Video, connection costs major factors in broadband uptake: ComCom

Free market may solve data-cap, international link problems

Video content will be a prime stimulator of broadband demand; the Commerce Commission says in its draft report on the demand-side study.

Video content was 37 percent of consumer internet content traffic in New Zealand in 2010. This highlights the need for a range of providers, says the 'High speed broadband services demand side study' report released today.

The rate of broadband uptake is “likely to be higher if there is a diverse range of video on demand options available to consumers”. The report records varying views at the conference it held on broadband demand in February this year on the controversial reported dominance of SkyTV in the local market.

“The CEO of Sky said that Sky does not own subscription video-on-demand (SVOD) rights. He went further, stating that pay-per-view (PPV) VOD rights and SVOD rights ‘…for the most part, are generally non-exclusive’. The managing director of Mediaworks had a very different perspective. She said content rights exclusivity was a major issue that would limit the emergence of video over IP services.”

In a separate move, Commission chair Mark Berry last week announced an investigation into contracts between Sky and ISPs.

Video content includes not only entertainment, but short-duration clips such as those on YouTube and Skype calls, the Commission points out.

The dominance of video, however, may not be a long-term phenomenon, the Commission says. “Although video is likely to be the primary driver of IP traffic over the next few years, this does not necessarily mean that video will be the only major form of content leading to the uptake of high speed broadband.”

It quotes a study by Neilsen last year into US consumers’ broadband use, indicating that only four percent of total online time in that more mature market was occupied with “videos or movies”.

The cost of connecting households to ultrafast broadband (UFB) or rural broadband (RBI) services may also be a factor in discouraging uptake, the report says. The cost of connection and limited reticulation inside the home is met by the local fibre companies and Chorus, but only for a tightly defined “standard” connection.

“If residential customers with non-standard connections and business customers have to bear the connection cost, the uptake of high speed broadband services might be hindered, especially as there is a perception that residential connections will be free,” the Commission says.

Users may also have to bear some cost of improving the quality of wiring inside their premises to get full benefit from their broadband connection.

Tolerance to a rise in the regular monthly fee for broadband connection appears low. The Commission engaged survey organisation Roy Morgan to canvass consumers’ willingness to pay more for higher speed. “The survey found that while four percent of consumers said that they were willing to pay more than $20 extra per month, 37 percent said that they were willing to pay between $5 and $10 extra per month. A further 40 percent of consumers (640,000 households) said that they were willing to pay up to $5 extra per month.”

The problems of data caps, lack of peering and restricted international capacity are found by the Commission to be less significant than often portrayed by the technically savvy community.

“The Commission currently monitors data caps, and will continue to monitor developments in this area,” it says. The Commission expects that competitive pressures will result in further data caps increases, and symmetrical speeds becoming the norm.

A similar hope in increasing competition is held out as likely to increase international bandwidth, with at least two strong potential contenders emerging to Southern Cross’s dominant position, the report says.

Regarding peering, “the Commission has not been able to get sufficient information to determine if this is an issue. We understand that MED has started a stream of work that will include a review of peering issues.” Reports that some network operators are taking traffic to the US to peer have proved difficult to substantiate, it says.

Satisfying rural communities’ broadband needs is important to uptake, the Commission says. “The overall message from the conference is that many rural people and businesses consider that they are not well served by even the current generation of broadband. There is a risk that they could be left behind as New Zealand moves forward with high speed broadband services.”

Government priorities and some private initiatives, such as Vodafone’s “community cell-site request scheme” could reduce this gap and satisfy the often expressed need for “any kind of data access”, but the Commission says rural users cannot expect anything like parity with the cities.

“Although the data speeds that will available to rural consumers may be faster than current speeds in many rural areas, with the exception of the fibre-to-schools component, these speeds are lower than the Commission’s definition of fast broadband.”

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