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Active wholesale as Chorus tackles wireless challenge

Computerworld New Zealand reports that Chorus says it has moved to 'active wholesale' to stem the loss of customers to rival networks.

The story covers comments made by Chorus CEO Kate McKenzie at the company's annual general meeting. She says the number of connections on the Chorus network has fallen following Spark's move to push customers to its fixed wireless broadband services.

She says: “Total connections reduced by about 125,000 last year and by a further 20,000 in the first quarter to the end of September".

From passive to active wholesale


To deal with this Chorus has moved from being a passive wholesaler to taking a more active role.

In response, McKenzie said Chorus had “gone from being a passive wholesaler to being more active in the marketplace. We can’t rely on all retailers to promote our products for us when they have their own competitive motivations.”

Among other things this has led to a Chorus information campaign highlighting the performance benefits of fibre broadband over a wireless service.

There has also been advertising promoting fibre. McKenzie told the AGM this is already showing results with defections to wireless slowing in recent months.

Follow the money


It's not hard to understand why Spark wants to move customers on to fixed wireless connections. It makes a lot more money that way.

When a customer buys a fibre broadband connection from Spark, the company pays around $40 wholesale fee to the fibre company. In much of the country that's Chorus, but the same applies in areas serviced by Northpower, UFF and Enable.

The wholesale cost of a line is around 40 to 50 percent of the price Spark charges its customers. So cutting out the wholesale level means better margins and greater profit. There's enough room to pass some of the saving back to the customer.

Control


Aside from the money, a fixed wireless connection keeps everything under Spark's control. It means it becomes less reliant on others. At the same time, it regains some of the benefits of vertical integration.

In a normal market this would give Spark leverage to negotiate better rates from the fibre companies. Spark is by far the largest buyer of broadband connections, so it could expect something for economy of scale and something else to counter the wireless broadband threat.

That's not how New Zealand's open access fibre broadband market works. Prices are regulated by the Commerce Commission, fibre companies are not allowed to play favourites. They can't offer one rate to Spark and a different rate to other players.

The wireless threat


When this model was first drawn up, wireless wasn't a serious threat to fibre. At the time I asked then Communications Minster Steven Joyce if the rapid development of wireless broadband had been considered, he said it had not and dismissed the idea the technology could one day compete with fibre.

In a sense wireless broadband doesn't compete with fibre. It can't deliver high speeds and the big wireless operators have kept tight caps on data downloads to stop networks from overloading.

And yet not everyone needs gigabit speeds and vast quantities of data. Fixed wireless broadband is ideal for low-use customers. It also makes sense in areas where fibre is not available.

Active wholesale as Chorus tackles wireless challenge was first posted at billbennett.co.nz

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