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King CanuteCallPlus backed down. From September it will stop providing Global Mode. The service allows customers to hide their whereabouts. That way they can buy low-cost streaming video services direct from the US, UK or elsewhere.

In return the big media companies halted legal action against CallPlus.

Among other things they claimed Global Mode breached the Copyright Act and the Fair Trading Act.

That won’t be tested in court. We’ll never know if Global Mode was legal or not. That’s a pity because it leaves important questions unanswered.

Plenty has been written elsewhere (and by me) on what is a rearguard action against new digital distribution models.

This was always going to end badly for the big media companies, even if they won the Global Mode action.

That’s in part because Global Mode was a local version of something consumers can buy elsewhere.

While the King Canute media companies have stopped a wave, they haven’t stopped the tide.

There’s something else.

Globle Mode looked legitimate

Regardless of the untested legal arguments, Global Mode looked like a legitimate way of bypassing content geo-blocking. Consumers who used it felt they were doing the right thing. They were buying media.

It has taken the media business decades to convince consumers they should pay for media and not use shady operations like Pirate Bay.

And for a while they were.

Overnight, the big media companies have closed that channel. Consumers addicted to the latest shows, to entertainment not available from officially sanctioned New Zealand distributors have nowhere else to turn.

Some will lose interest. Others will head back to illegal channels.

That is not a victory for media companies.

Tom Pullar-Strecker reports on signs Sky Television is about to buy Orcon in Sky TV may enter internet market.

He joins these dots:

Orcon director Warren Hurst indicated late on Friday evening that a deal for the sale of the internet provider was being worked on over the weekend.

Minutes earlier Sky Television said it expected to make an announcement about a “new Sky development” by Wednesday morning.

If Pullar-Strecker is right, the story is great journalism.

Great journalism, but a poor business strategy by Sky TV.

Orcon’s tricky position

Orcon is the number four internet service provider in New Zealand behind Telecom NZ, Vodafone and CallPlus.

It is a relative minnow. The company has around 60,000 subscribers and makes up about five percent of the market.

Last year a group of private investors purchased Orcon from state-owned Kordia.

Loaded with debt

Although nothing official is on the record, industry gossip says the deal involved vendor finance from Kordia. This hasn’t been paid. The private investors have run out of money and need to sell.

Orcon’s problem is that providing internet services is a relatively low-margin business with high capital and customer acquisition costs. The two quickest routes to making money mean either finding ways to add value or from becoming larger and winning economies of scale.

Which means, at the right price, Orcon is a worthwhile purchase for another ISP wanting to build scale.

However, the asking price of $500 or thereabouts per subscriber is too high. That’s despite there being value in taking a competitor out of the market.

In other words, a rival ISP might snap Orcon up at a fire sale price, but it wouldn’t pay top dollar.

To make matters harder, Orcon ranked badly in the Consumer magazine comparison. Customer service is a particular problem. That suggests Orcon’s buyer will need to invest in technology and systems.

A good fit for Sky TV?

If Sky is looking to buy Orcon, it is because the pay television company thinks it can add value. It won’t be bulking up unless it buys other ISPs. While this is not out of the question, there’s no industry buzz about a deal being in the offing.

Sky doesn’t need Orcon to distribute its programming. It already has an exclusive partnership with Vodafone for that.

Buying puny Orcon would jeopardise a potentially strong Vodafone revenue stream with few overheads. Sky doesn’t have in-house ISP expertise, finding that would be another problem.

On the other hand, Sky has an efficient marketing and customer service machine. It has been hugely successful. Integrating an ISP into Sky’s customer service operation could make sense.

Problem child

There’s another reason Orcon is the worst possible ISP for Sky TV to acquire: Kim Dotcom.

Orcon used Dotcom to advertise its business earlier this year — whatever the rights and wrongs of the litigation and other actions around Dotcom, the man’s name is associated with file-sharing. That’s going to be a headache for Sky, which sits at the polar opposite extreme of that debate.

By all accounts the Dotcom advertising campaign was not a huge success. Yet I suspect it may have struck a chord with consumers who, let’s say ‘lean towards content piracy’. Dealing with that will be a challenge for Sky and may cause even friction in its relationship with Hollywood studios.

I don’t see how this issue can end well for Sky.

There’s yet another potential fish-hook. Until now Sky has managed to, largely, steer clear of the Commerce Commission and telecommunications regulation. The opposition parties have already made noises about this. If Sky becomes an ISP, it’s going to be harder for Sky to stay under the regulatory radar.

It’s unlikely whatever benefits Orcon brings to Sky will be adequate compensation for regulatory pain unless it is thinking of making further acquisitions in the ISP and telecommunications market.

A $45 per month Sky TV subscription is the centrepiece of Vodafone’s Red Home fibre internet package launched on Friday.

It’s a smart move combining broadband, phone and television that plays to Vodafone’s existing relationship with the pay TV monopoly.

At the press launch in a Herne Bay villa Vodafone head of consumer fixed services Steve Jackson said pay TV gives New Zealanders the incentive they need to move to fibre. That’s important given the slow uptake of residential fibre and the lack of any other obvious ‘killer application’ making fibre a must have.

Competition in fibre services, not media content

Vodafone deserves credit for identifying what customers want and finding a way to serve it. Thanks to Red Home, we have a vibrant competitive market in consumer-focused fibre internet.

Yet something disturbed me watching the impressive launch. Have New Zealanders been tricked into buying a spanking new delivery network for Sky?

On our behalf, the government has invested $1.5 billion of public money to seed the UFB network now being built by Northpower, Chorus, Enable and Ultrafast Fibre. Those companies are likely to tip in their own billions, by some estimates bringing the total cost to around $5 billion.

Real UFB cost is billions

On top of that, our largest telecommunications company was torn in two. At a further huge cost to investors. And, if the Coalition for Fair Internet Pricing has its numbers right, the thick end of another billion dollars will transfer from citizens to Chorus in a transaction the coalition describes as a copper tax.

Was all this just so that Sky can save on replacing its satellite and sell its content via fibre? Have we strengthened the monopoly?

It’s a question that was discussed before a single turf was cut on the UFB project. In fact it was discussed before the UFB contracts were announced. Nobody seems to have found any answers. Just don’t assume no-one is watching.

Commerce Commission warns Sky

Earlier today the Commerce Commission warned Sky about it contracts with service providers like Vodafone. The company escaped a fine for what the Commission calls historic breaches of competition law saying market changes reduce the opportunity for similar behaviour in the future. It also said it will continue to monitor Sky and will take the company to court if there is evidence of further breaches.

The Commerce Commission is a regulator. It acts like a police officer. What’s needed to deal with the relationship between Sky and companies selling fibre services is a fresh look at New Zealand media law – something our government seems reluctant to do.

In the meantime, the UFB’s real value lies in turbocharging New Zealand business – the residential network may be sold as a consumer product, but it will revolutionise life for hundreds of thousands of small companies working from suburban spare bedrooms, sheds and garages. That’s what our money pays for.

Any benefits to Sky are a byproduct. If that company becomes an abusive monopolist on the back of those benefits, a future government will have to step in and slap it down.

How is the UFB network coming along, and will fibre broadband transform New Zealand? Can it resolve the tyranny of distance and leapfrog us back into the global rich list? What are people doing with it anyway?

This was the question posed by Hayden Glass for the May Moxie Session – an informal discussion group exploring internet issues. I was a speaker along with Rosalie Nelson from Chorus and Crown FIbre’s Rohan MacMahon.

The government’s fibre investment won’t pay off until large numbers of businesses and consumers sign for UFB services.

There are clear efficiency and productivity reasons for businesses to sign. We can assume most will get around to it before too long.

There are few obvious compelling reasons for most consumers to sign. Enthusiasts and gamers will want fast broadband, but for the mass of people, the draw card would be access to sport and entertainment. That’s something that can’t happen until Sky TV’s monopoly-like grip on TV is broken.

This is unlikely to happen without government intervention. The problem I see is that the fibre network exists in a policy vacuum, it doesn’t link to government broadcasting policy, business strategy, to health or to education. I called for the government to join up the policy silos, possibly by appointing a broadband supremo – someone who in US politics would be called the broadband Tsar.

English football shows the way

Last week Coliseum Sports Media blew a hole through my argument. Instead of government intervention, a private business chipped the first hole in Sky’s monopoly. The company picked up the rights to English football (or soccer if you like). CSM will sell subscriptions – a year’s worth of English football – 380 games in total – for the price of a one-month subscription to Sky.

It’s a deal made for UFB.

Of course English football is a relatively minor sport in New Zealand. It ranks behind rugby, rugby league, cricket and netball, possibly behind motor sports. Sky has all those tied up – at least for the next two years. But we’re talking about the long-term here, the UFB project is still six years from completion.

It’s not just about sport. Although Sky has the movie studios tied up, it’s grip isn’t that tight. Every week a few more New Zealanders find ways to get around geo-blocking on media content so they can buy TV and films from Netflix or iTunes. At some point the movie studios will find it easier to cut international deals with digital distributors than to build a patchwork quilt of regional TV stations.

The question was will UFB transform New Zealand?  I’m more confident it will. Households will sign to fibre broadband for sport and entertainment content – most of which will mean sending more money overseas – but they’ll stay for a raft of other services which will boost the economy and cut the cost of providing education, healthcare and other dealings with government.