For over a year Spark has pushed fixed wireless broadband as an alternative to fixed-line internet.
Spark sells fixed wireless products using its own label and its cut-price Skinny brand.
From a customer point of view the two services are identical.
Skinny is cheaper. The cheapest plan is NZ$40 a month. At NZ$85 Spark’s own-brand fixed wireless product is more expensive. It even costs more than low-end unlimited fibre plans. In contrast, Spark’s Skinny brand has a $68 unlimited fibre plan.
Customers choosing Spark fixed wireless broadband over a fibre plan get inducements including a free streaming TV service but they won’t save money.
You can be forgiven for thinking wireless broadband is a new idea. It isn’t. The technology is over a decade old. However, things have changed since it first appeared.
Today’s 4G mobile technology has matured to the point where a carrier can offer an attractive enough product to compete with fixed-line broadband in some circumstances.
Extra spectrum makes fixed wireless broadband work
Spark picked up extra spectrum in the 2016 700 MHz auction. This gives the company enough capacity to make its fixed wireless practical and attractive to customers.
When Spark first started selling fixed wireless services to rural customers, they could see speeds in the region of 80 Mbps. That is comparable with fibre. Indeed, it is faster than the basic UFB fibre products on offer.
Few of today’s customers will see speeds like those enjoyed by the first to climb on board Spark’s RBI service. While wireless has many admirable qualities — more about them later — it has a big weakness. Wireless spectrum is shared by all the users.
In practice this means wireless networks can get congested. As more customers in an area served by an antennae sign for fixed wireless services, the average speed per user drops. This can happen at any moment, but is more noticeable at busy times.
This speed drop can, and often is, managed by network operators like Spark.
Dealing with congestion
One way they can get around congestion is to limit the number of customers connected to any particular cell site.
Spark and Skinny are already not accepting new fixed wireless connections in some busy areas. Even so, congestion woes always lurk in the background.
Another way carriers manage congestion is by limiting the amount of data each user can download. Fixed wireless broadband plans usually come with data caps. That is, the amount of data you can use is rationed. At the time of writing Skinny offers 40Gb and 100GB plans.
Data caps are not a problem for many users. 40GB is a lot of data if you just do mail, surf the web and watch a few cat videos.
It is not enough data to watch a lot of high quality streaming television.
Depending on picture quality you might go through a gigabyte in an hour watching Netflix. If you have a handful of family members each watching their own streaming TV and using other online services you will bust your cap.
With fibre you can use all the services you like without keeping one eye on the meter. Many regard removing that worry as well worth paying for.
Next wireless broadband generation
Over time wireless speeds and capacity will improve as carriers like Spark invest in new wireless network technologies. Spark already has many sites described as 4.5G. It adds more every month.
This mobile technology generation can be improved a few more times. We can, in theory, go all the way to 4.9G, although carriers don’t use that term when talking to the public.
In two to three years from now the next generation of mobile technology, 5G, will arrive in New Zealand in earnest. You can expect speeds to be faster again and individual cell sites should be able to handle more data.
The move from 4G to 5G is neither cheap or straightforward. Expect disruption.
Spark pushes fixed wireless broadband harder than the other two mobile network companies. In part that’s because it wants to get the most from its investment in spectrum.
There’s another reason. Every service provider, including Spark, has to pay a fibre company around $40 each month for a wholesale fibre connection. Most fibre subscriptions sell for between around $70 and $100 a month. The wholesale cost doesn’t leave much room for margin.
When Spark sells a fixed wireless subscription, it gets to keep the entire $85. There are costs, but the gross margin is far better.
Spark told shareholders its margins have improved since it moved around 100,000 customers onto fixed wireless.
At the same time, Spark gets to retain control. It manages fixed wireless connections all the way from a customer’s desk to the big internet hubs. Having this control, known in the industry as vertical integration, means it stays in control. Phone companies like vertical integration as it helps them maintain margins.
More customers, more towers
There’s a limit on the number of fixed wireless broadband customers Spark can support with today’s technology and the existing tower network. That will change over time, but it’s unlikely Spark could add a further 100,000 wireless customers in the next 12 months without building new towers. Estimates vary on where it can go at this stage.
If Spark pushes too hard its mobile phone customers will notice a degraded service. Still there is some room for growth on the network.
Meanwhile Spark has accelerated its network upgrade plans. It is confident the investment in 4.5G and later upgrades will pay dividends. One challenge will be meeting customer demands for higher data caps as they consumer ever more services.
Spark sees wireless technology, both fixed and mobile, as the way of the future. It’s arguably the right strategy for a large telco with a mobile network, deep pockets and substantial spectrum holdings. But wireless isn’t the only path to the future.
For now, the wireless first strategy is working for Spark. Its shareholders like the higher margins. They may be less delighted with the strategy when they see the cost of rolling out a 5G network and buying more spectrum.