UPDATE: No faster UBS leaves providers in lurch

High contention rate and low margin leaves ISPs unimpressed

ISPs and industry groups are concerned that Telecom isn't playing fair with the new, faster broadband offerings launched on Monday.

Although it launched retail plans for its ISP Xtra, Telecom has not made equivalent Unbundled Bitstream Service (UBS) available for wholesalers. Instead, Telecom wrote to ISPs before it launched the Xtra retail and WBS plans, asking them if they would take up a new UBS deal with cheaper and faster service instead of seeking a regulated service.

In addition, the new plans are unlikely to deliver the promised speeds, says one ISP.

Inspire Net managing director James Watts says that while the 3.5Mbit/s plan with 512kbit/s upstream could work well for many people, it is severely limited by the low committed information rate (CIR) of 24kbit/s per user. This, Watts says, is slower than modem speeds and with an up to 85:1 contention ratio (number of users sharing the network bandwidth), Telecom's DSL platform won't support streaming media during peak hours, such as the live coverage of the ASB Tennis Open recently.

ISPs Computerworld has spoken to report many customer enquiries for the faster and cheaper plans already. As providers do not have wholesale plans yet, they are concerned that Xtra will take customers from them.

Adding to the pressure, Telecom says in the letter to ISPs that it wants broad acceptance of the proposal to go ahead with a formal offer. If that condition is met, four new UBS plans will be ready from April 1 to coincide with Xtra's retail ones. Should just one wholesale ISP indicates that it will seek a regulatory service instead, Telecom will reassess its position according to the letter and not put an offer on the table.

As a further deal sweetener, an installation credit of $88 is proposed and Telecom says it will give ISPs that wish to wholesale other products such as phone lines the same increased discounts that TelstraClear has been offered.

Asked if not having UBS plans ready for wholesalers at the same time as Xtra launches its retail ones, Telecom spokesman John Goulter would only say that the telco is currently discussing UBS speeds with the ISPs. This will give them access to the same speeds as the new retail plans, Goulter says, but he would not be drawn on when they are available.

TelstraClear says it believes will have the same offerings as other ISPs from April 1, group manager of communications, Mathew Bolland says. However, Bolland says that currently, TelstraClear only has two UBS plans, negotiated commercially with Telecom in December in lieu of a regulated service.

The chief executive of the Telecommunications Users' Association of New Zealand (TUANZ), Ernie Newman, wrote an open letter to Callplus, Ihug and Orcon over the weekend, urging them not to accept Telecom's UBS proposal. Accepting the offer instead of seeking a regulated service would condemn New Zealand to "broadband oblivion" for the next two years, Newman says in the letter. He points out that 3.5Mbit/s service is "ancient history" and that the going fare elsewhere is now 24Mbit/s for less money. At the same time, Newman and TUANZ says Xtra's new retail plans are a "significant move in the right direction" and urges small businesses to take up broadband at reduced prices.

Of the wholesale ISPs, only Orcon has publicly said it will accept Telecom's proposal. Orcon spokesman Scott Bartlett describes the new plans as "mediocre at best" and says the ISP is concerned that by making their retail plans public before UBS equivalents are ready, Telecom is forcing ISPs to sign up to their commercial offer. This, Bartlett says, hampers Orcon and other ISPs ability to negotiate improvements to Telecom's proposal.

Ihug on other hand doesn't feel cornered by Telecom's actions, says its manager of regulatory and industry affairs, David Diprose. While stile pushing for local loop unbundling, Ihug is determined to negotiate a better service from Telecom. Should that fail, Diprose says Ihug will apply for a regulated service.

Echoing the sentiment of Orcon and Ihug, CallPlus founder Annette Presley says Telecom's early launch of retail plans without wholesale equivalents leaves her ISPs "stuck between a rock and a hard place".

Presley says CallPlus won't commit to the proposal, but wants a formal offer from Telecom instead on which to make a business decision. Describing the lowered pricing and increased speed as a "move in the right direction", Presley points out that on average, CallPlus users typically go through five to six gigabytes a month of data. This means that customers on the 256kbit/s plan will go through their data cap in just three days, Presley says. The 3.5Mbit/s downstream speed isn't very impressive compared to overseas, Presley says, where it's considered as the starting point for broadband.

InternetNZ president Colin Jackson expresses scepticism that the new plans are sufficient to stave off government intervention. Jackson says Telecom has played the "reducing prices and increasing services cards" before to avoid unbundling. However, Jackson says he has no doubt that the government will see through Telecom's latest attempt to avoid regulatory change. He also warns that as in dealings with Telecom, the devil's in the details and there's not sufficient information available on the new offerings.

The minister of communications, David Cunliffe, was not available for comment but has indicated in newspaper interviews that Telecom's new broadband offerings may not be sufficient to stave off further regulation.

Brave New Broadband

From April, Xtra customers will have seven new plans, starting with 256/128kbit/s and 200MB per month for $29.95 including GST and a 2c per MB excess usage charge. The fastest plans will be three new 3.5Mbit/s/512kbit/s ones, with 10, 20, 40 GB limits, costing $79.95, $99.95 and $149.95 respectively. A 2c per MB excess usage charge applies once the monthly data limit is reached. Customers who do not put their toll calls through Telecom pay a $10 per month penalty.

For wholesale customers, Telecom offers only the Wholesale Bitstream Service (WBS) resale option with low margins and data caps, with seven plans equivalent to the Xtra retail ones. For example, the top-end 3.5Mbit/s/512kbit/s WBS Pro Ultra plan with 40GB monthly data allowance costs ISPs $129.15 in Zone 1, where Telecom has no competition, and $112.67 in Zone 2 where there is competition, with excess data charged at 1.6711 and 1.4578 cents respectively, plus GST.

On top of the cost of the plan, ISPs also have to factor in a port charge of $2 plus GST. In Zone 1, this would mean the 3.5Mbit/s/512kbit/s 40GB plan costs $131.15 plus GST; Xtra retails the same plan for $133.29 plus GST, leaving ISPs with a $2.14 margin a month.

A key change with the new retail and WBS plans is that full-rate DSL, which can provide up to 7.6Mbit/s downstream and 700kbit/s upstream speeds will no longer be available. Many businesses requiring faster upstream use the full-rate plans, even though they are the most expensive in the OECD by a huge margin. Telecom will move customers on on these plans, which with caps of 10GB or more cost thousands a month, to the cheaper but slower 3.5Mbit/s/512kbit/s service options.

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