FTTH Pricing expectations

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#341397 14-Jun-2010 08:53

Screeb:

Do you really think it's going to end up 0% private contribution? I'm sure you don't. The government is of course picking between the companies that have made bids - at least one of them I'm sure is going to commit to spending.

If I was a Telecom shareholder or a Vector shareholder then I would hope that its a 0% private contribution from the company I have a part-ownership in. Its not economic and I'd expect that the board and management would have a greater fiduciary duty than to destroy shareholder wealth by investing in an uneconomic project.

I'd much rather be a buyer of access from the Government or firm that does build it. If its open access and someone builds it with a subeconomic return then I'm better to buy rather than build. And better yet I'd much rather be the 2nd owner of an asset than the guy that ponies up something that is worth less on Day 2 than it is on Day 1.

I don't know much about the AU situation, but still, I'm not sure what you're trying to get at here. It seems to be working out pretty well for the consumer, given the plans I've seen...?

You've hit the nail on the head - its great for the consumer. And you've completely missed the point. Its lousy for the provider of the services. In 12mths time when the wholesale price is set by NBNCo then how viable are the customers that are already connected? Those ISP's simply dont know.
But lets say that they are viable because the wholesale price is held artifically low - then the returns to NBNCo are sub economic. Fine if you're the Govt and you decide that taxpayers are okay with little or no return (ie its a public good in Economics 101 parlance) but if its NZ and you're the private company that owns (or part owns) that fibre asset? Then thats a poor return that you're delivering to your shareholders.

If something is great for the consumer and poor for the provider then thats not sustainable in the long run unless the State is picking up the tab. For a private business it usually means sustained losses and either divestment or closure.

When you manage to understand the entire value chain and can dispassionately analyse the situation from both consumer and provider point of view then you will get it.

Sixth Labour Government - "Vision without Execution is just Hallucination"

webwat

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#341597 14-Jun-2010 17:06

ObidiahSlope: A related technical question.

The electrical wiring regulations cover underground power cabling.

If the fibre optical cable you install have no conductive components are you allowed to share a duct between power cables and and fibre optic cables?

I understand that the power and fibre cables need to be terminated in different boxes so that a registered electrician or certified lineman does not have to be present for any fibre work.

No, power cables cannot share ducts with fibre. Even with no problems caused by the weight of copper kinking your fibre cables, the fibre jackets are not insulated to withstand electrical faults and fibre installers dont need to be electricians unless they are putting aerial fibre on power poles. Fibre doesnt even share ducts in your home.

Time to find a new industry!

webwat

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#341633 14-Jun-2010 17:51

ockel:
Screeb:

I haven't read it in detail, no, but yes I'm well aware of the scope. I'm talking about commercial deal or extra subsidy in the case that it doesn't pan out (ie the scenario that consumers are faced with thousands of dollars to install).

If there was a serious intention then you would have a fully funded rollout like Australia. What we know is that it costs significantly more than $1.5bn to PASS 75% of homes in NZ. And much much more to connect 75% of homes in NZ. As discussed below the submissions called for extra subsidises to connect homes. But so far thats fallen on deaf ears.

The "fully funded" Layer 2 rollout in Oz has its own problems, which NZ is trying to avoid. Government is not offering a subsidy, and will own a proportion of the assets being funded. The Government does seem to be assuming a 10 year payback, while bidders are saying that a FTTP investment would be on a 20 year ROI horizon.

ockel:
Screeb: I'm sure you know much more about this than me, but this just doesn't make sense. The builder is going to be matching+ what the government is putting in. It's not a free lunch to build (ie not 100% reimbursement) or maintain the network. No company is going to happily sit on an asset that isn't earning anything and is constantly depreciating, after spending $1.5b+ on it. At some point they will need to make their money back, and that means actual end users.

Actually when the companies bid they can contribute x% on a home passed basis. This can be 0% ie the Crown funding the model 100%. So yes it could be a free lunch for the builders - provided they cost the build properly. It comes down to the bids themselves.

While CFH buys a % of the "Cost Per Premises Passed", the private partner would want to retain some ownership as well. The contribution to private shareholding that comes from "Cost Per Premises Connected" is an incentive to connect more premises. Also, there will be no profitablity without connected users but the CPPC will tend to be a conservative cost to cover the risk of difficult installations. A faster rollout also might improve profitability. ISPs do not contribute anymore than the cost of their own equipment (which could include the OLT), although they might assist users with house rewiring etc and probably offer minimum term contracts to reduce the install price charged by the Fibre Co.

Time to find a new industry!

Screeb

698 posts

Ultimate Geek

#341744 15-Jun-2010 00:08

ockel:
If I was a Telecom shareholder or a Vector shareholder then I would hope that its a 0% private contribution from the company I have a part-ownership in. Its not economic and I'd expect that the board and management would have a greater fiduciary duty than to destroy shareholder wealth by investing in an uneconomic project.

Obviously the network builder will want to spend as little as possible. That doesn't mean the government is going to let them spend nothing. Like I said, they're competing for this - they are trying to win over the government. You think they're all going to say "pick me! I won't contibute anything, but pick me!"? There are enough companies that at least one should be able to offer something decent. We'll have to wait and see, but I have no doubts in my mind that a decent private contribution will be made.

I'd much rather be a buyer of access from the Government or firm that does build it. If its open access and someone builds it with a subeconomic return then I'm better to buy rather than build. And better yet I'd much rather be the 2nd owner of an asset than the guy that ponies up something that is worth less on Day 2 than it is on Day 1.

Clearly the companies see some profit incentive to do this. If you know better than them, then I'm sure they'll be interested in consulting you. Building and maintaining a network is also a very different business than being an ISP - not everyone wants to be an ISP, but they may want to be a network builder. There's probably more profit in drilling for oil than operating a gas station - doesn't mean gas station owners want to get into the oil drilling business.

You've hit the nail on the head - its great for the consumer. And you've completely missed the point. Its lousy for the provider of the services. In 12mths time when the wholesale price is set by NBNCo then how viable are the customers that are already connected? Those ISP's simply dont know.
But lets say that they are viable because the wholesale price is held artifically low - then the returns to NBNCo are sub economic. Fine if you're the Govt and you decide that taxpayers are okay with little or no return (ie its a public good in Economics 101 parlance) but if its NZ and you're the private company that owns (or part owns) that fibre asset? Then thats a poor return that you're delivering to your shareholders.

If something is great for the consumer and poor for the provider then thats not sustainable in the long run unless the State is picking up the tab. For a private business it usually means sustained losses and either divestment or closure.

When you manage to understand the entire value chain and can dispassionately analyse the situation from both consumer and provider point of view then you will get it.

What are you getting at? So there's a situation in AU which your crystal ball says will be uneconomic in a year, but so far it's working out fine (despite apparently being lousy for the service providers, evidently it's good enough for them to continue offering services). You suggest that the only hope would be for the government to subsidise the network indefinitely. Are we still talking about installation costs? Sounds like you're talking about ongoing/running costs. Are you trying to say that a FTTH network in AU or NZ is inherently uneconomic? Have you somehow worked out that in AU and NZ it costs more to build and operate a FTTH network than you will ever recover? Are you just basing it on a general "NZ and AU have a low population density, etc" thing, or have you somehow actually worked it out? I'm guessing it's not the latter. And you say it still won't work even with a multi billion dollar subsidy? What if the NZ government decides to give more subsidies on seeing that it's not going to work? Or is that not ever going to happen (because...?), and instead they will let the network rot in the ground, not being used?

webwat

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#341929 15-Jun-2010 14:28

If any Local Fibre Co doesnt connect enough users then CFH (being the only shareholder with voting rights during the initial 10 years) would work out a strategy with other partners to promote uptake. Anyway, several of the potential partners have criticised CFH for expecting a Fibre Co to be profitable within 10 years. These utilities are existing fibre owners and stated they are expecting to invest in fibre that will only be profitable over a 20 year time frame.

Long investment horizons make sense for assets that don't actually rot or corrode at all. In fact singlemode fibre rolled out on a serious open-access model (as required by CFH) will be flexible enough to still have value far into the future. Its very easy to patch optical links to new systems as technology improves, as long as the distribution frames aggregate enough users.

Time to find a new industry!

icepicknz

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#342671 17-Jun-2010 14:27

So I guess my question still remains, if vector want to charge me $2400 a month (plus the install fee) for 100mb (to skytower where I'd purchase my bandwidth) will this price just be halved when the government are investing half.

I suspect it will be a lot cheaper per month for residential, but if they have the ability to do it now in some areas why aren't they? All operators are saying that there is no point in doubling up on a network, so the givernment wont build fiber where it already exists, so does this mean because I already have fiber running past my house I'm unlickly to get givernment funded fiber?

I don't mind paying up to $450 for a 100mb connection, but I wouldn't pay any more than this for residential, the only reason I work on this figure is because it would be shared amoung 6 flat mates.

I just cant understand how companies like vector or trying to say "let us expand our network and we will bring FTTH" when they can't even offer anything half decent where their network already exists. I suspect this whole ordeal is to expand their network so they can get to more businesses on tax payers money and service the rich that are willing to pay $2400 a month for a circuit.

Barry Murphy
ISPMap - New Zealand ISP map
Vibe Communications LTD - Business ISP and Wholesale Carrier

Any comments made by myself don't reflect the views of my employer, they are mine and mine alone

ockel

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Uber Geek

#342677 17-Jun-2010 14:35

icepicknz: So I guess my question still remains, if vector want to charge me $2400 a month (plus the install fee) for 100mb (to skytower where I'd purchase my bandwidth) will this price just be halved when the government are investing half.

I suspect it will be a lot cheaper per month for residential, but if they have the ability to do it now in some areas why aren't they? All operators are saying that there is no point in doubling up on a network, so the givernment wont build fiber where it already exists, so does this mean because I already have fiber running past my house I'm unlickly to get givernment funded fiber?

I don't mind paying up to $450 for a 100mb connection, but I wouldn't pay any more than this for residential, the only reason I work on this figure is because it would be shared amoung 6 flat mates.

I just cant understand how companies like vector or trying to say "let us expand our network and we will bring FTTH" when they can't even offer anything half decent where their network already exists. I suspect this whole ordeal is to expand their network so they can get to more businesses on tax payers money and service the rich that are willing to pay $2400 a month for a circuit.

It must be cos they dont know that they should be charging you substantially less than that.
Get Screeb to set them right for you. Vector mustnt understand the economics of fibre.

Or maybe you should complain to the Commerce Commission. Monopoly pricing that is clearly above cost so it should be regulated so Vector cant make any profit on it and make it open and accessible to all.

After all its for the good of the nation!

Sixth Labour Government - "Vision without Execution is just Hallucination"

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Screeb

698 posts

Ultimate Geek

#342830 18-Jun-2010 01:28

ockel:
It must be cos they dont know that they should be charging you substantially less than that.
Get Screeb to set them right for you. Vector mustnt understand the economics of fibre.

Or maybe you should complain to the Commerce Commission. Monopoly pricing that is clearly above cost so it should be regulated so Vector cant make any profit on it and make it open and accessible to all.

After all its for the good of the nation!

Or, gee, maybe it's because Vector hasn't been interested in offering residential connections. $2400/month connection is clearly not aimed at residential users. It will have a vastly lower contention ratio than residential FTTH would (there's your answer icepick), and additional general higher quality of service and support. There is also less demand for fibre now than there will be in 8 years (more economies of scale and can spread costs and risk over many more customers). Further, they will not want to spend money on expanding/connecting below all upfront costs because if they lose the bid then they will have to compete against the new network.

You know this. Don't be foolish.

icepick, don't worry. You will have access to "government" fibre whether or not Vector wins the bid, assuming you are in an area that would get it anyway (most likely you are). It will, with a high degree of certainty, cost less than $450/month for 100Mb. A shame ockel couldn't answer this for you. Too busy making sarcastic comments against me I guess.

ockel

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Uber Geek

#342926 18-Jun-2010 11:02

Screeb:
ockel:
It must be cos they dont know that they should be charging you substantially less than that.
Get Screeb to set them right for you. Vector mustnt understand the economics of fibre.

Or maybe you should complain to the Commerce Commission. Monopoly pricing that is clearly above cost so it should be regulated so Vector cant make any profit on it and make it open and accessible to all.

After all its for the good of the nation!

Or, gee, maybe it's because Vector hasn't been interested in offering residential connections. $2400/month connection is clearly not aimed at residential users. It will have a vastly lower contention ratio than residential FTTH would (there's your answer icepick), and additional general higher quality of service and support. There is also less demand for fibre now than there will be in 8 years (more economies of scale and can spread costs and risk over many more customers). Further, they will not want to spend money on expanding/connecting below all upfront costs because if they lose the bid then they will have to compete against the new network.

You know this. Don't be foolish.

icepick, don't worry. You will have access to "government" fibre whether or not Vector wins the bid, assuming you are in an area that would get it anyway (most likely you are). It will, with a high degree of certainty, cost less than $450/month for 100Mb. A shame ockel couldn't answer this for you. Too busy making sarcastic comments against me I guess.

Gee, it would appear from the comments and questions on GZ and on the Vector fibre campaign website that there is a demand for residential fibre. So why dont you advocate for the little guy cos it seems that maybe Vector doesnt know?

Or perhaps we should ask Maverick how much interest there is in HighSpeedInternet in greenfields fibre suburbs??

Sixth Labour Government - "Vision without Execution is just Hallucination"

maverick

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WorldxChange

#342946 18-Jun-2010 11:27

approx 60 /40 ..... at this point.

But this relates to new builds in the Subdivisions so the Age demographics have a big part to play, some of them are more upmarket and have a older Age base, others have lower age base, Brown fields is going to be the one retro fitting and the costs involved with this is going to determine the takeup rate and viability.

Awful lot of my and your money is going into to this just to get fibre past the door, then we have to pay to retro fit the house and get the fibre in, whos going to want to fork out here ?..... This topic isn't finished yet

Yes I am a employee of WxC (My Profile) ... but I do have my own opinions as well

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pwner

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2degrees

#343065 18-Jun-2010 16:54

Doesnt Vector need to either be retail supplier or a lines company?
so if they get the bid for auckland they will need to get out of the retail game and only sell to resellers or carriers?

Any posts are personal comments and not that of my employer

Screeb

698 posts

Ultimate Geek

#343332 19-Jun-2010 22:13

ockel:
Gee, it would appear from the comments and questions on GZ and on the Vector fibre campaign website that there is a demand for residential fibre. So why dont you advocate for the little guy cos it seems that maybe Vector doesnt know?

What? Of course there is demand. Clearly there isn't enough demand currently for Vector to see it as profitable enough. They have of course determined that in 8+ years and with a $1.5bn subsidy, it will be much more lucrative. That's the entire point.

Cymro

283 posts

Ultimate Geek

#343529 20-Jun-2010 20:27

Screeb:
ockel:
Gee, it would appear from the comments and questions on GZ and on the Vector fibre campaign website that there is a demand for residential fibre. So why dont you advocate for the little guy cos it seems that maybe Vector doesnt know?

What? Of course there is demand. Clearly there isn't enough demand currently for Vector to see it as profitable enough. They have of course determined that in 8+ years and with a $1.5bn subsidy, it will be much more lucrative. That's the entire point.

Small correction, Vector only want to build the Auckland section, which also happens to be the most lucrative.

And I'd also be wary of saying (in fact emphasizing) what Vector have or haven't done in terms of forecasting demand, they don't have the kind of commercial data available that Telecom/Telstra have to be able to do that.

But as we can see from this thread and many many others, you know best about fibre.....

webwat

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#343593 21-Jun-2010 00:24

pwner: Doesnt Vector need to either be retail supplier or a lines company?
so if they get the bid for auckland they will need to get out of the retail game and only sell to resellers or carriers?

Thats true. However they are more or less focussing on the wholesale market already, so its not a big leap for Vector. Telecom on the other hand cannot split Chorus in time to put forward a decent proposal.

Time to find a new industry!

webwat

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#343767 21-Jun-2010 13:34

ockel:
icepicknz: So I guess my question still remains, if vector want to charge me $2400 a month (plus the install fee) for 100mb (to skytower where I'd purchase my bandwidth) will this price just be halved when the government are investing half.

I suspect it will be a lot cheaper per month for residential, but if they have the ability to do it now in some areas why aren't they? All operators are saying that there is no point in doubling up on a network, so the givernment wont build fiber where it already exists, so does this mean because I already have fiber running past my house I'm unlickly to get givernment funded fiber?

I don't mind paying up to $450 for a 100mb connection, but I wouldn't pay any more than this for residential, the only reason I work on this figure is because it would be shared amoung 6 flat mates.

I just cant understand how companies like vector or trying to say "let us expand our network and we will bring FTTH" when they can't even offer anything half decent where their network already exists. I suspect this whole ordeal is to expand their network so they can get to more businesses on tax payers money and service the rich that are willing to pay $2400 a month for a circuit.

It must be cos they dont know that they should be charging you substantially less than that.
Get Screeb to set them right for you. Vector mustnt understand the economics of fibre.

Or maybe you should complain to the Commerce Commission. Monopoly pricing that is clearly above cost so it should be regulated so Vector cant make any profit on it and make it open and accessible to all.

After all its for the good of the nation!

Well, yeah. If you connect very few businesses to some expensive infrastructure then its going to be a high cost per user isn't it... So I will explain what Ockel meant.

Optical fibre has a low cost per kilometre and a very low maintenance cost if protected the way modern fibre is installed, but the cost of laying the fibre underground is very very high. Its not a huge leap to lay a 96-core cable of ribbon fibre (often pre-terminated in the factory these days eg Corning System) than to run a few cores for a single customer. If you are building the network for a whole city, then its not going to cost that much more to allow some empty ducts to supply the next street and the next etc. The fibre itself could have an economic life of 40 years, so there are real economies of scale to supply large numbers of users even at a low takeup rate.

The low initial user takeup creates a huge risk for the network builder, which is why government wants to jumpstart the rollout by investing without expectation of profit over the first 10 years. There has not been any question that a well designed network will eventually be profitable, or that any investor will be expecting CFH to fully fund the whole business. There are a few questions about the best business structure to achieve this, especially who can/should light the fibre without creating another virtual monopoly. Any network with assets available to the new Fibre Co would either negotiate to sell/lease them, or exchange for shareholding to become partners in the Fibre Co.

Interesting that Chorus sounds like they want to run Auckland network without any partnership, presumably because they dont have any current assets that would add value to the new network, and want to extract whatever they can from old copper. If they had enough ducts ready to go, they could start recovering obsolete cables and sell the pathways as a way of buying into whatever consortium becomes the new Fibre Co.

Time to find a new industry!

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