Will Chorus go for the nuclear option?

How’s your broadband?

If you’re on copper, it’s probably “OK”, if mine is anything to go by.

I get about 12Mbit/s down and 1Mbit/s up, which is tedious but it is a residential area so what can you expect?

Because I’m on an unbundled line I don’t get that dramatic drop off in capability when the kids all arrive home from school and that’s just as well. I do get chucked off the computer by my own kids but that’s another story entirely.

But what if your copper line becomes fully contended and fully utilised all the time? What if your line ran as well as it does (or as poorly as it does depending on your view) when the kids come home from 8am to 8pm every day?

The key to this is contention – how many customers are allowed to use the line at any given time and the minimum rates set by the provider of the service.

With Chorus, the minimum speed for UBA is a handover of 32kbit/s.

That’s not a misprint – it’s kilobits per second. Dial up speed, in other words.

If you’re paying for broadband you might think you have a right to expect broadband speeds constantly, but unfortunately our system in New Zealand doesn’t really work like that. We’re all sharing the line and so when someone uses a lot of capacity, we get cut down to size. Sadly, that size is miniscule.

This is one of the key differences between copper and fibre. The handover speed of UBA is 32kbit/s. On the entry level fibre plan it’s 2.5Mbit/s.

That’s a world of difference and that alone means it’s worthwhile making the change from copper to fibre.

However, I’m not telling you all of this to encourage you to migrate.  No, I’m telling you this because I’m hearing a growing concern from ISPs that Chorus will begin enforcing this handover rate as a way to get more money out of the ISPs.

Currently, Chorus doesn’t enforce the handover at that speed. There’s bags of capacity, and this is a minimum remember. At worst, your service could run as slowly as 32kbit/s and still be called broadband.

Picture this – on the day Chorus switches everyone on UBA over to its bare minimum 30kbit/s, every customer in the land will ring their ISP. The call-centres will melt under the volume, the newspapers and radio will get involved, everyone will want to know where their broadband went. Simple, says the ISPs, Chorus took it off you. Chorus will say but we’re meeting our service level agreements so there’s no problem. If your ISP hasn’t bought a better service off us, that’s its fault. Talk to them.

ISPs would be forced to buy a more expensive product to service the angry customers but would either lose money on every connection or pass that cost on to customers. It’s the copper tax by a different route.

At the UBA conference earlier this year, the issue was raised and caused much alarm. The Commerce Commission directed Chorus and the ISPs to meet to discuss the matter, and they did so in early July. At that meeting, Chorus said it had no plans to introduce such a limit but it couldn’t rule out doing so in future.

One wag called this Chorus’s “nuclear option” because once you’ve done this to the industry and the customers there’s really no going back.

If this is how Chorus intends to solve its funding shortfall, by crippling copper services, then this fight is far from over. I trust saner minds will prevail.

13 replies
  1. James
    James says:

    The price should just be set at around $38-$40, everyone would be happy and better off, so every group can concentrate on creating the best service for New Zealanders. How did Labour and Vodafone got us into this mess, I have no idea. Even Telecom (who is paying chorus for copper access) says $40 would be best for everyone in their public submission to com com.

    • Paul Brislen
      Paul Brislen says:

      How did you come up with that number? Did you, like the minister, just pull it out of thin air?

      What about the quarter of the population who will never get fibre? Are you happy charging them far too much for the rest of time? Why should they subsidise fibre connections in the cities?

      The number chosen by the Commerce Commission wasn’t plucked out of thin air, it was determined according to the rules laid down by Steven Joyce when he was minister. There’s no surprise in the numbers, only in the astonishing reaction of Chorus and its supporters.

      At that price, nobody would be happy. Chorus would complain it wasn’t getting enough, the ISPs would complain it was far too much (except those that go out of business that is) and Telecom would unbundle the entire country.

      Quite why you think this is "Labour and Vodafone"’s fault is beyond me but it has little to do with either of them.

      • James
        James says:

        Yeah using only two countries from the other side of the world that have different housing structure to do price review is just asking for trouble and controversy, considering Euro is at a record low and NZD is at a record high. Just look at Australia, we pay more for practically every technology other than broadband. Those are the price Telecom and gornement think what the FFP review would come to. Consider Chorus have about $3 billion in current assets and is investing another $3 billion in UFB, last year it made only $170 million profit, that is like 3% of $6 billion, that is like inflation rate, lower than term deposit in the bank and way lower than what other monopoly companies are making (7-8% return). So forcing Chorus to do a FPP review is just asking for trouble.

        • Paul Brislen
          Paul Brislen says:

          I’ve seen this comment several times – about housing density etc.

          The Commerce Commission benchmarking is about regulatory similarity and has very little to do with population density, the current state of the currency (they use a ten-year average for conversions) and things of that sort.

          None of the ComCom work on this is supposed to compare actual real world settings, it’s all about the regulatory work to create an economic model.

          The Commission chose those two countries (and only those) because they have similar regulation for similar product sets. UBA is quite an unusual construct and there are only the three of us who regulate in a cost-based way.

  2. ttt
    ttt says:

    I don’t think chorus would use this option, until they are actually in financial difficulty. High court proceeding always lean towards backdating, so that means no ISP would pass on the cost in the fear or with the excuse of possible backdating. If the final price review goes higher than $45 (Chorus thinks it will go towards $50), a lot of small ISP would go broke (as they would not be able to pay it back), then we will just left with Vodafone (who paid to groups to press the price down and created all this uncertainty) and Telecom, to charge a higher fee for everyone. Com com and Labour just did it again, didn’t they.

    • Paul Brislen
      Paul Brislen says:

      I agree, it would be a ridiculous thing to do, but Chorus isn’t ruling it out. That must be a concern because, as you rightly point out, a hike of that type would put many ISPs out of business.

      • ttt
        ttt says:

        When there are only two ISP left, Vodafone stands to gain the most. As it got the most potential capital from foreign investors, so they can buy a significant amount of controlling share in Telecom (without the public knowing) and make Telecom raise the price as well.

        • Paul Brislen
          Paul Brislen says:

          Vodafone doesn’t have the willingness to spend tens of millions unbundling the copper network. It has spent that much already and has just spent half a billion buying TelstraClear.

          Telecom, on the other hand, has the customer base to defend and if Chorus implements a system of working to rule, thus shutting off copper connectivity for Telecom customers, then Telecom will of course unbundle and Chorus will go under.

          Vodafone cannot buy Telecom "without the public knowing" because any such purchase would be subject to Commerce Commission approval, something which would not be granted.

          • ttt
            ttt says:

            I meant when most shareholders who own Vodafone also own Telecom, it will cause Telecom to follow the price Vodafone set for broadband, when there are only two ISP left.

  3. Andre Alessi
    Andre Alessi says:

    I doubt Chorus would do anything that would directly aggravate end customers in that way. From experience, they play "hardball" in different ways-by lobbying MPs, and by changing back end processes in ways that aren’t obvious except as delays or limitations in the results of requests. (They used the change to UBA in this way-suddenly instead of having one tech visit for an install or move of a line with broadband, Chorus now dispatches one tech for the voice and another for the broadband, often on separate days.) We’ve actually already started to see evidence of this now: Chorus is declaring sites "fibre only" and refusing to install copper at site without "someone" (generally the service provider) covering build costs that were previously free. Of course, these "fibre only" classifications are arbitrary, not advertised, and not open to appeal. They are also most critically not necessarily within UFB areas. My guess is Chorus will continue to expand these "fibre only" areas until they really start to bite on service providers’ ability to offer copper services in all kinds of places without significant cist to themselves. Chorus ends up not looking like the bad guy to the voting public, but still gets the result they want.

    • Paul Brislen
      Paul Brislen says:

      I fear you’re right – there will be more creeping "cost out" dumped onto the ISPs in exchange for… well, usually for nothing more than you used to get without any cost.

      I hope Chorus doesn’t decide to play the stupid card I’ve outlined but thought it worth raising as an issue in case someone at Chorus HQ thinks it’s a good move. It’s not and would not endear them to the industry or to the customers.

  4. Paul Brislen
    Paul Brislen says:

    Good point to make, Steve. Thanks for that.

    And the industry wonders why customers look at them and shake their heads in amazement.

  5. Steve Biddle
    Steve Biddle says:

    Just a small clarification on the UFB speeds. UFB plans consist of 2 components, the "headline" speed which is best effort (EIR) and a dedicated bandwidth (CIR) component. On a 30/10 plan for example you have a 30Mbps down and 10Mbps up EIR with no guarantee of throughout.

    The CIR component on this plan is 2.5Mbps up and 2.5Mbps down. This can only be accessed by using the appropriate 802.1p tag for upstream and downstream traffic. It is not used by general web traffic. An end user can tag their own upstream traffic, but only their ISP can tag downstream traffic.

    There is no guaranteed throughout or CIR on the EIR figure and this is not covered in the CFH specs.

    Chorus are planning on introducing a CIR on the EIR (confusing?) as part of their plan to introduce contention into the GPON network and deliver speeds over 100Mbps. At the same time they also plan to over dimension existing plans to compensate for the confusion at present where plans speeds are dimensioned at layer 2, whereas end users are testing at layer 3 which is why the truenet testing last month was pointless. They also plan to introduce SLA’s on these plans, something none of the LFC’s have yet announced any plans to do.

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