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Download Weekly: Regulatory update

This week's newsletter focuses on an extensive interview with Telecommunications Commissioner Tristan Gilbertson and his team at the Commerce Commission.
Download Weekly: Regulatory update
Amazon's Project Kuiper Low Earth Orbit satellite network will mean more market disruption.

A review of New Zealand's telecommunications regulatory challenges

Recently the Download Weekly sat down with Telecommunications Commissioner Tristan Gilbertson and members of the Commerce Commission team overseeing industry regulation to get a better idea of the watchdog's thinking on key issues.

In the first of a two-part series, we look at the impact of 2degrees merger on competition in the market and the work the commission is doing to better understand market conditions in rural telecommunications.

Does having three larger telcos make for healthy competition?

When 2degrees merged with Vocus' NZ business, the companies suggested the deal would usher in a more competitive telecommunications market. It said as much in media interviews and made this more explicit in its submission to the regulator.

The idea is that a merged 2degrees has the wherewithal to compete head to head with Spark and One New Zealand. That looks to be happening, but is it possible the new market structure with three large companies could prove to be less competitive in the wider sense?

Gilbertson says it is too soon to know. However, he says that the work done preparing the latest telecommunications market annual monitoring report provides useful insight: "While we haven't necessarily seen an increase in the overall intensity of competition across the wider market, by the same token, we haven't seen a diminution in competition, either."

Smaller providers

"The most telling thing here is that the market share of the smaller providers has increased marginally year-on-year in the past 12 months."

Large acquisitions like one that formed the new 2degrees take time to bed down. While 2degrees has done a first class job of integrating the two companies and the systems needed to run them, it could be too soon to see the disruption it promised to unleash in the run up to the deal.

Gilbertson says there will come a point when we are past the transition and the business has settled. When that happens he wants to see action.

"It's a binary thing. You either see evidence of that and the merger proves itself or you don't, which suggests the company is settling into a detente with the other two."

He says any progress will show up in the Commerce Commission's annual monitoring reports.

"We've revised the annual monitoring reports. We now go deeper and we're monitoring the market at a at a more granular level than before. That will leave us in much better position than we have been in the past to be able to measure the impact of competition and if there is any disruption taking place."

Rural telecommunications watchdog

Competition for urban markets is one thing, it can be harder in the rural sector because not every company offers coverage in every location.

In 2017 the government asked companies to bid for contracts to expand rural connectivity in a second round of the Rural Broadband Initiative. The deal was won by a consortium of the three mobile companies which together formed the Rural Connectivity Group as a joint venture.

In normal circumstances a cosy deal between the nation's three mobile companies looks bad from a market competition point of view. Yet no one can argue that the RCG has not done great work filling in coverage gaps around the motu.

That gives the RCG and its owners considerable leeway. It's important that the towers built by the RCG are open access, that other telcos are able to install equipment. The project is a clear success story, but what about competition? Do rural customers get the same benefits as their urban cousins?

What is going on out there?

Gilbertson says: "Who the hell knows what's going on out there in rural New Zealand? Part of the problem is that no-one really knows. That's why we've kicked off the rural connectivity study. We have a good granular picture about communications and competition in urban New Zealand, but rural is a gap."

Where the Commerce Commission does have information it is averaged and patchy. That needs to change. The study isn't an exercise in intellectual curiosity, it is a statutory duty under the Telecommunications Act.

What's clear is that telecommunications in rural New Zealand is changing fast. The arrival of low earth orbit satellites has had an enormous impact in a short time and that's likely to increase as more networks come online.

Gilbertson describes Starlink's entry into the market as a classic case of disruption: "It has been amazing to watch it unfold and there is more to come."

Starlink has a first mover advantage, but Amazon's Project Kuiper appears to be all about getting to the lowest price point. Observers expect a lower monthly subscription and the hardware needed to drive Kuiper costs less than Starlink's dishes.

Given the noise and history surrounding SpaceX's largest shareholder, Elon Musk, it comes as a surprise to learn that the Commerce Commission telecommunications team has found Starlink good to deal with.

Gilbertson says while it was difficult at first to find the right contact point inside Starlink, but now that is in place, the company has been "really open and highly responsive".

He says: "Starlink responded to our request for information for the most recent Annual Monitoring Report. It has responded to requests for information for the rural connectivity study that we've got underway at the moment.

Enthusiastic about MBNZ

"They are enthusiastic about getting on board the Measuring Broadband New Zealand programme. They have encouraged their customers to take white boxes". These are the devices the Measuring Broadband New Zealand contractor Samknows uses to collect data on connection performance.

Ben Oakley, the Commerce Commission's manager of Telecommunications Regulation, says that in a short space of time Starlink has become the best represented company in the programme.

Gilbertson says Starlink has been forthcoming when it comes to proving customer numbers and the revenue information needed for the Telecommunications Development Levy. He says the company has yet to reach the point where it earns NZ$10 million in qualifying revenue: "But they are not far off". (Companies have to earn that sum before contributing to the Levy).

As an aside, this information is enough to estimate how many customers Starlink has in New Zealand. Subscriptions cost NZ$159 a month. There is a higher tier and customers have to pay up front for a satellite dish, but we can park that for now. 10m divided by (159 x 12) means there are around 5000 customers.

There will be more coverage of the interview with Tristan Gilbertson and the Commerce Commission telecommunications team in next week's newsletter.

ComCom wants your thoughts on Chorus's $2B investment plans

The Commerce Commission has started its consultation on Chorus' proposal to spend $2.1 billion in capital expenditure and operational expenditure during the coming second regulatory period.

Chorus says it wants to invest $1.345 million in capex and $740 million in apex over the four years from 2025 to 2028.

Telecommunications Commissioner Tristan Gilbertson says the commission is keen to get feedback from stakeholders on whether the proposed $79.7 million earmarked for resilience spending is enough. The figure is double the amount budgeted for resilience in the current regulatory period, but New Zealand is already experiencing more regular and more severe extreme weather.

The other area of spending the ComCom wants to focus on is the amount allocated for expanding the fibre network into rural areas.

Submissions on the matter close on December 14. The Commerce Commission expects to announce its draft decision on the spending plans in the first quarter of next year.

One NZ contributes to strong Infratil first half

Infratil reported a first half profit of $1.2 billion, which includes a billion dollars from a revaluation of the company's stake in One New Zealand. Earlier this year Infratil increased its stake in One NZ from 49.95 per cent to 99.9 per cent. The remaining shares are owned by the company's management.

EBITDAF was $400 million, up 45 per cent on the same period a year earlier. EBITDAF is a measure similar to EBITDA that is used by infrastructure companies to reflect the business' underlying performance.

Away from One NZ, Infratil says there were increased earnings in all of its key businesses. These include CDC Data Centres, Manawa Energy, Longroad Energy, RHCNZ Medical Imaging, Qscan Group and Wellington Airport.

MBIE puts a price on online scams

Figures released by the Ministry of Business, Innovation and Employment show that Kiwis lost close to $200 million to scammers last year. The numbers were disclosed at the start of Fraud Awareness Week.

While the losses and the awareness campaign are not restructured to online crime, that is clearly the main vector for fraud in 2023. And the authorities are using online social media channels to inform New Zealanders about the problems.

One NZ - Dense Air update

You may have missed this week's closer look at One New Zealand's Dense Air acquisition posted on Wednesday. Since that was published the Commerce Commission has posted its statement of preliminary issues on its case register.

The Commerce Commission says it aims to make a decision by January 19 next year. Although it says this date can change if further investigation is needed.

In other news...

Semiconductor giant Qualcomm is walking away from its partnership with Iridium. The pair planned a satellite-to-phone service but phone makers haven't chosen to add the technology in their devices. That's not surprising. The satellite-to-phone market is crowded.

Team IM's claim to have New Zealand's first locally owned and operated hyperscale cloud is bold. Can it even be hyperscale if it's restricted to little old New Zealand? A better claim to fame is that the company's two North Island data centres are carbon zero certified by Toitū.

Bloomberg reports that Huawei, China Mobile and Tsinghua University have built a 3000km network linking Beijing to China's south that they claim is the world's fastest internet. They say users can see "stable and reliable" speeds of 1.2 Terabits per second.

What the Optus outage could mean for New Zealand

I was on RNZ Nights earlier in the week talking about the Optus outage and why, although a major network outage is not impossible, remember Telecom XT?, New Zealand is unlikely to experience the same problems as Optus.

A report by Graham Lynch for CommsDay (not published on the web) says the Optus outage "may have long term impact on investment returns". Lynch quotes New Street Research analyst Ian Martin who says there could be challenges for"...the company’s efforts to improve its return on investment as it faces expensive regulatory imposts and a leakage of market share to rivals".

That last phrase is a killer, Australia media reports suggest thousands of customers are racing to exit Optus contracts after the outage and last year's cyber attack.

Technology bosses who's who

CIO magazine, which otherwise barely exists in any meaningful form in New Zealand these days, had published its Top 50 technology executives awards list.

At Reseller News Rob O'Neill writes Global consulting giant Accenture to acquire Wellington-based Solnet. Accenture executives were seen a week ago at Chorus' Wellington stakeholder event.

While at the NZ Herald Chris Keall reports: ‘Unauthorised’: NZ authors’ books used to train big tech AI. It happens to the best of us. As an exercise earlier this year I asked an AI system to write about New Zealand telecommunications. At least half the copy it came up with was lifted directly either from this site or other places where I've worked over the past five years.

The Download Weekly is supported by Chorus New Zealand.