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TUANZ welcomes Vodafone's offer (but does Big Red understand what it's saying?)

I think it’s great that Vodafone has offered to let us use the cable network it got from TelstraClear as part of the UFB build. Just think of the cost savings it would deliver to Chorus, and of course Chorus would be freed up from working in Wellington and would be able to fibre up my house sooner rather than later.

Brilliant.

But I wonder if Vodafone has worked through all the ramifications of its offer, not least of which is that the UFB contracts were awarded on the basis that the winners have no retail business. Vodafone will, presumably, have to structurally separate to take up the mantle of UFB provider.

It would have to spin off its cable and fixed network assets into a separate business or, depending on which way you look at it, sell off its retail arm and mobile phone network. Then the fixed line business (let’s call it “Saturn” because that has a nice ring about it) would be free to pitch for the UFB business.

Interesting times.

Putting aside that approach, Vodafone’s suggestion does raise a very interesting question: why is Chorus overbuilding networks at all?

In the Hawkes Bay, Unison Fibre is an offshoot of the power company and has an extensive fibre network around the main centres. Yet Chorus has overbuilt it street by street.

In Nelson, I attended the opening of the UFB network build with the minister and the mayors of the region. The mayors were forced to point out to the minister that in fact the UFB wasn’t a bright and shiny new toy for them to play with, that they’d had fibre in the region for a decade or more and that a community initiative had built The Loop long before central government came knocking. Again, Chorus has overbuilt the network already in place.

Why is it that we’re seeing new fibre laid side by side with existing fibre (and yes, with existing cable) when Chorus should be working with these partners rather than excluding them? The UFB network deployment doesn’t require Chorus to build every kilometre of fibre in its region, but rather to provide a service at a certain service level. So why overbuild when there are places that don’t even have fibre?

I’m all in favour of infrastructure based competition, but not when there are still areas that don’t have access at all. Rather, we should build out the network and then see about building competing technologies.

I would hope someone at Crown Fibre Holdings is making this suggestion to Chorus right now, because it still has a lot of Auckland and Wellington to build and plenty of that already has fibre owned by FX Networks, CityLink and even Vodafone and Telecom. Leasing capacity is a lot cheaper than building, but of course Chorus wouldn’t then be able to reap the rewards of owning the infrastructure for the next hundred years.

It also raises another key question, that probably should have been asked before the “fibre to the home” project began. Should we have defined the technology we wanted or should we instead have demanded a certain level of service and been technology neutral?

I for one don’t care how the hole in the wall connects me to the world, so long as it’s blisteringly fast. If it’s copper or fibre or fixed wireless or 4G or bean cans on string, I really don’t mind so long as I get high speed, low latency and a consistent service.

A technology neutral approach would mean that Vodafone’s offer could be considered and that the model we are using for rural New Zealand would be applied to the entire country. We’d have more ultra fast broadband service offerings and more competition, and that’s not a bad thing. As it stands, however, we’re wedded to fibre and unfortunately cable isn’t fibre any more than copper is. 

I think Vodafone would be unwilling to structurally separate the company in order to deliver UFB over its cable network, but I do think Chorus and Crown Fibre Holdings need to take a close look at what's already in the ground and whether or not UFB can be delivered over existing infrastructure. 

Paul Brislen is CEO of the Tuanz, the Telecommunications Users Association of New Zealand.

Comments and questions
15

Well said Paul, as usually is the case. One thing though - there is no need for Vodafone to structurally separate. You're assuming that the same, rather flawed logic and contracts would be used (and I'll bet that each LFC has different contracts anyway).

There's nothing stopping a new and more sensible contract being put into place. After all, Vodafone isn't asking for a taxpayer handout as the LFCs were - not on the same terms and for the same reasons anyway. It's build is already there and proven. As Einstein said: "We cannot solve our problems with the same thinking we used when we created them."

Absolutely. It was really just a cheeky suggestion so as to start a discussion on overbuilding.

Why is it that Chorus is so eager to build fibre where we already have fibre? Can we not look at leasing capacity rather than duplicating costs?

There's a lot of fibre in the ground already. Yes, most of it is P2P not GPON but the costs of repurposing are trivial compared with laying new fibre, especially since Chorus faces such huge cost blowouts.

Cheers Paul. I suspect Chorus is keen to overbuild because that cements its government-sponsored monopoly position by reducing true network competition. It will, no doubt, bleat about economies of scale and improved interoperability et al, but anyone with enough technical knowledge and experience will see that for the runny brown botty water that it is.

Um wouldnt havent two networks increase competition?

Hi Peter,

having two networks would indeed increase competition. Having two networks that only partially cover the territory and don't cover the remainder would not be ideal though - duplication of assets is fine once the entire customer base is covered (or near enough).

In Hong Kong the regulator tells me his biggest problem is keeping out of the way. There they have seven or eight fibre networks, four or five copper networks and LTE coming on stream rapidly. Infrastructure based competition works well there, but of course they can cover the entire region with far less fibre than we would need to cover NZ.

Vodafone is not offering to sell the HFC assets. The whole idea is to avoid either the Government or Chorus having to invest in UFB networks where the HFC exists. That could save around $500m of duplication.

If the assets were being offered for sale it would not really solve the funding problem and would be a completely different transaction.
Vodafone is proposing offering a non-discriminatory wholesale service to all access seekers.

We expect that the terms of the service and its pricing would be set in an agreement with the Government. We have a similar agreement with respect to the wholesale service offered on the Rural Broadband Initiative infrastructure. This seems to be working very well for our wholesale customers.

Thanks

Tom Chignell
External Affairs Director
Vodafone New Zealand

I presume that this would include signing up to the same UFB contract and terms and offerring exactly the same services at the same rate as the other LFCs.

Vodafone would also fully commit to invest in the infrastructure to match the contractual and voluntary fibre services delivered elsewhere in the country

And if Vodafone is wholesaling this then you would also be happy if the no-retail clause was removed from the LFCs as long as they maintained separation between their retail and wholesale arms?

Why the same contract Peter? The investment's already been made, and has been made without taxpayer funding. It's a completely different situation and therefore a completely different contract would be warranted. This isn't apples and apples, and not even oranges. It's apples and codfish.

Vodafone could also wholesale their fibre network, they have fibre in more areas than HFC. The old TelstraClear arm of the business do Wholesale very well, separation is not required

So what you are saying is that existing fibre should not be overbuilt. Chorus (and other LFCs should either lease that fibre or not compete with it.

If they lease the fibre to resell it then the LFC will need very complicated supply agreements to ensure that they can deliver the UFB services required under the contract - since the LFC is responsible for allocation of capacity, quality of fibre, reliability etc, these supply contracts would require lots of negotiation and this would be duplicated with every different supplier

If they dont compete then the service providers who buy fibre services off the LFCs would need a commercial relationship with every one of these fibre suppliers - each of which would need to meet the industry standards for ordering, commercial contracts, service definitions etc. Everytime a new service is introduced every existing non-competing fibre would have to introduce the service or the service providers would not be able to offer it nationally.

Vodafone of course would have to meet the same obligations.

Which model are you proposing? Or do you think the service providers and customers and government would be ok if each area had completely different services and standards for fibre services? Is this the bright new telecommunications world you are proposing?

I'm not sure why each area would end up with different services and standards. We know the requirements for the UFB - it's all carefully laid out by Crown Fibre and agreed to by the LFCs and Chorus.

If the LFCs/Chorus can find a supplier who meets those criteria, why would they not sign up with those providers rather than building over the top?

No need to have different service levels - that's a contractual requirement and if the fibre owner can't meet them, then it will lose the contract.

The LFCs have to offer fibre at $ 37.50. Given that the LFC has to record it in their system, negotiate a contract with the local provider, underwrite the Service Levels (unless the local company wants to underwrite these) and put the electronics on top, what price would you expect the local fibre company to sell it at?

I think you are vastly oversimplifying a very difficult and probably uneconomic concept. I have no idea how these fibre rollouts justified their investment but I seriously doubt they would want to invest (probably a lot) more money to make it UFB capable and then sell it at < $ 20 a month - which is probably what they would need to do to make it viable to a LFC

Again, so what? It doesn't matter what the LFC contracts say. Vodafone might be able to offer an even better deal, benefiting customers in wellington and Christchurch. The LFC contracts are designed to deliver political outcomes as much as anything else.

Chorus is over building because the govt is giving them a big interest free loan to do so. This is the reason so much effort is being made to lay fibre down streets but little interest in actually connecting homes & MDU's because that part is too hard & too expensive for them to figure out.

This is what I'm concerned about. Are we in effect providing a government subsidy to the biggest game in town and in doing so destroying competition?

Companies like InspireNet, The Loop and Unison Fibre have all done what we asked of them for the past decade - they've gone out and built it themselves. Now, it would appear, we will fund Chorus to roll over the top of them.

I'm not sure that was the intention but it certainly appears to be happening.