A public lobbying document should always be seen as providing insight into the thinking and agenda of its sponsors, rather than independent insight.
On that measure, the Castalia Report sends a clear message from Telecom, TelstraClear and Vodafone to Government: “It ain’t broke, so don’t fix it (but we are happy for you to give us a helping hand … )”.
TUANZ described it a “self-serving” — which, of course, it is. What else can we expect? The Government’s fibre-to-the-premises (FttP) programme — in whatever form it takes — will fundamentally impact their business. Telecom, Vodafone and TelstraClear collectively hold around 80% of New Zealand’s retail broadband market and 93% total revenue market share.
They are investing $2 billion to $3 billion over the next three years in a market where revenues are flat at best. They face a very real risk of their current investments being marginalised or indeed made redundant if a decision is made to overbuild their existing networks with fibre.
The Government can potentially drive a national fibre-to-the-premises business model based on a lower cost of capital and a longer term payback than their own commercial shareholders will tolerate: that represents a risk.
Nevertheless , it is hard not to reach the conclusion of “right diagnosis — wrong prognosis”.
Take one example: the report says it is important that New Zealand takes an end-to-end view of the supply of broadband services and not focus solely on the “last mile” infrastructure. That is absolutely valid: the industry focus to date has been too much on access, and not enough on services growth. And certainly the government has a role to play in helping to stimulate demand.
It then says that most “mass market applications which do not require consumers to invest in very high cost specialist user equipment also do not require the very high speeds supported by fibre to the premises. This is consistent with the market reality of New Zealanders’ low demonstrated willingness to pay for additional speed and reliability.”
Yes, it is absolutely true that much can be achieved with a mix of cabinetisation and ADSL2+ or VDSL2 technologies: we have not even begun to explore that potential.
But there is a circularity to the Castalia argument, borne of the Telco mindset. New Zealanders have been unwilling to pay for speed and reliability in the past because, quite frankly, broadband in the past has over-promised and under-delivered.
IDC’s own survey of consumers shows that the biggest inhibitor to viewing online video for broadband users was not speed but lack of interesting content, particularly for those 25 years old and over. It is changing: service providers offering unbundled services have seen an explosion in data usage, as users capitalise on the speed and capability to experiment with streaming video — usually international and costly to deliver.
The Castalia report then goes on to say that “most people should be able to access and use the applications they want over the existing broadband infrastructure” with download speeds in the region of 1 to 2 Mbit/s”. Included in this is video streaming, gaming and music downloads: the exceptions are defined as IPTV multicast services, realtime video on demand, high definition TV multicast services and high definition eEducation.
This presupposes that users are perfectly happy with the applications they have and do not want a better experience. This overlooks the quality of the 1Mbit/s to 2Mbit/s experience, and the challenges of contention at these levels — anyone that has tried to watch YouTube through a lengthy buffering and jitter process will give up in disgust.
IDC’s research shows that users are becoming increasingly technology agnostic, using a range of devices to access and view both their own and third party content. Coupled with demand for accessing content across multiple devices is growing desire for content “where I want it, when I want it” across both fixed and mobile. This is bandwidth intensive and increasingly drives the need for symmetrical broadband services, where the upload speed and capability is as critical as download.
Will this build the business case for fibre-to-the-premises? Not on the commercial or quasi-commercial terms required by the industry today. We need the better broadband capability to drive the services to, in turn, drive the migration to fibre.
I’ve argued before that we need a long-term fibre roadmap for New Zealand, with government and industry working in partnership. The government needs to think long and hard about its economic and social objectives. It is hard, in the current economic environment, to justify a one-size-fits-all FttP approach.
Rather it is likely to find itself adopting a more nuanced approach with a mix of roles — as investor in areas where broadband is otherwise uneconomic; facilitator in areas where competition is needed, and sponsor of the R&D and innovative services that will help drive the business case. But neither should it back away from its vision for broadband in NZ — it is too critical to our economic and social future.
Nelson is telecommunication research manager at analyst firm IDC