The S-Curve

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Sales conferences have their J-shaped hockey stick graphs, but in ICT, uptake conversations turn to the S-curve.

And rightly so – the early days of any tech are generally best informed by the phrase “nobody cares” shortly followed by “nobody saw this coming” and the geeks among us smile smugly, assuming they got it right in the first place.

Currently there’s much angst about uptake on fibre because, apparently, it’s a white elephant and nobody really wants it anyway.

I am smiling smugly, content in the knowledge that we loiter at the end of the first curve and are starting to see uptake ramp towards that “overnight success” leg of the journey.

Chorus’ annual briefing to analysts seems to back me up on this.

Page 52 has a lovely chart that shows premises passed by region, with uptake rates for each region.

Auckland has the highest uptake, according to Chorus, with 8.5% of customers who can get fibre actually signing on for it. In Auckland, Chorus has completed only 20% of the build, but clearly it’s this kind of market that the main ISPs are focusing their marketing efforts on. Blenheim, by way of contrast, has 90% of its build already completed, but uptake is a woeful 5%.

Clearly, demand for services is driven by retail partners promoting and selling the product. Sadly, in the outlying areas where service is available, the larger RSPs aren’t yet offering the product, presumably because of the cost of back office connectivity with the local fibre companies (LFCs).

On top of that, ISPs only sell their products and services. They don’t not do a pre-sales “this is why you want fibre” service and sadly, as we’ve discussed before, the LFCs, Chorus and the government all point the finger elsewhere whenever I raise the matter.

Someone needs to be out there selling potential customers on the benefit. Nobody is currently doing that job and without it, uptake will continue to languish. We need to get the country as a whole moving up that S-curve before some nervous politician decides to make mileage out of ditching the whole thing altogether.

The benefits are easily expressed for anyone with half an interest in the matter. For home users you get access to the world of online content. You can have your kids doing their homework while you watch TV or save your photo gallery to the cloud. The home of the future is here today and already I’m backing up a dozen devices on a regular basis. Woe betide the family that doesn’t have UFB when that list of devices includes the fridge, the car and the burglar alarm.

For SME business, the benefits are absolutely astonishing. You can catch up with your slow, clumsy corporate competitors simply and cheaply without having a huge capex outlay. You don’t need to buy servers and hardware, all you need is a browser and a fast internet connection and you too can have an ERP system, a customer relationship management system, state of the art live accounting processes that connect your customers with your suppliers and which take all the drudgery out of doing the chores each night in the form of paperwork. You can free up your time to do the job you love enough to go into business for yourself and you don’t need a fortune to do it.

These are easy wins. Health, education, government interaction, entertainment, economic gains… these are just the things I can think of right now, off the top of my head. Once you’re connected, the world is your oyster, make no mistake.

The country needs to move up that S-curve and someone needs to drive this to make sure it happens.  Chorus and the LFCs say it’s not their job. The RSPs will spend lots of money promoting their own schemes. The government is the only one that has a vested interest in uptake and a need to see this project become the success we all know it can become.

If they can spend $14m of public money telling everyone to buy a new TV set, surely we can find something to promote the benefits of the UFB?

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Guest Post: Another loss for Fortress Google

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Michael Wigley is one of the tech-industry’s leading legal lights and has worked with TUANZ on any number of issues over the years. Here’s his view on the Google/EU privacy debate, cross posted with permission from Wigley+Company’s newsletter.

Google’s “Do no evil” mantra is being challenged ever more. It’s no surprise Google is increasingly on the losing end of court and regulatory action as it exercises its market power. Despite Google’s protestations that Europe has overstepped the mark last week, in an EU court decision requiring Google to remove certain personal information under data protection legislation, the European approach is sensible and forces Google to do what it and others should be doing anyway.

This is far from chilling freedom of speech. We summarise the European decision and show why it makes sense, and we suggest what might happen in New Zealand.  First though we talk about regulatory risk for those in a dominant position. Google gives the impression of adopting a siege approach in circumstances where increased regulatory focus is inevitable. For a time, that can work for firms with substantial market power. But often the better strategy is to proactively fend off regulatory intervention by doing more things in, and that appear to be in, consumers’ and competitors’ interests.

Google – siege or rapprochement?

Google Inc has a corporate structure that makes it difficult to be sued, with carefully set up separate subsidiary companies in countries, and difficult communication channels, as we’ve seen from our clients’ experiences. And it has continued to expand its commercial dominance by its strategies.

This can work well initially for those in dominant positions. It can be difficult to trim back dominant firms. But there comes a time when such an approach bounces back on dominant firms, and regulators and other stakeholders step in assertively, as is now happening to Google across a range of fronts.

 Google win is little comfort for Google, media and content carriers

Google’s competition law exposure shows how the decision making on what a dominant firm should do can be hard. The US regulator decided not to sue Google for abuse of dominant position.

But the European regulator would have none of that and it appears that it would sue, unless Google did a deal pulling back from particular dominant positions. In February 2014, the EU announced that it would proceed down the path of agreeing concessions by Google by way of commitments made by Google. What would have been the best strategic and tactical approach for Google? To push ever harder into dominance or to take some voluntary steps to pull back (possibly steps that have the look and feel of pulling back but don’t have much adverse impact on Google).

Hard calls, often made, we think, by firms which do not see the bigger picture as part of that myopic siege mentality that happens in dominant firms. For all we know, Google might have its balance for its internal purposes about right.

Another loss for fortress Google

We don’t know the full story. But one of the big internal challenges for dominant firms is to make the decisions having regard to the broader picture and the risks. Difficult to do from within the fortress.

The privacy case that Google has lost

In 1998, a newspaper had published details of a debt collection process against a Spanish man.

12 years later, he sought a direction that Google take down the link to the page in the newspaper. Google refused, and the Spanish courts asked the European Court of Justice to decide how the EU data protection directive should apply.

That court decided, that, even though the Google search engine only collects and indexes web site-sourced information, it is still “processing…  personal data” and so the directive applies.

US based Google Inc runs the search engine, not local Google subsidiaries such as Google Spain. Google argued it was outside the coverage of the EU directive as it was based outside Europe.

Google Inc was seeking to take advantage of its careful delineation between search engine services (Google Inc’s services) and local Google companies.

The Court didn’t accept that; based on the wording of the directive, the court was able to  say that Google Spain, in taking ads in Spain with those ending up on the Google search pages, was enough to constitute Google Spain as part of Google Inc for these purposes. To decide otherwise would have been contrary to the context and purpose of the directive.

The next issue for the court was what Google must do when someone requests that personal information is removed from the Google search results. The court said that this should be decided based on a fair balance between:

·         The legitimate interests of internet users in having access to the information; and

·         The person’s fundamental rights such as in relation to privacy and the protection of personal data.

As a general rule, said the court, the individual’s own rights override the interests of internet users. But this depends on the nature and sensitivity of the information, and the public’s interest (which is an interest that may vary according to the role played by the individual in public life). Notably, the court said that Google’s commercial interests alone do not justify interference with the individual’s data protection and privacy rights.

While information can, initially, legitimately be on the Google search results, over time, some information should no longer be there, said the court. It could have become inadequate, irrelevant, or excessive given the original purpose and the time that has elapsed. On request by the individual, Google must consider removing the information, by weighing up the position, having regard to factors such as whether the individual is prominent in public life (where it is less likely the information must be removed). If Google doesn’t remove the material, the regulating bodies can do so.

All that seems to be a sensible balance between competing rights. This is very far removed from a chilling effect on freedom of speech. Google’s arguments to that effect do not pass muster and privacy rights substantially outweigh those interests. In this case, for example, the information was 12 years old. Google not seeing that having such old information removed as reasonable is concerning and does not show sufficient regard for others. What if a Google search of your  name revealed debt recovery information about you 12 years ago, even though you have asked for it to be removed? Fair and appropriate?

The final decision on this particular information is to be made by the Spanish courts but the big decision is that of the European Court of Justice. Google must now have systems to deal with requests. So must other providers.

What might happen in NZ?

The EU judgment was heavily dependent on interpretation of specific words in legislation, although context was key. The NZ regime derives also from OECD guidelines and the context is similar. The principles in our Act are capable of being applied in similar ways, save as to the international application of the Act.

It might also be argued that Google (and other website operators) have a proactive obligation to remove information past a use-by date: information that is no longer necessary to be retained for the purposes it was collected. That would extend beyond removal only on request. It may well be that news media exceptions will not be applicable to much of this information.

There are complexities and facts specific to each case so we don’t venture complete views.

How the Act and other privacy and confidentiality law applies to offshore companies raises its own set of issues. For example, s 4(3) of the Privacy Act might apply. Where information is held by a company “for the sole purpose of processing the information on behalf of another agency…. the information shall be deemed to be held by the agency on whose behalf that information ….is so processed.”

Companies like Google typically use caches and content distribution network services in NZ, often contracted out to companies like Akamai. If Google is doing something like this, that might overcome Google Inc’s careful separation away from NZ and its NZ related company, Google NZ. Google Inc might have to comply by this or other means. But that requires more detail. 

We have always been at war with Eastasia

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The EU has told Google it must delete “inadequate, irrelevant or no longer relevant” data on request from individuals. The journalist in me just turned over in his grave.

Google, of course, doesn’t actually store this information – it simply finds it and makes it easy for others to find. Telling Google to screen results in this way is similar to asking the Post Office to make sure nobody sends me pictures of something I don’t like.

But assuming Google can tweak its algorithms to do this, or more likely hire staff whose sole job is to vet information upon request to remove links to such things, I would question why we would want it and whether Google is the right company to ask this of.

Let’s assume you, like me, did something silly back when you were a teen. I’m lucky – cameras weren’t invented back then, let alone digital cameras, let alone the internet, let alone… I’m one of the safe ones. My youthful stupidity can remain firmly in the past, and I wouldn’t be happy if it was dragged up today.

What if, instead of youthful exuberance, my past data is actually about that time I committed fraud, or ran a company into bankruptcy? It might be decades ago but next year, when I run for President of the World, that will be relevant, surely? Will Google be required to keep the forbidden data in case circumstances change?

And who gets to decide whether that information is “inadequate, irrelevant or no longer relevant”? Google shouldn’t – it’s not an editorial control agent, it’s a bunch of geeks who are very good at maths. It’s also a company hell bent on making money – does this same ruling apply to Bing? Making Google arbiter of your privacy is odd, to put it mildly.

Unfortunately, we do live in an age where all such things can be captured electronically and stored for decades to come. Fortunately, we also live in an age where all such things can be captured electronically and stored for decades to come. Big data is here, and we have to live with it, but telling Google to selectively forget some things displays a shocking lack of awareness about how the internet works, how privacy works and how the ability to research an issue shouldn’t be hampered by today’s moral codes.

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Fishhooks

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The Commerce Commission’s monitoring report is a tale of two halves.

On the one hand, you have a highly competitive market with prices well below the OECD average and fierce competition. Customers are being offered more for less and new offerings come to the market regularly.

Customers can buy data, voice, TXT, they can go on prepay plans or on account and they’re loving it.

The other market consists of prices up to 190% of the OECD average, limited market energy, little or no competitive pressure and a distinct lack of creativity.

The reason for the difference is clear – 2Degrees.

The first market is the low-end prepay and on account segment where 2Degrees has vigorously burst onto the scene only a handful of years ago. The third entrant has radically changed the dynamic and the other two network incumbents have been forced to respond in kind.

Suddenly we see bundles on offer at $19/month that only months earlier had sold for $70/month. The drop in price has been matched by an increase in value – customers get more TXTs, more minutes, can call more friends and family members in more calling groups and have more data to use on their shiny new smartphones than ever before.

Since it arrived, 2Degrees has fought well in this market and achieved a great deal. It’s customer numbers have long since passed the million user mark and are still rising. It’s very successful, so long as your measure of success doesn’t include “breaking even” because clearly the cost of spending on network deployment (and the impending launch of 4G as well) is not a trivial matter. It will be quite some time before 2Degrees is in the black.

The other market, however, is failing to deliver on that promise. High end business and corporate plans, and larger on account offerings, simply aren’t seeing the same level of movement to 2Degrees and I’m wondering why.

It’s not as though the plans on offer don’t appeal to business or high end customers. The same price points are attractive across the board, and while business customers care less about the costs associated with the service, the CFO certainly does and typically buying decisions are made at that level.

So why is it that 2Degrees isn’t carving the same level of fat out of this market?

I suspect it’s a combination of factors, not least of which is the speed with which customers can disentangle themselves from their contracts.

Prepay customers are free to move quickly and easily between providers. On account customers face many barriers to switching, not least of which is the ever present “early termination fee”, which is often applied even if you’re moving within the same provider to a better suited plan.

These fishhooks mean there is a lag in movement for on account customers. Instead of simply picking up and shifting to a new provider, OA customers must wait until a certain time period has passed, or until they’ve paid off their new “free” handsets (which of course are never free but rather “$0 up front” and which must be paid in full before customers are allowed to move on).

Early termination charges often include an extra fishhook – rather than simply repaying the cost of the device, they attempt to recoup the worth of that contract to the provider. Sign up for two or more years and you’ll find your “worth” is quite a bit and if you want to get away early, the break fee can be quite astonishing.

I think it’s high time we called these zero dollar handset subsidies what they really are: hire purchase agreements. You get to take the phone home with you, but you’re tied to a provider for years and end up paying more for the service than you should.

It’s time, I think, that the Commerce Commission had a closer look at all of this, and I’d go a step further and call on the government’s inquiry into the Telecommunications Act to consider the issue as well.

The numbers are clear for anyone to see – something’s stopping on account customers from migrating to 2Degrees and it’s not the price point.

TUANZ announces new CEO

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TUANZ announces new CEO

Media release

21 May 2014

TUANZ is pleased to announce Craig Young will take over the reins of the Telecommunication Users Association of New Zealand following the departure of current CEO, Paul Brislen.

Craig comes to TUANZ fresh from a six year stint at Chorus where he most recently lead the industry relations programme. Craig joined Chorus at the date of operational separation in 2008 as the Head of Business Development, and before that was GM of wholesale commercial development at TelstraClear. Craig has worked in the New Zealand IT and telecommunications industry in one form or another since 1997.

TUANZ Chair, Pat O’Connell, says Craig brings a wealth of industry experience to the role.

“We are particularly pleased to have attracted someone of Craig’s calibre and experience”, says O’Connell. “This is strong affirmation of the critical role TUANZ plays in the New Zealand telecommunications sector.”

Craig says he’s looking forward to the opportunity to shape TUANZ and to lead it into its next phase of development.

“I look forward to working closely with members to ensure that TUANZ provides leadership in the sector.  I’m particularly keen to continue to raise awareness of how the developments in telecommunications can add to the lives of all New Zealanders at work and at home.”

Craig will take up the role from October 13th 2014.

 

ENDS

 

Note to Editors

Craig will retain the TUANZ contact details currently in place:

021 488 188

09 488 1888

And his email address will be craig@tuanz.org.nz

Paul Brislen leaves at the end of May and during the interim period any media enquiries should be directed to TUANZ head of policy work, Chris O’Connell: chris@tuanz.org.nz or 021 488 188.

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Chorus ups the ante on fibre speeds

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Chorus has announced a new line-up of fibre products designed to encourage uptake of the UFB.

In essence, this is a very good move. In a world where VDSL can offer equivalent speeds (albeit with caveats on that) at the same price but without the horrendous experiences of having your street/garden/house dug up to connect, any fibre service will need to offer significantly more in order to compete.

Chorus is proposing a 100Mbit/s download speed and 20Mbit/s upload speed service s its new entry level product for residential customers.

Business customers can get a 1Gbit/s symmetrical service for a wholesale price of $275 a month.

This is great news as it gives customers a real reason to move to fibre. Stuff 30/10 – if I can get 100/20 for the same price, I know where I’m going.

It’s good for Chorus too, because the more customers taking up fibre, the fewer there are on copper which, as you know, is fully regulated and will be providing far less revenue in the future than it did in the past.

Ultimately, we want more investment in fibre, more customers using fibre and less effort and money spent on the copper network. Once the fibre has been installed to my house, I’ll be ringing someone (Telecom, presumably) to come and take out the copper connection.

For many in government, this question of what happens to the copper network is a big issue. I don’t see it that way. Eventually, 75% of the population will have fibre to their home. At that point, the copper network in those areas can be switched off and pulled out of the ground. It is surplus to requirements and given the price of copper on the open market, should fetch quite a pretty penny.

On top of that, Chorus won’t want to keep two networks operating when it doesn’t have to. I would back switching off copper to that 75% as soon as the lines are in. It’s not forced migration, but it is a one-way door. There is no going back once the fibre is connected.

That leaves us with the 25% of the population that won’t get fibre under this current project. That’s also clear cut, in my view. Chorus is still required to offer those essential services, the old Kiwi Share services, to that population base, and until there’s an alternative it must continue to do so. Of course, we need to come up with that alternative as quickly as possible, and make sure it’s capable of delivering on the broadband future promise.

At the recent NorthPower launch celebration, the Prime Minister hinted that the UFB network isn’t going to be static once it’s completed. He suggested (vaguely, mind you) that there could be more to come, and frankly that’s a good thing. Solving the rural broadband problem is going to be key to any future economic strategy in New Zealand.

There are caveats around Chorus’s new product set. These are commercial offers, and exist outside the Crown Fibre contractually-obligated regime. They’re Chorus offers, so may not be offered by the LFCs who will once again be miffed at Chorus making changes they’ll have to either match or ignore. By going it alone, Chorus runs the risk of alienating its LFC partners and we could end up with a two-tier structure of Chorus versus the LFCs. That’s down to Crown Fibre’s management plans, and I’d strongly urge CFH to do more to coordinate these kinds of activities.

The devil will be in the detail, as ever, and we need to know about the quality of the service. What will the committed rates be, what happens next year when these contracts expire – will the prices go up – and what role, if any, will the Commerce Commission have in the future fibre price disputes, because these are commercial products, not the ones offered through the Crown Fibre contracts and so, presumably, are open to regulation.

But when you’re facing declining revenue in the copper world, as we’ve said all along, the best way forward is to encourage the migration to fibre and these new plans should certainly help with that.

Still not content with content

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Every few weeks I join a panel discussion on Radio Live to talk about technology, social media and mobile apps. It’s fun, I get to meet some cool people and we discuss the issues of the day.

Last time I was on I caught the end of an interview with Damian Vaughan, head of Recorded Music NZ, the newly merged body that seeks to represent music creators in the New Zealand copyright space.

I don’t know Damian at all but he said something that intrigued me. He says people who download content won’t pay for it even when it becomes available online in the format they desire (it’s about 15 minutes in if you want to hear it directly).

I have to say that’s not my experience at all. I’ve bought more music since getting an iPhone than I have since I was a teenager. I hear a song, I use Shazam (possibly the finest piece of software I can think of) and 30 seconds later it’s being downloaded to my library. I pay, and I’m happy to do so because the process is simple and straightforward and the asking price is reasonable.

I can go one step further and just subscribe to a streaming service like Pandora or Spotify. I don’t, because I’m old fashioned enough to want to “own” that particular track. I carry the complete works of Shakespeare around on my iPad for much the same reason – there’s something almost tactile about having such things to hand.

My kids, however, are still absorbing new music like sponges so they’re all about the streaming services, and I would have been too if they were around when I was doing that kind of thing.

My point is, the consumer of content isn’t one type of person, it’s a whole range of people. It’s a bell curve – at one end are always going to be those who will steal online content. At the other end those that wouldn’t dare consider it no matter what. In between, however, is the mass market and if you can move those people away from piracy and towards paying for content then they will.

But you don’t have to take my word for it – there are actual stats to back this up.

Ofcom, the UK broadcasting and telecommunications regulator, commissioned a study into just this phenomenon and it turns out that people who pirate content are also the most engaged with the content and are more likely to buy content online.

The top 20% of infringers accounted for less than 2% of all users, but were responsible for almost 80% of all infringing. Yet they also on average spent more on content than the bottom 80% of users – £168 versus £105 – and much more than non-infringing customers who spent a measly£54 over the six month period covered.

This would support the theory that downloaders just want access to content and will pay for it where they can. It helps explain why a TV show like Game of Thrones can simultaneously be a raging success in terms of those that pay for it, but also the most pirated TV show of the year.

The music industry has found the solution to piracy – make your content available online without getting in the way of the customer too much. Remember when you had to buy an entire album just to get that one song?

The TV industry has yet to reach the same conclusion, and the rights issues in television are vastly more complex than in the music business, but ultimately it will have to go the same way. It’s too late to stuff that genie back in the bottle and if the music industry is anything to go by, you probably don’t want to anyway. You’ll make more money if you work with the pirates instead of trying to stop them.

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Product disclosure

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Last year, under threat of regulation, the telco industry came together to put together a broadband product disclosure regime.

The idea was a good one. Let’s provide the same information across various ISPs so customers can better understand what they’re buying and what goes in to each plan.

The minister of communications, Amy Adams, likened it to the car industry’s window ticket, which details just how many kilometres the car has done, whether the odometer is accurate, that sort of thing.

Telcos had to consider how to boil down all the information they have about the services they offer and make it user-friendly, or at least readable. Apparently the goal was to make an offer summary card that would make sense to the minister’s mother. No, really.

Putting aside my misgivings about building an entire disclosure regime around the needs of (forgive me) the lowest common denominator customer type, the final product is acceptable.

If you want to know how much international bandwidth your ISP is buying, or how many customers are sharing your line, or what national backhaul arrangements your ISP has, you’re out of luck. All of that was deemed too “techy” for customers.

Instead, the product summary will tell you how much you’ll pay each month, what the upfront costs are, whether there’s an early termination clause and how much that will cost and whether or not the company belongs to the Telecommunications Dispute Resolution scheme.

This kind of basic information has always been available, but at least now you’ll get it on one page and in a format that should allow you to compare plans before you buy.

Given the lack of technical information, the one thing I did kick up a stink about during the working party process is that traffic management schemes must be explained in some detail. Customers who want to download a lot of stuff have in the past found themselves added to a pool of like-minded downloaders, and so have an “unlimited” plan that has major limitations on the one thing they want to do.

I don’t have a problem with traffic management plans, but when the telcos hide that information away it makes buying decisions doubly tricky, and I pushed in a big way to have the information disclosed in enough detail. After all, the idea behind the product disclosure regime is that customers are informed and make informed buying decisions.

Today, Telecom has announced an “unlimited” range of plans. They’re unlimited in terms of how much you can download and at $139/month for the fastest of the fibre plans (100Mbit/s down and 50Mbit/s up), they look like a good idea.

But in the product summary sheet, the section on traffic management is less than helpful.

“We may use traffic management policies to make sure that the available bandwidth on the network is shared fairly and efficiently between all users. Certain types of traffic may be de-prioritised so that general web-browsing, real time applications like Skype, online games and streaming video services perform better.”

Using words like “may” and “certain types of traffic” does nothing to help the customer. If you throttle P2P traffic, say so. If you apply the rules at certain times of day, say when they are.

I had a quick look at the other major ISPs with similar plans and their statements.

Vodafone’s traffic management statement is quite a bit better:

“P2P (Peer to Peer) is primarily used by a small number of higher-end broadband users. We are not anti-P2P however if our network is congested then P2P-type traffic will be the first to feel the pinch. We will always prioritise the more mainstream traffic types (such as web and email) over P2P as this will have the greatest benefit for the greatest number of customers.

If you are a customer who uses P2P a lot, then we ask that you try to keep your usage to our off-peak (10pm – 6am)  when there is the most capacity available.”

Slingshot does have an unlimited plan and its offer summary says:

“We may use traffic prioritisation policies for our plans at any time to improve the overall performance amongst our customers. Our Unlimited One plan throttles P2P downloads. If you require P2P downloading you should opt for our Unlimited Plus plan.”

Which helps guide your buying decision.

Orcon’s is cleanest, I think:

“Our policy is to provide our customers with the best possible internet experience. This means that we do not shape internet traffic when you (and everyone else) are streaming videos, sharing files (P2P), gaming or browsing the web at any time. We always make sure that we have tonnes of national and international bandwidth to cater to all users.”

although since you can’t cut and paste from the PDF it’s also the most annoying.

These kinds of things are important because without that kind of information, customers simply don’t know enough about the product they’re buying.

I’m encouraged by the growing number of unlimited data plans that are coming into the market. Telecom, Orcon and Slingshot all have them at a range of prices and as three of the top four telcos, that means most customers are within reach of not having to worry about over use charges ever again.

And I’d encourage Telecom to have a closer look at what it’s telling its customers. It’s nearly there, just needs a nudge in the right direction.

Spectrum fight goes on and on

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The Commerce Commission has again delayed giving clearance to Telecom to buy the last block of management rights for 700MHz spectrum.

To recap: the government auction saw three bidders (Telecom, Vodafone and 2Degrees) able to buy a maximum of three lots of spectrum each.

Telecom and Vodafone did just that, but 2Degrees only bought two lots, leaving one block of spectrum on the table.

The advice to government from all parties was that it should remain there until the technology to deploy services on 700MHz was rolled out – implicitly, until 2Degrees could afford the extra block.

But the government decided it wanted the cash, so raffled off the last block to the highest bidder. 

Neither Telecom nor Vodafone would back down, or let the other side get the spectrum cheaply, and ultimately Telecom won, but only by bidding $83m for it. By contrast, each telco paid only $22m for the same sized block in the original round.

Telecom now needs permission from the Commerce Commission to buy the additional chunk and clearly, that’s proving to be a long time in coming.

The problem is that Vodafone has around 300MHz of available spectrum, Telecom 200MHz and 2Degrees around 100MHz of spectrum altogether.

In the all important sub-1000MHz category, Vodafone will have around 60MHz, Telecom about the same and 2Degrees will have around 40MHz.

EDIT: Stuffed up my numbers – the above paragraphs have changed to reflect the real figures. Apologies all.

That means that like for like, Vodafone can pack on three times the number of customers 2Degrees can service, and offer them the same performance. Or, looking at it the other way round, it could offer the same number of customers three times the capacity.

That puts 2Degrees in a very tricky position, and I suspect if Vodafone had won this bidding war for the last chunk the Commission would already have made its mind up and said no.

Telecom, however, is a trickier proposition, positioned as it is half way between the two. Would allowing Telecom to buy the last chunk impact on competition? Should the Commission allow it to go ahead?

TUANZ argued that the last chunks should be left on the shelf, that if either Telecom or Vodafone get to buy it, they’ll put 2Degrees in an almost untenable position. Sure, 2Degrees can offer a service and it will still be able to use the spectrum for 4G services, but one of the beauties of 4G is its ability to aggregate spectrum and use chunks of spectrum scattered far and wide to deliver a service. That means the player with the most spectrum wins.

We already have a perilous situation in telecommunications in New Zealand. We have two players who dominate almost every market segment – mobile, broadband, toll calling, you name it and “Telecom and Vodafone” account for well over 80% of the customer base and revenue.

We need to make sure 2Degrees isn’t shut out of the 4G market, and beyond, and the easiest way is to make sure it has as near a level playing field in terms of access to spectrum as is possible.

I’ve pondered on why the government would auction the spectrum in the way that it has. The auction was conducted in secret, behind closed doors, and unlike previous years has been split into two halves. We’ve only had the first part of the fight – how much spectrum do you want. Once the Commission has decided on this issue, we move on to round two – which blocks of spectrum do you want? Each company will have to bid again to determine where on the 700MHz range their lot lies, and there’s only one reason you would do that – to make more money.

$22m a block is not a huge amount, but it’s only half the battle. We’re yet to see quite how much this contest costs but one thing is clear – customers will end up paying for it one way or another.

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The high cost of rural broadband

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Watching the Australian NBN project implode in a shower of nonsensical, politically-motivated decisions (and indeed non-decisions) has been breath-taking in both its cost and its impact.

Instead of a fibre to the home project, the NBN will now be a mix of fibre to the home for very few, fibre to the node (aka the cabinetisation programme Telecom New Zealand ran in the early 2000s) and fixed wireless services for rural Australia.

If it sounds familiar it’s because in many regards it now mirrors the New Zealand UFB and RBI projects. Over here we have a fibre to the home project for 75% of the population and a blended fibre, copper, fixed wireless model for most of the rest. Those in hard-to-reach places will still have to put up with a satellite service, as indeed will their Aussie counterparts.

Australia’s communications minister, Malcolm Turnbull, says one of the biggest problems in rural Australia has been the overwhelming demand for broadband.

Speaking at the Comms Day  summit in Sydney yesterday, Turnbull says there was a “material underestimation of likely demand” in the fixed wireless areas.

“So instead of an assumed takeup rate of 22-25%, the work done so far by the strategic review team has modelled demand in the satellite footprint to be between 50-63%, and 38-51% in the fixed wireless footprint,” says Turnbull. But even those figures turned out to be low.

“Taken together, the company’s modelling shows that demand in the non-fixed-line footprint was underestimated by two to three times – instead of the forecast 230,000 connections, actual take-up would result in 440,00 to 620,000 connections.”

That’s a remarkable under-estimation of demand. Speaking to rural customers and would-be users (those that can’t get anything at all worth speaking of), I’d say the same level of demand exists in rural New Zealand.

Forget 5% average uptake as we have in UFB areas, rural New Zealand is clamouring for a decent service.

So how do our figures for take-up compare?

Sadly, we don’t have any. The minister of communications releases detail around how many kilometres of fibre have been laid and how many cellphone towers constructed, but not a word is said about usage.

I’ve not found any customers who are using the service, so I can’t tell you even anecdotally about uptake rates.

However, yesterday I was on a Google Hangout chat with John Butt from TrueNet, the company that measures broadband performance around the country.

John tells me he has 400 probes in action at any one time, measuring usage from all sectors of the industry. In total he has around 1200 testers willing to take part, which gives a good spread across providers and technologies. He has DSL probes with customers of most ISPs, UFB probes, cable probes and while most are in urban areas, he has some in rural New Zealand.

He has only two testers using the fixed-wireless RBI service and one of those is moving to DSL.

Given the extraordinary level of demand from rural customers and the ever-increasing availability of RBI service, why are there so few?

The answer may well lie in the price. Vodafone promised it would offer pricing that was comparable with urban prices and one way it has – the price itself. I can get a plan from Vodafone for either fixed or fixed wireless service for about $95 a month.

On the urban service, customers get voice, ADSL2+ broadband, a free MySky box and free calling to five New Zealand phone numbers.

On the rural service, you’d get voice, fixed wireless broadband and free national calling (a nice touch since local calling in rural New Zealand is quite limited). You’ll also have to pay an installation fee as a truck-roll is required – either $99 or $199 depending on your situation, but for that you’ll also have to sign a two-year contract. If you want it without a two-year contract, it’s $699 or $849.

Broadly speaking they’re not too far part. You can get a discount off each if you have your mobile with Vodafone but generally speaking, they’re comparable.

Except for the data. The urban service includes 150GB of data while the rural service has only one tenth of that – 15GB.

There are other plans, but they follow the same pattern. On DSL you get up to half a terabyte of data, on fixed-wireless you can have up to 30GB of data before the over-bundle charges kick in.

Try running your rural business on that, let alone running your household as well.

We need to not only provide the infrastructure, we need to provide a decent service, or face having a rural New Zealand that is left behind, much like Australia will be.

Of course there are other providers, not just Vodafone, but as the lead retail provider on the RBI it’s to Vodafone most RBI customers will turn.