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Bill Bennett


Tag: 2degrees

Tutela’s March 2021 mobile snapshot: Everyone’s a winner

Spark tied with 2degrees for first place, out of three, for Excellent Consistent Quality in the latest mobile snapshotVodafone has the fastest data speeds, 2degrees has the most responsive network.

In other words everyone comes away with a prize from the Tutela’s March 2021 New Zealand Mobile Experience Snapshot. Even when they don’t, there’s not much separating the three mobile carriers.

Take the consistent quality measurements. Tutela measures the performance of the networks in places where all three offer coverage. Excellent Consistent Quality is where users have a network experience suitable for 1080p video streaming, real-time mobile gaming or HD video calling.

Spark and 2degrees hit the standard more than 80 percent of the time, while Vodafone hits the standard 77.2 percent of the time. Vodafone was slowest in last year’s mobile experience report.

That’s not far behind. In practice casual users moving around New Zealand might not notice any difference. Although the variation will matter a lot for people living in those pockets where Vodafone doesn’t hit the standard.

Tutela New Zealand Consistent Quality March 2021

While the absolute numbers on the download and upload speed tests show more variation. Once again, it’s unlikely everyday users will notice much. Unless you are running a speed test app, you might struggle to notice the difference between Vodafone’s 26.9 Mbps download and 2degree’s 21.8 Mbps. The gap between Spark on 19.7 Mbps and 2degrees would be even harder to spot.

That’s not to say these kinds of comparisons are meaningless. They serve to keep carriers on their toes and highlight potential problems. And if the difference between Vodafone’s average of 26.9Mbps and Spark’s 19.7Mbps is important for your applications, then these results are helpful.

Tutela New Zealand Mobile Speeds March 2021

Tutela found 2degrees has the lowest latency – that’s usually the time taken for a signal to travel there and back. In this case the researchers compare the median one-way journey time. There’s not much in it, 2degrees is on 23.2ms while Vodafone is 24.6ms. Spark is 29.4ms. Again, most people will not notice the difference.

Unless you have specialist needs, there is nothing in the Tutela data to make you switch from one carrier to another. No single carrier has a significant lead over its rivals. This may change as 5G networks roll out. If you do have specialist needs, it’s worth downloading the full report as this includes performance broken down region by region.

Fixed wireless speed drops as broadband use surges

Three big talking points emerged from the Commerce Commission’s latest Annual Telecommunications Monitoring report.

First, in general, New Zealand’s telecommunications networks were more than up to the job of coping with massively increased demand during Covid pandemic lockdowns.

Second, average download speeds for fixed wireless networks were down 25 percent.

Third, there’s a clear problem with retail telecommunications revenue. This has implications for investment in new networks and technology upgrades.

We’ll look more closely at all three points later. Before that, here are a few highlights from the report.

Fixed lines connections by technology - New Zelaand - March 2021

More data, faster data

Broadband use jumped ahead in the year to June 2020. The monitoring report notes the average New Zealand broadband user chewed through 284GB every month. That’s up 37 percent from the 207GB used monthly a year earlier.

That should surprise no-one. This time last year New Zealanders were sent home to work or study. When the lockdown finished, many continued to work from home either part-time or full-time.

During the lockdown we saw a huge rise in the number of people using video conferencing. And an even bigger rise in the number of video conferencing meetings between users.

Wireless disappoints

Fixed line broadband technologies held up during what were potentially difficult times.

You can’t say the same for fixed wireless broadband. The Commerce Commission noted a significant performance decrease for fixed wireless broadband users.

The average fixed wireless speed dropped 25 percent during the year.

Fixed wireless carriers managed to convince plenty of new customers to move to the technology. The number of customers on fixed wireless broadband networks was up 16 percent during the year.

Fibre sales raced ahead during the year. The number of fibre broadband users went from a little over 800,000 to more than a million. That’s a 25 percent increase.

By the time the report period closed around two-thirds of those who could connect to fibre had chosen the technology.

Traditional landline numbers dropped 12 percent during the year.

Industry revenue falls

Retail telecommunications revenue dropped four percent during the year. Mobile revenue was down three percent. An important and lucrative part of the revenue; mobile roaming, evaporated.

Revenues fell despite the growth in use and the importance of telecommunications at a time workers and students were sent home and asked to connect remotely.

Mobile data consumption continued to grow. It was up 20 percent during the year. The report notes the increased popularity of unlimited or ‘endless’ mobile data plans. These now account for 14 percent of on-account plans.

Fast, not fastest

The Commerce Commission says New Zealand ranks number 12 in the OECD for average broadband download speed. It is well ahead of the OECD average and more than twice that of Australia, which is a laggard by international standards.

There was movement in fixed broadband market share during the year. The largest telcos continued to see a fall in their share while the smaller retailers grew. The ‘others’, that’s service providers outside the top five, increased their share of the total from 11 to 13 percent.

Spark’s market share was down a fraction falling from 41 to 40 percent. Vodafone dropped more, from 24 to 21 percent. Third place Vocus stayed steady with a 13 percent market share while 2degrees nudged ahead of Trustpower to take fourth place.

Fixed wireless’ weaknesses exposed

On average, fixed wireless broadband download speeds dropped 25 percent.

During the lockdown I heard from a number of readers who experienced worse performance drops. Others saw no fall off.

That anecdote shows one of the main downsides of fixed wireless broadband: it’s a lottery.

You might get a good connection, you may not. Your local connection might be congested at Netflix o’clock, or it could be fine. There’s no sure way of knowing what you’ll get until you commit.

Compare this with fibre where customers get a consistent experience no matter where they live, no matter the time.

Your own personal internet on-ramp

If you buy a fibre broadband connection, you, in effect, get your own internet pathway from your house to the local cabinet. No matter what other fibre users down your street do, you can expect to always see roughly the same data download speed.

With fixed wireless broadband, you share the airwaves, or the available bandwidth, with other customers. If everyone connects at once then the airwaves and towers can get congested. When that happens the speed will drop.

One way the companies selling fixed wireless broadband can maintain network performance is by limiting the number of connections in any given area. They know that, in normal times, not everyone connects at once. This allows them to estimate how many connections can be supported in normal times before the performance drops.

The problem is that last year was not normal times.

Fixed wireless broadband performance should improve when carriers switch to 5G. The raw speed will be higher. Latency – that’s the time it takes for a signal to get from here to there – will reduce. There’s a beam forming technology which, without getting technical, should reduce congestion.

It will take a long time for 5G to roll out nationwide. At the moment it is mainly in central city areas. It covers only a fraction of homes. In the meantime, carriers will work to upgrade fixed wireless technology. Despite this, it will remain something of a lottery.

Fixed wireless broadband is ideal for certain groups of users. For some, it is the only option. Or will be until the new generation satellite networks open for business.

Otherwise, you should only choose it if you don’t care about performance or reliability. The Commerce Commission report underlines this.

Falling industry revenues

On the surface falling industry revenues might not concern telecommunications users. Money is tight and spending less on broadband and phones feels like a welcome break from rising prices.

In the short term it’s not a huge problem. In the long term it is. And the problem here is weak revenue and profit margins has been going on for years and there’s no sign of it ending.

The good side of this is that one reason telecommunications companies don’t make huge profits is because there is intense competition. That benefits users.

On the negative side, the industry needs to keep investing at a high level to build new networks, new products and services. Lower profits mean less to invest. This hasn’t happened yet, but the problem looms like a rain cloud on the horizon.

Commerce Commission calls out mobile price confusion

In 2006, Theresa Gattung made a speech saying telcos use price confusion to make money. Not much has changed since she was CEO of Telecom. Now it is about mobile price confusion.

Gattung said: “Think about pricing. What has every telco in the world done in the past? It has used confusion as its chief marketing tool. And that’s fine.

“You could argue that that’s how all of us keep calling prices up and get those revenues, high-margin businesses, keep them going for a lot longer than would have been the case.

“But at some level, whether they consciously articulate or not, customers know that’s what the game has been. They know we’re not being straight up.”

Confusion continues with mobile price

That was 14 years ago. Since then New Zealand’s mobile market has changed beyond recognition. We’ve moved from a duopoly to three carriers; four if you count Spark-owned Skinny as separate, although that’s debatable.

Mobile technology has evolved from 3G to 4G to 5G. The Commerce Commission regulated mobile termination rates. This helped establish more competition.

People no longer come home from overseas facing crippling bills for roaming calls.

Many of the annoyances that plagued mobile consumers have been fixed.

But not all annoyances. Telcos continue to use mobile price confusion to baffle consumers.

Paying too much

Telecommunications Commissioner Tristan Gilbertson says it can mean we end up paying too much.

This isn’t a casual reckon. It emerged from an in-depth analysis of 80,000 mobile phone bills. The work is part of the commission’s Retail Service Quality programme. This is a series of projects tackling the remaining customer pain points.

For now, the commission has gloves on. It wants the industry to clean up its act. If that doesn’t happen, it has legislative backing to take a more active approach.

Research revelations

The research examined millions of data points. Researchers used data collected from carriers. The data is anonymous. There are interesting revelations.

Close to two-thirds (64 percent) of users did not change plans during the year-long review.

A quarter of post-paid consumers could save an estimated average of $11.60 a month by moving to a cheaper plan that would cover their usage.

Customer types

Post-paid is industry jargon for customers who have a contract with a mobile phone company. They get a bill at the end of each month. In other words they pay after they have used the service. You sometimes see them referred to as on contract customers.

The other type of customer has a pre-pay plan. They hand over money upfront before using their phones.

In many cases pre-pay customers get a fixed amount of calls, texts and data before having to pay again. In other cases they pay for a fixed number of days and can make as many calls as they want. These plans come with a set allocation of data.

Seven percent overpay by a large margin

Researchers found seven percent of mobile users pay for a lot more than they use. These people could potentially save an average of $48.65 a month if they switched to a more appropriate plan. They are high spenders when compared with the rest of the market.

That number needs context. Telcos measure success in markets like mobile using ARPU or average revenue per user.

At Spark, ARPU across the mobile business is $28.27 a month. Prepaid customers are worth an average of $13.33 a month, contract or post-pay customers have an ARPU of $42.

These numbers put the $48.65 that seven percent overpay into perspective. It’s a huge amount compared with average spends. They are paying at least twice the going rate.

Not shopping around

The Commerce Commission’s big-picture finding is that consumers don’t hunt down the best plans for their needs. It could be they are unable to find the mobile price information they need to make those decisions.

Two sets of information can help phone users make informed decisions about plans. The first are the plan details themselves. The second is transaction history.

If you are able to look back at your calls, texts and data use over the last year, you’d have a idea of how much you might use in future months.

You may be able to total the amounts and learn that, say, you never use more than this many calls minutes. Likewise, you can see when your data use peaks.

That would give you a starting point when looking at advertised plans.

Hard to find

In practice this information is hard to find.

There are places where you can get usage data. Mobile company phone apps store a limited amount of information.

Take the Skinny app. It is more geared towards selling more services to customers than keeping them informed.

There is a transaction history. Yet it covers a mere two weeks of calls and data use. That’s not a starting point for a useful comparison.

The Skinny website shows more data. Not much more. There you can find three months of transaction history. That’s better, but it’s not enough to tease out seasonal or long term patterns. Any statistician will tell you that three data points is not enough to spot a trend.

There was a time when printed telephone bills contained all the necessary information. If you get one, not all carriers have them, Skinny does not, you have to download and store them on your computer. If you don’t, they soon drop out of sight. Phone companies keep them live for a few months, not the long term.

You could get the impression carriers don’t want customers to make meaningful long term comparisons.

Electricity, water perform better

Contrast this lack of information with, say, electricity or water companies.

Electricity retailers send statements every month. All the information needed to make a wise buying decision is there in full view.

An electricity bill might show the average daily use over the last 12 months in a handy graph format. Retailers contact customers to check they are on the best, read that as cheapest, option. If not, they help customers change.

They do this because they know keeping customers informed is good business practice. It builds loyalty. They understand how easy it is to switch if a customer feels they not getting the best deal.

Water companies tell customers how much their home uses compared with others. It’s information they can use to manage consumption.

Learned helplessness

In subtle ways mobile companies train consumers to not link phone use to their spending.

Take unlimited plans. Plans can come with unlimited voice calling, texts or, up to a point, data. They look good to consumers because they no longer have to worry about bill shock. The cost is a predictable fixed amount every month.

That can be good, yet few people need unlimited amounts of mobile calls or data. We use less data than we think. Often, a lot less.

The research found average monthly consumption across all users is 2.2GB of data and 163 voice minutes. The median data consumption for the top five percent of users is 4.8GB a month. For these people, an unlimited plan makes sense. For everyone else, there are cheaper options.

Another feature of unlimited plans is in some cases the usage information is not longer shown. That means customers can’t always tell if a cheaper plan might be a better choice.

Going over the limit

Another way carriers train us to buy more mobile than we need comes from charges for going over limits. We all remember horrific newspaper stories about people facing huge bills for going over the data or call allocation.

To avoid these charges people buy unlimited plans or plans that leave a lot of headroom.

In practice, going over the limit is not always expensive. If you are on a $40 plan with 2GB of data, an extra gigabit costs around $5.50. That’s a one-off. Moving up to a higher level plan is likely to cost you an extra $20 every month. That’s a huge difference.

Spotify and other extras

When you look at mobile phone plans on the telco website you’ll see extras bundled into the mobile price. There are services like Spotify or Netflix, the ability to use wi-fi hotspots, wi-fi calling to name a few.

At times the marketing material attaches a value to these extras. If you want them, fine. If not, they are of no value. They muddy the water when you’re trying to find the best value for your needs.

Hard comparison

Making direct comparisons between plans from different mobile phone companies can be hard. Sometimes it is as hard to compare different prices from the same company.

At the time of writing Spark offers the Endless Mobile plan for $39.99 a month. It’s a post-paid plan. That is, you pay when you get a bill at the end of each month.

‘Endless’ is the word of the month with New Zealand’s mobile phone companies. Spark has Endless Mobile. Spark’s Skinny subsidiary offers Endless Data plans. The words ‘Endless Data’ are prominent on Vodafone’s mobile plan page at the time of writing.

Endless mobile price confusion

You need to be careful with words like ‘endless’ in mobile marketing. It may not mean what you think it means.

In this context, endless does not mean unrestricted. Endless is a phone company way of saying: “We’re not going to stop you using data. Yet after you have used a certain amount, we’ll slow your data down”.

Spark’s Endless Mobile plan includes unlimited voice minutes and text messaging. You get 3GB of data at normal speed, if you go over the allocation, Spark will drop the data speed. All endless plans have similar restrictions.

Skinny is Spark’s budget mobile phone brand. The plans are pre-paid. You hand over your money upfront.

The Skinny Endless data plan has the same unlimited voice minutes and text messaging. It comes with a more generous 4.5G data allocation at normal speed. Like the Spark plan, data speeds drop when you go over the limit.

28 days is not a month

At first sight the $36 price of Skinny’s plan looks to be a few dollars less than the Spark plan. That’s until you notice that Skinny charges you on a 28-day cycle. That is, you pay Skinny 13 times a year.

Over the course of a year you would pay Spark $480 or pay Skinny $468. The difference is about enough to buy morning coffee and a sandwich. What looks like a 10 percent price difference of $40 compared with $36 is, in fact, 0.025%.

You’d need to be an arithmetic whizz to know if the 2degrees pay monthly pre-paid options are better value than the company’s 14 day pre-paid options. There are few points of reference for a meaningful mobile price comparison.

Cheaper by the kilogram

Confusing prices are not restricted to mobile phone plans. If you shop for, say, mayonnaise in a supermarket, the product comes in uneven size packages. The average consumer can’t tell if the 387 gram jar is better value than the 485 gram option.

Supermarket shopping is easier because shelf labels must show an per kilogram price.

Something similar happens when you buy, say, a large screen TV on credit terms. The headline might show interest rates and promises of nothing to pay for months. Yet the small print has to outline the real interest rate and upfront costs.

Mixed reaction from industry

Spark welcomed the letter and says it is looking for ways to improve customer experience. It went on to say it provides users with 12 months of account information. Spark’s Skinny brand does not. It says it is simplifying plans and will “engage with customers and advise them of options”.

Vodafone was more defensive. It turned the Commission’s numbers around. It says customer churn in the mobile sector is higher than in electricity or banking.

Vodafone went on to argue the high rate of churn creates unnecessary costs for the industry. It went on to say if seven percent pay too much, then 93 percent pay a fair amount. This misses the quarter of customers who overpay.

One good point raised by Vodafone is that last year the Commerce Commission reported that market competition is strong and New Zealanders pay less than the OECD average for mobile. This is true, but it doesn’t mean mobile price structures are fair or that consumers get the treatment they deserve.

Wide support for mobile price action

In contrast the Commerce Commission’s move was welcomed by the Technology Users Association of NZ. CEO Craig Young called on the mobile companies to follow the recommendations. He notes how difficult it is for customers to compare plans between the carriers.

FinCap, a budget advice service weighed-in saying the Commerce Commission’s move could reduce financial hardship for people on the wrong plan.

Chief Executive Tim Barnett says: “Some people may be able to absorb this extra cost in their household spending, but for others this overspending may mean they fall behind in their payments.

“The consequences of falling behind on mobile bills could include bills being sent to debt collection or that customers experience drops in credit ratings. These measures can be very harmful to vulnerable consumers.”

That would be harmful for the telcos. During the Covid-19 lockdowns they warned investors they could soon face a wave of bad debt.

Consumer NZ chief executive Jon Duffy says: “Creating confusion has been a long-standing marketing tactic in the industry. Telcos rely on it to reduce the likelihood consumers will shop around.”

His organisation’s own research underlines the Commerce Commission’s work. Consumer NZ found 33 percent of consumers think it’s easy to compare mobile plans while 38 percent think it’s easy to switch companies.

The mobile price confusion ball is in their court

The Telecommunications Commissioner asked mobile phone companies to make comparisons easier. He doesn’t tell them how to do it. Instead the ball is in their court. The supermarket, credit and electricity sectors all show examples of how they can improve.

Possible improvements include allowing customers to have access to a whole year of transaction history, the would include voice calls, text messages and data use. Carriers could watch to see if customers are overspending and automatically inform them of plans that better suit their needs.

The Commission would like to see a ‘consumer data right’. Consumers would be able to show rival carriers their current use and spend in a way that would allow comparisons and, where appropriate, encourage a better offer.

Australia is moving towards a similar idea. There, the mobile price project is government lead and will be imposed on carriers. Telecommunications Commissioner Gilbertson would prefer the carriers to manage the process in New Zealand. He has asked the industry’s own Telecommunications Forum, to look at this.

It’s fair to say New Zealand’s mobile sector has come a long way since Theresa Gattung’s speech. On the whole competition is delivering benefits to consumers. Yet mobile price confusion remains an everyday business practice and a pain point the industry regulator wants to fix.

Telcowatch shows steady mobile market through lockdown

The latest Telcowatch mobile market share report shows the relative performance of New Zealand’s carriers were close to unchanged during the second quarter of 2020. This is the period that covered much of the nation’s Covid-19 lockdown.

It paints a picture of a stable market with, apart from a special case we’ll look at later, little switching between carriers.

One conclusion you can read into the numbers is that Vodafone’s considerable investment building a 5G network ahead of its rivals has not paid off in terms of attracting their business.

Vodafone top brand

Vodafone remained the leader with a 37 percent market share. That’s the same market share as in the first quarter. Vodafone has been the largest single carrier brand for a year now.

Spark retains its second spot with 34 percent. Its share fell a fraction during the quarter.

Yet the story is more complicated than these numbers suggest. Spark’s cut-price Skinny brand was the largest climber during the period. It has a 7 percent share of the market.

Spark top carrier

If you add Spark and Skinny, the two are brands that share resources, the total is 41 percent. That figure has been stable now for months.

Meanwhile 2degrees brings up the rear with 23 percent.

In practice each of the three carriers is stable. The movement is all about Spark customers realising they can get what amounts to the same service for less if they switch to the company’s Skinny brand.

Skinny has seen its market share rise for the last three quarters while Spark’s has fallen.

Telcowatch is put together by Datamine. It says it analyses more than 2.9 million unique devices each month. The company restricts its data collection to active mobile devices and does not count machine to machine activity or non-consumer markets. Nor does it measure overseas-based networks operating here.

When telcos don’t like regulated industry structure

Telcos are waging a public relations war on Ultrafast Broadband. Reading between the lines of their public statements, they don’t like the regulated market model.

This was set-up over a decade ago by John Key’s first government. The government restructured telecommunications. It tilted the playing field in favour of customers. New Zealand businesses and consumers got a great deal.

Regulated separation

Reforms separated the market into two parts. Regulated fibre companies would build, own and operate the UFB network. They are regional monopolies. They can only sell wholesale services.

Retail service providers can sell broadband without geographic boundaries. RSPs all buy wholesale services on identical terms.

This model promotes competition. No single player can dominate in the way companies could before the restructure.

Chorus, Northpower, Enable and UFF are the fibre companies. There are 90 retail service providers. The biggest and best known are Spark, Vodafone, Vocus, Trustpower and 2degrees.

Consumers are happy with how the market operates. At least those in areas that can get fibre are. The fact that people in areas without fibre are grumpy about it speaks volumes about the model’s success.

Best broadband

Thanks to UFB New Zealand has one of the best and most affordable broadband networks in the world.

It is great for consumers. It is less wonderful for big RSPs. The biggest ones are not happy.

There are two main reasons they don’t like the UFB model.

First, from their point of view, separation does too good a job of promoting competition. RSPs fail to compete on anything other than price. They discount broadband to the point where, as Vodafone CEO Jason Paris says; “They compete away all the margins”.

Thin margins

Retail broadband margins are wafer thin.

A consumer might pay $80 to $100 or so each month for a fibre broadband account. Roughly half of that goes to the wholesale fibre company. RSPs have overheads and costs. The margin is often less than 10 percent of the monthly fee. It can be lower, some only make five percent.

They get that money 12 times a year. Yet regulated UFB is not as lucrative as the old ways of selling telecommunications.

This explains why Spark and Vodafone are keen on fixed wireless broadband. It’s an inferior product, but they get to keep a larger slice of the cake.

The second reason the bigger telcos don’t like the UFB model is they are not in control of their own destiny. This bothers them. They have few options, little room to manoeuvre.


Another, less obvious grievance is the UFB idea known as equivalence.

A supermarket chain like Countdown pays less for products than the wholesale price paid by a corner dairy. They get economies of scale. Countdown buys tins of baked beans from a wholesaler at a lower price than dairies pay.

Equivalence means the largest telco pays the same as the smallest RSP for a customer hook-up.

There are economies of scale when it comes to support, back-end services and marketing. Yet the aristocratic telcos resent paying the same price as the peasant RSPs.

Phoney war

All these aspects of the UFB model come into play as telcos wage a phoney war. It is a war that is being fought on a few fronts.

Last month there was fuss from big telcos about something known as the wall of bad debt. This sounds like something from the Pilgrim’s Progress.

Spark, Vodafone and 2degrees have been the most vocal. They say a recession is coming and they face large unpaid broadband bills.

They want Chorus, it’s always Chorus 1, to share the cost.

This is an unusual argument on two counts. Wholesalers don’t shoulder the risks of their retailers in other sectors.

What’s more, the debt risk facing the large RSPs is of their own making. When lockdown began the telcos said they would not cut off customers for non-payment.


It was a good and decent thing to do. Or at least it is a good and decent thing to do with your own money.

It’s not such a good and decent thing to be generous, then turn around and ask the fibre companies to pay half. It would be fine if they had gone to the fibre companies first and agreed something along these lines. But they didn’t.

This doesn’t mean their argument is unjustified. They have a case. It is not as clear cut as they argue.

It is not as if fibre companies don’t face their own post-lockdown financial risks.

First they had to keep contractors ticking over when there wasn’t much work. What’s more, they face their own potential wall of bad debt if RSPs go bust in the looming recession. Having an RSP fail to pay would be far more serious than an individual consumer missing a payment.

Moral hazard

There is a moral hazard aspect to the wall of bad debt. If telcos get wholesalers to carry half of the risk, they have an incentive to take more risks.

Companies have a tendency to be reckless when protected from consequences. Among other things, they might not chase bad debts as hard if they know they face half the loss. They might be less fussy about who they give credit to.

It doesn’t help Chorus’ case that it is now enjoying the financial light at the end of the UFB-build tunnel.

That said, Chorus agreed to pay $2 million towards the bad debts. In round numbers that’s about half the cost if 7000 New Zealanders fail to pay for six months of broadband. Around one million New Zealanders connect to the UFB. So if seven percent default on payment, Chorus pays RSPs half the cost.

Telcos don’t think that’s enough. Remember here that Chorus has no legal obligation to pay anything.

Minor regulatory risk

There is a small danger here to the idea of regulated separation. If the fortunes of wholesale fibre companies depend on RSP performance, they could play favourites. A bigger danger comes from another battle: fibre unbundling.

To understand how fibre unbundling threatens UFB, let’s go back to the original plan. The government decided fibre companies would sell layer 2 services. It left open an option for layer 1 services at a later date.

In this context layer 1 is an unbundled service.

That later date is now. Or, to be more precise, it was January this year.


You don’t need to know the technical nuance about layer 1 and layer 2 to understand what is at stake. Here’s the simple version.

In effect layer 2 means fibre companies sell RSPs a complete service from a home or office to a network node. This includes the network connection hardware at each end of the link. Fibre companies wrap all the parts needed to do this into a bundle and sell it as a whole.

If they sold layer one, RSPs would get a fibre connecting the home to the node. They pay for the hardware on the ends of the line. Hence unbundled.

The problem with unbundled fibre is that all the costs in a network are in the civil engineering. Stringing fibre around the country is expensive. The hardware on the ends of the fibre cost peanuts in comparison.

Wholesale UFB prices are regulated. The price depends on the cost of building and supporting the network. The bundled hardware turning layer 1 into layer 2 is a small percent of the total. The input cost difference between bundled and unbundled fibre is tiny.

In other words, in the UFB model unbundled fibre doesn’t make economic sense.


Big telcos know how the cost structure works, but don’t accept the economics. They continue to argue and lobby for lower unbundled prices. If they get their way, fibre companies would sell connections at below cost.

The entire regulated UFB model would collapse. And future governments would struggle to raise private capital for infrastructure projects.

This connects to another way telcos are waging war on UFB. Last week, a Vocus press release said the latest round of Chorus fibre price rises is: “cynical, money grabbing and unwarranted”.

It’s an opinion. UFB regulations say fibre companies can raise prices in line with inflation. That’s a step away from “cynical, money grabbing and unwarranted”.

Inflation is tiny, around one percent, so the rise is small. It reflects the increased costs fibre companies pay for maintenance. Without it, a fibre company’s margins would ratchet down each year.


Government choose this price rise as part of the regulated UFB model when it feared investors would not want to fund fibre. It needed this clause to attract investors. It still needs this clause to attract private investors for future infrastructure projects.

Vocus, like the other telcos can choose to pass this cost on to customers. As we’ve seen, competition is tight, if a telco raises prices customers may move elsewhere. But that’s how market economies work.

And that’s the story here. Price increases, unbundling and, to a lesser degree, the coming wall of debt are all hardwired into the UFB. Government designed market regulations that way for a reason.

Regulated competition

UFB has been a success, in part, because there is a competitive market. Unpick the regulations and the whole UFB fabric unravels.

The challenge facing telcos is that the market is too competitive. As Paris says, they have competed away their profits. Corporations might pay lip service to free markets, but they don’t like them.

Mobile means Spark, Vodafone and 2degrees have alternative paths to profit. Enterprise services, adding value through content deals or power billing are other paths. Being better at what you do is always an option. Market consolidation might help.

Attempting to repair margins by chipping away at the foundations of UFB is not a wise strategy. There was a time when Telecom thought it could defy government policy and regulation. Look how that ended.

Disclosure: I do freelance writing and editing for Chorus, but the company doesn’t tell me what to write. 

  1. Telcos have figured out it is easier to bash the biggest fibre company. Criticising Chorus gets more media attention and more sympathy, than disrespecting “fibre companies”. Yet almost every accusation made against Chorus applies to the other fibre companies. If, say, Northpower was the target of anger, that would look like bullying. ↩︎