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Spectrum auction – a bob each way

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

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

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

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depending on demand that restriction may be withdrawn during the auction.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The need for speed 4(G, that is)

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For the past month I’ve been using Vodafone’s 4G network in
Auckland and recording speed tests around the city – 27 in total.

Partly I’ve been doing this for the greater good – it’s an
ongoing test of the service and the results might be of interest – but partly
I’ve also been doing it for the “ZOMG do you see how fast that goes?” fun of
it.

And it is fast. My best result was 88.69Mbit/s down and 47.22Mbit/s
up on April 4 outside SPQR on Ponsonby Road at midday.

That’s pretty outstanding (seeing the result made the Irish
waiter say something Gaelic) and I have to admit my eyes bugged out of my head.
Speeds like that have been the purview of point to point fibre until now –
having that speed available on a handset is just astonishing.

But that’s the peak – at its worst I hit 3.30/1.39 a few
days earlier, again in Ponsonby. Typically, though, I see something in the
20-25Mbit/s range, which is not half bad for real world use.

Two things have become apparent, however. Firstly, the
network footprint is still rather small – sitting at Depot on Federal Street
this morning (an area I’d assumed would be soaking in LTE) I got only 3G (not
even HSPA) which is quite a surprise.

Secondly, it’s foolishly easy to chew through your data.

I have a plan that gives me 500MB/month and because I whined
like a jet engine to the call centre I got an extra 1GB added on for free (no,
that makes no sense to me either). I’ve blown through that, and through the
500MB bump pack I bought and now, with four days left, I have no data. The call
centre again has come to my rescue (Vodafone’s iPhone app doesn’t let you buy
data directly – you have to go to the website which wouldn’t let me buy any
ring in, which worked a treat but seems so very 1973) and now that I’ve
conducted my 27 tests, I’ll resist the urge to try any more. I’ll stick to
email, calendar and Twitter from now on.

But if we’re to really embrace this whole mobile broadband
revolution – and the StatsNZ Household use of ICT survey suggests we really are
– we’re going to need more data. I’d start with 3GB and look for 5GB and 10GB
packs in a hurry.

Telecom is about to launch its own 4G service and 2Degrees
is testing its own capability in this area – with any luck competition will
kick in at that point and we’ll see what the service really can do.

The Household Use survey makes for very interesting reading.
We’re taking to online shopping like ducks to water (yet we’re also told
roughly 30% of New Zealand businesses don’t have a website) and if you’re
waiting for the smartphone revolution to arrive, you’ve already missed it.

Smartphone use is up 26% since the 2009 survey and ¼ of all
individuals have a smart mobile device. Mobile use has increased hugely – 55%
of recent internet users connected via a mobile device at a time when the use
of a desktop computer is in terminal decline.

There are still some hold outs who don’t have an internet connection
– but only one in five households. Rural has picked up hugely, but there are
still a (thankfully declining) minority who see no value in having an internet
connection. But while that group is declining, the “costs are too high” group
is increasing, something which suggests to me another case of the digital
divide and something that needs to be addressed.

4G wars

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

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
less.

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.

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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.