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How much money is there in Net Discrimination?

1 Jul

One of the striking realizations of my Analyst career was when I found out that very often companies in the broadband ecosystem defend, or even lobby for positions that they assume to be in their interest for ideological reasons, but without having worked out rationally if indeed they are. I have many an anecdote about crestfallen faces when real numbers are worked out and exposed.

And in fact, this has long informed my own approach to research: the idea is, based (ideally) on hard data or failing that on documented modeling, to assess whether a policy position actually makes sense or delivers what it’s supposed to deliver. This was the genesis of our short report Net Discrimination Won’t Buy You Next-Generation Access (still available, dirt cheap) in which we modeled a top-down revenue share between OSPs and ISPs to figure out the financial impact it would have. Long story short: not a lot, and certainly not enough to shift the lines in terms of network investment (as often argued by ISPs).

Fellow analyst and provocative thinker Dean Bubley has just gone one step further in what I consider to be a groundbreaking piece of analysis entitled Non Neutral Mobile Broadband Business Models. In this report, Dean doesn’t look at the classic arguments for or against net discrimination, he examines in-depth which business models net discrimination would enable and how much revenue they might generate.

You can get a feel for the material that’s in that report through the following presentation he’s made available on Slideshare:

The report is thorough, very well documented and enlightening. A highly recommended read.

Photo (cc) by Tax Credits

US Cable Reviled by its customers

9 Jun

 

 

It’s hard to believe that profitable businesses would be so detested by their customers, and yet survey after survey shows how US broadband users revile their cable operator. The latest is the subject of an article in the Washington post entitled A Soup of Misery, which shows (amongst other findings) that over half of US Cable customers would switch to another provider if they actually had an alternative.

The amusing thing (or ironic, or sad depending on how you want to look at it) about this is that cable still insists there is competition. If this market was a free market, with satisfaction ratings like that cable would be bankrupt instead of being amongst the most profitable industries in the US.

There’s an added bit of irony for me. A few weeks ago I got into a bit of tiff on twitter debating with Luigi Gambardella, the head of the European Telecom Network Operators’s Association (ETNO). ETNO has been lobbying fiercely for a regulatory model that’s more akin to that of the US, despite overwhelming evidence that that market is dysfunctional and anti-competitive. I naturally took exception to this view (as well as to the preposterous assertion that wherever fiber was being deployed, it was not regulated), and the back and forth went south very quickly (you can read the whole exchange here, assuming it doesn’t get deleted). The point here is that Gambardella’s final stroke was the following:

Needless to say that baffled me…

Anyway, all this to say that looking at the US for a functional model for Europe is not just ridiculous, it’s dangerous…

Living with Latency

29 Apr

Just found this fantastic video that illustrates in the best way I’ve ever seen what latency really is.

Net Neutrality Threatened…

24 Apr

Last night the US regulator FCC announced that they were carving out exceptions to Net Neutrality rulings for “fast lanes” that ISPs could charge to OSPs. Only in La La Land can this still be called Neutrality. I’ll write about this more at length when time allows, but in the meantime let me share this wonderful drawing on the topic by Susie Cagle:

TomWheeler

 

(Source: http://news.linktv.org/net-neutrality/r-i-p-net-neutrality)

TPG Telecom’s FTTB play a headache for Turnbull

11 Feb

See on Scoop.itConnected World

Although obviously very unhappy with the broadband monopoly created by the previous government, Communications Minister Malcolm Turnbull – as its shareholder minister – also has to protect the interests of NBN Co.

Benoit Felten‘s insight:

I must confess to a certain amount of pleasure watching Malcolm Turnbull struggle to keep together the NBN he has contributed so hard to undermine. It’s not good news for Australia, but you can’t help but feel he got it coming…

See on www.afr.com

Kansas Legislature Introduces Bill to Limit Internet Investment

31 Jan

See on Scoop.itConnected World

Benoit Felten‘s insight:

Looks like the US incumbents are at it again, trying to stifle competition through restrictive legislation, in Kansas this time. Commentary has been that it might be to hamper another Google Fiber, but Google Fiber isn’t a PPP. More likely they’re worried Google Fiber will give other Kansas communities ideas…

See on www.muninetworks.org

Fantastic Video on Net Neutrality

3 Oct

I’ve long held the idea that a short video explaining the concept of net neutrality to joe and jane average should be feasible. This isn’t a short video, but it’s the next big thing. It features a (fake) researcher doing some work for the big ISPs to establish the case for net discrimination. In the process of doing so, he interviews just about everyone who defends net neutrality to understand why. It’s fun, and it’s powerful. Take the 30mn to watch it!

Gigabit at Bayonette's Point!

26 Sep

 

I’ll be honest, I’d never heard of Bayonette until I read this article in ZDNet. I tend to be cautious around such announcements because while it’s relatively easy to get coverage in the tech press, it’s much harder to actually deploy a network at scale and hook customers to it.

So, Bayonette is taking a leaf off of Google’s Fiber book and deploying Gigabit and free broadband. Could work, although when you don’t have the Google brand backing you, I have some doubts about the effectiveness of this. In France where a number of social houses have negociated “free basic broadband” as part of their FTTH deals, the story goes that customers who subscribe to the free service never upgrade. I guess it’s just the wrong kind of demographic to expect upsell from.

There are a few things that raised my eyebrows in this piece though:

  • Bayonette’s basic enterprise service is also a symmetric 1Gbps connection, but priced at 2,490 NOK per month (about €309): Good luck explaining to business customers that the service they pay 5 times as much for isn’t the same service consumers pay less for, honest gov’. That’s a recipe for cannibalization and value destruction if ever there was one.
  • The company employs existing dark fibre, and runs its own-brand DWDM (dense wave division multiplexing) equipment on top of the fibre: OK, so they’re not deploying fibre (fair enough, although I’m curious how much open dark fibre actually exists in Norway for access services), but they developed in-house DWDM. Either these guys have cracked the hardest nut to crack ever (DWDM ONTs cost a bomb which is why no one has seriously deployed them in the access market to date) or there’s something I don’t get here.

My gut feeling is these guys are really small, probably sub- 20k customers today (which is kind of our threshold at Diffraction Analysis for including them in the Fiber Database) but I guess I’m intrigued enough that I want to know more. If anyone from Bayonette is reading this, or if anyone reading this can put me in touch with someone from Bayonette, I’d be keen!

 

Is Turnbull planning to turn the NBN over to Telstra ?

23 Sep

A few months ago, when the coalition’s plans for the Australian NBN were announced, I wrote the following in an article on Telecom TV:

The core of Labor’s NBN plan though, which is the structural separation of networks and the equal access to a regulated wholesale platform, is retained [by the Coalition]. By staying on board with that the Coalition offers a plan that is within the continuity of what has been done. 

A couple of announcements today however got me to reconsider that:

  • first we learned that Telstra is trialing VDSL Vectoring with the avowed aim of bidding for the NBN build-out. In any other market, the idea that the service arm of the structurally separated incumbent would bid to build the network of the infrastructure arm would be outrageous to say the least but not in Australia, it seems. More worrying are Turnbull’s statements prior to the election on the issue, according to AFR: “Mr Turnbull said in the weeks leading up to the election it was “bizarre” Telstra had been left out of the construction project and it would be good to get the company more involved in the Coalition’s roll-out.” That sure sounds like a fair and equal assessment of sub-contractors is the most likely scenario… not?
  • second, we learned that the entire board of the NBN offered its resignation and that (according to news.com.au) “Mr Turnbull said after the election that former Telstra boss Ziggy Switkowski would be well qualified for the role of NBN Co chairman.

So in summary, the minister favors Telstra to build the NBN and an ex-Telstra CEO to head the NBN. Which makes the NBN look suspsciously like Telstra.

I have to confess I hadn’t seen this coming, but sadly I now have to say that, conspiracy theories aside, it looks like structural separation is dead as a Dodo…

 

Photo Credits: Eva Rinaldi

A Way Out of the New Zealand Copper Price Quagmire?

18 Sep

I came back from New Zealand last week, just before a political bomb related to regulated copper prices was launched. Here’s the story in a nutshell:

  • back when structural separation was being implemented, a review of regulated prices was put in the agenda by the government. The regulator, ComCom was supposed to perform this review in 2012 and a big focus was regulated copper access prices, which were supposed to shift from retail minus to cost plus.
  • the government, aware that their was a potential risk in copper prices being examined in abstract, ie. without examining the fiber investment in parallel, passed an amendment that specified that network investment should be taken into account by ComCom. However, the wording of that amendment was vague and ComCom decided it could not interpret it, so decided to ignore it. The new cost-plus principle was to be applied from December 2014.
  • ComCom conducted the cost-plus review based on international benchmarking. It benchmarked New Zealand against two other similar countries in the world (Denmark and Sweden) – and not having done any cost assessment as far as I’m aware – announced they would drastically reduce the wholesale access price to copper.
  • Chorus announced that such a change in the regulatory context would put them in jeopardy and certainly make the economics of the fiber network deployment suffer.
  • The Government announced it would bring forward the planned 2016 policy review and in its discussion document proposed overruling the regulator on the issue and started exploring ‘graceful’ solutions to extricate itself from the mess it had created.

This is roughly where things stand today. Last week the opposition and a coalition of private businesses including some of the operators have published an ‘independant’ study that describes the differential revenues between current copper rates and ComCom’s announced rates as a “tax” to fund an already profitable private business. It is of course turning into a political story, which means that sadly reason no longer comes into it.

Here are a number of things that spring to my mind about this sad state of affair, I should stress that I’m about as detached from New Zealand politics as one can be, so the following is really my views as an industry analyst and nothing else.

  • first of all, having looked at the recent impact of regulatory uncertainty in Australia and the jeopardy that Australia’s NBN plan currently is in, I find it deeply ironic that New Zealand would consider radically undoing what it started to do by destroying the delicate pricing balance that structured the UFB deal. Incidentally, this is not just an issue for Chorus: other LFCs will suffer too if the price differential between copper and fiber becomes such that Retail Service Providers simply have no incentive to consider switching customers to fiber.
  • second, it should be stressed, again and again, that the government got an amazingly good deal out of Chorus and other LFCs, probably too good. At NZ$1.5bn, the amounts invested come out at a little more than 500€ per household for a 75% coverage. The following graph is one I use in NBN related conferences to show the amount per household and the scope of intervention in parallel. Obviously, the more of the territory you want to cover, the more expensive it gets as urban density decreases. As it stands, New Zealand is getting 75% of households covered for the same cost per household that gets Malaysia 20%. And building costs in Malaysia are somewhat lower than in New Zealand. And that’s not even mentioning that the NZ government isn’t subsidizing the buildout, it’s investing in it, with an expectation of return.

 

  • third and last, this is not a case – as it might have been when EU regulation was looking into copper price adjustments – of Chorus using the copper revenues to pay dividends instead of investing in FTTH: the government has set hard targets with stiff penalties for the infrastructure to be deployed, and Chorus has met these targets (as far as I know). In fact, their deployment costs have turned out to be higher than what they had originally modelled and still they’re deploying. Put simply, the current level of copper revenues ensures that fiber deployment is possible. Take it away or reduce it dramatically and either the UFB doesn’t happen or Chorus goes belly up or the Government has to commit a lot more taxpayer money at no return.

My interpretation from far away, is that really what this is is a political coup by the opposition. Don’t get me wrong, I find the government’s behaviour here to have been really lame, to understate things a bit. They’ve opened themselves to the attacks now coming. I do find it strange though that the party that initiated the UFB is now willing to throw it under the train to score some political points…

I’m often left wondering how we ever got roads, highways, railroads and bridges built. These are amounts of public investment that dwarf what it costs to deploy a network infrastructure such as the UFB and yet they never seem to have been political liabilities…

Anyway, the real question now is: is there a way out that doesn’t make government look even more authoritarian and messy than it already does without sacrificing the UFB?

I think there is, but it requires adressing the elephant in the room: copper switchoff.

There are two issues to address here really: one is that without a decent level of copper revenues, Chorus can no longer finance the UFB deployment. The other is that with an excessive wholesale price difference between copper and fiber, RSPs will never push customers towards fiber. Then everybody loses: the government makes a bad investment, Chorus goes belly up, and New Zealand doesn’t reap any macro-economic benefits from Ultra-Fast Broadband.

By introducing a copper switchoff mechanism in fibered areas, even if copper prices are lowered, at least one of these issues is addressed: RSPs investing in unbundling will know that that investment has a limited lifetime, and even if the copper prices were lower, they will have to arbitrate between investing in a soon to be switched off cheap platform or migrate their customers to a more expensive future-proof one.

This 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.

I’m not arrogant enough to believe that my voice will have any weight in this matter, and I have no doubt I’m simplifying things to excess, but I do think this could offer an elegant solution that, furthermore, would be effective from a nation-building point of view: it wouldn’t just be a matter of knowing that 75% of the country would be eligible for fiber in 2020 but knowing that 75% of the nation would be on fiber by 2025. That kind of certainty could allow massive local and national government rethink of the services they offer for the general good, not to mention the opportunities it would open up for the private sector.

Disclaimer: I have recently done some paid work for Chorus in New Zealand. However, I have not been asked by anyone to write the above, and the views expressed are clearly my own (I’m not sure Chorus would be too happy with the solution I propose anyway…)