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Regulating termination rates introduced ten years ago kick-started mobile market competition in New Zealand. Now it’s time to review the rules. Don’t expect to see much change.

To no-one’s surprise the Commerce Commission’s draft review of mobile termination rates recommends they stay regulated.

A termination rate is the price one phone company charges another when a call from one network is made to a customer on another network. Mobile termination rates affect calls between the Spark, Vodafone and 2degrees networks.

Until a decade ago mobile termination rates were unregulated. Carriers could charge what they liked. And they did. New Zealand termination rates were high.

This stifled competition and meant mobile calls were expensive by international standards. That in turn meant people here didn’t use their phones as much as people overseas.

Calls between networks

Before regulation Telecom NZ, now Spark, and Vodafone, would charge customers less to call others on the same network than the cost of calling another network.

In the jargon of the time they offered have different prices for on-net and off-net calls.

Mobile termination rates mean customers on the least popular network end up, over time, paying more to use their phones.

This acted to stop people choosing 2degrees, in part because potential customers feared friends might call less often.

In 2010 the government stepped in. Termination rates have been regulated since then.

The move triggered a dramatic drop in call prices to the point where New Zealand moved from being an expensive place to use a mobile phone to a relatively cheap place.

Flat playing field

Most of all, the regulation flattened the playing field. This meant the third mobile network, 2degrees, could grow beyond being a niche player.

In turn this further boosted competition and paved the way for cheaper calls more innovative price deals.

Today we have a vibrant, competitive and innovative mobile market.

Mobile termination rate regulation almost didn’t happen. Ten years ago Telecom NZ and Vodafone negotiated a voluntary agreement with government to lower charges. The Commerce Commissioned agreed.

It was all set to go. Then Vodafone began selling the most aggressive on-net plan ever seen in New Zealand. The Commerce Commission reversed its earlier decision.

The case against mobile termination rates

Fast forward to today. The Commerce Commission now says there may be a case for dropping regulation of termination rates for SMS text messages. That’s because of the popularity of alternative over the top services like WhatsApp.

This external pressure has reduced txt prices to the point where many plans offer customers unlimited texting at no extra cost. High charges are unlikely to return.

The Commerce Commission says voice call termination rates should remain regulated because there are few competitive alternatives.

That’s true on one level, but it’s not straightforward because today’s mobile battleground is all about data. With lots of data, customers can make voice calls using free or cheap over the top services.

And anyway, voice calls are not as popular as they were ten years ago.

If, in a world without regulated mobile termination rates, a carrier attempted to charge higher voice call rates, the move to data calls would accelerate. The trend away from voice calls would speed up. So, it’s possible we no longer need to regulate.

On the other hand economist Donal Curtin thinks the regulation needs another look.

The Commerce Commission now wants feedback on its MTAS draft review findings.

Gebbies Valley is the site of the Rural Connectivity Group latest mobile broadband tower.

I had to look the place up on a map before writing this story. That’s kind of the point.

The RCG’s job is to fill broadband and mobile voice coverage gaps. A government subsidy helps. The RCG is a joint venture between New Zealand’s three mobile carriers: Spark, Vodafone and 2degrees.

It runs an open access network. Some of the money funding comes from the Telecommunications Development Levy.  The Provincial Growth Fund also contributes. Spark, Vodafone and 2degrees invested $75 million in the project.

Today there are 100 working rural broadband towers.

Fixed wireless broadband

Each tower offers 4G fixed wireless broadband and 4G voice calling to the local community. To keep costs low, Spark, Vodafone and 2degrees share the antennae. The towers have fibre backhaul, which improves the performance.

Gebbies Valley has Voice-over-LTE equipment which means users can make high quality voice calls. There will also be 3G voice calling, that’s not commissioned yet. This will cover a black spot on State Highway 75.

A media statement from Communications Minister Kris Faafoi says it is a significant milestone for the second phase of the Rural Broadband Initiative. This a government funded project to deliver broadband services to the more remote parts of New Zealand.

Faafoi says the RCG towers now provide broadband access to 8,121 homes and businesses. They also mean extra mobile coverage for 343km of state highway and connect 23 tourism locations.

Eventually RBI2 will cater for 84,000 rural homes and businesses. It will improve mobile coverage on 1400km of state highways and connect 168 tourist sites.

While the project is planned to officially finish in 2023, there’s a somewhat open-ended nature to RBI2.

Early on in the programme, the government asked the RCG to build as many towers as possible with the allocated pool of money. Since then more funds have been tipped in and there’s no reason to think it will all stop at the formal end of the project.

I’m back on the NZ Tech Podcast.

Bill Bennett and Paul Spain discuss – Slack+Amazon vs Microsoft Teams, Amazon UK free football, UK alliance to compete with Huawei 5G, iPhone sink or swim, Crown Infrastructure update, Vodafone & CoreView, Brave missteps, Time to stop hating on Microsoft? Hosted by Paul Spain and this week’s guest: Bill Bennett. Listen to the Podcast here:       […]

Source: Slack+Amazon vs Teams, iPhone beached for >14-months, UK vs Huawei, Time to stop hating on Microsoft? – NZ Tech Podcast

According to The Times, the UK plans to form an alliance of democratic nations to create a 5G alternative to Huawei.

The Times says the group will include the G7 nations: Canada, France, Germany, Italy, Japan, the UK and the United States as well as Australia, South Korea and India.

No doubt if the plan goes anywhere there will be pressure on New Zealand to join. It is the only Five Eyes intelligence alliance member not in the Times’ list.

Huawei top equipment maker

Huawei is the world’s top telecommunications network equipment maker. It has the most advanced cellular technology and is a leader when it comes to 5G networks.

Thanks to favourable currency conditions Huawei manages to make better 5G technology and, in many cases, sell it for less than rivals.

There are dark mutterings from the US that Huawei climbed to the top of the telecommunications market by stealing intellectual property.

Whether or not this is true, Huawei also enjoys significant tax breaks from the Chinese government and favourable trading conditions in the world’s second largest economy. Unlike western governments China is not frightened to intervene in key markets. The nation has long had an industrial policy to become a world leader in telecommunications technology.

Spying accusations

The headline reason Huawei has western democracies clinging together are reports the company either already does, or could soon start, giving Chinese intelligence agencies access to data carried on networks.

While there is no smoking gun proof this has happened yet, the potential for it to happen is real enough. And that’s before you consider the rising tensions between China and the US.

Behind the headline reason is a second, more nuanced argument. Huawei dominates telecommunications hardware.

Huawei’s main competitors still in the market are Nokia and Ericsson. Both are a fair distance behind Huawei. They can’t compete with Huawei’s rapid development cycles, they struggle to match Huawei’s price advantage.

Monopoly

Before the spying accusations became public the gap between Huawei and the also-runs was widening. There was a danger Huawei would move from dominance to something more like a near-monopoly.

Think of how Google dominates web search. Strictly speaking search is not a monopoly, but only one company matters.

Believe it or not, the world could manage without web search. It can’t manage without telecommunications networks. And much of the world would certainly be in trouble if the only supplier of that network technology was based in an increasingly aggressive, potentially hostile country.

Crippling

So crippling Huawei before it reaches that position stops it from becoming a serious threat. Well, that’s the theory and the thinking behind the UK’s alliance plan.

There’s another angle to this. Huawei aside, Chinese companies dominate the supply chains for telecommunications hardware. Both Nokia and Ericsson have operations in China. Many of the chips and components they use come from Chinese factories.

During the early stages of the Covid–19 pandemic we saw the chaos that comes when supply chains shut down. The Chinese government could shut them down whenever it chooses. Sure that would come at a huge cost, but the risk cannot be ruled out.

Tensions between China and the West, especially the US, are higher than they have been for decades. Things have reached the point where even suggesting the formation of an anti-Huawei technology alliance will be seen as ratcheting up the tensions.

Precious little optimism

The UK plan may come to nothing. It’s possible tensions will reduce. But optimism in this area is in short supply right now.

Nokia and Ericsson are the most likely winners if the UK plan gets anywhere. Samsung and NEC also have 5G network equipment, but the two are even further behind and can’t offer a comprehensive suite of products.

Assuming it is Nokia or Ericsson or both the winners will get guaranteed markets and, presumably, buckets of government money. The move won’t be good for innovation and will reduce choice for mobile carriers.

On the other hand, it will bring much needed certainty to the sector. Everyone will be able to get back to building networks and stop worrying about the politics of what should be engineering or commercial decisions.

Vodafone’s rural broadband unit Farmside says a wave of new customers joined immediately after June 1. That’s Moving Day in the dairy farming calendar. The day when farmers traditionally move equipment, stock and people to new farms.

Farmside general manager Jason Sharp says the business has now passed 15,000 customers. Most connect via RBI fixed wireless but many Farmside customers have fibre or satellite connections.

Sharp says Farmside saw a 74 percent increase in the amount of data used by RBI customers and a 35 percent increase in satellite data during Covid-19 lockdown levels 3 and 4.

Farmside says it was able to continue connecting remote customers during lockdown and prioritised work for those who needed a physical installation.

Pandemic changed rural broadband

Earlier this year Sharp noted that pandemic had a huge effect on rural broadband.

He says: “As I reflect back on what was an incredibly busy period, it was also a turning point for rural communities forced to go online in ways never experienced before. I’m proud of what we’ve been able to achieve. I also see lots of opportunity for the future of the internet in the country.

“In the past month we’ve seen stock auctions go online, our major agriculture exhibition become the Fieldays Online event and online discussion groups replace face to face gatherings. This comes with a broader reach in terms of markets – but also relies on good internet connectivity so that parts of the country aren’t left behind.”

Rural broadband challenge

That’s the challenge facing rural internet providers like Farmside. Despite continued government investment in infrastructure, the fixed wireless broadband technology used for most rural connections was never intended for the kind of intense use that has become an everyday fact of life.

When RBI was first planned about 12 years ago, the idea of streaming Netflix or interactive games to farms and other remote locations wasn’t in anyone’s sights.  And that’s before we get to streaming the Rugby World Cup.

At the time fixed wireless broadband looked more than adequate for most rural business applications. Since then the amount of data used to run a farm has exploded.

Sharp says: “… satellite connections have become even more important for those who aren’t within the 35km range of rural wireless broadband – or because the landscape renders line of sight to a cell tower impossible.”

New satellite options are coming online which should improve matters for the most remote users. And there are potential upgrades for fixed wireless that can improve data speeds and allow for larger data caps. Yet the best way to level the playing field for rural broadband customers would be to extend the reach of fibre networks further into the bush.