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UFB fuels Xero Hawke’s Bay move

If you’re wondering why the government was so keen to build a fibre network look no further than Victoria White’s Xero boss brings jobs to Hawke’s Bay in Hawke’s Bay Today.

She writes:

Next year, Hawke’s Bay will join the likes of San Francisco, London, and Singapore, as a base for global software company Xero.

The ever-expanding company will be opening a new office in Napier — potentially at the new Ahuriri Tech Hub — which will create 30 support jobs over the next 18 months to join the company’s global customer experience team and specialist payroll experts.

The story is mainly concerned with the region’s potential for acting as a hub for other technology companies. That’s as it should be for a local newspaper. Good luck with that project, the more tech jobs in regional New Zealand the better. Xero is already helping to pull the national technology economy along.

Three-quarters of the way down the page, White gets to the important point. She quotes Hawke’s Bay-based MP and Small Business Minister Craig Foss, who says:

“Fibre has enabled world-leading innovative companies, such as Xero, to be based in our stunning region – living and working the dream.”

Every town a Gigatown as Chorus joins 1Gbps pack

Chorus says it will offer gigabit fibre services starting next month. It joins Enable Networks, Northpower Fibre and Ultrafast Fibre who all plan to launch gigabit wholesale broadband services in October.

From next month they will all offer download speeds of 1Gbps with uploads running at 500Mbps.

If customers take up the offer[1], the gigabit upgrade could catapult New Zealand up the global broadband speed ranking.

Chorus says it will sell residential wholesale gigabit services for $60 a month. That’s an introductory offer to get everyone hooked. From June 2017 the price will rise to $65. The business service is $75.

ISPs quick to react

Within minutes of Chorus’ announcement, MyRepublic said it would offer gigabit services in all UFB areas. Customers signing for a 24-month plan get the first six months at the wholesale rate and pay $120 a month for the rest of the term.

Spark is already taking orders for gigabit fibre plans. Orcon plans to launch gigabit services as soon as they are available.

One of the smaller ISPs, Tauranga-based Full Flavour has been quick off the block. It now sells gigabit services and says more than 3000 local businesses in Tauranga are able to take up the offer.

Another regional ISP, Taranaki’s Primo Wireless, also offers gigabit plans.

Top gear

In a media statement Chorus says its gigabit service: “Will run at the maximum speed the network electronics allows today. In practice this means customers will see download speeds of between 900Mbps and 970Mbps and upload speeds of up to 500Mbps.”

No-one is going to quibble about the difference between 900Mbps and 1Gbps because no-one will notice.

In some ways the numbers are meaningless. Once you get past 100Mbps[2], broadband speeds are more about marketing than technical practicalities.

A normal New Zealand home will struggle to use 100Mbps.

Streams of high resolution television

Gaming aside, the most demanding domestic application is 4K television and that can stream well enough inside the lowest priced 30Mbps fibre services. You’d need half a dozen 4K televisions to put pressure on a 100Mbps link.

Even hospitals and medical practices running high-end imaging equipment will struggle to make use of the high speeds. Gigabit internet might be useful if you plan to build a large hadron collider in your garage.

Yet things change. High-resolution virtual reality entertainment looms on the horizon. If it takes off, it could see households bump up against today’s speed limits. Who knows what else might be on the way?

Back in the here and now, 1Gbps means users are buying a lot of headroom. That can be helpful. A car with a top speed of more than 200kph might be overkill for driving around town. Yet when the chips are down on a rural overtaking lane, extra grunt at the top can get you out of trouble.


  1. Chorus says there are 5000 Gigatown subscribers in Dunedin. That shows there is clear demand for faster internet services.  ↩
  2. That’s now most fibre users. You have to wonder why anyone buys 30Mbps fibre plans. Communications minister Amy Adams says between March and June 2016, 87 percent of new residential connections were for 100Mbps services or higher. Nine percent of new connections are 200Mbps or above.  ↩

Copper price trims Chorus profit, dividend returns

Chorus posted a lower profit for 2015. In a statement chief executive Mark Ratcliffe said the fall was due to the lower regulated copper price.

What he didn’t say is the numbers could have been much worse. The company dodged a bullet, maybe more than one, when the Commerce Commission ruled to cut the copper access fee by less than its first draft price.

Even with a higher regulated price the company suffered. In the last six months of 2015 Chorus made an after-tax profit of $33 million. That’s almost half the $64 million made in the same period a year earlier.

Chorus owns the local copper network and sells access to internet service providers like Spark, Vodafone and CallPlus. The price it can charge is fixed by the Commerce Commission.

Copper wrangling

It took almost three years of wrangling to decide the regulated copper price. Most observers and analysts regard the final price as a Chorus win, although that’s not how the company spins it.

While this was taking place Chorus suspended dividend payments to shareholders. With the new price in place these have resumed.

The company says it expects to pay a dividend of 20 cents per share for 2016. There will be an interim payment of 8 cents in April.

Investors seem pleased. Chorus shares were up almost five percent immediately after the announcement.

In a letter to shareholders chairman Patrick Strange noted two other highlights:

Ultra-fast Broadband (UFB) build is now complete for 48% of planned premises, including seven towns, and the Rural Broadband Initiative (RBI) rollout is almost complete. These programmes have now brought better broadband within reach of about 646,000 consumers nationwide.

Demand for fibre continues to increase and more than 112,000 mass market consumers have now been connected to fibre services. Growing numbers are opting for a 100Mbps service or better.

average throughput per user chorus

 

A slide in the results presentation shows how fixed line connections are moving fast from copper to fibre. Meanwhile, the average throughput per user is climbing at a rapid rate.

Kia Ora Netflix – streaming arrives in NZ

Netflix will launch in New Zealand in March. A press release from the online video service says it will soon begin operation in New Zealand and Australia.

From day one New Zealand viewers will be able to watch Netflix video on suitably equipped smart TVs, tablets, smartphones, computers and set-top boxes.

Although here was no specific price information in the press release, the company promises to offer “original series, movies, documentaries, stand-up comedy specials and TV shows for a low monthly price”.

Slingshot General Manager Taryn Hamilton sent a press release saying “it’s great”. InternetNZ is “thrilled” in its press release and CEO Jordan Carter seems excited:

https://twitter.com/jordantcarter/status/534842014961909760

Owen Williams forgot to turn off his caps lock key:

https://twitter.com/ow/status/534832131659161600

Rohan McMahon from Crown Fibre Holdings has already got his job application in:

At the NBR Chris Keall has an interesting perspective. He starts by writing:

…it could blunt the appeal of Sky TV’s pending Netflix-style service Neon, Spark’s recently launched Lightbox — which has the ambitious target of 70,000 subscribers by June next year — and the more established Quickflix, which operates on both sides of the Tasman.

However, as Keall and lots of other people on Twitter point out, Sky has locked-in a lot of popular video content rights for New Zealand. That means local customers won’t get access to as much content as they find on the US service. Many New Zealanders buy US Netflix services using VPNs and other tricks to bypass geo-blocking.

Until now Netflix has happily turned a blind eye to New Zealander consumers buying its services this way. Keall wonders out loud if the streaming giant will make access to its US service harder once it lands here. He says that would make life easier for Lightbox, Neon and Quickflix.

Fibre likely winner from Netflix

Chorus, Enable, NorthPower and Ultrafast Fibre will be cock-a-hoop about the Netflix announcement. So will the ISPs aiming to sell fibre. Video streaming, especially high quality video-streaming is the nearest thing to a killer app for people selling fibre broadband services.

The latest figures from Crown Fibre Holdings show a little over 10 percent of the people in fibre network areas now buy UFB services. That’s still small, but momentum is building. Netflix, even just the publicity about the service, will create even more interest in fibre.

The fibre uptake number is important to Chorus and the local fibre companies. They earn money as people sign-up, the greater the up-take percentage, the faster they can recover money from building networks.

When should we rip out the copper network?

Does it make sense to pull the plug on New Zealand’s aging copper telephone network as fibre goes in?

The New Zealand government put the question to one side when it planned the UFB network.

Suddenly, it’s on the agenda.

When it announced its annual result on Monday, Chorus, the company that runs the network, said it will cut spending on the copper network to find the savings it needs to keep its fibre project on track.

Paul McBeth reports for Businessdesk:

Chorus, the network operator spun out of Telecom in 2011, will clamp down on investing in its legacy copper lines to help drive some $400 million in savings over the next six years as it looks to fill a $1 billion funding hole to build a nationwide fibre network.

One way of reading the company’s statement is copper is the first thing for the chop when the chips are down.

Considering the network is a Chorus asset, that attitude speaks volumes.

Former Tuanz CEO Ernie Newman makes this case for ripping out the copper network commenting on a post I wrote on the IITP TechBlog:

When roads get upgraded to cut out the sharp corners, the old windy bits don’t get left open as an alternative – everyone migrates straight away to the new diversion.

Likewise from a “NZ Inc” approach it would be very sensible to cut the whole country across to fibre and switch off the copper as soon as its available. Just like analogue TV but much faster. Why maintain two networks?

Sure there would be losers, and issues around compensation. But if this is the right answer from a national perspective, lets address those commercial issues and get on with it. It’s not too late.

Current Tuanz CEO Paul Brislen makes a slightly different point on his organisation’s blog:

…the day will come when each area is completed and Chorus can switch off the copper network. That needs to be managed and planning should start now.

Whangarei will be fully fibred this year – there’s no need for Chorus to continue maintaining a network that is surplus to requirements, yet no thought has been given to Chorus’s requirement to provide the network of last choice.

Once fibre is available to all properties in an area, the copper can go. That’s something we need to plan for right now.

This is a measured approach which shouldn’t frighten anyone.

On a purely practical level, ripping out copper networks makes perfect sense for most New Zealanders — the 75 percent living in towns — who will be on a spanking new fibre-to-the-premise network by the end of 2019.

In theory, most of the rest of the population will be using the copper network for the foreseeable future.

That may not be strictly true, Northpower has previously talked of extending its fibre network beyond the UFB area. I’ve heard enough talk from Chorus and other UFB builders about plans to go outside their government mandated areas once the UFB project completes to convince me that sooner or later fibre will displace copper just about everywhere practical. And there are wireless technologies for where it isn’t practical.

The theory is good, but the main problem with ripping out copper as fibre goes in isn’t technical or economic, it’s political. New Zealanders don’t react well to this kind of central government diktat.

Switching off analogue TV may have been relatively painless, but there was a lot of grumbling in small-c conservative circles. Older people, in particular, are wedded to the idea of real phones with dial tone and large toll-free local calling areas.

One immediate political advantage of ripping out copper is it neutralises a lot of the fuss over the so-called ‘copper tax’.

So any move to rip out copper is essentially a political calculus. Somewhere in a bunker in Wellington, there’s a spreadsheet balancing the benefits of an end to wrangling over regulation against upsetting grannies attached to the comforting buzz of a copper line dial tone.

Chorus takes copper price review to High Court

Chorus is turning to the High Court as it continues to battle with a Commerce Commission ruling on the price the network company can charge for its copper broadband service.

At the same time Chorus has applied to the Commerce Commission for a final pricing principle (FPP).

An FPP is a review of the earlier decision on the price Chorus can charge for its copper broadband service. It is a lengthy process which could take as long as two years. It involves economic cost modelling, not benchmarking against other countries.

The company’s court action questions whether the Commerce Commission applied the law correctly when making its ruling.

Benchmarks

In a press statement Chorus CEO Mark Ratcliffe points at the way the Commerce Commission benchmarked New Zealand’s network. He says: “The limitation of two benchmarked countries despite the specific factors set out in section 18 and 18(2A) has left us with no choice.”

Ratcliffe says the company has duty to its shareholder to explore every option.

He also turns on the Telecommunications Act which the government enacted only two years ago. He says: “We recognise that the Commerce Commission has to operate within the regulations that are set in the Telecommunications Act. The Commission’s initial decision is a symptom of regulations that simply do not align with the government’s policy of a transition to fibre.

“We are not looking to blame the Commission, because it can only referee by the rules of the game as they are set.

Regulatory framework

Chorus rolled out former telecommunications commissioner Dr Ross Patterson to support its position. He says:  “The ladder of investment regulatory framework that is currently in place is designed over time to remove the natural monopoly of the access network.

“However, the structural separation model adopted through UFB accepts that the access network is a natural monopoly and building competing networks is inefficient.  The two frameworks cannot co-exist efficiently.”

Comment: Despite the litigation and the lengthy FPP review, political events could be moving towards a resolution.

Earlier today Prime Minister John Key said the government had “a number of options” for dealing with the billion dollars or so that the Commerce Commission ruling looks set to cost Chorus. He then ruled out two of the most obvious options: slowing the project and putting more government money into the company.

A report from Ernst & Young Australia into Chorus’ finances is due on Thursday and that’s likely to influence the next step which may or may not involve some horse-trading between the government and Chorus.

What’s clear is Chorus shareholders will suffer financial pain. The question is whether they cop the full cost of the Commerce Commission determined price cut.

Equally clear is the cost to shareholders if Chorus walks away from the UFB project will be higher and more devastating in the long-term than swallowing the regulated price cut.

Also clear is a lack of public support for Chorus and its shareholders. In the space of weeks the company has gone from being something hardly anyone cared about to being a pariah in waiting. The Gigatown promotion is unlikely to change many opinions.