The wrong decision

February 9th, 2013 at 1:00 pm by David Farrar

The Herald reports:

The lowest price of internet access is less important than ensuring consumers move as quickly as possible to high-speed fibre-based services, says Telecommunications Minister .

I disagree. I’m a huge fan of the fibre roll-out but you don’t force people onto fibre by artificially keeping the cost of copper high.

“I don’t think the over-arching criteria in this is ‘what is the cheapest option’,” Adams told BusinessDesk. “If that was the case, we’d be sticking with dial-up. I don’t think you’d find any consumer saying ‘if dial-up’s cheaper, let me have that’.”

I don’t accept that comparison. The difference between dial-up and broadband is massive. My laptop effectively freezes on dialup. The difference between dial-up and DSL is like the difference between a wheelchair and a car. While the difference between DSL and fibre is more like the difference between a Lada and a Porsche. And for some people a Lada is fine.

Her comments followed her announcement the government would accelerate its timetable for reviewing the regulatory regime for telecommunications services. The decision effectively neuters the , which issued a draft determination late last year that could favour a longer life for the existing copper wire network by pricing it highly competitively with new fibre services.

That draft determination, which Adams described as a “curve ball”, sparked protest from the key players in the ultra-fast broadband roll-out, including NZX-listed Chorus, whose share price recovered 12 per cent today, immediately following Adams’s announcement.

I think it is disappointing that the Government has intervened in this way. The Commerce Commission is doing the job set down by statute. If it has made an error, then that can be challenged in the submissions on the draft and if need be in court. I’ve not see any suggestion the Commission has got the law wrong.

“Carrying on the way it was would have changed the landscape in the way telecommunications services were priced and delivered and we saw some real risks around that in terms of market uncertainty and the market not looking to develop and promote high speed fibre products,” said Adams.

I think the market works better when the Government doesn’t artificially push the price of one product up.

“What became very clear is that this sort of uncertainty and decisions coming out that have really taken everyone by surprise are the last thing that anyone needs in this space.

Not at all. I am not surprised that the Commission found out copper services were over-priced.

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23 Responses to “The wrong decision”

  1. bhudson (4,740 comments) says:

    A hell of a hard decision to have to make – really a lose-lose position.

    1. Artificially maintain high pricing for copper services to make fibre look more attractive; or,
    2. Undercut the public investment in the fibre rollout

    Either option is a bad outcome in one form or another.

    I recall hearing John Key saying some time ago that governing is about having to make the hard decisions.

    This one is probably going to be reported as boosting Chorus’ profits at the expense of the consumer. If they had gone the other way, the reports would have probably been around the threat to the UFB investment.

    Mindful that there is no ‘win-win’ answer, I wonder if something like a copper levy with the funds committed to accelerating UFB rollout might have been a more saleable option? The levy could be targeted at accelerating locations off copper-only options (I.e. effectively sun-setting the levy as soon as possible.) And while it would still be artificially maintaining copper pricing, it wouldn’t be to the benefit of the vendor’s profits.

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  2. Twinz (1 comment) says:

    The worst issue is that Telecom/Chorus, through the UFB process, lobbies for the regulation that the Commerce Commission applied in their draft. Surely this adds to the bad smell!

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  3. Redbaiter (9,123 comments) says:

    “Either option is a bad outcome in one form or another.”

    Skim over the real problem of course, in such typical National Party supporting fashion.

    The bad options you refer to are only a subset of the first real bad option which was when the govt decided to get involved. Naturally we have a fiasco. The socialists in National and Labour will never learn. Government governs best when it governs the least.

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  4. Archer (210 comments) says:

    This is nanny state interventionist governance. Where is the Act party?

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  5. Jack5 (5,137 comments) says:

    Good one, DPF!

    How Leftist of a Government to force us into fibre optic connections by articially boosting the price of the present alternative ADSL over our copper phone lines to the home.

    For nearly all home users except the most ardent video-addicted couch potatoes and perhaps gamers, copper connections are sufficient.

    Telecom, and now Chorus, are notorious for their political lobbying. Our MPs are pliant.

    Hudson defends National to the end, of course, with his comment “… there is no ‘win-win’ answer”.

    The win-win was, as Redbaiter points out, for the Government to have kept out of this multi-billion scheme. Our main cities will end up with cobwebs of fibre built by state encouragement and local body empire playing. These cobwebs will be way ahead of demand.

    Industrial history shows successful large infrastructure developments are usually built to satisfy fairly obvious emerging demands. Fibre to every household is way ahead of demand, and the talk-fest mob and bureaucrats only guess that uses will soon arise for it. That’s why the State has had to pour billions into the development. The private sector couldn’t see the pay-off – which needs demand.

    Fibre may already be being headed off by wireless broadband. The rising generation of computers – tablets and smart phones – communicate by WiFi or cellphone network connection. Tablets aren’t being held up by home wireless modems being linked to the internet by copper. The bottleneck is, and will remain the wireless link between the tablet and the modem.

    Yes, as a Hudson clone may point out, you can connect many tablets by USB and wire to the modem, but few people do this.

    As for Archer’s query at 2.17:

    Where is the Act party?

    Dinosaur heaven, with those lumbering beasts, and with the moa and the dodo.

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  6. hamnidaV2 (247 comments) says:

    Nerd Alert.

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  7. berend (1,711 comments) says:

    DPF: I think it is disappointing that the Government has intervened in this way.

    I think it’s disappointing that you have been backing the fibre horse all along the way. Wouldn’t it be nice to be consistent one day and actually be against something the government does you believe would be helpful for NZ?

    Fibre was just National’s election bribe, and like WFF, and free student loans its another huge burden on the remaining tax payers.

    How long till John Key can no longer borrow from the future?

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  8. Mike Wilkinson (71 comments) says:

    Bhudson and berend, I agree. DPF says he thinks the market works better. Yet, he seems to completely miss the implication that, if it does, the Government should never have invested in fibre in the first place.

    It’s all a bit inconsequential, though. Sooner or later, some new technology’s going to blow fibre out of the water and the Government will have wasted an awful lot of our money investing in it. If only the Government had started out with DPF’s vision that the market works better….

    Cheers,
    Mike

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  9. bhudson (4,740 comments) says:

    Fibre to every household is way ahead of demand, and the talk-fest mob and bureaucrats only guess that uses will soon arise for it.

    Yep, Jack5. I think you will find that the buggy-whip manufacturers said something similar about them new fangled highway thingies.

    Fibre may already be being headed off by wireless broadband.

    What do you think connects those cellular towers and wi-fi base stations together? UFB investment is not all about ‘the last mile’. Why do think Vodafone bought TelstraClear? So they could rebroadcast Sky TV?

    UFB infrastructure is the same quandary for a country the size of New Zealand as the roading network – it would only happen with govt investment. You can argue the timing of it, but it would never have happened if we just sat back and waited for the telcos to do it themselves.

    Edit: Mike Wilkinson – yes, agreed.

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  10. Jack5 (5,137 comments) says:

    Bhudson posted at 7.50:

    …I think you will find that the buggy-whip manufacturers said something similar about them new fangled highway thingies.

    But Governments weren’t building the new automobiles. It was entrepeneurs. Many of the auto pioneers went broke, but a few of the most highly skilled (and perhaps luckiest) made huge fortunes.

    Newspaper publishers, perhaps nearest to the current equivalent of buggy-whip manufacturers, have been generally cheering along the State and local body splurge on fibre optic, which is more akin to roads than to cars.

    Did governments build four lane highways and overpasses then wait for the cars to come? Of course not.

    BHudson also said:

    …FB investment is not all about ‘the last mile’

    But fibre to the door is. That’s what the billions are about. Fibre has been going into the ground for a long time now, and private enterprise has been putting in loops to service businesses and other organisations. It’s the fibre to the door or to the house or however you want to put it that is costing the big bucks.

    There’s no argument that a strong fibre backbone and trunks are needed, but the big state push is fibre to the house.

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  11. bhudson (4,740 comments) says:

    But Governments weren’t building the new automobiles.

    No, they were building them new fangled highway thingies – the things the buggy-whip manufacturers couldn’t see the need for. While many auto pioneers may have gone broke, the need for roading never got smaller…

    private enterprise has been putting in loops to service businesses and other organisations.

    You would be surprised I think. Despite the marketware to the contrary, the telcos have been very customer specific about where their fibre goes to. Most of the fibre in the ground lacks the optics and electronics (the Points of Presence) to deliver any, let alone widespread, local services. There is a great deal of investment required outside of a loop around a neighborhood.

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  12. Jack5 (5,137 comments) says:

    BHudson posted at 8.47:

    …There is a great deal of investment required outside of a loop around a neighborhood.

    That’s the point isn’t it? If there was economic demand the telco’s would provide the investment required.

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  13. bhudson (4,740 comments) says:

    If there was economic demand the telco’s would provide the investment required.

    Well, Jack5, it was certainly the point I made all along. Complete with buggy-whip/highway analogy.

    Having invested the money that no single private sector company would (analogous to the complete roading network required to make the network efficient) the govt is now faced with the problem of whether to to artificially maintain pricing of a service so as not to undermine that investment, or to threaten uptake, and hence return, on that investment. No ‘win-win’ option.

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  14. Jack5 (5,137 comments) says:

    But, BHudson, you still think the Government was right to pump so much into fibre when this was so clearly years ahead of demand?

    And do you deny it is likely that present tablet and smart phone trends have made the Government’s fibre to the home a huge balls up?

    IMHO, fibre to the home is the equivalent of building autobahns for cars not even at the Model T stage,which came into production around 1908, I think. The NZ strategy is autobahns for the pre-Model T high wheelers. When the Volkswagens eventually arrive weeds will be growing through the autobahn cracks. There will be new types of fibre and possibly very wide area, extremely fast two-way wireless, miles better than present WiMax.

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  15. bhudson (4,740 comments) says:

    so clearly years ahead of demand?

    No. We are actually laggards in this investment. What is more, it is the work of years. What is available in NZ right this very moment is very different from what will become available as the rollout progresses.

    I am somewhat concerned at the ICT industry’s capability to sell businesses on transformation that leverages UFB and the Internet – it’s not about websites and video, it’s about efficiency of business process (in a number of forms.) Despite being a risk, accelerating our broadband infrastructure is more of a motivator for industry to up its game in this area.

    Smart phones and tablets are actually drivers for UFB – it is a complete picture that requires further build out on regional coverage, as well as neighbourhood loops. UFB will actually make cellular wireless more affordable – those sites are all over the place and it is the fibre inter connectivity between them that makes it more feasible and affordable – you can only transport so much data from cell site to cell site wirelessly before it becomes the medium becomes a barrier.

    Nature abhors a vacuum and the digital world will quickly swallow up. The availability of UFB will itself be a driver for the introduction of services available elsewhere in the world – such as Netflix. The distribution model might start off a little different to protect local distributor channels, but the services will become available.

    The real problem will not be so much paying for the glass in the ground – steaming services (both general purpose and, perhaps unfortunately, what the Internet is more known for) will take care of that. The real return for the country, however, will be businesses devleoping new products, opening new markets, attracting & retaining new customers – leveraging ICT over UFB for competitive advantage. That is where the investment will be paid back “in spades.”

    The ICT industry needs to step up to deliver that. Govt can assist as an exemplar – have govt agencies invest to transform business process. Lead the way. The ‘customers’ (taxpayers) win twice over – better, more effective service delivery from the public sector (reducing their own costs, in the area of business, and making their own processes more effective) and in the reduction in the cost of delivering public services (not just ICT cost savings.)

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  16. GJM (63 comments) says:

    Fibre is all pretty irrelevant wth small data caps that will be used up in minutes

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  17. Jack5 (5,137 comments) says:

    National’s last blogger standing, BHudson, at 10.45 flatly denies fibre to the home is ahead of demand.

    In that case the Government is rorting everybody by boosting prices of current ADSL copper broadband. If the demand for fibre exists, they don’t need to force people off copper, so they must be just going to tax them. C’mon BHudson, if the Government isn’t trying to create demand for fibre, what the fuck is it doing?

    BHudson also says of fibre to the home:

    …the real return for the country, however, will be businesses devleoping new products, opening new markets …

    He cites as an example, Netflix. This provides video over the Net. It also provides DVDs by mail, so you get an idea of what it sells. BHudson talks about “steaming services”. This is a typo for streaming services, which overwhelmingly is to deliver video.

    So bHudson says fibre traffic to homes will be videos.All but the most ardent, video-addicted, fat-arsed couch potatoes can get all they want at present with copper by downloading then watching. If they want to have five or six video streams coming into the home continuously, they will need fibre.

    How many sluggards are there who will want to loll in this vacuous mental gluttony whenever they aren’t asleep. And of these people, how many will be able to afford the video costs?

    Similarly BHudson’s argument is contestable when he asserts that taking fibre to households will make fibre between cell towers cheaper to telcos, and thus will make cellphone data cheaper to consumers. If the telcos want to screw householders using copper broadband, they will undoubtedly want to screw tablet and smart phone users, too, as they are doing with cross-Tasman roaming charges.

    Besides, most tablet users use WiFi to home modems for their internet. Many, probably most, smart phone users also use WiFi to home modems for internet (rather than voice calls and texting). So whatever you say about households and copper v. fibre applies to this soaring trend in computer use.

    Without doubt, therefore, fibre to the home is State build and hope!

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  18. bhudson (4,740 comments) says:

    Oh Jack5…

    …the real return for the country, however, will be businesses devleoping new products, opening new markets …

    He cites as an example, Netflix.

    Not as being the real return for NZ, Jack5. Not even close. And nowhere near suggested as such.

    So bHudson says fibre traffic to homes will be videos.

    No, Jack5, what I suggested was that streaming services (predominantly video) would effectively pay for the public investment in physical fibre. The context of which was that that alone is not enough to make UFB a success – that NZ businesses leveraging ICT over UFB for competitive advantage is what will generate real returns from UFB [schools and public health services certainly add to the mix too - but this is a blog site, not an open drafting pad for a novel.] That is not the same thing as saying that UFB to homes is about video.

    they will undoubtedly want to screw tablet and smart phone users, too

    I have no doubt that the telcos are looking to optimise profits, however “screw” might be a little harsh – currently on my $40/mth plan I get something like 3GB data along with some free calls and texts. Not too bad at all and I never exceed the cap. The challenge for me is data speed and a challenge for the telco is capacity – greater fibre connectivity between towers addresses both.

    In any case Jack5, while this is mildly diverting, your efforts to twist what I actually said, or to ignore the context in which I said it, shows (to my mind) that you have no real counter argument.

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  19. Jack5 (5,137 comments) says:

    BHudson said at 10.54:

    …on my $40/mth plan I get something like 3GB data along with some free calls and texts

    So you’re not even on ADSL copper, BHudson! No wonder you don’t give a hoot that the Government is preparing to clobber home internet users. However, you should compare the miserly internet cap your cellphone provider gives you with this small sample of copper broadband plans for main cities:

    Slingshot – $72 a month for 20Gb

    TelstraClear – $75 for 40Gb (and they throw in a free wireless modem – note wireless, which the tablet and smartphone users can use).

    Orcon – $75 for 30Gb and unlimited national (landline) toll calls of up to 1hr each

    Telecom – $99 for 50Gb and unlimited national (landline) toll calls of up to 2hrs each

    The Government seems keen to ensure they don’t fall further.

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  20. Jack5 (5,137 comments) says:

    Come back, Hudson!

    As a cellphone-data user rather than a copper broadband user, can you morally justify your statement in the first post in this thread:

    …I wonder if something like a copper levy with the funds committed to accelerating UFB rollout might have been a more saleable option …

    So what you really want is a tax on home copper-network broadband users (mostly hard working and not well off) to subsidise a handful of better off or welfare-sustained slobs who want to watch video night and day? And this will be a tax that you escape.

    National has drifted well to the left of centre.

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  21. bhudson (4,740 comments) says:

    Jack5,

    Well done on the context thing. Again.

    Actually quite important to the selective quote you pull out. But not to worry…

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  22. orewa1 (410 comments) says:

    The government was right to take the lead in the migration from copper to fibre, because governments have a responsibility to manage the provision of infrastrucuture. People understand this. That’s why asset sales are so unpopular – the public have absolute confdence in governments to fuck up any attempt at privatisation..

    This issue was entirely predictable. We are now at a point where the underlying cost of yesterday’s technology (copper) as determined by the Commerce Commission, is so low as to undermine the price of tomorrow’s technology (fibre.}

    The government sould throw the issue across to its regulator, the Commission, to resolve. The Commission’s mandate is “the long term good of the end user.” Its methodology is well prescribed and understood.

    This government intervention has a really bad smell. It implies that Chorus whinging has won the day. Shades of Telecom and Maurice Williamson in the 1990s. Shame.

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  23. rouppe (971 comments) says:

    What I find interesting is that I have UFB running outside my house, but have not received a single offer from any provider about connecting to it.

    There’s also no (obvious) offering on the Telecom website

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