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Optical/IP

Can Broadband Save the Day?

Broadband has been a big topic at the Light Reading Live Asia/Pacific roadshow that’s been touring China and South Korea in the past couple of weeks. Some participants think it's the key to future success of the telecom market, as is being demonstrated by carriers in South Korea.

While most of the world’s carriers are struggling to find a way of replacing falling telephony receipts, South Korean carriers have already made the transition. And these new services are providing desperately needed boosts in revenue.

Overall, 40 percent of telecom revenues in South Korea now come from broadband, almost as much as comes from telephony, says Claudio Coltro, senior director, business development, for the optical networks division of Alcatel SA (NYSE: ALA; Paris: CGEP:PA) in the Asia/Pacific.

Coltro says his figures are "very approximate" and are based on "word of mouth" -- his discussions with carriers in the region. They cover China as well as South Korea and illustrate two ends of the spectrum in terms of market maturity.

South Korea, which has a population of about 40 million, already generates annual telecom revenues totaling $12 billion, and many markets now appear saturated. The growth of voice and Internet revenues now only matches the country's GDP growth of four percent, and Korea's leased-line business is shrinking by five percent a year, according to Coltro. DSL revenues, however, are growing at a crackling 80 percent a year.

In contrast, China's overall telecom revenues are continuing to grow at a fast pace -- 15 percent, which is nearly twice the country's GDP growth of 8.5 percent. Right now, its telecom revenues total $28 billion -- just over twice Korea's -- and yet China has 30 times the population, 1.2 billion. In other words, there's plenty of potential for continuing high levels of growth.

In China, broadband revenues are growing at a healthy pace -- 30 percent a year -- but only represent 5 percent of total revenues, according to Coltro. Likewise, Ethernet service revenues are growing at 30 percent a year, from a small base of just 2 percent of total revenues.

Coltro says voice revenues are continuing to grow in China, but this is refuted by one of the country's big equipment vendors, ZTE Corp.

Mingfeng Ding, ZTE's vice president of international operations, says Chinese wireline carriers face the same problems as operators in other parts of the world. Their revenues are shrinking as more people use mobile phones. This comes in spite of the fact that Chinese carriers continue to install more than 30 million telephone lines a year. In general, he adds, these lines serve people who can't afford to rack up significant phone bills.

Voice services in China represent 70 percent of revenues, but this has shrunk to 50 percent in Korea. Much of the boost in Korean broadband revenues has been driven by the country's craze for online games.

— Peter Heywood, Founding Editor, Light Reading

keelhaul42 12/4/2012 | 11:10:45 PM
re: Can Broadband Save the Day? - for rolling out broadband services at an unbelievably slow rate. I know, they all say their DSL offerings are growing rapidly -- it should only take another 25 years to make this available to many households in major urban areas.

- for lobbying the FCC to cripple their erstwhile broadband competitors via untenable line sharing rules. The RBOCS want to move slowly and need to make sure no one passes them.

- For lobbying to enter the long distance voice market and spending precious capital on long distance voice services. Prices in this area are low and falling. Internet telephony aka VOIP will further erode long distance pricing. RBOC mgt may be the only people on the planet who couldn't see this coming. Nice play, guys.

The best way to getting widespread deployment of broadband services in this country may well be to just get rid of the RBOCS.
technonerd 12/4/2012 | 11:10:43 PM
re: Can Broadband Save the Day? The best way to getting widespread deployment of broadband services in this country may well be to just get rid of the RBOCS.

And then who, pray tell, would provide network access?
keelhaul42 12/4/2012 | 11:10:38 PM
re: Can Broadband Save the Day? Let me be flippant first: who is providing it now?
That's the point: access is a drib here, a drab there.
The RBOCS have ownership of the last mile and they are deploying new services at a glacial pace.
My melodramatic statement that (sic) getting broadband service will require getting rid of the RBOCS should perhaps be rephrased:
When broadband service(s) are widely deployed in the US it will be done by other companies -- and the RBOCS will spend their days whining to the FCC about unfair this, unfair that while they sit on their last mile of copper and invest in long distance voice services.

Perhaps we could just get rid of the FCC and let the RBOCS make their way in the open market. They won't survive which just comes back to my original point.
MaxQoS 12/4/2012 | 11:10:36 PM
re: Can Broadband Save the Day? keelhaul42,

While I don't disagree with what you said, I think we shouldn't be comparing broadband adoption rates in South Korea with those in the US. While it appears to be true that US RBOC's have squandered resources trying to get into the LD game while stalling on broadband deployment, it's also true that the circumstances are vastly different. As anyone who has been to Seoul a few times, as have I, can tell you that the majority of the population live in high rise apartments stretching out for miles. I've been told that half of South Korea's population lives in the metropolitan Seoul area. If your DSL business case starts with the assumption that half of your subscribers live in a relatively small but densely populated area, it gets a lot easier to achieve economies of scale. The RBOC's, however, have a much tougher row to hoe with the necessity of providing coverage to large suburban areas stretched out too far from local central offices to make DSL practical.

I personally think that the RBOC's, having successfully killed off most of the CLEC's, sat back and rested, going with what they know. And those ol' boys know voice.

Cheers,

Max

Y2KickIT 12/4/2012 | 11:10:36 PM
re: Can Broadband Save the Day?
keelhaul42 is correct in his original assertion that perhaps the best way to deploying broadband would be to eliminate the RBOCS, but not his second "just get rid of the FCC and let the RBOCS make their way in the open market."

There is no open market. The nature of divestiture leaving the RBOCs as a "natural monopoly" puts them in charge of the only ubiquitous access network.

The incumbent has the advantage to any over builder. With sufficient bandwidth the number of access networks most markets can sustain will be <2. They are too expensive to deploy.

Access networks, like power lines, roads, gas lines, water and sewer lines, need to be recognized as local infrastructure and a public utility.

Structural separation will put the RBOCs into a service provider category and a level playing field. They might be more likely to survive and be more profitable if they focus on services then monopoly control of an anachronistic access network infrastructure.
technonerd 12/4/2012 | 11:10:33 PM
re: Can Broadband Save the Day? Wireline voice will be cannibalized by cellular. It hasn't happened yet because of the lack of a wireless NID, but the CellSocket is the first of many such devices to hit the market. Some tweaks are needed to handle faxes, dialup and SS-7 data, and the cost/price must come down to $50 or so. All those things will happen soon, and then the RBOCs lose their mass-market residential voice and the LD market goes away too.

At that point, the issue becomes one of financial viability for the RBOCs in their residential wireline segment. They've done a miserable job with broadband, and their resistance to structural separation blocked innovators. The CLECs, for their part, were even more corrupt than the RBOCs, having been organized mainly by Silicon Valley VCs and Wall Street cheaters rather than as ongoing telecom businesses.

I think the endgame will see the RBOCs wanting to exit the residential wireline business including their broadband customers on whom the RBOCs currently lose money. This will cause a huge political battle, with the bottom line being that wirelines will be taken over by an Amtrak/Conrail type entity.

The winners, of course, will be the top executives of the RBOCs, who will find some means of engineering HUGE payouts associated with the transfer of these assets. Ain't America great?
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