[TelstraClear] You ask the CEO: Dr Allan Freeth (face time with TelstraClear)

A couple of weeks ago I had the opportunity to talk to TelstraClear CEO Dr Allan Freeth about the company, services, customer services and regulation. Just a week after our meeting, Scoop's Alastair Thompson recorded an interview with Dr Freeth.

Rather than transcribing my own findings, after listening to this series I decided to post it here, with Alastair's approval.

I should also make it clear that we are currently running some TelstraClear advertising on Geekzone (at the time of my post), and I was one of the few people who had access to the 100 Mbps DOCSIS3 trial.

Here are part 1 and part 2 of this interview...

In this segment:

- Introduction to the NZ$2 billion TelstraClear network in New Zealand. The two main elements to this are the HFC coaxial cable networks in Wellington and Christchurch and a fibre backbone network around the whole country.
- Dr Freeth explains how the network came into being, what its capabilities are, and what services are sold over it.
- The interview then turns to discuss the ultrafast "Warpspeed" 100mbs DOCSIS3 technology that now stands behind the TelstraClear cable network, and which is capable of delivering ultra fast broadband to homes in Wellington and Christchurch today.
- Dr Freeth begins by discussing the NZ internet connections to the outside world - Australia and the United States - and what implications capacity constraints on these networks have on pricing and availability in NZ.
- Dr Freeth concludes by explaining why the constraints on overseas connectivity result in low data caps for New Zealand customers - and how in many respects these are more of an issue to customers in NZ than speed at present.

In this segment:

- Dr Freeth explains how issues of network traffic growth are considered by network operators;
- Discussion then turns to the issue of where most content used by residential customers originates - i.e. overseas - and to the policies and practices of the multinationals whose content forms the bulk of traffic over the NZ residential network.
- Dr Freeth says that issues around the delivery of content are ones which need to be worked through by the industy and that there are technical solutions available if the will is there.
- He also addresses the issue of whether regulation might be required over the Southern Cross Cable connection to the outside world.
- The issue of IPTV content is then discussed and Dr Freeth explains the content use patterns of his teenage children which do not significantly involve IPTV in the traditional sense.

In this segment:

- The fact that demand for broadband speed is far from homogeneous - not everyone wants or can use 100mbs speed - and nor are the likely to want to pay for it.
- The complexities of getting houses connected to fast broadband - i.e. the need to not only upgrade the connection but also all the internal equipment in the house including the computers themselves.
- The security (and network stability) risks associated with fast broadband in homes.
- At 6 minutes into the video the discussion moves on to discuss the telecommunications industry alliance against the Government's broadband plans.
- Dr Freeth begins by explaining how the group came together after the Government tabled its legislation to implement its UFB plans.
- Dr Freeth says the primary catalyst for forming the group was the tabling of a Supplementary Order Paper related to structural separation of Telecom. TelstraClear then became the nucleus of an opposition movement around the Government's plans. Dr Freeth observes that the bill as drafted gives Chorus 2 (post Telecom separation) protection from regulation around competition issues for 10 years, as well as immunity from Commerce Commission action around acquisitions - a provision which appears to encourage Chorus 2 becoming a network monopoly.
- At around 11.00 minutes Dr Freeth moves into the detail of how TelstraClear views the details in the Governments UFB legislation.

In this segment:

- He begins by pointing out that a similar regulatory holiday proposal was ruled illegal in Germany;
- The discussion then turns to provisions in the legislation which will result in making ADSL and VDSL (the most common current form of broadband to homes) more expensive.
- This, Dr Freeth explains, is because the whole structure of the legislation is aimed at discriminating against existing networks to encourage high uptake of customers on the new fibre network - which is needed to make it economic for its builders and investors.
- Pricing indications which were recently made public via leaks are then discussed (see… NZ Herald and Internet NZ).
- The pricing wholesale is indicated at NZ$40 per customer for TelstraClear and other retail providers - in practice this will likely means costs of actual connection of closer to NZ$100 per month.
- Dr Freeth is also skeptical about uptake rate assumptions of 60% in the Crown Fibre Holdings plans. If these fall short then pricing is likely to be higher than expected and customers will possibly have no alternatives. "Gravity always works".
- Dr Freeth says that one of the fundamental flaws in the Government's plans is the assumption that fibre to the home is the only technology that should be employed. And that it should be employed everywhere. He points out that 4g wireless - which is already deployed in places- is capable of supplying speeds comparable to those being discussed under the UFB plan.
- In Dr Freeth's view the most likely driver of lower prices for UFB in the NZ market would be a market with multiple technologies competing - instead we are headed for the opposite.
- In addition to this he asks "where is the demand" and suggests that building infrastructure far ahead of the demand curve is costly for consumers and network providers alike.
- Finally in this part he discusses how this situation most likely came about in the negotiations with Telecom. Telecom had already built fibre to every node and was therefore in a very good negotiating position with the Government. Either they should be included in the build, or they would be in a very good position to compete against it by providing VDSL services over the entire country. This would make the fibre build uneconomic.
- Dr Freeth expresses some considerable sympathy with Telecom about how it has been treated in recent years, and comments that if Dr Paul Reynolds pulls off this deal and "reestablishes Telecom's monopoly with Government money and Government protection", then he will take off his hat off to him. "That's one hell of a deal, and I will be very impressed if he can do it"

In this segment:

- This regulation will fragment and breakup the profit pool and stifle innovation in the NZ Market. TelstraClear and Vodafone and other players will move their capital out of the market.
- Dr Freeth explains that Telstra currently spends $100 million a year in capital investment in its network and that it will be hard to justify continuing to do this in the coming regulatory environment.
- He has told Minister Steven Joyce that the plans as they stand will lead to a third world telecommunications environment in NZ.
- He says there are likely unintended consequences in what the Government is doing. Using a Basil Fawlty analogy he says there is a fine line between renovation and destruction, and in this case the Government is bordering on destruction.

Not discussed here was the topic of customer services in general, but this is something we talked about. Dr Freeth recognised there is work to be done in bringing customer services to a higher standard, and that some of his people are currently involved in this.

mattbush

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TelstraClear

TelstraClear

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freitasm

Screeb

Equinox IT

Beccara

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