Telecom wants to close negotiations, demerge and get on with UFB build

Q and A with Telecom's UFB executive lead Mark Ratcliffe

Telecom is committed to finalising its negotiations with Crown Fibre Holdings, despite today’s announcement that it will be competing with another regional consortium for the Ultra Fast Broadband project.

“We have noted the announcement but we are very busy and committed to finalising our own negotiations with CFH. We are keen to close out negotiations and get on with building the network and get on with the demerger of Telecom,” says Mark Ratcliffe, the executive leading the telco's negotiations for UFB.

Ratcliffe emailed the comment to Computerworld today following an interview late last week on Telecom’s role in UFB and the Rural Broadband Initiative. Here is part of the interview as it relates to UFB.

Computerworld: In the middle of last year Telecom came out and said ‘we will split in two if we get a sizable chunk of this [UFB] project’ and there was quite a clear timetable that Paul Reynolds put out into the public arena that stated you could actually have everything you needed in place by the end of this financial year.

Mark Ratcliffe: I think we have subsequently said that once the government has made the decision as to whether we will participate or not, then we would be in better position to provide a time table. Otherwise it becomes rather a moving feast.

I mean there is a very long process to go through to do the separation, because you have to go to shareholders and get them to vote. If you go and look at some of the demerger timetables that other organisations have got themselves into, you’ll see that they tend to stretch into somewhere around about a year being an average time. And that doesn’t mean to say some get done in a month, nothing appears to get done under six to nine months.

You can start a lot of the work, but there comes a point at which you can’t go any further until you can describe the deal in some detail. There’s nothing in the demerger that would say you have to wait until the de-merger is complete before you can start rolling fibre out. You saw that in Northland, where Crown Fibre Holdings and Northpower announced their deal and a couple of weeks later they were having some photo opportunities for the first fibre in Whangarei.

You could argue they’d already rolled out the fibre before they got the deal.

I wouldn’t, couldn’t possibly argue that. I am sure it is brand new fibre that was funded by the Crown.

Are you surprised by the length of time that this is taking, and the twists and turns of this process?

No, not really. It is a large amount of public money and you would expect the government to be really careful about public money being spent on the right things with the right people.

So one day they bring out the Supplementary Order Paper and the next day they announce that Vector is back in the running for Auckland. Was that a surprise?

I don’t think so. Vector have always been on board, they were anointed onto the same shortlist at the same time we were.

But you were given the lead in December and then in February Vector is back in front with you.

I don’t know what has happened because we don’t talk to Vector, we don’t talk to Crown Fibre Holdings about Vector’s bids. So one assumes that Vector have put something compelling to CFH that got them to the next stage, but I mean I don’t think that’s particularly unexpected.

The SOP document, its 70-plus pages.

I think it should be a fulsome document, it is about rewriting regulation for the telecommunications industry, which itself is subject to an awful lot of regulation already. If Telecom becomes separate then you have to rewrite a lot of it. I think if you look at what was in MED’s documentation in August/September in terms of their consultation document, it would have foreshadowed it.

Did Telecom have a hand in writing some of this or was it a complete surprise, when it went public was it the first time Telecom had sighted it?

It was the first time we had sighted it. Obviously we knew the areas that it was likely to cover, some of those were highlighted by us when we put in an alternative proposal to the government. Some of them are a consequence of us separating, so therefore we would understand more than other people what was necessary. It’s an MED document to a select committee, so while we obviously have been part of the consultation process and want to influence the sort of things they’re going to do, it is their document, not ours and they, on behalf of the minister, will be expected to steer this through the select committee, not us.

Can you rank Telecom’s chances for UFB in Auckland, Christchurch and Dunedin?

Our proposal is for the remaining part of the country. It is not a proposal for Auckland, Christchurch or Wellington. It was a proposal for the parts of the country not covered by the two bits that they’ve done. We haven’t bid for Auckland, we’ve bid for 82 percent (of the project).

If you don’t get 82 percent, you’re not doing it?

I said we haven’t bid for Auckland, we’ve bid for 82 percent.

So it’s all or nothing, what if you get Dunedin, and you don’t get the rest of the country. Or what if you get 30 percent? Does it have to be the full 82 percent?

We’ve put a package together that included pricing commitments, coverage commitments for which we would be prepared to separate Telecom into two pieces.

So what’s the percentage – 82 percent or nothing or is there...

I think the package has to hold.

Define open access. You’ve got to have open access on layer one and on layer two What is your understanding of open access?

My understanding is the way that things are written at the moment is that there’s an open access point to point fibre services from day one and there’s a large number of services that you would expect business customers to take. Those point to point services are available in the market place today [and] they tend to be used by the ISPs, not services that end customers purchase but they’re purchased by providers, network companies.

Would you share the ducts; that would be open access at layer 0?

Share the ducts with who?

If you put a duct into the ground as part of the UFB and you put your fibre in and then a CityLink or someone like that comes along and says we’d like to put a fibre in as well. Is that what you’d understand to be open access? Would that be possible under UFB?

We do that sort of thing today anyway.

Have you got an example?

All the providers today when they’re opening up, when they’re building new stuff, tend to talk to other people to see if they want to share.

So there will be open access at that layer as well?

I think it would be questionable under the model that’s existing as to whether you’d have a second fibre provider, because the duct is only a small part. It’s significant, but there are an awful lot of costs in there. There’s nothing to stop people laying fibre at the same time, I just don’t think it is very likely.

We’re not, for example, going to lay fibre in Whangerei suburbs alongside Northpower. We’ve already got an extensive fibre network there and also the other thing is a lot of these providers aren’t using duct, its overhead.

You’re the first person to ask the question so I’m struggling a bit to answer it because nobody has ever said, 'if you get UFB can we put our fibre down as well'? I think it has been thought of by most people as a winner takes all kind of thing.

Migration from copper to fibre – how would you envisage that?

I think the pathway is retail service providers offering compelling services that work over fibre. So the big migration is going to come when there are video services that will work over fibre. That I would have thought is the killer application that will drive most of the migration.

If Telecom got the UFB and it laid the fibre…

If we get UFB it will be Chorus that gets UFB.

So Chorus has got UFB, the PSTN sits with Telecom Retail or ServiceTel, so where is the incentive for ServiceTel, which would be a massive retail arm – you’ve got 55 percent of broadband connections in this country – where is the incentive for them to hook their customers up to Chorus 2 fibre or UFB fibre?

The same as it is for all retail service providers – the end-user demand will drive service providers to migrate their services onto fibre. It’s only a case of when it happens, not if it happens.

When do you think it will happen?

I really don’t know, the market isn’t advanced anywhere around the world to say its 'x' years after you lay the fibre. It is going to happen. It is like a lot of things in telecommunications. It will be slower to take off then you think it is going to be and then once it takes off it will be faster to really take off than you think.

This stuff will just explode but usually it explodes when the end user sees something in it for them. It’s nothing to do with the network provider or my bandwidth’s bigger than your bandwidth. For suburban New Zealand, which is what fibre to the premise is aimed at getting, it has to be entertainment in the first instance that will be the big driver.

I’ve heard that CFH is very focussed on price and they showed us a wholesale price that started at $40, is that something Chorus 2 could do?

You would probably have to think that in order to get through their process everybody has to get to a price that is pretty similar because you would think they would be wanting to offer national prices.

Could you go lower?

It is a commercial process. They set a target about where you need to get to, we have obviously got through that hurdle to be into the negotiating room and of course we’re negotiating hard. But we are not spending a lot of time negotiating price.

What are you spending the time negotiating?

There are a whole set of complexities, but price is a relatively easy one to get through.

Shall we switch quickly to the RBI?

Yes, it is more exciting.

Tomorrow, Mark Ratcliffe discusses Telecom’s involvement in the Rural Broadband Initiative.

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