This is a repost of an article from Internet NZ CEO Jordan Carter that ran in NBR last week:

18 Sep 2014

Things often come in threes – last week was no exception. One of our team members spoke with an international investment group keen to understand the current telco regulatory environment in NZ, read the submissions made on the Commerce Commission Final Pricing Principle (FPP) determination along with a letter from the Commission about the FPP process and finally there was the Appeal Court’s judgement and associated media regarding the Chorus appeal on the Commission’s Initial Pricing Principle (IPP) determination.

The discussion with international investors was incredibly enlightening despite how it sounds. It revolved around the topic of regulatory certainty. They are already investors here, and they want to invest more. However they also expressed concern with how the regulatory environment will play out in both the short term and the long term, causing them to review their investment intentions in New Zealand.

What they wanted, and this is echoed in a couple of the FPP submissions, is regulatory certainty. As do we.

Did this mean they wanted a guaranteed return on their investment? As all investors know, that is unlikely to happen as investment is in a sense like gambling: you could never absolutely guarantee anything. They said no, what they actually wanted, like any professional gambler, was to know the odds of any bet they were making. They were happy to take risks as long as those risks were understood and commensurate with the returns – but in the absence of any certainty about the odds, the risks become untenable.

This brings us to the third item – the Appeal Court’s rejection of the Chorus appeal against the Commerce Commission’s IPP pricing decision. From our perspective, this regulatory issue played out in a way that was so full of certainty that any sensible bookmaker would refuse to give odds – it was as certain as the result of the All Blacks playing Canada or Japan in the 2011 Rugby World Cup. 

As soon as the legislation was drafted and before Telecom was separated, we knew that the regulated price of copper would come down (the monopoly rents inherent in the price would be removed by that legislation). Most believed they understood what process the Commission would follow and within a reasonably narrow margin had some idea about what price the Commission would derive from that process – i.e. there was little regulatory uncertainty. 

All through the two year consultation process the only ones who expressed any surprise at the Commission’s decisions were Chorus and its investors. Corporate uncertainty, not regulatory uncertainty. So it came as no surprise that when the Commission made its final IPP pricing decision Chorus, as is their right, challenged it in the High Court. The judge was unequivocal in finding for the Commission and awarding costs. Chorus immediately sought leave to appeal and now the Court of Appeal has unsurprisingly confirmed the High Court decision. The Chorus response was “We’re clearly disappointed by today’s decision to maintain the status quo, but it is not entirely unexpected.”

This does beg a question: if Chorus was expecting the decision, why did it go down a path that seems, on the face of it, to create more uncertainty – when their investors have been saying they want certainty? 

The answer to that is relatively simple Chorus has little to lose – if it can get the regulated price of its copper services increased by 1 cent that would cover all the court costs and legal fees and a lot more besides – that really is a risk worth taking. But there may be more to it than that.

The Chorus media release went on to say “Today’s regulatory environment is completely out of kilter with the industry’s structure and the effective delivery of the Government’s policy. We felt it necessary to appeal the High Court’s decision to try to get some further clarification on the fundamental issues around pricing UBA in New Zealand.”

This is a surprising statement. The most recent major change to the regulatory environment was as a result of the Government changing the Telecommunications Act legislation in 2011 so that Chorus could separate from Telecom thereby bringing about the industry structure we have today. The changes were designedspecifically to suit today’s industry structure and today’s Government policy.  

Chorus/Telecom was well aware of the legislative changes and was heavily involved throughout the legislative process. Being so close to the process we would expect them to be better informed than nearly anyone else in the sector. They should have been able to forecast the impact of what those changes would be and also they signed up to the changes willingly, negotiated a raft of legislatively imposed regulatory moratoria to prepare them for the change and, not unrelatedly, got around $980m in a government UFB contract out of it. 

Which brings us to the present. The Appeal Court has provided another layer of certainty. Does this mean we’re at the end of the stoush? That’s unlikely. There was an expectation that once the Commerce Commission determined the IPP price , this would stay in place for at least a couple of years – not least because calculating the alternative FPP price is a complex and pretty much untested process in New Zealand and so should take the Commission at least two years to conclude. 

However, under pressure (mostly from Chorus and investors) the Commission is attempting to undertake the FPP determination quickly and in the opinion of many is doing so in undue haste. The mantra for this haste is certainty for investors, even though it may actually be contributing to uncertainty for investors. 

Based on their approach to date, we can expect a repeat of the appeal strategy from Chorus if the Commission’s FPP process arrives at a decision below the IPP price (a not unlikely scenario). If the Commission’s FPP price is to the liking of Chorus it will almost certainly not be to the liking of anyone else and we can expect a legal challenge from the other side. Perhaps in an effort to head off legal challenges from either side last week the Commission wrote to all the affected parties attempting to allay concerns that have been consistently expressed about the rushed process. Good as the Commission’s intentions are, it’s unlikely the letter will carry much weight when there is so much to gain and so little to lose by challenging any decision.

If Chorus wanted to provide certainty to investors it has one clear option to hand. It could simply accept the Appeal Court’s ruling, withdraw its application for an FPP final price and accept the IPP price will stay in place for two years.  The remainder of the industry would quickly follow suit and the Commission could undertake its investigations in a realistic time frame. 

All of this is business as usual: a stable, predictable regulatory framework operating precisely as intended, and precisely as expected. 

In the meantime the Government has strongly signalled that should it be re-elected not only will it pump a further ~ $350 million into the UFB and RBI projects’ but has also said that it does not intend to overturn any decision made by the Commission. The Government at least is providing as much certainty as it can.

Next year’s going to see an important conversation about the post-2020 regulatory environment. Getting that right will take time, but it has to be done. Focusing on that would be a much more savvy use of everyone’s time – including Chorus’s time – than fruitless court action or complaining about the framework in place today. To the extent any market player is doing the latter, they are simply seeking to get changes made that suit themselves, and at the expense of regulatory certainty and broadband users.

 

 

If you live in a UFB area in Taranaki, your world has just got a lot faster, Primowireless have now launched their new residential UFB services and a new look website.

 

The big news is that they have released the first residential gigabit UFB service in New Zealand (that I know of) and it looks pretty good. Prices start at $109 per month for a 50GB plan (I’d inhale that in seconds) going up to $169 per month for a 1000GB plan, not too bad and I can understand their reticence at running an unlimited gigabit plan. It would be too tempting to try and back up the whole internet or try and download Hollywood.

I’m impressed for several reasons, the first is that in the legendary spirit of Taranaki Hardcore, they’ve just ‘done it’ the second is that aspirational UFB doesn’t look unaffordable and its only taken about two and a half months from when UFF turned on the ‘Giganet’.

This is the kind of innovation New Zealand needs more of and I’m rapt to see it coming out of the provinces. What we now need is more competitive products like this available in more places.

The TCF is looking at a gigabit spec for UFB, but lets see how this goes in the Naki.

If I was lucky enough to be using this, my next trip would be to Dick Smith for one of these and I’d need a plan to upgrade all my WiFi devices to 802.11 ac.

Then it would be time to get serious about have a hyper connected smart house.

Ah dreams are free…

Firstly the five ‘gigatown’ finalists have been selected and sadly #gigatownporirua came in sixth.

The other related news is that Orcon have announced that they will be the RSP for the winning gigatown.

So its congratulations to Gisbourne, Nelson, Timaru, Wanaka and Dunedin who get to go to Chattanooga and then its on the finals.

For the rest of us there is still ‘gigahope’ in that the TCF now have a working party looking at creating a residential gigabit service spec, so while we won’t be getting the gigatown deal we can all look forward to gigabit services.

 

For as long as I’ve been involved with the internet, it’s been a truism that speeds are always increasing. This has created the current eco-system where we are now locked into a seemingly perpetual upgrade cycle of increasing processor speeds, increased storage capacity and finally increased bandwidth all wrapped up in a shiny device on a 24 month contract.

I know I try and make laptops last 4-5 years and I also try and get 3-4 years out of my phones. This cycle is showing signs of slowing down, it’s getting really hard to tell the difference between a 1.8Ghz quad core processor and a 2.4Ghz one, the cloud is making local storage a moot point in a world of $100 1TB USB hard drives and now you can even get a 512GB SD card .

So that leaves bandwidth as the last great driver of the upgrade cycle, mobile devices are going to take us through 2 more cycles, full 4G, that is devices that include the recently auctioned 700Mhz spectrum bands and then in about 8-10 years time we’ll get 5G and the promise of up to 1Gb/s in our hands.

Most of our other technologies have already passed this point:

• Fibre Optics – The record is currently 42Tb/s
• Ethernet – 100Gb/s is commercially available
• GPON – 10GPON is available (the UFB is based on 1GPON
• WiFi – 3.2Gb/s WiFi routers are already available in NZ
• Point to point wireless – 1Gb/s equipment is available today

So the final bottleneck is mobile broadband and 5G should get there around 2022 – 2024

But then what happens? It’s going to be hard to maintain the full blown ‘hype cycle’ on details like battery life and screen density when everything else will be as fast as we’re going to need for quite a long time.

And thats the point where I wonder if we’ll hit the steady state of bandwidth, this magical point will hopefully usher in an age of efficiency in applications and services. Current business models are driven by the assumption that bandwidth is scarce and expensive, but when it becomes ubiquitous we’ll need new business models.

The steady state has occurred in other industries like electricity (240 volts AC @ 60Hz) and gets enforced in others like fuel octane ratings and highway speed limits. Once the steady state occurs the full economic benefit of the emerging technology can truly manifest themselves.

Reliable, reticulated electricity has for the last 100 years allowed our civilisation to deliver more comfort, health and wealth to more people than any preceding time in human history, what impact will reliable ubiquitous bandwidth have on the next 100 years?

 

Some quick observations on the weeks tech news here and abroad.

Chorus still singing out of tune.

This weeks appeal court ruling, yet again signals the need for a strategic reset at our largest telco infrastructure provider.

Not going to hold my breath waiting though.

Spark splutters.

The Spark internet outage showed how dependent we’ve all become on fast, always on internet access. The various causes were fun to speculate on and will keep the conspiracy minded awake for ages, the choices range from old, out of date edge routers (DSL modems), through voyeuristically promoted malware to Russian cyberwarfare.

Whatever the cause Spark need to look at how responsive they are to major network failures and the speed of their response. As one insider said ‘thank god it happened on the weekend’.

All the more reason to be careful out there.

Apple do it again

Tim Cook showed that he really is the ‘Apple Master’ when he unveiled the first really new products and services of his era at Apple. The new iPhones play catch up with the larger Androids and now there is an Apple ‘phablet‘, The Apple Watch looks like it may do for wearables what the iPod did for music and the iPhone and iPad did for mobile, but the sleeper is probably the new Apple Pay service, which promises to make over the world of payments.

Its interesting that the branding schema is now ‘Apple’ and no longer ‘i’., probably just as well because for me the Apple Watch becomes the iWant and thats definitely followed by the iPay.

They say that you are more likely to get divorced than change banks, well I think leaving the Apple ecosystem is going to be even less likely than that real soon.

Broadband Affordability

A new report by Jon Brewer, asks if New Zealand is meeting its ITU broadband affordability obligations (basically less than 2% of average household incomes), after some serious ninja grade data mash ups and analysis Jon comes to the conclusion that on the whole we do meet the standard.

Except for rural satellite subscribers, some of whom are spending up to 9% of the household income on broadband.

We need more work like this done, I’d like to understand more about the often quoted 20% of households who can’t afford internet access.

Who to vote for

And finally with the election just around the corner, if you’re thinking of basing your vote on the respective parties ICT polices, the good folk at NZ Rise have gone to trouble of questioning all the parties and putting their responses here.