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Sky TV launched legal action in a bid to force ISPs to block access to streaming and video download websites.

As you’d expect, the move didn’t go down well with the industry. At least two ISPs say they will fight Sky in court.

Sky sent notice that it will seek court orders for Spark, Vodafone, 2degrees and Vocus — which trades as Orcon, Slingshot and Flip – to block a list of unspecified sites. The date blocking should start is not specified in the letters.

Spark and Vocus seem ready to resist.

The four ISPs account for more than 90 percent of all online accounts in New Zealand. If Sky gets them to block, picking off the smaller players will be trivial.

Pirate Bay

Sky TV’s letter specifically names the Pirate Bay as a site it wants to be blocked.

The pay TV company says it is targeting illegal pirate sites as they are a threat to local entertainment industries and sporting codes.

The timing is curious. Most of the threat from piracy has subsided. The battle is won.

Once were pirates

It would have made sense for Sky to have moved against these websites in the past. But today piracy is only a shadow of its former self.

Vocus consumer general manager Taryn Hamilton says his company’s stats show visits to The Pirate Bay – a popular file-sharing site – is now at 23 percent of its 2013 peak.

Most of the damage to Sky TV’s business was done a long time ago. Today pirates are no threat. Legitimate online streaming services like Netflix, Hulu and Amazon are what is really killing Sky’s business. They have already killed the pirates.

They offer a similar mix of entertainment programming at a fraction of Sky’s price. Netflix is $15 a month, Sky TV is around $80.

Sport is different

Things are different with sports programming. Sky has the rights to the most popular sporting codes in New Zealand, there are no legitimate alternatives.

While determined customers with VPNs can often shop around overseas for a better deal, it’s often too much trouble for most people. And overseas coverage can be inferior,

Hamilton says the idea of Sky blacklisting sites is dinosaur behaviour and something you might expect to see in North Korea.

It is certainly dinosaur behaviour. The fact that Sky names the faded and diminished Pirate Bay as a public enemy is a sign of how out-of-touch it is with the current scene.

Yet blocking websites isn’t restricted to totalitarian North Korea. A number of countries have laws blocking pirate websites. Often after the kind of litigation Sky plans. Web-blocking regimes don’t always work. There are plenty of workarounds for determined pirates.

Fighting Sky

Hamilton says Vocus will fight Sky in court. His company is not alone. Spark says it also aims to fight the injunction. Last time there was a copyright battle, Spark sided with Sky TV.  InternetNZ says it is seeking legal advice. Vodafone, which has a close relationship with Sky, says it will comply with any court order. At the time of writing, 2degrees has yet to commit.

Should the four ISPs co-ordinate their defence, maybe with help from InternetNZ and other interested parties, life could be difficult for Sky, which is already in long-term decline as it continues to fail to adjust to new technology.

Lawyers are obvious winners here. Litigation is likely to be expensive. One problem is there is no precedent in New Zealand for this kind of complaint, the Copyright Act stems from a time before video streaming was practical. Until now most service providers have walked away from pitched battles.

Kodi victory

Around the time Sky sent letters to the ISPs, the company won an interim injunction against Fibre TV which sells the Kodi set-top box. Fibre TV sells the set-top box along with software designed to make piracy easy. The decision was made in the Christchurch District Court and Sky was awarded costs.

It is possible that the Kodi victory spurred Sky TV’s renewed interest in attacking the ISPs. Possible, but unlikely. Fibre TV was small and unable to put up much of a fight. The case against Fibre TV was a slam dunk and there’s not much public sympathy for the company.

On the other hand, the attack on ISPs looks set to be a public relations disaster for Sky. The move is unpopular with consumers.

Criticism of Sky TV

As you’d expect Sky TV has come in for a lot of criticism over its move – not just from the ISPs who are in the firing line.

It is fair to say Sky is struggling to defend an outmoded business model. Yet it is equally understandable that the company wants to protect the value of the rights it has purchased in good faith from movie or TV studios and sporting codes.

It is possible that Sky is acting against ISPs on behalf of rights holders. In the past, the big US-based media companies have attempted similar actions. They or the sporting codes could be bankrolling Sky’s litigation or even pressuring Sky to act as their proxy.

All these protagonists seem out of touch with what’s happening on the ground. Netflix has shown how to make software piracy redundant. It charges what consumers consider a fair price for a decent selection of programming. That becomes a compelling alternative to navigating the dark side of the internet.

Sky needs to find a way to cut its prices to Netflix-like levels. From outside, that looks hard because it appears bundling channels lets Sky subsidise some content by overcharging for other content. If so, it is an unsustainable business model. Moreover, the problem has nothing to do with Orcon customers being able to see the Pirate Bay.

Writing at Newsroom.co.nz, Mark Jennings covers a weak financial result from Sky TV. He quotes boss John Fellet:

“Piracy has become our biggest competitor.

“The big problem is the increasing ease by which pirated content is accessible.

“Devices preloaded with piracy software enable users to access pirated content stored on servers overseas, from the comfort of their living room.”

There’s little question piracy happens. Every so often an email arrives from a company that offers exactly the kind of device Fellet blames for a poor financial result. You can buy a VPN and watch shows or sports that cost money on Sky on other nations’ free to air TV channels. It’s not hard.

But it’s not the whole story.

Keen consumers of paid services

Analyst firm IDC says New Zealanders are now among the world’s keenest buyers of paid online services. Some 22 percent of consumers here say services like Netflix and Lightbox are their main way of viewing entertainment.

That’s on a par with the US and a long way ahead of the worldwide figure of 14 percent.

We’re still behind North America when it comes to buying a streaming service. On the other side of the Pacific 41 percent pay for streaming TV, here just over a quarter do.

New Zealand wasted little time moving from near the bottom of the online service league to the top of the table. It is three years since Spark launched Lightbox, the first widely available local service. There were also services like the Premier League Pass which allowed fans to watch English football on digital devices.


While many New Zealanders paid for an international version of Netflix, that service didn’t arrive in a local form until early 2015. Network companies like Chorus and ISPs like Orcon show graphs of how data consumption rates leaped after Netflix opened in New Zealand. It helps that these services arrived as the nationwide UFB fibre build hit its stride.

These numbers give the lie to the idea that New Zealanders are software pirates or spend a lot of time downloading illegal content.

Some of the discussion of this survey on social media centred on the poor entertainment choices had before streaming video was a practical option.

Fellet’s Sky TV enjoyed an effective monopoly on paid video entertainment for a generation. By overseas standards it is, or was, expensive. Sky was never fast bringing shows to New Zealand, that wasn’t an issue back when it started, but online spoilers and the buzz around big, popular shows meant that annoyed consumers.

Sky missed a trick with the internet. It still doesn’t make all content easy to buy online. Instead it uses out-of-date set top boxes. Its technology is more than a decade behind the times.

Download pirates

Customers found they could download shows ahead of Sky’s schedule. They can watch them when they like. They also realised they could get their material without paying. Many still do. But as the IDC evidence shows, New Zealanders are more willing to pay for TV than most people in the world.

While Sky could legitimately claim it was losing to pirates, there’s another side to the debate. Studios sold exclusive rights to Sky for vast fortunes, but did little to police how their products were distributed.

For a while New Zealand consumers could buy shows from international online services for a fraction the price charged by Sky. The pay TV company would have a legitimate claim against the studios, but chasing wealthy lawyered-up corporations is harder than busting kids who know how Bittorrent works.

Not just movies and sport

IDC says it isn’t just movies, sport and TV shows. New Zealanders are among the keenest users of all premium digital services. This includes online music streaming, cloud services, and console gaming. We are also among the highest users of Facebook with 81 percent of people who answered the survey using the service in the month before they were asked. The worldwide figure is 74 percent.

People here own an average of 6.5 digital devices and spend 56 hours, roughly half, of waking hours connected to online.
In general, we’re a practical breed. We tend to use digital services if there’s an obvious benefit. If the benefit is less clear, we’re more tentative. So just 18 percent of New Zealanders have used virtual reality in the past year. This compares with 38 percent worldwide.

To get these numbers IDC questions 30,000 adult consumers in 19 countries. 1400 of them were in New Zealand.

Sky TV to become Vodafone-SkyHere in New Zealand, television stories dominate the week’s telecommunications news.

Sky and Vodafone bow to the inevitable and call off their merger. Meanwhile TVNZ goes all in on streaming video.

For more than 40 years journalists have written about convergence. The telecommunication triple play idea: combining voice, data and television, is well over 20 years-old. I first heard about it in around 1990. That’s right, it pre-dates the commercial internet1.

Almost overnight, we’re on the other side of the revolution. Some bewildered people are looking back and wondering what happening. The rest of us wonder why it took so long to get here.

You say you want a revolution

The revolution is not that hard to understand, television uses electrical signals. They used to be analogue. Digital is better. Once TV was digital, it was only a matter of time before it became another stream of bits travelling through networks.

It took longer for the industry to grasp what that means in practice. Today we have Netflix and a cluster of junior would-be netflixen. We have binge viewing. We have on-demand viewing. Yacht races from across the world beam on to our mobile phones as we commute to work.

What we still don’t have is the choice and flexibility we get from other online media. That’s coming.

History lessons

If you look at the sweep of online history, a merger between Vodafone and Sky TV makes perfect sense. It made sense to the management and board of both companies. If you look at the deal with the eyes of a competition regulator, nixing the deal makes sense. It could have established a monster.

There is something odd about the Commerce Commission’s decision on the Vodafone-Sky merger. Yes, a merger would give one telco access to the crown jewels of sports programming. Yes, it could be exclusive access.

But Sky still has a monopoly on that material. A stand-alone Sky can cut an exclusive deal with a broadband company. Indeed, it’s quite possible that it will strike an exclusive deal with Vodafone. Today’s agreements and contracts between the two companies point in that direction.

Exclusive anyway?

So the Commerce Commission vetoed a merger because of something that will happen anyway. Am I alone thinking that is odd?

Whatever the logic, Sky and Vodafone have come to terms with the decision. The two issued a terse statement to the New Zealand Stock Exchange on Monday. It gave no reasons. But said they withdrew their High Court appeal protesting the Commerce Commission’s decision.

The marriage may be off, but the two companies remain good friends. The relationship is still on.

Free Sky Sport for Vodafone customers

In June Vodafone said it would give 12 months’ free Sky Sport to customers buying broadband and a basic Sky TV service. This is, more or less, the kind of arrangement the Commerce Commission worried about.

Elsewhere, Vodafone mobile customers can get a deal which includes free Sky Neon. And Sky is providing Vodafone with exclusive live coverage of All Blacks matches.

There’s a secondary commercial logic here, the phone company is now the team’s sponsor. Yet both deals have a whiff of the exclusivity that the Commerce Commission feared. Remember, in February the Commerce Commission said a proposed $3.5 billion merger would reduce competition.

Separate, but vertically-integrated

It said Sky and Vodafone had an opportunity to create a vertically-integrated business. That would give a single telco access to all popular sports broadcasting rights. There was a fear the market power wielded by the new business would lock out other potential bidders.

Now rivals fear the two non-merged companies are doing the same thing anyway. They are building a form of vertical integration without all the parts being in a single company.

The tragedy here is that, unlike Australia’s ACCC, our regulator can’t impose rules. That way it could OK the merger and insist the new company licence Sky content to all-comers.

There’s a ridiculous lack of broadcasting oversight in New Zealand. The Commerce Commission’s job is to ensure competition. We have intense telecommunication competition, but one company holds a TV sport monopoly.

TVNZ goes all-in on digital

From Monday, Television New Zealand will livestream channels One and Two. Viewers will be able to see all broadcast material over the internet on PCs, tablets and phones. Everything will be available online in HD 720p format. There will also be a new catch-up on-demand service.

Some material will be in box-set format for binge viewers. Programmes will be on Chromecast from next month and Apple TV later this year.

TVNZ plans to optimise its streaming service for mobile devices. It will also keep programmes available online for longer.

For now, there are no plans to do anything about television transmission. Although TVNZ says that could change depending on demand.

The ghost of Netflix

All these moves acknowledge the changing way people use television. The spectre of Netflix is somewhere there in the background.

The key problem for TVNZ is that it earns its revenue from advertising. This is more annoying and intrusive online than on broadcast TV.

If TVNZ wants to address Netflix head on, it might think about offering an ad-free paid option. Of course, it would need to have enough high quality material to make that viable. It could start by investing more in its news and current affairs programming.

  1. People started talking about the idea in the 1990s. I first heard the term around the time Kiwi Cable was building an HFC network on the Kapti Coast. The first serious attempts at triple play didn’t come until later. ↩︎

Sky TV to become Vodafone-SkyThe Commerce Commission declined the proposed Vodafone-Sky merger saying it would decrease competition in telecommunications.

That seems right1. The important thing is that Sky has all the important rights tied up. It owns or sub-licenses all the popular sporting codes. Most of all it has the rights to Rugby.

At the moment Sky has a deal with Vodafone to sell its services over broadband as a bundle. But in practice anyone with a broadband account can buy services from Sky.

Vodafone says it doesn’t plan to stop Sky selling to all comers, but that’s not a legal obligation. It could have made a formal undertaking to continue the practice, but did not.

Vodafone-Sky exclusive

Therefore, Vodafone could at any point decide that its customers get access to some or all channels. The moment, say, an important sporting fixture, becomes a Vodafone-Sky exclusive, then all other broadband companies would be in trouble as their customers switch telecommunications service provider.

This will be twice as effective if exclusive Sky material is distributed to Vodafone mobile phones.

The temptation to do this will be great. It is also why Sky was worth the price Vodafone was prepared to pay.

After all, what is the point of having a monopoly if you can’t milk it?

Clearly the move has other telcos rattled. A little over half of all homes have Sky. There’s the potential for them to be locked out of those customers. This applies to both broadband and mobile.


There’s also vertical integration. Telcos love vertical integration. It is anti-competitive.

The point of the government building the UFB fibre network and splitting Chorus from Telecom was to break vertical integration.

Having said all that, TV over broadband, especially over fibre, is, in general, a good thing.

That would have been a positive. It would be good if Sky could find another way to move all its business online.

A last point worth mentioning. The Commerce Commission can only say yes or no to a proposal. Overseas regulators, like, say, the ACCC in Australia, can impose conditions. The Commerce Commission can not. So it was not an option for the regulator to say to Vodafone “you can buy Sky, but must continue selling video services to all comers”.

Had that been the case, the ruling may have gone differently.

  1. Right in the sense that a merger would decrease telecommunications industry competition. Let’s not pass rash judgement on the Commerce Commission decision.  ↩︎


Vodafone and Sky need Commerce Commission approval for their merger. From a telecommunications point of view, there’s no reason to halt the deal.

Five years ago government tore New Zealand’s telecommunications sector apart. Then remade in the name of competition.

The government pumped $1.5 billion of public money into building a new fibre network for people in towns. Today this goes by the name UFB (Ultrafast Broadband).

A separate RBI (rural broadband initiative) project aimed to improve services for people living in the country.

Taxpayer funds come with strings attached

By law, companies taking taxpayer money to build local fibre networks can not sell direct to consumers or business.

The law draws a line between retail service providers [1] and wholesale fibre companies.

Fixed wireless broadband blurs those lines. Fixed wireless broadband services from Spark, Skinny and Vodafone are not regulated [2]. They bypass wholesalers: Chorus, Northpower, UFF and Enable Networks.

At the time of the industry restructure, legislators and regulators anticipated deals like the Vodafone-Sky merger. What they failed to anticipate was the speed of fixed wireless broadband maturing as a rival to wired technologies.

Triple play, quad play

The key to understanding Vodafone-Sky is what industry insiders call the triple play. Triple play is where a telco offers customers phone, internet and TV. Consumers pay for everything in a single bill.

The NBR went one further mentioning a quad play which adds mobile phones.

Triple play is common overseas. And it is a regulatory concern. That’s because most overseas telcos offering a triple play have vertically integrated [3] networks. That is, they control every step of the journey from the customer’s home to the phone switches, internet and media servers.

Vertical integration

Fixed line vertical integration can’t happen in New Zealand. We have structurally separated fibre and copper networks. The connections between homes and RSP-operated networks are owned by wholesale network companies.

To get to that point the government insisted Telecom NZ demerge its Chorus business before it could win any fibre contracts.

Today Chorus has monopoly control of the copper phone network. This is the old telephone network that runs from exchanges and roadside cabinets to our homes.


Chorus is regulated by the Commerce Commission to ensure it doesn’t abuse that monopoly.

The government’s long term plan is for a fibre network to replace the copper network. The UFB or Ultra-fast Broadband fibre network is more than half way through a roll-out in urban New Zealand.

Chorus is the UFB fibre provider for much of the country. Northpower, UFF and Enable Networks also have regional fibre monopolies.

Someone else’s network

To sell triple play packages to fibre, ADSL or VDSL customers, Vodafone-Sky’s traffic has to pass through a wholesale network. That leaves no room for vertical integration.

New Zealand’s structural separation means, by law, every retail telco gets the same access at the same prices to the same fibre and copper services.

Chorus can’t play favourites. It can’t cut sweetheart deals. Vodafone-Sky can’t get a better Chorus network than say, Spark or Callplus.

Reining-in the power

Among other things, this makes it easier for connected customers to switch service providers. At least in theory. Structural separation is a deliberate move to stop RSPs from wielding too much power over customers.

However, structural separation doesn’t reach every New Zealand broadband network.

Vodafone runs a US-style HFC (hybrid-fibre coaxial) network in parts of Wellington and Christchurch. It passes around 150,000 homes.

In these areas, Vodafone broadband services are vertically integrated.

Big, not too big

When the first stage of UFB completes in 2019, it will connect about 1.4 million users. Users and homes passed are not the same thing, but we can say in round numbers the HFC network will reach about one-tenth as many homes as the completed UFB network.

UFB competes directly with Vodafone’s HFC network. Most users already regard UFB as technically better. Over time the performance gap will grow.

Like fixed wireless broadband, some customers find Vodafone’s HFC network is all the internet they need.

Not a threat

On its own Vodafone’s HFC network isn’t a serious threat to the UFB. Its coverage area is too small. Not does it threaten regulation. It doesn’t keep Chorus executives awake a night.

There’s little scope for Vodafone-Sky to build an aggressive vertically-integrated business even in the HFC network areas. And anyway, there’s no monopoly.

The threat could change if Vodafone-Sky decided owning its own network is such a great idea that it extended the HFC footprint. Most observers think that’s never going to happen.

You have to be careful with words like never in the telecommunications business. Remember UFB architects also thought fixed wireless broadband would never challenge fibre. And yet it does.

However, the argument against extending HFC is strong. First, UFB has better technology. Second, building networks is hard, expensive and complex. Third, an extended HFC would compete with a network that is, in effect, government subsidised.

And let’s face it, you don’t want to go head to head with the people who get to write the rules of the game.

Fixed wireless broadband

If the old TelstraClear HFC network was the only non-UFB network, Vodafone-Sky would find it tough building a vertically-integrated operation. But it owns another more extensive network. The Vodafone cellular network.

Cellular networks can deliver fixed wireless broadband. They do this without anything touching the regulated Chorus or local fibre company-operated networks.

At present wireless broadband networks are beyond the reach of broadband regulation. Although there are plenty of mobile phone regulations for carriers to worry about.

Vodafone, Spark and Spark’s Skinny all offer fixed wireless broadband services. When it uses 4G cellular technology, fixed wireless broadband networks can deliver close to fibre-like performance.

Like rural broadband, only in towns

This is what Vodafone offers RBI customers in rural New Zealand.

Sure, performance is not always that good. And yes fibre has potential to go faster still. But as we’ve already mentioned, 4G speeds are more than enough for many day-to-day broadband users.

The only mainstream application that demands more bandwidth is high-quality streaming video. And you need to have more than one person in a house watching HD video to use all the bandwidth available from a broadband connection.

As things stand in New Zealand at present, fixed wireless broadband presents Vodafone-Sky with a potential second vertically integrated broadband network.

Fixed wireless limitations

Fixed wireless is not without challenges. The bandwidth is limited and shared. On the other hand Vodafone has plenty of suitable spectrum to play with and those resources will stretch further as 4.5G and 5G technologies arrive.

There’s a finite limit to how many fixed wireless broadband customers Vodafone’s existing network can support in urban areas. Fibre is often a better way to reach a dense population.

Things are different outside the towns and cities with the RBI towers.

A Vodafone insider told me, for now, the potential urban fixed wireless broadband network market is measured in tens of thousands, not hundreds of thousands.

Wireless not head-on challenge to UFB

Although the Vodafone cellular network may ‘pass’ a million or more homes, it can’t service them all simultaneously with fixed wireless broadband. At least not today.

Faster wireless technologies are on their way. They’ll make better use of available spectrum, but there’s still a limit. As they say, you cannae break the laws of physics.

To get around the physical limits. Vodafone could build more towers. Doing so is far from trivial. There’s a financial cost – that might be justified. There are also social costs. People might want wireless services, they often don’t want more cellphone towers in their neighbourhood. Nimbys are everywhere.

With a little help from my friends

At best, with help from the network equipment makers, fresh investment in towers and smart planning Vodafone may stretch to supporting say 100,000 urban fixed wireless broadband customers.

If every house passed by HFC chose Vodafone-Sky, if Vodafone-Sky could maximise the 4G network fixed wireless capacity, it might, just, reach 250,000 customers. This compares with the 1.5 million reached by UFB.

Most customers on Vodafone-Sky’s vertically integrated networks would have viable alternatives to choose from. If anything customer choice is increasing, not reducing.

The issue here is not that Vodafone-Sky is hell bent on working around telecommunications regulation at any cost. It’s more that lucrative opportunities are emerging for Vodafone-Sky and, for that matter, Spark, to bypass regulations.



  1. Jargon alert. We used to call them ISPs which meant internet service provider. They now sell other services so they become RSP or retail service providers.  ↩
  2. Wireless broadband’s potential was understood when the UFB contracts were drafted. Chorus noted the risk in the documents it gave investors. ↩
  3. More jargon — sorry. Economists say companies are vertically integrated when they own different stages of production. For example oil companies once owned wells, tankers and petrol stations. Vertical integration is often a barrier to competition. When Telecom NZ was vertically integrated, competitors struggled to get a market foothold. In 2008 Chorus became a separate business unit. That was organisational separation. In 2011 the companies emerged, move known as structural separation. ↩