Telecommunications is central to modern life. Telecom NZ, soon to be Spark, and Vodafone dominate in New Zealand with Chorus playing the main infrastructure role. Competition has been slow to take hold, but we’re starting to see it happen now.
Luigi Cappel reflects on his experience at Telecom NZ before looking at the company’s plans to shed about 20 percent of its workforce in Why is Telecom making 1500 staff redundant?. He asks how a company can get to the point where it has so many more people than it needs.
A good question. Part of the answer is that New Zealand’s telecommunications industry is going through another realignment. What worked three years ago doesn’t work today.
I have three fears:
First, when I hear of large redundancies in any listed company I suspect the move is as much about sending a signal to investors as it is about practicalities. Nothing says “we’re serious about reining in costs” as dropping 20 percent of staff. Sometimes this is done without properly considering what it does to a business’s ability to deliver.
Second, I worry some of the talent locked inside will be lost to New Zealand forever. Europe and the USA are unlikely to be happy hunting grounds for job-hunting telecommunications workers at the moment, but Australia seems happy to cherry-pick New Zealand expertise.
Third, often the most employable people are first out the door. I’ve already heard tales of Telecom NZ’s rivals snapping up talent. And that’s before the hit list is drawn up. Among them will be people Telecom NZ can ill-afford to lose.
Redundancies hurt morale
In my experience redundancy on this scale has a serious effect on the morale of remaining workers. Fear is not the most effective motivator.
As Cappel points out in his post, when Telecom NZ cut staff before, Telecom had to take many people back as consultants. That’s almost certainly going to happen this time around. And no doubt some people will take their redundancy payout and do something entrepreneurial. They could even end up competing with their former employer.
Brewer says Vodafone has the technology and the spectrum needed to roll out a network much faster and cheaper than the UFB network being built by Chorus. It will offer UFB-like speeds. Brewer doesn’t say so, but the economics he outlines suggest Vodafone would be able to boost data caps.
Until now the arguments against wireless networks have been to do with spectrum scarcity and the high cost of network equipment along with the expensive of getting resource consents. Picocell technology does an end-run around these.
Where consumers have a choice between fixed and mobile networks, they tend to choose mobile leaving fixed-line for things like bulk downloading of media content.
While Brewer’s post is speculative, there are some sharp minds at Vodafone who must have at least considered this approach. It will probably run into regulatory hurdles – New Zealand’s centre-right government is not keen on letting market competition make decisions about future telecommunications.
Nevertheless, this is a more exciting prospect than waiting for fibre to come down my road.
Vodafone NZ has stolen a march on its competitors rolling out 4G mobile to parts of Auckland earlier today.
Although coverage is limited, only 30% of Auckland gets the faster service at the time of writing, the company is getting runs on the board while rivals seem to be months away from a full launch. Vodafone plans a fast ramp-up with Christchurch getting a service in May, Wellington in August-September and a further 15 towns by year-end.
4G will give users faster data downloads and smoother experience with data heavy applications like video conferencing and gaming. On a good day and a uncrowded tower, 4G sends data at around 10 times the speed of 3G networks.
How will Vodafone make its 4G investment pay?
First the company will charge most customers an extra $10 a month on top of their existing plans. Big spending customers – those already paying $120 a month or more – won’t pay the surcharge.
The second part is more subtle. There’s no increase in monthly data allowances. Given that 4G makes it easier and quicker to shovel bits into a phone that could see customers bust their existing limits and begin paying for more data. Extra data typically costs more per unit than bundled plan data, so Vodafone has an opportunity to extract more from customers this way.
Or possibly not. Vodafone chief executive Russell Stanners told the NBR’s Chris Keall faster speeds don’t necessarily mean users will download more data. He said overseas users only get through one or two GB a month.
And the business model?
Carriers like Vodafone often treat 4G as a bigger pipe for selling mobile broadband by the gigabyte. That appears to be what’s happening here. Over time Vodafone will collect hundreds of thousands of $10 per 4G account per month and will sell bigger data plans.
There’s another opportunity that Stanners and his executives must have considered: how to boost revenues by adding paid-for applications and extra value-added services to the mix. Carriers around the world struggle with this – can Vodafone’s New Zealand operation come up with some answers?
Meanwhile Australia’s Stilgherrian offers this reflection on mobile broadband:
It’s the same kind of freedom you can expect on prison day-release. You can wander a little bit, but you’ll have to be back on your fixed-broadband leash by nightfall.
Australia’s politicians continue wrangling over that country’s FTTP (fibre-to-the-premises) project. Meanwhile New Zealand’s is progressing. Yet New Zealand’s low fibre uptake could yet inform Australia’s FTTP debate.
Figures released yesterday by communications minister Amy Adams show 134,000 homes and businesses can now connect to the UFB network. Building is taking place in 24 of the 33 towns and cities that will be on the government’s network.
Meanwhile 89,000 rural homes and businesses can connect to the Rural Broadband Initiative through fixed wireless connections. A further 36,000 rural users can now use fixed-line services.
To date only 3800 customers have signed for UFB fibre services. That’s a low take-up rate – less than three percent.
The priority at this stage is to sign businesses, schools and medical facilities. Yet the fibre companies started their residential build in areas where they expected the highest uptake.
GIven that fibre is no more expensive than existing copper broadband, this suggests there could be problems persuading consumers to switch.
There are two reasons why more haven’t moved. First, the big ISPs, who account for the overwhelming majority of the market, have yet to begin selling fibre services. That’s likely to happen in the coming months – having more people on the UFB will give them more incentive to move into the fibre market.
Second, the government and the people boosting fibre have done a poor job selling its advantages to consumers. Instead of telling people fibre is fast and reliable, they focus on ridiculous and, to most people, irrelevant, high-end applications. Telecom and Vodafone are likely to do a far better sales job than the government.
Britain’s 4G spectrum auction raised a third less than expected. UK telecommunications companies paid £2.3 billion to snap up the extra bandwidth needed to run next generation mobile data networks, that’s £1.2 billion less than the amount penciled-in by the government.
What does this mean for New Zealand’s spectrum sale which will probably take place later this year?
Previously there’s been speculation an open auction of the 700MHz band could raise $200 million. That figure may look ambitious now.
Vodafone and Telecom NZ are both experimenting with 4G services and are likely to bid for the new spectrum. 2Degrees could also take part and smaller players have bid for spectrum in earlier auctions.
The 700Mhz band is a sweet spot for mobile broadband – at those frequencies mobile signals do a better job of reaching through buildings in densely populated areas like central business districts.
As a rule of thumb, the lower the frequency, the higher the value of spectrum to carriers.
There’s also a Māori claim for spectrum which many expect could be used by iwi as a bargaining counter to wrest back some control of 2degrees – although that is not the only course of action open to Māori.
You could argue New Zealand’s carriers paid too much for 3G spectrum in 2001, it’ll be interesting to see how they act this time. While no-one wants to be locked out of 4G, the carriers will be just as wary of overbidding.