Fairfax’s softly-softly entry into New Zealand’s crowded fibre market launches today.
It’s anything but a unique proposition — no fibre-only ISP can do that in a world of regulated wholesale services — but Stuff Fibre ticks the important boxes.
The service is 100 Mbps down and 20 Mbps up with no data caps.
Stuff Fibre says it offers: “Unlimited data, no fixed-term contracts, simple billing and local customer service”. There’s also a tool to help parents check children’s internet use.
While these are all crowd pleasers and likely to push Stuff Fibre up most buyer’s list of choices, the most important feature is the $90 a month subscription price. This sits in the middle of the market.
In a world of largely undifferentiated fibre services price, performance and reliability matter more than anything else.
We won’t know about performance and reliability until later.
Stuff Fibre mid-price service
Stuff Fibre is $5 cheaper a month than the market leader. Spark’s price for a 100 Mbps plan with unlimited data is $95. Vodafone’s 100 Mbps unlimited plan is $91.
Spark’s no-frills Big Pipe subsidiary offers a similar plan for $80 a month.
“Stuff is entering the broadband market, launching an internet provider that will compete with Spark, Vodafone and dozens of smaller providers”.
The announcement is for a run-of-the-mill offering. At first sight it is indistinguishable from existing fibre services.
Pullar-Strecker says the service launches in three months. It will offer uncapped 100 Mbps ultrafast broadband. that’s just like every other service provider.
Pullar-Strecker quotes Fairfax NZ chief executive Simon Tong, who says pricing will be competitive.
Every broadband provider in New Zealand says the same thing.
Tong also says Stuff Fibre’s customer service will “stand-out”. He also promises high-quality broadband routers.
There’s not a broadband provider in the country who doesn’t say the same.
“Stuff Fibre managing director Sam Morse said parents would be able to filter out ”unsavoury“ internet content and reduce exposure to social media by changing account settings.”
This is a departure from the usual broadband sales pitch, but not by much. Any tech savvy parent can already do the same.
Offering to filter on behalf of those parents not able to track kids’ online activity may be a draw card. It’s also something rival broadband providers can do at the drop of a hat.
Broadband is a strange move for Fairfax. Everyone knows the newspaper business is in trouble. Industry problems are so deep Fairfax New Zealand wants to merge with rival NZME.
Both companies told the Commerce Commission they don’t make much money. They say margins are razor thin.
It makes sense to try something new.
Yet as anyone in the telecommunications sector will tell you, there’s not much money in selling dumb pipes. There’s some money selling broadband with value-added services to business customers. The residential market is a bear pit.
Broadband margins are as hard to find as media profits. Maybe harder for a newcomer. Getting into the market means a big investment.
It’s tough and crowded. There are around 90 internet service providers in New Zealand.
The big three
Three companies dominate. Spark, Vodafone and Vocus have 92 percent of the market. None of them make a lot of money from selling broadband. At best the entire sector breaks even.
At least one of the players among the remaining eight percent, TrustPower, sells fibre services well below cost.
Fairfax will play in that eight percent. Although it may be able to use its marketing clout to prise customers away from their providers, at this stage it doesn’t seem to have anything special to offer them, other than, maybe, sharpening the price pencil. Which means even lower margins.
In the photo above a second Pullar-Strecker story Stuff Fibre a risk worth taking are five executives who will run the new business. You can rest assured these are not on minimum wage. Their salaries alone will be a large overhead for a start-up ISP.
Back to Stuff to enter the broadband market with Stuff Fibre, where Pullar-Strecker writes:
“Only 240,000 of the 1.5 million homes and businesses that are currently scheduled to get UFB have upgraded to fibre so far, leaving the bulk of the market up for grabs.”
While this is true, it’s not going to be easy pickings. Every single one of the homes and businesses already using broadband will have a service provider who will work to hang on to the business. Many will be happy with what they have.
Waiting for churn
There is customer churn. So there are sales opportunities for Fairfax. Yet as other market entrants have already found, winning them is hard. We’ve seen other big launches that have failed to dent the grip of the big three service providers.
Fairfax has one major advantage over broadband rivals. It is a media company. Most New Zealand visitors to the Stuff website will be broadband customers. It can carpet bomb compelling offers to this audience at next to no cost. Any unsold advertising inventory on its site can now earn its keep.
If Fairfax thinks the Stuff brand on its own is strong enough to attract customers to a broadband service, it is out of touch with reality.
On the downside, if Stuff Fibre fails despite wall-to-wall online marketing, it sends a negative message to the company’s advertisers about the effectiveness of its advertising.
There’s a real possibility Stuff Fibre will be an embarrassing flop.
Online reaction to Stuff Fibre
The simple fact Fairfax think delivering ISP services is smart really shows how dumb they actually are.
Hywood doesn’t put a date on it but says the move will be in the future and only if print becomes unprofitable.
This makes perfect sense even if there’s little evidence of other newspaper publishers making a successful move to digital. Media companies have little choice, either shrink to a digital core and hope the mastheads continue to carry weight, or hang around for the inevitable day when the presses stop running.
Of course, anyone reading this site will have known that was true a decade ago.
Hywood says Fairfax’s digital strategy is ahead of the company’s competitors and ahead of most traditional media companies around the world. He is only part right. Fairfax’s most serious competition comes from media companies that were born digital.
Speaking of businesses born digital, I wonder about Fairfax’s strategy in the light of its part sale of the TradeMe auction site. If I was in Hywood’s shoes TradeMe would sit at the core of my business. By now there would an Australian TradeMe. And I’d junk those crappy low-value Google ads on Fairfax sites and link to TradeMe auctions instead.
So you can read the Radio New Zealand News page 200 times and still download less data than a single read of Stuff.
While these numbers may not be important if you’ve got broadband and an unlimited download plan, they make a huge difference when you are on the end of a slow link or paying through the nose for each megabyte of data.
None of the sites attempted to show one of those awful TV style advertisements during this test. I hate to think what they might add to the totals.
Update: The National Business Review weighs in at 398Kb.
News Corporation has been less vocal, although Rupert Murdoch did mention his dissatisfaction with the reader in comments after his company’s annual results.
As this story in The Sydney Morning Herald explains, the problem is Amazon wants to clip the ticket by too much. Some reports suggest the company takes as much as 70 percent of the price of ebook sales and is seeking similar high margins from newspaper subscriptions.
Sony and Apple are possible alternatives. One aspect of this story is the assumption people will want to read online newspapers via a special reader and not with a PC or smartphone.