The TelstraClear UFB Interview - Reinstating A NZ Telecomms Monopoly
TelstraClear CEO Dr Allan Freeth Talks Ultra Fast Broadband Part 2
Interview by Alastair Thompson
Filming and editing by Selwyn Manning
In recent weeks TelstraClear CEO Dr Allan Freeth has been at the sharp end of a united telecommunications industry campaign against legislation to enable Ultra Fast Broadband which is currently proceeding through Parliament.
Dr Freeth has said the planned government reforms will hand Telecom a monopoly in New Zealand telecommunications in a manner which will likely stifle investment and innovation for at least the next decade and lead to a third world telecommunications system.
At Dr Freeth's invitation Scoop's Alastair Thompson and Selwyn Manning interviewed the TelstraClear CEO in depth about his company's views on the future of telecommunications in New Zealand - and the role of TelstraClear in that future.
For
additional background see:
- TelstraClear: Ultra Fast Broadband (UFB)
Legislation and TelstraClear
- Technical background presentation on the
TelstraClear HFC Cable network in Wellington and
Christchurch (.pdf)
- TelstraClear Corporate Overview
(.pdf)
- Video - TelstraClear Real World Traceroute -
From Scoop Home To Scoop
HQ
In Part 2 of the extended interview with TelstraClear CEO Dr Freeth we continue the discussion about UFB starting with some observations about the trial of the 100mbs service recently completed by TelstraClear and then quickly moving to an extended discussion of the Government's UFB legislation.
In part
2a Dr Freeth comments on:
- The fact that demand for
broadband speed is far from homogeneous - not everyone wants
or can use 100mbs speed - and nor are the likely to want to
pay for it.
- The complexities of getting houses
connected to fast broadband - i.e. the need to not only
upgrade the connection but also all the internal equipment
in the house including the computers themselves.
- The
security (and network stability) risks associated with fast
broadband in homes.
- At 6 minutes into the video the
discussion moves on to discuss the telecommunications
industry alliance against the Government's broadband plans.
- Dr Freeth begins by explaining how the group came
together after the Government tabled its legislation to
implement its UFB plans.
- Dr Freeth says the primary
catalyst for forming the group was the tabling of a
Supplementary Order Paper related to structural separation
of Telecom. TelstraClear then became the nucleus of an
opposition movement around the Government's plans. Dr Freeth
observes that the bill as drafted gives Chorus 2 (post
Telecom separation) protection from regulation around
competition issues for 10 years, as well as immunity from
Commerce Commission action around acquisitions - a provision
which appears to encourage Chorus 2 becoming a network
monopoly.
- At around 11.00 minutes Dr Freeth moves
into the detail of how TelstraClear views the details in the
Governments UFB legislation.: Specifically:
a) Its concerns around announcement of the decision to not allow Telecommunications companies to participate in the build - after which TelstraClear believed its future would then be in providing retail services over the fibre network.
b) However when the terms and conditions of operating as a provider over the network were announced they were shocked at how the system would work. Dr Freeth says that under the proposals Telecom will have a lower threshold to abide by than it does now - "discrimination" rather than "equivalence" - in terms of what it offers its wholesale customers - and that effectively there will be no enforcement except via its joint venture partner Crown Fibre Holdings which will amount too a wet bus ticket. It was this provision in particular which gave rise to the coalition of opposition who agree that under the plans consumers can expect high prices, less choice and no referee to turn to.
c) (See also… TelstraClear's UFB Submissions to the Finance and Expenditure Select Committee)
- Dr Freeth then briefly outlines TelstraClear's views on potential compromises which would enable it to live with the government's plans.
In part
2b Dr Freeth continues his discussion of the problems
inherent in the UFB legislation:
- He begins by pointing
out that a similar regulatory holiday proposal was ruled
illegal in Germany;
- The discussion then turns to
provisions in the legislation which will result in making
ADSL and VDSL (the most common current form of broadband to
homes) more expensive.
- This, Dr Freeth explains, is
because the whole structure of the legislation is aimed at
discriminating against existing networks to encourage high
uptake of customers on the new fibre network - which is
needed to make it economic for its builders and
investors.
- He then gives three practical examples of
how this will likely happen:
a) in Wellington where the
network will be in competition with the TelstraClear HFC
network; and
b) when UFB fibre will be competing against
unbundled ADSL provided by the likes of TelstraClear and
Orcon; and finally,
c) when Chorus 2 elects not to invest
further in its own ADSL network instead offering customers a
choice of just one kind of connection - fibre.
- Pricing
indications which were recently made public via leaks are
then discussed (see… NZ Herald and Internet NZ).
- The pricing wholesale
is indicated at $40 per customer for TelstraClear and other
retail providers - in practice this will likely means costs
of actual connection of closer to $100 per month.
- Dr
Freeth is also skeptical about uptake rate assumptions of
60% in the Crown Fibre Holdings plans. If these fall short
then pricing is likely to be higher than expected and
customers will possibly have no alternatives. "Gravity
always works".
- Dr Freeth says that one of the
fundamental flaws in the Government's plans is the
assumption that fibre to the home is the only technology
that should be employed. And that it should be employed
everywhere. He points out that 4g wireless - which is
already deployed in places- is capable of supplying speeds
comparable to those being discussed under the UFB
plan.
- In Dr Freeth's view the most likely driver of
lower prices for UFB in the NZ market would be a market with
multiple technologies competing - instead we are headed for
the opposite.
- In addition to this he asks "where is the
demand" and suggests that building infrastructure far ahead
of the demand curve is costly for consumers and network
providers alike.
- Finally in this part he discusses how
this situation most likely came about in the negotiations
with Telecom. Telecom had already built fibre to every node
and was therefore in a very good negotiating position with
the Government. Either they should be included in the build,
or they would be in a very good position to compete against
it by providing VDSL services over the entire country. This
would make the fibre build uneconomic.
- Dr Freeth
expresses some considerable sympathy with Telecom about how
it has been treated in recent years, and comments that if Dr
Paul Reynolds pulls off this deal and "reestablishes
Telecom's monopoly with Government money and Government
protection", then he will take off his hat off to him.
"That's one hell of a deal, and I will be very impressed if
he can do
it"
In part
2c concluding the 2nd part of the interview Dr Freeth
comments on the implications of reinstating such a dominant
position in the NZ telecommunications marketplace commenting
that:
- This regulation will fragment and breakup the
profit pool and stifle innovation in the NZ Market.
TelstraClear and Vodafone and other players will move their
capital out of the market.
- Dr Freeth explains that
Telstra currently spends $100 million a year in capital
investment in its network and that it will be hard to
justify continuing to do this in the coming regulatory
environment.
- He has told Minister Steven Joyce that the
plans as they stand will lead to a third world
telecommunications environment in NZ.
- He says there are
likely unintended consequences in what the Government is
doing. Using a Basil Fawlty analogy he says there
is a fine line between renovation and destruction, and in
this case the Government is bordering on
destruction.
(Continuing….)
In Part 3 of the
TelstraClear CEO Interview Dr Allan Freeth and Alastair
Thompson will discuss what possible strategic responses
TelstraClear will have to the coming UFB build.