Telecom's Cabinetisation Plans

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#97035 26-Nov-2007 22:46

richms: Really, I find it insane that telecom were punished for other ISPs inability to sell a simple product that they wholesaled off telecom.

I think if you look more closely at the facts of this case, you will find that Telecom offered their Wholesale Customers approximately 6% discount from the Retail Price for similar plans offered by Xtra.

It's extremely difficult for any ISP to make a profit on 6% margin after paying for International Bandwidth as well as the 3 As (Authentication, Authorisation and Accounting).

But InternetNZ executive director Keith Davidson said yesterday that if Telecom was taking advantage of its market power it would not be in keeping with Telecom chief executive Theresa Gattung's comments that they "get it" and are now aligned with the Government's direction.
He said Telecom's wholesale customers would not be able to match Xtra retail prices without making a significant loss under its new pricing plan.
The Commerce Commission ruled in June that internet companies must pay $28.04 a month for wholesale net connections for high-speed unconstrained bitstream.
Telecom would not say what it would charge its retail customers when it moves to unconstrained bitstream next month, but has said its entry-level package would remain at $29.95 a month.
The company's competitors say they would not be able to compete with this package because as well as paying the $28.04 wholesale price, they would also need to pay for data caps and meet their own expenses.

This is the reason why Operational Separation was needed because Telecom were effectively subsidising their Retail Arm (Xtra etc) from the profits made by their Wholesale Arm. Theoretically, from March 31st next year, it should no longer be possible for that to happen.

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#97048 27-Nov-2007 00:13

grant_k:
It's extremely difficult for any ISP to make a profit on 6% margin after paying for International Bandwidth as well as the 3 As (Authentication, Authorisation and Accounting).

oh yeah....6% is definitely slim! But again this raises the point - how easy should it be? And what does legislation allow you to do that couldn't be accomplished commercially? If the point of all of this is to drive the price down - margins are going to be slim. Indeed - for the govt to fulfil its vision of multiple paticipants in the industry servicing a market of say 2-3 million households - there isn't going to be a lot of fat in mass market services.

Telecom would not say what it would charge its retail customers when it moves to unconstrained bitstream next month, but has said its entry-level package would remain at $29.95 a month.
The company's competitors say they would not be able to compete with this package because as well as paying the $28.04 wholesale price, they would also need to pay for data caps and meet their own expenses.

This is the reason why Operational Separation was needed because Telecom were effectively subsidising their Retail Arm (Xtra etc) from the profits made by their Wholesale Arm. Theoretically, from March 31st next year, it should no longer be possible for that to happen.

So from what you indicate - not only are margins slim, there's an expectation that xtra would be making loss since that is only sustainable via cross subsidies in the business (similar to what call plus accussed Voda of by offering below cost services subsidised by its monopoly GSM network - which BTW I don't subscribe to). What a time to be a service provider!

This is where I think the legislation might actually get some results. If the intention is to make Telecom a wholesale provider/ SOE by proxy then its important that all wholesale customers including Telecom retail are treated the same. If nothing else it should put an end to the in-fighting and get the retail companies focussed on the providing the service. Good comments Grant.

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#97059 27-Nov-2007 06:50

I can certainly see a few ISP's hitting the wall over the next few years...

CrispinMullins

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#97280 28-Nov-2007 04:36

If only local loops were publicly owned and anybody could fibre them up wherever there was a business case. Ah, one can dream.

Crispin Mullins
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#97286 28-Nov-2007 06:44

CrispinMullins: If only local loops were publicly owned and anybody could fibre them up wherever there was a business case. Ah, one can dream.

Operational separation is as close as you're going to get. Many would argue that it's infact better.

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#97288 28-Nov-2007 06:54

I am sure that if there was a business case they would done in a flash....

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#97302 28-Nov-2007 08:52

GEOMAX:
I am sure that if there was a business case they would done in a flash....

And that's the problem. Plenty of telco's and ISP's with no sustainable business model. There are too many people in this world obsessed by the 5% factor - if we can just capure 5% of the market we could do really well.

I would argue that there probably only exists a market for maybe half a dozen 2nd level telco's and ISP's in the NZ marketplace and that we are bound to see significant business failures in this sector in the next few years. I'm no Telecom fan but I can only see them growing, not because of their dominant position in the marketplace but simply because they are going to spend the money rolling out infrastructure to deliver the products and services that are essential to stay competitive in the marketplace. What's going to happen to other telco's when Telecom start offering free broadband with your NGN phone service? How can small ISP's relying on cheap dialup continute to exist when dialup internet no longer exists with the NGN?

/me wishes people would stop bashing Telecom over the NGN issue.

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#97334 28-Nov-2007 12:53

I did a search on google to see how much to lay fibre etc and found this article
http://envbop.govt.nz/media/pdf/Broadband-Deliverable8.pdf
it has some prices per section assuming only one provider.
If two providers laid fibre the price per section would double...
Ultimately the consumer would pay more?
Maybe one fully utilised Network would be best?

KiwiOverseas66

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#97371 28-Nov-2007 17:27

sbiddle:

And that's the problem. Plenty of telco's and ISP's with no sustainable business model. There are too many people in this world obsessed by the 5% factor - if we can just capure 5% of the market we could do really well.

I would argue that there probably only exists a market for maybe half a dozen 2nd level telco's and ISP's in the NZ marketplace and that we are bound to see significant business failures in this sector in the next few years. I'm no Telecom fan but I can only see them growing, not because of their dominant position in the marketplace but simply because they are going to spend the money rolling out infrastructure to deliver the products and services that are essential to stay competitive in the marketplace.

bingo! Its an important factor that by and large has been overlooked in the whole debate over LLU, wholesale, etc - how viable are the businesses and their business plans? It also raises the bigger question - if viability is based on innovation and establishing a unique business proposition - how sucessful are you going to be reselling someone elses infrastructure (especially if that's what everyone else will be doing).

I suspect that in the rush to put the legislations in place, meet popular demand, satisfy political obligations, etc - a fair bit of leeway has developed over the "commercials". In addition - govt policy on this will be based on overseas examples and consulting information - in other words I somehow doubt they have a day to day business understanding of what the actual costs are for telco services within a NZ context, let alone what is needed to make it sucessful (if they did - they would be running a business and not in government).

If only local loops were publicly owned and anybody could fibre them up wherever there was a business case. Ah, one can dream.

actually we already have examples of public ownership of infrastructure - and it aint pretty! Hmmm...I can see it now up along side those hugely successful govt entities transit and transpower.....transcom!

CrispinMullins

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#97445 28-Nov-2007 22:12

actually we already have examples of public ownership of infrastructure - and it aint pretty! Hmmm...I can see it now up along side those hugely successful govt entities transit and transpower.....transcom!

Yes, and then there's Kordia, NZ Post, and the energy resellers such as Mighty River, which are all doing very well. Air New Zealand is back into the black and TVNZ continues to make a healthy profit. Through my overall dealings with these companies, I sure wish I was dealing with them as opposed to dealing with Vodafone or Telecom for my internet. (Orcon probably doesn't fit into the same category, but we can give it time, I suppose.)

I was encouraged to hear Cunliffe's reference to direct public investment through Kordia today. More importantly, and slightly off-topic, he has realised that we don't suffer from a lack of international capacity, but rather a lack of comptetition in the international capacity sector, which has lead to artificially high pricing. His points regarding the necessary shift in focus from short-term return on investment to longer-term returns also rang true. What we need in New Zealand are at least 4-5 large companies (the government, through Kordia, can be one of them) willing to lay their own fibre to the node or at least rent it from Vector or CityLink or whoever for a low return on investment. And interestingly, as somebody else somewhere in the newsmedia pointed out today, this could be a great use of everybody's Kiwisaver savings...

Crispin Mullins
Auckland, New Zealand

richms

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#97451 28-Nov-2007 22:36

grant_k:
richms: Really, I find it insane that telecom were punished for other ISPs inability to sell a simple product that they wholesaled off telecom.

I think if you look more closely at the facts of this case, you will find that Telecom offered their Wholesale Customers approximately 6% discount from the Retail Price for similar plans offered by Xtra.

It's extremely difficult for any ISP to make a profit on 6% margin after paying for International Bandwidth as well as the 3 As (Authentication, Authorisation and Accounting).

Are you sure? I thought the wholesaled plans included the bandwidth as it was a plan that telecom provided it for?

grant_k:
But InternetNZ executive director Keith Davidson said yesterday that if Telecom was taking advantage of its market power it would not be in keeping with Telecom chief executive Theresa Gattung's comments that they "get it" and are now aligned with the Government's direction.
He said Telecom's wholesale customers would not be able to match Xtra retail prices without making a significant loss under its new pricing plan.

Which is why all the toll requirements are in place on most ISPs so they get to sting you there instead.

UBS is the one that most ISPs built plans on, the only real wholesaling I am aware was actrix selling the go large wholesaled, and we all know how good that turned out to be ;)

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#97464 29-Nov-2007 03:45

CrispinMullins:
Yes, and then there's Kordia, NZ Post, and the energy resellers such as Mighty River, which are all doing very well. Air New Zealand is back into the black and TVNZ continues to make a healthy profit.

hmmmm.....well,

Kordia is less than a year old so too early to judge the success of that one or not. NZ Post is a TRUE monopoly in its sector so it better be making a profit. The power sector is currently under investigation by MED I think to find out why prices keep increasing and profits get bigger, but there is little or no investment in generation - and the grid through waikato needs upgrading or Aklnd faces rolling blackouts.

http://www.hauraki-dc.govt.nz/documents/minutes/Council/2004/November/TranspowerReport.pdf

(remember - the govt owns the grid)? As for TVNZ - the ratings are falling, they've lost advertisers (not to mention their coverted no 1 news slot to TV3), and their former CEO fronted a select committe and told them, just before he resigned - (the second one to do so in 3 years (?), - that its impossible to run a govt organisation along commercial lines with so much political interference (link below)?

http://www.nzherald.co.nz/section/1/story.cfm?c_id=1&ObjectID=10352808

Air NZ is doing very well - but then again it is a listed company and not an SOE if I remember rightly (the govt just happens to be the major shareholder - and of course the govt made a bit of a hash of that one by telling the market publicly that people should hang on to their shares - just before it purchased a bucket load - which in other countries I think is called insider trading)?

Look...good on them for making buckets of money - but if they were viable businesses then they wouldn't need tax payer funding in the first place don't you think?

I was encouraged to hear Cunliffe's reference to direct public investment through Kordia today. More importantly, and slightly off-topic, he has realised that we don't suffer from a lack of international capacity, but rather a lack of comptetition in the international capacity sector,

Actually I would have thought the Govt was pretty happy with this area. Govt policy re telecommunication and international connectivtiy is part of a document called the digital strategy. This in turn is part of a wider policy called the economic transformation agenda (encompasses a whole bunch of things of which telecomms is one). This was developed by MED - which itself was established 7-8 years ago under the newly appointed economic development ministry under Jim Anderton - who got in to power with labour when they won the election in 1998(?).

So if Cunliffe is referring to southern cross - he's talking about a project that was kicked off by a consortium of private companies in 1996, before the govt's main techology advisory and policy ministry was a twinkle in anyones eye - let alone had a strategy - let alone had any capital to do anything about it. Isn't it just as well Telecom, Optus, and WorldComm did something - otherwise we would still be stuck with pacrim east and west! Also goes to show how expensive submarine cables are in that it took 3 multinationals to fund it - and they still had to use debt financing.

aether22

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#99147 9-Dec-2007 22:51

The view of morality from many in this forum is a very odd type.

It seems to be that anything can be done to 4 million people if profit can be made (and the company is only moral if it does so) but that any defensive action by those 4 million people (or their representatives) should be looked at with not just ethically but morally and any possible moral infraction against the company should be guarded against.

That Telecom is 'Publically" owned make this seem even stranger still.
And strangest of all is that the way for Telecom to make the most money gives the people an unparalleled service (then again the current in unparalleled but in decidedly the wrong way) and yet Telecom is/was not interested in making the most money possible, rather making the most the fastest with the least effort. (instant gratifacation, couch potatoe syndrome - But who am I to talk)
Of course it is also odd that these people debate the same 'immoral' practice instituted in every location with good internet long ago.

Hopefully Telecom's new leader though clearly being rather nasty to wholesale companies has a better experience planned for New Zealanders, hopefully. (because if competition is required for telecom to deliver a product worth having things don't look too good)

Also odd is that many who defend Telecom are with a competetor who experienced very nasty anti-competitive practices which stopped them from lauching their competing network due to spot competition and other ethically and morally wrong practices. (indeed practices that are abhorant to any healthy capitalism)

In this case I am not bashing Telecom as I HOPE they are going to act in the interest of the consumer and themselves long term but I do wish to 'Bash' those that think that telecom has acted correctly over the last decade.

"Ah, This is obviously some strange usage of the word "moral" that I hadn't previously been aware of."

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#99149 9-Dec-2007 23:06

aether22: In this case I am not bashing Telecom as I HOPE they are going to act in the interest of the consumer and themselves long term but I do wish to 'Bash' those that think that telecom has acted correctly over the last decade.

This is exactly what this is. How does your entire post relate to the topic?

nzbnw

aether22

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#99150 9-Dec-2007 23:08

nzbnw:
aether22: In this case I am not bashing Telecom as I HOPE they are going to act in the interest of the consumer and themselves long term but I do wish to 'Bash' those that think that telecom has acted correctly over the last decade.

This is exactly what this is. How does your entire post relate to the topic?

nzbnw

It is more in reply to things others have said in the thread (and forum) that specifically the topic.

Telecom has used confusion as it's chief marketing tool. And that's fine you could argue that's all of us keep calling prices up and get those revenues, high margin businesses keeping going for a lot longer than would have been the case. But at some level whether they consciously acknowledge it or not customers know that's what the game has been. They know we are not being straight up. Theresa Gattung

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