Overbuilding networks is not on

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Let’s talk about overbuilding of networks.

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

Overbuilding is good.

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

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

Except that we are already overbuilding.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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Wanganui – city of the future

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

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

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

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

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

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

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

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

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

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

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

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

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Terminate the early termination charges

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Early termination charges are astonishing things.

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

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

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

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

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

This is a nonsense and has to stop.

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

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

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

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

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

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

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

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

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

 

Anything can happen day

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

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

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

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

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

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

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

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

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

It’s free for Slingshot customers.

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

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

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

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

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

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

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

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

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

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

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Unbundling – the elephant in the room

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Ten years ago I wrote dozens of stories about unbundling.

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

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

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

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

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

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

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

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

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

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

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

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

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

Unbundling is, however, the elephant in the room.

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

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

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

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

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

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

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

If that sounds familiar, it should.

 

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

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“Trying to do a deal on prices would undermine the important role an independent regulator has to play in setting them.”

“Customers are poorly served by the telecommunications industry working together in secret to fix the price of wholesale broadband.”
Media release – 13 July 2013

Consumer, InternetNZ and the Telecommunications Users Association responded today to a report in the Dominion Post that the telecommunications industry was seeking to negotiate a price for the wholesale copper broadband service known as UBA.
A Commerce Commission conference to help determine the regulated price of that service concludes in Wellington today, with the telco industry negotiations understood to seek to influence a forthcoming discussion paper on a regulatory review of the Telco Act announced by Communications Minister Amy Adams in February.

TUANZ CEO Paul Brislen says the best way to resolve the issue of pricing rules for a monopoly service like UBA is through open and transparent discussion. “If the report in today’s paper is accurate, it seems that some in the industry would prefer to see a deal done in private, and without the scrutiny of users,” he says.

InternetNZ Acting Chief Executive Jordan Carter says “Industry discussion and input on the policy framework and to help inform the regulatory review is a good thing, because government decisions should be well informed”.
Consumer CEO Sue Chetwin says “A line is crossed if specific prices are being discussed – that moves the matter from an intelligent debate about the best possible policy framework, to what looks like a stitch-up – or worse, a cartel”.
These kinds of back room deals are rarely good for consumers and it puts us in the awful position of the industry sitting down together to set pricing without reference to either customers or to the regulator, say the three Chief Executives.

None of our organisations are in the loop with these conversations, and none of us want to be. We won’t talk about prices, and neither should the industry: that’s a job for the Commerce Commission. We will make our points about the review in public. We urge the industry to take the same view.

“Setting the rules and setting the prices are two different jobs. The review is about reviewing the pricing rules. The regulator has the job of setting the prices. Trying to do a deal on prices would undermine the important role an independent regulator has to play in setting them. Without that protection, consumers are unlikely to get a fair deal,” the CEOs conclude.

Managing Expectations

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I’m writing this from the Commerce Commission conference into the cost of wholesale services delivered by Chorus.

This service is regulated as Chorus is a monopoly provider. It is really the only provider of copper lines in the country and as a monopoly it is regulated accordingly.

The pricing principle underlining the Commerce Commission’s approach has changed. In 2010 a new Telco Act was introduced that foresaw the split of Telecom into Telecom and Chorus. As part of that split, the government realised it could no longer rely on a “retail minus” pricing model as Chorus would no longer have any retail products. Instead, the Telco Act says the Commission must move to a “cost plus” model. That is, instead of taking the retail prices in the market and taking off a regulated percentage to deliver a wholesale price point, the Commission would look at the price of delivering the service at the base level and add a margin to that.

You may remember the debate around the introduction of the new Telco Act. It focused almost entirely on the ten-year regulatory holiday the government slipped in to the Supplementary Order Paper that came with the bill. Indeed, the SOP was larger than the bill itself and led to many thousands of words being written by journalists around the country on this unusual approach.

As the debate ground on, with little sign of victory for those of us that supported the Commerce Commission’s role and the need for an independent regulator, the one redeeming feature of the bill was this decision to move to a cost-plus model.

Eventually we won the day with regard to the regulatory holiday. Backroom political machinations saw the government drop the clause, although the level of political interference in the regulatory regime since then has been alarming, to put it mildly.

All that happened before Telecom split in two. Indeed, all this took place before Chorus was incorporated and floated on the stock exchange. It should have been no surprise to anyone, least of all Chorus or its shareholders – especially given the inclusion of a three year delay because of the impact this change to the pricing model would have on both Telecom and Chorus.

We expected a major drop in wholesale price. Telecom CEO Simon Moutter says he also expected a similar drop and today we heard from CallPlus’s Graham Walmsley about his experience installing copper equipment and selling as a wholesale player to ISPs. Graham says his experience is that the UBA draft price is far too high and that he is selling a product that includes voice capability at a price point that is lower than the draft price today.

For years, Telecom managed to keep the price of wholesale services high by managing its suite of retail products so as to retain one or two highly-priced products. That way the “wholesale” price was artificially high.

As I write we’re hearing from economists who (with a straight face) are suggesting they didn’t expect any drop in terms of price with the move from retail minus to cost plus. They’re earning their money today.

If anyone at Chorus, or at any of its investors, was caught by surprise by the drop in price, they need to find a new line of work. It was obvious even to a non-economist, non-lawyer like me.

The solution for Chorus is simple. Any price drop can be offset by launching other products that aren’t regulated and which offer a higher return on its investment. Failing that, it should take a close look at its dividend to shareholders which currently sits at 25 cents per share.

More to follow.

Quis custodiet ipsos custodes

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I’ve spent the past few days talking to various journalists about the GCSB, Big Brother and spying on citizens.

To be honest, I’m a tad uncomfortable with the whole thing. Spies, spooks and state surveillance are a bit “tin foil hat” for my liking. I’ve had several emails and phone calls to the effect that I should watch out for black helicopters and that the only thing stopping the drone strike is my cellphone dropping out (seriously, what is that about? Central Auckland, no less).

In a theoretical world, the spies would spy on high priority folk like diplomats and bomb makers and other spies. They’d have secret alliances and counter-alliances and no doubt secret handshakes as well. We commoners would be below the radar and we’d be left alone to get on in peace.

In a theoretical world, we wouldn’t be bothered by any of this kind of nonsense and the only time we’d care is when the spies leave their briefcases (complete with meat pies, copies of Playboy and a file marked “TOP SECRET”) in a taxi in Wellington somewhere. Then we’d all have a laugh and go back to work.

Sadly we don’t live in such a world. Instead, we face a security service that seems keen on the idea of storing all our online communications in perpetuity on the off chance that some years from now they might want to have a poke around and pull something out that could be juicy enough to justify their endeavours. It could be a politician who is making life difficult for them, it could be a department head they’d rather see the back of, it could be a journalist who has a source and won’t say who it is.

Just as bad, if not worse, is the model that this surveillance will take. Instead of user pays, the expectation is that the telcos will have to pay for it. Store every email, TXT message and the “metadata” about every phone call? No problem – make the telcos do it. They won’t want to keep that kind of information, of course. TXT messages alone take up terabytes of space and it’s only growing. Apparently the world’s data doubles every two years – currently (according to the internet so it must be true) we have around 1.8 zettabytes of data. I have no idea how many zeros that is but the handy graphic says it’s roughly 200 billion HD movies each running for two hours.

Storing all the transient stuff (typically the “metadata” that the spooks like because they can access it without a warrant in the US) is non-trivial and is a cost the telcos wouldn’t carry other than at the behest of the government. We will end up carrying that cost, of course, because telcos pass on costs to customers.

And really, do you want a spy agency bogged down with petabytes of cat videos, Facebook postings and tweets about breakfast? Wading through that lot is also non-trivial and frankly just asking for trouble.

I also wonder just what heinous crime has been committed against New Zealand’s sovereignty that requires such a drastic step as spying on every New Zealander’s online lives. Did I miss the terrorist strike? Is Tasmania poised to invade us? Did a secretive German industrialist set up shop in New Zealand with a plan for world domination? Other than the ones we know about, obviously.

I can think of no rationale for a system that allows intelligence agencies (through a legal sleight of hand) to gather and retain information about my day to day life.

This then is the reason I’m opposed to increasing our own intelligence agencies’ abilities in this area. It isn’t based on practical matters such as cost or signal-to-noise ratio. It’s based on the basic premise that we are innocent until proven guilty and that government in all its various forms should keep its nose out of my business, regardless of how banal or tedious my life actually is.

The new GCSB bill and Telecommunications Interception bill are before parliament at the moment. Submissions on the Interception bill are due by the 13th of June and given the news breaking in the US and UK this week we’ve asked for an extension to that time line so we can better understand just what these two bills mean for New Zealanders. It’s important we get this right as there are a lot of moving parts so we need the extra time to really come to grips with just what is being proposed. Is it going to be a police state or will we retain our right to privacy. That’s what’s at stake here.

The government and the big corporation

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For the better part of a decade, we watched as one
government after another chose to back the needs of Telecom over and above the
needs of the broader industry or the voters of New Zealand.

Time and again we heard from Maurice Williamson, minister of
communications for most of the 1990s, that if Telecom continued to step out of
line he would be forced to act. In the end the voters acted and a new era of
regulation began.

I often wondered why a political animal like Williamson
would get so far off side with his voting constituents. Why he couldn’t see the
constant growl of angry customers and a brow-beaten industry. Williamson isn’t
stupid – he’s played the parliamentary game for a very long time and knows that
ultimately the voters will conduct his performance review and if he wants to
retain power, that’s all he should be concerned with.

He was also one of only a handful of MPs to have a
smartphone (a BlackBerry if memory serves) and one of the few who would answer
emails. I remember one outraged journalist at the time being told he couldn’t
be added to the press release email list because the government wasn’t made of
money. These days it’s getting the buggers to stop adding us to the lists
that’s uppermost in mind.

Reg Hammond, over at InternetNZ, has an interesting take on
the matter. He suggests that for the big decisions Telecom sidestepped the
minister and went straight to the PM and that something similar may well have
happened with the furore over Chorus’s wholesale price determination.

Chorus denies this, as does the current minister of
communications, Amy Adams, but on the day the Commerce Commission announced its
draft determination the first responder from the government was indeed the
Prime Minister, who suggested that the Commission could make all the
recommendations it liked and that it was up to the government to decide whether
to go with those recommendations or not.

Sorry, but that’s not how the regulatory regime works – the
Commission gets to decide the price point because that’s the only way to keep
governments at arm’s length.

You need to keep governments out of such regulatory matters
because governments are typically compromised – they are large-scale investors,
they are large-scale customers and they are the policy makers. To include
‘regulator’ in that line-up is to court disaster as we saw during the 1990s in
both New Zealand and Australia.

The regulatory regime set up in 2001 was extremely light
handed and it failed to deliver results for quite some time. Spectacularly, it
saw New Zealand receive the dubious honour of being the only country apart from
Mexico to reject unbundling of the local loop. Mexico, let us not forget, is
home to the richest man in the world – Carlos Slim – who made his money out of
telecommunications. Currently Slim controls 70% of the mobile market in Mexico
and 80% of the fixed line market and the Mexican government is hoping to
introduce some kind of regulation that will reduce his control of what they
have belated realised is the backbone of the nation’s infrastructure.

If we had one provider with that level of control you’d hope
it would incur the wrath of the regulator because one player at that level is
tantamount to disaster for the users and for the country as a whole. Australia
saw Telstra rise to that level and beyond in the 1990s but because the Aussie
government retained ownership long after it should have divested its
shareholding, the regulator was unable to break Telstra’s stranglehold on the
infrastructure. The reign of CEO Sol Trujillo is best remembered for his hiring
of a team of former colleagues to produce a strategy for the company which was
paid for by Telstra and which ensured he received his bonus for delivering said
strategy on time. Oddly, it looked remarkably like the strategy of his
predecessor and after four years of declining revenue (Wikipedia claims he
underperformed the Aussie stock market by 20% costing the company A$25bn) he
left with a grand payout as only telco bosses can receive.

Today the Australian market is a mess, with Telstra
dominating both fixed and mobile sectors, no strong second-place competitor in
sight and a government unable to achieve its potential even with a promised
A$42bn spend on fibre.

If we look at the New Zealand market similar competition
alarm bells should be ringing. We have two companies that don’t just dominate
the market, they ARE the market. Telecom and Vodafone account for 90% market
share of the mobile revenue and a similar number in the fixed line space. At any
level of the market, whether it be local calling, toll calling, mobile data,
backhaul, international connectivity or TXT messaging, in terms of revenue we
see two names repeated over and again.

Yes, we have 2Degrees winning customers in the mobile space.
Yes, we have CallPlus and Orcon and others fighting the good fight in the fixed
line space. But when it comes to revenue we’re in single digits for market
share for everyone other than Telecom and Vodafone.

This isn’t a situation the market can sustain or which the
government can ignore. The question is, how will the government handle the
responsibility of getting us out of this situation? Sidelining the regulator is
not a good start.

Next week the Commerce Commission will hold its conference
to discuss the issue of Chorus’s wholesale pricing. TUANZ will be attending and
I’ll report back in next week’s newsletter.

 

Guest Post: Data vampires

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Guest post from John Allen of Rural Connect (originally posted 6 June). 

Broadband retail service providers have a tendency to waggle their finger at the consumer when things go awry.  But a review of the telco industry’s proposed Product Disclosure Code does not go far enough to banish this attitude.

The classic example of this blaming attitude occurred back in 2009/10 around Telecom’s ‘Big Time’ and ‘Go Large’ broadband plans.

Released in July 2009, the Big Time plan offered unlimited speed and, more importantly, uncapped data.

At the time, this was the only plan offering unlimited data, so thousands of customers flocked to sign up to it. Which of course is why it was offered.

The plan was pulled less than 12 months later because of an “extreme minority” that downloaded huge amounts of data.  Telecom managed data traffic by throttling speeds, but some users found a way around this, making the plan “increasingly hard to manage and keep in market.”

Telecom placed the blame for the plan’s demise on its customers.  It said that “as the only ISP offering unlimited data, it ended up with all the vampires”.  Meaning tech savvy, high volume users switched to Telecom to take advantage of the uncapped data.

Telecom would have known that an uncapped data plan would result in some users consuming as much data as they could possibly suck down.  The infamous ‘Go Large’ plan from 2006 would have taught them that.

Go Large promised, “unlimited data usage and all the internet you can handle” and “maximum speed internet”.  It did not deliver this and in 2009, the Commerce Commission brought a prosecution that resulted in a $500,000 fine under the Fair Trading Act.

The practice of discussing maximum speeds possible for a broadband technology still occurs but is now not so prevalent.  Witness news reports touting Vodafone’s new 4G mobile broadband service as reaching speeds of up to 100Mbps.

That speed is hypothetical and simply will not be realised in everyday use.

The Telecom example now ensures that hypothetical maximum speeds are not mentioned in contracts or advertsing.

Which is in part what the proposed Product Disclosure Code is about – providing telecommunications Retail Service Providers with minimum standards for the disclosure of information about Broadband Plans.

There are six principles to the code.

First is about making product information clear, readable and easy to find and understand.

Second is that an appropriate level of detailed information is available to consumers at the right point in time.

Third is to use clear, standardised terms and language to allow for easy comparisons.

Number four is that plan information be kept up to date.

Next is providing consumers with accurate and reasonable assessments of how Broadband Plans are priced, will perform, and the technology used.

Finally is transparency around Broadband Plan features and price, including any restrictions.

The first four principles are all fine and proper and will enable Consumers to make easier comparisons between different offers.

The last two is where the issues become grey.

For example, the code does not require telcos to be consistent in what news articles say compared to what their advertising and contracts detail.

The main issue is that RSPs should give the bottom line of their service’s performance.  Not the top line, or even an average line.  For example, the bottom line on Vodafone’s RBI service is that in times of high usage, speeds may drop to the design limit of 45kbps.

That’s around dial-up speed and had Telecom’s Go Large plan detailed that, the vampires would have been fewer and also blameless.