Mr Ren

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

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

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

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

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

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

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

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

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

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

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

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

4G wars

Telecom has announced it’s launching its LTE network in
October and will steadily roll out services throughout the country using Huawei

There are several aspects to this that are worth discussing.
The impending 4G war with Vodafone – data caps and the $10/month premium charge
that Vodafone adds on your bill for 4G are all up in the air now.

Then there’s the choice of Huawei over incumbent
Alcatel-Lucent which while not surprising is still quite telling.
Alcatel-Lucent will continue to manage the 3G network (Telecom’s much vaunted “faster
in more places” XT network that famously hit a wall at high speed and caused
Telecom no end of embarrassment and not a small amount of money) but basically
this is the end of the line for ALU’s relationship with Telecom. I put that
down not only to the XT debacle but also to Alcatel’s lack of a single-RAN
solution. That is, to roll out 4G Telecom will need new boxes on the poles
rather than just changing out the cards in the existing boxes. That makes the
deployment much more expensive than either 2Degrees or Vodafone’s similar
rollouts and that’s a problem.

(EDIT: As has been pointed out, Alcatel will continue to run Telecom’s fixed line network and its operation centres and has just won the contract to upgrade the optical transport layer. I’m just talking about the mobile side of things here)

This also will mean trouble for 2Degrees – it now has to
spend yet more money rolling out 4G just to keep up. This at a time when it’s still
deploying 3G, with a looming 700MHz spectrum auction and when pundits are
suggesting it should probably look around and buy a fixed line operator (Orcon,
for example) or face being marginalised.

But I’m more interested in Telecom’s promise to roll out LTE
on the rural towers built by Vodafone as part of the Rural Broadband Initiative
(RBI) which is very exciting news for all concerned.

Currently the RBI deployment is flying somewhat under the
radar, predominantly because of the road crash that is early UFB deployments.
There are no stories of customers being cut off for days, of Chorus techs
standing around in clumps staring at holes in the ground, of cost blowouts
because of the difficulty of digging through footpaths.

Instead, we hear very little about RBI. Vodafone and Chorus
presumably are rolling out network coverage. Presumably customers are
connecting and presumably they’re reasonably happy with the service.

Vodafone promised the rural broadband pricing would be on
par with urban prices, and while the price points are not too dissimilar ($100
for phone and broadband being one example) the data limits are woeful. You have
a choice of 5GB or 15GB a month – neither of which comes close to urban levels.
That same $100 in the city would get me 100GB of data. Given we want to
stimulate the rural economy, you’d hope there would be pricing for business
users on the RBI, but while I can get 1TB of data for $20/month from Vodafone
in Three Kings, that level of use on the RBI would require me to sell the
entire South Island to pay my debt.

There’s also a lack of competition in rural New Zealand.
Aside from Farmside (the obvious candidate) there aren’t too many other
resellers of Vodafone’s service, nor are there partners clamouring to add their
equipment to the RBI towers – or rather, if there are they’re keeping very
quiet about it.

Both Telecom and Vodafone have said they will go all out on
the RBI towers once it secures some 700MHz spectrum and hopefully once that
starts we’ll see some actual competition for what could be a lucrative market.

Interestingly, I’d expect to see faster speeds on the rural
LTE network than on the urban.

I’ve been using Vodafone’s LTE for the past couple of weeks
and while my peak speed was an impressive 88Mbit/s down and 47Mbit/s up, most
of the time it’s around the 15-20Mbit/s down range, with upload being slightly

I’m putting it down to my being forced to share the network
with others, something that’s a perennial bone of contention (ha) among
wireless users.

Rural customers would, hopefully, have less to worry about
because there are fewer of them per tower.

Given the towers are being built under a government subsidy,
they’re going in to places where commercially there just aren’t enough
customers to justify deployment. That means the number of customers per site is
likely to be far fewer than in an urban environment. Which should mean you’re
more likely to see the higher speeds in rural areas (backhaul notwithstanding
as it’s fibre-based capacity from Chorus).

When you add in some of the cool stuff Huawei showed me in
China (NB: I flew there courtesy of Huawei) – things that will come up in the
next round of revisions to the LTE standard – rural customers will be well
placed to go mobile.

All told it’s an exciting time to be a mobile user. I’m
hopeful we’ll get some decent pricing out of the two main players (and of
course, 2Degrees will be there by default as it roams on Vodafone’s network)
and that can only be a good thing for rural New Zealand.

Broadband is an adjective

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