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fibre opticWhat will move New Zealanders from copper to Ultra-Fast Broadband?

Or as we used to say in the 1990s: “What is the UFB killer app”?

Video is the simple answer. It’s not the only answer. We’ve been using video communications tools such as Facetime and Skype with success since the early days of ADSL. Video conferencing worked up to a point on dial-up connections. It worked better on ADSL and performs fine on most copper-based VDSL connections.

The same goes for streaming video entertainment. You can, at a pinch, watch it on all but the most feeble connection. True, you get a better experience on a faster connection. And there’s little point trying to watch a high definition movie if you have slow internet.

High definition video

Yet even HD video works fine on a VDSL connection. You need to have rarified tastes to need more than, say a 30 Mbps connection.

Sure, 100 Mbps plus is necessary if more than one person in your house is watching at the same time. And, yet, Vodafone does specify that you need a 100 Mbps connection to watch Vodafone TV.

Fibre improves the video experience mainly because it is faster. It’s also more reliable, less prone to outages.

Speed is the real killer app for fibre-based broadband. Faster broadband means you can do things that were either marginal or flaky with copper connections.

What about wireless?

Many fixed wireless broadband customers are able to get speeds that are fast enough to watch streaming video. Most of the time. There are issues.

First, fixed wireless bandwidth is shared. That means if you live in a neighbourhood with lots of other fixed wireless broadband connections, the performance can drop when everyone else is online. The can mean peak evening TV viewing hours.

Second, for now, the fixed wireless broadband plans on sale in New Zealand have data caps. That means you only get so many video viewing hours each month. That’s fine if you’re a light TV watcher, but is a deal breaker for many.

Even when everything is working fine, fixed wireless broadband connections tend to be slower and less reliable than fibre connections. Technology may change that — one day. For now, you can’t be guaranteed there will always be enough speed.

In today’s word, speed is the killer app.

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.

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Vodafone TVYou need a fast fibre connection to use the new-look Vodafone TV. Less than 100Mbps won’t cut it. That means a UFB connection or Vodafone’s own FibreX alternative.

You also need a Vodafone broadband account. The service is company exclusive. CEO Russell Stanners says he hopes customers who like the look of Vodafone TV will reward his company with their business.

Vodafone has offered a TV service for some time. Its 2013 earlier incarnation was, in effect, a version of Sky TV’s My Box reworked for the internet.

The new version is something else. The hardware is a puck-sized box packaged with a remote control. In some ways it is like Apple TV.

It’s not about the hardware

There’s not much to the hardware because there doesn’t need to be much. The cloud does all the heavy lifting. An Amazon server stores all TV shows, movies and other video. It could be in Australia, but it could be anywhere in the world.

Cloud storage has the vast catalogue of material and the user’s own saved program choices.

There are also mobile clients for phones and tablets. Stanners says, you might be sitting at home watching the All Blacks test on a large screen before going on a trip.

When your taxi arrives, you can press pause on the big display. Load yourself in the car and resume watching the game from the point where you stopped en route to the airport. Pause again, dump your bags and find a seat in the lounge before getting back to watching the game on your tablet.

Stanners says the experience is seamless and brings all the screens together. Vodafone wasn’t able to show the hand-off at the Auckland event to show off the product. Yet staff were able to show how well Vodafone TV works on big screens and on mobiles. It is impressive and like all impressive technology has a faint whiff of magic about it.

Reverse electronic programme guide

Using the cloud has other advantages. There’s no likelihood of running out of local storage. And there’s a powerful reverse electronic programme guide.

This makes it easy to find the shows you want. One neat twist is you can use your mobile phone to cue big screen content. It’s a form of on-demand programming. Armed with the reverse programme guide, you can search back through the last week or so to find shows that you may have missed. The actual timespan wasn’t discussed.

Vodafone TV uses the company’s proprietary intellectual property. The company has a similar product in parts of Europe. Stanners says there has been a huge amount of local input into the service on sale here. Not least, is the work clearing the rights with content owners to build the reverse electronic programme guide.

Vodafone TV: made for Sky merger

The TV-as-a-service product was already in the pipeline when Vodafone planned to merge with Sky. It shows what Vodafone was able to bring to the party. Sky, meanwhile, owns the bulk of content. It will all be there on Vodafone TV, but it’s isn’t an exclusive relationship. The device is able to run apps and from day one there will be Netflix, YouTube and content from Mediaworks. TVNZ will join them soon after.

Vodafone was coy about the precise launch date and the cost. Stanners says it will be soon. There was a whisper at the event that soon means the next week or two. We could have the new Vodafone TV before we have a government.

He wouldn’t talk prices, but Stanners says they will be competitive. Again, the word around the event is that it won’t be expensive. There will be add-ons, some premium content and extras like Netflix subscriptions. At this stage customers will have to buy Netflix themselves, but Vodafone may yet offer it.

Party-on dudes

It doesn’t stop there. Stanners says one advantage of Vodafone’s approach is it makes distribution easy for smaller content providers. He says that means we could see the emergence of Wayne’s World-like niche channels.

The event made it clear there is still a strong relationship between Vodafone and Sky. Vodafone TV delivers most of what a merged operation could have achieved. It does so without causing regulatory ripples. There is no legal compulsion for Sky to offer the same content to other broadband suppliers.

Vodafone TV puts the company in a strong competitive position. It should be able to grow its share of the broadband market. Yet even with stellar growth it will struggle to match Sky’s satellite reach. It goes places fibre doesn’t.

Fibre is important to Vodafone TV. You need a solid, fast, reliable connection for it to work.

Chorus and the other fibre companies have graphs that show how fibre uptake took-off. It happened first when Spark introduced Lightbox. Then, again, when Netflix opened in New Zealand. There were two clear inflection points.

Inflection point

It wasn’t only uptake. The graphs also showing how much data users download. These also turned corners at the inflection moments. Expect a similar effect as Vodafone TV kicks in.

Close Vodafone watchers may have spotted a theme with the company in recent months. Vodafone group product director Sally Fuller was in town earlier this year. The main thrust of her presentation was that we’re moving to: “Everything-as-a-service”. She says the ownership of things is on the way out, instead we buy outcomes.

This is something you could miss in Vodafone’s TV announcement. Yes, it is a flash new product. It has the capacity to delight customers and win business from rivals.

At the same time it is another step closer to “everything-as-a-service”. This is the future world Vodafone refers to in its advertising. Vodafone TV is more than a product, it is a strategy.

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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. ↩︎

Why New Zealand outplayed Australia on the NBN 

New Zealand will reach its broadband roll out goal on time and on budget – with superior technology. What went wrong in Australia?

At the Australian Financial Review Jennifer Hewett goes back over the question asking Why New Zealand outplayed Australia on the NBNAlong the way she talks to MyRepublic‘s Vaughn Baker who has played a role in New Zealand’s fibre project and now has a regional role for the Singaporean service provider.

Hewett makes a number of points. There is an eye-opening quote from Baker about his observation of the Australian project:

He was amazed, he recalls, at the time and the effort taken by subcontractors without the discipline of the private sector questioning each dollar, meaning the cost base was skewed from the beginning.

I noticed this when I lived in Australia. On the other side of the Tasman companies often do better when they get their snouts in the government trough. New Zealand’s private sector approach to the fibre build helped guard against this, but many private projects in Australian go off the rails as well.

NBN built from outside-in

Another important point is that the NBN build started in rural Australia. New Zealand’s government was clever putting the rural broadband project into a separate basket. A smaller proportion of Australians live outside the main centres, but the distances and the challenges connecting them are mind-boggling.

,Hewett missed an important point. New Zealand’s fibre build was never subject to Australia’s poisonous and destructive partisan politics. For a while an Australian’s opinion on the NBN project was coloured as much by political allegiance as facts, science or technology.

This hasn’t stopped. Today, there is ridiculous squabbling in Australia over fibre speeds, among other things. And a declaration that no-one wants or needs more than 25mbps broadband. Try telling that to New Zealanders zipping along to gigabit services.

fibre to the new home essentialNew home buyers in the UK want running water, electricity and ultrafast broadband according to property developer The Berkeley Group.

Berkeley chief executive Rob Perrins says: “If we weren’t able to offer fibre, I think there would be the real prospect of some people walking away from property sales.”

There’s anecdotal evidence the same applies in New Zealand. It’s not just new homes. Which is why it’s important that our fibre build reaches as far as possible, there’s a danger that house off the network will be hard to sell. Neighbourhoods off the UFB network could become ghettos.