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Vodafone NZ RBI2 bidCrown Fibre Holdings’ Rural Broadband Initiative and Mobile Black Spot request for proposal closed on Monday.  That’s RBI2 to the rest of us.

At stake is $150 million of money funded by the Telecommunications Development Levy. Of that, $100 million is to finance high-speed broadband. It needs to reach to the last 15 percent of the nation not covered by UltraFast Broadband. The $50 million is to improve cellular coverage in areas not yet served.

The process is confidential. So far four bidders have gone public revealing some aspects of their plans. There could be others.

Chorus: extend and improve existing land-based networks

Chorus aims to extend the reach of its fixed-line network beyond urban New Zealand. The company says it is willing to work with others. It did that when it joined Vodafone to build the original Rural Broadband Initiative.

Extending can mean new fibre and maximising the use of existing fibre in rural areas. It can also mean upgrading copper.

Chorus says it wants to improve fixed-line network performance in rural areas. This could mean upgrading copper to VDSL. Newer copper technologies are also possible.

It says its fixed-line networks are not prone to congestion at busy times. They don’t need to use data caps to manage demand. That’s a dig at fixed wireless broadband on cellular network.

Central to the Chorus proposal is its networks will be open access. Any retail service provider can use them.

Choose wireless say Vodafone, Spark and 2degrees

Vodafone, Spark and 2degrees have combined to offer a cellular-based approach. Their proposal includes up to 520 new cell sites.

They say the extra towers will extend the reach of today’s cellular coverage by 25 percent. Not only will the three companies share rural towers, they will also share antennae and spectrum.

That’s a huge step for Vodafone and Spark but it makes economic sense. It will reduce capital expenditure, stretching the money further. And it will keep running costs down.

Updated: While the companies’ press didn’t say the RBI2 towers will be open access, Spark says they will be. This echoes the approach in the first stage of the RBI where Vodafone built towers, but other carriers can use them.

Wispa makes case for small, local service providers

Wispa, a coalition of small rural wireless ISPs aims to win up to $2 million from the fund for each of its 30 members. Spokesman Chris O’Connell says Wispa member already serve 40,000 customers. They deploy wireless broadband in areas bigger companies often consider uneconomic.

In some cases Wispa members work with the big telcos reselling their services.

Wispa members are experts at rural broadband. They know the terrain and they are close to their customers. Most know how to deliver great broadband on the smell of an oily rag. Many will be able to deliver CFH the greatest bang for the buck. On the downside, it can be harder managing 30 small players than cutting a deal with the big operators.

Alongside Wispa, Aird Towers aims to build what it describes as “operator agnostic” towers. In other words an open access alternative to the carriers. The Aird plan would allow the main mobile carriers and small wireless ISPs to share access.

Mix and match

The mobile carriers’ joint bid looks like an ideal way of fixing the mobile black spot problem. Otherwise, when it comes to delivering the best possible broadband to rural users at the least cost; it’s not a case of either or. All the proposals have some merit.

Tuanz CEO Craig Young says users would probably be best served by a combination of the bids. And that’s the most likely outcome.

Most bidders accept there is overlap and room for co-operation1. Vodafone CEO Russell Stanners told Stuff: “..it makes sense for the Government to spend all the $150 million it has earmarked for improving rural telecommunications on new cellphone towers. With none going on improvements to the fixed-line network.”

Even then there is a case for Chorus to provide fibre to the new cellular towers. There is also a case for any towers to be open access so that Wispa members can use the infrastructure.

After all, it seems wrong to deny rural users the benefit of full broadband competition.

RBI2 reaches the last 15 percent

When work finishes on the second stage of UFB, 85 percent of New Zealanders will have fibre access. The RBI2 plan is to boost broadband for the last 15 percent. In some ways they need it more than city folk. And the rural economy makes up the bulk of exports.

Fibre is the best way to connect to the internet. In an ideal world, everyone would get it.

It makes economic sense to connect the first 85 percent of the nation to fibre. Once you get beyond that segment of the population, connection costs rise fast. Each home in the next five percent costs, say, twice a much on average to connect as the bulk of homes. With the last 10 percent, the per house costs rise further.

So away from any low-hanging fruit, wireless is likely to be their best option. The most cost-effective way of getting broadband to the wop-wops is a mix of fibre and wireless.

Crown Fibre Holdings says it is now assessing the RBI2 proposals before moving to negotiations with shortlisted suppliers. It hopes to announce contracts by July.

For another take on the rural broadband extension bids listen to InternetNZ deputy CEO Andrew Cushen talk to Kathryn Ryan on RNZ Nine-to-Noon.

Bill Bennett is editing The Download magazine for Chorus and has previously worked for Spark NZ.


  1. Originally the story said the mobile carriers didn’t talk about co-operating. Spark clarifies this saying: “We haven’t said we won’t co-operate.  All we’ve said is no more $ should be spent on copper”. ↩︎

Spark fixed wireless broadband

New Zealand fixed wireless broadband speeds are on a par with ADSL services delivered over copper lines.

In tests broadband monitoring firm TrueNet found it is: “considerably slower than VDSL and far behind fibre”.

High latency

TrueNet says wireless services slow more than other technologies at busy times. This is because customers jostle over shared bandwidth.

The tests also found fixed wireless has the highest latency of the broadband technologies tested.

TrueNet is an independent broadband performance measurement company. It holds a contract with the Commerce Commission to report on speeds.

In the latest test TrueNet added fixed wireless broadband to its tests. It already measures speeds on fibre and copper networks and the Vodafone HFC network.

Fixed wireless broadband uses the mobile phone network to deliver broadband to homes.

Spark and Vodafone sell fixed wireless

Spark and Vodafone sell fixed wireless to Rural Broadband Initiative customers. They also offer services to residential customers in urban areas. Spark’s Skinny subsidiary also sells fixed wireless broadband.

When fixed wireless first appeared delighted customers reported high speeds. In part this was because of light networks use. As more customers share the limited wireless bandwidth, the speed per user drops.

ADSL download speeds

TrueNet found fixed wireless services download web pages at an average speed of between seven and eight mbps. ADSL copper connections run at roughly the same speed.

Copper customers with VDSL can expect to download web pages at around twice the speed. Even the most modest fibre connection would be four or five times the speed of wireless.

Most fibre connections now running at 100 mbps or faster. Users can download at close to 20 times the speed of a wireless connection.

Fixed wireless has a general speed of 22 mbps. This compares to 11 mbps for ADSL and 37 mbps for VDSL. Fibre and cable speeds are higher again.

Spark has been aggressive selling fixed wireless in recent months. The company says it prefers fibre. Yet it has pushes wireless to low-use customers as an alternative to copper connections.

Many low-use urban fixed wireless customers are not concerned about speeds. Another large slice of users choose fixed wireless because they don’t have a better alternative.

Of course wireless technology is evolving, it can improve with network upgrades.

Most of TrueNet’s funding is from the Commerce Commission. Chorus funded the company to test fixed wireless connections.

Sky TV to become Vodafone-SkyThe Commerce Commission declined the proposed Vodafone-Sky merger saying it would decrease competition in telecommunications.

That seems right1. The important thing is that Sky has all the important rights tied up. It owns or sub-licenses all the popular sporting codes. Most of all it has the rights to Rugby.

At the moment Sky has a deal with Vodafone to sell its services over broadband as a bundle. But in practice anyone with a broadband account can buy services from Sky.

Vodafone says it doesn’t plan to stop Sky selling to all comers, but that’s not a legal obligation. It could have made a formal undertaking to continue the practice, but did not.

Vodafone-Sky exclusive

Therefore, Vodafone could at any point decide that its customers get access to some or all channels. The moment, say, an important sporting fixture, becomes a Vodafone-Sky exclusive, then all other broadband companies would be in trouble as their customers switch telecommunications service provider.

This will be twice as effective if exclusive Sky material is distributed to Vodafone mobile phones.

The temptation to do this will be great. It is also why Sky was worth the price Vodafone was prepared to pay.

After all, what is the point of having a monopoly if you can’t milk it?

Clearly the move has other telcos rattled. A little over half of all homes have Sky. There’s the potential for them to be locked out of those customers. This applies to both broadband and mobile.

Integration

There’s also vertical integration. Telcos love vertical integration. It is anti-competitive.

The point of the government building the UFB fibre network and splitting Chorus from Telecom was to break vertical integration.

Having said all that, TV over broadband, especially over fibre, is, in general, a good thing.

That would have been a positive. It would be good if Sky could find another way to move all its business online.

A last point worth mentioning. The Commerce Commission can only say yes or no to a proposal. Overseas regulators, like, say, the ACCC in Australia, can impose conditions. The Commerce Commission can not. So it was not an option for the regulator to say to Vodafone “you can buy Sky, but must continue selling video services to all comers”.

Had that been the case, the ruling may have gone differently.


  1. Right in the sense that a merger would decrease telecommunications industry competition. Let’s not pass rash judgement on the Commerce Commission decision.  ↩︎

Telecom NZ’s market share was already falling before 2009. Then, the communications minister Steven Joyce announced plans for an ultrafast broadband network.

According to IDC Research, Telecom NZ, now Spark, held a 59.1 percent market share in the fourth quarter of 2007. By the same quarter in 2009 it was down to 54.3 percent.

IDC Research market share telecommunications NZ 2007 - 2009

Today, Spark is still the nation’s largest telco. Its market share is down to just 38 percent.

The two measures are not the same thing. Spark’s 38 percent share comes from the Commerce Commission draft liability allocation process. IDC measured total revenue market share.

Although the Commerce Commission used a different market share calculation, the result is so different to the earlier IDC estimate, that it’s clear there has been a major shift in market structure. Ultrafast broadband has changed the industry dynamic.

New Zealand top telcos 2015

It’s not obvious this means greater competition. Between 2009 and 2016 Telecom NZ demerged its Chorus business unit. This is now a separate company.

According to the Commerce Commission figures, Chorus has a 22 percent market share. Add this to the Spark share and you are, in effect, back in 2007 only this time Telecom NZ is two separate companies.

There is no doubt Spark and Chorus compete. Spark’s recent fixed wireless launch was a competitive shot across Chorus’ bows.

Is telecommunications competitive?

But can we be confident the market is more competitive than before?

Vodafone was number two in 2007 and 2009. It is still number two today with almost the same market share.

This is remarkable considering Vodafone swallowed TelstraClear in 2012. In 2009 before the UFB project started TelstraClear was number three.

It is as if TelstraClear’s entire New Zealand business evaporated.

2degrees

2degrees didn’t exist in 2007 and was only weeks old by the fourth quarter of 2009. It has come from almost nowhere to take the number four market position. That’s a competitive win of sorts, but not much.

Nothing 2degrees does challenges or threatens the two larger players. It is about one quarter the size of Vodafone and less than 20 percent the size of Spark. More to the point, 2degrees has yet to make a profit.

Vocus is an interesting newcomer. According to the Commerce Commission calculation it only represents three percent of the market. That’s not much more than the 2.4 or 2.3 percent its parts CallPlus and Orcon accounted for in 2007 and 2009.

Not much change there either.

After Vocus the remaining players are tiny. Their market shares amount to little more than rounding errors.

After Telecom NZ split

The main change between 2007 and 2016 is that Telecom NZ is now two separate companies. Consolidation means there are two less major players elsewhere. The net effect is one less major telecommunications company.

Chorus is wholesale only. Which means customers have two less retail telecommunications companies to choose from. There is a long tail of small entreprenurial service providers who may or may not be thriving. Yet it us hard to argue the market is more competitive than it was a decade ago.

Another way to gauge competition is to look at how much money the main telcos make today compared with in 2007.

In 2007 and 2009 Telecom NZ had revenues of about NZ$5.6 billion in both years. Net earnings in 2007 were about $850 million and $400 million in 2009.

In 2015 Spark had revenues of around $3.5 billion and Chorus took about $1 billion. Together that’s $4.5 billion. The total is more than a billion less than Telecom NZ made when its was still a single business.

Spark’s 2015 net profit was $375 million while Chorus net earnings were $91 million. A total of $466 million. That’s a better collective performance than 2009, but well below the 2007 figure.

In 2009 Vodafone NZ reported revenues of $1.6 billion and $260 million profit. By 2015 total revenue, including TelstraClear, was $2 billion with a $120 million loss. In part Vodafone is still absorbing the TelstraClear business it acquired in 2012.

You could argue the billion dollars revenue Spark and Chorus did not make is money business and consumers might otherwise still be paying. If that’s the case, then the reforms have delivered a cost benefit to customers.

Otherwise, it’s not yet clear the market is more competitive than it was a decade ago.

home-wireless-broadbandVodafone says it will start a nationwide fixed wireless broadband service in December. In its announcement the company took the opportunity to echo Spark’s criticism Chorus’ copper telephone network.

Vodafone Home Wireless Broadband is, in effect, a version of the fixed wireless service Vodafone already offers to rural users. It will call on unused capacity on Vodafone’s celluar network to give home users an alternative broadband service.

While the company’s announcement make no mention of prices for the new service, they are not likely to be similar to those offered by Spark and its Skinny subsidiary.

Vodafone will sell customers a modem for $199 if they don’t sign a contract. Those signing a 12 month contract get a free modem, but early termination fees apply.

There are 40GB and 80GB options with a home phone connection and an 80GB naked plan. An extra 15GB of data cost $20 and users can buy an extra 1GB for $4.

In a press release announcing the service Vodafone Consumer Director Matt Williams says; “Home Wireless Broadband has been designed especially for Kiwis who are frustrated by slow and unreliable internet access via Chorus’ ageing copper network”.

Copper criticism

Williams’ comments about copper are similar to recent announcements by Jason Paris. Paris is CEO home, mobile and business at Vodafone’s main rival, Spark New Zealand.

According to Williams: “…Watching videos on multiple devices and old-style ADSL plans delivered over the copper phone network simply don’t cut it anymore. Even if you’re a relatively light internet user, issues like buffering are still really frustrating”.

Well yes, but many copper users could upgrade to VDSL plans. In most cases they are the same price as ADSL and VDSL performance is likely to be comparable with 4G fixed wireless.

You can buy unlimited data plans on VDSL which means no worrying about buying extra data. Buffering is frustrating, but so are low data caps.

That’s not to say fixed wireless is not the right technology for many users. It’s the cheapest way to get basic broadband and needs nothing more than a special 4G modem.