The value of the internet

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The internet is a powerful tool for business, yet for too long we’ve struggled to convince many people of this fact.

It’s all about pornography, stealing copyright material and playing games, they say.

I’m not joking about this – I’ve heard it from government ministers, leaders of business, academics and (most alarmingly) a retiring Telecom board member. Really.

Now, however, we can point to a report that is at the least impartial and well put together. Sure, we’ve had reports in the past of the economic benefits of broadband, but when they’re produced at the behest of companies like Ericsson or Alcatel, they tend to get tarred with the “of course you’d say that” brush.

Today’s release, “The value of internet services to New Zealand businesses” was commissioned by the Innovation Partnership, which consists of InternetNZ and Google among others, but is put together by the economists at Sapere, led by an old colleague of mine, Hayden Glass.

The upshot is, yes having broadband does increase your productivity, improve your bottom line and deliver on all the benefits we’ve talked about for years.

On the other hand, the report also highlights those sectors of the economy where broadband has not made much of a dent – most notably in the rural sector, where farms and farmers seem immune to the charms of having internet connectivity either because they don’t see the value or, more likely in my view, because they’ve never had it and don’t know what they’re missing out on.

A couple of years ago I spoke at a Federated Farmers Nelson branch AGM, and talked about the UFB and RBI proposals and how they’d impact on rural life.

At the tea break, one large burly farmer came over to tell me he saw no value in the internet at all. His wife overheard him, smacked him on the shoulder and called him names. We use the internet, she declared, when it works and we need more of it. The apprentices use it for their studies, the kids use it for theirs and we used it to get the seats to the Rugby World Cup. In fact, so poor was the connection that they nearly missed out because after choosing the seats on the handy online tool, the connection would time out and she’d have to re-book from scratch.

“We nearly missed out on the semi-final,” she told him and he was an instant convert. “We must have more of it,” he declared.

Of course, there’s more to farming’s need for broadband than tickets to the rugby. Irrigation schemes, weather reports, milk yield reports, ongoing education and training opportunities, GPS mapping, health inspections (both people and animals), animal ID tags and so on all rely on better connectivity and on farmers willing to use this new kit.

Every percentage gain in productivity we can deliver in rural New Zealand will have a huge impact on our overall GDP and if that was the only measure, we’d be strongly urging rural New Zealand to get online as fast as they can, but of course it’s not. There’s also the social need – rural society’s cohesion relies on good communications far more so than in the city where we’re face to face on a daily basis.

This is a fight that should shape the next election – finally we have the ammunition we need to direct policy makers in the right direction.

There’s plenty more in the report as well, so do take the time to have a look through it. Well done to all concerned with its production. It’s something we can all use in our ongoing debate about connectivity.

An announcement

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PRESS RELEASE

Thursday March 27, 2014

The Board of TUANZ regrets to announce that chief executive Paul Brislen is to leave the association after three and a half years at the helm.

Paul joined TUANZ in late 2010 and has overseen dramatic changes to both TUANZ and to the wider telecommunications market as well.

In that time we’ve seen the break-up of Telecom, the launch of a new Telecommunications Act and the roll outs of both Ultra Fast Broadband and Rural Broadband Initiatives, the introduction of new GCSB and telecommunications interception laws, the introduction of a new Telecommunications Commissioner and the start of the final chapter of copper regulation.

Under Paul’s leadership, TUANZ has fought against the introduction of a ten year regulatory holiday and the copper tax and has championed the needs of the user at every turn.

“We are sad to see Paul depart, but are proud of what TUANZ has achieved under Paul’s leadership over recent years. We part as good friends and wish him well in his new endeavour”, says TUANZ Chair, Pat O’Connell.

“The last three years have been a tremendous learning curve for me, and I’ve thoroughly enjoyed my time with TUANZ,” says outgoing CEO Paul Brislen.

“I want to thank the TUANZ board for all their support both of the organisation and of me personally and wish them well in the hunt for a new CEO. I’d like to especially thank those members who’ve supported the association through difficult economic times to ensure we’re still around to fight the good fight. The role TUANZ plays is unique in the New Zealand economy and it’s a vitally important one. Now is a good time to pass the baton on to a new CEO as we lead into the election cycle with all that entails,” says Brislen.

“There is clearly plenty we need to do; our search for a new CEO begins immediately”, says O’Connell.

ENDS

TUANZ is the Telecommunication Users Association of New Zealand and represents telco users throughout New Zealand. For more information see: www.tuanz.org.nz

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Why TUANZ?

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It’s membership renewal time here at TUANZ and worth reiterating the various things TUANZ does. I know you see me on the TV (sorry about that – the camera adds ten pounds you know), on the radio ruining your drive home or taking up column inches in the paper, but TUANZ is more than just me commenting on various issues.

TUANZ has three main roles. We lobby, we represent and we provide a networking forum for members.

Lobbying stems from our policy work and our approach is always the same – is this in the best interests of competition and the users. From that simple basis we form views on everything from the copper tax to mobile termination rates, from the TSO to submarine cables. Will it increase competition? Is it good for end users?

Currently we have three main issues we’re driving. Competition, access to better broadband and pricing.

Competition is obvious – if we have a competitive market then we avoid the excess fat of the cosy duopoly or monopoly situations. If we all have better access to broadband then we can all take part in the digital economy, and build billion dollar businesses from the bach. If prices are more reasonable, more customers can take up more services and do more with the network that’s there.

On top of that, we also represent users at various fora. We have a seat on the TCF board, making sure that the telcos don’t forget about customers whenever they meet to decide on new codes of practice. We turn up to various TCF working parties, such as the recent broadband product disclosure code, to influence the direction such codes take before they are set in stone.

We have a seat on the Numbering Administration Deed council, which oversees the basic numbering plan that governs the telco market.  Hopefully we can add value to the process and again remind the telcos that are involved that ultimately customers will need to buy their services so it probably pays to think about that up front.

We are also one of the consumer representatives, along with Consumer, on the Telco Dispute Resolution Service council. There we provide a balance to the needsof the telcos and ISPs in the tricky area of customer service, making sure that the process works for both telco and consumer alike.

Finally we represent New Zealand at the International Telecommunications UsersGroup (INTUG) board level. There we work with our sister organisations from around the world to influence regulators, help set policy and drive the agenda on behalf ofour members. As part of that work we regularly host an industry roundtable workshop at APEC’s twice annual telecommunications conference.

Then there’s the networking side of things and our bi-monthly TUANZ After Five series. Here we hope to bring you together to network, catch up with old friends and to hear from someone interesting from within the industry. We’ve had speakers from vendors, telcos, policy makers and the regulator and numerous other industry bodies speak to members on topics ranging from economic development opportunities, rural broadband programmes, international comparisons, the future direction of telecommunications itself and the ever present “next generation” of technologies.

We do all of this work on behalf of telecommunication users, but we couldn’t do anyof it without your support. Your membership fees are the main source of revenue we have and without you, we couldn’t be as effective as we are.

And we are effective. Last year we managed to rebuff the government’s attempts to overrule the Commerce Commission and raise the price of broadband services. We’ve driven the fibre to the home agenda and helped guide previous governments to build a regulatory regime specifically for telecommunications. We’ve seen increased competition and better products and services come to market as a result and that brings us back to what makes TUANZ what it is – the users themselves.
 

If you’re not a TUANZ member check out our JOIN TUANZ page and if you’ve got any questions, let me know.

Consideration must be given… Section 18 and Chorus

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I’m not at the High Court in Wellington so all I know about the case Chorus is bringing against the Commerce Commission is what I’ve read in the papers, but so far it’s quite fascinating.

Chorus’s argument hinges on whether or not the Commerce Commission misread the law with regard to its determination of the price of wholesale access to copper lines (known as the UBA service).

Chorus says the Commission chose too narrow a group of comparison countries and didn’t take into account the requirements of a new section of the Telco Act (section 18) which was added after we, among others, argued against having a regulatory holiday.

The first part is easily disposed of. There really aren’t too many countries around the world that have a similar regulator system to ours, and so in the end the Commission was stuck with just two – Denmark and Sweden.

That’s a problem – one the Commission acknowledged early on – but seeing that the determination has to be based on benchmarking, and that the law allows for a Final Pricing Principle if that’s not considered satisfactory, it’s hard to see how the Commission could have done anything differently. We’re benchmarking against two countries, if you don’t like it you can ask for an FPP. Chorus didn’t like it, so it did, and we’re working through that process now.

The second part is trickier.

For those with long memories, cast your minds back to the Telecommunications Amendment Bill introduction in 2010. You’ll remember it was pretty straightforward, including a number of provisions relating to the UFB deployment and the requirements for any winner to be a wholesale supplier only: no retail service was allowed.

The minister of the day, Steven Joyce, then introduced a Supplementary Order Paper (SOP) that ran to more pages than the bill itself and included a brief mention of a regulatory “forbearance period” which would free the winning company from having any Commerce Commission oversight for a period of ten years.

After having fought for many years to get a regulator to oversee the industry, and having seen how well the regulator could both encourage good behaviour and enforce it when needs be, TUANZ wasn’t about to stand idly by and let the regulator be benched for a decade.

Ultimately political manoeuvrings saw the clause struck out, but in its place Section 18 was introduced.

It’s not a long section – just four brief paragraphs. The first says the section is designed “to promote competition in telecommunications markets for the long-term benefit of end-users of telecommunications services within New Zealand” through regulation.

That’s good – that’s in keeping with the role of the Commerce Commission and the Commerce Act and indeed with the Telco Act itself.

The second paragraph is dull legalese that says you must consider whether any regulation will result in, or block, the  “long-term benefit of end-users of telecommunications services within New Zealand”.

Good to see – we’re all about that as well, so I’m happy with that.

The third paragraph is the meat of this matter, however. I’ll quote it in full for you.

“To avoid doubt, in determining whether or not, or the extent to which, competition in telecommunications markets for the long-term benefit of end-users of telecommunications services within New Zealand is promoted, consideration must be given to the incentives to innovate that exist for, and the risks faced by, investors in new telecommunications services that involve significant capital investment and that offer capabilities not available from established services.”

I’ve bolded the important bit. Consideration must be given to those investors who are putting money in to new services. This is the first time the Telco Act has talked about protecting investors in this way – it’s untested until now and frankly, it’s not a lot to go on.

The Commerce Commission’s thinking around S18 is quite straightforward. Nowhere does S18 say the Commission must change its methodology. Nowhere does it say the Commission must override its existing processes and approaches to benchmarking and the like. It doesn’t say anything other than “consideration must be given”, not to the investors themselves, but to the incentives and risks those investors face.

Given that, the Commission looked at its benchmarked countries and chose the most expensive one instead of picking a point somewhere in between the two, as it would have done in the past. Section 18 doesn’t really have the detail that Chorus (and indeed that the government that introduced it) is saying it does. I don’t see any other approach that the Commission could have taken with so little guidance.

Chorus’s lawyer is also arguing that the Commission must surely have seen the writing on the wall when the share price began to fall – but that’s just a bit of theatre for the papers. Nowhere does the law require the Commission to consider a company’s share price as an input into this process and if it did I for one would be marching in the street in protest. It’s quite a strange measure of regulatory worth and really wouldn’t stack up against the rest of the Telco Act or the Commerce Act itself for that matter.

But it does raise an interesting question. Chorus clearly wasn’t expecting a price cut of this magnitude, despite all the signs (such as Steven Joyce giving the company three years to get ready for the introduction of the new price), and argues that it puts the UFB deployment at risk.

Yet when you look at another High Court ruling – this time in an appeal against a Commerce Commission ruling (Wellington Airport et al vs the Commerce Commission), you’ll find an opposing view from the court on such cross subsidisation.

“[1480] The idea that greater revenues produced by higher allowed earnings on past investments (ie on the initial RAB) provide the wherewithal for more future investment is contrary to rational investment choice. Those existing higher earnings, once earned, are a given. The source of funds for future investments does not influence the riskiness of future investments; nor, therefore, does it influence their attractiveness. If anything, an abundance of capital is likely to lead to wasteful investment.”

I take that to mean if you make money from one source, you can’t then cry foul in another arena if that funding dries up. Past earnings are not guaranteed and you can’t rely on them.

The whole case is quite fascinating, pitching the Commission against (in essence) every regulated utility you care to think about, and its role in the current fight will no doubt come out in time.

Today, the Commerce Commission’s lawyers will have their say and then it’s over to the court to determine what happens next. Either way I’m sure we’ll see an appeal and then probably an appeal to the Supreme Court itself.

All that will take time and drag this out for years to come – ironically proving the value of letting the Commerce Commission make the call on such things. Legal actions in the telco sector have in the past taken so long to resolve the products have long since been withdrawn. Sadly, all this is far from over.

Shuffling the cards, but no new hand for Chorus

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Chorus and Crown Fibre have announced several changes to the UFB contracts that should help Chorus better manage its costs.

There are a few changes that seem quite reasonable.

Chorus will have more flexibility about work within a candidate area and what order it does stuff. Apparently the original contract was quite specific about the process – Chorus now has some latitude to do things the way it would like to. 

That will leave 12,000 households without fibre in the short term when they were expecting it, but they won’t miss out entirely. They’ll just have to wait a bit longer.

EDIT: I’ve misunderstood that bit. This, apparently, relates to business areas where Chorus has an existing point-to-oint fibre footprint that pre-dates UFB. Previously they were required to dig a lateral to every premise boundary and make every area GPON-ready by December 2015 regardless of demand. Now they will be allowed to do these works on demand, provided all the work is completed by December 2019. Apologies for the mis-reading.

It also gets a more regular round of progress payments which should make it easier for the company to manage its cash flow. Having been involved in a building project last year, I know how hard it is for contractors to manage cash flow when customers want to see an end result before paying. Sharing that load out on a monthly basis will no doubt help Chorus tremendously.

And instead of having to replace perfectly acceptable Cat5e or 6 or even fibre deployments from a business park or apartment building or school, for example, Chorus will now be able to make use of existing networking gear, so long as it’s up to spec.

That’s all fine, but I can’t imagine any of it will make a huge difference to the costs of deployment.

There are a couple of issues that concern me, however. Chorus gets to use its existing fibre networks and simply upgrade them to UFB capability. In this case, ‘upgrade’ is something of a misnomer – it will run UFB over the top of point-to-point fibre. If that sounds familiar it’s because last week Vodafone suggested Chorus do just that with its fibre and HFC networks and both the minister and Chorus dismissed the option out of hand.

But Chorus’s own fibre is perfectly acceptable.

This is very interesting. It makes me wonder – again – why Chorus isn’t using existing fibre from other providers. It may well be doing so – ministry officials tell me Chorus is allowed to roll out UFB over existing infrastructure if it’s up to the job, but I haven’t found a single instance of that happening. Instead of signing deals with Vodafone or CityLink or Unison or Network Tasman, Chorus has overbuilt with its own network.

Now Chorus will be allowed to use its own existing fibre to compete with these outfits as well. Chorus will be paid to take on its competitors – paid by the government with public funds to potentially crush the commercial ventures that are in the market today.

If Chorus is going to use its own fibre assets, it should be required to use other companies’ fibre assets as well on a commercial footing. Otherwise we’re paying to remove competitors from the market and I’m not sure that’s the ideal outcome.

Finally we see Chorus’s marketing budget slashed in half – from a paltry $5m a year to a pointless $2.5m.

Currently Chorus’s efforts in this area have been woeful to put it mildly. Filming a TV commercial in New York to demonstrate the power of the UFB is a bizarre way to spend your money (what on earth does showing art on an electronic bill board in New York have to do fibre in New Zealand?) and the Gigatown campaign has created more noise than it has benefit.

I’d expect to see the government step up and promote its UFB initiative but there’s no sign of that happening. The onus is on the retail service providers to promote the UFB, but of course that ignores the all-important pre-sales role of telling customers what the UFB is all about. Nobody’s selling the sizzle – and the RSPs will only sell their products, naturally – and now we have Chorus to all intents and purposes withdrawing from that marketing campaign.

So what of the other players in this fibre deployment? Will the Local Fibre Companies also renegotiate their contracts? There’s nothing planned but I’d expect to see some of them come to Crown Fibre with a few changes they’d like based on this. I’m sure they also would like to avoid having to re-fibre a building that’s already got decent infrastructure and the like. The ball, apparently, is in their court to do so.

The changes as laid out in the press statement aren’t going to set the world on fire. Sure, they’ll enable Chorus to avoid some stupid costs and to better manage its cash flow, but unless something changes radically we’re not going to see Chorus bring down the price of each connection or increase the speed of the rollout. Northpower Fibre, by way of contrast, will finish years ahead of schedule and do so at a fraction of the cost per premise passed.

I’d rather hoped we’d see a radical overhaul of the way Chorus is doing business. Instead, this feels very much like a re-shuffling of the same cards.

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TUANZ welcomes Vodafone’s offer (but does Big Red understand what it’s saying?)

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I think it’s great that Vodafone has offered to let us use the cable network it got from TelstraClear as part of the UFB build. Just think of the cost savings it would deliver to Chorus, and of course Chorus would be freed up from working in Wellington and would be able to fibre up my house sooner rather than later.

Brilliant.

But I wonder if Vodafone has worked through all the ramifications of its offer, not least of which is that the UFB contracts were awarded on the basis that the winners have no retail business. Vodafone will, presumably, have to structurally separate to take up the mantle of UFB provider.

It would have to spin off its cable and fixed network assets into a separate business or, depending on which way you look at it, sell off its retail arm and mobile phone network. Then the fixed line business (let’s call it “Saturn” because that has a nice ring about it) would be free to pitch for the UFB business.

Interesting times.

Putting aside that approach, Vodafone’s suggestion does raise a very interesting question: why is Chorus overbuilding networks at all?

In the Hawkes Bay, Unison Fibre is an offshoot of the power company and has an extensive fibre network around the main centres. Yet Chorus has overbuilt it street by street.

In Nelson, I attended the opening of the UFB network build with the minister and the mayors of the region. The mayors were forced to point out to the minister that in fact the UFB wasn’t a bright and shiny new toy for them to play with, that they’d had fibre in the region for a decade or more and that a community initiative had built The Loop long before central government came knocking. Again, Chorus has overbuilt the network already in place.

Why is it that we’re seeing new fibre laid side by side with existing fibre (and yes, with existing cable) when Chorus should be working with these partners rather than excluding them? The UFB network deployment doesn’t require Chorus to build every kilometre of fibre in its region, but rather to provide a service at a certain service level. So why overbuild when there are places that don’t even have fibre?

I’m all in favour of infrastructure based competition, but not when there are still areas that don’t have access at all. Rather, we should build out the network and then see about building competing technologies.

I would hope someone at Crown Fibre Holdings is making this suggestion to Chorus right now, because it still has a lot of Auckland and Wellington to build and plenty of that already has fibre owned by FX Networks, CityLink and even Vodafone and Telecom. Leasing capacity is a lot cheaper than building, but of course Chorus wouldn’t then be able to reap the rewards of owning the infrastructure for the next hundred years.

It also raises another key question, that probably should have been asked before the “fibre to the home” project began. Should we have defined the technology we wanted or should we instead have demanded a certain level of service and been technology neutral?

I for one don’t care how the hole in the wall connects me to the world, so long as it’s blisteringly fast. If it’s copper or fibre or fixed wireless or 4G or bean cans on string, I really don’t mind so long as I get high speed, low latency and a consistent service.

A technology neutral approach would mean that Vodafone’s offer could be considered and that the model we are using for rural New Zealand would be applied to the entire country. We’d have more ultra fast broadband service offerings and more competition, and that’s not a bad thing. As it stands, however, we’re wedded to fibre and unfortunately cable isn’t fibre any more than copper is. 

I think Vodafone would be unwilling to structurally separate the company in order to deliver UFB over its cable network, but I do think Chorus and Crown Fibre Holdings need to take a close look at what’s already in the ground and whether or not UFB can be delivered over existing infrastructure. 

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Return on investment

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There’s a tension between companies being regulated and the people doing the regulating. This is as it should be – their goals are different and the tools to achieve those goals tend to be at odds with each other.

Companies are required by law to maximise their return on investment. Shareholders are nominal owners of the company and yet have very little power, unless they’re big enough to have a seat on the board or similar. I’m always amused whenever a company claims rousing success with some venture or other based on shareholder approval, most of which is gifted to the CEO or chair by way of proxy votes.

Regulators, on the other hand, are required to do what’s right for the long-term best interests of the customer. That’s often not as straight forward as we customers would like. Issues like passthrough of wholesale savings, demand for investment, even the time it takes to produce a result are all seen as roadblocks on the way to better pricing.

Given that companies don’t like being regulated, those that are often complain about trying to second guess the regulator, about having no certainty in the market. Chorus has certainly cried foul about the lack of certainty with regard to the regulation of its copper line monopoly, although seeking a judicial review of the Commerce Commission’s determination doesn’t exactly endear the company to the industry as a whole.

Consistency is key to a good regulatory regime. It’s the only way companies that are involved in a regulated sector can avoid uncertainty. The regulator should be able to demonstrate the logic that it uses and apply the rules consistently wherever possible.

Which makes Vector’s submission on the UCLL pricing so interesting. (NOTE: the ComCom website does not do well with actual linking. Instead, it operates a one-step removed model that includes breaking the basic tenet of the internet, so rather than linking directly, I have to point you to a page where you must in turn fossick about looking for the submissions you’re after)

Vector, of course, has a lot to do with the regulator in its day job in the electricity sector. It’s not often that Vector comes out and says anything nice about the Commerce Commission – it has the scars to bear of many encounters.

What’s intriguing is that Vector has looked at the Commission’s treatment of Chorus’s profit making in light of the way the Commission treats Vector and others in the electricity sector.

Over there, in (ahem) sparky land, return on investment is heavily regulated. There’s a library-worth of regulation, argument, angry shouting and tears (all in the legal sense of course) and whatever else you might think about the electricity sector (that Max Bradford’s reforms, for example, should be held up as a shining light for how not to regulate a sector), the process itself is as robust as it can be.

By putting Chorus’s public data through the Commission’s “Electricity Distribution Information Disclosure Determination” process from 2012, Vector has worked out that Chorus is seeking a return on investment of between 19% and 23%.

Vector’s return is significantly less – closer to 10% – and the other regulated industries are around the same mark. Chorus hasn’t challenged this in its cross-submission – indeed, it doesn’t mention it at all. Instead, I’m left wondering whether we can use Vector’s figures as a kind of cross-check on just what Chorus is asking for in terms of income.

After all, the role of Chorus’s management is to maximise returns on its investment. It has to argue vigorously for a higher price, regardless of what’s good for the industry or the user.

That’s why an independent regulator is so important, and that’s why TUANZ joined the Copper Tax coalition. We need to get these figures right. Set the price too high and we reward Chorus for being inefficient. We also run the risk of encouraging Telecom to simply unbundle on a massive scale – tens of millions of dollars’ investment in copper at a time when both Telecom and TUANZ would rather see that money spent on fibre and on services that attract customers up the food chain, not down it.

Consistency is important, and I think at the least we will need to compare Chorus’s regulated return with the rest of those regulated entities in New Zealand. Looking around the world you’ll see New Zealand’s wholesale service is at the expensive end of the range. Looking at an ROI of 19-23% I can see why.

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Media release: Cross submission asks ComCom to do the job right

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InternetNZ, TUANZ and Consumer’s submission on UCLL asks Commission to do the job right

InternetNZ (Internet New Zealand Inc), TUANZ and Consumer have today lodged a cross-submission with the Commerce Commission, requesting that parties take a careful and measured approach to setting the price of the Unbundled Copper Local Loop (UCLL) service as part of the Final Pricing Principle process now under way.

In its submission, the group says that getting this phase of the pricing review right is absolutely crucial. The submission states that if the Commerce Commission acts too quickly, “that may be regretted later.”

InternetNZ CEO Jordan Carter says that rushing now could find the sector back where it was last year – mired in confusion and frustrating debates that serve no purpose.

“The Commission needs to take the time to design the FPP process properly, and to minimise the areas of conflict within the industry. Taking the time to do so now will mean the process works better and gets to a faster outcome in the end.

“Everyone wants to see certainty, but that has to be based on reality. The alternative is further industry chaos, and the risk of wrong and higher prices for Kiwi broadband users.

The submissions released by the Commission already show that the industry is a long way from landing on a collective view for an ideal process and design. We need to get that right,” said Mr Carter.

“Our submission also notes that there are serious problems with the suggestion by Chorus that its own professional advisors do the initial modelling process for the FPP. The Commission has to do that work, to avoid the obvious conflict of interest in Chorus modelling a pricing structure it would be later be bound by through the FPP.

“The public interest in fair pricing for broadband is at risk if the regulated party designs its own cost model,” Carter says.

“We look forward to hearing the Commission’s decision on the next steps. We hope that it takes the views in this submission into account as it does so,” Jordan Carter says.

– ENDS – 

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Chorus’s costs

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Chorus has a few tough decisions to make if yesterday’s financial reporting is anything to go by.

Where to prioritise its spending, where to make cuts and how to manage the regulatory process are all key questions the Chorus senior management will be asking themselves.

First things first, as you know TUANZ disagrees with Chorus on its handling of the regulatory process. The company should have seen the Commerce Commission UBA price point coming and had three years to prepare for it.

Fortunately, after a year of fluster from the government, we’re now back on track with a Final Pricing Principle (FPP) process to determine the costs of both UBA and UCLL components of the wholesale regime.

If I were Chorus I’d ditch the legal action against the Commission’s determination. It’s hard to see how that is anything but a delaying tactic at this point and could very well derail the whole process. Let’s just get on.

The good news is, regulatory issues aside, Chorus seems willing to do just that, focusing on the real heart of the matter – its cost structure.

Chorus has managed to bring the cost of each UFB premise passed to $3000. That’s a staggeringly high figure – in its bid process Chorus was estimating it would cost roughly half of that, and I have it from the LFCs that they pay significantly less per connection on average. This is the real problem and it’s good to see Chorus addressing it head on. Staff levels will have to fall, says CEO Mark Ratcliffe, and the company will have to consider how much and how it invests in copper lines.

This will be difficult for some customers – particularly those who are on the waiting lists for broadband. They may be years away from getting UFB and are hoping for more investment in the copper network to get them on to ADSL or VDSL in the meantime.

Unfortunately, not everyone is going to get copper broadband. Chorus’s main focus is on delivering the UFB and moving customers to that as quickly as possible. I suspect from here on in, it won’t be increasing the foot print of its copper network and will switch to maintenance only for most of us.

I’m in two minds about this. On one hand, customers need broadband today and as it’s now the 21st century we really shouldn’t be talking about people not being connected.

But on the other hand, copper is yesterday’s news and I want everyone (or as near as we can get) on fibre as quickly as possible.

Where Chorus must continue to invest in the copper realm is, of course, that quarter of the population that will never see a fibre connection under current plans. We need to make sure they don’t get left behind and I’m looking to the political parties to tell us what they plan to do about the digital divide.

The second point is Chorus’s ability to make money. As a regulated monopoly, it’s somewhat constrained in this. Chorus says it will be looking at new revenue opportunities and will be working with its customers (the ISPs) to determine what products it can come up with that they’ll actually be interested in buying.

When I first heard that, alarm bells rang. New ways to make money, eh? So you’ll be throttling everyone back to crawling speed and forcing the ISPs to buy bigger and better plans?

Chorus says no. In fact, to quote spokesman Ian Bonnar the company “categorically rules out” going for this so-called nuclear option.

I’m very pleased to hear that because the rumours among ISPs is that this is what was being planned. Certainly until yesterday I hadn’t heard Chorus deny it, rather it wouldn’t rule anything out. Now it has and that’s for the betterment of the industry as a whole.

So where can Chorus reduce its spend? I visited Northpower’s deployment last year and saw an overhead rollout moving swiftly and efficiently. Two-person teams connecting houses to fibre via overhead lines wherever possible. The record stood at just over an hour to connect one property.

We need more of that kind of approach deployed throughout the rest of the UFB network, I think, and it’s well worth looking to the other players to see what they’re doing well and what can be applied elsewhere.

But the single biggest thing that can be done to help Chorus, and indeed all the fibre companies, is to revisit this asinine resource consent process we currently have in place.

Even though this is a government project for the betterment of all New Zealand, even though this is a once-in-a-generation network replacement that will see us right for the rest of the century, the fibre companies have to jump backwards through hoops to get consent from all involved.

It’s foolish, to put it mildly.

Why aren’t we treating this as a replacement for what’s already in place and allow the fibre companies to install without needing all the red tape? Northpower tells me it could double the footprint of its fibre network in Northland if it didn’t have to spend so much on consents, and Chorus and the other LFCs would likewise make a tremendous saving.

That’s a network I’d like to see – perhaps we can whittle down that 25% non-fibre number and solve the digital divide as we go.

One thing is obvious – the day will come when each area is completed and Chorus can switch off the copper network. That needs to be managed and planning should start now. Whangarei will be fully fibred this year – there’s no need for Chorus to continue maintaining a network that is surplus to requirements, yet no thought has been given to Chorus’s requirement to provide the network of last choice. Once fibre is available to all properties in an area, the copper can go. That’s something we need to plan for right now.

Television over telco

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I remember attending the launch of JetVideo at the temporary America’s Cup village in Auckland in 2002.

Back then, it was an attempt to get customers to watch movies on their laptops to boost uptake of ADSL services. It failed, in no small part because ADSL1 wasn’t really up to the job, but also because back then it was all too hard to explain. Why would you want to watch a movie on your computer? It just didn’t make sense to a lot of people and the project was quietly shelved.

But of course it did make sense, it was just a bit early for some to really fully grasp.

The internet is the perfect delivery mechanism for high definition video content because it means the costly business of delivering the content is nullified. No need to ship tapes around the planet, no need to delay the launch of a movie and lose all that lovely marketing build-up, no need to deal with intermediaries at all – just go straight to the consumer and let them wear the cost of carriage.

That’s what makes Telecom’s other announcement on Friday so interesting. Changing the name is fine because Telecom was always supposed to be a temporary moniker anyway. I think it’s a good move because I still get calls about “Telecom” when the caller means “Yellow” or “Chorus” and because it draws a line under the bad old days of walking backwards slowly, to borrow a phrase, and means the company can now get on with the future.

And the future for the retail telco market is in making sure customers use your service, typically delivered over someone else’s network.

The move does bring a few matters to the fore, not least net neutrality; the issue of access to content and of course money.

First things first, net neutrality.

In the US this battle is just starting to really get serious, with Netflix signing a deal with Comcast to make sure Netflix customers get access to the service.

Some accuse Comcast of stand-over bully-boy tactics, especially when it became apparent that Netflix customers were being throttled one way or another in the past few weeks.

Others say the deal that’s been struck is simply a peering arrangement between a large content provider and its carrier so there’s no problem, nothing to see.

But it’s more than that. Comcast was supposed to be able to make money from its customers – end users, like you and me – and yet here it is demanding payments from the other end of the spectrum as well. Content producers, it seems, will be asked to fork out for delivery of their product to consumers. The telcos will get two bites of the cherry.

So what does that mean in the Telecom ShowMeTV context?

The first question is, will Telecom use television to create a walled garden and to differentiate its ISP offerings from the other players in the market?

The answer appears to be a resounding no. Telecom says it will make its TV content available to other ISPs. That is, it won’t be buying content exclusively for Telecom customers.

That’s quite interesting and not something the old Telecom would have considered.

There’s an aggregator role in the content world that is up for grabs. Sky TV wants it, TVNZ could do it, but it could also fall to a newcomer like Netflix or Quickflix, although both have issues. Telecom and Vodafone are two obvious candidates to add to the list and it would appear both are interested to some degree or other.

I’ll be very  pleased if Telecom resists the urge to use ShowMeTV as a way to shore up its ISP customer base because this is an entirely different market for the company, and takes it in a new direction.

Vodafone already offers TV over its telco networks, of course, but it’s chosen to cement its relationship with Sky TV and so simply resells Sky’s line-up.

Telecom is talking about a whole new approach, buying “subscriber video on demand” (SVOD) rights and offering a New Zealand equivalent of Netflix.

Currently only Quickflix is doing that legally in New Zealand and is struggling with a back catalogue and limited access to new content. That’s changing, and the company is starting to make headway in the market, but it’s taking a long time.

One of the reasons for that lag is access to content, and this is something Telecom will face as well. Although Sky TV tells me it doesn’t have any SVOD exclusivity, it does appear to have contracts with ISPs that prohibit them from making money out of non-Sky content. That is, if you want to offer Sky content you have to take the entire Sky TV package and you can’t add on anything of your own.

The Commerce Commission concluded there was a case to answer, but declined to press charges because of the costs involved. Clearly this is a piece of legislation that will need looking at if that’s the case because it’s not working terribly well.

Which brings up larger question about regulation – internationally telecommunications and broadcasting are starting to be merged together under one regulator. New Zealand is quite unusual in that it doesn’t have any form of broadcasting regulation to speak of. Should we go down that track?

I’d rather see the Commerce Act tidied up to begin with, but Telecom’s foray into television will result in a discussion about such things if nothing else.

Which brings us to the root of all evil, money. Telecom is putting up $20m for its content buy-up, which is a large chunk of change, but pales into insignificance next to Sky TV’s hundreds of millions of dollars spent each year. Will Telecom be able to compete?

In the UK, BT has also gone down this track with spectacular results. BT has bought the rights to Champions League football and made all 350 matches available to subscribers. In doing so, it has attracted 1m new customers, making it a tremendously powerful play.

But the rights cost BT nearly £1bn, so those new customers “cost” the company £1000 each. That’s a heck of a lot of cash to pay for a customer, and as Simon Moutter pointed out at a Commerce Commission conference late last year, BT can afford to do that because it’s a vertically integrated player. Telecom/Spark is not, and would take years to repay that sort of customer acquisition cost.

That’s probably why telcos like Comcast, which face a future where they can’t make money from toll calls, TXT messaging or indeed anything but data bundles, are looking to content producers as a new source of revenue. Sadly, the content producers face exactly the same crunch as the internet does to the content market what it’s also doing to the telco market – that is, cutting out the middle man.

What do you make of Telecom’s move? Will we see more of this kind of deal in the future, and where do you get your television from today?