Monitoring the migration from copper to fibre

Part two of Q and A interview with new telecommunications commissioner Stephen Gale

Stephen Gale's first day in the role of telecommunications commissioner was last Thursday. In the second part of this interview with Stephen Bell he discusses the migration from copper to fibre networks and the sale of TelstraClear to Vodafone.

How do you see the competitive position between fibre and copper, given your background with what at least one publication called “the fibre-hostile Castilia?”

Well the first thing to be said is that I had nothing to do with that report. My job in the telco role is to make sure we keep track of that benchmark; the price of existing services over the copper loop. Then the rest of it plays out with better services at a higher price.

Is part of your role to maintain competition within the copper network?

Well the price we set for the local loop does affect competition amongst parties in the copper technology, but probably more importantly, it is the baseline for Ultra Fast Broadband network. It’s impossible to forecast the uptake of these things. The demand for mobile data is now doubling year-on-year; who would have guessed smartphones would take off like that. Who would have guessed that voice traffic on mobile phones would level off at a lower level than overseas? The prices have come down but voice traffic’s not growing.

Why do you think it’s levelled off so much earlier here?

It seems that people are happier with texting and social media. We’re not as concerned to get on the phone. It’s intriguing. Even text traffic is levelling off; so it may be that a lot more people are using social media at their chat medium now.

If competition is encouraged on the copper network and prices come down, will this be a threat to the viability of UFB?

It’ll be underpinned by that local loop price; you can’t go below that. And there’s already quite a lot of competition on the copper technology. It seems to me that that is relatively stable; but it does depend on the level of the basic copper loop price. That’s governed by the rules in the Act that say we have to benchmark it to the cost in other countries; the process that we’re in.

Do you have any views on how quickly fibre will be taken up? Will a lot of people stay on copper?

Well, it’s the same comment as before; in this sector, services emerge that no-one could have foreseen, like social media, that led to an explosion of use. I’m not a forecaster.

Do you think there’s a role for guidance for users in thinking what they might use fibre for?

In our demand-side paper we attempted to expand the discussion of what the uses might be; they’re obvious in the bureaucratic areas like e-learning and health, but in the retail area – there may be video products that go beyond just movies.

So how do you stimulate that discussion? Following the demand-side study there wasn’t much.

I don’t think we can stimulate it; uptake is probably dependent on new products and new services. It seems to me it’s a great opportunity. There’s a particular price difference now between what the fibre will cost and what the copper services will cost; so it’s a question of the new services, the hard-to forecast services, being made attractive enough to make that jump. But there are so many other examples of such technology jumps - from cellphones to smartphones, or from small TVs to huge TVs – that would have been very difficult to forecast at the outset.

That’s the competitive part of the industry; that’s not our [area of] expertise.

But it still influences what you do?

Not really: our job is to maintain that baseline

Does prediction of demand not come into your calculations?

I don’t see it; you could clearly make UFB work if you just increased the price of the copper service. The UFB price is set contractually. It’s our job to keep the current service cost, as based on the benchmark in the legislation.

There are some reports that Chorus will offer cheaper copper access in areas where fibre is coming in, such as Christchurch and Whangarei. Do you have any power to prevent such biased pricing?

I’m not aware of that

But if there was a risk of such differential pricing, could you do anything about it?

I don’t know; I don’t think there’s anything in the telco act at the moment. If there are protections against that, they would be in the contracts and the undertakings Chorus has made – which we didn’t negotiate and don’t enforce.

What’s your view of the disappearing boundary between telecommunications and broadcasting; is there a role for the telco commissioner in broadcasting regulation?

I’ve tried to be clear about what people have in mind when they talk about that. One obvious feature people have in mind is things like advertising standards; that wouldn’t be a natural role for the telco division.

But the more substantial question is where the spectrum goes; the spectrum that’s freed up from TV; how much of that goes to new mobile technologies.

Otherwise I think that broadcasting-telco merger story is just another way of addressing the content question; because I understand in some other countries the sharing of content is regulated; but here that’s been dealt with in the Commerce Act – the Commerce Act analysis that’s going on at the moment.

So what influence do you and your team have on how the spectrum is distributed?

I think that’s a decision for MoBIE (new ministry created through the merger of the Ministry of Economic Development, Ministry of Science and Innovation, Department of Labour and Department of Building and Housing).

You won’t have any influence on that at all?

No, I’m not aware of any past discussions on that with MoBIE. I think it’s in its early days yet.

How do you think the sale of TelstraClear to Vodafone will alter the picture?

It’s interesting. As you know, whether one is allowed to buy the other will be a Commerce Act issue and that’s now beginning. I won’t be involved in that; but the technical specialists in my team will help out; will help the competition people understand the sector.

But it is possible that that might just change the character of mobile phone competition. We’ll need to keep an eye on…if that merger is allowed to proceed then we could have to monitor what happens in the mobile market, because we have specific responsibilities for that.

So far, with the reduction in termination rates, we’ve seen a lot of the results we hoped for. Traffic across the networks is increasing and the relative prices are coming down, and at the same time people are switching networks a bit more; I think a seventh of people changed their phone network last year. So that will tend to break down those calling circles or silos of people who are staying on one network.

Does the merger lessen competition or does it increase it in a way by putting up a credible competitor to Telecom.

I’ll wait for my colleagues’ view. That sort of question will be absolutely central to the Commerce Act assessment of the merger.

But does having two parties merge like that substantially lessen competition in your view?

It depends how strong the two parties were in those parts of the sector beforehand. But that’s a pure Commerce Act analysis. I won’t be involved, sadly.

Sadly?

It would have been very interesting.

TUANZ is dwindling to virtually nothing. Who now holds up the users’ end of the debate? Who advocates for them?

The more voices you get in the debate the better. As you know, our regulation is at the wholesale level and the access seekers argue very strenuously for lower prices for their network. There’ll be flow-through of any gains…because we’re competing vigorously, there’ll be flow-through to customers from that point of view. The way the Act works is that by our trying to protect and foster competition among the access seekers as strongly as possible, that’s pretty much the best we can do for consumers. But it would be a pity to lose an explicit consumer voice to keep track of how that’s turning out.

Do you expect to be spending a lot of time dashing around the country?

I think we’ll do more from Wellington. But because the centre of gravity is shifting, we’ll have to get around a certain amount.

But we do have all this wonderful technology; you could do it all by videoconference.

Maybe with improved quality you could have a videoconference that is really crystal clear. The ones I’ve done you can’t make out enough of the other person’s facial expressions to make it much more worthwhile than just talking to them. But at the top level of that it would be like having them in the same room.

See part one of Q and A interview with Stephen Gale here.

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