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fibre-optics

On Thursday Chorus released its proposed unbundled fibre pricing for industry feedback. Would-be unbundlers responded with a noise resembling what you might hear when placing an electric guitar in front of an amplifier: a loud howl.

This was always going to happen.

New Zealand’s telecommunications regulations mean that the fibre networks must, by law, be open for unbundling from the start of 2020.

Unregulated, for now

For now, the unbundling process and the prices wholesale fibre companies can charge is not regulated. The idea is that the industry can hold commercial negotiations. If that doesn’t work, then the regulator will step in.

Unbundling worked well for some ISPs when Telecom was forced to unbundle the copper network over a decade ago. ISPs installed their own hardware at an exchange and paid Telecom a monthly access fee.

This worked well for a number of reasons. First, the service providers could cherry pick the most lucrative neighbourhoods. Second, there weren’t many exchanges and each exchange served a large number of customers. Third, the monthly access fee was regulated.

Bitstream then and now

It turned out that the price was considerably lower than the fee Telecom charged for bitstream access. Bitstream access was, to a degree, similar to the service ISPs now buy from New Zealand fibre companies.

The gap between these prices left ISPs with enough room to offer competitive prices to their customers or take the difference as increased margin.

Unbundling fibre is different. Instead of hundreds of exchanges each serving thousands of customers, there are thousands of fibre nodes each serving a handful of customers.

The other big difference is the way we price fibre services. Today’s layer 2 prices are regulated. Prices depend on the level of service, but typically they run from around $40 to around $65 for a gigabit service. The Commerce Commission based its pricing structure on a fibre company’s costs.

Difficulties

Now, this is where things get difficult for would-be unbundlers. The input cost difference for a wholesaler between operating a layer 2 service and an unbundled layer 1 service is pennies, not dollars. That $40 monthly access fee might drop to $38 or thereabouts if it was regulated along the same lines as a bundled line.

This doesn’t leave an unbundler with enough margin to play with.

Despite the unattractive underlying economics two telcos, Vocus and Vodafone, joined forces to push an unbundling programme.

Since late last year they’ve been showing a demonstration of what the technology might look like. They’ve also been dropping unsubtle hints suggesting that: ‘unbundled fibre had better be cheap’.

Like copper only different

Scratch the surface and its clear their thinking is the difference between bundled and unbundled fibre should be in line with things in the copper world.

Chorus’s proposal is that unbundling service providers pay a monthly access charge of $28.70 per line. This covers the fibre line from the customer to the nearest node, Chorus calls these nodes ‘splitters’. Usually 16 customers connect to each splitter.

On top of that, Chorus wants to charge $200 a month for the connection from the splitter to a central point where the service providers can connect the unbundled service to their own networks.

Unbundling at scale

You don’t need to be good with arithmetic to realise that this only works for a service provider if a lot of customers at any splitter want to buy their connection. A would-be unbundler would need to have more than a dozen connections at each node for prices to drop below the basic regulated bitstream monthly fee.

Although keep in mind here that an unbundled fibre line might operate at a blistering 10Gbps. That’s a service that could command a premium retail price.

To no-one’s surprise Vodafone and Vocus made it clear they don’t like the proposed price. A press release from the pair has the headline: “Chorus machinations could put competitive UFB on ice”.

Maths

In it, a clearly angry Vocus CEO Mark Callendar says the maths just doesn’t stack up. He is right. But the legislation was designed that way. There isn’t enough margin between layer 1 and layer 2 to make an ISP happy.

An access price that would please Callendar, at a previous media function he told me it should be under $20, would leave the fibre wholesale companies under water. They’d be bankrupt in no time and that would put critical national infrastructure at risk.

Back to the release where Callendar says: “…the Commerce Commission will now need to intervene, it’s as simple as that. The UFB network was designed to be unbundled and ultimately is an asset that the government has helped fund.”

The Commerce Commission was destined to be dragged into this row from the moment Vocus and Vodafone first announced an intention to unbundle.

Intervention

If it does intervene and assuming it follows a similar cost-based model, the would-be unbundlers are going to be as disappointed then as they are now. The economics of fibre unbundling mean it is a path that’s not worth the trouble, at least as far as residential customers are concerned.

Now, it’s quite possible that the spat you see on the surface is all there is. Yet there’s something else at play. Since the fibre network started, most of New Zealand’s service providers have raced to the bottom on price. It’s about the only point of difference they feel able to compete on.

As Vodafone CEO Jason Paris has said to me in a previous interview, they have competed away all the profits in the broadband business.

Thin margins

Margins are razor thin. Unbundling had potential to fix that. It’s also an opportunity for two high profile telcos to position themselves publicly as against New Zealand’s telecommunications regime without actually saying they are against the regime. Make no mistake, that’s the real object of their ire. 

In the public statements so far, they’ve poked the finger at Chorus.

There’s something in that. But Chorus is a creation of a telecommunications regime that the previous National government set up. The Labour government continued the same regime. There’s a broad political consensus that our telecommunications market is working as designed.

You could see Chorus as the government’s proxy in these matters. A useful punching bag if you don’t like the rules. 

Equivalence

One part of the disliked regime is something called equivalence. The idea is that Spark, Vodafone and Vocus get exactly the same prices, products and services from fibre companies as a five-person regional ISP working in rural Taranaki.

The big firms hate that. They like to use their clout and economies of scale to negotiate better terms from suppliers. Regulation stops them.

Consciously or unconsciously, Vodafone and Vocus hope the government is listening. That’s why so much of their rhetoric about unbundling uses politician-pleasing words like ‘innovation’ and ‘competition’.

Competition

Unbundling is clearly a competitive1 move, but it’s not really innovation in the sense we normally use the word. Assuming it is doing everything right at the back-end, the only practical option an ISP has to innovate with unbundled fibre services is to remove some of its capability from certain customers.

Remember this as the war of words heats up in coming months and the various parties troop into the Commerce Commission. They’d like to get a lower price for unbundled fibre.2 Who wouldn’t? But what they really want is to take back a little control and restore profit margins.

Disclaimer: Chorus pays me to edit the Download magazine and a weekly newsletter. It didn’t pay me to write about unbundling. Indeed, this post doesn’t reflect anyone’s opinion other than my own, certainly not Chorus’. No one vetted or otherwise approved this. Any mistakes are down to me. Your corrections or alternative opinions are welcome.


  1. Spark has options with its fixed wireless broadband. These should ramp up when 5G arrives. Vodafone ought to be able to do the same, but the local firm isn’t getting the investment it needs from Vodafone Group. Unbundling is a cheaper option. ↩︎
  2.  

  3. I’d expect the Commerce Commission to insist wholesale fibre companies propose a single per-line price in place of the more complex line and splitter tariff. ↩︎

In ‘Climate of fear and anxiety’: Some 200 Vodafone staff offered voluntary redundancy, says union Chris Keall, New Zealand Herald writes:

Insiders have told the Herald there is a broad expectation that around 400 of 2800 roles could go.

Paris stressed in an earlier interview that there was no set number. Different departments would gain or lose staff depending on the outcome of the ongoing review.

And he while he has acknowledged the possibility that call centre jobs could be offshored, Paris also said no decision would be made that would hurt customer service.

As part of an international company, Vodafone NZ was able to tap into its parent’s “Centres of Excellence” in other territories.

Paris says Vodafone NZ fell short of targets last year. His brief is to get the subsidiary into shape this year for an IPO in early 2020.

As the story says Jason Paris’ job is to tidy up Vodafone New Zealand’s business so it is an attractive IPO. That way the parent company gets the maximum return on its investment.

Looking at cutting employee numbers is part of that. Compared with other similar sized technology companies1, Vodafone’s revenue per employee is low.

Taking costs out of a business can make it more attractive in the short term.

If Vodafone gets rid of 400 people out of a total of 2800, that’s almost 15 percent of the total. Potential investors will like that.

We shouldn’t forget job cuts are often devastating to the people involved. They are often also uncomfortable, even stressful for many of the staff who remain. It can hurt morale. If there are long term effects, they will probably show up after the IPO.

Outsourced call centres

One risk here is that Vodafone New Zealand has suffered from poor customer service in the past. It has used overseas outsourced call centres that customers hated. A return to those days would damage the company.

Last year Consumer criticised the company after a satisfaction survey.

Vodafone was the only provider that rated below-average on all our performance measures – from customer support to value for money,” Consumer NZ chief executive Sue Chetwin said.

About three-quarters of Vodafone’s broadband customers reported spending a long time on the phone waiting to speak to a rep. Nearly half said the service was poor once they finally got through.

The company that performed best in Consumer’s survey was Spark’s Skinny subsidiary. Ironically Skinny doesn’t promise much in the way of customer service. Maybe that’s the secret success formula. Either way, if I was Jason Paris, I’d be taking a closer look at what makes Skinny tick.


  1. Vodafone has often talked of itself as a technology company. ↩︎

It’s remarkable that Vodafone ever thought it could get away with calling its HFC cable network FibreX. It always look like the exercise would end in tears.

This was a law suit waiting to happen. And boy did it happen.

At the New Zealand Herald Chris Keall writes Vodafone pleads guilty to some FibreX charges, will contest others

Vodafone has pleaded guilty to nine charges brought by the Commerce Commission over its “FibreX” service, but will contest a further 18 related to allegedly misleading marketing.

That’s total of 27 charges. In other words this is a big deal.

A rose by any other name

Most, but not all, the problems stem from the name.

I questioned the name when FibreX launched. A Vodafone executive explained with a smile that the name comes from the full version of HFC: hybrid FIBRE coaXial. He knew it was pushing things a bit.

HFC uses both fibre and copper cables. The network was first built almost twenty years ago. There are networks in Kapiti as well as parts of Wellington and Christchurch.

Vodafone inherited the network when it acquired TelstraClear in 2012.

Performance woes

Readers with long memories may remember that the cable network had appalling performance at that time. Yet it was capable of delivering television signals along with broadband data connections at a time the copper network would often struggle with video.

From outside it looked as if TelstraClear had under invested in the technology and even neglected the network.

The TelstraClear acquisition was a mixed bag for Vodafone. It accelerated the company away from being a mobile phone carrier into enterprise and fixed line markets.

It didn’t do much to grow Vodafone’s market share. The company’s overall market share in 2018 is the same as it was in 2009, despite swallowing a sizeable rival.

Potential millstone

In some respects the HFC network became a millstone around Vodafone’s neck. It was a support nightmare and hurt the company’s reputation.

In order to recover some of its value, Vodafone beefed up the technology moving to a new, far faster version of Docsis. While this could put it on a performance par with UFB fibre in theory, the practice proved somewhat different. HFC networks can suffer from congestion in ways the UFB network does not.

Nevertheless, it looked like a plausible alternation to UFB fibre.

FibreX vertically integrated

There is something else. Vodafone’s FibreX network is vertically integrated. The company doesn’t need to pay anything to a wholesale network provider. Vodafone gets to keep all the monthly subscription.

Vodafone launched FibreX launched a the peak of the nationwide UFB fibre build. It priced it at much the same level and its marketing went out of its way to present FibreX as a like-for-like replacement. It’s not.

The fibre networks being built by Chorus, Northpower, UFF and Enable send photons along a length of glass fibre. There are fast, reliable and modern. Some FibreX users report UFB-like performance. Others don’t. What’s clear is that it is not as consistent as fibre.

Dodgy tactics

There are stories of customers calling Vodafone asking for fibre connections being told FibreX is the same thing. There are stories of customers asking for fibre being told the only upgrade available to them is FibreX.

A lot of the Commerce Commission charges are to do with the way Vodafone sold FibreX.

Vodafone is no stranger to the Commerce Commission. Over the years the company has consistently pushed at the boundaries of ethical, legal marketing of its services.

The senior executives responsible for many of those incidents have now left the company. A new team has been left the task of cleaning things up. That’s going to take time. A good place to start would be coming clean about FibreX.

Vodafone Ultra Hub Plus

The Vodafone Ultra Hub Plus modem is part of the deal when new customers sign for the company’s home fibre plans. It gives them a connection on the carrier’s mobile network straight away even if there is a wait for fibre.

Lucky customers will connect via 4G. Less fortunate ones may have to do with a 3G connection.

Vodafone Ultra Hub Plus is an interim fix while customers wait for fibre. It means their connection is not disrupted during the installation. Once they are on the UFB network, it then acts as an always on backup connection. Like a lot of these things it is good in parts.

Vodafone’s press release says the Ultra Hub Plus makes for a smoother switch to fibre.

It goes on to describe the Ultra Hub Plus as a “game changer”: isn’t everything these days? The release also says it is super easy to set up and use and a seamless experience.

I tested the device and found Vodafone isn’t exaggerating on those counts. Yet it’s not all wonderful. The Hub’s fixed wireless broadband performance is only so-so.

Vodafone Ultra Hub Plus

Vodafone Ultra Hub Plus is easy

When you sign up, Vodafone dispatches an Ultra Hub Plus modem by courier. Open the box and along with the modem and its power supply are a couple of sheets of paper. One says: “Five minute easy start”.

Experience says that a marketing department that uses words like “game changer” then adds both ultra and plus to an otherwise straightforward product name might not take a lot of care over a claim like five-minute easy start.

In practice, Vodafone’s claim is modest. I had a working connection in four minutes.

You plug the device in, then hit the power button. The instruction sheet says the modem’s wi-fi is active in around 90 second and the 4G or 3G connection is ready in three minutes and thirty seconds.

Both sets of indicator lights switched on more or less on schedule.

Wi-fi router

The next step is to connect wireless devices to the modem. Vodafone includes another sheet of paper with a QR code. All you need to do is point an iPhone or iPad camera at the code and those devices will connect.

If you use Android, you’ll need to download a QR app first. Depending on your circumstance, this could take you past the five minutes. But not by much.

With Apple devices, you only need to scan once, all your other Apple kit learns the password by what seems like telepathy. In truth this is one of those Apple features which feels a little like magic.

Ethernet

There are three Ethernet ports on the back of the Ultra Hub Plus, so connecting a laptop or desktop with a port is a breeze. Connecting by wi-fi is also straightforward. Either use the scan code or press the WPS button and find the Hub in your wi-fi router list.

This is as easy and fast as Vodafone’s marketing promises.

It is not the end of the set up story.

While the set-up speed for Ultra Hub Plus is impressive, the broadband speed is not great.

As you can see from the screen shots, I get around 13 mbps down, less than 5 mbps up.

Throttle

While higher speeds are possible in theory, Vodafone says it throttles the speed to 12 down and 6 up. At the same time, it tweaked the hardware to deliver a decent level of service.

How decent? In practice the throttled, optimised throughput is plenty for acceptable high-definition television streaming. When I first tried, we saw plenty of buffering. Once things started the modem seemed to cope with the stream.

Next I tested Sky’s Fan Pass and BeIn Sport on an iPad. In both cases the apps stumbled at first. Each gave me an initial error message. Fan Pass thought there wasn’t a network connection for a few seconds. BeIn went blank.

None of this happens with my normal connection. It might scare less tech-savvy users, but everything worked fine only seconds later.

In both cases the picture was acceptable soon after. There was a little stutter at first, then it settled down. I even managed to get two streams running at the same time. Which says a lot about acceptable baseline speeds for non-specialist home internet users.

Vodafone Ultra Hub Plus verdict

There’s a clever balance here between ‘enough broadband to tied you over’ and ‘not clogging the mobile network with fixed wireless traffic’ or ‘encouraging customers to choose this instead of fibre’. Vodafone has the mix spot on for what the Ultra Hub Plus promises on the box.

The Ultra Hub Plus’ ability to act as a back-up connection for when fibre fails is also smart.

Fibre doesn’t break down often, except in a power cut which, ironically, would also take out the Ultra Hub Plus. In that case then you’ll need to use a mobile phone. Many of us are so dependent on broadband that an alternative channel, that’s still able to handle Netflix is an insurance policy.

Vodafone says it will offer fixed wireless broadband to customers who are ‘frustrated’ waiting for a fibre connection. Customers signing for 12 months of the Vodafone Ultimate Home Fibre plan get an Ultra Hub Plus modem as part of the deal. In a media release, Vodafone says this will give them a “mobile broadband connection over Vodafone’s 4G/3G mobile network while they wait for their fibre broadband to be installed.”

The release quotes the outgoing Vodafone consumer director Matt Williams. He talks about “significant installation delays“.

According to Chorus, the average wait for a fibre connection is now 13 days. Enable says it generally connects customers in stand-alone buildings in under two weeks. These numbers do not sound like “significant installation delays”.

Installations can drag on longer for people in apartment blocks and more complex housing. So it is possible Vodafone’s wireless broadband offer will help in these cases.

Wireless broadband is a backward step

Most people who order a Vodafone Ultimate Home Fibre will either be on copper or Vodafone’s FibreX. Many will already have broadband speeds far faster than they could get from a 4G/3G fixed wireless network.

Broadband Compare reports Vodafone Home Basic 4G has a 36 Mbps download speed. It uploads at 10 Mbps.

Yet, the press release announcing the Vodafone Ultra Hub Plus modem deal promises less than that:

Maximum speeds will apply while the customer is connected to the mobile network through their Vodafone Ultra Hub Plus (up to 12 Mbps Download / up to 6 Mbps Upload).

Vodafone’s own Everyday Home VDSL plan has a Broadband Compare listed speed of 50 Mbps down and 10 Mbps Up. The company’s Smart Connect FibreX plan runs at 200 Mbps down and 20 Mbps up. Even Vodafone’s ADSL plan is 10 Mbps down and 1 Mbps up.

These speeds are only estimates. I have a Spark VDSL connection that runs at around 70 Mbps down and close to 20 Mbps up. There is a range of speeds, but the Broadband Compare figures are realistic averages. We can take them as a guide.

Life in the slow lane

Many Vodafone customers waiting for fibre will get slower broadband if they opt for Ultra Hub Plus.

That’s not all. The 36 Mbps speed is what you should get with a 4G connection. As Vodafone’s own marketing makes clear, some users will be on a 3G connection. Vodafone’s press release announcing the Ultra Hub Plus modem deal says (my emphasis):

The Vodafone Ultra Hub Plus 4G/3G connect and mobile backup are only available in 4G/3G coverage areas with sufficient capacity. 4G/3G not available everywhere.

The small print also says:

Traffic management and fair use policy applies.

In other words Vodafone can cut you off if you use it a lot. The copper plans mentioned above all have unlimited data options. So customers used to unlimited data might find this aspect frustrating.

Vodafone’s Ultra Hub Plus modem wireless broadband deal is not much of a drawcard at all.

Disconnection

Williams is on more solid ground when he says: “…others say they are putting off a move to fibre because they simply don’t want to be disconnected while they wait”.

It’s not as connection cuts anyone off for long. Most fibre installs only take a few hours. And if they are Vodafone customers then there’s a good chance they’ll have mobile phones. It’s not hard to get internet access on a modern mobile phone.

If that’s not enough, then, at a pinch, they can tether. That way phoned connect laptops or desktop computers for an hour of two while a connection goes in.

Another part of the press release says:

In addition to enabling customers to be connected while they wait for fibre installation, the Ultra Hub Plus modem will also provide a mobile backup connection allowing customers to stay connected in the event a fault affects their fibre service.  Once the fault is repaired, the modem will automatically switch back to fibre, which ensures customers are always connected.

This is a good idea. Automatic failover is a good way of handling problems. Although fibre networks are more reliable than copper or fixed wireless broadband. Back-up is a nice-to-have. It would be wonderful for people who can only get a copper connection. Most people on the fibre network will never use it.