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John Key says his government hasn’t ruled out using legislation to bypass Commerce Commission recommendations that could see a sizable fall in wholesale broadband prices.

That kind of move would protect Chorus which says it could lose up to $160 million a year from the regulatory change.

It would also become a form of price discrimination favouring the UFB fibre network being built by Chorus and three other fibre companies. In effect government intervention would make copper less attractive by making it more expensive than fibre.

While it is understandable the government would want to shore up its own fibre project, there are three reasons why this is a bad move:

1. It punishes poorer New Zealanders

It will take another seven years to build the fibre network. Business districts, schools and medical centres are a priority. Next on the list are the wealthier suburbs where the government thinks people are more likely to sign-up early for fibre. The poorer suburbs are at the back of the queue.

This means poorer New Zealanders will have no choice but to use copper for years to come. Making them pay more for it is doubly cruel.

This is politically dangerous for a National government. While it isn’t quite take-from-the-poor, give-to-the-rich, National’s opponents could easily make it look that way.

2. Not everyone gets fibre any way

If everything goes to plan – let’s assume for now it will – UFB will reach 75 percent of New Zealanders by 2019. There’s the rural RBI network for those in the back-blocks. People in small towns will be left with the fibre-to-the-node network where the last leg of distribution will be over copper. Making them pay more for their copper will add insult to injury.

Higher copper prices also mean ISPs will be less able to invest in technologies like VDSL to serve these customers.

3. Making copper dearer won’t change fibre demand anyway

Copper is the gateway drug leading to fibre. People who buy faster copper services, such as VDSL, are likely to be the first to buy fibre when it becomes available. Getting people hooked on fast broadband will do more to make sure fibre succeeds than discriminating against copper.

I’ve said all along, if the government has to discriminate against copper to sell fibre, that means there’s something wrong with the fibre project that needs fixing. Fix the problem, don’t cripple the competition.

What I would do

I’m not in favour of discriminating against copper full stop. If I was a politician and my advisers convinced me it was necessary to discriminate against copper in order for my fibre project to succeed, then I’d choose to discriminate against copper only where the fibre alternative is already in place. in that way, the price discrimination wouldn’t punish those who don’t have fibre access.

My guess is the government won’t do this, because that kind of price discrimination would only serve to highlight the problem.

While fibre is the future, it isn’t here yet. It’ll take another six or seven years to reach everyone. Telcos and ISPs could do far more with the copper already in the ground, but that may undermine the case for fibre.

When it arrives, the government-sponsored UFB fibre network will deliver download speeds of 100 Mbps and upload at 50 Mbps. The cost is little higher than today’s ADSL broadband plans. Fibre is a compelling product at a decent price.

If everything goes to schedule the last residential suburb will get UFB sometime in 2019. At that point the network will reach 75% of New Zealanders. Separate networks will connect rural New Zealand to the internet.

Why wait?

Business districts, schools and health centres are a priority, that means suburban homes – and the country’s many micro businesses are last in line. Some will wait seven years to get a fibre connection. That’s too long to wait for fast broadband.

And too long to wait when you consider UFB-like speeds are potentially available for many copper customers today thanks to VDSL technology.

ISPs selling UFB offer two speeds. Alongside the headline, premium 100 Mbps speeds they also offer 30 Mbps plans. VDSL can realistically offer 50 Mbps to most customers on the copper network. Alcatel-Lucent uses VDSL2 vectoring to do this in Belgium. In other words, engineers can squeeze UFB levels of performance out of the existing technology.

Not about the technology

So why aren’t we doing this in New Zealand? The simple answer is there are ISPs offering VDSL, but wholesale copper prices are regulated. ISPs pay Chorus a premium to deliver VDSL over the copper network. One could argue that premium is an artificial barrier erected to make fibre pricing look more attractive to users.

The argument against this premium is that VDSL is like a gateway drug. People will get hooked on VDSL’s higher speeds and will jump to the new network when it passes their gate.

The flip-side argument says VDSL is so good, customers will see no need to switch from it to fibre when the UFB network arrives. In this way it undermines the business case for a fibre network.

There’s a lot in this. There aren’t that many practical fibre applications at the moment for small businesses and residential users. Some observers worry the industry will have difficulty persuading customers to trade in their slower ADSL connections for fibre, let alone trade in VDSL. Slow sales of residential fibre accounts to date underline this fear.

Carrots and sticks…

If the premium charged for VDSL is simply to steer consumers to fibre, why not change the regulations so that the premium only applies once UFB passes a customer’s gate? This would have the added advantage of sending a clear signal about intentions.

If the premium isn’t about influencing customer behaviour, why have it? The Commerce Commission can make sure Chorus isn’t out-of-pocket by adjusting unbundled copper local loop (UCLL) unbundled bitstream access (UBA) prices accordingly.

A handful of New Zealand’s internet service providers (ISPs) now sell UFB connections to home users. Below you’ll find a table showing the prices they ask for various broadband offerings.

You can’t get a UFB connection until your neighbourhood is connected. Business districts, hospitals and schools are a priority, residential areas are second and the roll-out won’t complete until 2019, so there could be a long wait.

Prices from $70

Plans start at just $70, but you don’t get much data when buying bottom of the range fibre services – if you push hard you could download your entire month’s allocation in a few minutes. Pay more and plans include a decent whack of data – more than enough to keep you in video conferencing and downloaded content all month.

ISPs have little room to manoeuver on price. Apart from the amount of included data, connection speed is the only other point of difference. You can buy a 30Mbps service for around $30 less per month than a 100Mbps service.

With only a small fraction of the nation’s homes connected to fibre, the prices shown here are largely symbolic at the moment. And at the time of writing New Zealand’s two largest ISPs, Telecom and Telstra Clear have yet to go public with plans for selling the government’s UFB fibre-delivered broadband to home users.

About the table

The plans in the table below all include GST. Some ISPs charge connection fees. Lightwire, marked with the letter a) in the notes column charges a $200 fee that includes installation and a router.

If you spot any errors or omissions please get in touch with me and I’ll update this table accordingly.

Update: 

26/11/12 – Added Xnet – note b) $200 installation fee including a router
26/11/12 – Added Ubergroup
26/11/12 – Added Now

Service provider Speed down/up Mbps Data GB Monthly  $
Kiwilink 30/10 25 86
  30/10 50 104
  30/10 100 138
  30/10 200 201
  100/50 25 121
  100/50 50 138
  100/50 100 173
  100/50 200 236
Lightwire 30/10 200 99
  30/10 400 129
  30/10 600 149
Now 30/10 20 70
  30/10 75 75
  30/10 125 90
  30/10 350 110
  100/50 20 120
  100/50 75 125
  100/50 125 140
  100/50 350 175
Orcon 30/10 30 75
  30/10 60 89
  30/10 unlimited 99
  100/50 30 110
  100/50 60 124
  100/50 unlimited 134
Snap 30/10 50 75
  100/50 100 110
Ubergroup 20 10 65
  20 30 69
  20 150 79
  50 150 99
  50 250 199
Worldnet 30/10 25 70
  30/10 50 80
  30/10 100 90
  30/10 200 100
  30/10 300 130
  30/10 1000 200  
  100/50 25 100
  100/50 50 110
  100/50 100 120
  100/50 200 130  
  100/50 300 160
  100/50 1000 230
Xnet 30/10 5 70
  30/10 15 99

New Zealand’s fibre to the home network roll-out is gathering momentum. Some say it will trigger an economic revival.

So it may seem like a bad time to bring this up: Japanese fixed network operators have been forced to slash their prices to stem the flow of customers fleeing fibre networks for wireless broadband.

In other words, the people have spoken and the message is clear: Given a choice they don’t want fibre to the home, they want wireless broadband.

The story in the link is written by Tony Brown who is an analyst for Informa – a company that specialises in watching telecommunications markets. He says younger people prefer personalised broadband services to household plans. As he points out, if they took a household service, they’d still need to pay for wireless plan anyway.