Silverdale 4.5G cell siteFor over a year Spark has pushed fixed wireless broadband as an alternative to fixed-line internet.

Spark sells fixed wireless products using its own label and its cut-price Skinny brand.

From a customer point of view the two services are identical.

Skinny is cheaper. The cheapest plan is NZ$40 a month. At NZ$85 Spark’s own-brand fixed wireless product is more expensive. It even costs more than low-end unlimited fibre plans. In contrast, Spark’s Skinny brand has a $68 unlimited fibre plan.

Customers choosing Spark fixed wireless broadband over a fibre plan get inducements including a free streaming TV service but they won’t save money.

You can be forgiven for thinking wireless broadband is a new idea. It isn’t. The technology is over a decade old. However, things have changed since it first appeared.

Today’s 4G mobile technology has matured to the point where a carrier can offer an attractive enough product to compete with fixed-line broadband in some circumstances.

Extra spectrum makes fixed wireless broadband work

Spark picked up extra spectrum in the 2016 700 MHz auction. This gives the company enough capacity to make its fixed wireless practical and attractive to customers.

When Spark first started selling fixed wireless services to rural customers, they could see speeds in the region of 80 Mbps. That is comparable with fibre. Indeed, it is faster than the basic UFB fibre products on offer.

Few of today’s customers will see speeds like those enjoyed by the first to climb on board Spark’s RBI service. While wireless has many admirable qualities — more about them later — it has a big weakness. Wireless spectrum is shared by all the users.

In practice this means wireless networks can get congested. As more customers in an area served by an antennae sign for fixed wireless services, the average speed per user drops. This can happen at any moment, but is more noticeable at busy times.

This speed drop can, and often is, managed by network operators like Spark.

Dealing with congestion

One way they can get around congestion is to limit the number of customers connected to any particular cell site.

Spark and Skinny are already not accepting new fixed wireless connections in some busy areas. Even so, congestion woes always lurk in the background.

Another way carriers manage congestion is by limiting the amount of data each user can download. Fixed wireless broadband plans usually come with data caps. That is, the amount of data you can use is rationed. At the time of writing Skinny offers 40Gb and 100GB plans.

Data caps are not a problem for many users. 40GB is a lot of data if you just do mail, surf the web and watch a few cat videos.

It is not enough data to watch a lot of high quality streaming television.

Depending on picture quality you might go through a gigabyte in an hour watching Netflix. If you have a handful of family members each watching their own streaming TV and using other online services you will bust your cap.

With fibre you can use all the services you like without keeping one eye on the meter. Many regard removing that worry as well worth paying for.

Next wireless broadband generation

Over time wireless speeds and capacity will improve as carriers like Spark invest in new wireless network technologies. Spark already has many sites described as 4.5G. It adds more every month.

This mobile technology generation can be improved a few more times. We can, in theory, go all the way to 4.9G, although carriers don’t use that term when talking to the public.

In two to three years from now the next generation of mobile technology, 5G, will arrive in New Zealand in earnest. You can expect speeds to be faster again and individual cell sites should be able to handle more data.

The move from 4G to 5G is neither cheap or straightforward. Expect disruption.

Spark pushes fixed wireless broadband harder than the other two mobile network companies. In part that’s because it wants to get the most from its investment in spectrum.

There’s another reason. Every service provider, including Spark, has to pay a fibre company around $40 each month for a wholesale fibre connection. Most fibre subscriptions sell for between around $70 and $100 a month. The wholesale cost doesn’t leave much room for margin.

When Spark sells a fixed wireless subscription, it gets to keep the entire $85. There are costs, but the gross margin is far better.

Spark told shareholders its margins have improved since it moved around 100,000 customers onto fixed wireless.

At the same time, Spark gets to retain control. It manages fixed wireless connections all the way from a customer’s desk to the big internet hubs. Having this control, known in the industry as vertical integration, means it stays in control. Phone companies like vertical integration as it helps them maintain margins.

More customers, more towers

There’s a limit on the number of fixed wireless broadband customers Spark can support with today’s technology and the existing tower network. That will change over time, but it’s unlikely Spark could add a further 100,000 wireless customers in the next 12 months without building new towers. Estimates vary on where it can go at this stage.

If Spark pushes too hard its mobile phone customers will notice a degraded service. Still there is some room for growth on the network.

Meanwhile Spark has accelerated its network upgrade plans. It is confident the investment in 4.5G and later upgrades will pay dividends. One challenge will be meeting customer demands for higher data caps as they consumer ever more services.

Spark sees wireless technology, both fixed and mobile, as the way of the future. It’s arguably the right strategy for a large telco with a mobile network, deep pockets and substantial spectrum holdings. But wireless isn’t the only path to the future.

For now, the wireless first strategy is working for Spark. Its shareholders like the higher margins. They may be less delighted with the strategy when they see the cost of rolling out a 5G network and buying more spectrum.

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.