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fibre-optics

On Thursday Chorus released its proposed unbundled fibre pricing for industry feedback. Would-be unbundlers responded with a noise resembling what you might hear when placing an electric guitar in front of an amplifier: a loud howl.

This was always going to happen.

New Zealand’s telecommunications regulations mean that the fibre networks must, by law, be open for unbundling from the start of 2020.

Unregulated, for now

For now, the unbundling process and the prices wholesale fibre companies can charge is not regulated. The idea is that the industry can hold commercial negotiations. If that doesn’t work, then the regulator will step in.

Unbundling worked well for some ISPs when Telecom was forced to unbundle the copper network over a decade ago. ISPs installed their own hardware at an exchange and paid Telecom a monthly access fee.

This worked well for a number of reasons. First, the service providers could cherry pick the most lucrative neighbourhoods. Second, there weren’t many exchanges and each exchange served a large number of customers. Third, the monthly access fee was regulated.

Bitstream then and now

It turned out that the price was considerably lower than the fee Telecom charged for bitstream access. Bitstream access was, to a degree, similar to the service ISPs now buy from New Zealand fibre companies.

The gap between these prices left ISPs with enough room to offer competitive prices to their customers or take the difference as increased margin.

Unbundling fibre is different. Instead of hundreds of exchanges each serving thousands of customers, there are thousands of fibre nodes each serving a handful of customers.

The other big difference is the way we price fibre services. Today’s layer 2 prices are regulated. Prices depend on the level of service, but typically they run from around $40 to around $65 for a gigabit service. The Commerce Commission based its pricing structure on a fibre company’s costs.

Difficulties

Now, this is where things get difficult for would-be unbundlers. The input cost difference for a wholesaler between operating a layer 2 service and an unbundled layer 1 service is pennies, not dollars. That $40 monthly access fee might drop to $38 or thereabouts if it was regulated along the same lines as a bundled line.

This doesn’t leave an unbundler with enough margin to play with.

Despite the unattractive underlying economics two telcos, Vocus and Vodafone, joined forces to push an unbundling programme.

Since late last year they’ve been showing a demonstration of what the technology might look like. They’ve also been dropping unsubtle hints suggesting that: ‘unbundled fibre had better be cheap’.

Like copper only different

Scratch the surface and its clear their thinking is the difference between bundled and unbundled fibre should be in line with things in the copper world.

Chorus’s proposal is that unbundling service providers pay a monthly access charge of $28.70 per line. This covers the fibre line from the customer to the nearest node, Chorus calls these nodes ‘splitters’. Usually 16 customers connect to each splitter.

On top of that, Chorus wants to charge $200 a month for the connection from the splitter to a central point where the service providers can connect the unbundled service to their own networks.

Unbundling at scale

You don’t need to be good with arithmetic to realise that this only works for a service provider if a lot of customers at any splitter want to buy their connection. A would-be unbundler would need to have more than a dozen connections at each node for prices to drop below the basic regulated bitstream monthly fee.

Although keep in mind here that an unbundled fibre line might operate at a blistering 10Gbps. That’s a service that could command a premium retail price.

To no-one’s surprise Vodafone and Vocus made it clear they don’t like the proposed price. A press release from the pair has the headline: “Chorus machinations could put competitive UFB on ice”.

Maths

In it, a clearly angry Vocus CEO Mark Callendar says the maths just doesn’t stack up. He is right. But the legislation was designed that way. There isn’t enough margin between layer 1 and layer 2 to make an ISP happy.

An access price that would please Callendar, at a previous media function he told me it should be under $20, would leave the fibre wholesale companies under water. They’d be bankrupt in no time and that would put critical national infrastructure at risk.

Back to the release where Callendar says: “…the Commerce Commission will now need to intervene, it’s as simple as that. The UFB network was designed to be unbundled and ultimately is an asset that the government has helped fund.”

The Commerce Commission was destined to be dragged into this row from the moment Vocus and Vodafone first announced an intention to unbundle.

Intervention

If it does intervene and assuming it follows a similar cost-based model, the would-be unbundlers are going to be as disappointed then as they are now. The economics of fibre unbundling mean it is a path that’s not worth the trouble, at least as far as residential customers are concerned.

Now, it’s quite possible that the spat you see on the surface is all there is. Yet there’s something else at play. Since the fibre network started, most of New Zealand’s service providers have raced to the bottom on price. It’s about the only point of difference they feel able to compete on.

As Vodafone CEO Jason Paris has said to me in a previous interview, they have competed away all the profits in the broadband business.

Thin margins

Margins are razor thin. Unbundling had potential to fix that. It’s also an opportunity for two high profile telcos to position themselves publicly as against New Zealand’s telecommunications regime without actually saying they are against the regime. Make no mistake, that’s the real object of their ire. 

In the public statements so far, they’ve poked the finger at Chorus.

There’s something in that. But Chorus is a creation of a telecommunications regime that the previous National government set up. The Labour government continued the same regime. There’s a broad political consensus that our telecommunications market is working as designed.

You could see Chorus as the government’s proxy in these matters. A useful punching bag if you don’t like the rules. 

Equivalence

One part of the disliked regime is something called equivalence. The idea is that Spark, Vodafone and Vocus get exactly the same prices, products and services from fibre companies as a five-person regional ISP working in rural Taranaki.

The big firms hate that. They like to use their clout and economies of scale to negotiate better terms from suppliers. Regulation stops them.

Consciously or unconsciously, Vodafone and Vocus hope the government is listening. That’s why so much of their rhetoric about unbundling uses politician-pleasing words like ‘innovation’ and ‘competition’.

Competition

Unbundling is clearly a competitive1 move, but it’s not really innovation in the sense we normally use the word. Assuming it is doing everything right at the back-end, the only practical option an ISP has to innovate with unbundled fibre services is to remove some of its capability from certain customers.

Remember this as the war of words heats up in coming months and the various parties troop into the Commerce Commission. They’d like to get a lower price for unbundled fibre.2 Who wouldn’t? But what they really want is to take back a little control and restore profit margins.

Disclaimer: Chorus pays me to edit the Download magazine and a weekly newsletter. It didn’t pay me to write about unbundling. Indeed, this post doesn’t reflect anyone’s opinion other than my own, certainly not Chorus’. No one vetted or otherwise approved this. Any mistakes are down to me. Your corrections or alternative opinions are welcome.


  1. Spark has options with its fixed wireless broadband. These should ramp up when 5G arrives. Vodafone ought to be able to do the same, but the local firm isn’t getting the investment it needs from Vodafone Group. Unbundling is a cheaper option. ↩︎
  2.  

  3. I’d expect the Commerce Commission to insist wholesale fibre companies propose a single per-line price in place of the more complex line and splitter tariff. ↩︎

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.

Chorus fibre broadband buildingChorus says it now has 500,000 Ultra-Fast Broadband connections on its network. The wholesale network company also announced plans to cut wholesale prices for the fastest connection speed.

Fibre demand has accelerated in recent months. It took Chorus five years to connect the first 100,000 fibre customers. The most recent 100,000 joined in six months.

In September, Crown Infrastructure Partners released numbers showing there were 605,000 connections nationwide for all Chorus, Northpower, UFF and Enable. That total would be higher today.

Connection speeds rising too

Customer connections are rising fast, so are their connection speeds. Chorus says customers are moving from entry-level plans to higher speeds. In order to speed the move up-market, Chorus will cut the wholesale price of gigabit fibre broadband connections for home users.

From the middle of 2019 the wholesale price for a home gigabit connection will fall from $65 to $60. Chorus promises a  futher drop to $56 in the middle of 2020. This will reduce the price gap between a standard 100mbps plan and a gigabit plan, making the latter a more attractive proposition for many customers.

While dropping the wholesale price sounds like good news for consumers, it is up to retail service providers to decide whether they pass some or all of the savings onto customers. Some may do this, others may use the cut to fatten their margins.

Strange times at Spark

Writing at Stuff Tom Pullar-Strecker reports that Spark described the price cut as a step in the right direction. The company went on to say something quite strange;

…the wholesale price of fibre-optic broadband remained “far too high” and the retail prices Spark charged didn’t “allow for anything like an acceptable margin”.

This is bizarre as Spark is free to decide on its margin. If it thinks margins are not acceptable, it is free to raise prices. Any constraint on pricing comes from market competition, not the wholesaler.

The unvoiced subtext here is that Spark is annoyed that the Commerce Commission regulates fibre pricing. This means they have no leverage to demand a sharper wholesale price than other service providers. By law Chorus and the other fibre companies must offer the same wholesale price to everyone.

Unwelcome competition

Given that Spark accounts for getting on for half the retail broadband market it might normally expect to get a lower wholesale price than smaller competitors. In effect, you can interpret Spark’s complaint as it doesn’t like facing its competition on a level playing field.

This is all the more odd, because some parts of Spark are hurtling towards the fibre era with gusto.

In the company’s media statement, Chorus CEO Kate McKenzie says fibre broadband demand has been rapidly increasing. She says: “…even more so now as more content moves online and New Zealanders prepare to live stream the Rugby World Cup and other sporting events in 2019. The irony here is that Spark is starting to dominate streaming sport. Presumably the margins on Spark are ‘acceptable’ for the company. But they wouldn’t be achievable without ubiquitous fibre.

Chorus hits half million fibre connection milestone was first posted at billbennett.co.nz.

Bill Bennett edits The Download magazine for Chorus. He also writes a weekly telecommunications newsletter. That doesn’t mean he wrote this post On Chorus’ behalf, nor does it necessarily reflects the company’s option, although it might. It’s all my own work, blame him if you don’t like it. 

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.