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Bill Bennett

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New Zealand is building a fibre to the premise (FTTP) network. I’m excited about that.

New Zealand’s weird showing in ITU affordability rankings

If you look at the latest International Telecommunications Union affordability rankings you’d get the impression that New Zealand is doing better than Australia at mobile, but is behind on fixed broadband.

That’s not the case, but it looks that way because of the methods used to create international table rankings. The rankings are not meaningless, but they are hard to interpret and make sense of.

The ITU ranks New Zealand at number eight in the world for high-consumption mobile-data-and-voice. Australia sits at 22.

Meanwhile New Zealand is 41 for fixed broadband while Australia sits at 36.

Not the lived experience

These two rankings are opposite to the everyday experience of telecommunications customers in the two countries.

These kind of ranking tables are often a little strange. That’s because they tend to use artificial user cases to illustrate difference between markets where in reality there is a lot of nuance.

Remember here the tables are about affordability. The ITU measures and compares the prices of entry-level fixed broadband plans.

It then compares these prices with a nation’s gross national income (GNI). This is a way of relating prices to people’s earnings.

Affordability

As a rule countries with a lower income pay proportionately more for telecommunications services. Which is a way of saying they are less affordable.1

It turns out New Zealand’s entry level plan is a 50mbps fibre plan with a 60GB cap. Prices are converted to US dollars. In this case it comes in at US$44.97. The price also includes 15 percent GST.

That may well be the lowest plan on offer in New Zealand, but it’s a plan almost no-one buys.

Australia’s entry level plan is 20mbps with a 100GB cap. It sells for US$52.30. Australian GST is 10 percent. In other words the plan used for comparison is far slower and more expensive, yet includes more data.

According to the ITU when the GNI is taken into account Australia gets an affordably score of 1.2 while New Zealand gets a score of 1.3. So we sit a few places behind Australia in the fixed broadband table.

Mobile voice and data

The same methodological weirdness works in New Zealand’s favour when it comes to measuring high consumption mobile voice and data plans.

New Zealand’s plan costs US$14.53 and buys 200 voice minutes, 500 SMS messages and 1.8GB of data. Australians get unlimited calls, unlimited SMS and a whopping 15GB of mobile data for US$36.61.

Going back to the affordability scores, New Zealand gets 0.4 while Australia gets 0.8.

These ITU tables are useful when comparing, say, New Zealand’s year-on-year performance. That tells you if telecommunications is becoming better or worse value.

They are also useful in aggregate. The latest report tells us that entry level mobile-voice is affordable in most countries. It tells us prices have fallen in the last few year relative to income.

It also says that while fixed broadband prices around the world have remained more or less stable, download speeds have increased.

Yet when it comes to benchmarking, say, New Zealand’s performance against other countries, it’s hard to tease out useful data. Anyone who has operated in Australia and New Zealand knows our fixed broadband is better priced, while Australian mobile data is less expensive.


  1. Economists reading this may think this explanation is too simple. ↩︎

Sky has a broadband mountain to climb

After months of speculation Sky says it will enter the broadband market next year. The move was the industry’s worst kept secret.

Sky says it will start by targeting its existing TV customers. Then it will focus on homes that are fibre-ready but not yet connected.

In a media statement, chief executive Martin Stewart says: “We want to provide the best possible sport and entertainment experience to New Zealanders. A high-quality, high-speed broadband service built specifically for entertainment helps us do that.

Rumours about Sky’s entry into telecommunications have swirled around the sector for months.

Make that re-entry. The Vodafone merger turned down by the Commerce Commission would have got it there earlier.

And that wasn’t the only attempt. In 2006 Sky took a look at buying ihug. It asked for an exclusive due diligence period. Ihug refused, opened the process and sold to Vodafone for $41 million.

Analysis: Slow moving Sky

Sky entering the broadband market is welcome. The company has much to offer and understands how to deal with customers.

That said, next year is ages away in internet years. Everything internet moves faster than other industries.

By 2021 Spark will have 5G towers1. Most likely, it will sell fixed wireless as an alternative to the fibre services Sky aims to sell. Vodafone may have extended its network and its fixed wireless offering.

It is also possible next generation satellite broadband services will be available2.

Fibre is a better broadband experience that fixed wireless or satellite. Yet not all customers know that. ISPs will carpet bomb marketing for the alternatives.

Stuff Fibre, the missed opportunity

Likewise, New Zealand’s broadband landscape could look quite different. Last week Vocus picked up the 20,000 or so Stuff Fibre customers. A wave of consolidation is long overdue.

The acquisition is not enough to move the market share dial.

Even so, a larger base gives Vocus more scope for economies of scale. And more customers to crosssell energy and other products to. It gives Vocus momentum.

Sky is short of cash. Buying Stuff Fibre may not have been easy for the company. Yet, Stuff Fibre would have been a good fit for Sky; a better fit than for Vocus.

And anyway, Vocus is not awash in loose change either. If the hard-up Australian-owned telco could cut a deal, Sky could have found a way.

Reasons to buy Stuff Fibre

Buying Stuff Fibre would have done three things. First, Sky would enter the market with a crash and a roar, wrong-footing rivals. Never underestimate the value of shock and awe in a competitive consumer market.

It could also have brought the expertise needed to kick-start Sky’s plans.

The third reason Stuff Fibre would have been a good buy for Sky is that, Stuff is also a media company.3 They share some characteristics. While the Stuff Fibre customer proposition is different to Sky’s, it’s not so different.

A virtual ISP

It is not well known outside the sector, but Stuff Fibre is, in effect, a virtual ISP. Stuff looks after the brand, sells subscriptions and counts the money. Meanwhile, in the background, a company called Devoli handles the technical side.

This is an ideal model for Stuff with a well-known brand and few in-house technical skills. The Virgin brand does something similar overseas.

The virtual ISP model would almost certain work as well for Sky. Maybe it still will.

Tick-tock

Every day that ticks by is another wasted day for a would-be ISP. By this time next year about two-thirds of all people who can connect to fibre will be using it. Of the rest, some will have chosen fixed wireless broadband. Others may choose never to buy broadband.

Other ISPs will have picked almost all the low-hanging fruit by the time Sky gets its act together.

Sky’s second strategy is to “focus on homes that are fibre-ready but not yet connected.”

Take away the two-thirds of home that will be connected by 2021. Take away the people who don’t want or can’t afford broadband. Then take away the fixed wireless broadband users. However you cut the numbers, that does not leave much of an addressable market.

More intense competition

Which can only mean that Sky will need to woo customers away from other ISPs. It still has sports right, it still commands a lot of entertainment programming.

The company says it will use these to pull in customers. Maybe.

The obvious case to look at here is Spark. Spark’s Spark Sport and its Rugby World Cup streaming have been high profile. Nothing draws in New Zealand customers more than the promise of seeing the All Black in action.

Now here’s the bad news for Sky: Spark’s fibre broadband market share fell during the last year. That’s the time it was giving away RWC streaming to new customers.

This tells you that Sky has a mountain to climb. It never looked easy, but Sky has to put its foot on the gas. It won’t get a second chance.


  1. The South Island trial run doesn’t matter in the big picture ↩︎
  2. Cheaper perhaps, but unlikely to be as cheap as fibre ↩︎
  3. Media triva fans might recognise the two companies share common roots. Both stem from Wellington Newspapers in the 1980s. ↩︎

Lockdown: Fibre, copper delivered, fixed wireless didn’t

Demand was off the scale. Yet New Zealand’s fibre and copper broadband networks almost never skipped a beat during the 2020 Covid-19 lockdown.

Both technologies did well enough to earn a tick from the Commerce Commission

To no-one’s surprise, fixed wireless broadband did not fare as well. It was never going to.

The Commerce Commission uses UK-based SamKnows to track broadband performance. The Measuring Broadband New Zealand Autumn Report, May 2020 shows there was no significant decrease in download speeds on fibre or copper networks.

Fixed wireless speed drops

SamKnows reports average fixed wireless download speeds fell by around 25 percent.

There is a simple reason for the difference between the technologies. On a fibre network a customer has a direct line from their connection point back to the local roadside cabinet. In effect the same happens with copper.

Fixed wireless broadband users share their connection with others. That means speeds drop at busy times. During the lockdown the networks were busy for a lot more time than would otherwise be normal.

Latency

On a similar note, the report found fibre responsiveness consistently outperformed all other technologies. Fibre latency came in at under 20ms 90 percent of the time. This is important for applications like Zoom video calls and makes a huge difference to the online gaming experience.

The report says:

“Fixed Wireless connections will be more likely to experience issues with latency-sensitive applications such as online gaming or video calls.
”

SamKnows reports that games hosted in New Zealand had lower latency than games hosted overseas.

Fibre to the max

Telecommunications commissioner Dr Stephen Gale says: “Chorus and other providers reported record levels of online activity. But despite that increase, the latest report from our independent testing partner, SamKnows, shows that copper and Fibre 100 plans continued to perform well, with average download speeds unaffected.

“We’re pleased to see that Fibre Max speeds have again increased, but there is still a significant variation of results on these plans. We are working with the industry to understand the causes of this, which involves looking at hardware and the performance of individual networks.”

The report, published by the Commerce Commission, notes the average download speed of Fibre Max plans, that is gigabit wholesale fibre, increased by around 50Mbps since the earlier report. The jump is down to improved performance by a single service provider.

Vocus picks up Stuff Fibre

A medium-sized consolidation play for the Australian-owned telco.

Vocus will grow its customer base by 10 percent when it absorbs Stuff Fibre. The Australian telco picked up the media company owned ISP for an undisclosed sum.

The deal will add roughly 20,000 broadband customers to Vocus’s existing 200,000 customers.

Vocus remains New Zealand’s third largest internet service provider behind Spark and Vodafone. After the deal it will have around 13 percent of the market.

Stuff Fibre is part of the Stuff media group, which is also up for sale.

Unusual ISP

It is unusual in the telecommunictions sector because it is a media company with a broadband business. More commonly broadband companies have forayed into media with projects like Spark Sport and Vodafone TV.

The other unusual aspect of Stuff Fibre is that it is, in effect, a virtual ISP. Stuff Fibre doesn’t own and operate its own infrastructure. Instead it buys these as a service from Devoli.

This was a smart strategy for a business with a recognisable brand, but without in-house broadband expertise.

Stuff Fibre’s virtual nature will make it easy to integrate into the Vocus business. That’s often a sticking point with broadband company acquisitions. Some well known broadband brands remain famously unintegrated years after acquisition.

Vocus New Zealand chief executive Mark Callander
Vocus New Zealand chief executive Mark Callander

The ISP was, in its own small way, innovative in other ways. Mark Callander, who heads Vocus New Zealand made a point of mentioning the in-home Wi-Fi troubleshooting services. He says he plans to make this available for Vocus’ existing customers.

He went on to suggest other acquisitions could be in the pipeline. For years industry observers have expected to see consolidation among ISPs. New Zealand is significantly oversupplied with service providers, many other markets only have a handful of players, there are 90-odd here.

It’s possible the Covid–19 disruption could trigger a wave of more acquisitions, but don’t hold your breath. The shape of the market has been consistent for years now with more new entrants joining than mergers taking brands out of contention.

Callander also says Stuff Fibre staff to will transfer to Vocus.

Ultrafast Fibre overseas sale raises questions

Ultrafast Fibre’s owners have agreed to sell their shares in the business to First State Investments, an Australian asset management company.

The business was owned by electricity distributors, who bid and won the UFB contracts over a decade ago. WEL Networks Limited owned 85 percent and Waipa Networks Limited controlled the other 15 percent.

UFF runs fibre networks in parts of the Central North Island including Hamilton, Tauranga, Whanganui and New Plymouth. The network runs past around 237,000 premises.

First State paid $854 million for the business.

OIO approval needed

The deal is subject to approval from the Overseas Investment Office.

This is where the story could get interesting.

An overseas organisation needs OIO approval to buy a sensitive New Zealand asset. In most cases sensitive means either land or a business that is worth more than $100 million. There’s usually an exception for Australian buyers.

However, a fibre network isn’t only sensitive. It is also a strategic asset of national importance.

Different rules for different fibre companies

Chorus, the largest fibre company is subject to a 10 percent Kiwi Share restriction which limits foreign investment in the business.

In 2012 the government had to decide to waive the restriction when AMP Capital moved to take a larger stake in the business.

There was something of political fuss when this happened, yet the amount of Chorus under discussion was less than the amount of UFF that’s now up for sale.

While UFF is much smaller than Chorus, it is New Zealand’s second largest fibre company. It has a wholesale monopoly in its area and covers roughly 12 percent of the homes able to connect to UFB.

So, if roughly five percent of Chorus triggered political alarm bells, 100 percent of UFF could come under scrutiny.

Exquisite timing

First State Investments is lucky that most politicians are focused elsewhere at the moment. Either that, or it timed its acquisition knowing it could slip under the radar.

If UFF was anything other than a technology company you could expect, at least, New Zealand First to take an interest in this sale.

Of course this wouldn’t be the first time overseas interests have owned strategic New Zealand telecommunications assets. Yet it seems odd that Chorus ran into problems selling a few percent to AMP while UFF can be sold in its entirety.