“Just seven percent of Australian broadband users subscribed to 100Mbps services, compared to 29 percent of New Zealanders.”
A report in today’s Commsday quotes S&P Kagan’s research on Asia Pacific 100Mbps broadband usage.
However, it isn’t clear if S&P is only counting users on 100Mbps or those on 100Mbps and higher speeds. The company hadn’t responded to a request for more information at the time of writing.
This compares with figures from Chorus which says that 71 percent of mass market customers on the company’s network have connection speeds of 100Mbps or higher. Mass market in this context means consumer and small business accounts.
The S&P Kagan number for New Zealand stacks up with local figures. In round numbers, about half the people with fibre access choose fibre plans. We know the numbers for other fibre areas are roughly in line with Chorus. We also know that fibre reaches at two thirds of the country at the moment. So give or take a point or two, 29 percent seems right.
Vodafone has pleaded guilty to nine charges brought by the Commerce Commission over its “FibreX” service, but will contest a further 18 related to allegedly misleading marketing.
That’s total of 27 charges. In other words this is a big deal.
A rose by any other name
Most, but not all, the problems stem from the name.
I questioned the name when FibreX launched. A Vodafone executive explained with a smile that the name comes from the full version of HFC: hybrid FIBRE coaXial. He knew it was pushing things a bit.
HFC uses both fibre and copper cables. The network was first built almost twenty years ago. There are networks in Kapiti as well as parts of Wellington and Christchurch.
Vodafone inherited the network when it acquired TelstraClear in 2012.
Readers with long memories may remember that the cable network had appalling performance at that time. Yet it was capable of delivering television signals along with broadband data connections at a time the copper network would often struggle with video.
From outside it looked as if TelstraClear had under invested in the technology and even neglected the network.
The TelstraClear acquisition was a mixed bag for Vodafone. It accelerated the company away from being a mobile phone carrier into enterprise and fixed line markets.
It didn’t do much to grow Vodafone’s market share. The company’s overall market share in 2018 is the same as it was in 2009, despite swallowing a sizeable rival.
In some respects the HFC network became a millstone around Vodafone’s neck. It was a support nightmare and hurt the company’s reputation.
In order to recover some of its value, Vodafone beefed up the technology moving to a new, far faster version of Docsis. While this could put it on a performance par with UFB fibre in theory, the practice proved somewhat different. HFC networks can suffer from congestion in ways the UFB network does not.
Nevertheless, it looked like a plausible alternation to UFB fibre.
FibreX vertically integrated
There is something else. Vodafone’s FibreX network is vertically integrated. The company doesn’t need to pay anything to a wholesale network provider. Vodafone gets to keep all the monthly subscription.
Vodafone launched FibreX launched a the peak of the nationwide UFB fibre build. It priced it at much the same level and its marketing went out of its way to present FibreX as a like-for-like replacement. It’s not.
The fibre networks being built by Chorus, Northpower, UFF and Enable send photons along a length of glass fibre. There are fast, reliable and modern. Some FibreX users report UFB-like performance. Others don’t. What’s clear is that it is not as consistent as fibre.
There are stories of customers calling Vodafone asking for fibre connections being told FibreX is the same thing. There are stories of customers asking for fibre being told the only upgrade available to them is FibreX.
A lot of the Commerce Commission charges are to do with the way Vodafone sold FibreX.
Vodafone is no stranger to the Commerce Commission. Over the years the company has consistently pushed at the boundaries of ethical, legal marketing of its services.
The senior executives responsible for many of those incidents have now left the company. A new team has been left the task of cleaning things up. That’s going to take time. A good place to start would be coming clean about FibreX.
Chorus says it now has 500,000 Ultra-Fast Broadband connections on its network. The wholesale network company also announced plans to cut wholesale prices for the fastest connection speed.
Fibre demand has accelerated in recent months. It took Chorus five years to connect the first 100,000 fibre customers. The most recent 100,000 joined in six months.
In September, Crown Infrastructure Partners released numbers showing there were 605,000 connections nationwide for all Chorus, Northpower, UFF and Enable. That total would be higher today.
Connection speeds rising too
Customer connections are rising fast, so are their connection speeds. Chorus says customers are moving from entry-level plans to higher speeds. In order to speed the move up-market, Chorus will cut the wholesale price of gigabit fibre broadband connections for home users.
From the middle of 2019 the wholesale price for a home gigabit connection will fall from $65 to $60. Chorus promises a futher drop to $56 in the middle of 2020. This will reduce the price gap between a standard 100mbps plan and a gigabit plan, making the latter a more attractive proposition for many customers.
While dropping the wholesale price sounds like good news for consumers, it is up to retail service providers to decide whether they pass some or all of the savings onto customers. Some may do this, others may use the cut to fatten their margins.
Strange times at Spark
Writing at Stuff Tom Pullar-Strecker reports that Spark described the price cut as a step in the right direction. The company went on to say something quite strange;
…the wholesale price of fibre-optic broadband remained “far too high” and the retail prices Spark charged didn’t “allow for anything like an acceptable margin”.
This is bizarre as Spark is free to decide on its margin. If it thinks margins are not acceptable, it is free to raise prices. Any constraint on pricing comes from market competition, not the wholesaler.
The unvoiced subtext here is that Spark is annoyed that the Commerce Commission regulates fibre pricing. This means they have no leverage to demand a sharper wholesale price than other service providers. By law Chorus and the other fibre companies must offer the same wholesale price to everyone.
Given that Spark accounts for getting on for half the retail broadband market it might normally expect to get a lower wholesale price than smaller competitors. In effect, you can interpret Spark’s complaint as it doesn’t like facing its competition on a level playing field.
This is all the more odd, because some parts of Spark are hurtling towards the fibre era with gusto.
In the company’s media statement, Chorus CEO Kate McKenzie says fibre broadband demand has been rapidly increasing. She says: “…even more so now as more content moves online and New Zealanders prepare to live stream the Rugby World Cup and other sporting events in 2019. The irony here is that Spark is starting to dominate streaming sport. Presumably the margins on Spark are ‘acceptable’ for the company. But they wouldn’t be achievable without ubiquitous fibre.
Bill Bennett edits The Download magazine for Chorus. He also writes a weekly telecommunications newsletter. That doesn’t mean he wrote this post On Chorus’ behalf, nor does it necessarily reflects the company’s option, although it might. It’s all my own work, blame him if you don’t like it.
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.
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.
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.
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.
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.
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.
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.