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You ask the CEO: Dr Paul Reynolds, Telecom New Zealand

Posted on 3-Nov-2008 14:24 | Filed under: Articles

You ask the CEO: Dr Paul Reynolds, Telecom New Zealand
Geekzone readers were asked to submit questions to Dr Paul Reynolds, CEO, Telecom New Zealand, and we now publish the answers to those questions

Dr Paul Reynolds was appointed Chief Executive of the Telecom Group on June 28 2007, effective from 27 September 2007. His previous role is as CEO of BT Wholesale in the United Kingdom.

Paul joined BT in 1983 after completing a doctorate in geology at the University of London. He has had a distinguished career, encompassing senior leadership roles in sales and marketing, strategy, information systems, broadband, and guiding BT's wholesale business through the complex process of operational separation, when Openreach was created.

He served on BT's Board of Directors from 2001. In 2006, the Telecommunications Industry Association of America awarded him its 'Global Icon' award for his leadership and innovation.

Q. What is your and Telecoms NZ's position in the net neutrality debate?
- Vint Cerf has praised the UK/NZ wholesale/retail separation models, but other commentators have said that the UK model has resulted in higher costs to the consumer. (via Dave Farber's IP list). How will you work to ensure that prices to the NZ retail and wholesale consumers are low in international terms while providing a fair return to shareholders?

Dr Paul Reynolds: Net Neutrality is a very broad term that there is still much debate about Ė Iím not sure which definition you are asking about, so Iíll attempt to answer your question as best I can. The first point to make is that Telecom, unlike some of the US cable companies is not vertically integrated as a content and internet access provider, so we donít have the same motivation to prioritise our content traffic ahead of other traffic, the model that has caused the debate in the States.

Where I think we have to see some intelligent management of packets is as Telecom provides the infrastructure and products at a wholesale level for VOIP, and future IP products, whatever they may be. For VoIP to be compelling it canít just be a best efforts product Ė there have to be versions with a Quality of Service dimension.

I think we will also see more innovation at a Retail level in offering differentiated IP-based products. But I can say that at no stage will Telecom stop anyone from using their internet connection how they choose, assuming fair compensation.

Regarding pricing Ė I think itís really important that we get the right regulatory framework for IP-based products that allows for competition and innovation, speed to market and customers being able to decide what they value.

A lot of this will be decided by the decisions that the regulator makes on IP interconnection Ė an area which has yet to be regulated anywhere in the world. New Zealand is going first Ė as we are on many issues. We are advocating that IP interconnection prices are not set by the regulator, but that consumers drive the pricing by voting with their dollars.

We feel that setting a base cost for IP services naturally leads to a commoditised market and slows innovation and investment. Iím backing Telecomís retail business to deliver the best products with the best value proposition on a totally level playing field, and that will deliver value to our shareholders.

Q. As stated, the government is all for faster internet. Doubtlessly the advent of fibre-to-the-home would be a boon for all business (live high definition videoconferencing, fast off-site data backup, all kinds of other awesomeness etc), but with the current system of monthly data capping, live streaming of audio/video will remain impossible, as one must constantly worry about inching closer to the cap.
- Do you think we have sufficient international bandwidth to start viewing the internet as an amenity, not a finite resource, and remove the data caps? And if current undersea connections preclude this, what are you doing about it/when do you expect this to become possible?
- Alternatively, way back in the day when we were on a Paradise connection, they used to charge a tenth of the cost of normal traffic for packets sent inside New Zealand. Do you think that reverting to a local charges model would work, in the meantime?

Dr Paul Reynolds:Itís a peculiar feature of New Zealand that a huge majority of the online content we are interested in is hosted overseas.

Clearly the transport costs for importing overseas are higher than those for content hosted in New Zealand, and thatís what drives the requirement for data caps. Itís like every voice call being made is an international call. Itís simply not related to capacity on the Southern Cross cable system, which still has plenty of capacity for years to come.

The biggest change that needs to happen is the development of much more compelling New Zealand content, and I think that as IP-based services mature and develop we will see much more appetite for New Zealand content. Also we are getting much more sophisticated at caching content in New Zealand to minimise trans-Pacific costs.

I think we are putting the right business model in place at the wholesale level to allow for much more innovation in packaging and pricing by both Telecom Retail and the other service providers. This allows retail packages that have cheaper (or Ďno-capí) access to New Zealand hosted content. We are already seeing some service providers adopting that. I would say that it can be confusing for customers to determine what content is hosted in NZ and what isnít Ė as itís not necessarily related to the URL or content within websites may be drawn from servers in several places.

Q. Both major political parties (Labour and National) have indicated that Fibre to the Home (FTTH) will be a key offering of their election campaign. Does Telecom have any plans for a large-scale FTTN network in the near future, and if so how does this fit in with what the Political Parties are proposing?

Dr Paul Reynolds: Thereís been a lot of talk about fibre to the home in the media this year and you may recall that Telecom Wholesale has launched several fibre to the home pilots around New Zealand.

Telecom are keen to work with whichever party wins the election to explore ways of getting more fibre out there!

The major challenge to extending the reach of fibre to the home is simply the cost of laying it Ė about two thirds of the cost is eaten up just to dig trenches for the fibre. Telecomís ultimate goal is to reach the vast majority of home with fibre. Our network architecture has been developed to support this goal and our ongoing fibre network developments are progressing in that direction.

Telecomís existing network already comprises about 20,000 of fibre, with more than 1,000 kilometres respectively in cities like Auckland, Wellington and Christchurch. And weíre now busy adding to it through the fibre to the node project with another 2,500 kilometres of fibre to reach further into suburban New Zealand by the end of 2011.

Chorus is also busy deploying fibre optic cable directly to homes in a range of greenfield developments (by this I mean developments where thereís no existing network in place) where itís economic to do so. Generally this is developments of 100 lots or more. In all, Chorus plans to lay a total of 160km of fibre to about 8,000 new development lots over the coming year. One of the more interesting aspects of this work is that these sites are spread right around New Zealand Ė so fibre to the home is already underway.

Q. I know a few years back there were plans to create more redundancies on the fibre network by adding additional fibres to the then eastern/western fibres. Back then there was a rodent attack on one and an auger incident on the other means well over 100,000 lines cut. Has this vulnerability in the network been fixed?

Dr Paul Reynolds: The network is continually evolving and so does the level of diversity we have built into it. We have, for example, completed a third fibre route between Palmerston North and Hamilton with the intention of providing another layer of diversity.

As the saying goes though, lightning doesnít strike twice in the same place, so designing the network in a way that anticipates rodents and augers ganging up on the network is just part of the steps we take to safeguard the network. There are also regular surveys of fibre routes to identify potential risks such as slips.

Chorus has also recently begun working with beforeUdig, a free service which provides a single point of contact for anyone digging to check where underground infrastructure is before they turn a sod and potentially put customers out of service. Unfortunately there isnít an equivalent service for rodents yet.

Q. With Telecom due to roll out a HSDPA network, what will happen to the 70,000 plus data only products, a large number used in remote locations for Telemetry on the CDMA network? Should anyone continue to develop data solutions on CDMA, if yes how long will the network be available and if not what products are available to start development for HSDPA.

Dr Paul Reynolds: Even with our move to HSPA (not HSDPA) we will maintain our existing network until at least 2012 so organisations or individuals using telemetry solutions will have plenty of time to consider how they migrate onto our new network Ė much like people did when 025 moved to 027.

Q. Is telecom considering at this stage launching UMTS in addition to GSM on the 850MHz band and is there a chance we will see the iPhone 3g in the initial handset line-up when GSM/UMTS comes online in November?

Dr Paul Reynolds:Iím delighted that Telecom recently announced plans to deploy WCDMA nationally at 850MHz, rather than GSM at 850MHz (2G). By June 2009 97% of New Zealanders will have access to world class mobile broadband and services including seamless global roaming.

Some key global developments have happened since we announced our intention to move to WCDMA just over a year ago. These include an increase in the range of WCDMA 850MHz devices available, and a growing global ecosystem of operators who have launched WCDMA 850MHz network such as Telstra in Australia and AT&T in America.

We think the 3G iPhone is a fantastic device but we have nothing new to report on this. It has a tri band WCDMA chipset so if we continue with WCDMA/HSPA and GSM/EDGE it would work on our 3G network at 2100MHz and 850MHz. In fact a 3G 850/2100MHz network is the ideal frequency for the iPhone so, in New Zealand, the device will work most effectively on Telecomís network.

Q. International mobile data roaming charges are ridiculously high - to the point where using mobile data internationally is just not viable. What is Telecom NZ doing to encourage all telcos to reduce roaming charges to sensible numbers?

Dr Paul Reynolds: International roaming charges are closely guided by agreements with overseas mobile providers and while a premium service, Telecomís data roaming prices are competitive with other New Zealand and international mobile providers. However, our new mobile network will provide opportunities for us to partner more effectively with overseas mobile providers. Our aim will be to offer best value for Telecomís customers.

Q. It must be as clear to anyone in the telecommunications industry, as it is to those outside it, that mobile broadband costs are extortionately expensive here in New Zealand. Can you offer any explanations as to why this is? And does Telecom have any plans to provide a globally competitive service (as opposed to simply matching Vodafone blow by blow?).

Dr Paul Reynolds: Telecom constantly reviews mobile broadband data plans to get the most value for our customersí money, because we know if a product or service is too expensive for customers, they simply wonít buy it. However, mobile broadband is an expensive service to provide compared to other mobile technologies. Our recent offers around the launch of the new T-stick modem have proven very popular. And as with all technologies, development over time results in cheaper production costs, more people using the network, and therefore lowers prices for customers. We can expect mobile broadband to be even more accessible for customers when Telecomís new network launches. This latest investment alone will cost nearly $600m in the next couple of years

Q. Telecom have still said very little about their VoIP plans. Is there anything you can say about this at present and the timeframe for product launches?

Dr Paul Reynolds: At the highest level there are VOIP products already in the business market, and plans to switch over from the PSTN to VOIP based services in the mass market as part of the transformation of Telecom retail.

With IP based voice services new functionality is available which we will be bringing to market. Its fair to say that VOIP will be the most significant upgrade of calling functionality seen for many years.

To deliver our VOIP services we will be using the new generation of broadband services offered by Telecom Wholesale. Other providers will be doing the same. Given the competitive landscape, we will reveal the full details of our VOIP services closer to our launch.

In April, Telecom's corporate arm Gen-I and Microsoft announced a deal to provide corporate clients with a hosted unified communications solution, and provides IP-telephony and IP-voice services for a number of its corporate customers.

Telecom is also currently trialling a Unified Communications offer for SMEs, making the services previously used by corporate organisations more accessible to smaller businesses. The benefit of which will include integrated mobile, landline and PC solutions at an affordable price. This will be available as part of the software-as-a-service (SaaS) suite of products available through the Telecom Business Hub in the coming months.

Q. We are still largely constrained by broadband bandwidth caps in NZ, which restricts the business models that our developers and consumers can participate in. What will you do to unleash the full internet and reduce the constraints from bandwidth caps?

Dr Paul Reynolds: As a small English speaking country, the majority of our content is generated in the US and Europe, and needs to be transported all the way to New Zealand. This is expensive and at present it would be unsustainable for us to remove data caps altogether. Itís simply a matter of distance and demand. We do, however, have a range of plans that allow customers to choose either a fixed price or overage depending on their needs. We should bear in mind than the OECD estimates New Zealand has the 6th cheapest broadband services in the world. Not bad considering the huge extra network costs we face as a result of our remoteness, small population and challenging local geography!

Op Sep/Regulation
Q. In the new environment of structural separation, why is there still inconsistencies in getting service from Telecoms retail arm Vs the wholesale product through an alternative ISP? A case in point:
- Attempted to sign up a customer for broadband through an alternative ISP. Order was rejected. I had a very good idea on what the issue was preventing successful provisioning, and so feed this info back via the ISP for resolution. The order kept getting rejected, six times I believe.
- Signed up the customer through Telecom Broadband. Order was accepted first time and activated. Broadband did not work (due to above issue), however on first logging the "failed install" with Telecom Broadband, they jumped straight in to troubleshooting the issue: a cable fault (as know from above).
- Telecom then addressed the cabling issue, problem solved, customer on broadband.
- Now moving customer to original ISP
This scenario has be common practise in my experience for the past 5 years. Clearly, this is still an issue that needs to be addressed so that alternative ISP's get treated the same as Telecom Retail.

Dr Paul Reynolds: Since operational separation became reality on 31 March this year very strict rules have been in place to ensure equivalent access for Telecom Retail and other service providers to the Telecom network. The scenario you described should not have happened as you described and I am confident we are working very hard to ensure that it does not happen in our separated environment. This involves massive investment in new systems and processes which we are rolling out to the industry to a timetable agreed with the Government. We are on-track with the fastest operational separation process I think the world has ever seen!

I think Telecomís people take operational separation very seriously and we are committed to delivering not just to the letter but also to the spirit of the Undertakings. If any of the other service providers feel that they have not received fair treatment then they have recourse through the Independent Oversight Group, and there are strong financial penalties in place if Telecom breaches the Undertakings. I would say the appropriate checks and balances are now in place.

Q. One word: Ferrit. With an investment north of $30 million dollars and traffic that is less than ( a deal-a day site and only slightly more than a shop selling parallel imported sports gear how can Telecom keep supporting Ferrit?

Dr Paul Reynolds: Telecom is investing in Ferrit as part of a longer term strategy. The growth and potential revenue opportunities from online retail and for Telecom are significant if New Zealand follows trends in the US and UK. In the UK online retail is in excess of 15% of all retail and is expected to grow an additional 50% this year. By helping to develop New Zealandís online retail market from around 1% to US/UK levels, Ferrit believes it can establish itself as a valued partner to help bring a large portion of New Zealand retailers online in a trusted one-stop online retail mall for consumers. A key challenge to achieving this goal is educating New Zealand retailers (other than the handful who already do online exceptionally well) about what is needed to succeed online and providing tools to help them do this.

Q. With a charging structure
( that can hardly bring in much cash at current traffic levels and no sign of any forward momentum it doesn't seem to add up. I would be really interested to know how you think Telecom can make Ferrit profitable in the medium term.

Dr Paul Reynolds: By helping equip New Zealand retailers to succeed online, Telecom helps open up worldwide retail opportunities for these retailers, as well as helping them effectively compete with overseas sites who have invested millions if not billions of dollars on their online capability and who are quickly growing their share of New Zealand retail spend (at the expense of New Zealand bricks and mortar businesses).

Q. Howís the change in pace been, living down under in New Zealand, and having to drop off a couple of zeros on all the projections and figures? Is it easier to manage a big rollout, on a much smaller scale, or does it make it tougher because of the smaller teams having to specialise in more things?

Dr Paul Reynolds: If anything the pace has speeded up for me since coming to New Zealand. Sure, there are a few less noughts on some numbers. But the transformation programme underway in Telecom is the fastest and most far reaching of any Telco I know. So the pace and complexity is especially high, added to by the special interest Telecom attracts in New Zealand! Customers rightly have high expectations and Telecom aims to meet them. The great thing is that our staff have a real kiwi can-do approach thatís much more straightforward in getting things done compared to some bigger organisations I know!

Q. Having such a position and dealing with so many demands - from the public, govt. and within the organisation you work for (at the time) what have you found to be one of the most challenging parts of your role and how have you/do you plan to overcome some of those challenges? (Also - can I borrow your copy of Building your Company's Vision by Jon Collins cause I canít find it anywhere.)

Dr Paul Reynolds: The biggest challenge is figuring out how to get it all done, even faster! And thatís not really about technology, itís about people Ė the human challenge. There are many, many Ďheroesí at Telecom working very hard to deliver for our customers and figuring out how to get the job done speedily, nationally and without the Global resources of much of our competition. Iím proud of what we have achieved over the last year Ė New Zealand is now getting some of the best broadband and mobile services in the world according to independent surveys, and the ongoing investment and commitment is immense.

Q. Mooreís law and Metcalfe's law dominate your world. Paint for us your vision of how telecommunications will look in 15 years time. (Is data access ubiquitous? What are the revenue models? How is Telecom NZ adapting to an end game where data access is like electricity?)

Dr Paul Reynolds: I think fast broadband data access will be ubiquitous and weíre heading there quickly with 10-20mbit broadband to over 80% of New Zealanders in the next 2-3 years. Also fast 3G mobile data will be available to 97% in the first half of 2009.

The revenue model is pretty straightforward: investors need regulators to set prices for regulated wholesale services that ensure a reasonable return, in order to continue to incentivise the investment. I note that in many other countries regulatory holidays or closed platforms has been the price of fibre investment. Weíve avoided that so far here in New Zealand, but it is absolutely certain that sensible pricing will be a pre-requisite to get New Zealand ahead and stay ahead.

Retailers, including Telecom, will win by being agile and innovative in developing new services on open access platforms. The future will see much less emphasis on operators developing and selling closed applications. I see Telecom Retail combining capabilities, written in software, with applications and services developed by others and bringing them together in unique and valuable packages for customers. Customers will drive the agenda. They will have real choice and will naturally buy from those that best meet their needs.

Q. Having worked around the world in telecommunications, how would you rate New Zealand network now and were it should be?

Dr Paul Reynolds: Our networks here in New Zealand are developing so fast that we have caught up, and in many ways will overtake, some of the worldís best in the coming year. For example the Government Epitiro benchmark shows our broadband quality has nudged ahead of the UK. We are behind Australia in 3G mobile but our new network will be better specified and running nationwide by June 2009. Australia is still at the talking stage on fibre to the node, yet we are building it. I donít know any country in the world that is delivering FTTN as extensively as we are. Also we have a very open and equal access regime which allows terrific opportunities for the whole industry to innovate.

It is very important that the debate in New Zealand recognises this and moves away from the outmoded perceptions and assumptions of the past. We need to recognise the advances and commitments by the industry in New Zealand, not just Telecom, and work together to create an environment that encourages even more innovation and investment. That way New Zealand will get ahead.