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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 less attractive by making it 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 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 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.

What I would do

I’m not in favour of discriminating against copper full stop. If I was a politician and my advisers convinced me it was necessary to discriminate against copper in order for my fibre project to succeed, then I’d choose to discriminate against copper only where the fibre alternative is already in place. in that way, the price discrimination wouldn’t punish those who don’t have fibre access.

My guess is the government won’t do this, because that kind of price discrimination would only serve to highlight the problem.

A handful of New Zealand’s internet service providers (ISPs) now sell UFB connections to home users. Below you’ll find a table showing the prices they ask for various broadband offerings.

You can’t get a UFB connection until your neighbourhood is connected. Business districts, hospitals and schools are a priority, residential areas are second and the roll-out won’t complete until 2019, so there could be a long wait.

Prices from $70

Plans start at just $70, but you don’t get much data when buying bottom of the range fibre services – if you push hard you could download your entire month’s allocation in a few minutes. Pay more and plans include a decent whack of data – more than enough to keep you in video conferencing and downloaded content all month.

ISPs have little room to manoeuver on price. Apart from the amount of included data, connection speed is the only other point of difference. You can buy a 30Mbps service for around $30 less per month than a 100Mbps service.

With only a small fraction of the nation’s homes connected to fibre, the prices shown here are largely symbolic at the moment. And at the time of writing New Zealand’s two largest ISPs, Telecom and Telstra Clear have yet to go public with plans for selling the government’s UFB fibre-delivered broadband to home users.

About the table

The plans in the table below all include GST. Some ISPs charge connection fees. Lightwire, marked with the letter a) in the notes column charges a $200 fee that includes installation and a router.

If you spot any errors or omissions please get in touch with me and I’ll update this table accordingly.

Update: 

26/11/12 – Added Xnet – note b) $200 installation fee including a router
26/11/12 – Added Ubergroup
26/11/12 – Added Now

Service provider Speed down/up Mbps Data GB Monthly  $
Kiwilink 30/10 25 86
  30/10 50 104
  30/10 100 138
  30/10 200 201
  100/50 25 121
  100/50 50 138
  100/50 100 173
  100/50 200 236
Lightwire 30/10 200 99
  30/10 400 129
  30/10 600 149
Now 30/10 20 70
  30/10 75 75
  30/10 125 90
  30/10 350 110
  100/50 20 120
  100/50 75 125
  100/50 125 140
  100/50 350 175
Orcon 30/10 30 75
  30/10 60 89
  30/10 unlimited 99
  100/50 30 110
  100/50 60 124
  100/50 unlimited 134
Snap 30/10 50 75
  100/50 100 110
Ubergroup 20 10 65
  20 30 69
  20 150 79
  50 150 99
  50 250 199
Worldnet 30/10 25 70
  30/10 50 80
  30/10 100 90
  30/10 200 100
  30/10 300 130
  30/10 1000 200  
  100/50 25 100
  100/50 50 110
  100/50 100 120
  100/50 200 130  
  100/50 300 160
  100/50 1000 230
Xnet 30/10 5 70
  30/10 15 99

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 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 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.

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.