Five years after Australia started dismantling Telstra's telecommunications monopoly, the company continues to dwarf its would-be rivals.

However, critics of this state of affairs get short shrift from Telstra's chief executive officer, Ziggy Switkowski. Switkowski heralded the fifth anniversary of telecommunications deregulation by claiming competition had not been designed with radical changes to market share in mind.

"It was understood that market share is not a proxy for consumer benefit," Switkowski said in a recent address. "Rather, competition was intended to bring lower prices, wider consumer choice, better services and more innovation and investment."

Few can argue that the telecommunications industry has undergone some change over the past five years. However, the bitterness and wrangling over issues such as wholesale pricing, network access and alleged anticompetitive conduct has underscored deep divisions in the sector over the extent to which new players are allowed a share of the spoils.

Unsurprisingly, Switkowski says industry and consumers are benefiting substantially from competition. Telstra's dominance of key sectors make it unlikely to express too much dissatisfaction with the way deregulation has panned out. The company retains a 95 per cent "share" of industry profit and dominates key sectors.

According to figures from the Australian Telecommunications Users Group (ATUG) Telstra continues to hold sway in 85 percent of the local line market, 46 percent of the mobile market, 24 percent of the Internet market and 38 percent of the data market. Figures which beg the question; what is left for 840 other telecommunications providers in the country?

ATUG managing director, Rosemary Sinclair believe figures such as these indicate the need for the Australian Competition and Consumer Commission to scrutinise the Australian telecommunications marketplace more closely.

"Drawing from a European model, they talk about a company having market power if they hold more than 25 percent of the market," Sinclair says. "Any more than that and there is a clear role for regulatory intervention in order to protect competition."

Sinclair also believes market share figures show that competition is not yet sufficiently robust across the market, access to fixed network services remain slow and opaque, and continued regulation is needed to promote competition.

Sceptics also believe market liberalisation is failing to stimulate innovation, with research and development spending in Australia suffering from tightened budgets and more rigorous cost-benefit requirements. Professor Reg Coutts, a former director of the Adelaide-based Centre for Telecommunications Information Networking (CTIN), is among those who believe the R&D effort is faltering.

"In the old days telecommunications was generally state owned and countries used to compete on the R&D front. We haven't seen the same levels of competition now that R&D is predominantly dependent of the private sector," Coutts says. "As most of the telecommunications companies that operate in Australia are based offshore their R&D is not core to their operations in this country. We have seen Nokia, HP and Nortel all pull back on their R&D in Australia because during this nuclear winter hitting the ITC industry there simply isn't enough money to cover it. Telstra has consistently cut back on its R&D because ultimately it is cheaper for them to buy rather than build."

Nonetheless, few could disagree that prices for telecommunications services have fallen in the years since deregulation. Furthermore the Australian telecommunications sector has been largely immune from the problems experienced by the industry in the European and US market places. We might have caught a cold - but the rest of the world is recovering from a particularly bad bout of pneumonia.

Who's in the market place?

According to the database of services providers held by the Telecommunications Industry Ombudsman (TIO), the early phase of competition saw a rapid expansion of the number of telecommunications service providers, with membership doubling from 1997 to 2001. Much of this expansion was due to the increased prevalence of ISPs, 850 of whom sat in the database in 2001. Although these new data-focussed entrants have proved a volatile sector, overall numbers remained fairly stable until last year, when they fell slightly.

At last count there were 683 Internet Service Providers, 31 voice providers, and 66 combined voice and Internet Service Providers on the TIO lists. While the data sector is the largest in terms of numbers, it is also the sector set for some spectacular growth.

However, diversification of services and service delivery have seen infrastructure providers also play an important role in the telecommunications sector.

While the tug-of-war over Telstra's local loop continues, a multitude of infrastructure providers have been rolling services into CBD, metropolitan, regional and rural areas.

While Gigabyte-Ethernet increasingly challenges copper over the long haul, a range of wireless and satellite options are also coming online, as wholesalers and infrastructure providers such as IP1, XYZed, Uecomm, and NextGen all vie for dominance in an emerging data market.

Australia's data dalliance

According to industry analyst Paul Budde, Telstra's bid to maintain its share of long distance, local calls and ADSL broadband services has cost it ground in the data market. Budde claims that Telstra, not wanting to cannibalise its traditional data sector based around ADSL and similar offerings, has failed to get behind faster and less expensive broadband services. Other data providers such as Optus are facing similar issues, and may well see an overall fall in revenue in the early stage of this migration.

Other data service providers, such as OzEmail are set to benefit from a market growth of up to 20.3 percent over the next five years. As Australia's largest ISP, and the only data-focussed service provider amongst the top ten Australian telcos in terms of size and revenue, the company is looking forward to healthy growth in the sector.

"Telstra, Optus and AAPT are all caught in the same situation," Budde says. "The growth in the sector is coming from the 800-odd other data and broadband service providers."

Understandably AAPT chief operating officer David Bedford is somewhat sceptical about forecast growth rates in the data sector.

"My view is that growth in the data market as a whole won't be as strong as some players are hoping it to be," Bedford says. "However, I do expect there to be growth within the IP and super-corporate space."

To this end AAPT is investing in a strategic partnering relationship with Alcatel to provide next generation networks throughout Australia and New Zealand.

"Through Alcatel, we aim to leverage their technical support and expertise to help speed our developments in IP and continue to grow our data business through Connect and TCNZA in the Top 100 market," Bedford says.

OzEmail, a comparatively new player in the broadband service delivery market, believes Internet traffic is set to grow steadily, while the number of new subscribers is expected to grow more gradually.

OzEmail CEO Justin Milne said "A lot of the predictions made about the Internet back in 1997 and 1998 are finally coming true. "The greatest amount of traffic we will see passing over the telecommunications network will be data and not voice traffic."

Milne points out that while Internet penetration nears the levels of overall PC penetration there is not further growth is likely to be driven by such traffic increases.

"There is still a fair but of speculation about the first time connectivity market, and it will continue to grow, driven by the most part by people who experience the Internet, or even high speed Internet at work," Milne says, expressing scepticism regarding the likelihood of emerging devices to further stimulate Internet connectivity rates.

And while he expects OzEmail to gain from further consolidation in the ISP market, he doubts there will be much interest in the sector from traditional voice providers.

"We are going to see some fierce competition between the ISPs and telcos, and in the last couple of months we have seen the a number of these companies become profitable," Milne said. "Even some of the mini-telcos are reporting profits and experiencing growth."

Nonetheless the forecast growth has caught the attention of voice-based telecommunications company Vodafone, who disagree with Budde's suggestion that mobile data will remain a poorly developed market.

"We have identified data as a growth opportunity, with a global target for mobile data revenue of 25 percent within three years," says Vodafone Australia's managing director Graham Maher. "In Australia the company is on track to meet that target through providing business customers with wireless office solutions."

Similarly in August Optus launched a multi-media messaging service (MMS) to complement the 88 million short message services (SMS) sent over the Optus mobile network per month.

However, Budde argues that such mobile data services are essentially an adjunct to mobile voice services, and is sceptical about the sector's development.

"Why would anyone pay over a thousand dollars to send a photo via the mobile phone, if the person at the other end also had to have spent a thousand dollars to receive it," Budde says. "It just doesn't make sense."

The ongoing dilemma: build or buy?

While the data sector is poised for continued growth, how that growth will affect the carve-up of the telecommunications market between the various players is yet to be determined.

Traffic volumes, market share and revenue derived from infrastructure built by many telecommunications companies seem likely to fall well short of early estimates.

An oversupply of optic fibre cabling between major cities and within central business districts is prompting at least one industry analyst to predict significant price falls for fibre connectivity.

Telesyte industry analyst Shara Evans says "On some of the major routes, there are fibre-based available from several of the key players. "This competition should lead to price falls."

Evans believes current levels of long-haul infrastructure will see more telecommunications service providers opt to buy rather than build new infrastructure.

"It's about being pragmatic in the market," Evans says. "If it is cheaper to buy it, they will, use someone else's infrastructure until you can justify the costs."

However, Evans pointed out that opportunities still existed, especially in the provision of last-mile connectivity to the home or business.

"Infrastructure providers have to pick an area where someone else isn't already entrenched," Evans says.

One such service beating the odds, is ACT-based TransACT, which provides fibre-based connectivity over the last mile into 100 000 homes and 14 000 businesses across Canberra. By combining voice, Internet and television services into one offering, Transact has attracted a substantial user base. While users have to option to remain with their current Internet provider, TransACT also extends the offer to include broadband Internet services.

"In some suburbs we are nearing the point where we are the dominant provider of telephone services," says TransACT chief architect Robin Eckermann. "At the moment we have a request for tender on the streets looking for someone to provide the technology for the 25 000 homes where we don't have the option of putting in new cables because they rely on underground power."

The TransACT approach is made more interesting by the fact that Optus chief executive Chris Anderson recently argued that unless the telco was allowed to go ahead with its content share deal with Foxtel, the market would be subjected to Telstra/Foxtel monopoly.

"For Optus it [a content sharing partnership] means a viable future for all the services that we provide over our hybrid-fibre coaxial cable - which connects nearly 600,000 customers in Sydney, Melbourne and Brisbane," Anderson said during a recent address to the Austraila-Israel chamber of commerce. "Most customers take a "bundle" of services, which - in addition to pay-tv - includes local telephony and broadband internet."

While Anderson's argument pursues the notion that only Optus working in conjunction with Foxtel would be able to make viable such a bundle, TransACT is proving it is possible to provide such access on a much smaller - and more competitive - scale.

Also working in the metropolitan space is high-speed data services provider Uecomm.

According to Brendan Park, Uecomm director of products and marketing, the company's focus providing fibre to metropolitan - outside CBD - markets is starting to pay off.

"There is lots of fibre in the CBD, and a lot of people complaining about how dead the market is, however, if anyone wants fibre in the metropolitan areas of the cities the choice is either us or Telstra," Park says. "And there is not a glut of fibre in any of these areas."

Having invested heavily in fibre rollouts since the company was initially spun off energy company United Energy in 1997, Park says the last 12 months has seen the company stabilise costs, and focus marketing resources on specific segments.

"Initially we tried to spread our selves too thin, whereas now we have a focus on the Enterprise, and have had some major wins in the government and education sectors," Park says.

On the long haul

With a plethora of service providers offering alternative fibre infrastructure up and down the east coast, service providers and resellers are left with a wide range of options when it comes to bandwidth wholesalers.

So much so that New Zealand-based infrastructure provider Nava Networks has reigned in its original plans to roll out a network connecting Australia with Asia, opting to buy infrastructure to complete its offering.

"At the end of the day we are trying address a market rather than a construction opportunity," explains Nava Networks director of sales and marketing Brett O'Riley. "We looked at the capacity between Sydney to Melbourne, and at the upgrades companies like Telstra, Optus, Nextgen and IP1 have undertaken on the Melbourne-Perth route we realised we can get a competitive cost structure by buying rather than building."

However, Park also points out that in the current "capital constrained" climate it was likely that several companies opted to buy rather than invest in further infrastructure expansion.

AAPT's Bedford echoes industry-wide sentiment when he explains AAPT's approach to infrastructure, focus on making money on what is already in place.

"We've had a change of focus with our infrastructure strategy," Bedford said. He said the company had achieved its market penetration targets and "today our key focus is on delivering a return on our infrastructure investment."

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