web analytics

Chorus active wholesaleComputerworld New Zealand reports that Chorus says it has moved to ‘active wholesale’ to stem the loss of customers to rival networks.

The story covers comments made by Chorus CEO Kate McKenzie at the company’s annual general meeting. She says the number of connections on the Chorus network has fallen following Spark’s move to push customers to its fixed wireless broadband services.

She says: “Total connections reduced by about 125,000 last year and by a further 20,000 in the first quarter to the end of September”.

From passive to active wholesale

To deal with this Chorus has moved from being a passive wholesaler to taking a more active role.

In response, McKenzie said Chorus had “gone from being a passive wholesaler to being more active in the marketplace. We can’t rely on all retailers to promote our products for us when they have their own competitive motivations.”

Among other things this has led to a Chorus information campaign highlighting the performance benefits of fibre broadband over a wireless service.

There has also been advertising promoting fibre. McKenzie told the AGM this is already showing results with defections to wireless slowing in recent months.

Follow the money

It’s not hard to understand why Spark wants to move customers on to fixed wireless connections. It makes a lot more money that way.

When a customer buys a fibre broadband connection from Spark, the company pays around $40 wholesale fee to the fibre company. In much of the country that’s Chorus, but the same applies in areas serviced by Northpower, UFF and Enable.

The wholesale cost of a line is around 40 to 50 percent of the price Spark charges its customers. So cutting out the wholesale level means better margins and greater profit. There’s enough room to pass some of the saving back to the customer.

Control

Aside from the money, a fixed wireless connection keeps everything under Spark’s control. It means it becomes less reliant on others. At the same time, it regains some of the benefits of vertical integration.

In a normal market this would give Spark leverage to negotiate better rates from the fibre companies. Spark is by far the largest buyer of broadband connections, so it could expect something for economy of scale and something else to counter the wireless broadband threat.

That’s not how New Zealand’s open access fibre broadband market works. Prices are regulated by the Commerce Commission, fibre companies are not allowed to play favourites. They can’t offer one rate to Spark and a different rate to other players.

The wireless threat

When this model was first drawn up, wireless wasn’t a serious threat to fibre. At the time I asked then Communications Minster Steven Joyce if the rapid development of wireless broadband had been considered, he said it had not and dismissed the idea the technology could one day compete with fibre.

In a sense wireless broadband doesn’t compete with fibre. It can’t deliver high speeds and the big wireless operators have kept tight caps on data downloads to stop networks from overloading.

And yet not everyone needs gigabit speeds and vast quantities of data. Fixed wireless broadband is ideal for low-use customers. It also makes sense in areas where fibre is not available.

Also on:

This week the Commerce Commission published its draft numbers for the $50 million Telecommunications Development Levy. In a way the TDL acts as a report card on the shifting fortunes of the main telecommunications companies.

The levy is, in effect, an extra and, somewhat discriminatory, tax on telecommunications companies imposed by the outgoing National government. It adds up to a roughly one percent increase in telecommunications prices.

As in previous years Spark and Vodafone are the biggest contributors paying 35 and 26 percent. Chorus and 2degrees are three and four.

The big four players will pay more than 90 percent of the total levy. Another eleven companies will pay about eight percent of the TDL between them.

Investing in rural networks

The TDL helps subsidise investment in rural networks. Most of the money will go back to three of the biggest payers. Spark, Vodafone and 2degrees, as the Rural Connectivity Group, won the contract for bid the second phase of the Rural Broadband Initiative.

There’s a double whammy for Chorus investors. Not only does the company not get any of the TDL money back in the form of contracts, but unlike the telcos, Chorus can’t raise prices to fund the tax because most of its rates are regulated.

What the TDL says about the industry

Only companies with telecommunications revenue of more than $10 million pay the TDL. When deciding how much each should pay, the Commerce Commission extracts a number it calls qualifying revenue. This figure can often be well below $10 million.

The commission adds all the qualifying revenue. Then companies pay a share of the $50 million TDL based on their share of qualifying revenue.

You could look at the way the share changes as a crude, yet effective, measure of relative performance.

The total pool of qualifying revenue changed little between this year’s determination and last year’s. In both cases it comes to a little over $4.2 billion.

In other words, taken as a whole, New Zealand telecommunications industry growth is flat. Taking inflation into account, that means it is actually in gentle decline.

Spark still dominates, but falling

Spark remains the largest contributor to the TDL. In the 2016-2017 year its share was a fraction over 35 percent of the total. That’s down from almost 38 percent a year ago, a fall of around 2.5 percent.

Vodafone barely shifted position in the year at a little over 26 percent. Its share of the TDL total climbed by 0.1 percent. You could see this as closing the gap on Spark. In very round numbers Spark is around a third of the total market and Vodafone is a quarter.

Chorus saw its share of the total grow by half a percent. It remains the third largest telco with getting on for 23 percent of the total.

2degrees is a climber. Its share of the total grew from 7.25 percent to 8.38 percent. This reflects the company’s strong performance in the market. While it is still a long way behind Vodafone and Spark, to be almost a third the size of Vodafone after seven years in the market is a major achievement.

Vocus is down a smidge at 3.25 percent of the total. It is less than half the size of 2degrees and less than a tenth the size of Spark. The company’s relative size could mean few regulatory hurdles if other New Zealand telcos attempt to buy it.

The five largest telcos collectively account for almost 96 percent of the total TDL in this year’s determination. That’s down one percent from last year.

Fibre effect

This is because of fibre and the rise of the regional fibre companies. Ultrafast Fibre, Enable and Northpower saw their total share climb from less than one percent of the total to about 1.6 percent.

This happens because as customers move from the copper network to UFB fibre some of the money those customer pays switches from Chorus to the regional fibre company. As more sign up for fibre these companies will continue to grow their share of the TDL, but at some point they will stabilise.

Most of the other changes are down to what scientists might call noise in the numbers. Although there is a newcomer in the TDL list this year, Now only accounts for 0.13 percent of the total.

Also on:

Rural VDSL2

Cynics were quick to label the government’s generous broadband funding announcement as pork barrel politics. There’s something in that. New Zealand is, after all, in the run up to what looks like a tightly fought election.

Yet anyone looking closely at the existing fibre network and the second phase of the Rural Broadband Initiative could have figured out that government needs to spend more to fill the remaining broadband gaps.

It was only a matter of time.

English, Bridges plug holes

In the event, Prime Minister Bill English and Communications Minister Simon Bridges managed to find the extra money needed to plug the holes. Sure, it is smart politics. It is also a smart communications strategy.

By the time the money is spent, New Zealand will have world-class broadband infrastructure. The cities were always going to get that. Now the regions will too. On paper New Zealand will have the world’s best rural broadband.

What’s more, we get that world-class network sooner. Five years from now the earth movers, fibre-laying gear, hard hats and high visibility jackets will be packed away. Just about everyone in New Zealand will be able to watch high-definition streaming video or quickly upload vast amounts of data to a cloud.

Fibre, copper, wireless

Before this week the government committed about $2 billion to building a fibre network that would reach around 80 to 85 percent of the population. Another 10 percent or thereabouts would have either VDSL from fibre-fed cabinets or a fixed wireless connection of some description1.

This week’s spending brings the total spend up to around $2.5 billion. Between them the network builders2 will invest about twice as much again. That’s all private money. No-one uses the term in telecommunications; New Zealand’s new broadband network is a classic public-private partnership.

The cost to taxpayers is minimal. The $1.5 billion or thereabouts put aside for the first wave of Ultrafast Broadband was a soft loan. By 2025 the treasury will get that all back.

Old money

Much of the remaining billion dollars from government is either the same money recycled, or funds raised from levies imposed on telecommunications companies.

While taxpayers will ultimately cough up for this through higher service prices, it’s still clever accounting. And the cost per user is minimal. My back of an envelope calculation3 puts it about 50 cents per month.

Compare this with the tens of billions Australia is spending on NBN. Many figures have been used over the years, around A$50 billion is the most common current estimate.

Australian’s will tell you it’s a bigger, more ambitious job reaching more people and spreading further. It’s true. Even so, it looks like the New Zealand people are getting a far better deal. Most of us also get better services than Australians too.

99 percent

At its peak, the old copper telephone network reached around 99 percent of the population give or take. You can assume the last one percent is beyond reach in practical terms.

Connecting the 75 percent of the population living in cities and towns isn’t that hard. Laying fibre to the door for these people isn’t prohibitive.

The next ten percent of the population is harder to reach, the cost per connection might be one and half to two times the cost of connecting the first 75 percent of the population. It’s harder, takes longer and is more expensive. But it’s still doable.

Problems start with the remaining 15 percent. In many cases it is cheaper to reach them with wireless services. Some of the last 15 percent will be in communities which already have fibre connected to a local school. In others, there may be enough people in one spot to make fibre-fed cabinets and VDSL over copper a viable proposition.

Where fibre gives way to wireless

In round numbers the cost per connection rises with each percentage point as you move from the 85 percent mark to 99 percent. At some point along this line the economics of fibre and copper give way, first to cellular fixed wireless and then to the more tailored, local approach used by wisps.

Fibre is the best way to get a broadband connection. Fibre-fed cabinets and VDSL over copper is second best so long as you are near enough to the cabinet. Today’s wireless technologies can often perform almost as well.

This plan leaves almost no-one behind and anyway, govenment will plug the few remaining gaps over time. New satellite technologies promise to perform almost as well as fixed wireless.

There’s a clear political slant to this week’s announcement. While the timing is deliberate, the decisions are money well spent. This is a sound infrastructure investment.


  1. Fixed wireless services from wireless internet service providers or wisps are not quite the same as the RBI fixed wireless broadband services delivered from cellphone towers. ↩︎
  2. Chorus, Northpower, Enable Networks, UFF, Spark, Vodafone, 2degrees and the wisps. ↩︎
  3. Total levy is $50 million a year. Divide that by the number of mobile, landline, fixed wireless and broadband accounts and then by 12. At a guess I’d say there are eight to ten million telecommunications accounts. ↩︎

2degrees has signed a multi-year backhaul contract with Chorus. The deal replaces a mix of services from providers including Spark and Vocus.

The network will connect UFB points of presence and data centres to the international network. 2degrees says it now has a fully diverse and highly resilient network that transports voice and data worldwide.

It’s a strategic move for both companies. At 2degrees it marks the latest step as the seven-year-old mobile carrier emerges as a full-service telco. It is now New Zealand’s third largest retail telecommunications carrier.

Future proof

Mark Petrie, 2degrees chief fixed officer says: “By combining 100Gbps links into our network we’re future proofing our ability to support the ever-increasing data demands of the country’s largest enterprises, for whom having this capability is critical.”

The deal marks the first national customer to sign for Chorus’ 100Gbps nation-wide fibre backbone network. Chorus’ chief commercial officer, Tim Harris describes 2degrees as an important strategic partner for Chorus.

While it is an important business win for Chorus, there’s an even greater significance. It marks the national wholesale network provider’s move away from regulated monopoly services into a more competitive space. This gives Chorus a route away from settling down as a mere utility provider into more commercial areas.

Vodafone NZ RBI2 bidCrown Fibre Holdings’ Rural Broadband Initiative and Mobile Black Spot request for proposal closed on Monday.  That’s RBI2 to the rest of us.

At stake is $150 million of money funded by the Telecommunications Development Levy. Of that, $100 million is to finance high-speed broadband. It needs to reach to the last 15 percent of the nation not covered by UltraFast Broadband. The $50 million is to improve cellular coverage in areas not yet served.

The process is confidential. So far four bidders have gone public revealing some aspects of their plans. There could be others.

Chorus: extend and improve existing land-based networks

Chorus aims to extend the reach of its fixed-line network beyond urban New Zealand. The company says it is willing to work with others. It did that when it joined Vodafone to build the original Rural Broadband Initiative.

Extending can mean new fibre and maximising the use of existing fibre in rural areas. It can also mean upgrading copper.

Chorus says it wants to improve fixed-line network performance in rural areas. This could mean upgrading copper to VDSL. Newer copper technologies are also possible.

It says its fixed-line networks are not prone to congestion at busy times. They don’t need to use data caps to manage demand. That’s a dig at fixed wireless broadband on cellular network.

Central to the Chorus proposal is its networks will be open access. Any retail service provider can use them.

Choose wireless say Vodafone, Spark and 2degrees

Vodafone, Spark and 2degrees have combined to offer a cellular-based approach. Their proposal includes up to 520 new cell sites.

They say the extra towers will extend the reach of today’s cellular coverage by 25 percent. Not only will the three companies share rural towers, they will also share antennae and spectrum.

That’s a huge step for Vodafone and Spark but it makes economic sense. It will reduce capital expenditure, stretching the money further. And it will keep running costs down.

Updated: While the companies’ press didn’t say the RBI2 towers will be open access, Spark says they will be. This echoes the approach in the first stage of the RBI where Vodafone built towers, but other carriers can use them.

Wispa makes case for small, local service providers

Wispa, a coalition of small rural wireless ISPs aims to win up to $2 million from the fund for each of its 30 members. Spokesman Chris O’Connell says Wispa member already serve 40,000 customers. They deploy wireless broadband in areas bigger companies often consider uneconomic.

In some cases Wispa members work with the big telcos reselling their services.

Wispa members are experts at rural broadband. They know the terrain and they are close to their customers. Most know how to deliver great broadband on the smell of an oily rag. Many will be able to deliver CFH the greatest bang for the buck. On the downside, it can be harder managing 30 small players than cutting a deal with the big operators.

Alongside Wispa, Aird Towers aims to build what it describes as “operator agnostic” towers. In other words an open access alternative to the carriers. The Aird plan would allow the main mobile carriers and small wireless ISPs to share access.

Mix and match

The mobile carriers’ joint bid looks like an ideal way of fixing the mobile black spot problem. Otherwise, when it comes to delivering the best possible broadband to rural users at the least cost; it’s not a case of either or. All the proposals have some merit.

Tuanz CEO Craig Young says users would probably be best served by a combination of the bids. And that’s the most likely outcome.

Most bidders accept there is overlap and room for co-operation1. Vodafone CEO Russell Stanners told Stuff: “..it makes sense for the Government to spend all the $150 million it has earmarked for improving rural telecommunications on new cellphone towers. With none going on improvements to the fixed-line network.”

Even then there is a case for Chorus to provide fibre to the new cellular towers. There is also a case for any towers to be open access so that Wispa members can use the infrastructure.

After all, it seems wrong to deny rural users the benefit of full broadband competition.

RBI2 reaches the last 15 percent

When work finishes on the second stage of UFB, 85 percent of New Zealanders will have fibre access. The RBI2 plan is to boost broadband for the last 15 percent. In some ways they need it more than city folk. And the rural economy makes up the bulk of exports.

Fibre is the best way to connect to the internet. In an ideal world, everyone would get it.

It makes economic sense to connect the first 85 percent of the nation to fibre. Once you get beyond that segment of the population, connection costs rise fast. Each home in the next five percent costs, say, twice a much on average to connect as the bulk of homes. With the last 10 percent, the per house costs rise further.

So away from any low-hanging fruit, wireless is likely to be their best option. The most cost-effective way of getting broadband to the wop-wops is a mix of fibre and wireless.

Crown Fibre Holdings says it is now assessing the RBI2 proposals before moving to negotiations with shortlisted suppliers. It hopes to announce contracts by July.

For another take on the rural broadband extension bids listen to InternetNZ deputy CEO Andrew Cushen talk to Kathryn Ryan on RNZ Nine-to-Noon.

Bill Bennett is editing The Download magazine for Chorus and has previously worked for Spark NZ.


  1. Originally the story said the mobile carriers didn’t talk about co-operating. Spark clarifies this saying: “We haven’t said we won’t co-operate.  All we’ve said is no more $ should be spent on copper”. ↩︎

Fast Chorus van

New Commerce Commission rules mean Chorus must keep its copper network congestion free.

The Commission says it doesn’t want service quality to fall as traffic volumes grow.

It says links between Chorus dslams and the first upstream data switch must not go higher than 95 percent of capacity for more than five minutes.

Chorus must now report when parts of its network approach full capacity. It must also tell ISPs about its plans to improve capacity as lines approach 80 percent capacity.

Aim is certainty

The aim is to give retail ISPs certainty buying unbundled bitstream access (UBA) from Chorus.

There is an exception for around 19,000 lines in remote areas. These are not covered until it is clear what happens to them in the next phase of the government’s Rural Broadband Initiative.

The ruling underlines the continued importance of UBA. This is despite the government supported UFB fibre network. In a few years UFB will reach more than 80 percent of the population.

UBA services on the copper network are the main way people not yet connected to fibre buy broadband. For people outside UFB areas, it will remain an important option for years to come.

Deregulate option

Once the fibre network is complete there is an option to deregulate the copper network where the two overlap.

Telecommunications commissioner Dr Stephen Gale says: “We are confident that the new standard will not lead to inefficient investment, even if copper is deregulated in UFB areas”.

Meanwhile, the Commerce Commission decided not to change the rules for VDSL connections. It says this is already covered by existing rules. What’s more, there’s a danger forcing Chorus’s hand on VDSL could limit the uptake of newer alternatives.

This week’s ruling dates back almost three years to complaints from Telecom NZ — now Spark. Spark argued changes proposed by Chorus would breach UBA standards. Chorus dropped the proposal, but the Commerce Commission launched a review of UBA standards anyway.