Back from New Zealand - Analysis of amendment package
By Paul Budde
I had a very interesting week in New Zealand, happily coinciding with the discussions that are taking place there
regarding its telecoms reforms.
With Parliament debating the new telecoms amendments there was hope that some of the outcomes of the discussions we had
during the Roundtables in Auckland and Wellington would filter through to the policy-makers. However, unfortunately, it
looks as though the policies are more or less set in concrete and that the outcome will be more of a political
compromise with the more conservative elements in New Zealand politics, who have been sheltering Telecom from
competition for more than a decade. The old guard prevails.
I have tried to single out one issue that I believe is critical to the future of telecoms in New Zealand. The proposed
amendments will see the regulatory management split between the minister and the regulator. This is, of course, a recipe
for disaster. It sends out all the wrong signals to the industry. If you can’t get your way with the Commerce Commission
you simply go to the minister, and vice versa.
I made the point that, while local loop unbundling is important, the rest of the world is now debating how to regulate
access to All-IP networks, increasingly based on fibre rather than copper networks. Again, this requires a very strong
regulator, who needs to be in charge of the management of the regulatory aspects of the NGN process.
The split undermines the Commerce Commission’s ability to take a leadership role here.
I understand that the minister’s reason for wishing to hold on to the reins is to secure decisive action in the
operational separation process. I am totally unconvinced.
New Zealand only has to look across the Tasman to see what that means. In Australia (unlike, for example, the European
countries) the minister is also in charge of operational separation, and over the last year NOTHING has happened.
If the minister is genuinely worried about this he would provide the Commerce Commission with the necessary powers to
implement operational separation. As the British model is the one used by New Zealand you only need to look at the
regulator there. OFCOM is the model that is admired by most regulators around the world. Why not ensure that the
Commerce Commission can act independently, like OFCOM?
Other issues that need to be fine-tuned include a more independent status for the working groups currently set up by
Telecom. I applauded Telecom’s initiatives earlier in 2006 – now is the time to make them more official and independent.
Last but not least, politicians like to leave grey areas, since they are far less inclined to make the hard decisions
upfront. This applies to pricing and other commercial elements. However, this approach will only prolong the pain, as
the players will exploit these grey areas to play games with the regulator, delay implementation, or simply to create
confusion.
With so many uncertainties remaining, the government should make sure that the stick of structural separation is at the
ready, as that will help the industry to make progress. Without this stick delays are inevitable.
Paul Budde
Launch 2007 New Zealand Telecommunications Reports
2 new research reports on New Zealand
Executive Summary
Telecom New Zealand maintains a stranglehold on the local access market in fixed-line voice and broadband. It has made
steady progress during 2006 with strong growth in broadband and data services; however it is still heavily reliant on
revenue from declining traditional services. Total market growth of around 3.9% is predicted in 2007 and 3.6% in 2008,
down from 4.1% in 2006. The combined fixed network voice and local access market displayed negative growth for the first
time in 2006. This negative growth will gradually accelerate over the next few years. Mobile growth will, however, begin
to taper off as the market approaches saturation.
It was not until mid 2006 that the government put legislation in place that will pave for the way for LLU. Both LLU and
an upsized UBS service should, but will not necessarily, allow triple play services. While upsized UBS went live in
2006, LLU and Naked DSL are still waiting for introduction, perhaps in late 2007 or possibly even as late as 2008.
This report provides a detailed overview, including statistics, forecasts and analysis, of the regulatory,
infrastructure, fixed network voice and VoIP sectors of the New Zealand telecommunications market.
Key highlights:
Market overview
•The total telecoms market in New Zealand grew by 4.1% from $7.75 billion in 2004-05 to $8.03 billion in 2005-06.
•Total market growth of around 3.9% is predicted in 2007 and 3.6% in 2008.
•Telecom maintains a stranglehold on the local access market in fixed-line voice and broadband.
•The combined fixed network voice and local access market displayed negative growth for the first time with growth of
-1.8%. This negative growth will gradually accelerate over the next few years: -2.0% is predicted for 2007 and -3.0% for
2008.
•Data and broadband will take over from mobile services as the key driver of overall market growth from 2007 to 2010.
•Mobile service still grew very strongly in 2005-06, displaying 8.6% growth.
•Mobile growth will, however, begin to taper off over the next few years as the market approaches saturation, with
revenue growth of 6.1% predicted in 2007 and 5.0% in 2008.
Table 1 – Annual change of total New Zealand market revenue by service – 2006 - 2008
Revenue source 2006 2007 (e) 2008 (e)
Voice -1.8% -2.0% -3.0%
Data, Internet & value added services 8.0% 11.5% 12.4%
Mobile 8.6% 6.1% 5.0%
Pay TV 12.3% 10.0% 8.9%
(Source: BuddeComm based on industry data)
Key players in the market
•Telecom made steady progress during 2006 with strong growth in broadband and data services, however, it is still
heavily reliant on revenue from declining traditional services.
•Telecom is expected to launch high-speed ADSL2+ broadband services on its Next Generation Network (NGN) beginning in
2007.
•TelstraClear expects to launch its first high-speed mobile broadband and voice service by mid-2007.
•CallPlus has a strategy to roll out WiMAX nationally and has investment backing for the $250 million that will be
needed from 2006 to 2010 to achieve this goal.
•In late 2006 Vodafone New Zealand acquired 100% of local ISP ihug. The partnership opens up exiting opportunities for
the pair in the area of fixed-to-mobile convergence in 2007 and 2008.
•Kordia, formerly known as THL Group which included BCL, is working with New Zealand broadcasters to deliver digital
television in 2007.
Telecommunications infrastructure
•By late 2006 New Zealand trailed behind most of the western world in the adoption of high-speed broadband access.
•The government’s decision not to agree to go ahead with LLU until in mid-2006 has meant that ADSL2 and ADSL2+ adoption
has been very slow. It now appears that LLU is unlikely to be implemented before late 2007.
•In August 2006 Telecom finally announced that its NGN was now expected to be completed over a two year period to 2008.
•For the past few years the industry has seen a significant rise in the use of wireless technologies as serious
competition to the more traditional copper and fibre optic-based solutions.
•A number of niche fibre optic networks have also been established.
Regulatory
•In June 2006 the government introduced a new Telecommunications Amendment Bill to parliament, regarding new broadband
access regulations.
•The Bill enables the introduction of unbundling of the local loop and accounting separation for Telecom.
•The Bill also amends the existing unbundled bitstream service and its supporting backhaul service to remove the
existing constraints placed upon it.
•Access seekers are now given assurance that they can purchase Naked DSL services without any requirement to purchase
an analogue telephone service.
•Although by 2006 there had been a regulatory UBS in place for some time, the speed was slow, especially on the uplink.
•Both LLU and an upsized UBS service should, but will not necessarily, allow triple play services. While upsized UBS
went live in 2006, LLU and Naked DSL are still waiting for introduction perhaps in late 2007 or possibly even as late as
2008.
Fixed network voice and VoIP markets
•In 2006 Telecom maintained its virtual monopoly over the local access market, with an untouchable market share of 80%,
which has been relatively steady since 2003.
•The fixed network voice market declined by 1.8% in 2006 and we predict that it will decline a further 2% in 2007.
•A key driver for the decline in local call revenues during 2006 was a migration from dial-up Internet access to
broadband. Long-distance calling prices in particular continued to fall.
•The market also continues to shrink at the expense of alternative access networks such as mobile and VoIP as well as
products based on data and IP-based solutions.
•ihug, since acquired by Vodafone in 2006, is one of the smaller alternate providers that has potential to make some
inroads in the market, although from a very small base.
•While there has been significant adoption of VoIP and IP telephony amongst the business sector, especially amongst
larger organisations, residential VoIP adoption in New Zealand is lagging most of the developed world.
Paul Budde
New Zealand - Mobile & Broadband Overview and Analysis 2007
Executive Summary
The New Zealand mobile market is now approaching saturation and mobile subscriber growth will taper off significantly in
2007 and 2008. During 2006 the trend of ISP consolidation slowed; however, moving forward into 2007 and 2008,
commoditisation of products is likely to see the speed of ISP consolidation pick up once again. The long-awaited
government policy on Local Loop Unbundling (LLU) was finally introduced in New Zealand in mid-2006.
A growing number of wireless broadband players, including Woosh Wireless and CallPlus are also making some inroads into
the market and this trend will continue into 2007. ADSL2 was the prevailing high-speed broadband technology deployed in
New Zealand in late 2006. Broadcasting’s ad revenues are gradually being squeezed due to falling audiences and rising
costs.
The progressive introduction of ADSL2+ broadband will enable the delivery of new services on top of Telecom’s broadband
infrastructure. Services delivered over its NGN in 2007 and 2008 will include VoIP, video calling, converged
fixed/mobile offerings, Interactive television and VoD.
This report provides a detailed overview, including statistics, forecasts and analysis, of the mobile, Internet,
broadband, convergence and broadcasting sectors of the New Zealand telecommunications market.
Key highlights:
Mobile
•The current mobile market is a duopoly of Vodafone New Zealand and Telecom Mobile.
•They operate the only cellular networks in the country, although Vodafone has also partnered with TelstraClear to
resell its mobile offerings.
•Vodafone took the number one spot in mobile subscribers in New Zealand back in 2003 and now holds 55% of the
subscriber market.
•TelstraClear expects to launch Unplugged, its first high-speed mobile broadband and voice service, by mid-2007.
•A fourth player, Econet Wireless New Zealand (EWNZ) was, by late 2006, in the process of rolling out a network.
•The New Zealand mobile market is now approaching saturation and mobile subscriber growth will taper off significantly
in 2007 and 2008.
•Both Telecom and Vodafone launched 3G offerings during 2005, and in September 2006 Vodafone launched its upgraded
HSDPA mobile broadband network capable of significantly faster speeds. Telecom plans to launch its upgraded EV-DO
Revision A network by the end of 2006.
•Mobile technologies are not well suited for mobile data beyond certain niche markets. While these networks can handle
high-speed data, it is unlikely that this will be able to be achieved at prices low enough to penetrate the mass market.
Broadband, Internet and data
•During 2006 the trend of ISP consolidation slowed; however, moving forward into 2007 and 2008, commoditisation of
products is likely to see the speed of ISP consolidation pick up once again.
•The ISP market is expected to further consolidate beyond 2006, as more ISPs will financially struggle to survive.
•A growing number of wireless broadband players, including Woosh Wireless and CallPlus are also making some inroads
into the market and this trend will continue into 2007.
•In August 2006 Orcon was preparing to deploy a high-speed broadband ADSL2+ network that will feature IPTV services.
•Wireless broadband remains very much a niche medium in New Zealand with usage restricted principally to regional areas
outside the coverage of fixed ADSL and cable services.
•New Zealand’s data market continues to outpace other market segment in terms of growth and market share.
•Life is getting tougher for the ISPs as customers migrate from higher margin dial-up services to the much lower margin
broadband services.
•The key to success in this market is the adoption by the Broadband Service Providers (BSPs) of the triple play model,
delivering voice (VoIP), Internet access and video (broadband TV) over the one broadband connection.
•Driven by broadband, revenue growth in the data market is expected to increase to 11% in 2007 and 12% in 2008.
Table 2 – Annual growth of residential broadband subscribers by major provider – 2005 - 2006
Provider 2005 2006
Telecom: Residential 200% 52%
TelstraClear 50% 53%
Ihug n/a 75%
Woosh Wireless 60% 63%
CallPlus n/a 134%
(Source: BuddeComm based on company data)
Broadcasting
•A number of interesting urban and rural fibre network rollouts in New Zealand are laying the foundation for high-speed
networks capable of triple play service delivery.
•The progressive introduction of ADSL2+ broadband will enable the delivery of new services on top of Telecom’s
broadband infrastructure. Services delivered over its NGN in 2007 will include VoIP, video calling, converged
fixed/mobile offerings, Interactive television and VoD.
•Vodafone’s merger with ihug in late 2006 opens up some exiting opportunities in the area of fixed-to-mobile
convergence.
•Broadcasting’s ad revenues are gradually being squeezed due to falling audiences and rising costs.
•In late 2006 New Zealand lagged behind most of the developed world in the transition to digital television. By this
time in New Zealand, it was only being broadcast by pay TV operator SKY on a satellite platform in the DVB standard,
which also rebroadcasts some radio services.
•In June 2006 the government anticipated transmission of FTA digital TV would begin early in 2007.
•SKY Network Television (SKY) is the only major service provider in the market. SKY has a retransmission agreement with
TelstraClear under which TelstraClear operates its own network and manages all aspects of customer service.
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Paul Budde
BuddeComm operates the largest, continually updated, telecommunications research service on the Net