Efficiently strangling us with red tape

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Government, in all its forms, is not renowned for its
understand of technology. History is littered with idiotic decisions founded on
a limited grasp of even the fundamentals of what technology can do and
prosecuted with a vigour usually reserved for flag ceremonies in schools, the
launching of a new naval vessel or the decision to build a statue of the
politician in question.

One of my favourite responses to technology from a
government would be from an anonymous Hamilton City councillor who couldn’t
understand what the fuss was all about with regard to metro-area fibre
deployments. Hamilton’s had one for years, he told me. Great, said I, what do
you use it for? Oh we monitor CBD burglar alarms with it.

Then of course we saw Melissa Lee (not Sandra as I originally had) and her cohort at the
so-called Skynet debate in parliament. She was a standout defender of the new
copyright legislation, forthright in her argument that any copyright
infringement was intolerable and pointing out that in South Korea the economy
is booming, thanks to such infringement. To top it all off she happily tweeted
that after a hard day’s legislating, she’d be going home for a glass of wine
and to listen to a CD of K-pop that her sister had sent her. One can only hope
it included PSY’s take on Alanis Morissette’s song “Ironic”.

Now, however, we have a move designed to close a nefarious
loophole in our law, something which is causing government to quake in its
boots and is keeping Treasury officials awake at nights with the sheer horror
of it all. That’s right, you’re all taking your smartphones home with you without
paying fringe benefit tax.

It’s hard to know where to start with such drivel. Do we
attack it on the basis that it’s going to cost more to implement a tax on smart
devices than it would ever bring in as revenue? Do we point out the efficiencies
inherent in allowing staff to have such a device in the first place? What about
the revenue from all those personal apps we buy on our smart devices? How about
the benefits to the environment of giving someone a device which they can use
remotely so avoiding the need to drive into the city each day?

If the government decides to tax smart devices, companies
face two choices – either figure out a complex, costly, annoying model for
managing personal use (not just voice calls of course but also data consumption
– but let’s rule out data consumed via your home wifi) thus driving staff
members to forgo the whole idea in the first place, or simply don’t allow the
staff member to have a smart device at all. No company I can think of would
cheerfully absorb the cost of any such FBT so that’s ruled out right off the
bat.

And what about BYOD? How would any such tax apply in
reverse? If I bring my own iPad to work do I get some kind of credit on my
personal tax for using a personal item for work? Surely I should be forced to
account for the work time accrued when I use my own devices?

Stupidity aside, there is a very real risk that we will
damage our employees’ ability to work remotely, to use these devices as
thoroughly as possible and potentially get in the way of that “aha” moment when
a staff member, noodling around on a device at home, finds a new way to do
something more efficiently or even better, discovers a whole new service to
build a business around. We run the risk of employers deciding there’s no point
in issuing smart phones to staff because of the added red tape. We run the risk
of stifling innovation for the sake of potentially very few dollars more in the
bank.

Governments always trumpet their keenness to cut through the
red tape and make it easier for business to get on. Somehow, they seem to
forget that when dollar signs are involved.

Samsung launch and the fall and rise of BlackBerry

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Today Samsung has launched its Galaxy S4. It’s slightly taller, has a better screen and processor and the battery is much larger. The interface promises to be more intuitive and it even has a touch of science fiction in that it includes a translator for nine languages.

We don’t have pricing yet but it’ll be on par with currently pricing, I would imagine, and in the year ahead we’ll see millions of them sell to people all around the world.

But much like the iPhone 5 before it, the era of the big surprise has passed, at least for now. The phones are iterative versions of what’s gone before. Strictly speaking the Galaxy 4 should be termed the 3.1 – it’s not a wheels-up redesign, and why would it be? The Galaxy SIII is the most popular selling handset Samsung has and it’s the phone responsible for taking on Apple in its heartland.

We’ve reached a critical point in the lifecycle of the smartphone. The design has moved from buttons to touch screen, the format has gone from included clients to the user-chosen app model. The last great surprise of this smartphone regime was probably the iPhone 4 with its move from sculpted plastic to a slab hewn from pure technology itself. All since then has been expected, signaled, even telegraphed in advance.

There’s nothing wrong with this, just as there’s nothing wrong with the new Samsung phone. It’s a natural phase in the tech cycle and it will take someone else to come along with a new format to really surprise us again. Possibly it’ll be Apple when it finally decides not to build any more iPhones and opts for a new monicker and style, possibly it’ll be Google with its Glass approach. Whatever it is, it’ll need to be quite different, quite stand out to surprise us.

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What of the last great ruler of the smartphone market? What of BlackBerry?

I had a BlackBerry for many years. A BlackBerry Pearl – mostly because it had gorgeous voice quality and I could do radio interviews on it, but also for its size, its functionality and its long battery life. Sure, it had a browser that was designed by someone who’d never seen the internet, but it was a solid, capable business phone.

That was really BlackBerry’s problem. It was a business device that had, in the US market at least, bled out into the consumer market in lieu of competition. With nothing else coming close in terms of capability, BlackBerry took the world by storm and grew into a multi-billion dollar business.

I remember the first BlackBerry on the market. It looked like a label printer and had about as much functionality, but the nice BlackBerry chap I met (of course, he was from RIM before the name change) told me the design was its best feature. In his world the BlackBerry was a success because of how well it was designed, not because it was the only phone on which you could readily and easily access your email. He couldn’t quite understand why I barked with laughter at that and was most offended when I told him what I thought of BlackBerry’s design, but to my mind the BlackBerry was so popular precisely because it had no competition. It was, and always would be, a business phone not a consumer phone. When Apple ate its market in one gulp, BlackBerry had no comeback and has been in a kind of death spiral ever since.

I waited with something approaching horror for the announcement that it would be dumping its operating system and would no doubt announce it was taking up Windows Mobile, as Nokia did before it, but instead it made a different announcement, one that’s been lost in all the noise.

BlackBerry bought QNX, a company that makes embedded systems, and will use that as the basis for its BlackBerry 10 phone. While yet another smartphone OS is nothing to write home about, QNX gives BlackBerry a leg up in a very interesting market – that of embedded mobile systems.

We talk a lot about the Internet of Things and how 50 billion devices will connect to the internet, dwarfing the number of people online by a long chalk.

If BlackBerry plays its cards right, it could become the lead OS in the new embedded systems world. Cars, home security, air conditioning, refrigeration, irrigation, you name it, it’ll need a chip that can communicate with the outside world. All that is there for the picking and we’re sure to see a landgrab for the hearts and minds of our embedded brethren. We may yet see BlackBerry rise from the ashes.

Have you ever heard of the Telco Dispute service?

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How many of you have heard of the Telco Dispute Resolution
service?

I can tell you, it’s 13% of you (since I prompted you). If
you were unprompted, the number is closer to 2%.

In short, nobody knows the service exists, which is really
quite hopeless because without it you’d be completely at the mercy of telco
billing systems, faulty call centre records and the like.

TUANZ doesn’t recommend ISPs to members when they call. We
have no preference for providers and don’t hand out ratings for various ISPs –
what we do every time we’re asked is tell customers only to sign up with those
ISPs that are part of the scheme, because that way if there is a dispute you’re
assured of having an independent third party deal with the problem.

TUANZ believes
very strongly that any ISP worth the S in its name should belong. The cost for
smaller ISPs is $500 a year, so that shouldn’t be a problem for any provider.

There is no requirement for ISPs or telcos to join the
scheme. It’s entirely voluntary and entirely paid for by the telcos that belong.
When it’s used it works well, but last year according to the TDR annual report it received only 3,000 calls and of
those just under half were accepted as complaints or “enquiries” as they’re
known.

Compare that with the Australian Telecommunications Industry Ombudsman scheme which (between July
and September last year) generated nearly 38,000 complaints (a major drop from
the year before). That’s for one quarter – for the full year it’s closer to
150,000 complaints.

There are many reasons for the difference of course. The
Australian TIO model encourages complaints rather than resolutions (each key
word uttered by a customer calling to complain becomes a separate complaint, I’m
told), complaints to the TDR can only be accepted once a deadlock with the
telco has been reached and naturally we could cast aspersions about the
Australian ability to whinge. But when all is said and done the Aussie customer
knows about the scheme whereas the New Zealand customer – for the most part – does
not.

The Australian scheme is mandatory, is governed by its own
Act and costs A$30 million a year to run. The New Zealand scheme is voluntary,
governed by the Telco Carriers Forum (although it has its own Council, which
TUANZ sits on) and costs far, far less. I can’t find a public document that
includes costs so won’t reveal them here, but it’s described by
the Chair of the Council as costing “the least, by a very big margin, of all
industry based consumer dispute resolution schemes” in New Zealand.

By and large, New Zealand telcos do a far better job than
their Aussie counterparts of sorting out disputes. I receive a number of calls
from disgruntled customers and refer most of them on to the ISP in question,
where they are resolved relatively quickly. The TDR does the same – referring customers
back to their providers when a deadlock has yet to be reached. Often customers
will complain to the TDR before talking to their telco and they are politely
but firmly sent on to do the right thing.

Most of New Zealand’s customers are covered by the scheme as
they buy service from the larger ISPs and telcos. The problem telcos tend to be
the smaller operators and they tend not to belong. In essence, we’re policing
the wrong crowd.

The previous Minister of Communications, Steven Joyce,
indicated to the TCF that if it didn’t get complete voluntary membership then
he’d have to take a look at regulating the issue and requiring all telcos join
a scheme – a scheme, he promised, that would be costly and onerous and make the
real estate agent scheme look like kindergarten.

I don’t think we’re at that point. We have a very workable
scheme and now we need to ensure all ISPs belong to it. Besides, let’s remember
the industry we’re dealing with – any cost they incur will be borne by users at
the end of the day.

TUANZ is working with the TDR to encourage full
participation and we’ll be writing to non-scheme members asking them to sign
up. We’re also encouraging the telcos to put more information on their websites and on their bills (TelstraClear customers already have this – hopefully it will spread to Vodafone bills shortly and every bill should have the information on it somewhere). I’d like to see some of those banner ads display TDR information on a regular basis, much in the same way the TV channels all carry ads about the Broadcasting Standards Authority.

You can help as well. Check on the TDR website and if your ISP isn’t a
member let them know that it’s not acceptable. Write them an email or give them
a call and if the answer isn’t satisfactory, vote with your wallet. It’s vital all
customers have access to this kind of service, especially when they are
customers of an ISP that doesn’t seem to see the value in service.

 

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Diggers

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I’m a boy so I like diggers. Always have. There’s
something about giant machines moving large piles of dirt about the place
that’s just really cool. Man (always the male) versus nature, or some such.

If diggers are cool, tunnelling machines are even more
so. I left the UK before the Chunnel was built but remember watching with awe
as giant science fiction machine worms burrowed into the dirt under the Channel
and even shed a small tear when I read that the machines were entombed next to
the tunnel on completion. They’re simply too unwieldy to remove.

The New Zealand Herald carried a piece on our own
tunnel project and the machines that are coming from China to carry out the
work. Despite the gushing prose, this isn’t something we have “never seen
before in New Zealand” unless you exclude the Manapouri hydro scheme but it is
really quite impressive nonetheless.

This project will take two years and will dig a
motorway under Auckland from Owairaka to Waterview, a distance of 4.5km. The
cost estimate is a cool $1.4bn.

By now you’re probably wondering why I’m prattling on
about digging a tunnel. We need to ship things about the place, we have a lack
of rail infrastructure and the roads are really all we’ve got for moving goods
and people around Auckland, so the theory goes, which means more roads.

I drive a lot and I don’t have a problem with more
roads. I know that doesn’t exactly tick the green credentials box, but Auckland
is already a basket case for transport and having spent five years riding a
scooter to work (and being killed twice) unless we make some fairly dramatic
changes to the roads, rail and ferry infrastructure, cars are really the only
answer.

By now you’ll see where this is going. The Southern Cross
Cable, Pacific Fibre, the new Trans-Tasman cable and all the rest cost far less
than this tunnel, yet they’re not seen as economic drivers, but a drain on the
public purse, so they’re left to the private sector to undertake.

The economic lift from building a second NZ-US cable
has not been determined. Will it add anything? Will the UFB add anything? We’ve
got general figures from equipment makers that talk up just how much such
services add to the economy but there’s been little work done on it by anyone
other than those with a vested interest. I’d like to see some numbers please,
because if we can pour $1.4bn into a hole in the ground, surely $400m for a
cable that will help us present New Zealand as a content hub rather than a
content consumer would be money well spent.

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Back to the future indeed

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I was expecting a Top
Gun “the need for speed” or “take my breath away” marketing campaign but
Vodafone surprised me by going with Back
to the Future and the De Lorean instead. Either way, the announcement that
it was turning on a 4G LTE network wasn’t too much of a surprise seeing how
many people had spotted it being tested in the wild.

For a $10 premium over your existing plan (unless you’re
corporate in which case it’s already priced in), on account customers can
upgrade their software and connect to the LTE network.

Vodafone is deploying an 1800MHz network with plans to use
700MHz should it win a chunk in the spectrum auction at the end of the year.

For now that means the footprint is central Auckland (around
30% of the population is covered today) with plans for expansions within the
city, but also extending it to include Christchurch (in May), Wellington (July
or August) and then on to cover 40% of the population by the end of the year.

Currently there are six devices that can access Vodafone’s
LTE network – the latest iPhone, iPad and iPad mini, some of the Samsung Galaxy
SIII devices that have LTE written on the box, one of the Samsung tablets and
an HTC Windows phone. More are coming down the pipe and by Christmas there will
be around a dozen.

Also launched later this year will be category four devices.
The current crop of phones and tablets are only category three – the next ones
will be even faster.

So how fast is it? At the launch with a dozen users all on
the one cellsite we regularly saw speed tests of 50Mbit/s down, 25Mbit/s up.
Latency of around 25ms is to be expected at Vodafone’s head office, but the
speeds are astonishing. The Speed Test app graphical display only goes up to
20Mbit/s so you get to watch the needle swing round to flat line, then do it
again for upload and the report is complete in the time it takes my HSPA+ phone
to get a connection to run the app.

Today Vodafone says it has 65,000 handsets in use that are
able to make the jump to warp speed and they’ll be proactively calling every
one of them to tell them. By the year’s end they expect to see more than
100,000 users on the network.

This move raises two very interesting issues. From a user
perspective it’s great. Not only do we have access to a network that is very
fast, with devices already able to be used on it but we have a technology foot
race in play that should see the other two network operators look closely at
their rollout plans. Telecom had said it was trialling 4G but wasn’t going to
deploy a commercial launch this year. I imagine that will change quite quickly,
and NBR is reporting that Telecom is already talking about a commercial launch
this year. At the latest financial announcement there was no sign of the capex
needed to deploy 4G in Telecom’s network but given Simon Moutter’s view that
mobile is a core proposition for Telecom, I’m sure that will be forthcoming.

Which leaves 2Degrees in an interesting position as well. It
has the ability to upgrade to 4G quite quickly – it has the spectrum and the
network is new enough that I’m told it’s a software/card swap scenario rather
than redeploying kit to every celltower. Could 2Degrees beat Telecom to a
launch? Anything’s possible which is great news for us users. In the meantime
both Telecom and 2Degrees will have to do something to  keep customers happy and that’s likely to
involve pulling the price-point lever. I wouldn’t sign any long-term contracts
just at the moment – it’s all going to get rather interesting.

The other issue this raises is what will the government’s
response be? Given the government’s apparent view that copper is a competitor
to its fibre deployment, what will it make of LTE? If copper, offering speeds
of 15Mbit/s down and 1Mbit/s up is a danger that must be dealt with, what will
the response be to a technology that can do 100Mbit/s and 50Mbit/s up?

Today, with the right iPad, I could be getting speeds at least
on par with the speeds I’ll get from fibre when that finally becomes available
in my area in five years’ time. If copper must be regulated to keep the price
high in order to drive customers to fibre, surely products and services like
Vodafone’s new network will also throw a spanner in the works and if the
government doesn’t see fit to get involved, what does that say about its real
motivation for keeping Chorus’s copper price artificially high?

The government has chosen to keep prices for consumers high while supporting one telco over and above all others. If that’s not back to the future, I don’t know what is.

The Digital Dividend is here, (but isn’t evenly distributed)

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The government has announced its plan for auctioning off the 700MHz digital dividend spectrum that will become available once analog TV is discontinued next year.

700MHz spectrum is highly sought after as a way of delivering 4G speeds, especially in rural areas. The lower frequency means the signal travels further, copes with buildings better and generally is seen as the best frequency range for LTE mobile services.

The government has decided to hold a straight forward auction rather than any kind of beauty contest as happens elsewhere in the world. It’s also decided that the sale will be organised in spectrum blocks “according to the Asia Pacific Telecommunity band plan” but there’s no word on how many blocks there will be, how big they’ll be or indeed how the auction will run. That’s yet to be decided, apparently.

In our submission to the MED (now MBIE) on the whole issue, TUANZ pushed for some kind of discount or other form of preferential treatment for rural deployment. Telcos traditionally roll out new networks in the CBDs of their largest target cities, and slowly deploy deeper into rural areas. We’d like to see that circumvented and suggested offering a lower price for telcos that offer to do just that. The government has decided not to follow that model.

Vodafone has indicated that it will deploy LTE on rural towers once the 700MHz spectrum is made available, which is a good thing for rural users.

There is one major issue outstanding, however, and that is Maori access to spectrum.

In 2000, as the 2100MHz auction approached, Maori pointed out to the government of the day that no ownership of the airwaves had been established and that Maori could challenge the government through the Waitangi Tribunal.

Then-minister Paul Swain side-stepped the issue by putting aside one block of the four blocks being sold and giving Maori interests first right of refusal on taking up those management rights at a 5% discount. He also sweetened the pot by putting up $5m to help set up the Maori Spectrum Trust (now the Hautaki Trust) and to help it find a commercial partner.

Today, that Trust is a shareholder in Two Degrees and without that discounted spectrum we probably wouldn’t have a third player in the market today.

In an ideal world, the government would probably have reached a similar deal today. Perhaps a chunk of spectrum could have been given to the Trust in order to shore up its shareholding in the company that runs Two Degrees, thus ensuring strong competition from our newest telco alongside encouraging Maori investment in the high tech sector.

Instead, the government “is investigating” setting up a $30m ICT development fund to assist Maori to “leverage the potential benefits from new technologies and promote and support the language and culture in a digital world”. That’s a laudable goal but I can’t help but feel the government has missed an opportunity to do a lot more on a pragmatic level.

It also opens the door to a challenge to the spectrum sale through the courts and potentially the Tribunal itself. That could delay the auction and potentially mean we spend a lot of money on lawyers and economists instead of where it should be spent – on rolling out faster mobile broadband, something the government says is worth $2.4 billion over the next 20 years.

A trans-Tasman tunnel, hurrah!

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(with apologies to Harry Harrison)

Telecom , Vodafone and Telstra have announced plans to build
a trans-Tasman submarine cable. While it’s only a memo of understanding (MoU)
at this point, the $70m build probably will go ahead as it makes good business
sense.

However it does make it more difficult to build a direct
NZ-US cable in the future, under the current conditions.

Today, New Zealand is a net importer of data. Most of our
surfing takes us off-shore. Traditionally this has meant the US but with an
increase in the number of Content Distribution Networks (CDNs) in Australia
hosting more of the content we’re after, that’s changing somewhat. Building a
cable heading across the Tasman that way means we’ll have more capacity and
potentially more competition on a vital trade route.

TUANZ has long argued that we need more capacity on the
international leg for two reasons. Firstly, to provide a competitive market and
secondly so we can end our role as net importer of data and become an exporter
of data. I’d like to see mega data centres set up in New Zealand becoming the
hub of all things content-related. I’d like to see us hosting data rather than
accessing it offshore and that means more pipes to the outside world.

A trans-Tasman pipe means we’re more likely to continue
accessing content that’s already stored in Australia and so strengthen
Australia’s role as the local hub. I can see a future where the Southern Cross
Cable has expired and any replacement is a direct link from Australia to the US
rather than via New Zealand. That would condemn us to a world where data
connections to North America have to go the long way round, increasing latency
issues and ping times and decreasing our desirability as a destination for
hosting content.

So we have mixed views on the idea of a Tasman cable, as you
can see.

Having said that, we’re very keen to understand how the
cable will be wholesaled, how Telecom’s role as shareholder in both competing
cables will work and just where the cable will land in New Zealand. Currently
fibre landing zones dictate the cable will come in to Whenuapai on Auckland’s
west coast, but as that’s part of an active volcanic field, I’d hope the
government would step up and suggest some alternatives, without adding a
massive cost to the project. It’s important we have diversity on our
international leg – currently we can survive breaks on the cable itself but an
event in Auckland would mean no international connectivity for a very long
time.

Telecom, Telstra and Vodafone are holding a press conference
in half an hour – I’ll add anything from that once we’ve heard more.

 

Telecom’s smart move

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Here at TUANZ we’ve long lobbied for better roaming rates
for mobile users.

The idea of having a smartphone and being able to use GPS,
connect with distant family and friends, send and receive email and all the
myriad of other things that have come about since Steve said “Build me a phone
with no buttons” has been one of the great boons of the last few years and
every time I use my tablet or smartphone I feel a little bit Trek inside.

Having to dumb it down, rip out its still-beating heart and
throw it on the concourse floor every time I disembark in a distant land has
always been something of an anathema to me. Every time I forced a local SIM in
my phone a little piece of me died inside.

I may be overselling it but data roaming charges really used
to get my goat.

I was delighted when Telecom CEO  Simon Moutter told me he was going to do
something about it. He’d just started back at Big Blue after his time at
Auckland Airport and I think he saw there just what a farce roaming charges had
become. Charging customers $20,000 for a product that should only cost $10 was
clearly bonkers, but nobody seemed willing to tackle the issue head on.

Sure, Vodafone had introduced its Data Angel programme which
warned users when their bill was getting excessive, but I always thought that
didn’t really address the problem of the price.

Moutter’s solution – a $6 flat rate for roamers who then go
on to use data out of their existing bundle ($10 if you’re roaming somewhere
other than Australia) has a simplicity about it that I really like. It’s hard to
not understand “you pay $6 on top of your usual amount and then just carry on
as you normally do”.

The danger, of course, was that customers wouldn’t bother
using the service, that uptake would stay about the same and that Telecom would
have to foot the bill for international data charges from the various foreign
network operators. “It would leave us a long way under water” was how Moutter
put it at last night’s After Five’s session in Wellington.

Instead, users responded with a nearly 200% increase in data
consumption while roaming, both in Australia and the other destinations covered
by the scheme.

This is tremendous news as it reinforces what we’ve been
saying all along. Make the price reasonable and people will actually pay for a
product. Sure, you can still get a better deal if you put a local SIM in your
phone on arrival, but the hassle of that (losing contact numbers, remembering APN
settings for the return journey and all the rest of it) isn’t worth the extra
savings for most people.

Moutter says this is part of the new approach to competition
at Telecom. Instead of “walking backwards slowly” defending market share and
generally being as negative as possible to the environment around, Moutter
wants Telecom to take a leadership position in the market and drive it forward.
Given how quickly he got the data roaming package introduced, Telecom is
certainly showing itself able to do that.

So full credit to Telecom for cutting to the chase and fixing
what has been a major problem for TUANZ members for a long time and now, onward
to see what’s next. Moutter says the company won’t be competing with over the
top providers because there’s no way he could foot it with an Apple or a Google
in that market. Instead, he says the future of telco providers is in bytes – it’s
data all the way and eventually he’ll be overseeing a company that doesn’t sell
minutes of calling or TXT messages. That’s an exciting proposition and hearing
it from the CEO of Telecom tells me that if there’s one thing the telco market
doesn’t lack for it’s surprises.

No certainty but uncertainty

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The ICT minister, Amy Adams, has announced a full-blown review of the telecommunications industry that is supposed to engender investor confidence in the sector, but has instead destabilised the industry at a critical point in its history.

The Minister has called for three things to happen:

Bring forward the TSO review to start immediately;
Bring forward the review of the regulation to start immediately;
Extend the UBA wholesale review (in effect freezing it until after this review takes place).
What this means

The TSO (Telecommunications Service Obligation) has been a bone of contention for more than a decade after it was introduced in a closed-door session between the government and Telecom in 2001. In it, Telecom convinced the government that the industry should pay Telecom to keep rural customers connected to the internet.

Today, the Supreme Court has ruled that the whole thing is a nonsense and the Commerce Commission should redo its sums and consequently Telecom and some of the industry have settled out of court.

TUANZ fully supports a review of the TSO and would like to see some kind of broadband-based universal service obligation that enables rural and remote customers to get online in as similar a way to their urban cousins as is possible.

Extending the UBA wholesale review puts the Commerce Commission and the rest of the industry in the awkward position of having to press on with the submissions, counter-submissions and engagement over the price of wholesale copper in the knowledge that the entire thing will no doubt be turfed out by the end of next year. Yet the Commission can’t NOT do it as it’s required to by the current Telecommunications Act.

While TUANZ has always supported the view that an ongoing review of regulation is vital in this ever-changing industry, dumping a three-year review in favour of a quickie one year review as a knee jerk reaction to one issue is not the way to do it.

We’ve seen no terms of reference for this review, we don’t know the process or who’s going to be leading the review and we don’t know what the goal of the review is.

What we do know is what the minister has said so far and it doesn’t make for good reading for anyone except Chorus shareholders.

Why these announcements now?

The spark to all of this activity is the Commerce Commission’s draft determination on the price retail ISPs should pay Chorus for access to its wholesale copper product, known as UBA.

In years gone by the price of this regulated product was governed by a “retail minus” pricing principle – that is, the Commission took Telecom’s (as it was then) retail prices, averaged them out, removed a small amount as margin and reverse engineered a wholesale product.

As was evident at the time, all Telecom had to do was maintain some hideously expensive retail plans and so skew the price to the point where the country’s most popular plans were actually more expensive at a wholesale level than they were at retail. Telecom maintained its control over the industry for many years until the government of the day called its bluff in 2006.

Chorus does not have a retail arm and so a retail minus solution is no longer viable. When the current government came to power it began work on the Ultra Fast Broadband (UFB) project and required any company bidding for the contract to be structurally separated – that is, to only do network stuff, not retail as well. If Telecom wanted to take part it would have to split in two – something it eventually agreed to and the latest Telecommunications Act was introduced in 2010 reflecting that state of affairs.

In the Act it clearly states that the wholesale price of copper services would be assessed by the Commerce Commission on a forward-looking cost based model. There really is no other way of doing it.

The Commission began its work last year and came out with a draft determination that reduced the price for UBA. There are a raft of components that go into the retail price point but the wholesale input we’re talking about here would drop from $21.46 to $8.93 per line per month.

Chorus immediately howled with outrage. This would strip $160m a year from its revenue stream and would mean terrible things would happen to its fibre rollout plans. The government immediately came out in support of Chorus and muttered darkly about interfering in the Commerce Commission process – something that prompted the former Commissioner Ross Patterson to write a stern editorial in the Dominion Post on the matter.

There are a couple of things to consider in all of this. Firstly, this is a draft determination by the Commission, with the emphasis on draft. Typically we would then all sit down, with our economists, and explain why the Commission is wrong. There would be submissions, cross submissions, a conference, final notes and then eventually a final determination. Plenty of time in which to explain why the price point should be higher, lower or managed in a completely different way.

Most of the ISPs I’ve spoken to expected that price point to come back up to the mid-teens – $16 per line per month is the most quoted figure I’ve heard.

Chorus caught on the back foot?

Putting aside all of that for a moment, the more important point is how did Chorus not know this was coming?

The Act makes it clear – a cost-based model was written into legislation by this very government and the Act was part of the reason Chorus was created in the first place. Since Chorus was floated it’s been there and we’ve all known about it.

Either Chorus management (and investment advisors) are incompetent and didn’t notice or they knew about it and are playing a very good PR game which clearly has won the government over.

The problem is, while it might be fine for Chorus investors (shares have hopped back up since the announcement) it’s incredibly difficult for both competitors and consumers alike.

Implication for New Zealand

Imagine if you will a local telco that has invested in local loop unbundling. With the prices up in the air, will they be able to continue investing? Should they abandon any future investment in favour of wholesale or just not do anything until the UFB is rolled out?

And what about the customers? We want faster broadband and if the UFB isn’t coming to residential areas for another three or more years, are we going to be stuck paying higher copper prices in the meantime just to force us to migrate once the fibre arrives?

The Minister is quoted in NBR as saying she’s more interested in fibre uptake than cheaper prices on copper.

“I don’t think the over-arching criteria in this is ‘what is the cheapest option?'” she told BusinessDesk. “If that was the case, we’d be sticking with dial-up. I don’t think you’d find any consumer saying ‘if dial-up’s cheaper, let me have that’.”

That’s a bold statement from a minister. In effect she’s saying fibre uptake is the most important factor in the industry today. More important than short term copper pricing, more important than customer benefit, more important than returns on investment to shareholders of other companies.

What she’s not taking into account is that fibre isn’t the only technology on offer. It isn’t the only technology capable of delivering faster speeds.

Copper itself can offer much faster speeds – VDSL2 for example – and we should be leveraging that investment in the short term.

And what about 4th generation mobile technology – LTE? I’ve just come back from a trip to see Huawei’s rollout in Hong Kong and saw tremendous speeds on handsets in the wild. If Telecom and Vodafone decide not to sell UFB but to focus all their energies on LTE, what would that mean for uptake? Would she then intervene to force them to sell UFB services?

That’s a tad extreme, but not unprecedented. In Australia in the mid-2000s, Telstra decided not to build a fibre to the node network but to concentrate on mobile and build the NextG network. Investment in the landline infrastructure was so chilled the government was forced to step in and pay A$12bn to buy the copper network off Telstra. Is that on the cards for New Zealand?

TUANZ wants to see a fibre network built. We think it would be good for our economy in the long term and good for customers. But we’ve long maintained that how we build this network is as important as getting it done and we opposed the government’s regulatory holiday as a result.

My fear is that with a minister hell bent on fixing one aspect of the industry, we run the risk of upsetting the rest of the industry in a way that will cost us dearly in the long run.

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Broadband is an adjective

/in /by

Dylan Reeve and I were arguing about fibre uptake and the
role of television content as driver. Dylan doesn’t believe IPTV will drive
uptake of fibre as there are too few customers to drive a provider to deliver
and there’s a problem with our retail ISP market – too many resellers of
connectivity to make a fist out of offering a service. There’s also the small problem
of our content market and the limited choice in that market.

I don’t disagree with him on those points. There are only a
handful of customers using fibre today so anyone setting up in business
offering service to those customers will have a pitiful return on investment
for year one. The ISP market is fragmented and most do, indeed, resell Chorus
wholesale so unlikely to have the margin to buy content. And as we’ve noted
elsewhere, Sky dominates the pay TV market in New Zealand and the deals it has
with ISPs are under review by the Commerce Commission for potentially breaching
the Fair Trading Act.

All of which really tells me that IPTV is vital for a
successful fibre rollout and for the future of paid content in New Zealand.

Let me explain.

I’ve just been to Kuala Lumpur courtesy of Huawei to have a
look at its fibre to the home rollout (we also talked LTE in Hong Kong but I’ll
cover that elsewhere). Uptake of FttH services has been good – around the 30%
mark, which is among the best in the world, and customers get free national
calling, relatively fast internet access and 100 channels of television (many
in HD) for around NZ$100 a month.

The competition has come in with the same deal but has 250 channels
of TV.

Malaysia is very damp – it rains a lot every day – and because
of that, rain fade on satellite TV is a real problem. Moving TV on to a fibre
makes perfect sense, and the way it’s provisioned by Malaysia Telekom,  a 10Mbit/s channel is allocated for TV and
nothing else. The picture is crystal clear and there’s no hesitation or
buffering, even when changing the channel.

The speeds customers get are relatively low. Entry level is
20Mbit/s and it goes up from there, but that’s after you’ve taken out the
10Mbit/s channel for TV, which changes things somewhat.

What is clear is that customers aren’t signing up for broadband,
they’re signing up for television that is delivered over broadband. Many years
ago I met a chap from Ericsson Australia who talked animatedly about how we
should all stop talking about broadband as if it were a thing and start
treating it as an adjective – broadband describes something else, so broadband
internet access, broadband television and so on. I suspect he’s right.

A quick Google for “triple play drives uptake” reveals a
wealth of stories and releases from around the world on this subject. BskyB’s
May 2012 financial update points to the triple play package as delivering
increased customer numbers in the UK:

“The telco noted that the number
of triple-play subscribers on its books had risen to 3.2 million, up 24%
compared to end-March 2011, while adding that triple-play penetration had
reached 31%”.

Dutch telco Ziggo also reports higher growth which it puts
down to offering a triple play package.  Year on year from 2009 to 2010 it saw an
increase of 67.5% in subscriber numbers as a result.

Even our own Commerce Commission has concluded that
differentiated video content will help drive demand for UFB services.

For a customer like me, running a business from home with a
media-bent and a desire for faster access to all things electronic, moving to
UFB is a no brainer. I won’t see it in my street for the next five or six years
but I’ll leap at the chance.

For the average mum and dad sitting at home, there has to be
an incentive, a reason to move. Faster internet access isn’t it – but 250
channels of television and free national calling (for which you need UFB) might
just do it.

DISCLAIMER: I travelled to China and Malaysia courtesy of Huawei