UFB the case for the Line Companies

Media Release - New Zealand - 3rd March 2010

UFB the case for the Line Companies

In a recent report that Buddecomm presented to the New Zealand Government in relation to the UFB. We listed some key recommendations:
• Development of trans-sector policies
• One single national UFB plan (covering both urban and rural areas)
• National design and architecture of the infrastructure
• Utilisation of existing assets wherever possible
• Regulatory support to achieve a structurally-separated, wholesale-only infrastructure approach

In my discussion with US based Kim Kersey from Kersey Consulting Services LLC two paths (and there are probably more) were pointed out to achieve the above objectives:
• to hand over the implementation of this national plan to the incumbent telcos, legislatively restructure their networks for open access, and provide them with Government funding to complete the build out to un-served and under-served areas; or
• legislatively restructure the existing telecommunications infrastructure along the lines of how the electric industry was broken up several years ago into generation/retail companies and distribution/lines companies, conveying the assets of the incumbents’ distribution plants at fair market value to the Local Fibre Companies.

The first approach, while simplistic, may ultimately fail to achieve the long-term objectives of the UFB plan for innovation and affordability. The opening of the RBOC’s networks in the U.S. to competitive providers did not result in effective competition because it was the “fox guarding the hen house”. CLEC access to the RBOC networks was expensive and the process for adding new customers was designed to be slow and cumbersome. An effective competitive marketplace never materialized. As a result, investment in fibre has been slow while the RBOCs continue to leverage their legacy copper networks, i.e. AT&T’s U-Verse service. The telco incumbents in New Zealand may take a similar path.

The case for the Line Companies
The second approach represents a shift from the status quo and can result in a fibre-based technology platform on which true competition among service providers can thrive. This will be the most painful to achieve, but it promises to be the better path to realize the UFB goals for New Zealand. The model has already been tested in the electric industry, and can be applied to telecommunications with similar results through locally-owned and controlled Local Fibre Companies, which may be made up of Lines Companies and/or other entities that partner with a Lines Company to serve a local area.

Lines Companies are a natural fit for Local Fibre Companies because:
• They have existing relationships with other trans-sector entities, such as schools, hospitals, governments through their electric distribution services.
• Are infrastructure-oriented, with construction/engineering/operations crews in place.
• Locally-based organizations, in touch with needs of their communities.
• Smart Grid applications are natural application of fibre networks.
• Lines Companies will need to maintain tight security over Smart Grids, fibre networks best under their control and operation. If network issues arise, they can respond directly, quickly and maintain security of operation.
• Best to have Lines Companies operate at Layer1 and/or Layer 2 levels to provide a single platform to distribute Service Provider traffic.
• Technology in place to accomplish this separation of Service provider traffic.
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Lines Companies are also best suited to serve Rural and Regional areas.

• They already serve rural populations and have electric infrastructure/substation facilities in place to accommodate fibre and equipment. Lines Companies are most familiar with rural areas they serve and can respond to service issues more quickly..
• They may be able to travel under their existing easement agreements for fibre placement.
• Lines Companies may have experience with different technologies for operating their SCADA systems that can be applicable to certain rural situations.

Design and Operating Standards:

In relation to this topic Kim suggested that the government should assemble a national technology design blueprint, based upon vendor-agnostic IEEE and ITU industry standards that will enable seamless information flow through and between all regions of NZ.

This design should include long-haul connectivity between all LFCs to all parts of NZ, so that a national backbone will result. LFCs should install adequate spare fibres during their build-out where none are presently available so that contiguous LFCs can be linked to create this backbone. All vendors must certify full inter-operability with other vendors’ equipment, and that traffic entering and leaving the backbone will travel freely.

There also has to be a standardization of signal formatting protocols among LFCs and trans-sector groups.

The government and/or the LFCs should establish training centers for computer literacy to increase broadband adoption.

The role of government could also include negotiating volume pricing from vendors after LFCs have made their vendor selections and equipment and material quantities are consolidated.

Forward planning issues
Establishing the going-foward rules for the LFCs is essential for creating an effective NBN. Here are some ideas that Kim suggests:

• Permit LFCs to operate at Layer 1 and/or Layer 2 levels to streamline operations and minimize confusion should network issues arise.
• Extend Government financial contribution to Layer 2 equipment.
• Operating standards should be established for LFCs to ensure fair, consistent treatment of all Service providers:
- Common technical standards for interfacing with the fibre network at the aggregation point.
- Common template for new service orders/provisioning/repair requests to ensure that all new service orders are complete, provisioning can occur in a consistent manner, and repair orders can be handled promptly for the end-customers’ benefit.
- Effective separation of Service Provider traffic over a single Layer 2 fibre network.
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• Because of heavy reliance on success of Service Providers, standards should be established for qualifying Service Providers who wish to use the fibre network. These standards should balance the desire to stimulate a high level of competition, while ensuring that end-customers are ultimately well-served. New Service Providers should be vetted through an application for participation that demonstrates:
- Sound marketing plan for acquiring new customers
- Adherence to technical standards for interfacing with the fibre network
- Financial capability to sustain start-up and growth
- Staffing plan for operations
- Prior experience

Conclusions
The experience in the U.S. is that even after the RBOCs were forced to open their networks to CLECs, the operating environment for CLECs was difficult because of high element pricing, built-in delays in processing/provisioning competitive orders, and other administrative hurdles created to hamper effective competition. A fundamental question is whether the incumbents like Telecom New Zealand will embrace a true separation of their distribution and retail organizations, much like the electric networks did several years ago. If so, after the existing assets are identified, perhaps a regulatory mechanism can be developed to convey those assets to neutral LFCs, who would also be charged with new fibre construction to “fill in the gaps”. In this manner, the incumbent telcos can retain their existing customer base while new service providers can come forward to offer competitive services, pricing, and customer support.

Again, the Lines Companies seem to be the logical entities to take on the role of the LFC. This fits their current electric model – allowing them to efficiently leverage their infrastructure experience and operating resources, maintain local customer ownership of the LFC, and utilize the fibre network for their Smart Grid needs with total security and control. While not all Lines Companies may want to take on the role of a Local Fibre Company, they should be given first right of refusal. If the Lines Company declines, then the LFC role could be offered to others, including possibly the incumbent telco.

See also:
New Zealand - UFB recommendations
New Zealand - Ultra-Fast Broadband Network - Competition and Regulations
New Zealand - Ultra-Fast Broadband Network - Design and Deployment Strategies
New Zealand - Ultra-Fast Broadband Network - Overview & Analysis
New Zealand - Ultra-Fast Broadband Network based on Trans-Sector Model

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