Telecom Cabinets Analysis - Shortsighted Industry

Budde
Comm

Progress at the expense of competition – analysis of the new situation
Shortsighted industry

When I addressed the TUANZ conference in May 2006 I very much supported Teresa Gattung’s overtures to the industry, after the government’s structural separation announcement at that time it would force Telecom to make structural changes.

However, I was very critical about the industry whose total focus was to get some quick fixes to the wholesale regime in relation to local loop unbundling. Telecom had made it very clear that it would take until 2008 before new wholesale products would become available.

BuddeComm consistently warned that New Zealand was fighting battles which occurred in Europe in the early 00s and in Australia in the mid 00s and that in the meantime the world had moved on and that by 2008, also in New Zealand, the discussion would have moved on to fibre networks. Unfortunately nobody at that time wanted to seriously discuss that issue and started to beaver away in what we called old-world wholesale issues.

Telecom fibre plans are no surprise
Based on our analyses of Telecom NGN plans, going back to the early 00s, we were certain that Telecom did have a plan which would see them moving deeper into fibre networks, as a matter of fact we had mentioned the company at several occasions in our global research reports as being one of the early adopters of this new concept and their GEN-I initiative also made it very clear to us where their future thinking was. It therefore didn’t come as a surprise to us that they announced their new fibre plans in the way they did it, making 2,000 copper based exchanges obsolete in this process.

However, we are very disappointed that Telecom at the same didn’t indicate how they are going to take the rest of the industry with them on this exiting new path. This is certainly against the sentiment that I first encountered in May 2006 and that we have quite publicly supported over the last 18 month.

As a matter of fact the lack of a visionary national approach could potentially set the country back many years, basically throwing it back into the dark days of the monopoly. Surely the new structural separation legislation will eventually assist the industry. However, without Telecom’s support that could take many years.

No progress in wholesale
At the same time Telecom has failed to come up with sustainable wholesale products that would provide the industry with opportunities to start developing more innovative broadband services, rather than the current more-of-the-same Telecom products, perhaps at slightly cheaper prices, we certainly don’t call that a good outcome of the wholesale debate.

Current indications are that wholesale prices will go up and the already meager wholesale margins going down at the same time the new fibre announcements will make it impossible for the competitors to invest in technologies such as DSLAMS which will become obsolete within the next 3 years, as there is no place for them in a fibre network.

In good faith the industry has been pre-empting Telecom’s positive attitude and have made tactical changes to their organisations which has led to a substantial increase of their customer base in anticipation to bring them over to the new environment. They now see that the emperor is not wearing any cloths and they are left stranded and in a financially very dangerous position.

Broadband prices double that of other countries
A simple calculation indicate that as a result of these higher wholesale costs, the entry level of broadband in New Zealand will increase to around $45. Currently in comparable countries that level is a low as $9.95, but on average between $19.95 and $29.95.

These high broadband prices will be a major set back for economic progress and innovation in New Zealand, something the OECD has already been mentioning to New Zealand for many years.

New endless regulatory debates?
The fact that Telecom didn’t come up with a wholesale strategy indicates to me that they have abandoned their cooperative approach or perhaps even it does let us to conclude that their supportive behaviour has all been smoke and mirrors. If they do have a plan to take the rest of the industry with them, why didn’t they announce that at the same time? This is a very worrying development indeed.

We have learned from the past that innovation will be stalled when there is no or little competition and the current uncertainty alone is enough to kill any future investments by the competition.

If the government has to step in it will mean more regulatory and perhaps even further legislative processes which are going to take months if not years in the meantime this will only increase the damage already done to the industry.

Paul Budde

I will discuss the future of telecoms in New Zealand at two BuddeComm Roundtables in Auckland and Wellington:

‘State of the Industry’ Roundtables with Paul Budde

Auckland - Monday 3rd December 2007
Wellington - Tuesday 4th December 2007

Theme: New Zealand Telco Market moving into 2008
The telecoms industry in New Zealand has undergone significant changes over the last year. While the results of these changes will not have a significant impact on the market in the short term, they will profoundly alter the telecoms market over the next five years. Perhaps the most important will be the change in attitude of the incumbent from one that has historically provided resistance to regulatory change, to one that is prepared to work together with the industry in a more mutually beneficial way. So far the signs have been promising.

The total telecoms market in New Zealand grew by 1.1% in the 12 months to June 2007 to $7.54 billion. BuddeComm predicts that the total New Zealand telco market will grow around 0.9% in 2007-08 and 2.8% in 2008-09. Telecom maintains a stranglehold on the local access market in fixed-line voice and broadband. The local access market in New Zealand dropped by 2% in 2006-07 and BuddeComm predicts that it will drop by another 4% in 2007-08.

New Zealand is finally catching up with the rest of the world in terms of broadband penetration, with overall subscriber growth in excess of 30% in 2006-07. However low broadband access speeds and high costs relative to other OECD nations, is proving to be a major stumbling block for the development of local digital media activities.

The New Zealand market is now approaching saturation. Overall subscriber growth was unusually high at 11.6% in 2006-07, bringing the market to a total of 4.25 million subscribers. However we expect overall market subscriber growth to drop to just 2.9% in 2007-08 and 2.3% in 2008-09.

The bundling of voice, data and video services (triple play) and mobile services (quadruple play) are likely to develop on a more large scale fashion in New Zealand in 2008 and 2009. Voice and data bundling has already been introduced by a number of players, including Telecom, Orcon (now part of Kordia) and ihug. These developments will be assisted by the government’s decision to proceed with the operational separation of Telecom and to introduce new services such as local loop unbundling (LLU), naked DSL, and a wider range of regulated wholesale services which should begin to be introduced into the New Zealand market by the beginning of 2008.

The introduction of ADSL2+ services, facilitated by LLU will allow for faster access of bundled services including VoIP and IPTV, this faster access will also be critical for the growth of digital media services. Local IPTV activity is gradually developing under the radar screen, however a current stumbling block however is the quality of Telecom’s infrastructure.

The new environment is going to open up lots of new opportunities for everybody involved. These include the value added infrastructure opportunities such as data centres, content hosting, network management, etc. But equally a range of innovative customer services can be built on the new wholesale products and perhaps more importantly open networks will create a great new environment for digital media, e-health, tele-education and smart grid applications in which there will now be much wider scope for a variety of organisations to participate.

This and more will all be discussed in detail during the BuddeComm Roundtables in Auckland and Wellington.

Cost:
$425 per person (excluding GST) – this includes morning/afternoon coffee and lunch

Venue:
Auckland – Monday 3rd December
Duxton Hotel Auckland, 100 Greys Ave, Auckland

Wellington – Tuesday 4th December
Duxton Hotel Wellington, 170 Wakefield Street, Wellington

Booking:
Online registration: http://www.budde.com.au/consultancy/public-workshops-seminars.html
Telephone: 02 4998 8144
Email: pbc@budde.com.au

PAUL BUDDE Communication Pty Ltd,
T/As BuddeComm
http://www.budde.com.au

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