Untangling Colin Espiner’s FUD on Stuff – why the Chorus debate is so complex.

By Steve Biddle, in , posted: 10-Nov-2013 09:37

Update: As of 11:30am Stuff have now updated their page with a red “OPINION” heading at the top of their article. This was not present initially.

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Journalist Colin Espiner has written an article today on Stuff discussing the current topical debate around Chorus. The issue with Chorus is a highly complex one, and in reality most people have very little understanding of the actual issues at stake here. The Stuff article really is all the proof you need that a) mainstream media really can’t be trusted as an accurate source of factual information and b) the issue is a very complex one.

Rather than breaking copyright and including the whole story I’ll simply correct the inaccuracies and misinformed statements in the article, which you can read in full using the link below.

http://www.stuff.co.nz/business/industries/9378297/Unbundling-the-Chorus-saga.

Chorus has claimed it'll go broke if it can't charge as much as it does now and has asked the government to step in.

Chorus have never claimed this. I challenge Espiner to provide a source for that claim or retract it.

What is Chorus?

Chorus is a private, NZX-listed company that owns the copper lines that connect your house to the telephone exchange

There is much more to Chorus than simply copper lines. Chorus is an infrastructure provider that owns the copper cables running to your home, known as a metallic path facility (MPF) in the telco world. Chorus also own hundreds of telephone exchange buildings around New Zealand, a nationwide fibre network (some of which is shared with Telecom still), and over 4000+ fibre fed roadside cabinets used to deliver phone and broadband services across the country. Chorus don’t own the actual NEC NEAX telephone exchange hardware that delivers telephone services to most customers (these are owned by Telecom), but they do own the equipment used to deliver wholesale broadband services to customers of every Internet service provider (ISP) in the country. This piece of equipment is known as an ISAM, DSLAM or ASAM.

What the heck is local loop unbundling?

Ever had a peek inside a telephone exchange? Seen all those thousands of wires in pretty colours? That's the local loop. When Telecom owned it, it could charge what it liked to provide access to internet providers. The Government legislated to put a stop to this by allowing any provider access to the copper wires.

So what's the Commerce Commission doing setting the price Chorus can charge? Good question. The problem with local loop unbundling is internet and telephone service providers complain the price they're forced to pay Chorus for access - $45 a month - is too high. The Government threatened to intervene and regulate the charges but the Commerce Commission got in first with its own determination, setting the price at $34.44.

Great, that means I'll soon get cheaper broadband? Yes, but only if providers decided to pass the cut on to customers rather than pocketing some or all of it. And assuming the determination isn't appealed by Chorus. And always assuming the Government doesn't step in and over-rule the commission.

This is plenty of confusion generated here by Espiner. What’s important here is that the current Chorus debate does involve local loop unbundling pricing, it’s not in the way Espiner has described.

Technically speaking the local coop is a term for the copper MPF that runs from an exchange or cabinet to your premises.

Local loop unbundling allows any ISP or telecommunications company to rent space to install their own equipment in a Chorus exchange or cabinet and use a Chorus MPF to deliver broadband and/or phone services to customers. A number of companies have chosen to install their equipment into Chorus exchange buildings and at present just under 50% of the total number of customers services by Chorus have the potential to be delivered an unbundled product. At present no 3rd party has any unbundled equipment in any of the 4000+ Chorus roadside cabinets as the business case for doing this simply doesn’t stack in, in part due to equipment costs and the smaller number of customers served by a roadside cabinet, and in part by the Commerce Commission regulated cost of backhaul from the cabinet which would see any additional provider having to share backhaul costs equally with Chorus which is not viable.

The current cost of an unbundled MPF is $19.08 for an urban area and $35.20 for a non urban area. In December 2012 the Commerce Commission set in place a move to average both of these costs out and from December 2014 a price of $23.52 will apply to both urban and non urban areas.

For an ISP to deliver Internet and/or phone services over an unbundled MPF they need to install their own equipment into the exchange and pay the associated fixed prices for extras such as rent, power and backhaul.

The $45 price referred to by Espiner is the cost of an ISP delivering a wholesale Unbundled Bitstream Access (UBA) product which is currently set at $44.98 per month. This price covers the cost of the MPF and a port on a Chorus ISAM, ASAM or DSLAM that is used to deliver Internet to the premises.

An ISP has two choices to deliver Internet access to a customer. They can pay the UBA cost to Chorus for a wholesale service, or they can choose to install their own equipment into an exchange and offer an unbundled service. Providers such as Vodafone, Orcon, Callplus and Compass have chosen to install equipment in major exchanges. Most other providers (including Telecom) rely on wholesale UBA services to deliver Internet access to their customers.

The current Chorus debate revolves around the price Chorus are allowed to charge for the UBA service from December 2014. This price will consist of the cost of the MPF which will be set at $23.52 from this date, and the cost of providing the Internet access from a port on the ISAM, DSLAM or ASAM. The Commerce Commission originally believed in it’s first draft document that this cost should be set at $8.93, giving a total of $32.45. On Tuesday the Commerce Commission announced a final decision and increased this cost to $34.44

A brand new Alcatel Lucent 7302 ISAM used by Chorus costs many tens of thousands of dollars. At the end of the day there are very few of us who are aware of what the true cost of providing this post actually costs.

Was it a smart idea for the Government to contract the provider of the copper wire network to also build the new fibre-optic network?

No, it wasn't.

Without providing any evidence to back such a claim it can be viewed personally as a matter of personal opinion. My personal opinion is very different - awarding Chorus the contract to deliver UFB was a very smart move.

New Zealand already has a world class broadband network (something I recently wrote about here) with over 80% of premises having access to 10Mbps+ ADSL2+ downstream speeds, and just under 50% of premises having access to VDSL2 delivering anywhere between 30Mbps and 70Mbps, but more importantly delivering up to 10Mbps upstream (ADSL2+ is only capable of delivering up to 1Mbps upstream). Telecom spent well over $1 billion deploying over 3500 fibre to the node (FTTN) roadside cabinets around the country to deliver this. This network was designed and constructed with a full fibre to the home (FTTH) network in mind, meaning that existing pits, ducting, fibre and equipment can be utilised as part of the UFB FTTH rollout and not unnecessarily replicated. Why reinvent the wheel (and pay for it) when you’ve already got many of the components for the wheel?

Ultimately fibre will replace copper, however unlike Australia who announced plans to decommission the copper network 18 months after fibre was deployed, no such plan was put in place here. With Australia’s nationwide fibre network now possibly on hold to to a change of Government, it’s likely that by 2017 Australia will have a FTTN network delivering similar capabilities as NZ’s FTTN network which was finished in 2011.

Chorus isn't exactly incentivised to drop its copper network prices because it wants to sign more customers up to its more expensive fibre system. Which won't happen if "traditional" copper network broadband is priced too cheaply.

The $37.50 entry level price for a UFB plan was originally set to undercut existing UBA copper services meaning their would be an incentive to move away from copper to fibre as the price would be cheaper. The $37.50 cost also included a voice port in the Optical Network Terminal (ONT) meaning that both Internet and voice services could be delivered to a customer at a wholesale cost around $20 less than a traditional copper MPF delivering UBA and a POTS phone service from a NEAX.

I'm happy enough with my current broadband connection. Do I really need UFB anyway? Well, that's the problem. Not only is UFB extremely expensive to install (the Government has budgeted $1.5b) and time-consuming to roll out (it'll take another 10 years or so to finish) but only 75 per cent of homes will be covered by fibre in any case - and none in rural areas.

The loan to Chorus was nowhere near the true cost of the UFB rollout. That’s still going to be somewhere in the vicinity of $2 - $3 billion dollars, with a true cost very difficult estimate at this time. Costs associated with the UFB rollout have escalated wildly, with costs currently running as high as $3000 per premise passed to deploy the ducting. There are then the costs of installing the fibre to the home, which in some cases is still topping $2000. The loan Chorus received from the Government is less than half of the actual cost of the UFB deployment.

The UFB rollout will be complete by 2019 and will cover around 75% of premises in the country. Many areas that did not receive fibre will receive upgraded services by way of the Rural Broadband Initiative (RBI) project delivering upgraded copper services and wireless broadband access to those where delivering fibre services is totally uneconomical.

Are there any disadvantages of going to UFB? Apart from the higher price per month, and not being in a big centre, there's likely to be higher connection fees associated with getting linked into the fibre network.

Plus, something that hasn't had much coverage - once you ditch the good old telephone lines, stuff you're used to like caller ID and using the toll provider of your choice will no longer be available. Telecom's fine print states if you're on fibre you can't use anyone else for cheap tolls.

As pointed out above the cost of fibre was set to undercut existing copper services. The argument against the Commerce Commission cutting UBA costs is that setting these below UFB costs will inhibit UFB uptake as many people will simply opt for the cheapest Internet plan available. With installs for UFB still free for most users until at least 2015, there are no “higher connection fees” associated with moving to fibre.

A user moving to fibre will find their regular phone service is replaced by a carrier grade voice over Internet protocol (VoIP) service. A provider offering UFB services has two ways of delivering phone services – using the voice port on the ONT, or by using voice ports in the ISP supplied router or residential gateway (RGW). This is the approach currently being taken by providers such as Snap and Orcon who deliver voice services using their Fritz!box and Orcon Genius gateways. The good news is that usual smartphone services like CallerID and voicemail will still continue to be available. Any such fine print about “cheap tolls” is also rather meaningless. If you don’t like Telecom’s products, services or price then don’t sign up with them.

In the meantime, you can impress your friends with how much you now know about the current debacle.

You might try and impress your friends, but if it’s using information from Epiner’s story you’ll probably just make a fool of yourself, especially around others who do understand the telco space, so be careful who you try and impress..



Other related posts:
Spark Paging network shutdown – the event nobody cares about? Not quite.
UFB voice, power cuts, copper invincibility and mainstream media FUD.
New Zealand’s growing BUBA problem (AKA I feel sorry for you if you’re on a Conklin)








Comment by James Burnett, on 10-Nov-2013 10:03

Skewered! 


Comment by juha, on 10-Nov-2013 13:25

"Chorus has claimed it'll go broke if it can't charge as much as it does now and has asked the government to step in."

That was our Prime Minister, John Key, who made the claim: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11138275


Comment by juha, on 10-Nov-2013 13:39

Good piece, but I have to agree with Espiner that it wasn't a smart move to award Chorus the contract. He doesn't understand why and your arguments to the opposite are valid from a technical and deployment viewpoint but... we're now in a situation where Chorus says that because the Commerce Commission followed the law that Steven Joyce and National introduced, the UFB project is at risk because it can't borrow the money needed to complete the build.

The law was in place when Chorus was awarded the contract, and it was abundantly clear that the next round of regulatory access pricing would be worked out on the cost of the service, and not set with Telecom's retail charges as the guide.

Amy Adams said on The Nation this morning that if the Commission's determination - as it was legally bound to issue - stands as it is, there will be no UFB. It appears she's proposing to overrule the regulator and halve the cost reduction so as to give Chorus more revenue from the copper network and shore up its credit rating and borrowing ability. 

This when the UFB is in its third year. Hardly a smart move by the government to sign up a fibre network builder that's so dependent on copper revenue that it can't complete the project it has agreed to finish.


Comment by techmeister, on 10-Nov-2013 15:31

Good information, So is this what John Key means by Chorus will go broke? http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10829747I 

I don't think Chorus are in any danger of going broke.
Chorus just need to get on with it and stop moaning. 



Comment by antoniosk, on 10-Nov-2013 17:42

I can just imagine you bashing out this angry response - given the elapsed time from receiving the paper to publication (3 hours?) that was mighty impressive - and I applaud you for doing so. I thought the article was pretty one-sided (nasty private company trying to make money, who do they think they are?) and missing the basics.

Who knew voip was so naff it couldn't do caller ID? what a swizz. We're all better off using mobiles anyway, they are the future.

JUHA: the tendering process for bidding to build the fibre network was open to anyone who wanted to pitch up and go for it. The only people who reasonably responded where the ones who COULD get organised enough to make it look like they could achieve, because they had been doing it for a while. I'm surprised Tasman/Marlborough didn't go to Network Tasman and go but I don't know the details as to why people missed out.

Last time I looked, Enable/Northpower/UFF only got paid for connecting end customers and not just building the network - you gotta feel for them given the current connection, and the absolute lack of cashflow required to make things work. Northpower can at least draw on electricity revenues... don't know about the others though...


Comment by PaulBags, on 20-Nov-2013 20:29

Customers only get guaranteed free installs up to 2015, but the network won't be rolled out fully until 2019. Did I catch that right? So those who had to wait the longest have to pay the most, in over priced copper over years and in install costs. And in part as an incentive to move from copper to ufb, which these same customers are totally unable to do. Does that really seem right to you?


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Steve Biddle
Wellington
New Zealand


I'm an engineer who loves building solutions to solve problems.


I also love sharing my views and analysis of the tech world on this blog, along with the odd story about aviation and the travel industry.

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