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July 29 (BusinessDesk) – The $3.4 billion Sky-Vodafone New Zealand transaction the Commerce Commission rejected in 2017 was the most difficult of the vertical mergers former chair Mark Berry had to consider.

Source: Sky-Vodafone merger decision challenging – Berry | Scoop News

Would the Commerce Commission make the same decision today?

It could go either way.

One of the reasons the deal was turned down was Sky’s iron grip on sporting rights. Since 2017 Spark has entered the market with Spark Sport, yet aside from this year’s Rugby World Cup, it doesn’t have rights to any of the major NZ sporting codes.

Sky has gone from owning 100 percent of the sport market to something less than that. Yet it’s market presence remains substantial. It would be hard to argue things have changed enough to alter the merger decision. This could change if Spark Sport achieves lift-off.

Spark, you may recall, was one of the main objectors to the Sky-Vodafone merger. Its lobbying paid off.

2degrees featured prominently in Mark Berry’s deliberations:

“There was particularly a concern about what the future of that market would look like if we let this merger go ahead, and if that kind of effect happened – with customers being taken away from 2 Degrees such that it would no longer have the incentive or the ability to invest and compete.”

Former Commerce Commission chair Mark Berry

It’s worth reminding yourself that in some ways 2degrees is a talisman for mobile telecommunications market competitiveness. While 2degrees is a force, the market can be seen to be working. The company’s position is no strong today.

One other change since 2017 is that Vodafone now looks to be in a stronger position since its part-acquisition by Infratil. This would play into any Sky merger decision in a subtle way.

Infratil also owns a substantial share in Trustpower, the fourth largest internet service provider. It has told the Commerce Commission that Trustpower and Vodafone would remain separate.

There has to be some concern about this. Since the acquisition Trustpower has joined with Vodafone and Vocus’s unbundled fibre campaign. That could be a coincidence.

Yet given Trustpower’s strength in building bundles of services around broadband, the possibility that company might have preferred access to Sky content would set off all kinds of alarms at the Commerce Commission.

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.

fibre optic

Chorus says the average connection speed across its network has now passed 100Mbps. This is ten times the average connection speed eight years ago. 

Last month also saw the busiest day yet on the company’s network: total usage hit 1.815Tbps. The previous record was 1.792Tbps.

Chorus network strategy manager Kurt Rodgers says 71 percent of the company’s fibre customers are now on 100Mbps. A further 44,000, around three percent of the 1.5 million connections on the Chorus network, are now on 1Gbps plans. This is up 22 percent on the previous quarter. 

High speed plans

Most of the rise in average connection speed comes down to the popularity of high speed plans.

One feature of New Zealand’s regulated fibre broadband is the narrow spread of price between slower and faster plans. In Singapore, a 1Gbps plan costs many time the price of a 100Mbps plan. Here the difference is closer to 25 percent.

Another reason to opt for faster plans is that many of today’s plans are uncapped. There’s less point in buying one of the fastest plans if the extra speed means you download your data allowance in a few days.

Improving speed isn’t all at the top end. Rodgers says awareness of VDSL (Very-high-bit-rate digital subscriber line) technology, which boosts speeds on copper connections, is also on the rise.

At the same time, VDSL speeds have increased in recent years. Before switching to fibre I had a VDSL connection. When I first started it ran at around 18Mbps. This later climbed to 35Mbps or thereabouts. By the time fibre was laid in my street, the VDSL connection was giving me 70Mbps.

He says, “Dunedin has the highest average connection speed at 361Mbps, largely due to the high volume of gig connections”. This will be, in part, because of the earlier Gigatown promotion. This saw the city connected to faster fibre ahead of the rest of the country. 

“Coming in second is Wellington, at an average of 116Mbps, followed closely by Auckland at 111Mbps,” he says.

Will get faster than 100Mbps

“With more and more consumers choosing gigabit plans and our recent announcement that we will start trialling 10Gbps in mid-March, we can only expect average speeds to continue to grow,” Rodgers says.

Chorus says fibre users now average 315GB per month. Most of this is down to the rise in streaming video. This is reflected in time-of-day statistics, which show average throughput on the network now peaks at around 8.30pm in the evening.

You may be right if you think you’re not ready for or don’t need 10Gbps residential broadband. For now, it’s a niche product for a niche market.

Yet it won’t be long before it is mainstream.

Next month, New Zealanders will be able to test the world’s fastest residential broadband. From mid-March, 30 volunteers will get early access to 10Gbps on the Chorus fibre network.

It’s not the world’s first residential 10Gbps service. Singapore already has 10Gbps. Yet Chorus is early to the technology.

Now is the time for 10Gbps

There are good reasons to start testing now.

First, New Zealand’s UFB fibre infrastructure is ready for faster services. That was the plan from the outset. Moving to 10Gbps means new equipment at either end of the fibre. It’s an upgrade.

Second, it’s good to be ahead of the demand curve. When UFB was first dreamed up, planners expected one in five people who could get fibre to take it up by 2020.

Today, roughly half the people who can connect to fibre do. That number is set to increase as we get closer to the Rugby World Cup.

There are reasons why uptake is greater than expected. Netflix and Lightbox are the usual suspects. But that’s immaterial. The point is fibre growth has been well ahead of predicted demand curves. The same could be true for 10Gbps.

Prestige

Another, less tangible, reason to get cracking with 10Gbps is prestige.
New Zealand would be among only a handful of countries to offer the service. It’s a testament to our network and planners that we get there early.

On a more practical level, Chorus managed to announce its service ahead of competitors. It faces a form of competition from ISPs who want to unbundle fibre. Offering a faster 10Gbps service was one way an unbundler might have differentiated. That’s no longer an option.

Likewise, 10Gbps puts clear blue water between UFB fibre and fixed wireless broadband. When 5G arrives, it, in theory, could offer wireless data speeds that match today’s best UFB speeds.

On paper the 5G specification could see 10Gbps fixed wireless services. That is years off. Apart from anything else, it needs more spectrum than is available to cellular companies either now or after the next round of auctions.

Get ready for 10Gbps

A more subtle point is that having 10Gbps now encourages customers to prepare for faster broadband.

As things stand few homes can make full use of the speed. Devices operating at 10Gbps are scarce. The line speed is much faster than home wi-fi networks. You can buy network storage devices that run at 10Gbps, but slower speeds are more common.

Even among the homes that have wired networks, many can’t handle 10Gbps at the moment. The most popular residential Ethernet routers offer 1Gbps.

That’s why Chorus is being picky about who can take part in its test run.
Chorus is looking for 30 volunteers. Candidates need to already have a 1Gbps plan with one of the partner RSPs.

Chorus is a wholesale broadband provider. That means it can only serve 10Gbps broadband through one of its retail partners. Kordia, 2degrees, Trustpower and Stuff Fibre are among the first to sign up. Others will follow.

Test pilots have to live in one of three Chorus exchange areas. That’s Johnsonville in Wellington, Avondale and Birkenhead in Auckland.
Another must-have is a device with a 10Gbps port. Trialists will need to agree to provide feedback on the service.

Big (home) data

The trial is most suitable for people who work with large data files, say movies or high-quality audio. It may also be useful for homes with some high-end gamers or use other demanding applications.

The Chorus 10Gbps trial is a collaborative project. It will use Nokia’s XGS-PON (passive optical network) fibre technology.

Chorus chief customer officer, Ed Hyde says 10Gbps underpins New Zealand’s digital future. He says it will “continue our decade long commitment to innovation and keeping New Zealand’s broadband infrastructure at the cutting edge.”

If the trial is a success, Chorus aims to roll out the service nationwide. You can take that as read. It may not be everywhere this year, but it’s coming.

While Bill Bennett edits The Download magazine and a weekly newsletter for Chorus, this post is an independent opinion.

Everyone knows fibre is the best way to get broadband. It’s reliable and can deliver gigabit speeds. Soon it will be able to go even faster.

After 100 years on top, copper is on the way out for most people. But not for everyone. At least not yet.

There is still life in copper broadband. Scientists and engineers have squeezed every last electron of performance from wire-based data transfer to the point where, with the right conditions, copper can deliver fibre-like speeds.

For the most part, the right conditions means living no more than about 1.5 kilometres from a roadside cabinet or exchange.

VDSL interim until fibre arrives

This is good news because the second phase of New Zealand’s government supported UltraFast Broadband roll-out will not be complete until 2022.

People in areas at the back of the queue will have to make do with copper broadband for now. Fixed wireless broadband is also an option.

Those people in areas not yet scheduled for fibre will wait still longer. Eventually fibre will reach beyond 87 percent of the population, but not soon enough to keep everyone happy.

Chorus, Nokia crank up VDSL speeds

Relief is on the way. Chorus and Nokia are working on the latest version of VDSL2 vectoring which could see copper broadband users get speeds as high as 130 Mbps.

Vectoring uses noise-cancelling technology to remove the crosstalk interference found when many signals share the same copper connection. If that sounds too technical a description, focus on this: Vectoring means higher speed.

You’ll need to be close to a cabinet to get maximum speed. The further you are from the cabinet the slower it gets.

Existing VDSL2 users living next to a cabinet should see speeds of around 80 mbps. One kilometre away from the cabinet the speed drops to around 25 to 30 mbps. By the time you are two kilometres away, the speed is down to around 20 mbps, maybe a fraction lower.

The ratios are likely to be similar when vectoring is applied. So expect around 130 mbps near the cabinet and roughly 30 mbps two kilometres away.

Fibre-like speeds

This isn’t bad. When fibre first went on sale in New Zealand customers were offered 30 mbps plans.

To put the speed in context, Netflix recommends 5 mbps for HD television streaming and 25 mbps for ultra high-definition.

In other words, get ready to enjoy Spark’s streaming coverage of next year’s Rugby World Cup or Premier League football. If that’s not your thing, there are plenty of other streaming TV options.

VDSL fine in practice

Until recently I was getting around 50 to 60 mbps on a non-upgraded VDSL2 copper connection. I live around 700 metres from the nearest cabinet. This gives you some idea of the potential.

Chorus head of Network Technology Martin Sharrock says getting the fastest possible broadband experience to customers is a priority.

He says: “Vectoring has improved average VDSL downstream speeds by over 40 percent and upstream speeds by over 30 percent. This is especially important for rural New Zealand where fibre to the home has not yet been planned.”

Federico Guillén, president of Nokia Fixed Networks, said: “Nokia’s copper solution with vectoring technology compliments Chorus’ fibre roll-out and provides another way to deliver significantly higher speeds that enhance the way customers experience digital content.”

And then there is wireless

As mentioned earlier, fixed wireless broadband is an option for people in areas not served by fibre. Some wireless towers are full, they’re not open to accept more customers. This is the case in my Auckland suburb where fibre is an option.

While fixed wireless broadband can, in theory, deliver speeds faster than VDSL with vectoring to people further away from a cabinet, the speed tends to vary depending on how many others are using the same bandwidth at the same time. It will probably slow down at peak TV viewing times.

If you’re not on fibre, it’s worth investigating both technologies. You can find out if a copper VDSL2 connection is available at your address from the Chorus broadband checker. To get a bigger picture of all your broadband options use InternetNZ’s excellent National Broadband Map.