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mobile telecommunications

Kudos Vodafone for launching 5G, now about that $10 surcharge

Hats off the Vodafone for building New Zealand’s first meaningful 5G network.1

It’s a big step for New Zealand telecommunications and an even bigger step for Vodafone.

A year ago it looked like the company would be starved of the resources needed to make a significant 5G splash. That changed when Infratil and Brookfield fund a $3.5 billion split from the UK-based parent company.

100 Vodafone 5G sites open today

Today there are 100 sites. While this sounds good, in practice it means scattered pockets of 5G in a sea of 4G mobile coverage. Vodafone says it will upgrade the 4G sites to 5G-like speeds and increase the number of 5G sites to around 1500 in the next few years.

Performance on Vodafone’s initial network is impressive. This morning social media was full of screen shots showing handsets downloading at speeds of around 500mbps. Actually the screen shots showed download test sites, which amounts to the same thing.

Even so that is not the gigabit speeds that 5G companies have promised. In a media statement, technology director Tony Baird explained why this isn’t happening yet. He says:

“We’re using 3.5GHz spectrum to launch 5G, and our current radio spectrum holdings will mean that Vodafone customers see an uplift of up to 10 times current 4G speeds.

“However to reach the one gigabit speeds that we’re seeing internationally, we’ll need approximately 100MHz of 3.5GHz spectrum so will continue to work with the government on the early allocation and auction processes.”

It’s worth remembering today’s 5G is uncluttered. There’s almost no-one using it. That’s going to help early performance. The technology should cope better than 4G with lots of traffic, but we’re months away from that happening.

New 5G handset needed

You can’t just walk into a 5G zone and get high speed mobile broadband. You need to buy an expensive new handset first. There are two models at the moment. Both are from Samsung and both are Android models. If you can live with Android you’ll be good to go.

If other 5G equipped phones from other brands are on the way to New Zealand, the companies making them are keeping quiet about it. Realistically there won’t be a wide choice, and certainly not suitable iPhones until at least this time next year.

Premium price

By then Vodafone will charge a premium for 5G network access. The company says suitably equipped customers can use the 5G network at no extra cost until the used of June. From then they will need to pay an extra $10 a month for the service.

This echoes what happened in the early days of 4G. Although the premium didn’t last long once competition kicked in. This time Vodafone has at least six months start on its competitors, maybe much longer.

It may have been reasonable to ask 4G users to pay a premium, they got a noticeable performance upgrade. The practical benefits of upgrading to 5G will be less obvious to most phone customers.

Yes, they will see faster speeds. Videos will download faster. On paper you can browse faster.

Yet there are no practical mobile applications for ordinary users  that need extra speed. Not yet. 4G mobile has plenty of bandwidth to watch high resolution video on a handheld device. And when was the last time you hit a bottleneck browsing on 4G?

Gamers

Gamers may find something worth paying a premium for. They won’t see higher resolution, but they should see lower latency from using 5G.

That’s good, but $10 a month just to get a better gaming response seems a bit steep for all but the most hard-core gamers.

Unlike 4G, most of the benefit of 5G goes to Vodafone and its enterprise customers. The technology means many more paying customers can use cellular at the same time, which gives Vodafone an opportunity to sell more. It also gives the company shiny new things to sell, like network slices and internet-of-things services.

In that sense charging mobile users a premium is like asking supermarket shoppers to pay more because a new Pak’n Save is opening down the road.

If Vodafone is going to get non-business customers to upgrade their mobile and pay more, it needs a better reason than fast. Phones already do fast-enough with 4G.


  1. Spark’s handful of South Island fixed wireless sites pales in comparison. ↩︎
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telecommunications

Before you get excited about 5G fixed wireless broadband…

Vodafone’s 5G network is about to launch. Soon you’ll see marketing for 5G fixed wireless broadband marketing. Spark will no doubt follow.

Let’s step back for a moment and take a reality check.

There’s a lot to be said for 5G. It’s fast, energy efficient and has low latency. Carriers can pack in many more connections per square kilometre.

Most of the benefits of 5G will go to industrial users and to organisations that can make use of network slicing. That’s the ability to set aside bandwidth for private use. The other main beneficiaries will be the cellular companies who can sell more connections and cut running costs.

Machine to machine 5G

5G is ideal when machines talk to machine. It will make the internet-of-things sing and dance.

Yet it isn’t always the best broadband product for residential users. Many people will be better off sticking with wired connections.

In theory 5G can deliver fibre-like speeds. Overseas users see 300mbps or even a little higher. This is plenty for streaming video and other high bandwidth applications, but not enough if you have a digital household with many people sharing the same connection.

There’s another catch. Wireless connections are nothing like as reliable as fibre. If you need a consistent connection, say you have a monitoring application, you’ll soon run up against limitations. There are also stories of Netflix buffering like crazy in prime time when everyone on a tower goes online.

Line of sight

One other point, 5G is a line-of-sight service. There are nuances, but in general you need to see the cell tower to use it. In some cases overseas a connection that works fine in winter can stop working when there are leaves on the trees if those trees are in the wrong place.

You should consider 5G fixed wireless if:

  • You live near a 5G tower and can’t get fibre. You may be down a right of way or in an apartment where people are bloody-minded about running cable to your place.
  • You are off the fibre map1.
  • You have light broadband needs, don’t need a lot of bandwidth and reliability isn’t essential. Your home will struggle to run multiple streaming video sessions or handle big downloads at the same time.
  • The address isn’t permanent. Students and other short term residents might prefer a connection that can be up in seconds and taken with you when you leave.
  • You live in shared house and a shared broadband account is too hard to organise.

The irony is the New Zealanders who would most benefit from 5G fixed wireless broadband, that’s the people living on low density fringe areas and lifestyle blocks not served by fibre, are unlikely to get it early. They may get 5G later, but don’t hold your breath.


  1. Although, for now, that probably also means you off the 5G fixed wireless map ↩︎
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telecommunications

What Hyperfibre says about fixed-line broadband

Early next year Chorus will start rolling out Hyperfibre, that is faster fibre services of up to 4Gbps. Forget whether you might need that speed today and focus instead on what it says about fibre broadband.

Not many countries boast residential broadband services running faster than a gigabit per second. When I looked, I found seven. Perhaps there are ten.

Soon New Zealand will be one of them.

It turns out when government and industry are right when they remind us we have a world class broadband network. It isn’t just idle boasting.

Fibre is fast and reliable. It’s not expensive.

Hyperfibre shows it can go faster still. It’s the Porsche option, although without the price tag.

Chorus hasn’t announced the Hyperfibre wholesale tarrif yet, but it says it will be only a ‘modest premium’ on gigabit prices. That said, early buyers are likely to be business users willing to pay a premium for the extra speed.

At first Chorus will offer 2Gbps and 4Gbps services. An 8gbps service will come later. On paper the XGS-Pon standard being used can crank all the way up to 10Gbps.

Faster fibre is not for everyone. Few people other than movie and TV professionals need Hyperfibre speeds.

That’s really not the point. Having it available as an option is important. It tells us where things can go. If you need more speed, it’s there.

Marketing types might tell us it’s an aspirational thing. Perhaps. Yet it does get us thinking about faster fibre and what we might do with it.

If we’ve learnt one thing about data networks, it’s that what seems like more bandwidth than you ever need soon becomes not quite enough.

When the UFB project started, most users took 30mbps down, 10mbps up services. That quickly climbed to 100mbps plans. Today the majority of customers have 100mbps, but the fastest growing market is for 1gbps services.

We don’t need to go over the why would anyone need a 1Gbps service argument any more. A family with HD TV, Playstations and other devices can easily make use of the bandwidth.

Faster broadband means a better experience for everyone. If you shop around, it only costs the price of a coffee or two to move up to a faster plan.

Some of the talk after Chorus’ announcement pitched Hyperfibre as a counter to the fixed wireless threat. That’s the angle Chris Keall took for his NZ Herald story.

There’s no question that Spark and Vodafone will attempt to sell fixed wireless broadband as a fibre alternative. Yet few, if any, customers are going to make a choice between fixed wireless and Hyperfibre.

Fixed wireless is best for people who either can’t get fibre, have a difficult-to-connect home, or are happy with a basic, bare-bones and sometime slightly cheaper alternative1. Hyperfibre is for people bumping up against the limits of today’s 1Gbps fibre plans.


  1. Not much cheaper. The lowest cost 1Gbps fibre plan is $5 more than Spark’s cheapest fixed wireless plan ↩︎
Categories
telecommunications

Sky-Vodafone decision challenging – Former Commerce Commission chair Mark Berry

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.

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telecommunications

Infratil can unlock hidden Vodafone value

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.