Kiwiblog

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.

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.

Sent in by a reader.

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

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

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.

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.

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.

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.

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.

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.

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.

Stuff reports:

Telecom has confirmed plans to split into two businesses in a bid to take part in the government’s ultra fast broadband scheme.

The company said today it proposed to create a new company, “Chorus2” as a separate standalone entity through a demerger – a process giving existing shareholders pro rata stakes in the new company.

I have been a long-term proponent of structural separation, and believe it will be good for shareholders and good for the country.

While on separation day, the shareholdings of the two companies will be the same, over time they will attract different profiles of shareholders. The main Telecom will be a competitive business paying higher dividends, but with more risk involved.

Chorus will be an infrastructure company, paying lower dividends, but with much guaranteed business. In time I would expect companies like Infratril to seek stakes in it.

While the Government will claim the decision is nothing to do with them, the reality is that by setting rules around ownership for the fibre to the home initiative, the Govt has been the catalyst for this decision which will correct a major problem of the last 20 or so years – a vertically integrated monopoly. The removal of vertical integration means we will get better choice and competition at wholesale and retail levels.

Telecom’s decision to split Chorus off will significantly increase its chances at winning some or even all of the regions for the fibre initiative. However it does not mean they are automatically the preferred choice. Companies like Vector may be able to do it cheaper in Auckland because of their existing infrastructure.

Structural separation is a pre-condition to full involvement in the fibre initiative, but it is not a guarantee of success.

There may be options out there though, such as Chorus gaining the nation-wide contract and sub-contracting companies like Vector and Citylink where they already have assets. Or Chorus could buy a company like Citylink.

Alternatively the Regional Fibre Group could get ambitious and aim to buy 51% of Chorus. It is going to be an interesting two to three months.

I like this aggressive little piece of comparative advertising, comparing the performance of two iPads – one on Telecom’s XT and one on Vodafone.

Basically XT kicks butt in the more rural locations, but also is faster even parked outside Vodafone’s HQ. It’s a smart wee video.

Now what I’d like to know is if other people can get the same results, as shown in the video. The speedtests should be easy to replicate.

A reader recently emailed Telecom CEO Paul Reynolds saying:

Mr Reynolds

I have just changed my account to the Total Home package.

I live in Pukekohe, Franklin County. In November 2010 we will become part of the Auckland SuperCity.

There appears to be a lot of confusion amongst your staff on how this change applies to my account.

Could you please confirm that in November 2010, the base charge on my Total Home account will change from $109 per month to $99 per month.

Would you please m ake certain that your staff also know this to avoid the frustrating confusion (in one case a “hang up” – since dealt with)

To his great surprise he got a reply from Paul Reynolds himself, saying:

Thanks for your note.  I am not personally aware of any Telecom tariff changes consequent upon the change to Auckland Super City.  However I have asked CEO Retail, Alan Gourdie, to look into the source of miscommunication and get back to you.

I am very impressed that the CEO of Telecom actually takes the time to reply to an e-mail from a customer, rather than just forward it onto someone else to do.

How many other large companies would have CEOs do the same?

Tom Pullar-Strecker writes:

The proposal that the Government take a direct stake in Telecom’s network arm Chorus is alive and well, after briefly being misdiagnosed with an acute case of “copper-poisoning”.

Telecom chief executive Paul Reynolds was leaning towards a full demerger of Chorus when he briefed analysts on options for the possible breakup of Telecom on Thursday, the idea being that Telecom shareholders would be issued with shares in Chorus, which would become a separate listed company.

But the two options are not incompatible. The Government could take a stake in Chorus and the remaining shares could be distributed to Telecom shareholders. Indeed, that may be the best outcome. Nor is there a reason why Telecom shouldn’t be allowed to retain a minority stake in Chorus under that or any other scenario. The more investors the merrier.

I am supportive of structural separation of Telecom. And I believe the preferable way to do it, is to issue all existing share-holders direct shares in Chorus. Over time they would attract infrastructure investors seeking lower but safer returns, while Telecom would attract investors in a competitive higher profit arena.

I would place a limit of any “customer” of Chorus owning more than a certain percentage – say 5% or 10%.

It makes no sense for the Government to set up a separate fibre company to partner with a demerged Chorus to lay fibre to three-quarters of New Zealand under its ultrafast broadband (UFB) investment initiative. After talking to Mr Reynolds following the investor briefing, it is clear that is not what he is suggesting.

“We see a demerged business, somewhat related to the existing Chorus, containing both copper and fibre into which the Government and Crown Fibre Holdings could invest on a nationwide basis and with which others could partner. The concept is you are building one national access business that has copper and fibre in it.”

This is certainly an option. One could put the $1.5 billion into Chorus as capital, with special shares not requiring a dividend (for example).

However one has to also be careful with assuming that even a structurally separated Chorus is automatically the most efficient and effective provider of fibre to the home in all areas.

From what I have seen (including a detailed study of the likely costs), electricity lines companies (such as Vector) will be able to roll out fibre to the home considerably cheaper than telecommunication companies due to their existing assets and resources consents. Vector for example has a strong case in Auckland.

There may be a win-win though if Chorus sub-contracted work in certain areas to companies such as Vector and Citylink, if they can do the job more efficiently. Maybe Vector would even want to take a stake in a separated Chorus?

We also have Axia from Canada in the fray, with considerable experience in rolling out fibre. They also may be offering a cheaper or better option than a separated Chorus. I don’t know, not having seen their bids.

I regard it as a major plus, that the process to date has led to Telecom willing to go down the structural separation path. However that does not mean they are automatically the successful bidder.

The decisions in this area will have a profound impact on NZ infrastructure for the next 30+ years. For my 2c the Government should not rush into a decision. It is much more important to get this right, than to worry about whether or not the actual roll-out starts on schedule.

Telecom has released a summary of the report into the multiple failures of their new XT network.

My two word summary is speed wobbles.

To quote the report:

1. The network failed because the network and supporting operations were not ready to manage the levels of traffic it experienced
2. Software issues contributed to network instability
3. Although the XT network was designed to initially provide planned coverage that matched the CDMA network the initial configuration of the XT network and, some network build issues, led to coverage variability
4. Some aspects of the network architecture are overly complex meaning that any faults are difficult to find and rectify
5. Immature operational management systems and process failures contributed to the impact of network issues.

No 1 is the big issue, and the rest to my mind seem to be just compounding factors.

This report should be the turning point for Telecom to start restoring faith in XT and its brand. You need a report pointing out the errors, so people think you are now capable of fixing them.

Of course if another major outage was to occur, that would be undermine the recovery of the brand in a major way.

Telecom have also released their third quarter results which are a bit stronger I suspect than expected:

Telecom New Zealand has today announced adjusted Earnings Before Interest, Taxation Depreciation and Amortisation (EBITDA) of NZ$1,336 million for the nine months to 31 March 2010, down 1.9% on the equivalent nine months in the previous financial year and in line with guidance.

The quarter contained a Southern Cross dividend of $14m, versus $40m in Q3 FY09.

While adjusted revenue for the nine months fell by 7.7%, to $3,936m, adjusted operating expenses fell faster, to $2,600m, a 10.4% decrease on the equivalent nine months.

The other big issue for Telecom will be the results of the fibre to the home tender.

The Dom Post reports:

Text messages have been mysteriously altered between sender and recipient in at least 20 cases, prompting a Telecom investigation.

Salvation Army church leader Steve Molen discovered the glitch last week when he sent a text to 10 people to remind them of an upcoming dinner.

It ended on a lighthearted note with “bring a date or your muma but would prefer it if you bought [sic] a youth and plenty of food should be a great night so see you there six o’clock”.

However, one recipient – his wife Faye – received a message that read “bring a date or your muma but would prefer it if you bought me she setting a bad example for me”.

Mr Molen, of Newtown, contacted Telecom’s call centre and was told he wasn’t the first to experience the problem. “[The call centre worker] said it was a software fault that adds lines to the last part of people’s texts … and there had even been swear words added on to some messages.

I had my own text problems this week. Had played a round of phone tag with a new client and left a voice mail message for them at around 2 pm.

At around half past midnight my Blackberry beeped. I was in bed but still awake, so leaned over to check it. It was the client asking if it was too late for them to call me now. My initial thoughts were unprintable, and I resisted replying at the time.

I then talked to the client this morning and gently inquired what time did they send a text to me yesterday. As I suspected it was not at half past midnight – it was at 5.30 pm, and it took seven hours to reach me. The client was somewhat mortified (it wasn’t their fault) and was extremely grateful I didn’t phone back at the time I received it

It would be really useful if text messages were like e-mails, and had both a time sent and time received stamp.

The Dom Post reports:

Telecom landline customers face a steep rise in the cost of off-peak national calls from next month.

The company is increasing the cost of calls by more than 25 per cent from 19 cents a minute to 24c. …

The company’s toll call revenues have been falling more steeply than any other major part of its business as more customers use internet phone services such as Skype, discount calling cards on sale at dairies, and a recent spate of cheap mobile offers for both overseas and national calls. …

Slingshot, the third biggest residential phone provider, has peak and off-peak national toll calls for 8 cents a minute.

Hmmn you’re losing money because customers are using cheaper services such as Skype, calling cards or competing toll providers.

So your response is to put prices up, so even fewer customers will use you!

The Herald reports:

Telecom plans to slash 200 management jobs by mid-year, and more lay-offs are likely as the company seeks to slash its costs.

Never good when a company cuts jobs, but often necessary. Very tough on those in the affected areas.

The job losses within its 8000-person workforce are part of a programme announced last year that aims to slice more than $500 million from the business’s costs by 2013.

Mr Reynolds said $113 million had been cut last year, and a further $244 million was expected to be cut this financial year.

200 out of 8,000 is 1 in 40 jobs gone, but as they are all management jobs, then the ratio will be considerably lower.

In a related story:

Telecom is seeking relief from the Government on its regulatory obligations in the face of pressure on earnings.

I’m somewhat supportive of this, but the key is timing. As a fibre network is built, access to the copper legacy network will become less important, and access conditions can be reduced. But one needs that fibre network to be reasonably progressed, before one can start to strip back some of the copper network regulation.

UPDATE:

Tom Pullar-Strecker writes in the Dom Post:

Telecom has caved in to Government pressure and will consider splitting into two separate companies.

This would make it more likely that the Government’s $1.5 billion plan to roll out ultrafast broadband to three-quarters of homes will get off the ground.

I’m not sure it makes the fibre to the home plan more likely. I think it makes Telecom’s chances of winning the bids more likely.

After playing chicken with the Government over the ultrafast broadband contract, chief executive Paul Reynolds blinked first and said the company was open to working with the Government on a “full range of approaches”.

I’m not sure I quite read that as saying they will consider splitting. If Telecom is open to spinning Chorus off (which would be a good thing), they should make it clear, as it will improve their chances (in my opinion) with the fibre to the home initiative.

Labour yesterday announced a formal position on mobile termination rates:

The Government should put consumers first and regulate mobile termination rates to keep call costs down, Labour spokesperson for communications and IT Clare Curran said today.

“High mobile termination rates are a barrier to entry for new players in the market, which leads to less competition and higher prices,” Clare Curran said.

“While Vodafone and Telecom have now offered to lower termination rates by around 80 per cent, it still does not go far enough to reduce the major issues for new entrants.

I think it is a good thing that Labour have learnt from their mistakes, when they did a deal with the two telcos in 2007, rather than accept the advice to regulate.

Slightly amused that their formal policy stance comes just days after Clare had a whack at Matthew Hooton for implying Labour support the Drop the Rate, Mate campaign.

The Drop the Rate, Mate campaign also yesterday released their submission to the Minister, including some research done by Curia of 400 mobile phone users. Key findings were:

• Only 18% of respondents wanted the Government to accept the binding promises of Telecom and Vodafone, while 78% wanted the Government to regulate
• 79% agreed that Telecom and Vodafone are overcharging New Zealanders
• 85% agreed with the proposition that it should cost the same to call someone on a different network, as to call someone on your own network

The full results are here – EXCELTIUM MOBILE PHONE RESULTS MARCH 2010 PUBLIC.

Chris Barton in the Herald is not shy with his opinion of what the Government should do:

So far, you have to say, Joyce has played with an exceedingly straight bat. But it won’t be easy negotiating the quagmire of a split recommendation by Commerce Commissioners on mobile termination rates. Two argue for putting heads in the sand while one voice of reason says enough is enough – Vodafone and Telecom have had more than enough time to sort this out and have, time and again, shown they can’t be trusted.

Joyce will be familiar with the sordid last-minute deal stitched together between new mobile entrant 2degrees and Vodafone last year. While the public isn’t allowed to know about this venality, anyone who cares to can find it online (search under “NZ Cellphone racket”). It shows that Vodafone will move if it has a gun to its head. Joyce will also be familiar with www.droptherate.org.nz and www.fibretothedoor.co.nz – two campaigning websites where the public is helping the minister make up his mind.

Go there at once.

What fed-up consumers want minister, is Clint Eastwood’s Dirty Harry. For some of us, it’s so bad, we don’t just want Clint to pull out his .44 Magnum and ask whether the punk feels lucky. With Telecom and Vodafone, we want him to pull the trigger.

The challenge for the Minister, is how quickly can a regulated price be established, if he chooses to regulate. The undertakings would take place more quickly. However the likely regulated price would see prices by 2011 drop further, and remain lower.

The Herald reports:

Former Telecom head Theresa Gattung has attacked the company for paying its executives much bigger salaries than when she was in charge.

In her book Bird on a Wire, which goes on sale next week, Ms Gattung – who received a leaving payment of $3.9 million in June 2007 on top of a base salary of $1.25m – questions whether the current staff deserve such generous pay.

“Now that I’m long gone I, with the rest of the country, wonder about the propriety of a company making half the annual profits it did a few years ago but paying its executives considerably higher salaries.”

It’s a fair question, but there may also be a fair answer. One reason profits have dropped is because the Government has operationally separated Telecom to stamp out business practices which were anti-competitive. The reason the Government did this is because it got so frustrated with the behaviour of Telecom under Theresa’s regime.

Ms Gattung told the Herald politicians deserved much of the blame for Telecom’s latest woes.

She said she predicted in 2007 that the Labour Government’s decision to give competitors access to Telecom’s exchanges, and to split the company into three divisions, would result in a “train wreck”.

Telecom may be struggling (for a number of reasons), but the sector as a whole is actually doing very well. The train wreck for me was the previous status quo.

In her book, Ms Gattung also reveals that former Labour Party president Mike Williams approached her shortly before she left Telecom to stand for Labour.

She says she was “flabbergasted”.

Now that would have been interesting.

The Herald reports:

Vodafone will today announce a fresh offensive to capitalise on Telecom’s ongoing woes.

Paul Brislen, Vodafone spokesman, said the company would refund any Telecom customers penalised for switching mobile phone providers.

Under the deal to be announced this morning, angry Telecom customers can change to Vodafone and keep the same phone number – and be credited the amount they are charged for breaking their contract.

That amount varies but in one case, Mr Brislen said, a customer had to pay $1500 to leave Telecom.

The aggressive attempt to snatch business and consumer customers comes as Telecom faced more problems yesterday.

The cost of these outages to Telecom must be well into the tens of millions of dollars when you consider the compensation, the lost customers, the scaring off of future customers, the damage to Telecom’s reputation which may affect stuff such as the fibre to the home rollout etc etc.

I speculated on radio yesterday that while the focus for now is on fixing the faults, and not finger pointing, there must be a reasonable chance in the future of a law suit between Telecom and Alcatel-Lucent. Obviously it all depends on the contractual arrangements, but when companies lose so much money due to technical failures, there tend to be fallout.

How big could any lawsuit be? I don’t think one could rule out $100 million or so.

The Herald editorial is on mobile termination rates:

New Zealand’s “light-handed” regulation of markets is sometimes astonishingly tolerant. Never more so than in the long-awaited final report of the Commerce Commission on the amount telephone companies charge for admission to their mobile networks. …

But the commission’s majority view is probably the right one. Regulators have to be fair to suppliers as well as customers and potential competitors. Networks are costly to build and maintain and newcomers that want to sell services into them must expect to pay a fair price. The price must maintain the network owner’s incentive to invest in it.

Clearly, the termination rates in this country were much higher than they needed to be to maintain the investment. Telecom and Vodafone have been using them to subsidise their subscribers and protect their equal market shares.

But their latest undertakings will more than halve their charges by 2014 and give a newcomer a fighting chance. Their undertakings can be policed by keeping the regulatory alternative in reserve.

Heavy-handed regulation usually has unintended consequences that are not in the interests of competition or consumers. Persistent shepherding and constant monitoring are best.

So the Herald favours giving the benefit of the doubt to the telcos. As I said previously, a tough decision for Steven Joyce.

The Press focuses on what it calls the XT debacle:

When members of the public dial 111 they have the legitimate expectation that their call will be answered promptly and emergency services quickly dispatched.

But on Monday, when a Christchurch man attempted to alert the police to an attack on a Japanese man outside a suburban mall by four skinhead thugs, who were accompanied by two pitbull dogs, the failure of Telecom’s troubled XT cellphone network prevented him from doing so. …

It is utterly unacceptable that its much-vaunted $574 million XT network, which lured customers to join with claims that it was state-of-the-art technology, could have failed four times in recent months. On one occasion some customers were cut off from XT for three days. …

But it is even more serious that in parts of the country, including Christchurch, a switching process which is supposed to have allowed XT phones to use other networks did not work and, as a result, 111 calls could not be made.

The unavailability of the 111 number could create dangerous situations. It means that crimes, accidents and fires could not be reported to emergency services, unless a landline was within immediate access, and conceivably lives could be put at risk by the problem.

If the faults with the XT network cannot be swiftly resolved, and there is no guarantee that this will occur, the Government will have little choice but to regulate to ensure that 111 calls can get through when networks become unstable.

The failure of 111 calls is the most serious aspect.

The Dom Post also focuses on XT:

If you believe the ads, Telecom’s new XT network provides unmatchable cellphone service in the Mt Victoria Tunnel, on remote farm tracks and in shipping containers floating off the coast of the North Island.

Sadly, its record is not so good in living rooms and city streets. The technical fault that prevented 220,000 Telecom customers from making calls on Monday was the fourth major outage in the past 10 weeks. It is not often that an advertising campaign blows up so spectacularly. …

In the wake of the latest outage, there have been calls for the Government to further regulate the industry.

That isn’t necessary, although ministers would be wise to bear in mind the gap between Telecom’s rhetoric and performance when they consider the phone company’s offer to host the Government’s proposed $1.5 billion ultra-fast broadband network. This is an occasion on which the market is actually working. There are two other mobile network providers in New Zealand – Vodafone and 2degrees – and mobile phone users have options.

The fibre to the home network build is significant. I have never thought Telecom would get to win the tender in all 33 regions, but if they failed to win any region, it might lead to a perception of unfairness. However it is a political reality, that these XT outages makes it less of an issue if Telecom do not get any major aspects of the FTTH rollout.

The ODT editorial is on ministerial credit cards:

Credit cards and politicians go together like oil and water: which is why there will be much gnashing of teeth at the latest folly concerning our Parliamentarians and their inability to follow the most simple of rules relating to expenditure.

The present matter involves ministerial credit cards, a facility granted to MPs of such rank, to give them access to money should they be required to spend it in the course of their official duties. …

In this context, Housing Minister Phil Heatley must have used up about as much rope as Mr Key will lay out to him. …

For his part, Mr Key may need, sooner rather than later, to put away his smiling Mr Reasonable personage and show at least a glimmer of the inner steel that all successful leaders must possess.

Anyone who thinks the PM doesn’t have inner steel, will not enjoy finding out that they are wrong.

Someone has listed this phone on Trade Me as a Telecom XT mobile phone

As always, the Q+A are quite hilarious.

I tweeted last night that I felt very sorry for the many Telecom staff, as their XT network suffered another outage. It must be galling to see the company you work for get so damaged by outages that cause so much disruption. It’s probably like working for National in Parliament in 2002, which is why I can empathise!

A friend responded:

sorry David, but this chicken has been waiting to come home to roost for a while…you can’t outsource your maintenance, technology, customer service etc and expect to retain the core that makes a company strong enough not to fall into this sort of morass

And that’s a fair point. I recall one ex Telecom staffer semi-joking to me that I had to understand that Telecom wasn’t an IT company, it was a law firm that had contractors provide telecommunication services

Now Ernie Newman at TUANZ has called for possible Government action:

“Telecom needs to do something drastic to assist the customers it is repeatedly letting down,” said chief executive Ernie Newman in a statement.

“If it doesn’t, then it may be time for the government to step in as a national economic issue. This cannot be allowed to go on”

My first response to the call for Government action is to imagine Steven Joyce in builders shorts and a hard hat on a tall ladder at the top of a mobile phone tower, and he’s whacking something repeatedly with a spanner.

More seriously, I don’t see these outages as critical as if they had occured on the fixed line network, or the DSL network.

Telecom has a near monopoly on the final mile copper loop. If those networks go down, it can affect everyone in NZ, regardless of choice of provider.

But we have two and a half mobile phone networks in NZ, which are not dependent on the same infrastructure, and one can establish a presence on a competitor within a few hours, plus have number portability to keep numbers.

I’m not advocating that XT customers mass migrate – individual customers will make those decisions based on how many more outages there are, and what guarantees and/or compensation they get in future. But the presence of Vodafone and 2 Degrees means that customers do have options, if the frustration gets too much for them. And that knowledge that they may lose current and future customers will be providing the best incentive to Telecom (and its contractors) to get things right.

So I’d rather the Government doesn’t jump in at this stage. I’d have a different view if the outages were in one of the areas where they are a virtual monopoly, but this is not the case with the XT mobile network.