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Gigatown turns into a Giga challenge for Chorus

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One more post before bedtime, now that I’m back in the temporary VDSL equipped TUANZ cave in #gigatownporirua.

I’ve had a flight back from Auckland, (cut off from my feed to the internets) to think about what Ultra Fast Fibre’s declaration of their central North Island patch as the ‘Giganet’ means for Chorus.

And what it means for us as users and how I think its the most exciting thing to happen in the UFB world since Northpower finished their build.

In military terms this has been a brilliant piece of asymmetric warfare, a judo throw that Vladimir Putin would be proud to call his own.

Chorus will now be compelled to re-evaluate the entire gigatown proposition because its just had a whole lot of the gloss removed:

1.   The winning gigatown no longer enjoys the advantage of the ‘Southern Hemispheres’ fastest internet.

2.   The 3 year stint as the gigatown is also meaningless as UFF have declared that its package will run until 2020 – which is the big bang year anyway in terms of UFB evolution

3.   The winning gigatown will have the cheapest wholesale, residential gigabit service but that may not translate into much of an advantage in what will be a much broader residential gigabit market.

4.   The winning gigatown will still enjoy the Alcatel Lucent innovation fund, but the economic development benefit is seriously diluted.

I think there will be quite a lot of angst out there in the gigatowns tomorrow (disclaimer I am part of the #gigatownporirua team) because the competition has required a lot of energy and commitment from largely volunteer teams (think Top Town meets social media). The competition and rivalry is fierce and intense, the creativity that has been unleashed is inspirational and overall it has got us all thinking about what the UFB can mean for our communities.

So what can Chorus do?

The options as I see them are:

1.   Box on like nothing’s happened

2.  Use the ‘Team Oracle USA’ like clauses in the gigatown T&C’s to pause and look for a reset

3.  Match UFF and declare everybody a ‘GIGATOWN’ (my preferred option)

I think Chorus owe it to all the towns who have played the game by their rules and who have sunk what I think must be millions of dollars worth of community time and energy into gigatown to show that they are serious about our giganation.

So whats in it for us as users, this is the stuff that rocks

1.   RSP’s now have the incentive to get really creative with UFB products, speed is no longer a limitation!

2.   The developer community can now start to build ‘gigabit grade’ products and services with a good sized local sandpit (even bigger if Chorus come to the party)

3.   UFB consumers will get world class connectivity

4.   The rest of the stack (backhaul and international) will get an increased incentive to open the pipes so we really will get genuine gigabit grade experiences

5.   There are going to be huge possibilities in education and health

6.   This will speed up the copper transition and force all the RSP’s to get serious about UFB

7.   The market for fast WiFi is going to go nuts!

8.   Aussies are going to be sooo jealous 

9.   The Government might feel so good about the giganet they’ll get behind other good ideas like Northpower’s rural fibre plans

10.  The belt of towns from New Plymouth to Tauranga is hugely important to all our current export industries and it is home to our mighty ‘Agritech’ sector (think Gallaghers etc)  – which I believe is our best shot for a global ICT niche we can own. So the Giganet is really, really important to our collective future.

I’ve been involved in the fibre dream in NZ since 1999, when I first got a CityLink connection in downtown Wellington, I helped get regional fibre extended across Nelson, Marlborough, Tasman with NMi and the Broadband Challenge.

But this development today has got me more excited as it moves us from a rationed future (just one gigatown) to one that is brim full of possibilities (a whole giganation?) because the UFB is now really going to be Ultra Fast.

I think I need a lie down now, I hope I don’t wake up tomorrow and find it was all a dream.

 

More, Better, Faster but at what cost?

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Chorus is to launch discussions with interested parties
regarding re-working the UFB fibre plans and prices.

The entry level 30Mbit/s down, 10Mbit/s up plan costs $37.50
per line per month (increasing to $42.50 by 2019) at a wholesale level.

That doesn’t include national backhaul, international
backhaul or any of the other stuff – it’s just the Chorus bit, so don’t expect
to pay $50/month for fibre services any time soon.

What’s interesting is the range of new products – from a
50/20 plan through to 200/200.

Most of the current plans have a committed information rate
(CIR) of 2.5Mbit/s – that is, if your line is utterly saturated with use, that’s
the minimum you’ll get.

That sounds awful, until you consider the CIR on copper
wholesale, which at the basic level gives you 45kbit/s, which is dial-up speed.

See the full line-up of prices and speeds here.


 

You’ll see the biggest mover is in the business space with a
doubling of the high-end plan’s speed from 100/100 for $175 to 200/200. Now
that’s a plan to get excited about.

But what will the costs be like for the retail service
providers? Don’t forget, if you as a customer want to see these speeds
throughout your entire network, your ISP is going to have to buy a lot more
backhaul.

An anonymous ISP source has done some numbers for TUANZ on
the Gigatown promotion that Chorus is running. Gigatown, you’ll remember, is
the plan to offer 1000Mbit/s service for the 30/10 price. However, Chorus is
unable to sell directly to users, so it has to bring in a retail ISP to do that
side of things.

Let’s assume a town of 40,000 people is chosen for Gigatown.
Chorus will provide the ports at entry-level price, so 40,000 customers x
$37.50 = $1.5M/month

Upfront costs are not cheap:

First you’ll need equipment at the exchange to handle
the traffic.  A fully-loaded chassis will
handle around  7,000 ports, so that’s six
chassis and 100x10Gbit/s backhaul.  Roughly a $6 million cost for exchange
equipment.

The absolute minimum price for a box that can handle a
10Gbit/s backhaul is $1200 for a Mikrotik CCR, so the RSP has at least $120,000
capex spend to get in the game.

Then there are the recurring monthly charges:

Either co-locate the equipment at the exchange or get
100x10Gbps backhaul to premises, either way it’s roughly $30,000 per month.

The RSP needs to provision bandwidth for the
customer.  Let’s assume a generous $1/Mbit/s
for national, provision – 100Gbit/s will cost $100,000 each month.

Then there’s international capacity at $17/Mbit/s
equivalent (ISPs don’t buy international bandwidth in these terms so this is a
bit of a translation), so to provision 20Gbit/s assume a cost of $340,000 a
month.

“With no other costs, the RSP would be at $2M/month,
with over $1.5M of that going to Chorus, assuming 100% penetration.”

At today’s rate of about 5% penetration (current UFB
stats), your costs would come down but so too would your earning potential.

Five percent uptake means 2,000 households, so only
one chassis is needed, 14x 10Gbit/s backhaul and an upfront cost of only $1
million capex at the exchange, and $20K capex for the RSP.

Backhaul or colocation costs would come in at $10,000
a month,  national backhaul would be
another $20,000/month and then your international would add another
$100,000/month.

Those 2,000 customers would earn $75,000 a month
(assuming no calls to the call centre etc)  but the costs per month would be around
$205,000, so you’d have to bill customers around $102.50 a month to break even –
no profit for you.

I’d pay $102.50 a month for gigabit speeds without a
second thought, but would you get 100% uptake at that price? I don’t know.

What does all this mean? If the sums are right (and do
let me know if you think they don’t stack up and we can discuss tweaking the
model) then selling UFB is going to be a big chore for RSPs. They’re going to
need faster speeds (but that comes at a cost) and will need to give customers a
reason to move (content, for example, which also isn’t cheap) and they’re going
to need help with the marketing to get the general population excited about it.

These really are interesting times.

 

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Gigatown

/6 Comments/in /by

Chorus has launched a promotion that will give one town in New
Zealand gigabit speeds on the Ultra Fast Broadband network.

One gigabit per second is fast. OECD rankings suggest that only
four countries in the world offer national 1Gbit/s plans – Turkey, Slovenia,
Sweden and Japan (this was in 2011 so there may be more by now) and that most
top out at about half that speed.

We’re talking about 1000Mbit/s. Today I get 15Mbit/s
download so to call it a step change is something of an understatement. My
upload speed is barely 1Mbit/s.

We tend to get complacent about the fantastic advances
technology makes each year. A doubling of capacity, a tripling of speed, these
numbers become run of the mill and users are blasé about them. But a thousand
fold increase in my upload speed would be startling to put it mildly, so good
on Chorus for trying this out.

The economic potential of offering such a service is
astonishing. Think what having such a speed would do to the way we think about
remote working or having to live in the main centres. Think about what access
to the world at those kinds of speeds would mean for start-up software
developers and to our migration patterns. Software companies should be lining
up for our cheap housing and staff with no fear of us being too removed from
the world.

Movie studios would look more to New Zealand for filming opportunities
than they do today – getting the rushes sent back to LA or New York or further
afield to the UK or Germany is a major problem and it’s not the international
leg so much as getting the footage out of Wellington and up to the Southern
Cross Cable.

But I have a question. Given this capability is clearly
available today, why are we talking about an entry level product of 30Mbit/s
download speed? Why are we talking about an upload speed barely ten times what
I get today?

Why aren’t we talking about an entry level plan of 100/100
followed swiftly by 250/250 and 500/500? Why aren’t we offering 1000/1000 at
launch?

Speeds like these would help encourage people to move to
fibre in a way that talking about 30/10 plans simply won’t.

The entry level price point is on par with copper and the
entry level speed is on par with copper so why on earth would I shift over?

No, the real lesson from Gigatown is that we should all have
that kind of capability and we should all have it sooner rather than later.
Only then will we see all those nice things in the video come to fruition.
Economic development, e-health initiatives, educational opportunities, rural
regeneration, population increase, regional development.

Suddenly, the entry level product is the barrier to uptake,
not the enabler. It’s time we revisited the UFB’s promise if we’re ever to
achieve the future depicted in the Gigatown promotion.