John Key says his government hasn’t ruled out using legislation to bypass Commerce Commission recommendations that could see a sizable fall in wholesale broadband prices.

That kind of move would protect Chorus which says it could lose up to $160 million a year from the regulatory change.

It would also become a form of price discrimination favouring the UFB fibre network being built by Chorus and three other fibre companies. In effect government intervention would make copper networks less attractive by making them more expensive than fibre.

While it is understandable the government would want to shore up its own fibre project, there are three reasons why this is a bad move:

1. It punishes poorer New Zealanders

It will take another seven years to build the fibre network. Business districts, schools and medical centres are a priority. Next on the list are the wealthier suburbs where the government thinks people are more likely to sign-up early for fibre. The poorer suburbs are at the back of the queue.

This means poorer New Zealanders will have no choice but to use copper networks for years to come. Making them pay more for it is doubly cruel.

This is politically dangerous for a National government. While it isn’t quite take-from-the-poor, give-to-the-rich, National’s opponents could easily make it look that way.

2. Not everyone gets fibre any way

If everything goes to plan – let’s assume for now it will – UFB will reach 75 percent of New Zealanders by 2019. There’s the rural RBI network for those in the back-blocks. People in small towns will be left with the fibre-to-the-node network where the last leg of distribution will be over copper. Making them pay more for their copper will add insult to injury.

Higher copper prices also mean ISPs will be less able to invest in technologies like VDSL to serve these customers.

3. Making copper networks dearer won’t change fibre demand anyway

Copper is the gateway drug leading to fibre. People who buy faster copper services, such as VDSL, are likely to be the first to buy fibre when it becomes available. Getting people hooked on fast broadband will do more to make sure fibre succeeds than discriminating against copper.

I’ve said all along, if the government has to discriminate against copper to sell fibre, that means there’s something wrong with the fibre project that needs fixing. Fix the problem, don’t cripple the competition.

If anything New Zealand’s data appetite grew even faster than the Cisco estimate.

2degrees sent out a press release last week saying network data increased by almost three times in the last year. It didn’t say what the base was, so it isn’t clear if that estimate means anything much.

Meanwhile Vodafone New Zealand says data traffic has quadrupled over two years and climbed by 1300 percent in the last four years.

Kim Dotcom put the idea of a fresh submarine cable linking New Zealand to the West Coast of the USA back in the news last week. Chris Keall reports on Dotcom’s plans at the NBR.

This isn’t going to happen.

At least not in the form Dotcom proposes. The reason is simple. Rightly or wrongly Dotcom’s name is poison with at least two of the groups that hold the keys to a trans-Pacific cable:

  • The US government hates him. It needs to give landing rights permission. Given many American officials still want to throw Dotcom in jail, this isn’t going to happen so long as his’s name is attached to the project. They will see the cable as a pipe designed to suck all the profits and eventually the lifeblood, out of the US film and music industries.
  • Few Institutional Investors will touch Dotcom. They thought Pacific Fibre too risky. Dotcom is worse.

Is the New Zealand government on this list? Dotcom is something of a folk hero. That doesn’t mean government likes or wants him. In a minor way he threatens our trade relationships. He needs government permission for local landing rights, he also needs government departments to commit to buying fibre capacity.

Pacific Fibre couldn’t make a compelling business case to build a fresh cable. At least not one that investors and governments would buy. That project has some of the country’s best business brains. They are well-connected and wealthy. There aren’t question marks hanging over them.

If Pacific Fibre couldn’t do it, it is unlikely anyone else can.

Dotcom’s plan to build a giant server farm using hydro electricity is clever. It could generate the traffic needed to make a cable viable. Branding it with New Zealand’s clean, green image could work as a lure. Keeping it outside the ambit of US Patriot Act legislation that allows spooks to pry into data at the drop of the hat is also a big plus. There’s also a case for backing up data in a small. democratic country in a tucked away part of the world.

But we’re back to risk. Putting data in a small, remote country with only a handful of fibre links may not look attractive to big corporations – especially if that server is associated with someone questionable.

This isn’t about whether I think Dotcom is guilty or flaky – until he has had his day in court we won’t know how to judge the man. This about how others see him. When it comes to dealing with business risk perception can be as important as reality.

Tuanz CEO Paul Brislen says Commerce Commission regulation artificially inflates the VDSL price. He says that’s one reason the copper-based broadband technology isn’t more widely used.

He has a good point.

VDSL squeezes higher broadband speeds from cable networks than ADSL2+. That’s the main technology Chorus delivers to most of New Zealand through its roadside cabinet network.

Good for small business users

This makes it a good interim technology while we wait for the UFB fibre to reach the suburbs. In particular, it works well for video applications. According to TrueNet it suits most small businesses, especially those in suburban homes. VDSL also has potential in rural New Zealand.

Where I live, I see around 12 to 15Mbps down on my ADSL2+ connection. In theory I should get 1Mbps up, in practice I’ve never clocked uploads at that speed.

I’m 600 to 700m from the nearest Chorus cabinet. With VDSL I may get double today’s down speed and see perhaps 10Mbps up.

VDSL price makes it expensive option

As Brislen points out, VDSL2+ is expensive.

I pay $105 for a Telecom Total Home Broadband plan with 120GB of data. A VDSL2 plan with a similar amount of data costs around $160. There are gotchas with call prices and other aspects of the plans which will add to the cost. And I’d need to buy a new modem.

UFB fibre is due down my road – although maybe not past my house – in roughly two years from now. In round numbers a fibre plan with the same amount of data I enjoy today, but 100Mbps down, 30Mbps up will cost around $130.

All up, it would cost the thick end of $2000 to enjoy two years of being able to video-conference. That might just be worth the price if my colleagues and clients were keen to use video and were suitably equipped at their end. They’re not, so no VDSL for me.

Although it is called a telco levy, the $50 million government collects each year from telecommunications companies looks a lot like a tax.

That’s not necessarily a bad thing. The Telecommunications Development Levy pays for worthy causes like the government’s $300 million Rural Broadband Initiative, services for deaf people and upgrades to the 111 emergency call service.

Telco levy subsidising rural users

The TDL replaces an earlier scheme called the Telecommunications Services Obligation (TSO) which, in theory anyway, divided up the cost of providing land-line telephone services to unprofitable rural customers.

In effect it meant companies like Vodafone, CallPlus and Orcon had to shoulder some of the costs mainly carried by Telecom as a hangover from the days when a phone system was a public service, not a commercial business.

There was no end of arguing over the TSO. Vodafone pointed out those subsidised rural land line customers might be better off with mobile coverage than land-lines. There were other disputes.

New fund, new arguments

Now Chorus, which provides wholesale services to retail telcos, argues it shouldn’t pay the new levy. The company’s prices are largely regulated. Chorus can’t pass the additional cost on to its customers. The Commerce Commission, which manages the TDL doesn’t agree.

After considering charging content providers like Sky who deliver services over the telephone network, the Commerce Commission has backed off. The telcos aren’t happy about this, not is the Tuanz, the telecommunications user association.

The usual process is New Zealand is for too-ing and fro-ing between interested parties before the Telecommunications Commissioner makes a final decision.

Two years ago the Australian and New Zealand communications ministers agreed to investigate trans-Tasman roaming. At the time Stephen Joyce and Senator Stephen Conroy suggested they might regulate.

Although that regulation moment appears closer, don’t hold your breath. Governments rarely move fast on these matters.

Yesterday the Ministry of Business, Innovation and Employment published submissions responding to a list of suggested options.

Tuanz: scrap roaming charges

Tuanz – the New Zealand telecommunications users group – wants to scrap roaming charges between the two countries.

While this sounds radical and will no doubt worry telcos it isn’t extreme. Europe is heading in the same direction. In theory the Australia and New Zealand economies are almost as closely tied as the European ones.

InternetNZ wants link roaming to the planned spectrum auctions – making spectrum licences conditional on better  behaviour or, like Tuanz, scrapping roaming charges.

Market failure

A key test for any government intervention is “has the market failed?”. Economists might question whether trans-Tasman roaming is a failed market in an abstract, academic sense. Others prefer a common sense approach. Business people will notice the dampening effect roaming rates have on trade between the two nations.

Something must be wrong if the first thing we have to do on landing is buy or refresh a local pre-paid Sim card, then divert calls to the new number. That can get tricky if device settings need changing at the same time.

Telcos: What market failure?

Telecommunications companies on both sides of the Tasman argue competition is enough to push down roaming prices. They say regulation is unnecessary. In Australia Optus says the problem is a lack of consumer information – that’s a startling, arrogant claim.

True, prices have fallen in recent years – as much as 90 percent. Cynics might argue that’s less about competition and more about heading off government regulation. Meanwhile, the Commerce Commission also regulates roaming inside New Zealand.

How does New Zealand get another submarine cable project off the ground in the wake of Pacific Fibre’s fund-raising failure?

Ryan Ashton  posed the question at a technology industry networking event last night. Ashton wants to trigger a debate and people at the event joined in.

At least one had worked for Pacific Fibre.

Ashton’s idea for a new cable amounts to crowd-funding. He says the three or four hundred million dollars required could be spread over, say, a million New Zealanders.

The same logic could be used to argue for government funding.

An informal after work event held in a bar isn’t always the best place for this discussion, yet this is a necessary debate.

There are many issues to consider.

First we have to decide if an alternative to the existing Southern Cross Cable Network is necessary. And if it is, does that imply there’s something broken that government can fix by regulation or means other than building a fresh cable?

Southern Cross will need replacing at some point and we don’t want to leave it to the last-minute. On the other hand, money is tight, perhaps it could be better spent elsewhere now and the problem revisited later.

Security is an issue. Southern Cross is a loop with two lines in and out of the country, that’s better than a single point of failure. A new cable will make us more secure. What would be the optimum number of cables for a country with a population of less than five million?

Does a new cable need to stretch right across the Pacific when a simple drop across the Tasman could offer a quicker and cheaper alternative?

Is this something best left to market forces or is there a case for government involvement. How do we square China’s enthusiasm to take part when the US and Australian governments are hostile towards firms like Huawei?

IDC Research says sales of Wi-Fi only tablets have passed sales of 3G models in Australia and New Zealand.

IDC’s analyst explained the shift away from mobile networks to Wi-Fi in terms of product offerings. This misses the point: for most people 3G doesn’t make sense on a tablet.

3G option is costly

Adding 3G, and now with the new iPad, 4G to an Apple tablet adds NZ$200 to the price. For the 16GB iPad, that’s a hefty 27 percent premium. For that kind of money, you need to know you’ll use that tablet while on the move.

To use mobile data you also need a Micro-Sim card and a mobile data account with a carrier. Make that an extra Sim card and account unless you don’t have a mobile phone.

3G is troublesome

When I bought my iPad 2 I decided this would be too much trouble. I might only need to use 3G with my iPad once or twice a month and I didn’t want to deal with extra Sim cards and mobile accounts.

Instead, if I need a 3G iPad connection while I’m on the move I use my mobile phone as a Wi-Fi hub. That way my phone account picks up the data cost.

I’m not likely to travel anywhere with my iPad and not take my phone as well.

Phone Wi-Fi hub fast enough

I haven’t benchmarked speeds on my iPad and phone combination against a 3G iPad alternative because the comparison is not important. My set up is more than fast enough for my everyday needs, the only drawback is using my phone as a Wi-Fi hub drains the batteries faster than normal use.

This approach means less administration and it consolidates all my data buying in a single account which means economies of scale.

If you’re always on the run and need plenty of data a 3G tablet might make more sense, for most users it doesn’t.

Enable Networks reports it is connecting about 600 customers a month to the Christchurch fibre network. It has a total of 6,100 customers already connected — making a total uptake of 11 percent across the city. That’s a little better than the national average.

Three Christchurch suburbs now have more than 20 percent of premises connected to the network. Rolleston tops the list with 24 percent connected, Burnside is on 22 and Addington has 20 percent.

These numbers are good. In fact, sign-up rates are improving at a fast clip across the entire country. This underlines the wisdom of extending the UFB network beyond the 75 percent of the population into smaller towns.

Meanwhile, the fibre roll-out is paying off in terms of overall speeds. The latest Akamai State of the Internet report notes New Zealand saw a huge 21 percent quarter-on-quarter rise in average fixed connection speed, taking it up to 6.8Mbps. The year-on-year headline speed is up 47 percent.

New Zealand’s average peak fixed connection speed climbed 31 percent in the quarter to 31.8Mbps. That’s a 52 percent year-on-year increase.

Bronwyn Howell, a principal researcher at the New Zealand Institute for the Study of Competition and Regulation(ISCR), warns the latest regulatory moves forcing Telecom to continue servicing unprofitable rural customers while removing the subsidy for this service, could bankrupt the company.

This is the latest move by government to reign-in a business which is widely viewed as a rapacious, monopolistic multinational.

Both Labour and National have found bashing Telecom is politically popular.

No-one is above criticism

It is not that Telecom is blameless. The company has stepped over the line on occasion.

Yet, bashing Telecom is not good for New Zealand. It isn’t good for the economy or for business in general.

And it most definitely isn’t good for the public.

Most people think of Telecom as being owned by American multinationals. While the company does have some international shareholders, the reality is many everyday New Zealanders own most of Telecom – mainly through institutions.

Our money at stake

Telecom features heavily in our superannuation portfolios. In effect, the company, which was once owned collectively by New Zealanders through the government is now largely owned collectively by New Zealanders through our retirement savings.

So when the government bashes Telecom, it looks as if it is acting to support consumers. In many cases it is supporting consumers.

Yet at the same time it is hurting investors.

In other words, we might get cheaper phone services, but we will be poorer in our old age.

What’s more, when the government bashes Telecom, the winners are usually the company’s rivals. These, by and large, are overseas-owned multinationals. So, in effect, money moves from our superannuation savings accounts in to other people’s superannuation accounts.

Telecom needs to be held to account. No-one suggests otherwise. But taking easy political potshots against a large and obvious target is in no-one’s interest.