Word has it that Telecom is under pressure from the Government to have a good think about structural separation. I have it on good information that Steven Joyce and Paul Reynolds (Telecom CEO) met late last week. And that separation was on the agenda.
What could that mean? A separation between the retail side of the business from the wholesale/networks and access sides? Perhaps even more than that, structural separation may also release value for Telecom shareholders. A separate Chorus with an unencumbered mandate may well be able to make a more active (and more useful) contribution to national plans for broadband infrastructure rollout and access.
Given the circumstances; major broadband decision imminent, reasonably radical proposed changes to the telecommunications services obligations (TSO), the fallout from the CEO salary bonus and Telecom’s attempts to reduce its service tech workforce and convert them to owner operators, you’d think there’d be some sort of shift in mindset from our largest telco.
But it doesn’t appear to be happening. I’ve been talking to lots of people and the views are pretty unanimous.
It’s like there’s an elephant in the room. And it’s the big question. What will Telecom do and what should it do around broadband? For the good of the company and the country.
So here goes. Three things. And they’re not all about Telecom.
Firstly, Telecom, it’s time to shift your attitude. I know your attitude has changed since 2007 when you had to separate. But you need to think about your future. You’re our biggest Telco company. It’s time to move away from thinking about yourself as just a Telco. Our future lies in broadband, arguably the most important piece of infrastructure to be introduced this century. It’s more than telecommunications. It’s infrastructure. We must get it right. If that means that Chorus should separate from Telecom in order to become an infrastructure-based company, then so be it.
Secondly, voluntary separation is a more satisfactory outcome than legislation. Although it still requires oversight to ensure it’s clean. But just look across the Tasman. Telstra is currently under the gun to voluntary separate its wholesale and retail arms, or face legislation to do so. The Australian Government has introduced legislation, which its Coalition Opposition is trying to delay alongside enormous pressure from Telstra.
The Australian Govt has a $43 billion plan to roll our broadband and splitting Telstra up is integral to how it needs to do it. As the Australian Communications Minister Stephen Conroy is reported in today’s Australian newspaper:
Every day of delay for these reforms is another day of higher prices, less choice and less service innovation for consumers and small businesses — including those in regional Australia.
Labour’s push to operationally separate Telecom was designed in such a way for further structural separation to occur down the track. Have we reached that point? And is it in New Zealand’s interest? Because, as I’ve said several times already, broadband is core infrastructure, it’s so much more than faster internet connections.
The National Government has today released its “invitation to participate” (ITF) and is seeking partners in its broadband initiative. So the pressure on Telecom is important because we’re approaching crunch-time. What role will Telecom play?
And one more thing. I’m hearing is that the rate of return being sought by Steven Joyce’s government on it’s $1.5 billion investment is not do-able. That the private sector is having difficulties justifying the investment it will need to make. In other words, the business model is flawed and possibly unsustainable. Which is a bit of a worry.
So finally it seems a bit disappointing that the government has taken all this time to get to the point of calling for partners in the broadband project. it’s been almost a year. When they won government, there was a scheme ready to roll. On a smaller scale, admittedly, but it was regionally-based, it ultimately was worth $1 billion and there were no strings attached, that is, no rate of return on the investment. It was about investing in core infrastructure. because Labour knew how important it was. We aren’t opposed to Telecom’s involvement, but not on the basis that is about propping up monopolistic practices and behaviours. The Australian Government is fully aware of that. I’m starting to think the National Govt might be. We’re watching, and we expect the broadband rollout to deliver for all New Zealanders.
The whole concept of using a corporate system to provide broadband infrastructure is flawed. The corporates involved will arrange it so that everything has to be done through them and they get to impose a fee at all levels. What New Zealand needs is an infrastructure that is designed to be as cheap and independent of suppliers as possible. That does not just mean a carve-up between the Big Boys, but the adoption and encouragement of technologies such as WiFi, community mesh and WiFi Direct (NOT WiMax) that eliminate the need for much of the currently corporately-managed infrastructure.
No corporate is going to agree to this or fund it, but it is what would benefit New Zealand as a whole most. It is going to have to be done either by government mandate or by government funding developing the technologies needed. The main problem here is that such a system is not controlled either by tame corporates or by government departments – it is necessarily self-organising. So governments wishing to be able to control the population through the media won’t sponsor this approach either.
So until this technology can be developed independently – and it will be – we’re up a gum tree without a paddle.
Vik :v)
The technology will be (it still needs standards though) but the infrastructure won’t be laid out under any circumstance unless it’s paid for by government. That’s why we had government run out the network in the first place and why it needs to be the government that does it now.
Um Clare… what the??
“… the rate of return being sought by Steven Joyce’s government on it’s $1.5 billion investment is not do-able. That the private sector is having difficulties justifying the investment it will need to make. In other words, the business model is flawed and possibly unsustainable. Which is a bit of a worry.”
So you are hearing that the private sector won’t make money… but you think Telecom should spend another $500 million on structural separation and invest in the govts additional fibre programme even though you are being advised that it won’t make money… interesting logic.
I’m sorry but your post doesn’t make much sense – Why would any private business do that?
Hi Clare,
A very thoughtful post, leading the commentary at a critical time.
We can see the Joyce/Reynolds korero as a possible evolution of a process leading to truer competition at the wholesale and access levels in Telecom.
Alternatively it could be a political gesture to protect the government from claims of backsliding, by underlining to Telecom the need to structurally separate if they want to access the Govt’s much-delayed and ever-less-popular broadband plan.
In the end I believe Kiwis are beyond ideology on all this. Everyone knows the market on its own did not work due to dominance and underinvestment. Everyone wants a more vibrant and competitive market – faster, cheaper broadband.
The burden of proof is now squarley on the Govt to prove why the year’s delay from the ready to roll Broadband Investment Fund was worth it; and why $1.5bn offerred at a commercial rae of return is a bigger stimulus than $1bn of fully contestable grants under Labour’s plan.
From what I hear, many of the best brains in the industry are wondering how on earth to make it pay.
Puddings and eating. Lets see.
David/Clare,
In 2006, when your government ‘unbundled’ Telecom, they offered to sell what is now Chorus to the government.
Why didnt you take the oppurtunity? Even Bernard Hickey urged you guys to do it (”go on, be a socialist Helen, buy the local loop” was his words, I believe).
Hey welcome back millsy
. Great post Clare.
I am looking forward to a lot of things with 100Mbps broadband.
1. I’ll hook my home network to my TV, attach a cam to the top, and be able to teleconference with my relatives in the US and Italy. Technically I can do this now, but the video is choppy, even using ADSL2+.
2. presumably we will have high or unlimited data caps. In order to take full advantage of video, caps must go. The speeds themselves will make mincemeat of the kind of caps we have today.
3. my family will be able to watch TV from my hometown in the States and we will be able to maintain our connections and fluency in Italian by getting current programs from Italy. Fast broadband is like SkyTV on megasteroids. If I want to learn Hungarian by watching their TV online, I will be able to do it.
This is a world-wide phenomenon. It is bringing people together and allowing for safe conversations at a distance. There is something Nobel Peace Prize-y about it all.
My view is that the government should fund fibre to every community, and then subsidise rollout of wireless broadband in each community. This is a temporary solution, because fibre to the home is the ultimate goal. But in the meanwhile, we can quickly get 100 Mbps to most people within a few short years — definitely less than 10. The countries on the cutting edge already have that level of service. That’s not what we should be aiming for in 10 years.
Btw: is anyone lobbying Google to get Google Voice here? Give them a call, Clare. That service blows all our local telcos out of the water!
Features (From Wikipedia):
Google Voice has retained many of GrandCentral’s features, with several additions.
* A single Google number for all of the user’s phones;
* Free calls and SMS in the contiguous US and Canada;
* Calling International phone numbers for as low as 0.01 USD per minute;
* Call screening. Announce callers based on their number or by an automated identification request for blocked numbers;
* Listen in on someone recording a voicemail before taking a call;
* Block calls;
* Send, receive, and store SMS online;
* Answer an incoming call on any of your phones;
* Phone routing. Choose which phones should ring based on who calls;
* Forwarding phones;
* Voicemail transcripts. Read voicemails online;
* Listen to voicemail online or from a phone;
* Receive notifications of voicemails via email or SMS;
* Personalized greeting that vary greetings by caller;
* The ability to forward or download voicemails;
* Conference calling;
* Record calls and store them online;
* Switch phones during a call;
* View the web inbox from a mobile device/phone;
* Set preferences for contacts by group; and
* Ability to change your number for a fee.
You’d probably be paying $50 a month for everything that Google offers for free, and a lot of it you can’t even get here at any price. Someone needs to be talking to them. While you’re at it, get them to offer the service where you can read all those millions of books in NZ too.
In the US home phone lines are dropping off sharply in favour of cellphones and home broadband. People can’t justify spending money on something that can be replaced with VoIP, Skype, and Google Talk-type services that run over the internet, so it’s inevitable for this to happen here too.
The other elephant in the room is that Telecom is largely an overseas owned corporation. Its investment strategies are shaped by the desire of US investors to maximise their ROI, not on what is best for New Zealand, so any decision to structurally separate and sell Chorus will be made only after Paul Reynolds has talked to those investors, and not simply because Joyce has a preferred approach.
Well, if a person dropped the toll calls, Telecom charges $10 more a month for broadband. There is no reason to do that, however, since Telecom doesn’t have a set fee for being with them. You can simply use VOIP or Wi-Fi phones.
https://www.telecom.co.nz/broadband/select/1,10627,205836-204473,00.html?action=/plan&detail=8
So, you get rid of the phone line and you save $46, but then you lose access to the Telecom network.
http://www.telecom.co.nz/homeline
Unlike Slingshot, Telecom does not do “Naked DSL.” You have to have a phone line and pay the $46 even if you don’t want it. This is something government could do something about–and should!
If there were a real wireless network in Dunedin, we could all be using Wi-Fi phones on it as well as our broadband. That way we could say stuff it to all the companies fleecing us a *minimum* of 44c per minute for calls and charging $50 or more for broadband each month.
http://www.dlink.com/products/?pid=485
http://www.belkin.com/skype/howitworks/
Using SkypeOut, it costs about 3c per minute to call a landline phone, and about 50c for a call to a mobile phone. 2degrees (the cheapest mobile provider) charges 44c for both landlines and mobiles. The real difference is calling overseas. If you are not in their preferred list of 21 countries (and Italy is not), it costs $1.44 per minute on 2degrees.
3c to an Italian landline using SkypeOut and a Wi-Fi phone looks pretty good.
Telecom is not much better than 2degrees. The anytime plan costs 89c to an Italian landline and 99c to an Italian mobile. That’s from a landline. Using a mobile, I am sure it costs *a lot* more, because I could not find pricing on Telecom’s site. Whenever I can’t find fundamental terms like this, I know I am going to get a really raw deal, so I stay away from it like it’s poison.
Jajah.com ends up being the best for a call to an Italian mobile phone from a landline here. 36c per minute. Unfortunately it seems like this one doesn’t work with wi-fi phones. So the best I’m going to get is the Skype service. 3c and 50c. Skype also allows one to set up a local number in lots of countries, and then when your overseas friends/family call you, it is a local call for them. For one country this service costs about $5 a month.
Given that my wife probably talks to her parents in Italy about 15 hours a month (900 minutes), 3c cents a minute is $27. Using Telecom this would be $800, and using 2degrees on the cell phone would be $1296. Holy smokes! One is 30x more expensive, and the other 48x. If her parents always called us on the local Italian number, it is only $5.
Why would anyone in their right mind use the standard services?
And let’s not forget that calls from one Skype phone to another are 100% free of charge. So if your friend/relative has a Skype phone on and connected to a wireless router at their house, it is completely free.
Imagine if all businesses and universities in NZ just started giving out Wi-Fi phones to all their staff to use at work. Imagine the savings!
Want to talk about increased productivity? There are two sides to productivity. Increased output and lowered costs. The opportunity is there to shut out these outrageous gougers (traditional telecoms) and increase our productivity. Those savings could be going towards increased local wages rather than the overseas investors who own the telecoms.
http://www.skype.com/intl/en/allfeatures/wifiphones/
@ Andrew Straw
And all that is why I say that the network should be fully government owned with competitive services on the network. We’d all be much better off.
There is no such thing as competition in infrastructure.
I find comparisons between mobile, fixed-lines, VOIP and Skype a bit annoying, because price isn’t the only point of comparison.
If you use Skype, you’re paying zero (or very low) rates. But you have absolutely no guarantee of privacy, nor any come-back in New Zealand law.
If you use a mobile, or one of the cheaper landline providers, then you’re subject to packetization lag, which often leads to significant echo.
Obviously some people don’t notice a quarter of a second delay, or the echo, or don’t care, but for some of us it makes the difference between being able to conduct a smooth conversation, or having a series of monologues, where lifetime-trained reflexes on “when to speak” drive both speakers into disjointed start-stop outbursts.
“Why would anyone in their right mind use the standard services?”
Easy: because we’re FRUSTRATED with unusably laggy services, and getting rid of that frustration is easily worth the extra money.
Umm when did the $340 million allocated to the BIF become $1 billion? Was there a Cabinet minute I missed?
Martin:
Have you actually used SkypeOut on a Wi-Fi phone? If not, you should try that before you knock it. Seems it actually works better than over a PC. The phone connects directly to your router or to the hotspot.
As for privacy, it may be helpful to know that Skype has a privacy statement:
http://www.skype.com/intl/en/legal/privacy/general/
You know, I have zero confidence in the privacy laws of NZ once my call leaves NZ borders. Same with my emails.
In fact, the United States and other countries routinely tap international calls and email messages. Every hear of Echelon and Carnivore? Might want to look them up.
http://news.bbc.co.uk/2/hi/sci/tech/1357513.stm
My view is that if your broadband is choppy and can’t handle VOIP and WiFi phones, this is your ISP’s fault, not the fault of those services. These companies would not be around if they were poor services. The question you have to ask is why it doesn’t work well where you are.
I’m for the government buying Chorus and then rolling it in with Kordia, that other publicly owned communication and broadcasting network / infrastructure type company. Between the two of them they can roll out various combos of fibre/cable/wireless infrastructure and wholesale solutions for anyone to compete over.
And if Telecom won’t split out Chorus, then amp up Kordia to be able to take them on.
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