IDC: Telecom sector profitless growth, but optimism

In its state of New Zealand broadband report IDC says the market is growing but profit is hard to find. IDC questions the sector's sustainability but later makes the case that New Zealand is a world leader in connectivity.

IDC says New Zealand's total telecommunications revenue increased 1.1 percent in 2017. It went from $5.36 billion to $5.42 billion. The company warns: "this growth disguises the true story of a market that is displaying extreme price pressure and competition in both fixed and mobile.

ARPUs are either flat or declining in both broadband and mobile. In the broadband space retail service providers continue to compete away any chance of strong, sustainable ARPU growth."

Good times for telecoms customers

While intense competition means good times for customers, retail costs are rising and margins are falling. IDC reports many in the industry question the profitability of retail broadband as a standalone product.

The report says: "The UFB initiative has commoditised fibre in New Zealand. Consumer fibre plan prices have plummeted from averaging over NZ$200 per month in 2013 to around NZ$85 per month as at February 2018."

IDC says companies will find it easier to acquire customers through acquisition than to continue offering deals in a cut-throat market. It also notes there's an increasing dependency on bundling services with broadband to create a profitable overall package.

Consolidation forecast

As a result IDC sees a coming consolidation of those companies without extra service offerings. It says some market entrants are looking to position for a future where they can sell over-the-top services to connected homes.

The report says smaller regional players are at the greatest risk of failure or consolidation in the medium term. It says: "Industry players mentioned that there are several small players with approximately 1,500 – 2,000 customers that are now encountering diseconomies of scale."

While it sees similar market dynamics overseas, IDC wonders if New Zealand's unique structural separation model could lead to a lack of innovation or investment in the broadband market.

IDC describes 5G as a huge curve-ball threatening to substitute a portion of the fixed market but finishes by saying: "The signs still overall look positive for the New Zealand telecommunications market. The difference between the thrivers and survivors will come down to not just strategy but considered, effective, relentless and efficient execution of strategy."

Oversea Investment Amendment Bill fear

At the NBR, Chris Keall reports that Spark, Vodafone and 2degrees warn legislation aimed at lowering house prices will cause problems, especially with the coming move to 5G mobile networks. All three appeared before a select committee to oppose the bill and asked for an exemption for the industry.

The Overseas Investment Amendment Bill will mean foreigners need Overseas Investment Office approval to buy land or renew a lease. Under the existing terms that would include the overseas-owned telcos Vodafone and 2degrees. Even locally registered Spark would qualify as more than 25 percent of the company is overseas owned.

Keall quotes Spark which says about half its cell sites are on land covered by the proposed legislation. It says: "This will significantly impact our ability to efficiently manage and expand our networks so they reach the areas customers expect and require them to”.

One problem is that 5G means a greater cell site density than at present, in other words carriers need to buy or lease more land. Many of the sites in the RBI2 build are also covered by the proposed rules. Vodafone points out that each OIO application takes over six months for processing.

High Court hears MyBox case

Judge Warwick Smith reserved his judgement when MyBox faced Sky TV in the Auckland High Court earlier this week. Sky is looking for $1.4 million as compensation for revenue it claims it lost to MyBox. The Hamilton-based company sells a hardware device that can stream television programmes online. It costs $269 and comes loaded with apps that enable customers to view Sky TV material among other channels.

In court Sky's lawyer Laura O'Gorman said My Box was infringing copyright laws and its apps give customers access to pirated content. She also said MyBox was misleading customers when it tells them the product is legal and that is a breach of the Fair Trading Act.

MyBox continues to argue the product is legal despite poorly written advertising copy that tells customers: "Tired of paying for Sky, Netflix, Foxtel, Austar or other cablel TV? One off cost. No subscriptions, monthly bills or contracts."

The company's lawyer said MyBox only provides a decoder and is not directly involved in copyright infringement.

Spark pulls closer to Netflix

Spark has breathed new life into its Netflix relationship. A year ago Spark offered one year's Netflix at no cost for customers signing a two-year unlimited broadband contract. The deal has a nominal value of $180 a year but is in line with the price premium the company charges compared to rival internet service providers.

This week Spark renewed that offer and added six-months of no cost Netflix for customers signing a one year contract. Customers already signed to the two-year contract deal will get an extra six months of Netflix at no extra cost.

The telco's broadband customers can now put the streaming video service on their monthly Spark bill once the no cost period is over.

Spark's Netflix offer is on top of the company's own Lightbox streaming service which is free to all broadband customers. Together the two products put further pressure on Sky which recently tinkered with its products by offering customers a cut-down $25 entry-level package. The move should also act to reduce churn from Spark internet customers defecting to Vodafone which is partnering with Sky.

Nokia chip closes on maxium fibre speed

Nokia says its new Photonic Service Engine 3 chipset pushes the capactiy of an optical network close to its theoretical limit.

The chipset uses a technique called probabilistic constellation shaping. Nokia Bell Labs developed the technology. The technique gets fibre performance close to the Shannon Limit, which is the theoretical maximum transmission capacity of a channel. Above this limit noise overwhelms the signal.

In pratice the chipset means fibre can carry 65 percent more data than present networks manage while consuming only 60 percent of the power. Networks using the chips need fewer transponders.

Spark NZ says it already plans to use the chipset as it upgrades its 200GB transport system to 400GB.

Vodafone boosts women in technology

Vodafone says it has strategies to deal with the low levels of women working in New Zealand technology companies. The company is helping girls experience real world technology. It connects them with mentors and training through the company's #CodeLikeAGirl programme. A second programme is Discover Graduate. This has 78 fresh graduates working in the company, more than half are women. Vodafone says that was a deliberate choice as it helps encourage female leadership. The company also says it now uses software to remove gender bias when it recruits staff.