Have you ever heard of the Telco Dispute service?

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How many of you have heard of the Telco Dispute Resolution
service?

I can tell you, it’s 13% of you (since I prompted you). If
you were unprompted, the number is closer to 2%.

In short, nobody knows the service exists, which is really
quite hopeless because without it you’d be completely at the mercy of telco
billing systems, faulty call centre records and the like.

TUANZ doesn’t recommend ISPs to members when they call. We
have no preference for providers and don’t hand out ratings for various ISPs –
what we do every time we’re asked is tell customers only to sign up with those
ISPs that are part of the scheme, because that way if there is a dispute you’re
assured of having an independent third party deal with the problem.

TUANZ believes
very strongly that any ISP worth the S in its name should belong. The cost for
smaller ISPs is $500 a year, so that shouldn’t be a problem for any provider.

There is no requirement for ISPs or telcos to join the
scheme. It’s entirely voluntary and entirely paid for by the telcos that belong.
When it’s used it works well, but last year according to the TDR annual report it received only 3,000 calls and of
those just under half were accepted as complaints or “enquiries” as they’re
known.

Compare that with the Australian Telecommunications Industry Ombudsman scheme which (between July
and September last year) generated nearly 38,000 complaints (a major drop from
the year before). That’s for one quarter – for the full year it’s closer to
150,000 complaints.

There are many reasons for the difference of course. The
Australian TIO model encourages complaints rather than resolutions (each key
word uttered by a customer calling to complain becomes a separate complaint, I’m
told), complaints to the TDR can only be accepted once a deadlock with the
telco has been reached and naturally we could cast aspersions about the
Australian ability to whinge. But when all is said and done the Aussie customer
knows about the scheme whereas the New Zealand customer – for the most part – does
not.

The Australian scheme is mandatory, is governed by its own
Act and costs A$30 million a year to run. The New Zealand scheme is voluntary,
governed by the Telco Carriers Forum (although it has its own Council, which
TUANZ sits on) and costs far, far less. I can’t find a public document that
includes costs so won’t reveal them here, but it’s described by
the Chair of the Council as costing “the least, by a very big margin, of all
industry based consumer dispute resolution schemes” in New Zealand.

By and large, New Zealand telcos do a far better job than
their Aussie counterparts of sorting out disputes. I receive a number of calls
from disgruntled customers and refer most of them on to the ISP in question,
where they are resolved relatively quickly. The TDR does the same – referring customers
back to their providers when a deadlock has yet to be reached. Often customers
will complain to the TDR before talking to their telco and they are politely
but firmly sent on to do the right thing.

Most of New Zealand’s customers are covered by the scheme as
they buy service from the larger ISPs and telcos. The problem telcos tend to be
the smaller operators and they tend not to belong. In essence, we’re policing
the wrong crowd.

The previous Minister of Communications, Steven Joyce,
indicated to the TCF that if it didn’t get complete voluntary membership then
he’d have to take a look at regulating the issue and requiring all telcos join
a scheme – a scheme, he promised, that would be costly and onerous and make the
real estate agent scheme look like kindergarten.

I don’t think we’re at that point. We have a very workable
scheme and now we need to ensure all ISPs belong to it. Besides, let’s remember
the industry we’re dealing with – any cost they incur will be borne by users at
the end of the day.

TUANZ is working with the TDR to encourage full
participation and we’ll be writing to non-scheme members asking them to sign
up. We’re also encouraging the telcos to put more information on their websites and on their bills (TelstraClear customers already have this – hopefully it will spread to Vodafone bills shortly and every bill should have the information on it somewhere). I’d like to see some of those banner ads display TDR information on a regular basis, much in the same way the TV channels all carry ads about the Broadcasting Standards Authority.

You can help as well. Check on the TDR website and if your ISP isn’t a
member let them know that it’s not acceptable. Write them an email or give them
a call and if the answer isn’t satisfactory, vote with your wallet. It’s vital all
customers have access to this kind of service, especially when they are
customers of an ISP that doesn’t seem to see the value in service.

 

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Diggers

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I’m a boy so I like diggers. Always have. There’s
something about giant machines moving large piles of dirt about the place
that’s just really cool. Man (always the male) versus nature, or some such.

If diggers are cool, tunnelling machines are even more
so. I left the UK before the Chunnel was built but remember watching with awe
as giant science fiction machine worms burrowed into the dirt under the Channel
and even shed a small tear when I read that the machines were entombed next to
the tunnel on completion. They’re simply too unwieldy to remove.

The New Zealand Herald carried a piece on our own
tunnel project and the machines that are coming from China to carry out the
work. Despite the gushing prose, this isn’t something we have “never seen
before in New Zealand” unless you exclude the Manapouri hydro scheme but it is
really quite impressive nonetheless.

This project will take two years and will dig a
motorway under Auckland from Owairaka to Waterview, a distance of 4.5km. The
cost estimate is a cool $1.4bn.

By now you’re probably wondering why I’m prattling on
about digging a tunnel. We need to ship things about the place, we have a lack
of rail infrastructure and the roads are really all we’ve got for moving goods
and people around Auckland, so the theory goes, which means more roads.

I drive a lot and I don’t have a problem with more
roads. I know that doesn’t exactly tick the green credentials box, but Auckland
is already a basket case for transport and having spent five years riding a
scooter to work (and being killed twice) unless we make some fairly dramatic
changes to the roads, rail and ferry infrastructure, cars are really the only
answer.

By now you’ll see where this is going. The Southern Cross
Cable, Pacific Fibre, the new Trans-Tasman cable and all the rest cost far less
than this tunnel, yet they’re not seen as economic drivers, but a drain on the
public purse, so they’re left to the private sector to undertake.

The economic lift from building a second NZ-US cable
has not been determined. Will it add anything? Will the UFB add anything? We’ve
got general figures from equipment makers that talk up just how much such
services add to the economy but there’s been little work done on it by anyone
other than those with a vested interest. I’d like to see some numbers please,
because if we can pour $1.4bn into a hole in the ground, surely $400m for a
cable that will help us present New Zealand as a content hub rather than a
content consumer would be money well spent.

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Back to the future indeed

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I was expecting a Top
Gun “the need for speed” or “take my breath away” marketing campaign but
Vodafone surprised me by going with Back
to the Future and the De Lorean instead. Either way, the announcement that
it was turning on a 4G LTE network wasn’t too much of a surprise seeing how
many people had spotted it being tested in the wild.

For a $10 premium over your existing plan (unless you’re
corporate in which case it’s already priced in), on account customers can
upgrade their software and connect to the LTE network.

Vodafone is deploying an 1800MHz network with plans to use
700MHz should it win a chunk in the spectrum auction at the end of the year.

For now that means the footprint is central Auckland (around
30% of the population is covered today) with plans for expansions within the
city, but also extending it to include Christchurch (in May), Wellington (July
or August) and then on to cover 40% of the population by the end of the year.

Currently there are six devices that can access Vodafone’s
LTE network – the latest iPhone, iPad and iPad mini, some of the Samsung Galaxy
SIII devices that have LTE written on the box, one of the Samsung tablets and
an HTC Windows phone. More are coming down the pipe and by Christmas there will
be around a dozen.

Also launched later this year will be category four devices.
The current crop of phones and tablets are only category three – the next ones
will be even faster.

So how fast is it? At the launch with a dozen users all on
the one cellsite we regularly saw speed tests of 50Mbit/s down, 25Mbit/s up.
Latency of around 25ms is to be expected at Vodafone’s head office, but the
speeds are astonishing. The Speed Test app graphical display only goes up to
20Mbit/s so you get to watch the needle swing round to flat line, then do it
again for upload and the report is complete in the time it takes my HSPA+ phone
to get a connection to run the app.

Today Vodafone says it has 65,000 handsets in use that are
able to make the jump to warp speed and they’ll be proactively calling every
one of them to tell them. By the year’s end they expect to see more than
100,000 users on the network.

This move raises two very interesting issues. From a user
perspective it’s great. Not only do we have access to a network that is very
fast, with devices already able to be used on it but we have a technology foot
race in play that should see the other two network operators look closely at
their rollout plans. Telecom had said it was trialling 4G but wasn’t going to
deploy a commercial launch this year. I imagine that will change quite quickly,
and NBR is reporting that Telecom is already talking about a commercial launch
this year. At the latest financial announcement there was no sign of the capex
needed to deploy 4G in Telecom’s network but given Simon Moutter’s view that
mobile is a core proposition for Telecom, I’m sure that will be forthcoming.

Which leaves 2Degrees in an interesting position as well. It
has the ability to upgrade to 4G quite quickly – it has the spectrum and the
network is new enough that I’m told it’s a software/card swap scenario rather
than redeploying kit to every celltower. Could 2Degrees beat Telecom to a
launch? Anything’s possible which is great news for us users. In the meantime
both Telecom and 2Degrees will have to do something to  keep customers happy and that’s likely to
involve pulling the price-point lever. I wouldn’t sign any long-term contracts
just at the moment – it’s all going to get rather interesting.

The other issue this raises is what will the government’s
response be? Given the government’s apparent view that copper is a competitor
to its fibre deployment, what will it make of LTE? If copper, offering speeds
of 15Mbit/s down and 1Mbit/s up is a danger that must be dealt with, what will
the response be to a technology that can do 100Mbit/s and 50Mbit/s up?

Today, with the right iPad, I could be getting speeds at least
on par with the speeds I’ll get from fibre when that finally becomes available
in my area in five years’ time. If copper must be regulated to keep the price
high in order to drive customers to fibre, surely products and services like
Vodafone’s new network will also throw a spanner in the works and if the
government doesn’t see fit to get involved, what does that say about its real
motivation for keeping Chorus’s copper price artificially high?

The government has chosen to keep prices for consumers high while supporting one telco over and above all others. If that’s not back to the future, I don’t know what is.

A trans-Tasman tunnel, hurrah!

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(with apologies to Harry Harrison)

Telecom , Vodafone and Telstra have announced plans to build
a trans-Tasman submarine cable. While it’s only a memo of understanding (MoU)
at this point, the $70m build probably will go ahead as it makes good business
sense.

However it does make it more difficult to build a direct
NZ-US cable in the future, under the current conditions.

Today, New Zealand is a net importer of data. Most of our
surfing takes us off-shore. Traditionally this has meant the US but with an
increase in the number of Content Distribution Networks (CDNs) in Australia
hosting more of the content we’re after, that’s changing somewhat. Building a
cable heading across the Tasman that way means we’ll have more capacity and
potentially more competition on a vital trade route.

TUANZ has long argued that we need more capacity on the
international leg for two reasons. Firstly, to provide a competitive market and
secondly so we can end our role as net importer of data and become an exporter
of data. I’d like to see mega data centres set up in New Zealand becoming the
hub of all things content-related. I’d like to see us hosting data rather than
accessing it offshore and that means more pipes to the outside world.

A trans-Tasman pipe means we’re more likely to continue
accessing content that’s already stored in Australia and so strengthen
Australia’s role as the local hub. I can see a future where the Southern Cross
Cable has expired and any replacement is a direct link from Australia to the US
rather than via New Zealand. That would condemn us to a world where data
connections to North America have to go the long way round, increasing latency
issues and ping times and decreasing our desirability as a destination for
hosting content.

So we have mixed views on the idea of a Tasman cable, as you
can see.

Having said that, we’re very keen to understand how the
cable will be wholesaled, how Telecom’s role as shareholder in both competing
cables will work and just where the cable will land in New Zealand. Currently
fibre landing zones dictate the cable will come in to Whenuapai on Auckland’s
west coast, but as that’s part of an active volcanic field, I’d hope the
government would step up and suggest some alternatives, without adding a
massive cost to the project. It’s important we have diversity on our
international leg – currently we can survive breaks on the cable itself but an
event in Auckland would mean no international connectivity for a very long
time.

Telecom, Telstra and Vodafone are holding a press conference
in half an hour – I’ll add anything from that once we’ve heard more.

 

Telecom’s smart move

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Here at TUANZ we’ve long lobbied for better roaming rates
for mobile users.

The idea of having a smartphone and being able to use GPS,
connect with distant family and friends, send and receive email and all the
myriad of other things that have come about since Steve said “Build me a phone
with no buttons” has been one of the great boons of the last few years and
every time I use my tablet or smartphone I feel a little bit Trek inside.

Having to dumb it down, rip out its still-beating heart and
throw it on the concourse floor every time I disembark in a distant land has
always been something of an anathema to me. Every time I forced a local SIM in
my phone a little piece of me died inside.

I may be overselling it but data roaming charges really used
to get my goat.

I was delighted when Telecom CEO  Simon Moutter told me he was going to do
something about it. He’d just started back at Big Blue after his time at
Auckland Airport and I think he saw there just what a farce roaming charges had
become. Charging customers $20,000 for a product that should only cost $10 was
clearly bonkers, but nobody seemed willing to tackle the issue head on.

Sure, Vodafone had introduced its Data Angel programme which
warned users when their bill was getting excessive, but I always thought that
didn’t really address the problem of the price.

Moutter’s solution – a $6 flat rate for roamers who then go
on to use data out of their existing bundle ($10 if you’re roaming somewhere
other than Australia) has a simplicity about it that I really like. It’s hard to
not understand “you pay $6 on top of your usual amount and then just carry on
as you normally do”.

The danger, of course, was that customers wouldn’t bother
using the service, that uptake would stay about the same and that Telecom would
have to foot the bill for international data charges from the various foreign
network operators. “It would leave us a long way under water” was how Moutter
put it at last night’s After Five’s session in Wellington.

Instead, users responded with a nearly 200% increase in data
consumption while roaming, both in Australia and the other destinations covered
by the scheme.

This is tremendous news as it reinforces what we’ve been
saying all along. Make the price reasonable and people will actually pay for a
product. Sure, you can still get a better deal if you put a local SIM in your
phone on arrival, but the hassle of that (losing contact numbers, remembering APN
settings for the return journey and all the rest of it) isn’t worth the extra
savings for most people.

Moutter says this is part of the new approach to competition
at Telecom. Instead of “walking backwards slowly” defending market share and
generally being as negative as possible to the environment around, Moutter
wants Telecom to take a leadership position in the market and drive it forward.
Given how quickly he got the data roaming package introduced, Telecom is
certainly showing itself able to do that.

So full credit to Telecom for cutting to the chase and fixing
what has been a major problem for TUANZ members for a long time and now, onward
to see what’s next. Moutter says the company won’t be competing with over the
top providers because there’s no way he could foot it with an Apple or a Google
in that market. Instead, he says the future of telco providers is in bytes – it’s
data all the way and eventually he’ll be overseeing a company that doesn’t sell
minutes of calling or TXT messages. That’s an exciting proposition and hearing
it from the CEO of Telecom tells me that if there’s one thing the telco market
doesn’t lack for it’s surprises.

No certainty but uncertainty

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The ICT minister, Amy Adams, has announced a full-blown review of the telecommunications industry that is supposed to engender investor confidence in the sector, but has instead destabilised the industry at a critical point in its history.

The Minister has called for three things to happen:

Bring forward the TSO review to start immediately;
Bring forward the review of the regulation to start immediately;
Extend the UBA wholesale review (in effect freezing it until after this review takes place).
What this means

The TSO (Telecommunications Service Obligation) has been a bone of contention for more than a decade after it was introduced in a closed-door session between the government and Telecom in 2001. In it, Telecom convinced the government that the industry should pay Telecom to keep rural customers connected to the internet.

Today, the Supreme Court has ruled that the whole thing is a nonsense and the Commerce Commission should redo its sums and consequently Telecom and some of the industry have settled out of court.

TUANZ fully supports a review of the TSO and would like to see some kind of broadband-based universal service obligation that enables rural and remote customers to get online in as similar a way to their urban cousins as is possible.

Extending the UBA wholesale review puts the Commerce Commission and the rest of the industry in the awkward position of having to press on with the submissions, counter-submissions and engagement over the price of wholesale copper in the knowledge that the entire thing will no doubt be turfed out by the end of next year. Yet the Commission can’t NOT do it as it’s required to by the current Telecommunications Act.

While TUANZ has always supported the view that an ongoing review of regulation is vital in this ever-changing industry, dumping a three-year review in favour of a quickie one year review as a knee jerk reaction to one issue is not the way to do it.

We’ve seen no terms of reference for this review, we don’t know the process or who’s going to be leading the review and we don’t know what the goal of the review is.

What we do know is what the minister has said so far and it doesn’t make for good reading for anyone except Chorus shareholders.

Why these announcements now?

The spark to all of this activity is the Commerce Commission’s draft determination on the price retail ISPs should pay Chorus for access to its wholesale copper product, known as UBA.

In years gone by the price of this regulated product was governed by a “retail minus” pricing principle – that is, the Commission took Telecom’s (as it was then) retail prices, averaged them out, removed a small amount as margin and reverse engineered a wholesale product.

As was evident at the time, all Telecom had to do was maintain some hideously expensive retail plans and so skew the price to the point where the country’s most popular plans were actually more expensive at a wholesale level than they were at retail. Telecom maintained its control over the industry for many years until the government of the day called its bluff in 2006.

Chorus does not have a retail arm and so a retail minus solution is no longer viable. When the current government came to power it began work on the Ultra Fast Broadband (UFB) project and required any company bidding for the contract to be structurally separated – that is, to only do network stuff, not retail as well. If Telecom wanted to take part it would have to split in two – something it eventually agreed to and the latest Telecommunications Act was introduced in 2010 reflecting that state of affairs.

In the Act it clearly states that the wholesale price of copper services would be assessed by the Commerce Commission on a forward-looking cost based model. There really is no other way of doing it.

The Commission began its work last year and came out with a draft determination that reduced the price for UBA. There are a raft of components that go into the retail price point but the wholesale input we’re talking about here would drop from $21.46 to $8.93 per line per month.

Chorus immediately howled with outrage. This would strip $160m a year from its revenue stream and would mean terrible things would happen to its fibre rollout plans. The government immediately came out in support of Chorus and muttered darkly about interfering in the Commerce Commission process – something that prompted the former Commissioner Ross Patterson to write a stern editorial in the Dominion Post on the matter.

There are a couple of things to consider in all of this. Firstly, this is a draft determination by the Commission, with the emphasis on draft. Typically we would then all sit down, with our economists, and explain why the Commission is wrong. There would be submissions, cross submissions, a conference, final notes and then eventually a final determination. Plenty of time in which to explain why the price point should be higher, lower or managed in a completely different way.

Most of the ISPs I’ve spoken to expected that price point to come back up to the mid-teens – $16 per line per month is the most quoted figure I’ve heard.

Chorus caught on the back foot?

Putting aside all of that for a moment, the more important point is how did Chorus not know this was coming?

The Act makes it clear – a cost-based model was written into legislation by this very government and the Act was part of the reason Chorus was created in the first place. Since Chorus was floated it’s been there and we’ve all known about it.

Either Chorus management (and investment advisors) are incompetent and didn’t notice or they knew about it and are playing a very good PR game which clearly has won the government over.

The problem is, while it might be fine for Chorus investors (shares have hopped back up since the announcement) it’s incredibly difficult for both competitors and consumers alike.

Implication for New Zealand

Imagine if you will a local telco that has invested in local loop unbundling. With the prices up in the air, will they be able to continue investing? Should they abandon any future investment in favour of wholesale or just not do anything until the UFB is rolled out?

And what about the customers? We want faster broadband and if the UFB isn’t coming to residential areas for another three or more years, are we going to be stuck paying higher copper prices in the meantime just to force us to migrate once the fibre arrives?

The Minister is quoted in NBR as saying she’s more interested in fibre uptake than cheaper prices on copper.

“I don’t think the over-arching criteria in this is ‘what is the cheapest option?'” she told BusinessDesk. “If that was the case, we’d be sticking with dial-up. I don’t think you’d find any consumer saying ‘if dial-up’s cheaper, let me have that’.”

That’s a bold statement from a minister. In effect she’s saying fibre uptake is the most important factor in the industry today. More important than short term copper pricing, more important than customer benefit, more important than returns on investment to shareholders of other companies.

What she’s not taking into account is that fibre isn’t the only technology on offer. It isn’t the only technology capable of delivering faster speeds.

Copper itself can offer much faster speeds – VDSL2 for example – and we should be leveraging that investment in the short term.

And what about 4th generation mobile technology – LTE? I’ve just come back from a trip to see Huawei’s rollout in Hong Kong and saw tremendous speeds on handsets in the wild. If Telecom and Vodafone decide not to sell UFB but to focus all their energies on LTE, what would that mean for uptake? Would she then intervene to force them to sell UFB services?

That’s a tad extreme, but not unprecedented. In Australia in the mid-2000s, Telstra decided not to build a fibre to the node network but to concentrate on mobile and build the NextG network. Investment in the landline infrastructure was so chilled the government was forced to step in and pay A$12bn to buy the copper network off Telstra. Is that on the cards for New Zealand?

TUANZ wants to see a fibre network built. We think it would be good for our economy in the long term and good for customers. But we’ve long maintained that how we build this network is as important as getting it done and we opposed the government’s regulatory holiday as a result.

My fear is that with a minister hell bent on fixing one aspect of the industry, we run the risk of upsetting the rest of the industry in a way that will cost us dearly in the long run.

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Broadband is an adjective

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Dylan Reeve and I were arguing about fibre uptake and the
role of television content as driver. Dylan doesn’t believe IPTV will drive
uptake of fibre as there are too few customers to drive a provider to deliver
and there’s a problem with our retail ISP market – too many resellers of
connectivity to make a fist out of offering a service. There’s also the small problem
of our content market and the limited choice in that market.

I don’t disagree with him on those points. There are only a
handful of customers using fibre today so anyone setting up in business
offering service to those customers will have a pitiful return on investment
for year one. The ISP market is fragmented and most do, indeed, resell Chorus
wholesale so unlikely to have the margin to buy content. And as we’ve noted
elsewhere, Sky dominates the pay TV market in New Zealand and the deals it has
with ISPs are under review by the Commerce Commission for potentially breaching
the Fair Trading Act.

All of which really tells me that IPTV is vital for a
successful fibre rollout and for the future of paid content in New Zealand.

Let me explain.

I’ve just been to Kuala Lumpur courtesy of Huawei to have a
look at its fibre to the home rollout (we also talked LTE in Hong Kong but I’ll
cover that elsewhere). Uptake of FttH services has been good – around the 30%
mark, which is among the best in the world, and customers get free national
calling, relatively fast internet access and 100 channels of television (many
in HD) for around NZ$100 a month.

The competition has come in with the same deal but has 250 channels
of TV.

Malaysia is very damp – it rains a lot every day – and because
of that, rain fade on satellite TV is a real problem. Moving TV on to a fibre
makes perfect sense, and the way it’s provisioned by Malaysia Telekom,  a 10Mbit/s channel is allocated for TV and
nothing else. The picture is crystal clear and there’s no hesitation or
buffering, even when changing the channel.

The speeds customers get are relatively low. Entry level is
20Mbit/s and it goes up from there, but that’s after you’ve taken out the
10Mbit/s channel for TV, which changes things somewhat.

What is clear is that customers aren’t signing up for broadband,
they’re signing up for television that is delivered over broadband. Many years
ago I met a chap from Ericsson Australia who talked animatedly about how we
should all stop talking about broadband as if it were a thing and start
treating it as an adjective – broadband describes something else, so broadband
internet access, broadband television and so on. I suspect he’s right.

A quick Google for “triple play drives uptake” reveals a
wealth of stories and releases from around the world on this subject. BskyB’s
May 2012 financial update points to the triple play package as delivering
increased customer numbers in the UK:

“The telco noted that the number
of triple-play subscribers on its books had risen to 3.2 million, up 24%
compared to end-March 2011, while adding that triple-play penetration had
reached 31%”.

Dutch telco Ziggo also reports higher growth which it puts
down to offering a triple play package.  Year on year from 2009 to 2010 it saw an
increase of 67.5% in subscriber numbers as a result.

Even our own Commerce Commission has concluded that
differentiated video content will help drive demand for UFB services.

For a customer like me, running a business from home with a
media-bent and a desire for faster access to all things electronic, moving to
UFB is a no brainer. I won’t see it in my street for the next five or six years
but I’ll leap at the chance.

For the average mum and dad sitting at home, there has to be
an incentive, a reason to move. Faster internet access isn’t it – but 250
channels of television and free national calling (for which you need UFB) might
just do it.

DISCLAIMER: I travelled to China and Malaysia courtesy of Huawei

Privacy Commissioner issues guidance on SME and cloud computing

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Making
the right choices in cloud computing – new Privacy Commissioner guidance

MEDIA
RELEASE

12
February 2013

The Privacy Commissioner today released
guidance material for small to medium sized businesses (SMEs), to help them
protect personal information when using cloud computing.

 “Businesses today are increasingly
turning to cloud computing, but many are flying blind with the range of
options, providers and risks. Shifting to the cloud can often make really good
sense. But responsible businesses will always want to be sure that their client
and staff information will be safe. We saw a gap in the guidance that was
available,” Privacy Commissioner Marie Shroff said today.

“The reality is you’re still responsible
for what happens to your customers’ information in the cloud. You are going to
be the one answering the questions about what went wrong if there’s a privacy
breach. A loss of customer trust will directly hit a business’ bottom line, so
a lot of SMEs are nervous about using the cloud.  But sometimes they’re
too nervous – the risks may be easier to manage than they think.

“Deciding whether to move to the cloud is a
business decision that depends on a variety of factors – but businesses don’t
necessarily have time to put together a checklist for themselves. So we’ve developed some guidance, including a list that sets out the most important
questions for SMEs to think about, and ask prospective cloud providers about.”

Some questions to ask providers are:

          types of
information

          provider?

Developing the guidance

“We started by talking to some NZ
businesses and government agencies to see how they were using the cloud, and
work out where the information gaps might be. We’ve also consulted those
businesses and agencies in developing the guidance. We welcome feedback to help
us ensure that the guidance remains up to date and useable throughout the
business and government community,” Marie Shroff said.

The Commission’s guidance on SME and cloud computing can be found here (WARNING: PDF)

The industry left in limbo

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The minister has announced a major change to our telecommunications industry with a view to ensuring certainty for investors.

In her announcement, the minister has made three decisions:

1: Bring forward the TSO review to start immediately;
2: Bring forward the review of the regulation to start immediately;
3: Extend the UBA wholesale review (in effect freezing it until after this review takes place).

TUANZ has always supported an ongoing review of the regulations that bind our industry. Having seen the massive changes in technology and customer use over the past five or six years it would be foolish not to. Our regulation must reflect both the industry and our users’ needs, so ongoing review is essential.

We also support a review of the TSO – that pernicious beast has caused more trouble than it’s worth and it’s high time we implemented a universal service obligation that focuses on end users rather than network builders.

Extending the UBA review means we have a half-house regulatory regime in place until after this new review has been completed and that troubles me.

In December I wrote about the regulatory process and why it’s important to ensure politicians don’t meddle in an ongoing process. Regulatory certainty only comes about via an arm’s length process where investors can be sure the rules of the road are dictated by the regulator and not by the politicians of the day with one eye on the polls.

All this has come about because a rule the government put in place when it last revamped the Telecommunications Act has proved unsavory. Chorus makes its money today from wholesaling copper services, yet by the end of the decade it will have built a fibre network that makes its copper lines surplus to requirements. Chorus (and Telecom before it) knew the rules going in. In exchange for separation, Chorus would win the UFB project and would expect to have the copper regulation set once and for all and left alone. That regulation would include moving from “retail minus” pricing to “cost plus” and that’s exactly what the Commerce Commission has introduced.

The government has chosen in effect to freeze that process and to leave the industry in limbo. We don’t have new pricing for wholesale services and we now face an intensive round of lobbying on our new regulatory process, something which in an ideal world would be as bloodless and clinical as possible but which now will no doubt be rather more exciting than that.

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TUANZ submission on wholesale pricing

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Unbundled Bitstream Access (UBA) Service Price Review

The Telecommunications Users Association of New Zealand is a membership-based, not-for-profit organisation that represents business users of telecommunications in New Zealand.

Established in 1986, we work to encourage investment in the New Zealand telecommunications market, better regulation to deliver increased competition and improved access for all New Zealanders.

We thank you for the opportunity to submit on the matter of wholesale pricing for copper services. For the purposes of releasing to the public, none of this submission should be deemed commercial in confidence.

Executive Summary

TUANZ has long argued for certainty in regulation; increased investment and lower prices for users of broadband.

TUANZ submitted on the amendments to the Telecommunications Act introduced in 2010, arguing strongly against the so-called “regulatory forbearance period” and in favour of a level playing field for all investors, overseen by the Telecommunications Commissioner and the Commerce Commission.

Comments made by both the Minister of Communications and the Prime Minister would seem to undermine that independence in favour of the company charged with building most of the country’s Ultra Fast Broadband (UFB) network.

TUANZ is gravely concerned by the level of political interference in the Commerce Commission process. The Prime Minister won’t rule out changing the law to ensure the draft determination from the Commerce Commission doesn’t become a final ruling and the Minister of Communications has also voiced her concerns over the draft determination.

The Commission is required to follow the law which clearly states the Commission to set a forward-looking cost-based price for UBA. The industry as a whole has known about this part of the Telecommunications Act, and has discussed it at some length, since it was enacted and it should come as no surprise to either government or industry participants.

TUANZ shares the Commission’s view that benchmarking against such a small group of comparable countries is problematic, but is entirely opposed to the idea that the Commission’s final determination be treated as some kind of recommendation to the government, rather than the legally binding determination that it is.

The government is, of course, entitled to introduce a new Telecommunications Bill to parliament and to make changes to the way in which the law works, however under the current law, the Commerce Commission has little choice in the matter but to use a cost-based model as it has in the draft determination.

TUANZ believes that wholesale UBA services will diminish over the next few years being replaced initially by VDSL services and ultimately by fibre – however, it is vital we get the settings right for both retail service providers and network operators, for investors and users of the service.

Submission

The Telecommunications Act

The Telecommunications Act makes it quite clear in section 77 just what is required of the Commerce Commission in this instance.

Review of standard terms determination for unbundled bitstream access service before expiry of 1 year from separation day

•    (1)The Commission must make reasonable efforts to do the following before the expiry of 1 year from separation day:

o    (a)review the standard terms determination for Chorus’s unbundled bitstream access service under section 30R for the purpose of making any changes that may be necessary in order to implement the initial and final pricing principles applicable after the expiry of 3 years from separation day; and

o    (b)give public notice of the result of the review.

(2)To avoid doubt, no variation of, addition to, or deletion of terms specified in the standard terms determination as a result of the Commission’s review in accordance with subsection (1) may take effect before the expiry of 3 years from separation day.

The Act goes on to explicitly define the methodology which the Commerce Commission must use to reach thisdetermination:

The price for the designated access service entitled Chorus’s unbundled copper local loop network, plus benchmarking additional costs incurred in providing the unbundled Bitstream access service against prices in comparable countries that use a forward-looking cost-basedpricing method  

Schedule 1 goes on to require the Commission consider its pricing for UCLL (Unbundled Copper Local Loop) service when assessing the price for UBA:

The Commission must consider relativity between this service and Chorus’s unbundled copper local loop network service (to the extent that terms and conditions have been determined for that service)

The Commission released its final determination on LLU pricing on 3 December 2012.

So the rules by which the Commission must work are clearly outlined – UBA must be determined on a forward-looking cost-based assessment, and benchmarking with similar regimes around the world must be taken into account. The starting point for pricing must be based on the price already determined for UCLL.

There is no room, in TUANZ’s view, for the Commission to deviate from this model. Any changes to this model must be made at a political level rather than by the regulator.

Consequently, TUANZ supports the Commission’s approach and its draft determination. 

UBA price

TUANZ supports the Commission’s conclusions on price, based as they are on both cost-based services and its benchmarking efforts with regard to similar jurisdictions overseas.

Unfortunately, as the Commission has pointed out, with only two countries to compare ourselves against, the result is less than ideal. TUANZ would support the Commission broadening its brief or potentially looking to model costs rather than compare, given the limited nature of the market. That will, however, require a change to the Act itself.

Copper versus fibre

 Section 19 (A) of the Telco Act says:

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

In this instance that must surely mean the Commission must consider the government’s Ultra Fast Broadband (UFB) project. Much has been made of the need to migrate customers from the existing copper network over to the fibre-based network once it becomes available.

Chorus is the lead network partner on the UFB project, as well as being the owner of most of the country’s copper lines, and so is placed in the interesting situation of having to earn its income predominantly from copper lines at the same time as it rolls out a replacement network.

Clearly this economic tension must lie at the heart of the government’s concern over dramatic changes to the price for copper services. Chorus has stated that the Commission’s draft determination would, if introduced into practice, lower its revenue by $160m a year, equal to 40% of its earnings.

TUANZ has to believe that Chorus must have known about the UBA review for as long as TUANZ has known and that any move to a cost-based model would result in the sort of drop in revenue seen here. Chorus investors must have been aware of the potential for this kind of move in a similar time frame.

Similarly, if TUANZ and Chorus both knew such a review was forthcoming, surely investors in other telcos would have known as well, and priced their investments accordingly.

TUANZ is very concerned that political interference at this point in the process will lead to yet more instability in the market as investors see long-signalled intentions cast aside at the last minute. TUANZ would like to see more investment in telecommunications in New Zealand and a robust regulatory regime is critical to that investment. Changing the rules when they become unpalatable simply isn’t acceptable.

Additionally, TUANZ does not see the copper network competing with the fibre network beyond the transition period.

Currently speeds over the copper network are constrained by the nature of the technology involved. ADSL (the family of technology deployed on Chorus’s network and which UBA uses) is “asymmetrical”. That is, the upload speed is only a fraction of the download speed. 

While home users generally don’t upload that much content, although that is changing rapidly, business users do and require much faster upload speeds than are found on the ADSL services, such as UBA.

The UFB rollout is scheduled to continue for most of this decade and most New Zealand homes won’t be able to be connected until 2016 at the earliest. Internationally, uptake rates of no more than 20% are the norm for fibre rollouts of this type and so for the foreseeable future New Zealand’s broadband will be delivered predominantly over copper lines.

TUANZ fully expects to see new DSL services rolled out in the months ahead, especially VDSL-based services, which provide a much faster upload and download speed over short-run copper. Chorus’s existing “fibre to the node” network means far more New Zealand households are within  reach of a fibre-fed cabinet than ever before and TUANZ is confident New Zealanders will avail themselves of faster speeds when they become available.

Rather than stopping the migration to fibre, TUANZ believes faster copper services will help drive that demand.

Today a home user connected via ADSL will see relatively modest speeds – 12Mbit/s download and 1Mbit/s upload would not be uncommon.

For an individual user that is quite acceptable in today’s broadband world, however as we connect more devices to our business and home broadband services, as more of us use broadband more frequently, that level of speed will rapidly become unacceptable. Ironically, connecting schools and businesses to the UFB first will help spur on families and employees who are used to fibre-like speeds at school or work and will want more at home.

In the next three to five years TUANZ expects most of Chorus’s income will continue to be received from customers of its copper network, but the vast majority of those won’t be UBA customers but rather VDSL customers. This interim migration– from basic broadband to faster speeds – must be considered as well as the migration from copper to fibre. Indeed, TUANZ believes the move to faster DSL services will encourage customers to take up fibre in much greater numbers when it finally does become available. 

None of that will eventuate if the price of copper services in New Zealand is kept artificially high in order to satisfy the needs of one company’s income stream – even a company as important to the future of telecommunications in New Zealand as Chorus.

Conclusion

The Commission has acted appropriately with its UBA determination process, following the law as it’s written.

TUANZ is gravely concerned that political interference in this process will undermine the good work of the regulator and impact on future investment in the telecommunications market.

TUANZ is also concerned that putting the earnings of one company ahead of the reduction in price will see consumers (both business and home users) disadvantaged.

TUANZ does not believe the impact on Chorus’s business model will be as severe as indicated in the press, as customers will predominantly move to faster copper speeds and so be migrating away from UBA in the short term. In the longer term they will, of course, be encouraged off copper and on to fibre anyway.

TUANZ thanks the Commission again for allowing us to comment on the draft determination. If the Commission does hold a conference to discuss these matters, TUANZ would like to be involved.