Get secret pricing deals off the table – Consumer, InternetNZ, TUANZ

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“Trying to do a deal on prices would undermine the important role an independent regulator has to play in setting them.”

“Customers are poorly served by the telecommunications industry working together in secret to fix the price of wholesale broadband.”
Media release – 13 July 2013

Consumer, InternetNZ and the Telecommunications Users Association responded today to a report in the Dominion Post that the telecommunications industry was seeking to negotiate a price for the wholesale copper broadband service known as UBA.
A Commerce Commission conference to help determine the regulated price of that service concludes in Wellington today, with the telco industry negotiations understood to seek to influence a forthcoming discussion paper on a regulatory review of the Telco Act announced by Communications Minister Amy Adams in February.

TUANZ CEO Paul Brislen says the best way to resolve the issue of pricing rules for a monopoly service like UBA is through open and transparent discussion. “If the report in today’s paper is accurate, it seems that some in the industry would prefer to see a deal done in private, and without the scrutiny of users,” he says.

InternetNZ Acting Chief Executive Jordan Carter says “Industry discussion and input on the policy framework and to help inform the regulatory review is a good thing, because government decisions should be well informed”.
Consumer CEO Sue Chetwin says “A line is crossed if specific prices are being discussed – that moves the matter from an intelligent debate about the best possible policy framework, to what looks like a stitch-up – or worse, a cartel”.
These kinds of back room deals are rarely good for consumers and it puts us in the awful position of the industry sitting down together to set pricing without reference to either customers or to the regulator, say the three Chief Executives.

None of our organisations are in the loop with these conversations, and none of us want to be. We won’t talk about prices, and neither should the industry: that’s a job for the Commerce Commission. We will make our points about the review in public. We urge the industry to take the same view.

“Setting the rules and setting the prices are two different jobs. The review is about reviewing the pricing rules. The regulator has the job of setting the prices. Trying to do a deal on prices would undermine the important role an independent regulator has to play in setting them. Without that protection, consumers are unlikely to get a fair deal,” the CEOs conclude.

Managing Expectations

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I’m writing this from the Commerce Commission conference into the cost of wholesale services delivered by Chorus.

This service is regulated as Chorus is a monopoly provider. It is really the only provider of copper lines in the country and as a monopoly it is regulated accordingly.

The pricing principle underlining the Commerce Commission’s approach has changed. In 2010 a new Telco Act was introduced that foresaw the split of Telecom into Telecom and Chorus. As part of that split, the government realised it could no longer rely on a “retail minus” pricing model as Chorus would no longer have any retail products. Instead, the Telco Act says the Commission must move to a “cost plus” model. That is, instead of taking the retail prices in the market and taking off a regulated percentage to deliver a wholesale price point, the Commission would look at the price of delivering the service at the base level and add a margin to that.

You may remember the debate around the introduction of the new Telco Act. It focused almost entirely on the ten-year regulatory holiday the government slipped in to the Supplementary Order Paper that came with the bill. Indeed, the SOP was larger than the bill itself and led to many thousands of words being written by journalists around the country on this unusual approach.

As the debate ground on, with little sign of victory for those of us that supported the Commerce Commission’s role and the need for an independent regulator, the one redeeming feature of the bill was this decision to move to a cost-plus model.

Eventually we won the day with regard to the regulatory holiday. Backroom political machinations saw the government drop the clause, although the level of political interference in the regulatory regime since then has been alarming, to put it mildly.

All that happened before Telecom split in two. Indeed, all this took place before Chorus was incorporated and floated on the stock exchange. It should have been no surprise to anyone, least of all Chorus or its shareholders – especially given the inclusion of a three year delay because of the impact this change to the pricing model would have on both Telecom and Chorus.

We expected a major drop in wholesale price. Telecom CEO Simon Moutter says he also expected a similar drop and today we heard from CallPlus’s Graham Walmsley about his experience installing copper equipment and selling as a wholesale player to ISPs. Graham says his experience is that the UBA draft price is far too high and that he is selling a product that includes voice capability at a price point that is lower than the draft price today.

For years, Telecom managed to keep the price of wholesale services high by managing its suite of retail products so as to retain one or two highly-priced products. That way the “wholesale” price was artificially high.

As I write we’re hearing from economists who (with a straight face) are suggesting they didn’t expect any drop in terms of price with the move from retail minus to cost plus. They’re earning their money today.

If anyone at Chorus, or at any of its investors, was caught by surprise by the drop in price, they need to find a new line of work. It was obvious even to a non-economist, non-lawyer like me.

The solution for Chorus is simple. Any price drop can be offset by launching other products that aren’t regulated and which offer a higher return on its investment. Failing that, it should take a close look at its dividend to shareholders which currently sits at 25 cents per share.

More to follow.

Quis custodiet ipsos custodes

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I’ve spent the past few days talking to various journalists about the GCSB, Big Brother and spying on citizens.

To be honest, I’m a tad uncomfortable with the whole thing. Spies, spooks and state surveillance are a bit “tin foil hat” for my liking. I’ve had several emails and phone calls to the effect that I should watch out for black helicopters and that the only thing stopping the drone strike is my cellphone dropping out (seriously, what is that about? Central Auckland, no less).

In a theoretical world, the spies would spy on high priority folk like diplomats and bomb makers and other spies. They’d have secret alliances and counter-alliances and no doubt secret handshakes as well. We commoners would be below the radar and we’d be left alone to get on in peace.

In a theoretical world, we wouldn’t be bothered by any of this kind of nonsense and the only time we’d care is when the spies leave their briefcases (complete with meat pies, copies of Playboy and a file marked “TOP SECRET”) in a taxi in Wellington somewhere. Then we’d all have a laugh and go back to work.

Sadly we don’t live in such a world. Instead, we face a security service that seems keen on the idea of storing all our online communications in perpetuity on the off chance that some years from now they might want to have a poke around and pull something out that could be juicy enough to justify their endeavours. It could be a politician who is making life difficult for them, it could be a department head they’d rather see the back of, it could be a journalist who has a source and won’t say who it is.

Just as bad, if not worse, is the model that this surveillance will take. Instead of user pays, the expectation is that the telcos will have to pay for it. Store every email, TXT message and the “metadata” about every phone call? No problem – make the telcos do it. They won’t want to keep that kind of information, of course. TXT messages alone take up terabytes of space and it’s only growing. Apparently the world’s data doubles every two years – currently (according to the internet so it must be true) we have around 1.8 zettabytes of data. I have no idea how many zeros that is but the handy graphic says it’s roughly 200 billion HD movies each running for two hours.

Storing all the transient stuff (typically the “metadata” that the spooks like because they can access it without a warrant in the US) is non-trivial and is a cost the telcos wouldn’t carry other than at the behest of the government. We will end up carrying that cost, of course, because telcos pass on costs to customers.

And really, do you want a spy agency bogged down with petabytes of cat videos, Facebook postings and tweets about breakfast? Wading through that lot is also non-trivial and frankly just asking for trouble.

I also wonder just what heinous crime has been committed against New Zealand’s sovereignty that requires such a drastic step as spying on every New Zealander’s online lives. Did I miss the terrorist strike? Is Tasmania poised to invade us? Did a secretive German industrialist set up shop in New Zealand with a plan for world domination? Other than the ones we know about, obviously.

I can think of no rationale for a system that allows intelligence agencies (through a legal sleight of hand) to gather and retain information about my day to day life.

This then is the reason I’m opposed to increasing our own intelligence agencies’ abilities in this area. It isn’t based on practical matters such as cost or signal-to-noise ratio. It’s based on the basic premise that we are innocent until proven guilty and that government in all its various forms should keep its nose out of my business, regardless of how banal or tedious my life actually is.

The new GCSB bill and Telecommunications Interception bill are before parliament at the moment. Submissions on the Interception bill are due by the 13th of June and given the news breaking in the US and UK this week we’ve asked for an extension to that time line so we can better understand just what these two bills mean for New Zealanders. It’s important we get this right as there are a lot of moving parts so we need the extra time to really come to grips with just what is being proposed. Is it going to be a police state or will we retain our right to privacy. That’s what’s at stake here.

The government and the big corporation

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For the better part of a decade, we watched as one
government after another chose to back the needs of Telecom over and above the
needs of the broader industry or the voters of New Zealand.

Time and again we heard from Maurice Williamson, minister of
communications for most of the 1990s, that if Telecom continued to step out of
line he would be forced to act. In the end the voters acted and a new era of
regulation began.

I often wondered why a political animal like Williamson
would get so far off side with his voting constituents. Why he couldn’t see the
constant growl of angry customers and a brow-beaten industry. Williamson isn’t
stupid – he’s played the parliamentary game for a very long time and knows that
ultimately the voters will conduct his performance review and if he wants to
retain power, that’s all he should be concerned with.

He was also one of only a handful of MPs to have a
smartphone (a BlackBerry if memory serves) and one of the few who would answer
emails. I remember one outraged journalist at the time being told he couldn’t
be added to the press release email list because the government wasn’t made of
money. These days it’s getting the buggers to stop adding us to the lists
that’s uppermost in mind.

Reg Hammond, over at InternetNZ, has an interesting take on
the matter. He suggests that for the big decisions Telecom sidestepped the
minister and went straight to the PM and that something similar may well have
happened with the furore over Chorus’s wholesale price determination.

Chorus denies this, as does the current minister of
communications, Amy Adams, but on the day the Commerce Commission announced its
draft determination the first responder from the government was indeed the
Prime Minister, who suggested that the Commission could make all the
recommendations it liked and that it was up to the government to decide whether
to go with those recommendations or not.

Sorry, but that’s not how the regulatory regime works – the
Commission gets to decide the price point because that’s the only way to keep
governments at arm’s length.

You need to keep governments out of such regulatory matters
because governments are typically compromised – they are large-scale investors,
they are large-scale customers and they are the policy makers. To include
‘regulator’ in that line-up is to court disaster as we saw during the 1990s in
both New Zealand and Australia.

The regulatory regime set up in 2001 was extremely light
handed and it failed to deliver results for quite some time. Spectacularly, it
saw New Zealand receive the dubious honour of being the only country apart from
Mexico to reject unbundling of the local loop. Mexico, let us not forget, is
home to the richest man in the world – Carlos Slim – who made his money out of
telecommunications. Currently Slim controls 70% of the mobile market in Mexico
and 80% of the fixed line market and the Mexican government is hoping to
introduce some kind of regulation that will reduce his control of what they
have belated realised is the backbone of the nation’s infrastructure.

If we had one provider with that level of control you’d hope
it would incur the wrath of the regulator because one player at that level is
tantamount to disaster for the users and for the country as a whole. Australia
saw Telstra rise to that level and beyond in the 1990s but because the Aussie
government retained ownership long after it should have divested its
shareholding, the regulator was unable to break Telstra’s stranglehold on the
infrastructure. The reign of CEO Sol Trujillo is best remembered for his hiring
of a team of former colleagues to produce a strategy for the company which was
paid for by Telstra and which ensured he received his bonus for delivering said
strategy on time. Oddly, it looked remarkably like the strategy of his
predecessor and after four years of declining revenue (Wikipedia claims he
underperformed the Aussie stock market by 20% costing the company A$25bn) he
left with a grand payout as only telco bosses can receive.

Today the Australian market is a mess, with Telstra
dominating both fixed and mobile sectors, no strong second-place competitor in
sight and a government unable to achieve its potential even with a promised
A$42bn spend on fibre.

If we look at the New Zealand market similar competition
alarm bells should be ringing. We have two companies that don’t just dominate
the market, they ARE the market. Telecom and Vodafone account for 90% market
share of the mobile revenue and a similar number in the fixed line space. At any
level of the market, whether it be local calling, toll calling, mobile data,
backhaul, international connectivity or TXT messaging, in terms of revenue we
see two names repeated over and again.

Yes, we have 2Degrees winning customers in the mobile space.
Yes, we have CallPlus and Orcon and others fighting the good fight in the fixed
line space. But when it comes to revenue we’re in single digits for market
share for everyone other than Telecom and Vodafone.

This isn’t a situation the market can sustain or which the
government can ignore. The question is, how will the government handle the
responsibility of getting us out of this situation? Sidelining the regulator is
not a good start.

Next week the Commerce Commission will hold its conference
to discuss the issue of Chorus’s wholesale pricing. TUANZ will be attending and
I’ll report back in next week’s newsletter.

 

Guest Post: Data vampires

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Guest post from John Allen of Rural Connect (originally posted 6 June). 

Broadband retail service providers have a tendency to waggle their finger at the consumer when things go awry.  But a review of the telco industry’s proposed Product Disclosure Code does not go far enough to banish this attitude.

The classic example of this blaming attitude occurred back in 2009/10 around Telecom’s ‘Big Time’ and ‘Go Large’ broadband plans.

Released in July 2009, the Big Time plan offered unlimited speed and, more importantly, uncapped data.

At the time, this was the only plan offering unlimited data, so thousands of customers flocked to sign up to it. Which of course is why it was offered.

The plan was pulled less than 12 months later because of an “extreme minority” that downloaded huge amounts of data.  Telecom managed data traffic by throttling speeds, but some users found a way around this, making the plan “increasingly hard to manage and keep in market.”

Telecom placed the blame for the plan’s demise on its customers.  It said that “as the only ISP offering unlimited data, it ended up with all the vampires”.  Meaning tech savvy, high volume users switched to Telecom to take advantage of the uncapped data.

Telecom would have known that an uncapped data plan would result in some users consuming as much data as they could possibly suck down.  The infamous ‘Go Large’ plan from 2006 would have taught them that.

Go Large promised, “unlimited data usage and all the internet you can handle” and “maximum speed internet”.  It did not deliver this and in 2009, the Commerce Commission brought a prosecution that resulted in a $500,000 fine under the Fair Trading Act.

The practice of discussing maximum speeds possible for a broadband technology still occurs but is now not so prevalent.  Witness news reports touting Vodafone’s new 4G mobile broadband service as reaching speeds of up to 100Mbps.

That speed is hypothetical and simply will not be realised in everyday use.

The Telecom example now ensures that hypothetical maximum speeds are not mentioned in contracts or advertsing.

Which is in part what the proposed Product Disclosure Code is about – providing telecommunications Retail Service Providers with minimum standards for the disclosure of information about Broadband Plans.

There are six principles to the code.

First is about making product information clear, readable and easy to find and understand.

Second is that an appropriate level of detailed information is available to consumers at the right point in time.

Third is to use clear, standardised terms and language to allow for easy comparisons.

Number four is that plan information be kept up to date.

Next is providing consumers with accurate and reasonable assessments of how Broadband Plans are priced, will perform, and the technology used.

Finally is transparency around Broadband Plan features and price, including any restrictions.

The first four principles are all fine and proper and will enable Consumers to make easier comparisons between different offers.

The last two is where the issues become grey.

For example, the code does not require telcos to be consistent in what news articles say compared to what their advertising and contracts detail.

The main issue is that RSPs should give the bottom line of their service’s performance.  Not the top line, or even an average line.  For example, the bottom line on Vodafone’s RBI service is that in times of high usage, speeds may drop to the design limit of 45kbps.

That’s around dial-up speed and had Telecom’s Go Large plan detailed that, the vampires would have been fewer and also blameless.

 

 

 

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Please let me give you money

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Last week someone
tweeted about how good the BBC iPlayer is and I got very angry.

The iPlayer is
(despite the Apple-esque name) the BBC’s foray into providing its content in a
user-friendly, online manner.

The Beeb has its own
version of TVNZ’s defunct charter (well, more properly TVNZ had a version of
the BBC one) which they have chosen to interpret as requiring the BBC to make
its content available to Britons in any manner they can. No limits on this
service – that’s the benefit of having a TV tax that funds one free-to-air
provider I suppose.

Although I’ve got a
red passport still, I can’t see the iPlayer because I live outside the UK. Yes,
there’s a global version of the iOS app, but I can’t get it because it’s not
available in the New Zealand app store.

It looks lovely. Not
only can you search and watch TV shows but you can queue them up so you have a
set “channel” if you like. Some real thought has been put in to making it user
friendly and worthwhile.

Here’s the thing – I
would pay for access to the content. I would. I would help swell the BBC’s
coffers by giving them money which they, in turn, could use to make more
television programmes which I would then pay for.

Unfortunately they
don’t want my money.

Netflix is in a
similar position. It too cannot approach me directly, cannot sell me content
legally because of the asinine TV rights model which sees programmes sold to
regional players who on sell to local networks who onsell…

I’m reminded of the PC
channel wars of the late 1990s when Dell entered the market. Forget Dell’s
current market position (PCs are dead, didn’t you know?) – when it arrived on
the scene Dell swept the old world order aside.

A former head of HP
New Zealand once explained it to me like this. HP doesn’t sell PCs to
customers, it sells them to a regional distributor. The distributor doesn’t
sell PCs to customers, it sells them to a local distributor. That distributor
doesn’t sell PCs to customers, it sells them to a local retailer (a VAR or
“value-add reseller”). That VAR doesn’t sell them to customers, it sells them
to a retail partner (a “shop”) which finally sells the PC to the customer.

Every link in the
chain “adds value” by which of course we mean cost.

Compare that with
Dell’s model which was to simply sell computers to customers. Dell wouldn’t
even build the computer until someone wanted it, which meant it never had that
panicky moment when one model doesn’t sell particularly well and you’re stuck
with a warehouse full of them.

This is the TV market
as we have it today, except for one important difference. I can get my TV for
free within minutes of it airing in the US or UK or Guatemala because I can
pirate it. I don’t have to wait until the channel finally gets round to delivering
it to me – I can get it myself.

This poses a huge
problem for the people who make and sell television content in a way that never
occurred in the PC market. It was never easy to parallel import a PC but it’s
child’s play to parallel import a TV show.

Several people told me
to pull my head in and just use either a VPN service or some kind of DNS work
around to get to the content I want, but I refuse to do this. In effect I would
be lying to a company (committing fraud in my view) in order to give them money
and thus support a business model that is failing. I’d rather they acknowledge
the world has moved on and simply let me pay them directly for the content.
That’s obviously where all this is going so why not just get out of the way and
let me give them money?

A year ago, Netflix
accounted for one third of all US internet traffic. Today it’s closer to half.
Netflix is paying content makers to provide TV shows which it will air directly
to customers.

Netflix is bigger than
piracy and if the TV content makers don’t hurry up and figure out that we want
to watch television and are willing to pay for it, then the problem they face
is one of extinction, pure and simple.

Quite where that
leaves television in New Zealand is a vitally important issue. Television is married
to local culture in a way that no other medium can quite claim and if we’re to
continue to have a local TV service we have to figure out a way to fund it.
Personally I’d rather pay for that than pay for a dodgy VPN provider just so I
can watch television.

Will we see the return of the cosy duopoly?

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The government is gearing up to sell management rights to the 700MHz spectrum in the next few months and hopefully we’ll see LTE mobile service deployed throughout the country in the not too distant future.

The auction itself is key to the future of the mobile telco sector in New Zealand and there are a couple of worrying signs in the information that’s been released so far.

All together we’re looking at 45MHz in total. We have three mobile operators so that would be three lots of 15MHz each. Nice and simple, it means we have equal opportunity for mobile network deployments and each network operator will be able to offer the same level of throughput as the other operators.

However, that doesn’t take into account the technology itself. LTE is clever stuff and will allow network operators to combine together spectrum from a variety of different bands to create a massive network with potential for hundreds of megabits per second.

If that’s to happen, we need to address ownership of all available spectrum, not just the 700MHz spectrum in isolation.

What really worries me, however, is the note in the press release that says the 700MHz spectrum will indeed be sold off in 5MHz blocks with no operator able to buy more than 15MHz. Unless there’s a lack of interest, in which case the Ministry may increase that limit to 20MHz.

Two operators with 20MHz and a third with nothing or at best 5MHz would destroy our newly emerging mobile network competitive market.

For too long we struggled with a cosy duopoly in our mobile market. Two players does not make for a dynamic market – it makes for a carefully managed, steady-as-she-goes, don’t rock the boat approach to pricing and services. It’s natural, it’s what happens in every industry and it’s entirely hopeless.

Today we have three network operators with two and a half networks. If we want to ensure a three player market in 4G (something the Aussies have already got wrong) then we have to ensure the auction is conducted in such a way as to make that a priority.

I know Treasury thinks it can make a windfall from the auction. I know the government will, in these difficult economic times, be eager for a boost to the coffers from those greedy telcos. But the true economic impact comes later, once the networks are deployed. It’s only then, when we have competition and capability, that we see the benefits such deployment can bring. The government itself acknowledges that – now it must manage the bean counters to make sure they don’t get too carried away with dollar signs in their eyes.

I’d go so far as to simply offer up the spectrum at no cost. Think what 2Degrees could do with its network deployment if it didn’t have to invest $100m or more in spectrum. That’s serious money for a network rollout that will bring competition to the masses.

Think I’m a Communist? We have precedent. We’re talking here about a 20 year monopoly on these spectrum lots, given away in the belief that the economic gain will be tremendous. If that sounds familiar then it should – that’s the argument the government uses to sell its Sky City convention centre deal. Why not use the same logic here?

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Terms and Conditions apply

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What would you like your telco to tell you about your
broadband connection?

I ask because the TCF is currently reaching the end of a
lengthy process to figure out what to put on advertising and point of sale
material (among other places) in order to help customers compare like with
like.

Currently we talk about price, data capacity and sometimes
speed – although not specifically as the Commerce Commission has always
insisted that if you advertise a product as being able to do something, that
product should be able to do just that. Tricky thing, that, when you’re talking
about broadband speeds on a copper network.

There are plenty of other metrics that customers have asked
about over the years. Contention ratio is one – how many other people will I be
sharing this connection with?  Is it 20:1
or 50:1 or worse? What about committed information rates (CIR) and maximum
speed? What about international capacity – will I find myself unable to connect
to my favourite international site because the ISP’s international link is
saturated?

Then there are what I think of as the “asterisk conditions”.
You know the ones – “reserve the right to manage the service” and “acceptable
use policy may be applied” and possibly even “we don’t let you use your connection
for just anything, you know”.

What would you like to see listed? We can’t have an inexhaustible
list – the model we’re working to is the ticket on display in a used-car’s
window on the lot – but I’d like to hear from members and others about what
would be of use.

A small Budget surprise

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Tucked away in the Budget speech of last week was a line item I must confess I completely missed.

The government, and the crown Research Network REANNZ, has put aside $15m for “a new undersea cable to the US and Australia” according to a tweet from the REANNZ Twitter account.

It’s only a drop in the bucket, but it continues to show support at some level for a new trans-Pacific cable.

Telecom, Vodafone and Telstra are, apparently, still working on their trans-Tasman fibre link – but that’s really only going to get us so far in terms of capacity and competition. Capacity wise, it replaces the Tasman2 cable which is about to die completely. Competition wise, well Telecom owns a large share in both this new proposed cable but also in the Southern Cross Network, so you could argue that competition is not well served in such an instance.

What is still vitally important is another cable from New Zealand to the US, as well as one to Australia. I’d add in one north to Japan and look further afield – South Africa, Central or South America as well in the future.

Price wise we’re looking at $400m for a single connection to the US. I may have mentioned before just how many submarine cables we could have for the cost of the Waterview motorway extension in Auckland but I’m starting to sound like a stuck record.

Fifteen million is just a start, a very good one but still just the beginning. We need to get on and build our capacity if we’re to take advantage of the opportunity that lies before us. We’re seeing more digital businesses flourishing in New Zealand and the number of high-profile names is but the tip of the digital iceberg. It’s high time we got in and supported their ability to operate from New Zealand and high time New Zealand took on the world.

Spectrum auction – a bob each way

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The government has released information around the make-up
of the 700MHz auction, although the all-important pricing has not yet been
announced.

As expected it’ll be a straightforward auction process, with
ownership (well, management rights) kicking in at the start of 2014.

New Zealand will follow the APT band plan with 45MHz of
paired spectrum being made available in 5MHz blocks. That gives us nine
possible pairs to bid for.

The maximum limit will be two lots of 15MHz each – markedly
less than Telstra’s recent acquisition of 2x20MHz in Australia. However,
depending on demand that restriction may be withdrawn during the auction.

Winners will have a “use it or lose it” clause, a “broader
obligation to extend mobile cellular coverage” and in addition, may well be
able to pay off the cost of the spectrum over a longer period of time, rather
than having to plunk down the cash once they’ve won their lot.

This is interesting because there are clearly two competing
forces at work here. On the one hand, Treasury will be very keen to see a huge
windfall for the coffers. It’s budget time and the government will be keen to
reap some reward for flogging off the rights to valuable spectrum.

In Australia the recent auction brought in just on A$2bn
(down from the expected A$3bn) so if we fudge the numbers we could be talking
about $400-$500m for the rights in New Zealand. The Aussie auction was a bit
different (it included another spectrum range as well) so let’s knock that back
a bit further to $300m.

That’s $100m from each telco – Vodafone, Telecom, 2Degrees –
which is money I’d rather see spent on the network deployment itself.

Which leads to the opposing tension – the true economic gain
from deployment. The Crown puts that at about $2.4bn over the next 20 years,
something that will only happen if the telcos actually deploy LTE as quickly as
possible.

To my way of thinking it’s important we get on and deploy
the stuff. $300m today versus $2.4bn over the next 20 years seems a no-brainer,
but I’m no politician.

It will be interesting to see what the government means by “broader
obligation to extend … coverage”. I would anticipate some form of rural
deployment requirement, but that could be a double-edged sword. While Telecom
and Vodafone would cheerfully roll out 700MHz LTE in rural New Zealand (they’ve
both said as much already), 2Degrees will want to focus on the cities and major
population centres first. We will have to work out whether we’re happy to have
Vodafone and Telecom dominate the rural space in the short term and whether we
should reward them for that during this process.

2Degrees has brought tremendous competition to the mobile
market and it would be a shame to see that stymied in the rural space. Having
said that, rural New Zealand needs broadband in a hurry and mobile broadband is
the best way to deliver that in many areas. So we have a conundrum.

2Degrees has its own economic study, from Venture
Consulting, that shows the economic gain of having three mobile players is
worth around $12bn over the next nine years. That’s a lot of money to be gained
from very little government spend – none, to be precise – compared with the UFB
which will cost us taxpayers $1.5bn for a supposed $33bn over 30 years.

The government has released information around the make-up
of the 700MHz auction, although the all-important pricing has not yet been
announced.

All of this will be put to the test over the next few
months. MBIE will consult on the auction process, these additional requirements
and how the payment mechanism will work. It’s also looking at whether LTE can
sit alongside fixed wireless services in neighbouring bands, which is a very
good idea.

But pricing won’t be included in this round of consultation.
That will have to wait until nearer to the auction date itself. The Aussies set
their reserve too high (Bill Bennett compares previous pricing very nicely
here) and it’s important we don’t scare off any potential bidders – most importantly,
2Degrees.

 We haven’t addressed
the elephant in the room either. Maori won a major victory at the turn of the
century and ultimately paid for a discounted chunk of spectrum which became the
backbone of 2Degrees’ network. This time round they’ve been told they’re not
getting anything – $30m  (EDIT: not $35m as I had originally) has been set aside for ICT related initiatives instead –
but there’s been no word yet on whether a legal challenge will be mounted. That
could well derail the whole process.

It’s important we get this right. Mobile services really are
the future of telecommunications in many respects and if we stuff this up now
it’ll leave us with an anti-competitive market that won’t deliver on any of the
economic forecasts.