Moutter: "Fixed broadband is nothing more than backhaul”

At Computerworld NZ Stuart Corner writes about Spark’s investor update held last week. He quotes Spark NZ managing director Simon Moutter:

Customers want wireless everywhere and fixed broadband is nothing more than backhaul to a wireless hub (wi-fi) in most consumer and SME situations.

Moutter went on to say Spark plans to be “mostly ex-copper” by 2020. It will have 4G and 5G wireless coverage along with fibre broadband in urban areas.

Moutter is spot-on. Most consumers and businesses use their fixed-line broadband accounts as backhaul to a private wi-fi network. And yes, we’ll all be “mostly ex-copper” by 2020. Mobile phones aren’t going anywhere in a hurry. We’ll almost certainly be downloading more data on the move three years from now.

Beyond backhaul

Yet there’s more to fixed line broadband than backhaul. Savvy consumers also have a fixed line between the largest screen in their house and the point where broadband enters the building. That’s because a wi-fi router acts as bottleneck.

While a good wi-fi router may have the bandwidth to meet today’s high-definition video demands, it’s best not to take a chance on these matters. You don’t want a test match disrupted because someone is downloading a new XBox game.

Describing fixed broadband as backhaul appears to downplay its importance. Which is odd for something that has been one of Spark’s most important lines of business for 20 years. Spark still has around half a million fixed-line customers. That’s not far short of half of all broadband connections in a nation of 4.5 million people.

Fixed broadband, fixed wireless

It’s no secret that Spark would like to maximise the number of customers it can move from copper broadband connections to fixed-wireless broadband service. This not only gives Spark a high profit margin, it also gives the company to regain some of the vertical integration ground it lost when it separated then demerged from what is now Chorus.

Moving low-use customers to fixed wireless makes perfect sense so long as they have enough bandwidth to meet their needs.

The economics of New Zealand’s open access fibre network makes it easy for newcomers and smaller telcos with little legacy baggage to chip away at Spark’s dominant market share. At the same time, they put price pressure on Spark which inherited a less competitive cost structure.

Yet even if 5G delivers on its promise and fuels a faster fixed wireless alternative, Spark looks set to remain New Zealand’s largest fixed-line broadband service provider for a long time yet to come. Unless Spark decides to sell its fixed-line broadband operation, that backhaul product is going to be an important source of Spark’s revenue for the foreseeable future.