Barton on broadband cost

September 5th, 2013 at 12:00 pm by David Farrar

Chris Barton writes in the NZ Herald:

The PM further fuelled the uncertainty flame following the release of the commission’s report saying: “It has significant implications both for [] and for UFB. It substantially reduces the income of that company and its capacity around broadband.”

Here’s what John Key might have said: “Well, thems the breaks. The Commission has arrived at its determination after careful consideration. The determination was signalled in 2010. The process has been in law since 2011 and we’ve been expecting it since before Chorus was formed, following the de-merger with Telecom. No one, including the analysts, should be surprised by this. If they are, then they haven’t done their homework.”

To which an enquiring journalist might have asked: “What about the extra cost Chorus is facing on the UFB?

Key: “Well that’s a bit rich. We’ve given Chorus $929 million interest free for 14 and half years, making it a loan worth about $1.2 billion, to build its part of theUFB.

That’s a pretty generous deal agreed by both parties on commercial terms. That’s business. For Chorus to be moaning about extra costs – well that’s its problem – we acted in good faith.”

Journalist: “So you’re not at all worried that Chorus could fail and the UFB won’t get rolled out in time?”

Key: “Not at all. Look, 18c per share is still a good dividend. Chorus is still a good business with a captive market. It has until 2020 to get just 20 per cent of users onto its part of UFB and has from 2025 to 2036 to repay the loan. That seems quite doable. Meanwhile it has a guaranteed revenue stream from its existing copper network. Nothing to see here.”

But of course John Key didn’t say that. Instead he set in train Adam’s intervention to hold copper prices artificially high.

I think the planned intervention is not well justified.

Even if one accepts that it is in the public interest (not that I do) to have higher (than they would be if no intervention) copper prices so that people migrate to , I don’t understand why you would gift the extra revenue to Chorus – rather than use it to fund further roll-out – or rural broadband.

I’m a Chorus shareholder, but I don’t want Chorus to benefit from regulatory changes that are not good for consumers.

I quite accept that there are legitimate issues over how to price the copper network, and should it be based on its current cost, or the cost of the replacement network – as it is in electricity.

But the complicating factor is that the future network is being delivered by way of government contract and subsidy through contracts with Crown Fibre Holdings. So the investment decisions shouldn’t be based on revenues from copper (well not for 75% of the country).

By coincidence, I was at a Chorus announcement last night, and it was an exciting one. They announced that they will connect an entire town in New Zealand up to 1 GB/s fibre. And they are effectively having a competition where towns will say what they would do with it, how they would market themselves, and the winning town will be chosen, and made the fastest town in the Southern Hemisphere when it comes to the Internet.

That’s a great initiative to get communities involved in thinking about their fibre future, and will attract lots of attention. I suspect, sadly, Thorndon doesn’t qualify as a town 🙂

Paul Brislen writes more about the Chorus announcement:

Chorus has launched a promotion that will give one town in New Zealandgigabit speeds on the Ultra Fast Broadband network.

One gigabit per second is fast. OECD rankings suggest that only four countries in the world offer national 1Gbit/s plans – Turkey, Slovenia, Sweden and Japan (this was in 2011 so there may be more by now) and that most top out at about half that speed.

We’re talking about 1000Mbit/s. Today I get 15Mbit/s download so to call it a step change is something of an understatement. My upload speed is barely 1Mbit/s.

We tend to get complacent about the fantastic advances technology makes each year. A doubling of capacity, a tripling of speed, these numbers become run of the mill and users are blasé about them. But a thousand fold increase in my upload speed would be startling to put it mildly, so good on Chorus for trying this out.

The economic potential of offering such a service is astonishing. Think what having such a speed would do to the way we think about remote working or having to live in the main centres. Think about what access to the world at those kinds of speeds would mean for start-up software developers and to our migration patterns. Software companies should be lining up for our cheap housing and staff with no fear of us being too removed from the world.

I am excited about a fibre future. But I also want copper not over-priced during the transition to fibre.

11 Responses to “Barton on broadband cost”

  1. rouppe (1,231 comments) says:

    I connected to fibre on the 30Mbs plan. They did a speed test after installation. Came in at 29Mbs or so. Pretty good until you realise that speed test is to Telecom/Chorus servers.

    Do a speed test using a USA broadband speed checker and you’re waaaayyyy down on that. I can’t remember the number, something like 5, or 9Mbs.

    So if this town is connected with gigabit speeds, that will only be to the Chorus servers…

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  2. RRM (12,544 comments) says:

    Ahh, Chorus!

    I had a conversation with my ISP about Chorus recently.

    It went like this:

    RRM: Our broadband connection is down. It’s not a problem with our hardware.

    ISP: Ok, we can get a Chorus guy to take a look at it next Tuesday.

    RRM: You’re joking. Will I still get billed for broadband, for the next 6 days that I won’t have broadband?

    ISP: Of course you will! Don’t like it? Here, eat this dick. :mrgreen:

    RRM: 😕

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  3. anonymouse (891 comments) says:

    So Chorus as going to do a “Google fibre”- The kicker is not the connectiviness, it is the monthly cost,

    Also with a 1Gbs connection you require no data caps as a basic condition, otherwise you risk a huge bill shock,

    Google charges US $70/month for its 1Gbs Service, or US $120 if you get their additional 200 TV channels package
    They also have a free 5Mbs package ( although you pay for installation)

    But I am not sure you could charge much more than $100 NZ for a 1gbs connection

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  4. PaulL (6,054 comments) says:

    I have this discussion with people in Aus a lot, as we argue about whether we need to spend $90B putting fibre into every house, or whether fibre to the node and copper for the last mile (VDSL2 or similar) is fine for approximately $20B. Many of my friends in the IT industry just want the fastest possible – because it’s not their money.

    I’ll be really interested to see what people say they’d do with 1 Gbps. Remember this is uncontended, so 1Gbps on your direct fibre link is not the same thing as 1Gbps on your gigabit ethernet (which, given normal contention, gives you about 600Mbps around your house).

    So, let’s imagine this pipe terminating in your house, pouring in 1Gbps of data. What do you do with it?
    – You could put it on your home network. If wireless, 802.11n, you get about 400Mbps headline, actually about 100Mbps usable.
    – If you have an older device on your network (iPad, iPhone, anything else) it drags the whole thing down to 802.11b/c, or about 50Mbps or less
    – So actcually your wireless network isn’t fast enough to use it, perhaps wiredgigabit ethernet with cat 5e or cat 6 cabling? At 1Gbps headline, and 600Mbps actual. So more than copper, less than the fastest fibre. I have cat 6 in my house, I reckon very few normal people do, so maybe 2% of the population could put this data on their home network at that speed
    – What do you do with that data now that it’s on your network? Broadcast HDTV uses about 15Mbps, so you could watch 4 TVs simultaneously, or 4 HDTV video conference streams, for a total of 60Mbps. So it’s not TV or video conferencing
    – You could download stuff to your hard drive (I won’t ask what you’re downloading that needs to come down at 1Gbps, pretty sure nobody can watch that many “nature documentaries” or install that many “linux isos”). But most hard drives can write at about 100Mbps. No faster, unless you’ve got a RAID array (I do, not many people do). So you can’t actually write to your hard drive that fast
    – You might have an SSD, they write much faster. You’d see maybe 300Mps sustained. But most SSDs are only about 256Gb. So at 300Mbps, or 40MBps, you’d fill that SSD in 2-3 hours. So you’re probably not doing that for long either

    In short, I haven’t seen anything that you can do at 1Gbps, cannot do at 100Mbps, and that any significant volume of people want to do. Certainly I haven’t seen anything that lots of people want to do and that would materially increase national productivity (the argument for why this needs to be govt funded).

    Sure, a rich country without other things to do with it’s money can afford to do this. But the difference between 100Mbps and 1Gbps is just subsidising geek toys using taxes that should be spent on one of the real functions of government.

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  5. Jack5 (9,285 comments) says:

    Smart phones and tablets have given wireless transmission a huge lift, and reduced the need for fibre to the home (if not in trunks and to street cabinets). Smart phones and tablets link to the net either through cellphone-data networks or through WiFi to home modems. For such modems copper broadband is adequate. What use is a home fibre connection to a smart phone user when that phone links to the modem (and fibre) at WiFi speed.

    The potential of fibre to create home-based businesses is exaggerated. Apart from video, film, and graphics professionals, perhaps architects and some engineers, perhaps mini-ISP owners, who right now benefits from fibre to the home?

    When the billions were earmarked by Left and Right for fibre to the home, the promise was held out of great new uses that would need such big data pipes into the home.

    Perhaps, but that’s a bit like the cargo cults in Melanesia at the end of World War 2. Surely fibre-to-the-home supply should respond to any emerging demand, rather than anticipate it.

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  6. Alan (1,087 comments) says:

    1GBs is a fairly pointless number. Unless of course you are accessing sites and data that are based in NZ.

    Most of the internet isn’t hosted onshore.

    Until we address the international connectivity into the country then UFB is pretty pointless, VDSL works just as well.

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  7. Alan Wilkinson (2,435 comments) says:

    This whole thing is nuts. Wiring up a whole town even more nuts. Having a competition to do it just shows what a commercial dog the whole project is.

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  8. OneTrack (4,602 comments) says:

    “Surely fibre-to-the-home supply should respond to any emerging demand, rather than anticipate it.”

    That’s far too logical an approach. We want more. We want it now. And we want someone else to pay for it.

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  9. john small (6 comments) says:

    Great post David. This is no way to solve any problems Chorus might have.

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  10. Mark Unsworth (43 comments) says:

    Alan you said” Until we address the international connectivity into the country then UFB is pretty pointless,”

    Can you tell us more? How has our international connectivity held up UFB exactly ? .Any real examples please .

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  11. Duxton (748 comments) says:

    Someone in the NZ Herald needs to explain to Barton what an apostrophe is, and how to use one.

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