Happy New Year – how’s your phone bill?

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Shoes, eh? What’s that all about.

Another year begins and I hope it finds you all fit and well and raring to go. If you had half as much fun as I did over the New Year then you’ll have had a great break and learned a few things to boot.

One of the things I’ve learned is that while I might like going on holiday in a place with no cellphone coverage, not everyone is so easily pleased. I’ve got a handful of complaints to chase up with network providers from my time on the Coromandel and beyond – hopefully we can meet in the middle somewhere with a good solution for all.

I’ve tried my best to avoid the news over the last few weeks as well but some of it does leak through. Mostly it’s been about cats, from what I can tell, but TUANZ member Alan sent me a link to a story from Australia about that perennial problem – pass through.

Vodafone Australia claims Telstra is reluctant to pass on savings from lower termination rates, instead pocketing the savings to the tune of A$1.3 billion since 2004.

The Aussie regulator has lowered mobile interconnection fees to A$0.048 per minute, a reduction of 77 percent,but the cost of calls of Telstra’s fixed-line services have not fallen only 28 percent since 2004, The Australian reports.

Telstra denies this, of course, and points to the mystery of “the bundle” and says all the savings are there, they’re just invisible.

I’m not sure about you but invisible savings are a bit like the emperor’s new clothes to my way of thinking.

Over here we also have seen dramatic falls in the cost of terminating a call on a mobile network – have we seen a similar fall in the price of calling a mobile number? Certainly we have much better pricing in our mobile to mobile space, predominantly due to 2Degrees Mobile making waves. Telecom also has sharp any-network pricing and Vodafone’s latest business offers are also pushing the “call anyone on any network” line which is great to see. But pricing itself – has that moved? As with most things telco-related, it’s hard to tell. For my own use I know we’ve reduced my mobile phone bill from around $300-$600 a month when I started to no more than $150 a month these days, but I put that down to competition more than anything else, both between mobile providers but also between landlines and mobile.

I’d like to see the Commerce Commission conduct a post-implementation review of its MTAS regime to see just what has happened since the changes came into effect. It’s important we understand what impact our regulatory intervention has on the market, particularly in light of how much time and money went into the whole thing.

What do you think – are your phone bills smaller now than they were five years ago? Was the regulatory intervention worth the effort?

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The Greens rev up the ICT sector

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The Green Party has posted a discussion document aimed to
raise the level of debate about ICT and its role as economic driver in New
Zealand. My hat is off to them, in no small part because the document reads
like it was pulled from TUANZ’s policy section.

The document is broken down into three recommendations:
increasing government support for our ICT industry; encouraging youth into the
ICT employment market and taking a cornerstone shareholding in any future
international capacity provider.

Let’s look at each one in turn.

I’ve long held the belief that New Zealand government
agencies (at all levels, local and national) should be using more
locally-developed ICT services. There seems to be a belief that unless you’ve
spent hundreds of millions of dollars on an internationally sourced product, it’s
worthless.

Yet here in New Zealand we have the same needs for our
government departments and agencies that they do in Holland or Germany or
Canada or Australia or just about any other country in the first world. Better
than that, our needs are on a much smaller scale so we shouldn’t have to pay
quite as much as we do for these things. Our datasets are smaller, our
databases more easily managed and analysed. Do we need bespoke, handmade
systems developed by IBM or the like? I’d wonder.

Instead I’d much rather see our local developers given a
ready supply of local opportunities. All too often they’re told they’re too
small to bid for any particular tender – that attitude has to stop. Government
buys a lot of ICT related services – let’s give some of that money to local
developers.

Getting kids into the industry is a passion of mine and goes
back to my time at Computerworld. It’s vital we have the right staff at all
levels of the industry, from layer 1 (actually from layer zero I suspect) all
the way up the stack. The Greens are talking about including ICT in our
apprenticeship schemes and that’s already begun, albeit in a small way. But I’d
like to see more flesh on the bones of this proposal – tax breaks,
encouragement into training, course credits and so on. There’s a lot we can do
to encourage our young people to take up ICT related employment over and above other
areas in which we suffer a surfeit.

Which brings us to the most controversial part of the
discussion document – the $100m cornerstone shareholding in a second
international cable.

Already the naysayers are out in force. We don’t need one,
it’s totally redundant, it’s a white elephant.

Sorry, but I disagree. We don’t need one if we carry on
pottering along at today’s rate, but I want to see a step change in terms of
our economic use of the internet. I want to see data centres built in New
Zealand using our clean, green power supply. I want to see IT firms basing
their R&D labs here, growing their developer bases here and generally using
New Zealand as a hub to take on the digital world.  I want to see ICT grow from being worth 6% of
our GDP to being 25% – I want to see it match the primary sector in so far as
revenue goes, because then I’ll know we’ve done what we could to take our place
in the digital economy.

So full credit to the Greens for raising the bar and I’m
hoping we’ll see more of this kind of thinking from all the parties. Currently
we seem to have a “yes yes, ICT is important too” attitude that frankly won’t
change the world at all. I’d like to see us try and who knows where we might
end up.

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The Prime Minister versus the Commerce Commission

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The Prime Minister’s level of engagement over the Commerce
Commission’s draft determination on wholesale prices raises many questions. I’m not a lawyer but here goes.

John Key has taken the lead on this – aside from her initial
press release, minister Amy Adams has said little – and has repeated his
willingness to change the law in order to protect Chorus’s shareholders.

A change in law is indeed what would be needed because the
remit of the Commerce Commission and the Telco Commissioner has little to do
with shareholders and, in the instance of a regulated determination, does not
allow for political intervention.

The Commerce Commission primarily relies on three Acts to
make up its remit with regard to the telco sector: the Commerce Act, the Telecommunications
Act and the Crown Entities Act.

The Commerce Act (1986) makes it quite clear in Part One (8)
paragraph 2:

the Commission must act independently in performing its statutory
functions and duties, and exercising its statutory powers

The Crown
Entities Act (2004) defines itself (Part One – Preliminary Provisions) as:

to reform the law relating to Crown entities to provide a consistent
framework for the establishment, governance, and operation of Crown entities
and to clarify accountability relationships between Crown entities, their board
members, their responsible Ministers on behalf of the Crown, and the House of
Representatives

Which again,
speaks to this idea of independence from the Crown and the relationship between
Commission and the government of the day.

Finally, the
Telecommunications Act (2001) has plenty to say on the role of the Commissioner
in overseeing the industry, not least of which is the Commissioner’s ability to
deal with various service either as “designated services” or as “specified
services”.  I won’t bore you with the
detail but in essence a designated service is one in which the Commission sets
the price.  Chorus’s wholesale price is
one such designated service.

The Commission
gets to make the final determination – it doesn’t then refer it as a
recommendation to the Crown for approval. It weighs up all the factors, holds a
conference, uses its best judgement, compares the local market with international
markets and delivers a final decision.

There is no
appeal to the minister in the Act.  It’s
quite clear – the Commission must deliver the decision and the industry will
abide by it.

Part of the
Commission’s decision making is shaped by the government of the day, however. Section
19 (A) of the Telco Act says:

In the exercise of its powers underr Schedule 3,  the Commission must have regard to any economic policies of
the Government that are transmitted, in writing, to the Commission by the
Minister.

Although it does
then go on to say this isn’t “a direction for the purposes of Part 3 of the
Crown Entities Act” which seems to imply a certain amount of fudging going on
by the drafters of this piece of legislation. In essence, I read that as the
Commission must consider the broader economic agenda of the government when it
makes its rulings but isn’t to be directed by the government on its particular
decisions.

Which is of
course precisely what the Prime Minister has said he’ll do.

In an exchange
with Labour’s Clare Curran in the House yesterday, the Prime Minister made it
clear that the government can and will intervene if it wants to.

From the Hansard
draft transcript:

Clare Curran: Does he believe that it is a fundamental
principle of our telecommunications regulatory regime that the regulator is
independent to carry out its role without interference or undue political
influence?

Rt Hon JOHN KEY: Of course. They are free to go about their
work. The Government then is free to decide whether it wants to adopt that.

Unfortunately for
the Prime Minister, the Telco Act as it stands doesn’t allow the government to “decide
whether it wants to adopt that” at all. Far from it – the Act requires the
Commissioner to make the decision.

This was all
introduced to ensure that governments don’t simply overturn the decisions made
by their hand-picked, trained, informed decision makers. They’ve handed over
responsibility for the industry in large part to the Telecommunications
Commissioner under the auspices of the Acts mentioned here.

Over the years
the Commissioner has not always handed down rulings I’ve supported or even
remotely agreed with, yet in recent years we’ve seen a Commission that is
willing to painstakingly guide all the parties on a journey through its
decision-making process. Tediously transparent, is how I’ve described the
Commission’s work in the past and I’ve suggested to other government agencies
they might like to adopt the same approach.

You can talk to
any of the telcos and they’ll all tell you the same thing – they want certainty
from the regulatory process. They want to see what the problem is, see how the
Commission will address it, see where the outcome lies and plan accordingly. Independence
and transparency are critical to providing that certainty. Now that
independence is being challenged, not by the industry itself but by the Prime
Minister.

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A bouquet for Telecom

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Telecom has jumped into the roaming issue with both feet and
I’m very pleased with the result.

TUANZ has been lobbying hard to get data roaming rates
reduced. While the price of mobile data in New Zealand varies in price from
nothing to $30/GB, travellers heading oversees will find that price can balloon
out to $30,000/GB which makes for an unhappy homecoming, as I’m sure you’re all
aware.

We’ve all got horror stories of roaming gone wrong, whether
it’s having a piece of software update itself in the background or using the
wrong SIM card and paying casual rates. The issue’s got so bad the governments
of Australia and New Zealand have put together a trans-Tasman roaming review and
the future looks like being highly regulated.

Our telcos have responded the right way, by addressing
pricing directly. Australian customers should be so lucky – Telstra still
charges nose-bleed rates for travellers coming into New Zealand and the others
aren’t far ahead.

Vodafone New Zealand has launched its “data angel” service
for travellers alerting them to usage and requiring customers to make contact
before using excessive amounts of data, but Telecom has just changed the game
again with today’s announcement.

From December 21, Telecom customers travelling abroad will
pay a flat-rate, per day rate for data and so long as their usage is similar to
their usage at home, that’s all they’ll pay. In Australia, that’s a $6/day
price – in the UK, USA and China (among others) it’s $10/day.

This kind of offer goes a long way towards saving customers’
sanity when they’re roaming and is especially good for business users, whose
usage doesn’t vary that much whether they’re working in New Zealand or working abroad.
You’ll be able to do all the things you do locally without breaking the bank
and that will go a long way towards making data roaming a viable business tool.

If we can avoid the spectre of government agencies setting
prices, I’ll be happy and so I’m sure will the telcos. This kind of thing goes
a long way towards that goal and I for one am very pleased to see it.

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Initial Pricing Principle

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The Commerce Commission is coming in for considerable flack
for its role in determining the price of Chorus’s wholesale service and it’s
worth reviewing what the Commission is required to do and why it’s doing it.

The Commission is governed by several acts of parliament not
least of which is the Commerce Act itself, which has been since 1986 and has
flaws enough but which allows for the creation of the Commerce Commission
itself.

A relatively new part of the Commerce Commission is the
Telecommunications Commissioner’s role, something which was created in 2001 to
oversee the telco sector in New Zealand. Prior to that, we had no industry
specific regulation, no regulator and for those of you with a long memory, no
real competition in the market.

The Telco Commissioner was required to conduct periodic
reviews into a number of areas, one of which was the price Telecom charged its
competitors for using its network. This service, unbundled bitstream access
(UBA) was assessed on a “retail-minus” basis. That is, Telecom told the
Commission what its various retail plans were, the Commission took an average
number from those plans, removed a margin and presented Telecom with its
wholesale price. This price was reviewed regularly but generally speaking it’s
been the primary product most ISPs in New Zealand re-package and sell as their
own broadband service.

In effect, for many years we had no choice but to buy the
Telecom product, either from Telecom or from an ISP that simply changed the
name and re-sold the same product.

I’ve long argued that this isn’t wholesale per se – it is in
fact resale. The ISPs had limited control over the product, couldn’t specify
changes they’d like to see introduced, couldn’t really differentiate at all.

In 2010 the newly appointed Minister of Communications
Steven Joyce introduced a new version of the Telecommunications Act (the third
in a decade) as part of the sweeping changes the government would be
introducing. The main plank of the policy was the introduction of the UFB
project and the promise of government funding to any provider that built the
network.

The minister also introduced a Supplementary Order Paper
that added in a few caveats including the infamous regulatory holiday for the
company that built the UFB, but as part of that SOP the Minister also required
the Commission to do two other things: firstly, to average the price of
unbundled services between rural and urban New Zealand (previously we had two
prices) and to stop this constant round of assessing the price of wholesale service.

The Minister ordered a change to the “initial pricing principle”
(IPP) which governs the way the Commission must assess pricing. Out went retail
minus and in came “cost based” pricing. To quote from the Telecommunications Act itself (Part 2 –
Designated Services):

Initial pricing
principle: Benchmarking against
interconnection prices in comparabl countries that result from
the application to networks that are similar to the access provider’s fixed PSTN of— 

(a) a forward-looking cost-based pricing method

Bearing in mind this is in the law itself – there’s no room
for the Commission to say “we don’t think this is a good idea”. Far from it –
the Commission has expressed its concerns about retail-minus as a model for
many years, as has TUANZ. The ability for any incumbent to game the system by
introducing a handful of very expensive plans and so skew the average was
always too much to endure and we saw ISPs complaining bitterly that some of the
retail plans Telecom offered were priced below the wholesale cost to its
competitors.

As I said yesterday, there’s no way to use retail minus when
your network operator is structurally separated and has no retail arm. What
would you do – assess prices right across the board from all ISPs and work
backwards from there?

The only option is to move to a cost-based model, and as that’s
what the law requires, that’s what the Commission has done.

I’ve called the Commission on mistakes in the past: the original
TSO decision was a travesty that lumbered the market with an utter nonsense for
nearly a decade. The decision not to unbundle in 2003 was poor and did not
serve us well.

I even question the price point for LLU services announced
yesterday – it seems odd to me that prices for connectivity haven’t fallen by
more than $4 in five years.

But on the matter of using a cost-based analysis to
determine the wholesale price of service from Chorus, the Commission has no
choice – it is the law.

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Commerce Commission ruling on copper

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This morning’s announcements from the Commerce Commission
suggest we need a major rethink on the way we price regulated services in the
telecommunications industry.

We’ve had two recommendations handed down today – the first
around the price of unbundled local loop lines and the second around the
wholesale price of the product most ISPs resell – UBA (unbundled bitstream
access).

It’s important we step back a little and compare the two
product sets. On the one hand, wholesale isn’t really wholesale – it’s resale.
In effect, every ISP that sells the Chorus UBA product sells a virtually
identical product to every other ISP. You can change the colour of your
advertising campaign, but the product is basically the same. There are some
variations – enhanced UBA versus basic UBA – but in essence it’s one size fits
all. It’s what we’ve always had – a re-badged product based on a standard set
of inputs.

On the other hand, unbundled services leave far more up to
the individual ISP or telco. They can define parameters like contention rates,
committed information rates and so on. They also get to pay less money to
Chorus, meaning they can invest more in the hardware or offer these differentiated
products at a competitive rate.

All of the competition we’ve seen in the fixed line
broadband market in the past five years has come from the unbundled players and
it’s precisely because of this competition that any changes to the pricing structure
need to be closely examined. I want a competitive market that has energy and
which delivers products and services that customers want. I don’t want a
government-mandated product offered at a government-mandated price because
that’s not going to deliver the drive we so badly need.

Let’s look at the prices. Unbundled access was de-averaged –
that is, urban folk paid less than rural. Actually, that’s not quite true –
customers in urban areas cost the telcos less than customers in rural areas –
the customers themselves all paid the same price, assuming they could get
unbundled service.

The Commission was told to average the prices and come up
with a new price point for all services, rural and urban. Chorus argued that
the existing prices should simply be added together and divided by two – the
competitors argued that the Commission needed to compare our figures with
services offered overseas and that the price should come down considerably.
Given this is the only opportunity to review prices for the foreseeable future
(once they have been introduced the Commission will stop its annual price
assessment regime), the ISPs and telcos are very keen to make sure the price is
right for the remainder of the decade.

Chorus argued that we need to consider uptake of UFB and
that too low a price-point for copper would mean customers have no incentive to
move to fibre. TUANZ believes the opposite is true – that if customers are to
be encouraged to take up fibre they need a reason and that reason will be found
in the kinds of products and services that will be developed firstly on a
faster copper network and then (once it’s available) on fibre. Without those
drivers, the only way we’ll see mass uptake of fibre is if customers are forced
to migrate. There should be no need for that if the incentives are set
correctly.

The Commerce Commission draft decision set the price at
$19.75 per line, but in the final report it sets the price at $23.53 a month
per line – a reduction of 3.85% on the average price set in 2007.

This is clearly a huge win for Chorus and could potentially
cause problems for those telcos and ISPs that have unbundled and wanted a lower
price to extend their unbundled offers further into the network.

It’s not much of a change, however, so taken in isolation we
must shrug our shoulders and move on.

Let us turn to the wholesale pricing and what’s going on
there. Instead of continuing with the current “retail minus” approach, the
Commission has moved to a cost-based model, something TUANZ heartily agrees
with. Retail minus means we never really see the real price for a wholesale
service on the grounds that it’s relatively easy to game. Prior to separation,
all Telecom had to do was maintain a couple of high-end products that nobody in
their right minds would buy and the retail-minus approach meant competitors
were forced to pay more for wholesale service .

Of course, now Telecom is separated, Chorus doesn’t have a
retail service to consider and so the move to cost-based services is entirely
appropriate.

Here the Commission has dropped the price from $21.46 to $8.93
for the basic service (basic UBA) . Enhanced UBA services receive a similar
price drop.

This will be great news for ISPs reselling Chorus’s
wholesale product and means we should see more aggressive pricing in the
wholesale market from the various ISPs assuming the price point is introduced
in two years’ time as expected (there’s plenty of debate on the wholesale price
yet to come I’m afraid and the Minister’s press release makes it clear we may
need to develop a uniquely New Zealand methodology for wholesale pricing).

What’s not to like about that, you say? Well, again, taken
in isolation it’s a great outcome. Prices will fall for UBA-based services in
two years’ time when it’s introduced. But this isn’t an isolated market –
instead we have to consider what will happen with both wholesale and unbundled
products.

On the one hand we’ll hopefully see a huge fall in prices
for wholesale service while unbundling will continue for those that have it but
not be extended out any further. 
Instead, we will likely see those plans for increasing the number of
unbundled exchanges and cabinets come under threat as the business case for
unbundling becomes squeezed by better pricing in wholesale.

There is still plenty of life left in unbundling as we know
it. Not only are there more lines yet to be served in existing exchanges (I’m
told unbundling accounts for only a relatively small percentage of the total
lines running through those exchanges) but there is still revenue upside to the
service in terms of offering VOIP services instead of the plain old telephone
service.

But it does smack of the end of unbundling’s brief but
glorious day in the sun and as customers we should be unhappy about that.
Unbundling offers a leg-up to those companies that do make the effort to
install their own equipment and has done tremendous things for the customers of
New Zealand who have been able to get it. I’d like to have seen that run
extended, but it’s not to be.

Most residential customers won’t be getting connected to the
fibre network for the next four years, which means these prices are going to be
our guiding light until 2016 or so.  If
that’s the case, we’ll need to look very closely at the VDSL product set and
work out whether that will be an acceptable substitute for the time being.
Currently Chorus charges a premium for the service (around $20 extra per line
per month) which discourages ISPs from offering it. If that’s the case that may
well be the next job for the Commerce Commission.

Your [0800] call is [not] important to us

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I’m a bit of a Woody Allen fan. His later films are a bit tedious (although I liked “Vicki Cristina Barcelona”) but in the early works his genius shines through.

I remember one character (although I have no idea which film it was in) who would arrive in a scene and immediately ring his office to tell his secretary (no PAs back then) what number he’d be at and when he’d be leaving, and what number to call him on at his next location.

It neatly summed up a world where business leaders are required to be in touch but where technology simply hadn’t caught up with that need.

Thank the gods for mobile phones, I say. They’ve helped cut that tie, freed us to work from wherever we need to, whenever we need to.

I’m typing this on my iPad from Auckland’s water front looking at Team Prada take their catamaran out past the Harbour Bridge because I wanted to get out of the office for a bit. This is a good thing.

Mobility is one the key drivers of revenue growth for the mobile phone companies, it’s one of the great drivers of the overall telecommunications era in which we live and it’s a critical component of most of our lives these days.

All of which makes me wonder just why it is so many 0800 numbers tell me to hang up and call again from a landline.

Why is it that free phone 0800 numbers are off-limits to the very devices most callers use?

The answer, sadly, lies with termination rates. Or rather, in this case, origination rates.

The Commerce Commission decision on the price of calling a mobile was to regulate the termination rate down to a more reasonable number. Unfortunately, 0800 calls were left out of this determination, because they don’t attract a “termination” rate, but rather an “origination” rate. Users don’t pay to make the call, the recipient pays to receive that call and so the decision on termination rates doesn’t apply.

Which means there’s no incentive or requirement for 0800 providers to lower their prices at all, and so they haven’t.

If you have an 0800 number for your business a mobile call lasting one minute will cost you four times as much as a call from a landline and so many 0800 users simply block incoming calls from mobile phones. They can’t afford that level of cost in their business and so they deny their customers that ease of access.

Customers, as they always do, bear the cost of this. Instead of being able to call from their chosen device, they have to resort to other channels to communicate with these organisations. I resort to Twitter for the most part, but not all communications with corporates or other entities can be conducted by tweet.

In this day and age, is it appropriate that 0800 number providers can force different pricing on buyers of the service who in turn must decide whether to wear the costs or restrict their customers’ ability to make contact? Is it all about being customer friendly and obsessed as we’re told, or is it about money grubbing?

Have you had any experiences you’d like to share with regard to 0800 numbers? Please share below.

Shop till you drop

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The Australian government is looking at the vexing issue of
international companies charging more for products in Australia than they
elsewhere in the world.

It has become apparent in recent years that in our corner of
the world we pay well above the average for all manner of products. While there’s
some justification for charging more for large items because of shipping costs,
there seems little justification for charging more for software or smaller
consumer items.

The big corporates will tell us it’s all about price points,
about what the local market can bear and what is deemed acceptable in each geographic
location.

The price for calling on a mobile in India is a fraction of
the cost of calling on a mobile in New Zealand but the downside is you have to
live in a country with a billion citizens and all that goes with it.

So do we get charged more here? Should we enact laws to
change this?

Who knows. Certainly our government has said nothing on the
matter, despite the Australian inquiry. We’re remarkably silent on the issue of
what is being described in Australia as “price gouging” by the electronics
industry in particular.

Indeed, when Adidas decided we should pay more for World Cup
jerseys simply because we’re New Zealanders and are likely to be more willing
to pay more, we didn’t make too much of a fuss, we simply voted with our
wallets and bought online. Until they decided not to sell online to anyone with
a New Zealand based IP address.

I know of at least one major corporate in New Zealand that
buys all its software via a US subsidiary because it saves around 30% on the
asking price. CHOICE Australia’s submission to the government hearing on the matter
paints a darker picture – price differentials of up to 50% on software, content
and electronic goods.

That software prices can vary by that much puts the lie to
the idea that corporates simply try to hit local currency sweet spots and
reveals the truth of the matter: they will charge what the market can bear, and
without legislative support, we apparently can bear to pay more.

When you combine this pricing structure concept with the
corporates’ cavalier attitude towards taking part in these kinds of inquiries
and also their unwillingness to pay tax to support local jurisdictions, we start
to paint a picture of a world where the corporates increasingly control the ebb
and flow of commerce and the governmental structure is increasingly irrelevant.

I can only presume our own government isn’t interested in
pursuing these corporates out of fear they’ll simply stop selling products to New
Zealand altogether. That somehow the corporates are willing and able to take
their ball and go home.

Corporates, of course, are coin-operated; they will go where
the money is and so long as we show we’re willing to shop, they’ll be willing
to sell. Already we see NZ Post offering a US address to shoppers so we can buy
online and import directly from those companies that decline to sell outside
the US itself. That NZ Post, a government-owned agency, is willing to do that
speaks volumes about the issue.

But there is another issue at stake – tax revenue. New
Zealand, like most western countries, now gathers a significant proportion of
its tax take from GST. Shoppers who buy goods online often end up paying less
tax locally than shoppers who buy from a New Zealand-based vendor.

That will have huge ramifications for governments in the months
and years ahead.

Meanwhile the best advice would be if you want to pay less
for exactly the same product, you’ll do well to lie about where you live and if
you want a government that will stand up to corporates, you might want to
consider Australia.

Guest Post: Data havens and the constitution

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Guy Burgess is “a New Zealand lawyer, software developer, consultant, CEO of LawFlow, and feijoa farmer” as well as a chatty fellow on Twitter. He’s written about our data haven concept from the all-important legal perspective.

TUANZ CEO Paul Brislen has written a thought-provoking article on the prospects of turning New Zealand into a data haven. There’s a lot going for the idea, but as Paul notes, there are a couple of stumbling blocks, one of which is the legal situation:

The final problem then, is the legal situation. We would need to become the neutral ground, the data Switzerland if we’re to gain their trust. Publicly adhered to rules regarding data collection and retention. Privacy built in, access only under the strictest conditions.

It would indeed require some law changes to become a “data Switzerland” where, as Paul envisages, “we treat bits as bits and that’s that”, and don’t allow the Armed Offenders Squad to swoop in with helicopters if someone uploads the latest series of Mad Men.

Exactly what those laws would be is a huge kettle of fish: privacy rights, intellectual property rights, safe-harbour provisions, search-and-seizure, criminal and civil procedure, etc. But putting aside the content of those laws (and their desirability), it is worth noting that New Zealand is in a somewhat disadvantageous situation in one respect vis-a-vis most other countries. Whilst New Zealand ranks as one of the most politically stable, corruption-free, and rule-of-law-abiding countries – ideal attributes for a data haven – we are in the very rare category of countries that are both:

  • Unicameral, unlike Australia, the UK, the US, Canada, most of the EU, Japan, India, and others; and
  • More importantly, have no written constitution that entrenches rights, limits Government power, and can strike down non-compliant laws. Only a handful of countries (notably including the UK) are in this category (and this is putting aside Treaty of Waitangi complications).

By my quick reckoning, the only other country with both of the above attributes is Israel.

What this means for us, as Sir Geoffrey Palmer wrote many years ago, is that whoever is the current Government of the day has unbridled power. Theoretically, there are little if any limits on what can be passed into law – all it takes is a 1-vote majority in the House of Representatives. This includes major constitutional change and retrospective law. For example, in the past decade-and-a-bit we have seen a Government change New Zealand’s highest Court from the Privy Council to a new domestic Supreme Court on anarrow majority, and retrospectively amend the law (also on a slim majority) to keep a Minister in Parliament – both things that may may well have faced constitutional challenge in other countries, but here were able to be effected with the same legislative ease as amending the Dog Control Act.

What’s this got to do with becoming a data haven? Well, it means that we cannot give the highest level of assurance that a future Government won’t do certain things that might undermine our data haven credentials.

For example, being a true data haven would presumably mean strong freedom of speech laws. You would want a reasonable assurance that a data centre would not be forced to hand over or delete data due to hate speech laws (present or future), except perhaps in the very strongest cases. New Zealand does have its peculiar Bill of Rights Act covering matters such as free speech, but this does not limit parliamentary power – in fact, Parliament regularly tramples various provisions of the Bill of Rights Act, with the only requirement for doing so being that the Attorney-General must inform the house. Nor does it prevail over inconsistent Acts: if another Act removes or abrogates a right, then the Bill of Rights Act doesn’t change that. So Parliament could potentially pass a law, on the slimmest of margins, that limits freedom of speech. This is not as far-fetched as one might think in an “open and free” democracy: the process is well advanced in the UK, where people face arrest and criminal prosecution for making statements considered by the authorities to be “insulting” (such as calling a police horse “gay”). Could this extend to limiting free speech (or content) hosted in data centres? There is nothing that says it can’t, or won’t.

Compare this with the US, where most of the internet’s infrastructure, governance and data centres are located. The federal Consitution provides the highest protection possible against Government limitation of free speech. Now this obviously does not (and is not intended to) stop situations like a US federal agency shutting down Megaupload and seizing data, in that case partly on the basis of alleged intellectual property infringement. But at least the limits on what the US Government can do are constitutionally defined and proscribed.

This issue is obviously much broader than data centres, but it does highlight the question: is it acceptable, in the information age, for there to be no effective limits on Government power over our information?

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Guest Post: UFB for Dummies

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Steve Biddle likes to describe himself as a former trolley boy but nobody believes him about that (it’s true, I swear) so we’ll just call him a network engineer with a passion for explaining things simply.

Steve posted this to his blog over on Geekzone but kindly allowed me to republish it here.

Unless you’ve been living on another planet you’ll be aware that New Zealand is currently in the process of deploying a nationwide Fibre To The Home (FTTH) network. This network is being supported by the New Zealand Government to the tune of roughly NZ$1.5 billion over the next 10 years and is being managed by Crown Fibre Holdings (CFH). Work is presently underway deploying fibre nationwide, with several thousand homes now connected to this new network.

Much has been made of UFB retail pricing, and for many individuals and businesses the price they will pay for a UFB fibre connection could be significantly cheaper than existing copper or fibre connections. What does need to be understood however is the differences between fibre connection types, and pricing structures for these different services. There have been a number of public discussions in recent months (including at Nethui in July) where a number of comments made by people show a level of ignorance, both at a business and technical level, of exactly how fibre services are delivered, dimensioned, and the actual costs of providing a service.

So why is UFB pricing significantly cheaper than some current fibre pricing? The answer is pretty simple – it’s all about the network architecture, bandwidth requirements and the Committed Information Rate (CIR). CIR is a figure representing the actual guaranteed bandwidth per customer, something we’ll a talk lot about later. First however, we need a quick lesson on network architecture.

Current large scale fibre networks from the likes of Chorus, FX Networks, Citylink and Vector (just to name a few) are typically all Point-to-Point networks. This means the physical fibre connection to the Optical Network Terminal (ONT) on your premises is a dedicated fibre optic cable connected directly back to a single fibre port in an aggregation switch. Point-to-point architecture is similar to existing copper phone networks throughout the world, where the copper pair running to your house is dedicated connection between your premises and the local cabinet or exchange, and is used only by you. Because the fibre is only used by a single customer the speed can be guaranteed and will typically be dimensioned for a fixed speed, ie if you pay for a 100Mbps connection your connection will be provisioned with a 100Mbps CIR and this speed will be achieved 24/7 over the physical fibre connection (but once it leaves the fibre access network it is of course up to your ISP to guarantee speeds). Speeds of up to 10 Gb/s can easily be delivered over a Point-to-Point fibre connection.

The core architecture of the UFB project is Gigabit Passive Optical Network (GPON). Rather than a fibre port in the Optical Line Terminal (OLT) being dedicated to a single customer, the single fibre from the port is split using a passive optical splitter so it’s capable of serving multiple customers . GPON architecture typically involves the use of 12, 24 or 32 way splitters between the OLT and the customers ONT on their premises. GPON delivers aggregate bandwidth of 2.488Gb/s downstream and 1.244 Gb/s upstream shared between all the customers who are connected to it. 24 way splitters will typically be used in New Zealand, meaning that 100Mbps downstream and 50Mbps upstream can be delivered uncontended to each customer. The difference is architecture is immediately clear – rather than the expensive cost of the fibre port having to be recovered by a single customer as is the case with a Point-to-Point network, the cost is now recovered from multiple customers. The real world result of this is an immediate drop in the wholesale port cost, meaning wholesale access can now be offered at significantly cheaper price points than is possible with a Point-to-Point architecture. GPON’s shared architecture also means that costs can be lowered even further since the architecture of a shared network means dedicated bandwidth isn’t required for every customer like is is with a Point-to-Point connection. The 2.488Gbps downstream and 1.244Gbps upstream capacity of the GPON network instantly becomes a shared resource meaning lower costs, but it can also mean a lower quality connection compared to a Point-to-Point fibre connection.

Now that we’ve covered the basics of architecture we now need to learn the basics of bandwidth dimensioning. Above we learnt that a CIR is a guaranteed amount of bandwidth available over a connection. Bandwidth that isn’t guaranteed is known as an Excess Information Rate (EIR). EIR is a term to describe traffic that is best effort, with no real  world guarantee of performance. The 30Mbps, 50Mbps or 100Mbps service bandwidth speeds referred to in UFB residential GPON pricing are all EIR figures, as is the norm with residential grade broadband services virtually everywhere in the world. There are is no guarantee that you will receive this EIR speed, or that the speed will not vary depending on the time of the day, or with network congestion caused by other users. With Voice Over Internet Protocol (VoIP) replacing analogue phone lines in the fibre world, guaranteed bandwidth needs to also be available to ensure that VoIP services can deliver a quality fixed line replacement. To deliver this UFB GPON residential plans also include a high priority CIR of between 2.5Mbps and 10Mbps which can be used by tagged traffic. In the real world this means that a residential GPON 100Mbps connection with a 10Mbps CIR would deliver an EIR of 100Mbps, and a guaranteed 10Mbps of bandwidth for the high priority CIR path.

Those of you paying attention would have noticed a new word in the paragraph above – tagged. If you understand very little about computer networking or the internet you probably just assume that the CIR applies to the EIR figure, and that you are guaranteed 10Mbps on your 100Mbps connection. This isn’t quite the case, as maintaining a CIR and delivering a guaranteed service for high priority applications such as voice can only be done by policing traffic classes either by 801.2p tags or VLAN’s The 802.1p standard defines 8 different classes of service ranging from 0 (lowest) to 7 (highest). For traffic to use the CIR rather than EIR bandwidth it needs to be tagged with a 802.1p value within the Ethernet header so the network knows what class the traffic belongs to. Traffic with the correct high priority 802.1p tag will travel along the high priority CIR path, and traffic that either isn’t tagged, or tagged with a value other than that specified value for the high priority path will travel along the low priority EIR path. Traffic in excess of the EIR is queued, and traffic tagged with a 802.1p high priority tag that is in excess of the CIR is discarded.

For those that aren’t technically savvy an analogy (which is similar but not entirely correct in every aspect) is to compare your connection to a motorway. Traffic volumes at different times of the day will result in varying speeds as all traffic on the motorway is best effort, in the same way EIR traffic is best effort. To deliver guaranteed throughput without delays a high priority lane exists on the motorway that delivers guaranteed speed 24/7 to those drivers who have specially marked vehicles that are permitted to use this lane.

There are probably some of you right now that are confused by the requirement for tagged traffic and two different traffic classes. The simple reality is that different Class of Service (CoS) traffic profiles are the best way to deliver a high quality end user experience and to guarantee Quality of Service (QoS) to sensitive traffic such as voice. Packet loss and jitter cause havoc for VoIP traffic, so dimensioning of a network to separate high and low priority traffic is quite simply best practice. Performance specifications exist for both traffic classes, with high priority traffic being subject to very low figures for frame delay, frame delay variation and frame loss.

UFB users on business plans also have a number of different plan options that differ quite considerably to residential plans. All plans have the ability to have Priority Code Point (PCP) transparency enabled or disabled. With PCP Transparency disabled, traffic is dimensioned based on the 802.1p tag value in the same way as residential connections are. With PCP Transparency enabled, all traffic, regardless of the 802.1p tag, will be regarded as high priority and your maximum speed will be your CIR rate. As the CIR on business plans can be upgraded right up to 100Mbps, GPON can deliver a service equivalent to the performance of a Point-to-Point fibre connection. Business users also have the option of opting for a CIR on their EIR (confused yet?). This means that a 100Mbps business connection can opt for a service bandwidth of 100Mbps featuring a 2.5Mbps high priority CIR, a 95Mbps low priority EIR, and a 2.5Mbps low priority CIR. This means that at any time 2.5Mbps will be the guaranteed CIR of the combined low priority traffic. The high priority CIR can be upgraded right up to 90Mbps, with such an offering delivering a 90Mbps high priority CIR, 7.5Mbps low priority EIR, and 2.5Mbps low priority CIR.

You’re now probably wondering about 802.p tagging of traffic. For upstream traffic this tagging can be done either by your router, or any network device or software application that supports this feature. Most VoIP hardware for example already comes preconfigured with 802.1p settings, however these will need to be configured with the required 802.1p value for the network. Downstream tagging of traffic introduces whole new set of challenges – while ISP’s can tag their own VoIP traffic for example, Skype traffic that may have travelled from the other side of the world is highly unlikely to contain a 802.1p tag that will place it in the high priority CIR path, so it will be treated as low priority EIR traffic. ISP’s aren’t going to necessarily have the ability to tag traffic as high priority unless it either originates within their network, or steps are taken to identify and tag specific external traffic, meaning that the uses of the CIR for downstream will be controlled by your ISP.

It is also worth noting that all of the speeds mentioned in this post refer only to the physical fibre connection. Once traffic leaves the handover point, known as an Ethernet Aggregation Switch (EAS) it’s up to the individual ISP to dimension backhaul and their own upstream bandwidth to support their users.

As part of their agreement with CFH, Chorus dropped their Point-to-Point fibre pricing in fibre existing areas in August 2011 to match UFB Point-to-Point pricing, which means customers currently in non UFB areas will pay exactly the same price for a Point-to-Point fibre access as they will do in a UFB area if they choose a Point-to-Point UFB connection. UFB GPON fibre plans won’t be available in existing fibre however areas until the GPON network has been deployed, either by Chorus or the LFC responsible for that area. In all UFB areas both GPON and Point-to-Point connections will ultimately be available.

I hope that this explains the architecture of the UFB network, and how connection bandwidth is dimensioned. It’s not necessarily a simple concept to grasp, but with the misinformation that exists I felt it was important to attempt to write something that can hopefully be understood by the average internet user. The varying plan options and pricing options means that end users have the option of choosing the most appropriate connection type to suit their needs, whether this be a high quality business plan with a high CIR, or a lower priced residential offering that will still deliver performance vastly superior to the ADSL2+ offerings most users have today.

And last but not least I have one thing to add before one or more troll(s) posts a comment saying fibre is a waste of time and complains about not getting it at their home for another 5 or 6 years. UFB is one of NZ’s largest ever infrastructure projects, and to quote the CFH website:

“The Government’s objective is to accelerate the roll-out of Ultra-Fast Broadband to 75 percent of New Zealanders over ten years, concentrating in the first six years on priority broadband users such as businesses, schools and health services, plus green field developments and certain tranches of residential areas (the UFB Objective).”

Residential is not the initial focus of the UFB rollout, and never has been. Good things take time.