Vodafone, Orcon slam ComCom ruling on Telecom cabinets
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Today, the Commerce Commission announced the price that competitors will have to pay to put their own broadband gear inside Telecom’s roadside cabinets. Vodafone and Orcon are up in arms, saying the commission has set them up to “lose money hand over fist”.
Telecom’s Chorus division is around 20% though a roll-out that will see 3600 roadside cabinets deployed nationwide by 2011 - as mandated by the telco’s obligations under the Telecommunications Act. Each cabinet serves up to 330 households.
Chorus has told NBR that each cabinet, assembled in Christchurch, costs around $145,000 to construct and connect.
Each cabinet brings fibre close from a phone exchange to your home, shortening the distance occupied by inferior copper lines. Taken together, cabinets will serve around half the market by the end of the roll-out.
Orcon and Vodafone have previously complained to NBR, bitterly, that Telecom has not left enough space inside the so-called Whisper cabinets for them to install enough of their own DSL switching gear to make their service economic - and that the Commerce Commission’s draft pricing on the rental they would have to pay Telecom Wholesale for the privilege made the costs prohibitive in any case.
Today, the commission delivered its final determination on the price Telecom can charge competitors to access its Whisper cabinets (so-called “sub-loop unbundling”; the little brother of the already established “local loop unbundling”, whereby competitors can install their own gear at Telecom’s phone exchanges).
Ten times the draft price
In a broad attack on the commission’s ruling, Vodafone says the watchdog’s final cabinet back-haul pricing is 10 times that indicated in its draft determination, and that co-location (the monthly rental for putting your own DSL gear inside a cabinet) is 50% more than the draft.
Vodafone’s General Manager Corporate Affairs, Tom Chignell, says the decision will make it almost impossible to make a business case to unbundle all but a few cabinets.
“No one is going to provide competition if it means losing money hand over fist, after paying Telecom. This is before any of our own costs such as backhaul, cabinet equipment and marketing and support costs are considered.
“An access seeker with a 10% market share of an average cabinet would pay Telecom $184 per customer per month, excluding set up costs.
“In contrast, an access seeker at an average exchange would pay Telecom around $22 per customer per month, which is almost unchanging across a range of market shares.
“The decision also cripples the wholesale market. For Vodafone to compete in the wholesale bitstream market, it would need to pay up to $184 per month to onsell a service to compete with Telecom Wholesale’s service which costs $47 per month.”
The commission’s pricing
In its determination, the commission says that the cost of co-locating gear will be decided on a cabinet-by-cabinet basis. It puts the cost of running each cabinet at $972 a month, and says that each party should pay a share of that cost based on the proportion of space it occupies.
Access to Telecom’s own gear in the sub-loop, via Telecom Wholesale, will cost other providers $11.99 per line in urban areas and $22.14 in non-urban areas.
In terms of backhaul, the commission determined that “the monthly rental to be paid by each party for sub-loop backhaul service will be calculated based on the proportion of active fibres between the telephone exchange and the roadside cabinet it is using, plus the cost of Telecom equipment at the telephone exchange. The average cost of fib re links is $1,911 per month in urban area and $3,197 per month in non urban areas.” By contrast, the commission puts the cost of active equipment a phone exchange at $430 a month.
"Competitors priced out of the game"
New Zealand broadband consumers have been let down by the Commerce Commission determination announced today, according to Orcon CEO Scott Bartlett.
“The commission has failed to protect the interests of consumers, instead opting for a pricing structure that inevitably will lead to market domination by one player.
“The commission’s decision not only prices Telecom competitors out of the game it also lacks any alternatives for continued investment in local loop unbundling, taking us back to the ‘bad old days’.
“All of the improvements in broadband price, speed and service Kiwi consumers have benefited from during the past two years have been as a result of competition brought about by unbundling. Those days may be coming to an end.
In its determination, the commission acknowledges that its cabinet costs are 26% higher than the equivalent charges for accessing a Telecom phone exchange, but that sub-loop services will offer higher value to customers. Because cabinets reduce the length of copper between a home and an exchange, broadband speeds should be faster.
However, Mr Bartlett has argued that it is faster and easier to connect a new customer to a cabinet than a tangled, aging phone exchange, so wholesale access pricing should be cheaper.
More, that given the current economic environment, customers are not of a mind to pay more for higher value services (which in Telecom’s case will include VDSL2, a turbocharged version of ADSL2+).
“With this determination, any player would need between 25% and 30% market share to engage in sub-loop unbundling. That’s about as much as the entire non-Telecom industry players combined.”
Orcon: sweetheart deals for those who don't try to unbundle
Mr Bartlett alleges that providers that haven't installed their own gear in Telecom exchanges, such as Woosh and Slingshot, have been offered sweeter wholesale deals.
“In determining prices, the commission has failed to factor in the Telecom “Loyalty” offers. These offers clearly demonstrate that Telecom’s costs aren’t as high as they say they are. Because Orcon led the unbundling of the local loop, the so-called loyalty offers have been structured in such a way as to prevent us from taking advantage of them. This is a blatant breach of the separation undertakings."
Unusually - and in a reflection of the fraught nature of the debate - Telecommunciations Users Association chief executive Ernie Newman was taciturn in his comment to NBR:
"The Comcom has had a hard job on this - cabinets and unbundling are not easy bedfellows, especially when local loop unbundling was left so late," said the Tuanz boss.
A spokesman for Telecom said the company is still digesting the ruling, and has no comment.
Telecom shares (NZX: TEL) ended the day up nine cents.
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Comments and questions21
Yet more proof that the ComCom & Telecom are still in bed with each other - the ComCom is the least independent Government department I have ever had the displeasure of knowing.
Nothing much has changed - Telecom remains the monopoly.
I thought the Commerce Commission was supposed to promote competition? Yet it not only lets Telecom get away with cabinetising, it actually goes out of its way to help lock out alternate providers?
One size does not fit all, CC.
Look at the things that have changed in fixed line since Orcon and Vodafone have come on board - cheaper broadband, increased uptake of broadband services, more flexibility in the form of added data, faster speeds and VDSL2 deployment, something Telecom didn't want to do at all until its competitors announced they'd be doing it.
All that is being undone by the CC's decision.
Where's the ability to challenge these rulings? Where's the legal review? Where's the peer review? What does it cost in Australia or the UK to deliver these services?
How can the CC believe it will cost a quarter more to connect someone at a cabinet than it does at the exchange? The exchanges are old and out of date, the cabinet is brand new?
this is just plain wrong, Commerce Commission. I hope the govt rejects its recommendation.
Yet again we have the moaning about telecom pricing.
In the disguise of concern about "competition" commentators seem to expect that those competitors well able to build there own infrastructure should somehow get cheap access to Telecom's private property for their own benefit.Please remember that telecom is NOT a Government department nor a charity. It was sold long ago to private shareholders who are now being disadvantaged by the changing of the rules.If it is so cheap to qwn and operate these cabinets then the likes of Vodaphone should build their own.
The other ISPs need to stop leeching off Telecom and develop their own networks. Only then will we be free from the tyrrany of Telecom's local loop.
Hope someone does not get pissed off and start burning more of these things!
re: winegrower and bryan... do you really think there's enough of a market for telcos to lay their own networks down over building each other in New Zealand? Four million people does not equal a large enough customer base.
The telcos know this. The government knows this. Why do you think it's now pushing the fibre network build?
It's like asking trucking companies to build their own roads to your house just so they can deliver the morning paper to you. It's not efficient.
The only hope now is for the Minister to say "can do better" and send the recommendation back to the Commission for a rethink.
When those Wimax frequencies were auctioned off cheaply about 18 months ago we had a few companies come out and say that they were going to invest and roll out networks. In what century is this going to happen.?
it puzzles me that vodafone and orcon should expect telecom to provide space for them in the cabinets, what happens if telecom wants to put additional equipment in the future ,no space , vodafone and orcon should get together and put their own network in and stop whineing so much.
Have you any idea how much it would cost the comparatively small telcos to do so?
s you rightly point out it is inefficient ( read expensive) to set up a new infrastructure. That is why it is expensive to use someones existing property. They paid for it.do not steal it in the name of "competition"
It's at least $1900 per cabinet just for backhaul to the network. Plus you have to pay $180/month for the cabinet plus rack space inside the cabinet at around $900/month times the number of racks occupied plus set up costs...
Each customer will cost the ISP far more than they would pay to buy that customer's service through Telecom Wholesale. It's completely uneconomic and doesn't reflect the real cost of providing service to that customer whatsoever. It's a very clever move on Telecom's part to convince the CC that its costs are so high.
This, combined with Telecom's new "wholesale loyalty discount" which is nothing more than a move to price retail below wholesale prices means that in five years time there will be one telco providing broadband in NZ and that will be Telecom.
Remember these cabinets cost $145,000 each to construct and install. Telecom chief executive Paul Reynolds has described cabinetisation as the largest telco infrastructure project currently underway across Australia or New Zealand. Replicating cabinets would be senseless.
You should stick to Winemaking.
Telecom would have benefitted from having Access Seekers (like Vodafone & Orcon) installing their equipment in Telecom's exchanges, due to costs that have been mentioned in this article & I'm sure they would have made a very tidy profit too!!
However, unfortunately - due to the excessively overpriced Final Determination - no telco in their right mind would install their equipment - because it's simply not viable for them to do so.
The New Zealand market is just far too small for another telco to invest in an alternative network & you NEED to realise that - using what is already there is the best way - but only if it's at a reasonable & viable price - of which - clearly - this decision by the ComCom is not.
Telecom would have worked very hard behind the scenes to ensure the ComCom released a pricing structure to satisfy THEIR demands I am certain.
The same old Telecom - doing the same old tricks yet again, sadly NOTHING has changed in New Zealand & this decision leaves little hope of any future benefits for consumers in general, in my opinion.
Read the Media Release from Vodafone for more important information about todays stupid decision here:
http://forum.vodafone.co.nz/index.php?showtopic=2753&pid=21837&st=0&#entry21837
Also, this Media Release from Orcon:
http://www.orcon.net.nz/about/article/orcon_comcom_broadband_decision_fails_consumers
What a sad day indeed for New Zealand Broadband, what a sad lost opportunity.
ComCom - Stop sucking up to Telecom & think about your decisions - your job is to promote competition & act independently - NOT stifle competition & suck up to Telecon!!!
Telecom used to be a SOE so am I right in saying they didnt build the entire network from scratch? As a competitor would have to do?
Anyway as per the road analogy, you cant expect companies to build entire new networks. Imagine if every power company had to build new lines to your house if you wanted a different provider. It would never happen.
Can people please stop saying "they should build their own" cabinets. They are NOT allowed to. The RMA does not allow more cabinets to be built. heck, they cannot even extend the size of the existing ones!!!
What about that eh...
Thank you, I will stick to winemaking and also have an opinion on this matter. However I fail to see the logic in the arguement that Telecom would have benefited by having competition using there property at a cheaper cost. Perhaps G is for Gormless?
Winemaker - show me where Telecom stand to lose any money on this announcement - go on - show us all the proof.
Fact is - there is none. Telecom WILL make money & that is clearly documented in this article & also by Vodafones & Orcon's Media Releases.
Sure - you are entitled to your own opinion - the thing is - no one else agrees with you.
Cheers.
Its got nothing to do with making it better for Telecom, its about making it better for the rest of NZ! Imagine where we would be if there was only 1 petrol company, and if a competitor wanted to resell, it would cost them 26% more..
The 26% figure mentioned - is an *average* & it's important to realise that each cabinet is priced out on a case by case basis, as per the determination.
Good point Anon - when all is said & done - take the companies & their fan boys out of the equation altogether & get back to basics....what IS the most important thing?
It is what is best for New Zealand - not some greedy Telco.
Commerce Commission- I have been paying close attention to your organization and its actions in the past weeks, since discovering via my own complaint that you are in fact completely useless.
The ruling on Telecom was nothing short of pathetic, not to mention 7 years late- did you think people would eat it up because it was a "record" amount?
Your new ruling on transfer fees is also truely pathetic- it took you 10 years to figure out that the Telcos where charging 150 times too much for text messages and still no penalties or mandatory reduced prices? Truely dumbfounding.
I have never been the type to be satisfied with meaningless jobs in nice offices under boses with unclear agendas, often bad odor & extensive relationship & drinking problems (no offense meant to any newspaper staff :) - I did try at various times but always found those environments painfully septic. I much prefer to get on with things and try to actually achieve something. I could almost feel sorry for the both of you, except you are wasting tax payers money (bludging). I reiterate that you should do the honorable thing- resign and go on the dole until you find something with some purpose that doesn't burden other tax payers.
The chatter on how pathetic some people perceive you guys to be is increasing you might notice- and I am encouraging that also- as promised. You guys need a bit of a rocket of public opinion up your sorry behinds (starting with your CEO and then coming back to the negligent job you did on my complaint- which will involve you both directly). Your agenda should be to stop these large companies ripping everyone off- but it takes you 10 years to make a decision on the blindingly obvious , then you fine them half what they made anyway with no punitive damages for loss to the economy and to insure it doesn't happen again. You are the pioneers of a sub -industry of pathetic self obsessed commercial lawyers and senior managers meeting in gym changing rooms and golf clubrooms to discuss how best to put you off for 10 years. Soft/ pathetic. Nothing is done.
Your organization appears to be very corrupt and obviously even a little corruption is not acceptable. I have no doubt that this smell of corruption extends right though into our elected Government and has a lot to do with who has sold out to who- I'm not sure how much we can dig into all that but something needs to be done about you guys (the ComCom) first and fast.
I can't say what I would do if I were you- stay there and be useless and ashamed I guess- thats the type of people who seek those positions typically.
If there is any chance either of you could grow some balls and go do something with purpose then I encourage you to do so - on a personal level.
Kim McLeod from AJ Park Ltd was the rather useless lawyer who worked for NZG on their false/misleading and anti-competitive law suit that I presented to you and you ignored- if you Google his name now you get an idea of what I mean by chatter. In fact I would presume he will be either planning to leave the Country soon, or will just have to specialise in the sex industry from now on (defending escorts copyright or some such) . He really was useless however (if one goes on the outcome of his $15,000 effort for his client) and he seemed to have a history of aiding large companies harrass much smaller competition (such as your friends at Telecom) . This is similar to you guys I guess, in that you get to dress nice and sit in a nice office all day, but you are actually non-productive and just a drain on the economy (this is only my opinion of course- a waste of resources and space).
Monopolies who overprice, the sometimes rather brainless lawyers who work for them, any politicians who are in their pockets, and any Government agency that allows all this to go on- are all just a dead weight loss to the economy and other tax payers- simply because a few at the top are greedy, selfish and dishonest. Again- rather revolting and totally unaccetable.
The approach with you guys will be slightly better thought out and will use formal media avenues (he was leading a case about the sex industry so obviously his name is now associated with that industry -rather extensively).
If you have any skills at all and any pride- I strongly suggest you look for another organization to work for - one without such obvious false agendas.
You are supposed to be working for tax payers- go drive a bus and at least have the chance of some pride in what you do.
Yours etc
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