Slingshot Broadband

 

Slingshot has dropped the price of its fastest unlimited data fibre broadband plan to a shade under $100. The Gigantic fibre plan is $99.95 a month. Slingshot says it is available in most towns and cities where there is fibre.

It is an aggressive price move from Slingshot. The company has thrown down the gauntlet to larger service providers who already complain about margins. Offering the cheapest option is vital in a market like New Zealand where consumers tend to buy on price more than any other criteria.

Spark charges $40 more for a service with similar characteristics although it does offer streaming TV and wi-fi hotspots as added incentives. The company’s no-frills BigPipe brand charges $130 for a naked, unlimited gigabit plan. Vodafone’s comparable plan is $110. 2degrees charges $115 for a similar product.

A gigabit by any other name would smell as sweet

The Gigantic plan includes gigabit technology. While the term is in common use elsewhere in the world. New Zealand’s Commerce Commission rules don’t allow ISPs to describe plans as gigabit.

That’s because there are network overheads so the available speeds to customers are less than the full 1000 mbps. In most cases customers get around 800 to 950 mbps. The company’s announcement is more cautious, it warns customers may only see speeds in the 700 to 900 mbps range.

Either way, it is still by far the fastest option and the best choice for heavy media users or homes with many devices. Whatever you call them, these plans mean there is never a case of not having enough broadband at home.

Slingshot General Manager Taryn Hamilton says the extra speed: “Makes a huge difference to the quality of the online experience”. He says the price cut is designed to stimulate greater take up of the faster plans.

Gigabit plans are still relatively new. Only a small number of users choose them, in part that’s because they normally come at a premium price. However, that’s changing fast. By dropping the price under $100, Slingshot has reduced the gap with the more popular 100 mbps plans. This means customers can upgrade to the best experience for a small extra amount each month.

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’ network hit its 2017 peak at 9.25pm on December 10. The broadband network was delivering 1.328 Terabits per second.

We once measured large amounts of data in terms of books or towers of compact discs between here and the moon. This time Chorus says the peak was the same as 260,000 HD video streams being watched at the same time.

Four days into 2018 high demand during a storm broke the record. On January 4, at the same hour, the network hit 1.33 Terabits per second. No doubt the record will soon broken again as numbers continue to climb.

The people of Porirua are the most voracious data consumers. In December the average household chewed through 202GB, that’s 34 percent up on a year earlier.

Nationwide average data consumption on the Chorus network is now 174GB a month. That’s up from 123GB a year ago.

Fibre broadband accounts use more data

Users with fibre accounts use more data than those with a copper connection. While the average monthly data base across the entire Chorus network is 174GB, customers with fibre use around 250GB.

In September a Chorus forecast said this will climb to an average of around 680GB a month by 2020. In part the rise will come as more accounts move from copper to fibre.

The growth is largely about television moving from broadcast distribution to online, on-demand delivery.

Chorus network strategy manager Kurt Rodgers says it is not just the big international providers like Netflix driving this change. He says TVNZ and Three launched live streaming in 2017 and that has helped online television become mainstream.

Rodgers says people are watching on smart TVs, but they also watch on phones and tablets connected to home wi-fi networks. He says phone handsets are used more often with wi-fi than as traditional phones.

Broadband speeds on the Chorus network are also higher. Dunedin, which was the original Gigatown now has an average connection speed of 265Mbps. Rotorua is next on 72Mbps and Wellington is in third sport with 70Mbps. The national average across the Chorus network is 64Mbps.

A note on broadband averages

Chorus measures average use because that makes number sense for a network operator. It divides the total amount of data across the network by the number of user accounts.

The figure is, simple, easy to understand and demonstrates how demand for data is growing. It helps Chorus plan for growth. It makes discussion straightforward.

Not everyone likes this measure. Some point out that the data use pattern is not a Bell curve. They says that a small number of high-end users skew the average number higher. They argue that the median amount of data used is lower than the average.

There’s something in this. Yet the median and the average numbers are moving closer as more and more New Zealanders switch to streaming video. Or in other words, high data use is becoming mainstream.

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Clare Curran, Labour communications spokesperson
Communications Minister Clare Curran moved fast to establish the CTO position.

Politicians are rarely good with technology. Nothing illustrates this better than the 2011 parliamentary debate over the Copyright (Infringing File Sharing) Amendment Act.

A lot of nonsense was spoken at the time. The NBR described the debate as loopy. That was kind. It was obvious the MPs had no idea what they were talking about.

The otherwise obscure New Plymouth MP Jonathan Young took the madness to a higher level. He made headlines speaking in an empty parliament chamber saying:

“…The computer system called Skynet that ruled the world. It’s like the internet today.”

Most of us had no idea what Skynet is. Yet we all knew Young was out of touch with the real world when he spoke.

Young had his 15 minutes of fame as he was mocked for failing to understand the internet.

Politicians don’t get IT

To be fair to Young, he isn’t the only politician who doesn’t understand technology. Few do. Many say embarrassing things. Some say foolish or harmful things.

Wiser heads know to say nothing or very little. It’s better to keep your mouth shut and have people think you may be ignorant than to open it and confirm their fears.

It seems the higher you get in the pecking order, the less a politician knows. Technology know-how has never been a path to high office. It may be an obstacle.

At best politicians mouth empty platitudes about technology. They often acknowledge it is often a good thing without saying anything specific. It’s like motherhood and apple pie.

Praise be

You will hear our politicians sing the praises of entrepreneurs. While they are positive about technology investment, that’s because they are in favour of any investment.

And they know technology investment sounds good to voters.

Our politicians might, if pushed, be able to talk about the importance of teaching children about science and technology. Yet, for the most part, that’s about as far as things go.

Not only do politicians not understand specifics about science and technology, they often fail to grasp the importance of underlying ideas and concepts.

Ask them about, say, the value of scientific peer review, the nature of scientific enquiry or the difference between proprietary or open source software and most of the time you’ll get blank looks.

Advice for policymakers

So it makes sense to have someone who can move in their circles to advise policymakers. Hat’s off to Communications Minister Clare Curran for moving fast to establish the role. It may have been in the manifesto for both parties by the time of the election, but Curran pushed this for a while and has wasted no time making it happen.

Curran says the chief technology officer will be accountable to the prime minister and to herself. She says the person will provide independent expert advice to ministers and senior leaders on digital issues.

She says:

“The chief technology officer will be responsible for preparing and overseeing a national digital architecture, or roadmap, for the next five to ten years”.

The job has to go to someone capable of speaking to the cabinet and committee members in a language they can understand without being condescending.

New Zealand already has many public servants and others operating at the highest levels who can advise policymakers on these matters. They often do. Much of the time their advice is first class.

Yet advisors tend to operate in silos, often with a narrow sectorial focus. At times their advice can conflict with their peers operating in other fields.

Some of the key advice going to politicians comes from well-funded lobby groups, not independent experts.

The science advisers who go into bat for the agriculture sector might have a different view of, say, wheat or sugar to those advisers working in public health.

Technology advice in the eye of the beholder

Similar reasoning applies to technology. Take public cloud computing. An advisor focused on productivity and reducing cost might be all for government storing sensitive data overseas on an Amazon server. An advisor looking after personal security and privacy might offer an entirely different opinion.

Depending on where you sit, the idea of, say, data sovereignty might be a useful way to keep people safe or it could be a brake on innovation. Someone needs to unpick these issues for our leaders.

There are big strategic decisions where different government departments and competing interests want to pull in different directions. Take the question of how government should engage with organisations like Google or Facebook? You’ll get diametric views depending on who you talk to.

Big picture view

A chief technology officer may not be the best person to make day-to-day decisions on such matters, but they can set the ground rules and explain the issues to policymakers.

Someone needs to tell ministers it can be a bad idea in general, say, for their departments to communicate with citizens by Facebook.

This kind of decision should not be left to gut-feel reckons. Too many important decisions of this nature are being made by people who don’t necessarily grasp all the basics.

Think back once more to 2011 and the Copyright Amendment Act. At the time paid online services for copyrighted material were emerging as alternatives to piracy. It was clear then that these emerging services at least had the potential to neuter the threat of piracy.

Either no-one told our leaders, or, more likely, no-one who they would listen to was prepared to tell them. Having someone in the Beehive who could talk through the issues would be a good start.

Likewise, someone needs to talk to our leaders about the implications of increased automation, artificial intelligence and so on for employment. Then there’s blockchain and the internet of things or the government investment in fixed-line broadband potentially being undermined by wireless network operators. We could go on listing important technology areas that may need legislative attention.

Chief technology officer no panacea

Having a chief technology officer is not a panacea. It is no good if someone claims the crown, then does little with it. The person chosen needs to be active. At the same time, we really don’t need someone who comes to the role with a predetermined agenda. It’s not a job for someone who is partisan.

And that’s a big danger. Even the fairest-minded expert can be open to capture by special interest groups. Big technology companies are already able to throw millions of dollars into wooing, cajoling and persuading politicians, putting one person in charge of the category could make their task so much easier.

We don’t want a chief technology officer who kow-tows to global technology giants. Yet at the same time, we do not want one who is openly and unreasonably hostile towards them or some of them. We need a sceptic, not a cynic.

If there is an over-arching objective for a national chief technology officer, it would be to insert more science, engineering or technical thinking into government. There is precious little.

Few politicians or senior public servants have any science education beyond school and many dropped the subject long before leaving high school. While there’s nothing wrong with not having a technology background, there is clearly too little knowledge among our present leaders. It might help if the better funded political parties also hired technology advisors to help them frame policy.

Communications skills

The other danger is that the appointee is brilliant with a full grasp of the complexities, but is unable to articulate key ideas in a simple enough fashion for ordinary mortals to understand. Remember, our political leaders have, a best a below average grasp of technology, even if they are brilliant lawyers or business leaders.

The chief technology officer will also need to be able to talk in the language that ordinary citizens can understand. At least part of their job will be to explain to the rest of us what is going on with policy. It’s a big job. It needs a special person.

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Mobile phone handsetA Commerce Commission investigation into mobile market competition is underway. The carriers think they’ve seen enough regulation, with some justification. And yet there are areas where New Zealand’s mobile market does not work as well as it might.

Spark managing director Simon Moutter has a point when he says New Zealand’s mobile market is competitive.

On the most obvious level, the mobile market works well. Prices for monthly accounts, calls and texts have fallen. Consumers pay less and get more.

New Zealand is no longer an expensive place to own a mobile phone. Cellular voice and text prices are in line with those in comparative overseas markets.

2degrees not lobbying for regulation

It speaks volumes that 2degrees is not asking for further market structure changes. The third carrier is profitable and continues to put price pressure on Spark and Vodafone.

2degrees CEO Stewart Sherriff says his company invented competition in New Zealand. His company has certainly made the mobile phone sector price competitive in a way that it wasn’t before.

Prices from the larger carriers didn’t start to fall in earnest until 2degrees got market traction. Sherriff’s company is often the first to move on price. 2degrees is innovative and aggressive when it comes to pricing bundles of mobile services.

In Moutter’s eyes, the tough price competition at this level is enough to prove the market works. Yet we could do better.

Where the market doesn’t work

There is one clear way New Zealand’s mobile market competition isn’t functioning as well as it might. Customer service is, at best, indifferent. Often it is appalling.

If the market was truly competitive, carriers would not be able to get away with leaving customers on hold for hours or failing to solve trivial technical problems.

That’s not something the Commerce Commission can address in a direct way. Complacency about customer service is a clear sign a market could be more competitive. We replaced a monopoly with a duopoly and then an oligopoly. From a consumer point of view: worst, worse and not good.

Areas the Commerce Commission should address

There are three areas the Commerce Commission needs to address in its mobile market review. All three have the potential to improve competition.

  • First, New Zealanders still pay too much for mobile data.
  • Second, there are warning signs of collusion between carriers that should worry the regulator.
  • Third and top of the list is the lack of diversity in mobile phone service retailers.

A lack of retailer diversity is the issue that triggered the mobile market review. Last year the then Communications Minister Simon Bridges wrote a letter about it to the Telecommunications Commissioner Stephen Gale.

Bridges writes:

“I note that submitters raised concerns about the effectiveness of regulation at the wholesale level, particularly with regard to the provision of Mobile Virtual Network Operator (MVNO) services. In other countries, these services are an important part of the mobile ecosystem, and the widespread availability of such services has led to better outcomes for consumers.”

Where are the MVNOs?

The lack of MVNOs in New Zealand is beyond debate. In many markets, these alternative carriers account for a large slice of the total market. Here MVNOs barely register.

It is theoretically possible there are no MVNOs in New Zealand because the market competition is already so perfect and the incumbents look after customer needs so well that there is no room for them.

That argument doesn’t stand up for a moment.

When is an MVNO not an MVNO?

New Zealand’s biggest MVNO isn’t really an MVNO at all. Spark’s Skinny business exists to give the nation’s largest telco a budget brand without cannibalising its core market. Skinny is not a true MVNO because its parent company owns the network.

Skinny is Spark lite. Today Skinny customers get almost the same product as Spark customers but without the value-adds like Wi-Fi hotspots and Spotify. Otherwise, the plans are a few dollars less each month than equivalent Spark plans.

In effect, Skinny is another Spark mobile product line.

The Warehouse

New Zealand’s next biggest MVNO is the 2degrees-Warehouse tie-up. It is price competitive but hasn’t caused any waves in the market. The number of customers would be a rounding error on the numbers for the three big players.

The Warehouse isn’t pushing hard with its mobile option. If you walk into a store you’ll have to hunt to see where you can buy it and sales staff don’t seem motivated to emphasise it.

Vocus is New Zealand’s fourth largest telco. Unlike the three bigger telecom companies it doesn’t own a mobile network.

There are some Vocus MVNO customers, but not many. You could probably fit them all in a room. Vocus doesn’t make much money, if any from them and, like The Warehouse, it isn’t marketed.

Full telco service

In most other western countries a business like Vocus would be able to partner with a carrier and offer its customers a full telecommunications service including mobile. It would be able to bundle services and offer keen prices.

That’s not the case in New Zealand. Likewise, you can imagine other smaller telcos and even companies that dabble in telco like, say, TrustPower, would love to offer mobile as an add-on to power and broadband.

MVNOs perform two vital market functions. First, they often serve more specialist customer needs not catered for by the bigger players.

MVNOs are about choice

Second, they act as a pressure valve for the market. Many disgruntled customers leave one carrier only to find their new choice is just as annoying. The MVNOs give consumers a new set of choices.

Until MVNOs make up about ten percent of the market, preferably more, New Zealand does not have true mobile competition.

The Commerce Commission needs to look at the barriers to entry for MVNOs. If these are structural, then there is a need for new rules.

Skimpy data plans

The second sign that competition doesn’t work well in New Zealand’s mobile market is the skimpy mobile data plans on offer. In recent months carriers have begun selling what they call unlimited data, but the small print makes it clear they are anything but unlimited.

We pay a lot for mobile data. This is especially true when you look at data-only plans. We pay a lot more than, say, Australia.

On the other side of the Tasman, you can pay A$65 a month for 50GB of mobile data. In the UK £25 buys 100GB of mobile data. That’s around NZ$50.

At the time of writing the best deal in New Zealand is 2degree’s 25GB for NZ$70. That’s roughly twice the price Australians pay and, depending on exchange rates and taxes, around five times the UK price.

Economy of scale

While you can argue that Australia and the UK have economies of scale, it’s hard to imagine scale means the cost of supply in New Zealand is twice that in Australia or five times that in the UK.

It is significant that the Australia data deal quoted above is from Amaysim, a MVNO. These smaller MVNO players have put huge pressure on the prices charged by the network owners for data.

There’s another way you can look at New Zealand’s mean mobile data caps. The competitive pressure in other countries means carriers dedicate their spectrum to satisfying the needs of mobile customers. If they don’t, someone else will.

Fixed wireless broadband

Spark mobile customers share the company’s cellular bandwidth with 100,000 fixed wireless broadband customers. If the mobile market was competitive, Spark could not afford to risk degrading the mobile data experience.

How Spark manages its resources is the company’s own affair. It is certainly possible to run fixed and mobile broadband on the same networks without disappointing either group of users — that happens in lots of countries. It’s possible there is enough spectrum to satisfy both groups.

Spark may have a good explanation why 100,000 fixed wireless customers downloading gigabytes each month have nothing to do with mobile market competition. But it’s something the Commerce Commission investigation needs to take into account.

Is there a cartel?

A third area the Commerce Commission needs to consider is something from left field. The three carriers have banded together to build a rural mobile network with shared infrastructure.

The Rural Connectivity Group is an intelligent and innovative solution to what looks like a tricky problem: delivering broadband to small remote communities and filling in the mobile blackspot on country roads.

While it makes sense for rivals to co-operate on a project of this nature, it isn’t without risk. In his book The Wealth of Nations Adam Smith wrote:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

Smith was no tin-foil hat conspiracy theorist, he is recognised as the father of modern capitalism. His name is forever tied to the ideas of free markets.

Rural Connectivity model

The danger with the RCG is that it could become the model for the next generation of mobile networks throughout New Zealand. There have already been whispers of the carriers considering acting together to build a 5G network.

When Chorus recently floated the idea of creating a UFB-style open access 5G mobile network the carriers were quick to shoot it down. A line hidden in a media statement from Vodafone could be interpreted as suggesting the carriers are thinking of building a shared 5G network:

There is no question that industry-wide collaboration makes sense in some instances, and the industry has already demonstrated working models for this.

You could see this as getting the regulator and others used to the idea of industry collaboration when it comes to 5G.

5G networks

Moutter takes the argument further. He starts by saying Spark can build a 5G network on its own:

No industry amalgamation was required for the transition from 3G to 4G, and none is required from 4G to 5G. Based on our current analysis, we think the investment for 5G will be manageable, as we will be able to leverage our existing 4G and 4.5G physical infrastructure.

Which sounds reasonable. He then goes on to say:

That’s not to rule out sensible infrastructure sharing where that can speed up deployment or address visual pollution issues that might come from the deployment of more network sites – we are supportive of those models. But to jump straight to a conclusion that we need a monopoly network would be crazy.

Sensible

Which could be another subtle softening up of the idea of a shared infrastructure. When you run a large partly vertically integrated business “sensible” can take on a lot of meanings.

As 5G networks are understood at the moment, they will need many more towers than today’s networks so the deployment issues and visual pollution he mentions are a given.

None of this is to say the carriers are planning to build a shared 5G network, nor is it to say the network structure will be inherently anticompetitive. It is something for a market regulator to consider and watch.

Competition or cartel?

It’s not the Commerce Commission’s job to second guess an as-yet-unsettled technology. Nor can it speculate about plans that may only be written on the back of paper napkins.

Yet it strains credulity to think the three carriers put their heads together to plan the RCG without at least mentioning how such a collaboration might work in the future.

At this point the Wikipedia definition of a cartel is useful:

A cartel is a group of apparently independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices. Cartels typically control selling prices, but some are organised to control the prices of purchased inputs.

No-one would suggest any of this is happening at present, but allowing the three carriers to build a shared network would be a step on the path to a potential cartel-like arrangement.

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