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.

The Commerce Commission wants to continue regulating mobile roaming. At present it can make Spark, Vodafone or 2degrees give a new network owner wholesale access. This is part of the Telecommunications Act.

The Act also says the Commission faces a review of its responsibilities every five years.

Wholesale access to existing networks helps a new network get a foothold in the market. Something similar happened when 2degrees started and customers could roam on Vodafone’s network. At the time 2degrees only had coverage in four centres.

Roaming matters

Telecommunications Commissioner Stephen Gale said in a press release:

National mobile roaming helped 2degrees deliver a nationwide service for its customers from day one, in advance of rolling out its own national network infrastructure. We believe the power to regulate remains an important competition safeguard, especially with 5G networks and potential new entrants on the horizon.

The key phrase in that quote is “potential new entrants“.

After all there is little prospect of a new mobile carrier entering a saturated market. Yet that doesn’t mean there isn’t a potential new entrant looking to enter the cellular market.

That would be Malcolm Dick’s Blue Reach. The Commerce Commission mentions this company in its review of the market.

The allocation of 5G spectrum may influence mobile competition:
The allocation provides a potential opportunity for a new entrant to purchase spectrum. A new mobile provider will almost certainly require a NR arrangement while it rolls out. We note that Blue Reach Services has entered as a fourth provider and has publically stated intentions to roll-out 5G.

Dick is a wealthy man who has succeeded in telecommunications before. He is a co-founder of CallPlus and an investor in the Hawaiki Cable network. The latter is set to start operating next month.

Blue Reach

His Blue Reach project has been public for a couple of years. Early on Dick described Blue Reach as a 5G wholesaler. The idea is that it will offer fixed wireless broadband to retail service providers. In some ways it is like the failed Woosh Wireless operation. That company was ahead of its time.

At the time of writing carriers around the world are building the first 5G networks. Both Spark and Vodafone have trials here in New Zealand. The technology still hasn’t settled. More to the point, the extra spectrum needed to make it work is not ready in New Zealand. We can expect that to happen over the next 12 months.

Blue Reach plans a service resembling Spark’s fixed wireless broadband. Both Spark and Vodafone sell a similar RBI wireless product to rural customers. So do wisps (wireless service providers). Presumably the wisps are among the retailer Dick hopes will buy his services.

The Commerce Commission’s review hints that we are about to see more competition. Bring it on.

The Commerce Commission has called for submissions on the issue to before July 30. It expects to release a final decision on September 4.

Clare Curran says: “We have to do more than better connectivity”. The minister for broadcasting, communications and digital media was speaking about the digital divide at last month’s Tuanz Rural Connectivity Symposium in Wellington.

https://twitter.com/clarecurranmp/status/1011468050825007104

Curran names ‘closing the digital divide by 2020‘ as one of her two big goals. The other is for technology to be the second biggest contributor to GDP by 2025.

Both are fine goals. Neither will be easy.

Digital divide

There are at least two types of digital divide. The first is geographic. To use Curran’s words, that issue is one of better connectivity. People in rural areas don’t have the same easy access to communications networks as people who live in towns.

Blame economics. The cost of getting fibre to a city dweller is lower than the cost of connecting someone living in a remote area.

Both types of customer pay the same price for a connection if they are on the regulated UFB fibre network. This means people living in easy-to-connect areas subsidise those elsewhere. Almost no-one complains about this subsidy. It’s a step towards bridging the digital divide.

And anyway, a flat rate simplifies billing for service providers. Billing is expensive, so simple bills help keep costs down.

Clare Curran at Tuanz rural connectivity symposium - digital divide

Drawing the dividing line

By the time the UFB project completes, 87 percent of the population will be able to connect to fibre. while the other 13 percent are more at risk of being the wrong side of the digital divide, they won’t all have second rate connections.

While the 87 percent cut-off point seems arbitrary, it is a reasonable place to draw a line. At least for now. Beyond that number each extra fibre connection gets more expensive to build.

Theory says that some point fibre isn’t economic. It’s not clear where that point is. When our ancestors built the copper phone network they managed to cover 99 percent of the population. We weren’t richer in those days, if anything the job was harder. So the choice about where to draw the line is as much about social priorities and politics as economics.

Beyond 87 percent

One day we may stretch the network further than 87 percent. There are already plans for still more fibre. Getting to 90 percent coverage wouldn’t be economic unreasonable. Getting to 100 percent would be.

As things stand there are more cost-effective ways of reaching the most remote 13 percent. Most involve wireless. That’s the approach favoured by the government subsidised Rural Broadband Initiative.

The problem is that wireless technologies are not as good as fibre. They offer slower speeds, are contested and they not as reliable. They are, in theory at least, cheaper. It costs less to beam radio waves across paddocks than to build fibre lines over them.

Contested

Contested means that users on a wireless network share bandwidth. If a lot of people are online at the same time everyone’s speed can drop. In contrast UFB fibre is uncontested. Contracts between fibre companies and the government guarantee performance.

Another problem with wireless is there is less network capacity. To get around this service providers impose data caps on users. Most fibre connections have uncapped plans. Wireless users get a set amount of data each month.

Although some fixed wireless data plans are generous, life is not carefree when you have to limit, say, your television viewing towards the end of the month to be sure of having enough data left for other uses.

Rugby World Cup

These issues could come to the fore during next year’s Rugby World Cup. Spark and TVNZ won the broadcast rights. Spark intends to stream games, the technology is like Netflix. We love the game nationwide, but Rugby’s heartland is rural New Zealand. Will fixed wireless networks cope when every connection on a tower is streaming high-definition television? Spark doesn’t say so in public, but some insiders have voiced fears about how this might go.

Wireless plans often cost as much as fibre plans. They offer less. Not a lot less. Yet on a like-for like basis they are more expensive than fibre plans. The extra cost may be an annoyance, but it doesn’t put a customer on the wrong side of the digital divide.

There’s a handy proof for this. Spark offers fixed wireless to customers everywhere on its network: rural and urban. Thousands of city dwellers have chosen fixed wireless.

If fixed wireless was dreadful you’d hear more about it. There would be a lot of angry people. Sure, there are some unhappy fixed wireless broadband customers. Yet citizens aren’t marching on Spark’s headquarters with pitchforks and burning torches. For many people it’s not bad.

Fixed wireless broadband may be inferior to fibre, but people who have it are on the right side of the digital divide.

Not there yet

It isn’t quite that simple. There’s a limit to the number of connections a wireless tower can accommodate. This means its possible there are some rural users who can’t get a connection because their local tower is full. Carriers can add capacity, but it may not happen immediately. A handful of people may miss out.

A bigger issue is that fixed wireless broadband doesn’t reach all the last 13 percent of the population. Not yet. The exact number is hard to gauge. At the Rural Connectivity Symposium, someone said there could be as many as 100,000 homes still out of reach of RBI. That’s about 5 percent of total connections. I’m afraid I didn’t make a note of who said this.

Moving goal posts

There’s another aspect to this. A decade ago when the Rural Broadband Initiative was being set up, the aim was 5Mbps. That’s enough for web surfing, email and movie downloads. Today’s acceptable broadband threshold is the 30 to 40Mbps needed to stream HD video. RBI towers can and do deliver these speeds. Wireless internet services providers do a terrific job getting connectivity to remote places.

Today’s rural network performance is way past the 2009 test of acceptable broadband. Also, thanks to the wisps, today’s broadband network reaches further into valleys and outlying areas than the 2009 RBI architects expected.

Yet the question mark hanging over the Rugby World Cup tells us there is still a rural-urban divide. Today the bar isn’t 5Mbps or even 40Mbps. It’s “is there enough broadband for people in rural New Zealand to enjoy the Rugby World Cup on an HD screen?”

And that’s the rub. The urban-rural digital divide is a moving target. Some rural New Zealanders will always feel they have second-rate broadband right up until the fibre network reaches them. Whether that’s reasonable or economic is a political matter, not one for the industry. Are we as a country willing to spend what it takes to get fibre as far as we managed to spread those copper lines?

Silverdale 4.5G cell site

For 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 the same.

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 started selling fixed wireless services to rural customers, they could see speeds around 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 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.