The Telecommunications Bill going through Parliament sets the tone for New Zealand’s fibre era.

By 2022 around 87 percent of New Zealand’s population will have access to fibre.

Many homeowners and businesses have already chosen to connect to fibre. This month Statistics New Zealand reported one in three broadband connections are now fibre. That’s up from one in eight connections two years ago.

According to the most recent Broadband Deployment Update from the Ministry of Business, Innovation and Employment, uptake is now 44.1 percent. In some regions uptake is already higher than 50 percent.

The numbers continue to climb.

Fibre is only likely to get more popular with Spark buying up sports broadcast rights. Early next year the company will launch an app so viewers can watch Rugby, Football and Formula One racing online in high-definition. Other sport will follow.

Fibre everywhere

I’m not sticking my head out here by saying I expect half of all New Zealanders to have fibre connections by 2022. The number could be higher.

By then Spark will have a 5G mobile network, other mobile carriers could also offer fast mobile broadband and fixed wireless services with fibre-like speeds.

Many of those left with copper networks should see better experience thanks to VDSL and other fast copper technologies.

We will be in a new communications era.

New rules

Last year the National government introduced the Telecommunications Amendment Bill. It aims to set out the rules for fixed line telecommunications in the fibre era.

Most insiders expect the Bill to have its third and final reading between now and Christmas. After then it will be law.

This week the government tabled a supplementary order paper for the Bill. Among other things it sets a new cap for the wholesale price of a fibre connection.

The government has decided that a 100/20 mbps connection will be the benchmark. It calls this the anchor service. Some in the industry have argued that by 2022, 100/20 mbps will be bordering on obsolete. Never mind, the key point is that the price cap will $46.

Telecommunications Bill brings certainty

This is important as it gives everyone in the industry something to work with as they plan strategies for the coming era.

The figure means wholesale broadband companies make a profit. They have enough incentive to expand fibre networks beyond the reach of 87 percent of the population. No doubt this will happen over time.

Likewise retail service providers know what they need to charge consumers to make their broadband services pay. Everyone in the industry likes certainty.

Elsewhere the Bill will make telecommunications regulations more like those in other utilities. It will remove unnecessary rules that are a hang-over from the copper era.

Watching service quality

The Bill also aims to get the Commerce Commission to take more notice of retail service quality. The Commerce Commission will also get to check that emergency services are available even in the event of a power failure, which would knock out fibre services.

The Commerce Commission will be allowed to conduct inquiries into any matter relating to the industry or for the long-term benefit of consumers.

Telecommunications Minister Kris Faafoi says the new regulated price: “…represents a fairer deal for everyone: a good price for New Zealand broadband consumers and a reasonable price for Chorus”.

Chorus CEO Kate McKenzie says the supplementary order paper provides some clarification. She says: “We welcome this step towards a new regulatory framework for New Zealand’s key communications infrastructure. We look forward to the passage of the bill and to starting work on implementation”.

One thing that hasn’t been said in public, but is discussed by the industry in private is that the certainty brought by the Bill when it becomes law should calm things down between the various players.

The last year or so has seen retail and wholesale companies jockey for position ahead of the Bill. Relations between players have been tense. Most of the time this has been behind the scenes, but every so often something emerges in a speech or a media interview.

Once the Bill becomes an Act, everyone can get back to the more important business of finding innovative ways to make money from telecommunications services. That means giving customers what they want and seeking out new things that we are going to want in future.

Silverdale 4.5G cell siteFor 5G to deliver its promise, carriers need to use higher frequencies than today’s mobile networks.

Higher frequencies means more bandwidth. This can deliver faster data and more connections per square kilometre.

As a rule, higher frequency radio signals travel over shorter distances. Higher frequency sites will be useful in areas of high population density. In some cases they may be only a few dozen metres apart.

Cover every street

When cell sites are a few dozen metres apart, you need a lot of them. They will, in effect, need to go down every street in the country. The antennae don’t need to be as high as today’s cell towers. You can install high frequency cell sites on telephone and power poles or the sides of buildings.

Compared with today’s cell sites each one will cost a lot less to build. The hardware is smaller and less of an eyesore so the planning requirements will be simpler. And there will be some incremental upgrades.

Yet there will be so many new sites that the total cost of a 5G network could be as much as the earlier mobile. It all depends on how far New Zealand carriers intend to push the technology. It’s possible we won’t get the same 5G service as customers in say, Shanghai, Paris or New York.

Fibre is the 5G backhaul answer

Connecting lots of cell sites is tricky. Today’s cell sites often connect back to hubs using fibre connections. This is the best technology.

When Telecom, now Spark, built its XT mobile network it made a big deal of its towers using fibre backhaul. That’s the name engineers give to the practice of getting signals back to major centres.

Fibre backhaul gave the XT network a clear performance edge over Telecom’s rival. At least it did once Telecom ironed out the initial teething troubles.

Wireless option

Carriers don’t have to use fibre for 5G backhaul. In my NZ Herald interview Alex Wang said self-backhaul would be a feature of 5G. That is the towers link to each other in a wireless mesh network to get traffic back to a central hub.

Wireless backhaul is possible, but it limits overall network performance. You need a lot of bandwidth to backhaul thousands of 10 or 20 Gbps data streams.

It needs to be line-of-sight and it often uses higher power signals. Cue the protests and renewed fear of microwave signals causing health problems.

In practice fibre is a better way to handle 5G backhaul. It’s the most practical way to deliver the promised performance.

Overbuild

And that’s where the New Zealand mobile telecommunications industry hits a potential problem. There is already a nationwide fibre network for UFB.

Fibre companies already have fibre running down every urban street. It cost more than $5 billion to build that network.

That’s how much carriers must spend if they want a viable nationwide 5G network and compete with each other.

You could argue that building three more nationwide fibre networks would waste resources.

It would also add a lot to the cost of using a 5G network. Add in the cost of new antennae, site fees and network controllers. It could add up to more investment than carriers spent on earlier mobile generations.

Shared network

In practice there’s little chance of carriers building three more nationwide fibre networks. In theory the carriers could build a shared network.

There are arguments why this should not happen. For a start it could shut out any new competitors. There’s also a fear that three carriers owning shared mobile infrastructure could become a cartel. That’s also bad for competition and terrible for customers.

You can assume the Commerce Commission wouldn’t sign-off on shared infrastructure unless it is open access and otherwise regulated. The alternative is anti-competitive and would stifle innovation.

One third of a lot of money is still a lot of money

Even if carriers build a shared fibre 5G backhaul network, the cost per carrier would still be one-third of a big sum. It is more money than Vodafone or 2degrees appear to have today. This is before they need to spend on towers, antennae and the other kit needed to run a 5G mobile network.

Spark could raise the money for its share. The company has little debt. But even its investors might baulk at the cost of a nationwide fibre 5G backhaul network.

As we’ve already mentioned, a 5G network may need many more towers than the 4G networks that are in place today. Each site is likely to cost a lot less than the cost of a 4G site. The number of 5G sites needed to blanket cities and towns means the capital expenditure is going to, at least, be on a par with the investment in 4G. In reality it is likely to cost more.

A billion here, a billion there

Carriers don’t like to talk about the cost of building their networks. In round numbers each has spent in the region of NZ$1 billion on mobile network infrastructure.

Sure, that’s a back-of-an-envelope calculation. The exact numbers aren’t important. They have also invested many millions in buying spectrum.

The three carriers’ total capital spend on 4G to date is on a par with the amount needed to build the UFB network. They will also need to find the thick end of billion or so to build the extra sites needed for 5G.

This would be fine if there was a chance of getting customers to pay a premium for 5G mobile. That’s not going to happen. We’ll look closer at the business case for 5G in another post.

The open access model

New Zealand already has a tried and tested model for a separate wholesale layer. It’s called UFB.

The big telcos don’t like that model because by law wholesalers treat them the same as small ISPs. Spark can’t go to, say, Northpower and ask for a special deal “because we’re your most important customer”. That grates with the big carriers.

They also resent the wholesale charges. Remember the copper tax debate? It annoys telcos that the wholesaler gets 40 percent of each customer’s subscription.

Never mind that sum means the wholesalers gets a fair return on their investment. The regulator decides what’s fair.

The Chorus proposal

Which explains why the four big telcos scorned Chorus CEO Kate McKenzie’s proposal. She suggested that Chorus could provide the fibre 5G backhaul. They fear loss of control and they fear having their tickets clipped. The cost per mobile connection for such a service would be tiny. It would be far less than the cost of building a new network.

In reality one or more of the mobile carriers may end up using some Chorus fibre to backhaul. They may also use NorthPower, UFF or Enable resources. What they don’t want is another wholesale network muscling in on their turf.

Yet, it looks like they will end up with either Chorus or a regulated Chorus-like wholesale organisation. Only Spark could go it alone. But it has better capital expenditure options on than overbuilding a fibre network.

Disclaimer: Chorus pays me to edit the Download magazine and a weekly newsletter. It didn’t pay me to write about 5G backhaul. Indeed, this post doesn’t reflect anyone’s opinion other than my own. No one vetted or otherwise approved this. Any mistakes are down to me. Your corrections or alternative opinions are welcome.

cellular tower

Network makers promise next-generation mobile phones will download data faster than fibre.

The original goal for 5G cellular was 10 Gbps downloads. Now engineers say 20 Gbps.

Without getting deep into electromagnetic physics and radio engineering, this was an ambitious goal. Ambitious, but as the evidence so far shows, realistic.

Yet there are challenges.

Carriers can’t push wireless data through the air at 20 Gbps using the existing mobile radio spectrum.

More spectrum please

Which means carriers need to find new spectrum to deliver the promised 5G performance.

Or, to be more accurate, governments need to reorganise spectrum allocations. They get to decide who can use which parts of the spectrum.

Spectrum is an important resource. It isn’t only used by mobile phone companies. So governments must weigh up the needs of mobile phone companies against other spectrum users.

In part it does this is by putting a price on spectrum. Chunks of ratio frequencies are sold to the highest bidder. Usually, but not always, this involves an auction.

New Zealand’s Radio Spectrum Management, part of the Ministry of Business, Innovation and Employment, is already working on plans to put frequencies aside for 5G cellular.

Meanwhile, the Commerce Commission is working on regulatory aspects of the move to 5G.

Telecommunications Commissioner Dr Stephen Gale says:

“We believe the power to regulate remains an important competition safeguard, especially with 5G networks and potential new entrants on the horizon”.

Money go round

In the past government spectrum auctions work by dividing available frequencies into blocks. Bigger blocks give carriers more bandwidth to play with. In simple terms more bandwidth can mean faster data speeds.

Spectrum auctions can make a lot of money for governments. Past auctions have poured gold into the public sector. The recent UK 5G spectrum raised £1.3 billion, around NZ$2.5 billion.

It may look like a windfall. Governments often treat the money that way. But it is more about moving money from one place to another. When telcos pay a lot for spectrum the cost is passed onto customers.

Risks

If they overpay, they may spend money that would otherwise be used to build towers and extend the network’s reach. Overpaying often means a network roll-out is slower.

Given the value of cellular communications to the wider economy, squeezing out the maximum amount of cash in a spectrum auction can be counterproductive in the long term.

New Zealand’s last spectrum auction took a more sensible approach.

The government realised the economy could be better served in the long term by a good mobile network than by a windfall. So carriers were offered a fixed price well below what it might have made in a competitive auction.

Not everything sold so one remaining block of spectrum was then auctioned off.

In the past different cellular services have run in different frequency bands.

This can still happen. Yet one of the features of 5G is that carriers are able to mash together greater amounts of bandwidth from different bands. Or to use an engineer’s language: they can aggregate spectrum.

While this already happens a little with 4G, Spectrum aggregation is central to 5G. How that works in practice will be interesting. It will be a challenge for phone makers.

Higher frequency

Most people in the telecoms business expect 5G to use higher frequencies than today’s mobile phones. Depending on who you talk to, the options go all the way up to 95GHz.

This brings us to another challenge carriers face. Radio waves have different properties in different bands.

Low frequencies are useful for communicating with submarines or in mines. Shortwave radio is good for broadcasting over long distances. And so on.

Dealing with this is an engineering problem. There are also political challenges. In some cases existing spectrum users may have to give up their rights or move services to different frequencies. It can be disruptive.

Compared with some other countries, New Zealand is well placed to deal with these challenges.

UHF – ultra-high frequency

Almost all of today’s mobile telephone traffic takes place in what is known as the ultra high-frequency band or UHF. This is the spectrum from 300 MHz to 3GHz.

Some of the spectrum that will be used for 5G is in the next band up: super high frequency or SHF. That runs from 3 to 30 GHz.

UHF and SHF frequencies are microwaves. Which means the band is used by microwave ovens. It’s also used by Wi-Fi and other home wireless devices, satellite communications, radar and radio astronomy.

As you move into higher spectrum bands radio signals run into a different set of physical problems. At 5GHz and above signals get absorbed by solid objects.

The signals don’t propagate so well. So antennae cover shorter distances. In other words, you need to build more towers to give carpet coverage.

Bluetooth

Bluetooth devices operate in part of this frequency band.

The devices have low signal power levels compared with cellular phones. They are only designed to work over a short distance.

Even so, you a taste of what to expect from a 5G cell site operating at this frequency by thinking about Bluetooth’s limitations around your house. The signals may pass through wooden walls, masonry can block them. So can metal frames.

When outdoors, microwave signals don’t tend to pass through mountains or hills. In effect, they only work in line-of-sight. A cell site operating at higher microwave frequencies that works for a customer in winter might struggle in summer when there are leaves on the trees.

Rain fade

Go beyond 30GHz and radio signals are affected by water molecules. That means rain — satellite TV users will already know about rain fade. From about 60GHz oxygen molecules get in the way.

Some engineers overseas want to use frequencies as high as 95 GHz for their 5G networks. There’s a military weapon that works at this frequency.

This tells you something about the risks, although the power used for cellular phones would be many times lower than any weapon.

Payoff

To keep things simple, let’s leave it at this: higher frequency radio waves are harder to use. On the other hand, they offer much more bandwidth and that means higher potential data speeds.

As a rough rule of thumb, higher frequencies mean faster data, but over shorter distances. Typically higher frequency sites will be in densely populated areas and will be only a few dozen metres apart.

When cell sites are a few dozen metres apart, you need a lot of them. They don’t need to be big. You could put them on existing telephone or power poles.

In New Zealand

For now, talk of higher frequencies and the problems using them is largely academic. Most of the planned 5G action here in New Zealand is in or around frequency bands already used by mobile phones.

When Spark managing director Simon Moutter outlined his companies plans he called for more spectrum below 1 GHz.

He says it will be needed to provide 5G services in rural areas. This will almost certainly mean the 600 MHz band, which is already in the government’s sights. Signals in this frequency band can travel over long distances.

Moutter also identified the “two most likely spectrum bands”. Spark wants the mid-frequency C-band and high-frequency mmWave band to be ready as soon as possible so it can put its 5G network in place in time for the 2020-21 America’s Cup in Auckland.

This shouldn’t be difficult in principle.

Is there enough for 5G?

There should be enough usable spectrum in the 600 MHz band and the C-band to give New Zealand’s three big mobile carriers all they need to build viable 5G networks.

Yet they are not the only possible bidders for 5G spectrum. Wisps — wireless internet service providers — do a fine job filling in the gaps in regional broadband coverage.

Wisps could also make good use of more spectrum. And the spectrum of most use to them happens to be the spectrum the carriers are keenest to buy.

Small regional service providers lack the financial clout of the mobile carriers, but they can argue the service they offer is as deserving. Maybe more, after all, wisps service New Zealand’s exporters.

Elsewhere, Callplus founder Malcolm Dick’s Blue Reach project is likely to show interest in 5G spectrum. Blue Reach plans what it calls a 5G wholesale service. Presumably, the wisps would be among Blue Reach’s customers.

Economic logic says a competitive auction is a way of ensuring spectrum goes to the bidder who stands to gain the most. This, the argument goes, means the most economically efficient use is made of each block of spectrum.

In practice, some bidders sit on unused spectrum. The last NZ auction made that unlikely as it included a use-it-or-lose-it clause.

Some less well-heeled organisations find it hard to buy the spectrum they need. How these issues will be addressed will become clearer when the auction terms are formally announced.

The Commerce Commission says retail telecoms service will be one of its priorities for the next year.

While the telecommunications industry gets more than its fair share of political and regulatory scrutiny, there is unfinished business.

The Commerce Commission’s timing makes sense. The first phase of the UFB fibre build finishes over the next 12 months.

Soon after that, the pre-5G mobile jockeying will start in earnest. Spark is already making noises about moving to 5G.

In a media statement, the commission says it has “been working to improve its understanding of the retail telco issues faced by consumers”.

Service quality

This year the commission says it intends to monitor areas of service quality including billing, contract terms, marketing and switching between service providers.

The media statement says:

“We also expect to implement new consumer provisions from amendments to the Telecommunications Act, including industry codes to address issues of retail service quality.”

This is in addition to work the Commerce Commission is already doing on the implications of competition and regulation in mobile and fixed line services.

Are we being served

Service quality is something of a black hole in the telecommunications sector.

Improved service quality was one of the objectives of the 2009 reforms. It was just as big an issue then.

At the time Telecom NZ divided into what is now Spark and Chorus.

The planners thought telcos would compete on service quality after the industry separated into wholesale and retail layers. Instead they raced to the bottom on price.

Few if any telco’s offer a high service quality option today. Consumers are free to choose between various levels of indifferent service. They range from near-hostile to grudging customer support.

Little or no service

This has lead to a curious state of affairs.

Telcos offering less formal customer service rank higher in consumer preference surveys.

Spark’s low-cost Skinny brand often rates as delivering better service.

Skinny doesn’t have a traditional call centre. Instead it handles everything online.

Not offering much customer service, means Skinny customers don’t expect much. Their illusions are never shattered.

Of course Skinny targets a particular demographic: mainly young tech-savvy people looking for a bargain.

It’s a market that prefers not to use call centres. Moreover, younger New Zealanders have no recollection of a time when support seemed better.

Agile to the rescue?

Spark is moving to a new Agile way of working. Liam Dann has a great feature on Spark’s Agile project in The New Zealand Herald.).

Agile was originally a manifesto for software developers. One of Agile’s ideas is a focus on satisfying customers.

In the case of software developers, customer usually means whoever pays the bill. It can be an external client. It can also be another division of the same organisation. Consumers are rarely customers in this sense.

It isn’t clear if Spark version of Agile means satisfying consumers. Some of the rhetoric to leak suggests it is. If so, it’ll be interesting to see how this works. It’ll also be interesting to see if it satisfies the Commerce Commission.

Other service issues

The Commerce Commission is also looking at contract terms, marketing and switching.

Switching between providers is now easy. At least in theory. Number portability makes it simple for mobile customers. For fibre customers, switching involves little more than a click of a mouse button on a dashboard.

However, telcos like to tie customers into long contracts. This makes switching harder. In their language this is called customer churn.

Some telcos, Trustpower is an example, offer televisions or fridges to people signing longer terms.

Others, offer the lure of a low starting price for a few months. The small print says customers then pay more for the remainder of, say, a 24 month term.

These deals can end up more expensive that no-contract subscriptions.

Break clause

While most contracts are legal, they’re heavily weighted in favour of the telco. Some have expensive break clauses.

It can be hard to find a service from a name brand that doesn’t come with contract strings attached. This often means angst when customer circumstances change.

Many of the problems with marketing are linked to contracts. It’s rare for many months to pass without another telco pushing the boundaries of responsible marketing.

Both contracts and dodgy marketing remain regular issues for Telecommunications Dispute Resolution. There’s a clear need to beef up protections in these areas. The Commerce Commission is right to worry about them.

The Commerce Commission wants to continue regulating mobile roaming. At present it can make Spark, Vodafone or 2degrees give a new network owner wholesale access. This is part of the Telecommunications Act.

The Act also says the Commission faces a review of its responsibilities every five years.

Wholesale access to existing networks helps a new network get a foothold in the market. Something similar happened when 2degrees started and customers could roam on Vodafone’s network. At the time 2degrees only had coverage in four centres.

Roaming matters

Telecommunications Commissioner Stephen Gale said in a press release:

National mobile roaming helped 2degrees deliver a nationwide service for its customers from day one, in advance of rolling out its own national network infrastructure. We believe the power to regulate remains an important competition safeguard, especially with 5G networks and potential new entrants on the horizon.

The key phrase in that quote is “potential new entrants“.

After all there is little prospect of a new mobile carrier entering a saturated market. Yet that doesn’t mean there isn’t a potential new entrant looking to enter the cellular market.

That would be Malcolm Dick’s Blue Reach. The Commerce Commission mentions this company in its review of the market.

The allocation of 5G spectrum may influence mobile competition:
The allocation provides a potential opportunity for a new entrant to purchase spectrum. A new mobile provider will almost certainly require a NR arrangement while it rolls out. We note that Blue Reach Services has entered as a fourth provider and has publically stated intentions to roll-out 5G.

Dick is a wealthy man who has succeeded in telecommunications before. He is a co-founder of CallPlus and an investor in the Hawaiki Cable network. The latter is set to start operating next month.

Blue Reach

His Blue Reach project has been public for a couple of years. Early on Dick described Blue Reach as a 5G wholesaler. The idea is that it will offer fixed wireless broadband to retail service providers. In some ways it is like the failed Woosh Wireless operation. That company was ahead of its time.

At the time of writing carriers around the world are building the first 5G networks. Both Spark and Vodafone have trials here in New Zealand. The technology still hasn’t settled. More to the point, the extra spectrum needed to make it work is not ready in New Zealand. We can expect that to happen over the next 12 months.

Blue Reach plans a service resembling Spark’s fixed wireless broadband. Both Spark and Vodafone sell a similar RBI wireless product to rural customers. So do wisps (wireless service providers). Presumably the wisps are among the retailer Dick hopes will buy his services.

The Commerce Commission’s review hints that we are about to see more competition. Bring it on.

The Commerce Commission has called for submissions on the issue to before July 30. It expects to release a final decision on September 4.