Investigate Magazine,  July 2006
A cure for communications constipation

This feature appeared in a slightly amended form in
Investigate Magazine July 2006, Issue 66
Breakout boxes:
Still waiting after all these years
In the broadband basement
Growing demand for triple play services
Toying with the future
Terminology simplified
Download guidelines



Constipation: A condition of irregularity caused when the system gets too dry and muscle contractions become slow or sluggish. This can lead to irritability and obstruction. Causes include dehydration, lack of physical activity, aging and insufficient fibre, leading to problems with internal functioning. This can be cured by changing dietary habits, using laxatives, taking on more fibre, an enema or in rare cases surgery.

By Keith Newman

The government, pressured from all sides to open up faster and more affordable internet access, has administered the first of a series of enemas to Telecom in the hope of relieving New Zealand’s communications constipation.

No-one could say Telecom wasn’t warned. Its endless tactics to keep broadband internet prices high and access speeds low, and its rapid response to defend its patch by placing obstacles in the way of competitors, are legend.

It has been a long held belief in the industry that New Zealand’s $5.3 billion telecommunications market, up from $3.6 billion in 1997, should be experiencing more robust growth. The main obstruction is Telecom’s failure to take its foot off the broadband hose.

As it is Telecom makes about $2.4 billion from local service and calling revenue and only a few entrepreneurial players, including service and equipment providers, get to share the rest of the pie. Even its competitors, TelstraClear being the largest of these, end up as its customers.

New Zealand squandered the enormous advantage it once had as the first nation in the world to fully deregulate its telephone industry. In 1987, a year ahead of deregulation, the government restructured and modernized the old Post Office monopoly which it promptly renamed Telecom and sold it to the highest bidder.

North American carriers Ameritech and Bell Atlantic snapped up the carrier in 1990 for a mere $4.25 billion and soon the media were full of their hype about on-line shopping, hundreds of movie channels, interactive services and the important edge we would gain in the knowledge economy.

Take the money and run

Investment soon slowed to a trickle, as thousands of staff were sacked, our largest company was trimmed down to the bones. Some very broad assumptions were also made by the new owners; from the outset there was no clarity about who owned the copper in the ground, the telephone lines or the phone numbers. That debate still goes on.

In 1997, after Ameritech and Bell Atlantic had siphoned the bulk of profits offshore and learned enough about deregulation to gain the edge in their soon to be deregulated home patch, they exited stage left.

Under new ownership and management the litigious environment, created around protecting the incumbent’s hold in the now allegedly free market, continued with true competition, particularly in data services, further stalled.

The persistence of Clear Communications (later TelstraClear), saw over time a highly competitive voice market evolve and through Vodafone, dominance in the cellular market was wrested from the giant carrier. By the late 1990s the focus turned to the high cost of internet-based services which had become critical for business and increasingly attractive to domestic users.

Again we had an opportunity to lead the world but because of ‘light handed’ regulation Telecom continued to monopolise the ‘last mile’ of copper connections into businesses and homes, keeping competition at arm’s length.

Reinvestment in Telecom remained at a low ebb, in fact the focus seemed to turn offshore with the 1999 loss-making acquisition of AAPT which remains to this day the oddest of all investments when its home turf was in desperate need of attention.

Until recently Telecom, dictated connection speeds and imposed data caps, preventing anyone other than itself from delivering internet performance greater than 2Mbit/sec for downloading and 128kbit/sec for sending. It stated on many occasions it would only increase speeds when the market demanded, but even under a deafening roar of protest, it continued to drip feed services as saw sees fit.

Still waiting after all these years

Keith Newman has been writing about technology for 20-years, with a particular focus on telecommunications, the internet and the shift toward interactive multimedia. He has been an ardent internet user since the bulletin board days of the late 1980s. A decade of painfully slow dial-up modem speeds forced him to subscribe, first to an ihug satellite-based service, then in the late-90s to Telecom’s Jetstream ‘full speed’ service.

He was promised at least 2Mbit/sec - 5Mbit/sec download speeds with a 600Mb data cap for $59 a month. It was expensive but he could be on the Internet and use his phone at the same time. Working in the publishing industry however meant he often went over his data cap dealing with large files, graphics and photographs. One month he and his son experimented with international radio stations and song downloads resulting in a $500 excess charge. Seeking a higher data cap he was informed his ‘full speed’ account had been grandfathered’ after Telecom divided its Jetstream offerings into lower speed 128Mbit/sec, 256Mbit/sec and 2Mbit/sec accounts. Even recently could go for a 3.5Mbit/sec account with a 10Gb cap, and pay .95 cents more but for a slower account than he had. He stubbornly resists, waiting for true competition to deliver a saner option.

Footnote: The author finally conceded the lesser of two evils after maxing out his 600Mb cap too many times and in July 2006 settled on a 3.5Mbit/sec account with 128kbit/sec upload through Xtra. This noticeably curbed the download speed and markedly slowed the upload speed for larger emails. The concession at least he has 10Gb of data to work with now and can view video and audio streams without too much fear of breaking the bank.

Gamekeeper and poacher

Successive governments, either intimidated by our biggest company or blinkered by the contradiction of ‘hands-off’ regulation, in effect protected Telecom’s right to maintain the bandwidth bottleneck. Telecom continued to play gamekeeper and poacher, all but ignoring ministerial threats to play fair or face legislative changes.

Most recently Telecom CEO Theresa Gattung called communications minister David Cunliffe’s bluff when he threatened regulation. Addressing analysts in Sydney in March, she said the government was far too smart to "do anything dumb" like unbundling; suggesting the broadband issue was just a "manufactured grievance" created by competitors.

It was during that unfortunate outburst that she also implied telecommunications companies regularly used confusion as a marketing tool to keep prices up, and that customers knew at some level they were not being straight up.

When you fail to take your foot off a high pressure hose its inevitable there will be a leak. That leak, delivered by rogue Parliamentary messenger Michael Ryan into the hands of a senior Telecom employee on May 3rd proved the government was indeed serious. A budget announcement was planned to bring New Zealand in line with 26 other OECD nations by legislating for local loop unbundling (LLU).

Once the news got out, it shaved an instant billion dollars off Telecom’s share index and while those shares are slowly bouncing back, Telecom now has to rethink what it means to operate in the unconstrained market promised to the country for nearly 20-years. Strong intervention in the telecommunications market would, for first the first time, literally kick start a new era of competition.

Telecom would be required by law to allow its rivals to install their equipment at its exchanges. Their latest generation DSL2+ DSLAMs are capable of delivering download speeds up to 24Mbit/sec. The government says the existing 128kbit/sec cap on upload speeds will have to go. Telecom will have to open up its books and technology roadmap, and separate out its wholesale and retail divisions so the Commerce Commission can monitor its compliance.

The government would renegotiate the Kiwi share (Telecommunications Service Obligation), put in place when it sold Telecom, as an incentive to improve broadband access in rural areas. There may also be action to prevent Telecom starting price wars to keep its customers.

Devil in the details

As several players have pointed out, the ‘devil is in the details’ and it is imperative for the industry and broadband customers that the technical and commercial framework of the legislation is rock solid and unambiguous.

At least 26 OECD countries have been there and done that, and have frameworks and legislation in place. How difficult would it be to cut and paste, then refine that framework based on local requirements, rather than attempting an entire rewrite of the law?

Unbundling has been spoken about for many years but was first raised as a serious option in late 2003. Despite industry pressure the Commerce Commission, and newly appointed Telecommunications Commissioner Douglas Webb, favoured giving Telecom another chance.

However, Telecom though continued ‘marketing deceptions’, inflating its broadband figures by including 128kbit/sec speeds when the global consensus was a minimum of 256kbit/sec and in some cases 2Mbit/sec or 10Mbit/sec. It took until mid-2004 for Telecom to revise its minimum to 256kbit/sec after an ultimatum from the Commerce Commission to connect 250,000 new broadband customers by the end of 2005. A third of those customers (83,333) had to be connected by wholesaling to other internet service providers (ISPs).

Telecom failed to deliver, lamely arguing it believed its target was 50,000 wholesale connections, or a third of its total growth over the period. Telecom had not only made it uneconomical for competitors to wholesale services from its network, it had kept such tight data caps on accounts that ISPs and their customers they had to pay a huge premium if they were to stream or download any significant music, film or rich data.

Less than a year ago most ISPs couldn’t get 2Mbit/sec download speeds from Telecom and were restricted to upload speeds of 128kbit/sec. By May 2006 New Zealand had an estimated 300,000 broadband subscribers, or around 8 percent of the population, including 100,000 customers outside of Telecom’s Xtra network.

Impossibly optimistic

All of this made a mockery of the ambitious talk that New Zealand could gain a top place in the OECD broadband figures by 2007, and in its Digital Strategy goals or most residential homes to have 5Mbit/s broadband that year. The further suggestion that this might reach 50Mbit/sec by 2010 seemed impossibly optimistic.

Ahead of the LLU announcement, government pressure forced reluctant concessions from Telecom after TelstraClear won a Commerce Commission ruling. In December 2005 it was determined it should be allowed unconstrained access to the full speed of Telecom’s network at average retail prices less a suitable margin. That should have given Telecom’s largest competitor access to 7.6 Mbit/sec speed services at $20.47 per customer. However Telecom contested this, and rather than prolong the debate TelstraClear caved in to a 3.5Mbit/sec compromise.

The new deal was immediately passed on to Telecom high end account holders who were recently upgraded from 2Mbit/sec to 3.5Mbit/sec download speeds. The controversial upload speed remained at 128kbit/sec unless you were a premium account holder paying $80-$100 a month, in which case you would get 512kbit/sec upload speeds.

The new tougher regulatory environment will be outlined in the Telecommunications Amendment Bill, expected to be introduced into the House possibly before August, with the legislative process continuing through into 2007. The Commerce Commission would then need to be given new powers and rules to enforce the Act, which in itself could take time. Full consumer benefits may not be evident until election year 2008.

Hopeful competitors are promising internet surfing will power up to between 10-24Mbit/sec, finally bringing the country in line with the streamlined services enjoyed in many other countries. Meanwhile the pressure is now on to revisit the TelstraClear determination, forcing Telecom to lift its boot even further off the broadband hose ahead of local loop legislation.

At the end of May, CallPlus and ihug were leading the charge for unconstrained bitstream (UBS) access believing the Commerce Commission would now deliver on its original promise of 7.5Mbit/sec. This they believed could happen as early as October opening the way for faster sub-$30 broadband accounts.

In the broadband basement

New Zealand remains a digital ditherer, down with the sluggards in the bottom quarter of the OECD broadband penetration statistics at 22nd place for the third year running, a dire position confirmed in an independent survey by InternetNZ.

While our internet access cost was considered reasonable, restrictive data caps limited the effectiveness of our high speed access. We were only saved from being the compost at the bottom of the heap by the recent move to free up wholesale 3.5Mbit/sec speeds currently being implemented by many ISPs.

A total of 2586 residential and business broadband packages from 388 ISPs over the 26 countries were analysed in the InternetNZ survey, with data from early May confirming we were indeed ranked at 22nd place. We had more data caps than any other country and less choice for broadband access than Australia, Ireland and Britain. Our low upload speeds also came in for criticism.

As an ITC nation the annual IDC Information Society Index ranked us at number 17 of 53 countries in 2005 but when our low levels of broadband were taken into account we slipped back to position 28. Australia was at 7th place, the US 13th and the UK placed at 19th.

The Information Society Index takes into account computer, telecommunications, internet and social aspects, and combines a country’s ranking in these areas. The internet index was based on the number of web users, e-commerce maturity, home and mobile web users. Again the not so magic number; we were placed at 22nd.

Earlier in May the 2006 World Competitiveness Scoreboard of 61 national and regional economies saw New Zealand fall from place 16 to, you guessed it. 22nd place with the the footnote ‘must improve broadband’.

All of this makes a sham of the government goal to have us in the top half of the OECD figures by 2007 and the Digital Strategy promises to have 5Mbit/sec DSL available across the country that year, possibly soaring to 50Mbit/sec by 2010. Under the old regime at least, those goals were impossibly optimistic.

Communications minister David Cunnliffe agrees we are at a real risk of being left behind. "No broadband means no play. Do not pass ‘go’. Do not collect a first world income. Do not expect the next generation of the best and brightest to live in New Zealand."

There’s no question we are a highly technically literate and innovative nation, with reams of ideas and inventions to share with the world. We are ideally placed, as we have been told so many times, to take our place in the information economy with only a high business tax rates, crippling compliance costs and access to premium broadband services impeding our progress.


Telecom in top shape

Despite market set backs; its market value was $12 billion last year down to $8.8 billion at one valuation in May 2006, Telecom is in the perfect position for a quick recovery.

It made $806 million tax paid profit for 2005-2006 year and invested $585 million back into its network and systems in the 2004-2005 year, and expects to spend $610 in the current year. This is part of an ongoing $1.4 billion investment in its next generation (NGN) network platform designed for more efficient delivery of voice, data and all forms of multimedia content, which further confirms it is highly geared for long term profitability.

Now Telecom is clearly trying to reinvent itself, or at least its public persona, as the nice, friendly, helpful telephone company. In a recent address to the Telecommunications Users Association (TUANZ) Theresa Gattung insisted Telecom was committed to a fair game, and not going to be obstructive, attempt to turn back time, mount rear guard action or hide behind legalistic actions.

It would act swiftly, she said, to come up with invigorating wholesale arrangements, and true to Telecom’s glossy charter would provide a consistent service delivery experience for everyone concerned, launch new intermediate products and offer greater transparency and communication.

A team of Telecom executives is evaluating a faster roll-out of interactive ‘next generation’ broadband services based on ADSL2+ and simpler, easy-to-use services reflecting the convergence of fixed and mobile services. This would include voice over Internet (VoIP) technology to deliver more affordable phone services to business and residential customers.

New networks in wings

So who’s going to benefit from unbundling? Certainly TelstraClear, ihug, Slingshot and CallPlus, Orcon, Maxnet, Quicksilver, Iconz and the dozens of smaller Internet service providers who are eager to deliver new speeds and services to their customers. Because of the high cost of creating national coverage there are widespread plans to co-operate by ‘port sharing’ or ‘credit swapping’ on each others equipment.

One consortium of investors, which wants to remain under the radar for the moment, is planning to create an independent wholesale network by installing its equipment at Telecom’s exchanges. Other bandwidth wholesalers with independent city and regional networks; Broadcast Communications (BCL), TelstraClear, CityNet, Vector, Inspire and FXnet and others, will also look at alliances so their customers also get direct nationwide access to the loop.

Also expect a new round of acquisitions and partnerships as the bigger players seek to consolidate their position, their customer base and their skill sets anticipating this new era of completion. You need deep pockets to create a national overlay network.

TelstraClear has to date spent $1.5 billion in furthering the network and business it acquired from Clear Communications and Saturn Communications in Christchurch and Wellington. It has 1400 staff, and been battling for a decade to get equitable access to New Zealand homes and businesses.

After the false hope of 2001 when it promised a major expansion of its cable network to reach 65 per cent of New Zealand homes and 80 per cent of businesses within five years, it can now finish the job by co-locating its DSLAMS on Telecom’s network.

TelstraClear spokesman Matthew Bolland admits it’s been a ‘pretty ugly’ environment for investment, and many other players, he’s waiting for the rules of the new game to firm up before announcing any financial commitment. "When you’ve been fighting every inch of the way as we have, you are very aware the only reason these things are happening is because the government has intervened."

Caution over three d’s

One of the options available to consumers is to cut the wires altogether. Vodafone and Telecom are both pushing 3G mobile phone services which deliver higher speeds for data and even videoconferencing. While mobile is a major global trend the local cost is still outrageously high for internet surfing. Wireless access however remains an attractive local loop alternative. Woosh, which has been in the game since 2001 when it was a fixed wire replacement, now has mobility as well through plug-in cards and is offering voice. Its speeds are about to ramp up from 1.6Mbit/sec to 3Mbit/sec and another technology upgrade promises 14Mbit/sec speeds by the end of 2007.

Woosh CEO Bob Smith admits unbundling is a challenge to his business but while they’re sorting out local loop legislation over the next couple of years he’ll be aggressively expanding coverage beyond the major cities. When the details are sorted out he’s keen to put in copper access equipment at Telecom exchanges to compliment the Woosh wireless network or partner with others to get broader coverage.

Unbundling has also come a little late for CallPlus Director Malcolm Dick who’s chosen high speed WiMax wireless technology as a direct challenge to Telecom’s copper. Ideally though he’d like a mix and match, so he’s tagged some of his initial $200 million investment to access the Telecom ‘last mile’.

He remains cautious, recalling his experience trying to interconnect a competing telco in Australia where Telstra publicly described his operation as "a germ invading the nooks and crannies of their tariff". He says incumbents typically use the three ds, ‘defer, deny, delay’.

Meanwhile Orcon has announced it plans to spend over $30 million over the next five years building a new wholesale ADSL2+ network, to deliver voice services and IPTV with over 50 channels which it claims it’ll be able to launch in late 2007. Ihug CEO Mark Rushworth is prepared to spend $200 million over the next two years on rolling out an alternative network which he could wholesale to other smaller ISPs. Like Orcon, he’s keen on ‘port sharing’ to quickly get the widest coverage.

Rushworth however believes only two or three players who can afford to createg their own networks. He says the ‘credit swapping’ model became the defacto way of doing things in Australia when Telstra refused to allow more than one provider into its exchanges at a time. "Optus would go into one exchange and someone else would put five cabinets in another and sell on that capacity. It certainly forced the industry to work together."

Rushworth is hopeful CallPlus, TelstraClear and ihug for example can operate similarly. "It makes a the roll out a lot quicker - we’re certainly keen to work that way so we don’t end up jumping on each others toes."

Internet service provider Iconz was forced to back off a plan to get into the digital video-on-demand business by Telecom’s ‘absurdly expensive’ access charges. If the market had opted for unbundling back then it would probably be delivering a service by now.

While the technology and the business case were there, John Russell who was research and development manager at the time, said no-one would develop "interesting, new and innovative content when they can’t push it out to the customers or let the customers interact with it at a reasonable speed".

Growing global demand
for triple play services

So why all this fuss about Internet speeds?

Well the local loop is the onramp for the information superhighway which was the focus of so much hype a decade ago, and what travels down that digital highway is changing business, industry, communities, governments and our home entertainment options.

For telecommunications carriers plain old internet access and phone calls is no longer enough – to grow revenue they must add value for their subscribers to keep them loyal. Local loop unbundling stimulates competition between carriers, and service and content providers, leading to increased investment.

The smart ISPs are already reinventing themselves. They’ve added new billing systems and server technology so identify, deliver and charge for a wide range of rich content and services such as on-demand movies or TV programming.

The number of broadband subscribers throughout the OECD continued to increase during 2005 from 136 million in June to 158 million by December with growth holding steady at 15 percent compared to New Zealand’s dire 8 percent.

An April 2006 analysis of 87 providers in the 30 OECD countries found bundled video, voice and internet access were available from 48 providers in 23 countries by September 2005. So-called ‘quad-play’ (including mobile voice) was available in 10 OECD countries.

Broadband boom leaves Kiwis waiting

The challenge for developed nations has been to create a legal framework for local loop unbundling (LLU) without getting in the way of innovation or disadvantaging competitors.

In 2006 New Zealand remained one of the few OECD nations, alongside Mexico and Switzerland, yet to legislate for unbundling. Most European Union states had introduced regulatory frameworks, although Switzerland has faced a legal challenge which held this back to 2007. While the US hasn’t technically unbundled, the Federal Communications Commission (FCC) does require incumbents to lease local loops to competitors at pre-set wholesale prices.

British Telecom is often held up as a poster child for LLU but had to be slapped into line by the government before it conceded that it too must share access to the last mile. In November 1999, the regulator Oftel stated that LLU was necessary to introduce competition for higher bandwidth services such as DSL and video on demand and that this must happen on cost-based prices. As at February 2006, BT had unbundled 300,000 local loop connections. Ofcom had been hopeful a million connections could have been unbundled by June 2006.

Meanwhile BT is countering the competitive threat to its own business by upgrading 5300 exchanges and upping the speed of its service to existing DSL customers to a maximum of 8Mbit/sec for those close to exchanges and 4-6Mbit/sec for those further out. Currently BT offers a 2Mbit/sec service with a 10Gb cap for about $NZ60. If you pay another 10 pounds the cap is removed. Since unbundling its revenues are up 6 percent and its profits up 5 percent.

New Zealand-based TelstraClear is in a unique position having been on both sides of the fence. Its Australian parent Telstra was late to the deregulation game and is still smarting from the changes. Almost half it shares were sold off when the market was opened up in 1997. Since 2000, when unbundling was decreed, around 150 competitors have homed in on various aspects of its monopoly reducing market share from 80 per cent to 62 percent.

The pressure is mounting for Telstra to reinvent itself as a more streamlined and aggressive player – it’s in the midst of shaving 12,000 jobs from the payroll and integrating its voice and data networks into a single IP-based infrastructure. This puts the Australian Federal Government in an invidious position. It’s pushing for greater competition in the market while preparing to sell off its majority (51.8 percent) grip on Telstra before the end of 2006, and in the process watching the share value diminish drastically.

Competing carriers Optus, iiNet, Primus and others mostly have their own cabinets and racks of DSLAMs within Telstra exchanges or have struck on partnerships with other providers to share access for the broadest possible coverage. There’s definitely a healthier competitive market at the result of unbundling but for some that’s still not enough.

Australian-based telecommunications analyst Paul Budde suggested Telecom should take a lesson from Telstra which also faced the wrath of the government, the regulator and the share market when it took an ‘over my dead body’ attitude in a bid to maintain its monopoly.

Budde says it’ll be interesting to see how Telstra responds to trans-Tasman regulatory harmonisation, suggesting there’ll need to be far-reaching changes to its behaviour and attitudes in Australia. "While Telstra continues to fight against operational separation in Australia I would not be surprised if Telecom were to take the future into its own hands rather than waiting for government-initiated solutions." He says Telecom needs to show it can win in a competitive environment as opposed to a monopoly.

Although Australia significantly increased its ranking in the OECD for broadband penetration (from 21st place a year ago to 17th place) in the most recent figures, James Packer the executive chairman of Publishing & Broadcasting Ltd, recently slagged the country’s internet speeds, and Telstra's pricing plans and download restrictions, as embarrassing.

He told a digital marketing summit in Sydney that the Federal government and regulators needed to step in quickly because Australian media companies in particular needed faster speeds to meet the ‘surging demand’ for video downloads of news and entertainment, including episodes of TV shows.

It’s clear Telstra still begrudgingly shares its network and flexing its muscle to let competitors know it’s still the big boy on the block; recently it pushed up its line charges to wholesalers from $22 to $30 per line per month clawing back some of the profit competitors are taking from its infrastructure.

The internet is providing richer services such as Google Earth, which allows you to look at satellite images and ground maps down to street level. Increasingly software is hosted away from the computer and accessed via the web. For true interactivity, powerful real time gaming experiences, video conferencing and professional level VoIP or voice-based services you need high speed, robust access and quality of service (QoS), something only Telecom can provide in New Zealand currently.

Remote diagnostics

With affordable true broadband, resources and applications could be shared across the country with huge savings for the health system for example, eliminating paperwork and duplication of effort. People in outlying areas could be remotely diagnosed by specialists from major hospital, surgeons could consult by teleconferencing, X-rays could be sent instantly and waiting lists reduced significantly.

The same principals could be applied to education, government, science and research, industry and commerce, arts and creativity. By leveraging improved speeds, the tyranny of distance, the greatest obstacle to our global competitiveness, is removed. Free and open communications using the latest interactive design and collaboration tools can open the door for amazing new partnerships.

One way or another broadband touches every industry and household. There are now thousands of sites where music, movies, and TV programmes can be legally downloaded, and a host of niche channels that can be streamed to your computer and or modern flat screen TV.

Free Internet in France has come up with a business model that has a feel of the future about it. Providing its own equipment on France Telecom’s local loop it is delivering a 20Mbit/sec broadband pipe. Subscribers pay no line rental and get fast internet, phone services, free calling within France and 14 other countries plus 100 TV channels, and video on demand at $4 a pop. This comes with a wireless router with a hard drive to store content and you can buy a mobile wifi handset for calls in your home which also works at external wifi hotspots. The entire bundle has no data cap and cost $NZ57 a month.

HomeCoice in the United Kingdom and Fast Web in Italy offer similar deals and Yahoo Broadband in Japan delivers tiple play services at 100Mbit/sec speeds. In Australia ABC and Disney are offering the latest episodes of Lost and Desperate Housewives on their web site the next day for $1.99 each, from May these were free for streaming as you don’t mind the ads.

Programme your own TV

The TV download service is available to anyone, including Kiwi viewers, and further illustrates just how far behind the game we are. The only way this kind of service makes any sense however, is for subscribers to have fast broadband with very high data caps or flat rate access and that’s the challenge Telecom and its competitors face over the next few years.

While e-commerce, the business of purchasing goods online, has been a relatively slow burn, it’s now smoldering at such a rate that even the on-to-it analysts have been caught off guard. Ovum analyst Richard Holway was ‘blown away’ by data released in May showing Internet shopping now accounts for 10 percent of retail sales in the UK. Around $NZ90 billion was expected to be spent online in 2006 - a 56 percent increase over 2005. Another, $NZ60 billion would be spent online on insurance and gambling.

A further $NZ90 billion in store sales were being influenced by research or price comparisons made on the Internet. Holway, who has a reputation for extrapolating future trends says the ‘mass market phase’ has just begun, and suggests 50 percent of sales may be made on the internet by 2010. All that on-line window shopping and skimming through electronic catalogues requires instant access and fast refresh times.

And while Intel’s government and telecommunication business development manager Sean Casey, is well aware of all the fancy new entertainment-based applications enabled by broadband, he’s more concerned about its impact on our economic development.

He’s part of a team worldwide who lobby governments to lift their game ‘beyond the processor’ in the global digital playing field and says LLU is an ideal opportunity to New Zealand to catch up.

He says its critical to be digitally connected and broadband is essential if we are to grow our economy and maintain competitive advantage. Our biggest threat he suggests is coming from emerging markets, including third world nations, which are going straight to leading edge technology.

Rather than struggling through legacy systems they’re part of ‘the leapfrog effect’, jumping straight from ‘greenfields’ into high-end PCs and broadband. "They recognise the importance broadband delivers in educating citizens and the place technology can play in improving their economic outlook and are embracing this with open arms."

Casey says there are a raft of technologies waiting in the wings, including new services such as video on demand and IPTV but it’ll only happen in countries where there’s affordable broadband. "Soon you’ll be able to watch what you want, when you want and where you want but broadband needs to become economically viable or you prevent that becoming reality."

Some people will never use up even a 600Mb data cap. That cap however acts as a disincentive for the kind of exploring that might change their experience of the internet and how it can be used. Accounts with 10Gb or even 20Gb caps are relatively new to New Zealand and certainly ample for most uses but if we are to seriously consider video on demand or the regular music or movie downloads any kind of cap is an impediment.


Accelerating change

Now that LLU is looming Telecommunications Commissioner Douglas Webb is urging Telecom to work openly and accelerate the change process rather than waiting for the fine print. He believes we’re at an important ‘tipping point’ in moving from a hands-off system to much firmer "hand on the shoulder" regulation.

The Internet Society of New Zealand (InternetNZ), like other industry groups, has become more outspoken this year about the broadband bottleneck. Executive director Keith Davidson remains concerned Telecom may still take a defensive approach, complying with the letter of the law but not the "spirit of open access and equivalent wholesale treatment".

He says New Zealand needs to have a serious commitment to reform that goes way beyond local loop unbundling if it is to address the deficit. "If New Zealand does not resolve this broadband uptake problem, our economy will slide leaving us down the bottom of the developed world with Mexico, Turkey and Eastern Europe. That will be a loss for business, a loss for consumers and a loss for New Zealand."

Those who are long enough in the tooth to recall even half the promises made about telecommunications since 1987 will be forgiven for greeting Telecom’s alleged attitude adjustment with some skepticism.

Will there suddenly be a claim that there’s no room in Telecom cabinets for co-location of DSLAMs and related equipment? If alternative cabinets are required will Telecom oppose this through the Resource Management Act? Will local authorities allow the RMA to become an obstacle anyway?

Will competitors need a separate door to Telecom exchanges? Can they have access without a Telecom person being present? Does the exchange need a partition between competing cabinets? Do ISPs need to provide their own power and air conditioning? If the latest DSLAMs only cost $45 per port would it be fair for Telecom to charge $150 installation fees?

Will Telecom avoid doing anything to help its competitors until legislation forces its hand or will it begin offering more attractive deals in the interim to prevent customer churn before LLU ground zero, sometime in 2008?

There’s also the connection ratio – in other words how many users can share a single broadband link. British Telecom has a ratio of 50:1 for home users and 20:1 for business lines. It is alleged Telecom’s ratio may be as high as 140:1 which may mean the speed and quality of service competitors are hoping may not be possible. If wholesale prices are set too close to LLU costs new investors may also be deterred.

No-one can know for sure until the real turf wars begin, access is opened to the last mile and full disclosure is provided to Telecom’s new wholesale customer-competitors.

Another obstacle facing new players is a significant shortage of technicians, engineers and customer service people who have skills in installation and maintenance and network repairs. Telecom has exclusive contracts with Downer and Transfield and TelstraClear has a deal with Cabletalk to look after their networks. The other major player GDC recently went belly up. In the meantime, there’s not been a lot of industry training and many of our best engineers and technicians have been lured overseas by lucrative contracts, further reducing the skills pool.

The only way forward is for the new players to find a common third party to handle all their installations and maintenance or sub-contract Telecom’s contractors, which may defeat the purpose of unbundling.

More fibre in diet

Today the core telephone network out to Telecom’s exchanges, or the cabinets that deliver DSL services, uses fibre optics cabling to transmits data over lightwaves. The next leg of the journey - the last mile or local loop – typically uses copper wires to carry phone and internet services to home and business.

Nortel New Zealand managing director Rob Spray says in the new environment a lot of telcos are by passing the exchange completely and taking fibre direct to small street cabinets on the curb and shortening the copper loops. This he says makes unbundling the loop physically difficult.

Already there’s a major regulatory argument brewing across the Tasman, and in other parts of the world, with new network investors fearing they’ll be cut out of the loop if fibre gets any closer. "They’re saying unbundling the local loop from the exchange is yesterday’s argument. They’re taking fibre to the curb, to the business and eventually to homes and you don’t unbundle that unless you start unbundling wavelengths," says Spray.

In Australia those investing in fibre want a safe harbour for the next 10-years, and a promise their competitors won’t be given access. They’re threatening to cut back their investment unless the regulator acts in their favour.

However Mark Rushworth, chief executive of ihug is skeptical of suggestions Telecom is trying to by pass the copper loop with its next generation network (NGN). "What is happening in some built up areas and new subdivisions is not necessarily an indication of what will happen out in the suburbs of most cities and towns. A lot of those next generation cabinets will still be situated in existing exchanges – it just doesn’t make economic sense unless Telecom uses this tactic as a defensive blocking strategy."

Rushworth’s ‘market intelligence’ is that even if the current 440 or so Telecom exchanges are reduced to 200 over the next year or so, Telecom’s NGN will still give 70 percent coverage for local loop investors. However don’t expect instant changes, the benefits are likely to filter down with most activity occurring at first in the high density areas where the business case; read ‘the quickest profits’, makes most sense to he new networks.

Attitude adjustment pivotal

We shouldn’t be surprised that Telecom has prioritised high shareholder returns over reinvestment in its network and getting us into the top third of the OECD broadband elite. It’s the nature of business to make profit but if your service is lousy, your goods imperfect or the competitor is offering a better deal there is a price to pay.

Telecom’s goal, up until now at least, has been to drive costs down and keep margins up. Its good corporate citizen face has been more about marketing and high profile tax write-offs, even if they are worthy charitable causes and arts and theatre sponsorship.

The market however is about to be sold a new-look Telecom under new chairman Wayne Boyd with rumours of other management and ownership changes ahead. There’s a major challenge ahead to win back public trust and confidence. It must act rapidly to improve its service levels and the wait time on its help desk. One recent report showed there were more customer complaints about faults in 2006 than any time in the previous three years and it was taking two weeks and more to sort them out. Many complaints resulted from winter dampness when old or decaying copper particularly in suburban and outlying areas again proved it was well past its use-by date.

Most ISPs, and others keen to invest in the new network environment, are watching one thing, Telecom’s attitude. Curiously, almost as if a divine hand had moved, within days of the government LLU announcement Telecom’s Xtra network faced a series of ‘intermittent internet and email outages’.

The fault was blamed on ‘a fault with power supply’ then ‘a faulty load balancer’ and other unstated issues which prevented customers from access websites and email. Despite claims all customers were now back on-line the fact was many were still having problems.

Outage shows true colours

A customer service spokesperson explained outages were a fact of life on the internet, which was itself ‘a best efforts’ service. "ISPs can’t guarantee a continuous un-interrupted service," said customer services manager, Kelly Moore. That statement alone would have raised a few eyebrows.

By the end of May Telecom’s gracious offer to refund effected customers with the equivalent of four days access or a measly $3.25 was turned into another bah humbug move. It sent an email to all its 600,000 Xtra broadband and dial up customers apologising for the outage but said they now needed to prove they were eligible for the refund.

A spokesman estimated about 90,000 customers might qualify griping that this had the potential to cost it around $300,000. There was no mention of the thousands of dollars in lost business and the major inconvenience some customers were still facing weeks after the so-called ‘four day’ outage.

Then days after the LLU announcement ISPs received notification from Telecom that it would be enforcing "an average aggregate data limit per customer" and charging a premium if overall upload traffic exceeded a specified monthly data cap. While this provision has been in the small print since 2004 it hadn’t previously been enforced. Ihug, which had been offering free upload speeds on most of its accounts, would have to add upload cost to customer’s download data caps from July 1st. It has asked to government to exclude such charges in the new regulations.

Maybe the billion dollar share shake-up is a good thing, especially if the new wave of investors are prepared to take a longer term view, sorting out shortcomings in mainstream New Zealand before hyping up grandiose futuristic plans in wealthier areas or trying to compete offshore. An optimist might also suggest the new legislation will force a culture shift away from the fortress mentality, to a more co-operative, creative mindset that works for the good of the nation.

Telecom has been ‘squeezing the sponge’ as one commentator so aptly put it, but the sponge and the patience of competitors and customers with its anti-competitive attitude have run dry. Internet Service Providers Association (ISPANZ) vice president Scott Bartlett is warning ISPs to sort out all their issues, complaints, questions and technology requirements, before the new legislation is drafted and implemented or the process could take two to three years.

"It could be disastrous, let’s be honest Telecom outguns us on the regulatory front 10-1. They’re basically a law firm that happen to own a network." Things have been gummed up for too long, unless there’s evidence of the new attitude beyond the sweet talk, it may be time for another dose of ‘government issue’ laxatives.




"A trial of ADSL technology, which involves the transmission of high-speed data services over copper wire, is underway in suburban Wellington. We are also studying the future role of fibre to the curb. Overseas experience is indicating that the cost of deploying these technologies is likely to be lower than hybrid fibre/coax cable; in particular, fibre to the curb holds out the promise of significant reductions in maintenance costs in the longer term…it has become apparent that fast data is likely to show stronger growth in the immediate future than video, which is consistent with our projections at the time the HFC rollout was planned. In view of this, FirstMedia is to be restructured, with a focus on servicing existing customers," Telecom chief executive Rod Deane, in Telecom's First Quarter shareholder report, September 1997.

Toying with the future

New Zealanders are thoroughly fed up with being sold souped up superhighway scenarios when the reality in many cases is closer to coaxing tired horses along dirt roads.

While ‘the Xtraordinaries’ beam in at gigabyte speeds in their sci-fi wagon, pushing a neutered internet service at maximum speeds of 3.5Mbit/sec, many in rural and outlying areas still struggle with dial up and low end broadband or can’t get an efficient service at all.

In 1990 Telecom claimed a 'broadband" ISDN (integrated services digital network) could be available to all homes and businesses by 1995. It never happened. In 1995 it promised its First Media fibre-coaxial cable network, would deliver movies and fast internet to 300,000 New Zealand homes. After passing 65,000 homes in Auckland and Wellington at a cost of around $200 million, it was abandoned and much of the cable pulled from the ground.

Some say it was stunt to undermine Kiwi cable, later acquired by TelstraClear, or that Telecom’s North American majority owners wanted to tidy up the books before pulling out. Regardless Telecom had discovered DSL, claiming this was the medium over which it would now deliver movies and TV. After initial trials this was downgraded to internet only.

In 2003, Telecom undertook a three month, 100 home trial called JetVideo. Participants watched a range of movies and music videos on their PCs over full speed DSL ‘to gauge user reaction’. Telecom says it learned people don’t want to watch TV on a PC. Ralph Brayham, in charge of the project at the time, said the trial showed Telecom had the technology and the bandwidth deliver this content but the equipment was still too expensive for most Kiwi households.

In the past three years however a major shift has occurred in the affordability of high end PCs and LCD (liquid crystal display) and Plasma flat screens. In fact products like Microsoft Media Centre actively promote a ‘download’ scenario for home entertainment, with an interface geared to manage and serve up music, movies, videos and photographs from a PC hard drive or stream content direct from the web.

Currently Telecom is testing Microsoft’s new direct to home video framework known as IPTV. It’s working with Alcatel, Microsoft’s agent for IPTV, to ensure latest generation ADSL2+ MiniDSLAM multiplexers can deliver at least 15Mbit/sec speeds over copper.

In-house tests have been conducted with at least 20 people using in conjunction with Sky and others, as well as developing a hybrid PVR (personal video recorder) to manage and deliver a range of video-based services.

Alcatel’s Australian-based director innovation and marketing development manager, Geoff Heydon, stated in 2005 that it wasn’t impossible to deliver 50Mbit/sec to the home by 2010, suggesting New Zealand would only confirm itself as a laggard if it didn’t achieve that lofty goal. In fact he believed the maturity of IPTV, would force the issue, even pushing home connections out to 1Gb by 2020.

The first commercial customers of IPTV are likely to be in the new suburb of Flatbush on the outskirts of Manukau City, where smart houses, wired with gigabit connections are being built. Manukau is so confident in the digital future it has adopted a policy that all new housing developments must be wired for broadband.

More than 500 customers in the Flatbush subdivision, and the nearby Highbrook business park, will be early trialists of Telecom’s next generation network (NGN). Telecom’s $10 million investment in ‘fibre to the premises’ here will determine how effectively it might bypass its current ‘fibre to the curb’ stance for a direct to the home model.

Flatbush will also be one of the first real life tests for its $1.4 billion next generation broadband network being built by Alcatel. The technology will ensure guaranteed quality of service (QoS) for bundled voice, data and video, full broadcast or on-demand video. The robust new network will replace the existing PSTN by 2012 with the first customers migrating during 2007.

Reality check. The futuristic suburb of Flatbush hardly exists yet. And the homes Telecom will service? Well they’re still in the planning stages.






Terminology simplified  
LLU Local loop unbundling. Where the incumbent or dominant carrier must let competing carriers site their equipment in their exchanges or roadside cabinets to access to the ‘last mile’ into homes and businesses.
Local loop The local loop is the portion of a carrier’s network that runs from the exchange or roadside cabinet into homes and businesses, or an estimated 1.7 million fixed copper lines. For DSL technology to work the length should typically be no longer than 5km and is increasingly being reduced to hundreds of metres or less in build up and newer areas.
ADSL: Asynchronous digital subscriber line. Operates over the twisted pair telephone lines to homes and businesses. The download path is much greater than the maximum download. For example Telecom’s current network is capable of at least 7Mbit/sec download and 256 or greater upload speeds.
ADSL2+ International Telecommunications Union standard that has the potential to deliver speed of up to 24 Mbit/sec downstream and 3.5 Mbit/sec upstream. Equipment to enable this is now being rolled out around New Zealand and has been operational in many countries for some time.
VDSL Very high bit rate DSL supporting throughput sufficient for extremely high throughput such as video on demand and high definition TV. It can be both symmetric and asymmetric and provides up to 52 Mbit/sec of bandwidth
Symmetrical DSL In many countries there’s a growing interest in symmetrical internet connections that allow the same speed both ways. A recent International Telecommunications Union (ITU) recommendation for VDSL2 (very fast DSL) provides for connectivity over existing copper lines at 100 Mbit/s symmetrically.
Naked DSL (shared spectrum) The engineering term is shared spectrum. Customers can purchase DSL services from one company and phone services from another. Currently Telecom’s best deals are only available to those who also have a call plan with it.
Unconstrained DSL or UBS Unconstrained bitstream access. Raw DSL speeds offered at the maximum speeds possible to wholesalers and those who place their DSLAMs on Telecom’s network
DSLAMS Digital Subscriber Line Access Multiplexer. A network device, usually at a telephone exchange or roadside cabinet, that separates the voice-frequency signals from the high-speed data traffic and controls and routes digital subscriber line (xDSL) traffic between the customer and the main carrier network.
Upload speed: The return path on DSL used to send data from your email or in gaming or interactive applications. This becomes increasingly important for applications such as VoIP (voice over IP) which needs high speeds both ways. Calls can be interrupted if the upload path isn’t sufficient. Telecom restricted this to 128kbit/sec with most accounts and only recently lifted it to 256kbit/sec.
Download speed Restricted 256Mbit/sec or 528Mbit/sec until about a year ago unless you were with Telecom or a provider that had its own infrastructure. TRhe speed was bumped up to 2Mbit/sec last year and a determination struck in December 2005 means speed of 3.5Mbit/sec are now available. LLU is expected to boost access to 7Mbit/sec in the short term and with DSL2 technology now commonplace new carriers are proposing 8-24Mbit/sec services by 2008.
Data caps: The restriction on the amount of data subscribers can download (or upload) each month. This can vary from 600Mb to 1Gb as a standard offering but on higher end accounts through some ISPs is now 10Gb and more. If you exceed your data cap you are charged a per Mb fee and/or the speed of access is drastically reduced.
POP Point of presence, server or access point delivering email and internet-based services
Structural separation The suggestion by the Government that Telecom may need to separate out it wholesaling and retailing divisions so it’s wholesaling activities can be more closely monitored by the Commerce Commission



Download guidelines:  
TV or video streaming Needs at least 2Mbit/s speeds. That’s 256kb of data per second or roughly 15.4 Mb per minute of video or TV viewing. A subscriber with a 2Gb cap would run over their allotment after only 129 minutes.
MP3 music files While these vary in size depending on the length of the song they’re typically 1Mb per minute, eg a 3 minute song is 3Mb
Video clips Depending on size, a 3 minute music video, 10 minute short film, 30 minute TV clip or full length feature. A three minute video clip can use between 5-20Mb depending on the quality (resolution) and the screen size you are using. A 30 minute clip could use up to 200Mb.

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