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mobile telecommunications

Kudos Vodafone for launching 5G, now about that $10 surcharge

Hats off the Vodafone for building New Zealand’s first meaningful 5G network.1

It’s a big step for New Zealand telecommunications and an even bigger step for Vodafone.

A year ago it looked like the company would be starved of the resources needed to make a significant 5G splash. That changed when Infratil and Brookfield fund a $3.5 billion split from the UK-based parent company.

100 Vodafone 5G sites open today

Today there are 100 sites. While this sounds good, in practice it means scattered pockets of 5G in a sea of 4G mobile coverage. Vodafone says it will upgrade the 4G sites to 5G-like speeds and increase the number of 5G sites to around 1500 in the next few years.

Performance on Vodafone’s initial network is impressive. This morning social media was full of screen shots showing handsets downloading at speeds of around 500mbps. Actually the screen shots showed download test sites, which amounts to the same thing.

Even so that is not the gigabit speeds that 5G companies have promised. In a media statement, technology director Tony Baird explained why this isn’t happening yet. He says:

“We’re using 3.5GHz spectrum to launch 5G, and our current radio spectrum holdings will mean that Vodafone customers see an uplift of up to 10 times current 4G speeds.

“However to reach the one gigabit speeds that we’re seeing internationally, we’ll need approximately 100MHz of 3.5GHz spectrum so will continue to work with the government on the early allocation and auction processes.”

It’s worth remembering today’s 5G is uncluttered. There’s almost no-one using it. That’s going to help early performance. The technology should cope better than 4G with lots of traffic, but we’re months away from that happening.

New 5G handset needed

You can’t just walk into a 5G zone and get high speed mobile broadband. You need to buy an expensive new handset first. There are two models at the moment. Both are from Samsung and both are Android models. If you can live with Android you’ll be good to go.

If other 5G equipped phones from other brands are on the way to New Zealand, the companies making them are keeping quiet about it. Realistically there won’t be a wide choice, and certainly not suitable iPhones until at least this time next year.

Premium price

By then Vodafone will charge a premium for 5G network access. The company says suitably equipped customers can use the 5G network at no extra cost until the used of June. From then they will need to pay an extra $10 a week for the service.

This echoes what happened in the early days of 4G. Although the premium didn’t last long once competition kicked in. This time Vodafone has at least six months start on its competitors, maybe much longer.

It may have been reasonable to ask 4G users to pay a premium, they got a noticeable performance upgrade. The practical benefits of upgrading to 5G will be less obvious to most phone customers.

Yes, they will see faster speeds. Videos will download faster. On paper you can browse faster.

Yet there are no practical mobile applications for ordinary users  that need extra speed. Not yet. 4G mobile has plenty of bandwidth to watch high resolution video on a handheld device. And when was the last time you hit a bottleneck browsing on 4G?

Gamers

Gamers may find something worth paying a premium for. They won’t see higher resolution, but they should see lower latency from using 5G.

That’s good, but $10 a month just to get a better gaming response seems a bit steep for all but the most hard-core gamers.

Unlike 4G, most of the benefit of 5G goes to Vodafone and its enterprise customers. The technology means many more paying customers can use cellular at the same time, which gives Vodafone an opportunity to sell more. It also gives the company shiny new things to sell, like network slices and internet-of-things services.

In that sense charging mobile users a premium is like asking supermarket shoppers to pay more because a new Pak’n Save is opening down the road.

If Vodafone is going to get non-business customers to upgrade their mobile and pay more, it needs a better reason than fast. Phones already do fast-enough with 4G.


  1. Spark’s handful of South Island fixed wireless sites pales in comparison. ↩︎
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telecommunications

Spark dips toe as Vodafone plunges into 5G

Vodafone’s 5G network will launch any day now. Spark wants you to know it already has New Zealand’s first commercial 5G service.

That’s only part of the story.

If Vodafone is about to dive headlong into the pool, Spark dipped a toe in the shallow end.

When it launches Vodafone will have over 100 5G towers in parts of the three biggest cities and in Queenstown. Spark’s network is restricted to what it calls heartland communities.

This is code for small South Island towns. More precisely; Alexandra, Westport, Clyde, Twizel, Tekapo and Hokitika. Collectively the population of these places is around 16,000.

Small reach

That is about one-third of one percent of New Zealand’s population.

Vodafone won’t have city-wide coverage in its launch cities. Even so, its network could cover getting on for half the population. Even a pessimistic look at the numbers suggests Vodafone will reach 100 times as many potential 5G customers as Spark.

That’s not all. Spark’s network only offers fixed wireless broadband. While fixed wireless might suit some people, most people would see it as a second rate alternative to fibre.

Tekapo and Clyde don’t have fibre, the other places do.

Not preferred 5G spectrum

There’s another angle to this. Spark’s network will use 2600MHz spectrum. The company says this is not its preferred 5G spectrum. Spark doesn’t own the spectrum, it belongs to Dense Air.

The number of commercial Spark 5G heartland community customers for the next few months will be measured in hundreds, not thousands. Vodafone probably expects to sign more customers in a single day.

Spark does also have 5G around parts of Auckland Harbour for the America’s Cup racers. But that’s a private network.

Fate has been cruel to Spark’s 5G ambition. Spark’s plan to show 5G leadership have been hit by three external forces.

First, there is the GCSB’s unwillingness to sign off on preferred partner Huawei building the network.

Spectrum

Second, the government has ignored Spark’s pleas to speed up the Spectrum auction. And third, Vodafone pulled a rabbit out of a hat when the parent company sold the New Zealand operation to new owners willing to invest early in a new 5G network.

Of course the idea carriers are jockeying to win a 5G race is ridiculous. The technology will be around for 10 years. Getting it right is more important than getting it first. Few customers will jump ship just because they have to wait a few months.

While there may be a small first mover advantage, the real winner will be the carrier that can make its network pay over the long haul.

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telecommunications

The limits of Spark’s 600GB fixed wireless promise

Writing at the NZ Herald, Chris Keall reports on Spark increasing the data cap on fixed wireless plans to 600GB.

Spark only offers 600GB in Auckland where there are usually better broadband options. The company isn’t so generous out in the sticks where there’s no fibre and wireless is the only game in town.

Rural people who need 600GB wireless data can’t buy it.

Keall writes: “Spark has supersized the data cap on its fixed-wireless broadband plan to a stonking 600 gigabytes – removing one of the historic barriers to this fast internet technology, at least for Auckland customers.”

Limited offer

Make that some Auckland customers.

Spark’s press release talks about eligible customers. It certainly isn’t everyone. The deal is not available at my address nor at any of the first five Auckland addresses I typed into Spark’s website.

Later in the story Keall writes: “The telco couldn’t immediately say which areas of Auckland and how many customers were eligible.”

We don’t even know if it is most of the city, half the city or one-tenth of the city. Going by my entirely unscientific survey, it’s unlikely coverage is at the top end of that list.

Keall goes on to write: “The bandwidth is often good enough for high-def video streaming, though results vary depending on your proximity to the nearest cell site, among other factors.”

The key word here is often.

Fast enough?

I’ve heard from readers who can stream high-definition video on Spark’s fixed wireless network. They love it. I’ve also heard from people who can’t stream.

Even Spark was wary of making this kind of promise when it was selling the Spark Sport Rugby World Cup package.

It’s unlikely the Keall household will be customers. He says: “In mine, where two parents stream all their TV, one teen spends a lot of time on PlayStation Online and another sets TikTok records, we usually chew threw between 800GB and 1TB (1000GB).”

When I tried fixed wireless broadband I got a decent 40mbps or so, but at that stage I was the only connection on the local tower. A neighbour gets up to 18mbps, but says the speed drops in the evening.

Apart from the data cap, today’s fixed wireless doesn’t have the bandwidth to cater for this kind of family use. That may change when 5G is available. Yet going on reports from overseas, even 5G will struggle under the Keall-load.

Where available, fixed wireless broadband is the best option for people who are off the fibre map. It makes sense for people who don’t use enough bandwidth or data to justify a fibre line. It is a good idea if you are too far from the curb, or down a difficult to deal with right of way.

Fixed wireless broadband can be cheap.

At $65, Spark’s bottom of the range fixed wireless plan can cost less than even the cheapest fibre plan so long as you stay below 60GB of data a month.

Given that unlimited fibre plans start at around $70 a month, wireless may not be the best value for money.

You don’t need to be psychic to unpick Spark’s timing. Vodafone plans to launch its 5G network before Christmas.

One thing to watch is whether Vodafone will attempt to compete head-on with Spark’s fixed wireless. On paper its 5G fixed wireless will be faster and data will be more abundant. The key question is price.

Vodafone may choose an aggressive price, but that could undermine any messages about the superiority of 5G.

Either way, you can expect to be bombarded with marketing about the relative merits of the different technologies. Spark’s 600GB announcement is the opening salvo.

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telecommunications

Unbundling fibre: Be careful what you wish for

Vocus and Vodafone want cheaper fibre unbundling. If we take their words at face value, they want fibre wholesalers to sell at a loss.

That would be a disaster.

It would kill the fibre companies. They would go broke.

Unbundling on terms that would keep Vocus and Vodafone happy would unravel the telecommunications industry restructure that took place a decade ago as well as mess with the intent of the recent Telecommunications Amendment Act.

In the process, unbundling fibre in the way Vocus and Vodafone want would wipe out the small service providers. That may well be one of their goals. It threatens to undermine the entire broadband sector.

Unbundling means more expensive broadband

If all that sounds remote to readers who don’t work or invest in telecommunications, try this: if Vocus and Vodafone get their way, unbundling means most customers will pay more for broadband.

You could pay a lot more. We’ll come back to this later.

What looks like a simple squabble over price is the tip of a complex iceberg.

In June Vocus and Vodafone issued a press release (published in full at the bottom of this page) saying: “Chorus is torpedoing broadband innovation with predatory pricing”.

Predatory?

There is a curious thing about that sentence1. Vocus and Vodafone single out Chorus as the problem. No other fibre company is named.

Yet Chorus is only one of four New Zealand four fibre wholesale companies. Chorus’ unbundled fibre offer is the cheapest of the four. It is the most generous of the four. Some of the others want even more money.

To single out the cheapest, most amenable unbundled wholesaler, for special criticism is odd.

Presumably, it is because Chorus has the highest profile. Everyone has heard of Chorus. This tells us the Vocus and Vodafone press release is more about politics than informing the public or making a case. It is only there to mess with your head.

This is political. It always was. Unbundling was a political bolt-on to the fibre project. By law, All four fibre companies have to offer unbundled fibre from January 2020.

The law doesn’t say anything about the price or the unbundling process. These are not regulated at this stage.

Ideally, the politicians, regulators and government officials would prefer the industry to sort out fibre unbundling terms through commercial negotiations. If that doesn’t work, then the regulator steps in.

Going by the language in the press release, we’re already at that point or close to it.

Background

Unbundling fibre sounds simple. It isn’t.

First, there’s the question of the integrity of the fibre network. Fibre companies worry that letting outsiders cut their glass strands could be chaotic.

As things stand that’s not going to happen. Yet it was an early bone of contention.

A harder problem is how to price unbundled fibre so that networks cover their costs and earn a fair return for their investors. It looks as if this can’t be done in a way that would satisfy Vocus and Vodafone.

Layers

Today, New Zealand’s fibre companies offer what is known as bitstream or layer 2 services. You don’t need to worry about all the layers. Unbundled fibre is layer 1.

Layer 1 is an active fibre link between two points and layer 2 is where there are electronics at both ends to handle the traffic.

Regulations mean wholesale fibre companies cannot sell directly to end-users. They sell to retail service providers or RSPs like Vocus, Vodafone and Spark. At the moment wholesalers only sell layer 2 services.

Regulations

The price of a basic wholesale fibre service is fixed and regulated at $42 a month.

The regulated price of fibre is based on an estimate of the cost to the wholesaler of providing the service.

That cost includes the investment a fibre company made building the network and then providing continuing services. The biggest cost component is civil engineering.

There’s a formula that looks at what the regulator describes as allowable input costs’.

This is quite different from the way regulated costs were determined for the copper network. That was based on benchmarking against costs for similar networks overseas.

The new method gives fibre companies more certainty and makes it easier for them to judge the worth of further network investments. If we didn’t use this method or something like it, then there would have been few takers to build the networks.

Not much price difference

Fibre wholesalers can and do offer faster speeds at unregulated prices. As you’d imagine, these unregulated prices are higher. A gigabit line costs around $60.

There is not much cost difference between providing a basic fibre broadband plan and delivering the fastest speeds available.

Almost all of the cost of providing a fibre connection is in the engineering, digging trenches and running cables from poles. A fibre company needs to dig the same trenches and roll out the same cable regardless of the line speed or who owns the hardware at each end.

The only significant input cost difference between a bundled and unbundled line is the equipment at each end of the fibre.

Unbundled service providers buy their own hardware. Fibre wholesalers wrap the cost of this hardware into their layer 2 prices. A little extra money may be needed to cover the costs of dealing with more data passing through the network, but that’s near negligible.

At most, the total extra input cost of providing a fast connection is a couple of dollars. Likewise, the only saving the wholesaler makes with an unbundled line is not buying this equipment. In other words, for a wholesaler, the cost difference between delivering layer 1 and layer 2 is marginal.

Cost-based pricing

At most, the practical cost to a wholesaler of providing an unbundled fibre line is a dollar or two less than the cost of providing a bundled line. This explains why the fibre companies have come up with the unbundled prices you see today.

Vocus and Vodafone don’t like these prices, but they have been arrived at using the same logic as the regulated layer 2 prices.

To argue against these unbundled prices is to argue against the regulated model established by the government. If Vocus and Vodafone have an argument, it is with the Commerce Commission, Crown Infrastructure Holdings and maybe the government itself.

That’s where any anger should be directed. Given the success of the UFB project, they are unlikely to get anywhere attacking the government organisations, but they need a target for publicity purposes.

If the big service providers unpick the unbundled fibre price, they unpick the entire regulatory structure. This means upsetting a regime that works.

It also swipes the financial legs from under the fibre companies.

Margins

Wholesale fibre companies make better margins from selling faster, connections where the prices are not regulated. Overall fibre company margins are good enough to keep investors interested.

As we’ve seen, wholesaler input costs are much the same whatever a customer’s connection speed. But the value delivered to a customer rises as the speed rises. Hence people willingly pay more for faster broadband.

In New Zealand, the price difference between a basic fibre service and the fastest service is less than in most overseas markets.

That’s important because you could argue customers who buy faster broadband plans, 100 Mbps or 1Gbps services, subsidise people on basic plans.

Using today’s technology fibre lines can typically work at up to 10Gbps. The cost of 10Gbps circuit hardware is not 300 times the cost of 30mbps hardware but it will run at 300 times the speed.

10Gbps unbundling demonstration 

At a press function, Vocus and Vodafone used a 10Gbps connection to demonstrate the potential of unbundling.

When they buy an unbundled line, they are, in effect already buying a 10Gbps connection for less than the regulated cost of a 30mbps connection. They know the cost of providing 10Gbps is only fractionally higher than a 30mbps connection.

This is a form of arbitrage, they can buy something cheap, spend next to nothing turning it into something expensive.

Unbundling connections, then bumping the speed to 10Gbps, makes it hard for fibre companies to operate a price structure where the low margin lines that make up the bulk of their business are offset by a small number of more lucrative options.

Making that unbundled connection price cheaper still would undermine layer 2 services. It would remove all the cream from fibre company revenues.

Basic fibre service margins are thin.

If enough customers buy connections from unbundled service providers, fibre company revenue will fall.

Regulatory goals

Let’s go back and look at the points made at the top of the story.

Should it intervene, the Commerce Commission is unlikely to set the regulated price of an unbundled connection at a level where fibre companies lose money.

If they did, they’d have to raise the price of regulated layer 2 services to a level where the fibre companies still make enough money to keep everything ticking over. That means higher broadband prices for everyone.

Media release

21 June 2019

Vocus, Vodafone welcome Commerce Commission scrutiny on unbundled broadband pricing

Telecommunications operators Vocus Group and Vodafone have made clear their belief that Chorus is torpedoing broadband innovation with predatory pricing, and labelled a proposed Chorus price drop of 15c a month ‘pathetic’.

The companies have welcomed action from the Commerce Commission announced last week which will clarify legal interpretations of Chorus’ obligations to provide commercially viable unbundled access to the Ultra-Fast Broadband network.

Vocus and Vodafone demonstrated an unbundled UFB connection in February and then sought commercial pricing from Chorus in preparation for a launch in 2020.

After multiple delays, and despite a deadline of December 2018, Chorus announced wholesale pricing for unbundled connections in April of this year. Vocus and Vodafone protested the pricing as ‘cynical and protectionist’, noting that it exceeded that of bundled connections.

The companies approached the Commerce Commission with their views, backed by an independent assessment by Network Strategies which demonstrated the cost to third parties should have been less than 50 percent of that proposed by Chorus.

Yesterday Chorus released a new proposed pricing model that was just 15cents a month lower than its original pricing.

This month, the Commerce Commission noted[1] that it has the authority to assess whether offers (pricing) made by Chorus and the LFCs comply with their respective obligations under the Telecommunications Act of 2001. It has advised Vocus and Vodafone that ‘If we consider that a breach of the Fibre Deeds is likely to occur or has occurred, we will decide whether to bring enforcement action’.

“This is a step in the right direction, and we welcome the attention that the Commerce Commission is giving to the issue,” says Vocus Group Chief Executive Mark Callander.

“We have to remember that Chorus benefited from a billion-dollar interest free loan from the government. That means every New Zealander should get the best possible benefit from the UFB network, and unbundling is the key to unlocking innovation that drives those benefits.

“Today Chorus proposed a new price that was merely 15 cents a month lower. That’s outrageous, pathetic and quite frankly insulting.”

‘Unbundling’ allows third parties like Vocus and Vodafone to use their own equipment at the end of a Chorus or LFC owned fibre line. Innovation including the creation of new and faster services is possible, rather than a ‘one size fits all’ approach to market.

“The problem right now is simple. Pricing makes or breaks the business case for unbundled access,” says Vodafone Chief Executive Jason Paris. “The proposed numbers make unbundling impossible. And that restricts innovation, denying New Zealanders their right to the best value from the investment of their tax dollars in the UFB network.”

The Commerce Commission has committed to look into the matter in the coming months.

Callander has welcomed the Commission’s work, but notes that the Vocus and Vodafone have made clear their intention of introducing an unbundled service by January 2020, and that a suitable price needs to be determined quickly. “Right now, the country’s investment in UFB is stranded in the hands of the Chorus monopoly.

We’re confident that the Commerce Commission will find that Chorus is expected to act in the best interests of customers – and pricing is something we’re all sensitive to.”


  1. Make that two curious things. How can you innovate with broadband? Almost all your ‘innovation’ options involve impeding the speed. ↩︎
Categories
telecommunications

Sky-Vodafone decision challenging – Former Commerce Commission chair Mark Berry

July 29 (BusinessDesk) – The $3.4 billion Sky-Vodafone New Zealand transaction the Commerce Commission rejected in 2017 was the most difficult of the vertical mergers former chair Mark Berry had to consider.

Source: Sky-Vodafone merger decision challenging – Berry | Scoop News

Would the Commerce Commission make the same decision today?

It could go either way.

One of the reasons the deal was turned down was Sky’s iron grip on sporting rights. Since 2017 Spark has entered the market with Spark Sport, yet aside from this year’s Rugby World Cup, it doesn’t have rights to any of the major NZ sporting codes.

Sky has gone from owning 100 percent of the sport market to something less than that. Yet it’s market presence remains substantial. It would be hard to argue things have changed enough to alter the merger decision. This could change if Spark Sport achieves lift-off.

Spark, you may recall, was one of the main objectors to the Sky-Vodafone merger. Its lobbying paid off.

2degrees featured prominently in Mark Berry’s deliberations:

“There was particularly a concern about what the future of that market would look like if we let this merger go ahead, and if that kind of effect happened – with customers being taken away from 2 Degrees such that it would no longer have the incentive or the ability to invest and compete.”

Former Commerce Commission chair Mark Berry

It’s worth reminding yourself that in some ways 2degrees is a talisman for mobile telecommunications market competitiveness. While 2degrees is a force, the market can be seen to be working. The company’s position is no strong today.

One other change since 2017 is that Vodafone now looks to be in a stronger position since its part-acquisition by Infratil. This would play into any Sky merger decision in a subtle way.

Infratil also owns a substantial share in Trustpower, the fourth largest internet service provider. It has told the Commerce Commission that Trustpower and Vodafone would remain separate.

There has to be some concern about this. Since the acquisition Trustpower has joined with Vodafone and Vocus’s unbundled fibre campaign. That could be a coincidence.

Yet given Trustpower’s strength in building bundles of services around broadband, the possibility that company might have preferred access to Sky content would set off all kinds of alarms at the Commerce Commission.