Chorus caves: will stump $20m for free fibre connections

Chorus CEO Mark Ratcliffe
Chorus NZX performance since Nov 2011 IPO (S&P Capital IQ; click to zoom)

Chorus has agreed to stump $20 million to fund fibre connection for residential customers under the public-private Ultrafast Broadband (UFB) rollout - but the catch is the money is only enough to cover free connections through to the end of 2015. And fibre won't be rolled past most homes by then.

The spun-off Telecom networking division who close to 80% of the UFB rollout by presence - but had negotiated more advantageous terms than the companies that won the balance of the project (Enable in Christchurch, Northpower in Whangaerei and UltraFast Fibre in Hamilton, Tauranga, Wanganui). Specifically, Chorus only covers free connection up to 15m from the kerb.

The Government announced a deal this morning that sees Chorus, Enable, NorthPower and Ultrafast fibre now offering free connection for any home up to 200m from the kerb - or up to 600m in the case of multiple right-of-ways.

And while Chorus contract covers wiring 5m into a home (and other UFB's 10m), the new agreement covers "any reasonable distance" to a residential gateway inside a whole (which ideally should be beside your TV).

People who live in an apartment will get connection costs covered up to $1000 per tenancy.

Money will run out end of 2015
ICT Minister Amy Adams said in a statement (below) that the $20 million should be enough to fund free connections through to the end of 2015 assuming a 38% take-up rate (based on US and Singapore fibre rollout uptake at equivalent stages). The deal will give the Crown breathing space to work out how connections will be funded in 2016 and beyond for the 10-year build.

"A great, and logical result," Callplus/Slingshot chairman Malcolm Dick told NBR this morning. "It will help all ISPs promote the uptake of fibre."

Tuanz spots hook
Telecommunications Users Association head Paul Brislen was more circumspect.

He noted that with businesses, schools and hospitals prioritised, most residential areas won't get fibre until after 2015 - leaving the connection cost issue up-in-the-air for most households.

Investors react
Chorus investors seemed to be taking the the decision in stride. In early trading, shares [NZX:CNU] was up 0.59% to $3.40. The $20 million, afterall, is chicken feed against the total capex for the project (for which the Telecom spin-off has received $929 million taxpayer funds via an interest-free loan, repayable from 2020, and non-voting equity. Chorus says it's total build cost will reach $1.4 to $1.6 billion by 2019).

Tense standoff
For the past few months, Chorus has been in intense negotiations with the government and Crown Fibre holdings over whether a free connection offer - which expires at the end of this year - will be extended.

Orcon and other ISPs complained to NBR that that arrangement cut out every home on the rear of a subdivision, and many other properties. UFB installations were uneconomic. Customers would take fright if faced with a bill for $1000+ for connection - more so because an accurate price couldn't be given until after work was underway.

The free connection deal announced today is essentially moot for the other UFB companies, which were already pushing free connections. Ultrafast Fibre has the most generous terms, already offering free connection for a home any distance from the kerb. Unlike Chorus, the new fibre company has no copper business to fall back on.

Just 700 connected
Chorus shareholders might not be impressed, but fibre advocates will be hoping the deal speeds UFB's ultraslow uptake.

At Chorus annual meeting yesterday, CEO Mark Ratcliffe said his company had rolled fibre past 72,000 premises - but only 700 customers had (through a retail ISP) taken the opportunity to connect their home or business to UFB fibre.

Will UFB connections now take off?
Don't look for a sudden surge in fibre uptake. ISPs that already offer fibre such as Orcon, Slingshot and Snap will welcome the clarity on free connections.

But beyond the cost of getting fibre from the kerb to a home, many homes will also require some degree of rewiring in what is a complicated (and in some cases expensive) installation.

Recently, Vodafone CEO Russell Stanners told NBR the UFB installation process was nowhere near ready for prime time. Telecom is taking a similar line, and says it will not offer residential fibre until next year. TelstraClear (bought by Vodafone, is also on the sidelines). Together, Telecom, Vodafone and TelstraClear control around 75% of the residential broadband market.

Second standoff with governemnt
The fibre connection cost controversy was one of two Chorus standoffs with the government.

The second, yet to be resolved, is over the wholesale cost of copper home lines as the Commerce Commission completes its assessment of how pricing should be averaged between (more expensive) rural and urban lines. 

Chorus favours a higher wholesale price than that initially suggested by the Commission. A lower price would hit Chorus in the pocket. But the company also warns that cheaper copper lines would retard fibre uptake and derail the UFB. 

The Commerce Commission has an open timetable for resolving the issue. At Chorus' annual meeting yesterday, Mr Ratcliffe warned the accuracy of earnings forecasts was affected by this regulatory uncertainty.

ckeall@nbr.co.nz


RAW DATA: STATEMENT/Q&A from ICT Minister Amy Adams

Free ultra-fast broadband connections

Communications and Information Technology Minister Amy Adams has today confirmed a deal has been reached for free non-standard residential connections to the ultra-fast broadband network.

The government and Crown Fibre Holdings have reached agreement with UFB partners Chorus, Enable and Northpower that provides for free residential connections for distances of up to 200 metres per house from the road, until at least the end of 2015.

The remaining UFB partner company, Ultra-Fast Fibre, which operates in the central North Island, has already undertaken to provide free residential connections until 2019. It is the government’s intention to continue to work towards residential connections being free with the other UFB partners until the end of 2019, when the network build finishes.

“Today’s announcement provides certainty for the next three years while we finalise negotiations for the remainder of the build period,” Ms Adams says.

“Given the enormous benefits and the wide range of services UFB will offer, we want switching to fibre to be as simple as possible.

“While the provision of free connections was already in place for the vast majority of homes, the uncertainty for those classed as non-standard was creating some concern for retail service providers and the public.”

The UFB partners have agreed to fund the majority of the additional connection package, whilst some additional value has been provided through negotiated technical changes in the respective contracts without increasing the government’s $1.35 billion total investment.

Under the agreement, there is an allowance of 200 metres per property to connect to the UFB network. For example, three houses sharing a right of way would have up to 600 metres of free installation from the edge of the legal road.

In the rare event that the allowance is exceeded, a customer will need to contribute towards any costs beyond 200 metres.

Estimates suggest that only about 0.3 per cent of UFB residential premises fall into the category of having a connection longer than 200 metres.

“In negotiating with the UFB partners to achieve this outcome, we had to be mindful of ensuring a fair balance of equity between homeowners and getting the best use of public funds,” Ms Adams says.

“In reaching the final balance, it is my view, that for the largest of properties where the connection length exceeds 200 metres, it is appropriate those property owners contribute towards any additional cost.”

Under the package, fibre connections are also free for people who live in a multi-unit complex which is three storeys or less.

For multi-unit complexes that are more than three storeys, the UFB partners have already agreed to fund the first $1000 of installation costs per tenancy under their existing wholesale agreements with retail service providers.

“Faster broadband is an important part of our wider infrastructure programme which the government is setting out today in its Building Infrastructure report and I want to congratulate the Government's UFB partners for their commitment to a fibre future for New Zealand."

Media contact: Nathan Beaumont 021 243 8412

Question and Answers:

Who qualifies for free connections?

The government and Crown Fibre Holdings have reached agreement with UFB partners Chorus, Enable and Northpower that provides an allowance of 200 metres per house until at least the end of 2015.
Ultra-Fast Fibre, which operates in the central North Island, has already undertaken to provide free residential connections until 2019. It is the government’s intention to work towards residential connections being free with the other UFB partners until the end of 2019, when the network build finishes.

Estimates suggest that only about 0.3 per cent of UFB residential premises fall into the category of having a connection longer than 200 metres.
What was the previous agreement?

Northpower and Enable were only required to fund installations for residential customers that involved distances of up to 30 metres for buried fibre, 60 metres for aerial and 100 metres for approved conduit or open trench. Chorus was only required to fund up to 15 metres buried fibre, 30 metres aerial, and 100 metres approved conduit or open trench. Any home owner with installations over longer distances could have been required to pay some contribution for the extra distance.

What about people who live in apartments?

Under the package, fibre connections are also free for people who live in a multi-unit complex which is three storeys or less.

For multi-unit complexes that are more than three storeys, the UFB partners have already agreed to fund the first $1000 of installation costs per tenancy under their existing wholesale agreements with retail service providers.

What about private roads or rights of way?

The 200 metre limit for free installation will be applied on a pro rata basis for residences with shared access.  For example, three houses sharing a right of way would have up to 600 metres of installation length free.

What level of reinstatement must UFB installers meet when connecting homes?

Partners will reinstate all services on a “like to like” basis. This means they will use concrete where concrete was used, grass where grass was used, and asphalt where asphalt was used.  They do not guarantee to match surface finish, and reinstatement will be limited to where the trench is dug.

What consents are needed for connections to homes in a right of way, or private road, or gated community?

Before UFB can be deployed down a right of way, private road, or within a gated community, all of the property owners must provide written consent.

Will the $20 million from Chorus be enough to last until the end of 2015?

The 31 December 2015 timeframe is based on a 38 per cent uptake rate by residential users. This uptake rate is high for the first few years of the build of a new fibre network. By way of international comparison, uptake for Verizon in the United States is at 37 per cent after six-and-a-half years and in Singapore uptake is 18 per cent after three-and-a-half years.


RAW DATA: Chorus NZX announcent

Chorus provides $20m fund for free UFB residential installs
8:36am, 1 Nov 2012 | GENERAL
STOCK EXCHANGE ANNOUNCEMENT

1 November 2012

Chorus provides $20m fund for free UFB residential installs

With more than 72,000 customers now within reach of Chorus’ UFB network, the company today announced that it will provide a $20 million investment for retail service providers to offer free installation to their residential customers.

Chorus already funds the first 15 metres of new trenching to connect a home, or up to 100 metres of fibre where there is an available duct, or a single overhead aerial span. The additional funding will be used to cover the cost of connecting residences that are beyond these, up to 200 metres.

“We want to give our customers as much support as possible in encouraging people to join the new network, particularly in the early stage of the UFB rollout,” said GM Marketing and Sales Victoria Crone. “New Zealanders are still discovering the benefits of fibre and we want to help make it as easy as possible for our customers and their customers to make the switch to a fibre world.”

“Our customers have asked for a solution on how to install fibre services to homes beyond what is considered a standard distance. This fund, agreed with Crown Fibre Holdings, goes some way to addressing customer needs, as we continue to work on a sustainable longer term solution,” Crone said.

Chorus says the funding will help it gain more insights to develop its installation policies and experiences for end users.

“We’ve learnt that by clearly explaining the installation process and the time it takes, home owners are comfortable with the work getting underway, so we can connect them to ultra-fast broadband services,” said Crone.

This offer does not affect the capital expenditure guidance Chorus has previously provided. Chorus expects to spend between $450 and $480 million on fibre capital expenditure this financial year. Chorus’ cost of building the UFB fibre network along streets is expected to be between $1.4 and $1.6 billion. The Crown is providing debt and equity financing of up to $929 million.

To date, Chorus has connected more than 700 homes and businesses to UFB services and laid 1,500km of new network as part of this massive programme of work. In all, Chorus will deploy some 17,000km of new fibre network to pass more than 830,000 urban homes, businesses, schools, hospitals and medical facilities throughout New Zealand by the end of 2019.

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13 Comments & Questions

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And expect the Commerce Commission's copper pricing investigation to go away. Quid pro quo.

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Chorus technician installing UFB in my street several months ago advised that I shouldn't expect much faster connection speeds (we already have ADSL 2), due to traffic issues on the line. So haven't been bothered to pursue it since.

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Dead right. This thing is a big fat white elephant.

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He/she was having you on. Traffic issues on the line indeed!

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Don't complain folks.you voted for it and thought it would be o for awesome!

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Voted for it ? How so ?

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Chorus told my friend that with UFB his speed with slingshot would be slower than Telecom. So he hasn't bothered.

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remember how much political rhetoric there was around UFB, remember how many people on this very forum fell for it hook line and sinker???

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There's fibre in my street, but as our area isn't even on the planned rollout, according to Chorus I can't get UFB. How nuts is that?

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Its not nuts at all really, just because you have a cable roll past your door doesnt automatically mean you can just open it up and and T into it. Alot of infrastructure has to go in before you can get UFB. Its not like a copper cable where you can cut into it anywhere.

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What a load of subjective drivel this article is. Instead of ploughing daggers into Chorus' back at every opportunity, how about getting behind this push which will give over 75% of New Zealanders the opportunity to move their online experience into the 21st century.

Those calling it a white elephant are more than welcome to remain on the ageing, rusting copper network, which was never designed to carry internet traffic in the first place. As soon as UFB rolls past my street, I'm going to be ringing around for the best deal on fibre to my house!

As for Telecom and Vodafone refusing to go for it until they see changes in the install offering, what a load of codswallop. Vodafone are already rolling out UFB's little rural cousin RBI, so they must be ready to take sales now. What's the point in deploying a technology that your own network can't handle??

And Telecom? Please! Only reason you aren't offering UFB yet is because you are still offering the oldest services in the country. For being the biggest Telco in the country, why are you still stuck on analogue voice technology? Clearly masking your inability to quickly adopt new technologies by blaming Chorus and the government for not being certain on the install price. What's going to happen now? You gonna wait til 2015 as well??

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A guy working for Chorus in our street said he saw a shark in my shed. So I don't go in there anymore......

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My saga seems typical, and I don’t see the numbers adding up… It took 3 weeks from order to get someone onsite, that was OK... 2 guys turned up at 8:30am, they were there until 7pm....no green light on the ONT. They came back at 0730 and spent another 4 hours trying to get everything livened up. They then came back at 15:30 for another 3-4 hours because Orcon couldn't get data to flow to the modem. Apparently my install from the road was a good one because they could use the existing conduit so no civil works. The fiasco with the livening process was about the level of (in)competence they were now used to. The field crew were great.

15 days on..!!! it's still not going and speed is slower than DSL. Most concerning though is the fact that no-one seems to be able to work out who's fault it is and they don’t seem to have the tools/skills to work it out. Certainly the nice overseas call center person cant get anyone to sort it out…

Now the rub is this. It was free to install, so not complaining about that, except it’s taken time for me to try and manage this. The worrying component is that the process is, at very best, an absolutely abysmal demonstration of workflow, management, and competence to roll this out on a major scale.

The numbers don’t make sense either;

About 36 man hours to do the install, say $60hr/person = $2,160 cost to Visionstream + admin/margin + materials/ONT/External cabinet. Lets say $2,500. I signed up for a 12 month deal at a cost of about $80/mth including phone. Realistically I’m now connected for life (or until the fibre/ONT etc needs replacing)… Lets say 15% of my gross payment goes to paying the capex of the install, $144/annum. $2,500/144 = 17 years (21+ if you added in funding costs…) to recover just the install cost from the road to my house…. What’s the life on fibre in a cracked underground conduit? 15 years? I have no doubt the ONT will need replacing due to lifecycle or changes in technology… That 15% also assumes as competition kicks in and we all come off contract, that in real dollar terms the capex repayment stays the same….

Unless it gets a LOT more efficient this single crew can realistically do about 150 installs/annum. They reckon they need civil support on about 50% of jobs (which is a lot of people digging holes, and filling them in).
72,000 premises (right now) * 38% = 27,360 people who will signup for install. If it’s free who wont stick up their hand, lots of people, and all in a hurry! I think you’ll find the queue for install is growing exponentially. But hang-on where will the $20M get you, don’t you need closer to $54M? If it’s free to install do they seriously think only 38% of people will want it?

And why do they have 5 guys digging up footpaths and laying cable at the rate of about 100m/week? when they could be micro-trenching and doing a 100m a day!

I’m sure someone has done an amazing spreadsheet model of all this which looks wonderful, but down on the street at real-world level the numbers just don’t add up. “Someone” is going to end up carrying a multi-million dollar liability, maybe they’ll go broke and the capital value can be reset to something that actually works. I’m dumping my Chorus shares.

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