Broadband—in search of a business model: carriers everywhere are getting mixed results in the broadband challenge. Sure, they're racking up DSL subs—but the rivers of premium video, games, sport and other content have yet to flow - Cover Story

Telecom Asia, Oct, 2002 by Robert Clark

While the Koreans struggle to leverage their extensive broadband base, Australia's Telstra is at the other end of the scale among the region's advanced telecom markets. Despite being the only full service incumbent telco in the world also allowed to own a cable network, it has a mere 175,000 customers.

That is because its priority for the second half of the 90s was to build the cable network--primarily for pay TV provider Foxtel--and, under government pressure, to make ISDN universally available.

The result is Australian users have access to ISDN, but they lag the other advanced telecom markets in broadband, with only 1.4% using either ADSL service or Telstra's cable network.

But since launching ADSL in August 2001, Telstra has also seen steady growth on the wholesale side--perhaps as many as a quarter of its subs.

Yet over time this opens up a vulnerability for the customer-facing business, which ultimately is where the company hopes to push the value-added services. The wholesale market is supporting a lot of smaller service providers who are looking after the under-serviced small- and- medium enterprise (SME) market.

One wholesale customer is Melbourne-based Request Broadband, which is itself a DSL wholesaler, having installed 52 DSLAMs in exchanges around the country as well as taking a layer 2 access service from Tetstra.

CEO Phil Sykes says that with a nationwide VPN network, and bandwidth of up to 6 Mbps, Request is offering services that the large carriers don't yet have.

"We're targeting the middle ground," he says. "It's not trivial--each business has different requirements. Telcos, because of their scale, haven't approached it."

But his company is also breaking fresh ground in the market. He says 80%-90% of the end-users have had nothing more than dial-up. Doing retail to SMEs is also the kind of high-touch customer management business that suits the smaller players.

Market timing

"You need more than someone with a price sheet to sell VPN into a business," he says. "You need to have fairly sophisticated integration partners who can put that into a business."

That's not the kind of expertise telcos have on their business sales force, which usually amounts to no more than an account manager and a business consultant.

"The customer is asking things like `how do I do network address translation?'" notes Sykes.

He also argues the business is naturally scaleable. Enterprise customers first buy DSL links for their sites, then realize they can add a VPN on top of that to link the sites, in the future are other applications, most notably voice, says Sykes. Request has already tested VoDSL and VolP and, he believes, "it's a matter of market timing" before it becomes part of the product portfolio.

It's also a matter of time before he expects to see Telstra as a competitor, but for the time being the incumbent is doing quite nicely out of Request's wholesale business. "They [Telstra] have focused quite rightly on getting massive broadband coverage," said Sykes, a former senior Teistra engineer who helped design the cable network.