Australian telecommunications company Telstra is bundling its media businesses into a single division. Telstra Digital Media will include its BigPond and IPTV services, together with its shareholding in Foxtel and its Sensis and Trading Post divisions. Rick Ellis will head the new group, joining the company from Television New Zealand, where he has been chief executive. Telstra will also invest AU$100 million over four years to upgrade its media infrastructure, a modest sum in the context of the AU$36 billion investment in the National Broadband Network.

“Telstra’s digital media division will bring these assets together for the first time and enable us to implement a co-ordinated media strategy that delivers long-term shareholder value,” said, David Thodey, the chief executive of Telstra, speaking at the annual update for institutional investors.

“As digital media and video content continues to grow it is important that we build network infrastructure to meet this demand,” he said. “We will also continue to integrate this content, making it available to our customers across multiple channels including mobiles, tablets, home entertainment systems and the internet.”

Telstra owns 50% of the Foxtel pay-television operation. The Telstra BigPond business also provides a hybrid broadcast and broadband television and video service through its own T-Box, provided by Netgem, which now includes the option to view Foxtel channels.

The tighter integration of these services makes sense, perhaps resolving the rather ambiguous relationship between its various media interests. A clear consumer brand and proposition will be critical to success.

Pay-television penetration remains relatively low in Australia, partly due to the lobbying of the free-to-air networks. The potential for new entrants to deliver services over the internet threatens to disrupt the market, which is heavily dependent on programming imported from the United States and the United Kingdom.

Other online video contenders in the Australian market include: FetchTV, a competitor to the T-Box; Quickflix, a movie service with aspirations to become the Australian version of Netflix; and the ABC iView player, similar to the BBC iPlayer, which has also reached Australia in its international version.

At TVNZ, Rick Ellis presided over a 33% stake in the Hybrid venture with the Australia Seven network to sell TiVo boxes. The broadcaster wrote off its investment in the venture, which has failed to make much impact in either Australia or New Zealand.

Reporting to Rich Ellis will be JB Rousselot, the head of media at Telstra, along with Bruce Akhurst, the chief executive of the Sensis search and directories business, which has been severely affected by other internet competition. It is significant that the management of the media group has gone to an outsider, although the chief executive of TVNZ has more of a background in information technology, commerce and marketing than media.

Online video in Australia still lags behind other markets like the United States and the United Kingdom. Telstra continues to cap its residential broadband services, while offering certain video programming on an unmetered basis. Although alternative broadband service providers like iiNet offer competitive packages, this has tended to have a limiting effect on the adoption of online video in Australia.

The National Broadband Network, delivering fibre to the premises for over 90% of the population, may radically change the online video landscape in Australia.

Telstra shareholders recently overwhelmingly approved an AU$11 billion offer from the government to decommission its legacy copper telephone network and cable broadband service, leasing access to its ducts and exchanges to government owned NBN Co and migrating customers to the new fibre network which is being built at a cost of AU$36 billion.

The plans are politically contentious. The federal government intervention promises to put investment in broadband infrastructure at the heart of economic policy. Following a trial rollout in Tasmania, the first sites in mainland Australia were connected in April 2011.

As a result of the imposed structural separation of wholesale and retail services, Telstra will be increasingly dependent on differentiating its own offering. Digital media services could be key to this.

In the context of the cost of the National Broadband Network, the announced investment of AU$100 million over four years to upgrade its media infrastructure seems comparatively modest. Some might expect a more significant commitment is required.

While many other national telcos have invested heavily in IPTV services to compete with cable television, often to comparatively modest effect, Telstra has uniquely adopted an over the top approach to delivering a best efforts video service over its legacy broadband network.

With the government investing billions to deliver fibre to the home, the scope for advanced video services is considerable. Telstra therefore needs to align its assets and see the National Broadband Network as less of a threat and more of an extraordinary opportunity.