Enter the New Millennium: The Y2K panic is over nothing crashed, systems didn’t fall over. This in part may have been because so much was invested in upgrading and replacing old computers and software that kick started a new era of digital awareness and capability. The only overload that occurred was in Internet use. On 1 January around 12:05am the New Zealand Internet sends more outbound than inbound traffic for the first time ever, as the world wants to know if the first nation to experience the millennium survived Y2K. Worldwide Internet traffic is doubling every 100 days. An NUA Network Survey in May 2000 says 304.3 million people are surfing the net, about 70 million of them in Asia Pacific. Alongside Singapore, New Zealand has the highest user ratio in the Asia Pacific region. That uptake is spurred on by fierce competition from multiple players delivering free dial up access and the new flat rate offerings for higher end services. Locally the Internet infrastructure and the ability to manage all the traffic is pushed to its limits; new technology is put in place to cope and the pressure mounts for Telecom’s competitors to have equal access to the local loop. New Zealanders are no longer casual surfers, the know what they want online and how to get it but are frustrated at the slow surfing and are demanding more affordable broadband.
 

2000: Government departments were making arbitrary decisions about how to go online, what technology to use and how websites should look. Because the decentralised approach to central government its various departments refused to work together on standards or a common look and feel across their 52 main web sites. Cabinet had to intervene to achieve any cohesion. Accessibility had become a major issue. Although web guidelines were drafted some departments still felt their autonomy was being challenged and took a while to get with the bigger picture.

In February Telstra and Saturn Communications merge creating TelstraSaturn. Major expansion of its cable network takes it to 25 per cent penetration in Wellington and with the promised major financial injection it claims it will reach 65 per cent of New Zealand homes and 80 per cent of businesses within five years. It never happens. The first step will be moving into Christchurch, Hamilton and Tauranga. About 650 jobs were lost in the merger. Vodafone has more than 500,000 mobile subscribers and has so far invested about $300 million. In March, Clear doubles the capacity of its North Island backbone using dense wavelength division multiplexing (DWDM) and announces plans for national LMDS (high speed wireless) rollout – it never happens. Clear instead forges a partnership with Vodafone for fixed wireless service. TelstraSaturn establishes a microwave service for Auckland CBD and begins re-selling Vodafone’s cellular services and acquires Wellington ISP Paradise for $18.7 million and disconnects from the NZIX.

Still focused on the CBD

Walker Wireless now offering fixed wireless connected at up to 25Mbit/sec. Superway invested $300 million on a North Shore co-axial cable network. Little is heard from them again. United Networks becomes the first electricity lines company to become a telco carrier with a $30 million scheme to run high capacity fibre through Auckland and Wellington CBDs. Sky TV now has 188,000 digital customers (up 63 per cent on 1999) and is looking for $80 million to invests in interactive services and expansion. TVNZ begins talks on piggybacking TV1 and TV2 on Sky's digital network as its own plans for a digital network are scuttled. After a failed shareholder deal with Sky and another jilting with cinema and property giant Force Corp,  satellite ISP Ihug purchases a controlling interest in Video Ezy chain, plans a nationwide on-line ordering and delivery service. This also eventually falls over. Telecom raises its AAPT shareholding to 100 percent

About 50 per cent of the traffic on the Telecom network is Internet use. Over 50 per cent of New Zealanders have access through home, work or education and since the April debacle over 0867 access around 200,000 had signed up with a new breed of ‘free’ Internet providers essentially leveraging the reciprocal interconnection fees for terminating on Telecom’s network to survive. In February Compass launches free dial-up service FreeNet, and in April Clear Communications establishes ZFree, a free dial-up ISP to take advantage of interconnect fees from Telecom customers. In April free ISP i4free does a deal with Clear. Telecom disconnects i4free but the High Court orders it to restore the connection. A government inquiry calls for an independent telecommunications regulator. Clear reaches interim 0867 deal with Telecom, Telecom reaches interconnection deal with TelstraSaturn in July and the Commerce Commission takes legal action against Telecom’s 0867 demands. In October on the eve of the final report from the Government Telecommunications Inquiry, Clear and Telecom finally reach an agreement with Clear paying a lump sum $35 million for all traffic types for the next year.

ISOCNZ begins to change the New Zealand Internet Registry into a Shared Registry System (SRS) to create more competition. Domainz moves to its new registration system (DRS). Between 1997 and mid-2000, Department of Internal Affairs inspectors had successfully prosecuted 49 cases involving the distribution and possession of objectionable material via the Internet. The unit was catching a New Zealand offender every three to five days. The Telecommunications Inquiry puts the squeeze on Telecom to share its once public assets, including wholesaling the local loop to competitors. It predicts increased competition will benefit the economy by $44 million annually and subscribers an additional $328 million. More than half of rural phone users, according to a recent MAF survey, experience Internet disconnection, noisy lines and exchange overloading. Telecom admits its network is not up to scratch.

Telecom forms esolutions, an alliance with EDS New Zealand and Microsoft to develop ecommerce products. Telecom restructures into six operating divisions and buys 5.7 percent of Independent Newspapers (INL) which is seen as a way to get involved in INL’s 49 percent shareholding in pay TV provider Sky TV. Cisco upgrades Telecom’s Auckland-Wellington fibre link with dense wave fibre increasing capacity to a potential 600Gbit/sec across 60 channels. Telecom invests about $200 million on CDMA mobile technology and $1 billion in the Southern Cross cable partnership. Xtra signs up its 300,000th customer, Telecom Mobile celebrates 1,000,000 customers connected to its network and the Southern Cross cable is finally switched on and the first commercial traffic began to flow in November. Telecom’s revenues total $546 million up 8.8 per cent with $432 million from data up 21 percent and $102 million through its IP network up 50 percent.

From August ISP prices were being forced down again from a $40 per month flat rate to an average $25 flat fee for dial up, precipitating the second major price war in just over a year. Many providers now had start-up accounts as low as $10 a month and 10s of thousands began to take up enticing offers from the newly arrived free providers. Xtra continued to dominate the market, having grown 49 percent in 2000 to over 320,000 subscribers. Xtra now accounted for about 42 percent of the market, well ahead of its closest rivals Clear.net and Ihug. The number of ISPs had dropped to around 60, around 20 or so had bitten the dust in the 18 months to the end of 2000 and others had merged or been acquired. Only those who were cash rich and technically geared for growth would survive the market pressures ahead.

2001: Telecom slashed monthly line charges in Wellington and Christchurch, the only places where it is facing serious competition from TelstraSaturn which was delivering bundled phone, Internet and cable TV services. Vodafone had 889,000 mobile customers, Telecom 1269,000. WorldXchange offered home to mobile calls for 16 cents a minute less than Telecom or Clear and its Kiwi managers purchased the local arm from its US parent for an undisclosed sum. The company accused Telecom of abusing its power after being forced to pay the telco $6 million a year in connection fees. WorldXchange moved to deal with Clear but Telecom refused to switch that traffic.

The Commerce Commission investigates Telecom claims that Kiwi Share requirements forcing it to provide free local calling are costing it $186 million. It rejects claims for compensation from other carriers, although with cause they remain jittery. Telecom begins bundling Sky TV with its voice and Internet services. It pulls plug on a $151 million plan to roll out a CDMA wireless network in Australia takes a 19.9 percent stake in Hutchison 3G Australia, a company set up to develop 3G services in there. And it switches on the CDMA wireless network, covering more than 98 percent of New Zealand's populated areas. In the cellular market Vodafone has 889,000 mobile customers, Telecom has 1269,000. Telecom invests $38 million in a submarine cable between the North and South Islands. Its revenues are about $6.8 billion overall

History of under-investing challenged

By March 2001 Telecom had around 12,000 DSL customers with the service available at 82 exchanges and within the reach of 700,000 subscribers. Once it sorted out its billing problems it would be able to comply with Telecommunications Inquiry requirements that it offer wholesale DSL to other providers. Clear Communications was already piloting its DSL service using Telecom’s lines, with manual billing until Telecom got its automated billing system together.

Telecom admitted to the inquiry that it had under-invested in its network, and agreed to achieve a minimum of 9.6 kbit/sec - 14.4 kbit/sec speeds for outlying and rural areas at a cost of at least $100 million. Most people are now connecting at 33kbit/sec. Telecom still wanted proof that its lines weren’t up to scratch and was moaning that conforming to the Kiwi Share agreement, was costing it around $186 million to December 2000 – $18.7 million more than for the previous year. It claimed an increasing number of residential customers were costing it money, largely fuelled by Internet use.

On July 28 the Tasman 1 and Southern Cross under sea cables were severed by a ship dragging its anchor during a storm off the coast of Sydney. That was the end of the line for Tasman 1, it was not thought cost effective to repair. In August the last router on NZIX was turned off. ISOCNZ, the Internet Society of New Zealand, re-brands itself as InternetNZ.

In 1993 about 38 percent of New Zealand domains were in the dot.co.nz (company) second level domain, by mid 1999 that had risen to 88 percent. Almost two thirds of domains were linked to a web site, with just under a third using them only for email. Domainz was registering about 1200 names a month, bringing the overall total to about 25,000 domain names, up from about 400 new registrations per month in July 1996. By October 2000 there were 75,500 dot.nz domain names and by May 2001 they had clicked past the 100,000 mark.

Internet pioneer Simon Riley along with the original Tuianet members who had brought the Internet to New Zealand, including John Houlker, John Hine and Neil James convened a meeting at the eVision centre in Wellington in May 2001 to raising awareness about the need for a gigabit backbone. They met with academic and industry luminaries as a ‘call to action’ for a national science and research network.

Telecom still dominated the fast market with its Jetstream service running at speeds of between 256kbit/sec and 6Mbit/sec with 400Mb and 600Mb data caps; users paid 20 cents per Mb for any excess data use. A flat rate Jetstart service with a speed limit of 128kbit/sec was also on offer. It had signed up around 22,000 DSL subscribers, 39 percent of them residential customers. DSL was now available at 110 exchanges and 30 ISPs were reselling Telecom’s service. Clear Communications was offering its own DSL service in some parts of the country but TelstraSaturn’s high speed cable offering had failed to reach beyond Wellington and Christchurch. The roll out which had begun in earnest in March was frozen and plans were announced in November to buy Clear Communications for $435 million. The cable contractor goes bust and sues Downer Engineering, which used to be ConnecTel which used to be part of Telecom. On December 15, from the merger of TelstraSaturn and Clear Communications comes TelstraClear.

On December 18 the Telecommunications Act, which establishes a Telecommunications Commissioner passes into law. A t the end of 2001 the statistics suggested around 60 percent of New Zealanders now have access to the Internet, and moving up to broadband was top of mind. However New Zealand rated only 16^th among 30 OECD nations in the 2001 Development of Broadband Access report, largely due to lack of competition and the high cost. The New Zealand telecommunications market was worth about $NZ 4.1 billion in the 2000-2001 year and expected to grow rapidly to $5 - $6 billion by 2005 according to Telstra International president Dick Simpson. Australian telecommunications researcher Paul Budde was even more bullish, predicting market growth to $15 billion within a decade. Investing in high-speed infrastructure to service the main centres, suburbs, towns and provinces was essential for New Zealand's competitiveness, prosperity and wellbeing.

Government web still tangled mess

2002: A further comprehensive overhaul of the Government’s web presence and use of technology was planned with existing New Zealand Government On-line portal developments put on-hold and the promise of "NZGO on steroids" by June 2002. This was part of an overall plan to try and improve the way government departments communicated with each other and the public. New Telecommunications Commissioner Douglas Web begins work at the Commerce Commission, tasked with smoothing the way for more equitable competition. In his first determination he agrees the cost of providing free connections to all New Zealand homes must be shared by all carriers much to the delight of Telecom. However Telecom was ordered to more than halve the interconnection rate it been charging TelstraClear and other carriers for access to its network. In November Webb set the rate at 1.13c per minute, compared with the 2.6c Telecom had been charging, and ordered Telecom to pay TelstraClear $14 million to cover the difference between the two rates over the five months since TelstraClear first lodged its application for a determination.

Telecom still brings in some 75 per cent of the revenues from the overall retail telecommunications market. Telecom reports a net loss of NZ$188 million for the year ended 30 June 2002, after a partial write-down of its investment in AAPT following a review of asset carrying values. It claims 471,000 difficult to maintain residential customers are costing it $400 each a year. It also sheds its 10 per cent interest in EDS after dissolving the e-solutions partnership both has formed with Microsoft for ecommerce business. Telecom’s Xtra ISP increases its active user base by 34 percent to 335,000, having bought an undisclosed number of customers form the now defunct Voyager ISP. Telecoms CDMA wireless data network now has 110,000 customers. Its next generation CDMA1x network is launched in July capable of 153kbit/sec with coverage across 97 per cent of country. Telecom staff cuts continue hundreds of jobs go. Telecom now has 1.5 million mobile customers.

TelstraSaturn divests itself of 650 staff as restructuring continues after its $435 million merger. Sky TV takes over TelstraClear's 26,000 pay TV subscribers making it the only pay TV provider of any significant size. Sky now has 476,000 subscribers to its digital and UHF services. Power company United Networks merges with Tangent and both are acquired by another power and gas company Vector. They begin talks on how to merge their underground fibre optic networks. CallPlus is now earning $30 million as a tolls provider but claims it could earn triple that if Telecom allowed it access to its network and is suing Telecom for anticompetitive behaviour dating back three years. Pukekohe power line company Counties Power purchase local loop frequencies in preparation for entering the telco market. Franklin district launches its Wired Country network in Auckland in October.

In August 2002, once the new shared registry system (SRS) had bedded in, the Office of Domain Name Commissioner (DNC) and.nz Registry Services (NZRS) were established. The office of the DNC bought in new policies and procedures, and in its first year the number of registrars jumped from 32 to 48. In September the .maori.nz domain is established and in December a proposal for the .geek.nz 2TLD (second level domain) was received.

Just 14 months after launching, Telecom has more than 200,000 customers on its 027 CDMA network. Alcatel signed a contract to become Telecom’s primary supplier for its next generation IP network on both sides of the Tasman which could be worth about a billion dollars over the next decade. In December the NASA-operated name server MX.NSI.NASA.GOV, after constant service since 1989, ceases to carry NZ zones, having been replaced by commercial DNS service UltraDNS.

Collaborating at Speed, Lawrence Zwimpfer’s report urgently recommending the Government get behind a gigabit speed nationwide national science and education network was published in October. He believing a business case could be ready by the end of 2002 and contracts let in May 2003 with the network operational four months later. All that came back from the political powers was the sound of bewilderment. Next Generation Internet New Zealand (NGN-NZ) was formed as a non-profit society, with Dr Neil James, assistant director of information services at the University of Otago, as chairman. He warned New Zealand’s information technology industry would suffer unless we forged links with Internet2, claiming the nation’s research community was already hindered by a lack of affordable high-speed bandwidth.

2003: The vision the government adopted in June 2003 was broad ranging including cliché ‘world leader’ aspirations. The three point mission was that by June 2004 the Internet would be the dominant means of enabling ready access to government; by June 2007 networks and Internet technologies would be integrated to deliver government information, services and processes, and by June 2010 government would be transformed through the use of Internet.

Telecom was now able to reach 83 per cent of the population with its JetStream fast Internet service but only 2 per cent of the population have taken it on board leading to claims it is holding back by artificially keeping prices high in the face of a lack of competition. Vodafone announces it has 1.3 million mobile customers edging out Telecom for the first time with a 51 per cent market share. Telecom announces a $709 million profit to the June year after last year's massive write down and investing $600 million in capital expenditure. It signs a $120 million outsourcing deal with Alcatel for five years, a $200 million one with Lucent for its 027 cellular network.

In April 2003, Telecom set bold new targets claiming it would get broadband into 100,000 New Zealand households by the end of 2004. And it tells farmers it’ll solve their high speed network needs through a deal with BCL ( and its $28 million Extend wireless network ) and dairy giant Fonterra, pre-empting plans by the government led Project Probe to get high speed communications capabilities to 14 outlying regions. Partnerships of Woosh Wireless (formerly Walker Wireless) and Vodafone, Telecom and BCL, Pacific.net in Nelson, Counties Power in south Auckland and Waikato succeed in winning Project Probe contracts, which offer an estimated $30 million in subsidies to encourage broadband roll out. In the end Telecom gets most of the contracts either through stealth or partnerships.

New Zealand was 25th in the OECD for broadband uptake and even then Telecom was accused of overstating its Jetstream numbers and attempting to redefine ‘broadband’ to suit it purposes. There were reports only 13,000 residential customers had signed up for Jetstream since its launch in 1999 ,although Telecom insisted it was 44,000, but would not confirm how many of those were using the low end starter package which ran at 128kbit/sec and was not considered broadband.

Vodafone was trialling W-CDMA with Woosh Wireless and in Wellington independent network wholesaler Citylink continued to play in the high bandwidth game with its Ethernet over fibre network and enters the WiFi business with CafeNet. Cabinet finally reserved spectrum for digital TV but there was still "technical and commercial policy work" to be done to move things forward. Telecom signed a 5-year exclusive deal to bundle Sky TV’s existing content under a single billing arrangement for its customers with the ability to repackage the programming for its own DSL-based services, if it ever headed down that track. Sky remained king of digital, and the major content provider, hosting TV1, TV2, TV3, TV4 and Prime on its satellite-based digital service. The only competing offering was from TelstraClear which had 38,000 customers in 2004 and was in the midst of shifting its cable network in Wellington and Christchurch to digital in preparation for launching 25 new channels. It was also locked into an exclusive content agreement with Sky.

The long-delayed Electronic Transactions Bill passed was due to pass into law in October 2002, giving electronic transactions broadly the same status in law as transactions concluded on paper. However clarification was needed and after a discussion paper was released in April 2003 it finally became law on 21 November 2003. IT bodies such as ITANZ and InternetNZ insisted this and the Crimes Amendment No 6 Bill, which had passed into law after several years of debate on 4 July 2003, were important for the progress of e-business.

An International Telecommunications Union (ITU) study saw New Zealand drop from 12th to 21st among 178 economies in access to information and communications technology, was clear evidence existing strategies weren’t working. Then two days before Christmas 2003 the Commerce Commission did an about face. It rejected local loop unbundling (LLU) in favour of a dumbed down approach. Instead of opening up Telecom’s network for competitors to install their own equipment and establish independent network access, the Commission elected for a ‘wholesaling option’. It wasn’t satisfied the overall benefits of LLU justified its introduction and favoured Telecom wholesaling high speed data services to its competitors.

Telecom dabbled in content provision again in 2003 with a three month JetVideo trial to about 100 homes in Auckland, Wellington, Christchurch and Taranaki opffering movies and music videos provided by Intertainer Asia. The service, delivered to PCs over full speed Jetstream connections was "to gauge user reaction". Telecom says it learned people don’t want to watch TV on a PC.

InternetNZ estimated there were about 150 ISPs in New Zealand by the end of 2003, but the 50 or so medium to large players had about 70 percent of the customers, with Telecom making up just under 50 percent of the total business. The remaining 100 or so ISPs were mainly regional or served special interest groups. The OECD announced that New Zealand, Mexico and Turkey were the only member nation's not to have unbundled the local loop. New Zealand was 21st of 30 OECD countries in terms of broadband uptake.
 

Government and commerce get it right

2004: The Government’s now ‘award winning’ portal was receiving over 22,000 visitors a week, a 26 percent increase over the same time in 2003.There had been a 36 percent increase in the number of domestic visitors - an average of 13,000 a week. A survey by Victoria University confirmed rural people were high users of government online, greatly appreciating the ability to contact governments at a time that suited them. The survey also found that more than 70 percent of the participants used government sites on the Internet.

Nielsen//NetRatings, described Trade Me as "phenomenal" in terms of the traffic it attracted and based on its poll of 3750 New Zealanders in the first quarter of 2004, said 7.9 percent of new Zealanders had shopped at local online sites and 5.9 percent at overseas online sites. While the numbers were modest, 22.6 percent used the Internet to research information online and 19 percent had purchased sometime online in the preceding 12 months. The most popular online purchases were travel, books and magazines, entertainment and movie tickets. Small numbers purchased computer software and music.

United Networks and Tangent complete the merging of their Wellington and Auckland underground fibre optic networks and begin working closer with parent company, power and gas firm Vector. Telecom raises line rentals by 55 cents a month blaming the increase on the growing cost of provider free local calling. Home customers were making more than double the number of calls they were in 1999. Telecom planned to invest $360 million in the local network this year. Telecom withdraws route servers from WIX in May. TelstraClear announces it’ll de-peer from APE by November and wants to change peering policy. It’s still connected by February 2005. In November the Palmerston North peering exchange (PNIX) was launched. In October 2004, entrepreneurial independent bandwidth provider FX Networks, acquired the assets and customers of former DSIR arm IRL's Network Operations Group. Telecom acquired Gen-i and Computerland and integrated them with Telecom Advanced Solutions to create a much larger Gen-i offering a range of ICT solutions. It also launches New Zealand's first 3G mobile phone network (T3G), using EV-DO technology.

During the 2003 Knowledge Wave gathering, keynote speaker Rita Caldwell, director of the US National Science Foundation, challenged the government, asking how it expected to continue working with nations that had advanced networks, when it didn’t even have anything even on the drawing board. The government was shamed into action decided to dig into its coffers and borrow heavily from the idea that had been promoted by Internet pioneers for years. It put up $200,000 to establish a business case and co-operate with NGI-NZ which had already done most of the ground work, in the hope something might be ready by 2004. NGI-NZ was to manage an $8 million capability fund to train people, run demonstrations and set up temporary access grids. The government committee dragged everything out for another two years. NGI-NZ chief executive Tone Borren quit, accusing New Zealand of failing to take advantage of its existing fibre optic capacity.

Telecom had engaged with Alcatel and EDS to deliver a full next generation IP network (NGN) which relied on moving fibre closer to the curb. In July 2005 it announced further details of its10-year, the details of its billion dollar investment plan for NGN to exponentially increase bandwidth to customers and pilot and deliver new services. It had already provided fibre to 1100 roadside cabinets (fibre to the curb) and would extend fibre to 1000 more cabinets over the next five years. It spoke about new services for business and residential customers, including video, very high speed Internet access. Fibre to the curb would be extended to fibre to the premises (FTTP) once demand for speed, capacity and new services developed in the residential market.

A $10 million pilot in the Flatbush residential subdivision and the Highbrook commercial development in Manukau City would show the way forward and $25 million a year over five years would increase the capacity of the core fibre network, and develop the next stage of its core multi-service network. A new Alcatel next generation exchange would be installed in Auckland to provide ISDN services in 2005, and detailed planning was underway to replace 600 exchanges and remote line concentrators with new IP technology over the next eight years. From late 2004 Telecom was experimenting with a range of technologies including Microsoft’s IPTV (Internet Protocol TV), designed to turn phone and Internet companies into distributors of content. It ran small trials to test video to the TV across its DSL and its fibre optic network. It suggested the first commercial customers of IPTV were likely to be in the new suburb of Homebush on the outskirts of Manukau City, where smart houses, wired with gigabit connections were being built.

No-one knew where to look on the one hand Telecom was preparing for a fibre optic future and the other resisting all efforts to unbundled its network or hold it to stringent goals for broadband penetration. Despite all the studies, reports and expectation of the market, the Commerce Commission decided against Local Loop unbundling (LLU), instead recommending Unbundled Bitstream Service (UBS) or wholesaling of ADSL.

Meanwhile the Government’s Digital Strategy, had delivered its own benchmark, specifying carriers should be able to deliver "pervasive high speed broadband to support voice over IP (VoIP) and video". The goal was to have 85 percent of residential and SME customers in towns and provincial centres with Internet access speeds of up to 10Mbit/sec and beyond - possibly even 50/100Mbit/sec by 2010. We were told the industry "will need to replace all copper lines to exchanges and cabinets with fibre, and provide major users in cities with fibre connections on demand.".

Then Telecom shifted the goalposts by revising its promise to achieve 100,000 broadband customers by the end of 2004, confirming a new target of 250,000 by the end of 2005. This time it conceded broadband was 256kbit/sec and above, not the lower speed services it had included in the in the past. Telecom had a million customers on dial up and 100,000 on broadband "of one sort or another". Communications minister Paul Swain had promised in early 2002 that outlying communities they would have access to "the same kind of two way high speed Internet available to those in major cities" by the end of 2003. His predictions were revised to the end of 2004 and continued to slip away.

Rats, fires and diggers bring networks down

2005: By the end of 2005 it was estimated 84 percent of New Zealanders who regularly use the Internet were conducting on-line research ahead of making a purchase and at least 30 percent were purchasing on-line, according to Nielsen//NetRatings. Other market research used by Telecom suggested 309,000 people in New Zealand regularly shopped on-line. Local and international research looking at on-line buying habits confirmed books, music, videos and travel were the most frequently purchased items followed by flowers, gifts, food, drink, electric appliances, computers, toys and games, apparel and accessories.

In February Ihug exited the satellite broadband business. On March 10 TelstraClear’s fibre-optic cable was knocked out by a fire in an underground rail tunnel in the Hamilton CBD. Concerns about the robustness of the Telecom network were bought sharply into focus in June when the "unthinkable" happened. An uninformed post hole digger working for a power company and a canny rat that chewed through a pipeline under a bridge in the Rimutaka Ranges took out Telecom’s main network and its back-up leaving 100,000 customers nationwide without a connection for most of the business day.

In July peering exchanges were announced in Dunedin (DPE) and Hutt area (3CIX). On October 12 Wired Country is sold to Compass Communications, some of the spectrum to be sold to Telecom. The Commerce Commission determination for TelstraClear announces Telecom has to truly wholesale ADSL at full line rate and $27 per customer (with no differential between residential and business customers). TelstraClear agree and withdraw a Commerce Commission complaint. Telecom alleges it has achieved its 250,000 goal for residential broadband customers.

Vodafone and Telecom were both pushing 3G mobile phone services which delivered higher speeds for data and even videoconferencing. While mobile was a major global trend the local cost was still outrageously high for Internet surfing. Wireless access however remained an attractive local loop alternative. In October 2005 South Auckland utility company Counties Power sold Wired Country, its wired and wireless provider, to Auckland ISP Compass Communications. Sky Network merged with Independent Newspapers becoming the country’s biggest media company. It had 619,000 subscribers as at April 2005 - about 87 percent of them on digital. Its My Sky PVR (personal video recorder) was launched in December enabling the recording of two channels at once, and through its buffering technology subscribers could pause and rewind ‘live TV’.

Unbundling was first raised as a serious option in late 2003, kicking Telecom’s lobbying machine into overdrive. The full details of Telecom’s political activism however had remained private until December 2005, when the Christchurch Press made an Official Information Act request, revealing the contents of a letter written by Telecom CEO Theresa Gattung to Minister of Communications Paul Swain in May 2004. She had warned him that 30 cents could be potentially wiped off Telecom’s share price if unbundling was required. She reminded Swain Telecom was the country’s biggest company and the Government superannuation fund was invested in it.

Gattung threatened that Telecom would not invest in "next generation" network upgrades for residential customers if TelstraClear got access to its network, urging Swain to accept the Telecommunication’s Commissioner’s watered-down proposal. The heavying worked – despite Swain and the Ministry of Economic Development supporting unbundling, this was overruled by Cabinet and the "market-led solution" adopted, essentially buying Telecom another year.

Cabinet finally agreed to support the proposed gigabit science and research network four years after it had been proposed, linking 127 sites throughout the country in partnership with MoRST. Crown-owned REANNZ (Research and Education Advanced Network of New Zealand) was formed as the operating company for what was to become the Kiwi Advanced Research and Education Network (KAREN). The network was officially commissioned on 15 December 2005.

2006: In January 2006, Telecom and TelstraClear agreed on interconnection rates for phone access to each other’s landline networks. Telecom would provide limited broadband services to TelstraClear and pay it a one-off $17.5 million to settle outstanding wholesale discounts and interconnection issues. Both agreed to drop multiple ongoing legal actions. The industry was incensed at this backroom deal which presented remaining ISPs with a take it or leave it offer on wholesale broadband rates. Ihug and Slingshot applied to the Commerce Commission for equal access to broadband at higher speeds.

Prime Minister, Helen Clark, warned in a February Parliamentary speech that New Zealand’s speed of uptake of broadband was unsatisfactory and improving the situation was now a top three priority. She promised urgent legislative initiatives. It was the government’s stated intention to get the country into the top quarter of the OECD Broadband Statistics listing; since 2003 it had languished at 22^nd place out of 30 nations.

Telecom continued to play gamekeeper and poacher, all but ignoring ministerial threats to play fair or face legislative changes. Telecom CEO Theresa Gattung called communications minister David Cunliffe’s bluff telling business analysts in Sydney in March 2006, she thought the government was far too smart to "do anything dumb" like unbundling; suggesting the broadband issue was just a "manufactured grievance" created by competitors.

In a last ditch attempt to stave off regulation, she wrote to Cunliffe in April offering to accelerate the company's investment in broadband infrastructure by spending "hundreds of millions of dollars" taking fibre-optic cable to almost all small towns by 2010. The offer was rejected and in a backlash Telecom said it would scale back its ambitions by extending its fibre network only in the five main centres of Wellington, Auckland, Christchurch, Hamilton and Dunedin.

A message delivered by rogue Parliamentary messenger Michael Ryan into the hands of a senior Telecom employee on 3 May 2006, 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) along with other proposed changes to telecommunications regulation. That news shaved at least a billion dollars off Telecom’s share index and while those shares quickly bounced back, Telecom was now forced to rethink what it meant to operate in the unconstrained market promised to the country for nearly 20-years.

Changing of the guard at Telecom

Telecom’s chairman, Roderick Deane, nicknamed ‘Doctor Death’ for his ability to wield the knife when it came to restructuring and making the hard decisions, announced his resignation at the end of May. After 14-years on the board he got a golden handshake of $661,000. Weeks later, Telecom chief executive Theresa Gattung resigned, after seven years at the helm of the countries largest listed company. She admitted 2006 had been her worst year. The policies set out in the Telecommunications Stocktake Review, including unbundling the local loop, were introduced to Parliament. Communications minister Cunliffe warned further measures may be on the way, possibly even a forced split of Telecom into separate retail and lines companies. Telecom would have to allow its rivals to install equipment at its exchanges.

By May 2006 many Telecom Xtra customers had their accounts upgraded to 3.5Mbit/sec speeds. There were an estimated 300,000 broadband subscribers, around 8 percent of the population, including 100,000 customers outside of the Xtra network, many now operating at 2Mbit/sec with the hope of much greater things on the horizon. CallPlus and Ihug, motivated TelstraClear’s in-house deal, led the charge for unconstrained bitstream (UBS) access believing the Commerce Commission should now deliver on its original promise of 7.5Mbit/sec, opening the way for faster sub-$30 broadband accounts. By June they had got their wish. They were granted wholesale access to the fastest broadband that Telecom could provide but at a price slightly higher than TelstraClear. The Commission also ruled Vodafone’s could interconnect with Telecom’s network to use a mobile as an option for a landline service, that neither party could charge each other to receive local calls.

The 2001 e-Government Strategy, together with the 2003 review, highlighted the ways government could use the Internet to increase the value of services internally and to all New Zealanders. The 2006 update took into account the launch of the Digital Strategy and Development Goals for the State Services in 2005, focusing on the inevitability of technological change and the need for government to recognise and meet the challenges.

By August 2006, 99 percent of government organisations had access to the Internet and 97 percent had broadband; 93 percent of government staff had Internet access compared to 43 percent of business staff according to a Statistics New Zealand report. It showed 77 percent of government organisations were planning to invest in new or upgraded software, desktop hardware or ICT in the year to August 2007. Obstacles to implementing new ICT solutions were competing priorities, budget constraints and a lack of qualified people. More than 60 percent of forms and documents needed for public dealings with government were available on the web and 26 percent of government organisations offered transactional services on their web sites compared with 34 percent of businesses.

The March 2006 numbers showed New Zealand had clawed back three places to attain 19^th ranking in the OECD broadband top 30, still a long way from the top half we were now aimed at. The six monthly ISP survey released by Statistics NZ in March 2006 suggested there were 57 Internet service providers operating in New Zealand, eight less than the previous period. Dial up subscribers were in decline and broadband subscribers had jumped by a third over the previous six months. Internet subscribers totaled 1.3 million and just over a million were residential users with 70 percent still on dial up connections.

When the OECD Communications Outlook figures came out in July, the finger again pointed at New Zealand as having been greedy with profit and stingy on investment. According to the OECD, telecommunications revenue in New Zealand was 5.39 percent of GDP, the highest of any of the 30 OECD countries where the average was around 3 percent.

The Commerce Commission ruled on the introduction of number portability in August, removing one of the last barriers for customers to switch phone companies. From April 2007 consumers would be able to keep their fixed-line and mobile numbers when changing phone companies. The industry had spent about $100 million to prepare networks for the change. At stake were total fixed-line revenues worth $8 billion a year and cellphone revenues of $2 billion. FX Networks had made an initial investment of $14 million in its Auckland-Wellington backbone, and was offering high speed services through its own ISP, the former CRI-owned Comnet, which it had acquired in 2004. By September 2006 FX Networks had cobbled together its own gigabit speed nationwide network through investment and partnerships with carrier class operations. It owned 500km of the fibre in its backbone; a third of which was fibre leased from Ontrack, owner and manager of New Zealand's railway infrastructure, and the balance from Kordia and Vector Communications and Wellington’s CityLink.

Telecom continued to ramp up its long awaited next generation network (NGN) with faster fibre roll out, and was shortening its copper loops and upgrading its copper capability to handle faster DSL2+ technology theoretically capable of up to 24Mbit/sec. In the meantime, the target speed seemed to have mysteriously dropped to 5Mbit/sec, something Telecom could claim it already did ‘where line conditions allowed’. Even Communications Minister Cunliffe, was now stating "high-speed Internet access - 5Mb by 2010" in a June speech. The targets were part of the government’s long stated intention to get the country into the top half of the OECD Broadband Statistics by 2007 and top quarter by 2010. However officials were now talking getting into the top half of the OECD figures. There were howls of derision across the industry when researcher Bronwyn Howell sent a 167-page submission to the Select Committee considering amendments to telecommunications law, questioning the benefits of broadband uptake on the economy, and suggesting local loop unbundling wouldn’t increase broadband uptake much.

Wholesale broadband to ISPs other than Xtra had been choked back to 2Mbit/sec maximum speed, then edged out to 3.5Mbit/sec as legal and competitive pressure mounted after the TelstraClear determination. Then suddenly it was a free-for all, Telecom, as required by the Commerce Commission, announced that from October 2006 all ISPs would get unconstrained broadband. By the end of the month most ISPs had announced new plans for faster Internet access, starting as low as $20 – $30 a month, and at the higher end data caps and speed bumps almost disappeared. Telecom’s Xtra led the way giving its broadband subscribers to access to the maximum download speeds their copper telephone lines could cope with.

Those fortunate enough to live in a neighbourhood close to an exchange, with high grade copper lines and low broadband use, could potentially achieve speeds of up to 7.5Mbit/sec. In most areas however, it was more likely to average 2-3Mbit/sec. The open slather approach showed up the frailty of Telecom’s copper network with more than 10 percent of Internet users now getting slower speeds than previously.

CallPlus was sufficiently capitalised for the near future planning to invest up to $200 million over five years on building out its WiMax network. Ideally though, its roll out of nationwide phone and Internet services with IPTV as a likely third component, would involve a mix with DSL. Ihug left Australia to its new Perth-based owners iiNet, overhauled its product line, and as New Zealand's largest wholesaler of DSL broadband, announced its intention to deploy its own network once access to Telecom's exchanges was permitted. In fact the country’s third largest ISP, with around 120,000 customers, was ripe for the picking with iiNet having suffering some set backs in profitability. It was placed only behind top dogs Xtra with 500,000 customers and TelstraClear with around 200,000 customers. On 9 October 2006 Vodafone stepped up and offered its hand paying iiNet $NZ41 million for the ISP.

Meanwhile Orcon was also looking like an inviting partner for someone. In February 2006 it had taken on board latest high-end gear from Juniper and Siemens in a $30 million five year plan to go straight to high speed VDSL2 for IPTV and related services. Meanwhile Maxnet, Compass and Iconz and other second tier ISPs were also biting at the bit to show what could be done with better access to bandwidth. Each had their own specialty to differentiate from mere bandwidth resellers, whether it was e-commerce hosting, secure back-up, disaster recovery, software development, integration or other IT&C skills for the modern business. Alternative bandwidth wholesalers were also lifting their game to be ready for the new environment. Within days Auckland wireless voice and data provider Woosh made its move, acquiring Auckland ISP Quicksilver which claimed around 10,000 customers. Woosh, had been in the game since 2001 with a fixed wire replacement solution, and now had mobility options and was offering voice.

Submissions to the Telecommunications Bill were still being worked through in September when former Telecom chief technical officer Murray Milner, representing the Institute of Professional Engineers (IPENZ) stated Telecom’s copper cable was a major obstacle to the country moving into the top quarter of broadband OECD figures. In the submission on unbundling, Milner said $1.5 billion needed to be spent replacing copper cables with fibre optic to enable 90 percent of New Zealanders to access 5Mbit/sec speeds, the goal set by the Digital Strategy.

In September Telecom Xtra is hit with huge amounts of spam slowing down delivery of emails sometimes by several days. Telecom filtered a record 226 million items of spam in September, compared with 65 million for the same time in 2005. In November Telecom wholesale customers CallPlus and Ihug says they’ve spend millions of dollars trying to fix major problems on their network with thousands of customers loosing connection sometimes lasting for hours. ISPANZ puts the problems down to Telecom’s network not handling the increasing demand for broadband. Telecom blames the ISPs saying their systems are at fault.

Paul Reynolds, who had been running the wholesale division of British Telecom, arrived in the country in October to take up his role as Telecom’s new chief executive. CityLink, a world pioneer in establishing open fibre networks, and independent community participation in civic affairs, as well as setting the pace for peering was acquired by listed mobile radio company TeamTalk and a partnership of existing management acquired in November 2006 for $22.76 million. State-owned Kordia, the re-branded BCL and THL Group, was actively engaging in alliances that leveraged its nationwide wired and wireless backbone capacity and was planning much more than competitive backhaul and ‘inter-metro capacity’ for ISP’s and new market entrants. Telecom, Vodafone and TelstraClear were now not only its customers but its competitors. The Broadband Challenge, where the Government contributed $24 million to urban fibre network projects, was launched in Lower Hutt on 27 November. It recognised the work done by the local authorities, independent carriers and fibre and wireless networks in delivering broadband access to city centres and communities, particularly where schools and public good services would be offered.

The Telecommunications Amendment Act (No 2) was passed into law on 18 December 2006 with urgency. The revised legislation upgraded the Telecommunications Act 2001. When the Bill went into select committee it proposed separate accounts for Telecom's business arms, but after six months of consideration it came through with a much tougher regime. Telecom would be forced to undergo a three-way operational split, with retail, wholesale and network arms. Communications Minister David Cunliffe said operational separation should be completed by the middle of 2007.

In April 2006 TelstraClear and its subsidiary Sytec had won the $43 million government contract to build and operate the KAREN network for REANNZ and run it for four years. Research institutions and academia would match the contract figure for further development, and gain access to 10Gbit/sec on TelstraClear’s national fibre optic network, running on a separate wavelength to its commercial traffic. KAREN went live mid-December 2006.

Go to 2007 and 2009? (Part Two) Step back in time 1840 to the 1990s (Part One)
A living document to be updated at my leisure…
Feedback welcomed (Keith Newman: wordman@wordworx.co.nz  )

References
Connecting the Clouds – Internet in New Zealand, Keith Newman (Activity Press, August 2008) Commissioned by InternetNZ. See also: ( www.nethistory.co.nz  )
NZNOG Internet history web page, research co-ordinated by Joe Abley ( http://wlug.org.nz/NewZealandInternetHistory ).
Telecommunications History web page by Keith Newman ( www.wordworx.co.nz since 1998)
Telecom annual reports and web page
TelstraClear Web page
Wire and Wireless 1890-1987, A.C Wilson, Dunmore press, 1994,  p162-163
Telecommunications – a decade of success (Telecom pamphlet 1998)
Beardon 1985: Colin Beardon, Computer Culture: the information revolution in New Zealand (published by Reed Methuen, isbn 0 474 00047 8).
Hine: John H. Research Networks in New Zealand,1987.
Internet Society of New Zealand InternetNZ web page ( http://www.internetnz.net.nz/ )
Unlimited magazine, Telecom’s Xtra Agony, Russell Brown, December, 1998
Network World, 125 Years of Telecommunications, Blanch Alan, August 1990,
Pacific Way, Speaking your language feature on telecommunications, August 1991,
Wired magazine, Godzone, Bob Johnstone, date?
Telecommunications and Superhighways in New Zealand 1998, 2001, Paul Budde Communication.
Gleanings from articles written and researched by Keith Newman over 20-years of writing about IT&T plus clippings from New Zealand Herald, PC Magazine Computerworld, Telecommunications Review, The Line, MIS, CIO and e.nz magazines.