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

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.


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. 

The need for speed 4(G, that is)

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

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.

Lost Opportunities and hypotheticals

In 2002 TelstraClear approached the Auckland City
Council with a view to rolling out its cable TV network in Auckland. A FUD
campaign by the New Zealand Herald put an end to that (read the intro to
Bernard Orsman’s piece
) and Auckland missed out on the opportunity to
have the Holy Grail of telco deployment – network competition.

Imagine the scenario if TelstraClear had been given
the go-ahead. Auckland would have provided a customer base of well over a
million potential customers, giving TelstraClear the ability to scale its
services up far more than it could with just parts of Wellington and
Christchurch. It would have become a power house in the home broadband market
at a time when regulation was “light handed” to put it mildly. This
was before unbundling, don’t forget, when you could have any broadband you
liked so long as it came from Telecom.

A resurgent TelstraClear would also have given Sky TV
a run for its money in the content world. Less than a year earlier,
TelstraSaturn (as it was then) and TVNZ had signed a joint venture to provide
set-top boxes throughout the market to offer a new wave of TV services. The
content market would not be quite so one-sided and we’d have at better range of
choice in the  market, even without regulatory intervention.

Unbundling may or may not have happened. I’d like to
think Telecom would have gone out of its way to win other retail partners to
its network, competing on price and service, instead of “walking backwards
slowly” fending off regulatory and competitive pressures. If TelstraClear
had opened its cable network to the wholesale market we would have two
well-placed providers offering network competition at both domestic and
national level. I would expect that within the decade both would be fighting to
deploy their own fibre upgrades to these networks and by now we’d be well on
the way to a fibre to the home service. Competition in the pay TV space would
have been far more dynamic and we’d have multiple operators offering
differentiated service.

Instead, TelstraClear was knocked back and couldn’t
compete in Auckland. The Commerce Commission decision not to allow unbundling
put the company back even further and eventually, as we know, the whole thing
was sold to Vodafone and Telstra exited the market, turning its attention to
Asia instead. Sky TV is the only pay TV operator in the market and Telecom was
forced by the government to split into two businesses. We’re now on to our
third Telecommunications Act in a decade and a significant competitive
opportunity was lost.

Mobile network operator 2Degrees has made a huge
impression on the mobile network, offering products and services the other
mobile operators seemed reluctant to consider. Shared data, rollover minutes,
simple pricing tariffs.

But 2Degrees is a mobile-only operator, which means
the big guys still hold sway in the all-important “one throat to
choke” market segment. Plenty of customers, business and residential, want
to deal with one provider and if 2Degrees is mobile only, that limits its
appeal to the truly cost conscious.

What if 2Degrees had bought Orcon? The combination of
fixed-line capability, including unbundled exchanges and cabinets, plus a
mobile network would open doors that previously hadn’t existed for 2Degrees.
Not only would the customer base be able to opt out entirely from the big two,
but 2Degrees would in turn be large enough (and diverse enough) to offer
wholesale services to smaller ISPs.

In the fixed line market there isn’t much margin, to
put it mildly, but in mobile 2Degrees would be able to undercut Vodafone and
Telecom in terms of MVNO offerings, and essentially use that as leverage to
shake up the entire telco market.

Years ago I read a paper about the psychology of the
Apollo space missions (back when the human race cared about such things) and why
having three astronauts was important. You never end up with a split decision –
each decision is either overwhelmingly for or against – it’s always two to one.
That gave the mission a kind of stability that was vital when you’re millions
of miles from any kind of command or support structure.

Markets operate in much the same way. With two players
the opportunity to “take a breather” and to “sit back for a bit
and recoup on our investment” becomes an option. We see the “cosy
duopoly” form and any dynamism is muted.

With three players (or more – I’m happy if we have
more so long as it’s sustainable) that situation never arises. You can’t rest
on your laurels and eyeball the other guy across the divide because that
whipper snapper will jump up and bite you on the leg. And if you and the new
guy reach some kind of stalemate you can be the other big guy will have some
offering that you have to respond to.

Having 2Degrees in the total telco market would, I
hope, do something along those lines. It would keep the other players honest
and would potentially mean we see more differentiation right across the board.

It’s an expensive business though, being a fixed-line
ISP, and with narrow margins and an impending 700MHz spectrum auction, I can
well understand 2Degrees’ decision to stay out of the bidding for Orcon.

Vodafone has yet to announce its plans for UFB retail,
but it has announced a trial of LTE in rural areas.

I’ve been using Vodafone’s LTE for a couple of weeks
now and while the speed is quite variable (ranging from download scores of
3Mbit/s up to 80Mbit/s) it clearly provides a competitor to a fibre network I
won’t see for at least another four years.

So imagine if Vodafone decides not to bother with UFB.
Imagine if, instead of deploying its marketing might on fibre, it pushes big
into 4G throughout the country.

Vodafone could quite easily deploy LTE capability
around New Zealand prior to UFB arriving in town. It could bite the bullet and
introduce far greater data caps (50GB, 100GB) on its LTE network and take the
hit in the short term for long term market share gain.

(By quite easily I mean “if money were no
object” naturally. This is a hypothetical).

After all, given the choice between 50Mbit/s download
speed today, but with a smaller data cap, and 30Mbit/s download in four or five
years’ time, I know which I’d opt for, especially if Vodafone did away with
capped plans and let me use data and pay for it as I go as I do with
electricity or voice calling at home.

Vodafone would gain market share, but more importantly
the customers would be on its own network, free from regulation and from
government intervention. No need to worry about the price of copper or the cost
of the fibre deployment artificially hiking it up – just put all the customers
on your own networks (unbundled, cable and 4G) and move on while the rest of
the market gets bogged down in regulatory reviews, UBA pricing determinations
and all the rest of the distractions that come with the current market.

Telecom would dominate the UFB market, Chorus would
still have to offer fibre backhaul from the RBI towers at a regulated rate,
Vodafone would eventually move all of its traffic over to its own fibre
backhaul (thanks TelstraClear) and would use cable and LTE for the last mile
service to customers. Eventually you could even see Vodafone deploying its own
last mile fibre connection, if it really wanted to, using open access ducts.

But without Vodafone’s support in the UFB market,
uptake rates would be a lot lower and potentially Chorus would miss its
targets. The other LFCs would, presumably, still make theirs but for large
swathes of the population, UFB deployment would cease as the money-go-round
stopped. Either the government would have to rethink its level of investment or
do something else equally as radical.

The upside to it all is that you’d have infrastructure
competition, albeit in the bizarro world of fibre versus LTE, and that I for
one would get better speeds sooner, which is clearly a win for me, but the
downside is the possible failure of the UFB and that’s not something I’d like
to see.

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.

Back to the future indeed

I was expecting a Top
“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!

(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

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

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


The Big Hairy Audacious Goal

The Commerce Commission has cleared Vodafone’s bid to buy
TelstraClear, paving the way for the merger.

However, there doesn’t appear to be any form of ongoing
monitoring or caveats on the deal. Vodafone had already indicated it would not
be buying all of TelstraClear’s spectrum assets as that would exceed the limits
on 2100MHz spectrum and would also potentially be a barrier to approval. That
aside, we had expected to see some kind of monitoring regime put in place
specifically for this merger. Market dominance is now effectively in the hands
of two players – Telecom and Vodafone – and TUANZ would have liked to see some
kind of additional monitoring put in place to assure customers that no cosy
duopoly could emerge. Presumably the Commission felt either it couldn’t impose
such a regime or that existing market monitoring was enough.

From the Commission’s press release:

“In reaching its decision, the Commission considered that
the merged entity would continue to face competition from Telecom, as well as
Orcon, Slingshot and other smaller businesses in providing fixed line voice and
broadband services to residential and small business customers”.

The Commission says there was no significant business
overlap between Vodafone and TelstraClear – something that has been painfully
obvious for many years now. Hopefully the two combined together will have the
ability to shake up the market and to challenge Telecom for the number one spot
– a long-held goal of Vodafone CEO Russell Stanners.

Time will tell – and TUANZ will be keen to see the results
of any competitive tension in the market.