[LINK] super-fast cable broadband (2)

[stephen at melbpc.org.au]

TELSTRA CONFERENCE CALL – 

SUPER FAST CABLE BROADBAND UNVEILED 10 MARCH 2009 

http://news.iguana2.com/ainvestor/ASX/TLS/315105

BEN SPINCER, TELSTRA INVESTOR RELATIONS:  

Good morning, everyone.  This is Ben Spincer from Telstra's Investor 
Relations.  I'd like to welcome you to this call to discuss this 
morning's announcement of the HFC upgrade in Melbourne.  With me on the 
call I have Sol Trujillo, John Stanhope, David Moffatt, the GMD of 
Consumer, Mick Rocca, GMD of Network and Services, and Michael Lowry, 
the ED of Network and Technology.  We'll have a few brief comments from 
Sol, then we will take some questions from the analysts, then I'll hand 
over to Andrew Butcher, who will manage some questions from the media, 
who are also on the line.  I'll now hand over to Sol.  Go ahead, Sol. 
 
SOL TRUJILLO, CEO, TELSTRA:  

Thanks, Ben, and good morning, everybody.  I guess I'm going to start by 
saying I'm really pleased today that, as most of you have now seen, we 
announced we're going to upgrade our cable broadband network in Melbourne 
essentially to 100 Mbps per second, and we're going to do this by 
Christmas.  You know, this is, as we look at it, stage 1 of a wider 
upgrade of Telstra's cable network, which today passes 2.5 million homes 
in Melbourne, Sydney, Brisbane, Adelaide, Perth, and the network in 
Melbourne itself passes nearly 1 million homes.  Now, I think those of 
you that are close to the company and have interacted with the company 
and have had conversations with us over the last, in particular, couple 
of years, we foreshadowed this late last year, and now is the right time 
in our opinion to begin turbo charging Telstra's cable network. 
 
 
Now, again, I'll just say that I'm pleased today to share this, because 
our technology folks have been working very hard on this really since we 
announced Cable Extreme a couple of years ago.  When we announced our 
Cable Extreme and we deployed our Cable Extreme, we started providing 
download speeds of up to 30 Mbps to 1.8 million homes with the remaining 
700,000 homes having speeds up to 17 Mbps per second.  So, as we now 
think about this latest upgrade, we're going to more than triple the 
current peak download speeds to a super fast 100 Mbps per second. 
 
The great news about this technology and the platform that we have is 
that we can take it, if we choose at some point, up to 200 Mbps per 
second.  Now, I do want to be clear that this is not just about taking 
speeds up in a one-way context.  Clearly, this will be about a two-way 
interactive capability that will exist along with the speeds, so we're 
going to be transforming Telstra's cable network to a super fast two-way 
interactive fixed and broadband network with download speeds I would 
venture to say amongst the highest in the world. 
 
So I think all of you remember we changed the game with our Next G on the 
wireless side.  We changed the game with our Next IP as we thought about 
serving our business customers, and I would say this is now what I would 
call what's next.  We're going to use DOCSIS 3.0, which is well 
established internationally and has been successfully deployed in several 
cable networks overseas.  So we've been monitoring the evolution of the 
technology and its actual deployment.  An estimated $300 million is going 
to be invested in the Melbourne this and the next financial year and, 
again, as a reminder, our financial year ends 30 June, so this will 
overlap the two years.  We want to be clear that there is no change to 
the guidance that we provided at the half year. 
 
Now, your cable network, along with our other fixed line infrastructure 
is going to be the key driver of Next Generation broadband in Australia.  

As is the case around the world, this upgrade is going to help position 
Telstra to deliver on its own vision of a world class fixed line 
infrastructure that complements the Next G mobile broadband network.  So, 
as you've heard us talk about, 21 Mbps per second peak through put speeds 
on our wireless network moving to 42 Mbps and ultimately over the next 
two or three years to 100 Mbps, this is complementary and a very 
synergistic view as we think about serving the nation, not just parts of 
the country. 
 
In this case, however, this piece of our  announcement will bring the 
Next Generation internet to Melburnians enabling them to work from home, 
learning, security, entertainment, health care and energy-saving choices 
amongst many other things that we have on the drawing boards.  Homes will 
be turned into digital hubs simultaneously using cable for high 
definition movies, interactive television, videoconferencing and video 
file sharing, again amongst many things that we will talk about as we 
start rolling out the services. 
 
 
As well as super fast broadband, the cable network is going to be a two-
way, full interactive platform that will enable Telstra  to start opening 
up new revenue streams by providing cable customers with the full array 
of existing and Next Generation services.  I obviously am not going to 
get into what those Next Generation services are, suffice it to say that 
we are working on them literally as we speak and before we have spoken 
today. 
 
Just as we've done with Next G and Next IP, Telstra is going to fully 
leverage our cable network to lead the market in providing our customers 
with high quality, highly tailored value-adding services that meet their 
individual needs. 
 
Ben, I guess at this point I'll just stop.   I think everybody has the 
press release and the other information that we've provided, so we'll 
open it up for questions. 
 
BEN SPINCER: Thanks a lot.  We'd be ready for questions now from the 
analysts. 
 
OPERATOR:   our first question is from Christian Guerra from Goldman 
Sachs.  
 
CHRISTIAN GUERRA, GOLDMAN SACHS:  
Good morning.  Thanks for your time.  I just have three questions for you 
this morning.  Firstly, just on the capex for the project you said $300 
million for Melbourne only.  Are you able to talk about the total cost of 
the project if you do, indeed, decide to upgrade the entire 2.5 million 
home reach of the network to up to 100 Mbps per second?  I guess on 
the back of that if you could maybe just talk about the timetable for the 
other cities. 
 
My second question is on the NBN obviously that's a key issue for the 
stock out to the market right now.  Is this tacit approval that you're 
out of the NBN, that you've accepted it or can you basically reverse your 
decision on this project if you are admitted back into the NBN process 
over the next month or two. 
 
My third question is just on the pricing for the product.  I'm just 
wondering, so far you've basically given away more speeds at pretty much 
the same price point.  I'm just wondering whether with this new product 
will you be charging a premium to current prices, or is it just going to 
be part of the existing packages?  Thank you. 
 
SOL TRUJILLO:  As usual, some very good questions, and extensive 
uestions.  In terms of capex, we're not going to talk about further 
deployment in terms of numbers until we deploy this in terms of 
Melbourne.  So in terms of going beyond that, I just will say a few 
things about the cost, because I've had a couple of questions shared with 
me a little bit earlier. 
 
The cost that we're talking about relative to the $300 million are 
basically hardware and software costs that are associated with cable 
modem terminating systems, cap routers and things like that.  They are 
associated with our integration and development, and ultimately they're 
about or inclusive of what we would call our Next Generation feature 
servers, or what some people have short-handed as soft switches.  So 
those are the primary components of the spend that we're talking about.  
Some of these costs, in particular, the Next Generation feature server 
sets, the integration and development are leverageable into what we do 
obviously in further deployments to the other markets as we do that, or 
if we deploy them. 
 

 
What I think is important at this stage is that we get to market with 
these services, begin testing the services, begin testing the two-way 
interactivity and making sure that we can operate this at the same 
quality and at the same service levels that our customers would 
expect from us in our Next Generation context.  So, we are not at this 
stage announcing beyond what I would call stage 1.  Therefore, we won't 
disclose any numbers.  But the punch line is that this is a very 
attractive way for us to think about serving customers.  It's 
leveraging existing infrastructure, and it's going to enable us to 
provide some really interesting services going forward. 
 
The second question you asked relative to NBN, I think your wording was 
is this essentially tacit admission that we're out of NBN or don't care 
about NBN or whatever.  

The answer is no.  We've been talking about this - I think you're aware 
of this - for the last couple of years in terms of at some point, once 
the technology got to full maturity, meaning DOCSIS 3.0 that's been 
deployed elsewhere, that we would want to do this to start serving our 
customers in what I would call a Next Generation fashion.  If, per 
chance, the NBN turns out that the government wants to have conversations 
with Telstra up deployment, the answer is we obviously would be willing 
to have that conversation.
  
We've never said that we weren't interested. 
 
But the key point behind this and the key point behind any conversation 
is that to have a technology-specific or single-technology-specific 
solution for the nation is probably not a practical approach.  There's 
going to be a mixture of technologies in order to meet what we have 
articulated as a vision for the country, and I think what the government, 
through the Prime Minister, has articulated as a vision for the country 
going forward, as some people have short-handed it, broadbandising 
Australia.  So the answer is a fundamental no, we're not tacitly 
acknowledging anything.  Obviously we're open to conversations.  
But we are getting started on this because we really want to learn as 
much as we can about the services and applications that we can deploy on 
this as it's exciting to get to 100 Mbps per second.  It's very 
consistent with the research that we've done from customers in terms of 
the things that they would like us to do, both in the home and with 
businesses as we serve the customer set that we have. 
 
The third question relative to pricing in terms of will we charge a 
premium, I'm not going to talk about pricing specifically today.  I think 
you've seen since we began our transformation strategy that we clearly 
think about bringing value, adding value and pricing for the value.  
Again, it will all be very competitive, but it's got to be value 
compelling to the customer how we end up with our pricing structures or 
price levels as we go forward. 
 
Again, I need to say this, probably many  times, this is about our view 
of a Next Generation set of services that we think for our fixed and 
broadband set of services and customers we can take the game to another 
level.  This is just part of what we need to do to get there, and that is 
get started, get started quickly and start delivering some of these 
services as we think our customers have indicated to us they'd like to be 
served. 

 
OPERATOR:  Your next question comes from Sameer Chopra from Deutsche 
Bank. 
 
SAMEER CHOPRA, DEUTSCHE BANK: Good morning.  I have three questions for 
Sol, then Mick Rocca, if I may.  The first one, can you talk about 
whether you intend to expand the reach of your cable network beyond 2.5 
million households to the approximately 10.5 million houses in Australia 
that have a fixed line connection?  The second question is, Sol, if we 
can just have a conversation around what percentage of your customers are 
on Cable Extreme and ADSL2 Plus.  I'm trying to gauge what percentage of 
customers are high speed.  Lastly, you talked briefly at the results 
about the BigPond content space.  Is it possible to get further comment 
in terms of how much customer attraction you are seeing in the content 
space.  Thanks. 
 
SOL TRUJILLO: In terms of expanding the reach beyond the 2.5 million to 
10 million, obviously we would not do that solely with HFC.  Again, as I 
just said on Christian's question, our view is that there's going to be a 
technology mix to deliver the kinds of services that customers are going 
to want.  Customers care about the end service, not the technology 
platform.  So we will look for the most effective and cost-efficient way 
to deliver that.  But, as you have seen, we have our Next G network that 
already reaches 99 per cent of the population; it covers more than 2 
million square kilometres and has a migration path from 21 Mbps peak 
throughput to 42 peak throughput to hopefully 100 Mbps as we see it over 
the next two to three years. 
 
We have an ADSL platform that, depending upon distance from the exchange 
or to DSLAM if you will, you can get anywhere between 12 to 20 Mbps.  I 
know some of our competitors like saying 24, but I would say practically 
speaking 12 to 20 is realistic on the footprint that we have where we're 
capable of reaching more than 80 per cent of the homes, and that's part 
of how we think about extendability of what we do or enhancing our 
existing platform.  Then, obviously, there is the HFC and perhaps some 
mixture in some cases of fibre to the node. There is not one solution 
that we think is practical for us to reach all of Australia and do it in 
a cost- effective way. 
 
Now, in terms of the number of customers on Cable  Extreme and ADSL2 
Plus, we do not disclose the breakout of those numbers.  But I would say 
that we are looking to develop further the number of customers.  I would 
say that it's not reached a high level of penetration at this stage, and 
that's simply because some of the applications that people are looking 
for are basically two-way applications, and they needed some of this Next 
Generation feature set that we're going to be developing and deploying 
now for this Melbourne deployment. 
 
SAMEER CHORPRA: Can I just ask one other question: do you find churn is 
lower for customers on the higher speed plans? 
 
JOHN STANHOPE: Yes, is the answer, Sameer. 
 
OPERATOR:  Your next question is from Mark Blackwell from Morgan Stanley. 

 
MARK BLACKWELL, MORGAN STANLEY:  I've got a couple of questions, one 
technical and one strategic.  Firstly, you say in your targeting the 100 
Mbps per second max speeds.  I'm wondering what the effective speed is 
that you might be targeting, given it's across a shared medium.  Secondly 
is the strategic question.  I'm wondering if this plan was part of your 
NBN bid.  You said you're targeting a mix of technologies.  Was this part 
of your NBN bid?  To follow on from that, how do you think the NBN 
business case for yourself or someone else would  respond to this 
announcement you've made today? 
 
SOL TRUJILLO: In terms of the deliberate throughput, obviously, with 
everything, it's a combination of this part of your infrastructure and 
your backhaul to deliver an end to end in terms of customer experience.  
Everything that we have done as part of our transformation thinks about 
it that way.  So, again, if you looked at what we did with Next G, we 
built up the backhaul to complement the wireless infrastructure so that 
people did get, in fact, a different experience from what you get from 
all of our competitors. 
 
With this, we will do the same in ensuring that the throughput is 
essentially what we promise.  Mick, I don't know if you have anything 
else relative to that part of the question, but this is not a best-effort 
kind of deployment.  This really is the service that we will deliver.  
 
MICK ROCCA: The second part of the question was in relation to the 
speeds.  The way we've designed this network, on average, you know you 
can get 70 to 100 Mbps per second.  That's the great thing about this 
technology.  Let's all be aware that these are all shared technologies.  
The FTTN is a shared technology, cable is a shared technology, so 
it is going to be impacted by the number of users.  But, on average, 
about 70 to 100 Mbps ..
 
 
OPERATOR:  The next question is from Laurent Horrutt from JP Morgan. 
 
 
LAURENT HORRUTT, JP MORGAN: Thank you very much.  I have two questions 
this morning.  The first one is I was wondering if you could give us some 
call on the timing of the decision, given that we're probably a few weeks 
away from an ending outcome?  I would have thought that looking at the 
relative economics of this investment relative to an NBN resell model 
could have been important. 
 
The second question is around Foxtel.  I was interested by the wording of 
some of the announcements.  Is Telstra now going to compete a lot more 
directly with Foxtel Box Office in terms of bringing sort of tapping into 
the online catalogue and offering on-demand services. 
 
SOL TRUJILLO: Relative to the first question, in terms of the timing of 
this decision, this process has been underway - I think you probably know 
this - for a long time.  We're at a point now given the work that our 
technology and engineering team has been doing in terms of knowing that 
what we deploy we can deliver, knowing that the technology has matured in 
terms of DOCSIS 3.0.  It has been plenty tested both in the US in 
particular and Western Europe and other parts of Europe as well.  So, 
this has been something that we wanted to do to get to market because we 
are excited about 100 Mbps of capability as opposed to single digits or 
even just 10 or 15 Mbps of band width, because I think, Laurent, you have 
heard me talk about the renaissance of the fixed line business; you've 
heard me talk about high definition, high resolution in terms of 
centricity of applications and services.  The punch line here is you 
can't do those things well with 10 or 12 or 15 Mbps delivered to homes. 

You just can't do enough and you can't do it well enough.  

So, the higher speed set of services like this in a platform that enables 
it is very important.  We need to get to market to find out the 
executional side of it and how we can enable our vision, our view and the 
set of applications and services that we've done our thinking around. 
 
 
In terms of Foxtel, obviously you again have heard me say from the time 
that I arrived in Australia that Foxtel was an important asset.  It still 
is an important asset.  As you will probably see, we are leveraging 
Foxtel as much as we can in terms of its broadcast content, and we've 
taken it to your mobile platforms.  We've got it basically on our HFC 
platform already.  There's more things that we think we can do with 
Foxtel in addition to what we think we can do now with a true interactive 
set of capabilities on a very high speed platform like this.  So the 
answer is Foxtel is still important.  We see even more applications for 
Foxtel while we see a lot of new applications and services in terms of 
what we can do through Bigpond and Telstra Media. 
 
 
OPERATOR:  The next question comes from Mark McDonnell from BBY. 
 
MARK McDONNELL, BBY: Good morning.  Just a couple of questions.  Firstly, 
on the technology, could you just clarify the peak and expected average 
upstream data transfer rates?  Secondly, Sol, given your comments about 
the mix of technologies for broadband, I'm just wondering your approach 
to managing some of the issues around cannibalisation across different 
platforms when you have  multiple alternate solutions to provide 
broadband, the extent to which you'd be looking to use bundling as a 
technique and cross-selling and the roll that Foxtel and fixed telephony 
services might play in those bundles on the HFC upgrade. 
 
SOL TRUJILLO: I'll let Mick answer your first question about peak and 
upstream. 
 
MICK ROCCA:  Upstream is 2 Mbps per second. 
 
MARK McDONNELL: Is that peak or average? 
 
MICK ROCCA: No, it's average 2 Mbps per second upstream. 
 
SOL TRUJILLO: Regarding the cannibalisation and multiplatform, the key 
thought here is that we have a platform here that is so powerful when you 
think about 100 Mbps per second, and going to Next Generation 
capabilities.  Our view is much like what we thought when we launched 
Next G.  A lot of people thought, "Well, you just basically 
have SMS and a few other things, so why do you invest in a new platform 
to deliver Next Generation services?" I think you were around at the time 
and there was a lot of scepticism when we said, "No, we think there's a 
lot of additional services, a lot of new usage and a lot of ARPU growth," 
which turned out we were right. 
 
I believe that on the fixed line side of the business, there is this 
renaissance that I've talked about over the years.  I think it's coming.  
I think it's here.  Now we have a platform to leverage it.  But the idea 
is really about increasing ARPU per customer, because we can deliver more 
services, again, interactively, and, in some cases, we'll mediate ways 
that people spend their money today in addition to hopefully people using 
some of the services that we offer today even more. 
 
In addition to that, we do have a core issue in Telstra, just like every 
incumbent telco  around the world, where we have PSTN, in particular, 
calling and associated services in the climate.  You saw some of that in 
our results.  I believe and we believe that we can affect some of that 
with some of the Next Generation services.  I won't get into specifics 
around what they look like, because I'm not going to signal to anybody 
what we're going to do and what this company will turn up.  We're working 
on them.  We have our definite views, and, again, this company is making 
a bet that they can continue to, in some cases, stem the losses as well 
as create new growth for this company - let me say it again - in a 
Next Generation fixed context. 
 
MARK McDONALD: So are you able to offer a PSTN-like service over HFC?  Is 
that part of the plan, or would any prospective bundling package actually 
have different sets of wires terminating on the customer's premises? 
 
SOL TRUJILLO: We can essentially replicate  the services and features 
that we have today.  We're going to take them to another level with where 
we think we can go on this platform.  Again, given what we're calling the 
Next Generation feature server sets, the soft switches that we talked 
about before, and the flexibility that we have, the speed at which we can 
introduce products and services, everything gets enhanced in thiscontext. 
 
OPERATOR:  The next question is from Richard Eary from UBS .. (snip)

Cheers,
Stephen