The national fibre-to-the-home network, known as Ultra Fast Broadband (UFB), has been well-received by the New Zealand public, with fibre connections now outnumbering copper connections. The UFB currently reaches about 80% of the population, and the focus is now shifting from building to unbundling—that is, allowing retailers access to the networks.
The UFB was built to enable unbundling—the process by which retail service providers (RSPs) are able to deploy their own equipment at what is known as Layer 1, or ‘dark fibre’ level. The advantage for RSPs is that by unbundling they can offer a differentiated product and receive a greater percentage of the monthly broadband fee their customers pay. The Commerce Commission sets the rules on unbundling, including the fee that RSPs pay Chorus and the LFCs for to access Layer 1 infrastructure and it is currently receiving public submissions on this process. But there is some controversy around the unbundling strategy.
The UFB is being deployed by four companies which are each responsible for different geographical areas. There is Chorus, which also owns the copper network and has about 70% of the build, and three local fibre companies (LFCs)—Enable Networks in Canterbury, Ultra Fast Fibre in the central North Island, and Northpower in Whangarei. As the UFB received taxpayer assistance of $1.3 billion (most of which is expected to be paid back as customers take up fibre services), the government was able to set the rules, chief of which is that the companies which build the network (wholesalers) can’t be retailers on the network.
Vodafone and Vocus, which have a combined 37% share of the fixed broadband retail market, have created a joint venture for fibre unbundling. Spokesperson Quentin Reade told Computerworld New Zealand that the joint venture is “due to the economics of unbundling—which at this stage aren’t stacking up.”
How a NZ fibre network is unbundled
Unbundling occurs in the ‘last mile’—that is, between the central office (what is known as a telephone exchange in the copper network) or a roadside cabinet and the customer’s premise. The UFB is a gigabit passive optical network (GPON), so between the CO and the customer’s premise, the feeder fibre passes through an optical splitter that is located inside a fibre flexibility point (FFP).
Each splitter serves 16 customer premises, if the network is laid by Chorus. The deployment may differ for the LFCs; for example Enable’s splitters are located in roadside cabinets and serve 24 premises.
When a customer is connected, two strands of fibre are laid between the FFP and the house. One fibre is connected to the existing network, and Chorus or an LFC wholesales this service to the RSPs; the other fibre is there for unbundling. At the customer’s premise, the fibre terminates at an optical network terminal (ONT), which is connected to the user’s router (see this PCWorld New Zealand photo essay on a fibre network deployment).
Simply put, stages in the ‘last mile’ of a GPON network are central office (CO) > feeder fibre > fibre flexibility point (FFP) > distribution fibre > optical network terminal (ONT) at customer’s premise.
To ‘unbundle’ a customer’s premise the RSP must carry out the following and pay the proposed fees:
- Pay rental space in the wholesaler’s CO (price varies).
- Pay the wholesaler a monthly fee for the feeder fibre between the CO and the FFP. The proposed cost is $200 per month.
- Depending on the wholesaler, the RSP may need to supply its own optical splitter that the wholesaler will install in the FFP. In the case of Enable, it includes the provision and installation of a splitter for $236.53 per month.
- Pay the wholesaler a monthly fee to access the ‘second’ distribution fibre that runs to the house. Proposed cost varies depending on wholesaler with figures of between $28.70 and $37.24 per month quoted.
- RSP must install its own ONT at the customer’s premise.
Sarah Putt/IDG
The differences between fibre unbundling and copper unbundling in New Zealand.
Vocus explains why it thinks fibre unbundling is uneconomical
Vocus spokesperson Reade says there are several reasons why the current proposal for unbundling is uneconomic, starting with the monthly fee.
“Chorus serves up to 16 premises from each splitter (inside the FFP), meaning if you only have one premise unbundled, it’s costing $228.70 per month. If, by some weird occurrence, you had 100% of the market, and 100% uptake of fibre, you’d still be paying $41.20 per connection,” he says.
In addition, Vocus and Vodafone want to install their own feeder fibre (from the CO to the FFP) but this is currently not allowed by Chorus and the LFCs. “We must rent their fibre from the exchange to the cabinet. This is one of the issues we are raising with the commission; it is a cynical constraint on the market.”
Vocus and Vodafone would also like to rent or purchase the ONT at the customer’s premise from Chorus and the LFCs but “at the moment they are not allowing this, preferring to strand those assets, and pass on the costs to other fibre users,” Reade says.
“All in all, from the proposed monthly fees, to the lack of access to the ONT, plus truck rolls for work, it’s uneconomical. Our argument is that these networks were built with unbundling in mind, but unless the Commerce Commission step in, it will never happen, and Chorus will be passed a monopoly that strands a key infrastructure. We know from copper [networks] that unbundling ultimately benefits consumers through pricing and innovation,” Reade says.
Chorus’s point of view on unbundling
Chorus spokesperson Steve Pettigrew says unbundling fibre is “challenging economically as the vast majority of the costs of the roll-out are in Layer 1. Building the network and laying the fibre is expensive; the electronics are a minor cost by comparison.”
He says that despite taking a different approach to unbundling, Chorus and the LFCs have both arrived at similar costs. “There is a very thin margin to release through unbundling and it’s challenging to arrive at a pricing construct that rewards both the fibre companies and access seekers [the RSPs].”
“A larger efficient access seeker can earn a reasonable rate of return with our [unbundling] pricing, but it requires them to achieve scale off each splitter. For example, with 16 connections to a splitter, the input cost per connection is $41.05 and services of up to 10Gbps could be offered on this line,” he says.
Pettigrew notes that Chorus is working with a number of RSPs at various stages of the unbundling process.
How fibre unbundling compares to copper unbundling
Fibre unbundling appears to be a more complex undertaking for RSPs when compared with copper network unbundling.
In New Zealand, copper network unbundling arrived late and only got underway a couple of years before the tendering process for UFB began in 2009. During that time, a fibre-to-the-Cabinet (FTTC) network was created, where cabinets were installed between the telephone exchange and the premises located too far from the exchange to receive a reasonable broadband experience.
Many RSPs have unbundled the copper network by putting in their own equipment (DSLAMs) into exchanges, which can potentially serve 200 customers. The current cost to do so is a fee of $31.68 per copper connection per month.
Chorus says when comparing fibre unbundling to copper unbundling, a more like-for-like comparison is copper sub-loop unbundling—that is, an RSP installing its own DSLAM in a cabinet as opposed to an exchange. As a cabinet serves far less premises, it is not as economically viable for the RSP.
“After all the regulatory wranglings of 2008-09, only a small number of copper cabinets were unbundled at the sub-loop as it is difficult to achieve scale when the number of premises served is lower,” Pettigrew says.
“Our FTTH (fibre-to-the-home) architecture is very similar to the FTTC model, but for fibre it is even closer to the customer. Our fibre flexibility points typically serve 40 customers in a street. (They could serve 96 but we leave capacity for unbundled lines.)”
Computerworld New Zealand also approached Northpower (which didn’t want to comment) and Ultra Fast Fibre (which did not respond) for this article.