- What more is there to say?
- What more is there to say?
It's not often I start the year with such a bang but this year was like a baseball bat to the back of the head (metaphorically speaking).
Just what the Telecommunications Commissioner is thinking is quite beyond me. I've read the report. I've read the appendix to the report. I've read the submissions from various parties and I've read the draft report. I've even read the transcripts from the conference to find out what was said in public by the various companies and participants.
I've read the cost-benefit analysis done for the commission that outlines just what it's all about and still it's beyond me.
I'm talking about the unbundling decision, in case you're late to the game. Oh, and welcome back, by the way. Do pull up a chair and fasten your seatbelt. This is going to be a bumpy ride.
The final report contains over 200 pages of argument and definition. Most of it is unnecessary to this discussion - it outlines and defines this local loop thing in great detail. Let's just call it Telecom's network and be done with it.
Every step of the way through the report the commissioner outlines the arguments surrounding each issue. Usually there's a pithy little line that says "we listened to Telecom's argument about [fill in the blank] but decided it wasn't relevant/was misguided/used incorrect numbers/sounded silly and so have rejected that point of view". All the way through. And then at the end it gives Telecom the market on a platter.
We won't be unbundling because it's too difficult, there's too much risk and doesn't bring in enough of a benefit to make it worth while.
First things first. The commissioner's own report rejects the idea that it's too difficult. There's even a quote from Nortel, the networking company that says yes it's complex, yes, it's fiddly but it's networking. We do it all the time. We have precedents, we have experience, we wouldn't have a problem with it.
The second point is possibly the biggest red herring of all time: it's too risky. Telecom, BCL and Woosh all stood there with straight faces (it says so in the transcripts) and told the commission they would cease investment in the network if unbundling was introduced.
This is such nonsense it's hard to know where to start. BCL's Geoff Lawson told me only a handful of days after the conference that there was no way BCL would back off from its new-found market strategy and that having invested as much as it had it wasn't about to pull all the gear out and go back to being a broadcasting company again.
The cost-benefit report also rubbished the claim, pointing out that network innovation has carried on everywhere else in the world despite unbundling and that it couldn't see any reason why New Zealand would be any different.
I have to say the argument doesn't stack up in Telecom's case most particularly. If Telecom is forced to offer its network to other users, that doesn't mean less traffic on it; it means more. It wouldn't receive less income from the network infrastructure, rather with the increase in customers and the increase in traffic it's likely to see more income from the network than if those same customers build their own networks and go elsewhere.
Telecom waved the red flag about its all-IP network, the so-called Next Generation Network (NGN). Oh we'll be screwed if we have to give out access to that, cried the lawyers and accounts and managers. How is this so? The entire telco world is moving to IP not because it's nice or the like the acronym but because it makes financial sense. It is cheaper by several orders of magnitude to make everything data and treat it as such.
You can do more with it and every service you offer will cost less, making your margins greater than you've seen in a long time.
However, the commissioner bought this idea hook, line and sinker. Telecom's NGN must be protected at all costs, comes the cry. More on that in a moment.
The third point is the most unpalatable I feel. The benefits from unbundling aren't enough to outweigh the costs.
The cost-benefit analysis is basically a giant calculated guess at the costs and benefits. It's calculated because Telecom and the other players provided a great deal of technical and commercially sensitive material to the commission for the study. But there are so many unknown factors that there has to be some wiggle room. This was built in to the study.
First of all it took out those exchanges that are deemed competitive, even though they barely make it into that category. There are five of them - central Auckland and Wellington being two. Once they're excluded from the equation, the analysis took out all manner of other components that may be considered positive benefits. In the end they lopped a good 25% off the final figures just for the hell of it to make sure it was ultra-conservative. It wouldn't do, you see, to be over-promising and under-delivering on such an issue.
Even after all the hedging against unbundling, even after all the cutting, the analysis still came to the conclusion that unbundling would be of benefit, albeit at only $5 million a year.
That's not enough, says the commissioner, who ruled out unbundling of the local loop in favour of a wholesale regime.
Spitting out the bad taste for a moment, what exactly has been proposed and what exactly will we see?
The commission has divided the market into business and residential. Forget for a moment, if you can, that we're talking about essentially the exact same network. There are two levels of service in the commissioner's mind: business grade and internet grade. Business grade means you get quality assurances and can run a business on it. Internet grade means you get what you're given.
Business users will be serviced by a late-to-the-table offering from Telecom. In November, during the conference on unbundling, Telecom offered to provide to the market unbundled partial private circuits (UPCs). Everyone I spoke to at the time scoffed at the idea. Telecom always does this, they cried. I don't even know what a UPC is, to be blunt, but apparently it's something of a bottleneck in the whole provision of broadband services to the business market.
The commissioner's bought it though. He's told Telecom even though the service you've offered isn't up to scratch, I'll give you six months to make it work with the industry. If it doesn't fly by then, I'll reconsider unbundling.
Basically that's a further six months’ fund raising efforts as far as I can see. There is nothing in the Telecommunications Act to stop the commissioner from suggesting one level of service and for Telecom to go beyond that and offer more. Nothing.
Residential users will get a wholesale ADSL service. This is interesting, I thought. It's called Bitstream access in New Zealand and goes by a variety of names in other countries, but basically it's a quicker, cheaper way of letting the competitors in to the incumbent's network. They don't need to buy their own equipment or lease space in the exchanges for it, they just get access to Telecom's infrastructure at a certain level to offer their own service.
Well, almost. The problem is there are very few technical specifications for this service in the commission's report. Instead of getting its hands dirty the report simply outlines what the service can and can't do in layman's terms. So, the service is not supposed to offer anything Telecom's NGN will offer (protecting that investment again).
In fact, the service the commissioner is proposing is, at its minimum, worse than the existing JetStream product offered by Telecom today.
The new ADSL service will include a minimum download speed of 256Kbit/s, which is nice. That's a minimum. Upload speeds are to top out at only 128Kbit/s however, which is less than I currently get on my connection. Why? To stop the other telcos offering "real-time" applications. What are those? Voice over IP, video conferencing and potentially online games. Anything that requires upload speeds or some symmetry of service. Forget it. You'll have to buy that off Telecom when its new NGN goes live.
In addition, the greatest omission in the service specification is, I believe, the lack of clarity over who gets to control the connection.
If you're like me, networking is something of a black art. It's mysterious, it's got its own language, signs, sigils and it makes no sense whatsoever.
However, I do know there are various layers to a network - layer one is the physical structure, for example. Layer two is where the basic control of the network lies. If this wholesale service is to be controlled by Telecom's competitors they need access to the second layer to really control the connection. If they don't get that then it's Telecom that controls the connection and the new players get to do nothing. They can't offer faster, better quality service because they don't have access to that kind of functionality. They're stuck, in other words, reselling a Telecom service all over again.
Unfortunately this is not even mentioned in the commissioner's report. There's just no way of knowing whether this will be true bitstream access, where the telcos get control of the service, or just another resale service with Telecom setting all the service levels.
While that's all bad news, the process is far from over. The government has called for yet more submissions on the final report (but thankfully only on new issues not rehashing the old ones) and will consult with the ministry of economic development over it. Expect to see a decision in May. Then it gets added to the Telecommunications Act, then the players get to negotiate over the new terms and conditions, then (if that goes badly - what are the chances?) it gets regulated by the commissioner, then a service is delivered. Be still my beating heart.
If we added up all the legal fees, the time take to prepare and then read the thousands of pages of documentation, the meetings, the salaries, the absolute waste of energy, you'd probably have enough cash to give everyone in New Zealand a broadband connection of their very own. Instead, it would appear that everyone's forgotten about the end users in this game. I had to laugh - the counter-factual in the cost-benefit report, the thing that outlines what would happen if you did nothing, says the price of DSL services in New Zealand is expected to fall by 3%-5% in the next five years. I have no idea what they based that on.
In here you'll find the full cost-benefit analysis among other things