Australia information technology report q4 2010

Q4 2010 www.businessmonitor.com aUStraLIa information technology Report INCLUDES 5-YEAR FORECASTS TO 2014 ISSN 2041-7160 Published by Business Monitor International Ltd. AUSTRALIA INFORMATION TECHNOLOGY REPORT Q4 2010 INCLUDES 5-YEAR FORECASTS TO 2014 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Publication Date: October 2010 Business Monitor International Mermaid House, Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2010 Business Monitor International. All rights reserved. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. Australia Information Technology Report Q4 2010 © Business Monitor International Ltd Page Australia Information Technology Report Q4 2010 CONTENTS Executive Summary . SWOT Analysis . Australia IT Sector SWOT . Australia Political SWOT Australia Economic SWOT Australia Business Environment SWOT . IT Business Environment Ratings 10 Asia IT Business Environment Ratings 10 Table: Asia Pacific IT Business Environment Ratings . 10 Asia Regional IT Markets Overview 13 Australia Market Overview 20 Government Authority 20 Background 20 Hardware . 21 Software . 23 IT Services . 25 Industry Developments 27 Table: Computers For Schools Programme, Phase Two - Planned Spending By State . 29 Industry Forecast Scenario . 30 Table: Australia's IT Sector (US$mn Unless Otherwise Stated) 32 Internet 33 Table: Telecoms Sector - Internet - Historical Data & Forecasts, 2007-2014 . 33 Macroeconomic Forecast 34 Australia – Economic Activity 36 Competitive Landscape . 37 Computers 37 Software . 39 IT Services . 41 Internet Competitive Landscape 43 Table: Australia Dial-up And Broadband Internet Subscriptions ('000) 43 Naked DSL . 47 WiMAX 48 Company Profiles . 49 HP Australia 49 SAP (Australia) 50 BMI Methodology . 51 How We Generate Our Industry Forecasts 51 IT Industry . 51 IT Ratings – Methodology 52 Table: IT Business Environment Indicators . 53 © Business Monitor International Ltd Page Australia Information Technology Report Q4 2010 Weighting . 54 Table: Weighting Of Components 54 Sources 54 © Business Monitor International Ltd Page Australia Information Technology Report Q4 2010 Executive Summary Market Overview Australia's IT market should continue to provide opportunities in consumer, government and business sectors in 2010, following a relatively robust performance in 2009. The total size of the domestic IT market is projected by BMI to increase from US$19.2bn in 2010 to US$23.9bn in 2014. After the narrow victory of the Labour party-led coalition in Australia's 2010 elections, a decision on the future of the National Broadband Network (NBN) could have implications for the future development of the IT market. IT spending in 2010 should receive a boost from systems upgrades deferred from last year, although much will depend on business confidence. In H110, vendors reported a pick-up in demand with the revival of IT projects that had been shelved in 2009. Australian organisations implementing major IT projects included retail giant Harvey Norman. Several factors underpin our forecast of a 6% 2010-2014 CAGR for the Australian IT market. Government tenders will drive considerable spending in years to come. Banks will continue to need to spend on regulatory compliance, and intense competition in the retail sector is spurring spending on customer relationship management (CRM) and back-office systems. Competition and new service platforms in the telecoms sector are driving that key IT spending segment. Industry Developments As of August 2010, the Australian ICT industry was waiting for the coalition government to clarify its broadband policy. The former Rudd administration's ambitious National Broadband Network (NBN) policy had attracted criticism, which led to speculation that the government may cut the project. However, the need to ensure support from independent MPs representing rural areas could induce the government to maintain support for the NBN, or something that provides similar outcomes. Government IT spending was estimated at more than US$4bn in FY2008/09. In 2010, government projects in sectors such as e-government, healthcare and education will drive significant opportunities for IT vendors. In mid-2010, the Australian government is expected to launch a standardised reporting system scheme. The National E-Health Transition Authority has the goal to create a paperless environment in Australia's health sector, including public hospitals. In 2010, national and state governments will continue to roll out new initiatives, with the Victoria government investing more than US$150mn in IT in schools. Around 1,400 high schools were expected to benefit from the second phase of the government's computers for schools project, announced in 2009. By the end of 2009, the programme was to have provided almost AUD260mn of computers. © Business Monitor International Ltd Page Australia Information Technology Report Q4 2010 Company News In 2010, the release of Apple's iPad was expected to open a new competitive battleground in tablet notebooks, with rival vendors such as Dell, Lenovo, Samsung, and HP planning to release their own rival products. The iPad was officially launched in Australia in May 2010, with local telecoms companies Telstra and Optus offering what were claimed to be some of the cheapest data rates in the world for iPad users. Meanwhile in Q310 more specialist e-reader devices arrived on the Australian market, including one Sony launched in time for Father's Day. In February 2010, Microsoft Australia received a boost when Qantas, one of the largest corporate users of Lotus Notes in Australia, announced it had dumped the IBM email system in favour of Microsoft Outlook. A long-time user of Notes, Qantas announced that it would migrate 20,000 workers to Outlook by the end of 2010, with the project being managed by Fujitsu. Vendors in the Australian market are investing in infrastructure to provide cloud computing services locally. IT services group CSC Australia planned to launch both infrastructure-as-a-service (IaaS) and a range of Microsoft software-as-a-service (SaaS) from its local data centres. Meanwhile, Japanese IT giant Fujitsu announced in April that it would deploy a second IaaS offering from an Australian data centre. Computer Sales Australian computer hardware sales are projected at US$8.6bn in 2010 and, following the deceleration in 2009, are forecast to grow at a 2010-2014 CAGR of around 3% to reach US$9.6bn by 2014. The main drivers of growth in the PC market will be government programmes, growing broadband penetration and greater affordability. The fastest-growing segment is notebooks, which already account for more than 50% of the market by value. The main drivers of growth in the PC segment will be government programmes, growing broadband penetration and greater affordability. More than 90% of Australian households now have a PC, but consumers appear willing to spend on upgrading their notebook computers; it is also becoming more popular to purchase a second household PC. Small business comprise more than 99% of all Australian businesses and slightly more than 50% of business PC sales. Software Software is expected to account for about 18% of the Australian IT market in 2010, with estimated spending of US$3.3bn. As the focus moves from hardware to services and solutions, the share of the market accounted for by software is forecast to rise to 20% by 2014, with businesses seeking greater leverage from their investments. Software sales are forecast to have a CAGR of around 8%, rising to US$4.4bn by 2014. © Business Monitor International Ltd Page Australia Information Technology Report Q4 2010 Given many businesses' focus on controlling costs, cloud computing models have also grown in popularity and spread beyond initial core application areas. Over the forecast period, enterprise resource planning (ERP), CRM and other e-business products will be increasingly popular with the small and medium-sized enterprise (SME) market, as companies look to enhance productivity through automating essential functions. IT Services IT services are expected to account for about 40% of the domestic IT market in 2010, with spending of US$7.4bn, up from US$7.2bn in 2009. CAGR for the segment is estimated at 8% over 2010-2014. IT services are forecast to be one of the most dynamic sectors of the Australian IT market. In 2010, sectors such as government, telecoms, healthcare and banking should continue to supply demand for implementation, consulting and managed services. Regulatory compliance will continue to require spending by banks and intense competition in the retail sector is spurring spending on CRM and backoffice systems. E-Readiness Many alternative Australian internet service providers (ISPs) are in the process of expanding the coverage of their ADSL networks. Other broadband service providers, including Unwired, are rolling out WiMAX networks, which will help to ensure greater choice and flexibility in the type of broadband connection available. Australia is above the OECD average in terms of businesses purchasing online (49% versus 33%) and selling online (27% versus 17%). The central component of the Rudd government's ICT strategy and overall domestic economic policy is the construction of a National Broadband Network. The programme is expected to drive economic growth and foster the creation of a digital economy. The government has projected GDP gains of 1.4% after five years from the broadband project. Tenders for the construction of the network were lodged in November 2008. Despite these investment commitments, our outlook for Australian broadband growth continues to be cautious. This is based partly on delays that have characterised government and operator efforts to address the problem of low broadband coverage in rural parts of Australia. Meanwhile, fixed penetration rates in urban areas are already very high. Our newly revised broadband forecast envisages broadband penetration rising to just over 37% at the end of 2009. © Business Monitor International Ltd Page Australia Information Technology Report Q4 2010 SWOT Analysis Australia IT Sector SWOT Strengths Weaknesses Opportunities Threats ƒ Strong government support for ICT programmes. ƒ IT-literate population. ƒ Strong financial sector. ƒ Relatively unaffected by global economic crisis compared with Europe and the US. ƒ Australia has a relatively mature domestic market, with relatively slow growth rates. ƒ Sensitive to volatility in the global economy. ƒ The National Broadband Network programme will have many direct and indirect benefits for the IT market. ƒ Phase two of the computers for schools project is expected to generate an additional US$800mn of spending. ƒ Other major IT projects in areas such as healthcare and smart cards. ƒ Green IT as companies look to make power savings. ƒ The biggest threat is slowdown the global economic slowdown affecting Australia’s economic activity and leading to a scaling back of IT budgets. ƒ The cheaper Australian dollar will affect consumer and business demand in the import-dependent IT market. Australia Political SWOT ƒ Australia is a mature democracy with a broadly stable party system. ƒ Economic stability over recent years supports the current political system and radical groups are unlikely to gain substantial support. ƒ Despite enjoying general political stability over the years, the ruling party’s lack of a clear majority in the upper house of parliament (senate) occasionally creates difficulty in the passage of policy. ƒ As one of the region’s largest and most stable states, the country attracts many refugees and economic migrants. The issue is a key source of domestic tension and one that is unlikely to disappear over the medium term. Opportunities ƒ Australia has historically enjoyed close military ties with the US. However, with the rise of regional economic powers like China, it will need to balance competing military and economic ties. Threats ƒ Australia’s early support for the US ‘war on terror’, among other things, has made Australians abroad a target for Islamic extremists. ƒ Australia’s close alliance with the US, particularly under John Howard, has left a lingering feeling among some Asian governments that Canberra is Washington’s ‘deputy sheriff’ in the region. Strengths Weaknesses © Business Monitor International Ltd Page Australia Information Technology Report Q4 2010 Australia Economic SWOT Strengths Weaknesses Opportunities Threats ƒ A modern economy supported by a sound financial system and a highly educated workforce. ƒ Continuity in policymaking. This lowers risks for investors and reduces the economy’s vulnerability to governmental change. ƒ The persistent current account deficit, which increases vulnerability to capital flows and, by extension, currency volatility. ƒ The export basket is highly concentrated in commodities with the consequence that the economy and currency remain vulnerable to fluctuations in world prices for metals, coal and agricultural goods. ƒ The rapid expansion of Asian economies in recent years – notwithstanding the current global recession – offers new opportunities for diversifying trading ties from core European markets. ƒ A low level of government debt has provided a certain amount of flexibility in fiscal policy to support domestic demand through the downturn. ƒ The currency’s vulnerability to commodity prices – and risk appetite in general – complicates exchange rate forecasting over the near term. ƒ Australia is vulnerable to droughts, which have become increasingly severe in past years as a result of global climate change. Australia Business Environment SWOT ƒ A highly educated workforce and comparatively modern transport infrastructure underpin economic prospects. ƒ The economy is very open, with the IMF awarding Australia its highest rating in the index of trade restrictiveness. ƒ Despite its openness, Australia requires the Foreign Investment Review Board to approve any commercial real estate investment by a foreign company or individual valued at US$5mn or more. ƒ With a population of just under 22mn, the domestic consumer base is small by regional standards. Opportunities ƒ Australia has opened talks with China, ASEAN, Malaysia, the Gulf Co-operation Council, Japan and South Korea regarding a free trade agreement (FTA), and is also considering FTAs with India and Indonesia. Threats ƒ Corporate taxes for foreign investors in Australia are higher than in other states. ƒ Recent investment proposals by Chinese firms regarding the resource extraction sector have raised fears that strategic assets will be lost to foreign players. Strengths Weaknesses © Business Monitor International Ltd Page Australia Information Technology Report Q4 2010 launch. A wave of new PCs were released with the new operating system, while Acer and Dell said as of launch date there was zero inventory of Vista machines going into stores. In February 2010, Microsoft Australia received a boost when Qantas, one of the largest corporate users of Lotus Notes in Australia, announced it had dumped the IBM email system in favour of Microsoft Outlook. A long-time user of Notes, Qantas announced it would migrate 20,000 workers to Outlook by the end of 2010, with the project being managed by Fujitsu. Meanwhile, Office 2009 will remain the dominant Microsoft suite, with support continued until April 2014, but Microsoft will start encouraging users to upgrade to the new Office 14 suite. However, the recession may encourage more businesses to explore the free Open Office suite option instead. Smaller businesses are regarded as a growth area by Microsoft, which has cooperated with Telstra to launch a suite of products for SMEs. Other vendors, however, reported cutbacks, particularly associated with deferment of large projects. In April 2009, IBM was affected when Telstra abandoned a major project to migrate its enterprise and government customers to a new billing software platform. The telecoms company approved a budget increase to AUD3.2bn in late 2008, but a AUD1bn overshoot finally led to cancellation. The platform had also been plagued by customer complaints. On the whole, major vendors anticipated continuing demand for business systems from both new and old clients. In May 2010, Harvey Norman announced it was proceeding with a AUD50mn five-year project to replace all its legacy core business systems with a new solution designed and built by SAP. The project, which will lead to the implementation of new merchandising and supply chain management software in 245 stores, had originally been planned for 2009 but was postponed due to the financial crisis. Fellow retailer Woolworths said it would not cut IT spending even in the face of economic adversity, and in March 2009 announced SAP would supply the software for its key merchandising systems. SAP Australia reported a strong Q409 following deals with Newcrest Mining, National Australia Bank and the defence department. In 2009, wheat exporter AWB proceeded with a AUD22bn project to upgrade its business software with new ERP and CRM software. Meanwhile, SAP software was selected for a contact worth tens of millions of dollars from Origin Energy. SAP was also the selected software supplier for a major project by leading superannuation funds administrator Superpartners. The AUD70mn IT overhaul includes new software to replace legacy systems that had become increasingly error-prone. Superpartners has hired new IT staff with specific knowledge of SAP solutions. Interestingly, the IT investment comes as Superpartners is downsizing both globally and in Australia. © Business Monitor International Ltd Page 40 Australia Information Technology Report Q4 2010 IT Services IT services vendors continued to find opportunities in 2009 despite an uncertain environment in which many projects were being cut. With the federal government unveiling new stimulus programmes and ICT initiatives generating spending at the local level, vendors will look to the public sector as an important source of opportunity in 2010. Vendors in the Australian market are investing in infrastructure to provide cloud computing services locally to circumvent Australian client concerns about offshore hosting of sensitive data. IT services group CSC Australia planned to launch two cloud computing services from its Australian data centres in July 2010. CSC will launch both IaaS and a range of Microsoft software as a service from its local data centres. The company expected to attract government customers. Meanwhile, Japanese IT giant Fujitsu announced in April 2010 that it would deploy a second IaaS offering from an Australian data centre. Australia will be the second country in which Fujitsu will roll out cloud computing services, after the firm's home market of Japan. One sector likely to be a vendor priority target is healthcare. In 2009, Northern Sydney Central Coast Health awarded a AUD1.15mn networking project to HP. The company will build a networking solution for a new medical research and education centre at the hospital. Meanwhile, the Prince of Wales Hospital in Sydney chose Siemens' OpenScape server for a project to transition to IP communications. Despite recent contract wins, HP indicated last year that it would cut around 7.5% of local jobs over the next three years, although this was subject to operational requirements. In August 2008, HP acquired fellow US IT services giant Electronic Data Systems (EDS), which was to cut about 75 staff from its more than 6,000 local staff. In September 2009, HP renamed its EDS unit as HP Enterprise Services. In 2008, HP also bought one of Australia's most successful local software companies, Tower Software. However, in November 2009, HP received a blow when its new EDS unit was not even on the shortlist of service providers to win a contract from the Australian Tax Office. The contract related to the delivery of centralised computing services and was due to be awarded in mid-2010. Going forward, HP is expected to move into the networking services space currently dominated by the likes of Cisco. IBM's Australian subsidiary remained positive about its prospects in 2010. In 2009, the company reported revenues of US$4.17bn, up 2.1% compared with 2008. IBM Australia's IT services division experienced the fastest growth, with income rising from US$2.91bn to US$2.99bn, while revenues from hardware and software were almost flat. In December 2009, IBM opened a new regional IT service centre in Ballarat. The AUD10.8mn facility is expected to employ 300 full-time employees within two to three years. IBM © Business Monitor International Ltd Page 41 Australia Information Technology Report Q4 2010 has continued to win new business in Australia and in Q110 the company announced the Australian Plant Phenomics Facility had implemented an IT infrastructure based on IBM servers and storage. In October 2009, Unisys was granted a two-year extension on its contract with Australia's immigration department for outsourced desktop services. The contract is until June 2013, as the immigration department tries to achieve savings on the running costs of its computer systems. The Indian IT giants have expanded their presence in Australia in the past few years. In February 2010, HCL announced the launch of a five-year IT infrastructure management deal with Electolux in Australia, as part of a global deal. Meanwhile, rival Indian IT major Infosys has increased the amount of work performed offshore for Australian clients. Total revenues from Infosys's Australia and New Zealand subsidiary were reported at around US$19mn in the year to March 31 2009. Tata is also a major presence in Australia, as local staff passed 1,000 in 2009. The company has won a contact from the Commonwealth Bank of Australia as part of the latter's AUD850mn IT upgrade through to 2012. Other Tata Australia clients include Qantas and Woolworths. US consulting giant Accenture reported a fall in its Australian revenues to AUD20.6mn for FY2007/08, from around AUD70.2mn in the previous year. Revenues were down from AUD939.4mn to AUD920.6mn in that year. However, the company continued to look to the government sector for growth opportunities and in early 2009 signed a contract worth AUD4.2mn with the Australian tax office. Accenture has been working on a major computer systems upgrade at the agency since 2005 and the original budget of AUD350mn has more than doubled in that time after an initial one-year delay. © Business Monitor International Ltd Page 42 Australia Information Technology Report Q4 2010 Internet Competitive Landscape According to the Australian Bureau of Statistics (ABS), Australia had a total of 7.996mn internet subscribers at the end of 2008. This would be equivalent to a penetration rate of 38.1%. The number of internet subscribers rose by 12.5% in 2008, increasing from 7.105mn at the end of 2007 (34.3% penetration). The number of dial-up internet subscriptions fell by 30.3% in the 12 months to December 2008, reaching 1.316mn at the end of the year. Meanwhile, the number of broadband subscriptions rose by 28.1% y-o-y to reach 6.685mn. By the end of 2008, Australia's broadband penetration rate had reached 31.8%. Table: Australia Dial-up And Broadband Internet Subscriptions ('000) September 2006 December 2007 December 2008 % change, December 2007December 2008 277 268 234 -12.7 Household 2,472 1,619 1,082 -33.2 Total dial-up 2,749 1,887 1,316 -30.3 549 697 1,087 56.0 Household 3,360 4,522 5,598 23.8 Total broadband 3,908 5,218 6,685 28.1 826 965 1,321 36.9 Household 5,831 6,140 6,675 8.7 Total 6,657 7,105 7,996 12.5 Dial-up Business and government Broadband Business and government Total internet subscribers Business and government NB Figures in this table are from the ABS, and thus may differ from those quoted elsewhere in the report. Source: ABS Business and government customers accounted for 16.5% of the total number of internet subscriptions at the end of 2008. The remaining 83.5% of was made up of residential households. Business and government customers accounted for 19.4% of the total broadband subscriptions at the end of 2008; residential households, meanwhile, accounted for 80.6% of broadband subscriptions. Finally, business and government customers accounted for 17.8% of dial-up subscriptions at the end of 2008, while residential households accounted for 82.2% of dial-up subscriptions. © Business Monitor International Ltd Page 43 Australia Information Technology Report Q4 2010 Total Internet Subscriptions By Technology December 2008 (%) Source: ABS Broadband Internet Subscriptions By Technology December 2008 (%) Source: ABS The largest share of total internet subscriptions at the end of 2008 comprised xDSL connections, accounting for 52.6% of the total. Meanwhile, just 16.2% of internet subscriptions were dial-up connections based on analogue/PTSN infrastructure. Meanwhile, mobile wireless connections accounted for a further 16.2% of total internet subscriptions. The ABS defines mobile broadband as a broadband internet connection based either on a WiMAX network, or where a laptop is used to connect to the internet via a 3G datacard or USB modem; 3G mobile phone handsets are not included. In terms of the number of broadband internet subscriptions at the end of 2008, xDSL accounted for the majority, at 62.9%. According to ABS, there were 4.208mn xDSL connections at the end of 2008, up by 10.3% from 3.815mn at the end of 2007. Meanwhile, at 19.4% of the total, mobile wireless connections accounted for the next greatest share of Australian broadband connections at the end of 2008. Cablebased broadband connections also accounted for a sizeable share of the market at 13.7%. Fixed-wireless services accounted for 2.5% of the broadband market at the end of 2008 while satellite services accounted for 1.2% of total connections. Telstra continued to dominate the broadband sector at the end of 2008, with its retail and wholesale units accounting for a combined 81% share of the market. Based on figures published by Telstra and the Australian telecoms regulator, the incumbent's overall share of the broadband market fell from 89.5% at the end of 2007. The number of Telstra wholesale broadband connections fell by 4.2% in the 12 months ending December 2008. Meanwhile, Telstra expanded its retail broadband subscriber base by just over 28% during the same period. Telstra's 3.737mn retail customers at the end of 2008 gave the operator a 55.9% share of the Australian retail broadband market. © Business Monitor International Ltd Page 44 Australia Information Technology Report Q4 2010 Telstra's largest rival Optus had 933,000 broadband subscribers at the end of 2008, up by 4.5% from 893,000 a year earlier. Optus's on-net broadband subscribers (ie those served via the operator's own infrastructure) increased by 25.4% in 2008, while off-net subscribers (ie those that are served via the wholesale product of another service provider - typically Telstra's) decreased by 51.4% during the same period. Meanwhile, in Q109, Optus's on-net customers rose to 848,000, a 20.3% y-o-y increase. The number of off-net customers was down by 49% y-o-y at 101,000. The overall number of broadband subscribers grew by 4.9% in Q109 to reach 951,000. The steady increase in the number of on-net broadband customers and the associated decrease in the number of off-net customers illustrate the extent to which Optus has become less dependent on Telstra's wholesale service for the provision of its own broadband service offering. Other Australian broadband internet service providers include Primus, Internode, Pacnet, iiNet, engin, Austar Broadband and Telecom New Zealand's Australian subsidiary, AAPT. In addition to ISPs that operate nationally, there is a large number of regional services providers operating in specific states. Collectively, these alternative operators saw the most rapid broadband subscriber growth in the 12 months ending December 2008. By the end of the year, broadband service providers other than Telstra and Optus accounted for over 30% of the broadband market, up from 27% a year earlier. In March 2009, it was announced that one of Australia's largest alternative broadband operators, Primus Telecommunications, had been declared bankrupt. Internet Service Revenues Strong broadband customer growth at Telstra has continued to have a positive impact on the operator's retail broadband revenues. In the first half of its 2009 financial year (ending December 2008), Telstra reported a 20.4% increase in fixed broadband revenue, which grew to AUD783mn. Telstra noted that subscriber growth was increasingly weighted to its cable network, with 15,000 new cable broadband customers gained in the six months to December. As Australia's fixed broadband services market matures, Telstra has noted a slowdown in the growth of fixed broadband revenue and fixed broadband subscribers. However, the operator's fixed broadband average revenue per user (ARPU) continued to grow. In the six months to December 2008, Telstra's fixed broadband ARPU was up 6.1% on the prior corresponding period to AUD57.32. The higher ARPU reflected the migration of customers to higher-speed broadband plans. Meanwhile, in its full-year results for the 12 months ending March 2009, Optus reported a significant increase in revenues from on-net broadband customers. Optus's on-net broadband revenues grew by 41.5% to reach AUD367mn, up from AUD259mn in its previous financial year. In the financial year ending March 2009, ARPU from Optus's on-net broadband customers was up 6.9% y-o-y to AUD43. ADSL2+ One of the most significant developments shaping Australia's broadband market is the move by a number © Business Monitor International Ltd Page 45 Australia Information Technology Report Q4 2010 of operators towards much higher-speed services. In announcing its results for the first half of its 2009 financial year, Telstra reported it had experienced a 114.6% increase in the number of subscribers on plans with speeds of 20Mbps or greater. The operator said it had around 210,000 customers in this category at the end of December 2008. Telstra has embarked on a transformation of its business, putting its BigPond high-speed broadband service at the centre of its strategy. The incumbent can deliver fixed-line broadband access to more than 90% of Australian consumers, from about 360 ADSL2+ exchanges (higher speeds of 20Mbps) and 2,400 ADSL exchanges (normal speeds of 8Mbps). However, Telstra is only allowed to offer its faster speed service in regions where competitors such as Optus, Primus Telecom and iiNet are also able to offer ADSL2+ residential connections. Telstra had previously refused to activate ADSL2+, except in exchanges where its competitors were already operating. It claimed it did not have regulatory certainty from the Australian Competition and Consumer Commission (ACCC) that it would not be forced to resell the service to its competitors. This was despite several public statements from the ACCC that ADSL2+ would not be made a declared service. The move will provide broadband speeds of up to 20Mbps for up to 2.4mn homes and businesses across the country. After a stand-off with the government, which had lasted for more than a year, Telstra activated its ADSL2+ broadband network in February 2008. In March 2009, Telstra announced it would invest more than AUD300mn (US$191.4mn) in 2009 to upgrade its hybrid fibre coaxial network to offer downlink speeds of up to 100Mbps. According to reports, the initial phase was expected to be completed in Melbourne by Christmas. Telstra will install DOCSIS 3.0 software across its network in the Victoria capital, and it is understood download speeds will range between 70-100Mbps, while average upload speeds will be 2Mbps; the comparatively slow speed of latter rate is understood to be due to technical limitations. Also in March, broadband provider Internode launched its Extreme symmetric high speed digital subscriber line services in Adelaide, targeting medium-sized businesses. The new service offers uplink and downlink speeds of 5-40Mbps; the price for a 5Mbps service with a 25GB download limit is AUD700 (US$450) a month, while a 40Mbps connection with unlimited usage will cost AUD4,000 a month. Internode has said it plans to roll out the service to business districts in other cities, with Sydney, Melbourne and Brisbane expected to be next to receive the increased speeds. In January 2009, Internode revealed it was planning to enhance and upgrade its international and domestic networks. The operator has announced it would quadruple the capacity of its bandwidth linking Sydney, Canberra, Melbourne and Adelaide, increasing it from multiple 2.5Gbps links to multiple 10Gbps links. It claims the move comes as it looks to meet growing demand from customers. Internode has also revealed that, under a separate project, it plans to add an alternative fibre path to Asia by using the Sea-Me-We cable, which connects Perth with countries in South East Asia, the Middle East and © Business Monitor International Ltd Page 46 Australia Information Technology Report Q4 2010 Western Europe. Currently it uses the Southern Cross Cable and Australia-Japan Cable, which lands in Sydney. The new links were set to be in service by March 2009. It plans to form peering relationships in London and Amsterdam for direct connectivity with European ISPs and content providers. In April 2009, Primus Telecom, which offers services under the iPrimus banner, announced it would abandon plans to build new Digital Subscriber Line Access Multiplexers (DSLAMs), after the government's announcement it would build the NBN as a public-private partnership. Instead, Primus announced a resale deal with Telstra for the incumbent's ADSL2+ services at approximately 1,500 exchanges. The agreement will effectively quadruple Primus's ADSL2+ coverage area, having previously rolled out its own ADSL2+ services in 286 exchanges. Primus offers ADSL2+ plans from its own exchanges from AUD32.95 (US$23.35) per month, but will offer resold Telstra ADSL2+ services from AUD69.95 per month. Naked DSL In March 2009, Australia's second largest broadband operator, Optus, unveiled plans to start offering naked DSL subscription plans, allowing customers to have a broadband connection without having to rent a traditional telephone line. Optus says the service, which includes a 7GB data download cap, is priced at AUD59.99 (US$38.30) or AUD49.99 when bundled with an Optus mobile plan. The company also announced plans allowing for month-to-month subscriptions as opposed to a standard 24-month contract. Internode and iiNet were the first ISPs to offer the service in Australia. Following a four-month trial, Internode launched its Naked ADSL2+ service at 450 exchanges in March 2008. Internode's service launch followed the conclusion of a network sharing agreement with Optus Wholesale, which increased Internode's network footprint of 100 ADSL2+ equipped telephone exchanges to 450 across Australia. Internode is investing AUD3.5mn in the expansion of high-speed internet services across rural Australia. © Business Monitor International Ltd Page 47 Australia Information Technology Report Q4 2010 WiMAX Although xDSL services still account for the greatest number of broadband connections by far, and the bulk of new broadband subscriber growth, there are signs that alternative technologies such as WiMAX are set to gain greater prominence. Some analysts have suggested the total market for WiMAX services in Australia could be worth US$123.6mn by 2012. Key players in the WiMAX sector include Unwired, whose WiMAX network provides coverage in Sydney and Melbourne. In October 2008, it was reported that Unwired had shortlisted three potential hardware suppliers, Huawei, Alcatel-Lucent Technologies and Motorola, for its WiMAX network rollout. The announcement came as Unwired prepared to upgrade from its current pre-WiMAX infrastructure that was supplied by Navini Networks. According to reports, Unwired's older network equipment will not be decommissioned when the WiMAX roll-out takes place. Unwired is thought to have over 75,000 subscribers and the operator has spectrum for a planned deployment in other Australian cities including Brisbane, Adelaide, Perth, Geelong, Newcastle and along the central Australian coastline. Other WiMAX broadband operators in Australia include Allegro, which claims to cover 16% of Australia's population with its network; BigAir, which operates in a number of major cities; and Austar Broadband, the broadband internet arm of pay TV company Austar. In January 2009, BigAir launched its WiMAX network in Perth, Western Australia. The deployment covers 30km around the central business district, or approximately 2,000km2. According to the operator, the new network delivers symmetric broadband speeds of to up 1,000Mbps. BigAir is understood to be looking for new ISPs and channel partners in the west to re-sell services across the new network. BigAir launched its first WiMAX services across Sydney and Melbourne in August 2007 and has since expanded to Brisbane, the Gold Coasts and, most recently, Perth. The point-to-point service is based on Airspan Networks' 802.16d technology using 5.8GHz MicroMAX base stations. © Business Monitor International Ltd Page 48 Australia Information Technology Report Q4 2010 Company Profiles HP Australia Services Technology services, consulting and integration. Recent Developments HP was the combined PC market leader in 2009 and the company is continuing to focus on winning its share of government contracts. In 2008, HP acquired fellow US giant EDS, which subsequently announced it would cut around 75 staff from its Australian workforce of more than 6,000. By December 2008, EDS Australia claimed planned staff cuts had been completed locally. In the same year, HP bought one of Australia's most successful software groups, Tower Software, for AUD55.9mn. In 2008, the company was boosted by a new AUD900mn federal government programme to provide schools with laptops over a three-year period. Meanwhile, as a result of a consolidation process involving its IT suppliers by the New South Wales education department, HP became the sole supplier of laser printers to the agency, as well as schools and colleges under its jurisdiction. Future Plans In November 2008, HP Australia confirmed it would cut around 7.5% of jobs locally as a consequence of the global economic slowdown. The projected layoffs will be spread over three years, in relation to operational requirements. Local Market For the quarter ending 31 January 2010, HP reported revenues of US$5.4bn for its Asia- Performance Pacific region, which includes Australia. This represented growth of 26% on the same period of 2009, almost triple that of other regions. HP Asia-Pacific reported 40% growth in FY2008/09. While HP does not provide detailed regional figures, HP Australia's revenues in 2008 rose only 1.8% over the previous year to reach AUD3.27bn. Profits were down 45% to AUD44.3mn. Presence Fully owned subsidiary. As of 2008, HP Australia had 3,028 staff, up from 2,464 in 2007 and close to 2006 levels of 3,063. HP employs more than 32,000 people across the Asia Pacific. Sectors HP is aiming to push its managed services business across the Asia-Pacific region to take advantage of the growing demand for IT outsourcing. Another item on HP's current agenda is to push HP branded services delivered by its channel partners beyond just warranty services; about 25% of resellers in Asia have this capability. © Business Monitor International Ltd Page 49 Australia Information Technology Report Q4 2010 SAP (Australia) Services Enterprise software, support and services. Recent Developments German software giant SAP, which built its global dominance around the traditional onpremise software model, has been criticised for being slow to embrace the utility software model. In 2010, the company released its BusinessObjects BI ON Demand in Australia for the first time. However SAP's full ByDesign ERP SaaS product in not likely to receive an Australian release until 2011, as the initial product was criticised following its release in the US and Germany back in 2007. Despite the economic slowdown, SAP continued to win major tenders in 2009. SAP software was selected for a contact worth tens of millions of dollars from Origin Energy. SAP was also the selected software supplier for a major project by leading superannuation funds administrator Superpartners - the AUD70mn IT overhaul included new software to replace legacy systems that had become increasingly error-prone. Superpartners hired new IT staff with specific knowledge of SAP solutions. In 2009, the Commonwealth Bank of Australia was one year into a AUD580mn banking modernisation project, intended to replace 1960s-era software with new technology from SAP. Meanwhile, Woolworths announced in March 2009 that SAP would supply the software for its key merchandising systems. Other local clients in 2008 included 7-Eleven and Adelaide Brighton Limited. Future Plans Australia will remain an important market in the Asia Pacific for SAP. Due to language and cultural factors, less localisation is generally required of products already launched in the US and Western European markets, and so Australia (and New Zealand) is often an introductory point for products SAP would like to introduce in Asia Pacific. SAP is working on overhauling its partnership plans with a more customer focused ecosystem strategy. According to SAP, the new strategy has led to a restructuring and innovation in partner relations. Local Market In Q110, SAP reported non-IFRS software and software-related services revenues of Performance EUR1.95bn, up 10% y-o-y in constant currency. In 2009, SAP reported US GAAP revenues of EUR8.2bn, down 3% on EUR8.48bn in 2008. While SAP does not release detailed region figures, SAP Australia and New Zealand reported a record growth year in 2008. Overall Australian market revenue growth was 36%, with 79% growth in software licence revenues. Presence In 2009, SAP laid off around 40 people from its local staff of about 500. The firm has several hundred software partners and 1,300 service partners as well as channel partners and technology partners in Australia. Sectors In 2008, SAP reported particularly strong growth in the retail, utilities and mining industries. Other key sectors for SAP include banking and retail. © Business Monitor International Ltd Page 50 Australia Information Technology Report Q4 2010 BMI Methodology How We Generate Our Industry Forecasts BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms. Our approach varies from industry to industry. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity. When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting. It must be remembered that human intervention plays a necessary and desirable part in all of our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. IT Industry Forecasts There are a number of criteria that drive our forecasts for each IT variable. IT forecasting is complicated due to the fragmented nature of the market, with little transparency of vendor data and low apparent agreement between many sets of figures in terms of market definition, base and methodology. In addition, forecasts are naturally affected by consideration of a variety of internal and external political and economic factors. © Business Monitor International Ltd Page 51 Australia Information Technology Report Q4 2010 Within best-practice techniques of time-series modelling, BMI’s quarterly updated forecasts are improved substantially by intimate knowledge of the prevailing features of each local market. Individual variables taken into account in creating each forecast include: ƒ Overall economic context, and GDP and demographic trends; ƒ Underlying ‘information society’ trends; ƒ Projected GDP share of industry; ƒ Maturity of market structure; ƒ Regulatory developments and government policies; ƒ Developments in key client sectors such as telecommunications, banking and e-government; ƒ Technological developments, and diffusion rates; ƒ Exogenous events. Estimates are calculated using BMI’s own macroeconomic and demographic forecasts. IT Ratings – Methodology Our approach in BMI’s IT Business Environment Ratings is threefold. First, we seek accurately to capture the operational dangers to companies operating in this industry globally. Second, we attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were traditionally evaluated on a subjective basis. Finally, we include aspects of BMI’s proprietary Country Risk Ratings (CRR) that are relevant to the IT industry. Overall, the ratings system, which integrates with those of all 16 industries covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Ratings System Conceptually, the ratings system divides into two distinct areas: Limits of potential returns: Evaluation of sector’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. Risks to realisation of those returns: Evaluation of industry-specific dangers and those emanating from the state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. Indicators The following indicators have been used. Overall, the rating uses three subjectively measured indicators, and 41 separate indicators/datasets. © Business Monitor International Ltd Page 52 Australia Information Technology Report Q4 2010 Table: IT Business Environment Indicators Indicator Rationale Limits to potential returns Market structure IT market value, US$bn Sector value growth, % year-onyear (y-o-y) Denotes breadth of IT market. Large markets score higher than smaller ones Denotes sector dynamism. Scores based on annual average growth over five-year forecast period Government initiatives and spending Denotes spending boost provided by public sector, which can be a crucial determinant of sector development Hardware, % of total sales Denotes maturity of market. A high proportion of hardware sales – compared to services/software – indicates that the overall IT market is immature Country structure Urban-rural split GDP per capita, US$ Urbanisation is used as a proxy for development. Predominantly rural states therefore score lower A high GDP per capita supports long-term industry prospects. Overall score for country structure is also affected by the coverage of the power transmission network across the state Risks to potential returns Market risks Intellectual property (IP) laws ICT policy Markets with fair and enforced IP regulations score higher than those with endemic counterfeiting Subjective evaluation of official policy towards IT development, as enshrined in statute and tax code Country risk Short-term external risk Rating from CRR evaluates the vulnerability to external shock, which is the principal cause of economic crises. Such a crisis would cut investment Short-term financial risk Rating from BMI’s CRR, to denote risk of currency crisis and stability of banking sector. The former would hit revenues in hard currency, while the latter would curtail investment funding Trade bureaucracy Legal framework Bureaucracy Corruption Rating from CRR to denote ease of trading with the state Rating from CRR denotes the strength of legal institutions in each state – security of investment can be a key risk in some emerging markets Rating from CRR denotes ease of conducting business in the state Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies’ ability to compete Source: BMI © Business Monitor International Ltd Page 53 Australia Information Technology Report Q4 2010 Weighting Given the number of indicators/datasets used, it would be wholly inappropriate to give all subcomponents equal weight. Consequently, the following weight has been adopted. Table: Weighting Of Components Component Weighting Limits of potential returns 70% – IT market 65% – Country structure 35% Risks to realisation of potential returns 30% – Industry risks 40% – Country risk 60% Source: BMI Sources Additional sources used in IT reports include national ministries and ICT regulatory bodies, national industry associations, and international industry organisations such as the International Telecommunication Union (ITU), officially released company results and figures, and international and national industry news agencies. © Business Monitor International Ltd Page 54 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. [...]... Monitor International Ltd Page 27 Australia Information Technology Report Q4 2010 2009, it was reported government IT departments had been ordered to reduce the number of IT contractors There were also reports in 2009 that the Australian governemnt was considering centralising the procurement of desktop computers, with the appointment of a single supplier The Australian Information Industry Association... deployment of a Wi-Fi network covering more than 200 public venues © Business Monitor International Ltd Page 14 Australia Information Technology Report Q4 2010 IT Growth And Drivers 2010 IT Market Sizes Most Asian IT markets are expected to US$mn* report stronger growth in 2010 Across the region, 2010 should see IT spending a boost from systems upgrades deferred from the previous year, although much will... with more than 95% of firms employing less than 20 workers © Business Monitor International Ltd Page 20 Australia Information Technology Report Q4 2010 Hardware Australian computer hardware sales are projected at US$8.6bn in 2010 and, following the deceleration in 2009, are forecast to grow at a 2010- 2014 CAGR of around 3% to reach US$9.6bn by 2014 The main drivers of growth in the PC segment will... with the release of Kindle's new lower-cost WiFi Kindle, which will retail in Australia for AUD178, likely to help to bring down average prices © Business Monitor International Ltd Page 22 Australia Information Technology Report Q4 2010 Software Software is expected to account for about 18% of the Australian IT market in 2010, with estimated spending of US$3.3bn As the focus moves from hardware to... body the Australian Prudential Regulatory Authority considers every offshoring deal on a case-by-case basis © Business Monitor International Ltd Page 24 Australia Information Technology Report Q4 2010 IT Services IT services are expected to account for about 40% of the domestic IT market in 2010, with spending of US$7.4bn, up from US$7.2bn in 2009 CAGR for the segment is estimated at 8% from 2010 to... cutbacks than new projects requiring major capital expenditure © Business Monitor International Ltd Page 26 Australia Information Technology Report Q4 2010 Industry Developments New Government's ICT Policy After the victory of Australia' s Labour party-led coalition in the 2010 elections, the Australian ICT industry was waiting for the government to clarify its broadband policy The former Rudd administration's... Page 13 Australia Information Technology Report Q4 2010 A similarly broad range is found with respect to internet penetration The highest levels of internet penetration are found in South Korea, Hong Kong and Australia, with estimated 2010 narrowband penetration rates of 74.3%, 73% and 67.7% respectively Singapore has by far the highest rate of broadband penetration, which was estimated at 134% in 2010. .. to 37 secondary schools 2,041 State New South Wales Victoria South Australia Source: Official figures, BMI © Business Monitor International Ltd Page 29 Australia Information Technology Report Q4 2010 Industry Forecast Scenario Australia' s IT market should continue to provide opportunities in consumer, government and business sectors in 2010, following a relatively robust performance in 2009 The total... International Ltd Page 33 Australia Information Technology Report Q4 2010 Macroeconomic Forecast Q110 GDP Release: Endorsing Our Double-Dip View BMI View: The Q110 real GDP results remain in line with our double-dip outlook for Australia, where we expect a domestic property crash as well as a Chinese-led regional slowdown to drag growth down to 1.6% in 2011, from a forecasted 2.3% in 2010 Australia' s growth... Expo Source: BMI in 2010 © Business Monitor International Ltd Page 15 Australia Information Technology Report Q4 2010 The long-term potential of India’s IT market is plain: less than 3% of people in India own a computer (about one-fifth of the level in China), meaning particular potential in the lower-end product range India’s IT market appears to be positioned for a strong recovery in 2010 thanks to improving . Publication Date: October 2010 Australia Information Technology Report Q4 2010 © Business Monitor International Ltd Page 2 Australia Information Technology Report Q4 2010 © Business. 53 Australia Information Technology Report Q4 2010 © Business Monitor International Ltd Page 4 Weighting 54 Table: Weighting Of Components 54 Sources 54 Australia Information Technology. Expo in 2010. 2010 IT Market Sizes US$mn* *estimates. Source: BMI IT Market Sizes As % O f National GDPs 2010- 2014 Source: BMI Australia Information Technology Report Q4 2010