On Top Down Under
By David James, Thu Aug 16 00:00:00 GMT 2001

Mobile Internet will make Aussies an integral part of the global marketplace.


Bill Fisher, currently Australia's Ambassador to France, has a globe of the world in his office turned so that the South Pole is on top. "Australia needs to be viewed from a proper perspective," he says, tapping the map of his country.

When it comes to Australia's telecommunications, the proper perspective takes into account three striking characteristics of the country: (1) Australia's remoteness from other developed nations, (2) the immense distances within the country itself, and (3) the concentration of its population in a handful of urban centers. The first two of these help explain the importance of telecommunications to this country. The third accounts for the rapid and efficient build-out of its telecommunications infrastructure.

Platypus Country


Over the years, Australians, in confronting the remoteness and vast distances of their country, have taken to telecommunications like platypuses to water. This is a country that needs and loves its telecommunications. Whether viewed as on top or down under, Australia is a long way from almost anywhere. Its cities are a day's air travel from many of the world's business centers. Within the country, distances between places are enormous. And someone from North America or Europe might think of the Great Barrier Reef as a place, but it's more like a region, stretching for a full 1,250 miles along the east coast of Queensland, more than the distance between Boston, Massachusetts, and Miami, Florida.

The third striking characteristic of Australia from a telecommunications point of view is the fact that more than 90 percent of its 19 million people live in just five coastal cities - Sydney, Melbourne, Brisbane, Adelaide and Perth. Put another way, one percent of the land area contains 84 percent of the population. Wireless networks already cover about 95 percent of the population. This makes it extraordinarily easy and efficient to install and upgrade the telecommunications infrastructure that covers almost everyone.

Mobile age lab


Today Australia provides a unique environment for the development of the mobile Internet - an exceptional testing ground for the evaluation and development of mobile technologies, networks, applications and hardware. Australians, in addition to having a natural affinity for telecommunications, have the kind of energetic lifestyle that suits the emerging mobile age. And owing to the concentration of the population in a few urban centers, the upgrading of wireless infrastructure for advancing technologies should prove to be relatively cost-efficient.

"Australia is a perfect testbed for the mobile Internet," says Larry Lopez, managing director of Silicon Valley Bank's international venture capital group, San Jose, California. "The mobile world is at a crossroads, with a number of technologies and applications competing to lead in the next mobile generation and many questions about user preferences as yet unanswered. A fascinating set of experiments is underway around the world, and Australia is one of the principal laboratories."

While mobile penetration rates are higher in smaller countries, such as Finland and Hong Kong, Australia's rate - 60 percent - represents 10.5 million subscribers, a substantial number. Moreover, the number of mobile subscribers in Australia now exceeds the number of fixed telephone lines.

Penetrating questions


However, mobile penetration is reaching saturation levels in Australia, as it is in a number of other countries where mobile voice communications have been around a long time. Vodafone Australasia, the third largest mobile service operator in Australia with an 18 percent market share, recently reported that it had only 16,000 new subscriber connections in Australia during the second calendar quarter. Many industry observers believe that mobile communications growth in Australia and elsewhere will now depend upon the development of the mobile Internet.

According to Dr. Kheong Chee, co-founder and technical director of CyberResearch, a technology investment advisory firm in Perth, Western Australia, the mobile Internet will develop in Australia in a vein similar to Europe and Asia due to similarities in telecommunications infrastructure and networks. Currently, GSM is the dominant mobile technology in Australia, with CDMA (Code Division Multiple Access) technologies having a market share of only five percent. WAP services and GPRS (General Packet Radio Service), first introduced in Australia by Cable & Wireless Optus in 1999 and 2000, respectively, represent only small shares of the overall usage market.

"WAP-enabled mobile devices are experiencing a slow uptake in Australia since a large portion of users already have fixed access to the Internet at multiple locations, such as at the office and home," says Chee. "Also, time-based charges for WAP access, at 14.4 Kbps, are a major deterrent. Packet-based GPRS will overcome some of these problems, but the need to buy GPRS-enabled handsets means that the initial uptake will be slow."

Next stop 3G


The move to 3G formally occurred in Australia in March 2001 when the Australian government announced the results of its auction of 3G spectrum licenses. The successful bidders were Telstra Corp. (currently the largest mobile operator with a market share of about 48 percent), Optus (currently with a mobile market share of about 33 percent), Vodafone, Hutchison Australia, Qualcomm and CKW Wireless.

The auction raised $577 million, considerably less than the $1.28 billion that the government had hoped to raise. This is good news for the Australian consumer and for healthy competition among Australian operators. Whereas European operators paid huge amounts for Europe's 3G spectrum, about $200 per capita, Australian operators paid only about $30 per capita.

Two of the successful bidders, Optus and Hutchison Australia, expect to launch their 3G services in late 2002. Telstra and Vodafone are planning rollouts in early 2004. On this schedule, the Australian operators may well benefit from the experiences of overseas operators, some of which plan to launch 3G services months earlier. "In all, the lower Australian 3G bids, the later launch dates, the growing demand for data services, and the cost efficiencies of 3G technologies indicate a good potential for healthy rates of return on operators' capital expenditures," says Chee.

Optus and Hutchison Australia plan to use W-CDMA technology for their 3G services. Telstra and Vodafone have not announced their plans. Others may use cdmaOne technology. Qualcomm, however, plans to use its proprietary cdma2000 1xEV technology.

Putting its money where its mouth is


Qualcomm's ambitions are on the line in Australia. In bidding for and winning a 3G license in Australia, Qualcomm - a technology vendor - has taken the unprecedented step of becoming an operator in order to demonstrate the superiority of its own technology. Whatever the 3G technologies used by others, Qualcomm will benefit through royalties on the numerous CDMA patents that it holds, but the company is hoping to win contracts from TDMA (Time Division Multiple Access) operators around the world who will need to choose between W-CDMA - promoted by European and Asian network suppliers - and Qualcomm?s cdma2000 technology.

CDMA-based technologies have a number of advantages over GSM technologies. One advantage is the greater range from a mobile phone to the nearest transmission tower - an important consideration in sparsely populated and remote parts of Australia. Other advantages are higher transmission speeds and greater data capacity.

Another 3G bidder with ambitious plans is Hutchison Australia, part of the Orange Mobile group and heavily backed by its parent, Hong Kong-based Hutchison Whampoa Ltd. Earlier this year, Hutchison Australia entered into an alliance with Telecom New Zealand to provide 3G services in the two countries. The agreement between the two calls for cross-investments in the equities of the two companies and contributions to operational costs. Subsequent to their alliance, Hutchison led off with a contract for $435 million awarded to Ericsson of Sweden to supply a W-CDMA 3G network in Australia. Hutchison Australia also awarded a contract to Motorola to supply a radio access network for the Sydney and Brisbane areas.

The other side of the story


There remains the non-technology challenge for Australia's mobile Internet laboratory. Technologies and networks aside, the mobile Internet will not thrive in Australia (as in a Field of Dreams "build it and they will come" scenario) unless the operators and their content providers devise popular applications and successfully market their new services.

"Due to its relative isolation and small domestic market size, Australia has a history of creating companies with strong engineering and technology but poor marketing capabilities," observes Chee. "While there is a promising level of entrepreneurial and venture capital activity promoting wireless startups, it will be the major operators, especially Telstra and Optus, the two largest ones, that will drive the mobile Internet in Australia. The burden - and the industry's hope - lies with them to develop the mobile Internet in Australia."

Like most things in Australia, the development of the mobile Internet can be seen in terms of a sports competition. Just another challenge, like last year's summer Olympic Games when Australia again won more Olympic medals per capita than any other country, as it did at the 1996 Games in Atlanta. An Aussie would say, "Good on ya, Australia! No worries! She'll be right!" Australia will be on top down under.

David James is president of Business Strategies International, a San Francisco-based consulting and venture-development firm specializing in Asia-Pacific business opportunities.