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touched-by-the-hand-of-godNet neutrality is controversial in the US. It is not an issue in New Zealand. As telecommunications and media companies get closer, it is time to take another look.

What is net neutrality, why does it matter elsewhere and how might it move onto the agenda in New Zealand?

Net neutrality says internet companies can’t play favourites with network data. Nor can they pick and choose what services or organisations can use their networks.

Put in those terms, net neutrality is simple. It echoes the internet’s design where the network is blind to the packets it carries. Everything is a dumb pipe. The neutral internet treats all data as equal. Nothing has priority. It doesn’t block any data. It doesn’t slow any data.

For years that was how everything worked and everyone was happy.

Net neutrality versus profit

Then some US internet service providers decided this got in the way of profit. They decided they would like to pick and choose the traffic going through their pipes. They want to charge big online media companies extra to prioritise their traffic.

Something else changed. In the internet’s early days, no-one knew what traffic was going through the dumb pipes. Then the industry developed a technology called deep packet inspection.

This means service providers are no longer blind. They can look inside the data packets on their networks and see what traffic is passing through.

What they found made them less sympathetic to the idea of net neutrality.

The case for dropping net neutrality

This isn’t as one-sided as it might appear. Telecommunications companies are under pressure to invest more in providing bandwidth.

Yet intense competition drives margins down. Few make fortunes from providing basic internet services. Dumb pipes don’t make for high profits.

Contrast this with the billions media companies earn distributing content on telecommunications networks.

Service providers had a good idea that others make more from the internet than they do. Deep packet inspection confirmed their suspicions. Yet they only needed to turn to the finance pages of newspapers to see what was happening.

Enter Netflix

In 2015, Netflix, the video-streaming service, accounted for one-third of US internet traffic. Service providers had to build fatter dumb pipes. They needed to buy more bandwidth to keep episodes of Game of Thrones streaming into homes. Their costs went up yet they sat outside watching Netflix rake in the profits.

It’s not only Netflix and video streaming. Most big internet service providers are also telecommunications companies. Over-the-top services like Skype, which uses voice over IP to bypass phone tolls, hurts their business. Net neutrality helps telecommunication companies’ fiercest rivals and gives little back.

The argument that Netflix, Skype and others should pay to use fatter pipes makes sense from the telco point of view. You could see Netflix and similar large-scale content operations as free riders.

Yet if network owners override net neutrality, critics say it will break the internet.

Breaking the internet

By break the internet, they mean it will choke innovation. They argue the last 25 years of progress made since the internet opened for business would grind to a halt.

Online innovation only happened because entrepreneurs were free to try new ideas. Email, web, e-commerce, video and social media would not have emerged without a neutral net.

As you’d expect most positions on the net neutrality debate come down to self-interest. Yet ideology also plays a role.

Net politics

In America, it became political. Lawmakers took sides and government agencies weighed into the debate. In 2015 America’s Federal Communications Commission adopted the Open Internet Order. This enshrined the idea of net neutrality in US law.

Last year presidential candidates Ted Cruz and Marco Rubio tried to overturn the law. Their campaign may have succeeded.

“Ajit Pai, President Donald Trump’s choice to lead the Federal Communications Commission, is taking a page from his boss’ book and moving quickly to roll back regulations. In the process, he’s raising questions about the future of equal access to the internet.”

New York Public Radio 10/02/2017.

Europe has its own net neutrality debate. Some countries, the Netherlands and Slovenia, passed laws protecting it.

Net neutrality has never been a big issue in New Zealand. In part, the industry structure makes it hard for service providers to discriminate.

All land-based internet traffic passes through a wholesale layer. That means Chorus, Northpower, UFF and Enable Networks guarantee net neutrality. New Zealand land-based ISPs don’t have end-to-end control. It’s hard for them to be anything other than neutral.

Net neutrality not in New Zealand

Until now that’s been enough to keep net neutrality off the agenda. Only land-based networks had enough capacity. Only they could deliver the high-bandwidth traffic that might attract a higher price.

Technology, as always, moves on. Today 4G mobile networks carry streaming video content. Both Spark and Vodafone promote fixed wireless broadband as a landline replacement.

Added to this, carriers, Vodafone and Spark sell streaming video services. Discrimination might benefit them.

Vodafone’s potential merger with Sky is not dead. Spark has its own Lightbox service and a deal with Netflix. There could be a temptation or incentive to prioritise any of these.

Fixed wireless broadband

For now, mobile networks only carry a fraction of data traffic —well under ten percent. This may yet change if fixed wireless broadband grows.

Even so, mobile will remain small compared to fixed-line broadband services.

It doesn’t serve Vodafone or Spark’s interest to discriminate in fixed-line broadband. If either tried to do so with fixed-line broadband, rivals would step in. They’d make a lot of it in their marketing.

Tough competition is enough to counter the threat to fixed-line internet.

Mobile networks face less competitive pressure. Despite 2degrees the mobile market is not far from a duopoly1.

End-to-end control

Vodafone, Spark and 2degrees have end-to-end control over the traffic. There’s at least a potential to discriminate.

Today Spark and Vodafone have an ability to discriminate and a possible incentive to do so. That’s not to say they will, but they can.

This is what has changed. It could bring the net neutrality debate to New Zealand. The recent change in the US climate might embolden companies here to follow suit.

Or not.

Regulatory action

The Commerce Commission has never been backward when dealing with telecommunications companies. If there’s a whiff of reduced market competition, expect action.

Likewise, the Telecommunications Act gets revisited every five years or so. Many in Parliament would love to squash net neutrality.

Think back to earlier debates about internet issues. Our politicians are not up to speed.

The Commerce Commission is slow at times. Its processes are often ponderous. After bruising battles on other fronts, the last thing telcos want is another fight. It would be long, expensive and distracting.

Red-tape alone could be enough to keep net neutrality off the agenda. If not, there is the near certainty of market intervention. That and potential penalties will concentrate minds.

Update: Sarah Putt has another take on Net Neutrality at SP Media and talks about it on Radio NZ Nine to Noon.


  1. Yes, the point is debatable. One could argue a weak third player is only tolerated by the giants as it gives the appearance of full competition. ↩︎

Netflix tablet

There’s no comparison between Spark’s Netflix promotion the and the halted Vodafone-Sky deal.

One would have changed New Zealand’s telecommunications and media scene. The other is a marketing promotion.

Clever, perhaps. Timely, yes. But still marketing.

Netflix credit

Spark customers signing a two-year broadband contract will get a one-off credit on their Netflix subscription.

The deal only applies to unlimited data plans and is equal in value to a year’s standard Netflix subscription.

Netflix’s standard package costs $15 a month in New Zealand. The deal means Spark customers get a $180 credit against their Netflix bill to use as they choose.

Spark unlimited plans start at $105, so customers spend $2500 to get $180 worth of Netflix.

In money terms that’s less generous than the discounts some other ISPs offer. But Netflix is a magic name in the online media business.

While it is an aggressive move with the right video service, it’s not strategic.

The right video brand

Netflix is the big name in streaming TV and movies. It’s the brand everyone wants.

Spark needs a high profile deal to tie restless consumers to its brand.

Spark will continue to offer its own Lightbox online service as well.

The deal timing is interesting. It comes after the Commerce Commission turned down the proposed Vodafone-Sky merger. If that deal had gone through, it would be a handy face-saver for Spark which was wrongfooted by Vodafone.

Either way it underlines how telcos look to value-added services to sell their, otherwise, dumb pipes.

The telecommunications market rebooted after Telecom shed Chorus to win UFB contracts. At the time, most industry insiders expected the big players to compete on quality of service.

That never happened. No-one argues the big broadband companies offer anything other than indifferent customer service.

Adding value

Instead Vodafone and Spark sought other ways to compete. The game moved to adding value.

In Spark’s case the value-add includes home security and earlier attempts at bundling video entertainment. Spark dipped its toe in the media water with Lightbox and an investment in Coliseum Sports Media.

Vodafone has a partnership with Sky to do the same thing. The two companies may still reach a merger agreement.

At this stage the deal between Spark and Netflix is looser than any of the above. It’s just about marketing. Yet it gives Spark an opportunity to link its name with the biggest online media brand. Think of the move as a show of intent.

“Content provider”

Jason Paris, Spark Home Mobile and Business CEO talks of an ambition to become New Zealand’s preferred content provider. He says: “This partnership is a step on the road toward Spark becoming a go-to destination for media and entertainment.”

Maybe. But offering low-cost Netflix to customers already spending a lot of money doesn’t not make one a “go-to destination”. At best it makes Spark a deal broker.

For a media and entertainment to work in New Zealand Spark has to sharpen its act when it comes to bidding for sports rights. That means Rugby, lthough a tempting bundle of other popular sports including Cricket, Netball and Football might swing it.

Offering Netflix is a step in the right direction and a useful hey-look-over-here while a rival is in the spotlight. It’s not a strategy.

Writing at the NZ Herald Holly Ryan reports Sky is not happy about the Spark-Netflix deal

Premier League Pass

Chris Keall, writing at the NBR, reports Lightbox Sport, a joint venture between Coliseum Sports Media and Lightbox, has lost the New Zealand TV rights to English Premier League football.

Coliseum’s Premier League Pass is innovative. It is special:

  • Premier League Pass packages top-flight English football in a handy, innovative online format. Fans can watch it on a laptop, tablet, phone or stream to a TV. A single subscription allows viewers to choose any format.
  • Every game is available. Fans need never miss their favourite team’s match.
  • Viewers only pay for the one sport, not a rag-bag bundle of codes.
  • Fans can watch when it suits. All games stream live, most games remain online for a day allowing easy catch-up. A handful of games stay online all week.

$200 for a season seems reasonable and inexpensive compared with Sky Sport. To get a more limited football coverage from Sky would cost at least five or six times as much.

I watch live games on my iPad Pro. The picture quality is often, although not always, first rate. An uncontested VDSL connection helps there.

New Zealand’s awkward time zone is brutal on English football fans. Depending on the daylight saving, games are usually played sometime between one AM and mid-morning. I often wake at 4:00 to catch my team’s game live — sometimes with headphones under a warm duvet.

Other times I catch up at the breakfast table with a cup of tea.

Flexible

This flexibility is so much better than the alternatives. I found this out the hard way.

When Premier League Pass first appeared I signed up for the season. For a while I enjoyed it. Towards the end of the season I had to miss many games because my workload was so high I found myself too busy to watch, even early on weekend mornings.

So for the second season I decided to, ahem, use a VPN and watch the games broadcast on UK television. This approach was unsatisfactory. While Premier League Pass had the rights to every game, the BBC and ITV did not. I often missed important matches.

Worse, I could only watch these games at set times. It may have been possible to find a way of recording matches over the VPN, I never got there.

I left the worst part of this story to the end. Last season, the club I’ve supported since I was six years old, Chelsea, won the championship. I saw about eight or nine games that year. This explains why I was first in the queue when subscriptions for the current season went on sale.

And, yes, I know Chelsea has had an awful season. It’s been painful, but if Premier League Pass was in business next year, I’d sign on again. It’s just too good and so much better than the alternatives.

Next season

What will I do next season? It depends, if the new rights holder offers a similar service to Premier League Pass, I’ll be there.

Otherwise, I’ll sign up for Chelsea’s own TV service. It’s cheaper than Premier League Pass and includes European games, assuming there will be any next season. On the other hand, I won’t get to see many non-Chelsea games. That’s a pity.

Premier League Pass isn’t perfect. It doesn’t show cup games, European matches or internationals. I’d pay more if they could be added. Yet it was the best thing to happen to New Zealand TV sport in a long time.

For a short time Premier League Pass showed the potential of unbundled sports television. Friends from overseas, including those from England, often told me they were envious of the service. Let’s hope something similar returns in the future.

This story originally said the rights were lost by Coliseum Sports Media. 

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.

Netflix, Quickflix, Lightbox, Neon NZ Streaming TVAfter years of waiting New Zealanders are now spoilt for choice with streaming TV. Netflix, Quickflix, Lightbox and Neon each offer a decent local catalogues at reasonable prices.

There’s a thin line between choice and fragmentation. The most popular shows are scattered among the four services.

Customers are left with difficult choices. The good news is that buying subscriptions to more than one service is unlikely to break the bank in most homes.

Streaming TV market will change

Don’t assume the market will stay this way. History suggests the online TV industry will consolidate to become dominated by a handful of global giants.

To understand how that will work look at what happened to online music distribution.

In the early days many countries had their own online CD and MP3 stores. These disappeared as a handful of global brands took control.

iTunes, Amazon, Spotify

Apple’s iTunes and Amazon cater for music buyers. While all-you-can-eat services like Spotify will stream music for a subscription.

While there are notable differences between say, the iTunes NZ catalogue and the US one, the underlying service is global.

Legacy territorial rights are the main reason iTunes national catalogues have yet to consolidate into one single global list.

We can reasonably assume streaming TV and movie rights will follow a similar path.

Most likely we’ll end up with a handful of services with global economies of scale.

One service is not enough

For now, if you restrict choice to only what is officially offered in New Zealand, most viewers will need to subscribe to more than one service to get all their favourite shows.

That’s why many users still plan to get around geo-blocking and buy Netflix direct from the USA. The American Netflix service offers a far greater range of programmes than the authorised New Zealand version.

The backdoor route to a bigger Netflix catalogue will eventually close.

Global Mode

That could be down to local rights holders. Say the action started by Sky TV, Spark, TVNZ and Mediaworks succeeds in stopping CallPlus’ Global Mode service. Their next step would be to tighten the screws on all VPN and DNS rerouting products used to get around geo-blocking.

Or it could be stopped by action at the other end of the chain. As already mentioned Netflix and other giants may negotiate global content deals with studios.

Another possibility is that Netflix bends to the studios demands and cracks down on non-US customers accessing the service by VPN and proxy services.

That’s a matter for the studios and the distributors to sort out. It depends on which side holds the most power in these relationships.

A question of geography

The studios will only continue to carve up the world into discreet geographic units with each country having its own set of rights if they think that’s doable and likely to be more profitable. It probably isn’t.

The administration cost of maintaining multiple national boundaries is high. When was anything involving lawyers ever cheap? Getting one signature for global online distribution solves a lot of problems.

What does this mean for local streaming providers like Lightbox, Neon and Quickflix? They may have a future if they can capture key niches.

Sky TV shows the way here. It continues to own the bulk of the sports programming that matters most to New Zealanders. Coliseum Sports Media has other rights and partners with Lightbox.

Fly under the global radar

There are other forms of programming that matter to local viewers but are unlikely to appeal to global distributors.

This leaves the local streaming TV players with interesting strategic options. They could partner with existing broadcasters like TVNZ or Mediaworks to build portfolios of local material or they could partner directly with producers and local studios. This means commissioning new shows aimed at New Zealand audiences.

Local players don’t have deep enough pockets to compete with global scale media companies but they can outperform them locally if they do a better job of delivering the programming New Zealanders want.