Guest post – UK broadband goes mobile

/in /by

UK mobile broadband infrastructure

The UK was
among the first countries in Europe to receive a consumer level 3G network,
launched by the mobile wing of British Telecom in 2003. Up until that point we
had, like everywhere else, struggled along with a 2G service – fine for voice
and texts but internet access could be painful even compared to dial-up.

It wasn’t
until 3G went live that mobile broadband became a real possibility, and it’s
proven popular: the UK telecoms regular Ofcom
estimated in 2012 that 13% of adults in the UK had a mobile broadband connection.

Mobile broadband not-spots

Despite the
enthusiasm with which UK net surfers have taken to mobile internet access,
coverage and performance remains an issue. The UK is not a big country and
we’ve had 3G for ten years so it would be reasonable to expect almost complete
saturation of mobile network signal, but in fact many gaps remain.

In towns and
cities you can generally rely on access to 3G, but it’s still not uncommon to
find ‘not-spots’ where the signal falls back to 2G or drops out entirely. And
once you’re out into the countryside the coverage becomes very patchy.

The network
operators claim to offer in excess of 90% coverage. In 2011 the BBC conducted a crowd-sourced experiment to explore mobile signal
throughout the UK and discovered that when a data connection was available
users were only able to get 3G around 75% of the time. The resulting map
revealed a large number of not-spots throughout the country.

That was two
years ago of course, but our own testing confirms that mobile broadband still
has a long way to go. In May we conducted our annual mobile broadband Road Trip, travelling from London to
Edinburgh while recording the performance of all major network providers.

With speed
tests, downloads and uploads and media streaming we were able to see how mobile
broadband handled practical tasks in a real situation.

Several
networks – notably Three, EE and T-Mobile – completed a large number of tests
and returned some excellent speed test results, some as high as 8Mb.

However
several networks failed to perform to a reasonable standard, with the weakest
managing to complete just 13% of the tasks. All the networks struggled with
streaming media, particularly video, none of them managing more than half of
the attempts.

This adds up
to a frustratingly inconsistent experience when using mobile internet on the
move. Provided the signal is available the connection can be incredibly fast,
particularly with the latest DC-HSDPA 3G networks providing 20Mb or more, but
all too often you’ll wander into an area with no connectivity and it will cease
to function.

The next generation

We are
hopeful this situation will improve, however, thanks to the recent introduction
of next-generation 4G mobile broadband.

The first 4G
network was launched by EE in October 2012 and is still fairly limited, but the
spectrum auction which doled out 4G frequency to the remaining providers came
with a requirement: they must commit to providing indoor coverage to 98% of the population

This should
mean that within the next couple of years we’ll see a significant improvement
in mobile broadband performance as the networks compete to offer the best
mobile internet. Not only will 4G bring much faster speeds but this caveat to
offer a minimum level of service will help reduce not-spots.

And
Britain’s Rural areas – currently poorly served by both fixed and mobile
broadband – may see the benefits too as mobile internet fills the gaps left by
our ageing telephone network.

Author Bio: Matt Powell is the editor for the UK broadband
comparison site Broadband
Genie, where he blogs on the
latest broadband and mobile broadband topics.

 

The GCSB hearing

/1 Comment/in /by

All the media coverage of yesterday’s committee hearing into the GCSB bill centred on Kim Dotcom but for my money the real discussion came in Thomas Beagle’s presentation.

Thomas runs Tech Liberty and is, on reflection, one of the most principled people I know. His views are based on some very clear, well-thought out beliefs about civil liberties in the age of the all-powerful network and I agree with most of his views and ideas, albeit in a more watered down form. He’s quite right when it comes to copyright issues, the extent to which technology offers governments the ability to monitor and invade our lives and the need to counter that with some strong, clearly defined limits on those powers.

We disagree, for example, on whether there should even be a GCSB or security apparatus in New Zealand to begin with. Thomas’s view is the more principled – mine is less well founded but more pragmatic. Too many politics classes at university I fear, or perhaps not enough.

Thomas’s submission focused on two key issues: the scope of the GCSB’s reach under the new legislation and the concept of “metadata” and what that means in this day and age.

Thomas quite rightly points out that the scope of the GCSB is being extended, not tidied up as the Prime Minister would have you believe. Instead of being banned from spying on New Zealanders at home, the GCSB will be empowered to do so. This is a major leap, a huge change in both the operational parameters and the brief the GCSB works under and, when combined with Vikram Kumar’s point about the inclusion of a new role – spying not just for national security issues but also for “commercial” reasons, potentially opening up the use of the GCSB by such vital New Zealand operations as Fonterra (don’t laugh – search out the stories about the US use of Echelon to spy on Airbus on behalf of Boeing during some tense negotiations) and you’ll see scope creep of the highest order.

But it’s metadata and the definitions, or rather lack thereof, that concern me most. Metadata – information about information – can be as banal as the details you see on your phone bill. That is, it’s the information about who you called, how long you talked and what you paid. It’s not the conversation itself.

So far so what, but in this day and age of mobility, metadata includes your location because everyone of us carries a cellphone and every cellphone knows where it is in the world in order to connect to the network.

Unfortunately the GCSB bill doesn’t define metadata. It doesn’t rule it in or out of scope, it doesn’t even mention the term. We’re none the wiser as to what metadata can or cannot be gathered and neither, I suspect, is the GCSB.

I was also unimpressed with the PM’s assertion that those who don’t like it can either stay off the internet or encrypt their communications. Staying off the internet is a facile point of view and as he well knows the sister bill to this one – the Telecommunications (Interception and Security) Bill – effectively outlaws encryption that cannot be cracked by the GCSB.

New Zealand businesses need to be able to fight it out on the world stage without fear that the GCSB is handing highly important intellectual property over to US or other allied “authorities” without realising what they’re giving away. Given the news out of Europe about the level of US spying, New Zealand will have to tread very carefully on the international stage. On the one hand our security alliance is with the US and its traditional allies. On the other, our trading alliances are increasingly with those who stand on the other side of the fence – China and south east Asia.

It’s vitally important we get this right not only for Thomas’s principled views around civil liberties but also because of my pragmatic views around trade relationships. That’s a tricky position to be in and TUANZ urges the government to think carefully before plowing ahead with a law that puts both liberty and economy at risk.

Overbuilding networks is not on

/1 Comment/in /by

Let’s talk about overbuilding of networks.

Several years ago I visited the telco regulator in Hong
Kong. His biggest challenge was keeping out of the way of telcos, because over
there the market really does rule the roost. Why? Because with six or seven
copper networks, three or four fibre networks, six or seven 3G networks and at
least four proposed LTE networks, there was plenty of competition at the most
basic level.

Overbuilding is good.

However, as he said to me at the time, that’s fine once you’ve
got build out to every customer. Prior to that, overbuild is a waste of time
and resources.

New Zealand is not in that situation. We don’t have a
ubiquitous network built out to cover every building or every customer. We don’t
have competition at the lowest level, and indeed the government’s decision to
fund what are, in effect, four regional monopolies would suggest there’s little
chance we’ll ever have the population to support multiple networks overbuilding
each other. With only four million customers (in a variety of guises) the costs
far outweigh the benefits.

Except that we are already overbuilding.

In central Auckland I have my pick of fibre providers for
business grade, point to point fibre. There’s FX Networks, TelstraClear fibre
(now owned by Vodafone), Vector and of course Chorus to name the first four
that come to mind.

In Wellington there’s CityLink as well, plus there are any
number of other providers.

They’re typically not offering the same kind of fibre
service that the Ultra Fast Broadband (UFB) project will build. It’s very fast,
it’s uncontended (that is, it isn’t shared in the way the UFB’s G-PON network
will be shared) and it’s expensive as a result.

For most CBD dwellers (I’m thinking businesses here, not
residential) the move to UFB will be a cost-reduction move that means more
contention for a lesser charge. They’ll figure out what that looks like in
terms of their own risk profiles and everyone will get along.

However, there are pockets of fibre deployment that are
already in service and which Chorus and the LFCs should be taking into
consideration as they build out the UFB.

Nelson, for example, has had The Loop for around a decade
now, and at the launch of the Chorus UFB deployment the mayors of both Tasman
and Nelson were at great pains to ensure everyone knew about it. It certainly
came as something of a surprise to the Minister whose speech revolved around
bringing the future to a corner of the South Island. We’ve got the future
already, Minister, they told her.

The explanation from Crown Fibre and Chorus at that point
was that the UFB requirements wouldn’t be met by the fibre network in Nelson
but that hopefully the UFB pricing would help reduce the cost of The Loop’s
fibre to its customers as well. Competition is good and healthy, but there’s no
overbuilding going on, I was told.

The Loop tells me its prices are already lower than the UFB
prices, and that yes in fact overbuild is going on.

Inspire.Net is another ISP that’s been laying fibre for many
years in the lower North Island. Because it’s not a national provider,
Inspire.Net wasn’t considered for the UFB or RBI deployments, but it already
has a large tract of the country fibred up and operating today.

Surely there won’t be overbuilding going on there, right?

Sadly, that’s not the case. UFB fibre is being deployed in
Palmerston North right over the top of existing Inspire.Net fibre and alongside
TelstraClear/Vodafone fibre. The UFB and RBI fibre is required to be deployed
to schools in and around the country so they’ve gone so far as to put a pit
outside a school which already has fibre delivered by one of the existing
operators. This despite Chorus telling an audience in Whanganui that fibre won’t
be deployed to the farms because the cost of putting a pit in and breaking out
the fibre is just too expensive, despite promising just that a year ago.

The UFB project is supposed to provide fibre to 75% of the
population. Chorus has won the lion’s share of the project and is claiming to
be overspending to the tune of around $400m. Something’s got to give, and
apparently that pressure means the government will run over the top of the
Commerce Commission decisions around copper pricing so as to make sure Chorus
doesn’t lose any more cash.

I have an idea. How about we not overbuild existing
networks. How about instead of trying to squash these smaller players we
require the UFB fibre network companies to work with existing fibre operators
and so avoid spending money to deliver a second or even third fibre network to
these places where existing services already operate.

Instead, why not lease capacity from these existing network
operators? Why not work with the other network providers, instead of
overbuilding them – at least until we have full coverage.

Chorus, UltraFast, Northpower and Enable could then get on
with building fibre to new parts of the country, places where there is no fibre
today and where new customers will be able to connect up. It will cost less to
deploy and we’ll save Chorus its $400m, or a goodly chunk of it, without having
to favour one operator over another.

Once we have the whole country covered we certainly can look
at overbuilding. In the long run I’d be more than happy for
infrastructure-based competition to take off. But publicly-funded network
deployments should not be used as a way of quashing competition and certainly
not at the expense of operators who have already put in the long hours and hard
yards delivering the service. I don’t want my money being spent on that – quite
the opposite.

 

'>

Wanganui – city of the future

/in /by

Last weekend I went to
Tech Ex 2013 in Wanganui to talk broadband and other matters.

Tech Ex is organised
by the Wanganui District Council – Marianne Archibald, to be more exact, who
also happens to be on the TUANZ board – and aims to showcase the best of
broadband and technology to the region.

We had a very
interesting discussion about why broadband is necessary in modern life. I say
discussion – pretty much we all agreed on all points (and as the saying goes,
if you didn’t agree we certainly couldn’t explain it to you). The demand for
broadband is so great in the region that Inspire Net is working with some of
the locals to put up fixed-wireless masts all over the region. Tex Matthews,
head of the Rural Community Board, showed us what it looks like and by crikey
they’re doing a good job of it.

The countryside around
Wanganui is incredibly steep and the bits where the masts would go are
typically quite inaccessible, yet somehow they get solar panels, battery packs,
concrete, cables and all the rest up to these points and built. It’s all
community labour, on some farmer’s land and the farmer then typically becomes
the tech support for that site.

Connecting power can
mean running a lead to the wrong property (involving a complicated arbitrage
system run by someone called Jim Beam, or so I’m told) but getting the fibre up
to the mast itself is a genuine “number eight” solution.

Tex had a fishing rod
with a lot of heavy duty line for sea fishing. Keen to upgrade both rod and
reel, he fashioned some kind of probe for the end of the line, poked it into
the conduit, hooked up the hose and flushed the line through the pipe. He then
pulls the fibre through and bingo, fibre to the farm.

My hat is off to them.
The rural community of Wanganui is doing the job the hard way but doing it
well. We need to support them in these efforts and show off their good work to
other communities around the country.

We also heard from
rural broadband specialist Jonathan Brewer (I’m pretty sure he’ll kill me if I
call him a guru) who talked about cognitive radio and the potential benefits to
remote areas of deploying this kind of technology.

It was fascinating
stuff. By using the “white space” of radio spectrum (basically the bits where
spectrum isn’t being used because of interference or access issues), Jon says
we could increase coverage and capacity without having to spend a fortune on
new spectrum rights.

I’ve linked to Jon’s
blog for more detail, but it sounds like something we should absolutely
be championing in New Zealand. It’s an emerging standard at this stage but
there are some big names behind it, including Google, so we should expect to
see some hardware in the not too distant future.

All told it was a
great weekend. There’s a high level of demand, a lot of interest in the issues
that might prevent deployment and a keenness to get things done.

Because of the
horrendous storm the day before, Wanganui was in clean-up mode and
unfortunately numbers were down somewhat on last year’s event. That’s no
reflection of the topics or the interest, more about the weather and having to
sacrifice a weekend to sorting out the roof I suspect.

'>

Terminate the early termination charges

/2 Comments/in /by

Early termination charges are astonishing things.

On the one hand, ETCs are part and parcel of the telco
sector in New Zealand. If you take up a service and sign a contract, you’re
likely to get some kind of hardware for free or at a reduced price.

It’s not free, of course. If it’s a cellphone, the price of
the device is built in to your plan and you pay for it for the duration of your
plan. Sign up for three years and the cost of the handset is paid for many
times over. You’ll never see that magic money when you’ve paid it off and your
bill goes down in price.

Landlines also get their own ETCs relating to the hardware
you get from your ISP. Typically it’s a modem or router so you can connect to
the service you’re paying for.

Cellphones tend to cost up to $1000 (or more if you want a
smart phone of course, as we all do) while routers are a tad less traumatic on
the wallet, costing in the low hundreds.

Either way you’re likely to find your ETC is dramatically
more than the cost of the device, and the reason is the telco is charging you
for the lost earnings as well as for the hardware.

This is a nonsense and has to stop.

It brings to mind the bank break fee story that hit the
press a couple of years ago. Banks are allowed to charge a reasonable fee (not
really defined in the relevant legislation) for a customer to break the
contract and move to a new provider. Kiwibank and the HSBC interpreted this as
meaning it could charge a whopping great fee to cover lost earnings whereas
some of the other banks chose to interpret it in a more user-friendly “we’ll
cover the cost of admin” approach. Eventually the Commerce Commission stepped
in to warn them about their approach and both banks paid off some customers who
could prove they were affected.

Part of me says if you’ve signed a contract then that’s
that, you’re in for the duration. Part of me also says charging too much for a
break fee is anti-competitive and should be carefully managed.

Today in telco land we’re in the throes of rolling out the UFB
and, at this point in time, not all the retail service providers are on board
and selling service on it. That means customers who want to migrate from copper
to fibre run into a problem: they may need to move to a new ISP and if they do
so they’ll find they’re liable for ETCs.

In one business’s case, that amounts to $3500 payable before
they can get access to the fibre network we’ve told them is so vital to their
work.

That’s clearly not acceptable. We want the UFB to succeed,
we want as many customers on board as possible and we want small businesses in
particular to get stuck in. Having to pay this kind of fee because your ISP
doesn’t offer fibre is counter-productive.

Besides, as the business in question says, while the ETC
might stop them moving today, the minute the contract is done they will move to
a new provider regardless of the offer on the table from the current telco
because of its attitude over this.

ETCs might seem like a good thing around the finance table
but for a really customer-centric business they should be avoided at all costs.
This industry is dominated by a massive amount of customer churn. The customer
who leaves you today is quite likely to come back at some point and if you’ve
treated them shabbily in the past, you’ve made it that much harder to win them
back in the future.

By all means, cover the costs of the hardware and the admin,
but trying to reclaim lost earnings is poor form.

The banks learned the hard way thanks to the Commerce
Commission and we’ll be asking that ETCs be addressed in the minister’s
telecommunications review. Hopefully we can get rid of this anti-competitive
practice once and for all.

 

Why we can’t let two players dominate the 700MHz spectrum auction

/3 Comments/in /by

Thank you for the opportunity to submit on the rules regarding the upcoming 700MHz spectrum auction.

TUANZ (the Telecommunications Users Association of New Zealand) is a strong advocate for increased competition, and as such has lobbied hard to improve the conditions for new entrants into the market, so as to increase customer choice.

The mobile market has, as you know, recently moved from a two-player duopoly to a truly competitive environment for the first time and TUANZ is determined to encourage the growth of competition in the years ahead.

The 700MHz auction gives us an opportunity to ensure that competition is continued in the newly emerging world of 4G or LTE networks.
Rather than restating our pro-competition position again, TUANZ would like to see the following issues addressed through the auction process.

1: Fair distribution of spectrum
TUANZ is concerned that any move to allow two players to buy up to 2x20MHz of spectrum will result in a duopoly in terms of 700MHz spectrum. Given that we’ve only just begun to see competition in the mobile space, this would be a catastrophe and TUANZ encourages MBIE to make sure that doesn’t happen. Allowing a maximum of three lots of 2x15MHz each would ensure that an even and fair apportionment takes place.

2: Price
The recent debacle of the Australian spectrum auction shows that too high a reserve price can mean limited competition for spectrum. TUANZ hopes New Zealand can learn from this example and set the reserve price at a level that encourages all three network operators to bid on spectrum.TUANZ suggests looking at recent European pricing as a guideline for reserve pricing.

Notwithstanding Treasury’s keenness to maximise its return through this auction, TUANZ would like to remind all participants that the real benefit of 700MHz spectrum comes through the deployment of networks, not through an initial cash grab. To that end, TUANZ would like to see the reserve price set at a low level so as to give the telcos the funding to deploy networks as quickly as possible.

3: Payment terms
TUANZ suggests two courses of action with regard to the payment terms for any winners. First, payments are suspended until network deployment takes place. Currently there are no devices that will use 700MHz and it will be at least a year post-auction before the telcos are in a position to offer service using 700MHz. It would seem prudent to base payments around this schedule. That supposes there is also a “use it or lose it” clause – something that TUANZ would support.

Second, payments should be spread over the life of the asset – that is, apportioned payments each year for the 18 years of the management rights period. This will help all three mobile network operators to free up cash to spend on the network deployment.

This is in line with the Minister’s comments regarding the true economic value of the spectrum being tied to its use, not to its sale.
TUANZ’s overriding concern in this process is for competition. We have seen what having a third entrant in the market can do in terms of products, service and pricing and we would not like to see the New Zealand market drop back to a two-player duopoly.

(This is TUANZ’s submission on the spectrum auction sale process)

Anything can happen day

/3 Comments/in /by

Wednesday, for those who remember the Mickey Mouse Club or
Angel Heart, is “Anything Can Happen Day” and yesterday was no exception.

In just two hours there were three announcements that
radically re-shape the telco space. Not too shabby.

First off the ranks we have Orcon’s Genius Go product, which
sparks the beginning of the end of a $3bn a year industry.

Genius Go allows you to have your landline number on your
mobile phone (or tablet, I presume). The call is forwarded to your mobile over
VoIP so works best on wifi as opposed to 3G but means you can be out of the
house and get calls wherever you are. Anywhere. Even overseas. Your caller will
make a local call to your number and only pay for that call (free from a
residential number) not for the call to your mobile or for the international
bit.

This isn’t new as such, but Orcon certainly makes it very
easy and very cost effective. There’s no call forwarding charge, you don’t have
to pay a set monthly fee – if you’re an Orcon Genius customer it’s yours for
the taking. Best of all, it integrates with your mobile phone’s contact list so
you have the advantages of a mobile device (caller ID etc) without paying those
ridiculous fees associated with these basic services on a landline.

Voice is now just an app on the device and, as we roll into
the 4G world, that will increasingly become the norm. That little green
telephone icon you see on your phone will be replaced with … a little green
telephone icon but instead of paying a per minute charge, you’ll just use data
for the call. Orcon says a five minute call (most calls last less than five
minutes) will take up about 2MB of data. In short, you won’t care terribly
much.

So that’s voice calling. Not quite dead yet, but I bet in
five years’ time we’ll be looking back on it fondly (or similar).

Simultaneously, Slingshot rather cheekily launched Global
Mode, a service aimed at US and UK “visitors” to New Zealand which will allow
them to access content “as they would have in their home country”.

That’s right, sign up for Global Mode and Slingshot will
fudge your DNS settings so it looks like you’re visiting websites from a US or
UK address, and so will allow “visitors” to view Hulu, Netflix and BBC iPlayer
content without those pesky geo-block problems.

It’s free for Slingshot customers.

I have no need of such a service as my aunt, who lives in
the UK, posts VHS tapes of the latest television shows to me on a regular
basis. Good on you, aunty.

Finally, but by no means least, Coliseum Sports Media
announced it has bought the rights to the English Premier League football (I’m
sorry, I can’t call it soccer) and will screen it online in New Zealand for
$149 a season. TVNZ will offer a highlights package on free to air TV, something which reminded Russell Brown of the history between TVNZ and Sky TV.

Finally, we have a real online-first content offering that
will provide a driver for UFB, something which has been sorely lacking until
now.

Yes, it’ll work on copper but in a world where I’m watching
one online event, my wife is doing something else and the kids are both on
their devices doing their homework (or similar) we will absolutely need fibre.

There’s not a lot of detail about the Coliseum offering – we
don’t know whether it will be streamed in high definition as default for
example – but two questions spring to mind.

First off, what about the 25% of New Zealand that will never
get a fibre connection? What are they supposed to do when the vast bulk of our
content is finally made available primarily online? Can you imagine the uproar
from rural New Zealand if and when the rugby bosses wake up to the revenue
opportunity and offer a similar package for every All Blacks game? It won’t
just be tractors on the steps of parliament I can tell you.

Secondly, the price is a bit wacky. Sure, it’s for a year
(and as I mentioned we don’t know the ins and outs of the deal – will you be
able to watch any game at any time, for instance) but if I want to buy
football, rugby, netball and Canadian ice hockey I’m looking at the thick end
of $1000 a year before we even get to TV and movies.

I had a look at Sky TV’s offerings to compare prices. To get
everything (all the channels except for the oddball “specialist channels”)
including two magazines and a My Sky + box and HD you’re looking at just over
$2230 a year. Yes, you get a lot more but that’s really the point of all this –
it might not be stuff you want or would ever chose to buy.

The future delivery mechanism for video content is online –
that goes without saying (although I do find I have to keep saying it). If the
content owners want us to buy TV shows or series, sporting events and movies,
they’re going to have to move to a model that lets us pick and choose from what’s
on offer and they’re going to have to adjust the pricing to match.

The upside is that shows with a following will do very well.
Top Gear, for example, has nearly 300m viewers a week. At a dollar a show I
suspect even Jeremy Clarkson would be happy. Get it down to that kind of price
point and the move to online will move from a trickle to a flood.

'>

Unbundling – the elephant in the room

/in /by

Ten years ago I wrote dozens of stories about unbundling.

Unbundling was seen by everyone (except Telecom and some of
its financial industry chums) as the panacea to the problem of competition in
the New Zealand landline market.

Basically, wholesale access just wasn’t working and without
the added pressure of unbundling, there was little chance of bringing the price
of broadband down.

Financial advisors were aghast at the idea. How dare you
tinker with the country’s leading stock, they said. I got into a heated
argument with the head of the Shareholders Association who couldn’t see the impact
that high broadband prices were having on every other business in the land.

Eventually we got unbundling. Competitors were welcome to
put their equipment in Telecom’s exchanges and offer their own services over
Telecom’s lines.

I attended the launch at the Ponsonby exchange and it felt
good after discussing it for so long. Finally, we would see the market open up
to competition at its most basic. Finally, we would see differentiated products
and services  and ISPs would be able to
sell me a symmetrical service, or a VDSL service, or one with a terabyte of
data if they wanted. No more “any colour so long as it’s Telecom approved”.

I’m using an unbundled connection to deliver this copy
today. It’s markedly faster than the wholesale equivalent I had before and its
variability is a lot less random. Instead of micro-outages and slowdowns all
day long I get a consistent, quality connection – albeit at ADSL2+ speeds.

However, I’m one of very few customers. Within days of the
launch at the Ponsonby exchange, Telecom announced the closure of most of its
exchanges and the deployment of cabinets deep into the network. It was a cold
and cynical move extremely well played which simultaneously offered some
customers with better speeds (Point Chevalier in Auckland, for example) while strangling
competition in its infancy.

The economics of unbundling dozens of lines in a cabinet are
a lot harder than unbundling thousands of lines in an exchange. Telecom knew
this and by cabinetising its network it denied roughly half of the market to
its ISP rivals.

All of which should be ancient history but is suddenly
extremely important again.

Post de-merger Telecom is now on the countdown to being able
to unbundle that same network, now owned by Chorus and that’s proving to be a
major bargaining chip in the fight over Chorus’s wholesale pricing.

As part of the Telco Act introduced in 2011, Telecom isn’t
allowed to unbundle until the end of next year. Not coincidentally, that’s in the
same time frame that Chorus will be required to move from “retail minus”
pricing to “cost plus” pricing for its wholesale service.

Chorus has had warning that this was coming since before it
was incorporated.  It’s had a three year
delay built in to this change to allow it time to prepare itself, according to
the regulatory impact statement prepared by officials on the Telco Act. Even
its own prospectus signals the problem that the move will present for the
company.

Chorus is, however, hell bent on making sure the price doesn’t
drop precipitously.  This is entirely
proper – Chorus is an incorporated company and has shareholders to consider. It
must by law maximise their return on investment and if that means standing up
at a Commerce Commission hearing and saying with a straight face that it doesn’t
see why a move to cost based pricing will result in much of a change to its
price, then so be it.

Unbundling is, however, the elephant in the room.

If Chorus convinces the Commerce Commission or indeed the
Minister that the move to cost-based pricing is absurd and that the price of wholesale
broadband should remain high, then that gives Telecom the trigger it needs to
unbundle the network.

Telecom has roughly 55% market share of all broadband
services and if it jumped into the unbundling market, it would significantly
impact on Chorus’s revenue stream.

At the Commission’s conference, Telecom said it doesn’t want
to unbundle. That wouldn’t be its first choice because the cost would be quite
high and that money should be better spent on fibre services. But, if Chorus
keeps its wholesale price where it is today, Telecom will have no choice but to
consider it.

That should make Chorus’s blood run cold. If Telecom
unbundles, it joins Vodafone, CallPlus and Orcon as both the largest buyers of
wholesale service and largest unbundlers of the copper network.

Ten years ago I’d have thought that was a good thing. Today,
staring as we are down the barrel of a fibre deployment, it’s a complete waste
of everyone’s money.

Ten years ago it would have made a world of difference to
the competitive landscape. Today, it’s throwing money away on an outdated
technology. Yet that’s precisely what will happen if Chorus is successful in
its mission to keep the wholesale rate high. Ultimately it will be
counter-productive and result in less money being spent on fibre services and
an entrenched ISP market that has invested heavily in copper. That may well
delay the retail ISPs’ move into the fibre world at a time when it will be
critical that we all move as quickly as possible.

Looking back on unbundling it hasn’t delivered the hoped for
benefits. The old Telecom did a tremendous job of keeping competition at bay
for as long as possible and then hacking it off at the knees once it was
allowed in. If we’d had access to unbundled capability when we should have the
landscape would be quite different today. It was an opportunity that we missed
because of a world view that said we have one strong telco and that’s all we
need.

If that sounds familiar, it should.

 

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

/in /by

“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

/2 Comments/in /by

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.