ISPs reject new UBS offer as unworkable

Cheaper plans for customers, increased costs for ISPs

ISPs are refusing to sign up to the new wholesale UBS offer from Telecom which they say will cripple them financially.

Although Telecom promised to provide a “level playing field” with equal terms for wholesale and retail, the incumbent will be first out of the gate with improved DSL offerings.

From April 1, Xtra will have new 3.5Mbit/s downstream plans with both 128kbit/s and 512kbit/s upstream — the latter variant being particularly of interest to business users looking to move from full-rate DSL, which is currently the most expensive in the OECD by a large margin.

Initially, Telecom wanted ISPs to sign away their rights to approach the Commerce Commission for a regulated solution before they would be given a formal wholesale offer.

However, Chris Dyhrberg, head of wholesale marketing at Telecom, says the the telco reassessed its position on the proposal and withdrew the requirement as it would have been unfair to ISP customers, given the early announcement of the retail plans. Telecom has now sent out a formal offer on the new UBS to providers.

Dyhrberg adds that ISPs can resell the retail-equivalent Wholesale Bitstream Service (WBS) plans, and says the seven weeks’ notice should be ample time for ISPs to decide on UBS.

ISPs however are already feeling the pressure from Xtra’s announcement of its retail plans, and are fielding enquiries from customers.

Brett Herkt, managing director of Maxnet, says retail and wholesale customers have contacted his ISP to ask if it will match Telecom’s offer in April. Some business customers contrast the $900 that the Jetstream 10,000 full-rate plan costs with Xtra’s $149.95 for the 3.5Mbit/s/512kbit/s one, and want the price lowered, says Herkt.

Large UBS provider Orcon is also feeling the squeeze from Telecom, and says Xtra’s announcement of the plan forces its hand in the negotiations with the telco. Seeby Woodhouse, managing director of Orcon, is less than impressed by the new plans, describing them as “mediocre”.

Ihug’s general manager of regulatory and industry affairs David Diprose, who is also the president of the ISP Association of NZ, says the formal offer “does not excite us”. Diprose says Ihug intends to continue negotiations for a better UBS deal and, if that fails, seek a regulated service.

The position for TelstraClear is uncertain. Group manager of communications Mathew Bolland would only say that TelstraClear will get whatever the other ISPs receive from Telecom, but exactly what that is remains up in the air.

A technical manager at one ISP who spoke on condition of anonymity says the new UBS deal is bad to the point that it will cripple providers who sign up for it. To his knowledge, nobody has yet bought the service.

One of the “fish hooks” in the deal according to the manager is the lowered aggregate monthly data allowance for each UBS customer. This applies to providers that use Telecom’s backhaul service and is currently set at 10GB per customer access, with $2.85 per GB plus GST excess charge. Telecom has not been able to enforce this limit so far, allowing ISPs to market flat-rate and high data cap plans.

With the new UBS however, the limit has been lowered to 4GB with a smaller excess charge of 50c. Asked why the cap was decreased, Dyhrberg says Telecom’s statistics show that on average UBS customers only use 3GB. Telecom added a “generous” 1GB margin to that and claims the new cap is an improvement rather than a worse deal.

However, the anonymous ISP manager disagrees, saying the average usage for UBS customers is far higher than 3GB, with some hitting 10GB or more a month. “The lowered cap is unacceptable and will hurt all of us,” he says.

The manager also described Telecom’s backhaul as “something from the dark ages”. Currently, Telecom only offers 155Mbit/s ATM circuits, which after protocol and transport overheads provide approximately 125Mbit/s worth of IP bandwidth. When UBS was launched, Telecom promised it would implement shared Network to Network Interfaces (NNIs) instead of requiring providers to buy ATM circuits for the backhaul.

However, Telecom has never implemented the Shared NNIs, and instead ISPs are required to pay $4,000 a month for each ATM circuit. The difference in cost is large, the manager says. Shared NNIs require an ATM switch with interface card for a one-off cost of around $10,000, with no monthly charges on top. ISPs with many UBS customers are forced to rent multiple ATM circuits from Telecom at $4,000 a month each, even though the telco can deliver backhaul over cheaper and faster Gigabit Ethernet at 1,000Mbit/s.

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