Chorus v Telecom

July 28th, 2014 at 4:03 pm by David Farrar

Stuff reports:

Chorus has returned fire over a complaint Telecom laid with the Commerce Commission over a new copper broadband product.

Telecom said Chorus planned to impose an “artificial cap” of 250 kilobits-per-second on the average throughput of its regulated copper broadband service in order to make new “premium” products it announced in May more attractive.

Telecom said the move would significantly degrade the performance of regulated copper broadband services, the price of which is set by the Commerce Commission.

It has laid a complaint against Chorus, saying the proposals breached the Telecommunications Act and were also a “breach of good faith”.

The commission said it would investigate the complaint and revealed CallPlus had also voiced concerns about Chorus’ changes.

This shows what a good idea it was to separate Telecom and Chorus. In the old days, this may have just happened without dissent. It is a good thing to have the interests of the largest competitive provider separate to the interests of the monopoly infrastructure provider.

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Telecom goes uncapped

April 23rd, 2014 at 2:00 pm by David Farrar

Stuff reports:

Telecom has launched a range of “unlimited” broadband plans which do away with monthly data caps.

The plans start from $109 a month on copper-based ADSL and entry-level fibre “ultrafast broadband” services. A $10 discount applies if customers also have an “ultra mobile” plan with the company.

Telecom is also offering uncapped broadband on VDSL copper connections for $119 a month and on 100 megabit-per-second fibre connections for $139 a month.

Retail boss Chris Quin said Telecom might manage traffic from customers who took up the plans, “particularly at peak times”, by prioritising time-sensitive services such as Skype, internet television streaming and online gaming over other services.

This would ensure “the best experience possible for the greatest number of users”, Quin said.

Some smaller internet providers including Slingshot and Orcon also offer uncapped broadband plans, though major rival Vodafone does not.

This is a very welcome move. Having the largest ISP offer some uncapped plans should see many other ISPs do the same. Good to see Telecom taking the initiative – as they also did with mobile roaming rates.

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Telecom to Spark

February 21st, 2014 at 2:00 pm by David Farrar

Telecom have announced they are changing their name to Spark. This is a bold but risky move.

Telecom is a very well known brand in New Zealand. For quite long periods of time, the brand was fairly negative, but in recent times has been quite positive. Ditching such an established brand is risky.

However they are now a competitive retailer, not a utility company. The new brand can be a good way to move on from their historic role, and be seen as an exciting new company. Vodafone’s brand has slipped in recent years, so the opportunity is there to do well.

Also of interest is this, as reported by the Herald:

Telecom also announced this morning it was moving into the internet TV market, with what it describes as “a standalone and high-quality internet TV brand, ShowmeTV,” which will launch later this year.

“The upcoming launch of ShowmeTV offers all New Zealanders an exciting new choice about how to get their home entertainment, which we think represents the future of how people will access content. It’s a great example of how this company is changing by delivering the sorts of new services our customers want,” said Moutter.

A great initiative. I hope it works.

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Yay

July 1st, 2013 at 4:00 pm by David Farrar

Telecom has announced:

Telecom today announced that from Monday 1 July it will extend the $10 flat daily rate for mobile data roaming to four new markets – Japan, Singapore, Korea and France – and confirmed that it will keep the $6 daily rate for data roaming in Australia in place, after an overwhelmingly positive response from Telecom roaming customers to the deals.

Excellent. This has really shaken up the market, and made roaming far less painful.

In the five months since the flat daily rates were introduced, Telecom customers travelling overseas used three times as much roaming data as they did in the same period in 2012, and Telecom has received very strong feedback on the simplicity and the value of the offer – particularly from business customers.

When I go to the US, I’ll be keeping my Telecom sim card in my phone – something I would have never done if facing per MB data rates.

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The new Telecom

June 2nd, 2013 at 9:00 am by David Farrar

Rob O’Neill at Stuff reports:

Over the past few months Telecom has “pulled the pin”, says chief executive Simon Moutter, and made moves designed to change the telecommunications market.

Moutter is referring to initiatives such as sharp cuts announced in December to international data roaming charges, which have been a bugbear for many business travellers whacked with hefty bills for using the mobile internet services when overseas.

Telecom launched a flat daily rate for data roaming by on-plan customers across major travel markets such as Australia where roaming now starts at $6 a day. A $10 a day flat rate applies in other specified markets while elsewhere roaming charges will be cut by up to 92 per cent.

I’m heading to the US soon, and for once plan to keep my NZ sim card in the phone.

What has happened to Telecom? It used to be Vodafone and, more recently, 2degrees making the running in the fast-growing mobile market.

Moutter says Telecom is no longer spending time and energy defending the past or worrying about regulation. It has moved into what he calls “clear air”.

I think the separation of Telecom from Chrous has been great for Telecom. They no longer focus on protecting a monopoly and trying to vertically integrate around the monopoly portion.

Moutter, who in a previous life at Telecom (before a successful four-year stint leading Auckland International Airport) fought the threat of regulation and operational separation fiercely, says Telecom can now be much more clear about what drives its future value.

“A separated model feels a lot better to me than what we called operational separation,” he says.

Where operational separation bound the company up in rules, full structural separation since late 2011 has freed Telecom from a lot of that red tape and delivered a new sense of direction as a pure retail business.

The lesson here is you should regulate the monopoly aspects of a utility, but promote competition in the non-monopoly areas. Sadly Labour/Greens wish to do the opposite and turn power generation into a state controlled monopoly.

Moutter says “texting circles”, or deals such as Vodafone’s Best Mates, are the biggest barrier to winning back market share, but Telecom has moved on from such “closed network” deals, where customers get a discount on calls or texts within a single providers’ customer base, to what he describes as “any net” deals.

“If I was a Vodafone customer, I’d be wondering why I was being held captive,” he says.

A very good question.

Ironically for the man once charged with facing down the regulators, Moutter freely admits that is a product of regulatory intervention – the Commerce Commission’s decision to regulate mobile termination rates charged between providers for calls terminating on their respective networks.

“I was that guy running defence. That was my job.”

As one of those who advocated termination rate regulation, good to see Telecom not embrace it. It has been a great boon for consumers, and has helped foster competition as it makes it easier for people to choose the network offering the best deal – rather than be forced to go on the one their friends are with.

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Telecom redundancies

March 23rd, 2013 at 3:00 pm by David Farrar

Stuff reports:

Telecom yesterday declined to scotch claims by Labour communications spokeswoman Clare Curran that as many as 1500 of its 7600 staff could lose their jobs as a result of a restructure first announced by Telecom chief executive Simon Moutter last month.

Telecom spokesman Andrew Pirie said that while job reductions would occur across the board at Telecom, many of the cuts would be to middle management functions in administrative areas such as finance and human resources. …

Even Telecom had been through bigger changes before, he said. That included a plan to shed 5200 staff over four years that was announced in 1993 when Telecom employed about 12,500 people. Prior to its demerger from the Post Office it employed 26,000. Businesses such as the railways had also been through more dramatic changes, he said.

A Telecom manager once joked to me that Telecom wasn’t so much a telecommunications company as a law firm that specialised in telecommunications.

This was in recognition of the fact that much of the actual technical aspects are done by contractors such as Alcatel-Lucent and Yahoo.

Telecom for many years made money through its grip on the monopoly copper lines. We were not well served by that regime.

David Cunliffe and Steven Joyce broke up that monopoly, first by operational separation and then structural separation. Chorus, the monopoly element, is now a separate company.

It has been inevitable that the Telecom of the future would be a different beast. it needs to be a nimble, efficient risk taking competitive company as it now fairly competes against Vodafone and 2 Degrees, plus many minnows.

They have been moving towards this. Their flat rate data roaming rates were a bold move that should win them market share. Their XT network provides so much better coverage than Vodafone, that I swapped over. They are in an environment where you have to work hard to both gain and retain customers.

Such a regime serves us consumers well.

It also means that Telecom’s historic over-staffing (have a look at their rival’s staff numbers) will be dramatically pruned. And for the staff affected, and their families, it is traumatic and awful.  Losing a job, even when you are performing well, is gutting. So on an individual level, those affected have my sympathy.

But at a macro level, these changes are not a bad thing. Our country and economy prospers when companies becomes more efficient, and consumers have choice and competition.

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A new trans-tasman cable

February 19th, 2013 at 10:05 am by David Farrar

Telecom have announced:

Telecom, Vodafone and Telstra announced today they have signed a non-binding memorandum of understanding (MoU) to co-invest in the construction of a new submarine cable between Auckland and Sydney.
The new cable, tentatively titled the Tasman Global Access (TGA) Cable, will significantly improve New Zealand’s international telecommunications connectivity as well as strengthen links into fast-growing Asian markets.

The total cost of the TGA cable is expected to be less than US$60 million. The cable will incorporate three fibre pairs with a current design capacity of 30 terabits per second – approximately 300 times the current internet data demand out of New Zealand.

30 terabits a second isn’t bad!

The TGA cable will achieve significant international connectivity benefits for New Zealand at a fraction of the build cost of another, much longer trans-Pacific cable, the consortium partners said.

It would be nice to have another trans-Pacific cable also, but this announcement is good news as it means more competition and more capacity. What is pleasing is that it is not just Telecom (who have the biggest stake of Southern Cross) but also Telstra and Vodafone.

Telecom chief executive Simon Moutter and Vodafone New Zealand CEO Russell Stanners jointly commented: “The business case for a new cable between New Zealand and Australia is compelling, providing greater capacity and global redundancy capability. It also reflects the growing importance of trans-Tasman internet traffic: for example, around 40% of both Telecom and Vodafone’s international internet traffic is now Australia to New Zealand, versus just 10% in 2000.

“We are seeing increased data content being provided from Australia-based servers by global companies and being accessed by New Zealand internet users. An additional cable connection with Australia will strengthen the business case for international data servers to be located in New Zealand.

I’ve blogged on this in the past. NZ will never be big enough to have global datacentres here, but if we can get the Googles and Apples of the world to do regional datacentres in Sydney, then we will pull more and more of our data from Australia rather than the United States.

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Telecom v Vodafone data roaming prices

December 11th, 2012 at 2:00 pm by David Farrar

Vodafone pointed out to me their data angel service allows you to buy data in advance and not be able to go over your cost limit. This is better than what they had previously, but I have to say I like the idea of just having a flat rate and not having to worry about how much data I am using.

But people may wonder, which is cheaper. Well here is the comparison.

  • Australia $6/day Telecom v $15 for 100 MB Vodafone. So if you do more than 40 MB a day then Telecom is cheaper. Less than 40 MB a day and Vodafone is cheaper. But of course they key difference is most of us have little idea how much data we may use on a trip. If you end up using your phone for GPS the data use will be much higher.
  • UK/USA $10/day Telecom v $15 for 40 MB Vodafone. So if you do more than 27 MB a day then Telecom is cheaper and less than 27 MB a day, Vodafone is cheaper.

If you use your smart phone to tether your laptop also, I’d say you end up doing far more than 40 MB a day. I’m doing around 70 MB a day in NZ, and that is without tethering when I am in Wellington.

My prediction is Vodafone will move to flat rate data plans within 12 months. And it should be much easier for them to negotiate the plans as their counterparts in other countries are Vodafone Australia, Vodafone UK etc etc. Telecom managed to do it with telcos that are not even part of the same global company.

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Telecom introduces flat rate roaming

December 10th, 2012 at 1:00 pm by David Farrar

A huge and welcome announcement by Telecom today. They have concluded agreements in a number of countries, so Telecom mobile customers can data roam for a flat rate per day.

The rate is $10 a day for UK, US, Canada, China and Hong Kong and Taiwan (and a couple of others) and $6 a day in Australia. This is pretty damn decent, when you consider per MB rates tend to be $10/MB!

The test for me is whether the rates are low enough that I would keep my NZ sim card in the phone, rather than buy a local sim. While local sims will still be cheaper, it is a hassle to have a different number while overseas and acquiring the sim can be a hassle also. So I’d say I’ll now stick with my Telecom sim when travelling overseas to one of those countries.

As you can tether your laptop to your phone, the $10/day charge is also cheaper than what many hotels charge for daily Internet. In some countries the hotels have free Internet, but not universal.

This new plan by Telecom will shake up the market dramatically. If Vodafone and 2 degrees don’t respond, I can see a lot of business travellers swapping over. Also as far as I know, a flat rate roaming deal is very rare outside Europe (which is basically one market now). This deal could have flow on effects to other markets.

I understand Telecom CEO Simon Moutter personally pushed this initiative, based on his experience as CEO of Auckland Airport. It seems one of the most common complaints he heard there was about international roaming rates.

Two thirds of Telecom customers turn off data when in Australia. I’m one of those. I’ll definitely keep it on for $6 a day (of course would not object to this lowering over time).

The worse thing about the per MB rates is you simply don’t know how much you’ll end up walloped for. There is going to be a fair use policy for use overseas but it won’t be a fixed limit or anything, Basically it will just be based on your data usage overseas being comparable to your usage in NZ. So don’t download any movies while roaming.

I find it quite easy to use 20  to 50 MB a day on my phone, just through normal activities such as web, GPS, youtube, e-mail, twitter and facebook.

I swapped from Vodafone to Telecom a year or two ago for my mobile (still Vodafone for landline and Internet) mainly based on the coverage. There were just too many areas (esp in Auckland) that Vodafone signal was too weak. If I hadn’t swapped. I’d be tempted to do so now just for the roaming rates. However I suspect Vodafone will be under great pressure to respond with a similar flat rate package for data roaming – which will be good. I love competition!

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Telecom gives a little

November 27th, 2012 at 12:00 pm by David Farrar

I’ve been a fan of the Give A Little website which makes it easy to donate to your favourite charity.

There used to be a small admin fee to cover the site’s costs. Some good news, in that the Telecom Foundation has taken over the site and is covering all the admin costs. This means you can now donate through the site with no fees at all being charged.

More than just charities can use it. Individuals, schools and clubs can also use it for fundraising.

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Not unfair

October 13th, 2012 at 9:00 am by David Farrar

Stuff reports:

Telecom is asking internet users who dumped Telecom as their internet provider but continued to use their Xtra addresses for email to either stump up at least $20 a month or have their email addresses cancelled and their emails deleted.

Spokeswoman Jo Jalfon would not say how many people were in that situation, but said a letter had gone out to a “small percentage of customers” advising them of the policy.

One Auckland couple who dropped Telecom in favour of Vodafone in 2007, but who have been using their Xtra email address ever since, have complained to the Commerce Commission.

They’ve been using Xtra’s servers for free for five years, and think they have a case??

What a sense of entitlement.

They believed the change was unfair, as well as a personal inconvenience, as Telecom had said email would remain free when it outsourced the running of Xtra to Yahoo in 2007.

Jalfon said that meant email would be free only to paying customers.

if you want an Xtra e-mail account, you should be an Xtra customer.

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Vodafone buys TelstraClear

July 12th, 2012 at 12:14 pm by David Farrar

Vodafone has purchased TelstraClear for NZ$840m. This means that many of our original ISPs such as Clear.net and Ihug are now Vodafone.

It’s a sensible move for Vodafone, as the two companies complement each other and means they can go head to head with Telecom in landlines, mobile, broadband Internet and ultra-fast broadband.

What I will be looking for is whether Telstra, once the sale is approved, then makes a take over bid for Telecom, or at least a significant stake.

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Data Roaming Charges

March 5th, 2012 at 9:04 am by David Farrar

Tom Pullar-Strecker reports:

It was nothing more than any holidaymaker might do.

Wellingtonian Magnus O’Neill pulled out his iPhone while holidaying in the Cook Islands, checked Facebook and used Wikipedia to research his hotel and what tropical fish he might see.

The online checks would have cost him about $4 in New Zealand. Instead he now faces a bill from Telecom for $2000.

His roaming consumed a modest 70 megabytes of mobile data. But what Mr O’Neill didn’t realise was that he was being charged $30 a megabyte, a price he believes was “extortionate and unfair”.

It is. This is an all too common story.

In Europe, regulators were forcing the wholesale price of data roaming down to 5c a megabyte, he said.

Which is plenty, considering the cost of international bandwidth wholesales at around 5c a gigabyte. The problem is that when you go overseas with your mobile, you have little choice but to pay or not use. However something I now do is acquire a local sim card. It will give you a few GB of data for well under $100.

Telecom spokeswoman Stephanie Fergusson said Telecom had offered to write off $977.87 of Mr O’Neill’s bill, which he had run up before he received a delayed “courtesy” text from Telecom advising him that New Zealand data rates would not apply during his visit to the Cook Islands.

They should occur near instantly when you land.

This month Telecom will introduce a new service that will let customers set their own dollar limits for data roaming that will stop them from racking up bigger bills unless overridden. It will also text customers when they consume more than 2Mb, 60Mb and 100Mb when roaming overseas.

This is a step in the right direction. But the limits are ridicolous. No person in their right mind wants to use 60 or 100 MBs. You need steps in between 2 and 60. I would suggest available limits should be 1 MB, 2 MB, 5 MB, 10 MB, 20 MB, and 35 MB (which is $1,000 in some countries), 60 MB, 100 MB.

I am assuming that Telecom means megabytes (MB) not megabits (Mb). The Dom Post uses Mb in that last paragraph, which normally indicates megabits.

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Vodafone or Telecom or 2 Degrees?

February 21st, 2012 at 10:00 am by David Farrar

Okay I blogged yesterday that I will be replacing my Blackberry with a new smartphone.

A related issue is do I stay with Vodafone. Here’s how I am currently connected:

  • Home Internet – Vodafone (through Ihug)
  • Work Internet – Xtreme (they are in my office building, which is handy)
  • Blackberry – Vodafone
  • iPad – Vodafone
  • Mobile Internet – Vodafone (Vodem)

I am a bit exposed having my main four connections (I rarely go into the office) all with Vodafone. Hence my thinking has been to swap my Vodem for a T-Stick. This provides me with a backup network when Vodafone is down.

Also when travelling, I have often found Vodafone 3G signals hard to get (and GPRS is next to useless for me). In large parts of Ponsonby and St Marys Bay in Auckland I struggle to get Vodafone 3G. Sometimes you get a signal for a bit but somehow it gets overloaded and drops you to GPRS.

Sort of related to that, my Vodafone Blackberry hits a few black spots around Wellington. It always loses a call if driving up the hill to Khandallah. Also loses signal in parts of the CBD sometimes.

I’ve heard that XT is pretty good since they sorted their problems out – faster and with more coverage.

So should I stay with everything on Vodafone, or go to Telecom for some connectivity – and if so, for the phone or for the mobile internet or both?

2 Degrees is a possibility also. They tend to be cheaper, but I am more focused on speed and reliability than price.

What would be great would be a telco that would sell me say 100 GB a month, and allow me to use it over all four devices (laptop, phone, mobile internet stick, ipad). I hate it that I have to buy say an extra $20 of data for my iPad for the last three days of the month, when I have 25 GB unused on my landline etc.

I’m definitely not planning to change my home Internet (have been Ihug since 1996) or iPad (unless there is some bundled package for data across all devices). But I am open to going elsewhere for my smartphone and my mobile internet stick. Views welcome.

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99.8% vote for Telecom Structural Separation

October 27th, 2011 at 12:00 pm by David Farrar

The vote of Telecom shareholders was 99.8% in favour of structural separation. This is the final barrier to separation occurring later this year,  into two new companies – Telecom and Chorus.

Business Day reports:

Communications Minister Steven Joyce said it was the most significant change in the industry for 20 years, when Telecom was privatised.

It is the biggest change in 20 years, and one of the most positive. It is superb that as a result of the Government open access policies, Telecom chose to separate. So many of our problems of the last decade or more have come about from the fact that Telecom was a vertically integrated monopoly. It is a far better model to have the access company separate to the companies that offer services over those networks.

The analogy I used to use is imagine if Air New Zealand owned the airports, and got to decide how much its competitors paid to land at them, what times they could land, had their own planes get quicker service etc etc.

With the benefit of hindsight, Telecom should have been separated when Phil Goff and colleagues sold it in the 1980s. We would have avoided many of the problems of the last 20 years if it had been. It was as natural that Telecom would try to exploit its access monopoly as it is natural a dog will lick its balls – because they can!

The Telecom of today, even pre-separation, is a much different company to the Telecom of old. I hope both Chorus and Telecom do well in thenew environment, Most of all I hope we get a more competitive market.

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That’s a good pass

October 2nd, 2011 at 11:44 am by David Farrar

Just had a laugh at the results of the vote of Telecom bondholders on the demerger. It was:

  • 435,374,978 in favour (99.9993%)
  • 3,000 against (0.0007%)

I wonder who was the sole grumpy bondholder with $3,000 of bonds?

I suspect the share-holder vote will be a bit closer, but still a huge majority.

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Funny

August 18th, 2011 at 9:51 am by David Farrar

Sent in by a reader.

UPDATE: And Telecom have pulled the campaign. A good call.

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Abstain for the game

August 17th, 2011 at 4:59 pm by David Farrar

This is the first of the videos for the Abstain for the game campaign by Telecom’s Backing Black campaign. What do people think?

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The Telecom Split

June 20th, 2011 at 9:00 am by David Farrar

Tom Pullar-Strecker at Stuff reports:

Telecom is likely to split evenly into two parts, with shares in its retail arm and Chorus worth similar amounts, financial analysts believe.

Telecom shareholders will be given a share in Chorus and another in the yet-to-be-named retail business for each Telecom share they own, if they approve the company split, which is a condition of Telecom’s government contract to build the bulk of the ultrafast broadband network.

Really? Equal value?

I am not a financial analyst and this should not be taken as financial advice.

But personally I will be looking to buy lots of shares in Chorus, and no shares in Telecom Retail. I think Chorus has a very good future, managing both the copper and fibre.

I am not at all convinced that Telecom’s culture is well developed enough to compete on the retail level, without the integrated vertical monopoly. I hope they do, but at this stage I wouldn’t invest money on it.

A look at the annual regulatory accounts shows that the profit from Chorus as a percentage of turnover is much much higher than for Telecom Wholesale or Retail.

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It’s Telecom

May 24th, 2011 at 10:00 am by David Farrar

Steven Joyce has announced:

The government has today reached agreements with Telecom New Zealand and Enable Networks that will complete the roll out of ultra fast broadband (UFB) to 75% of New Zealanders where they live, work and study.

The government will partner with Enable Networks, which is 100% owned by Christchurch ratepayers through the Christchurch City Council, to build an ultra fast broadband network for Christchurch, Rangiora and surrounding areas.

The Telecom deals will see a fibre optic network built in Auckland, the eastern and lower North Island and most of the South Island.

As part of the deal, Telecom must split off its network arm, Chorus, into a completely separate company, so that all broadband retailers can compete fairly to on-sell wholesale ultra fast broadband. Chorus will maintain the Kiwishare obligations currently placed on Telecom.

Congratulations to Telecom, and commiserations to Vector and the Regional Fibre Group. Also congrats to the Minister for turning an ambitious policy into a reality.

There were pros and cons with either party winning, and I suspect the negotiations were very tough.

The major focus for many now will be on the structural separation of Telecom. This is probably going to the biggest change in the telco sector since Telecom was created out of the Post Office. The details of the separation are quite vital – Chorus needs to be totally independent from Telecom as quickly as possible.

Today’s agreements with Telecom and Enable mean the government will reach its goal of bringing ultrafast broadband to 75% of New Zealanders by 2019. The rollout will start immediately with schools, hospitals and 90% of businesses covered by 2015.

I believe the fibre rollout will change New Zealand. With fibre to the home, you will get far far more people working from home, less demand for office space, video-conferencing will be as routine as changing the channel on your TV etc.

Wholesale household prices will start at $40 or less per month for an entry level product and $60 per month for the 100 Megabit product. There are no connection charges for households.

Mr Joyce says today is a very exciting day for New Zealand.

“The future of broadband is in fibre, and taking it right to the home will bring significant gains for productivity, innovation and global reach.”

The prices seem pretty reasonable. What will be interesting is what retail services develop to use the fibre. such as combined phone/Internet/TV/movie packages.

The future is in fibre, and I do believe this will be a contributor to increased productivity and economic growth.

Chorus is going to become (for most of NZ) the provider of both copper and fibre access. It will be an infrastructure company. Over time, I’d like to see Chorus (and the other local fibre companies) move towards providing cellphone towers to retail telcos such as Vodafone, 2 degrees and Telecom. It would make a lot of sense as the LFCs will have the fibre connection for the backhauls, and it would mean each telco wouldn’t need to get consent for their own individual towers, but could just hire space on a tower for their transmitters.

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Fibre, copper and telcos

March 23rd, 2011 at 9:00 am by David Farrar

There’s been a number of news stories on the Government’s Telecommunications Amendment Bill, which is currently before the Finance & Expenditure Select Committee. A typical story is this one at Computerworld.

The telecommunications sector is always somewhat controversial, but this bill has attracted criticism from just about everyone – telcos, ISPs, the Commerce Commissions and user groups. This post is aimed to explain what the debate is about, and reflects my views.

It is worth noting that most of what is in the TAB is not controversial, and is generally well supported.

Three aspects which are controversial are:

  1. a “regulatory holiday” for the local fibre companies until 31 December 2019.
  2. “re-averaging” the costs of local loop unbundling and unbundled bitstream, which will lower the wholesale cost in rural areas but increase the wholesale cost in urban areas by around 20%
  3. possible structural separation of Telecom if they win the majority of regions for fibre rollout

In this post I will leave (3) for now as that little baby is so complicated it needs its own post. I want to focus on (1) and (2) and these will apply (if passed) regardless of whether Telecom wins most of the regions for urban fibre, or the lines companies led by Vector win most of the regions.

You may ask why would the Government consider giving the future fibre companies an exemption from the normal regulatory oversight of the Commerce Commission? Well the short answer is because the companies bidding to be future fibre companies have asked for it.

Okay well companies ask for lots of things from the Government. Many companies would like to be exempt from the Commerce Commission until 2010. Why would the Government agree to this?

The answer is because then the bidders will make better bids. They value having a regulatory holiday, so they will agree to roll out more fibre for the same subsidy. It is what Sir Roger Douglas (very perceptively) said was a regulatory subsidy instead of a greater direct financual subsidy.

Now before we talk about the pros and cons of this approach, you need to know the background. In the 2008 election National pledged $1.5b towards having ultra-fast broadband rolled out to 75% of NZ over the next decade. This was a lot of money (Labour committed only $300m – 1/5th of what National did) and it was in my opinion a great policy.

Work done by the NZ Institute concluded that investing in ultra-fast broadband, would result in significantly higher economic growth, and there is evidence from other countries to back this view up.

Now the cost of rolling out fibre to 75% of NZ is hard enough to estimate, let alone what the direct commercial returns will be on doing so in ten years time. The amount of subsidy needed to achieve the 75% target was estimated at $1.5 billion, but this was an estimate. An opposition does not have the resources available to get a precise projection, and even when you do have access in Government to Treasury, even then projections can be wrong.

To some degree one was never going to know until the actual commercial negotiations conclude, whether $1.5b was enough. InternetNZ did try to get some idea of how much it would cost to reaach the goal of 75%, and what would be the best way to go about it. They (which includes me)  commissioned a report from Network Strategies, a specialist economics consulting firm, which is here.  It was published in 2008.

The report concluded that the cost of fibre to 75% of NZ was around $3.3b if one utilised existing utility companies for at least half of it, and that the government’s contribution would need to be around $1.75b. So the $1.5b was a pretty good estimate, but may be not quite enough.

So this takes us back to why the Government is seeking to legislate a regulatory holiday – it makes it more attractive to its potential commercial partners, and helps close the gap. So the motivation is good – to save the taxpayer money.

However that does not mean it is the right decision. If there is a funding gap between the 75% target and what you can achieve with $1.5b, I would rather it be dealt with directly, not indirectly by way of regulatory holiday. Options are to increase the $1.55b on offer, or to reduce the coverage area from say 75% to 70% or push out the timeframe from say 10 years to 12 years etc.

The concern over the regulatory holiday is that whomever wins the contract, will be exempt from the Commerce Commission regulating access to their services until 2010. The Government will be relying just on the contracts they had to regulate the price, However this places Crown Fibre Holdings in the unenviable dual role of being an investor and a regulator. Also 2020 is almost nine years away, and that is a lifetime in the Internet world. The costs and prices of fibre and data may have changed massively in that time. Many people are very nervous about what could happen in the next nine years. This is partly because of the lessons from the past with Telecom (note again they may not be the fibre companies).

Now the Minister has pointed out that as the local fibre companies can not be owned by a company that will provide retail services over them, then it is less likely there will be a need for regulation, as the fibre companies should operate on an open access platform to all providers. But a lot of devil is in the detail. For example you could have Chorus (if they win) saying it will operate a volume discount scheme that only Telecom Retail will qualify for due to its size.

The Minister also says that as the fibre products will be competing against the regulated copper and that the challenge will be ensuring uptake, which will keep prices down also. I suspect Steven is right on the prices – but from my thinking why remove the safety net of the Commerce Commission, in case you’re not.

Now the other major change is that the calculation of costs and hence prices for the current copper based broadband services is to change from deaveraged to reaveraged. At present the costs and prices reflect the fact it is cheaper in urban areas than rural areas. The Government is proposing to legislate to change this, which means the price of broadband over copper will increase in urban areas. The estimate I have seen is by 20%.

So again why would you do this? The answer is the same. It means those bidding for the fibre contracts will be motivated to invest more money into them. Because if the price of broadband over copper increases, then you can be confident that more customers will switch over to broadband over fibre.

So again the rationale is quite understandable, but again that does not mean it is necessairly a good thing. It means people in urban NZ will pay higher prices than they should for broadband over copper for the next six years or so. Should the Government be effectively tilting the playing field to favour fibre over copper?  Again I’m in favour of tilting the field by way of Government subsidy, but not in favour of tilting the field by interfering with a regulatory regime that actually has worked very well in the last few years.

As I said, in a separate post, I’ll cover the possible structural separation of Telecom, and how this may result in a really great outcome or a really lousy outcome, depending on how the structural separation is done. And the consequences of getting it wrong will reverbate for a couple of decades. This is not something to rush.

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Can you opt out of having an opt out message?

February 14th, 2011 at 10:00 am by David Farrar

Stuff reports:

Internal Affairs is looking into whether Telecom may have breached spam laws by sending text messages to customers that did not include instructions on how customers could unsubscribe from receiving such messages.

Telecom said its approach was “common practice”, meaning Internal Affairs’ ruling could have an impact on text and email marketing promotions run by other firms.

Victoria University law student Hamish McConnochie drew attention to the texts, promoting Telecom’s pre-pay top-ups and roaming services, claiming they probably fell foul of the Unsolicited Electronic Messaging Act, passed by the last Labour government in 2007. The act states that all commercial electronic messages must include instructions on how recipients can unsubscribe, unless they have reached an “arrangement or understanding” with recipients that these need not be included.

Telecom sent customers text messages in November telling recipients that unless they objected then, Telecom would deem they had agreed future text messages from the company need no longer include an opt-out message.

Spokeswoman Anna Skerten said those messages created such an arrangement. But Mr McConnochie said simply not responding to that text did not meet the threshold for an agreement under the act.

It’s arguable either way, but for my 2c I think an “arrangement” not to receive opt out instructions must in itself be something you opt into, not just decline to opt out of.

It will be interesting to see what DIA decides.

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Telecom’s profit

December 20th, 2010 at 4:00 pm by David Farrar

Telecom has just published their second set of regulatory accounts, which breaks down their income, expenses and profit between different sections. The 2010 historical cost accounts show:

  • Access Services (Chorus) – a profit of $571m on revenue of $1,059m, so profit is 54% of revenue
  • Wholesale Services – a loss of $10m on revenue of $925m, so profit is -1% of revenue
  • Retail Services – a profit of $143m on revenue of $3,301m, so profit is 4% of revenue

This shows that basically even Telecom Wholesale struggles to make a profit because the charges from Chorus are so high.

This is why structural separation will be a good thing (if done properly), as Telecom will have to compete for its profit, not just use the monopoly infrastructure to get it.

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All about Telecom

November 12th, 2010 at 2:00 pm by David Farrar

Four recent Telecom issues, so will talk about them all in the one post.

First they have a new data roaming deal.

The new pricing gives customers 100 megabytes (MB) of mobile data for $100 while roaming overseas in these locations that’s the equivalent of $1/MB.

Customers will be charged $8.00/MB for the first 12.5MB and a remaining 87.5MB worth of data for the rest of their billing month will be free.

A year ago we were all paying $30/MB for roaming data, so this is a good step in the right direction.

If you are on a big trip and will use close to 100 MB this is a damn good deal. If you will only use 10 MB or so, then not so great.

Vodafone charge $5/MB in Australia and $10/MB elsewhere (off memory). So if you plan to use more than 20 MB in Australia Telecom are better. And for US and UK they are cheaper at any rate.

My personal price point is around $1 – $2/MB. I will grudgingly pay that for international data for my mobile devices.

Secondly Stuff reports on the UFB tender:

Telecom will today step up its campaign to become the Government’s broadband partner, releasing a poll on its website that says more Kiwis would prefer its network arm Chorus got the job of building the ultrafast broadband network than electricity lines companies headed by Vector. …

UMR said 48 per cent of those polled would prefer to see Telecom broken up and have “an independent, stand-alone Chorus extend the existing fibre network”, while 28 per cent favoured the Government investing in a new network rolled out by electricity lines companies led by Vector.

Vector spokeswoman Philippa White responded: “Essentially the decision as to who will partner with the Government for the UFB build sits with Crown Fibre Holdings”.

The poll is interesting but to some degree irrelevant. Because it ignores the most important factor – cost.

If the Regional Fibre Group/Vector and Telecom/Chorus both say “Yes we can do fibre to the home to 75% of NZ if the Crown invests $1.5b”, then my view is you would absolutely go with Telecom/Chorus due to their existing infrastructure.

If the two bidders are even “close” to each other – ie Chorus says we can do it for $1.7b and Vector/RFG for $1.5b, then you’d probably still go with Telecom/Chorus – just to avoid the possibility of Telecom using the copper network to make the fibre network unprofitable by undercutting them.

But what the poll ignores, is that there may be a large difference between the two bids. If Vector/RFG are saying we can do 75% in 10 years for $1.5b and Telecom/Chorus are saying we can do 75% but need $2.4b to do it within 10 years, then one goes with Vector (in my opinion). And this scenario is not impossible. The lines companies already have infrastructure assets and resource consents which may allow them to do the job far cheaper than even a structurally separated Chorus.

So at the end of the day it is not a popularity contest between Telecom and Vector. The actual commercial details of their bids are vital.

Thirdly, Telecom have put together a one stop shop website about UFB and their bid. I’ve already read most of the site – lots of useful info there.

Finally, we have an announcement from Telecom and Vodafone about a joint bid for rural broadband:

Telecom and Vodafone have announced they have made a joint bid for the Government’s $300 million rural broadband initiative, bids for which are due in today.

Telecom chief executive Paul Reynolds said the solution would New Zealand’s two largest telecommunications providers “combining their extensive resources and skills to bring the benefits of high speed broadband to rural communities as quickly as possible”.

One goal of the rural broadband initiative is to ensure 93 per cent of New Zealand’s 900 rural schools have access to 100 megabit per second broadband, with the rest getting a 10Mbps service.

The other goal is that 80 per cent of rural New Zealanders get a 5Mbps service to their homes, with the rest able to access broadband with a speed of at least 1Mbps.

Telecom said the joint solution would involve extending Telecom’s existing fibre infrastructure to key rural points of presence, including schools and hospitals, and expanding Vodafone’s wireless infrastructure “that harnesses the power of this fibre to deliver high speed broadband services wirelessly”.

Telecom said any service provider would be able toretail services over the new infrastructure. “This means that rural customers will have not only faster data services but also a much wider choice of technologies and suppliers for these services.”

Telecom would be responsible for building fibre to schools and hospitals, cellsites and rural exchanges and cabinets.

Vodafone would be responsible for the design and build of “open access tower infrastructure” that Vodafone and Telecom XT would share, “as indeed could any other wireless service provider who wishes to do so”.

I’m very supportive of this. I think open access cellphone towers are where the future is. It makes a lot of sense economically, and from a resource consent point of view, to share this infrastructure.

Once we do have announcements on who will be the local (or national) fibre companies, there could well be a role for them in providing future cellphone towers, which Telecom, Vodafone, 2 degrees etc could all put gear on. The fibre company of course would provide high capacity backhaul. There are some technical challenges around size of towers and having all the gear high enough to get a good signal, but these are workable.

So good to see Telecom and Vodafone moving in this direction.

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Vodafone v Telecom speeds in Dunedin

October 2nd, 2010 at 2:00 pm by David Farrar

A reader has sent me details of speed testing on an iPhone4 in Dunedin, comparing networks.

The author also has a website, detailing the tests.

He notes these are not a general comparison of speeds between networks, but a comparison on the iPhone 4 only, in Dunedin. He did try six different locations there and his conclusion was that Telecom XT provides far greater speeds – but only in places where it works. In two places a good signal could not be located.

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