The real big game continues

Readers of this blog will remember the so called 'Copper Tax' campaign from the end of last year. Things may have seemed a little quite on that front lately, but behind the scenes there's quite a bit going on.

The latest skirmish to surface burst onto the scene with a press release from the Commerce Commission, then the story has started to grow, CallPlus have come out and shared their submission and the Telecom view is out there too.

Its interesting that the issue is seen as a Telecom [NZX: TEL] complaint to the commission as it is wider than that and pretty much involves everybody except Chorus [NZX: CNU] including InternetNZ, Consumer NZ & TUANZ.

At stake is the integrity of our regulatory system and the future of copper (DSL) based broadband in New Zealand along with quite a few global trends as well.

It's easy to get bogged down at this point in a veritable alphabet soup of 3 letter acronyms and deep interpretations of the Telco Act, so here's my 'idiots guide':

The current broadband regulations set up a service called 'UBA' or 'Unbundled Bitstream Access' which specifies the price and performance of the 'DSL' services that Chorus are required to provide to retailers (what we used to call Telco's and ISP's).

Chorus has had 3 years to get ready for a change from 'retail minus' to 'cost plus' pricing for this service. The Comcom has set a new price for UBA which will come into effect on 1 December 2014.

This 'interim' price is substantially lower than the current price and will punch a big hole in Chorus revenues. Chorus are understandably not happy about this and have been trying a number of strategies to reverse this situation. I won't go into all this now but its important to keep this in mind whenever you see anything about Chorus in the news.

In an attempt to use what they see as a 'get out of jail free' card, Chorus want to use a loophole in the act to launch some new copper services that because of their innovation and the investment involved are outside of the act and can be prices in binding contracts between Chorus and the individual retailers.

It is now well established that real 'killer app' for all forms of fast broadband is on-line video, it started with the growing popularity of YouTube and now extends to iTunes, Quickflix, Netflix etc and is the new battleground.

Telecom (soon to be Spark) have announced they are launching a service called 'Lightbox', CallPlus are going hard with their geoblock avoiding 'global mode' and of course Vodafone already have a strong relationship with SKY.

Google have recently certified a number of RSP's as being good enough to receive their 'HD Verified' status (remember who owns YouTube). Video is seen as driving future broadband demand and traffic growth.

So along come Chorus with a special video optimised service called 'Boost HD' which will be specially tailored to deliver 'HD' video content. Sounds great doesn't it? The hitch comes when the retailers get the details on HD and quickly learn that it will be priced like todays UBA services, that its performance will increase as investments in the core network come on-line (investments also necessary to meet growing UFB traffic) and because Chorus consider this to be a new and innovative service it would no longer fall under the Commerce Commission's oversight.

But wait there's more, Chorus are also proposing that their regulated legacy UBA services, the ones that get cheaper at 1 December and may get even cheaper after the current FPP (Final pricing Principle) process (which Chorus asked for) has been concluded, will essentially be frozen in time at current speeds and they won't enjoy the benefits of future network upgrades only the 'commercial' Boost HD services will.

From a Chorus perspective this all looks pretty good, dodge the regulatory bullet, preserve current copper revenues and get to sound like a player in the booming broadband video space.

However, from the retailers perspective it looks a bit different, they feel it is Chorus trying to abuse the act to in effect get them to 'contract out of the law', that Boost HD is simply a continuation of network upgrades that were planned back in Telecom days and that have been getting rolled out progressively anyway until now. And finally they see Chorus wanting to effectively degrade the regulated service that has actually worked remarkably well in improving the urban broadband experience for most New Zealanders.

At its root this issue comes down to money, Chorus want to restore their financial position and get back on track with their investors, this weeks CFH deal is part of that strategy as well. The retailers also want the best services at the lowest prices and see the current Comcom IPP & FPP processes delivering that.

The users groups, ourselves, InternetNZ & Consumer NZ want to see the savings passed onto the consumer and we are committed to preserving the integrity of our current regulatory system because it is actually working.

TUANZ has invested a lot of time and effort in getting the NZ telecommunications market to its current structure, we have a robust regulator and strong multi-stakeholder processes. Boost HD could see an end to all that and it would be a return to the dark old days.

This really is the big game in town.

Chris O'Connell is the interim of CEO of the Tuanz, the Telecommunications Users Association of New Zealand and the director of Strategy for XandAR