Bill Bennett

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New Zealand’s ultra-fast broadband fibre network has replaced copper for close to nine-tenths of all premises.

Rural fixed wireless costs three times urban price

Spark charges unlucky rural customers almost three times as much as city dwellers for fixed wireless broadband.

The banner price for Spark’s Everyday Wireless plan is $60 a month. For that you 4G fixed wireless broadband and unlimited data. There are contracts, but you can get an open term deal meaning you can go elsewhere when you choose without a penalty.

Meanwhile Spark’s Naked Rural Wireless plan costs $176 a month if you use an antenna and $166 if you don’t.

Naked Rural Wireless is built on the same 4G technology as the Everyday Wireless plan.

Rural fixed wireless data caps

There is a data cap of 300GB. If you want more data, that costs a dollar per gigabyte.

To get Naked Rural Wireless you have to sign for a 24 month contract. If you want to leave before the contract finishes there is a $350 early termination fee.

Vodafone has a $65 a month unlimited 4G wireless broadband plan for urban customers. It sells rural plans through its Farmside subsidiary. A rural plan with a 200GB data cap costs $166 a month. Extra data is $20 for 15GB.

Broadband competition

In the cities and towns, Spark and Vodafone sell fixed wireless broadband in direct competition with fibre and copper based broadband services.

While there can be competition in rural areas, that isn’t always the case. In effect there are places where Spark and Vodafone have a local broadband monopoly.

To be fair. It costs more to provide telecommunications services to rural areas. There is more low-hanging fruit in urban areas.

Yet it doesn’t cost three times as much to service a rural customer. In many cases a government subsidy helped pay to build rural towers.

Wireless Internet Service Providers

Wireless Internet Service Providers or Wisps offer rural services in competition with Spark and Vodafone-Farmside.

They tend to be small, regional players. This makes it hard to compare their prices directly with Spark and Vodafone-Farmside,

Yet in places, they can offer a similar fixed wireless product at a lower cost.

At the time of writing Taranaki-based Primo has a $99 rural wireless plan with 250GB. The company’s unlimited plan is $149.

Filling the rural broadband coverage gaps

Wisps, do a great job filling in the rural broadband coverage gaps. Anecdotally they are more popular with customers than the large telcos and are more flexible.

Prices for fixed line telecommunications services are the same throughout New Zealand. This applies to the UFB fibre network and the copper phone network.

The idea that everyone pays the same is part of the Telecommunications Act. In legal terms it is known as non-discrimination.

Another idea that’s important is known as equivalence.

Can’t play favourites

In plain English non-discrimination and equivalence mean network operators can’t play favourites. They can’t favour partners or wholesale customers, even if they are part of the same business.

Chorus has to give equivalence and non-discrimination undertakings to the Crown on its copper network. All the fibre companies do the same on the UFB network.

There are similar undertakings for the Rural Broadband Initiative covering Chorus, Vodafone and the Rural Connectivity Group. There are no undertakings for Wisps.

In effect, Vodafone can’t charge other telcos more to use its rural towers than it charges its own retail business. This should encourage competition.

Fierce competition in towns

As things stand in early 2022, the competition for urban broadband is intense. Prices are stripped back, margins are lower and customers get great deals.

Out of town the competition can be less intense. In many rural places there is a limited range of options, if any. And customers can need to join a waiting list to get a connection.

Fresh competition from low earth orbit satellites like Starlink will give the market a shake. We’re not seeing that make a huge impact yet. Give it time.

Government could give many rural customers better broadband options by extending the fibre footprint. Soon New Zealand’s UFB fibre network will reach 87 percent of the population. Realistically the fibre footprint could extend further, say to 92 percent or more.

It will cost money, but it would be a powerful nation-building investment. We managed to foot the bill building a New Zealand-wide copper network when there was far less money around.

Yet, for now, unlucky rural fixed wireless broadband customer have to pay three times as much, can consume less data and face stiffer contracts than their urban cousins. We can fix this.

Fly Air Orcon for business class broadband

Orcon is trying something different. It plans to ask customers to pay $15 more each month to get business class service.

This is a smart idea.

For years, New Zealand broadband competition was all about price. In recent years there have been content bundles. Buy a service and get free Netflix or half price Amazon Prime.

Sky turns this recipe on its head. The company sells lower cost broadband to customers buying its content.

Until now, that’s been about it for broadband competition: a relentless focus on having the lowest price. It’s competitive to the point of companies competing away most of their profits

Competitive but one dimensional

It wasn’t meant to be this way.

When New Zealand’s fibre network was starting-up, one of the big questions was “how will the players compete”.

The Ultrafast Broadband network is open access. That means there’s a wholesale level and a retail level. Wholesalers cannot compete with retailers.

Chorus, Northpower, Enable and UFF are the four wholesalers. They each have a monopoly in set areas.

There’s another important rule behind UFB: the wholesalers can’t play favourites. They must offer the same terms to every fibre retailer.

Undifferentiated

This means, in effect, fibre internet service providers all sell the same thing. There are nuances about how they set up backhaul and buy international links.

Yet on the whole a Fibre Max plan from one ISP is much the same as a Fibre Max plan from another ISP. In marketing-speak, the options are undifferentiated.

One of the obvious ways to differentiate this fibre ISP from that ISP is to offer better customer service.

This should be easy enough. We all know what good customer service is. And companies know how to provide it. The problem is that it comes at a cost and that’s an issue when margins are pared to the bone.

Orcon has pulled this part of its product offering out, shined it up, and sells it as an option add-on.

Orcon Priority Support

For an extra $15 a month Orcon’s Priority Support customers get pushed to the front of the queue. If there’s a problem, Orcon will send an on-site technician within a day.

On paper this resembles the service offered to motorists by the AA.

For this to work, Orcon has to keep its word. The idea will collapse in days if a forum like Geekzone is full of angry customers who paid the premium and had poor support.

At the same time, Orcon needs to make sure the customers who don’t pay for Priority Support continue to get decent treatment, although not as good as those who pay the premium. If everyday support degrades as a result of this initiative, the company’s reputation will take a hit.

While this idea is original for consumers, it’s in line with what business customers who pay premium prices can expect.

Orcon puts residential on equal footing with business

And that’s the other part of Orcon’s pitch. Orcon chief executive Taryn Hamilton says the company has scrapped the distinction between business and residential customers.

You could look at it as unbundling the distinction.

Orcon has other ideas that differentiate the company from many rivals.

It is one of a handful of ISPs to offer customers Hyperfibre. This is the Chorus product that lifts fibre speeds. There’s a new 2Gbps Hyperfibre option. Orcon will continue to sell 4Gbps Hyperfibre and from early next month will offer an 8Gbps service.

The Wi-fi Pro option promises to give customers a strong wireless network signal throughout their home. Hamilton says the company checks out the size of a customers property and sends enough Google mesh Wi-fi units to provide blanket coverage.

Orcon also has a 4G failover option. Should a broadband connection go down, this will automatically switch to a 4G mobile network. Vodafone offers a similar 4G failover product called the Ultra Hub Plus.

Like Hyperfibre and Priority Support, the 4G network backup is a product that would, in the past, be offered to business customers.

Timely sold, as overseas buyers snap up NZ tech

EverCommerce 1 bought Dunedin-based Timely in a deal that could be worth more than $100 million.

It’s the fourth trade sale of a New Zealand based technology company this year. That has raised eyebrows.

Timely runs a cloud-based application used for appointment bookings that also manages staff scheduling. It is popular with busy hairdressers and others in the beauty industry.

A story in the Otago Daily Times says Timely serves 50,000 professionals in 90 countries. It deals with 30 million appointments a year.

The deal is not yet complete. It has to wait on approval from the Overseas Investment Office. The OIO has a $100 million threshold. The two companies involved in the deal don’t want to talk about the price, but OIO involvement suggests it has to be more than $100 million.

If everything goes to plan, EverCommerce says Timely will join its suite of small business software-as-a-service applications. It would expand the company’s reach into New Zealand, Australia and the UK, where Timely has a decent presence.

Job fears calmed

One of the fears when a New Zealand tech company is sold overseas is that the jobs will go with it. Timely days there are no plans for that.

The company’s Mary Haddock-Staniland​ told Tom Pullar-Strecker at Stuff there will be no restructure and, if anything, staff numbers will grow. The story says Timely employs 125 people, mainly in Wellington, Dunedin and Auckland. Staff numbers climbed as the business found customers used its technology to help get through the Covid pandemic.

Between them, the three earlier sizeable New Zealand tech sales this year collected over $2 billion.

Christchurch-based Sequent, which models ground conditions, sold for a shade under $1.5 billion. Auckland-Based Vend went for close to $500 million. Ninja Kiwi, a games company, sold for $200 million.

Sometimes when a NZ tech company is sold overseas we see comments complaining the deals damage the economy or are bad in other ways. If there has been any today, I’ve missed it.

Great result for Timely founders

All this year’s deals are great news for the founders and early investors in these companies. They bring money into the country. In many cases this is recycled into fresh tech ventures.

Rod Drury used the money from selling his earlier tech companies to get the Xero ball rolling. Others might not go down that path.

There are times when an overseas sale sees the intellectual property and a leader or two travel with the brand while the local business is wound down. On balance, this has happened less in recent years.

The alternative to a trade sale like the EverCommerce-Timely deal is for a company to list either on the NZX, the ASX or an overseas exchange. It’s a well-trod path and can work well, but it requires time, effort and can cost. Taking the money from a big overseas buyer is a simpler, less stressful process.

The slew of sales that have taken place this year mean valuations are running hot. The momentum could see other founders getting offers that are too good to refuse.


  1. No, I’ve never heard of it either. ↩︎

2degrees hits revenue high, preps IPO

2degrees has survived its early years and is now thriving. An IPO is on the cards later this year, but there are challenges ahead.

Later this year 2degrees plans to list on the NZX and ASX. That means you could have an opportunity to buy shares in the company.

Whether you choose to invest is your decision. This post is not investment advice.

In its recent annual result report, 2degrees turned in a healthy set of numbers.

Service revenue was $545 million for the 2020 financial year. That’s record for the company.

2degrees heading in the right direction

The year saw 2degrees increase the number of pay monthly subscribers by 3.9 percent. Broadband subscriber numbers were up 13 percent.

Corporate mobile customer numbers were up more than 20 percent in the year to 106,000. These are more lucrative than the individual pay-as-you-go customers.

Between the leap in broadband subscribers and the rise in corporate mobile accounts, 2degrees is heading in the right direction.

On the surface it looks good. For a 12-year old business in a capital intensive area it has exceeded early expectations.

But there is one problem, or, it may be better to say ‘challenge’.

The next challenge

Compared with other New Zealand telcos, 2degrees is a minnow. The challenge is to move on from minnow status. That’s where things get interesting.

Every year the Commerce Commission estimates the relative size of the top telcos. It does this to calculate the Telecommunications Development Levy.

The TDL is, in effect, an extra tax on telcos. The government uses the funds to pay for services that were Telecom NZ’s responsibility when it was government owned.

To work out each company’s contribution, that’s a nice way of saying ‘tax bill’, it looks at the revenue from selling telecommunications services.

Companies have to earn $10 million a year from services to pay anything. While that leaves a small amount not covered by this list, the numbers are negligible.

Which means the levy allocation list reads like an industry league table.Telecommunications development levy table

Spark, Vodafone, Chorus, then 2degrees

Spark is at the top of the table. It has around 34 percent of the market. Vodafone is second with 26 percent. Third place is Chorus on 21 percent.

There’s a long drop to 2degrees which is fourth place. It has about nine percent market share. Next on the list is Vocus with about three percent.

That makes 2degrees roughly a quarter of Spark’s size, one-third of Vodafone’s size and less than half the size of Chorus.

Strictly speaking Chorus isn’t a competitor. 2degrees buys wholesale fibre connections from Chorus. Yet with 2degrees now selling fixed wireless broadband, it will come up against Chorus at least on occasion.

Full service telco

2degrees started out in the mobile segment. That’s where the majority of its business is today. Yet it now offers a full suite of telecommunications services.

It has grown fast in the fixed broadband market. In the most recent telecommunications monitoring report, the Commerce Commission estimates 2degrees has a seven percent market share.

That puts it a long way behind Spark on 40 percent. Spark’s market share include’s the company’s Skinny subsidiary.

2degrees’ broadband business is about one-third the size of Vodafone’s.

Australia’s Vocus has around twice the number of broadband customers as 2degrees. These are spread between brands like Orcon, Slingshot and Flip.

NZ broadband markert share 2020

Scale

However you slice the numbers, 2degrees is a small player in an industry where scale can be important.

It’s one thing for Spark or Vodafone to find hundreds of millions of dollars to pay for mobile network upgrades. Those capital expenditure transactions are harder and more risky for 2degrees.

In the past 2degrees relied on vendor finance from Huawei to build its mobile network.

A second competitive issue is that minnows can nibble around the edges of the big fish. They often do well at the edge, especially when it comes to picking up morsels too small for the big fish to see or bother with.

Growing by 2degrees

It’s hard, but not impossible, for a smaller player to advance by organic growth. Over the years 2degrees market share has increased relative to Spark and Vodafone.

Yet the biggest advance in the last decade came, not from organic growth, but from acquiring the Snap broadband business.

This may be the best future path for 2degrees. Vocus has bulked up its business in recent years snapping up smaller brands.

There are another eight plausible small acquisition candidates on the 2020 TDL levy allocation list. They won’t be cheap acquisitions, Vocus is an aggressive buyer and both Spark and Vodafone have indicated in the past they are open to acquisitions.

Acquire or be acquired

It’s unlikely that 2degrees is an acquisition target for the local giants. The Commerce Commission is unlikely to wave through an offer from Spark or Vodafone.

At one point Chorus considered a 2degrees transaction, but that posed regulatory problems.

A merger with Vocus, which is also planning a listing, remains a possibility. Likewise Sky could be a partner.

Vocus is hamstrung without its own mobile network. It has a mobile virtual network, but these deals have never been great in New Zealand. Being part of a larger business with its own network would be better.

There would need to be tidying up of brands and integration of systems. There is plenty of scope for cost savings.

Sky could also do a lot with the 2degrees brand. Adding mobile and a decent slice of the broadband market to its business makes sense. The Commerce Commission vetoed a merger between Sky and Vodafone. It probably would not make the same decision today. It almost certainly would be fine with Sky and 2degrees as a merger would not reduce competition.

Investors looking at the IPO will be wise to value the company on its business-as-usual prospects. But there’s always the prospect of a big deal that could change 2degrees’ fortunes over night.

The story behind Vodafone’s FibreX court ruling

At the Auckland District Court Judge Pippa Sinclair found Vodafone guilty of nine Fair Trading Act charges over its FibreX brand. Sentencing will take place later this year.

The judge said she found the branding and advertising was liable to mislead customers into thinking FibreX was a fibre-to-the-home service.

In this case, the branding is the name: FibreX. To a causal observer, the name suggests it is a fibre broadband product. As we shall see later, FibreX is close to being fibre, but it is not the full deal.

Vodafone advertised the FibreX brand all over New Zealand. The brand could be found on billboards, on radio, in in-store promotions, online and in direct marketing. It was hard to miss.

Commerce Commission action

The Commerce Commission brought the case against Vodafone. As a rule the Commission acts on matters like Vodafone’s FibreX marketing when it receives enough customer complaints to justify an investigation.

Its court case focused on the argument that consumers understand the word fibre means fibre-to-the-home. Vodafone planted the idea FibreX is fibre-to-the-home in the minds of customers during the advertising campaigns.

Judge Sinclair agreed. She rejected Vodafone’s claim that customers would understand FibreX meant the service was fibre-like.

Clear marketing is important

Commerce Commission chair Anna Rawlings says this case reinforces the importance of clear marketing to consumers.

“Businesses must take care to ensure that their description of the products and services they are offering is clear and unambiguous and is not liable to mislead their customers into thinking that they are getting something different from what is on offer.

“They must not operate under the assumption that consumers will make further enquiries to find out exactly what is being offered to them,” she says.

The case may not be over yet. A report by Chris Keall in the NZ Herald quotes a Vodafone spokesperson saying the company has not ruled out an appeal.

Confusing sales messages

Vodafone’s marketing message around FibreX was confusing. But there’s even more confusion when it comes to direct contact with customers.

I’ve had calls and messages from readers who say Vodafone sales staff play on the confusion. People who ask for fibre are sold FibreX. At least one correspondent was told FibreX is Ultrafast Broadband.

And that’s where things get difficult, because FibreX is fast, even ultrafast, and it is broadband. But it is not the same product as New Zealand’s government subsidised Ultrafast Broadband.

What is FibreX

Vodafone’s FibreX is hybrid fibre-coaxial or HFC. The technology is about 30 years-old. It was originally used for cable television. When you hear Americans talk about ‘cable’ they usually mean HFC.

Although it was designed to distribute television, it can deliver broadband.

As the name suggests an HFC network uses fibre and a coaxial cable. Fibre runs to nodes and a coax cable connects these nodes to individual homes.

Vodafone’s HFC network

Vodafone took control of HFC networks in parts of Wellington and Christchurch along with the Kapiti Coast when it acquired TelstraClear in 2012. The project was originally known as Kiwi Cable.

At the time it was mainly used to distribute TV. It could deliver broadband but speeds were not great. Over the years the technology improved.

When Vodafone relaunched the network as FibreX in 2016, the network was able to deliver fibre-like speeds.

The next best thing

The irony of FibreX is that it is a good service. Download speeds are second only to UFB fibre max plans, but it is priced at about $40 less per month that customers pay for a fast UFB connection.

Upload speeds are stuck at 100mbps. While this is far lower than fibre max that runs as 500mbps, fewer applications need fast uploads.

The Commerce Commission’s April 2021 Measuring Broadband Report clocks the HFC network averaging 672mbps compared to fibre max at 840mbps.

Measuring broadband report April 2021 performance by technology

Latency

Latency, that’s the time taken for a signal to get there and back, is higher on HFC than on fibre. The Measuring Broadband Report puts it at 13.5ms compared to 7.3ms with fibre.

This might worry gamers but is more than good enough for video conference calls. To put it in perspective, fixed wireless broadband’s latency is 47.8ms.

FibreX performs much better than Vodafone’s fixed wireless broadband. It is, after UFB fibre, the next best thing. If it was the only broadband technology available in New Zealand we’d be reasonably happy with it.

Legacy network

It is telling that when Vodafone acquired TelstraClear and the HFC network, it did not decide to expand the network’s reach.

By 2012 the UFB fibre build had been running for two years. At the time HFC was already an old technology, superseded by fibre. The way Vodafone has boosted its performance since then borders on remarkable.

Vodafone has a problem. It costs money to run a network. The HFC network is matched by a more modern, government-subsidised open access rival that offers a wealth of competitive options.

The HFC network is never going to be a huge money-spinner. Yet it has one advantage. Vodafone owns it. There’s no wholesale access fee to pay, which cuts into Vodafone’s margins when it sells a UFB connection.

On the flip side, if Vodafone closes the network, it faces huge decommissioning costs that will run to tens of millions, if not higher. It makes business sense to keep the HFC network running for as long as it continues to break even and kick the decommissioning can down the road.

How satellite broadband can hurt New Zealand ISPs

New Zealanders will soon have new, affordable satellite broadband services to choose from.

At the time of writing, there’s no clear threat to urban broadband service providers. It could be another story outside the cities and towns.

The further you are from established networks, the better satellite looks. 1

Satellite is not new

Satellite broadband has been available here for years. In the past it has been a last resort for people who can’t get a decent connection any other way.

Established services are expensive and need specialist equipment. They’re not easy to use. Even lining up a dish can be troublesome.

When you get a connection, it is slow by today’s broadband standards and has terrible latency.

Geosynchronous

Earlier satellites use something called a geosynchronous equatorial orbit or GEO. Geosynchronous means they stay in the same position above the earth’s surface.

As the other part of the name suggests, they orbit close to the equator.

For New Zealand users this means your dish need to be able to see the skies to the north. A GEO isn’t much help if you are south of high hills or buildings.

GEO satellites have to orbit at a great height. Which means they are a long way from a dish. Their signals may travel at the speed of light, but long distances mean they have high latency.

In comparison, GEOs have a huge footprint.

Dig the new breed

The new wave satellites are LEOs. They fly in a low earth orbit. This reduces latency.

LEOs offer much more bandwidth than GEOs. The broadband experience is closer to, say, that offered by fixed wireless.

A satellite company can cover a lot of territory with one or two GEO satellites. LEOs have a smaller footprint.

To make LEOs useful, the companies running them need to have large numbers. You need enough so that customers are always covered as they fly past.

Coming soon

At least three companies plan LEO networks that can deliver broadband in New Zealand.

One, Starlink, has published a New Zealand price list and is taking orders. The others include Oneweb, which aims to start services later this year.

Amazon has Project Kuiper which is well behind its rivals, but brings the clout of a tech giant. And don’t underestimate the connection with Amazon Web Services.

Both the European Union and the State Grid Corporation of China plan LEO networks. These may not offer services here.

It starts with Starlink

The most advanced is Starlink. It has 1300 satellites at the time of writing. The company has permission to increase that to 4400. That is around 50 percent more than the total number of satellites currently in our skies.

Starlink plans to charge NZ$160 a month for an uncapped broadband plan. Customers have to buy the company’s earthbound hardware to use the network. That’s an upfront cost of more than NZ$900.

According to Starlink, customers can expect speeds of between 50Mbps and 150Mbps. Let’s take it as read that most users will be closer to the bottom of that range.

There will be times when there is no satellite coverage. Which ruins activities like streaming TV, especially live sports.

Competitive pricing

Given that uncapped fibre max plans cost around $100 a month, Starlink looks expensive. The proposed charge is high compared with fixed wireless broadband.

If you are a rural user beyond the reach of the mainstream broadband networks, NZ$160 is a bargain. The hardware cost is nothing compared to having fibre connected to a remote property.

While Starlink does not pose an immediate threat to mainstream ISPs, it will be a headache for the innovative Wisps who string local networks up and down remote valleys in rural areas.

The threat

Customers in these hard to connect rural areas will be the first targets for LEOs. One way or another, they will upset the Wisps’ business model.

Small local service providers have a get out. They may be able to set up as resellers of satellite services. They have limited, but concrete, options to add value. Margins will be low, but that’s often the way in the telecommunications sector.

Fixing the fixed wireless lottery

Another group of potential early satellite customers are those people on RBI fixed wireless broadband towers who don’t have good coverage.

Rural fixed wireless broadband is a lottery. If you’re on a non-congested tower and you can see the antennae from your property, then the chances are you get decent speeds.

If you are further away, or your tower is congested, fixed wireless speeds can be lousy. For many of these people, in particular, those who need broadband for work, that NZ$160 a month 50mbps uncapped satellite plan looks like a bargain.

Diluting RBI

It will take a time for those RBI customers to wake up to the charms of satellite broadband, but once word gets out, you can expect an exodus from poor quality fixed wireless connections.

Spark and Vodafone will be the most affected. Losing large numbers of fixed wireless customers can change the economics of operating rural towers.

It also changes the value of the spectrum used to serve these customers. They may be able to put those frequencies to better use elsewhere. It’s not inconceivable that one of the big telcos partners with a satellite company to retain customers if their mobile phone business is valuable.

Moving targets

While the costs and performance stay at NZ$160 a month for 50–150Mbps, satellite won’t make huge inroads in places where there is fibre. Nor is it enticing compared with the better fixed wireless connections.

Yet nothing is fixed. Starlink has said it plans to double speeds over time and to drop rates. And who knows what could happen if there are three competing LEO networks?

A 300Mbps connection for NZ$160 a month starts to look good against the better performing RBI wireless service.

If the price drops to, say, NZ$100 a month, then the satellite companies could eat into Spark, Vodafone and 2degrees fixed wireless profits.

Price war

We know the carriers have room to lower their costs. Look at the annual results for the carriers and you’ll see fixed wireless has reasonable margins.

It’s possible New Zealand carriers could find themselves in a price war with global scale satellite ISPs.

That could, over time, have a knock-on effect that reaches into the fibre broadband sector. Paying $100 a month for an uncapped fibre max connection looks good value against today’s fixed wireless plans. This might not always be the case.

A lot has to happen before satellite broadband has any local impact, let alone affect prices for terrestrial services.

The most likely outcome is that satellite will alter the economics of rural broadband and not change much in our towns. Yet, it will add a further layer of competitive pressure.


  1. Satellite is an excellent fallback option for people using other forms of broadband. ↩︎