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Auckland's first fibre
Steven Joyce installing Auckland’s first UFB cable – Albany – 24 August 2011

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.

AucklandBritain’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.

Tasman Global Access Auckland-Sydney cable
How the Tasman Global Access fits into the bigger picture

Telecom NZ, Vodafone and Telstra plan to build a new submarine cable linking New Zealand to the east coast of Australia. When completed in mid to late 2014, it will be the second major broadband link between New Zealand and the rest of the world.

The companies say the project will cost less than US$60 million and will include three fibre pairs for a total capacity of 30TBps – that’s around 300 times the current data demand.

Telecom NZ is 50% owner of the rival Southern Cross Cable network, so there are question marks over whether the new cable will do much to increase competition. Nevertheless, bringing Vodafone and Telstra into the ownership ensures Telecom NZ doesn’t have monopoly control over New Zealand’s international data links.

Comment: It was clear from the moment Pacific Fibre closed down last August that someone would move to fill the submarine cable void. This joint venture from Telecom NZ, Vodafone and Telstra effectively sees off any other projects which may or may not have been planned. Building a new submarine cable is a smart move on their part: taking control of their own future and not waiting for someone else to control it.

Although some argue New Zealand needs a direct trans-Pacific link to the west coast of the USA, that falls into the category of a nice-to-have luxury and not essential. Investors weren’t convinced of Pacific Fibre’s $400 million business case.

Building a link to Australia was always the most cost-effective option. About 40% of NZ traffic goes across the Tasman and the relative rise of Asian economies compared to the USA means the route to our west will eventually be more important than the route to the east.

The lower latency promised by Pacific Fibre’s direct link between NZ and the USA is far less important than having a second network. And anyway, much of the data used by New Zealanders is cached in Sydney so arguably a second Tasman will mean as much of a speed boost for most users.

It’ll be interesting to see how the joint venture partners go about selling access on the new cable and how they’ll treat New Zealand’s smaller ISPs and data users. There’s unlikely to be any regulatory oversight – which makes some commentators uneasy. The joint venture structure, together with the structure of Southern Cross Cable Network should deliver some competition.

One last thought – and a question for informed readers – is where does this leave Chorus? You might expect the largest network company to want a role in one or more of the international networks. And with Telecom effectively sitting upstream and downstream, does this leave the company in a difficult strategic position?

Telecom NZ temporarily cancelled 60,000 Yahoo Xtra email passwords at the weekend. The move follows ten days of spam messages swamping New Zealand in-boxes.

The biggest email outage New Zealand has seen.

Yahoo is the problem. Not just for the sloppy security which meant the Yahoo Mail site has a cross-site scripting vulnerability.

That’s bad enough. But Yahoo lied about the fault. Then it hid the vulnerability’s seriousness both from partners like Telecom NZ and from end-users.

Yahoo repeated claimed to have fixed the problem. It hadn’t.

The company simply cannot be trusted. That leaves us with no alternative: dump everything Yahoo.

That means you and I should have nothing to do with Yahoo. It also means Telecom NZ needs to pull the plug. Telecom’s lawyers should already be pouring over any contracts. Telecom NZ needs a transition process for customers locked into to Yahoo Xtra mail accounts to disengage, the sooner that gets started the better.  

Auckland's first fibre
Steven Joyce installing Auckland’s first UFB cable – Albany – 24 August 2011

At first sight Chorus’ submission to the Commerce Commission on the price the company can charge ISPs to deliver broadband over the copper network is business as usual.

While the regulator wants to cut copper access prices, Chorus argues against the move saying it could wipe up to $160 million from its annual profit.

Fair enough, the government did a deal with Telecom to spin-off the Chorus network division. It is only natural for the new businesses’ managers and shareholders to fight to protect their investment.

Chorus’ submission to the Commerce Commission goes on to argue cutting the price ISPs pay to use the copper broadband network undermines the UFB fibre network. Chorus is one of the companies building that network with the help of a soft government loan.

Delaying tactic?

Chorus has also requested a full review of the costs of delivering copper broadband. If nothing else  this will delay any ruling to cut prices.

And that’s where things get difficult for the government and Chorus.

If the price of copper broadband falls, it becomes more attractive to customers. In other words: more attractive than the UFB fibre network Chorus is helping to build.

Things get complicated because the roughly $1 billion dollars interest free loan the government is giving Chorus isn’t anything like enough to finance its share of the project. When the project was designed, there was a mechanism to plough back money from the built parts of the fibre network to finance the later part of the project.

Optimistic forecasts

Now we get to the hard part. The early forecasts of how many customers would buy fibre services were ridiculously optimistic. Numbers were quoted that are higher than in other countries with similar projects – planners fell into the “New Zealand will be different” trap. The government hoped to see 45% uptake. Its contract with Chorus is for a minimum of 20%. There’s now a question mark over that figure. Cheaper copper broadband isn’t going to help.

And that planning was done well before mobile data took off. Indeed, it didn’t take improvements in copper delivered broadband performance.

Prime Minister John Key has already talked of further government intervention – most likely a policy change to stop the Commerce Commission from regulating lower copper prices. An alternative would be to throw more government money at the project: that’s tax dollars.

A billion here… a billion there, soon you’re talking real money

The cost is peanuts compared to the money the government spends on roads. And there’s always a possibility Chorus will collapse. The current government is unlikely to let that happen under its watch. Yet it could be out of power by the time things reach crisis point.

Many taxpayers will be unhappy about subsidising shareholders who knew they were taking on a risk. Others will be just as unhappy if the government allows the pension fund and Kiwisaver money locked up in Chorus to wither. Yet more could be annoyed if the project changes so that they are forced to pay more for copper broadband while watching their neighbours enjoy the benefits of fast fibre broadband – especially if the project timetable drags out.

Shadow of Australia’s NBN?

Whatever happens next, the UFB project could yet become a political nightmare for the government. You only have to look across the Tasman at Australian to see how that could play out. Among other things, we could see electorate politicians looking at the UFB construction maps and deciding which areas get built next.

Labour communications spokesperson Clare Curran wasted no time blasting the government earlier today. She said: “Chorus’s deliberate delay tactics with the Commerce Commission are a blow to Kiwi consumers and must be condemned by the government”.

Curran accused the government of playing favourites with Chorus. That’s possible. Or perhaps Chorus has the government by the balls on this. And as Reg Hammond writes at InternetNZ there’s also the matter of dealing with the companies who didn’t win UFB contracts because their price was too high. Where will all this leave them?