Chorus active wholesaleComputerworld New Zealand reports that Chorus says it has moved to ‘active wholesale’ to stem the loss of customers to rival networks.

The story covers comments made by Chorus CEO Kate McKenzie at the company’s annual general meeting. She says the number of connections on the Chorus network has fallen following Spark’s move to push customers to its fixed wireless broadband services.

She says: “Total connections reduced by about 125,000 last year and by a further 20,000 in the first quarter to the end of September”.

From passive to active wholesale

To deal with this Chorus has moved from being a passive wholesaler to taking a more active role.

In response, McKenzie said Chorus had “gone from being a passive wholesaler to being more active in the marketplace. We can’t rely on all retailers to promote our products for us when they have their own competitive motivations.”

Among other things this has led to a Chorus information campaign highlighting the performance benefits of fibre broadband over a wireless service.

There has also been advertising promoting fibre. McKenzie told the AGM this is already showing results with defections to wireless slowing in recent months.

Follow the money

It’s not hard to understand why Spark wants to move customers on to fixed wireless connections. It makes a lot more money that way.

When a customer buys a fibre broadband connection from Spark, the company pays around $40 wholesale fee to the fibre company. In much of the country that’s Chorus, but the same applies in areas serviced by Northpower, UFF and Enable.

The wholesale cost of a line is around 40 to 50 percent of the price Spark charges its customers. So cutting out the wholesale level means better margins and greater profit. There’s enough room to pass some of the saving back to the customer.

Control

Aside from the money, a fixed wireless connection keeps everything under Spark’s control. It means it becomes less reliant on others. At the same time, it regains some of the benefits of vertical integration.

In a normal market this would give Spark leverage to negotiate better rates from the fibre companies. Spark is by far the largest buyer of broadband connections, so it could expect something for economy of scale and something else to counter the wireless broadband threat.

That’s not how New Zealand’s open access fibre broadband market works. Prices are regulated by the Commerce Commission, fibre companies are not allowed to play favourites. They can’t offer one rate to Spark and a different rate to other players.

The wireless threat

When this model was first drawn up, wireless wasn’t a serious threat to fibre. At the time I asked then Communications Minster Steven Joyce if the rapid development of wireless broadband had been considered, he said it had not and dismissed the idea the technology could one day compete with fibre.

In a sense wireless broadband doesn’t compete with fibre. It can’t deliver high speeds and the big wireless operators have kept tight caps on data downloads to stop networks from overloading.

And yet not everyone needs gigabit speeds and vast quantities of data. Fixed wireless broadband is ideal for low-use customers. It also makes sense in areas where fibre is not available.

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CommsDay reports that Vodafone Australia is considering an alliance with regional wireless ISPs.

Wireless ISPs or wisps provide local wireless broadband. Most operate in areas the big carriers find uneconomic to service. They might connect a handful of properties further up a valley, or behind a range of hills.

You can take it as read one or more of New Zealand’s mobile carriers have considered a similar alliance here. There are discussions and deals between carriers and wisps.

Carrier-Wisp resource sharing could happen with official blessing as part of RBI2. The idea of devices being able to hand-off from a wisp to a cellular network is attractive to many users. And there are places where wisps already have informal arrangements with carriers. Some act as resellers.

Australian spectrum

The situation in Australia is different. At least for now. There is talk in that country of reallocating spectrum in preparation for 5G mobile networks.

The Australian Communication and Media Authority wants to optimise some frequencies used by wisps for fixed and mobile spectrum. Its logic is that this would be a “higher value use” of the resource.

In other words, spectrum used by Australian Wisps may be packaged up and resold to mobile carriers.  Australia’s authorities may see that as better for the wider economy. The wisps aren’t happy about the idea, but Australia’s government has a track record of this kind of market interference.

There is scope for other co-operation between New Zealand carriers and wisps or other regional players. One area of the market that has never caught on in a big way here is mobile virtual network operators. That is where a carrier licenses its network to another player. The most visible MVNO example in New Zealand is Warehouse Mobile, it piggybacks off the 2degrees network.

Bigger wisps, or a consortium of wisps, could find value in an MVNO deal.

At Computerworld NZ Stuart Corner writes about Spark’s investor update held last week. He quotes Spark NZ managing director Simon Moutter:

Customers want wireless everywhere and fixed broadband is nothing more than backhaul to a wireless hub (wi-fi) in most consumer and SME situations.

Moutter went on to say Spark plans to be “mostly ex-copper” by 2020. It will have 4G and 5G wireless coverage along with fibre broadband in urban areas.

Moutter is spot-on. Most consumers and businesses use their fixed-line broadband accounts as backhaul to a private wi-fi network. And yes, we’ll all be “mostly ex-copper” by 2020. Mobile phones aren’t going anywhere in a hurry. We’ll almost certainly be downloading more data on the move three years from now.

Beyond backhaul

Yet there’s more to fixed line broadband than backhaul. Savvy consumers also have a fixed line between the largest screen in their house and the point where broadband enters the building. That’s because a wi-fi router acts as bottleneck.

While a good wi-fi router may have the bandwidth to meet today’s high-definition video demands, it’s best not to take a chance on these matters. You don’t want a test match disrupted because someone is downloading a new XBox game.

Describing fixed broadband as backhaul appears to downplay its importance. Which is odd for something that has been one of  Spark’s most important lines of business for 20 years. Spark still has around half a million fixed-line customers. That’s not far short of half of all broadband connections in a nation of 4.5 million people.

Fixed wireless

It’s no secret that Spark would like to maximise the number of customers it can move from copper broadband connections to fixed-wireless broadband service. This not only gives Spark a high profit margin, it also gives the company to regain some of the vertical integration ground it lost when it separated then demerged from what is now Chorus.

Moving low-use customers to fixed wireless makes perfect sense so long as they have enough bandwidth to meet their needs.

The economics of New Zealand’s open access fibre network makes it easy for newcomers and smaller telcos with little legacy baggage to chip away at Spark’s dominant market share. At the same time, they put price pressure on Spark which inherited a less competitive cost structure.

Yet even if 5G delivers on its promise and fuels a faster fixed wireless alternative, Spark looks set to remain New Zealand’s largest fixed-line broadband service provider for a long time yet to come. Unless Spark decides to sell its fixed-line broadband operation, that backhaul product is going to be an important source of Spark’s revenue for the foreseeable future.

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cellular tower

Last week Spark installed new 4.5G technology on five Queenstown cellular towers. They mean the region now has New Zealand’s fastest mobile data network. The Queenstown towers join one-off upgraded Spark towers in Christchurch and Silverdale.

Upgrading Queenstown is Spark’s latest move to squeeze the most from its cellular spectrum. It’s been doing this since buying the last 700 Mhz slice in 2014.

Spark says Queenstown users saw 400Mbps downloads during testing. An earlier test using specialist kit in Christchurch CBD downloaded data at 1.1Gbps. On paper that performance compares with fibre. But wireless users share spectrum, so the speed a user see will drop as others join the network.

Storm in a 4.5G cup

Spark describes the technology in Queenstown as 4.5G mobile. Some rivals disagree with that name. Others point out there’s no agreed 4.5G standard yet.

Quibbling over names misses the point.

Calling the technology 4.5G tells customers it sits on the path from 4G to 5G mobile — that’s a useful shorthand.

The correct technical terms for the technology is LTE-Advanced Pro. While communications experts might understand the term, Joe Public doesn’t. Everyone can relate to 4.5G.

Either way, real 4.5G will be here soon enough. Spark expects 5G to arrive in New Zealand some time around 2020.

Next generation

Spark’s push towards next generation mobile data is more important than the label on the technology. The pilot Queenstown, Christchurch and Silverdale projects deliver state-of-the-art wireless data. Users can’t get all the benefit of this yet because the hardware isn’t available. But those with modern phones will see big speed improvements.

Spark has laid down a marker for the future. It says it will add another 10 similar turbo-charged sites over the next year. This puts it well in front of Vodafone. There’s an sense of aggression behind Spark’s mobile data push. The company wants to be seen as leading the mobile charge.

It’s big picture stuff. Vodafone appears to be broadening its scope, moving into new areas of activity. Today’s deal with Sky illustrates that. Meanwhile Spark is sticking to its telecommunications knitting and doubling down on the $84 million it spent on the last parcel of 700MHz spectrum.

Faster pussycat

Whether you call it 4.5G or LTE-Advanced Pro, Spark’s new towers offer about four times the speed and capacity of 4G. The towers can aggregate spectrum giving users more bandwidth to play with.

Users share wireless spectrum. Towers get congested at peak times. More bandwidth may not always mean downloads at those high speeds . But they should see an improvement over today’s speeds.

For now, Spark’s 4.5G towers serve mobile phone users on the regular cellular network. The company also sells fixed wireless broadband connections. It isn’t selling the hardware needed for fixed broadband customers to use the faster towers yet. That will come in time.

Rural VDSL2

The second stage of the government’s Rural Broadband Initiative was centre stage at the 2017 Rural Connectivity Symposium in Wellington.

In his keynote address Communications Minster Simon Bridges put the project into the broader context of government telecommunications policy.

He says the goal is for 99 percent of New Zealanders to be able to download at 50 megabits per second by 2025. The ministers says the remaining one percent will get downloads of at least 10 mbps.

Bridges says planning has started on the second stage of Rural Broadband Initiative. This involves $150 million of funds pulled from the Telecommunications Developmehttps://billbennett.co.nz/nz-telcos-wince-as-they-foot-bill-for-more-ufb/nt Levy. In effect, this is an extra tax imposed on the big telecommunications companies.

Tenders closed last month. Crown Fibre Holdings is now assessing the responses. Bridges says the goal of the second stage is to extend fast broadband to the greatest number of homes possible.

Dealing with mobile blackspot

RBI2 includes $50 million set aside to improve mobile coverage in rural areas. This means reducing the coverage blackspots on state highways and increasing coverage in remote tourist locations.

Bridges says: “I’m pleased with the strong engagement and response to the tender process”. The minister says he encouraged regional operators to take part in RBI2. While technologies have not been specified, he says there is a preference for open access.

He says based on what he has seen so far, it looks like the proposals submitted mean the government will be able to “do far more than we anticipated”. In other words, the RBI2 funds will stretch further into the bush. After it is done, there won’t be many New Zealanders left behind.

Bridges hinted that decisions would be made soon. He told the Wellington audience they won’t have to wait long to find out what happens. Officially an announcement is due in August.

Rural Connectivity Group

Three bidders for RBI2 funds laid out their pitches at the symposium. 2degrees CEO Stewart Sherriff represented the Rural Connectivity Group. This is a joint venture between 2degrees, Vodafone and Spark.

The RCG argues that fixed wireless broadband is the best way of connecting rural New Zealanders. It says it will invest many more millions of its own money should it win the RBI2 tender.

Sherriff says: “We’re certainly not going to make a lot of money out of it. But we believe this is the best option to get the best bang for the buck. We also think we can do some good for New Zealand.”

He stresses that the RCG bid is both a mobile and a wireless broadband infrastructure play. “Mobile is becoming more critical than broadband in our opinion. Farmers need access beyond the home. They need it in the cow shed, they need it on the quad bike”, he says.

Competitors

Competition between the three mobile carriers is often intense, so having all three come together bid has raised a few eyebrows.

Sherriff says that despite co-operating to build a rural network, the three carriers will all continue to compete. “We’ll compete on retail and we’ll compete on the wholesale level”, he says.

“The plan is to set up an independent joint venture to run the network. That means one set of towers, one set of antenna, one power system and one backhaul. These will all be shared. This business case doesn’t stack up with one operator. It barely stacks up with three”.

In effect the three will operate a mobile virtual network.

Sherriff says it will be an open access infrastructure so that other services such as wisps (wireless internet service providers) and emergency services can also use the network. While the towers are designed for co-location, the focus, for now, is on wholesale fixed wireless broadband.

4G now, 5G later

The RCG plan is to build a 4G network now, but make it upgradable to 5G later. Sherriff says the project will also include narrowband IoT. This will give an additional network for the Internet of Things.

Sherriff says the group plans to deploy 520 cell sites. He says: “This gives us 20 percent more coverage in New Zealand. It takes the coverage from around 50 percent to 62 percent in terms of the geography. That’s 20 percent more mobile, 20 percent more IoT and 36,000 more connected households. More than 1200 extra kilometres of state highway will be covered. It will cover 67 percent of mobile blackspots”.

Wireless ISPs

Independent regional ISPs were shut out of the original RBI project. This time they could play a central role. Many small operators run strings of antenna on hill tops and poles to deliver fixed wireless broadband up valleys and in other rural areas.

Their fixed wireless service is not the same as the fixed wireless broadband based on the Spark and Vodafone mobile networks.

Each of the wireless ISPs is making its own tender to CFH for the funding. Many will ask for less than $2 million. This is a cut off point. A condition of the tender is that to receive more than $2 million, you have to build an open access network. That’s asking a lot of small operators.

Lightwire founder, Murray Pearson at Rural Connectivity Symposium 2017
Lightwire founder, Murray Pearson at Rural Connectivity Symposium 2017

Lightwire founder Murray Pearson made the case for local wireless ISPs to win CFH funding for RBI2. He spoke as a Wispa representative, not as Lightwire, a Waikato based ISP.

Pearson says a reason to choose wisps for the RBI2 project is that they are innovative and show technology leadership. “Most wisps have been born out of a need to solve a problem. They’ve grown from there into businesses that have evolved to serve their community.

“They focus on appropriate technologies. What you need to service a valley with five users is different to what you need to serve somewhere like the Hauraki Plains where you can see 5000 house from one high site. Most wisps use a variety of tower types to cover a broad range of requirements”.

Wisps have been around now for 10 years. Pearson says they have shown they are both reliable and resilient. “During that time they have demonstrated some very reliable networks. Most build in redundancy so if one site goes down, it’s the only one affected”, he says.

Low-power wireless tech

The equipment used by wisps tends to be low-power. He says this makes it practical for Wispa members to build solar sites. The operators tend to be nimble and able to respond fast when needed. He says this adds up to a cost effective solution.

Local customer focus is important. Pearson says wisps have tended to grow out of the communities they serve. Many of the people working in wisps grew up in the communities they serve. This focus means that the people involved have very good knowledge of local geography.

Pearson says wisps are good at working with others. Some work with lines companies to string cables, others work with organisations like Chorus to use fibre backhaul.

Wisps have some great stories to tell about how they have delivered in difficult conditions. Pearson gives the example of Canterbury-based Amuri Networks which was able to make a huge difference after the Kaikoura earthquake. Not only was it able to respond quickly, but its equipment proved resilient.

The weakness in the wisps case is that many of the businesses are so small they have little support depth. Some may rely on one or two key people to handle the technical work and installations. Who takes over if they get sick or incapacitated? It’s a version of the single-point-of-failure problem.

This can be fixed from a business point of view with insurance policies. But there may not be enough skilled engineers to plug the gaps even if there is money available to pay them. Having the wisps band together in

Chorus brings fibre

Chorus network strategy manager Kurt Rodgers says: “No one technology can do everything in rural. Rural New Zealand is challenging, the trick is picking the right recipe”.

Kurt Rodgers Chorus at Rural Connectivity Symposium 2017
Kurt Rodgers, Chorus

In RBI1 Chorus built the fibre part of the network. It ran fibre to schools, hospitals and connected 110,000 homes and businesses in rural New Zealand. That meant building 1,000km of fibre and upgrading 1200 cabinets. It also ran fibre to 157 cellphone towers.

Rodgers says 80 percent of the 110,000 cabinet connections can get VDSL, but only 20 percent do at the moment.

Rural infrastructure

Either way, there is a lot of suitable infrastructure already in place in rural areas. All of it is suitable to extend the broadband network. The copper telephone network reaches all but the last one percent most remote homes. And there is plenty of fibre.

He says fixed broadband works best where there is “a modicum of population density. The other places are where the other technologies fit in set”.

Rodgers says: “It’s all about taking fibre closer to people.

Because Chorus is a wholesale-only business, it’s fibre-to-the-bush strategy dovetails with other rural broadband approaches. It would, for example, be able to provide the Wisps with fibre backhaul.

Satellites

While there’s no public RBI2 bid from the company, Phil Cross, the Australia-based sales director of IPStar made the case for satellites to reach the most remote users.

Phil Cross, IPStar

“Satellite often doesn’t get a good rap, but the economics of delivering broadband to remote areas doesn’t give you much choice”.

Cross says fibre and microwave technology will always be preferable, but they are not always practical.

He says one benefit of satellite technology is rapid deployment. He says: “It takes less than a day to get a connection. Often a lot less than a day.”

IPStar has a good New Zealand case study to draw on. It has provided affordable broadband to the Chatham Islands since 2012.

How do they scrub up?

Chorus’s fibre-to-the-bush plan means extending the UFB network or something similar much further into rural New Zealand. In the panel session following the presentations, the speakers all agreed that fibre is an important part of rural connectivity

Some homes and farms will get the same fibre connections as people in urban New Zealand. It’s not clear if they’ll get the same prices, but they will get the same services.

However, fibre won’t reach all the way. It means Chorus will need to use copper to reach a lot of people. There’s not much wrong with copper in itself. It can be fast, VDSL2 is capable of fibre-like speeds when connections are within a kilometre or so of a cabinet.

Wisps fill in the gaps

If anything the wisps’ proposal dovetails neatly into Chorus’s fibre-to-the-bush plan. Wireless is a great way to fill the gaps, especially when extending broadband further up valleys to farms and remote businesses or homes. The idea of wisps using fibre backhaul has appeal too.

The idea of Chorus taking land-based broadband up to say, 90 percent or thereabouts of the population, wisps extending that to 99 percent and satellites serving the last one percent makes a lot of sense.

Although wisps and even satellites could, in theory, help fill the mobile blackspot, that job is best left to the mobile phone companies.

Rural fixed wireless broadband

Vodafone built 157 rural towers for RBI1. In the first years these towers delivers fixed wireless internet connections using 3G phone technology. You really could not describe it as broadband. It was slow and unreliable. Only a fraction of the target audience took it up.

It worked better when Vodafone upgrade the towers to 4G. On a good day, in the right conditions, users can get fibre-like speeds. The downside is that wireless bandwidth is shared, so there’s a huge congestion penalty at busy times. Peak hour speeds are slower than quiet times.

The Rural Connectivity Group’s plan will work well for some of users.

Spending the CFH money

If RBI2 funds were unlimited, the RCG would get money to fill in the mobile blackspots with towers that could also serve wireless broadband. Chorus could extend fibre to wherever the population density makes sense. More RCG fixed wireless could be used in less dense areas, wisps could run their fixed wireless out to farms and up valleys. Satellite could fill the gaps.

IPStar’s Phil Cross nailed the problem when discussing satellite broadband delivery. He talks of the choices you have when delivering broadband to remote areas. Crown Fibre Holdings has $150 million to spend. Private investors will tip in more money, at least as much again as CFH.

We could fix New Zealand’s rural broadband with a world class network. It’s within our grasp. At first sight, the best option would be to use a mix of the technologies discussed above. All have a role to play.

Yet there is a fishhook. The RCG says it is not interested in building towers for the mobile blackspot unless it gets the whole rural deal.

That leaves CFH in a tricky position. Caving in to the RCG means great mobile blackspot coverage, less than ideal rural connectivity and a slap in the face to local wireless ISPs who were officially encouraged to tender. Turning down RCG will leave those mobile blackspots. Presumably one of the cellular firms will pick up the $50 million and fill some of the gaps.

Bill Bennett currently edits The Download magazine, website and newsletter for Chorus as a freelance consultant.