With new fibre plans, Chorus breaks free from regulation — and puts local fibre companies in a tricky spot
Market and equity analysts have reacted positively to Chorus' [NZX: CNU] new fibre and copper plans, revealed yesteday (the new wholesale fibre plans will be available to ISPs from July, the new copper plans from September).
"Essentially it appears Chorus is trying to take back the initiative – after a lot of recent regulator intervention – and move to a framework of commercial rather than regulated products," says IDC.
The immediately obvious benefit for Chorus investors is that the company is nudging up the price of its entry-level, most popular UFB product (30Mbit/s for $37.50/month). The new entry-level service will be a 100Mbit/s service wholesaled for $40 a month, with that monthly price increasing by $1 a year until 2020. 200Mbit/s plans are also being introduced.
But the really important bit is that once it moves beyond 100Mbit/s, Chorus moves into unregulated territory.
As we've all become keenly aware, Chorus' copper products are regulated up the wazoo. And copper broadband will remain tightly regulated — the only question is how much and whether the government succeeds in its ambition to lean on the Commerce Commission to prop up Chorus' regulated rates.
But fibre is a different story. Government-owned Crown Fibre Holdings-negotiated template pricing in its contact pricing does not, for the most part, cover the new faster plans.
Chorus holds the lion’s share of the UFB contract – nearly 80% of it by premise. (NBR has previously contacted the other contract holders – Northpower in Whangarei, Enable in Christchurch and Ultrafast Fibre in Tauranga, Hamilton, New Plymouth and Whanganui. All said they also had plans to ramp up their UFB offerings beyond 100Mbit/s, but none offered any specifics. I've been back in contact today and am awaiting updates).
Crown Fibre Holdings strategy director Rohan MacMahon earlier told NBR, “Contracted products and prices go all the way up to 10Gbit/s (10,000Mbit/s), but only for ‘point-to-point’ direct fibre services.”
Point-to-point is the operative phrase here.
“Point-to-Point services are intended for high end corporate customers and data centres,” Mr MacMahon says.
Residential and small-to-medium business customers are on a cheaper GPON setup (in simple terms, one fibre shared across a number of premises, leading to some contention or congestion of bandwidth, although contractually obligated minimum bandwidth levels make it not nearly as bad as the contention most of us suffer with copper/ADSL broadband most of us use today).
The Crown Fibre Holdings contracted products and pricing only cover point-to-point connections above 100Mbit/s, Mr MacMahon confirms.
With GPON – that is, the vast majority of connections above 100Mbit/s – Chorus is free to set its own pricing.
Of course, Chorus' financial fate still weighs heavily on the Commerce Commission's Final Pricing Principles (FPP) review of its decision to slash the regulated price of copper (which the government and Chorus say will wipe $1 billion from Chorus' ebitda through 2020, hampering its efforts to use copper revenue to fund the UFB fibre rollout).
I won't relitigate that debate here. But I will agree with Mr Wise that it's good to see Chorus taking a positive initiative (with, one suspects, some nudging from Crown Fibre Holdings and the government behiind the scenes).
"Chorus is also playing a long term game – it hasn't invoked the 'nuclear' option of choking back existing wholesale copper plans [to the minimum contractually-required speed, which is dialup-like]," Mr Wise says.
"Instead they're offering higher-spec fibre plans and presumably looking to make more money, more quickly (but over a long period) from a fast migration to higher-performing fibre plans.
A challenge for ISPs
The IDC analyst adds, "Overall, I think it's a positive move for Chorus, provides a greater range of wholesale products at a time when the RSP's [retail ISPs] have very similar offers in the market.
Chorus' new emphasis on being able to provide video fits in with the trend of increased data usage and the move to unlimited plans, Mr Wise says.
"RSP's have been wanting to be able to differentiate their offerings and now they'll be able to. It will be really interesting to see how RSP's react to the plans.
"One challenge for the RSP's is that, with a greater range of plans, it may lead to more complicated retail plans and further market education requirements. Operators wanting to offer a 100/100 [full speed up and down] plan may find it difficult to differentiate it from a 100/20 plan if the marketing and public perception is all about headline 100Mbit/s download speed)."
Undercutting the LFCs
It will also be interesting to see the other local fibre companies' reactions, Mr Wise says. (The LFCs, or local fibre companies, being NorthPower, Enable and Ultrafast Fibre), Mr Wise says.
"These new commercial fibre plans essentially undercut the price set within the LFC contracts with Crown Fibre Holdings."
An RSP won't want to be buying a 100/50 plan from Chorus for $45 but be paying $55 for the same plan from the other LFCs.
"So if RSP's like Telecom and Vodafone take up the new Chorus fibre plans I'd expect RSPs to put pressure on other LFCs to match these Chorus plans so that they can offer the same proposition nationally."
The three LFCs did not immediately reply to NBR's queries. [UPDATE: Enable spokesman Daniel Herd tells NBR, "We will be introducing a 200Mbit/s download residential GPON product in the next few months. The exact date for launch is still to be finalised." Enable holds the UFB contract for Christchurch. Ultrafast Fibre CEO Maxine Elliott says "UFF is currently in the process of finalising it’s product roadmap for the next 12 months as part of our Business planning process. We are not yet in the position to share it." Ultrafast Fibre — aka lines company Wel Networks — holds the UFB contracts for Tauranga, Hamilton and several central and lower North Island towns.]
Devil in the detail
Like IDC, Internet NZ is broadly positive about Chorus' new plans — particularly two new premium copper broadband products, Boost DSL (billed as good enough for high definition move streaming) and Boost VDSL.
But he warns that “As always with these things, the devil is in the detail .... While we welcome the new fibre products, we will check whether the new commercial copper services in fact provide better services or if they are a way in which Chorus can increase its prices for largely the same existing services."