Fisking Telecom

The SST had an interview with Telecom’s Bruce Parkes on broadband. Now Bruce is a very smart guy, and is very careful with what he say, so has done an excellent job in promoting Telecom’s views.

However I think it would be useful to put some context around some of the comments and assertions made.

In an apparent effort to stave off drastic regulation, Telecom has introduced better services this year. First, there was the raising of its broadband speeds to at least 2 megabits/second this month

The theoretical maximum speeds have been raised. The necessary capacity to actually achieve those speeds has not been increased and many subscribers still only get speeds of less than 256 kb/sec. Telecom are refusing to reveal their contention ratios at exchanges which determine what speeds will be achieved at busy times.

then the announcement of next generation ADSL2 services from June, which will offer up to 24mb/s.

There will probably be no ADLS2 services in June. All Telecom have announced is they will start deploying gear in June. It is quite possible one will not have any customers on ADLS2 until 2007.

“What’s on offer to our customers in New Zealand compares favourably to other countries you instinctively look at.”

If one takes price, speed, data limits and contention ratios into account we are well off the mark.

In price we’ve always had attractive residential offerings and our business offerings now are very competitive globally.

Now this is a revealing statement. Bruce says their residential offerings have always been attractive and their business offering *now* are competitive.

Up until a few weeks ago Telecom was charging up to $2,400 a month for business broadband, a service with a wholesale cost of around $27 a month. They have reduced their prices to $90 or so which shows how monopolistic their previous pricing was. And it was only a successful regulatory outcome at the Commerce Commission which saw those prices drop.

“In terms of speed there’s been a lot of ill-informed comment. We’re in the process of rolling out the second generation of (digital subscriber line) technology. That has yet to be deployed by Telstra. In the UK, BT is only just starting. So in terms of incumbents our deployment of next generation broadband is more than respectable.”

Here Bruce is careful to only compare themselves to other incumbents. What he skips over is that in those countries non incumbents are offering faster and cheaper services as they have local loop access.

The introduction of ADSL2 might look like a response to regulatory threat, he said, but the company had been working on it for at least 12 months.

This is true, but I bet you the timing was partly determined by regulatory threat.

“(Fibre to the node) will be a big determinant of how New Zealand performs in the broadband stakes,” said Parkes.

Yes it will, in fact fibre to the home is the future. And one of the big decisions ahead for the Government is whether it wants a fibre to the home network owned by one company, or available for all companies to use (such as roads, airports, water supply electricity lines etc).

The risk for Telecom’s competitors, such as ihug, is that their multimillion-dollar investments under an LLU regime could be stranded when Telecom installs more fibre. They therefore need some assurance that the government will give them access to the fibre as well as the copper loop.

Yes local loop unbundling will only deliver short-term gains. The issue is whether the wholesale arm of Telecom which owns the infrastructure should be vertically integrated with its retail arm or separated out so that it has an incentive to treat all retail ISPs equally.

“It’s impossible for Telecom to make long term decisions when the regulatory environment is so uncertain,” said Parkes. “We’ve been asked by the government about our investment plans and we’ve indicated that those investment plans are heavily linked to the outcome of their stock-take.”

This is a fair point. That is why a one-off change to the environment to separate wholesale and retail will be superior to continuing regulation. Once you get the incentives right, then regulation will be lessened and *all* players will be able to make more certain investment decisions.

UPDATE: Similiar comments on InternetNZ blog by Colin Jackson