Top five telco issues that need sorting in New Zealand

Despite two major upheavals in five years - local loop unbunding and operational separation in 2007, and then Ultra Fast Broadband and structural separation in 2011 -- telecommunications continues to be a topsy turvy industry in New Zealand.

The government is expected to release discussions papers on a review of regulation, and another on the future of the Telecommunications Service Obligation this month.

Here are some of the hot button telco issues that are likely to be addressed in both reviews.

Migration from copper to fibre

The government-backed Ultra Fast Broadband network is a private-public partnership scheme set up to build a national fibre access network by 2020. What is commonly known as the last mile -- the connection between the telephone exchange (called a 'central office' in the fibre world) and the customer's premise. It's the most difficult, most expensive piece in the connecitivity puzzle.

At a recent fibre to the home conference in Auckland, one technology executive observed that as soon at the telco turns up at the house with a drill, the customer goes cold on the idea.

Which is why technology such as VDSL and vectoring -- which promise speeds of up to 50Mbps and beyond -- are so appealing. The customer isn't inconvenienced, and the telco doesn't have to spend up to a day on just one installation.

But VDSL/vectoring has two major issues -- you can only get the fast speeds if your house is close to an exchange/cabinet and for those connected to a cabinet vectoring doesn't enable unbundling (that is only one telcos equipment in the cabinet and the others reselling its services).

A fibre network on the other hand can enable speeds of up to and over 100Mbps, and competition issues are put to one side -- at least during the network build phase -- because those building the infrastructure are prohibited from retailing the services.

InternetNZ policy consultant Reg Hammond points out in a series of blog posts, that under the current regulatory regime UFB and the existing copper network are in competition with each other. In those places where UFB is rolled out by Local Fibre Co (Whangarei, central North Island and Christchurch) the situation is clear cut. In the remaining 70 percent of UFB areas, Chorus is rolling out fibre, while at the same time operating the copper network. Does this mean Chorus is competing with itself?

Hammond says Chorus may have thought it could use the profits from the copper to pay for the fibre, but the former is regulated by the Commerce Commission. Legislation has meant that Commission is now required to review copper pricing. It is doing so based on the method of assessment outlined in legislation, and has found in favour of a sharp reduction in wholesale copper pricing. Chorus is protesting, but the retail service providers (RSP) and the user groups are urging the Commission to stand firm. The process is ongoing.

Will a new law change be required to ensure higher copper pricing for Chorus -- which is already benefitting from a $929 million taxpayer loan on favourable terms -- to help with the UFB build? Or will the RSPs -- including Telecom -- get their way and pay less for the copper network?

Competition in mobile

On paper the mobile industry in New Zealand is a hot bed of competition. Three mobile network owners and a number of Mobile Virtual Network Owners (MVNOs).

But behind the customer numbers is a figure of more relevance -- market revenue share. For example, third entrant 2degrees might have over 1 million connections in a market of around 4 million people, but it only has 12 percent market revenue share. And the Commission noted in its annual telecommunications report released in April that MVNOs have an "insignificant share of the market".

In addition, not only are Vodafone and Telecom dominant in the mobile market, but they are equally as powerful -- now that Vodafone as bought TelstraClear -- in the fixed line market.

The upcoming 700MHz spectrum auction -- which enables 4G connectivity to be more ubiquitous -- may be an opportunity for the government to set some rules to promote competition.

Vodafone and Telecom may not be able to use their superior market strength to outbid 2degrees or push auction prices up so high that even if 2degrees manages to secure spectrum, they won't have enough money to deploy services (although the company's relatively new network has been built to enable a 4G upgrade).

Submissions on a discussion paper on the auction were being filed as Computerworld went to print.

Meanwhile, the hope remains that an MVNO that offers unique and compelling services -- perhaps one attached to a supermarket chain like Tescos in the UK -- will come into the market and provide additional competition.

International connectivity

Many hopeful headlines have been written about alternative international cable systems to compete with the Southern Cross Cable (half-owned by Telecom) which connects New Zealand to Australia and the US.

Kordia's scheme for a trans-Tasman cable named Optikor fizzled out. Pacific Fibre's bold plan to connect New Zealand, Australia and the US never got off the ground.

There are a couple of longshots -- a French-Caledonia bid called SPIN, and then Hawaiki, and Kim Dotcom's promise to build a second cable.

The only new cable that does appear to be being built is a tran-Tasman cable funded by Telecom, Vodafone and Telstra for US$60 million ($76.2m). Last month the telcos issued a tender inviting several international companies to bid to lay the Trans Global Access (TGA) cable.

Meanwhile there is $15 million set aside in the government coffers -- which has been floating around since David Cunliffe was ICT minister -- for any company looking to build an a new undersea cable to the US and Australia.

Telco and broadcasting tensions

There was a blaze of publicity greeting news that Coliseum Sports Media had outbid Sky TV for the broadcast rights to the English Premier League (EPL) last month. The company has launched, and will offer a season pass for $150, with games able to be watched on a computer, tablet or smartphone, as well as old-fashioned television.

Sky TV's share price faltered on the news, and several pundits were picking the beginning of the end of Sky TV's monopoly on pay TV.

Not so fast.

Last year a movie-on-demand company Quickflix presented a similar challenge. And despite the hoopla, its content proved equally as niche, and it has provided scant competition.

Meanwhile, Sky TV is waiting for the outcome of a Commerce Commission investigation into its contracts with internet service providers, which has been underway for a year.

ICT lawyer Michael Wigley has speculated that the entry of Coliseum Sports Media plays into Sky TV's hands because it provides the illusion of competition.

One thing that is clear, is the growing convergence between telecommunications and broadcasting. Whoever forms the next government may finally recognise this and combine the ministerial portfolios rather than keeping them separate.

Rural access

New Zealand's primary industries are responsible for a large portion of the country's wealth -- they account for 71 percent of the country's mercantile exports (that is actual products, rather than services). So there is a strong argument for ensuring the rural community is well-served by telecommunication services.

The right to a decent phone service, wherever you live, has been protected by New Zealand law under the Telecommunications Service Obligation (TSO) since Telecom was sold into private hands in 1990.

But what about broadband access -- is it necessary for the health and wealth of rural communities? With the advent of over-the-top services such as Skype, social media and online trading, you could argue that broadband is an essential service for rural people.

On the other hand, as the telcos always pass their obligations onto customers, is it fair that those living in poor urban areas should subsidise the internet bills of wealthy rural farmers?

*This article is part of a series looking back at major issues covered by Computerworld, to mark the final print edition, published Monday July 1, 2013.

Copyright © 2013 IDG Communications, Inc.

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