A small Budget surprise

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Tucked away in the Budget speech of last week was a line item I must confess I completely missed.

The government, and the crown Research Network REANNZ, has put aside $15m for “a new undersea cable to the US and Australia” according to a tweet from the REANNZ Twitter account.

It’s only a drop in the bucket, but it continues to show support at some level for a new trans-Pacific cable.

Telecom, Vodafone and Telstra are, apparently, still working on their trans-Tasman fibre link – but that’s really only going to get us so far in terms of capacity and competition. Capacity wise, it replaces the Tasman2 cable which is about to die completely. Competition wise, well Telecom owns a large share in both this new proposed cable but also in the Southern Cross Network, so you could argue that competition is not well served in such an instance.

What is still vitally important is another cable from New Zealand to the US, as well as one to Australia. I’d add in one north to Japan and look further afield – South Africa, Central or South America as well in the future.

Price wise we’re looking at $400m for a single connection to the US. I may have mentioned before just how many submarine cables we could have for the cost of the Waterview motorway extension in Auckland but I’m starting to sound like a stuck record.

Fifteen million is just a start, a very good one but still just the beginning. We need to get on and build our capacity if we’re to take advantage of the opportunity that lies before us. We’re seeing more digital businesses flourishing in New Zealand and the number of high-profile names is but the tip of the digital iceberg. It’s high time we got in and supported their ability to operate from New Zealand and high time New Zealand took on the world.

Spectrum auction – a bob each way

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The government has released information around the make-up
of the 700MHz auction, although the all-important pricing has not yet been
announced.

As expected it’ll be a straightforward auction process, with
ownership (well, management rights) kicking in at the start of 2014.

New Zealand will follow the APT band plan with 45MHz of
paired spectrum being made available in 5MHz blocks. That gives us nine
possible pairs to bid for.

The maximum limit will be two lots of 15MHz each – markedly
less than Telstra’s recent acquisition of 2x20MHz in Australia. However,
depending on demand that restriction may be withdrawn during the auction.

Winners will have a “use it or lose it” clause, a “broader
obligation to extend mobile cellular coverage” and in addition, may well be
able to pay off the cost of the spectrum over a longer period of time, rather
than having to plunk down the cash once they’ve won their lot.

This is interesting because there are clearly two competing
forces at work here. On the one hand, Treasury will be very keen to see a huge
windfall for the coffers. It’s budget time and the government will be keen to
reap some reward for flogging off the rights to valuable spectrum.

In Australia the recent auction brought in just on A$2bn
(down from the expected A$3bn) so if we fudge the numbers we could be talking
about $400-$500m for the rights in New Zealand. The Aussie auction was a bit
different (it included another spectrum range as well) so let’s knock that back
a bit further to $300m.

That’s $100m from each telco – Vodafone, Telecom, 2Degrees –
which is money I’d rather see spent on the network deployment itself.

Which leads to the opposing tension – the true economic gain
from deployment. The Crown puts that at about $2.4bn over the next 20 years,
something that will only happen if the telcos actually deploy LTE as quickly as
possible.

To my way of thinking it’s important we get on and deploy
the stuff. $300m today versus $2.4bn over the next 20 years seems a no-brainer,
but I’m no politician.

It will be interesting to see what the government means by “broader
obligation to extend … coverage”. I would anticipate some form of rural
deployment requirement, but that could be a double-edged sword. While Telecom
and Vodafone would cheerfully roll out 700MHz LTE in rural New Zealand (they’ve
both said as much already), 2Degrees will want to focus on the cities and major
population centres first. We will have to work out whether we’re happy to have
Vodafone and Telecom dominate the rural space in the short term and whether we
should reward them for that during this process.

2Degrees has brought tremendous competition to the mobile
market and it would be a shame to see that stymied in the rural space. Having
said that, rural New Zealand needs broadband in a hurry and mobile broadband is
the best way to deliver that in many areas. So we have a conundrum.

2Degrees has its own economic study, from Venture
Consulting, that shows the economic gain of having three mobile players is
worth around $12bn over the next nine years. That’s a lot of money to be gained
from very little government spend – none, to be precise – compared with the UFB
which will cost us taxpayers $1.5bn for a supposed $33bn over 30 years.

The government has released information around the make-up
of the 700MHz auction, although the all-important pricing has not yet been
announced.

All of this will be put to the test over the next few
months. MBIE will consult on the auction process, these additional requirements
and how the payment mechanism will work. It’s also looking at whether LTE can
sit alongside fixed wireless services in neighbouring bands, which is a very
good idea.

But pricing won’t be included in this round of consultation.
That will have to wait until nearer to the auction date itself. The Aussies set
their reserve too high (Bill Bennett compares previous pricing very nicely
here) and it’s important we don’t scare off any potential bidders – most importantly,
2Degrees.

 We haven’t addressed
the elephant in the room either. Maori won a major victory at the turn of the
century and ultimately paid for a discounted chunk of spectrum which became the
backbone of 2Degrees’ network. This time round they’ve been told they’re not
getting anything – $30m  (EDIT: not $35m as I had originally) has been set aside for ICT related initiatives instead –
but there’s been no word yet on whether a legal challenge will be mounted. That
could well derail the whole process.

It’s important we get this right. Mobile services really are
the future of telecommunications in many respects and if we stuff this up now
it’ll leave us with an anti-competitive market that won’t deliver on any of the
economic forecasts.

Chorus goes mainstream with VDSL

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Chorus has announced it will introduce VDSL to the mass market
as part of the wholesale bundle currently available to retailers.

That means instead of the niche, pricy product we see on the
market today, VDSL will cost the same to the retail ISPs as ADSL products do
today.

This is a fantastic move and one that TUANZ has been backing
for quite some time for a number of reasons.

Firstly, most residential users won’t see fibre for several
years to come. In order to help drive demand for fibre, TUANZ has long
maintained that VDSL is the perfect introduction to faster broadband services.
If I can get 30Mbit/s down and 10Mbit/s up on copper, when fibre finally does
arrive in the market I’ll be more interested in the 100/100 plan than the entry
level stuff. This is great for the retailer (better margins) great for the
network provider (better uptake) and great for the economy because we’ll have
more people keen as mustard to take up the fibre offering.

Secondly, it’s a way out of the copper wholesale price
debacle foisted on the industry by the government’s clumsy intervention in the
Commerce Commission’s wholesale price determination.

The Commissioner is required under the Telecommunications
Act (introduced by the current government in 2010) to in effect review the
wholesale price of ADSL services and move from a “retail minus” model to a “cost
based” model. That move would see the wholesale price of ADSL services slashed –
something that Chorus screamed blue murder about and which the government
foolishly accepted would hurt uptake of fibre.

As we discussed in our submission on the copper pricing,
VDSL is an unregulated service and the simple answer to Chorus’s woes is to
move as many customers over to that unregulated offering as possible, because
the margins for Chorus would be much better than under the regulated scheme.

EDIT: Chorus tells me it has not matched the regulated wholesale price but rather, added VDSL to the regulated price list. That means whatever the Commerce Commission decides for copper pricing VDSL is included alongside ADSL. This intrigues me – more on this in future I expect.

Thirdly, this should be great news for the retail ISPs, who
have a pent-up demand for faster broadband but a lack of opportunity to deliver
it in the market. By offering faster broadband today, the retail ISPs will be
able to build the products and services that we all want – content,
predominantly, for home users, but also cloud services for SME businesses and a
range of other things we don’t know we need yet.

Once they’ve built that customer base they will have a much
easier time of it moving them over to fibre once the network is deployed.

Chorus appears to be having a bob each way on the whole
question of migration – VDSL will only be offered until the middle of 2015 and
will stop selling it as fibre is deployed (where Chorus has the UFB – I wonder
if it will continue to offer VDSL in areas where it isn’t the UFB operator),
but by then we should be well on the way to migrating to fibre. We’ll have to
keep an eye on that – if the rollout slips then we’ll need to talk about
keeping VDSL on, but I have high hopes that we won’t need it. It’s a useful way
of “encouraging” customers to migrate – either go back to ADSL speeds or swap
to fibre. I know what I’ll be doing.

Of course, VDSL has its limitations (one of the reasons why it is not a
competitor to fibre). It’s only better than ADSL in a very short-run scenario
(less than 1000m as the copper lies) which means some customers won’t see any
difference at all and so won’t be encouraged to move over.

Ironically, given the Australian situation at the moment, we already
have in place a “fibre to the node” network that means most of us are a lot
closer to fibre today than we’ve ever been in the past. The upcoming Australian
election is likely to see a change in government and the chances are they’ll
scrap the NBN deployment in favour of the same kind of network that we already
have today.

This is great news, and now I’m left with just two questions – how much
will it cost and when can I have it?

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On Demand

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I’ve just watched episode one of TV3’s new series, Harry and
it’s tremendous. It’s everything I like in a TV show. Unpleasant characters,
good story, people I can relate to, people I despise. Great language, great
setting, good camera work, wonderful acting. My hat is off to all involved, especially
to co-writer and actor Oscar Kightley, who really brings the character and
story to life. It’s subtle, it’s in your face, it’s appointment television of
the old school.

Unfortunately I missed the appointment and so am watching it
“on demand”. Doubly unfortunately, I’m guessing about a lot of the nuance
because I watched the most grainy pixelated version possible and I only watched
the first 20 minutes because I have to watch it on my PC in my tiny little home
office on the world’s oldest office chair.

I did try to watch it on my iPad which I suspect would have
been a better experience, not least because I was in bed but also because size
wise, the “700k” stream (whatever that is) would hopefully have given me a
better picture. As it was, on my 21” computer monitor it was as if Auckland was
recreated in Minecraft especially for this series.

TV3 did have an iPad app, but some trouble with streaming
versus downloading meant they pulled it off the Appstore a while back. It hasn’t
been replaced, and trying to play the HTML5 stream on the iPad simply didn’t
work. Swapping browsers to a Flash friendly one didn’t help either – after half
an hour of downloading apps and upgrading/downgrading my iPad (depending on
your view of Flash) I got the dreaded “Due to licensing restrictions, his
content is not available on a mobile device” and that was that.

Yes, I probably should have watched it on the telly (on
Wednesday evening, TV3 at 930pm if you’re interested), but I missed it. Yes, I
probably should be glad I can watch it online at a later date, and I am – please
don’t get me wrong – but this is quality television and should be shown as
such.

The content model is broken. There’s simply no other way to
look at it. If digital rights management, licensing, geographical restrictions
and all the rest of it were taken away I’d be able to watch the show and they’d
be able to play ads to me so I could reward them for their great work. Better
than that, I’d pay to watch the show. Something like this I’d probably drop the
money down for a whole season sight unseen, but for something untested I’d be
keen to buy the first episode (or here’s a thought, give it away free as a
taster) and then upgrade if the mood took me.

I’d want to watch it online. I’d want to watch it in HD. I’d
want to watch it when I want, although I’m happy to have a time limit on that
if you like. If it’s a keeper I’ll buy the DVDs and stack them on my shelf,
unmolested by human hand or laser eye just like all the others I’ve got. They
don’t even come out of the plastic wrap these days, but I buy them because it’s
the only way I can see to reward the artists for their work. I’ve long since
watched the shows the way I want and we’ve discussed before the legality of
that.

This isn’t TV3’s fault entirely. Nor is it Sky TV’s fault or
TVNZ or any of our local content distributors. It’s much larger than that, it’s
a critical failure of the initial content owners to understand the changing
nature of their market and sadly, unlike the music guys who have finally got it
(albeit very late on), the TV guys simply refuse to budge.

Sadly, content is the critical element that drives uptake of
faster broadband services among the mainstream customer base. Home owners tend
not to buy “broadband” internet, they buy “broadband homework” and “broadband gaming”
and “broadband TV” all of which just so happens to require the internet to
work.

If we want a faster broadband network in New Zealand that
connects SME and corporate alike, we’re going to need to have the home owners
see value in it and want to connect. In order to get them to connect, so they
can use eHealth and eServices and eLearning, we’re going to have to give them eContent
first and foremost.

My fear is, we won’t address this side of the market until
it’s all too late. My hope is we get it done sooner rather than later, because
I want to watch more of Oscar Kightley’s Harry and more shows like it. I just
want to do it on my terms.

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Software prices and patents

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

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

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

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

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

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

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

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

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

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Aussies show us the way to avoid

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(This post first appeared on NBR’s website)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mr Ren

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

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

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

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

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

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

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

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

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

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

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

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

The Telecommunications Interception Capability and Security Bill

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

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

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

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

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

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

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

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

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

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

EDIT: The Ministry says the bill:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

/in /by

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

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

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

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

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

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

—

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

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

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

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

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

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

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

—

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

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

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

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

Lost Opportunities and hypotheticals

/2 Comments/in /by

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

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

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

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

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

—

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

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

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

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

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

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

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

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

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

—

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

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

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

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

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

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

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

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

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

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