Unbundled Local Loop (ULL) pricing

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grant_k

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Topic # 15016 31-Jul-2007 13:16

As originally posted in another thread:

Regs:
The draft determinations set monthly rental charges for access to the local
loop service at $16.49 per month for urban areas and $32.20 per month for
non-urban areas. The draft charge for the transfer of a customer to the UCLL
service is set at $83.70.

The Commission's determinations can be found on its web site
www.comcom.govt.nz
Local loop:
IndustryRegulation/Telecommunications/StandardTermsDeterminations/UnbundledLo
calLoopService

Co-location:
IndustryRegulation/Telecommunications/StandardTermsDeterminations/UnbundledLo
calLoopCoLocationService

fresh off the sharemarket news this morning

This means that so far as Urban Dwellers are concerned:

ULL is priced at $28.51 per month less than the supposed price of NDSL.

Questions:

1) Will third party ISPs be able to provide a Broadband Service for less than $28.51 per month?

To do this, they will need to cover the cost of Telecom's Co-Location charges set at $20 per m2 per month for the Auckland and Wellington areas, plus amortised cost of DSLAM + Backhaul equipment plus other costs I probably haven't thought of.

2) The $32.20 for Rural Dwellers makes it unlikely that we will see competitive broadband offers in those areas. NDSL would probably be a cheaper option. What do others think?

Regs

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Reply # 80574 31-Jul-2007 13:40

Grant17: As originally posted in another thread:
1) Will third party ISPs be able to provide a Broadband Service for less than $28.51 per month?

To do this, they will need to cover the cost of Telecom's Co-Location charges set at $20 per m2 per month for the Auckland and Wellington areas, plus amortised cost of DSLAM + Backhaul equipment plus other costs I probably haven't thought of.

2) The $32.20 for Rural Dwellers makes it unlikely that we will see competitive broadband offers in those areas. NDSL would probably be a cheaper option. What do others think?

Heres my question: could Telecom actually make any money off of sub $30 broadband connections when you take all their costs into account too? Or will the sub $30 connection always be a loss-leader to get people connected in the first place?

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grant_k

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Reply # 80576 31-Jul-2007 13:49

Regs: Heres my question: could Telecom actually make any money off of sub $30 broadband connections when you take all their costs into account too? Or will the sub $30 connection always be a loss-leader to get people connected in the first place?

If you add up the current prices for the components of those "sub $30 broadband connections" it looks like this:

Line Rental $45 + Xtra Entry-level Broadband $29.95 = $74.95.

Telecom and/or the ComCom are proposing to set NDSL pricing at $45.

Difference being $29.95 to cover Voice Service + ISP charge (as discussed in the other thread).

At $74.95 per month, there's obviously a good profit component for Telecom which is the reason their "Wireline" division reports such high profits every year.

At $45 for Naked DSL, the profits will be pruned to some extent, but $45 is still $28.51 more than the ComCom's draft determination of the price for ULL.

$28.51 seems like a good margin just to provide a Virtual Circuit to the ISP, but I guess time will tell as to whether 3rd Party ISPs with their own DSLAMs and Backhaul can do it more cheaply.

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Reply # 80577 31-Jul-2007 13:50

Based on Macquarie's metholody and draft LLU pricing announced today, Naked DSL would be $36.49 in urban areas and $52.20 in rural areas. Macquarie didn't have today's LLU draft price when it forecast price of Naked DSL at $45.

grant_k

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Reply # 80578 31-Jul-2007 13:53

tomps: Based on Macquarie's metholody and draft LLU pricing announced today, Naked DSL would be $36.49 in urban areas and $52.20 in rural areas. Macquarie didn't have today's LLU draft price when it forecast price of Naked DSL at $45.

Cheers for that Tom. It makes a lot more sense when you have all the information to hand

So the difference between LLU and NDSL becomes exactly $20 in either case.

In order to compete with NDSL, 3rd Party ISPs will need to provide DSLAM and Backhaul i.e. a Virtual Circuit for less than $20 per month per customer.

It will be interesting to see how it stacks up once competing offers are on the table.

grant_k

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Reply # 80584 31-Jul-2007 15:08

The Herald have published a story in relation to this topic:

http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10454893

Orcon are fired up and ready to go on this basis:

The price set for urban lines is at the top end of the range we had anticipated, but at that level urban UCLL investment is definitely viable; we will be pushing ahead with our investment plans" said Orcon chief executive Scott Bartlett.

So much for the doomsayers predicting that no investment would eventuate. With Kordia's deep pockets behind them, we may be looking at the first serious challenger to Telecom's stranglehold on Broadband.

grant_k

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Reply # 80585 31-Jul-2007 15:12

Our friend Tom P-S has also leapt into print here:

http://www.stuff.co.nz/4147572a10.html

Even InternetNZ think it's a good deal:

InternetNZ executive director Keith Davidson welcomed the decision.
"The LLU price of $16.49 per line in urban areas is competitive, and
provides a good incentive to ISPs to invest in infrastructure in the urban areas," he said.

Both stories emphasise that Rural Users are going to get shafted, but Hey, we knew that already. If you live out in the Styx, you pay more for a lot of other things as well.

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Reply # 80594 31-Jul-2007 16:01

Grant17:
Both stories emphasise that Rural Users are going to get shafted, but Hey, we knew that already. If you live out in the Styx, you pay more for a lot of other things as well.

I don't think it's a case of being "shafted". Rural users just have to accept that if they want broadband they can't expect to pay the same price as people living in a metropolitan areas. They complain now that they get poor performance and then don't seem willing to pay extra for a better service. Metropolitan users can't cross subsidise rural users for ever.

grant_k

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Reply # 80597 31-Jul-2007 16:11

sbiddle: Metropolitan users can't cross subsidise rural users for ever.

Yeah, good point. Whenever cross-subsidisation goes on, you get inequalities and profiteering -- witness the Vector case with Wellington power consumers subsidising Auckland power consumers.

It's better to have everything transparent and above-board.

bonkiebonks

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Reply # 80603 31-Jul-2007 16:42

Grant17: How did you get the $28.51 figure for urban areas?

grant_k

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Reply # 80610 31-Jul-2007 17:25

bonkiebonks: Grant17: How did you get the $28.51 figure for urban areas?

It was an earlier calculation based on incomplete information. Tom P-S provided the correct figures as detailed above:

tomps: Based on Macquarie's metholody and draft LLU pricing announced today, Naked DSL would be $36.49 in urban areas and $52.20 in rural areas. Macquarie didn't have today's LLU draft price when it forecast price of Naked DSL at $45.

Cheers for that Tom. It makes a lot more sense when you have all the information to hand

So the difference between LLU and NDSL becomes exactly $20 in either case.