Market realities

Why haven't consumers adopted alternatives to ADSL?

The Government's flirtation with "intermodal competition" has come crashing to a halt with the news that Wired Country is up for sale.

Intermodal competition is the polite way of saying "if you want to compete in the telecommunications space you have to build your own network" and is touted by the Government as a better bet than "facilities-based competition" which means everyone competes to offer services on Telecom's network.

I can see the point. You aren't going to get a lot of innovative new technologies being developed if all everyone's doing is trying to eke the most efficiency out of Telecom's copper lines.

Having said that, who is going to pay to build a separate network to service, at best, four million users? TelstraClear in its various forms has spent more than a billion dollars and not managed to get a national network; Woosh has raised $150 million in capital and has less than 10,000 customers to show for it; and Wired Country has spent $19 million and has only 2000 customers despite offering better latency, better pricing plans and better traffic limits.

It's just too costly to try to compete with Telecom, which has an existing network, an existing user base, is the country's largest advertiser and one of the most prolific lobbyists in the land. Telecom already has a customer relationship with almost every household and business in New Zealand and makes the most of that position. As you would expect, Telecom isn't a social service — it's a business with one goal in mind: to improve shareholder returns.

But that doesn't help us out here in broadband land. As we watch the rest of the OECD pull away from us, we're stuck with a Government-mandated non-broadband upload speed and one provider of infrastructure for all our telecommunication needs.

David Cunliffe certainly has his work cut out for him. As the new Minister of Communications, he has to battle with the Commerce Commission's 128kbit/s upload maximum speed, something he's already got his eye on, as well as our late entry into the broadband game. This idea that we will be in the top half of the OECD for broadband uptake will take years to achieve, and that's only if everyone else stops moving the goalposts by increasing uptake and increasing their minimum speeds.

Does intermodal competition work? Yes, it certainly does. You only have to look at the UK, Canada or the US where cable broadband offered direct competition to the telcos from the very beginning to see that it works and works well.

New Zealand, however, does not have an entirely separate cable modem network. It does not have any national competitor to Telecom's network at all and there's not much likelihood that one will emerge. Not only would the competitor network have to be highly profitable from the very outset, but it would also have to deal with the Commerce Commission's interpretation of the Telecommunications Act with regard to the Telecommunications Share Obligation (TSO). The Commission is making any company that interconnects with Telecom pay a share of the TSO costs — which that means Vodafone, the only company that has actually built another national network, has to pay $13 million a year to compete with Telecom. So much for intermodal competition

Cunliffe has already heard from the MED on just this topic. The MED advised the Minister that unbundling of Telecom's network "may be the most efficient (or perhaps the only) way to achieve competition given New Zealand’s small, thinly-dispersed population and rugged terrain". The decision not to unbundle was based on the urgent need for broadband competition in the New Zealand market. It would be quicker to introduce wholesale than to fight with Telecom for years over unbundling, said the Commission. That whole ethos may have to be rethought given the lack of intermodal competition. If Telecom misses its wholesale broadband target it might be the Government's last opportunity to remodel the market.

There's a bigger question here: why haven't consumers taken up alternatives such as Woosh and Wired Country? Is it too hard? Why haven't they flocked to these new plans, to these new networks? What's holding back the market? CityLink in Wellington seems to do alright — is that only because of Wellington City Council's support?

There are three legs to this market: supplier; regulator and customer. It's up to customers as much as anyone to demand the market they want.

Brislen is a Computerworld reporter. Contact him at paul_brislen@computerworld.co.nz

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