Great targets for rural broadband

October 7th, 2015 at 12:00 pm by David Farrar

Amy Adams announced:

Recognising the ever-increasing demand for high-speed broadband across New Zealand, and its importance to regional growth, the Government has today announced a bold new connectivity target for areas outside the UFB footprint.

Under this target virtually all New Zealanders, regardless of where they live or work, will be able to access broadband at peak speeds of at least 50 Mbps by 2025, Communications Minister Amy Adams has announced. …

By 2025, the Government’s vision would see:

  • 99 per cent of New Zealanders able to access broadband at peak speeds of at least 50 Mbps (up from 97.8 per cent getting at least 5 Mbps under RBI)

  • The remaining 1 per cent able to access to 10 Mbps (up from dial up or non-existent speeds).

This will be greatly welcomed by those outside the areas where fibre is being laid. Let’s look forward to the death of the last dial up account!


More on rural broadband

September 3rd, 2015 at 11:00 am by David Farrar

I blogged on Monday an e-mail from a friend frustrated with her experience trying to get decent broadband in Tamahere.

On the issue of speeds available, a staffer at Spark has said:

If you look at her article, she states on a number of occasions she “should be getting at least 5Mbps”, including referring to the Chorus website.

however, our understanding is that her property is unfortunately in a ‘dead spot’ on the Chorus broadband network – it is right at the end of a road, which makes it a long distance from the exchange, and according to the Chorus maps there is no guarantee of ANY broadband coverage, let alone at 5+ Mbps.  She also refers to broadband infrastructure improvements with the RBI scheme … but again she is unfortunately just OUTSIDE the scope of these improvements.   


We are doing some more internal checking on this customer’s situation, but from the information we have to date it appears that she is one of those unfortunate customers who is outside the current UFB and RBI schemes, and is located at the very outer limits of the old copper broadband network.  As you know, none of these (UFB, RBI, and Chorus footprint) are within Spark’s control and we (as with any other service provider) can only provide services based on the infrastructure available.   There are a lot of consumers out there in this situation, which is one of the reasons why the Government is pushing ahead with UFB 2.0 and RBI 2.0.

Interestingly Chorus has said they think she should be within the RBI scheme, but that the build there may not be completed by Vodafone until mid 2016.  This has I think been one of the frustrations – the difficulty in finding out what the situation is.

Also Jason Paris, Spark Home, Mobile and Business CEO commented on the original thread:

Thanks for sharing this David. It is a well written story, but I definitely didn’t find it amusing as it is not the experience we want any of our customers to have. I have asked my team to look further into what happened and I will make sure we sort things out for this customer – I would like to apologise for what has obviously been a very frustrating week.

While I don’t know all the details of what happened in this case, I acknowledge the hold times in our call centre queues at the moment are not acceptable, and there are cases where we are not calling customers back in the timeframes they (rightfully) expect. The reason for this is a huge increase in the number and complexity of calls to our customer service teams over the past month – driven by huge demand for and subsequent complexity in delivery of Fibre. The Fibre install process is an industry problem that needs to be addressed with urgency as it not only overloads our fibre team but customers flow across all channels looking for answers – overloading these too. To give you an idea, in a normal month our agents work a total of 11,000 hours per week. In the month of August they did 15,000 hours per week.

These aren’t excuses – just some rationale as to why customer service is my number one priority. We have employed another 90 agents recently, and are recruiting for 100 more. We are putting the microscope on our processes, so when a customer calls us we can solve the problem in that first call wherever possible – so they don’t have to worry about a call-back. We’re also making sure it’s easy for customers to do things online to save them having to call us. It will take us time to sort everything – but the customer service team are doing an incredible job under huge load and we are acting as fast as we can to help give them even more support.

When it comes to broadband speeds, if you are on the copper network one of the most important things influencing your speed is how far your house is from the exchange – it is possible this is the problem for your friend. As Spark does not own the fixed line network, this is unfortunately not something we control, but we can look into and explain the problem to our customers – and this is where we definitely should have done better in the story above.

I understand from Chorus the house is around 5 kms from the nearest exchange, which does mean ADSL speeds will be crap. This is one of the real limitations of copper broadband – the speeds drop massively as you get distance from an exchange or cabinet. That is why the Government has subsidised fibre rollout to 80% of NZ. For those outside the 80%, the rural broadband initiative should help get semi decent speeds, but it is not fully rolled out yet.

A smaller broadband provider has also been in touch, so we’ll see if the situation improves.

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A frustrated broadband user e-mails

August 31st, 2015 at 3:00 pm by David Farrar

Got sent by a friend a copy of her e-mail to Amy Adams on her struggle to get rural broadband in Tamahere. It’s rather amusing, and with her permission I’m sharing it here:

Hi Amy

Just wanted to share with you my crusade for the holy grail (holy grail being first world internet speeds):

I live out on xxx in Tamahere, Waikato this has been a well established rural area with a lot more lifestyle blocks being built out here. We are only 7minutes out of the main city area. 

We are hooked up to Sparks Rural Broadband Business unlimited plan. It’s the only broadband that is affordable and that we can get out here. 

  1. A Naïve girl trying to make a difference

My first correspondence starts with trusting the automated voice with putting me in queue for 1hr+ for a ring back. After a solid few hours I get a call. I was currently out running errands. I explained my plight to the “fault and technical issues team” where I got told that it was outside their knowledge to run me through all the troubleshooting steps and that I would have to be put through to the technical team. I informed her that I would not be home for another hr and she said a techy from the technical team will give me a ring around midday. A whole day passed by with no call from Spark. 

  1. Lets fight internet with internet, my experience with live chat

Round two begins a few days following when I was like bugger being put in a queue and leaving a call back to the merchants of chance and fate. I decided to hop on live chat hoping my internet speeds would support such a new age mode of online communication. But to my surprise the internet managed to give me that much. However the Spark live chat gave me nothing much in the way of advice:

00:00:03 Spark : Question:Really slow internet, lucky to get 0.5Mb when we should be getting 5Mb

00:01:10 Chris : ok

00:01:15 Chris : HEy xxx

00:01:23 xxx : Hi, just wanted to be talked through troubleshooting etc in the event you guys need to send a techy out. Our internet is slow and very patchy. 

00:01:32 Chris : can you please confirm the number it’s on?

00:01:50 xxx : yyyyyyyy

00:03:23 Chris : Ok hold the chat and I’ll have someone from the residential team look at this!

00:05:31 xxx : Hi Nicole

00:05:58 Nicole : Hey There xxx. I can see you are having trouble with your internet.What is happening for you?

00:07:58 xxx : Well I moved in here beginning of July, and I’ve known this family for yrs and I know it’s always been rough getting decent internet out here but I recently discovered that given the new work on infrastructure out here we should be gauranteed atleast 5Mb speed. We’re lucky if we get 1Mb and that’s just to the one computer that’s ethernetted, wirelessly connected gets about 0.2Mb

00:10:52 Nicole : Thats not good xxx. This sounds like it is a bit more technical that we originally thought. I can organise for a Specialist to give you a call if you like. 

00:11:19 xxx : Yea I was told some one would call  me at midday…and here I am on here :(

00:11:30 xxx: would be nice if I got a call this time please :)

00:12:38 Nicole : Sure I will organise for someone to call you. They have a 32 min wait at the moment so it shouldn’t take to long. Whats the best number to call you on?

00:13:01 xxx : yyyyyyyy

00:14:45 Nicole : Great thats all booked in. Someone will call you shortly. Is there anything else I can help with?

00:16:41 xxx : no that’s it thank you :) 

00:16:49 Nicole : Great have a good day :)


  1. Troubleshooting with the troublemakers

After an hr I receive a call from the techy to run me through all the troubleshooting. They also ran speed tests on the line to show that it’s showing speeds between 3.3-5Mbps. I reset the modem, try the modem in every known jack point in the house to run speed tests on all of them. Low and behold nothing was wrong on our end. The last and very inconvenient part was to test another modem on our internet or use our modem on a different internet connect to test to see if it was our modem crapping up. Otherwise so sad too bad no techy for you. 


  1. Phoneline outage, the cherry on top of the shitty Spark cake. 

In the meantime our phone lines go down and we get told there’s been an outage in our area since the beginning of August. When we get a techy out to fix our phone lines, Brian the account holder and who I live with also relays issues with our internet, the techy checks our modem and runs a speed test. Essentially confirming what we all thought, it most probably isn’t a fault in the line but just the sad reality of being at the end of the exchange and that pretty much every house on this end would be getting these same shitty speeds. He also told us there is actually a Fibre box installed at the end of our road and that it may be worth investigating into when that would get installed. Even suggest we write a letter to spark….umm lol?


  1. Out of the Broadband pan into the Fibre.

Now we come to the events of today (24th August). I checked on the Chorus website and saw that Fibre was installed but not due to be connected until June 2017. 


So I thought I’d give the RBI angle one more go (currently still on the phone and have been writing this email in between being put on hold. Also had to sort out all the penalties and extra charges they put on my mobile phone account despite them never sending me any bills or warnings or jackshit, I got those penalties waived so I guess they managed to fix at least a couple of their muck ups today, have been on the phone now for 2hrs and counting) So I’ve relayed this message to about 3 different people today: 

“I have been through the ringer and essentially this is the situation. We are part of the RBI. I have confirmation that we should be getting between 3.3-5Mbps and it also shows 5+Mbps on the Chorus RBI map on their website. For the past 2 months I have lived here we have never clocked a speed close to 1Mbps and I want to understand why that is and how you can sink in that much $$ into infrastructure and us not see 1Mbps of a result”


  1. Finally I actually get put through to a “specialised RBI team” what ever that means, so is this salvation? Or just another mirage in the rural broadband desert?

I gave her the same speech, now being able to recite it and multitask checking whats on the news. Crazy about police cocking up the Burdett case!? She says she has to run her own speedtest as she cannot pull up the history of my phone conversation with techy at point 3. As I was put on hold for what I hoped to be the last time in the 2hrs I’ve been on the phone, she comes back to inform me that due to a fault that was just registered on our line scheduled to be fixed today she cannot do a speedtest. After 2hr 10mins on the phone I am waiting for a ring back in order to run said testing to be able to file an “investigation” to get a tech guy out (at this point my brain was fighting as to whether or not I should throw my phone across the room) and I should HOPE to get a call back later today confirming.

I did get a call back pretty quick so pretty stoked about that small victory. They’re going to send a techy out to check the exchange in 24hrs. Let’s see what happens, my bet is that there will be nothing wrong with the exchange and the speed is attributed to congestion and distance. 

  1. What have I learnt?

New Zealand is a 3rd world country where farmers are too stupid to realise they’re getting ripped off, or if they do realise they’re too busy trying to sustain a dying dairy farming industry to be on the phone for hrs at a time, multiple days a week. 

Spark customer service runs a competition to see how many teams you can bounce one issue around on.

Treat them like I treat my one night stands, never EVER expect a call back. Expectations only leads to heartbreak and a possible brain aneurism.

I can last approx. 1hr-1hr20 on the phone before I start swearing at them. 

Please 2degrees come back to my life. 

Sorry if this is harsh and some of it expecting too much of Spark. But after a week of getting no where and talking to about nearly every broadband related team with Spark I have a sore back from being bent over and fucked by bureaucracy. 

A very disgruntled and dismayed New Zealand citizen



The NZ National Broadband Map

July 24th, 2015 at 12:00 pm by David Farrar

There is now a national broadband map for NZ. You can enter in an address and see what the availability is of fibre, VDSL, ADSL and wireless.

The map has been produced by NZRS (who also run the .nz domain name registry), a company owned by InternetNZ with assistance from MBIE and of course the retail providers.

For example if you put in 175 Melbourne Road, Island Bay, Wellington it tells you:

  • Fibre planned for 2016 to 2019
  • VDSL available with download speeds of 15  –  60 Mbps and upload of 5 – 18 Mbps
  • ADSL available with download speeds of 10 – 22 Mbps and upload of 1 – 2 Mbps
  • Wireless not available

A great resource that has already proven massively popular with 60,000 visits within hours of launching.

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NZ broadband

July 9th, 2015 at 9:00 am by David Farrar

3 News reports:

InternetNZ says it’s not our broadband that sucks – it’s how we’re using it.

The group’s annual NetHui event logs on in Auckland today, hosting key figures from the industry, MPs and others interested in how the internet is changing our lives, and what lies ahead.

InternetNZ work programme director Andrew Cushen says New Zealanders like to complain about the state of our broadband infrastructure, but the reality has left the cliché behind.

“The simple fact of the matter is over the last five years in particular, the Government has put in a great deal of money through the ultra-fast broadband programme and the rural broadband initiative, to make New Zealand’s internet some of the best in the world,” he said on TV3’s Paul Henry programme this morning.

“Yes there are still some issues, yes there are still some people waiting for some rollouts to get there. But the story is really fantastic in terms of the capability of the network… By 2020, 98 percent of New Zealanders are going to have really fantastic connectivity.”


The Government has invested a huge amount in our broadband infrastructure. The fibre roll out especially is great as it is basically future proofed.

Speeds are lifting, and data caps have faded as an issue. The focus as Cushen says is shifting to what we do with it – as businesses, consumers, Government, citizens and families.

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Speeding up the UFB installs

June 14th, 2015 at 1:00 pm by David Farrar

Amy Adams has announced:

Communications Minister Amy Adams has today released a raft of proposals to help speed up the installation of Ultra-Fast Broadband (UFB).

The discussion document outlines four proposals for change:

  • amending the way in which network operators seek permission to access private property (in situations like shared driveways and apartment buildings)

  • enabling better use of existing utility infrastructure to more efficiently roll out fibre networks

  • providing more certainty to network operators regarding their ability to maintain fibre infrastructure installed on private property

  • establishing an expanded and accessible disputes resolution process to ensure that land access disputes can be resolved quickly and fairly.

They look like useful proposals, which should be implemented.

TUANZ have said:

TUANZ also strongly supports the proposal to investigate a new statutory right of access which would enable fibre companies to utilise existing assets, even when those existing assets traverse private land. “We see this as being key to extending fibre further especially into rural New Zealand as it significantly reduces the cost of build which is a key barrier in improving rural connectivity” said Mr Young.

One shouldn’t need permission from neighbours to install fibre, any more than to install water or electricity.

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Broadband prices

June 10th, 2015 at 1:00 pm by David Farrar

Stuff reports:

Consumers are getting a reasonable deal from phone and internet providers but are still paying over the odds for mobile broadband, according to the Commerce Commission.

The competition watchdog said telecommunications companies invested $1.69 billion in the year to June 2014, equalling the record set six years ago, despite a 1 per cent drop in industry revenues to $5.17b. Much of the investment was driven by the roll-out of ultrafast broadband (UFB).

Most of the figures in the annual report are based on a survey that is already one year old.

But they suggest Kiwis are paying broadly the same for phone and broadband plans, when compared to people in other developed countries.

Prices ranged from 22 per cent below average to 23 per cent above average, depending on technology and data caps, the commission found.

Consumers were also paying between a third and two thirds less for mobile phone calls and mobile broadband if they took up one of the $9 to $29 monthly deals offered by Spark, Vodafone and 2degrees.

But the price of larger mobile broadband plans was still high, with a six gigabyte monthly plan costing $90 a month, more than double the average among Organisation for Economic Cooperation and Development states (OECD) .

That seems right to be. Home broadband plans are pretty well priced now. I have an unlimited data plan for a reasonable cost.

But the cost of a big data mobile plan is still over $100 (including phone plan also).

Broadband users chomped through an average of 32 gigabytes of fixed-line broadband data each month, up from 26Gb the previous year. Average speeds rose from 5.3 megabits per second to 7.3Mbps, achieving parity with Australia but still behind the 11Mbps average in the United States and Britain.

The Commissions reports are online here.

Some interesting stats comparing 2014 to 2008:

  • Total telco investment up from $1.2 billion to $1.7 billion a year
  • Fixed broadband connections up from 850,000 to 1,390,000
  • Average speed up from 2.7 Mb/s to 7.3 Mb/s
  • Unbundled phone lines from 3,000 to 131,000
  • Fixed call minutes down from 12 billion to 8.25 billion
  • Mobile minutes up from 3.7 billion to 5.3 billion

NZ broadband speeds soaring

April 6th, 2015 at 10:00 am by David Farrar

Amy Adams announced:

Latest international figures on broadband speeds have reported New Zealand’s average connection speeds have increased by almost 60 per cent in the past year, said Communications Minister Amy Adams.

The Akamai State of the Internet report found that New Zealand’s average peak connection speed rose to 34.3 Mbps in the December 2014 quarter, representing a 59 per cent annual improvement – the highest increase in the Asia Pacific region.

The report also found that the average broadband connection speed rose to 7.3 Mbps (from 7.0 Mbps in the previous quarter) – representing a 39 per cent year on year increase.

The report is here. Good to see us increasing but still a long way to go – our average speed of 7.3 is 43rd in the world.


NZ has fastest fibre growth

March 15th, 2015 at 10:00 am by David Farrar

Amy Adams announced:

Fibre growth connections in New Zealand have tripled in the last year, putting us first of all 34 countries in the OECD, says Communications Minister Amy Adams.

The latest OECD Broadband Portal penetration statistics show New Zealand is now number one among developed countries for annual growth of fibre connections from June 2013 to June 2014, with an annual growth of 272 per cent.

The average annual growth of fibre connections in the OECD was 12.4 per cent.

“In the year to December 2014, fibre connections in New Zealand grew from 19,000 to 69,301. This is an impressive jump and demonstrates the impact that the Government’s $2 billion investment in the Ultra-fast Broadband and Rural Broadband Initiative programme is having on the telecommunications services available to New Zealanders,” says Ms Adams.

We are coming off a low base, but that’s excellent growth.

“Over the past ten years, we have moved up from 22nd place out of 30 OECD countries in June 2004 to being 15th out of 34 OECD countries for fixed broadband subscriptions as at June 2014,” says Ms Adams.

“We are now ahead of Australia, the US and Japan for fixed broadband, with more than 31 broadband subscriptions for every 100 New Zealanders signed up for this service.

Good to now be in the top half. The reforms of both this Government and the previous one have helped.

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UFB progress

February 13th, 2015 at 1:00 pm by David Farrar

MBIE has the latest quarterly report on UGB progress.

  • 43% of homes in the target areas are now UFB capable
  • Almost 70,000 homes now have fibre connected and working
  • Northland is 100% complete, Waikato 77% complete and Bay of Plenty 68% complete
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ComCom on Chorus prices

December 3rd, 2014 at 1:00 pm by David Farrar

The Herald reports:

Spark New Zealand has warned that prices could rise following the announcement by the Commerce Commission of a proposed new wholesale rates that Chorus charges retail service providers, including Spark.

“Today’s announcement is unexpected and we are now facing costs approximately $60 million a year higher than we previously anticipated. These higher costs will affect all our fixed services, not just broadband services,” said managing director Simon Moutter.

I see no need for price increases. The price announced by the Commerce Commission is around $4 a month more than its earlier determination, but it is around $6 a month less than what had been the status quo.

Moutter said intense market competition meant the anticipated reduction in wholesale broadband charges (signalled by the Commerce Commission as far back as December 2012), had already flowed through into retail broadband prices.

“For instance, what you get in our basic $75 broadband plus home phone plan today would have cost you $105 three years ago. In that time, our wholesale costs have barely moved until the new charges came into effect yesterday.”

Comparing any plan today to what it would have cost a few years ago is not very insightful. 20 years ago a broadband plan with 100 GB data would probably cost $5,000 a month. Data is always dropping in price.

As a consumer I would have liked the Commerce Commission to set the price lower, but their job is to work out what is the proper price for a monopoly utility service based on the cost of providing it. They’ve done that job now, and we should respect their independence.

However it would be useful if they had made a decision on whether the price level is backdated. ISPs do need certainty.

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35 more towns to get fibre under National

September 4th, 2014 at 2:31 pm by David Farrar

Stuff reports:

A further 5 per cent of New Zealanders will get ultrafast broadband if National is re-elected, the Government has announced.

National communications spokeswoman Amy Adams said the footprint of the fibre-optic cable network would be extended from the original target of 75 per cent of the country to a new target of 80 per cent at a cost of between $152 million and $210m.

The extended programme would be funded from the Future Investment Fund.

Adams listed 35 towns she said would be “strong contenders” to join the existing 33 cities and towns getting UFB. They included some large towns such as Westport and Picton.

The UFB programme was the “most ambitious communications infrastructure programme in the world, given our low population density”, Adams said.

Excellent. A few shares in Air New Zealand or some power stations in exchange for another 5% of the population gaining fibre. A great move, and very welcome I am sure by the 200,000 extra New Zealanders who will now get fibre under this plan.

The towns named by Adams as strong contenders for UFB are: Te Puke, Motueka, Morrinsville, Kerikeri, Huntly, Thames, Matamata, Otaki, Kawerau, Waitara, Kaitaia, Dannevirke, Alexandra, Stratford, Whitianga, Cromwell, Taumarunui, Picton, Foxton, Kaikohe, Marton, Te Kuiti, Katikati, Temuka, Waihi, Waipukurau, Warkworth, Carterton, Dargaville, Opotiki, Snells Beach, Te Aroha, Wairoa, Paeroa and Westport.

National has led the way on having a fibre connected country. In 2008 all Labour was promising was VDSL to more of NZ. National promised and is delivering fibre to 75% of NZ, and now 80% of NZ. On top of that a big investment in rural broadband.

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Should rural broadband be funded by taxpayers or telcos?

August 29th, 2014 at 4:00 pm by David Farrar

National announced this week a further $100 million for regional broadband. I certainly welcome the investment, as I have welcomed the investment in fibre to 75% of NZ. I think there are overall benefits to NZ by having a fast connected country.

But there is one part of National’s policy I am not so comfortable with. The fibre to the home initiative is funded by the NZ Government, ie taxpayers. As I said, confortable to have some taxpayer investment in infrastructure.

But the $100 million for rural broadband will be funded by extending a levy on telecommunications companies. And this money will go from them, to possibly their competitors. I’m not so keen on this.

If there is a case for better rural broadband (and there is), then it should be funded by the Government (taxpayers), not by a levy on telcos.


$100 million for rural broadband

August 27th, 2014 at 10:00 am by David Farrar

NBR reports:

InternetNZ has welcomed a move by ICT Minister Amy Adams to top up the six-year, $300 million Rural Broadband Initiative (RBI) with $100 million more in contestable funding if National is re-elected.

Ms Adams has also promised $50 million to boost mobile phone coverage in remote areas.

The policy would be funded by extending the Telecommunications Development Levy, currently due to expire in 2016, for another three years.

The Levy (successor to the old Kiwi Share Levy that used to go straight into Telecom’s pocket) extracts $50 million a year from telecommunications companies, proportionate to their revenue (see Commerce Commission table right).

As the law stands, the levy will reduce to $10 million a year after 2016.

Funds from the levy go toward the RBI build, which is being carried out by contract winners Vodafone (building new cell towers fixed wireless broadband leg) and Chorus (fibre). Unlike the $1.35 billion the Crown is investing in various companies involved in the urban Ultrafast Broadband (UFB) rollout, the money does not have to be paid back, and Chorus and Vodafone get to operate RBI infrastructure on a commercial basis (with the proviso they give all retailers equal access). 

The fact the new funding is contestable is a blow for Chorus, which had been feeding off rumours that National will put more money toward public-private broadband. 

I think it is a good thing that the funding will be contestable, so rural regions get the best bang for the buck.

Today’s policy announcement has also put Labour on the backfoot. 

National has already comprehensively out-spent the previous Labour government on broadband; Labour’s ICT policy promised new spending in the region of $21 million.

Again, David Cunliffe and Clare Curran find themselves out-Laboured by Steven Joyce and Amy Adams.

Labour need all the spare money to pay families on welfare more money for staying on welfare.


High Court rules in favour of Commerce Commission

April 9th, 2014 at 4:00 pm by David Farrar

Stuff reports:

A consumer group has welcomed a High Court ruling on copper broadband prices, saying it should eventually deliver lower prices for telecommunications users.

The court said today that Chorus had lost its challenge over cuts to copper broadband prices by the Commerce Commission.

This is not a surprise.

The commission had decided Chorus could charge only $10.92 a month for copper broadband connections, down from $21.96.

Brislen said lower prices were not expected soon as a drawn-out process to establish final prices for the sector was continuing.

Not as drawn out as it could be. A final price may be set by year end.

In a judgment released today, Justice Stephen Kos rejected Chorus’ appeal.

“The simple fact is that the commission did not accept Chorus’ submissions,” he said.

“Despite the combined intelligence and force with which Chorus’ submissions were delivered, I am left unpersuaded that the commission erred in law.

“In my view, submitters were plainly aware that a price point above the confines of a more limited benchmark range was a possibility. The commission, in my view, was also open to that possibility.

“In my view, the commission has done just as Parliament had prescribed.”

This is a key point. Parliament passed the law. The job of the Commerce Commission is to interpret and implement it. Those who don’t like the outcome shouldn’t have attacked the Commerce Commission for just doing their job.

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Where to for Chorus

December 3rd, 2013 at 9:00 am by David Farrar

The decision by every other party and MP in Parliament (and the Conservatives outside it) to oppose legislating to overturn the Commerce Commission decision on the price of copper broadband was both bad and good for the Government.

The bad is that legislation was obviously a preferred option for the Government, even though the Telecommunications Review was only a discussion document. It is true that they had some weeks ago started to back off that route, and look at other options, but their statements up until then had quite strongly been in support of legislation.

I think it is a fair criticism that the Government should have talked to other parties at an earlier stage about whether they would support legislation, rather than fairly forcefully support it, and then realise you can’t do it.

So while the political management hasn’t been optimal, the upside is that having Parliament assert its right to say no to the Government, does actually assist the Government. It removes the legislative option off the table, and will I believe lead to more constructive dialogue between all parties on where to go from now. The members of the Coalition for Fair Internet Pricing (Kiwiblog is a member) will I believe be keen to engage constructively not that the risk of over-riding the independent regulator is gone, and Chorus can’t demand the Government do something it is clearly incapable of doing.

The decision by Amy Adams to have an independent financial review of Chorus was an excellent one (and something I had called for), and the way I see it is there are four steps ahead of us on resolving this issue They are:

  1. Does Chorus have financial problems under the current settings, and the Commerce Commission determination?
  2. If the answer to 1 is yes, Are there changes Chorus can make to solve those problems themselves?
  3. If the answer to 2 is no, then what are the factors that got Chorus into this state?
  4. If the answer to 2 is no, then taking account of 3, what options are open to the Government, and which are preferred

We will soon get the answer to No 1. I am sure it will be a comprehensive report. I’ve had a financial modelling expert take me through what they expect the report will find, and that it will conclude on current settings Chorus will breach their debt financing agreements – specifically the acceptable ratio of debt to EBITDA. The Commerce Commission determination will increase debt and decrease EBITDA and this means the banks could withdraw their loans to Chorus which could plunge it into an Air New Zealand type situation.

Note that this does not mean Chorus will be bankrupt or even unprofitable. The report could well conclude that over the next six years or so Chorus will still make small profits, and even have marginally positive cashflow. The issue is likely to be mainly around debt and timing of cash requirements.

So if the answer to 1 is yes as the Prime Minister has (correctly it seems) warned, then we get to whether Chorus can make changes themselves to prevent a breach of their debt agreements, or can renegotiate their financing.

Obviously one change is a reduction of dividends. I say this with sadness as a Chorus shareholder, but if you have a debt problem, then you can’t expect to pay out dividends. Once you are getting the full benefits of the fibre investments, then they would resume I expect. I note Chorus has already started to head down this path by saying their proposed dividends are likely to be reduced.

It is unlikely that change would be enough. So the report needs to also look at whether other changes will be enough to prevent a debt default. Can opex be reduced. Can capex be delayed.  With that in mind we note the story yesterday:

Network company Chorus is flying about 200 staff from Wellington to Auckland today for an annual get- together – despite “crying poverty”.

Mr Bonnar said Chorus had twice been recognised as one of the best employers in Australasia, “and a big part of that is once a year we get all our people together”.

“It’s to hear from the senior people in the business where the organisation is at, where it’s going, what its strategy is and how what they do fits in with it.”

Now I don’t have a problem with Chorus doing this as a private company. But if you are sticking your hand out for Government assistance, then decisions like this will face public scrutiny. The cost is minimal to their overall opex, but taxpayers will expect Chorus to be as fiscally frugal as possible, before any additional taxpayer money is considered.

But what happens if the report concludes that Chorus does both have a debt problem, and can’t solve it internally. Well then I think you need to identify the factors that got Chorus into this state. I don’t mean a blame game, but identifying what contributed. Obviously the Commerce Commission determination is a significant factor, but is it the only factor? Have there been UFB cost over-runs? Was Chorus too close to the debt rations anyway, regardless of the determination?

Then after you have identified the factors involved, do you look at potential outcomes for the Government and Chorus. Off the top of my head, they include:

  • Chorus defaults on its debt (highly undesirable)
  • Chorus defaults on the UFB build (highly undesirable)
  • Chorus renegotiates the debt (would banks agree?)
  • The Government guarantees the debt for Chorus (the banks may call it in immediately)
  • The Government makes the repayment schedule for the UFB build financing longer (will it make much difference?)
  • The Government loans Chorus more money
  • The Government slows down the UFB build (undesirable)
  • The Government takes a stake in Chorus

I’m not against the last option. In fact the Government already has some preference shares in Chorus as part of the UFB contract. When it comes to commercial trading companies, I believe the Government shouldn’t own any shares at all. I’d sell 100% of the power companies etc. However just as I can accept the state should own Transpower as the national electricity grid, there is a case that the national fibre and telecommunications grid should be a government utility also.

Put it like this, if you were back in 1987, knowing what you know now, you would have split NZ Post telecommunications division into a Telecom and a Chorus on day 1, and have sold Telecom and kept Chorus. You sell off the competitive elements and own and regulate the monopoly.

So I’m not ideologically against the Government taking a stake in Chorus. It also would mean that both current Chorus shareholders and the Government would both share in the pain of getting Chorus out of its debt problems – which is preferable to it being just the Government (or worse Internet users as originally mooted).

To a degree, I’m getting ahead of myself. Let’s see what the report says on 1, 2 and 3. Then we can focus on the “least bad” option for ensuring Chorus can deliver on the UFB project and 75% of New Zealand homes get fibre access to ultrafast broadband.

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A suggestion for the Government

November 5th, 2013 at 3:00 pm by David Farrar

Stuff reports:

Chorus says it could default on its loans and may not be able to complete construction of its share of the ultrafast broadband network, following a ruling by the Commerce Commission this morning.

The NZX-listed company issued the dire warnings after the commission released a “final determination”, which ruled that the company should be allowed to charge $10.92 a month for its copper broadband connections.

Its shares have plunged 8 per cent this morning, and were trading down 21 cents at $2.42 within minutes of the NZX opening at 10am.  

Chorus has a contract with the Crown to complete its work on the UFB network by 2020 but the company said that if the Government didn’t intervene, it would be left with a $1 billion “funding shortfall”.

Chief executive Mark Ratcliffe said Chorus would “simply not be able to borrow the money we need” to complete its UFB contract.

The company had notified its bank lenders that unless the Government intervened, the ruling would have a “material adverse effect” on the firm.

“If this did occur lenders would be entitled to trigger an event of default,” the company said in a statement.

Chorus would also “discuss with the Crown whether Chorus is still a credible UFB partner” and how it might still deliver on its contract, the company said.

No one wants to see Chorus bankrupt or defaulting on its loans. But wise politicians would do well to remember the words of Mandy Rice-Davies who basically said “Well he would say that, wouldn’t he?”

The price set by the Commerce Commission is almost half way between the draft determination and the price the Government indicated in its discussion document it might set.

Now I can totally understand that the Government doesn’t want the UFB project derailed, or worse Chorus to go bankrupt or default on its loans.

But please please please I hope they don’t just take Chorus’ words for it, and make a decision based on a press release. This is not to suggest that Chorus is wrong. Just to say, that a very high level of certainty should be required before you intervene. It should be the last option, not the first option.

If the Government really thinks there is a risk of that magnitude to Chorus, then it should hire the best accountancy or financial analysis firm in New Zealand to go into Chorus, and do an independent review of its income, spending, profitability, debt and the like and have them report back on whether they concur with what Chorus has said. Release that report publicly and allow people to peer review it.

As Chorus is asking the Government for a special law change, that would benefit it by hundreds of millions of dollars, surely they could not object to an independent review?

I understand the Government is stuck between a rock and a hard place. They have to make a decision. My plea is for them to make a decision based on the best independent data there is, not on the basis of a press release from a monopoly provider.

Also the Government could do worse than play a bit of hardball themselves. If Chorus is going to threaten the Government by saying it may default on the UFB project, then maybe the Government should open talks with Vector and other UFB bidders and see if they would be willing to step up if necessary. Use the same tactics that Steven Joyce used with Novopay – keep the pressure on the company, by looking at backup options.

Personally I think it is almost beyond belief that Chorus would seek to default on its UFB contracts, considering that would leave the company with almost no long-term future – being a copper provide only in what is a fibre future world.

Maybe the price recommended would cause them issues with their debt. If so, let’s have the details.

As I said I understand the difficult position the Government is in. But this is a decision they should take great care about. Both because it may set a precedent, and also because it will affect almost every Kiwi household.

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More thoughts on copper pricing

September 26th, 2013 at 3:00 pm by David Farrar

I remain puzzled by what the Government is proposing (or consulting on possibly doing) around the price of copper broadband. I blogged in detail on this issue two weeks ago.

I genuinely don’t know why the Government is proposing to change the law in a way which will deliver a huge amount of extra money to Chorus (note it is more money compared to the draft Commerce Commission determination, but is less money than they currently get), because they seem willing to gift this money to Chorus and not actually get anything in return for it. That is what baffles me.

If you compare the proposed actions here, with other interventions by the Government, the other interventions are easy to understand in terms of benefits (even if one may disagree on them). They are:

  • Sky City – in return for some pretty minor regulatory changes, Auckland gets a $400 million convention centre. A great deal for taxpayers.
  • Warners – in return for a slightly increased subsidy (for all productions) and some minor employment law changes, we retained not just The Hobbit in NZ, but also a viable film industry, protecting thousands of jobs and also a huge tourism gain.
  • Rio Tinto – while I personally did not support this deal, I understood the rationale – if Rio Tinto abandoned Tiwai point it would be a huge loss of jobs in Southland, so the deal was to guarantee they remain operating Tiawi Point for at least the next few years.

But the proposed law change to benefit Chorus is, well bizarre, because neither taxpayers nor consumers will receive any benefit from it. Chorus is already contracted to deliver fibre to their portion of 75% of NZ homes. The proposed law change will not require them to deliver one extra centimetre of fibre to anyone.

I really can not work out why the Government thinks this is a good idea. And if I, a pretty passionate supporter of the Government, can’t work it out – then I think most people can’t.

There have been two major rationales put up for the proposed law change. They are broadly:

  1. Chorus may go broke without it
  2. We don’t want the price of copper to undermine uptake of fibre

Taking the first rationale, let me say if there is a chance that Chorus could go broke under the draft determination, then of course that would be a concern. I am a shareholder of Chorus. I don’t want them to go broke. But what I am surprised about is that the evidence for Chorus being unable to be profitable under the draft determination is based on no official analysis. If the motivation for this law change is to stop Chorus going broke, then I would expect Treasury to be involved, just as they are with Solid Energy.

But of course the taxpayer owns Solid Energy, and does not own Chorus. I am unsure how you can justify bailing out Chorus, yet not bailing out Solid Energy.

But the reality is that Chorus would not go bust under the draft determination. They do not say they will. The market analysts do not say they will. Yes the draft determination will adversely impact their profitability and dividends, and that is bad for Chorus shareholders like myself. But that is one of the risks of investing in regulated monopolies.

My concern is that if No 1 reason is the rationale for the Government, then they will set a precedent that will come back to haunt them. If all you have to do is tell the Government that a (draft) decision by the Commerce Commission will affect your profits, and you get a law change, well the queue to the Beehive door will be long. Think Vector, Auckland Airport and others.

So let us look at the second rationale, which is we do not want the price of copper undermining the price of fibre. I personally am unconvinced the relative prices will be a major factor, but for the sake of debate am happy to concede the point that this could be undesirable. However what I can’t get is why you would just gift the extra money (being the gap between the proposed price and the price the Commerce Commission says should be charged in its final determination) to Chorus in return for, well nothing.

Chorus has signed a legally binding contract with the NZ Government to roll out fibre to their portion of the 75% of NZ target. Steven Joyce and his team did a great job negotiating that contract. There was no requirement in that contract for copper to be at a particular price. It was well understood that the price of copper would be set by the Commerce Commission (as it has been for decades) under a cost plus calculation (instead of retail minus).

So again I honestly do not understand why the Government is proposing what it is proposing. If someone from the Government can explain it to me, and others, that would be good. While there are some commercial players involved in this debate who of course have financial motivations – most of the people I talk to on this say they are genuinely baffled. They support the fibre rollout, but don’t see how the proposals advanced will be beneficial to anyone but Chorus.

Adding to the confusion is the fact that the Government appears to be contradicting itself with its own arguments. We have been told the major rationale for this law change is to stop the price of copper dropping (in line with the Commerce Commission determination) as this will undermine fibre uptake. Yet the Government has also argued that if the wholesale price of copper drops, then the retail ISPs will not pass the savings on, and hence consumers will not benefit.

Well I’m sorry, but pick one of those arguments, but you can’t pick both. You can’t argue this proposed law change is to stop the price of copper dropping significantly, and then also argue that the price of copper won’t in fact drop as the ISPs will not pass on the savings.

So you see why I am confused.

I don’t think the Government has any bad motivations around this. I just don’t understand what benefits this will bring, as opposed to all the other deals where the benefits (a convention centre, jobs, tourism) have been well understood.

I was chatting to someone on this yesterday, and he had what I thought to be a good suggestion as a compromise.

  1. Wait for the final Commerce Commission determination
  2. If the price recommended is at a level that the Government thinks could undermine fibre uptake, then proceed to set a minimum price for copper
  3. However have the difference between the Commerce Commission price and the Government price go to Crown Fibre Holdings rather than Chorus.
  4. Have Crown Fibre Holdings use the extra revenue to extend their fibre programme to more New Zealanders – go beyond 75% to 80%, boost rural broadband, help with access in more deprived areas etc.

While this compromise still has elements that I regard as undesirable, it would at least have the advantage of there being benefits in return for keeping the copper price higher than recommended. And while Chorus would of course rather get the extra money directly, they would still benefit by no doubt winning additional tenders by Crown Fibre Holding to extend fibre even further than the current 75%.

But as I said at the beginning, I just can’t understand why a law change is being promoted that simply would deliver more money to Chorus (compared to the Commerce Commission determination) that doesn’t deliver any benefits to consumers, taxpayers and Internet users. The proposals are just a consultation, so I hope that the Government takes the feedback as constructive and seriously looks at if there is a better way to achieve what they want – which is a fibre connected country.

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Why the price of copper broadband should be lower

September 12th, 2013 at 12:30 pm by David Farrar

Stuff reports:

An alliance of internet and consumer groups will today launch a campaign claiming Kiwis are paying $12 a month too much for broadband, through a government subsidy for network company Chorus.

It’s not a government subsidy. It’s a proposed government law change that would see the price Chorus charges for copper broadband not fall as much as the Commerce Commission has said it should.

Rural Woman and Consumer New Zealand will stand alongside the likes of Internet New Zealand and internet service provider Orcon to launch the “axe the copper tax” campaign.

It will argue that Chorus is effectively being given hundreds of millions of dollars in subsidies on the amount it charges broadband providers for the old copper-based communications network.

The subsidy is effectively from Internet users on DSL broadband packages.

Sources said last night that some members of the consortium had already been placed under political pressure not to publicly criticise the Government’s position.

However, it is understood that David Farrar, the National Party’s own pollster and the man behind the National-sympathetic Kiwiblog, is still a sponsor of the campaign.

I am, and no one has asked me not to be involved. The reason I’m involved is simple – on this issue I don’t agree with what the Government is proposing. This is not a exceptional thing. I blogged at the end of last year a list of over 50 times in 2012 I disagreed with or criticized the Government.

Like most people, I have a mind of my own. I support the Government overall strongly, and agree with probably 90% of what they do. But no-one ever agrees 100% – even Keith Holyoake once said he only agreed with 80% of what his own Government did. Mind you, I imagine Muldoon agreed 100% with what his Government did :-)

In the Internet space, I have been and remain a massive fan of the policy to roll out fibre to the home to 75% of New Zealanders. It is world leading. I’m in Shanghai at the moment as a guest of Huawei, and talking to them has made it clear very very few countries are taking fibre all the way to the home as NZ is. It’s a great forward looking policy, and I’m proud National campaigned on it in 2008 (Labour did not commit to it), and have implemented it.

I also think they way the police has been implemented has generally been excellent. The regional tenders worked well, and the requirement for open access by regional fibre providers led to the structural separation of Telecom into Telecom and Chorus, which is a huge boost for competition.

Also I very much admire the negotiating skills of the Government, led by then Minister Steven Joyce who managed to get contracts signed for 75% of NZ’s population for under the $1.5 b funding package. That was a pretty remarkable achievement when you consider a similar policy in Australia was budgeted to cost $43 billion!

So what is this current issue, and why am I against what the Government is proposing. It is important to note that the Government has not actually made any decision in this area of copper pricing. They have a review document out for consultation. I hope that the consultation will lead them to decide not to change the pricing principles for copper. Anyway, here’s the background. It is a fairly complex area, so bear with me.

When Chorus was part of Telecom, The wholesale fee for copper broadband products was determined by the Commerce Commission on a “retail minus” basis. Basically they looked at the charge Telecom had for copper broadband, and deducted off their certain retail costs to determine the fair wholesale price. You can argue that the Commerce Commission shouldn’t be involved at all, but the reality is that monopoly utility charges (especially in telecommunications) are regulated in pretty much every country on Earth. The Commerce Commission is independent of the Government, and makes decisions based on lengthy hearings of law, economics and engineering. Their job is to be the independent regulator under the Acts passed by Parliament.

Once Chorus was split off from Telecom, a “retail minus” pricing calculation was impossible. So the Government and Parliament changed the law to have the Commerce Commission determine the price another way, a sort of “cost plus” methodology. You look at what the actual costs of the copper network are, the appropriate return on capital and determine the price that way. Part of that involves international benchmarking.

The Commerce Commission did its job and came out with a draft determination that the price of copper broadband should drop by around $12 a month. The draft determination meant, if finalised, that ISPs would pay a lot less for copper broadband service, and with competition you should see fees drop for consumers.

Now Chorus, one can appreciate, didn’t like a draft determination that would see its revenue drop significantly. They, and the Government, have criticized the draft determination. It is important to note that any criticisms of how the Commission has done its job can be made in the consultation on a final determination (which is ongoing), and if people think they have interpreted the law wrongly, then you submit that to them. You can even appeal to the Courts on matters of law. That is how independent price regulation should work – draft determination, final determination, court appeals if necessary.

If people really thought the Commerce Commission had got it wrong, then they’d wait for the final determination, and if necessary take court action. But instead what is being proposed is a law change.

The law change (discussion document is here) basically says that the cost of copper services should be much the same as the cost of fibre services. There are two arguments for this. One is that the cost of a network should be calculated on the cost of the replacement network (fibre) and the other is that you don’t want cheap copper broadband resulting in few people taking up fibre. I’ll deal with those two points in turn.

The Government is quite right that generally the cost of a utility should be priced on the cost of its replacement network. You do this to ensure the utilities have enough money to fund the replacement network. This is how pricing works in electricity generation for example.

However this overlooks the major difference. Chorus have been given a significant Government subsidy through the contract with Crown Fibre Holdings to deliver their portion of the fibre roll-out to 75% of New Zealanders. They now have a contractual obligation to deliver that fibre for the contracted price to so many people. That contract means that the argument you need to price copper at the same price as fibre is not a valid argument, as far as I am concerned.

The contract was signed in the knowledge that the Telecommunications Act was going ot price copper under a different methodology. There was no provision in the contract that Chorus will be guaranteed a certain price for copper.

Now there have been stories of price over-runs at Chorus, and that they basically signed up to deliver the fibre at too cheap a cost, and are struggling to do it. Well, in a nutshell, tough bikkies. And I say that as a shareholder of Chorus.

They bid in a competitive tender for the right to build the fibre network with the Government subsidy (actually a loan). They had competitors such as electricity lines companies also bidding. The lines companies would not have been relying on income from copper to fund their fibre build. They were bidding on income from the fibre services themselves.

If Steven Joyce was such a good negotiator that they bidded too low to win the contract, that is not a good reason to increase the price of copper. If their lawyers were not up to scratch and they failed to get a guarantee of a minimum copper price in the contracts, then again why is that a reason for a law change?

So the existence of the contract means I can’t accept the argument that the price of copper should be based on the price of fibre to fund the fibre network. That argument only holds if they had not signed a piece of paper agreeing to do so, in return for most of the $1.5b subsidy.

That brings us to the second argument, which is should we keep copper prices higher than they would otherwise be, in order to encourage consumers to switch to fibre.

Reasonable people can disagree on this second argument. I’m personally sceptical of it, as I don’t think over-charging people for a product is a good way to encourage migration. I think some people will want fibre and happily pay more for it (like me). Others won’t need it, and having them pay $10 a month more than they have to is unfair. It is important to note that the Government is not looking to put the price of copper up from the status quo. They are looking to change the law so the price of copper broadband doesn’t drop by as much as the Commerce Commission has calculated it should.

But in terms of this second argument, the major problem for me, is that even if you accept there is justification for charging copper users more, to encourage people onto fibre, why would you effectively gift that money to Chorus? Chorus have, again, signed a contract requiring them to establish in most parts of NZ a fibre network. They must build this regardless of the copper price.

If the Government truly thinks it is necessary to have the price of copper much the same as fibre in order to promote fibre uptake, then don’t gift what could be up to $100 million a year to Chorus. Be upfront, and call it a fibre development levy, and have the Government collect it and use it to fund fibre outreach for the 75% of NZ not covered by the current UFB project. It could fund ultra-fast broadband in rural areas, or economically deprived areas.

Note that I am not advocating per se for an Internet development levy. I am saying that if you are determined to have the price of copper and fibre the same, then it is better to have the Government spend that money on actually getting more people onto fibre. If you just allow Chorus to have a higher wholesale price for it than justified under the law, that won’t result in one extra home getting fibre.

So that is why I’m not supporting the proposed changes in the Telecommunications Act Review. Copper users should not be over-charged or taxed to fund the fibre development.

I have no commercial interest in the outcome. I just want what is best for Internet users in New Zealand, and to my mind that is the status quo. I think the major beneficiary of the proposed changes would be Chorus, and I don’t believe in corporate welfare – for Rio Tinto or Chorus.

Technically I am arguing against my own self-interest as a (very minor) Chorus share-holder. But for me it is about the public interest.

InternetNZ is also involved in the campaign, and I am a former office holder and chair their policy group. But that doesn’t mean I always agree with them. On the GCSB bill for example, I had a much more benign view of the law change.

In my role as Kiwiblog, I am a official sponsor of the Axe the Copper tax campaign. It wasn’t InternetNZ that asked me to join. The campaign co-ordinator did, and after reading the campaign proposal, I decided to do so on the basis I agreed with its aims. I am reluctant to join a campaign which is asking the Government I support to change course but I will do so when I don’t believe they are on the right track.

My hope is that the Government will conclude that the status quo (which was put in place by them!) is working, and allow the price of copper to drop to whatever the Commerce Commission determines it should be under the law passed by Parliament. In the cases where we do have price regulation (a necessary evil as I see it), the prices should be set by independent regulators after hearing all the evidence, not by politicians. They should make the law for setting the price, and not second guess the Commerce Commission. If the Commission gets it wrong, their decisions can be appealed in court on matters of law.

UPDATE: A much more readable opinion piece on this issue is at NBR by Paul Brislen.

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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 [Chorus] 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 broadband 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 fibre, I don’t understand why you would gift the extra revenue to Chorus – rather than use it to fund further fibre 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.

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Would this have been legal?

June 13th, 2013 at 11:00 am by David Farrar

Tom Pullar-Strecker at Stuff reports:

Chorus made an expensive gamble in rejecting a deal that would have seen it paid just under $14 a month for wholesale copper broadband connections, according to sources close to the failed negotiations.

Chorus’ share price has been on the slide since the Commerce Commission proposed slashing the regulated price of wholesale copper broadband connections by about $12 a month to $8.93 in a draft decision in December.

But the company is understood to have chosen to take its chances persuading the commission to set a higher price or on government intervention.

It is understood all major telecommunications retailers agreed on the compromise price and Communications Minister Amy Adams, who would have had to regulate it over the head of the Commerce Commission, was informed.

The compromise was brokered by the Telecommunications Forum, whose chief executive, David Stone, declined to comment.

I’m not  lawyer, and welcome comment from lawyers who work with competition law. But I thought competitors couldn’t all sit down together and try to negotiate an agreed price level.

It didn’t eventuate in this case, but I think the possible precedent is somewhat alarming. The Commerce Commission is the appropriate body for pricing of monopoly utility services, not a private gathering of retailers with no input from consumers.

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The wrong decision

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

The Herald reports:

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

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 Commerce Commission, 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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The price of copper

December 14th, 2012 at 11:00 am by David Farrar

Tom Pullar-Strecker at Stuff reports:

Communications Minister Adams has declined to shed light on whether the Government is considering intervening over broadband pricing because of concerns about copper-based competition to ultrafast broadband, or Chorus’ ability to fund the UFB roll out.

Adams said claims that consumers would lose out if the Government overruled a Commerce Commission move to drop the wholesale price of copper broadband connections by as much as $12.53 a month were exaggerated.

It “was highly unlikely that retail service providers would fully pass through any wholesale cost savings”, she said.

I’m quite dismayed that the Government’s response to the Commerce Commission’s draft copper pricing determination has been to threaten to legislate to overturn it, if they persist with it.

Lower prices are a good thing. Unless the Commerce Commission has misinterpreted the law they operate under, they should be applauded for looking after the interests of consumers.

And while it is right that retailers may not pass on the entire $12.50 a month saving, I am confident they would pass on the vast majority. If you think they won’t, then you are saying we do not have a competitive retail market and that is a far bigger issue.

I have been a huge supporter of the fibre roll-out to 75% of New Zealanders. But you don’t get people onto fibre, by artificially inflating the price of copper.

To be blunt the Government should shut the hell up on the Commerce Commission’s draft determination. There are some aspects of the Commerce Commission’s work where they refer to to Ministers for a decision, such as mobile termination rates. In those areas it is entirely appropriate for Ministers to express a view – as they are the decision making.

But in this area of setting copper access prices, it is purely a decision for the Commerce Commission, under the law passed by Parliament. The only response by Ministers should be that these pricing decisions are a matter for the Commission, and they support its independence.


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Don’t subsidise fibre with copper

December 4th, 2012 at 11:00 am by David Farrar

Stuff reports:

The price of broadband could fall by about $12 a month in two years’ time if internet providers pass on swinging cuts to Chorus’ charges that were proposed yesterday by the Commerce Commission.


But Scott Bartlett, the boss of New Zealand’s fourth largest internet provider, Orcon, is doubtful. He said Telecommunications Commissioner Stephen Gale already seemed to be signalling “almost in code” that the commission would back down from the steep cuts when it finalised its decision on wholesale pricing in June.

Prime Minister John Key signalled that the Government was concerned about the effect cheaper copper-based broadband could have on the fibre-optic ultrafast broadband network, in which the Government has agreed to invest $1.3 billion.

He did not rule out using legislation to overturn the proposed price cut yesterday.

I think that would be a bad thing. The Commerce Commission should be left alone to set the price of copper access based on existing competition law.  I’m a huge fan of the fibre rollout, but we shouldn’t try and get people to move to fibre by having copper priced artificially high.

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The Chorus deal

November 2nd, 2012 at 11:00 am by David Farrar

Stuff reports:

Today’s confirmation that Chorus will provide free ultra-fast broadband connections to many residences with awkward access is good news, a telecommunications commentator says.

Network provider Chorus announced in partnership with the Government today that it would contribute $20 million towards the cost of connecting “non-standard” homes, in an effort to encourage greater uptake of high-speed broadband.

Up to 30 per cent of homes within the UFB rollout zone are thought to have fallen into the Chorus “non-standard” category.

Paul Brislen, of the Telecommunication Users Association of New Zealand (TUANZ), said many urban houses were more than 15m from the street, Chorus’ previous limit for free fibre.

So today’s announcement that Chorus would extend that limit to 200m was “tremendous”.

“That captures 99.3 per cent of the [UFB network] population, possibly even more …That means everybody that can get connected will be able to without extra cost.”


However, Brislen said there was a drawback in that the offer only lasted until 2015, by which time only about a third of the network would be completed.

“Most of the connections for residential customers won’t take place until after 2015, so we need to use this to get the ball rolling and then revisit it rather quickly.”

I suspect come 2015, things may get extended – time will tell.

Chorus, which has contracts to provide 70 per cent of the Government’s UFB network, has so far rolled out 1500km of ultra-fast fibre, enough to connect 72,000 customers.

But to date, only 700 have signed up.

Brislen said the problem was that speed alone was not enough to encourage many customers to switch to UFB. Overseas, penetration of ultra-fast broadband was about 38 per cent and a good uptake in New Zealand was important to justify the expense.

Absolutely few will sign up for speed alone. What will push uptake is when companies such as Sky roll out TV and movies on demand services that work far better over fibre. A killer home video-conferencing app that works through your TV set and is as simple to use as a TV remote will also get people flocking to it.

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