Shuffling the cards, but no new hand for Chorus

Chorus and Crown Fibre have announced several changes to the UFB contracts that should help Chorus better manage its costs.

There are a few changes that seem quite reasonable.

Chorus will have more flexibility about work within a candidate area and what order it does stuff. Apparently the original contract was quite specific about the process – Chorus now has some latitude to do things the way it would like to. 

That will leave 12,000 households without fibre in the short term when they were expecting it, but they won't miss out entirely. They'll just have to wait a bit longer.

EDIT: I've misunderstood that bit. This, apparently, relates to business areas where Chorus has an existing point-to-oint fibre footprint that pre-dates UFB. Previously they were required to dig a lateral to every premise boundary and make every area GPON-ready by December 2015 regardless of demand. Now they will be allowed to do these works on demand, provided all the work is completed by December 2019. Apologies for the mis-reading.

It also gets a more regular round of progress payments which should make it easier for the company to manage its cash flow. Having been involved in a building project last year, I know how hard it is for contractors to manage cash flow when customers want to see an end result before paying. Sharing that load out on a monthly basis will no doubt help Chorus tremendously.

And instead of having to replace perfectly acceptable Cat5e or 6 or even fibre deployments from a business park or apartment building or school, for example, Chorus will now be able to make use of existing networking gear, so long as it’s up to spec.

That’s all fine, but I can’t imagine any of it will make a huge difference to the costs of deployment.

There are a couple of issues that concern me, however. Chorus gets to use its existing fibre networks and simply upgrade them to UFB capability. In this case, ‘upgrade’ is something of a misnomer – it will run UFB over the top of point-to-point fibre. If that sounds familiar it’s because last week Vodafone suggested Chorus do just that with its fibre and HFC networks and both the minister and Chorus dismissed the option out of hand.

But Chorus’s own fibre is perfectly acceptable.

This is very interesting. It makes me wonder - again – why Chorus isn’t using existing fibre from other providers. It may well be doing so – ministry officials tell me Chorus is allowed to roll out UFB over existing infrastructure if it’s up to the job, but I haven’t found a single instance of that happening. Instead of signing deals with Vodafone or CityLink or Unison or Network Tasman, Chorus has overbuilt with its own network.

Now Chorus will be allowed to use its own existing fibre to compete with these outfits as well. Chorus will be paid to take on its competitors – paid by the government with public funds to potentially crush the commercial ventures that are in the market today.

If Chorus is going to use its own fibre assets, it should be required to use other companies’ fibre assets as well on a commercial footing. Otherwise we’re paying to remove competitors from the market and I’m not sure that’s the ideal outcome.

Finally we see Chorus’s marketing budget slashed in half – from a paltry $5m a year to a pointless $2.5m.

Currently Chorus’s efforts in this area have been woeful to put it mildly. Filming a TV commercial in New York to demonstrate the power of the UFB is a bizarre way to spend your money (what on earth does showing art on an electronic bill board in New York have to do fibre in New Zealand?) and the Gigatown campaign has created more noise than it has benefit.

I’d expect to see the government step up and promote its UFB initiative but there’s no sign of that happening. The onus is on the retail service providers to promote the UFB, but of course that ignores the all-important pre-sales role of telling customers what the UFB is all about. Nobody’s selling the sizzle – and the RSPs will only sell their products, naturally – and now we have Chorus to all intents and purposes withdrawing from that marketing campaign.

So what of the other players in this fibre deployment? Will the Local Fibre Companies also renegotiate their contracts? There’s nothing planned but I’d expect to see some of them come to Crown Fibre with a few changes they’d like based on this. I’m sure they also would like to avoid having to re-fibre a building that’s already got decent infrastructure and the like. The ball, apparently, is in their court to do so.

The changes as laid out in the press statement aren’t going to set the world on fire. Sure, they’ll enable Chorus to avoid some stupid costs and to better manage its cash flow, but unless something changes radically we’re not going to see Chorus bring down the price of each connection or increase the speed of the rollout. Northpower Fibre, by way of contrast, will finish years ahead of schedule and do so at a fraction of the cost per premise passed.

I’d rather hoped we’d see a radical overhaul of the way Chorus is doing business. Instead, this feels very much like a re-shuffling of the same cards.