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Telecommunications contracts

Once again telecommunications is New Zealand’s most complained about industry. It’s a story we’ve heard over and over. The latest report is MBIE’s New Zealand Consumer Survey 2018.

Almost one in three people buying a home service experienced a problem. That’s according to According to the Ministry of Business, Innovation & Employment.

The most common problem, almost half, is that the product or service didn’t work as expected.

home based telecommunications problems

Fixed line, mobile complaints

It’s not only fixed line home services. One in five consumers buying a mobile service had a problem in 2018.

Even allowing for overlap between the two categories, this is a lot of people. The odds are close to even that you, the reader, are among them. The chance that you know a person who had trouble is close to certainty.

Part of the problem is that telecommunications touches everyone.
MBIE says almost two-thirds, 62 percent, of consumers bought a home service in the last two years.

Even so, the category is a long way ahead of building repairs, the next most complained about sector.

Over a quarter of people surveyed say their most recent consumer problem was with telecommunications.

That’s bad. It’s diabolical. But it gets worse. MBIE goes on to say the poorest New Zealanders get a worse deal from the industry’s bad customer service. These are often the people least equipped to deal with poor service.

It adds up to another digital divide. This one looks harder to fix than lack of access. Sorting this out could do much to improve poor New Zealanders’s telecoms experience.

Telecommunications Forum CEO Geoff Thorn defends the industry. He says the sector has been working hard to improve customer satisfaction.

“We know that New Zealand consumers have access to world-class telecommunications services when measured by coverage, speed and price. However, we recognise there are areas where the telecommunications industry can improve”, Thorn says.

That’s fair enough. Although it’s unlikely outsourcing customer support to an Indian company will improve matters. Vodafone already always ranks last in surveys comparing telco performance.

New service quality regime coming

Meanwhile the TCF is working with the Commerce Commission on a new service quality regime. The two plan to develop this in the next few months.

Thorn has a point when he says the poor showing in the report: “…is not surprising given the number of connections and associated transactions people have, and that, in the case of fibre, it is new infrastructure that is being rolled out across the country.”

One area the TCF could investigate is how New Zealand compares with other countries. A quick, unscientific online search shows telecoms where there are comparable statistics.

It’s possible companies don’t set realistic customer expectations. Consumer magazine runs frequent comparisons of local company support. It’s no accident that the firms that do best are those who promise next to no support.

A Commerce Commission paper released this week reveals likely future fibre network regulation.

The paper is a blueprint for how the industry will work once the UFB roll-out completes in 2022.

There are no surprises.

It is a response to last year’s Telecommunications Act. The Act requires the commission to set up utility-style fibre network regulation.

Competitive market

Among other things the Act aims to make sure there’s a competitive market. That’s hard when fibre networks are monopolies. It also aims to stop fibre companies making excessive profits.

The proposed regulations treat Chorus much like an electricity lines company. It faces price-quality and information disclosure regulation. Chorus will get revenue caps and quality standards.

Enable Networks, Northpower and Ultrafast Fibre, will only be subject to information disclosure. At least at first. The Commerce Commission may impose the other rules on these companies later.

Telecommunications commissioner Dr Stephen Gale says the rules will affect the price consumers pay for fibre.

“We are keen to hear from consumer advocates on our current thinking around how we treat key issues such as the cost of capital and what is included in Chorus’ regulated asset base.”

There’s a good chance the telcos will challenge the asset base calculations.

Anchor service

As expected the Commission is sticking with 100/20Mbps as the anchor service. Fibre companies must provide this service. They can only charge the contract price plus an annual increase for inflation.

The fibre companies have already moved towards providing unbundled services. This is due to begin at the start of next year. For now, the Commission will not regulate unbundled fibre prices. It says it may revisit this later.

That now looks likely. Vodafone and Vocus say they are unhappy with Chorus’s proposed unbundled fibre price.

Fibre regulation includes quality

Broadband quality is also on the regulator’s agenda. The new rules say fibre companies must disclose performance information.

Gale says: “The quality dimensions are based on the stages of the fibre service life-cycle and include customer service, service availability and performance among others”.

The Commerce Commission expects to finalise the rules by June 2020.

There’s a summary of the paper at the Commerce Commission website.

Infratil is among the few companies able to unlock Vodafone New Zealand’s value. There is untapped potential. It may not be immediately obvious to other potential buyers.

That potential didn’t excite enough interest when the company was taken on the road after the Sky TV merger failed. Presumably, buyers looked in the wrong direction.

Most people see Infratil as an infrastructure company. It is that.

Infratil hold TrustPower key

Infratil also owns a little over half of electricity retailer TrustPower. This is the key to unlocking Vodafone’s value.

TrustPower isn’t any electricity retailer. It is also New Zealand’s fourth largest internet service provider.

Number four doesn’t mean big. Last year’s Commerce Commission monitoring report said TrustPower has a five percent market share of broadband connections.

That’s small. Even when added to Vodafone’s 26 percent, the two don’t get close to Spark. That company still has more than 40 percent of all connections.

Small but potent

If Vodafone plus TrustPower doesn’t alter the broadband balance of power, what is disruptive here?

The answer is Trustpower has found how to make more profit from connections. It sells bundles combining broadband and power in a single bill.

Buying Vodafone opens the door to a million Vodafone customers. Many of these will also buy electricity.

It turns out broadband and electricity are a potent mix. They may go together better than, say, broadband and pay TV.

Would you like fries with that?

TrustPower isn’t the only company to find value in the “would you like fries with that?” broadband and power proposition. Vocus acquired a small electricity retail business. It has been selling power to its customers.

Electricity and broadband have worked for TrustPower.

Both services need investment in billing systems. Billing is a large cost for both electricity and broadband retailers. Putting two services on a single bill trims costs. It increases margins by more than you might imagine. A few dollars per month times thousands of customers soon adds up.

Remember Vodafone has struggled in the past with billing.

There are other efficiencies. You don’t, for example, need to run separate call centres for power and broadband customers.

Golden handcuffs

These cost savings are nothing compared with the value Trustpower gets from having customers buy both services at once.

Customers who buy more complex bundles of services are less likely to go elsewhere. TrustPower cuts churn every time a power customer signs up for broadband. This also works the other way around.

A million Vodafone customers have already proved they are creditworthy. There is probably enough data to know which customers are difficult to deal with. It may even be easy to identify homeowners or lead tenants, the people most likely to buy electricity.

Asymmetric information

There’s another aspect to TrustPower’s offer.

You’ll notice TrustPower’s advertising splashes the headline price of broadband. Usually this is so much a month less than other high profile broadband retailers. In some cases, the first months are discounted. A normal rate kicks in a few months into a 24-month contract.

TrustPower sweetens deals by offering Samsung flat screen TVs or other inducements.

It’s easy for consumers to comparison shop for broadband. There aren’t many speed and data options.

Selling photons and electrons

It’s harder to comparison shop for power Both are low margin products. Both are competitive markets. It is often easier to make more profit selling electrons than photons.

Vodafone and TrustPower under a single umbrella means more market power. That’s not helpful when it comes to inputs, companies buy broadband at regulated prices from wholesalers like Chorus and Enable. It is helpful when muscling to the front of a queue with partners.

We haven’t even mentioned TrustPower’s earlier bid to establish a mobile virtual network operator business. If nothing else, the company’s executives would have looked closer at the economics of selling mobile. This is Vodafone’s core business.

Infratil invests in infrastructure

Vodafone was due to float next year. The parent company, the UK-based Vodafone Group, wants to get as much of its New Zealand investment out of the country. It plans to invest in places like India where there is more long-term potential.

One challenge Vodafone faces and would otherwise continue to face is finding funds to invest in 5G. Doing the job properly would cost the thick end of a billion dollars over the next decade. Infratil can cover the spend.

Sure, Vodafone has other attractions. It won’t all be about cross-pollination with TrustPower. Yet the million-plus creditworthy mobile customers who might be persuaded to switch electricity retailer, are an important part of the company’s value.

Getting more New Zealanders online is the government’s goal with its Digital Inclusion Blueprint. The plan is to bridge the digital divide and make sure people don’t miss out as more and more vital services move on to the internet.

Government Digital Services Minister Megan Woods launched the blueprint on Friday.

She says: “Some people can’t easily apply for jobs as many recruitment processes start online. Kids may be prevented from doing their homework.

“Others could feel isolated from more digitally savvy friends and family who communicate using social media. We want to ensure no one is left out or left behind as more and more of our lives move online.”

Life hard without a connection

She is right. It is already hard to do simple everyday things without an internet connection. It will get harder.

Even something as simple as arranging for a council rubbish pick-up or buying insurance is difficult without an internet connection.

We tend to underestimate the number of New Zealanders without internet access. In part that’s because of the way government collects official information. Much of it is now done through the web.

When it isn’t, officials often collect data by phone. The problem here is that people without home internet connections are often the same people who don’t have mobile phones.

More offline than you might think

At the 20/20 Trust, Bill Dashfield says at least 11 percent of the population do not use the internet. This group is likely to include older, poorer, rural and non-Pākehā New Zealanders. That makes for a digital divide.

Woods says: “Access to online service is a key priority is one of my priorities and an area Government has already invested in. For example, the Prime Minister recently announced $21 million funding for Regional Digital Hubs (RDHs) in towns to connect local people and businesses to digital services.

This is a good start. It helps that the government supported ultra-fast broadband programme now extends further into rural New Zealand. Eventually about 85 percent of the country will get fibre. Almost everyone else will have better broadband, either in the shape of fixed wireless or improved copper connections.

InternetNZ Jordan Carter zoomed in on one aspect of the divide in a press release.

Call for action on digital divide

He says; “We welcome, in particular, the development of Te Whata Kōrero. It’s a call to action for tāngata whenua to work alongside the government to provide leadership on digital inclusion”.

Moreover, he nails the biggest problem: funding.

Previous governments managed to find close to $2 billion to build UFB and the other broadband improvement projects. Now it has to earmark money to make sure everyone can reap the benefits of fibre and other fast broadband technologies.

The good news is it won’t cost anything like $2 billion. Even five percent of that will pay for a lot of small local initiatives. Small projects are the best way to get people across the digital divide. It will be a lot cheaper than maintaining offline government services for jobs that are better done online.

Let’s hope there are funds in the budget to pay for this.

Zuckerberg Facebook F8 2019

Facebook used its F8 developer conference to tell the world about plans to build a private social media service. Speakers, including chief executive Mark Zuckerberg, hammered home a conference slogan about the future being private.

Zuckerberg did nothing to redeem Facebook’s tarnished reputation.

Instead he undermined the message that he and his company wanted to send.

That joke isn’t funny any more

After promising users a more private feature he went on to joke about it with the audience.

He said:

“Now look, I get that a lot of people aren’t sure that we’re serious about this, I know that we don’t exactly have the strongest reputation on privacy right now, to put it lightly. But I’m committed to doing this well.”

One of the things I often tell people about these speeches is that you have to, metaphorically, listen to the words and the music.

Written down the words look plausible. If you see a video of the speech you’ll see Zuckerberg laughing. At least it made him sound insincere. You might worry that this young billionaire is laughing at his company’s users. He has publicly disrespected them in the past.

Zuckerberg’s jokey delivery certainly fell flat with the audience. That video clip could be set to echo down the years if Facebook’s privacy plan goes sour.

Zuckerberg tone-deaf

It’s another example of a tone-deaf response from the leader of a company that has swung elections and been accused of stirring up hate crimes.

If Zuckerberg didn’t think Facebook had a problem when he made his speech. It has one now. He did nothing to address the biggest question hanging over Facebook: why should anyone trust the company?

There’s another question arising from the F8 conference keynote. Facebook is a huge business. It’s worth about half a trillion US dollars. It doesn’t make things. It’s not really a software company in the traditional sense.

Switching focus from inserting targeted advertising in a user’s social media feed to helping them communicate privately is a huge jump. There is a relation between the two, but it doesn’t map well.

Appy talk

Facebook already has a lot of messaging. There’s the Facebook Messenger. There’s also WhatsApp and the messaging feature in Instagram. Integrating the various messaging tools and building them into a new, useful service isn’t going to happen overnight.

Making messaging private means using encryption. Facebook says it will use this technology. Yet encryption is something governments don’t like. Given that a lot of governments also don’t like or trust Facebook that could see the company tied up in complex regulations.

My other fear about the news from F8 is there is too much focus on cosmetic changes to the business. Take the site makeover that was revealed. This may be intended to send a message that Facebook has changed, but it’s more a case of the leopard changing his spots.

Likewise Facebook’s Secret Crush feature. It could turn out to be creepy if poorly implemented. But you can’t help thinking it’s main purpose is to distract people.