Messaging vs Texts

December 8th, 2013 at 8:36 am by David Farrar

The Herald reports:

Still paying for your mobile phone calls and texts? It won’t be long before you’re in the minority.

Technology commentators say apps that allow free calls and texts from their smartphones are becoming so popular that paid calls and texting will soon go the way of the fax machine.

Popular apps include Viber, Skype and WhatsApp. Even Facebook offers free messaging and numerous websites allow text messages to be sent free to mobile numbers around the world.

I use WhatsApp, and it is very good. Only a small proportion of my contacts are on there, but as that grows I suspect it may become the dominant message app.

Of course if you have an iPhone, you can also send a iMessage instead of a text.

The Commerce Commission’s annual telecommunications market monitoring report shows mobile voice call minutes declined to 4.35 billion in the 2011/12 year, down from 4.40 billion the previous year and 4.44 billion in 2009/10.

The number of text messages sent was still growing but the growth had slowed markedly.

More than a billion more messages changed hands between 2008/09 and 2009/10. By 2010/11 and 2011/12, the growth was only 300 million.

“The market for voice and text is as dead as a dodo,” Brislen said. “It’s a matter of letting it all play out. All you need now is to buy a data pack.

“Vodafone is already offering unlimited calls and texting if you buy a big data bundle. That’s the writing on the wall.”

Data is king.

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Changes to TICS Bill

October 15th, 2013 at 10:00 am by David Farrar

Amy Adams has announced:

Communications and Information Technology Minister Amy Adams has today tabled a Supplementary Order Paper to make further improvements to the  Telecommunications (Interception Capability and Security) Bill. …

Clause 39 of the proposed Bill currently allows the responsible Minister to direct that a network operator must not resell an overseas telecommunications service in New Zealand where the interception capability, or lack of interception capability, raises a significant risk to law enforcement or national security.

It is proposed to remove Clause 39 from the Bill altogether, and, instead, matters of non-compliance could be addressed through the compliance framework.

Part 3 of the Bill deals with the partnership approach between the GCSB and network operators to protect network security.

To ensure that this interaction occurs in a timely manner, it is proposed to introduce the ability for the Minister responsible for the GCSB to make regulations that require decisions to be made under specific timeframes, in the event that decisions are not being made in a sufficiently timely way.

It is also proposed to narrow the scope of the matters that must be notified to the GCSB, reducing compliance costs for network operators.

As a last resort, where network operators and the GCSB are unable to agree on how to respond to a network security risk, Clause 54 of the Bill currently provides that the responsible Minister may issue a direction.

Before the GCSB can ask the Minister to make a direction, a further check and balance will be introduced.  The Commissioner of Security Warrants will now be required to carry out an independent review of the material that informed the GCSB’s risk assessment, and report on whether, in their opinion, the risk amounts to a significant risk to national security.

These looks like very welcome changes. The requirement for the Commissioner of Security Warrants (currently former Court of Appeal Judge Sir Bruce Robertson) to do an independent review in the very very unlikely event of the Government believing that what a network operator is planning could threaten national security, is sound.

“Although public input has resulted in significant improvements to the Bill, some of the submissions received did not reflect an accurate understanding of what the Bill does and does not do,” Ms Adams says.

“In particular, I would like to reassure people that this Bill does not change the authority of agencies to intercept telecommunications, it does not change existing privacy protections, and it does not require data to be stored or require stored data to be disclosed. The Bill only relates to real time interception.

This is a key point that many have missed – it is about real-time interception. The major users of this ability are the Police for ongoing criminal investigations.

There’s also a comparison table between the current law (TIC Act) and this proposed law (TICS Bill). I think they show that in some areas the law change actually reduces compliance costs on ISPs. There is no expansion of powers in terms of surveillance. There is an expansion in terms of the GCSB’s role in syber-security where they can (ultimately) ask for a Government order if they believe a proposed action would be a threat to national security.

Ironically that proposed power has its genesis in the opposition scaremongering over Huawei winning some contracts in New Zealand. They kept demanding the Government do something on the basis the Australian Government had excluded them from the NBN build there. The Government doesn’t believe there are any national security issues around Huawei, but it was the scaremongering that highlighted that even if there were, they actually had no power to exclude a company that did have national security issues. So a bit rich for opposition MPs to complain about a clause that their scaremongering created.

There’s still some elements of the bill which I’m not enthusiastic on. I don’t think ISPs (or network operators) should have to register with the GCSB as it sets a bad precedent. As far as I know there’s never been an issue with locating an ISP, and its directors. I’d prefer that clause to be removed. As I said, a precedent of an ISP needing to register with the Government is not healthy – even if well intentioned.

But the SOP by Amy Adams is a significant improvement to the bill, especially having the Commissioner of Security Warrants do an independent assessment if there is ever a stand off between the Government and an ISP over a proposed network build decision.

Also a useful read are these two diagrams showing how the interception and network security processes will work.

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Why the price of copper broadband should be lower

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

Stuff reports:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Telco competition

August 25th, 2013 at 10:00 am by David Farrar

The Herald reported:

Pre-pay mobile phone users are reaping the benefits of a price war described by Telecom chief executive Simon Moutter as “a bit of a bloodbath”.

Consumers have been advised to shop around for deals and not get locked into long-term contracts as a three-way contest between Telecom, Vodafone and 2degrees is creating a lot of movement in prices.

Announcing its annual results yesterday, Telecom said it had picked up mobile and broadband customers.

The firm this week relaunched its Skinny mobile brand, previously aimed at teenagers and young adults.

It has now been rebranded as a mainstream “no-frills” option in the mobile market, Mr Moutter said.

It gives a $16-a-month combo of texts, calls and mobile data, which is $3 less than similar 30-day deals from Vodafone or 2degrees.

But Vodafone gives more calling minutes, and under 2degrees’ deal, any unused minutes are added onto users’ limits for the following month.

Excellent. Price wars are great for consumers. Government policy should always focus on how to increase competition in a sector – not how to destroy it!

Telecom said yesterday that it had gained 92,000 customers during the first half of this year, about 48,000 of them pre-pay customers. It now has about 1.8 million clients.

Telecom is doing well going from a monopolistic utility company to a competitive retailer.

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The copper tax

August 9th, 2013 at 11:00 am by David Farrar

Hamish Fletcher at NZ Herald reports:

Smaller telcos are seething about Government proposals they say would make wholesale copper internet prices artificially high, hinder competition and hurt innovation.

A discussion document released this week by the Communications and Information Technology Minister, Amy Adams, suggests Chorus’ wholesale charges for copper line services should be set between $37.50 and $42.50 a month.

This is up to $10 higher than the Commerce Commission’s proposal last year for monthly wholesale charges and follows complaints from Chorus that if copper prices are too low, it could inhibit the uptake of fibre services being rolled out as part of the Government’s $1.5 billion ultra-fast broadband scheme.

Smaller internet retailers which pay these wholesale charges have loudly opposed the Government paper proposals. Slingshot and CallPlus chief executive Mark Callander said the move would keep copper prices artificially high and amounted to a levy to bolster the rollout of fibre lines.

They’re right. Effectively it is a tax on copper. But even worse, the money goes to Chorus. The price of copper lines should be as determined by the Commerce Commission under the Telecommunications Act, not set by Government.

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Telecommunications in NZ

April 30th, 2013 at 11:00 am by David Farrar

The Commerce Commission has published its sixth annual telecommunications market monitoring report.

Some interesting facts:

  • Investment $1.26b
  • Revenues $5.22b. Voice revenues falling, data revenues growing.
  • 78% of households with a fixed line, have a broadband connection. We have the fastest growth rate in the OECD.
  • The number of voice call minutes dropped from 6.1 billion to 5.7 billion
  • Telecom’s fixed line market share dropped from 65% to 61%
  • We have 111 mobile phones per 100 people
  • 13.9 billion text messages sent, which is around 3,000 per person, the highest by far in OECD. Love to see a breakdown by age!
  • Increase in Naked DSL connections from 30,000 two years ago to over 100,000 in the last year.
  • Average data use per DSL line increased from 10 GB to 19 GB
  • Average download speed of 3.9 Mbps – pretty crap
  • Overall the telco market becoming significantly more competitive, while UK and Australia are static
  • Text or SMS revenues of $376m greater than Mobile broadband revenue of $354m, but next year broadband revenue should be larger
  • Mobile data doubled to around 4 petabytes or 4 million MBs.
  • 66% of NZers own a laptop, 48% a smartphone and 29% a tablet

Telecommunications is such a dynamic industry as people move from voice to data, and from fixed to mobile.

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Are Labour sponsoring telecommunications conferences?

September 27th, 2012 at 2:00 pm by David Farrar

Got sent the e-mail below by a reader. It promotes the 2013 Telecommunications Summit and amongst all the corporate logos, is the Labour Party logo.

TC Summit

A political party sponsoring a commercial conference would be rather novel. If they are merely a speaker, it is rather bizarre to list their logo. I’ve never seen it done before by any other conference.

If you want to attend it is only $1,000 or so!

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