Sunday, 29 September 2013

Some interesting third party perspectives on UFB

As I've been fossicking around in the general area of the government's telecom policy review, UFB pricing, the debate on the 'copper tax', and the Commerce Commission's pricing of access to the copper network, I've come across some  interesting sites and perspectives which I thought I'd share, especially as they don't originate from the usual suspects (incumbent telcos, access-seeking telcos, and their economic consultancies).

One is the digitl blog, run by Bill Bennett, a freelance IT and business journalist. He describes it as "my new journalism project. It reports on digital innovation, how it empowers and inspires New Zealanders. I'll deliver news, features, analysis and informed commentary. Digitl will cover enterprise computing, personal productivity, telecommunications and everything in between", and it certainly does. The latest three posts (for example) are on a new ConferenceCam from Logitech, Westpac's latest online banking offering, and Telecom turning the old phone boxes into Wi-Fi hotspots.
Recent interesting posts on the whole UFB/copper thing have included Are Chorus and UFB now a political football?, and Why Telecom NZ doesn’t oppose government copper intervention.  Also on his site was this: French expert says NZ Government drove too hard a bargain on UFB.

Which I looked up at its source, Benoît Felten's blog, Fiberevolution, where, he says, he "complements his day job [analysis of strategies related to technologies like fibre] by blogging about the economic and social impacts of next generation access". The original post was A Way Out of the New Zealand Copper Price Quagmire?. His proposed 'way out', by the way, is "introducing a copper switchoff mechanism in fibered areas", which he argues "wouldn’t solve all of Chorus’ issues, but it would create a radical long-term improvement of cost-structure as the company would no longer have to manage two networks in parallel (and the copper network is the costlier one to maintain in the first place). Chorus would still have a big cash-flow issue to get to that point and keep investing in Fiber, but I suspect that would be manageable, either through government or government-backed loans".

Felten as part of his post came up with this graph, which he uses "in NBN related conferences [the NBN is Australia's version of our UFB] to show the amount [cost] per household and the scope of intervention in parallel" (Bill Bennett was also taken by it, on his blog). It shows the cost per household of laying fibre, charted against the percentage of households targetted.

The point Felten wanted to make was that "it should be stressed, again and again, that the government got an amazingly good deal out of Chorus and other LFCs [Local Fibre Companies], probably too good", and you can read where he goes with this logic in the rest of his post.

I took something else from it as well. You'll recall that one of the moving parts in this whole UFB/copper pricing debate is the benchmarking that the Commerce Commission does - setting an initial price for access to bits of the New Zealand copper network, based on what similar access costs in places "like us" overseas. If you're not especially au fait with benchmarking, here are some previous posts on the the logic of the idea and a practical application of the process.

There are folks who don't think benchmarking is a great idea, and that the Commission shouldn't be doing it (not that they currently have any choice in the matter, as it's set down in the Telecommunications Act as what they must do). And there are also people who feel that the latest example of the Commission's benchmarking is a dead end, since it only came up with two countries overseas to compare us with (Denmark and Sweden), and that's not enough to be a good sample.

While I have some sympathy with that second point, I have none at all with the first one. I sat through several of these exercises as a Commissioner, and came away quite convinced that overseas costs were quite a serviceable signal of what local equivalent costs might be (and, I have to add, typically well below the prices actually being charged locally).

I also sat through many days of hearings where assorted folks had a go at making the case that New Zealand had its local little peculiarities that made costs here higher than overseas - the country is long and stringy, arguably relatively difficult to tunnel through, and with an odd population distribution with one dense conurbation and a thinly sprinkled population everywhere else. While I listened to a lot of evidence on this, and with an open mind, none of it seemed terribly convincing at the end of the day. If you looked, for example, at other long and stringy places (Norway is one), you didn't tend to find that costs were unusually high there.

And that, to me, is another lesson from Felten's graph. Does New Zealand look like an unusually expensive place to lay fibre? No. Quite the reverse: you seem to get rather more bang per fibre-laying buck than you do elsewhere. Australia excepted: it looks like an outlier, and you can see why the new government in Australia has been hacking back at the scale of their NBN. There's a lot of other, political stuff going on too, but you can understand why the cost is in play.

In other words, Felten has done a bit of independent, third party benchmarking for us, and for me it shows, yet again, that there's nothing to support the idea that telco costs are unusually high in New Zealand, and justify unusually high prices.

And finally, another blog has got interested in the UFB/copper issues. It doesn't need any introduction from me - David Farrar's long standing, highly energetic Kiwiblog must be one of the most widely read in the country - but in case you've missed it, he's weighed in on the side of lower copper access prices, and you'll be interested in Why the price of copper broadband should be lower and More thoughts on copper pricing.

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