vic parlim rt inquiry1 · • austar • news limited • dodo internet • flight centre •...

SCAN Case Study September 2004 of 16 Parliament of Victoria Inquiry on Regional Telecommunications Infrastructure for Business

S H E P P A R T O N C O M M U N I T Y A C C E S S

N E T W O R K

S C A N

R E G I O N A L T E L E C O M M U N I C A T I O N S

C A S E S T U D Y


TABLE OF CONTENTS 1 Overview of the SCAN Project Partners 3

1.1 Comindico Overview 3 1.2 McPherson Media and GMTel Overview 5

2 Shepparton Community Access Network (SCAN) Project Overview 7

2.1 Regional Market Situation and Competitive Overview 8 2.2 Unique Commercial Model 9 2.3 SCAN Solution Overview 11 2.4 Capital Investment and Commercial Risk 12 2.5 SCAN Delivers Important Innovation 13

3 Current Status of SCAN and Case Study Conclusion 15

Appendix A – SCAN Customer Response Video 16


1 Overview of the SCAN Project Partners

McPherson Media and Comindico Australia have pleasure in responding to the Parliamentary Inquiry into regional telecommunications infrastructure for business. This response presents the Shepparton Community Access Network (SCAN) project as a case study for the commercial, operational, technical and regulatory issues that any regional telecommunication project must successfully address in order to be viable in the market.

1.1 Comindico Overview

Comindico is a privately owned telecommunications company that was created in early 2000 to deploy a national telecommunications network capable of carrying voice and data traffic across a single Internet Protocol network architecture. Major investors in Comindico include U.S. investment bank, J.P. Morgan; AGL, Australia's largest energy, infrastructure and marketing company; Australia’s largest fund manager, AMP Asset Management (AMPAM); Rupert Murdoch’s Queensland Press; and Kerry Packer’s Consolidated Press Holdings Group.

The Comindico network is exclusively based on the Internet Protocol (IP) technology; a technology that is capable of carrying services such as video, messaging, voice and video conferencing or any other form of digital data.


Comindico currently has 66 Points of Presence (PoP’s) located throughout regional and metropolitan Australia. Of these 66 locations 55 (excluding the eight state capital cities, Wollongong, Newcastle and Penrith) are regional towns and cities, which reflects Comindico’s keen interest in regional Australia whilst providing 100% national coverage.

Comindico is a licensed Carrier with established interconnect agreements with Australia’s major carriers, allowing the network to terminate and initiate calls in every local call exchange location in Australia as identified by the ACA. Comindico also provides full Interconnection and peering facilities as well as international carriage via its own Southern Cross network capacity.

Comindico operates Cisco System’s largest voice capable MGCP network in the world and is by revenue, the third largest IP wholesaler in Australia. Sample key customer accounts are identified below:

National Internet Services Corporate Data Services

• Austar • News Limited

• Dodo Internet • Flight Centre

• Leading Edge • Hutchison

• iHug • Metcash

• Affinity • Salvation Army

• Telenet • Bridgestone

• Chariot • Starbucks

Carrier Services • Etrade

• Sprint • Norco

• UeComm • Servcorp

• PowerTel • LG Electronics

• NTT Australia • Valvoline

• SkyNet Global • Panalpina

Local Government Wide Area Network Services

• Warringah Council – Manly Sydney • Waverly Council - Sydney

• South Sydney Council • Caloundra Council - Queensland

Comindico is a wholesale and direct supplier of convergent communications solutions and offers customers the mechanism to deliver High Speed Internet services access (such as Email and Data Transfers), Corporate Virtual Private Networks (VPN’s), National Roaming, voice-telephony, Tele-housing and other value added services. These services are delivered across Comindico’s own national MPLS network. Key Features of the Comindico Network include:

• National coverage IP-only network


• Comprehensive set of Service Level Agreements

• Convergent IP-based solutions where the same network can be used for data, teleconferencing, telecommuting, voice and video transmission

• End-to-End IP QoS (Using differentiated Class of Service)

• Extensive Network management tools

• SS7 to IP interconnect with Telstra enabling Dial-in customers to access the Comindico network, the Internet or the customers own VPN for the cost of a local call

Comindico currently has approximately 320 wholesale and retail customers and operates over 7,500 tail circuits and over 50 large-scale IP VPN deployments. The first commercial deployment that Comindico conducted of an MPLS VPN was in March 2001.

The Shepparton Community Access Network project is Comindico’s first deployment of access network technology and if successful the project is designed to be able to be easily replicated around Comindico’s many regional POPs.

1.2 McPherson Media and GMTel Overview

The City of Greater Shepparton, in partnership with the Municipalities of Campaspe, Moira and Strathbogie (collectively the Foodbowl Councils) initiated the Foodbowl Telecommunication Project in 1999. This project sought to attract additional telecommunications companies to the region to improve the quality and value for money achieved from telecommunications services delivered.

This project resulted in the formation of Goulburn Murray Telecommunications Holdings (GMTH), established by the four councils as owner of the GMTel trademark. In conjunction with AAPT and a local partner, McPherson Media, GMTel have commenced retailing telecommunications services on behalf of GMTH in limited parts of the region under the GMTel brand.

While achieving some results, the success of GMTel efforts to date has been limited. The reasons for this limited success are:

The lack of a suitable CAN Platform that provides an economically viable last mile solution, in particular one that offers a CPE cost that is economically viable for the spend profile of the majority of regional businesses and consumers;

The failure of AAPT to proceed with its planned network expansion within the region; and

The high levels of investment return traditional telecommunications carriers are expecting from their infrastructure investments.

The SCAN project represents an evolution in the GMTel opportunity and the establishment of a new, more viable carrier partnership with Comindico.


GMTel has licensed its brand to McPherson Media who have the local capability, expertise and investment to commercialise products under the GMTel Brand.

From its genesis in 1995, McPherson Media has expanded into one of the largest regional Internet Service Provider in Australia serving over 7,000 business and residential customers in the Goulburn Murray region. Using its web publishing and web-site maintenance experience, McPherson Media successfully leverages the McPherson Media Group's considerable expertise in graphic design, text editing and communications.

McPherson Media employs 10 staff at its Shepparton offices and has existing partnership resources to deliver Internet strategy development and e-commerce applications, as well as access to the group's substantial sub-editing and text-management capacity.

McPherson Media is a division of the larger McPherson Media Group - an independent newspaper, printing and electronic publishing company based predominantly in Country Victoria.

The group's 11 newspapers, including the daily Shepparton News, has been the region's leading information providers since 1888, when the McPherson family established the business. The commercial printing division is also well regarded for its highly competitive, quality full colour newspaper and general commercial printing.

The McPherson Media Group employs 350 people in nine locations across Northern Victoria and Southern New South Wales and a further 30 staff at its South Yarra facility.

Considered an innovator in the publishing industry, the group has a reputation for outstanding customer service, looking after its people and supporting the communities in which it does business.

GMTel/McPherson Media’s current telecommunications key customer accounts are identified below:

GMTel / McPherson Media Key Customer Accounts

Shepparton News City of Greater Shepparton

Young’s & Co Realestate Kyabram Community & Learning Centre

Goulburn Valley Family Care Shepparton RSL

Telfords Building Systems Barbante & Associates

Spade Computers Wealthcare

NDS Security Central Access Limited


2 Shepparton Community Access Network (SCAN) Projec t Overview

In September 2002 GMTel partnered with Comindico to submit a proposal to Multimedia Victoria (MMV) as part of the CAN Demonstration program that sought seed funding to deploy a Wireless Local Loop carrier grade network for the deployment of broadband data services and voice telecommunications for the Shepparton area. This proposal was based on the following commercial model:

• GMTel / McPherson Media are the retail carrier of the service and have responsibility for the sales and marketing, first level customer support and commercial management of the network;

• Comindico provide the technical solution, carrier grade operational and billing systems with integration to the WLL infrastructure, wholesale service supply and level 2 and above technical support;

• City of Greater Shepparton is the custodian of the key infrastructure assets, project fiduciary management and key supporters of the local economic value that the project offers to the greater Shepparton region.

The SCAN commercial model secured $ 960,000 from Multimedia Victoria as seed project funding with a matching in-kind commitment from both Comindico and GMTel. This accounts for a project value for Shepparton of $ 1.8 million and has translated into a significant injection of these funds into the Shepparton community.

The SCAN project has deployed a Data Over Cable Systems Interface Specification (DOCSIS) wireless network using licensed 3.4Ghz spectrum. DOCSIS is a global cable network standard that is being used for massive customer deployments (many million end customers) by carriers such as Time Warner in the United States and Korea Telecom. The network was launched in January 2004 to 40 end users and although operating in a trial mode has been providing users with 99.99% service availability since its launch.

The SCAN is providing the 40 users with broadband data services from 1Mbps through to 512/256Kbps together with public voice telephony. The deployment has been reviewed by MMV who are very impressed with the technical capabilities, wireless network reach (35km), as well as positive response from participants. GMTel has conducted a customer service assessment of the 40 end users, all have rated the service experience as “above average to excellent”. The service experience was segmented into installation, customer support and speed of use.

The 40 end users incorporate a mix of homes and businesses located within the town of Shepparton as well as many well outside the city limits. Their is a strong weighting towards small medium businesses and include key industries such as health care and agribusiness with all seeking the benefits of a high quality and price competitive telecommunication service.


Below are a number the SCAN pilot customers:

SCAN Pilot Key Customers

• Shepparton Camera & Digital Video • Rodney Senior Steel

• Shepparton Veterinary Clinic • GV Family Care

• Brown’s Audio Visual • Shepparton Marketplace

• Stockdale & Leggo Real Estate • Valley Star Orchards

• Shepparton Printing Services • Focus Radiology

• Bogdan’s Transport • Dr Allan Wallace

• Fred’s Transport • Mayor Anne McCamish

• Data Parts • Central Fire Service

The SCAN commercial services that will be available from July 2004 are based on two grades of service:

Consumer Grade designed to compete head to head with Telstra ADSL - Service Packages: 256/64 Kbps, 512/128Kbps, 1.5Mbps/256Kbps together with a minimum of one voice line per service.

Business Grade services that are similar to low contested SHDSL services found in capital city metropolitan areas – Service Packages: 256/128 Kbps, 512/256Kbps, 1.5Mbps/256Kbps, 512/512 Kbps and 1Mbps/1Mbps with a minimum of two voice lines per service.

The SCAN GMTel service packages offer all businesses an opportunity to save from 25% to 35% cost savings across their current monthly communication spend as well as taking broadband to areas that do not have any service options today.

2.1 Regional Market Situation and Competitive Overv iew

In assessing the commercial capabilities of possible regional partners Comindico found that only a handful of its Internet Service Providers (ISPs) wholesale customers had the financial capacity and strategic intent to extend their current Internet based service offerings to include voice capable telecommunication infrastructure. As a general rule voice services offer about ten times the revenue per bandwidth when compared to data services. But to deploy a voice capable infrastructure requires significantly more complex systems and is subject to significantly more regulation than a pure Internet services infrastructure. This results in a much larger capital requirement in a market that faces revenue and margin pressures as well as vigorous competition from Telstra. This competition from Telstra is a significant concern to the market and takes the following key forms:

1. Telstra already has established customer relationships through out regional Australia providing it with a low cost channel to market its new offerings. The copper access


based network is still very much a regional monopoly as well as its provision of voice services;

2. The recent anticompetitive pricing of Telstra’s DSL products offers resellers no margin and no ability to effectively compete with Telstra in the broadband services market. This has also been repeated in the ISDN based internet services market with the competition regulator currently investigating this matter;

3. Telstra’s has a unique capability to offer customer discounts based on service bundling across broadband Internet, voice telephony services and pay television services. These bundled service offering provide customer with discounts but also require customers to commit to long term contracts of up to 3 years. This effectively results in Telstra locking large segments of the market away from competition;

4. Telstra’s disproportionate and demonstrable financial capacity to fund projects that offer only strategic and anticompetitive outcomes rather than having to produce survivable economic outcomes;

5. The limited choice of alternate wholesale providers of regional telecommunication services due to limited infrastructure based competition in regional Australia.

Faced with these bleak market realities many regional ISPs and Carriage Service Providers (CSPs) are left with limited options, with many choosing to sell their businesses the to larger capital city based national service providers who are seeking economies of scale as the basis for their economic future.

The most concerning commercial impact for ISPs and CSPs is the margin squeeze they face on their core businesses due to retail market price reductions led by Telstra’s ADSL pricing. Together with costly and fixed wholesale service charges that are also set by Telstra, any broadband service resellers have limited to no control on their resulting gross product margins. Many regional ISPs now face single digit gross profit margins that ultimately jeopardise their on-going commercial viability.

2.2 SCAN Unique Commercial Model

Comindico’s assessment of the market realities in regional Australia influenced the development of a unique commercial model that was established with McPherson Media for the SCAN project. The SCAN commercial model segregates the key roles and responsibilities in a manner that reflects core competencies and results in a viable commercial model for both parties. The key roles and responsibilities of the SCAN model are detailed below:

McPherson Media and GMTel Comindico

Retail Service Provider Wholesale Service and Solut ion Provider

• Customer sales and marketing

• 1st Level Customer Support

• Wholesale service provision

• Technical solution provision


• Fund the CAN capital requirements

• WLL service installation

• Retail commercial obligations

• Outsourced network management of CAN and CMTS

• 2nd level support

• Systems solution – OSS and BSS retail and wholesale

• Legal and regulatory support and compliance

The SCAN commercial model provides McPherson Media with retail service responsibilities, allowing a regional local brand and service experience to prevail. This is a key differentiator to regional communities who seek opportunities to create local economic development and the associated job and skills development. Comindico believes this model offers significant value to regional Australia establishing niche local carriers that can effectively capture many millions of dollars worth of telecommunication service revenues that would have traditionally been a funds outflow from these regional areas. This offers the following key commercial benefits to the Shepparton region:

• Local employment and skills development;

• Injection of funds into the local community;

• Reduced telecommunication costs to local businesses and residents;

• Availability of broadband services where there was no alternative offering.

The technical and system solution obligations for SCAN are the responsibility of Comindico who have the carrier network expertise and have a national scale of operation that allows a viable commercial return on the significant investment required to operate the systems required by an infrastructure based service provider. This also ensures that the SCAN technical solution mitigates the significant technical risk and costs associated with systems integration as the SCAN model has all of Comindico’s network management systems integrated into the SCAN Wireless Local Loop (WLL) network. These network management systems are monitored 24x7 by the Comindico Network Operations Centre (NOC) in Sydney with GMTel being the local 1st level support provider. These systems are designed to manage a national carrier network and as such offer significant economies of scale and functionality that would not be available to an organisation seeking to extend their local area corporate network. These systems are listed below:

• Network Management Systems

• Fault Management Systems

• Configuration Management

• Performance Management

• Security Management


• Call Agent System – VOIP legal regulatory compliance

• Business Support Systems

o Billing, rating and presentment

o Service activation and management

o Number management

o Carrier mediation systems

o Customer relationship management

Not only are these systems of a carrier scale but also they are managed and operated by a team of highly qualified engineers, architects and administrators rarely found outside the telecoms industry.

2.3 SCAN Solution Overview

The SCAN network configuration is based on an IP wireless access network integrating with an IP core network architecture. The access network uses standard DOCSIS cable customer premise equipment being a cable modem and analogue telephone adaptor that interfaces with an integral upconverter/downconverter transceiver.

The subscriber equipment uses standard radio modulation techniques to communicate across licensed 3.8Ghz spectrum to the point to multipoint transceiver located on a 60 meter tower in Shepparton. This tower site houses a carrier grade mini data centre where the cable headend equipment and radio base station equipment is housed together with the trunk radio link that provides connectivity to Comindico’s core network Point of Presence also in Shepparton.

Logic Network Diagram

Telephone

Computer

DOCSIS Cable Modem

Customer Site - Small

MMDS Transceiverand Antenna

Comindico POPShepparton

Tower Site - Mini PoPHeadend Equipment

Trunk Radio Link

MMDS Link

Telephone

Computer

Telephone

Customer Site Large MMDSTransceiverand Antenna

Telephone

Telephone

Computer

Computer

Computer

Cable ModemFirewall and

Router

TelephoneFax

PABX

Telephone Computer

DOCSIS Cable Modem

Customer Site - Medium

MMDS Transceiverand Antenna

Telephone

TerrestrialLink

MMDS Link

MMDS Link

ATA

ATA


Network Architecture Diagram

STPSTP

PSTN

VV

MGCP

Provider Backbone

5400uBR7xxx

OSS/Provisioning

DNS/DHCPTFTP

TOD

LNP

Call Agent

CM Routerubr925

+ WirelessAntenna

MMDS WirelessAccess Network

H.323

2.4 Capital Investment and Commercial Risk

The SCAN commercial model mitigates the amount of capital required to establish a regional carrier grade access network because of the ability to leverage Comindico’s significant investment in carrier systems. Even with this taken into consideration the amount of capital required by McPherson Media to fund the access network infrastructure is in the millions of dollars. Given the dominance and anti-competitive practices of the incumbent, any investment into regional telecommunications is viewed as speculative at best.

The SCAN projected then extended this risk profile by deploying an untested wireless local loop (WLL) technology. This commercial and technical project risk was mitigated by the availability of seed funding from Multimedia Victoria as part its CAN Demonstration program together with in-kind funding by the project partners.

The ongoing access to capital for regional telecommunications infrastructure based projects and businesses will be subject to significant constraints due to these inherent commercial, market and technical risks associated with any such investment. Governments have a number of tools to remedy such market failures, below is a list of these:

1. Seed project funding for projects that meet strict regional development criteria. The MMV CAN Demonstration program is a good early example;

2. Committed revenue and business to companies that offer regional infrastructure based competition. Local, State and Federal Governments are significant purchasers of regional telecommunication services. Term based committed service spends offer a significant ability to mitigate commercial and capital risk;


3. Strong regulation and legislative powers to prevent anti-competitive behaviors of the incumbent provider;

4. Support services in the areas of provision of market information and preferential access to State and Local Government owned relevant infrastructure.

Recent experience with the SCAN project has shown inconsistencies and disappointments when reviewing the use of the above Government tools to support and influence regional telecommunication infrastructure investment. Specifically we have seen the Victorian Government exclude service commitments from the CAN Demonstration program and the TPAMs project that is charged with securing supply for Victorian Government telecommunication services has specifically excluded McPherson Media and Comindico from the supply panel. The Shepparton Council following a change of CEO has also questioned whether it will continue to support the GMTel initiate and purchase any on-going services.

The SCAN project experience has highlighted the need for Governments to “walk the talk” when it comes to supporting new and emerging regional telecommunication service providers. Too often conceptual and academic principles are promoted regarding regional telecommunications development, but these appear to be failing to be implemented in practice or policy.

2.5 SCAN Delivers Important Innovation

The solution deployed for the SCAN Project provides wireless coverage to areas that have previously been unable to receive broadband services. The only alternate offering to SCAN broadband services in the Shepparton region is via Telstra’s copper network by an ADSL service. There are a number of factors that will limit the reach and availability of an ADSL broadband service:

1. Copper length from the serving exchange. Currently it is generally expected that services will be limited to within approximately 4km radial distance of the ADSL serving exchange. As then copper runs are generally based on road grids not radial lines the real distances from the exchange in some cases can be significantly less than 4km;

2. Quality of the copper. Most of regional Australia’s copper was laid by the PMG many decades ago with most of this now in need of upgrading and producing line quality issues which significantly effects the reach and through put of ADSL services;

3. Pair Gain systems. These are widely deployed in regional towns and cities and prevent the availability of ADSL services;

4. RIM systems. Also widely deployed in almost all new housing and industrial developments since 1986. These RIM systems also prevent the availability of ADSL services.

The SCAN WLL service has a potential reach of up to 37kms line of sight from the tower transceivers. This distance was tested as part of the CAN Demonstration project using the ninety-degree transceiver configuration. The omni antenna configuration produces service distances up to 22kms line of sight from the tower site. This results in a broadband and telephony service offering to many businesses and homes that are challenged to receive a basic quality dial up Internet service. This was reinforced throughout the project with many


participants unable to use their dial Internet connections reliably or due to the limited bandwidths available.

SCAN Service Reach versus ADSL

The digital map above shows that the SCAN WLL service offers coverage to regional areas well beyond the reach of ADSL. The project has found that a latent demand exists in these areas with numerous industrial developments and businesses now on the fringes of Shepparton as well as a range of agribusinesses and satellite schools located outside the city limits. The company Unwired has found similar latent demand with its wireless broadband service deployment in Sydney where numerous ADSL “black holes” exist.

Without the deployment of carrier grade, innovative, new regional telecommunications infrastructure solutions, there will not be an ability to provided broader access to broadband services for schools, hospitals, government agencies, businesses and residents. Also there will not be any sustainable competition that can survive against a very powerful, dominant and anticompetitive incumbent. Without sustainable infrastructure based competition, regional telecommunication users can expect significant impacts in terms of higher costs, reduced service quality and lack of functional choice.

Legend:Green shade – SHDSL, Yellow shade –ADSL, Gray – DSL Out of distance; Red dots – Telstra exchanges

Exchange coverage area:SHPN – 31.0 sq kmMOOP – 20.9 sq kmKIAL – 17.4 sq kmTATU -45.9 sq kmTOTAL = 84.2 sq km ie 11% of 25km circle


3 Current Status of SCAN and Case Study Conclusion

The SCAN project completed its development and test phase as at the end of May 2004 with a detailed review of all operational, technical metrics and commercial assumptions undertaken. The service availability and service quality outcomes for both voice and broadband during this phase were beyond both the customer and project partners’ expectations.

Since May 2004 McPherson Media and Comindico have invested significant resources to migrate the SCAN project from a developmental proof of concept infrastructure to a fully supported commercial infrastructure.

As of the time of writing this report the SCAN project has secured the commercial name of “Rockit Wireless Communications” and has acquired over new 120 customers adding approximately 10 new businesses each week. The Rockit business is exceeding the projected new connection rates and most importantly key revenue metrics as well as securing positive customer feedback.

The fact that an alternate provider to Telstra exists in Shepparton has attracted a number of businesses such as Focus Radiology, who faced significant delays for the provision of telephony services. In a number of such cases the commercial impact of these service delays were bordering catastrophic, with little interest or regard given to the situation by Telstra.

McPherson Media have employed five new staff because of the Rockit business with further employment growth likely as the business expands. Comindico has seen skills transfer to the McPherson team as they have met the challenges of 1st level support for the CAN. In every customer case the Rockit service has provided telecommunications cost savings and in numerous times Rockit has provided the only option available for broadband.

3.1 Key Contact Details

Both Comindico and McPherson Media are pleased to be able to contribute this case study as part of this important inquiry. Should the committee require any further information the contact details of the key executives from the SCAN project partners are listed below:

McPherson Media Contact: Ross McPherson, Managing Director

Phone 03 58312312 [email protected]

Comindico Contact: Carl Braden, Director of Business and Regional Development

Phone 02 82206153 [email protected]

Shepparton Council Contact: Don McKenzie, Regional Development Officer

Phone 03 5832 9846 [email protected]

Multimedia Victoria Contact: Dr Martin Doddrell, Manager Regional Access Policy

Phone 03 9651 9295 [email protected]


Appendix A – SCAN Customer Response Video

vic parlim rt inquiry1 · • austar • news limited • dodo internet • flight centre •...

Documents