7 mins to read

We need to have a talk about broadband: We’re doing it wrong

Ian Apperley
Mon, 13 Jan 2014

At the Consumer Electronics Show (CES) over the last week we saw the emergence of the first cheap ultra high definition or "4K" televisions ($1000 a piece). These are the new breed of HD with about four times the resolution of your current HD. You also need between ten and fifteen times more broadband to drive downloads. A standard HD movie today is up to 10GB and 4K will push that to well over 100GB.

New OECD figures for broadband usage have come out recently and its fair to say that New Zealand is not getting it right.

The good news is that we’ve moved up slightly in terms of penetration. The bad news is that the penetration level is still relatively low. We grew by less than 3% over the past twelve months.

Our download average speed is 25% less than the average and puts us near the bottom of the league in 22nd place. It is still appalling slow and with the wave of content and enhanced data that is coming, its not going to be enough.

In terms of fibre connections, we are fourth from the bottom with barely 1% of our broadband connections falling into this category, by comparison, Japan sits at a whopping 68.5%.

Watch for this stat in the next week as the government reacts to the negative publicity around lack of growth. You’ll see them saying that we are fifth fastest growing fibre country. Of course, when you match that against the stat above, less than 1% of fibre penetration, you can understand why.

When it comes to pricing, it is my opinion, that we continue to be price gouged by all broadband providers and this is reflected in the fact that out of all OECD nations we are one of the only three that still have broadband data caps and we are the seventh most expensive overall.

All of that translates to slow adoption of broadband, very low fibre penetration, slow download speeds, onerous data caps, and a very high price for that poor service.

Couple that with the fact that data for (Cloud) is expect to increase sevenfold in the next twenty-four months, home usage is expect to double year on year, and high content (4K), has arrived and we have a traffic jam of epic proportions about to occur, right when we are on the edge of great growth of ICT as an export item.

We need to do something about this, and quickly. Because what we are doing now is inadequate, and wrong. We’re leading ourselves into a fail situation.

Part of the problem is that we’ve thrown, psychologically at least, all our eggs into the Chorus basket. Putting aside last year’s tribulations and tantrums on their part, its my opinion that the fiddling around by government in this market and their close “relationship” (autocratic friendship) is causing half the problems. The other half of the problem, that we don’t want to accept yet, is that maybe it is the right thing to let it “go nuclear” as Chris Keall has suggested:

“One option, from Chorus standpoint, is to reduce copper broadband levels to its the minimum contacturally-required speed – which is actually a super-sluggish, barely-usuable 32Kbit/s (that is, the sort of bandwidth you got in the dial-up era). 

ISPs would have to pay extra for decent copper broadband speed – and in turn would pass that cost on to customers. This “nuclear option” is a back-door way for Chorus to immediately reverse the Commerce Commission-mandated 18% wholesale price cut when it kicks in December.”

Let’s face it, the last couple of years have seen a very low installation rate (at this rate it will take generations before we see full fibre deployment), a fight over who is going to pay for the connection from street to house (still unresolved), and a very very slow uptake rate.

Now, after being smacked last year for potential overpricing, Chorus threw its toys out of the cot and behaved very badly for what is meant to be a professional, listed, core business of New Zealand Inc.

No bouquets from Telecom and Vodafone, who own 79% of the market between them, with both of them yet to state whether they will pass on savings to consumers from the Commerce Commission report. Why would they? We’re already seventh most expensive in the OECD, these guys are using wheelbarrows to transfer the money into their coffers.

So what to do? Shall we call in the Government CIO to fix it? Oh dear god please no. Until central government wakes up to the fact that that function needs to be split into its own department (GICT), they are just going to be chasing their tails. Creating a Government ICT department would be a good start for a range of issues.

The Chorus, Telecom, and Vodafone business models are the problem, and the good news is that they aren’t sustainable. The question is, will they collapse and allow new business ventures delivering broadband to come through before we hit Auckland and Wellington like broadband traffic jams?

The old business model of selling a service at an over-inflated price, crushing your costs (and staff) down as low as possible, selling off and owning and few assets, taking that huge profit and lining several layers of management pockets with “bonuses” and throwing the shareholders the rest are over. Chorus, Telecom, and Vodafone know this, but right now, they are mainlining the profit and effectively dominate the entire market. Can they get out of their addiction before it kills them? Who can say.

What if Chorus adopted a different business model? Something like this:

  • Give the middle finger to the entire UFB project and put it into contract mode. Deliver what they have too, but make it a subsidiary department or business unit and just trickle feed it. It’s a mess, it makes no economic sense to keep investing in a risky project this size. It proves a point and it may force a change in government approach.
  • Focus on building end point solutions for fibre backhaul. For example, wireless is already outstripping fibre speed. When you look at the suburbs around Wellington and Christchurch in particular, dropping end point high speed wireless into the middle of a suburb working with local Councils makes huge sense.
  • Get rid of the old Telecom ethos that they’ve inherited. The same processes, systems, and potentially people will be leading them to recreate the old Telecom model. Even if they do, they can’t win that fight. Telecom has moved on from it and will dominate them.
  • For god’s sake get some innovation going. There are a bunch of technologies out there that could supplement fibre, in fact, fibre is just one of a range of broadband and backbone technologies. Smart grid, wireless, fast copper, and other technologies are already ahead of UFB. Start thinking about how to use and sell them.
  • Diversify.
  • Smash the company into a group of companies, cells if you like, allow each to succeed or fail on their own merits with their own ethos and their own ideas and innovation. Companies that are successful today are small not monolithic creatures with the inability to change and adapt quickly. Small companies can change overnight, the monoliths need governance structures, project offices, architects, three layers of management, red tape for the sake of it, and can take years to deliver the most simple products.
  • Get closer to local Councils. A lot of them are starting to understand that broadband is critical to the community and are ready to work with telcos in a new way.

The point is, that unless Chorus changes its business model completely, it might as well take the nuclear option and shut down because it will never compete with Telecom and Vodafone on their playing field. It needs to get government’s hands off the back of its neck as well, somehow.

Overseas models are showing that broadband is basically being treated as a human right, will be free, and is open to some interesting innovation.

Google has started down the fibre path as an example, offering a free, basic, broadband connection in some U.S. cities with layered content.

So for a $300 connection fe, you get free broadband, no cap, with a 5Mb download and 1Mb upload. Enough for a lot of people.

For $70 a month, you get a 1GB download and upload speed with no data cap.

For $120 a month, you get 1GB download, upload, and 150HD television channels, and still no data cap.

Now, I pay $100 a month for Vodafone cable, which gives me 130Mbit/s down, 10Mbit/s up, and 150GB cap. If I add Sky TV to that, say another $100, I’m paying $200 for broadband and TV, that against Google Fibre, is twice as expensive and about 10% of the service.

Whatever the answer is, its change, and its not just simple change, its radical change. This current business model that supports large, unwieldy, slow to adapt telco’s is going to leave New Zealand in a technical backwater with traffic jams of note. Already we see the advertised rate of broadband against the actual rate tested slipping. I.e. It’s starting to get congested.

Secondly, the government needs to treat broadband as a) the same as national roads of significance and b) understand that its not just about UFB. Basically, they need to understand that the service is the same as all forms of transport and roading, and that UFB will only answer some of that need.

Lastly, someone needs to break the monopoly on the international cable. It’s just money for jam at the moment and its holding us back.

Otherwise we’ll all need to move to Japan.

Ian Apperley is an independent cloud computing consultant. He posts at WHATISITWELLINGTON.

Ian Apperley
Mon, 13 Jan 2014
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We need to have a talk about broadband: We’re doing it wrong