of WA.

Wireless

AMX Planning to deploy a nationwide microwave network, using a wireless local loop for last mile delivery.

C&W Optus B3 satellite is dedicated to TV broadcast. Commenced construction of C1 satellite to provide TV, Internet, telephony and high bandwidth data communications.

Austar Offers a customer access network based on satellite and wireless technologies to deliver pay TV and Internet services to regional Australia.

AirNet Offers an integrated satellite/wireless network (via a strategic alliance with Auspace) to deliver high speed Internet and other services to rural Australia

Satellite or combined satellite/wireless

ARBT (Heartland Communications)

Plans to provide telephony and broadband services to rural and regional Australia using satellite technologies.

Source: Productivity Commission and BIS Shrapnel



1.5 Backbone Transmission Technology (Trunk Network)

1.5.1 The Players

Most backbone networks in Australia are now fully digital and employ a range of transmission technologies, including optical fibre cable, microwave radio and satellite. The long distance backbone networks connect exchanges between cities and states.

Since 1997, many companies have established backbone optical fibre and microwave networks, not only on the major inter-capital routes, but also on a number of ‘thinner’ regional routes. New backbone networks are important because they provide increased bandwidth and lead to competition among suppliers of bandwidth. Such competition would also lower the operating costs of regional service providers.

The switching and transmission market is estimated to account for about 25% of the total fixed telephone revenue ($12bn) at around $3bn to $4bn. Telstra is believed to capture about 65% to75% of the market, followed by C&W Optus and AAPT.

Exhibit 1-9 provides an overview on the backbone transmission technologies deployed by telecommunications operators in Australia.

Exhibit 1-9: Backbone Transmission Network Operator Overview


PSTN Copper Telstra Since 1900 Nationwide (99.5% of population covered)

Optic Fibre Amcom (FiberTel) 2001/2002 Melbourne-Adelaide-Perth

Optic Fibre Nextgen (Macquarie)

2002 Brisbane-Canberra-Sydney-Melbourne-Adelaide-Perth. (with regional coverage in VIC and NSW)

Optic Fibre C&W Optus 1993 Sydney-Canberra-Melbourne

Sydney-Brisbane

Melbourne-Adelaide

Adelaide-Perth

Darwin-Palmerston (outsourced)

Brisbane-Cairns (outsourced)

Optic Fibre PowerTel 1998 Sydney-Melbourne-Brisbane

Brisbane-Gold Coast

Optic Fibre Telstra Since 1980 13 inter-capital city routes

Optic Fibre Reef Network 2001 Brisbane-Cairns

Optic Fibre Australian Fibre Network (AFN)

2002 Brisbane-Sydney-Canberra-Melbourne (with regional spurs)




Optic Fibre Nava Network (International operator)

2002 Perth-Melbourne-Sydney

Optic Fibre SouthTel 2000 Sydney-Bega (with microwave extension to Eden and smaller centres).

Microwave AUSTAR 2000 Regional and rural areas

Microwave Datafast 1998 Melbourne-Geelong-Colac-Camperdown-Warnambool-Portland-Mt. Gambia

Melbourne – Sydney (Constructing)

Ballarat-Bendigo (Constructing)

Northern & North East VIC (Planning)

Eastern & South East VIC (Planning)

Microwave ntl Network 2000 Cairn to Hobart (with regional spurs)

Regional towns in NSW and VIC (Tamworth, Mildura, Dubbo, Albury-Wodonga and Griffith)

Microwave Soul Pattinson 1999 Brisbane-Sydney-Melbourne

Brisbane-Cairns (Planned)

Microwave Telecaster 2001 Brisbane-Townsville-Cairns

Spurs to Gold Coast and regional towns Qld (2003)

Microwave Macrocom (Flowcom)

1998/9 Melbourne-Canberra-Sydney-Brisbane

Adelaide-Melbourne (planned)

Satellites C&W Optus Since 1992 Rural and remote areas

Satellite PanAmSat Australia wide service

(c) = constructing (p) = planning

According to the Productivity Commission (2001), if these planned network deployments come to fruition, there will be eight backbone network providers on the heaviest traffic routes – Sydney-Melbourne and Sydney-Brisbane. However, it would also mean four facilities-based carriers on the Melbourne-Perth route, four on the Brisbane-Cairns route, and even three providers of connectivity between the mainland and Tasmania. While such deployments clearly provide scope for considerable facilities-based competition, the viability of the new networks is based upon predictions of very substantial growth in demand for bandwidth.

However, analysts are now warning of an oversupply of backbone capacity in telecommunications infrastructure. They warn the country’s east coast could be saturated with new telephone networks while Australia’s remote areas continue to miss out. Many participants in the study believe that some of these networks might not eventuate into fully-fledged backbone networks due to the huge investment involved.



Exhibit 1-10 provides an overview on the backbone networks which connect the major inter-capital cities in Australia.

Exhibit 1-10: Carriers with Networks between Major Capital Cities

Operator Melbourne-Canberra

Canberra-Sydney

Melbourne-Sydney

Sydney-Adelaide

Sydney-Brisbane

Melbourne-Adelaide

Perth-Adelaide

Telstra O/W O/W O/W O/W O/W O/W O

C&W Optus

O O O O O O O

Macrocom (FiberTel)

W W W* (2002)

W W*

Nextgen O* (2002) O* (2002)

O* (2002) O* (2002)

O* (2002) O* (2003)

ntl telecom W* (2001) W* (2001)

W* (2001)

PowerTel O O O (via Canberra)

O

SPT W* (2001) W

Amcom (FiberTel)

O* (2001) O* (2002)

Nava O* (2002)

Datafast W*

O = Optic fibre W = Wireless Technologies (including microwave and satellite)

* Under construction or pre-construction



1.5.2 Backbone Network in the Eastern Seaboard

Exhibits 1-9 and 1-10 indicate that there has been a building boom in the telecommunication industry in Australia since the market deregulation in 1997. New telephone networks to cope with the explosion in mobile and Internet use, are thriving throughout Australia’s eastern seaboard.

The capacity of fibre optic networks in Australia is far outstripping demand. The Australian Government conducted a National Bandwidth Inquiry (2000) into Australia’s bandwidth capacity in mid 2000. The inquiry found that up to 80% of optical fibre cable was not being used.

The most extensive network is that of the original incumbent Telstra, which has fibre optic and microwave networks linking all capital cities and main regional centres. Optus, the second largest network owner, has a national fibre optic backbone stretching from Brisbane to Perth via Sydney, Canberra, Melbourne and Adelaide. PowerTel, the third major infrastructure owner, has completed its fibre optic link between Melbourne, Sydney and Brisbane, and has also rolled out fibre optic networks in these three capital cities.

Despite the fact that there is an oversupply of backbone network capacity, especially in the eastern seaboard, many new operators are deploying their respective trunk network in these areas.

Leighton – which traditionally has focused on the building sector – has teamed up with Macquarie Bank Ltd and Lucent Technologies in a $850m project to build the 8,400 kilometre network between Brisbane and Perth.

In addition, regional operators like ntl Telecom, Datafast and Telecaster are also expanding their microwave network in the eastern seaboard, connecting major cities and regional towns.

International broadband developer Nava Networks is moving forward with a US$645 million fibre network linking Singapore, Jakarta, Perth, Melbourne and Sydney which will be completed in 2002.



1.5.3 Backbone Networks in Regional Australia

Other new players such as PowerTel Ltd have rolled out fibre optic cable networks along the east coast of Australia. Perth-based telecommunications group FiberTel/Amcom is also rolling out its fibre network in Darwin, Perth and Adelaide. It is now pushing ahead with plans for a high-speed east-west intercapital link.

However, regional based companies like Datafast, Austar, SouthTel and ntl network are constructing their networks to the rural and regional areas.

While the most extensive trunk networks are fibre optic, some carriers (Macrocom, Soul Pattinson and ntl Telecom) have constructed microwave backbone networks linking capital cities and some regional centres in Victoria, NSW and Queensland.

ntl Telecommunications, announced in late 2000 it would build a $165 million telecommunications network from Cairns to Hobart. The network will be used for digital television and offer wholesale bandwidth to other carriers and Internet service providers.

SouthTel (South Coast Telecommunications Consortium) – comprises of the Eurobodalla and Bega Valley Shire Councils, the Shoalhaven City Council and the South Coast Education Network in an unincorporated association. The consortium has formed an alliance with Access1 and Alcatel to roll out a regional network in rural areas in New South Wales.

Satellites are not widely used to provide backbone network capacity as they have limited total capacity in relation to optical fibres. According to the NBI (2000) report, the capacity of each C&W Optus satellite covering the whole of Australia is 0.6Gbps compared with the average potential capacity from all sources into individual small towns of 160Gbps. This trend should continue for the next five years, as the potential future capacity of optical fibre links is likely to increase significantly faster than future satellite capacity.



2. PSTN COPPER NETWORK

2.1 General Overview

Telstra’s copper network consists of telephone lines between exchanges and customer premises.

Once upon a time, Telstra’s telephone system was entirely analogue, and the whole system ran over copper. However, network modernisation completed in 1999 has fully digitalised Telstra’s network.

Optical fibre first introduced in 1980s, was used to link exchanges, which left Telstra with large bundles of redundant inter-exchange copper wire.

Telstra’s copper network currently covers more than 99.75% of the Australian population in the six states and two territories. The remaining 0.25% is served by radio-based telephone service in remote areas.

Australia’s 18.5 million people use about 10 million phone lines. Of these, about 493,000 lines serve rural and remote areas.

Telstra uses copper wire to serve all but some 20,000 or so most isolated customers. It serves those customers mainly with digital radio concentrator system (DRCS), and high capacity radio concentrator systems (HCRC) which are a microwave technology. (see Chapter 8)

Exhibit 2-1 provides an overview of Telstra’s telephone line in service by area.

Exhibit 2-1: Telstra’s Services in Operation at 30 June 2000 (millions)

1997-98 1998-99 1999-00

Metro Country Total Metro Country Total Metro Country Total

6.242 3.523* 9.765 6.329 3.449* 9.948 6.491 3.576* 10.242

*including remote areas



2.2 PSTN Network Infrastructure and Coverage

Telstra’s copper network connects telephone lines from exchanges to customer premises. At the end of 2000, Telstra had about 5,000 exchange sites (about 1,000 of them are served by pair gain systems). There are about 20 exchanges in the six major CBDs in Australia.

Exhibit 2-2 provides an overview on Telstra’s exchanges in various major cities in Australia.

Exhibit 2-2: Telstra’s Exchange Sites (by State)

State No. of Exchange Sites Telephone Lines

NSW 1,579 3.5m (including ACT)

NT 45 Not Disclosed

QLD 922 1.9m

SA 517 0.8m (including NT)

TAS 201 Not Disclosed

VIC 1,101 2.7m (including TAS)

WA 649 1m

ACT 20 Not Disclosed

Total Australia 5,034 10m

CBD 20

• Melbourne 3

• Sydney 5

• Adelaide 2

• Brisbane 4

• Perth 3

• Canberra 1



Exhibit 2-3: Telstra’s PSTN Network Coverage – National

Source: Telstra



2.3 PSTN Copper Network Improvement

It was reported in The Australian, October 1998 that Telstra’s copper network was valued at about $14bn.

Since 1999, Telstra’s 10 million-line copper network is being revamped as part of the company’s plans to cope with the expected boom in demand for second residential phone lines for Internet access and to meet new competition for basic telephone services to home and businesses.

To facilitate the deployment of copper based xDSL technologies, Telstra announced in mid 1999 (Asia Pulse, 25 June 1999) that it will spend $1.8bn over the period to 2002 on its copper wire network.

DSL technology will turn Telstra’s copper wire phone network into a high-speed data transfer system, allowing it to move data at speeds of about 2Mbs, compared with only 56Kbps through a standard modem connection. (see Chapter 4)

Telstra has set aside $600 million a year for capital expenditure on the copper network over a three-year period. About $400 million will be allocated over three years to repair about a quarter of the network, which is badly degraded (AAPS News, 25 June 1999).

Telstra’s Consumer and Commercial Division has let $350 million worth of contracts to 11 suppliers for the construction and maintenance of Telstra’s copper network.

Exhibit 2-10 provides an overview on Telstra’s PSTN copper network.



Exhibit 2-4: Telstra’s PSTN Copper Network

1999 2000 2001 2002

Coverage Nationwide (99.7% population)

Nationwide (99.7% population)



Infrastructure 4150 exchanges

680,000km cable

9.75m lines

4150 exchanges

680,000km cable

10m lines

4150 exchanges

680,000km cable

10.1m lines

4150 exchanges

680,000km cable

10.2m lines

Investment $14bn (estimated value – accumulative)

$600m ($1.8bn = 2000-2003)

$600m ($1.8bn = 2000-2003)

$600m ($1.8b = 2000-2003)

Equipment supplier

Alcatel, Philips, Ericsson, Lucent, NEC, Siemens, Cisco, Pirelli and Nortel




Service and Application

Voice and Data Voice and Data Voice and Data Voice and Data

Bandwidth and Data Speed

0.3 to 3.4KHz 0.3 to 3.4KHz 0.3 to 3.4KHz 0.3 to 3.4KHz

Strategy and Focus

All users in all areas in Australia






3. ISDN NETWORK

3.1 Technology Overview

ISDN stands for Integrated Services Digital Network. The ISDN is a digital communications network service which uses the same copper wire lines used for standard (analogue) telephone services. ISDN services enable end-users to send and receive information at faster speeds and with greater reliability than is possible using the standard telephone service. ISDN services are used for the carriage of information such as voice, data, high quality sound, text, still images and video.

ISDN was designed around the notion of separate channels at 64Kbps. This number springs from the fact that 64Kbps is essentially the data rate at which the analogue lines are sampled at (8000 samples per second, 8 bits per sample) for the phone company’s ISDN. ISDN is essentially combinations of these channels, and also slower 16Kbps channels, used only for signalling. The 64Kbps channels are called B channels. The 16Kbps channels are called D channels.

There are two main interfaces – Basic Rate and Primary Rate. The Basic Rate Interface is intended for home use, and Primary Rate is intended for businesses. The Basic Rate Interface (BRI) is designed to carry the most data consumers can possibly send to the home through existing copper phone lines. The Primary Rate Interface is designed for businesses with larger data needs, or with the need to set up their own local phone system. It is generally just a much faster connection to the phone company, with several B channels.

Applications for ISDN services include:

• data transfer

• telephony

• Internet access

• PABX networking

• video conferencing, and

• telecommuting.



How Does an ISDN Network Work?

Telstra supplies ISDN services to both end-users and service providers. Where service providers have access to their own transmission networks, they purchase short distance ISDN services to use as customer ‘access tails’. The access tail services supplied to service providers are similar to the eligible ISDN services. In essence, they are carriage services using that part of the network which connects end-users’ premises to an exchange (that is, the customer access network). They are joined with the service providers’ networks to create an end-to-end service as shown in Exhibit 3-1.

Exhibit 3-1: Access Tails Joined to a Service Provider’s Network

Source: ACCC (1998)

The early days of ISDN saw the evolving technology developed along proprietary lines. In the US the two competing camps were AT&T with its 5ESS switch and Northern Telecom and the DMS100. Both products were rolled out at approximately the same time with similar features and options. As the product was placed on the network there were some compatibility issues.

The Australian ISDN was implemented in 1988 prior to the presence of a second carrier. Australians have therefore been fortunate to have a single set of protocols and interfaces from any location in which ISDN is provided, thus avoiding some of the problems associated with incompatibility, in certain other countries. Unfortunately, the set of protocols used were different to every other ISDN service. Recognising this as a major impediment to the industry, Telstra migrated its platform towards the European ETSI ISDN standards, called Euro-ISDN, in 1995.



3.2 The Deployment of ISDN in Australia

ISDN is a digital communications service which enables the end-user to send and receive information at faster speeds and with greater reliability than is possible using the analogue carriage service of the PSTN network.

Telstra operates the only ISDN in Australia. Telstra has expanded its ISDN capacity in line with the licence conditions under s.66 of the Telecommunications Act 1997. Specifically, the licence condition requires Telstra to be in a position to make available:

… within 90 days of a request, a carriage service that provides a digital data capability broadly comparable to that provided by a data channel with a transmission speed of 64kilobits per second supplied to end-users as part of the designated basic rate ISDN service:

• by 1 July 1997 – to at least 93.4% of the Australian population; and

• by 31 December 1998 – to at least 96% of the Australian population.

Exhibit 3-2 below provides an overview on Telstra’s ISDN network.

Exhibit 3-2: Telstra’s ISDN Network Overview

Operator 1999 2000 2001 2002 2003

Coverage CBD, Metro, Urban and Rural areas

CBD, Metro, Urban and Rural areas




Population Covered

1998 (95%) 1999 (96%)

96% 96% 96% 96%

ISDN Circuit (basic rate only)

95,000* 128,000* 130,000 to 160,000*

Not disclosed Not disclosed

ISDN Channel or User (both basic and primary rates)

1998 (600,000) 1999 (850,000)

1,100,000 1,300,000 (estimated)

1,350,000 1,350,000 to 1,400,000

Bandwidth Capacity

Basic Rate (2x64kbps, 1x16kbps) Primary Rate (2Mbps)





Investment $200m (by 1994)* $300m (1995-2000)*

$600m - $700m* (accumulatively)

Network Equipment Supplier

Ericsson and Alcatel





*BIS Shrapnel’s estimates



Number of ISDN Services at 1999-00†

The number of Telstra basic rate ISDN services installed at 30 March 2000 was 125,013, compared with 73,028 services installed at 30 June 1998. Very few basic rate ISDN services are utilised by residential customers.

Telstra has provided a separate measure of ISDN service penetration – the number of installed digital data equivalent lines (Exhibit 3-3). This measure is derived by multiplying the number of ISDN services in operation by a factor based upon the number of 64Kbit/s data channels provided by the type of ISDN service. For example, a basic rate ISDN service (OnRamp 2 and Microlink) is multiplied by two as it provides two 64Kbit/s channels, whereas a primary rate ISDN service (OnRamp 30 and Microlink) is multiplied by a higher figure, owing to the greater number of 64Kbit/s channels provided by primary rate ISDN services.

Exhibit 3-3: Telstra Digital Data Equivalent Lines

State/Territory Number of digital data equivalent lines as at June 30 2000

NSW/ACT 419,169

Vic/Tas 278,300

WA 98,593

SA/NT 79,076

Qld 173,670

Total 1,048,808

Source: Telecommunications Performance Report (2000)

† This section is based on Telecommunications Performance Report (2000).



3.3 ISDN Network Rollout

The Deployment of Telstra’s ISDN Network

Telstra was one of the first telecommunications carriers in the world to introduce ISDN starting in 1988. The initial introduction of a primary rate service called Macrolink was followed by the introduction of Microlink, a basic rate service providing two 64Kbit digital channels and a 16Kbit signalling/packet data channel.

Telstra’s ISDN services are offered using two distinct ‘networks’ namely, the overlay network and the ETSI network. Each network is described below.

• The overlay network is based on a discrete network (separate from the PSTN). This network has been in operation since 1989 and, as at mid-1998, provided connections to over 400,000 PSTN basic access line equivalents. It is to be phased out in 2000.

• The ETSI network, on the other hand, is integrated with the existing PSTN infrastructure. It is designed according to the standards of the European Technical Standards Institute (ETSI) and was introduced in 1997 as ‘OnRamp’.

With each network, terminal adaptors are located at customer premises in order to enable end-users to send and receive information over the network. As the overlay network is phased out, terminal adaptors which are not compatible with the ETSI network will need to be replaced.

These services are provided by a $200m overlay exchange network which extends out to user exchanges using a custom designed remote server known as a BMUX, connected by a 2Mb/s primary rate access to the overlay network node. The BMUX can only be provided at exchanges with digital transmission available to the rest of the network. In addition, on cost grounds, a BMUX is usually not installed until at least 5 orders have been received for Microlink ISDN service at that exchange.

By 1996, there were over 36,000 Microlink Services (basic rate ISDN) connected via 3,900+ BMUXs and more than 8,100 Macrolink Services (primary rate ISDN) in operation on the overlay network. The number of BMUX based services peaked in mid 1997 and has declined thereafter, as the ETSI based OnRamp substituted Microlink in the market.



Following OnRamp’s introduction, new ISDN customers are being served primarily by the new Future Mode of Operation (FMO) network and ETSI based ISDN service capabilities. Also existing Microlink customers have progressively migrated from Microlink to the OnRamp ISDN service. Migration from Microlink to OnRamp requires a telephone number change for the customer. In addition, a modification to the customer premises equipment to allow for compatibility with the new OnRamp Service may have been required in some cases. It is our understanding that the migration is due to be completed by 2001/2002.

The Migration of ISDN Network to ETSI Standard†

As part of Telstra’s strategic planning process, it created a vision for the future which it called its “Future Mode of Operation” (FMO). The FMO incorporates fundamental changes to its “Present Mode of Operation”.

As a result of this network infrastructure, managing, operating and extending ISDN had become complex and expensive. The FMO directly addressed these concerns by creating a “composite” network in which a single network of switches will support both telephone and ISDN services.

Telstra’s ISDN service had been developed as a separate network to the PSTN. At certain locations there were connections between the two networks in order to enable interoperability. This dual/integrated network is sometimes called an ‘overlay’ network – ISDN ‘overlays’ the existing telephone network – but they remain two separate networks.

Exhibit 3-4: Telstra’s ISDN Network Migration from an Overlay Network to a Composite Network

Source: ACCC (1998)

† This section is based on the Telstra ISDN Review (1998)



Telstra’s existing ISDN network was further complicated by the fact that basic rate access Microlink™, was not provided directly from the ISDN exchanges. Basic rate is provided by a purpose-built device called a B-MUX which was connected to the exchange via Primary Rate Interface (PRI). Each B-MUX supports up to fourteen Basic Rate Interface (BRI) ports.

In December 1994, the Telstra Board approved $300 million to rebuild its ISDN network over the next five years. The decision was based on the recognition that Telstra needed to expand its network and move to international standards to meet the rising demand for ISDN services.

From 1996, new switches provided ISDN services based on international ETSI standards, Macrolink™ and Microlink™ services continued to be supported by Telstra to 2000 and existing customers were being migrated to ETSI ISDN progressively.

The major benefit of the network upgrade to Telstra was that it would be better positioned to satisfy market needs and demands more cost-effectively. In particular, the Composite Node network enabled Telstra to provide ISDN wherever there is a telephone exchange. Previously, it required either a special ISDN exchange or a B-MUX to be within about 5 kilometres of the customer and this often cannot be cost-justified. As a result, the penetration of ISDN had been restricted.

By supporting international ETSI standards, Telstra made it less costly for international CPE manufacturers to make their products available in Australia. Increased competition in the CPE environment has lowered prices and increased the number of applications which can use ISDN.

The national network deployment profile of FMO, ETSI ISDN and BMUX as at 1999, as provided by Telstra, is summarised in the Exhibit 3-5. This is based on the accelerated FMO program that has been agreed between Telstra and the Government. This shows that by July 1997, 25% of exchange sites nationally, representing 58% of PSTN lines were equipped to provide ETSI ISDN (On Ramp service) within normal provisioning periods.



Exhibit 3-5: ISDN Deployment by Sites and Services at 1997-1999

% of sites at 1997

% of services at these sites

1997

% of sites 1998

% of services at these

sites 1998

% of Site 1999

(estimated)

% of Service

1999 (estimated)

FMO sites with ETSI ISDN

25% 58% 72% 86% 90% 95%

FMO sites without ETSI ISDN with BMUX

17% 9% 8.5% 2% 2% 0,5%

non FMO sites with BMUX

2% 2% 0.6% 0.6% Nil Nil

Total sites offering basic rate ISDN

44% 69% 81% 89% 95% 97%

FMO sites without ETSI without BMUX

25% 13.6% 12.5% 3.3% 1% 0.5%

non-FMO sites without BMUX but with digital transmission

16% 14.5% 5.5% 7.5% 1% 0.5%

Total sites with digital transmission but no ISDN capability

41% 28% 18% 11% 5% 3%

Sites without digital transmission

16% 3% 1.4% 0.3% Nil Nil

Total sites/ services

5037 9.539m 5027 10.020m 5,000 10.40m

Source: Telstra ISDN Review (1998) and BIS Shrapnel’s estimates.



3.4 ISDN Service Applications and User

3.4.1 Telstra’s ISDN Service Offering

ISDN services enable end-users to send and receive information at faster speeds and with greater reliability than is possible using the standard telephone service. ISDN services are used for the carriage of information such as voice, data, high quality sound, text, still images and video.

Telstra’s ISDN services are targeted at the business sectors, especially large corporate. At the end of December 1998, Telstra had 648,000 ISDN channels in operation, which increased by 48% during 1999 to reach 964,000 channels.

The service had been largely marketed to business customers, such as the corporate and government sectors. However since early 1999, in view of the growth of Internet, Telstra’s ISDN service has began to address the small and medium businesses.

Telstra’s ISDN provides a range of voice and data business solutions including telephony, fax, file transfer, Internet access, access to the corporate LAN and video conferencing.

Voice Communication

OnRamp supports voice communication by phones or phone systems - providing fast call connections and clear voice quality. OnRamp provides features such as Direct Indial, Multiple Number, Easycall features like Call Waiting and Line Hunt that help users manage their calls.

For the small home office, an OnRamp service with Multiple Number provides extra phone numbers to differentiate between business and personal calls. One OnRamp service provides two digital lines for two simultaneous phone conversations - or talk on one line and still receive a fax or access the Internet on the other. Larger businesses can use larger OnRamp services with 10 digital lines or more for phones and data requirements.



Internet Access

The Internet has been called ‘information at your fingertips’, yet as the Internet moves increasingly to sound, image and video content, standard modem connections are proving too slow. At 128 Kbps, OnRamp can provide Internet access much faster than conventional modems, which means less time waiting for connection to the internet or files to download and more time available for working.

Telecommuting

In addition to its telephone and fax facilities, OnRamp provides high speed access to central office resources for regional offices and telecommuters, enabling all employees to share the same facilities and function better as a team.

Video Conferencing

Video conferencing provides the facilities for live full colour video and audio communication between people situated in two or more locations.

Image Transfer

OnRamp provides fast data transmission to industry sectors with such applications, specifically the pre-press graphics industry, the health sector and construction industry.

LAN Interconnection

Office Local Area Networks (LANs) have become part of the modern working environment with their ability to help staff share information and work better together, but their advantage can be lost as a business expands to new locations.

Staff working from home (telecommuters) and channel partners are also disadvantaged by the loss of access to shared information.

OnRamp’s high speed digital transmission and instantaneous call set-up speeds up the flow of information and allows all staff – whether telecommuters or channel partners - to work together more effectively.



3.4.2 Telstra’s ISDN Users

Corporate User

A study by STM Consulting and Bellcore (1998) showed the percentage of services in operation that belong to Corporate & Government (C&G) customers. C&G customers are Telstra customers with a total Telstra bill size exceeding a specified amount. At the end of 1999, more than 95% of the ISDN customers belonged to the commercial, business and government sectors. Residential users accounted for less than 5%.

It is a common understanding in the Australian market that the skewing of basic rate ISDN demand to corporate customers relates to its use almost entirely for intra-corporate communications (eg, semi-permanent connections and LAN/WAN connectivity). The same is believed to apply to commercial customers; these tend to be larger multi-site customers with internal/inter-site communications requirements. For this reason, at this stage basic rate ISDN demand tends to occur only at centres which are large enough to have branch offices of large corporates and medium sized enterprises.

In Australia, as in other countries, Internet access requirements are expected to stimulate demand for basic rate ISDN in the residential and small business sectors, which today effectively have no real application for ISDN. However, the pricing of ISDN is prohibitively high for small business and residential users.

However, with the introduction of xDSL technology in 2000/2001, with its faster access speeds (up to 8Mbps) and the ability to use existing copper infrastructure, ISDN has a formidable competitor. In addition, HFC, LMDS and FTTC are also some of the competing technologies for ISDN as a high-speed access network solution.

In fact, Telstra has introduced xDSL as migration path for ISDN. ADSL (asymmetric digital subscriber line) promises 8Mbps Internet access to anybody within 1.5km of a telephone exchange.

In June 2000, to fight the entry of xDSL, Telstra launched a new ISDN data service. It targets small office home office (SoHo), micro-business, and residential users.



Exhibit 3-6: Telstra Basic Rate ISDN Demand Forecast (Microlink and On Ramp)

1996 (actual)

1997 (actual)

1998 (actual)

1999 (actual) 2000 2001

Microlink 36,330 44,358 30,000 10,000 300 0

OnRamp 0 27,825 70,000 90,000 128,000 130,000 to 160,000

Total 36,330 72,183 90,000 100,000 128,500 130,000 to 160,000

Annual growth percentage

60% 99% 30% 12% 30% 15%

Percentage of C&G services

78% 72% 65% 60% 55% 50%

Source: STM Consulting, Telstra ISDN Review (1998) and BIS Shrapnel’s estimates

Data Applications

Data applications (in terms of call minutes) account for more than 85% of the ISDN network traffic. However, in terms of number of calls, voice accounts for 75% of the total calls made.

Inter-business applications (such as videophone and videoconferencing) which use 64Kb/s (or nx64Kb/s) end-to-end connectivity, have yet to be adopted on a significant scale.

Telstra considers further disaggregation of its traffic volume of ISDN network to be commercially sensitive.

Rural ISDN Demand

Anecdotal evidence was presented to suggest that existing ISDN services in rural areas are exclusively in larger towns and are most likely to be part of the telecommunications facilities of a large corporate or government organisation. Such demands only occur in larger towns where there are government institutions such as hospitals and educational facilities, and branches of large businesses, such as banks and the post office. This reflects the current dominant application of basic rate ISDN which is for intra-corporate communications.

Data from Telstra on the deployment of BMUX and Microlink shows that rural penetration of Microlink is about 0.2% of telephone services in rural areas, about half the national total (0.4% of services). Furthermore about three quarters of rural Microlink services are in exchanges having more than 1,000 lines (ie, the larger rural centres). The 77% of rural exchanges which have less than 500 lines in total have only 34 Microlink services (1.2% of the rural total).



3.5 Market Perspective

3.5.1 ISDN is a Service for Large Corporate – Pre Internet Boom

Back in the late 1980s and early 1990s, ISDN was heralded as the high-speed access network technology of the information superhighway, with a maximum non-compressed data speeds of up to 128Kbps.

However, it was mainly utilised by large corporates, government units and businesses for their inter-office and LAN connections. It lacks the applications for small business and residential users. In addition, the value proposition for ISDN – benefit compared to price – resulted in limited take up by the small to medium businesses, let alone residential consumers. The fact that Telstra operates the only ISDN network in Australia has also prevented competition in delivery of the service. Despite network coverage of 96% by 1998, ISDN has failed to achieve wide adoption.

In 1998, the ACCC said ISDN prices in Australia were high by international standards, citing the Asia-Pacific Telecommunications Index from the National University of Singapore that indicated Telstra ranked first for IDD pricing but eighth for its ISDN pricing. However, Appendix A provides an overview on ISDN pricing in various countries which suggested that Telstra’s ISDN pricing is reasonable.

Telstra competes with other carriers and service providers in international traffic but no carriers have the underlying network to offer a different ISDN tariff.

The ACCC report (1998) also quoted from a study by Siemens, a German electronics corporation, which showed that Australia had a penetration of 0.61% of ISDN in 1997, compared with Germany’s 8.69%, Switzerland’s 5.3%, the Netherlands’ 3.08%, Japan’s 2.57%, France’s 2.54% and the UK’s 2%.



3.5.2 Internet Boom Drives ISDN Adoption

However, with the arrival of the Internet in the mid 1990s, demand for higher bandwidth has breathed a new life into the ISDN service, especially in the small and medium business.

Since early 1999, Telstra has been addressing the need for an ISDN service in the small and medium businesses. The number of ISDN channels (both basic and primary rates) in operation increased by 48% from 648,000 channels in 1998 to 964,000 channels in 1999.

xDSL and other technologies now provide competition for ISDN.

3.5.3 Competing Technologies – DSL and LMDS

In fact, Telstra has introduced xDSL as a migration path for ISDN while competitors are introducing xDSL services. Some xDSL operators believe the 30,000 or so ISDN users (mostly SME) are likely to convert to ADSL. (see Chapter 4)

In June 2000, to fight the entry of xDSL Telstra has launched a new ISDN data service. It targets small home office (SoHo), micro-business, and residential users. The remodelled OnRamp Business Highway was launched on 19 June 2000. ISDN voice and data calls are fixed at Australian local rates, with a flat rate of A$1 an hour for data calls, timed per second, and a A$0.15 connection fee. Previously all calls were charged by time and distance. Telstra is cutting ISDN costs to better compete in the small-end data market against new high-speed copper-wire technology, ADSL, and cheaper cable Internet services.†

However, Telstra is confident that ISDN still has a future, despite competition from other access network technologies. An attraction of ISDN is that it is an all rounder because it can enable so many applications and is well suited for international data traffic and video conferencing.

† PC Week Australia (17/7/2000) page 22.



Some of the advantages of ISDN technologies are:

• wide coverage (96% population covered)

• high quality of service (unlike xDSL technology which is distance sensitive)

• guaranteed data throughput

• global interoperability.

However, ISDN loses its appeal when compared to the advanced technologies like xDSL, LMDS and fibre optic which boast a higher bandwidth (2Mbps to 1Gbps).

According to Telstra (as per Exhibit 3-6), the market grew strongly in 2000 with a growth rate of 30%. However, being a mature product with competition from new technologies like xDSL, Telstra expects the market to level off in 2001/2002. The diagram below provides an overview on the maturity curve for DSL technologies.

Exhibit 3-7: Maturity Curve for DSL Technologies

Market

VDSL

ADSL

HDSL

ISDN

Emerging Growing Mature Declining

Market

VDSL

ADSL

HDSL

ISDN


Source: RHK 2000

Future development of ISDN service will be on capacity expansion rather than product expansion since ISDN is a mature product. The exhibit below provides an overview on Telstra’s ISDN forecasts.



Exhibit 3-8: Telstra’s ISDN User Forecasts

1,3501,3501,300

1,100

850

600

0

400

800

1200

1600

1998 1999 2000 2001 2002 2003

ISDN User (both basic and primary rate)

Source: RHK (2000) and BIS Shrapnel



4. CONDITIONED PSTN TECHNOLOGY – DSL NETWORK

4.1 DSL Technology Overview

Digital Subscriber Line (DSL) is the generic name for a technology that uses complex modulation schemes to extend wideband and broadband services over copper pairs. Copper-based wideband service delivery systems are highly attractive to operators because of its universal deployment. Unlike HFC, MMDS, and FTTC systems, which all must be installed on an area-wide basis, DSL installations require a modest investment to equip serving wire-centres with a digital access multiplexer/concentration (a DSLAM). DSL access then occurs one subscriber at a time. This allows network operators to delay committing dollars to wideband service provisioning until demand for these services has been demonstrated by subscribers.

The DSL “family tree” includes two main branches – symmetric and asymmetric. Symmetric DSL services provide identical data rates upstream and downstream; asymmetric DSL provides relatively lower rates upstream but higher rates downstream.

As xDSL technology continues to evolve to support emerging applications, the list of new service delivery technologies continues to grow. The most important xDSL standards are:

• ISDN (Integrated Services Digital Network) or IDSL – an established single-pair technology, providing 128Kbps over a single pair. (see Chapter 3)

• HDSL (High-speed Digital Subscriber Line) – a well-established and successful two-pair technology, providing T1 circuits over copper at twice the standard T1 repeater spacing distance. HDSL provides circuits over loops up to 3k without repeaters, and up to 8k with repeaters.

• SDSL (Single Line Digital Subscriber Line) or SHDSL – a technology that delivers the same data rates and distance as HDSL, but on a single copper pair. It is desired for any application needing symmetric access (such as services and power remote LAN users).



• ADSL (Asymmetrical Digital Subscriber Line) – as its name implies, ADSL transmits an asymmetric data stream, with much more were going downstream to the subscriber (2Mbps) and much less going back/up (768Kbps). It is really intended for the last leg into a customer’s premises. It targets asymmetric applications like VOD, Internet access and home shopping.

• VDSL (Very-high-rate Digital Subscriber Line) – VDSL is an asymmetric transceiver at data rates higher than ADSL but over shorter lines (1.5km). Its downstream speed could be as high as 13-52Mbps while its upstream speed is 1.6-2.3Mbps.

Exhibit 4-1 provides an overview on the functions and capability of the various DSL technologies.

Exhibit 4-1: Copper Access Transmission Technologies (DSL)

ISDN (IDSL) HDSL SDSL ADSL VDSL

Data rate 160Kbps 1.5-2Mbps (Upstream)

1.5-2Mbps (Downstream)

1.5-2Mbps (Upstream)

1.5-2Mbps (Downstream)

768Kbps (Upstream)

2-8Mbps (Downstream)

1.5-2.3Mbps (Upstream)

13-52Mbps (Downstream)

Mode Symmetrical (Duplex)

Symmetrical (Duplex)

Symmetrical (Duplex)

Asymmetrical Asymmetrical

Distance 6km Up to 5km Up to 4.5km Up to 2km Up to 1.5km

Typical Applications

ISDN, voice and data communications

T1/E1 service, WAN & LAN access, Service access, Internet access, Connection of cellular base stations, video conferencing

Same as HDSL plus premises access for symmetric services

Internet access, Video on demand, Interactive multimedia

Full service access (same as ADSL plus HDTV and medical imaging)

Source: RHK (1999)

Appendix B provides a wider range of DSL technologies and their characteristics.



DSL technologies are expanding at different paces†

Although techniques are similar for all DSL modems, products have emerged in the marketplace at different rates. Exhibit 4-2 illustrates the relative maturity of the main DSL technologies: ISDN is mature, HDSL is growing, ADSL is evolving, and VDSL is in its infancy.

Exhibit 4-2: Maturity Curve for DSL Technologies

Market

VDSL

ADSL

HDSL

IDSN


Market

VDSL

ADSL

HDSL

IDSN


Source: RHK (2000)

The more mature HDSL is currently being deployed by many operators in Australia, including Telstra, XYZed and Primus. Being a symmetric system with 1.5Mbps-2Mbps both upstream and downstream, HDSL is primarily for business connectivity services (PBX network connection, cellular antenna station, private data network).

ADSL was trialled by operators at Telstra exchanges since early 2000. It is being deployed by Telstra, RequestDSL and AAPT in metro areas in major capital cities. ADSL, being an asymmetric system, is more suitable for high-speed Internet access and some video applications. Although ADSL is also suitable for broadband Internet for the residential and consumer users, current perceived high ULL pricing may deter ADSL adoption in these segments, according to operators who participated in the study.

†This section is based on RHK (2000) – Access Network System



SHDSL attempts to improve on HDSL by requiring only a single line and by integrating low-level services of interest to small business. It suits the market for individual subscriber premises, which are often equipped with a single telephone line. XYZed and RequestDSL are planning to install SHDSL by the end of 2001. The SHDSL technology is considered more appropriate for business grade services, voice applications, point of presence (POP) applications and is also ideal for tails from exchanges to points of presence.

VDSL is a next generation, high bandwidth access technology currently in deployment. It is capable of providing full service access (same as ADSL) plus HDTV and medical imaging service. TransACT, a Canberra based company, is the only operator in Australia that is taking a quantum leap in deploying a VDSL network.

How does an ADSL Network Work

Telstra’s ADSL architecture is depicted in the following diagram. The equivalent to a modem rack for ADSL is something called a Digital Subscriber Line Access Multiplexer (DSLAM) which is a rack of ADSL line cards with data multiplexed into a backbone network interface/ connection (T1, OC3, DS3, ATM or frame relay). Telstra utilises an Alcatel DSLAM for ADSL access. (Note: ADSL equipment is different to HDSL equipment.)

Exhibit 4-3: ADSL Access Network

Source: Telstra

Section 1.3 provides an overview on DSL technology for telecommunications network in comparison to other technologies.



4.2 The Deployment of DSL in Australia

4.2.1 The Launch of DSL

Telecommunications in Australia, since deregulation in 1997, has undergone a dramatic transformation from an industry with limited choices of service provider to one in which there are now more than 70 ULL licensed carriers.

On 4 August 1999, the ACCC declared access to Telstra’s local network, the last part of Telstra’s original network monopoly, allowing competitors direct access to its copper lines that connect customers to local telephone exchanges. The decision was made to enable Telstra’s competitors to provide local and long-distance services as well as advanced high-speed services to customers at lower prices.

In August 2000, Telstra opened its telephone exchanges to any carrier wishing to deploy equipment facilitating high-speed data transmission over copper wire. Although Telstra fully owns the copper network, the ACCC’s declaration requires Telstra to rent it out as unconditioned local loop (ULL) which means without a dial tone, to ADSL competitors.

Unbundling of the local loop was perhaps the most important development in the local access market not only for the telecommunications industry itself but also for Australian businesses and residential users.

Since late 2000, the DSL market has developed with Telstra announcing the first commercial deal which allows access to the company’s copper customer phone lines. RequestDSL became Telstra’s first wholesale ULLS (unconditioned local loop service) customer in September 2000.

Many new companies are rushing to compete with Telstra in the estimated $2 billion market for high-speed access. C&W Optus subsidiary XYZed launched its wholesale DSL service nationwide, and Primus Telecommunications launched its DSL service in August 2000.

Exhibit 4-4 provides an overview on the xDSL local access network deployment in Australia.



Exhibit 4-4: XDSL Operator Overview

Operator Development Status Standard Coverage

AAPT • Trial in late 2000

• Deployment in early 2001

ADSL • CBDs in Sydney, Melbourne, Brisbane(c), Adelaide(c), Perth(c) and Hobart(c).

• 60 metro cities (2002/3)

Agile • Launched in early 2001 ADSL Adelaide CBD

C&W Optus (XYZed) • Deployment in late 2000

• Service was launched early 2001

HDSL, SDSL and ADSL,

• Sydney CBD

• Melbourne CBD

• Brisbane CBD • Perth CBD

Davnet • Deployment in 2000 HDSL Melbourne CBD and Sydney CBD

FlowCommunications (Macrocom)

2001/02 ADSL Metro areas in Melbourne, Sydney, Brisbane(p) and Perth(p)

IiNet Limited Reseller Reselling Telstra’s ADSL service

Netcomm • Deployment in late 2000

• Service to be launched in mid 2001

ADSL • Sydney CBD (2001)

• Melbourne CBD (2001)

• Other capital cities (2002)

One.Tel • Planned to construct DSL network in 2001 which was terminated in mid 2001

ADSL Metro areas in Melbourne, Sydney, Adelaide(p), Perth(p) and Brisbane(p)

Pacific Internet (Pacnet)

• Trial in late 2000

• Reselling Telstra’s service in early 2001

Reselling Telstra’s ADSL service

Pahth Telecom • Plans to construct DSL network in 2001

ADSL • Perth Metro (2001) • Adelaide (2002)

Primus • Constructing DSL network in 2001

HDSL ADSL

• Sydney CBD • Melbourne CBD

Qala 2002 ADSL Sydney and Melbourne

RequestDSL • Deployment in late 2000

• Service was launched early 2001

ADSL and SHDSL Metro areas in Melbourne, Sydney, Brisbane, Adelaide and Perth

Telstra Launched in 1999 ADSL and HDSL Urban areas in Sydney, Melbourne, Canberra, Adelaide, Perth, Darwin and Hobart, Brisbane, Toowoomba, Launceston and Bunbury (60 regional towns)

TransACT • Deployment in early 2001

VDSL • Canberra Metro




There are also some non-exchange based DSL services that are offered by Davnet, Intelligent Public Networks and Smarter DSL. These utilise the old Telstra service PAPL (Permitted Attached Private Line).

Although many companies are expressing interest in entering the local access market utilising xDSL technology, many indicate they will not be actually deploying their own networks. This is claimed to be the case for the following reasons.

Firstly, the xDSL equipment is costly and many of start-up companies do not have the appropriate funding levels to finance the network roll out.

Secondly, the ULL pricing is too high for participants to make a business case, at this stage.

Thirdly, many of these companies do not have the critical mass to secure the user base necessary to break even.

It is therefore believed Telstra will remain the major player in the xDSL network with access to exchanges and an established user base. XYZed, which has installed DSLAM in more than 100 exchanges, is expected to be the major competitor to Telstra. RequestDSL with 88 exchanges (by end of 2001) is also a major DSL service provider.



4.3 DSL Network Rollout

The deregulation of the local access network with the unbundling of the local loop in late 1999 has attracted a list of carriers to invest in the broadband local access market. Aspirant carriers have been conducting trials and testing DSL equipment in Telstra’s exchanges in Sydney and Melbourne since early 2000.

Major existing carriers including C&W Optus, Primus and RequestDSL have launched their respective DSL networks since early 2001. In addition, a host of new start up companies including ecom, Pacnet, Netcomm and Qala are also in the process of deploying their XDSL networks.

Some of the operators like Primus and Macquarie will have their own network as well as reselling Telstra’s service. However, due to the huge investment cost, the claimed lengthy process in gaining access† and the increased competition, not many of the aspirant operators are expected to roll out their networks. They may become resellers, like iiNet and Pacnet.

Exhibit 4-5 provides an overview of the XDSL network deployment in Australia.

Exhibit 4-5: XDSL Network Overview

Operator Standard Investment Infrastructure

AAPT ADSL $250m** (2000-2003) 50 to 90 exchanges (2001-2003)


ADSL 10 exchanges**

Netcomm ADSL $30m** 100 exchanges (by 2003)**

C&W Optus (XYZed) HDSL, SDSL and ADSL

$150m* (2000-2001) 50 exchanges (2000)

103 exchanges (2001)

Pahth Telecom ADSL $500,000* 1 exchange (2002)

2 exchanges (2003)

Primus HDSL and ADSL $350m* (2000-2001) 32 to 55 exchanges (2001-2003)**

RequestDSL ADSL $50m ($250: 2000-2003)*

5 exchanges (2000)

50-88 exchanges (2001)

† Telstra maintains that there are necessary procedures and testings involved to facilitate access and interconnection.



Operator Standard Investment Infrastructure

Telstra HDSL and ADSL $450m* (2000-2002) 250 exchanges (2000)

700 exchanges (2001)

1100 exchanges (2002)**

1300 exchanges (2003)**

TransACT VDSL $80m ($160m: 2000-2003)*

2 exchanges

Davnet HDSL $50m (2000-2002)** 18 to 30 exchanges (2001-2002)**

Agile ADSL

One.Tel ADSL 15 to 30 exchanges (2001)

35 to 50 exchanges (2002)

* sourced from media publications ** sourced from BIS Shrapnel’s estimates

Based on the submission from operators, BIS Shrapnel estimates that more than $1.9bn will be invested by companies in their DSL network in Australia in the next three years (2001-2003). According to XYZed, the DSL market revenue is believed to be $2bn annually.

According to recent press releases and media publications, Telstra plans to spend around A$440m on its ADSL network in the next two years (2001-2002). Primus has indicated that it plans to invest A$350m in 2000/01, while TransACT is committing $160m to a VDSL network.

ULL access pricing is the most important factor to the growth of xDSL deployment in Australia, according to XYZed and Macquarie. This has effectively slowed down the growth of xDSL services. In addition, entrants must negotiate access to Telstra exchanges and meet the technical requirements required to ensure the integrity of Telstra’s network. Many aspiring xDSL operators might not be able to launch their networks as a result of the expensive DSL equipment (DSLAM) and the cost related to gaining access.



According to many xDSL operators interviewed during the study, the current ULL price is too high. The current average Telstra asking price of $40 to $60 per month for Zone 1 and Zone 2. In the short term, many operators are not considering any major network expansion unless the ULL pricing is reduced below $20.

For example, XYZed has already identified the profitable exchange sites (103) for its xDSL deployment taking into consideration the cost, demand and ease of deployment. These exchanges cover only the main business areas in the major cities, which are not accessible to most residential users.

ADSL Network Coverage in Australia

The maps below provide an overview on the proposed ADSL network coverage by Telstra.

Victoria

Source: Telstra’s website



New South Wales




South Australia


Western Australia




Queensland




Tasmania


Australian Capital Territory




Northern Territory




4.4 XDSL Service and User

4.4.1 Service Application

Access speeds using DSL modems can be up to 140 times faster than a 56kbps dial-up modem. DSL modems allow transfer of bigger data packets and are not affected by waiting times or dropouts because users have their own designated line. DSL technology enables and supports a wide range of access connectivity services and broadband services.

HDSL

HDSL is considered a better way of transmitting T1 or E1 over twisted pair copper lines. It uses less bandwidth and requires no repeaters. Using more advanced modulation techniques, HDSL transmits 1.544Mbps or 2.048Mbps in bandwidths ranging from 80kHz to 240kHz, depending upon the specific technique.

Typical applications include PBX network connections, cellular antenna stations, digital loop carrier systems, inter-exchange POPs, Internet servers, and private data networks. As HDSL is the most mature of DSL technologies with rates above a megabit, it will be used for early-adopter premises applications for Internet and remote LAN access.

ADSL

ADSL followed on the heels of HDSL, but is really intended for the last leg into a customer’s premises. As its name implies, ADSL transmits an asymmetric data stream, with much more going downstream to the subscriber and much less coming back.

The preponderance of target applications for digital subscriber services are asymmetric. Video on demand, home shopping, Internet access, remote LAN access, multimedia access, specialised PC services all feature high data rate demands downstream to the subscriber, but relatively low data rates demands upstream. MPEG movies with simulated VCR controls, for example, require 1.5 or 3.0Mbps downstream, but can work quite satisfactory with no more than 64Kbps (or 16Kbps) upstream.



SHDSL

The single-pair, high bit-rate Digital Subscriber Line (SHDSL) technology allows network operators to offer leased-line services to business customers over existing copper wire networks more efficiently. With a wider coverage (about 5km) SHDSL transmits data, voice and video over distances not available from other forms of symmetric DSL technology. The standard, called G.991.2, approved by ITU in late 2000 permits data rates from 192Kbps to 312Kbps. It can also carry T1 (1544Kbps), E1 (2048Kbps), ISDN (integrated services digital network), ATM (synchronous transfer mode) and Internet Protocol signal modes.

G.991.2 is designed to eliminate interference with other DSL systems operating on the same cables. The ability of SHDSL to handle different signal modes is settled at the start of a data transmission, through the use of the ITU’s G.994.1 handshake protocol.

VDSL

VDSL was developed to support exceptionally high-bandwidth applications such as High-Definition Television (HDTV). It is not as widely deployed as other forms of DSL service. However, VDSL can achieve data rates up to approximately 51,840Kbps, making it the fastest available form of DSL.

Like most DSL technologies, the performance of VDSL depends significantly on the physical distance traversed by phone wiring – shorter distances mean faster networking.

DSL Network Service and Application

Market inquiries indicated that certain services tend to be regarded as ‘residential services’ (eg, high bandwidth carriage services supplied using ADSL), whereas others tend to be regarded as ‘business services’ (eg, high bandwidth carriage services using HDSL).

The major traffic on DSL networks in Australia will be data, accounting for about 80% and 90% network utilisation.

Exhibit 4-6 provides an overview on the xDSL network traffic and service application.



Exhibit 4-6: XDSL Network Traffic and Application (2001 to 2003)

Operator Standard Traffic Application

AAPT ADSL Voice (10%) Data (90% including layer 2 data-video)

High speed Internet, VoDSL, FR, IPVPN, layer 2 services (ISDN, Megalink, Ethernet)


ADSL Data (80%) Voice (15%) Video (5%)

C&W Optus (XYZed) HDSL, SDSL and ADSL,

Data (93%) Voice (5%) Video (2%)

T1 and E1 connectivity, Internet access and leased services.

Pahth Telecom ADSL

Primus HDSL ADSL

Voice (33%) Data (66%) Video (1%)

Voice, data, high speed Internet and video

RequestDSL ADSL Voice (20%) Data (80%)

Voice, Data, Multimedia, ATM, FR and Ethernet

Telstra HDSL and ADSL

High speed Internet, VoD, interactive TV and multimedia services

TransACT VDSL Telephone, data, Internet, VoD, interactive and multimedia services

Davnet HDSL Voice (10%) Data (80%) Video (10%)



4.4.2 Target User

The target market of DSL services is not the home, but the small to medium-size enterprises (SMEs) which are stuck in the analogue copper age. Currently, the only increased bandwidth option for those businesses is ISDN, but even for businesses with 10 or more telephone lines, ISDN is still too expensive. (see Section 3.5). The first pricing programs are beginning to emerge for DSL services and they are significantly cheaper than ISDN and faster.

Many of the xDSL service providers including XYZed Optus, Davnet and Request XDSL are targeting large corporate and medium business users in CBD and Metro areas in the capital cities.

Apart from Telstra, not many operators believe the current environment is right for market development of the residential sector due to the ULL pricing structure. Telstra’s ADSL is targeting at the residential users.

Some xDSL operators believe that 30,000 or so ISDN users (mostly SME) are likely to convert to ADSL.

There is a market demand from small businesses. The needs of about 1 million small businesses have until recently been largely ignored by existing carriers building broadband networks. Companies such as Davnet, FlowCom, Netcomm and Macquarie Corporate Telecommunications have all focussed on the corporate market.

Some start-up and niche companies like eCom and Pahth are looking into the small to medium enterprises and small-office-home-office (SOHO) markets. However, in short to medium term, xDSL deployment will remain in the city CBD and metro areas with large business users.

According to Neighbourhood Cable, rural and regional users are unlikely to enjoy the new DSL service as the new broadband DSL technologies deployed by Telstra and other operators cannot work effectively in the rural and regional areas. The DSL technologies are distance sensitive which perform better within a range of 2km to 3km from telephone exchanges.

However, in the rural and regional areas, the distances between exchanges are likely to be more than 5km apart. In addition, the quality of the copper underground will also have an impact on the performance of xDSL technology.



Exhibit 4-7 provides an overview on the xDSL target user and coverage focus.

Exhibit 4-7: XDSL Coverage Focus and Target User

Operator Standard Target User Coverage Focus

AAPT ADSL Corporate and SME business CBD areas


ADSL Large business CBD and metro areas

C&W Optus (XYZed) HDSL, SDSL and ADSL,

Large corporate, retail carrier and medium business

Metro areas

Pahth Telecom ADSL SME business and large local companies

CBD and metro areas

Primus HDSL ADSL

Large to medium businesses (HDSL)

SME business (ADSL)

CBD and metro areas

RequestDSL ADSL Large corporate and retail carriers CBD areas

Telstra HDSL and ADSL

SME and residential Metro and urban areas

TransACT VDSL Government, business and residential users

Davnet HDSL Corporate and large business CBD areas



4.5 XDSL Market Perspective in Australia

4.5.1 Market Overview

In Britain, businesses have been angered by the failure of the country’s telecommunications regulator, Oftel, to introduce sustainable competition to the market. Oftel has primarily come under attack because the country lacks high-speed access networks such as ADSL. In Australia, the Australian Competition and Consumer Commission is also coming under pressure to establish a healthy competitive environment.

As mentioned earlier in August 2000, the ACCC mandated access to Telstra’s ULL service. This might have been the catalyst for Australia to join the rest of the world in the uptake of broadband, defined as services providing speeds of 2Mbps or faster. However, disagreements over the fee that Telstra charges for access to copper continue and administrative delay have perpetuated the uncertainty of the ultimate cost of broadband service and its adoption in Australia.

Australia is behind in DSL compared to other countries. For example, the Korean administration mandated the rollout of broadband across the country in 1998/99, and has more than one million lines of DSL installed.

The US had about 2.2m DSL lines in use at the end of 2000, compared to 10,000 in Australia.

According to many market participants the high price of DSL services is one of the major inhibiting factors for DSL adoption in Australia. Data in Appendix C indicates the price of ADSL services provided by Telstra are relatively high compared to those offered by telecommunications companies in several other countries.



4.5.2 Drivers and Inhibitors

Drivers

The principal driver for broadband enabling technologies like DSL services is the scarcity of bandwidth in the access network. The expectation of strong market demand for bandwidth intensive services such as data applications and multi-link voice services (voice over DSL or voice over IP) has also contributed to the growing deployment of DSL in Australia.

According to XYZed, DSL service is the ultimate high-speed access service for business. It offers scalability, security, bandwidth and service availability assurances. It is also substantially more cost effective than current market offerings including FTTC and HFC based services. New companies will compete for business against alternative high-speed services such as DDS and ISDN. Some of these operators will also extend the market for broadband services by targeting businesses that do not have access to optical fibre, or find the costs associated with current products too high.

Inhibitors

Equipment for xDSL is costly and many start-up companies require extensive funding to finance network roll out. At present ULL pricing is perceived to be too high for investors to make a reasonable return on their investments. Telstra will remain the major player with access to exchange and established user base.

In addition with many competitors some will struggle as price sensitivity puts pressure on profitability.

On top of the perceived high ULL cost, new operators are also required to pay Telstra TEBA cost (cost related to floor space and the relocation of equipment at Telstra’s exchange sites).

In addition, the installation of RIMS (Remote Integrated Multiplexer) will restrict DSL network deployment in certain exchanges.



As part of its network modernisation plans, Telstra is reducing the amount of copper in the network. Particularly, it is installing RIMs and IRIMs at points between the former exchange building and customer premises, linking the RIM/IRIM to the exchange building by means of optical fibre.

Given that xDSL technology is designed for copper wires, where Telstra has introduced a RIM or IRIM, service providers would no longer be able to interconnect at the former exchange building but would need to interconnect at the street based housing containing the RIM/IRIM.

During the interview program in the study, many companies, like Macquarie and XYZed said negotiating access to Telstra’s unconditional local loop was a difficult process. According to them, it normally takes about three to six months to finalise the interconnection and site co-location. However, Telstra points out that the process can be completed in a time as short as two months depending on circumstances.

4.5.3 XDSL Forecasts

ADSL is set to become the de facto standard for high speed Internet access in the future, as it offers end-users from 20 to 200 times faster Internet access, as well as offering ISP’s and carriers a way to bundle services such as Video on Demand (VoD), gaming and Application Service Provider (ASP) access. Recent studies by RHK (2000) indicate that the worldwide market for xDSL technology could be worth US$1.2 billion per year and that the Asia-Pacific region alone has potential for around five million users by 2003.

According to IDC (2000), the DSL subscriber base will easily outpace cable adoption and will quadruple the size of the cable market by 2004 with a user base of 2.1m. The forecast was based on the assumption that DSL would expand beyond the business market. IDC estimated that there were 20,000 DSL users in Australia at the end of 2000.



However, the US based Strategis Group is more conservative in its DSL forecasts. According to the Strategis Group (1999), DSL will encounter challenge from cable modems in the residential high speed Internet access market. Combined DSL and cable modem penetration of total households will reach 10-30% by 2003 in several markets, including Australia, Canada, The Netherlands, Singapore, Sweden and the US, with DSL expected to account for about 30% of the broadband market.

Cable modems have the current lead because they enjoy a first-to-market advantage, and are more popular than DSL in almost every country.

On the other hand, according to Computerworld, 11 December 2000, Telstra forecasts that it would have 650,000 ADSL customers by 2005, which is regarded as very conservative by many operators.

By 2005, BIS Shrapnel forecasts around 1.7m Australians will use high-speed digital subscriber line (DSL) technology to connect to the Internet. The forecasts take into consideration the competition from cable modem the pricing barrier for the residential market.

Exhibit 4-8 provides an overview on the forecasts of DSL user in Australia.

Exhibit 4-8: XDSL Forecasts

0 10,000 80,000250,000

700,000

1,200,000

1,700,000

0

1,000,000

2,000,000

1999 2000 2001 2002 2003 2004 2005

Year

User

Source: BIS Shrapnel and RHK.



5. FIBRE OPTIC NETWORK


Fibre optic network is a technology that uses glass (or plastic) threads (fibres) to transmit data. A fibre optic cable consists of a bundle of glass threads, each of which is capable of transmitting messages modulated onto light waves.

Fibre optics use light rather than electricity to transmit data. The original electrical signal is converted to light and sent down the fibre optic cable, in which the light bounces off the inner silica shield, called cladding. A receiver converts the light back to electricity at the other end.

Fibre optics has several advantages over traditional metal communications lines:

• Fibre optic cables have a much greater bandwidth than metal cables. This means that they can carry more data.

• Fibre optic cables are less susceptible than metal cables to interference.

• Fibre optic cables are much thinner and lighter than metal wires.

• Data can be transmitted digitally (the natural form for computer data) rather than analogically.

Section 1.3 provides an overview on the fibre optic technology for telecommunications network in comparison to other technologies.

There are several different types of fibre cable:

• Singlemode: Singlemode fibre is a single, tiny strand of fibre optic glass, usually 7.1 or 8.5mm in diameter, that is used in telephone applications, cable television, or campus backbones. It only allows a single ray of light to pass through the fibre at a time. This type of cable lends itself to very long runs.

• Multimode: Multimode’s fibre optic core is much larger, usually 62.5mm in diameter, than that of the singlemode fibre. This type of fibre can accommodate many rays along its core simultaneously lending itself to voice and data applications. Telephone companies typically use this type of fibre because it can accommodate hundreds of phone conversations along one fibre.



How Does a Fibre Optic Network Work

A lightwave system consists of a transmitter, fibre optic cable, regenerators, and a receiver.

The first is the light source in the transmitter, which can be a light emitting diode (LED) or a laser. This source is modulated, that is, turned on or off in a digital system to represent the binary digits (1s and 0s) it receives from an electrical transmission system.

The next is the fibre optic cable, which can consist of a single strand of specially manufactured glass or multiple strands bundled together. Each fibre optic strand is as thick as a human hair, but the actual cable may measure a quarter inch to 1½ inch in diameter after the strands have been wrapped in protective coverings.

The third part of the lightwave system is the regenerator. As a photonic signal travels through a fibre optic strand, it attenuates, beginning to loose its shape. If it isn’t regenerated periodically, the signal won’t be recognizable at the receiving end. These regenerators can either be optical-electrical-optical devices, usually found in terrestrial systems, or all-optical systems found in undersea lightwave systems.

The fourth part of the system is the photodetector in the receiver, which takes the optical signal from the fibre and converts it into an electrical signal for transmission through the non-optical portions of a network.

Exhibit 5-1: Four Basic Parts of a Optic Fibre System

Source: All About Network



5.1.1 The Deployment of Optic Fibre Network

Since the 1980s, digital lightwave systems rapidly began replacing analogue microwave transmission facilities in long distance networks throughout the world, and later began to replace the digital copper wire T1 facilities in the local networks. Today, a number of systems are being evaluated to provide lightwave connectivity in the subscriber line, that portion of the telephone network that uses copper wire, called twisted pair, to connect homes and small businesses to local switching offices.

According to the National Bandwidth Inquiry (2000), the information carrying capacity of one optical fibre strand is undergoing a revolution. In the mid 1980s one Telstra fibre strand between Sydney and Melbourne could carry either 140 to 565Mbps (equal to 0.14 or 0.565Gbps). Today the same fibres routinely carry 40Gbps and could easily be upgraded to 80Gbps. In early 2000, Fujitsu, has announced a 320Gbps system based on one fibre. In late 2000 Nortel released a 1.5Tbps (1600Gbps) system.

To significantly increase bandwidth on terrestrial land based optical fibre networks to meet increasing demand, network providers are faced with three possible responses:

• install more optical fibres

• increase the bit rate and therefore the capacity of existing fibre using time division multiplexing (TDM) based on SDH system

• increase the capacity of existing fibre using wave division multiplexing (WDM).



5.1.2 Cable Installation and Dark Fibre

Dark fibre refers to unused fibre-optical cable. Many companies lay more lines than what’s needed in order to curb costs of having to do it again in the future. The dark fibre could be “lit” or utilised by connecting them to electronic equipment.

Fibre cables are available in many sizes and types. The selection of cable size and type depends on business strategy, demand forecasts, network architecture, type of installation and many other factors. The cable selection decisions are a complex mix of business analysis and network design. In general, cable sizes being used for networks are increasing, driven by the rapidly increasing and uncertain demand for bandwidth, and reflecting the low marginal cost of additional fibres.

Cable sizes are usually provided in modular quantities, typically in bundles of 12 fibres. Typical fibre counts are 12, 24, 36, 48, 60, 72, 90, 120, 144, 240. Some of these are special sizes for select customers and may not be generally available.

While 24 and 36 core cables used to be the norm in intra-city links, the trend is now to larger cables and fibre counts of 60 and 120 fibres or more are being used for metropolitan and even suburban installations. Cable capacities in these situations may have an element of dark fibre capacity for use in customer service provision but are unlikely to have any allowance for wholesale provision of dark fibres to other service providers.

For national long distance routes, 12, 24 fibre cables are used and 36 fibre cable is used in some cases if an omnibus, that is a country town add and drop, network is being established. Even higher fibre counts (48 fibre) may be used on some sections of long distance routes.

The dark strands can be leased to individuals or other companies who want to establish optical connections among their own locations.

In this case, the fibre is neither controlled by nor sonneted to the phone company. Instead, the company or individual provides the necessary components to make it functional. According to the National Bandwidth Inquiry (2000), Telstra and C&W Optus have substantial dark fibre (70% to 80%) in their network, which can be utilised as required.



5.1.3 SDH (Synchronous Digital Hierarchy)†

SDH, short for Synchronous Digital Hierarchy, is an international standard for synchronous data transmission over fibre optic cables. The North American equivalent of SDH is SONET.

A synchronous mode of transmission means that the laser signals flowing through an optical fibre system have been synchronised to an external clock. The resulting benefit is that data streams transmitting voice, data, and images through the fibre system flow in a steady, regulated manner so that each stream of light can readily be identified and easily extracted for delivery or routing. SDH based on TDM increases the capacity of a fibre by slicing time into smaller intervals at the electronic layer, thereby increasing the frequency of laser flashes and this enables more bits (data) to be transmitted per second. Traditionally, this has been the industry method of choice to increase the transmission capacity of existing and new optical fibre networks.

In addition, SDH system is also known for its capacity to operate in self-healing rings that offer network redundancy and protection against faults. It also provides the ability to add and subtract capacity on a fibre, to create network meshing or serve a population centre via a spur or ring off a main route.

Many fibre optic network operators have deployed SDH system. These include Telstra, C&W Optus, AAPT, Primus, PowerTel and Swiftel.

5.1.4 WDM (Wavelength Division Multiplexing)†

WDM is another more recent multiplexing technology which can significantly increase the capacity of existing optical fibre. Dense Wavelength Division Multiplexing (DWDM) is an optical technology used to increase bandwidth over existing fibre optic backbones.

DWDM works by combining and transmitting multiple signals simultaneously at different wavelengths on the same fibre. In effect, one fibre is transformed into multiple virtual fibres.

† These sections are based on the National Bandwidth Inquiry (2000).



A key advantage to DWDM is that its protocol is bit-rate independent. DWDM-based networks can transmit data in IP, ATM, SONET/SDH, and Ethernet, and handle bit-rates between 100Mb/s and 2.5Gb/s. Therefore DWDM-based networks can carry different types of traffic at different speeds over an optical channel. (see Appendix B Bandwidth)

DWDM can usually be installed on existing in-ground fibre without digging it up and at a cost which is only a fraction of installing new fibre. This technology has led the network providers to use a new just-in-time capacity provisioning model. For example, one fibre pair on an older 12 pair cable can be upgraded to 16 colour DWDM and carry more capacity than the whole original cable. As and when demand increases, a second pair could be upgraded to more than double capacity again. The lead time for such upgrades is a few weeks to a few months, meaning that network providers can be assured that on optical fibre routes, a large excess of capacity an be made available in a relatively short time and at relatively low cost.

Over the next five years the capacity of DWDM systems is set to dramatically increase. For example, Nortel announced in mid 1999 the development of a 160-channel DWDM product called OPTera 1600G which will provide 160 channels each of 10Gbps or 1.6Tbps. The technology was made commercially available in 2000. In early 2000 Nortel announced that it had successfully demonstrated a 480kms long test system carrying up to 6.4Tbps on one fibre. The system uses an 80Gbps transmission platform on up to 80-channel DWDM. The product should be commercially available in 2001 and existing OPTera 1600G installations will be capable of being scaled up to the new capacity.

Companies like Telstra, PowerTel and C&W Optus have deployed DWDM to boost their fibre optic network capacity. Operators including Nextgen, Amcom and Swiftel are also in the process of deploying DWDM technology.

However, for local access centric small operators like Ipera and Primus, there is no immediate need to install DWDM technology. They have sufficient network capacity as more than enough fibres (dark fibre) have been laid when they constructed their networks in 2000.



5.2 The Deployment of Optic Fibre in Australia

Telstra has already laid 140,000km sheath of broadband optic fibre cables in the ground in Australia while C&W Optus Limited has 8,700 km of cable laid, across Australia. In addition, PowerTel has completed its east coast network deploying over 2,400km of cable.

Fibre optic cabling was a focus in Australia in 1999/2000, with a multitude of companies deploying their fibre optic networks as both local access as well as backbone transmission solutions.

Since 1999, a host of new companies like AAPT, Amcom, Nextgen and PowerTel has been rolling out the optic fibre networks in the eastern seaboard.

If these planned network deployments come to fruition, there will be eight backbone network providers on the heaviest traffic routes – Sydney-Melbourne and Sydney-Brisbane. However, it would also mean four facilities-based carriers on the Melbourne-Perth route, four on the Brisbane-Cairns route, and even three providers of connectivity between the mainland and Tasmania.

However, regional companies like Swiftel, SouthTel and Ipera are deploying their optical networks to the rural and regional areas.

Due to the demand of Internet and broadband services, optic fibre has also been deployed in the local access networks in CBD areas in major cities including Sydney, Melbourne, Brisbane, Canberra and Perth.

Apart from Telstra and C&W Optus, business and large corporate centric operators like Davnet, Primus and WorldCom have deployed small local optic fibre access networks in the CBD areas in Melbourne, Sydney and Brisbane.

BIS Shrapnel estimates that about $4bn will be invested by operators in their optic fibre networks in Australia in the next three years (2000-2002).

Nextgen and Amcom are investing about $850m and $165m in rolling out their respective networks. According to the Daily Telegraph, 29 June 2000, PowerTel has invested $250m in its optic fibre network. BIS Shrapnel estimates that Telstra has spent about $500m in expanding its optic network for the past two years.



Exhibit 5-2 provides an overview on the deployment of optic fibre in the local access network as well as backbone network in Australia.

Exhibit 5-2: Optic Fibre Network Operator Overview

Operator Operational Status Local Network Backbone Network

AAPT 2000 CBDs in Sydney, Melbourne, Brisbane, Adelaide, Canberra and Perth(p)

Agile 2000 Adelaide CBD

Amcom 1998 Perth CBD, Adelaide CBD, Darwin CBD(c) and Hobart CBD(c)

Perth-Kargoorlie Adelaide-Melbourne Adelaide-Kargoorlie(p)

Australia Fibre Network

2000 Brisbane-Sydney-Canberra-Melbourne (with regional spurs to Adelaide, Gold Coast and Geelong)

C&W Optus 1993/4 9 CBDs (Sydney, Melbourne, Brisbane, Canberra, Adelaide, Perth, Darwin, Hobart and Launceston)

Sydney-Canberra-Melbourne Sydney-Brisbane Melbourne-Adelaide Adelaide-Perth Darwin-Palmerston (outsourced) Brisbane-Cairns (outsourced)

Davnet 1999 CBDs in Sydney and Melbourne

Ipera 2000 Newcastle metro

Nava Network 2002 Sydney-Melbourne-Perth-Singapore

Nextgen (Leighton/ Macquarie)

2002 Melbourne-Sydney Sydney-Brisbane(c) Melbourne-Adelaide(c) Adelaide-Perth(p)

PowerTel 1999 CBDs in Sydney, Melbourne, Brisbane and Gold Coast(c), Newcastle(p) and Canberra(p)

Melbourne-Sydney-Brisbane Brisbane-Gold Coast(c)

Primus 2000 CBD areas in Sydney, Melbourne, Brisbane, Adelaide, Canberra and Perth(c)

Reef Network 2001 Brisbane-Cairns

SouthTel 2001 Regional areas in NSW(c) (Eurobodalla, Bega, Bateman Bay, Cooma and Penrith)

Swiftel 2001 Perth CBD and regional WA(p)

Telstra Since 1980 CBDs in Sydney, Melbourne, Brisbane, Adelaide, Perth, Canberra and Hobart

13 inter-capital city routes

TransACT 2001 Canberra metro

UE Com 1999 CBD and metro areas in Sydney, Melbourne and Brisbane

WorldCom 2000 Sydney CBD and Melbourne CBD

Notes: (c) = constructing; (p) = planning



5.3 Optic Fibre Network Rollout

5.3.1 Fibre Backbone Network Rollout

The capacity of fibre optic networks in Australia is far outstripping demand. The Australian Government conducted a national bandwidth inquiry (NBI) into Australia’s bandwidth capacity as at 23 May 2000. The NBI (2000) has found that up to 80% of optic fibre cable is not being used.

Many operators who participated in this study also said that Telstra is holding onto spare bandwidth and has pushed new operators to lay their own cable networks.

Telstra and C&W Optus have 52 fibre pairs on the Sydney-Melbourne route between them, but only a handful are “lit” or equipped to carry traffic. The rest are “dark” awaiting commissioning when the carriers deem that it’s justified by demand or competitive threat.

The Nextgen network, the fledging optic fibre operator is building a backbone network which will have 40-times the capacity of C&W Optus’ fibre optic cable. The 8400km network with a cost of $850m will link regional centres to State capitals as it winds its way south from Brisbane to Sydney, then to Melbourne, Adelaide and finally Perth.

Amcom and PowerTel have rolled out their fibre backbone networks in eastern seaboard.

International broadband developer Nava Networks backed by Dolphin Communications Partner is moving forward with a US$645 million fibre network linking Singapore, Jakarta, Perth, Melbourne and Sydney. Nava-1’s 9,000km cable system will be both submarine and terrestrial. A submarine link will connect Perth and Singapore with a branching unit into Jakarta. Another submarine system will link Perth and Melbourne, while a terrestrial loop, built in conjunction with an Australian terrestrial carrier, will connect Melbourne and Sydney.

Construction on the network is scheduled to begin in June 2001, with the system-availability data set for August 2002. Nava has already commissioned Fujitsu Ltd. (Tokyo) to provide the undersea cable portion of the network.



Exhibit 5-3 provides an overview on the fibre backbone network in Australia.

Exhibit 5-3: Backbone Fibre Optic Network Rollout

Operator Coverage Investment Infrastructure Capacity

Amcom 1. Perth-Kargoorlie

2. Adelaide-Melbourne

3. Adelaide-Kargoorlie(p)

$165m (2000-2003)*

Fibre Length=3875km - 850km (2001) - 2,500km (2002) - 3,800km (2003)

40Gbps (by 2002)


Brisbane-Sydney-Canberra-Melbourne (with regional spurs to Geelong, Adelaide and Gold Coast)

$200m (2000-2003)*

Fibre length = 4000km (by 2003)

Nextgen (Leighton/ Macquarie)

1. Melbourne-Sydney

2. Sydney-Brisbane(c)

3. Melbourne-Adelaide(c)

4. Adelaide-Perth(p)

- $300m (01) - $300m (02) - $200m (03) (total investment $850)*

Fibre length=8,400km - 2,169km (2001) - 5,747km (2002) - 8,440km (2003)

10Gbps

C&W Optus

1. Sydney-Canberra-Melbourne

2. Sydney-Brisbane

3. Melbourne-Adelaide

4. Adelaide-Perth

5. Darwin-Palmerston (JVP)

6. Brisbane-Cairns (Reef Network)

Fibre length=8,825km (2001)

10Gbps 40Gbps (2001/02)

Telstra 13 intercity routes $0.6bn (99) $0.7bn (00) (estimated)**

Fibre length – 140,000km 40Gbps 80Gbps (2002)

2.5Gbps to 40Gbps

PowerTel 1. Melbourne-Sydney-Brisbane (2200km)*

2. Brisbane-Gold Coast (200km)*

$250m* (1998-2000) $100m (2001)

Fibre Length=2400km - 2200km (2000) - 2400km (2001)

10Gbps

Reef Network

Brisbane-Cairns $80m (by 2001)* Fibre length = 1800km

Nava Network

Sydney-Melbourne-Perth-Singapore

US$645m* Fibre length = 9000km

2560Gbps

JVP = Joint Venture Project *Sourced from media publications **Sourced from BIS Shrapnel’s estimates



Exhibit 5-4: Backbone Fibre Optic Network – Incumbent Operators (Telstra, C&W Optus and PowerTel)

Darwin

Broome

Perth

Karratha

Alice Springs

Cairns

Brisbane

Adelaide

Melbourne

Hobart

Canberra

Wangaratta

Gold Coast

Newcastle

Sydney

Tamworth

TelstraC&W Optus

PowerTel

Source: Telstra, C&W Optus, PowerTel and BIS Shrapnel



Exhibit 5-5: Backbone Fibre Optic Network – New Operators (Amcom, Nextgen, AFN, Reef Network and Nava Network)

AmcomNextgenReef NetworkAFNNava Network

Jerriderie

Sing

apor

e

Source: Amcom, Nextgen, AFN and BIS Shrapnel



5.3.2 Fibre Local Access Network Rollout

Fibre in the loop system (or local access network) extends the transmission capacity of optical fibre into the residential and business distribution plant (FTTC), as well as to the home (FTTH). Although fibre local network technology currently outperform most other technologies (eg, xDSL and LMDS) in terms of bandwidth, the cost of deployment remains very high.

Unlike the US and some other Asian countries, where FTTH and FTTC have been deployed, fibre local access networks are only available in major CBD areas targeting corporate and business users.

Telstra and C&W Optus have installed 32,000km and 1,800km of fibre respectively in CBD areas in major cities. AAPT and Primus have deployed their fibre local networks in the major cities including Sydney, Melbourne Adelaide and Canberra.

There are also some niche operators which provide direct high-speed telecommunications connection for CBD buildings through an integrated communications infrastructure. Davnet, Ue Comm and Primus are some of the companies focussing on the so-called building-centric local exchange carrier (BLEC) or the in-building carrier. Such companies provide broadband connectivity to major commercial buildings by special arrangement with building management.

At the next level, Australia has a myriad of smaller regional networks like Agile, Ipera and TransACT and Smart Radio Systems (Cooma based) which are building fibre-optic networks in the regional cities.

Some of these local networks (eg, Ipera) are designed as “fibre rich, technology poor” by laying a large number of fibres. It is more economical in the long run to deploy 144 fibres as to 48 fibres on a local loop. These unused dark fibres can be utilised by connecting them to electronic systems depending on market demand and on an “as need be” basis.

Exhibit 5-4 provides an overview on the fibre local network in Australia.



Exhibit 5-6: Local Access Fibre Optic Network Rollout


AAPT Sydney, Melbourne, Brisbane, Adelaide, Canberra and Perth(p)

Fibre Length - 350km (2000) - 670km (2001)

Building wired* - 150 units (2000) - 250 units (2001)

165Mbps to 2.4Gbps

Agile Adelaide CBD

Amcom Perth CBD, Adelaide CBD, Darwin CBD(c) and Hobart CBD(c)

$30m (1999-2002)

Fibre Length - 310km (2000) - 500km (2001) - 610km (2002)

Building wired – 220 units (2000) – 270 units (2001)*

Davnet CBDs in Sydney, Melbourne, Brisbane and Perth

$35m** (by 2000) ($12m per 100 buildings)

Building wired - 70 units (2000) - 120 units (2001) - 300 units (2002)

10Mbps to 1Gbps

Ipera Newcastle CBD $1m* Fibre Length - 4km (2000)* - 8km (2001)

72Gbps (including dark fibre)

C&W Optus 9 CBDs (Sydney, Melbourne, Brisbane, Canberra, Adelaide, Perth, Darwin, Hobart and Launceston)

Fibre length - 1,750km (000) - 1,783km (2001) - 1,810km (2002)

Building wired - 1,200 units (2000) - 1,230 units (2001) - 1,300 units (2002)

155Mbps

Telstra CBD areas in Sydney, Melbourne, Brisbane, Canberra, Adelaide, Perth and Hobart

Fibre length = 32,000km

Building wired = 5,500 units (as at 2001)

155Mbps

PowerTel Sydney, Melbourne, Brisbane, Gold Coast, Newcastle(c) and Canberra(c)

$250m (including trunk optic fibre network)

Fibre Length - 195km (1999) - 480km (2000) - 600km (2001) - 650km (2002)


N x 155Mbps

Primus CBDs in Sydney, Melbourne, Brisbane, Adelaide, Canberra and Perth(c)

$30m (2000)** $20m (2001)**

Fibre length - 100km (2000) - 150km (2001)

620Mbps




Swiftel Perth CDB $4m (2000) $2m (2001)*

Fibre length - 15km (2000) - 20km (2001) - 25 to 30km (2002)

Building wired - 20 units (2001) - 30 units (2002)

2.5Gbps

TransACT Canberra metro $80m (including DSL network)

Reaching 100,000 homes in Canberra

2.5Gbps

UE Com CBD areas Sydney, Melbourne and Brisbane

$32m* (2000-2001)

Fibre length - 1100km (2000) - 2000km (2001) - 2500km (2002)


WorldCom CBD areas Sydney and Melbourne

$100m* 15km (1999) 2Mbps to 1Gbps

* sourced from media publications ** sourced from BIS Shrapnel’s estimates

Exhibit 5-7: Local Access Fibre Optic Network Coverage

Operator Sydney Melbourne Brisbane Adelaide Perth Hobart Canberra Other

Telstra O O O O O O O Darwin

C&W Optus

O O O O O O O Darwin

AAPT O O O O O O

Primus O O O C

PowerTel O O O P P C Gold Coast, Newcastle

WorldCom O O

Ue Comm O O O P C

Swiftel O

TransACT O

Agile O

Davnet O O O O

Amcom O O C Darwin(c)

Ipera Newcastle

O = Operating C = Constructing P = Planning



5.4 Fibre Network Service and User

5.4.1 Fibre Backbone Network – Service and User

According to KPMG (2000), the so-called wholesale long-distance data market, that is, for big corporates, Internet service providers and second-ranked phone companies is now worth about $4 billion.

Many companies like Nextgen and PowerTel decided to take on Telstra and C&W Optus by building their own backbone to link the metropolitan networks.

These latest entrants are not niche players and are aiming to reshape the wholesale market in the country by joining the race to criss-cross the country with new cable networks, which promises to deliver broadband services at reasonable prices.

The new players are promoting themselves as independent network operators serving domestic and international telecom providers, ISPs, and corporate and government users.

Inter-city transmission network is highly in demand due to the business concentration in this area. According to some operators interviewed during the study, inter-city prices quoted by the incumbent carriers were much higher than comparable US prices. The quote on the Sydney-Brisbane route was as much as a dozen times costlier than the busy Los Angeles-San Francisco corridor.

Nextgen believes large customers will shy away from small backbone network operators because they do not have their own back-up network. The perspective is that there are only going to be three networks with the quality, redundancy and assurance-level guarantees to which carriers and big corporations are going to commit themselves. However, some of these smaller backbone operators are leasing redundant capacity for emergencies.

Exhibit 5-8 provides an overview on the services and users targeted by fibre backbone network operator.



Exhibit 5-8: Target User and Service by Fibre Backbone Network Operator

Operator Target User Coverage Focus Service

Amcom Wholesale to carrier and service provider only (No retail at this stage)

Melbourne-Adelaide (850km)

Adelaide-Perth (2950km)

Voice, data, video, internet, multimedia, pay TV, ATM, FR and Ethernet


Wholesale to carriers, service providers and large businesses.

Major population and business centres along the East Coast of Australia

Nextgen • carrier’s carrier

• wideband solutions for wholesale customers

• telecom carrier, ISP, international carrier, large companies and government agencies.

East and West Coasts of Australia (70 populated centres with 95% population)

Wideband solutions for wholesale customers 155Mbps to 10Gbps

C&W Optus Large corporates, telecom carriers and government agencies.

Routes linking Australian capital cities except Darwin and Hobart

All services

Telstra Wholesale and retail markets

Australia wide All services

PowerTel Corporate, large business, telecom carrier, government and wholesale sectors in major cities

Major population and business centres along the East Coast of Australia

Voice, Data, Video, Internet, Pay TV, Broadcasting, ATM, FR and Ethernet



5.4.2 Fibre Local Network – Service and User

Despite the current frenzy in DSL technology as a local access solution, service providers recognise the value of placing fibre as deep into the loop as possible. High bandwidth capacity and improved reliability combined with potential opportunities for advanced services revenue are among the benefits that motivate some operators to continue deploying FTTL systems. Although ADSL is now the primary focus, FTTL deployments continue, albeit at a conservative pace.

According to C&W Optus and PowerTel, fibre local network was deployed (and continue to be deployed) to suit the need of large corporate and medium businesses which demand higher bandwidth and greater reliability.

Like Amcom, Swiftel is building major intra-city networks. But the companies’ strategies differ, with Amcom linking its city networks and Swiftel forging links with overseas carriers. This will allow Swiftel to generate traffic revenues from intra-city and city-to-overseas locations while Amcom is concentrating on intra-city and city-to-city traffic revenues.

The metropolitan networks in Perth, Darwin, Adelaide and soon Hobart – in conjunction with network access agreements being negotiated with eastern seaboard carriers for Sydney, Melbourne and Brisbane – would position the company to provide a national carriage service to wholesale, corporate and government customers.

According to the operators taking part in the study, it is currently uneconomical to launch a broadband access product to the residential market segment, and of questionable feasibility to the low end of the Small to Medium business segment. Most of the optic fibre networks are targeting at large business and government agencies in the CBD and metro areas.

Exhibit 5-9 provides an overview on the services and users targeted by fibre local network operator.



Exhibit 5-9: Target User and Service by Fibre Local Network Operator

Operator Target User Coverage Focus Service

Amcom • Corporate, business user and ISP in CBD areas.

• Wholesale market.

Perth, Adelaide, Darwin, Hobart and other cities excluding Melbourne and Sydney

Leased Lines Service

Frame Relay Service

ATM Service

AAPT • Corporate and large business

CBD areas in Sydney, Melbourne, Perth, Adelaide, Brisbane and Canberra

Davnet focusing on the so-called building-centric local exchange carrier (BLEC), by providing broadband connectivity to major commercial buildings by special arrangement with building management

CBD areas in Melbourne, Sydney, Perth and Brisbane

Business services and LAN centric services

Ipera SME business Newcastle CBD. Voice, Data, High Speed Internet, Ethernet, FR, ATM, IP, VPN

C&W Optus Corporate and large businesses

CBD and inner metro areas.

Telstra Large and medium businesses

CBD and inner metro areas.

All services

PowerTel Corporate, large business, telecom carrier, government and wholesale sectors

Sydney Metro, Brisbane CBD, Melbourne CBD, Gold Coast CBD

Voice, Data, Video, Internet, Pay TV, ATM, FR and Ethernet

Primus The CBD fibre optic network is being to link up Primus’ DSLAM exchanges in its xDSL networks.

Swiftel • Wholesale market (Carrier’s carrier)

• Overseas carriers

• Targeting large corporate, government agency and ISP

• Perth Metro and regional towns in WA

Voice, Data, High Speed Internet and Video

TransACT Government, Business, Residential

Canberra Telephone, data, Internet, Video on demand, Interactive TV and Multimedia service.

Ue Comm Corporate carrier (reseller), large business and government agencies in metro areas

Metro areas in Sydney, Melbourne, Brisbane, Adelaide(p) and Perth(p)

LAN-LAN connectivity, ATM and SDH network services, Direct Access Lines and Telehousing

WorldCom Targeting three markets in Australia; corporates, Internet service providers and wholesalers

To service its overseas clients in Sydney and Melbourne



5.5 Fibre Market Perspective in Australia

Competition Abound

Telstra has the largest network with 140,000km sheath of cable while C&W Optus has built an 8,800km cable network. In third place is PowerTel, a company backed by Williams Communications and DownTown Utilities, which has rolled out 2,400km of cable. Nextgen is planning to build a 8,800km fibre backbone network in the eastern seaboard which will be completed in 2002.

At the next level, Australia has a host of smaller regional networks. Typical is Ipera, Agile and SouthTel, building fibre-optic networks in regional cities of Victoria, SA and NSW, providing a range of telecoms, data transmission, and cable television services. All of them are chasing what seems to be skyrocketing demand for bandwidth capacity, but the question remains as to whether there is enough to ensure profitability for all the players.

However, some industry analysts say Australia is in danger of rolling out too much cable, too soon. The number of projects, existing and planned, will mean supply outstripping demand, leading to lower profit margins and, inevitably, consolidation within the industry. Merrill Lynch (2000) has forecast bandwidth prices will fall in Australia by 40% a year over the next five years.

Increased Demand

However, some operators (PowerTel and Nextgen) are optimistic that bandwidth price drop will encourage broadband services and in turn increasing traffic and demand. According to the US experience, price cuts stimulate disproportionate volume increases in the market. According to Nextgen, Lucent has predicted that a 10% price cut triggers a 15% volume increase in bandwidth demand.

Due to the pent up demand and previously highly priced bandwidth (by incumbents), businesses are beginning to utilise greater bandwidth as the price is dropping almost three fold (according to PowerTel).



Bandwidth purchases have been minimal, as companies perceive large bandwidth consumption to be prohibitively expensive.

However, according to PowerTel and Nextgen, many companies are now demanding more than a standard link. They include computer services firms seeking big data pipes; a health-care company seeking a huge pipe for X-Rays; and a Perth biomedical concern wanting a fast connection to CSIRO’s supercomputer in Melbourne. Some companies are asking for scalable connection due to uncertainty in bandwidth demand.

Price Drop

Bandwidth price is expected to drop by 40% over the next three years. With its conservative financing and huge planned capacity, Nextgen, billing itself as Australia’s “first broadband carriers’ carrier”, is slashing its bandwidth price.

However, Telstra and C&W Optus are also reacting to the competition by price reduction. According to Merrill Lynch (2000), if the market takes longer than expected to develop, and pricing deteriorates, the start-ups may have to merge to survive.

Alliance and Market Consolidation

Incumbents enjoy a sunk cost advantage because, with the basic infrastructure in place, new technology can be utilised to expand their systems.

The so-called dense wave division multiplexing (DWDM) allows carriers such as C&W Optus and Telstra to expand capacity by a factor of 40, and there are emerging technologies that can expand it by a factor of 1,000. With sunk cost already invested in laying cable on the ground, the incumbents are able to expand their networks with relatively small investments, which give them the competitive edge over new operators.

As a result, new operators are establishing alliances with one another to pool their resources to compete with the incumbents.

PowerTel has forged network sharing alliances with Ue Comm and Amcom. Meanwhile, ntl is upgrading its national microwave TV distribution network to carrier standard and establishing itself as a potential alliance partner for the regions.



The Renaissance of Fibre Deployment in CAN

Many operators believe that DSL will take the focus off CAN cable deployment for a short period, however the existing copper cable resource is very limited, particularly in dense areas such as CBDs, and Telstra will dominate these areas with their ADSL product. However, xDSL is not a true broadband service (with 1.5Mbps bandwidth) and is limited in application compared to optic fibre. It will come as a bit of a shock to non-Telstra DSL providers that there is a lot of pair gain systems in the CAN and that the copper network is not always up to carrying DSL services. Frustration will force service providers who can afford it to look back to cable deployment options.

Some commentators claim, that DSL is almost a past technology in the US, and FTTH is becoming fashionable in places. This should allow customer terminal equipment to fall in price. In telecommunications, Australia tends to follow the trends set in the US by around three years. Therefore, many operators predict that fibre deployment in the CAN will increase rapidly in the next three years.



6. HYBRID FIBRE COAX (HFC) NETWORK

6.1 Hybrid Fibre Coax (HFC) Technology Overview

Hybrid Fibre Coax is a way of delivering video, voice telephony, data, and other interactive services over coaxial and fibre optic cables.

An HFC network provides the necessary bandwidth for home broadband applications, using the spectrum from 5MHz to 450MHz for conventional downstream analogue information, and the spectrum from 450MHz to 750MHz for digital broadcast services such as voice and video telephony, video-on-demand, and interactive television.

In an HFC network the distribution to customer premises via a coaxial with signals and transmission to and from customers on the coaxial cable being broadcast to all customers. Addressing information in the signals ensures that only the intended customer responds. Transmission to and from the local access switch is via optical fibre cable.

How an HFC Network Works

A HFC network consists of a headend office, distribution centre, fibre nodes, and network interface units. The headend office receives information such as television signals, Internet packets, and streaming media, then delivers them through a SDH ring to distribution centres. The distribution centres then send the signals to neighbourhood fibre nodes, which convert the optical signals to electrical signals and redistributes them on coaxial cables to residents’ homes where network interface units send the appropriate signals to the appropriate devices (i.e. television, computer, telephone).

Systems classified as HFC have the following characteristics:

• The physical media are fibre and coaxial cable, as shown in Exhibit 6-1. The fibre connects the centralised equipment, eg, hubs, or headends, with the distribution nodes. The transition to coaxial cable takes place in the distribution node. Coaxial cables connect the distribution node to the subscriber service units. Network Interface Units (NIUs) serve single homes, while Multiple Dwelling Units (MDUs) serve multiple customers in either a business or residential environment. The subscriber service units support telephony, video, Ethernet and other services.



• The following figure is a simplified representation of the major types of components and the interconnections in the HFC architecture. Actual HFC deployments are quite complex.

Exhibit 6-1: HFC Architecture

Source: RHK



6.2 The Deployment of HFC Network

Hybrid Fibre Coax (HFC) combines the increased transport capacities of fibre-optic systems with the classical coaxial TV-type distribution architecture. HFC systems are being successfully deployed by cable companies to support digital video, cable telephony, and cable data services. This embedded base of networks and current subscribers makes HFC systems attractive for delivering new telecommunication services to existing customers.

In the capital cities on the eastern seaboard, the hybrid optical fibre and coaxial cable (HFC) networks of Telstra and C&W Optus pass millions of homes and businesses. These networks already offer pay television, cable modem access and, in the case of C&W Optus, telephony as well.

Telstra’s hybrid fibre coax (HFC) cable network which passes 2.5 million homes was completed in 1997. It is a state of the art, 2-way 750MHz network. In addition to the pay TV channels, it provides the capability for data channels with a shared 30Mbit/s downstream and 768Kbit/s upstream.

This cable is Telstra’s first choice for delivering broadband services. The rollout of this network was targeted at particular demographic areas (mainly urban residential), and provides very high quality interactive capability.

Through the company’s acquisition of Optus Vision, C&W Optus has a broadband local network, which has passed about two million addresses in Sydney, Melbourne and Brisbane. It provides premium TV, local telephony, full two-way high-speed transmission and other digital and interactive services.

However, neither Telstra nor C&W Optus has any immediate plan to expand their HFC networks.

On the other hand, regional companies like Neighbourhood Cable, West Coast Radio and Austar are also deploying their HFC network in the rural and regional areas. Neighbourhood Cable Ltd saw the niche telecommunications market capabilities of large rural towns like Mildura, Ballarat, Bendigo and Albury-Wodonga, and quickly moved to supply hybrid fibre-optic and coaxial (HFC) cable infrastructure capable of delivering both broadband Internet and payTV – along with the usual local and long-distance telephone services.



Exhibit 6-2 provides an overview on the HFC network operators in Australia.

Exhibit 6-2: HFC Network Operator Overview

Operator Operational Status Coverage

Telstra 1997 Urban areas in Melbourne, Sydney, Gold Coast, Brisbane, Adelaide and Perth.

C&W Optus 1997 Urban areas in Sydney, Melbourne and Brisbane

Neighbourhood Cable 2000 Mildura, Ballarat, Bendigo(c), Albury-Wodonga(c) and other regional towns in VIC(p).

Austar (Windytide) 1999 Darwin

West Coast Radio (iiNet)

2000 Perth (Ellenbrook area)




6.3 HFC Network Deployment

In 1994, Telstra commenced rollout of its broadband HFC network. By December 1997, the network passed 2.5 million homes (excluding businesses), instead of the four million planned. Telstra initially aimed to provide broadband cable to more than two-thirds of Australia with an investment of $4 billion. Network rollout was stopped in 1999.

C&W Optus’ broadband network rollout began in February 1995, following electricity lines to homes, primarily via overhead lines. C&W Optus has agreements in NSW with Energy Australia, Sydney Electricity and Integral.

The original rationales for building the HFC network were:

• reduction of interconnection charges paid to Telstra for local telephony access and

• provision of broadband multimedia services (video, data and voice) to residential and small business customers through a single pipe.

The rollout in Adelaide was placed on hold in August 1997. In 1998, C&W Optus indicated to the ACCC that it would commit itself to a further rollout of broadband under the right regulatory conditions.

By the end of 2000, about 21,000km coax cable (0.625” coaxial) and 5,500km fibre cable (single mode optical fibre from 24 to 144 fibres per sheath) had been laid around the suburban residential areas in Brisbane, Melbourne and Sydney.

However, regional operators, Neighbourhood Cable and Austar are building their HFC networks in regional Australia, leaving Telstra and C&W Optus to compete in the State Capitals.

Exhibit 6-3 provides an overview on the HFC networks rollout in Australia.



Exhibit 6-3: HFC Network Rollout

Operator Coverage Investment* Infrastructure Capacity

C&W Optus

Urban areas in Sydney Melbourne Brisbane

$3bn • 30 nodes covering 2m households

• 21,000km coax cable

• 5500km cable

5-65MHz (up link)

85-700MHz (down link)

Telstra Urban areas in Melbourne Sydney Gold Coast Brisbane Adelaide Perth

$4bn Nodes = 279

Hubs = 4172

40,000km cable (covering 2.5m homes)

5-65MHz (up link)

85-750MHz (down link)

• 64 Analogue TV Channels

• 200MHz Digital Services

• 768Kbps (up link)

• 30MKbps (down link)

Neighbourhood Cable

Mildura, Ballarat, Bendigo (c), Albury-Wodonga (c)

$8m 140 nodes 250km cable (120,000 homes)

768Kbps 30MKbps

Austar (Windytide)

Darwin • covering 27,000 homes

West Coast Radio (iiNet)

Perth (Ellenbrook) • covering 10,000 homes (planning)

(c) = constructing * estimates

The following section provides an overview on C&W Optus’ HFC network coverage.

• Sydney metropolitan area – 3 exchanges;

• Melbourne metropolitan area – 2 exchanges;

• Brisbane metropolitan area – 1 exchange.



Exhibit 6-4: Sydney HFC Network

BlacktownBlacktown

FairfieldFairfield

LiverpoolLiverpoolRiverwoodRiverwood

ThornleighThornleigh

RandwickRandwick

MirandaMiranda

ArtarmonArtarmon

BelroseBelrose

CarlingfordCarlingford

Waverley

NN

Exhibit 6-5: Melbourne HFC Network

WerribeeWerribee

SunshineSunshine

BroadmedowsBroadmedows

ThomastownThomastownLower PlentyLower Plenty

East BurwoodEast Burwood

BraesideBraeside

DandenongDandenong

Chirnside ParkChirnside Park

Ferntree GullyFerntree Gully

FrankstonFrankston

KewKew

McKinnonMcKinnon

South MelbourneSouth Melbourne

NN

Exhibit 6-6: Brisbane HFC Network

FitzgibbonFitzgibbon

Kelvin GroveKelvin Grove

RochedaleRochedale

HillcrestHillcrest

IpswichIpswich

NN

Source: C&W Optus



6.4 HFC Market Perspective

C&W Optus abandoned its HFC network rollout in Adelaide in 1997. Both Telstra and C&W Optus had decided not to expand their HFC networks in 1998/1999. This decision was driven by their HFC network duplication in various cities in Australia.

C&W Optus alleged that the current regime that allows carriers such as Foxtel, to sign up exclusive content is also an inhibiting factor on growth.

On 30 August 1999 the ACCC issued its report declaring analogue subscription television broadcast carriage services under part XIC of the Trade Practices Act 1974. If a carriage service is declared, a provider of that service (effectively Telstra and C&W Optus) must supply that service to an access seeker, subject to certain exceptions.

In justification of its decision, the ACCC said that it was very unlikely that additional broadband cable networks capable of delivering Pay TV to residences will be constructed where there are already cable networks in place.

Neither Telstra nor C&W Optus has any immediate plan to expand their HFC networks.

According to the Telecommunications Performance Report prepared by ACA (2000), the ACCC considered that declaration would promote competition in downstream markets, reducing entry barriers and allowing niche Pay TV service providers the opportunity to offer an alternative range of programming to those offered by Foxtel and Optus Vision.

Earlier in 2001, the ACCC made interim determination in arbitration involving Telstra, Foxtel, TARBS and Seven Network that gave access to some parts of Telstra’s network. AAPT indicated that it has plans to offer Pay TV services to its 600,000 retail customers during the next 12 months, and may eventually consider seeking access to the broadband networks of Telstra and C&W Optus.



Exhibit 6-7: HFC Network User Overview

Cable TV User Homes passed

1998 1999 2000

Foxtel (Telstra) 3m 320,000 500,000 630,000

C&W Optus 2.2m 186,000 210,000 350,000 (2000) 500,000 (2001)

Austar 27,000 215,000* 300,000* 400,000*

Others N.A. N.A. N.A. N.A.

Total 5.3m 730,000 1,100,000 1,400,000

*including satellite base cable TV users



7. CELLULAR MOBILE NETWORK

7.1 Cellular Technology Overview

Cellular networks provide wireless communications on a mobile basis. Users can take their mobile phones everywhere with them to make or receive calls within the network coverage areas.

The genius of the cellular system is the division of a city (or an area) into small cells. This allows extensive frequency reuse across the same area, so that millions of people can use cell phones simultaneously. In a typical GSM cell phone system, the cell phone carrier receives about 900 frequencies to use across the coverage area. The carrier chops up the area into cells. Each cell is typically sized at about 10 square miles (26 square kilometres). Cells are normally thought of as hexagons on a big hexagonal grid, as shown in Exhibit 7.1.

Exhibit 7-1: Cell Coverage in a Cellular Network

Source: All about Network

As cell phones and base stations use low-power transmitters, the same frequencies can be reused in non-adjacent cells. In Exhibit 7-1, the two shaded cells can reuse the same frequencies.

Each cell has a base station that consists of a tower and a small building containing the radio equipment.



7.1.1 How a Cellular Network Works

The cellular approach requires a large number of base stations in a city (or an area) of any size. A typical large city can have hundreds of towers. Each carrier in each city also runs one central office called the Mobile Telephone Switching Office Centre (MTSO). This office handles all of the phone connections to the normal land-based phone system, and controls all of the base stations in the region.

All cell phones have special codes associated with them. These codes are used to identify the phone, the phone’s owner and the service provider.

As a user moves toward the edge of call coverage areas, the base stations will note that the signal strength is diminishing. Meanwhile, the base station in the cell that the user is moving toward is listening and measuring signal strength increasing. The two base stations coordinate themselves through the MTSO, and at some point, the user’s phone receives a signal on a control channel instructing it to change frequencies. This hand off switches the user’s phone to the new cell.

Exhibit 7-2: Cellular Network Operation

Source: All about Network



7.1.2 The Evolution of Cellular Mobile Phone Technology

Exhibit 7-3: Evolution of Cellular Systems

Source: Wireless Asia (2000)

The First Generation – Analogue

In 1987, Telecom Australia (currently known as Telstra) introduced the first mobile telephone in Australia based on the analogue AMPS network. The analogue network is voice centric with limited data capability of less than 300bps. The analogue mobile phone service is generally known as the first generation cellular mobile standard. The analogue AMPS network was phased out in 2000. (see Appendix D)

The Second Generation – Digital

A second generation of mobile service based on digital GSM was introduced by C&W Optus in 1993 followed by Telstra and Vodafone. The benefits claimed from this analogue phase-out and the switch to a digital-only network include:

• more vigorous competition in digital

• more efficient use of radio spectrum

• greater message security

• better service quality with data capability of 9.6Kbps.



In 1999, Hutchison, One.Tel and AAPT (Cellular One) were awarded licenses to provide digital mobile phone service. However, by June 2001, only Hutchison’s CDMA network is operating while One.Tel closed down its GSM1800 network due to financial difficulty and Cellular One abandoned its CDMA network rollout.

The phasing out of Australia’s only analogue telephone network operated by Telstra commenced in 1999 and by end of 2000 all analogue users had migrated to the digital GSM and CDMA networks. (see Appendix D – The Phase out Analogue Network.)

Telstra’s CDMA network which was completed in July 2000 provides a wider coverage (95%), especially in rural and regional Australia.

The 2.5 Generation – Enhanced Digital

Existing second generation (2G) mobile networks were conceived about ten years ago, before the advent of the Internet, and primarily designed to extend fixed network services into the mobile environment at a maximum speed of 9600bps. Since the introduction of 2G services, there has been a phenomenal growth in the volume of data being transacted across fixed networks, such that it now nearly exceeds the volume of voice traffic. The Internet has been a major factor in this change.

New ‘two and a half’ generation technologies such as Wireless Application Protocol (WAP), General Packet Radio Services (GPRS) and Enhanced Data Rates for Global Evolution (EDGE) have been designed to provide mobile users with access to the Internet and to increase the rate of data communications. GPRS effectively increases the signalling speed by allocating more of the available capacity for this purpose. The 2.5G is a transitional technology before the arrival of 3G.

GSM-centric operators have the option to implement GPRS and/or EDGE prior to 3G rollout. GPRS provides a relatively easy upgrade of existing 2G networks to support higher bit rates. Commonly considered a 2.5G technology, GPRS offers a theoretical maximum 171.2Kbps bit rate, when all 8 time slots were used, significantly lowering the actual bit rate. In addition, initial GPRS deployments would only provide point-to-point support, meaning that subscribers can only communicate with one party at any one time. At present, some European operators have announced commercial GPRS rollouts this year. Telstra has launched the first GPRS system in Australia in early 2001. Mobile data services are likely to take off with the advent of higher bit rates offered by GPRS.



Beyond GPRS, operators have the option of implementing EDGE or migrating directly to W-CDMA. EDGE enhances GPRS and offers bit rates of up to 384Kbps through the use of a more efficient modulation technique. Another advantage of EDGE over GPRS is support for point-to-point communication. Operators without 3G licenses may be able to offer GPRS or EDGE instead. However, some operators may prefer a direct 3G implementation over additional infrastructure costs in association with EDGE. Also, a significant challenge facing GSM migration is handset compatibility. New handsets will be required for every migration step, GPRS, EDGE, as well as W-CDMA.

In Australia, Telstra, C&W Optus and Vodafone are launching their respective GPRS networks in mid 2001. However, full commercialisation of the GPRS services have yet to materialise due to the lack of GPRS enabled handset on the market.

The Third Generation – Broadband Digital

3G is in a different category of mobile services as it is based on broadband technologies, whereas 2G technologies are based on narrowband technology. The widening of the bandwidth will enable greater volumes of data to flow to mobile receivers, thereby enabling full broadband services such as:

• full colour screens

• video conferencing

• full motion video

• picture e-mails

• full web facilities.

Unlike 2G and 2.5G, 3G equipment is small, simple and cheap. All applications will not necessarily be built into the handset with programs being downloadable when required. All application software required by 3G operators will be available off the network with download times expected to be approximately three seconds.

To ensure a smooth transition from 2G to 3G, the IMT2000 was established by the International Telecommunications Union (ITU) to harmonise the different proposed 3G standards. To date, the ITU has decided on a flexible standard with the choice of multiple access methods (CDMA, GSM, TDMA and a hybrid CDMA/TDMA). CDMA is perceived to be the predominant interface.



Two 3G standards – wideband CDMA (W-CDMA), supported by current GSM-centric countries) and CDMA2000 (supported by current CDMA-centric countries) – have emerged as the most prominent contenders. Although both technologies are CDMA-based, major differences exist between them. W-CDMA systems work on a RF bandwidth of 5MHz, much wider than the cCDMA2000 carrier size of 1.25MHz. The wider bandwidth serves to enhance performance under multipath environments (the receiver can better separate the different incoming signals) and increase diversity. Its carriers may be spaced 4.2 to 5.4MHz apart in 200MHz increments. The larger spacing is more likely to be applied between operators than within one operator’s spectrum. This will help to reduce inter-operator interference. W-CDMA also offers seamless inter-frequency handover, a useful feature in high-subscriber density areas.

In March 2001, 3G operating licenses were auctioned to Telstra, C&W Optus, Vodafone, Hutchison, 3G Investments (Qualcomm) and CKW Wireless. 3G mobile service is expected to be launched in 2003.



7.2 The Development of Cellular Mobile Network in Australia

Telstra introduced Australia’s first cellular mobile phone based on analogue technology AMPS in 1987. In 1993 C&W Optus and Vodafone commenced their cellular services when the cellular mobile market was deregulated.

The cellular market was further deregulated in 1999 when the ACA auctioned off spectrum in the 1.8GHz and issued three new licenses.

Exhibit 7-4 provides an overview on the cellular operators in Australia.

Exhibit 7-4: Overview on the Cellular Operators in Australia

Operator Cellular Standard Launch Coverage

Analogue AMPS 1987 (terminated in 2000)

Nationwide (94% pop)

GSM/GSM1800 1993 Nationwide (94% pop)

Telstra

CDMA 2000 Nationwide (95% pop)

C& W Optus GSM/GSM1800 1993 Nationwide (94% pop)

Vodafone GSM/GSM1800 1993 Nationwide (93% pop)

Hutchison CDMA 2000 Melbourne, Sydney, Perth, Brisbane, Adelaide

AAPT CDMA Launch was abandoned in 2001

One.Tel GSM1800 2000 (terminated in June 2001)

Melbourne, Sydney, Perth, Brisbane, Adelaide

After 19 rounds of bidding in early 2001, the auction of 1.9GHz spectrum for 3G mobile phone service concluded in March 2001. The auction brought about A$1.16bn for the Federal Government, well short of the budget forecasts of A$2.6bn.

The successful bidders for the 3G service licenses are profiled in Exhibit 7-5.



Exhibit 7-5: Successful Bidders for the 3G Service Licenses

Operator Launch Spectrum Coverage

Telstra 2003 A$302m (15MHz paired spectrum in all capital cities) (10MHz paired spectrum in regional areas) (5MHz unpaired spectrum in all capital cities).

National coverage

C&W Optus 2002/3 A$253m (10MHz paired spectrum in all capital cities) (5MHz paired spectrum in regional areas) (5MHz unpaired spectrum in 5 cities)

National coverage

Vodafone 2002/3 A$196m (15MHz paired spectrum in all capital cities) (5MHz paired spectrum in regional areas) (5MHz unpaired spectrum in all capital cities)

National coverage

Hutchison 2003 A$196m (15MHz paired spectrum in Melbourne and Sydney) (10MHz paired in Brisbane, Adelaide and Perth)

5 major cities (Sydney, Melbourne, Brisbane, Adelaide and Perth)

3G Investments (Qualcomm)

2003 (cdma2000)

A$159m (10MHz paired spectrum in all capital cities)

8 major cities (Sydney, Melbourne, Brisbane, Adelaide, Perth, Hobart, Darwin and Canberra)

CKW Wireless (Arraycomm)

A$95m (5MHz paired spectrum in all capital cities)

Source: ACA



7.3 Cellular Network Rollout

7.3.1 The Current 2G Cellular Network

Cellular mobile service has been the fastest growth market in the Australian telecommunication industry, accounting for 25% of the total telecommunication service revenue.

To capitalise on the growing market in view of expanding user base and new applications, a substantial investment (some $7.5bn) has been invested in the cellular networks.

Hutchison and One.Tel are planning to invest about $1.6bn each for their networks (2000-2002). However, One.Tel terminated its GSM1800 network operation in June 2001 due to financial difficulty while AAPT has decided not to roll out its CDMA network.

The mobile telecommunications infrastructure covers in excess of 94% of the population, with an estimated 6,000 base transceiver station (BTS) in place, some with antenna on obtrusive towers but increasingly mounted on the sides of buildings and other structures. These BTS are divided almost equally between the three current GSM players. At the present, Hutchison is building a 800MHz CDMA network, rolling out new coverage mainly in Sydney and Melbourne. It is expected that Hutchison will need at least 1000 sites for its network and while attempts are being made to collocate with existing carriers it is inevitable that many new sites will be needed.

According to Paul Budde (2000), GSM base transceiver station (BTS) costs depend on their traffic capacity and typical prices range from $60,000 for a base station designed for outdoor mounting to $500,000 for a fully equipped central site. Added to the cost of each site is the backhaul of information from the BTS which can be provided by landline or more typically a microwave link. In the latter case costs would be between $40,000 and $50,000. In addition associated civil works for each site including a tower and power could increase costs by up to another $100,000.

Exhibit 7-6 provides an overview on the cellular network roll out by operators in Australia.



Exhibit 7-6: Cellular Network Overview

Operator Standard Investment** Infrastructure User Capacity

Telstra AMPS $1.6bn (by 2000) 1400 BS (Phased out)

2,000,000 (Phased out)

Telstra GSM $2bn (by 2000) 3400 BS (2000)

3550 BS (2001)

3800 BS (2002)

4.5m (2000)

5.5m (2001)

Telstra CDMA $0.8bn 1500 to 2500 BS (2000-2001)**

1m

Optus GSM $2bn (by 2000) 1550 BS (1999)

2220 BS (2000)

2800 BS (2001)

2m (1999)

3m (2000)

4m (2001)

5m (2002)

Vodafone GSM $1.5bn 850 BS (2000)

900 BS (2001)

3m (2000)

3.5m 2001)

Hutchison CDMA $0.5bn ($1bn = 2000-2003)

500 BS (2000)

700 BS (2001)

1000 BS (2002)

One.Tel† GSM1800 $1bn (planned)

AAPT† CDMA $0.5bn (planned) 820 (planned) 1,000,000 (planned)

† network abandoned in 2001 * Telstra spent about $0.5bn and $0.6bn in its mobile networks in 1999 and 2000 respectively **sourced from BIS Shrapnel’s Mobile Communication Services.



7.3.2 Cellular Network Coverage Map

Exhibits 7-7 to 7-9 provide an overview on the cellular network coverage maps by the three national cellular operators.

Exhibit 7-7: Cellular Network Coverage Map – Telstra

Source: Telstra and Telecommunications Service Inquiry (1999)



Exhibit 7-8: Cellular Network Coverage Map – C&W Optus

Source: C&W Optus



Exhibit 7-9: Cellular Network Coverage Map – Vodafone

Source: Vodafone



7.3.3 Investment in 3G Cellular Network

An equal amount of money is expected to be outlayed to roll out the costly 3G network.

It is estimated that in terms of 3G network investment, the next 3 to 4 years will see some US$70bn invested in the Asia-Pacific, costing at least U$3.3bn per country. (The Europe market is more than double this amount, at around US$165bn).

Depending on the size of the country as well as the population density, on average, it will cost an operator US$0.8bn to roll out a first phase 3G network (for the first 3 years).

Some operators say it will cost US$350 (per user) to provide for a 3G mobile phone line about 45% higher than the current 2G GSM cost of U$230 per user.

Of course for countries like China and Japan, the market for 3G network investment is likely to be considerably higher (may be more than US$10bn). NTT DoCoMo which plans for the first 3G in May 2001 give a figure of US$8bn for 3G investment.

For countries like Hong Kong and Singapore with small but dense population, the cost of a 3G network is around US$0.6bn. BIS Shrapnel estimates it will cost an Australian operator around US$1bn to roll out a 3G network, in consideration of the size of the country as well as the density of the population.



7.4 Cellular Mobile Service and User

7.4.1 Cellular Mobile User Segmentation

Use of cellular mobile telephones used to be almost the exclusive domain of business people. However, over 50% of mobile telephone subscribers are residential users. It has also been established that more than 80% of all new mobile telephone connections are originating from the residential market.

Australian cellular market segmentation has continued to change since 1995, with the residential mobile phone users share increasing mainly due to mobile service affordability (through discounted service plans and prepaid services). The continued uptake of cellular mobile telephone services in the consumer/residential segment has seen the user share with in the corporate and small business segments continue to depreciate – as set out in Exhibit 7-10.

Exhibit 7-10: Cellular Market Segmentation (Residential/Small to Medium Business/Corporate)

User 1995 1996 1997 1998 1999 2000

Corporate 20% 16% 15% 14% 13% 11%

Small/Medium Business 53% 49% 46% 43% 40% 37%

Residential 27% 35% 39% 43% 47% 50%

*About 80% of new subscribers in 1999/2000 originated from the residential market.

Residential Market

Research conducted for the mobile telephone manufacturer Nokia indicated that for the vast majority of people, the key reason for buying a mobile telephone is lifestyle considerations, such as keeping in touch with friends, or juggling a busy social life.

The mobile phone has become an essential part of everyday Australian life with people not only using them for convenient communications but also for the safety aspect. Ownership of mobiles crosses most demographic segments with 55% of mobile phone users being women, 42% are under the age of 25 and 69% are under the age of 35. Approximately 72% of Internet users own a mobile phone. Teenagers and older people have been the latest groups being targeted for mobile use. Prepaid mobile phones offered teenagers and their parents security while avoiding large bills. More older people are becoming attracted to using mobile phones because of the inherent personal security.



A major growth area in Australia’s cellular market has been in the advent of prepaid mobile phone services, which accumulated between 30% of all Christmas mobile phone sales in 1999 and 2000. Another interesting trend is the increasing sale of mobile phones at non-traditional retail outlets, such as petrol stations, stationery shops, and cash converter shops. Direct sales of mobile phones through the Internet will increasingly have an impact on traditional mobile distribution channels.

Business Market

Industry sources estimate that about 60% of self employed people use a mobile telephone. An estimated 25% of business calls are made on mobiles and 75% on fixed lines. The general feeling within the industry is that these figures probably will be reversed within five years.

The widespread use of cellular mobile systems as well as the current boom in data communications (such as the Internet) has a profound impact on the mobile data market in general. In Scandinavian countries applications such as messaging, call waiting, forwarding, are seen as the best suited value added services. However, customers are only interested if these services are made available for free or at very low costs.

In the business market, mobile data systems have features that are very well suited to specific niche applications for sales and field staff. Applications like SMS, WAP and mobile banking are on the increase amongst business users.

According to C&W Optus, each year 69% of Australian workers spend time out of the office travelling. These business travellers spend around $420 million each year on telecommunications – this is the same group that will be the prime target for mobile data.



7.4.2 Cellular Mobile Services

Cellular mobile communication was previously used for voice services. The data element chiefly served to support the main voice function. However, the recent boom in data communications and Internet is having a profound effect on the market in cellular mobile phone services.

Mobile phones are no longer used exclusively for voice services and are increasingly being used to transmit data.

Short Messaging Services (SMS) have been available since the mid-1990s. SMS is a data protocol that enables text messages to be transmitted over GSM and CDMA mobile handsets. Inter-handset messages have increased dramatically following an agreement by the major carriers to connect their SMS services in April 2000.

Mobile data over Wireless Application Protocol (WAP) has also been commercially available since late 1999. WAP is a protocol standard for mobile Internet access that enables mobile phones to access special web pages at a download rate of 9.6Kbps. WAP is superior to SMS in that it provides greater scope for interactivity.

Take-up rates for WAP are expected to increase following the completion of the rollout of General Packet Radio Service (GPRS) networks and the advent of commercially available GPRS handsets. GPRS overlays the GSM networks, and enables data to be sent in discrete packets at speeds of up to 115Kbps.

Exhibit 7-11 provides an overview on the traffic volume of mobile phone network in terms of voice, data and video.

Exhibit 7-11: Traffic Volume of Mobile Phone Network

1998 1999 2000 2001 2002 2003

Voice 98.5% 97.5% 96% 92% 86% 80%

Data 1.5% 2.5% 4% 8% 14% 19%

Video 0% 0% 0% 0% 0% 1%

With the introduction of GPRS and 3G which enable the delivery of streaming video services on mobile phone services at a speed of more than 115Kbps video traffic on cellular network will take off in 2003. While data and video traffic began to increase in the year 2002/2003, voice traffic will be reduced to some 80% by the year 2003.



7.5 Cellular Market Perspective in Australia

7.5.1 Cellular Growth and Market Share

The Australian mobile telephone market has experienced phenomenal growth in little more than 10 years. From 1993 to 1994, mobile telephone subscriptions jumped from about 765,000 to 1,744,000. By 1995, the number of subscribers had risen to 3,314,000; in 1996, to 4,448,000; to 5,210,000 in 1997 and at the end of 2000 to 10.2 million subscribers. One of the most significant drivers of the mobile telephone market in recent years was the introduction of service plans (including pre-paid services) which opened up consumer markets enabling non-business customers to enter the market more easily.

The number of cellular subscribers in Australia had increased from 7.7m in 1999 to 10.2m in 2000, representing a 30% growth. The current user base of 10.2m as at end of 2000 represents a cellular penetration level of 54% of the Australian population. Exhibit 7-12 provides an overview of growth of the Australian cellular user base for the past 10 years.

Exhibit 7-12: Cellular User Base in Australia (1992-2001)

10,200,000

7,722,000

5,900,000

5,210,000

4,448,000

3,314,000

1,744,000

765,000

511,000

12,000,000(projected)

0 6,000,000 12,000,000

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

No. of Subscribers

It is expected that the number of cellular users in Australia will reach 15m by the year 2005, representing a 78% penetration rate.



7.5.2 Market Competition

As at the end of December 2000, Telstra remained the leading cellular service provider in Australia, with 47% of the total cellular market share, followed by C&W Optus (33%) and Vodafone (18%). New operators who entered the cellular market in early 2000 including Hutchison, One.Tel and AAPT cellular only accounted for 2% of the market share.

Exhibit 7-13 outlines the total cellular market share in Australia as at December 2000.

Exhibit 7-13: Cellular Market Share 2000

Telstra47%

C&W Optus33%

Vodafone18%

Others2%

*Total cellular subscriber was 10.2 million as at December 2000.

The mobile phone industry currently generates approximately A$7 billion a year. The large majority of that is soaked up by the existing major cellular network operators Telstra, C&W Optus and Vodafone – in that order. Telstra is believed to earn over A$3 billion of its A$18 billion in annual revenue (2000) from cellular services while C&W Optus also achieved cellular revenues of A$3 billion in 2000.

Until late 2000 the three existing players engaged mostly in non-price competition, using marketing, distribution and handset finance plans to differentiate themselves. Price competition, where the main marketing emphasis is on delivering mobile calls at a cheaper rate, was not a feature of the market.

In 2000, three new mobile market entrants AAPT, Hutchison Orange and One.Tel, started operating cellular mobile telephone services in competition with the big three incumbents. Despite the fact that the cost of mobile phone calls has not fallen greatly in five years, the big three maintain that competition is fierce. The arrival of the new players, with fresh ideas and product plans, is expected to put that claim to the test. However, One.Tel has already disappeared as a source of competition.



All of the newcomers will be keen to quickly reach critical mass – about half a million subscribers – so that operating cash flows can begin to pay off the network establishment costs. As all of the new networks have comparable networks to the established players, price competition appears likely to be a key strategy. Falling prices which will threaten the margins enjoyed by the three mobile phone incumbents.

The ability of the new entrants to win clients over from the incumbents will however also depend on “Mobile Number Portability” (MNP). MNP will allow customers to change their service whilst keeping the same mobile phone number. According to the Australian Communications Authority (ACA), MNP will be introduced in 25 September 2001.

7.5.3 International Perspective

According to Mobile Asia Pacific (2000), the cost of a mobile phone service in Australia has been the highest in the Asia Pacific region.

The average cost of a mobile call in Australia is now about US$0.30 per minute compared with about US$0.15 per minute in Europe and the United States, with some calls available for little as 10 cents a minute. In addition, Australian mobile call prices, on average, fell by 10% in 2000, while they dropped by 40% in the United States and 50% to 80% in Europe.†

It was expected that the arrival of new operators in 2000 such One.Tel, AAPT and Hutchison would lead to a sharp fall in prices and faster growth. The evidence to date suggests that there has been only a marginal decline in prices. In fact by mid 2001, AAPT has decided to abandon its CDMA network while One.Tel was in financial difficulty, with its customers being acquired by existing operators.

Exhibit 7-15 provides some indications of cellular penetration (per 100 population) in Australia, in comparison to other countries.

† Telstra argued that the cost of mobile phone handset should also be taken into consideration in order to make a fairer comparison of mobile service costs between different countries. The prices of mobile phone handsets are comparatively low in Australia due to handset subsidies offered by operators to secure long service contracts from users.



Exhibit 7-14: Cellular Penetration Table (Selected Countries)

Cellular Penetration (per 100 Pop) 1998 1999 2000 2001 2002 2003

Australia 31% 40% 49% 64% 70% 73%

Hong Kong 43% 59% 76% 82% 86% 88%

Singapore 27% 37% 58% 70% 78% 83%

Taiwan 19% 50% 75% 83% 87% 90%

USA 26% 32% 39% 48% 57% 66%

Finland 53% 59% 66% 73% 79% 83%

France 19% 34% 48% 60% 70% 77%

Italy 32% 47% 61% 71% 78% 81%

Netherlands 22% 43% 63% 74% 79% 83%

Sweden 42% 51% 61% 70% 77% 81%

Norway 44% 56% 66% 74% 80% 83%

UK 22% 40% 60% 73% 79% 83%

Source: BIS Shrapnel and Strategy Analytics



8. MICROWAVE NETWORK

8.1 Microwave Technology Overview

In 1959, the first broadband telecommunications link in Australia was opened for traffic. It was a microwave radio link between Melbourne and Bendigo in Victoria, and it was the beginning of a quiet revolution in Australian telecommunications.

Like coaxial cable systems, microwave is called broadband links because they carry a very large volume of communications using a much broader range (or band) of frequencies compared to earlier systems. A single broadband bearer can carry hundreds or even thousands of telephone calls simultaneously by using a principle called frequency-division multiplexing.

In a microwave radio system, telecommunications traffic is transmitted in the form of directed beams of microwaves. Microwaves are a kind of electromagnetic radiation like light or like radio waves used in ordinary broadcasting, but of a frequency intermediate between these.

Like light, microwaves normally travel in a straight line. For this reason, it is necessary to set up microwave repeating stations within line-of-sight of each other. And because you can see further the higher you are, microwave transmitting and receiving antennas are set on tall towers.

These antennas are usually parabolic dishes, which are the same sort of shape as the mirrors in powerful searchlights, and for the same reason. A light placed at the focal point of such a mirror will be reflected by it into a parallel beam. Similarly, a microwave source placed at the focus of a dish of such a shape will be reflected into a tight parallel beam. In the reverse direction a parallel beam coming into a parabolic dish will be focussed together at one point. On microwave antennas, there is a hood-shaped hollow tube at the focus of the dish which emits or receives the microwaves.

Along a microwave route, a series of towers are set up at reasonably regular intervals, usually about every forty kilometres, but depending on the terrain. Each tower must be within sight of the top of the towers on either side of it, and there must be no intervening obstacles.



The route for the towers has to be chosen very carefully. Radio propagation tests are carried out along the proposed path for the microwave link. To see whether there will be any effects which could interfere with the reception of radio signals. Another problem in Australia is that the rapid heating up of the desert surface during the day, and its equally rapid cooling at night, tends to cause serious bending of the microwave beam. Similarly, problems can be caused by reflections of microwave beams off water and other objects.

The equipment at each repeater station must be kept operational by some source of electrical power. Wind and solar powers have been used to source energy for repeaters in remote areas.



8.2 The Deployment of Microwave Network in Australia

Microwave networks are deployed primarily to provide customer access as well as trunk intercity connection in rural and remote areas.

Since the extensive fibre network roll out with greater capacity and reliability, Telstra is scaling back the use of microwave technology in the core trunk network. Since 2000, Telstra has been actively removing its major inter-capital microwave links.

However, regional operators like ntl Telecom, Datafast and Telecaster are continuing to deploy microwave network in rural and remote areas.

ntl Telecommunications plans to utilise the 560 tower sites to provide telecommunications services. ntl Telecommunications is building the largest microwave radio network in the world using these transmission towers.

In the local access network, microwave offers data operators the promise of faster and cheaper Internet and data access, bypassing the local loop of the incumbent carrier, Telstra.

Established and start-up carriers using microwave include Pulsat, Davnet, Austar, AAPT and Datafast Telecommunications. Local access microwave networks are deployed in the CBD and metro areas in major cities in Australia.

It is estimated that microwave can offer cost savings of up to 40% compared to a fixed network. The benefit is not the high bandwidth, but the mobility, speed of deployment and flexibility it provides the user.

Exhibit 8-1 provides an overview on the microwave technology in Australia.



Exhibit 8-1: Microwave Network Operator Overview

Operator Operational Status Local Network Backbone Network

AAPT 1998 CBD and metro areas in Melbourne, Sydney, Brisbane, Adelaide, Perth and Canberra

Plans to deploy long haul network linking regional towns in VIC in 2002

Agile 2000 Adelaide and regional areas in SA (Coorong District)

AirNet 1999 A small network in Adelaide

Austar 2000 Regional and rural areas Regional and rural areas

BushTel 2000 Rural and remote areas

Datafast 2000 Melbourne CBD • Melbourne-Geelong

• Geelong-Colac-Camperdown-Warnambool-Portland-Mt Gambia(c)

• Melbourne-Sydney(c)

• Ballarat-Bendigo(c) • Northern & Eastern VIC(p)

Davnet 1999 CDB and Metro areas in Sydney Melbourne

Macrocom (Flowcom)

• Melbourne – Canberra – Sydney – Brisbane

• Hobart – Melbourne – Canberra – Sydney – Brisbane (2001) (including regional centres in NSW, Queensland and Victoria)

• Adelaide – Hobart – Melbourne – Canberra – Sydney – Brisbane – Rockhampton (planned)

Netcare (Paladin)

2000 Perth

ntl Telecom 2000 Regional towns in NSW and VIC (Tamworth, Mildura, Dubbo, Albury-Wodonga and Griffith)

Cairn to Hobart (with regional spurs)

OMNIConnect Melbourne CBD

Pulsat 2000 Metro areas in Sydney, Melbourne, Perth and Brisbane

Soul Pattinson 1999 • Brisbane-Sydney-Melbourne • Brisbane-Cairns (planned)

Telecaster 2001 Brisbane-Townsville-Cairns (with spurs to Gold Coast and other regional areas)

Telstra Since 1970 Customer access in rural and remote areas – Australia wide

Trunk network between remote country towns – Australia wide

Third Rail (AMX)

2001 Tamworth




8.3 Microwave Network Rollout

Telstra, Macrocom and Soul Pattinson Telecommunications (SPT) have existing microwave networks. Datafast Telecommunications, Telecasters Communications, ntl Telecommunications and Agile Communications are currently rolling out their new microwave networks.

ntl Telecom is building its microwave network utilising its broadcasting assets to reach the whole of the eastern seaboard and will eventually stretch from Cairns right the way through to Hobart. It will also go out to regional towns like Tamworth, Mildura, Dubbo and Wagga where there is a lack of facilities-based competition.

Although the microwave network is physically a trunk network linking major cities and towns in the Eastern seaboard, ntl Telecom views it as almost an access network.

Exhibit 8-2 provides an overview of the microwave network in Australia. Exhibits 8-3 and 8-4 provide detailed coverage of microwave networks in Australia.

Exhibit 8-2: Microwave Network Overview


AAPT CBD and metro areas in Melbourne, Sydney, Brisbane, Adelaide, Perth and Canberra

$200m (2000 to 2003)

150 fixed links 3Gbps (maximum)

34Mbps (expected)

Agile Adelaide and regional areas in SA (Coorong District)

$2m by 2000 ($5m by 2002)

10 radio towers 34Mbps

Austar Rural and regional Australia

Datafast • Melbourne-Geelong

• Geelong-Colac-Camperdown-Warnambool-Portland-Mt Gambia(c)

• Melbourne-Sydney(c)

• Ballarat-Bendigo(c)

• Northern & Eastern VIC(p)

$5m (2000-2003) 29 radio towers 34Mbps

Davnet CDB and Metro areas in Sydney Melbourne

$3m (2000-2003) 20 lines 40 transmitters

34Mbps




Macrocom (Flowcom)

• Melbourne – Canberra – Sydney – Brisbane

• Hobart – Melbourne – Canberra – Sydney – Brisbane (2001)

• Adelaide – Hobart – Melbourne – Canberra – Sydney – Brisbane – Rockhampton (planned)

$55m 2,000km route (2000)

4,800km route (2002/02)

(70% business market)

ntl Telecom Cairn to Hobart (with regional spurs)

Regional towns in NSW and VIC (Tamworth, Mildura, Dubbo, Albury-Wodonga and Griffith)

$100m for 1st phase investment (2001-2002)

$150m for 1st and 2nd phase investment (2001-2003)

150 radio towers

5,500km route covering 40 towns

6 x 155Mbps

Pulsat Metro areas in Sydney, Melbourne, Perth and Brisbane

Soul Pattinson

• Brisbane-Sydney-Melbourne

• Brisbane-Cairns (planned)

$20m 55 transmitters 16Gbps (maximum)

Telecaster Brisbane-Townsville-Cairns (with spurs to Gold Coast and other regional areas)

$25m (2000-2003) 34 transmitters and 9 switchers

(950,000 population)

6 x 155Mbps

Telstra Trunk network between remote country towns – Australia wide

Customer access in rural and remote areas – Australia wide

25,000 towers (CAN) 6000 towers (btw towns)

(less than 1% of population)

(30,000 user links)

2Mbps (CAN)

140 & 155Mbps (btw towns)

*Sourced from media publications



Exhibit 8-3: Microwave Network Coverage Map – Incumbent Operators (Telstra, Macrocom and Soul Pattinson)

Darwin

Broome

Perth

Karratha

Alice Springs

Cairns

Brisbane

Adelaide

Melbourne

Hobart

Canberra

Wangaratta

Gold Coast

Newcastle

Sydney

Tamworth

MacrocomTelstraSoul Pattinson

Mount Gambier

MilduraGriffith

Dubbo

Lismore

Maryborough

Rockhampton

Mackay

Source: Telstra, Soul Pattinson and Macrocom



Exhibit 8-4: Microwave Network Coverage Map – New Operators (ntl, Telecaster and Datafast)

Bairnsdale

Mt Gambier

ntlDatafastTelecaster

Source: ntl, Telecaster and Datafast *The map is based on ntl’s network map.



8.4 Microwave Service and User

8.4.1 Microwave Backbone Network

Microwave networks provide transmission services for companies and telecom carriers in regional areas.

There are a number of telecom carriers that have built infrastructure covering CBD and inter-city routes. Microwave backbone network operators can provide transmission access for these companies into the regional areas.

On the other hand, there are other regional telecom companies that are starting up local networks in regional areas. Microwave operators can bring their network traffic back into the cities and distribute the calls for them.

In addition, microwave backbone networks can also provide services to the mobile operators which have very large fixed infrastructures where they have to backhaul the calls from the mobile base stations to their switches.

Apart from these telecom carriers, microwave networks also provide connections to emergency service companies and other radio based customers.

ntl Telecommunications offers distribution services to broadcasters, wholesale bandwidth to telecoms carriers and ISPs throughout regional Australia and the capital cities. Unlike Macrocom which is mainly inter-city based, ntl Telecommunications is targeting regional Australia. At the moment, ntl has no intention to enter the residential market.

Exhibit 8-5 provides an overview of the target user and area of focus for microwave backbone network.

Exhibit 8-5: Microwave Backbone Network User

Area of Focus Target User

Regional and remote areas Telecom carrier, regional companies, radio based companies and mobile carrier.



8.4.2 Microwave Local Access Network

Microwave networks are also being adopted by local access operators as a wireless access solution in local loop networks. The driving factor to deploy radio systems is the demand for quick establishment of services.


Most of these operators are using microwave technology as a supplement to their local fibre optic access and DSL networks. In addition, it also avoids carriers having to gain access to Telstra’s exchanges.

Davnet utilises microwave technology for longer tail connections which are not viable through xDSL and optic fibre.

AAPT deploys fixed point-to-point microwave links to provide customer access circuits and small capacity backhaul to the AAPT central offices in six capital cities. AAPT initially used microwave links for data and voice access circuits to connect AAPT customers to the local switch. The service is targeted at corporate and SME users in CBD, metro and regional areas. It is currently used for last mile access in those areas where AAPT fibre is not in place, by providing immediate high-speed access to business. In addition, it is also used in non-metro and regional areas with a low density of users. It provides more cost effective access than LMDS. LMDS is more suitable to CBD areas with high density of users.

Exhibit 8-6 provides an overview of the target user and area of focus for microwave network operator in the local loop.

Exhibit 8-6: Microwave Local Network User

Area of Focus Target User

High rise buildings in CBD areas. Large corporate, in building telecommunication service operator and local access operator.



8.5 Microwave Network Market Perspective in Australia

8.5.1 A Mature and Low Bandwidth Technology

Microwave technology is a mature radio technology in which telecommunications traffic is transmitted in the form of a microwave beam between antennae set on tall towers.

Although it is capable of providing a bandwidth of up to 135Mbps, in practice, its average optimum capacity is about 35Mbps. As a result, it is regarded as a poor cousin to fibre in terms of capacity and reliability. In addition, weather conditions (rain and heat) can also impair the transmission of microwave networks.

Microwave technology is being deployed by operators as trunk backbone network linking country towns in remote areas where wired technologies are not accessible.

Since the extensive fibre network rollout with greater capacity and reliability, Telstra is scaling back the use of microwave technology in the core trunk network. Since 2000, Telstra has been actively removing the major inter-capital microwave links.

8.5.2 The Resurrection of Microwave Networks

With the notable exception of Telstra’s scaling back of its core trunk network, microwave network deployment in Australia has experienced a revival over the past few years due to the advance in technology and the improvement of microwave engineering.

Properly engineered microwave can provide equivalent reliability to fibre. In some deployments of older systems the hop links were too long, and the radio technology was not of the same standard as modern radios. ntl Telecom has chosen conservative hop links and the type of radio that it is using is specifically designed to give very high levels of availability. Modern radios have a lot of error correction inherent in their design.

One of the major driving factors for microwave network deployment is the ease of spectrum licensing. Microwave operators have to acquire individual frequencies from point-to-point transmission on the apparatus-licensing basis. A speedy and well-organised microwave spectrum management by the ACA has enabled operators to access to microwave frequencies readily.



Regional operators like ntl Telecom, Datafast and Telecaster are continuing to deploy microwave network in rural and remote areas.

For greater network reliability, microwave networks are also being used to supplement or provide redundancy to fibre routes.

In the local access network, microwave offers data operators the promise of faster and cheaper Internet and data access, bypassing the local loop of the incumbent carrier, Telstra.


It is estimated that microwave can offer cost savings of up to 40%. The benefit is not the high bandwidth, but the mobility, speed of deployment and flexibility it provides the user.

8.5.3 Market Potential

The installation of point-to-point microwave backbone networks is sometimes comparatively cheaper per unit of capacity than installing a new optical fibre network or launching satellites. This is particularly the case if existing towers, perhaps used for broadcasting or cellular telephony, can also be used to support the microwave equipment. However, the capacity of such systems is limited by the availability of spectrum and their reliability can be at risk from adverse weather conditions and/or malicious damage. Access to good tower sites is also an issue for network operator in regional areas.

While the capacity of microwave systems is likely to expand over the next five years as the result of technological developments, the rate of that expansion will be very small in relation to the likely rate of capacity increases available on optical fibre networks. For longer term, fibre optic will be the preferred solution for broadband application; therefore, microwave network may have its niche market in the regional areas.

Regional Australian towns are typified by long reaches with low population. Compared to fibre optic, microwave is more suitable network solution to these areas.



The key feature of these backbone microwave networks is that it addresses the regional areas where there is a lack of facilities-based competition.

ntl Telecom, Telecasters and Austar (with their regionally distributed broadcast transmission asset) recognised the gap in the market. It was a very logical step for them to develop a telecoms network utilising those broadcasting assets and addressing the regional areas.

At the moment, ntl Telecom is building the largest microwave network in rural and remote areas utilising 560 towers.

Like ntl Telecom, Telecasters plans to become a carrier’s carrier by providing microwave trunk transmission to the regional cities in Queensland for TV companies, broadcasters, telecommunications carriers and SME businesses.

By using the microwave network and leveraging its broadcasting asset, Telecasters has been able to enter the telecommunications market.



9. BROADBAND WIRELESS NETWORK (LMDS AND MMDS)

9.1 Broadband Wireless Technology Overview†

Deploying a fixed link for broadband network access to customers’ premises is difficult and expensive. However, the new generation of higher-frequency and broadband wireless technologies is changing the face of the converging telecoms and entertainment markets, as it provides:

• lower deployment cost (than wired solution)

• speedy network rollout

• multiple applications.

The broadband wireless system consists of a radio transmitter which sends signals on a combination of channels to numerous receivers, including homes and businesses. There are various names for broadband wireless systems, the commonest being

• MMDS (multi-channel multipoint distribution system)

• LMDS/LMCS (local multipoint distribution/communication system)

• MVDS (microwave video distribution system).

They are roughly defined by the frequency range at which they operate, as shown in Exhibit 9-1. LMDS operates in various frequency bands, from 24GHz to 38GHz. MMDS has historically been used to deliver one-way pay TV broadcasts, but is now seen as a way of providing two-way digital broadband access. It operates at a lower frequency than LMDS (1GHz to 2.7GHz) allowing much greater range. There is talk of higher frequency systems being developed (60GHz and 120GHz) but these are still a long way from market. As a general rule, at higher frequencies there is more spectrum available (less demand) but coverage is increasingly limited and components are more expensive.

Exhibit 9-1: Types of Broadband Wireless System

System Frequency Coverage

MMDS 2-4GHz 60km

LMDS 27-29GHz 5km

MVDS 40-42GHz 1.5km

† Section 9.1 is based on Ovum’s Broadband Wireless report.



How does a LMDS Network Work

Local Multi-point Distribution System (LMDS) is a broadband wireless technology that enables point to multi-point connectivity through high frequency radio transmission. LMDS technology is proven and secure, with the bandwidth capacity to deliver a range of voice, high speed Internet access and data services.

LMDS technology is used to offer service providers and ISPs last mile connectivity between their fixed networks and customer sites. Network coverage is increased by connecting the existing carrier network to a Base Transceiver Station (BTS) through a Customer Interface Point. This connection is extended, using high frequency radio transmission, to an antenna located at the customer’s premises. In essence, LMDS provides wireless broadband connection between the carrier’s network and its customers.

A major advantage of LMDS technology is that it can be deployed quickly and inexpensively. Unlike existing fixed wire networks. LMDS requires minimal infrastructure for deployment, and a new end-user site in a cell coverage area can be connected within as little as 10 days where the building has direct line of sight to the BTS and building owner approval has been obtained. As well as being easy to deploy, LMDS has minimal impact on end-user sites. The equipment consists of an antenna and Network Interface Unit (NIU), both of which are small, unobtrusive and installed on the customer’s rooftop.

Exhibit 9-2: LMDS/MMDS Network

Source: Agility Network



9.2 The Deployment of Broadband Wireless LMDS and MMDS in Australia

28GHz Broadband Wireless

The ACA auctioned national 28GHz licences in February 1999, with major players including Telstra and C&W Optus excluded from the bidding process. AAPT eventually took on the spectrum and is now rolling out LMDS services for the wireless provision of data services.

27GHz Broadband Wireless

In September 2000, the 27GHz spectrum was auctioned in 21 market areas, broken up into six blocks. The band was initially touted as a technology for pay television and wireless local loop services, but market patterns now suggest corporate data provision is the primary use for LMDS. On 28 November 2000, C&W Optus successfully bid for 500MHz on the 27GHz broadband, costing the company A$37m. XYZed (formerly Agility), which is wholly owned by C&W Optus, will operate the network as part of a national strategy to provide a multi-point distribution service network. The only other bid to secure part of the spectrum, costing A$93,000, was from Shin Satellite Public Company.

3.4GHz Broadband Wireless

The Federal Government’s 3.4GHz spectrum auction closed in October 2000 with newcomer AKAL winning the lion’s share of spectrum on offer. The auction netted the Federal Government $112 million, with AKAL spending $95.2 million to buy licences across metropolitan and regional Australia.

Existing regional pay TV provider Austar paid $14 million for spectrum in Adelaide, Melbourne and Sydney. However, just before bidding closed, Austar also announced it had purchased spectrum from rival payTV company Television and Radio Broadcasting Services (TARBS). Austar paid $140 million to buy TARB’s 2.3-2.4GHz MMDS spectrum, which will give Austar 98MHz of bandwidth in Sydney, Melbourne, Brisbane, Canberra, Adelaide and Perth.

New Zealand telco Walker Wireless was the only other successful bidder, spending $2.8 million for a small slice of spectrum in regional areas.



The 3.4GHz spectrum, which is ideal for wireless broadband and local loop services, is broken into 482 lots, in the state capitals, major eastern state regional cities, and five larger regional areas covering most of eastern and southern Australia. Over 95% of the spectrum on offer attracted successful bids.

Other spectrum in the range of 24GHz and 38GHz are expected to be allocated for broadband wireless applications in the future as demand arises. Exhibit 9-3 provides an overview on the potential broadband wireless operators in Australia.

Exhibit 9-3: Broadband Wireless Operator Overview

Operator Operational Status Standard Coverage

AAPT • Operating since 2000

LMDS • CBD areas in Melbourne, Sydney, Brisbane, Adelaide, Perth and Canberra

AUSTAR • Operating in 2001 MMDS • 60 towns and cities (Albury, Bendigo, Mackay, Rockhampton, Gold Coast and Townsville)

Datafast • planning (no spectrum has been acquired)

MMDS or LMDS

XYZed (formerly Agility)

• Operating since 2001

LMDS • Metro areas of capital cities

Akal • Spectrum acquired ($95m)

MMDS • Network is yet to be rolled out.

Walker Wireless • Spectrum acquired ($2.8m)

MMDS • Regional areas – network is yet to be rolled out

Other operators especially those who have microwave networks, including Agile, Datafast and Davnet are interested in deploying LMDS or MMDS networks in the future.

However, unlike microwave spectrum which is based on apparatus licensing, LMDS spectrum (28GHz to 34GHz) are normally auctioned. The limited spectrum coupled with cost and technology immaturity are considered as some of barriers to entry for new operators in the broadband wireless sector.



9.3 LMDS and MMDS Network Rollout

Local multipoint distribution systems (LMDS) and multi-channel multipoint distribution systems (MMDS) are two forms of wireless local loop. LMDS represents the newest type of broadband wireless network and is set up on the hub-and-spoke model with a base station antenna transmitting to and receiving from individual subscribers.

AAPT, the first broadband wireless operator, plans to extend its LMDS services by rolling out 40 nodes across Australia in 2002, providing coverage to CBD and metro areas in 6 capital cities.

Optus’ subsidiary XYZed (formerly Agility) has selected Alcatel to roll out its $150m LMDS network in CBD and metro areas in Sydney, Melbourne, Perth, Brisbane, Adelaide and Hobart, where it complements existing infrastructure.

Since mid 2000, the new high-speed fixed wireless services are being developed in rural Australia. Unlike other services, MMDS and LMDS will provide wireless local services where cable operators cannot go. As LMDS and MMDS are capable of transmitting high-speed data services, rural dwellers will gain access to high-speed Internet connections and pay-television services.

Regional operator, Austar, has formed a strategic alliance with ADC Telecommunications to develop and deploy what Austar claims will be ‘one of the largest MMDS systems to date in the world’. Two-way transmission facilities will provide high speed Internet and telephony services to more than sixty Australian towns and cities, commencing in 2001 and targeting business and government users.

Akal is also rolling out its MMDS network in 2001, covering 14 large towns, 7 capital cities and 5 large regional areas in Australia.

Exhibit 9-4 provides an overview on the LMDS and MMDS deployment in Australia.



Exhibit 9-4: LMDS and MMDS Network Overview

Operator Standard Investment Infrastructure Capacity

AAPT LMDS $60m (1st phase) $250m (2nd phase)

20 BS (2000) 120 to 200 BS (2001-2002)

200 links (2001) 400 t0 600 links (2002-2003)

AUSTAR MMDS 43 POP (covering 1.5m houses) 51 transmission sites

300Kbps-1Mbps

C&W Optus (XYZed)

LMDS $37.5m 15 BS (2000) 50 BS (2001) 150 BS (2002)

320 E1 2Mb pipes

Akal MMDS

BS = Base station or transmission sites

Exhibit 9-5: LMDS and MMDS Coverage Map

Source: Agility Network



9.4 LMDS/MMDS Service and User

9.4.1 LMDS/MMDS Service

LMDS is a high frequency broadband access technology that offers point to multi-point connectivity. It allows large numbers of end-user sites to be connected with nxE1 services from a single hub point. LMDS supports a comprehensive range of services including voice, high speed Internet access and data products.

The fixed wireless customer access technology can support the delivery of the following services:

• Voice/telephone (POTS and digital PABX)

• Internet access (E1 or Nx64Kbps)

• LAN bridging

• High speed data (2Mbps dedicated link, Nx64Kbps link, STM1 ATM link)

• Video (video conference and VoD).

At the moment, LMDS is primarily used to provide point to multi-point connectivity for business applications as listed above.

9.4.2 LMDS/MMDS User

Most of the LMDS applications currently are targeting the corporate, government and small to medium enterprise (SME) market segments. Applying the technology to residential uses, such as the delivery of pay-TV and other broadcast applications, will come later.

XYZed (formerly Agility) will roll out the network in metropolitan areas of capital cities and use it to offer new and competitive broadband access alternatives to communications carriers, service providers and ISPs.



9.5 LMDS/MMDS Market Perspective in Australia

9.5.1 The Emergence of LMDS and MMDS

In essence, LMDS is a technological variation of 2GHz MMDS, which is an established medium of television transmission. MMDS works well and there is an established body of radio engineers around the world. LMDS operates further up the band at 28GHz, promising much greater capacity.

LMDS was originally conceived in the early nineties as a means of delivering video content to residential subscribers, just as was MMDS, but it quickly proved unsuitable. The equipment turned out to be prohibitively expensive to manufacture for consumer applications, and, in any case, severe line of sight requirements ruled out mass deployments serving whole neighbourhoods.

By 1998 when the first auctions took place, most of the business plans positioned the new services as data Local Exchange Carriers (LECs) serving up high speed access to individual business subscribers. The original notion was that the networks would assume hub and spoke architectures with single base stations serving up to several hundred subscribers. Its multi-megabit capacity would allow unlimited video capacity to the home, and it would be done with a wireless infrastructure, avoiding all the cost of fibre rollout to the kerb or home.

A few years ago, fibre networks were still unrealistically expensive, costing several thousand US dollars per home passed. Data services over DSL and HFC networks were yet to be seen as a viable opportunity. LMDS and MMDS were considered to be a wireless solution for broadband wireless.

Broadband wireless, driven by these factors, has the potential to open up the broadband local access bottleneck – currently a stranglehold of incumbent telcos and cable companies. New digital systems promise to offer digital television, interactive services, fast Internet access and commercial data networking services.



The broadband wireless market is driven by:

• liberalisation and competition

• the demand for new services

• the need for operators to deliver flexible bandwidth

• the development of new wireless technologies

• the low cost of radio-based solutions versus other technologies.

9.5.2 The Slow Take-Off of LMDS Technology†

Spectrum has been allocated in Canada, New Zealand, Australia, the Philippines, Poland and the United States. However, there is no operator yet offering a mass wireless broadband service using the technology. There have been some ‘trial test-beds” and “commercial trials”. Few have provided any meaningful or conclusive results. In this region, Nortel and Newbridge are trailing LMDS with New Zealand carrier Clear Communications.

But in most markets, LMDS is taking a long time to establish itself. Canada led the world with its LMDS spectrum allocations in 1996. But full commercialisation is yet to be realised.

One year ago (2000), Hong Kong was home to quite possibly the world’s most enthusiastic new LMDS licensees. Operators such as mobile provider SmarTone, US-based PSINet and Teligent were promising aggressive rollouts and low prices, starting from mid-2000.

Today the CCT-Teligent network comprises eight hubs and does not plan to offer service until the middle of this year. By the end of February 2001, only SmarTone and HK Broadband, a subsidiary of IDD specialist CTI, were underway commercially. SmarTone has 1,000 customers. Operators in Hong Kong blame the problems on the major real estate developers – many of whom own rival firms, including SmarTone and Hutchison Telecom – claiming they are blocking access to office blocks and high-rise apartments.

LMDS’ opportunity seems to be in areas where fixed broadband is limited or very expensive.

† This section is based on Wireless Asia (2001) – LMDS and Beyond.



Most analysts think the Hong Kong operators are applying the wrong technology to the wrong market segments. Corporate users are already well-serviced by the many international operators based in the territory, while consumers and small businesses are served by a cable operator and an expanding ADSL network. That doesn’t leave much for the wireless broadband players.

LMDS spectrum was auctioned in the US last year, and a number of operators there expect to launch services over the next year. The mass deployment in the US will drive the equipment cost down and wider adoption may follow.

9.5.3 Problems Related to LMDS Adoption

The main barriers to the development of the broadband wireless market are:

• constraints of the current technology

• regulatory constraints (spectrum licensing and allocation)

• the low availability and high cost of digital equipment

• competing technologies (DSL and cable)

• low user acceptance due to the misconception of the reliability of wireless technology

• lack of commercial credibility beyond TV distribution.

One of the big problems for the innovators of LMDS is deciding exactly which market they want to pursue. It is important for LMDS operators to define their services and target markets from day one – or face expensive re-fits. Analogue one-way video broadcast has a limited appeal. The most obvious market for a technology which supports data speeds of up to 155Mbps is high-end corporate broadband.

But LMDS is an immature, untested technology compared to established fibre connections. In the past few years, fibre in city business districts has become a reality – for example, virtually all of the top 100 business centres in Australia have access to fibre. In these places, LMDS may have missed its opportunity.



One perspective is that the real opportunity for LMDS lies in the next tier of the market – medium-sized businesses and high-density residential areas. Bosch Telecom argues that high-end customers should usually be served with direct microwave links. Medium to small businesses and multi-dwelling unit-based residential tenants may be the initial point-to-multipoint deployment.

In the case of small businesses, some analysts point out that it is difficult for them to implement their own private network solutions. In the case of multi-dwelling units, their broadband needs are constantly increasing but they are not currently being targeted by wired broadband services.

Most intending LMDS providers have been vague about which market segments they aim to attack. Philippines operator GHT Network secured LMDS spectrum in March 1998 and announced that it would be providing “cable television” services. Cellular Vision in US plans to offer Internet service to residential market.

9.5.4 Broadband Wireless in Australia

As in other countries, LMDS and MMDS are in the earlier stage of development in Australia. XYZed (formerly Agility), AAPT, Austar and Akal are the four major companies which have obtained the appropriate spectrum for broadband wireless.

However, the competition amongst these operators is expected to be low as the broadband wireless deployment strategy of these companies vary.

The new Cable & Wireless subsidiary, XYZed, was set up as an LMDS-based bandwidth wholesaler. It paid A$37 million for spectrum in the 27GHz band in November 2000, and started service in early 2001. It now has at least one Base Transceiver Station in every capital city and four regional centres, targeting the “60% of the business profit that derives from the access layer” of which Telstra holds 90%.

XYZed is focussing on metropolitan areas of capital cities.



In addition, low deployment cost is also helping XYZed. It says installation cost is under US$520,000 per cell (around A$1 million), each typically serving about 50 customers. A 100Mbps base station costs $300,000. By comparison a terrestrial fibre link could cost more than $10 million, plus $200,000 per building.

Australian operator AAPT secured all of Australia’s LMDS spectrum in auctions 1999 for US$44 million (around A$80 million) – the highest per-capita rate paid for 28GHz spectrum anywhere in the world.

AAPT already has a well-advanced fibre loop deployment program in the central business districts of major Australian cities. It sees LMDS as initially serving secondary business districts with voice and data, such as the commercial centres of Australia’s sprawling suburbs.

In the second phase of its deployment, AAPT sees LMDS as complementing its central city fibre network where connections may be needed more quickly.

AAPT says that LMDS enjoys tremendous cost advantages over fibre. With LMDS, AAPT can wire up a building within two to five days at a cost of around A$10,000 compared to several weeks for traditional fibre bearing a price tag of between A$40,000 and A$50,000.

Exhibit 9-6 provides an overview on the projected market development scenario for broadband wireless in Australia.



Exhibit 9-6: Market Development Scenario for Broadband Wireless

Now (2000-2003) Future (2004-2007)

Deployment of digital MMDS will continue slowly for TV distribution and Internet access services.

MMDS will continue to be used in some countries, but continued deployment will be halted by substitute technologies (MVDS).

Adoption

Digital LMDS will be deployed by new operators in Australia.

LMDS will be used by major operators to complement their fixed telecom.

Digital MMDS supports many more TV channels and asymmetric two-way services; for example, high-speed Internet access.

MMDS not developed further. Application

Early digital LMDS/MVDS implementations will be used for business services (for example, T1/E1 links and Internet access).

Digital LMDS/MVDS expands to support interactive video, data and voice services, as well as TV distribution, interactive multimedia services.

MMDS and analogue LMDS/MVDS will continue to be used primarily by residential users.

Residential users of basic services will migrate to other solutions.

User type

Digital LMDS/MVDS early services are attractive to small businesses and large corporations.

Larger businesses will migrate to fibre-based solutions.

Cost Costs of digital equipment will begin to fall as components become more widely available and commercial production begins. Prices acceptable to business subscribers.

Further price falls, as mass production progresses. CPE prices make digital services viable for residential subscribers.

Source: Ovum and TelecomAsia



10. SATELLITE NETWORK


With its capacity for expansive geographic coverage and multiple-service capabilities, satellite-based telecommunications can be characterised as the big brother of the cellular and personal communications services industries.

Depending on the altitude of the satellite, these systems are termed as Low Earth Orbit (LEO) at 600-1500km or Medium Earth Orbit (MEO), Geostationary Earth Orbit (GEO) at 36,000km above earth.

Satellite-based communications system, offers an attractive alternative for many developing countries like the archipelagos of Indonesia and the Philippines with many islands or a vast country like Australia which is inaccessible by fixed line network.

The actual capacity of a satellite footprint will depend on the application and the receiver equipment in use. Applications vary from one-to-many broadcasting and data transmission to large point-to-point links. In addition, the footprint is a shared resource between all receivers and if links are dedicated to one transmitter and receiver, the number of such links is strictly limited.

The satellite bandwidth provided by the geostationary (GEO) satellite is expressed in megahertz. The satellites could be considered as analogue devices as they are receiving and re-transmitting radio frequency signals (which often carry digital services such as digital television). The digital equivalent of a satellite’s ‘analogue’ capacity, that is the efficiency of the satellite spectrum utilisation, would, as described above, depend on the services provided. For example two-way 140Mbps service would require 2x72MHz of satellite bandwidth, two-way 45 or 34Mbps would use 2x36MHz of satellite capacity, while two-way 64Kbps would need 2x100KHz.

Satellite technology can be used for both backbone and local access networks.



10.1.1 Satellite Technology for Backbone Network

Satellites are not widely used to provide backbone network capacity as they have limited total capacity in relation to optical fibres. According to the NBI (2000) report, the capacity of each C&W Optus satellite covering the whole of Australia is 0.6Gbps compared with the average potential capacity from all sources into individual small towns of 160Gbps. This trend should continue for the next five years, as the potential future capacity of optical fibre links is likely to increase significantly faster than future satellite capacity.

However, a new generation of satellites (eg, LEO and MEO) will challenge the role of the geostationary systems (eg, Telstra’s Satcom and C&W Optus’ MobileSat) that have dominated for so long the remote delivery of broadcast and communications services.

The new systems promise almost ubiquitous service, reaching out into areas poorly served by traditional terrestrial networks, providing cheaper and easier to use services than those delivered via geostationary satellites.

New technology expected to become available within three years will make satellites a far cheaper and more powerful option for connecting rural homes or businesses to the Internet at high speed.

At the heart of the advances is so-called multibeam or spot-beam technology, which will give satellites far greater capacity to relay unique data streams to different users on Earth. Satellites’ power will double in the next two to three years.

In terms of backbone technology, satellite is not as capacity rich as fibre optic. As a myriad of optic fibre networks are deployed in the eastern seaboard, satellite might have limited applications in this area. However, in the rural and remote regions, especially in the Western and Northern parts of Australia, satellite networks will provide an alternative backbone solution.

According to The Australian, 4 August 2000, Telstra is considering utilising Skybridge satellites (which will be available in 2002/2003) as a complementary technology to its terrestrial backbone. Appendix D provides an overview on the Skybridge satellites.



10.1.2 Satellite Technology for Local Access Network

By their very nature, satellites are best suited to point-to-multipoint broadcast type applications. They also have a significant niche application as part of the customer access network, in situations where alternative terrestrial technologies are not cost affective or not available, such as many rural and remote areas and areas where xDSL technology is not practicable. These are likely to remain the most significant satellite applications in the customer access network over the next five years.

The capacity available from satellite technologies is limited by the available spectrum. They are not able to service large numbers of users in one location as they depend on the sharing of a relatively limited bandwidth between all the users. However, in sparsely populated areas or perhaps as fill in for terrestrial cellular systems satellites will provide good service coverage.

Many satellites have some coverage over Australia, but C&W Optus and PanAmSat have geostationary satellites with Australian dedicated footprints. Based on these footprints, operators are beginning to provide broadband services direct to the user, usually in 64Kbps steps. However, as satellite transponder capacity is limited by spectrum availability, C&W Optus and PanAmSat are capable of serving perhaps only tens of thousands of customers with an equivalent 64Kbps dedicated link.

The ACA has found in its process of assessing the efficient costs of providing USO services – that fixed copper networks and wireless networks are suited to providing services to customers within 20kms of a local exchange. Satellite is best suited to provide services to customers 20km beyond local exchanges. It is therefore generally suitable for providing telephony and data services in rural and regional areas. Satellite is considerably more expensive to deploy in CBD and metropolitan areas than copper and wireless local loop networks.



10.2 The Deployment of Satellite Technology in Australia

Direct to user communications based on geostationary satellites have been in use for many years, with Inmarsat being the first and now one of the largest global providers. These services have, for the most part, been narrowband voice and data. Within Australia, land based Inmarsat services and services based on the C&W Optus satellites traditionally followed this trend.

Many satellites (mostly US based) have some coverage over Australia, but C&W Optus and PanAmSat have satellites (GEO) with Australian dedicated footprints.

Satellite technology is used for both backbone network transmission and local access network in Australia.

With limited bandwidth capacity (compared to fibre), satellite is used mainly as alternative backbone transmission technology in rural or remote areas where terrestrial networks (fibre and copper) are not available. Telstra is considering to use Skybridge as a wireless technology to complement its terrestrial backbone network.

More recently, satellite based services in the low end of the broadband range have begun to appear for the local access market. For example, the Telstra MiniSat MultiMedia service based on the Inmarsat M4 project with ISDN (integrated services digital network) capability. Telstra also offers BigPond Advance with 400Kbps individual download speed and up to 3Mbps for multicast file delivery using the PanAmSat 2 satellite.

They also have a significant niche application as part of the customer access network, in situations where alternative terrestrial technologies are not cost effective or not available, such as many rural and remote areas and areas where xDSL technology is not practicable. These are likely to remain the most significant satellite applications in the customer access network over the next five years.

In view of the introduction of LEO and MEO with new multibeam technology, satellites will provide an affordable and powerful option for connecting rural homes or businesses to broadband service.



Exhibit 10-1 provides an overview on the satellites technology deployment in Australia.

Exhibit 10-1: Satellite Operator Overview

Operator Satellites Launch Date Investment Ownership Australian Alliance

Inmarsat GEO (9 satellites)

1980 British based international organisation

Telstra is the Australian service provider

MobileSat GEO (4 satellites)

1992 A$800m* Australian based C&W Optus

C&W Optus

PanAmSat GEO (21 satellites)

1997 81% owned by US based Hughes Inc.

ICO Global (New ICO)

MEO (12 satellites)

2000 (Delayed) (Merging with Teledesic in 2001)

US$2.8bn US billionaire, Craig McCaw.

Telstra

Iridium LEO (73 satellites)

1999 (Bankrupted in 2000)

US$3.4bn US based, Motorola led consortium.

Link Telecom

GlobalStar LEO (56 satellites)

2000 US$3bn US based Loral Corp and Qualcomm

Vodafone is the Australian service provider

Sky Bridge LEO (80 satellites)

2002 US$4bn France based consortium led by Alcatel

Telstra

Teledesic LEO (288 satellites)

2003 US$9bn US based consortium led by Craig McCaw, Bill Gates and Boeing.

Appendix D will provide an overview on the satellite operators above.

Australia’s satellite market has been liberalised since 1997, but so far C&W Optus remains the only domestic player. International operators such as PanAmSat and GlobalStar have also been offering services in the country. Optus’ four satellites – Optus A2, A3, B1 and B3 – cover Australia, Papua New Guinea and the Southwest Pacific islands. Both the Optus A and Optus B series carry 15Ku-band transponders, including four high-power Ku-band beams, while the Optus B series carry two additional L-band transponders for the company’s MobileSat satellite phone service.



10.3 C&W Optus’ Satellite Network

10.3.1 C&W Optus Satellites

The C&W Optus satellite business was originally established in 1981 by the Australian Government. CWO acquired AUSSAT and its satellites (and associated customers) when it became Australia’s new telecommunications carrier in January 1992. C&W Optus has continued this existing business and grown the business by attracting new customers.

C&W Optus uses its satellites to provide broadcast services to large customers such as Foxtel and Austar. It also provides interactive and telephony services to remote areas for large business customers (eg, Ford dealerships) and government agencies.

The C&W Optus satellite fleet was the first component of its network after the fledgling company gained three satellites in its acquisition of Aussat in late 1991. The satellites carry all or part of most of the television signals seen throughout Australia, including direct-to-home free to air services to rural and remote users, and Pay TV services to Austar and Foxtel customers. The satellites are used by Air Services Australia for a country-wide air traffic network, the Defence Forces for fixed and mobile services and over 8,500 users of the MobileSat mobile satellite telephone system.



10.3.2 C&W Optus Satellite Network Infrastructure

CWO owns or leases the following satellites at the following orbital locations:

• A3 inclined orbit at 164 degrees East

• B1 geostationary at 160 degrees East

• B3 geostationary at 156 degrees East (“hotbird”).

CWO’s existing satellites provide a footprint over continental Australia, Tasmania and New Zealand, with limited coverage to Papua New Guinea, Norfolk Island, Lord Howe Island, Cocos Island and Christmas Island.

CWO owns or leases the following earth stations:

• Belrose (Sydney): 6 antennas accessing A3, B1 and B3. Also provides TT&C functions

• Oxford Falls (Sydney): 5 antennas accessing Intelsat and other non-CWO satellites

• Perth: 9 antennas accessing A3, B1 and B3 and Intelsat and other non-C&W Optus satellites

• Brisbane: 3 antennas accessing A3, B1 and B3

• Canberra: 1 antenna accessing B1

• Melbourne: 3 antennas accessing A3, B1 and B3

• Adelaide: 3 antennas accessing A3, B1 and B3

• Hobart: 1 antenna accessing B1

• Darwin: 2 antennas accessing A3 and B1

• Auckland: 1 antenna accessing B1

• Wellington: 1 antenna accessing B1 (not used).



Current Satellites Network Deployment and Coverage (Australia)

The satellites network consists of:

• eight Major City earth stations in Australia (Adelaide, Canberra, Brisbane, Darwin, Launceston, Melbourne, Perth and Sydney)

• two Major City earth stations in New Zealand (Auckland and Wellington)

• two Major City earth stations in Papua New Guinea (Lae and Port Moresby)

• one A-series satellite in operation

• two B-series satellites in operation

• one C-series satellite being built (due for launch early [or Q1] 2002).

The $500 million C1 satellite to be launched in Q1 2002 will provide C&W Optus with coverage into Australia, NZ coverage plus East Asia and Hawaii. In early 1998 it modernised the platform on the B3 satellite, Australia’s ‘hotbird’, replacing the 15-year-old analogue format with a digital format, investing more than $20 million in the project. (‘Hotbird’ is the term applied to the satellite located at 156°E that has more than 750,000 satellite dishes pointed at it and carries a suite of services.)

Exhibit 10-2: C&W Optus’ Existing Satellite Network

Source: C&W Optus



Exhibit 10-3: C&W Optus’ Earth Station Access

A3 B1 B3 TT&C INTL

Sydney

Perth

Adelaide

Melbourne

Canberra

Brisbane

Darwin

Auckland

Hobart

Source: C&W Optus

C&W Optus satellites network currently has 46 transponders which will be increased to 70 by 2002 with the launch of C1 satellite (24 transponders). The A series satellites have a bandwidth capacity of 45MHz while the B series satellites have 54MHz.

About $10m was spent annually in 1999 and 2000 by C&W Optus on its satellite network investment. Satellites need to be replaced every 15 years at a cost of $400m. It takes two years to deploy a new satellite.

In October 1999, C&W Optus signed a contract with Mitsubishi Electric Company, Melco and its partner Space Systems Loral for a new C1 satellite. This is the first satellite to be designed by C&W Optus, the A and B series were designed by Aussat. With the commitment from the Department of Defence to approximately half of the satellite capacity the C1 satellite will provide additional capacity over Australia and provide new capability for services into Asia, as well as providing a broad range of capability for Australia’s Defence Forces.

The satellite will be launched by an Airanespace rocket in early 2002. The total program cost for the satellite is around $500 million.



10.3.3 C&W Optus Satellites Services

C&W Optus supplies broadcast services, VSAT services and other satellite services using its own fleet of satellites and international satellites, such as Intelsat, PanAmSat and Asiasat, in addition to the Company’s fibre cable network.

Broadcast Services:

• RemoteCast – A full time point to multipoint satellite broadcast service designed to deliver free-to-air public and commercial broadcast services to remote areas of Australia. Transmission is encrypted by the Aurora Conditional Access system to ensure that services are only received by customers entitled to do so. Transmission includes video, teletext and related radio services.

• MultiCast – A full time and part time point to multipoint satellite broadcast services designed for narrowcasting to all areas of Australia. Transmission is encrypted by the Aurora Conditional Access system and includes video, teletext and related sound services. Examples include services provided to Sky Channel and the NSW Education Services.

• AudioCast – A full time point to multipoint satellite audio broadcast service designed for narrowcasting to all areas of Australia. Transmission is encrypted by the Aurora Conditional Access system and can include radio, related data services and CD quality sound services. Examples include Woolworths in store and Community Broadcasting Foundation services.

• HomeCast – A full time point to multipoint satellite and terrestrial based video service for the delivery of subscription television. This product is designed specifically for pay-TV via satellite.

• VideoConnect – The provision of video contribution and distribution services. The service can be provided point to multipoint or point-to-point. Transmission includes video and associated audio services and is intended for carriage of TV network signals between studios or between studios and re-transmission sites. C&W Optus also provides this service on to and from international destinations. (see “Other Satellite Services – Global VideoConnect”).



VSAT Services:

• DataReach – Provides two-way data service between corporate head office and remote branches using VSAT terminals. DataReach is a star topology network designed for interactive applications in the finance and banking, manufacturing, retail and government markets.

• FastData – Provides one-way data transmission from customer computer centres to remote receiver devices. It is applicable for corporate transfer of data either as an automatic feed or as feed on receipt of request for information.

Other Satellite Services:

• MobileSat – A mobile switched telephone service using a satellite telephone for voice, data and fax transmissions. It was launched as the world’s first commercial mobile land-based satellite telephone system in August 1994. It is designed for special purpose users, such as operators in remote locations, typically in mining and agriculture, fishing. It allows users to make and receive telephone calls and transmit and receive fax or data anywhere in Australia (including all of the land mass not covered by terrestrial mobile networks) and up to 200 kilometres out to sea. The service can be used as both a mobile and fixed service. There are approximately 8,500 MobileSat customers.

• Global VideoConnect – C&W Optus provides VideoConnect services on an international basis where it has access to international satellites, an example being contribution feeds from the USA to Optus Television for programme sourcing.

• Transponder Services – These are full time services, which utilise only a full or partial C&W Optus satellite transponder. Services occupying a full transponder are managed by the customer who must conform to CWO’s transponder plan parameters. Services carried can be voice, data or video and radio programmes. A customer’s transmit earth station equipment must be approved by CWO and meet its interface specifications.



Transponder products include:

• Austlink – point to point or point to multipoint, one-way or two-way voice or data transmission. The uplink or downlink must be provided by a C&W Optus earth station.

• Omnicast – point to multipoint medium to high-speed data distribution, used for data and sound services. Data transmission rates are between 64Kbps and 2Mbps in increments of 64Kbps and over 2Mbps in increments of 256Kbps. An example is Hutchison’s paging data broadcast service.

Tracking, Telemetry and Control (TT&C)

CWO Satellite provides TT&C services for its own A3, B1 and B3 satellites, for PanAmSat-4 under a 15-year contract and for other satellite operators. Satellites are controlled from tracking facilities in Sydney, with redundant facilities in Perth. CWO also operates a series of major city earth stations (MCES) in each Australian capital and at a number of other sites. C&W Optus employees operate these earth stations and all tracking facilities. CWO provides launch support for other satellite operators using these facilities.

Remote Area Broadcasting Service (RABS)

Over the 15 years C&W Optus (Austar) has been supplying remote area broadcasting services it has grown the service to the point where 50 national, commercial and community broadcasting services are transmitted digitally from the Aurora satellite.

The television services available from the RABS service are:

• five services for the Australian Broadcasting Corporation (ABC),

• four services for the Special Broadcasting Services Corporation (SBS)

• a service for Golden West Network

• a service for Imparja

• a service for WIN corporation

• a service for Telecaster Australia Ltd (for Queensland’s Seven Central Channel)

• business and ethnic TV.



Users receive signals either directly from the satellite via a satellite dish or the signal is received in their community and retransmitted terrestrially to their homes through a television antenna. Both national and community radio broadcasters use the service to transmit their signal throughout Australia. These broadcasters include:

• all ABC (classic FM, JJJ, Radio National and local ABC)

• SBS corporation radio

• religious radio for print handicapped.

Free to Air TV

For 15 years C&W Optus has had long term satellite contracts with the national commercial broadcasters – Channels 7, 9, and 10 and ABC. The services provided are contribution (field to studio), interchange (studio to studio) and distribution (studio direct to homes and for regional retransmission). Free to air TV service is used for transmitting digital television signals as the commercial and national networks convert to the digital standard.

In addition, C&W Optus provides a global video connect service to take television broadcast feeds into and out of Australia for a range of television like sporting events and news.

Department of Defence

The Department of Defence, the largest single user of communications in Australia, has been a satellite customer with C&W Optus and its predecessors since 1985. C&W Optus has been tailoring specific communications solutions for the Department since 1994, providing a significant portion of the forces’ satellite and terrestrial communications backbone. C&W Optus’ Defence Mobile Communications Network (DMCN) supported defence forces in Bougainville and East Timor, with the experience in East Timor re-confirming satellite as a cost-effective ubiquitous communications system for a modern defence force.

DMCN is a uniquely Australian technology based on the C&W Optus MobileSat system. It is a secure network that can transmit voice and data to anywhere in Australia and up to 200 nautical miles out to sea, and is an extension of a non-secure network Defence previously leased from C&W Optus. Its best application is for manoeuvres in very isolated conditions in rural and remote Australia.



Airservices Australia

C&W Optus has been a long-term supplier of satellite services to Airservices Australia, the authority responsible for airspace and air traffic flow management, navigation services, fire fighting and search and rescue alerts at airports. Under a contract made with Airservices (signed in May 2000), C&W Optus is providing a sophisticated combination of satellite, optical fibre cable and frame relay services to link more than 30 locations around Australia, including the major airports, over a six-year period. C&W Optus will also be responsible for the communications infrastructure that supports Airservices’ air traffic control system.

10.3.4 Target Users and Network Utilisation

Exhibit 10-4: C&W Optus’ Satellite Network Target User

Location (CBD, city, urban or rural) Market (Business, Residential, Reseller, etc)

Regional and rural. Business, corporate, government.

The C&W Optus satellite solution is ideally suited to companies or government departments with multiple offices in rural and regional areas of Australia. These companies want a telecommunications provider that has Australia-wide network coverage. C&W Optus is able to use its fixed network and satellite network together to provide an effective solution for these customers.

Exhibit 10-5: C&W Optus’ Satellite Network Traffic

1999 2000 2001 2002 2003

Voice 25% 23% 22.6% 21% 20%

Data 10% 12% 13.2% 15% 18%

Video 65% 65% 64.2% 64% 62%

Total 100% 100% 100% 100% 100%

(*Voice traffic volumes includes radio traffic.)

Voice traffic on C&W Optus’ satellite network is likely to remain the same. Video and data traffic volumes are likely to increase due to the increasing importance of multimedia applications. C&W Optus has also sold two transponders worth of capacity to the ABC for television transmission which will increase future video traffic volumes over the C&W Optus satellite network.



The C1 satellite will be launched in Q2 of 2002. At this stage it is unknown how the existence of this satellite will impact on the breakdown of traffic volume.

Exhibit 10-6: Network Capacity Utilisation

2000 2001 2002 2003

Network Capacity (total transponders available)

46 46 70

• Capacity used (%) 57% 57.6% 45% 55%

• Re-sell capacity (%) 0% 0% 0% 0%

• Idle capacity (%) 43% 42.4% 55% 45%

C&W Optus currently has 26.5 transponders in permanent use. Another four transponders are used occasionally. The remaining 15.5 transponders are not currently being used. The majority of unused capacity is on the A3 Satellite which requires tracking antennas to access it.

C&W Optus does not “resell” satellite capacity. Although C&W Optus leases capacity over the satellite to its customers, C&W Optus retains control over the operation and functioning of the satellite capacity at all times.



10.4 Market Perspective

The ACA has found in its process of assessing the efficient costs of providing USO services that satellite is suited to provide services to customers 20km beyond local exchanges. It is therefore generally suitable for providing telephony and data services in rural and regional areas.

Satellite is considerably more expensive to deploy in CBD and metropolitan areas than copper and wireless local loop networks.

Satellite Based Internet Service

Iridium, backed by Motorola Inc., was the first victim, filing for bankruptcy protection in mid-1999. Two weeks later, ICO Global Communications Ltd., a spinoff of UK-based Inmarsat Ltd., also sought bankruptcy protection.

In 2000, GlobalStar Telecommunications Ltd., backed by Loral Space & Communications Ltd., faced the possibility of severe cash-flow problems. Rather than Internet access, all of these ventures proposed to offer globally usable mobile phones.

Tarnished by the multibillion dollar bloodletting investors have suffered at the hands of satellite-phone companies like Iridium, the satellite industry is looking to the niche of broadband Internet-access to rebuild its telecommunications credibility.

At the heart of the advances is so-called multibeam or spot-beam technology, which will give satellites far greater capacity to relay unique data streams to different users on Earth. Satellites’ power will double in the next two to three years. Multibeam technology also provides cheaper and easier-to-use equipment for linking a personal computer or office network directly to the orbiters.

New technology expected to become available within three years will make satellites a far cheaper and more powerful option for connecting rural homes or businesses to the Internet at high speed.



New initiatives were taken in July 2000 to establish a satellite-based communications network to master the distances of rural Australia. The failure of the anywhere-in-the-world satellite-based communications scheme of the American company, Iridium Incorporated, has not dampened enthusiasm for this technology platform. In Australia, the parties involved in projects of this sort include Globalstar, Telstra, Vodafone, C&W Optus, and lobby groups such as Internet-In-The-Bush.

According to The Australian, 4 August 2000, Telstra has taken a further step toward providing regional broadband satellite services under the $4 billion Skybridge project. Telstra signed an agreement in principle with Skybridge L.P., gaining the first option to become an equity partner and Skybridge’s service provider for Australasia and Southeast Asia. Skybridge, owned by a consortium led by Alcatel S.A. of France, plans to launch a fleet of 80 satellites in 2001 to offer global high-speed wireless Internet and multimedia services in 2002/2003

In late 2000, Telstra announced that it would introduce broadband Internet access in early 2001 to rural Australia via a satellite belonging to Hong Kong’s Asia Satellite Telecommunications Ltd.

In addition, Alcatel Australia and C&W Optus have teamed up to deliver satellite-based services to rural and regional Australia, announcing an agreement in late 2000 to make use of the Optus B3 satellite and existing Alcatel access technology to create a nationwide network.



Mobile Satellite Service Market in Australia

In the mobile satellite service, competition in Australia has intensified in the last few years with four competitive services now vying for market share: Optus MobileSat, Inmarsat Mini-M, GlobalStar and Iridium. MobileSat is currently the market leader in terms of both connections and revenue; however, lower cost handsets/terminals and greater portability have allowed GlobalStar and Iridium to exploit new market segments within Australia. Ultimately whether these systems are successful in the medium to long term will depend on their ability to generate earnings on a global level.

According to C&W Optus, the Australian market is viable for 2, perhaps 3, active mobile satellite suppliers. Growth is limited by:

• low population levels in rural areas

• low usage in “new” market segments, particularly recreational/ emergency use customers

• alternative technologies (HF and VHF radio).

Handheld mobile satellite services are enjoying some initial success as they enter new market segments due to portability and relatively low cost handsets.

In the land mobile market, demand is strongest in the in-vehicle segment, however the greater portability of handhelds is winning business in the ‘emergency use’ segments. Reliability of terminals/mobile systems and terminal prices are also key influencers to market adoption in both the land and maritime markets.

If the handheld mobile service survives the next 2-3 years, higher levels of global production of handsets should lead to reduce “upfront” costs to users (a key barrier to market adoption). However, call costs are not likely to fall significantly.

Data usage is increasing in some key segments. However, development of broadband Ka-band mobile data systems is limited by a lack of investment dollars, with the investment community now sceptical about the viability of these global, portable systems.


© Technology Applications Group, December 2001 Biblio-i

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© Technology Applications Group, December 2001 Biblio-ii

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© Technology Applications Group, December 2001 Appendix A-i

Appendix A: Comparative Cost of ISDN Services

Exhibit A-1, based on the Telecommunications Performance Report (2000) contains a comparison of the respective components of ISDN charges and costs for a selected group of countries.

Exhibit A-1: International Basic Rate ISDN Comparison at July 2000 (A$)

Country ISDN provider ISDN product Connection Annual rental

Average annual fixed

costs

United States Bell Atlantic (Maryland)

ISDN BRI $199.07 $831.72 $898.08

United States Pacific Bell Personal ISDN $196.98 $694.96 $760.62

Canada Bell Canada Microlink ISDN $233.86 $1,348.77 $1,426.73†

United Kingdom

BT ISDN 2e $498.50 $1,382.77 $1,548.93

New Zealand NZ Telecom ISDN BRA $136.09 $1,045.18 $1,090.55

Singapore Singapore Telecom

ISDN-d-way $0.00 $113.68 $113.68

South Africa Telkom SA ISDN 2 $104.91 $571.39 $606.36

Australia Telstra OnRamp 2 $324.50 $660.00 $768.17

Australia Telstra Home Highway $32.50 $514.80 $622.97a

Australia Telstra Business Highway $32.50 $792.00 $900.17b

Source: Company websites, Communications Research Unit analysis.

Notes:

• a Call allowance of $5.50 per month; b Call allowance of $22.00 per month

• Prices exclude taxes – Australian prices include GST.

• 20 hours of local calls calculated at 30x1 min calls. 30x4 min calls. 15x15 min calls. 14x30 min calls and 9x45 min calls.

• Currency conversion from Australian Financial Review published ‘buy’ rate at 30 June 2000, sourced from Westpac 29 June.

• Telstra OnRamp Home Highway and OnRamp Business differ from OnRamp 2 in having different (cheaper) modem requirements, resulting in an approximate reduction of $500 in the start-up cost. This is not a reduction in the connection fee.

• † = All call costs are included.


© Technology Applications Group, December 2001 Appendix B-i

Appendix B: xDSL Technologies Discussed

The characteristics of the various DSL standards are summarised below.

IDSL – ISDN Digital Subscriber Line

The term DSL was originally used to describe transport of basic rate ISDN. With ISDN, xDSL transmits duplex data at 160Kbps over copper lines of up to 18,000 feet of 24Ga. wire. 2B1Q line coding was invented for this application. The multiplexing and demultiplexing of this data stream into two B channels (64Kbps each), a D channel (16Kbps), and maintenance overhead takes place in the attached ISDN network termination and terminal adapter. IDSL describes products or implementations that sidestep ISDN switching issues and adapting ISDN transport to deliver 128Kbps fixed access to ISPs and subscribers.

HDSL – High Data Rate Digital Subscriber Line

HDSL is an improved method of transmitting T1 or E1 over twisted pair copper lines. It uses less bandwidth than earlier AMI coding and seldom requires repeaters. Using more advanced modulation techniques, HDSL transmits 1.544Mbps or 2.048Mbps in bandwidths ranging from 80kHz to 240kHz. HDSL provides T1/E1 rates over liens up to 12,000 feet in length (24 Ga.). This distance is sufficient to cover a carrier serving area (CSA), but this is accomplished by using two pairs for T1, each operating at half speed. Typical applications for HDSL include campus data extensions, PBX-to-network connections, cell site-to-base station controllers, digital loop carrier systems, interexchange POPs, Internet servers and private data networks.


© Technology Applications Group, December 2001 Appendix B-ii

HDSL2 – Generation 2 High Data Rate Digital Subscriber Line

PairGain Technologies, ADC Telecommunications, and Level One Communications are collaborating to develop HDSL2, a new standard for high bit-rate digital subscriber line technology. HDSL2 will deliver full T1 performance over a single twisted pair cable, with the same reach, robustness, and spectral compatibility of today’s two-pair HDSL. HDSL2 will use 2B1Q line coding to deliver either 1.544Mbps or 2.048Mbps over single twisted pairs at distances up to 12,000 feet, the same as HDSL. A central component of the new standard is a spectrally shaped waveform that does not interfere with existing T1, HDSL, or ADSL lines, while providing good performance even in worst-case environments containing a mixture of other signals. The partners claim that there is enough noise margin to operate simultaneously in a 50-pair cable bundle with crosstalk noise from the other services.

SDSL – Single Line (or Symmetric) Digital Subscriber Line

SDSL is a single line version of HDSL, transmitting up to T1 or E1 signals over a single twisted pair, and (in most cases) operating over POTS, so a single line can support POTS and T1/E1 simultaneously. SDSL has an important advantage over HDSL for residential applications, which are often equipped with only a single telephone line. SDSL will be applied to any application needing symmetric access (such as servers and power remote LAN users), and it therefore complements ADSL (see below). SDSL in current implementations will not reach beyond 10,000 feet, a distance over which ADSL is currently achieving rates above 6Mbps.

VDSL – Very High Data Rate Digital Subscriber Line

VDSL will be asymmetric with transceivers at data rates higher than ADSL, but over shorter lines. Upstream rates fall within a suggested range from 1.6Mbps to 2.3Mbps. While no standards exist for VDSL, discussion centres around the downstream speeds listed in Exhibit B-1.

Exhibit B-1: VDSL Downstream Speeds

Data Rate SONET Equivalent Loop Length (feet of wire)

12.95Mbps (1/4 STS-1) 4,500

25.82Mbps (1/2 STS-1) 3,000

51.84Mbps (STS-1) 1,000

Source: ryan hankin kent


© Technology Applications Group, December 2001 Appendix B-iii

Because of the short loop lengths supported, VDSL is not considered to be a stand-alone technology. Rather, it is the “last kilometre” technology used to provide broadband services to the home from FTTC-type systems.

In many ways VDSL is simpler than ADSL. Shorter lines impose far fewer transmission constraints, so the basic transceiver technology is less complex, even though it is ten times faster. VDSL allows passive network terminations, enabling more than one VDSL modem to be connected to the same line at customer premises, in much the same way as extension phones connect to home wiring for POTS.

ADSL – Asymmetric Digital Subscriber Line

ADSL delivers a high-speed downstream channel to subscribers and a lower-speed upstream channel to the network, independent of the existing POTS. ADSL transmits data asymmetrically to match the asymmetric nature of interactive multimedia such as Web surfing. ADSL is capable of downstream throughputs from 1.544Mbps to 9Mbps over standard telco loops and has two major attractions for U.S. LECs:

• Operators believe that 70% of existing subscriber lines in North America can be upgraded to wideband service using ADSL.

• ADSL allows upgrades to occur on a line-by-line basis, which paces equipment investment to emerging customer demand for wideband services.

Individual ADSL modems today incorporate a variety of speed arrangements, from a minimum set of 1.544/2.048Mbps downstream and 16Kbps upstream, to a maximum set of 9Mbps downstream and 640Kbps upstream. All operate in a frequency band above the basic POTS line, leaving POTS service-independent and undisturbed, even if a premise ADSL modem fails or the overall high-speed service goes down.


© Technology Applications Group, December 2001 Appendix B-iv

ADSL Lite (G.Lite)

This latest approach is a variation of ADSL that will eliminate the need for a splitter at the subscriber premise. The trade-off for easier installation is a reduction in speed: downstream speeds will be up to 1.5Mbos and upstream speeds, up to 256Kbps. While ADSL Lite will be slower than the existing ADSL standard, it may make it easier for computer manufacturer to bundle ADSL modems into computers, just like standard dial-up modems. This will provide a useful first step for consumers seeking faster Internet access. The challenge is to ensure that it is compatible with higher-speed xDSL to ensure a smooth migration path for upgrade to even faster broadband access.

CDSL

Consumer Digital Subscriber Line is a splitterless design that provides up to 1Mbps downstream and 384Kbps upstream. Nortel and Rockwell have partnered to develop this modem transceiver using the Rockwell/ Broadcom QAM modulation technique that is used in cable modems.

MSDSL

Another technology now emerging in the HDSL family – Multi-rate Single Pair Digital Subscriber Line (MSDSL; also known as MSDSL) uses one pair of copper wires, and enables symmetrical transmission from 272Kbps to 2.32Mbps. As its name implies, MSDSL operates at a variety of rates, which is an important improvement over HDSL. MSDSL provides an extended coverage area in conjunction with the subscriber’s required data rate. For services at 256Kbps, MSDSL technology extends the maximum range up to 8.8km. By contrast, the maximum range for HDSL is 3.5km (with 2.048Mbps signal over 24AWG).


© Technology Applications Group, December 2001 Appendix C-i

Appendix C: Selected DSL Products and Services

Company Product (Offering

Installation Price

Modem Price Monthly Price

Speed (Downstream/Upstr

eam

Target Market

Ameritech (USA)

Ameritech SpeedPath (ADSL)

US$150 US$199 US$49.95 includes $US6 UUNET service

1.0Mbps/1.28Kbps Residential

Bell Atlantic (USA)

Infospeed (ADSL)

US$198 US$325 All prices are in USD

• $39.95

• $59.95

• $109.95

• 640Kbps/90Kbps

• 1.6Mps/90Kbps

• 7.1mbps/680Kbps

Residential and business

Bell South (USA)

Fastaccess (ADSL)

US$299.90 US$100 plus tax (special offer)

US$59.95 (includes unlimited Internet access

1.5Mbps/256Kbps Residential

British Telecom (UK)

High Speed Data Service (ADSL)

£150 N.A. £35 512Kbps-2Mbps/ 256Kbps

Wholesale

Cincinati Bell (USA)

Zoomtown (ADSL)

US$150 (Free with 12 months contract

Value to US3$50 (Free with 12 months contract)

All prices are in USD

Zoom Town: $39.95 (includes Internet Access);

ZT TurboSpeed: N.A;

ZT HyperSpeed: N.A.

• 768Kbps/384Kps

• 768Kbps/384Kbps

• 1.5Mbps/768Kbps

Residential

Concentric (USA)

Concentric DSL (ADSL, IDSL, SDSL)

US$225 (Free with 12 months contract)

US$299 (Free with 12 months contract)

All prices are in USD:

• $69

• $89

• $124

• $149

• $169

• $169

• $199

• $199

• $359

• $359

• $359

• $399

• $300

• $499

• 384Kbps/125Kbps (ADSL)

• 768Kbps/384Kbps (ADSL)

• 144Kbps/144Kbps (IDSL)

• 160Kbps/160Kbps (SDSL)







• 1.5Mbps/384Kbps (ADSL)

• 1.04Mbps/ 1.04Mbps (SDSL)



Residential, Business, Resale


© Technology Applications Group, December 2001 Appendix C-ii

Company Product (Offering

Installation Price

Modem Price Monthly Price

Speed (Downstream/Upstr

eam

Target Market

France Telecom (France)

Wanadoo Netissimo (ADSL)

N.A. N.A. • 345 francs

• 1,445 francs

• a) Up to 1.5Mbps/ Not stated

• b)Up to 2.25Mbps/ Not stated

Residential

GTE (USA) GTE Network Services DSL (ADSL)

US$340 (Free for limited period)

US$199 All prices are in USD Bronze+: $32.50, Silver: $53, Gold: $68, Platinum: $95, Platinum+: $215 One year contract required

Bronze: 768Kbps/ 128Kbps,

Silver: 384Kbps/384Kbps,

Gold: 768Kbps/768Kbps,

Platinum: 1.5Mbps/768Kbps,

Platinum+: 1.5Mbps/768Kbps (Multi-user)

Residential, SOHO, Business

SingTel (Singapore)

Magix (ADSL)

Singapore $30 connection charge; PC/Mac installation fee not stated; install included with LAN service

All prices are in S$ PC: $249 (Promo $88) Mac: $150 (Promo $48) LAN: $1500

All prices are in S$ and include Internet Access:

• $35

• $60

• $120

• $2000

(Promo $1500)

• 512Kbps/ 512Kbps-13hrs



• 512Kbps/ 512Kbps unlimited

Residential and Business

Southwest Bell (USA)

DSL Packages (ADSL)

US$299 (Free with one year contract

US$198 All prices are in USD

• $39 (contract)

• $59 (month-by-month)

• $129 (contract) $149 (month-by-month)

• 384Kbps-1.5Mbps/128Kbps

• 1.5Mbps-6Mbps/384Kbps


US West (USA)

MegaBit (ADSL)

US$149.95 (Plus activation fee of $US69)

US$295 All prices are in USD:

• $19.95

• 29.95

• $62.40

• $76.80

• $120

• $480

• $840

256Kbps/256Kbps (no guarantees)

• 256Kbps/256Kbps

• 512Kbps/512Kbps

• 768Kbps/768Kbps

• 1.0Mbps/1.0Mbps

• 4.0Mbps/1.0Mbps

• 7.0Mbps/1.0Mbps


Telstra* (Australia)

BigPond ADSL

US$115-US$240

• US$55

• US$61

• US$80

• US$58

• US$65

• 256/64

• 512/128

• 1500/156

• 256/64

• 512/128

Residential and Business

Source: Shara Evans, Managing Director, Telsyte Pty Ltd, as published in CommsWorld January 2000, except for Telstra’s prices. Some of the prices may have changed. * Telstra’s prices are based on the detailed ADSL service charges outlined in the following table. These prices have applied since late 2000. They have been converted to US$ at the exchange rate at January 2000.


© Technology Applications Group, December 2001 Appendix C-iii

Since late 2000, Telstra BigPond ADSL offers the following types of contract.

Contract Length Installation Fee

3 months A$399.00

12 months A$259.00

18 months A$189.00

During the term of the contract, uses can choose any of the following monthly plans. Note, all prices are in A$.

Plan Monthly fee

without preselection

Monthly fee with

preselection

MB allowance** Speed* Additional

users #

Rate per Mbyte after allowance

Residential & Business

Blast Off $89.50 $73.00 250MB 256/64

Business Standard

$100.50 $84.00 500MB 512/ 128

Business Deluxe

$132.50 $116.00 500MB 1500/ 256

Up to 7 additional users

18.90 cents per MB up to 5Gb and 17.50 cents per MB after 5Gb

Residential Only

Freedom Standard

$94.50 $78.00 Subject to Acceptable Use Policy**

256/ 64

Freedom Deluxe

$105.50 $89.00 Subject to Acceptable Use Policy**

512/ 128

Up to 2 additional users

Not applicable

* Speeds are presented in downstream/upstream format eg: 256/64 represents up to 256kbps downstream/64 kbps upstream. **MB allowance means combined upload and download data transfer (except for some traffic provided from time to time by Telstra at no cost). # Each additional user is charged at $11.00 per user per month. ^ Preselection refers to Telstra being pre-selected for long distance call on the telephone number used for ADSL.


© Technology Applications Group, December 2001 Appendix D-i

Appendix D: Satellite Operators Profile

SkyBridge

SkyBridge proposes to offer broadband services through 80 low earth-orbit satellites starting in 2002 and serving some 20 million users by 2007. It would offer connections to homes and offices through small satellite dishes, and link with providers through bigger earth stations. Because of their low orbit, it can handle the uplink from customers as well as the downlink.

SkyBridge is based in the US but controlled by Alcatel SA of France. Besides Alcatel, investors include Loral Space & Communications Ltd., Canada’s COM DEV International Ltd and Japan’s Mitsubishi Electric.

SkyBridge LP, a $4 billion satellite project that plans to offer high-speed Internet and video services, has signed up Australia’s Telstra. to provide SkyBridge’s services in Australia, New Zealand and Southeast Asia.

SkyBridge plans to launch its global broadband service for telecom operators in 2003.

While SkyBridge’s satellites could not distribute pay television economically, they were much more cost effective than geo-stationary satellites in delivering interactive services such as the Internet.

In both rural and urban communities the lack of high bandwidth links at sufficiently low cost is proving the main barrier to exploiting the full potential of the Internet and the latest high power PCs to deliver highly graphic content and interactive high bandwidth applications.

It predicts subscribers in remote or non-urban areas will be able to install all the equipment they need for $700 (795 euros) in the case of private homes and around $2,000 for enterprises. Operators will be able to offer the service to home customers for $30 a month and to enterprises for $200 to $300 a month.


© Technology Applications Group, December 2001 Appendix D-ii

For this, customers will get an Internet connection where none might otherwise be possible – in the Australian bush, on an oil rig, or on the Tibetan plateau. The service could also find demand in well-populated suburban areas lacking upgradeable telephone infrastructure. And it’s a two-way connection. To date, satellites have been a seldom-used option for Internet access not only because of cost, but because of their relative inability to handle two-way data transmission.

During the conference in April 2000, SkyBridge announced it would build a local presence and work towards delivering satellite-based broadband services to rural Australia. The company has already signed an in-principal agreement with Telstra and will set up offices with its parent company Alcatel in Sydney, New South Wales. Telstra says that SkyBridge would complement its terrestrial backbone.

Exhibit D-1: SkyBridge Satellite Network

Attribute SkyBridge

Cost of space segment US$4.8 billion

Commence services 2002

Number of satellites 80

Uplink capacity 2Mbps residential

10Mbps commercial

Downlink capacity 20Mbps residential

100Mbps commercial

Uplink frequency 12.75GHz-14.5GHz

Downlink frequency 10.7GHz-12.75GHz

Waveform propagation TDMA

Orbit Circular at an altitude of 1 469kms

Satellite type Bent pipe


© Technology Applications Group, December 2001 Appendix D-iii

Inmarsat (Australian Service Provider – Telstra)

Inmarsat (International Maritime Satellite Organisation) an international organisation owned by 83 member countries called was formed in 1979 to provide global mobile satellite communications. The British-based Inmarsat currently operates five communications systems known as Inmarsat-A, Inmarsat-B, Inmarsat-C, Inmarsat-Aero and Inmarsat-M. These systems offer a range of voice, data and telex communications services for applications on the land, sea and in the air.

The communications services supported by these systems are provided globally and in Australia they are provided by Telstra Mobile Satellite & Radio Services. These services are branded Satcoms using the same alpha suffix as the Inmarsat systems that they use.

All communications to and from all Inmarsat Mobile Earth Stations (MES) are at L-Band frequencies (1.5-1.6GHz). All systems offer MES-MES calls as well as interconnect to and from conventional terrestrial networks (telephone, telex & data).

Telstra currently offers satellite mobile service operated by Inmarsat, which provides maritime and aeronautical services via its global satellite system. Telstra satellite phones are either fitted to a car or supplied in a briefcase. It operates by beaming high frequency signals up to geo-stationary satellites orbiting over Australia.


© Technology Applications Group, December 2001 Appendix D-iv

Global Star (Vodafone)

Globalstar, based in San Jose, California, was founded by Loral Corp and Qualcomm Inc. It also includes France Telecom, Hyundai, Alcatel Alsthom, AirTouch Communications, Deutsche Aerospace, and Daimler-Benz Aerospace among others. It plans to have a system of 56 low earth orbit satellites launched to provide services by the year 2000. The project is expected to cost US$2.8 billion with a life span of 7.5 years. The system is designed to give customers in over 100 countries voice communications, data transmission, paging and facsimile services. Customers would use hand-held, vehicle mounted or fixed site handsets.

Globalstar says it is fully funded with US$2.6 billion. Globalstar planed to have 44 satellites in the sky by the 1998, ready for service to customers early next year. It also has back-up launches for spares in 1999. Globalstar is expected to complete its $US2.8 billion network of 56 satellites in late 1999.

Globalstar will locate all its processing on the ground, using up to 200 earth stations, to reduce satellite costs. The service will provide hand-held as well as fixed mobile handsets and will target developing countries where the terrestrial phone system is inadequate. Globalstar hopes to sign up 2.7 million subscribers by 2002.

GlobalStar is one step closer to launching its satellite telephone network with the award of manufacturing contracts worth US$353 million for the production of 300,000 handheld and fixed satellite telephones. The successful companies are Ericsson OMC, Qualcomm and Italian supplier Telital. Ericsson’s contract, worth US$204 million, is for the manufacture of dual-mode satellite phones which will include GSM networks and GlobalStar system, car and vehicle kits and fixed phones. Qualcomm’s contract is worth US$117 million.

Vodafone in Australia have purchased the southern hemisphere rights to Globalstar. Handset costs are expected to be in the A$950 range, but these will be dual terrestrial-satellite handsets which can be used with the American CDMA cellular system. The call rates are about $1.50 a minute. The company has A$385 million committed to this project and built an earth station near Dubbo, NSW.


© Technology Applications Group, December 2001 Appendix D-v

In Australia, the system will provide coverage to the 10-15 % of the population living in remote areas who will not be serviced by Vodafone’s GSM digital terrestrial network. From a geographic point of view, Globalstar will also cover the 90% of Australia not serviced by the terrestrial network.

Users will access the LEO satellites via low-powered, hand-held or vehicle-mounted dual mode handsets which will also provide access to the existing GSM networks.

There are 21 gateways in operation around the Globe. Ground stations or “gateways” at Dubbo, Mount Isa, and Meekatharra are now providing roaming capability for Canadian customers, covering 100% of the Australian continent and Tasmania with coverage up to 200 nautical miles off the mainland.


© Technology Applications Group, December 2001 Appendix E-i

Appendix E: The Phased Out Analogue Network

Analogue Network (1987-2000)

In 1981, (then) Telecom Australia (now Telstra Corporation) introduced the country’s first automatic mobile telephone service in Sydney and Melbourne. The analogue service was introduced in 1987. Before its official closure on January 1 2000, Telstra’s mobile services covered 94% of the Australian population. At its heights it was using more than 1,300 base stations and over 45,000 radio channels. Over $1.3 billion worth of AMPS (Advanced Mobile Phone Service – analogue) infrastructure was installed in Australia. In 1996, the Government reaffirmed its intention to start closing the network and to shut it down completely by the year 2000. The Government did set 5MHz of spectrum aside for rural users until they have an alternative. This allocation also comes in handy for overseas visitors who will visit Australia during the Olympic Games. Analogue users from North America will thus be able to use their phones in Australia.

Exhibit E-1 shows the analogue network at its heights.

Exhibit E-1: Dimensions of MobileNet – AMPS (1993-1996)

1996 1995 1994 1993

Mobile service switching centres 40 30 30 24

Mobile base stations 1,260 1,100 872 715

Voice channels 53,000 45,000 31,500 23,400

Mobile services in operation 2,600,000 1,800,000 1,020,000 635,700

Growth rate per month 1% 4% 4.4% 3.7%

Answered calls per month 240 million 175 million 115 million 72 million

Capital employed $1,200 million $870 million $690 million

Coverage 91% 88% 85% 83%

Source: Paul Budde Communication, Telstra, other industry sources

In December 1996, the first signs appeared that the analogue network stopped growing. Since then, subscriber numbers started to drop. Usage of the Telstra’s analogue network peaked in late 1995. By 1999, the last year of full operation, the AMPS network consisted of 41 switches and 1,349 base stations, covering 94% of the population. The analogue network was closed down in December 2000.


© Technology Applications Group, December 2001 Appendix F-i

Appendix F: Participant List

Organisations consulted and submissions provided to the ACCC (unless non-disclosure was required).

1. AAPT Ltd

2. Agile Communications

3. Agility Network

4. Amcom Telecommunications

5. Australia Fibre Network (AFN)

6. C&W Optus

7. Cellular One

8. Davnet

9. Ipera Pty Ltd

10. IPI (Australia) Pty Ltd

11. Macquarie Corporate Telecommunications

12. Nextgen

13. OMNI Connect

14. Pahth Telecommunication Ltd

15. PowerTel Ltd

16. Primus Telecom

17. RequestDSL

18. RHK Ltd

19. StrategyAnalytics

20. Swiftel

21. Technology Applications Group (TAG), BIS Shrapnel Pty Ltd

22. Telecaster Australia Ltd

23. Telstra Corp

24. TransACT Communications

25. Ue Comm

26. Vodafone Pacific Pty Ltd

27. XYZed Pty Ltd

telecommunicaitons infrastructures in australia 2001

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