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battle-of-hastingsSpark pushes fixed wireless. Vodafone boosted and rebooted its HFC network. It is rebranded as FibreX[1].

Where possible, New Zealand’s two biggest retail telecommunications companies bypass copper and fibre. Most of the time that means not buying services from Chorus.

It also means not buying regulated services. On copper and fibre networks they have to buy broadband from wholesalers at prices determined the Commerce Commission.

Aggressive sales

There’s anecdotal evidences Spark and Vodafone use aggressive sales and marketing to move customers off regulated services.

While the local fibre companies; NorthPower, UFF and Enable are also in the telcos’ sights, when it comes to Chorus, the moves are a deliberate shot across the bows.

Spark and Vodafone seem determined to chip away at Chorus and regulated broadband.

Robust competition

On one level this is all good. Telecommunications is a competitive industry. That’s how it should be.

Increased competition was the intention from the moment, the then communications minister, Steven Joyce first revelaed plans for the UFB fibre network.

That plan was to set in stone a layer of separation. It meant no telecommunications company could own a vertically-integrated monopoly. Any fixed lines between homes or offices and local exchanges or roadside cabinets had to be owned by a different company to the ones selling phone services.

When Spark and Chorus were family

Telecom NZ and Chorus demerged. This meant the latter could bid for fibre contracts.

Separation means Chorus is unable to sell services direct to customers. It can only act as a wholesaler.

The changes have been a resounding success. Parts of the market are crowded and, at times, margins are wafer thin. That’s market forces in action. You can see it as proof the market is competitive. More to the point customers are well served by companies keen to win their business.

Better broadband

When the UFB was still just a idea in the minister’s in-tray, broadband speeds in New Zealand were under 10 Mbps. In its latest quarterly review, Chorus says customers on its networks now connect at an average of 33 Mbps. That average speed is only going to get faster as more fibre is built and more customers move to the new networks.

From last month, anyone living in a fibre area can buy a 1 Gbps connection at a relatively modest price. Over time this will see average speeds sky-rocket.

It’s not just about speed. In 2009 unlimited data plans were, in effect, unknown in New Zealand. Almost everyone had data caps — most were in the region of few dozen megabytes per month. Today more than half of all residential broadband users have unlimited data.

Spark Upgrade New Zealand

Last week Spark opened a new front in its marketing campaign. In the Upgrade New Zealand press release Spark Home, Mobile and Business CEO Jason Paris says: “During winter, we apologized to customers for the poor experience they had on the Chorus copper network.”

Elsewhere the release says: “Chorus copper lines are a legacy technology; they are getting older and are increasingly prone to faults.”

There’s something in this. After all, an ageing copper network is one reason why the government tipped $1.5 billion of tax-payer money into replacing it with fibre.

Yet for Spark to highlight this is curious. It isn’t that long since Spark predecessor Telecom NZ sung the praises of the same legacy technology.

Copper bottomed

You can view Upgrade New Zealand as a move to push customers off Chorus copper lines. If there are fewer active lines, the copper network is worth less.

This matters because the post-2020 regulatory regime now under discussion is likely to use the so-called building block model. This model will see Chorus earn a regulated return through connections charges that, in effect, are based on the value of network assets. If the assets have a lower book value, then Spark and all the other telcos get to pay less for access.

In other words Spark shareholders do better, Chorus shareholders will be worse off.

Of course this will benefit all retail telcos. But as the largest retail telco with about half the broadband market Spark stands to gain the most. It has every incentive to push down the value of the copper network.

Wireless marches on

Technology never stands still. At the time the UFB contracts were awarded, mobile data was yet to blossom. We all knew wireless speeds and capacity would increase over time, that’s one reason fixed wireless was chosen to connect remote users in the Rural Broadband Initiative.

Yet, if anything, the progress has been faster than was expected at that time.

Today’s fixed wireless networks can trump the best copper speeds for many users. More spectrum and new technologies hold the promise of ever greater performance to come.

Fixed wireless will never be the best connection option for all users. Apart from anything else wireless bandwidth is shared. This means speeds can drop at times of high demand. There’s also a limit to the number of fixed wireless customers a carrier can support on the existing network.

Yet with investments and improvements, it can be  a viable alternative to fibre for some customer types. This is the promise of 5G and 4.5G cellular. Although, you might want to take some of the 5G hype with a pinch of salt. Technology companies have been known to oversell the future.

Regulation

There’s another aspect of wireless broadband that makes it interesting to carriers. It is not regulated. If Spark, Vodafone or 2degrees sell fixed wireless broadband to their customers, they don’t have to pay a charge to the wholesale network company. They get to keep all the money.

A lot of money is involved. The wholesale price of a copper or fibre line is around $41 a month. So when Spark sells a fixed wireless broadband connection, it has $41 more to play with. Of course that money has to pay for towers, spectrum licenses, back-haul, support and so on. But $41 per customer per month, every month soon adds up.

Likewise when Vodafone sells a connection to a customer on its FibreX network there is no ticket clipping.

Spark fixed wireless and Vodafone FibreX are vertically integrated. That is, whether you buy a Spark fixed wireless or Vodafone FibreX service, the connection goes through one company’s network all the way to the internet node.

Broadband numbers

Chorus has a total of about 1.2 million fixed line broadband connections.

Vodafone is coy about the numbers on its FibreX network. At one point during the press conference called to announce the service, Vodafone CTO Tony Baird said the network passes 200,000 homes. Vodafone later said this number was wrong. Yet whether right or wrong it seems in the right ball park.

Many of the Vodafone connections will be in Christchurch where Enable provides the fixed-line connections. If anything, the threat to Enable is greater than the threat to Chorus.

For the sake of argument let’s say Vodafone could service as many as 100,000 FiberX accounts that might otherwise be on the Chorus network. In round numbers, that means close to 10 percent of Chorus’ business has a direct competitive threat. Should that number rise much higher, we can stop talking in terms of Chorus having a monopoly.

Spark numbers

Spark has previously said it aims to get around 50,000 to 60,000 users onto its fixed wireless network. Most informed observers suggest 60,000 is about the practical capacity of the existing technology and tower density. Of course the number could go higher if Spark built more towers or if it found more spectrum to devote to fixed wireless.

Last year’s numbers suggest Spark has around 500,000 broadband customers across New Zealand. It will be interesting to see if fixed wireless means Spark will expand its share of the total market or if it will mainly convert copper broadband customers to fixed wireless. Taking into account the other fibre wholesale companies, Spark fixed wireless could, at most, take two or three percent of those 1.2 million broadband lines from Chorus.

Vodafone has yet to officially announce its own fixed wireless in urban areas although anecdotally the company does have some connections.

If 2degrees is doing similar, it is keeping very quiet and there is no noise from its customers. There are other fixed wireless operators, but they mainly play in rural areas beyond the reach of the UFB fibre network.

Spark has more of the 700 MHz spectrum that Vodafone and twice as much as 2degrees. Neither of the other two mobile companies have made a concerted push to sell fixed wireless in urban areas so far. Even if they did, their joint potential market would only be much the same as Spark’s. So at most, today’s fixed wireless technology could pull five percent of  connections away from Chorus.

All this means 15 percent of the Chorus copper and fibre footprint is vulnerable to Vodafone FibreX and Spark fixed wireless.

Disclosure: Both Chorus and Spark have paid for my writing services in the past year.


  1. Let’s be clear here, Vodafone’s FibreX isn’t actually a fibre network.

Rural VDSL2

Communications Minister Amy Adams says the government will spend $150 million extending rural broadband.

The Rural Broadband Initiative second stage has a $100 million budget. The money is to boost speeds for people not covered by the urban Ultrafast Fibre network. She has earmarked a further $50 million for extending mobile coverage. This will cover state highway black spots and in tourist areas.

For now, the plan is for the RBI extension to target areas where connection speeds are less than 20 Mbps. Adams’ long term goal is for 99 percent of the population to get peak broadband speeds of at least 50 Mbps. The rest will get at least 10 Mbps.

Rural Broadband Initiative’s slow start

After a slow start, New Zealand’s RBI has performed better than anticipated. Chorus and Vodafone shared the original budget of $300 million. At the time of the contract Chorus was still part of Telecom NZ. Chorus’s job was to build fibre links to open access rural wireless towers and to 1200 rural roadside cabinets. Vodafone built the towers and used them for mobile and fixed wireless broadband services.

Until 2015 Vodafone’s RBI fixed wireless service used 3G mobile. The contract was for broadband connections of at least 5 Mbps. Although at times it didn’t deliver. At the time customer numbers were only a tiny fraction of the potential connections.

Two things changed this. Spark entered the market with a competitive offer. Then both carriers began using 4G mobile, which mean faster speeds and higher data caps. Today many rural customers get fixed line speeds well over 20 Mbps.

Adams says almost 300,000 rural New Zealanders now access better broadband thanks to RBI.

Bang for buck model

RBI’s first phase in effect asked companies to bid outlining what they could do in return for the funds. The money subsidised private businesses willing to risk their own funds serving rural markets.

A similar bidding model applies to RBI 2.  But it is not just open to large telecommunications companies. Adams invited other groups to bid. The government isn’t fussy about the technology used. Its focus is on getting the most coverage.

Spark New Zealand has been quick to put up its hand for the new project.

The company’s general manager of regulation John Wesley-Smith says: “We’re looking forward to working our way through the details and working with government, community stakeholders and other telecommunications network operators to identify how the government’s RBI and Mobile Black Spot Fund can be best directed to improve ultra-fast broadband availability in rural New Zealand”.

The $50 million Mobile Black Spot Fund is for services in areas without any mobile coverage. While there is good coverage in almost every settlement, there are still gaps, especially along highways and in out-of-the-way tourist locations. Bidder must provide at least 3G voice services. The government says it prefers 4G coverage in the tourist areas.

Adams says: “This is a unique opportunity for national and regional providers to partner with the government to deliver increased connectivity and improved services to rural communities. I encourage network operators regardless of size to put their hand up and be part of this proposal.”

spark-vodafone-boost-mobile-data-in-tandemVodafone says it will give customers mobile data at no extra charge if their fixed-line broadband connection fails.

The deal only applies to customers who have a Vodafone home broadband plan and use the company’s mobile services.

In a press release Vodafone consumer director Matt Williams says the always connected promise recognises an internet connection is an essential service like electricity, gas and water.

He says: “Our powerful promise is that if a fixed broadband fault can’t be immediately resolved via our call centre, we’ll give you as much mobile data as your household needs — for free — until the fixed broadband connection is up and running again”.

The data can apply to as many as four Vodafone mobiles in a single house. They can use it by setting up Wi-Fi hotspots.

Once Vodafone applies the free data to a customer’s account, it’s theirs to keep even after Vodafone fixes the fault.

Williams says: “The other group who will benefit from our always connected promise are mobile customers who are moving house. We acknowledge it can be a painful process getting your essential services up and running, but problems with internet access will now be a thing of the past.”

Comment:

This is clever marketing on Vodafone’s part.

Broadband connections rarely fail, fibre connections fail even less often. Presumably Vodafone doesn’t anticipate it’s rebranded FibreX HFC network failing often either.

Vodafone will almost never need to dole out large amounts of its valuable mobile data to inconvenienced broadband customers.

Although most customers will never need to take up the offer, it’s a useful form of insurance. That has real value, in effect customers get guaranteed continuity of service.

However, the premium for Vodafone’s insurance policy is that a customer has to buy both a fixed-line and a mobile service from Vodafone.

This is why it is so smart. Billing systems are a significant cost for telecommunications companies. So is something known as ARPU — the average revenue per user. Putting more services on a single monthly bill is a way of bundling more services on one account, baking in customer stickiness and pushing up the ARPU.

Spark fixed wireless broadband

Spark and Vodafone have built more rural cell towers than they were required to do under the terms of the 2014 auction for 700 MHz spectrum.

In the past two years the carriers have added a total of 34 new cell towers. All of them in rural areas.

Together they expanded the coverage by 3825 km2. Or, as Communications Minister Amy Adams puts it: “An area the size of 450,000 rugby fields”.

Building new towers was one of the requirements set down when carriers bid for 700 MHz spectrum in 2014. Under the terms of the auction agreement, the towers had to be built within five years.

Adams says: “Thirty four towers were completed by the end of the second year, which is four sites more than required by the auction agreement. Seventeen have come online in the last year.

“This is a great effort by Spark and Vodafone, and they are on track to meet their 2019 deadline.”

Many of the new towers provide 4G services.

The 34 new cell towers

Year 2 (2016) Year 1 (2015)
Vodafone Beaumont,
Shingle Creek,
Cornish Point (Central Otago), Mount Alexander (North Canterbury),
Whakapapataringa (South Waikato),
Glen Murray (Waikato),
Methven (Canterbury).
Catlins North (Southland),
Waihau Bay (East Coast),
Tapawera South (Tasman),
Otautau (Southland),
Millers Flat (Central Otago).
Spark Orere Point (Firth of Thames),
Palliser Bay (Wairarapa),
Upokongaro, (Manawatu),
Raupunga (Hawkes Bay),
Knoll Ridge Café (Ruapehu),
Lake Okareka (Tarawera),
Port Waikato, Aria (Waikato),
Te Kao (Far North),
Hector (West Coast),
Naseby (Central Otago),
Waikaia (Southland)
Castle Hill (North Canterbury),
Awhitu North (South Manukau Heads),
Porangahau (South Hawkes Bay),
Glen Murray (South of Port Waikato),
Barrytown (West Coast),
Maihiihi (Waikato),
Kaniere (West Coast),
Gladstone (West Coast),
Karamea (West Coast), and
Kaiaua (Western Firth of Thames).

 

broadband

Vodafone is using the promise of a three-day install and lower gigabit prices as a lure to its FibreX network.

FibreX is the new name for the Vodafone HFC (hybrid-fibre coaxial) network that services parts of Wellington, the Kapiti Coast and Christchurch.

A naked unlimited data gigabit plan costs $110 a month on FibreX. That is $30 less than Vodafone’s equivilant plan for a UFB fibre connection.

Customers who have a qualifying Vodafone mobile account will pay $100. All FibreX plans are 24-month contracts.

Gigabit in three days

Consumer director Matt Williams says Vodafone will install customers with an existing cable connection in three days.

He says: “It takes a lot longer than three days to install a UFB fibre connection and there is a waiting list. When a customer signs with us, we’ll have engineers turn up with a modem and they’ll make the connection in three working days. If we don’t we’ll give the customer a $100 credit.”

Vodafone says it spent more than $20 million upgrading the HFC network to gigabit speeds. So far about three-quarters of the network has been upgraded. Vodafone says it will complete the rest by the end of the year.

Docis 3.1

FibreX is one of the first networks in the world to use the new Docis 3.1standard. Australia’s NBNco plans to use the same technology on the Telstra HFC network.

In theory Docsis 3.1 can deliver speeds of up to 10Gbps down and 1Gbps up. For now Vodafone is offering 1Gbps in New Zealand and points out that in practice this means about 950mbps in normal use.

Vodafone technology director Tony Baird says the company worked with Huawei to upgrade the network. He says it uses the GPON2 while the UFB network uses GPON1.

Away with shared bandwidth

In the past Vodafone’s HFC network offered fast headline speeds but much of the capacity was shared. This caused slow-downs at peak times when the network was congested.

Baird says there has been a complete replacement and the network now uses GPON and fibre to feed kerbside cabinets. From there each customer has their own line.

He says there are about 600 cabinets on the network. If there is more demand, the number of cabinets can be expanded.

Customers signing for FibreX will need a new cable modem. Baird says this is the same Huawei device that Vodafone uses for its UFB customers.

Minister calls for better experiences

Williams says the FibreX network is Vodafone’s response to Communications Minster Amy Adams call for service providers to deliver better broadband experiences. He says the fast install is an important part of this and slow installs have been a source of frustration for other fibre customers.

Vodafone passed up on the opportunity to offer FibreX customers broadband services bundled with Sky TV subscriptions. Williams says customers on the FibreX network will be able to buy the same Sky packages as everyone else.

While Vodafone is coy about the number of customers on its HFC network, earlier reports and comments from the company suggest it passes around 145,000 homes. That’s around 11 percent of all New Zealand homes, but more like 15 percent of the UFB footprint. The two networks overlap.

FibreX competes with Chorus, Enable Networks

This means puts FibreX in direct competition with Chorus in Wellington and on the Kapiti Coast and with Enable Networks in Christchurch.

Unlike UFB which has a regulated, fully separated wholesale layer, Vodafone’s FibreX network is vertically integrated. The company does not pay an access fee to Chorus or Enable Networks. This gives Vodafone room to move on price.

It’ll be interesting to see how the new network performs in comparison with UFB fibre. Williams thinks it is a compelling alternative.

When asked if Vodafone will offer both FibreX and gigabit UFB he said the company “will provide whatever the customer wants. But I can’t imagine why you would want the other fibre if you were in the FibreX area”.

Vodafone FibreX press release.