Is Telstra Getting Out of Fixed Line Consumer Voice?

In what might strike you as an odd statement, Telstra executives say that VoIP is not sufficiently reliable to sell to consumers.

While launching a new IP telephony services aimed at small business customers, Telstra CEO David Thodey said the company was only continuing to review consumer VoIP services.

“As we think the product is mature enough, and has enough technical backup, we’ll bring that product to market,”Thodey said. However, Thodey didn’t appear to believe a Telstra VoIP offering would appear soon, according to Australian content provider Delimiter.

“We don’t think the quality and reliability is there," Thodey said. "We could bring it to the market tomorrow, but we don’t want to."

That explanation might strike some as quite odd, given the success carriers are having with consumer VoIP.

In fact, some of us might speculate that something else is afoot, namely an unwillingness to invest in consumer VoIP because Telstra might not want to sell consumer VoIP when it starts to buy wholesale access services from the National Broadband Network.

When that happens, Telstra, like other retail service providers, will have a choice of customers to serve. Given Telstra's belief in 4G Long Term Evolution, Telstra might be planning to rely on wireless for consumer voice, staying out of the consumer fixed-line voice service.

That might strike you as odd, but keep in mind that Telstra also operates separate cable TV facilities, running on separate networks. While you might think Telstra is giving up a "triple play" opportunity, it isn't. Telstra can deliver broadband access using the NBN, video entertainment on its existing cable TV networks and voice and mobile broadband on its planned 4G network.

In principle, Telstar could deliver voice using its cable networks as well, but Telstra might simply have concluded that mobile is the best way to sell voice to consumers.

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LTE of 100 Mbps at 75 Km

Telstra and Nokia Siemens Networks have conducted groundbreaking trials of Long Term Evolution networks in Australia, successfully achieving peak speeds of 100 Mbps download and 31 Mbps upload over a record-breaking distance of 75 kilometers in regional Victoria.

Performance of that sort helps explain why, after years of wrangling, Telstra has agree to essentially divest itself of its fixed-line network and become a wholesale buyer of capacity to support its fixed-line operations.

As has been the case elsewhere, incumbent carriers can be persuaded to trade away an access near-monopoly for something else of tangible value. For some, it is the ability to expand in non-traditional markets outside the existing footprint. For others it is a chance to invest in higher-growth or higher-margin businesses.

For Telstra, the LTE carrot is more appetizing than the structural separation stick.

IT-Online - LTE world-first trial achieves 100Mbps at 75km

Telstra Agrees to Structural Separation

Australia will join Singapore and likely New Zealand as countries in which there is a single wholesale provider of broadband connections and all retail providers lease capacity from the wholesale provider.

Telstra Corp. essentially has agreed to break itself up into distince retail and wholesale companies as the result of a new deal with Australia’s national government. A new framework agreed upon by both the government and Telstra, essentially results in Telstra selling its network to the government-backed NBN Co, which is building the new national broadband network, and putting its customer traffic on the network as well.

The new framework, which still must be ratified by a formal contract, a "yes" vote by Telstra shareholders, and approval by regulators, will launch Telstra on a new path. It essentially will not own and operate its own fixed networks any longer. It will not be required to provide universal service.

And it likely will be a much-bigger player in the fourth-generation mobile business than it is in the fixed business.

Telstra will be paid A$9 billion as part of the deal, which remains only a framework, not a contract, which will have to be worked out over the next few months. The deal also means Telstra is free to bid on new wireless spectrum, and can keep its 50-percent stake in cable operator Foxtel.

As part of the agreement, the NBN Co. will be able to use Telstra infrastructure, including ducts and backhaul fiber, rather than building duplicate infrastructure. Telstra also agreed to transition its current customers to the NBN network, becoming an anchor tenant.

NBN Co will operate as the wholesale supplier of last resort for fiber connections in greenfield developments starting January 1, 2011.

Telstra also will be shutting down its copper ADSL network as part of the new agreement.

A new entity, USO Co Ltd, will be established to take over Telstra’s universal service obligations starting July 1, 2012.

The terms of the lease were not disclosed but sources close to the negotiations told AAP the agreement was for a period much longer than 10 years.

Telstra and the government have been at odds about the  A$43 billion "fiber-to-the-home" broadband network, and the necessity of Telstra agreeing to at least a functional serparation of its wholesale and retail operations.

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Which Road for Australia?

It isn't yet clear which road Australian regulators have in mind for that country's contestants. An inter-modal framework such as that used in the United States is one option. So is the intra-modal, robust wholesale access model prevalent in Western Europe. In Australia, it would be Telstra that builds the fiber-to-home network that other competitors would have wholesale access to.

At some point, the log jam has to be broken or consumers and businesses in Australia are not going to have access to the bandwidth they are going to need. Up to this point Telstra has been able to rely on wireless and new Internet access services to offset declines in voice revenue. But nobody really thinks that can go on forever.

Neighbor New Zealand already has opted for an "operational separation" regime that separates wholesale network operations from retail sales operations for all players in the market that want to take advantage of the wholesale access network.