The telecommunications industry is on the cusp of massive change due to government intervention in the form of the Rural Broadband Initiative and Ultra Fast Broadband.
Neither scheme has been resolved and it was against this backdrop of uncertainty that the Tel.con 11 conference took place on April 6 and 7 in Auckland. One of the most insightful sessions was the CEO panel, comprising of TelstraClear CEO Allan Freeth, Vodafone CEO Russell Stanners, Microsoft MD Paul Muckleston, Kordia CEO Geoff Hunt, TVNZ CEO Rick Ellis and Telecom CEO Paul Reynolds on the first day.
Changes in both telco and IT
Microsoft MD Paul Muckleston told the audience he doesn’t believe the UFB will lift GDP, he thinks it is more a “hygiene factor” – that is, if the government doesn’t assist in rolling out a fibre network, New Zealand will fall behind.
He says having moved back from Europe to take the New Zealand role, he has noticed there is a much higher level of central government involvement in ICT, than in Europe. This includes the Ministry of Economic Development and the Department of Internal Affairs’ process for examining the government’s $2 billion ICT spend.
But he noted that telecommunications isn’t the only industry undergoing huge upheaval. The consumerisation of IT will mean that the customers will accept a lower level of service and reduced SLAs, as a trade off to getting a broader and cheaper range of products and services.
It will be a “battle of the eco systems”, he says.
This point was also made by Vodafone CEO Russell Stanners, who told the conference he believes that five years ago the telcos controlled the customer experience “end to end”, but there are now plenty of new and powerful competitors in the value chain, such as Nokia/Microsoft, Google and Apple.
TVNZ CEO Rick Ellis, who described the SOE as a “$350 million [a year] content delivery company”, sounded a warning for any telco thinking about getting into the content game in his speech.
He spoke of the complexity of media rights asset management – that is, negotiating with international companies over how much you will pay to screen a show on multiple platforms. “When you walk into a negotiation with Disney and so on, you walk into a voracious and complex environment,” he told the conference.
In addition there is the cost in involved in “hand shaking to all screen devices”, essentially making sure TVNZ’s signal is received by every make, model and device on the market.
Ellis says the cost to TVNZ to ensure content plays correctly on a device (that is a Panasonic television or a PlayStation device and so on) is up to $800,000 per model.
During the Q and A following the speeches, the six men fielded a number of questions about possible regulation in the content space.
The day before the conference Telecommunications Commissioner Ross Patterson had announced his office will be conducting a study into the demand side of UFB.
This announcement created a great deal of speculation at Tel.con 11 on the possible regulation of premium content.
Role of regulation
At the afternoon tea break, Computerworld was present when Vodafone CEO Russell Stanners ‘congratulated’ Patterson on launching a study into a network that hadn’t even been built.
Stanners had been supportive of the role of the Commerce Commission during the panel discussion. He said that regulatory oversight is required as the industry “moves to a new market structure” that may look fine in theory, but which had not been proven in any material way anywhere around the world.
He was backing the strong stance taken by TelstraClear CEO Allan Freeth, who used the conference as a platform to denounce the legislation to enact UFB, the Telecommunications Amendment Bill (which if passed would mean no regulatory oversight until the end of 2019). Freeth later told Computerworld he is “95 percent certain” that Telecom will get the bulk of the UFB – there are 25 areas still under negotiation, which is around 80 percent of the build.
He says Telecom’s Fibre to the Node programme, which is expected to be connected to 86 percent of New Zealanders by the end of this year, gives the telco a head start. Freeth is supportive of Telecom getting the build, but not if it means there is no regulatory oversight.
TelstraClear is running a number of full page advertisements in daily newspapers claiming the “UFB bill” will result in “more cost, less choice and less competition”. When asked how long the adverts will continue, he told Computerworld later that day, “It all depends on whether there is an olive branch.”
Freeth says the government has rebuffed requests to meet with senior Telstra executives, such as its CEO David Thodey, to discuss the UFB.
“We have never been consulted over this in any way. Steven [Joyce] said the other day that he doesn’t care about the industry [participants].”
Freeth says Telstra has invested $2 billion in New Zealand and that it was the first to bring competition to the local telecommunications market. Legislating a ten-year regulatory holiday is likely to put a chill on overseas investment, he believes.
“The consequence of this is that capital will not come to this country. So I hope Northpower and Telecom can raise capital from somewhere else other than the government. The regulatory holiday is illegal in the European Union, it also breaches the WTO,” he claims.
Telecom CEO Paul Reynolds remained unmoved by the industry’s outspoken opposition to the legislation. He says Telecom shareholders require price certainty in order to participate in the UFB, which he claims will require up to $6 billion in investment from the telco.
He painted a grim picture of the telco industry worldwide. “Telcos were the darlings of the tech investments up until four years ago,” he told the audience. However, that has changed around the world, but especially for Telecom NZ. Reynolds believes his company’s share price is the cheapest in the world due to the current uncertainty.
“Revenue growth is flat to declining,” he says.
The following day the ICT Minister Steven Joyce faced a number of questions from the audience concerned about how the regulatory holiday would affect the migration from copper to fibre. He stood firm on the resolve by the government to proceed with the UFB process in its current form.
Then, this week eleven telcos and industry lobby groups sent an open letter to MPs asking them to reconsider the Telecommunications Amendment Bill.