What if broadband had not become a political carrot in the last election and National had not promised to invest $1.5 billion on a fibre to the home network?
The Ultra Fast Broadband initiative (UFB) is already having a major influence on the industry and not one cable has been laid - the most dramatic effect is Telecom’s share price dipping below $2. So what would New Zealand telecommunications look like if the government had not interfered?
Sunday, May 30, 2010
Telecom New Zealand Speculation
Speculation rose in New Zealand about the future of the incumbent, Telecom NZ. CEO Paul Reynolds has proposed some radical scenarios in response to the government’s Ultra-Fast Broadband Initiative (UFB). A structural separation of the company’s wholesale and retail divisions was suggested in order for Telecom NZ to be able to take part in the UFB tender process.
In early 2009, the government launched the UFB plan with a fund of NZD 1.5 billion to build broadband in New Zealand. The plan aimed to connect 75 percent of homes in 25 cities to fibre within six years. The plan was further developed in March 2009 with the establishment of the Crown Fibre Investment Company (CFIC), which is looking for co-investors in the 25 Local Fibre Companies (LFC) project. These investors are being asked to invest 1.5 billion NZ dollars. Principles of the network include: wholesale only (no ISP role) and open access for service providers. In September 2009, more elaborations to the plan came on board, as well as some delays. The goal now is to provide 75 percent of the population with at least 100 Mbps by 2020. Meanwhile, several parties have responded to the tender, including a Canadian combined Axia NetMedia as well as Vodafone NZ. The winner is expected to be announced in late June.
Telecom NZ has, just like Telstra in Australia, been placed in a tough spot with the government plan: to participate or compete? Incorporating Telecom NZ’s infrastructure is a foregone conclusion, but the government has set an inflexible demand: 'wholesale only', leading to Telecom NZ 'voluntarily' suggesting a possible structural separation. This would be a step beyond the existing functional separation of retail, wholesale and network. The question now is whether retail should be separated from the rest (wholesale + network), or whether the network (Chorus) should be sold off. But Paul Reynolds, formerly of BT Wholesale, has also left open the option of competing with full UFB and not participating in the tender process.
It is clear that the government has put Telecom NZ before a difficult choice. Competing with public funds is generally difficult, especially if FTTP or FTTH (premise or home) is pitted against FTTC or FTTN (node or cabinet, with VDSL from there to the subscriber). Structural separation is considered by most telecommunications companies as a negative. The cost and risks are considerably high and companies lose the existing synergies from vertical integration, something that Paul Reynolds has explicitly explained. Shareholders are also wondering about those costs and risks, judging by the recent stock price plunge - which also takes into account the debacle in the mobile market with the difficulties encountered by Telecom Nz and Alcatel-Lucent in the rollout of a 3G network.Vodafone, also interested in FTTH, would see its market share improve.
It is clear that the benefits of structural separation have been ignored. First, a market inequality is removed because the incumbent is no longer the only one to enjoy the advantages of vertical integration and cross-subsidisation. Secondly, it is difficult to compete with your customer and that iss exactly what is going on between the retail and wholesale division. Some telecom companies are very clear when explaining this disadvantage, such as Bouwfonds in the Netherlands, which through CIFpurchased the CAIW infrastructure. CIF categorically refuses to take on the role of service provider. Axia NetMedia also subscribes to this view. Many telecom companies do not want to go beyond functional separation, with additional wholesale revenues due to open access obligations remaining with the incumbent. Moreover there are also good margins to be made (KPN wholesale roughly has double the margins of KPN retail).
The government is taking a clear stand and Telecom NZ is being forced to bend (structural separation) or bust (compete with UFB). This problem is worldwide, but is especially topical in New Zealand, Italy and Australia (see earlier commentaries “Telecom Italia 'forces' competition into FTTH initiative"). The consumer is the real winner here, because competition will increase anyway. And that is exactly what every government and regulator wants.
In early 2009, the government launched the UFB plan with a fund of NZD 1.5 billion to build broadband in New Zealand. The plan aimed to connect 75 percent of homes in 25 cities to fibre within six years. The plan was further developed in March 2009 with the establishment of the Crown Fibre Investment Company (CFIC), which is looking for co-investors in the 25 Local Fibre Companies (LFC) project. These investors are being asked to invest 1.5 billion NZ dollars. Principles of the network include: wholesale only (no ISP role) and open access for service providers. In September 2009, more elaborations to the plan came on board, as well as some delays. The goal now is to provide 75 percent of the population with at least 100 Mbps by 2020. Meanwhile, several parties have responded to the tender, including a Canadian combined Axia NetMedia as well as Vodafone NZ. The winner is expected to be announced in late June.
Telecom NZ has, just like Telstra in Australia, been placed in a tough spot with the government plan: to participate or compete? Incorporating Telecom NZ’s infrastructure is a foregone conclusion, but the government has set an inflexible demand: 'wholesale only', leading to Telecom NZ 'voluntarily' suggesting a possible structural separation. This would be a step beyond the existing functional separation of retail, wholesale and network. The question now is whether retail should be separated from the rest (wholesale + network), or whether the network (Chorus) should be sold off. But Paul Reynolds, formerly of BT Wholesale, has also left open the option of competing with full UFB and not participating in the tender process.
It is clear that the government has put Telecom NZ before a difficult choice. Competing with public funds is generally difficult, especially if FTTP or FTTH (premise or home) is pitted against FTTC or FTTN (node or cabinet, with VDSL from there to the subscriber). Structural separation is considered by most telecommunications companies as a negative. The cost and risks are considerably high and companies lose the existing synergies from vertical integration, something that Paul Reynolds has explicitly explained. Shareholders are also wondering about those costs and risks, judging by the recent stock price plunge - which also takes into account the debacle in the mobile market with the difficulties encountered by Telecom Nz and Alcatel-Lucent in the rollout of a 3G network.Vodafone, also interested in FTTH, would see its market share improve.
It is clear that the benefits of structural separation have been ignored. First, a market inequality is removed because the incumbent is no longer the only one to enjoy the advantages of vertical integration and cross-subsidisation. Secondly, it is difficult to compete with your customer and that iss exactly what is going on between the retail and wholesale division. Some telecom companies are very clear when explaining this disadvantage, such as Bouwfonds in the Netherlands, which through CIFpurchased the CAIW infrastructure. CIF categorically refuses to take on the role of service provider. Axia NetMedia also subscribes to this view. Many telecom companies do not want to go beyond functional separation, with additional wholesale revenues due to open access obligations remaining with the incumbent. Moreover there are also good margins to be made (KPN wholesale roughly has double the margins of KPN retail).
The government is taking a clear stand and Telecom NZ is being forced to bend (structural separation) or bust (compete with UFB). This problem is worldwide, but is especially topical in New Zealand, Italy and Australia (see earlier commentaries “Telecom Italia 'forces' competition into FTTH initiative"). The consumer is the real winner here, because competition will increase anyway. And that is exactly what every government and regulator wants.
Wednesday, May 26, 2010
States busy preparing for NBN benefits
State-level NBN preparations are moving ahead at full tilt, with Victoria and New South Wales seeing a very real hunger for the high-speed connectivity promised by the project – and well into the process of laying the groundwork.
Speaking at the CeBit Australia conference in Sydney, NSW NBN Taskforce chair Peter Duncan (right) and Victorian Science and Technology director Matthew Dummett expanded on some of the NBN preparatory work going on in their respective states, and underlined the “pent-up demand” for the new network. “We’re acutely aware the government needs to lead the way in making engagement happen – waiting until the network is constructed is not an option,” said Duncan. “We need to act early and strategically, and that is what we’re doing.” He said that the NSW taskforce, which also includes CSIRO’s Dr. Alex Zelinksy, NICTA’s Dr. Terry Percival, and ATUG MD Rosemary Sinclair, was currently focused on:
• working with NBN Co to maximise benefits for the state economy
• providing applications development and training
• ensuring the planning process supports a speedy rollout
• leveraging state-owned land to help the rollout
• working for a priority rollout in NSW.
Duncan also revealed that the NSW Taskforce has completed a comprehensive audit of existing energy, road and rail assets in NSW that could be used to boost the NBN rollout – something that
McKinsey and KPMG actually drew upon in the NBN implementation study. And he added that the state was considering trialling solutions to the challenge of fibering multi-dwelling units.
Victoria is also busily forging ahead with NBN preparations. Dummett forecast that demand for NBNgrade superfast broadband would soon outstrip supply, leading to an unmet demand for the fastest broadband options – with the level of unmet demand for these services already estimated at around 220,000 customers, about 14% of the market. “That is the pent-up demand for fast broadband in Victoria. And it certainly makes some of the assumptions in the implementation study look conservative!” he said.
The state has commissioned a new set of reports reports from Gibson Quai and Access Economics tracking broadband uptake, to provide in-depth analysis and forecasting into the NBN future. Meanwhile, said Dummett, it is continuing to lay NBN groundwork via its VicFibreLINKS protected fibre optic backbone infrastructure project; the A$20 million Innovation Investment Fund, tipped to help drive the adoption of broadband-based applications; and evidence-based research to help get local policy settings to support the network.
Petroc Wilton, CommsDay
Speaking at the CeBit Australia conference in Sydney, NSW NBN Taskforce chair Peter Duncan (right) and Victorian Science and Technology director Matthew Dummett expanded on some of the NBN preparatory work going on in their respective states, and underlined the “pent-up demand” for the new network. “We’re acutely aware the government needs to lead the way in making engagement happen – waiting until the network is constructed is not an option,” said Duncan. “We need to act early and strategically, and that is what we’re doing.” He said that the NSW taskforce, which also includes CSIRO’s Dr. Alex Zelinksy, NICTA’s Dr. Terry Percival, and ATUG MD Rosemary Sinclair, was currently focused on:
• working with NBN Co to maximise benefits for the state economy
• providing applications development and training
• ensuring the planning process supports a speedy rollout
• leveraging state-owned land to help the rollout
• working for a priority rollout in NSW.
Duncan also revealed that the NSW Taskforce has completed a comprehensive audit of existing energy, road and rail assets in NSW that could be used to boost the NBN rollout – something that
McKinsey and KPMG actually drew upon in the NBN implementation study. And he added that the state was considering trialling solutions to the challenge of fibering multi-dwelling units.
Victoria is also busily forging ahead with NBN preparations. Dummett forecast that demand for NBNgrade superfast broadband would soon outstrip supply, leading to an unmet demand for the fastest broadband options – with the level of unmet demand for these services already estimated at around 220,000 customers, about 14% of the market. “That is the pent-up demand for fast broadband in Victoria. And it certainly makes some of the assumptions in the implementation study look conservative!” he said.
The state has commissioned a new set of reports reports from Gibson Quai and Access Economics tracking broadband uptake, to provide in-depth analysis and forecasting into the NBN future. Meanwhile, said Dummett, it is continuing to lay NBN groundwork via its VicFibreLINKS protected fibre optic backbone infrastructure project; the A$20 million Innovation Investment Fund, tipped to help drive the adoption of broadband-based applications; and evidence-based research to help get local policy settings to support the network.
Petroc Wilton, CommsDay
Monday, May 24, 2010
Telecom NZ considering splitting
Following a series of hints, Telecom NZ formally announced yesterday what had long been common knowledge: it is considering splitting its retail and network operations.
Previously Telecom has argued against separation and complained about the regulatory burden of its government imposed structural separation. However yesterday the company confirmed it is willing to fully separate its parts, if that’s the price of taking part in the New Zealand Government’s $1.5 billion ultrafast broadband program.
In a media statement Telecom NZ CEO Paul Reynolds said: “Telecom’s strong preference is to align the interests of its equity and debt holders with those of the Government and New Zealanders. The Government’s UFB initiative will fundamentally reshape the structure of the entire telecommunications industry in New Zealand and Telecom is therefore undertaking a thorough assessment of the merits of structural separation”.
Reynolds’ unambiguous declaration yesterday didn’t come as a complete surprise. In April Reynolds said his company was “open to working with the government on a wide range of approaches to its UFB initiative.” When asked if this included structural separation, he simply repeated “a full range of approaches.”
Telecom NZ also made a case for the regulatory burden to be eased. Reynolds said: “Telecom is required by legislation to deliver significant system and technology projects envisaged for a pre-fibre world. A large proportion of these projects must be deployed this year, so it seems sensible at this time to reassess these projects to avoid significant congestion and waste.”
The company has proposed three specific changes. First, it wants to suspend the forced bulk move of its existing broadband customers onto a new copperbased service. Second it would like the government to drop the requirement to move 17,000 customers onto a new VoIP over copper service by the end of this year. Last, it doesn’t want to build new wholesale systems not consistent with the UFB-era industry structure.
POLITICAL REACTION: Communications minister Steven Joyce issued a statement saying he regarded Telecom NZ’s announcement as positive. He said: “A potential structural separation of Telecom would involve a number of complex regulatory issues to work through. I am encouraging Telecom to work with Crown Fibre Holdings (CFH) and the Ministry of Economic Development.” Joyce said the CFH process allowed potential partners to raise relevant regulatory issues and Telecom wasn't the only company to have done so.
On the other side of politics, the Labour opposition communications spokesperson Clare Curran was less impressed. She said: “The government needs to reveal whether parallel discussions have been held with Telecom about structural separation while a closed tender process is underway to roll out ultrafast broadband to 75% of New Zealanders.”
Curran said the government should not bail out a troubled telco or deliver profit to shareholders –
especially if they are not New Zealand-based. During the day the company’s share price reached NZ$1.92 – an all-time low. The shares ended the day down 1.5% at NZ$1.96 while the overall NZX 50 Index rose 0.4%.
S&P GOES NEGATIVE: While Standard & Poor’s confirmed its ‘A’ long-term and ‘A-1’ short-term corporate credit ratings on Telecom NZ. The ratings agency revised its long-term rating on TCNZ to negative, from stable.
In a statement Standard & Poor's credit analyst Paul Draffin said: “We consider TCNZ's vertically integrated business model to be a key driver of the group's strong business risk profile. Accordingly, any separation of the fixed-line access network will have a material negative impact on TCNZ's business risk profile.”
The statement went on to say: “A lowering of the long- and short-term ratings on TCNZ could occur in the next 12-to-18 months if:
• TCNZ agrees to structurally separate it copper access network from the rest of the group;
• The group's financial profile deteriorates, including fully adjusted debt to EBITDA increasing to
more than 2x on a sustained basis; or
• There is a significant shift in earnings mix to lower-quality earnings sources, such as information technology services.”
Previously Telecom has argued against separation and complained about the regulatory burden of its government imposed structural separation. However yesterday the company confirmed it is willing to fully separate its parts, if that’s the price of taking part in the New Zealand Government’s $1.5 billion ultrafast broadband program.
In a media statement Telecom NZ CEO Paul Reynolds said: “Telecom’s strong preference is to align the interests of its equity and debt holders with those of the Government and New Zealanders. The Government’s UFB initiative will fundamentally reshape the structure of the entire telecommunications industry in New Zealand and Telecom is therefore undertaking a thorough assessment of the merits of structural separation”.
Reynolds’ unambiguous declaration yesterday didn’t come as a complete surprise. In April Reynolds said his company was “open to working with the government on a wide range of approaches to its UFB initiative.” When asked if this included structural separation, he simply repeated “a full range of approaches.”
Telecom NZ also made a case for the regulatory burden to be eased. Reynolds said: “Telecom is required by legislation to deliver significant system and technology projects envisaged for a pre-fibre world. A large proportion of these projects must be deployed this year, so it seems sensible at this time to reassess these projects to avoid significant congestion and waste.”
The company has proposed three specific changes. First, it wants to suspend the forced bulk move of its existing broadband customers onto a new copperbased service. Second it would like the government to drop the requirement to move 17,000 customers onto a new VoIP over copper service by the end of this year. Last, it doesn’t want to build new wholesale systems not consistent with the UFB-era industry structure.
POLITICAL REACTION: Communications minister Steven Joyce issued a statement saying he regarded Telecom NZ’s announcement as positive. He said: “A potential structural separation of Telecom would involve a number of complex regulatory issues to work through. I am encouraging Telecom to work with Crown Fibre Holdings (CFH) and the Ministry of Economic Development.” Joyce said the CFH process allowed potential partners to raise relevant regulatory issues and Telecom wasn't the only company to have done so.
On the other side of politics, the Labour opposition communications spokesperson Clare Curran was less impressed. She said: “The government needs to reveal whether parallel discussions have been held with Telecom about structural separation while a closed tender process is underway to roll out ultrafast broadband to 75% of New Zealanders.”
Curran said the government should not bail out a troubled telco or deliver profit to shareholders –
especially if they are not New Zealand-based. During the day the company’s share price reached NZ$1.92 – an all-time low. The shares ended the day down 1.5% at NZ$1.96 while the overall NZX 50 Index rose 0.4%.
S&P GOES NEGATIVE: While Standard & Poor’s confirmed its ‘A’ long-term and ‘A-1’ short-term corporate credit ratings on Telecom NZ. The ratings agency revised its long-term rating on TCNZ to negative, from stable.
In a statement Standard & Poor's credit analyst Paul Draffin said: “We consider TCNZ's vertically integrated business model to be a key driver of the group's strong business risk profile. Accordingly, any separation of the fixed-line access network will have a material negative impact on TCNZ's business risk profile.”
The statement went on to say: “A lowering of the long- and short-term ratings on TCNZ could occur in the next 12-to-18 months if:
• TCNZ agrees to structurally separate it copper access network from the rest of the group;
• The group's financial profile deteriorates, including fully adjusted debt to EBITDA increasing to
more than 2x on a sustained basis; or
• There is a significant shift in earnings mix to lower-quality earnings sources, such as information technology services.”
Sunday, May 23, 2010
New Zealand budget funding
There were few surprises when yesterday’s New Zealand budget allocated NZ$200 million of capital funding for ultra-fast broadband infrastructure during 2010-2011. This is not fresh money but forms part of the NZ$1.5 billion previously earmarked for the 10 year project which will see broadband rolled out around the country. The money adds to the NZ$248 million allocated last year bringing the sum committed to almost 30% of the expected total.
The government expects this sum to be ‘at least’ matched by private industry. In his budget speech New Zealand’s Finance Minister Bill English said: “Another major investment is the Government's ongoing investment in ultra-fast broadband infrastructure through Crown Fibre Holdings. Budget 2010 allocates a further $200 million of capital funding, in addition to the $248 million allocated last year, as part of a total expected investment of $1.5 billion. “This funding will enable Crown Fibre Holdings to start making substantial contract commitments with the private sector to start rolling out the new fibre network. A further $48 million has been allocated for ultra-fast broadband in schools.”
The government expects this sum to be ‘at least’ matched by private industry. In his budget speech New Zealand’s Finance Minister Bill English said: “Another major investment is the Government's ongoing investment in ultra-fast broadband infrastructure through Crown Fibre Holdings. Budget 2010 allocates a further $200 million of capital funding, in addition to the $248 million allocated last year, as part of a total expected investment of $1.5 billion. “This funding will enable Crown Fibre Holdings to start making substantial contract commitments with the private sector to start rolling out the new fibre network. A further $48 million has been allocated for ultra-fast broadband in schools.”
Friday, May 21, 2010
CommsDay Auckland Summit
NZ Commerce Commission telecom commissioner Dr. Ross Patterson and Chorus CEO Mark Ratcliffe have identified several key challenges for New Zealand’s transition to a fibre future, from uptake issues to resistance from a well-entrenched copper culture.
In their respective speeches at the CommsDay Auckland Summit, Patterson and Ratcliffe approached the state of New Zealand broadband from the very different perspectives of commercial stakeholder and regulator, but nevertheless touched on several of the same issues.
Both highlighted cutover and fibre adoption rates as very real hurdles. Patterson (right) picked up the example of Japan, with just 30% uptake of ultra-fast broadband despite 90% of households now being connected to fibre, and the incumbent now threatened with structural separation as a result. “‘Build it and they will come’ has not been shown to the case in Japan... clearly, the copperfibre transition raises interesting issues,” he said. Ratcliffe, meanwhile, warned that the challenges of cutover should not be underestimated, adding that many developers were still reluctant to run fibre to new properties in the face of the strength and diversity of existing copper services.
The commissioner’s own assessment of the current fibre market went into more detail on the state of play in copper. Patterson pointed out the strong growth in the ULL market – to 10% of all connections by the end of the March 2010 quarter – despite New Zealand’s late move to unbundling, and fears of FTTN cabinetisation cannibalising the addressable market. He also noted the imminent VDSL wholesale launch from Telecom.
Given this enduring popularity of DSL, Chorus is looking at ways to capture the copper market while still leaving the door open for fibre. According to Ratcliffe, the firm has developed a hybrid copper-fibre cabinet for greenfields that uses microducting to accommodate the different access demands of different customers. “You can pull the copper out of a microduct and blow fibre through it,” he said. “And the cabinet can provide both point to point and GPON.” This kind of fibre flexibility feature may provide some reassurance for Patterson, whose final point
was an argument for the competitive benefits of point-to-point over PON technologies. “Point-to-point provides the most open and flexible architecture, with the highest potential bandwidth and feature innovation, and the most flexible for competitive collaboration,” he asserted. “One of the big challenges is the danger that to save costs, a decision is made to adopt a PON architecture that cannot be unbundled effectively.”
“Some say that in five years’ time there will be some technology that is able to unbundle PON, but that’s a complete unknown; we would certainly say that the extra investment now is critical to get the competitive outcomes that the initiative was designed for.
In their respective speeches at the CommsDay Auckland Summit, Patterson and Ratcliffe approached the state of New Zealand broadband from the very different perspectives of commercial stakeholder and regulator, but nevertheless touched on several of the same issues.
Both highlighted cutover and fibre adoption rates as very real hurdles. Patterson (right) picked up the example of Japan, with just 30% uptake of ultra-fast broadband despite 90% of households now being connected to fibre, and the incumbent now threatened with structural separation as a result. “‘Build it and they will come’ has not been shown to the case in Japan... clearly, the copperfibre transition raises interesting issues,” he said. Ratcliffe, meanwhile, warned that the challenges of cutover should not be underestimated, adding that many developers were still reluctant to run fibre to new properties in the face of the strength and diversity of existing copper services.
The commissioner’s own assessment of the current fibre market went into more detail on the state of play in copper. Patterson pointed out the strong growth in the ULL market – to 10% of all connections by the end of the March 2010 quarter – despite New Zealand’s late move to unbundling, and fears of FTTN cabinetisation cannibalising the addressable market. He also noted the imminent VDSL wholesale launch from Telecom.
Given this enduring popularity of DSL, Chorus is looking at ways to capture the copper market while still leaving the door open for fibre. According to Ratcliffe, the firm has developed a hybrid copper-fibre cabinet for greenfields that uses microducting to accommodate the different access demands of different customers. “You can pull the copper out of a microduct and blow fibre through it,” he said. “And the cabinet can provide both point to point and GPON.” This kind of fibre flexibility feature may provide some reassurance for Patterson, whose final point
was an argument for the competitive benefits of point-to-point over PON technologies. “Point-to-point provides the most open and flexible architecture, with the highest potential bandwidth and feature innovation, and the most flexible for competitive collaboration,” he asserted. “One of the big challenges is the danger that to save costs, a decision is made to adopt a PON architecture that cannot be unbundled effectively.”
“Some say that in five years’ time there will be some technology that is able to unbundle PON, but that’s a complete unknown; we would certainly say that the extra investment now is critical to get the competitive outcomes that the initiative was designed for.
Thursday, May 20, 2010
Vodafone NZ signs backhaul deal with Telecom NZ
Wellington’s The Dominion Post reports Vodafone has signed a NZ$150 million deal which will see Telecom NZ provide internet backhaul. The deal was mentioned, without naming the customer, earlier this month when Telecom NZ CEO announced the company’s third-quarter financial results.
Vodafone is already a customer with Telecom NZ, FX Networks, TelstraClear and Vector. Last week the company was revealed by Axia Netmedia as the mystery partner working with the Canadian company as it bids for the New Zealand government’s NZ$1.5 billion ultrafast broadband project. At the time of that announcement it said if Axia was successful it would use that company’s fibre backhaul.
Telecom Network Operator News compiled by iToolsOnline
Vodafone is already a customer with Telecom NZ, FX Networks, TelstraClear and Vector. Last week the company was revealed by Axia Netmedia as the mystery partner working with the Canadian company as it bids for the New Zealand government’s NZ$1.5 billion ultrafast broadband project. At the time of that announcement it said if Axia was successful it would use that company’s fibre backhaul.
Telecom Network Operator News compiled by iToolsOnline
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