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Software prices and patents

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I met with Craig Foss late last week. Foss is Minister for Consumer Affairs and I wanted to talk to him about the price of software in New Zealand.

At least one TUANZ member regularly buys all his company’s software through a US subsidiary because it saves money. Not a small amount of money – currently software licences in New Zealand are double the price for exactly the same licences in the US, something that is extraordinary when you consider the cost of shipping for said software is now being borne by the customer, not the retailer.

In Australia, the federal government has launched an inquiry and the headlines around the public meetings make for shocking reading. While Apple explained its global pricing policy (and to be fair once you take into account price points and exchange rates, the cost of Apple software and content is about the same in New Zealand as it is in the US)
and acquitted itself well, Adobe seems to have caused more harm than good in an Adidas jersey kind of way and Microsoft was little better. Needless to say software prices in Australia have tumbled and that triggered my interest in getting in to see Foss about doing something similar in New Zealand.

However, Foss has not been idle and has already been in touch with his Australian counterparts, suggesting that New Zealand officials would be keen to work with Australian officials over exactly these issues.

As he points out, most multinational software companies don’t have New Zealand pricing, they have Australasian pricing, so if it’s good enough for them across the ditch, it’s good enough for us.

No word yet on whether the Aussie government will play ball but well done to the Minister for front footing it, and hopefully we’ll see similar price movement here in the near future.

Foss has also done well on another issue close to our hearts – software patents.

You’ll remember the noise about patentability of software coming to the fore last year. Foss had introduced a supplementary order paper to the Patents Bill that appeared to reverse the select committee’s preferred path. The committee, and indeed almost every submitter on the matter, had recommended making sure software could not be patented. Internationally there have been all manner of attempts to make software patentable to varying degrees and it’s led to such nonsense as Amazon’s “one click shopping” patent (that’s right, clicking the mouse has been patented). There’s no way that’s a unique invention that needed protection and even if it were, there’s no way Amazon should have been able to claim that it invented it (I’ve been clicking my mouse for many years now) yet that’s the stupidity of the patent world and we’re better off without it.

Now Foss has introduced a new SOP that clarifies exactly what the law should do with regard to software and rather than repeat Guy Burgess’s fine work at explaining it, I’ll simply link to his piece instead. Needless to say, we’re delighted with the result, so this is a rare double bouquet/no brickbats for a Minister of the Crown.

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Aussies show us the way to avoid

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(This post first appeared on NBR’s website)

The Australian telco market continues to be a fantastic source of information on how not to run a telecommunications sector.

The results of the 700MHz spectrum auction continue the trend of recent years with what can only be described as a road smash of a result. New Zealand , which is yet to announce formally how it will auction off our own 700MHz spectrum management rights, would do well to learn from the Australia debacle.

Firstly, the Aussie government set the reserve price so high that Vodafone Australia pulled out of the bidding altogether.

Vodafone Australia has a few issues, to put it mildly, not least of which is a declining market share and a network that suffers under the strain, but what better way to reinvent yourself than with a shiny new network based on the best spectrum available.

Australia set its spectrum at A$1.36 per megahertz, per head of population – roughly double what the European nations settled on. New Zealand is yet to announce its price per megahertz per head of population, but I would hope the Australian result would be cause any in Treasury to take a deep breath.

Only three companies bid in the auction – Telstra, Optus and dark horse entry TPG Internet. By being greedy, the Australian government lost one bidder entirely and a second bidder – TPG Internet – didn’t bother with the 700MHz spectrum at all, bidding only for the cheaper, less desirable 2500MHz lots.

The end result is that Telstra has bought two lots of 20MHz each (you need pairs of spectrum for this technology – one for upload and one for download), Optus has two lots of 10MHz each and TPG none.

The impact on competition of allowing one provider to have more spectrum than the others is quite devastating. In the mobile space, spectrum equals bandwidth, which means the more spectrum you have, the more customers you can fit onto your network.

That means before building anything, Telstra has won the 4G battle. Its costs per customer are effectively half of Optus’s costs, meaning it can charge less and still offer a better service that its nearest rival. Competition in the 4G space is over before it begins.

On top of that, the price each telco has paid is astounding. Telstra bought its two lots plus some more in the 2.5GHz band for a little over A$1.3bn. Optus paid nearly A$700m and the total auction brought in almost A$2bn for the government coffers.

That may sound tremendous – more money for hip operations and to get the country back into the black – but it comes at a cost. The telcos won’t be able to build new networks at quite the same rate because they’ve spent so much on the spectrum itself. In the UK in 2000, the cost of spectrum for 3G was so high (NZ$70 billion by the end of the auction) that BT went cap in hand to the government and tried to give its spectrum back. No dice, said the government and BT had to sell off its mobile division and get out of the mobile game entirely to survive.

Here in New Zealand we’re told by the government that it values the economic gains a 4G network will bring over and above the direct cash injection into Treasury’s coffers.

I hope so, because a similar auction over here would potentially cause tremendous damage to a market that has only recently become competitive.

The introduction of 2Degrees into the mobile market has shaken up the sector like nothing else before it. New price points, new services, an astonishing growth rate – 2Degrees is one of the most successful new entrants anywhere in the world.

But if it was forced to bid for 700MHz on this kind of scale, it would end up with management rights but no ability to use those rights. We certainly wouldn’t see a network on any scale from 2Degrees for quite some time.

While 2Degrees can roam onto Vodafone’s network, that’s not as good a proposition as having three competing network operators and if 2Degrees were, for whatever reason, unable to bid or to secure enough spectrum, its ability to compete in the 4G world would simply disappear.

We can’t allow that to happen. Our spectrum auction must be set with competition and economic growth in mind, not a quick win for Treasury.

Mr Ren

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At the end of our meeting, one of my fellow inquisitors leaned over and told me “We’ve just been to a master class in politics” and I’d have to agree. Ren Zhengfei, the founder of Chinese equipment maker Huawei, dealt easily with questions of security, expansion plans, succession planning, retirement, his relationship with the Chinese Communist Party and human rights issues.

Speaking via a translator, Ren told us he is going to spend the next five to ten years reinventing Huawei, taking it away from its roots as a centrally controlled Chinese company and making it into a global de-centralised conglomerate. It’s a move from “international” to “global” – rather than sending out Chinese managers to run local operations that don’t have any true autonomy, Ren says he’d rather “those who can hear the gunfire direct operations on the ground”, and that it will be a painful time for HQ as it moves from control to a support function.

But that aside, Ren is upbeat about the future of the company. Don’t expect to see Huawei list on a stock exchange any time soon – Ren says that would change the company in a way he’s uncomfortable with. Today the company focuses on the customers – all too often he says listed companies focus on their shareholders and returning a profit to them. By ensuring that he doesn’t have to return an ever greater percentage of his revenue to shareholders, Ren can not only keep costs down but ensures customers feel they’re getting a good level of value for their money.

This intrigues me. I’ve dealt with a lot of companies over the years that say they’re customer centric. So many, in fact, that it’s almost become code for “but we will stiff you if there’s a buck in it”. Monopoly rents, cosy duopolies, not being quite evil enough to get regulated – most listed companies seem willing to operate at the edge of the acceptability envelope, sometimes stepping over the line and upsetting their customers to the point where either they flock to another provider or, if that’s not possible, the cold dead hand of regulation falls on the industry.

Locally, Ren is just as upbeat about New Zealand. We are, he says, one of the leaders in the world when it comes to telecommunications. We clearly are very dear to Ren and to Huawei – two of the three mobile operators are using Huawei kit and Ren will have been talking UFB with the government and lobbying Chorus to use its gear.

And to that end, Huawei will set up an innovation centre with Telecom NZ to help develop all the various bits and pieces that both fixed and mobile deployments will uncover.

That’s great news – as Huawei moves to a global model, where centres of excellence drive Huawei’s business, that places us if not in the inner circle then within cooee of it.

Huawei’s point of difference is often seen as being the cheapest provider around – Ren says that’s not so. If anything, the difference is maths.

Huawei’s R&D team have developed pretty smart algorithms to cope with multiple aerials, multiple spectrum ranges, multiple generations so instead of paying for a 2G and 3G network, customers paid for one network. That means the network deployment costs are a lot less which means in effect, as Ren says, Huawei is sharing the profit with its customers.

It’s a nice way of looking at it and customers seem to love it. Huawei has the lion’s share of the 4G deployments around the world and there’s no sign of it slowing down. There’s really only one speedbump on the horizon, and that’s the increasingly hysterical noise coming out of the US Trade Representatives Office about Huawei’s security risk.

Ren says Huawei isn’t doing anything in the US and isn’t likely to but it will work everywhere else, including New Zealand. Quite how that gels with the government’s proposed GCSB and Telco Intercept bills remains to be seen.

Ren is a consummate public relations man. He knows how to play to the crowd, how to get the most out of a joke even via a translator and how to say the right things at the right time, without appearing too smooth. He also has manners – and when he poured himself a glass of water, he made sure to pour one for the extremely competent, hard working translator by his side. I can’t think of another CEO at that level who would be so charming.

The Telecommunications Interception Capability and Security Bill

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UPDATE: I’ve been emailed by the Ministry to tell me I’ve got parts of this wrong – as I said, it’s a first take on the bill and I’m still working through all the ramifications so that’s not surprising.

I’ve included the changes and clarifications the Ministry has suggested below.

I’m working my way through the new Telecommunications
Interception Capability and Security Bill (known as TICSA) and although I’m not
done yet, there are a few issues that we need to discuss.

Basically this bill will allow the security agencies to
spy on phone calls, TXT messages, emails and other data transfers, much as they
do today under our existing law.

(EDIT: The Ministry points out that this bill is about the telcos, not the agencies themselves, and the obligations placed on the telcos themselves. Well, yes).

The current Act, in place since 2006 (EDIT: Actually, 2004) allows the security
services to contact a telco and demand they make certain communications
available to the authorities. They must have a warrant to do this – you can’t
just ring up like they do in the movies and get someone to dig around a bit.
None of the telcos would stand for that.

The Act has been working well, but apparently there are
enough issues with it to require an update – hence the new bill.

The bill deals with two key issues – network management
and interception.

Network management is new – under this proposed bill the
telcos must work with GCSB when deploying their networks, must agree to consult
with the GCSB with regard to key decisions that may affect national security
(or, I’m alarmed to read, New Zealand’s economic wellbeing, which frankly is
quite a broad addition to the old regime) and must agree to inform the GCSB
whenever it makes changes to the network that may impact on national security
(or again on our economic wellbeing).

(EDIT: The Ministry says network management is not new, that in fact the GCSB works in partnership with network operators today. That’s as may be, but the emphasis from the new bill is new and the explicit formalisation of the relationship goes beyond what is contained in the current bill)

EDIT: The Ministry says the bill:

·        
requires network operators to engage in good
faith with the government on the design, build and operation of networks where
this may affect New Zealand’s national security or economic wellbeing;

·        
requires network operators to notify the GCSB of
certain proposals such as procurement decisions or changes in relation to areas
of particular national security interest (those areas are set out in the Bill);

·        
sets out a stepped process for network operators
and the government to agree, where possible, on the response to an identified
network security risk).

Does this mean the GCSB will be directing the telcos in
their network rollouts? Does it mean certain vendors will be unable to provide
gear for certain parts of the network? Does it mean those telcos that already
use a certain provider (I’m thinking here specifically of Huawei but it could
be anyone) be excluded from certain key government contracts?

This rings alarm bells for me because any government
involvement beyond wanting to simply use the networks is fraught. These are
commercial entities that already face challenging economic times and adding in
yet another layer of complexity is far from ideal.

The other half other half of the bill covers interception
and the idea that the telcos must make their networks “able to be
intercepted” should the need arise.

(EDIT: The Ministry would like me to point out that the current bill requires telcos to work with government agencies. Yes, that’s a given – I’m not suggesting they aren’t already doing some of this.)

Here I must confess to some moral ambiguity. On the one
hand, government-led security services have no business demanding we hand over
anything that may incriminate us. If the police (or SIS or GCSB) want to prove
I’m breaking the law then it’s up to them to prove it. I should not, as an
individual, be required to help. I’m innocent until proven guilty – that is,
unless I own a computer and then I’m required by law to help the police find
evidence to convict me.

Think I’m making that up? It’s part of the Crimes Act,
introduced post 911 to help police get round the tricky business of people
using this newfangled “encryption” stuff to hide their crooked
business dealings.

For me, this is taken to a whole new level by the
requirement on telcos that their networks be made “able to be
intercepted” (is that “interceptable”? Computer says no). Now my
telco is required to help the police prove I’m a criminal. This upsets me
greatly, not because I am a criminal but because I shouldn’t have to prove that
I’m not.

Having said that, I know the police have solved some
fairly major crimes by having access to telco records and I know that the
creation of the internet has been one of the biggest boons in policing of those
responsible for child pornography. The internet is a giant copying machine and
anyone sharing objectionable material leaves a trail a mile wide.

So I’m torn on the general need for interception at this
level. It also annoys me that the security services are, in effect, outsourcing
the entire thing to the telcos and demanding that the telcos spend money on
staff and technology which, if left to their own devices, would not be needed
in the day-to-day commercial running of the network. These things all add cost
to the network operators’ budgets and it’s a cost that doesn’t deliver a return
so it will indeed get passed on to users, yet again.

The bill introduces a multi-stage approach to defining
its telcos. If you’re a small operator or a wholesale-only operator, the
interception requirement is less than if you’re a fully-fledged telco with lots
of customers. You’re only required to make your network “intercept
ready” or “intercept accessible” whereas the big telcos have to
provide the full intercept capability. Oh and the minister (one of three
ministers) can decide which category you fall into as the need arises.

The law also says it applies to companies based in New
Zealand or overseas, which is entertaining. Quite how the bill can be applied
to, say, a VPN service based in Uzbekistan is an interesting one, but this
catch-all concept means that the new TICSA will be applied to Facebook, Google,
Yahoo and all the other “over the top” providers (including
presumably Skype and Viber) as well.

Apparently the security agencies already deal with such
offshore entities whenever they need to, but this bill will formalise that
arrangement.

Curiously, the bill also gives the government the ability
to ban a product if the government decides it can’t be made interceptable.
Imagine, if you will, the TUANZ encrypted email and storage service that makes
sure your highly sensitive documents are stored and transmitted with the
greatest of encryption levels. If the security agencies decide that’s going to
be a problem, the government will simply ban us from offering it.

Interestingly, they won’t necessarily tell me about it
(if TUANZ was based off shore) but rather would tell the telcos and ISPs in New
Zealand that it was banned, because they would be deemed to be
“reselling” the service, even though all the ISP are doing is giving
my customers access to the service. And if they don’t remove the service from
“sale” in New Zealand they’re liable for fines that accumulate on a
daily basis.

On top of all that, we have a police-held register of
ISPs and telcos, which must be kept up to date at all times. Yes, we’re getting
a “licensed ISP” regime without any of the benefits.

All of this concerns me. We’ll need to submit on it, if
the government opens up the bill to public submission (something it may choose
to avoid). While I’m always wary of getting involved in any conversation about
security agencies and various tin-foil hat (black tin-foil hat, no less)
conspiracies, I do object to having my right to privacy treated in a cavalier
manner. Hopefully we can make some suggestions that will improve this bill
before it’s passed into law.

For more reading on this I suggest you have a look at
Thomas Beagle’s excellent piece over at Tech Liberty. Thomas is a much faster
reader than I am and he’s done a good job of working through the various parts
of the bill. We’ll need to do a lot more of that before the government gets to
decide on interception of our communications.

Join TUANZ and win … (also, $1.5bn is ridiculous and Wrexham for the cup)

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It’s that time of the year where once again we ask you all to renew your membership of TUANZ. There’s a lot to do this year – more so than I can remember in years gone by.

There’s UFB uptake, the 700MHz spectrum sale and the review of the law governing the sector. There’s also the small matter of telecommunications interception and whether or not the government understands just what it’s asking the industry to do.

There’s also the problem of the government intervening in the Commerce Commission’s work which directly undermines the independence of the Telecommunications Commissioner and means our hard-won fight to ensure there was no regulatory holiday was for nothing. Instead, we’re in an environment where protecting Chorus and its right to make money is deemed more important than the promise made to customers (to voters) that copper broadband prices would be reviewed and reduced.

The need for TUANZ is as great as it’s ever been and if you’ve already paid your membership fees, I thank you. If you haven’t, I hope to hear from your accounts department soon so we can keep up the work. Without your support, TUANZ can’t continue to lobby government, can’t represent customers’ needs at numerous TCF working parties, can’t continue to fight for better pricing and better services for our members.

To help you along we’re offering up a prize, courtesy of Gen-i (thanks, Gen-i). Every TUANZ member who signs up or renews their membership before June 1 goes into the draw to win a Samsung Galaxy S4, valued at $1149.

And of course, as a member you can attend our After Fives for free. Stay tuned and we’ll announce the speaker and timing for our next session in the not too distant future.
Meanwhile we’ll keep raising the issues you think are important and arguing on behalf of you, our members.

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Cabinet has, apparently, agreed to spend $1.5bn on a ten-year project overhauling the computer systems used by Inland Revenue for tax collection.

By now I hope you’ll have read Rod Drury’s excellent piece on why this is such a stupid idea but I thought I’d chip in as well because rarely have I seen such an outrageous figure.
Our tax regime is not so complicated that we need something terribly outrageous to run it. Our needs are quite simple, compared with countries like the UK or US or even Australia, where state and federal taxes take a more complex bite out of our wages and purchasing power.
We also have a small population – four million people, not all of whom pay tax, and a further couple of million businesses (again, not all of whom pay tax – don’t get me started on those multinationals who like to move money around the globe to avoid this kind of thing) make for quite a small database when all is said and done.

So what could possibly justify the cost quoted? Yes, it’s over ten years and yes, I’m sure it includes ongoing maintenance and support and yes, it had better include your first year of tax payments for free for all users, because at that price we’re talking about thousands of dollars per tax payer at the least.

Drury lists some excellent points with regards to how to build a tax system (or indeed, any kind of IT system that will be used by lots of different users) but I’d like to focus more on the economic issue and why this is exactly the reason why we need a national digital architecture.
That amount of money, pumped into the New Zealand IT environment, would have an astonishing impact on local development. Even shared out among multiple vendors, we’d see a huge amount of work generated, a tremendous need for new staff and the flow-on effects in terms of economic uptake would be massive. Think of the coffee and pizza spend alone that would generate!
The Minister for Revenue Peter Dunne, the man responsible for the IRD and its behemoth IT system, says he hopes some of the spend will take place in New Zealand and that some New Zealand IT companies will benefit from the build.

I think it’s critical that any such government project be treated as an economic stimulant and as such should be given entirely to New Zealand IT companies as a way to boost the industry and because New Zealand IT companies are more than capable of doing the job and doing it for a lot less than $1.5bn of tax payers’ money.

If we had a digital architecture this kind of project would be treated as a godsend to the economy as a whole. We would rejoice at the stimulation it would deliver.
Without a plan, it’s quite likely we’ll see the project given to some big international providers (I can see Oracle and IBM, perhaps SAP and possibly HP getting involved rather than Catalyst or any of the other local software houses) and then two things will happen. Most of the work will disappear off shore along with the revenue, and in my experience the project will end up costing an awful lot more.

It’s high time we got coordinated on this kind of thing.

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Speaking of coordinated, a story on the BBC caught my eye last night, for two reasons. Firstly, it’s about a call centre in the North Wales town of Wrexham where I spent several years growing up, and secondly because some of the call centre staff have migrated to Takapuna in order to do night shift work while sitting in the sunshine.

A handful of staff have been here on a trial basis and while it’s a bit odd, being so far from home, they’ve been rostered on four days on, four off so they can see something of the country.
This is tremendously cool, for many reasons. Not only do we expose New Zealanders to the great language that is Welsh but they get to experience the sun on their skin, the taste of proper wine and the Kiwi way of life.

In addition there are cost savings for the company in question, good outcomes for the customers who call this particular company and an opportunity for New Zealand to earn some export dollars.
Insourcing is something New Zealand is well placed to take advantage of. The next step for this particular UK-based company would be to hire New Zealand folk to work the night shift and before you know it they’ll have expanded their operational base to follow the sun (not that the sun shines often in Wrexham, but you know what I mean).
This is good for all concerned and something we could encourage, and is something I’d like to see more of.

And if you’re from Wrexham and are reading this, don’t forget you can apply for political asylum. We’ll see you right.

The need for speed 4(G, that is)

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For the past month I’ve been using Vodafone’s 4G network in
Auckland and recording speed tests around the city – 27 in total.

Partly I’ve been doing this for the greater good – it’s an
ongoing test of the service and the results might be of interest – but partly
I’ve also been doing it for the “ZOMG do you see how fast that goes?” fun of
it.

And it is fast. My best result was 88.69Mbit/s down and 47.22Mbit/s
up on April 4 outside SPQR on Ponsonby Road at midday.

That’s pretty outstanding (seeing the result made the Irish
waiter say something Gaelic) and I have to admit my eyes bugged out of my head.
Speeds like that have been the purview of point to point fibre until now –
having that speed available on a handset is just astonishing.

But that’s the peak – at its worst I hit 3.30/1.39 a few
days earlier, again in Ponsonby. Typically, though, I see something in the
20-25Mbit/s range, which is not half bad for real world use.

Two things have become apparent, however. Firstly, the
network footprint is still rather small – sitting at Depot on Federal Street
this morning (an area I’d assumed would be soaking in LTE) I got only 3G (not
even HSPA) which is quite a surprise.

Secondly, it’s foolishly easy to chew through your data.

I have a plan that gives me 500MB/month and because I whined
like a jet engine to the call centre I got an extra 1GB added on for free (no,
that makes no sense to me either). I’ve blown through that, and through the
500MB bump pack I bought and now, with four days left, I have no data. The call
centre again has come to my rescue (Vodafone’s iPhone app doesn’t let you buy
data directly – you have to go to the website which wouldn’t let me buy any
ring in, which worked a treat but seems so very 1973) and now that I’ve
conducted my 27 tests, I’ll resist the urge to try any more. I’ll stick to
email, calendar and Twitter from now on.

But if we’re to really embrace this whole mobile broadband
revolution – and the StatsNZ Household use of ICT survey suggests we really are
– we’re going to need more data. I’d start with 3GB and look for 5GB and 10GB
packs in a hurry.

Telecom is about to launch its own 4G service and 2Degrees
is testing its own capability in this area – with any luck competition will
kick in at that point and we’ll see what the service really can do.

The Household Use survey makes for very interesting reading.
We’re taking to online shopping like ducks to water (yet we’re also told
roughly 30% of New Zealand businesses don’t have a website) and if you’re
waiting for the smartphone revolution to arrive, you’ve already missed it.

Smartphone use is up 26% since the 2009 survey and ¼ of all
individuals have a smart mobile device. Mobile use has increased hugely – 55%
of recent internet users connected via a mobile device at a time when the use
of a desktop computer is in terminal decline.

There are still some hold outs who don’t have an internet connection
– but only one in five households. Rural has picked up hugely, but there are
still a (thankfully declining) minority who see no value in having an internet
connection. But while that group is declining, the “costs are too high” group
is increasing, something which suggests to me another case of the digital
divide and something that needs to be addressed.

Lost Opportunities and hypotheticals

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In 2002 TelstraClear approached the Auckland City
Council with a view to rolling out its cable TV network in Auckland. A FUD
campaign by the New Zealand Herald put an end to that (read the intro to
Bernard Orsman’s piece) and Auckland missed out on the opportunity to
have the Holy Grail of telco deployment – network competition.

Imagine the scenario if TelstraClear had been given
the go-ahead. Auckland would have provided a customer base of well over a
million potential customers, giving TelstraClear the ability to scale its
services up far more than it could with just parts of Wellington and
Christchurch. It would have become a power house in the home broadband market
at a time when regulation was “light handed” to put it mildly. This
was before unbundling, don’t forget, when you could have any broadband you
liked so long as it came from Telecom.

A resurgent TelstraClear would also have given Sky TV
a run for its money in the content world. Less than a year earlier,
TelstraSaturn (as it was then) and TVNZ had signed a joint venture to provide
set-top boxes throughout the market to offer a new wave of TV services. The
content market would not be quite so one-sided and we’d have at better range of
choice in the  market, even without regulatory intervention.

Unbundling may or may not have happened. I’d like to
think Telecom would have gone out of its way to win other retail partners to
its network, competing on price and service, instead of “walking backwards
slowly” fending off regulatory and competitive pressures. If TelstraClear
had opened its cable network to the wholesale market we would have two
well-placed providers offering network competition at both domestic and
national level. I would expect that within the decade both would be fighting to
deploy their own fibre upgrades to these networks and by now we’d be well on
the way to a fibre to the home service. Competition in the pay TV space would
have been far more dynamic and we’d have multiple operators offering
differentiated service.

Instead, TelstraClear was knocked back and couldn’t
compete in Auckland. The Commerce Commission decision not to allow unbundling
put the company back even further and eventually, as we know, the whole thing
was sold to Vodafone and Telstra exited the market, turning its attention to
Asia instead. Sky TV is the only pay TV operator in the market and Telecom was
forced by the government to split into two businesses. We’re now on to our
third Telecommunications Act in a decade and a significant competitive
opportunity was lost.

—

Mobile network operator 2Degrees has made a huge
impression on the mobile network, offering products and services the other
mobile operators seemed reluctant to consider. Shared data, rollover minutes,
simple pricing tariffs.

But 2Degrees is a mobile-only operator, which means
the big guys still hold sway in the all-important “one throat to
choke” market segment. Plenty of customers, business and residential, want
to deal with one provider and if 2Degrees is mobile only, that limits its
appeal to the truly cost conscious.

What if 2Degrees had bought Orcon? The combination of
fixed-line capability, including unbundled exchanges and cabinets, plus a
mobile network would open doors that previously hadn’t existed for 2Degrees.
Not only would the customer base be able to opt out entirely from the big two,
but 2Degrees would in turn be large enough (and diverse enough) to offer
wholesale services to smaller ISPs.

In the fixed line market there isn’t much margin, to
put it mildly, but in mobile 2Degrees would be able to undercut Vodafone and
Telecom in terms of MVNO offerings, and essentially use that as leverage to
shake up the entire telco market.

Years ago I read a paper about the psychology of the
Apollo space missions (back when the human race cared about such things) and why
having three astronauts was important. You never end up with a split decision –
each decision is either overwhelmingly for or against – it’s always two to one.
That gave the mission a kind of stability that was vital when you’re millions
of miles from any kind of command or support structure.

Markets operate in much the same way. With two players
the opportunity to “take a breather” and to “sit back for a bit
and recoup on our investment” becomes an option. We see the “cosy
duopoly” form and any dynamism is muted.

With three players (or more – I’m happy if we have
more so long as it’s sustainable) that situation never arises. You can’t rest
on your laurels and eyeball the other guy across the divide because that
whipper snapper will jump up and bite you on the leg. And if you and the new
guy reach some kind of stalemate you can be the other big guy will have some
offering that you have to respond to.

Having 2Degrees in the total telco market would, I
hope, do something along those lines. It would keep the other players honest
and would potentially mean we see more differentiation right across the board.

It’s an expensive business though, being a fixed-line
ISP, and with narrow margins and an impending 700MHz spectrum auction, I can
well understand 2Degrees’ decision to stay out of the bidding for Orcon.

—

Vodafone has yet to announce its plans for UFB retail,
but it has announced a trial of LTE in rural areas.

I’ve been using Vodafone’s LTE for a couple of weeks
now and while the speed is quite variable (ranging from download scores of
3Mbit/s up to 80Mbit/s) it clearly provides a competitor to a fibre network I
won’t see for at least another four years.

So imagine if Vodafone decides not to bother with UFB.
Imagine if, instead of deploying its marketing might on fibre, it pushes big
into 4G throughout the country.

Vodafone could quite easily deploy LTE capability
around New Zealand prior to UFB arriving in town. It could bite the bullet and
introduce far greater data caps (50GB, 100GB) on its LTE network and take the
hit in the short term for long term market share gain.

(By quite easily I mean “if money were no
object” naturally. This is a hypothetical).

After all, given the choice between 50Mbit/s download
speed today, but with a smaller data cap, and 30Mbit/s download in four or five
years’ time, I know which I’d opt for, especially if Vodafone did away with
capped plans and let me use data and pay for it as I go as I do with
electricity or voice calling at home.

Vodafone would gain market share, but more importantly
the customers would be on its own network, free from regulation and from
government intervention. No need to worry about the price of copper or the cost
of the fibre deployment artificially hiking it up – just put all the customers
on your own networks (unbundled, cable and 4G) and move on while the rest of
the market gets bogged down in regulatory reviews, UBA pricing determinations
and all the rest of the distractions that come with the current market.

Telecom would dominate the UFB market, Chorus would
still have to offer fibre backhaul from the RBI towers at a regulated rate,
Vodafone would eventually move all of its traffic over to its own fibre
backhaul (thanks TelstraClear) and would use cable and LTE for the last mile
service to customers. Eventually you could even see Vodafone deploying its own
last mile fibre connection, if it really wanted to, using open access ducts.

But without Vodafone’s support in the UFB market,
uptake rates would be a lot lower and potentially Chorus would miss its
targets. The other LFCs would, presumably, still make theirs but for large
swathes of the population, UFB deployment would cease as the money-go-round
stopped. Either the government would have to rethink its level of investment or
do something else equally as radical.

The upside to it all is that you’d have infrastructure
competition, albeit in the bizarro world of fibre versus LTE, and that I for
one would get better speeds sooner, which is clearly a win for me, but the
downside is the possible failure of the UFB and that’s not something I’d like
to see.

Interception

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The government is going to update the Telecommunications Interception Act which came into effect in 2004.

Nearly a decade on it’s a good idea to review these things and to make sure we have a process that works, that the need is still the same, that the players involved are still doing the same things in the same way.

The Act allows the police, or SIS or GCSB, to call on the telcos for information about customers. Typically this involves a search warrant or similar legal document made out about a particular customer’s account. Telcos can then intercept TXT messages or phone calls or data connections. They can track email trails, they can locate cellphones using GPS or cellsite triangulation. They can access your communications.

Typically the telcos take this kind of intrusion very seriously indeed. They have teams that handle these enquiries, they move with urgency and they get the job done.

(Incidentally, this is partly why the copyright notices cost $25 each – the same team that considers whether or not a search warrant is valid will also look at a copyright infringement notice because both documents are legally challenging and because they involve infringing on a customer’s privacy to a huge degree. It’s not as simple as looking up the records for an IP address and sending on the notice.)

The government says the Act needs updating. It says there are two arms to this legislation – interception and network security.

Interception seems to me, at any rate, to be working well. The telcos respond quickly (I’ve not heard of a telco not responding in a timely fashion) but won’t have a bar of the government agencies taking shortcuts. For a while there was talk of the police faxing through warrants rather than showing up. That was deemed unacceptable pretty sharpishly and I haven’t heard anything similar since then.

Network security, likewise, works well. The GCSB stays out of the way and the telcos roll out state of the art deployments that should be as secure as they can be. Ironically, the Act requires the telcos make their networks hackable – that is, the Act itself is a single point of weakness, albeit one tucked away inside the networks’ operation centres. Left to their own devices, the telcos wouldn’t be willing to entertain any question about their security capabilities. It’s a selling point, it’s basic hygiene and it’s vital to their on-going commercial role.

So what needs fixing?

Well, since 2004 the telco world has changed. No longer do we buy all our services from our telcos. Instead we buy a pipe and get our services from other providers.

Currently these over the top providers (OTT) offer TXT, email and data-centric comms but shortly I’m sure it’ll be voice as well (think Viber, Skype and the like). These services show up to the network operators as bits of data, encrypted by a third party player, sent from one device to another. They have little visibility of what the content is (they can make an educated guess of course – certain services use certain ports, for example) and they certainly can’t crack that encryption to see what’s going on.

Over the top providers don’t always need the telcos’ support to operate, so it makes it very difficult for the telcos to capture this data on behalf of agencies which might, in say three months’ time or a year or more, need to access it.

The new Bill will, apparently, require the telcos to work closely with the GCSB on network security.

I wonder what that means. Will the telcos (private, commercial entities) be required to do things the way the GCSB wants? Will they be required to build things in to their networks that they might not want to include? Things that give them no commercial benefit?

Secondly, I wonder what the enforcement protocols are all about. Are the telcos moving so slowly they need a kick in the pants? What kind of enforcement are we talking about – monetary? Something else? Will we need to start registering telcos in some formal manner so we can revoke that registration should they not fall into line?

Will we be introducing a regime that forces telcos to somehow crack the security of Microsoft, of Google, of Apple? How will that fly with these companies? How enforceable is that from New Zealand?

And if we think about it, aren’t these OTT providers telcos in and of themselves? Don’t we consider Microsoft, for example, to be a telco? It owns Skype – clearly the world’s biggest telco – and it sells OTT services that used to be the purview of the telcos. Surely our definition of what a telco is needs to be updated?

Let’s take Microsoft’s Office 365 as an example. If you buy it from Dick Smith, you get a box with a code and away you go to download and use the service. If you buy it online from Microsoft itself they don’t bother with the box, but the product is the same.

Buy it from a telco (a Gen-i or a system integrator for example) and it’s a telco service and will be governed by the Interception Act. Will that not drive customers to avoid the telcos? Will that not cost the telcos in terms of both lost sales and implementation costs?

The danger is of course that all this cost will be dumped on the telcos. There’s no commercial gain to the telcos in doing any of this – the storage needed, the interception gear required, the teams they’ll have to pay to make it all work – so that cost will be passed on to the users.

On top of that, we run the risk of trying to do the impossible. If a government says simply “make it so” and steps back, we could see telcos being penalised for not hacking Gmail accounts. Is that what we need? Is that going to do anyone any good at all?

Without knowing what the problem is the government wants to solve, it’s rather tricky to understand where this is all going. All of the above is based on the Minister’s press release, which is rather brief. The Bill itself will be available next month and TUANZ will be taking a close look at the detail. It’s important we get this right because if we get it wrong the consequences could be quite miserable.

Mobile

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Telecom has announced its plans for a 4G network rollout. Starting in October, the country’s biggest telco will start with the main centres and work its way out to smaller centres, deploying an 1800MHz network similar to Vodafone’s.

I’ve been using the Vodafone 4G network around central Auckland for the past week or so and two things have become apparent – speed tests suggest quite a degree of variability at this stage, and the speed test app uses quite a bit of data. I’ve hit my 1.5GB limit for the first time ever and still have half a month to go to the end of my period.

The variability is a concern. I’ve only tested when my phone says it has an LTE connection but the range extends from 3.3Mbit/s down, 1.39Mbit/s up through to 88.69/47.22, which singed my fingers ever so slightly. I typically see a score in the 20Mbit/s range for download and about 15Mbit/s up.

This is only a category three device, of course. The Cat 4s are out later this year and both Vodafone and Telecom say they’ll have them on offer – that raises the lid on theoretical maximums to 150Mbit/s which quite frankly is astonishing.

My usage has changed as a result. If I’ve got downtime somewhere I tend to flip through the news stories and now each one pops as if I were in the newsroom itself. No lag whatsoever. I’ve had to hit refresh a couple of times thinking the Stuff app had stuck again on old news, but no. It was brand new news. Even BBC video clips load with an unheralded ease.

Which of course means I can watch more, and do more, with my phone. Which means I use more data. Which means I will need more data and if Telecom can offer that, I would hope it will see the competitive nature of the telcos brought to the fore, which will be very nice indeed.

Both Telecom and Vodafone have said they will roll out 4G services on the RBI towers and this for me is the best part of the whole launch. Rural New Zealand is poorly served for broadband and mobility – having both delivered in a timely fashion will be great news. Better still, once you’ve got a tower in place with fibre backhaul the speeds per customer off each of these towers should be really quite good. Your rural LTE experience could well be better than the urban equivalent, with its higher density of users per tower.

Because the towers are paid for as part of the RBI programme the cost of rollout is greatly reduced and that means the telcos will be more likely to put kit on those towers.

But both telcos have said they’ll need to wait for the auction of the 700MHz spectrum before they do so. My understanding of radio frequency issues borders on the ignorant (although not as ignorant as those cell tower protestors) but my understanding is that the footprint of each tower at 700MHz is far superior to that of 1800MHz and that the ability to operate over rural landscapes (trees, cliffs, water) is much better.

Vodafone tells me the amount of spectrum available will influence the speed capability. It has a lot of 1800MHz spectrum and will end up with a lesser amount of 700 so that too will impact on the speeds and throughput, but all told whatever the rural user gets it’ll be a lot better than today.

So where are we at with the auction? The minister has said we’ll have one (step one) and that they’ll announce details later on this year (step two) but we’re none the wiser as to how the auction will be run, what size blocks of spectrum will be allocated or what the reserve price will be.

In Australia the reserve price set by government was so high Vodafone Australia pulled out of the auction entirely.

There will be a degree of tension within the government regarding the auction. On the one hand, Treasury will (I’m sure) be pushing the government to maximise its return on investment. That is, make sure the auction brings in as much money as possible. Perhaps we’ll see one block of 20MHz and two of 15MHz (or similar) in order to push bidders towards the bigger block. The more spectrum the more throughput so that will be attractive and that will drive up the bidding.

On the other hand, the economic value of the spectrum lies mostly in its use and the less the telcos spend on spectrum the more they’ll have for network deployment. The cost of spectrum in the UK in 2000 saw BT almost bankrupted and in Europe several telcos did indeed go to the wall. The rollout of 3G was far less aggressive than we’d hoped and the user uptake took several years to get going.

Three equally sized blocks would lead to only a couple rounds of bidding while the three telcos sort out which one is going to buy each block and then they’ll stop bidding. That means less income for the Crown but a faster deployment of network in rural areas.

TUANZ would like to see three equally sized blocks and a reasonably low reserve price to encourage the telcos to deploy. My concern is that 2Degrees be squeezed out of the 4G race with too high a price and that would be a disaster for the industry as a whole, particularly given how much change a truly competitive industry has delivered.

4G wars

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Telecom has announced it’s launching its LTE network in
October and will steadily roll out services throughout the country using Huawei
equipment.

There are several aspects to this that are worth discussing.
The impending 4G war with Vodafone – data caps and the $10/month premium charge
that Vodafone adds on your bill for 4G are all up in the air now.

Then there’s the choice of Huawei over incumbent
Alcatel-Lucent which while not surprising is still quite telling.
Alcatel-Lucent will continue to manage the 3G network (Telecom’s much vaunted “faster
in more places” XT network that famously hit a wall at high speed and caused
Telecom no end of embarrassment and not a small amount of money) but basically
this is the end of the line for ALU’s relationship with Telecom. I put that
down not only to the XT debacle but also to Alcatel’s lack of a single-RAN
solution. That is, to roll out 4G Telecom will need new boxes on the poles
rather than just changing out the cards in the existing boxes. That makes the
deployment much more expensive than either 2Degrees or Vodafone’s similar
rollouts and that’s a problem.

(EDIT: As has been pointed out, Alcatel will continue to run Telecom’s fixed line network and its operation centres and has just won the contract to upgrade the optical transport layer. I’m just talking about the mobile side of things here)

This also will mean trouble for 2Degrees – it now has to
spend yet more money rolling out 4G just to keep up. This at a time when it’s still
deploying 3G, with a looming 700MHz spectrum auction and when pundits are
suggesting it should probably look around and buy a fixed line operator (Orcon,
for example) or face being marginalised.

But I’m more interested in Telecom’s promise to roll out LTE
on the rural towers built by Vodafone as part of the Rural Broadband Initiative
(RBI) which is very exciting news for all concerned.

Currently the RBI deployment is flying somewhat under the
radar, predominantly because of the road crash that is early UFB deployments.
There are no stories of customers being cut off for days, of Chorus techs
standing around in clumps staring at holes in the ground, of cost blowouts
because of the difficulty of digging through footpaths.

Instead, we hear very little about RBI. Vodafone and Chorus
presumably are rolling out network coverage. Presumably customers are
connecting and presumably they’re reasonably happy with the service.

Vodafone promised the rural broadband pricing would be on
par with urban prices, and while the price points are not too dissimilar ($100
for phone and broadband being one example) the data limits are woeful. You have
a choice of 5GB or 15GB a month – neither of which comes close to urban levels.
That same $100 in the city would get me 100GB of data. Given we want to
stimulate the rural economy, you’d hope there would be pricing for business
users on the RBI, but while I can get 1TB of data for $20/month from Vodafone
in Three Kings, that level of use on the RBI would require me to sell the
entire South Island to pay my debt.

There’s also a lack of competition in rural New Zealand.
Aside from Farmside (the obvious candidate) there aren’t too many other
resellers of Vodafone’s service, nor are there partners clamouring to add their
equipment to the RBI towers – or rather, if there are they’re keeping very
quiet about it.

Both Telecom and Vodafone have said they will go all out on
the RBI towers once it secures some 700MHz spectrum and hopefully once that
starts we’ll see some actual competition for what could be a lucrative market.

Interestingly, I’d expect to see faster speeds on the rural
LTE network than on the urban.

I’ve been using Vodafone’s LTE for the past couple of weeks
and while my peak speed was an impressive 88Mbit/s down and 47Mbit/s up, most
of the time it’s around the 15-20Mbit/s down range, with upload being slightly
less.

I’m putting it down to my being forced to share the network
with others, something that’s a perennial bone of contention (ha) among
wireless users.

Rural customers would, hopefully, have less to worry about
because there are fewer of them per tower.

Given the towers are being built under a government subsidy,
they’re going in to places where commercially there just aren’t enough
customers to justify deployment. That means the number of customers per site is
likely to be far fewer than in an urban environment. Which should mean you’re
more likely to see the higher speeds in rural areas (backhaul notwithstanding
as it’s fibre-based capacity from Chorus).

When you add in some of the cool stuff Huawei showed me in
China (NB: I flew there courtesy of Huawei) – things that will come up in the
next round of revisions to the LTE standard – rural customers will be well
placed to go mobile.

All told it’s an exciting time to be a mobile user. I’m
hopeful we’ll get some decent pricing out of the two main players (and of
course, 2Degrees will be there by default as it roams on Vodafone’s network)
and that can only be a good thing for rural New Zealand.