What Telecom's unbundling means
The government’s decision to unbundle Telecom’s local loop hit the headlines with great fanfare, and Telecom’s stock dropped accordingly. The unbundling decision essentially makes it possible for competitors to use Telecom’s existing copper wire infrastructure, which goes to most New Zealand homes, to provide their own technology and services. No more: “we provide a service based on Telecom’s Jetstream”; other vendors can now say: “we provide our own broadband DSL solution”.
The significance is that the service provider need not buy and resell the service itself, accepting any constraints imposed by the carrier, but can, through its own equipment, provide a different service. For example, early ADSL2+ (an ADSL upgrade offering up to 25Mbit/s in one direction), or an uncapped broadband line, or even faster two-way DSL variants such as SHDSL (symmetric high-bit-rate DSL) and VDSL (very-high-speed DSL) could be on offer.
On the surface, this sounds quite exciting. In reality, of course, it will take some time for anything to happen. Unbundling has been the mantra of Telecom’s competitors for many years. However, calling for it is one thing; doing something with it is another. It will take time for new services to be developed, and the new possibilities will only gradually result in lower prices, higher bandwidth, higher bit caps for services and more symmetrical DSL services.
But what is all this likely to mean for the equipment provider?
Not a lot at the moment. ADSL access equipment is already at rock-bottom prices, and new ADSL services are unlikely to make a real impact on the equipment sector — except for those companies selling network equipment, such as DSLAMs, that other telcos will need to access all of that copper. But even that is a fairly small and specialised market. The real action is likely to occur when competition brings improved broadband services into play. At that point, the possibilities become limitless.
“We do not actually see the supply of ADSL termination equipment — ADSL routers and modems — as a big opportunity for Agile,” says product manager John Gjaltema. “However we do see an opportunity with the Avaya IP telephony systems that we supply and support, as unbundling leads to increased competition and good-quality broadband services. High-quality broadband will offer our customers many different opportunities to better utilise IP telephony systems.”
Gjaltema notes that all modern DSLAMs — the DSL access equipment that provides service over copper wires — also supports SHDSL and VDSL. This is significant, because it means that these services can easily be substituted. Asymmetrical DSL (ADSL/jetstream) only provides broadband in the downstream (download) direction, operating at a very pokey rate the other way. This is okay for file downloading and accessing web pages, but communications such as videoconferencing travel in both directions.
SHDSL can transport data symmetrically at data rates from 192kbit/s to 2.32Mbit/s using a single copper wire pair. VDSL was developed to support high-bandwidth applications such as high-definition television (HDTV) and can reach a data rate of up to 51.84Mbit/s (it is the fastest available form of DSL).
“All of these applications, if they are going to run over broadband, require quality broadband as they are all real-time applications,” says Gjaltema. “The important thing to note is that when we talk about quality broadband, we are not just referring to good download and upload speeds, and high or no data caps, but more about the quality with regards to packet delay and packet loss. Both of these factors have far more effect on any real-time applications as they determine the quality of the call or computer-telephony integration and/or any video connections.”
A better service
Quality services leads to other areas of opportunity for Agile in the SHDSL and VDSL area. It is when these types of services become generally available that Agile will be able to leverage its expertise in IP telephony.
“Most good DSLAMs also support symmetrical SHDSL and VDSL services,” says Gjaltema. “SHDSL/VDSL services are used to provide more business-oriented services with higher symmetrical speeds but, more importantly, known quality and quantified service levels that businesses demand. This is compared with the basic ‘best effort’ type services that ADSL broadband typically delivers.”
In this SHDSL and VDSL area, Agile provides a large range of routers and gateways from its subsidiary RAD Data Communications, offering a mix of different services. These services range from ethernet/IP, to ISDN (integrated services digital network) and other more traditional DDS and Frame Services that companies still demand, all from the one access device (IAD — integrated access device).
“The advantage of offering these services over SHDSL and VDSL is that service providers, ISPs and telcos can use the one DSLAM infrastructure and the same access network to deliver any mix of services to their customers,” says Gjaltema “This is compared to the old days where telcos ran a mix of different services to the one customer over a mix of different access circuits and networks.”
But all of that is in the future. For the next year, Gjaltema expects the emphasis to be upon pricing of broadband services. After that, the competitive emphasis will switch to quality of service, starting with bandwidth and bit caps. Then, perhaps, a market explosion for equipment and services reliant upon quality symmetrical broadband availability.
Another company, Belkin, also currently serves business, retail customers and end-users in the network equipment market. It provides products for networking, internet sharing, wireless networking, and VoIP (voice over internet protocol), so is in a good position to comment on the effects of the unbundling decision.
“Belkin envisages the unbundling decision will have a direct impact on our business,” says product and training specialist Benjamin Lu. “Unbundling of the local loop and sub-loop cooper-wire lines between telephone exchanges and homes and business allows other internet service providers to compete fully with Telecom to provide faster, cheaper broadband. What that means to Belkin is that competition will drive upgrades to the New Zealand broadband infrastructure at a faster rate; and customers will need new ADSL modems to enjoy faster broadband. We expect broadband take-up rates will increase as better broadband services are offered at a cheaper rate. Growth in broadband customers has a direct correlation to greater demand for networking products. We expect to see an increase in demand for ADSL modems, modem routers and wireless networking products as a result.”
Belkin has a comprehensive range of networking products, including wireless networking, in the New Zealand market. Most of these networking products already exceed the current broadband specification, and are future-proof for infrastructure upgrades.
“We have successfully marketed VoIP products in Australia,” says Lu. “With unbundling of broadband we would investigate the release VoIP products here. As broadband speed increases, there will be more products in the markets to achieve triple play (broadband internet, VoIP and video on demand). Resellers will experience an increased sell-through rate in broadband-driven products and services, such as wireless networking, VoIP devices, IP entertainment units, videoconference equipment and remote management products.
Lu sees major changes coming within the next year or so. These are likely to include the upgrade of existing broadband infrastructure to accelerate broadband download/upload speeds. He is looking forward to an increase in demand for wireless networking and IP-telephony products.
“The unbundling decision will hasten the adoption of broadband in New Zealand,” says Lu. “Telecom had a monopoly on broadband infrastructure, with full control of price and service levels. Unbundling will increase competition and enable faster and cheaper broadband service. Adoption of broadband will climb as cheaper and faster internet services are offered.”
The picture is not entirely rosy, however. “Much will depend on the real outcome of unbundling,” says Netgear regional manager James Caldwell. “There will be a lot of work over the next little while to see just how competitive the unbundled scenario is and which ISPs take up the opportunities. If unbundling makes ADSL products more appealing to the customer, then we will certainly benefit from increased volume.”
But as with any technology seeing rapid increases in volume, a variant of Moore's Law will apply — consumers will get twice the features at half the price. While great for consumers, that works out to reduced margins.
Netgear is already beginning to respond to what amounts to a tectonic change in the local telecommunications environment. “At the low end we are introducing a lower-cost unit,” says Caldwell. “We have taken out some little-used functionality so we can hit price points. At the higher end we are introducing business-grade ADSL products with integrated VPN capability. This will appeal to the small to medium business and branch offices.”
For resellers, the coming year could be difficult to project. “Is there a direct opportunity?" speculates Caldwell. “Maybe, maybe not. Increased DSL will enable use of the internet for more things — VoIP, multimedia applications, video on demand and so forth. That will give dealers the opportunity to sell more 'digital appliances'. So I guess I see the ADSL modem-router as an opportunity enabler for dealers. Pricing will drop for both equipment and services, and ISPs will offer new services to help grow their revenue.”