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Build the network: they’re already coming.

Telstra’s network is central to its business so the thinking around how it should be developed for a fast changing world of communications is critical. But the company has evolved from simply an engineering-driven process to one that is driven by what its customers want.

 

The company put several of its senior management in front of investors this week with the discussion centred on where the network needed to head given the generational surge in consumption of data and video.

 

The starting point is already a head-spinner. We know that 4G traffic already exceeds 3G traffic and that video is rapidly heading towards 75% of all traffic within a few short years.

 

That already means that Telstra will be switching off its 2G network next year (better get your granny a new smartphone to replace that clamshell she’s still using). Telstra hasn’t spent any money on 2G infrastructure since 2006.

 

The benefit of this upward migration in network is that the unit cost of delivering all traffic is dropping significantly as the efficiency and sophistication of the network improves.

 

That’s the flip side of the dramatically rising volume of traffic that is moving across Telstra’s networks.

 

The key message was that Telstra is already investing and trialling new technologies that will be required to cope with the expected demand in a few years and beyond. These technologies include mobile and fixed line as well as hardware and some very clever software. We should expect to hear a lot more about ‘software defined networks’ in future discussions that will help networks to be more dynamic, flexible and scalable.

 

Human beings, apparently, are now producing about 1.4 megabytes of data per person per second which is accumulating an enormous amount of information (not all of it sensible or useful).

 

But a new tidal wave of information is forming between connected devices that have no human element involved. We already refer to this phenomenon as the ‘internet of things’ and Telstra indicated that there could be as many as 50 billion connected devices by 2020.

 

So far, Telstra reports that it has around $100 million of revenue being generated from machine to machine sources, but this is likely to be a fraction of where this factor could go in the future. In context, FY14 mobile revenue at Telstra was almost $10 billion so it is early days for this category but it will be an important element to watch.

 

It was also pleasing to see cybersecurity featuring in the presentation. This is a very under-rated factor in a globally connected world but the damage caused by hacking, theft, espionage, money laundering etc is potentially enormous. Telstra noted that protecting data within an organisation is as important as protecting from an external threat.

 

The intriguing thing here is that Telstra appears to be well-placed to turn its expertise in data protection into a revenue generator. The company mentioned the area of data analytics as a possibility for providing services to its clients.

 

The recent launch of the iPhone 6 and the pending launch of Samsung’s S6 (uncanny how similar the names are) is indicative of how quickly consumers and businesses are adopting the smartphones that are the sharp end of the data deluge. The spread of devices like these and the increasing sophistication of what they can do are at least partly behind the immense growth in data consumption.

 

Telstra appears to be very well equipped in terms of its network capability and its preparedness for the growth in data consumption.

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