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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…

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!

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…)

Is the Australian NBN on the road to nowhere?

2 Sep

By the time you read this I will be somewhere between Dubaï and Auckland on my way to New Zealand. Ironically the very week of the Australian elections, the week which will decide – amongst other things – the fate of the Australian National Broadband Network I will be as close to Australia as I’ve been in years looking at another NBN and its impact.

It’s even more ironic that the New Zealand fiber NBN, a direct consequence of Australia’s plans for fiber to the premise will likely (if the Australian polls are to be trusted) outlive it’s initiator as the Coalition shifts the ambitious fiber NBN to a run-of-the-mill copper NBN.

As I’ve written elsewhere, it’s a good thing that the Coalition had the foresight not to scrap the heart of the NBN project, ie. the structural separation. I’m not sure they could have done so, but at least they seem not to want to try. If Kevin Rudd gets ousted this week, Australia will get (according to plan) the same broadband every run-of-the-mill developed market is hoping to get by 2020. TNW has an interesting though provocative editorial on that entitled 25Mbps broadband speed by 2019: the stupidest policy ever?

In a sense, I’m not that concerned about where this goes. I have been warning people for a couple of years now that Australia should not be used as a poster child for NBNs or broadband policy. The lack of deployment performance of NBNCo – whatever the reasons – made it painfully obvious to me as an observer of all things broadband internationally that its survival was uncertain, at least in its current state. Australians, like citizens in any other democracy in the world will be voting in their next government for a whole lot of reasons other than the broadband policy each party espouses, and if the NBN in its current state is thrown out with the bathwater at least they will have made that choice knowingly.

However, this will have international consequences in the broadband market and I think it’s would be interesting to think about that for a minute. People who are trying to convince governments and regulators that National Broadband Networks are not the way to go will find fodder there. Similarly, people – and especially incumbent operators – who are trying to convince themselves that it’s better to aim for short-term decent coverage than for long-term secure coverage will also gain weight. There is a non-negligeable chance that the Australian NBN will become a sort of horror story bandied at conferences to justify lack of ambition or status quo policies.

People who like me believe that it makes sense both financially for the private players concerned and economically for the nations concerned to think about a framework that brings fiber at least within a few meters of every home in the country in a relatively short timeframe should prepare for that backlash should the Coalition win in Australia. And perhaps even if it doesn’t: the poor performance of NBNCo will have to be understood and analysed so that the impacts of bad policy decisions if they exist can be separated from the impact of bad implementation.

A couple of years back Diffraction Analysis published a report entitled The Rise and Fall of Dong Energy’s Fibernett. The market loves success stories and tends to focus on those to extremes. I  believe it is just as important if not more important to be aware and understand failures in FTTx. There’s so much more to learn from them. So here’s one consequence for me personally: in the next few months, no matter in which direction Australia goes with its NBN, I need to document and analyse the reasons for the failure so far. These mistakes are the ones that other players need to ensure they avoid!

 

Photo: Australia 2009 (CC) Stoofstraat

Can the Australian Fiber NBN be radically redesigned?

26 Aug

To say that everything surrounding the Australian NBN is a political can of worms would be an understatement. The general elections in a few weeks, with Labor trailing in the polls, may spell if not the doom at least a radical trimming of NBN’s ambitions. In this context, I stumbled upon this interesting presentation by Simon Hackett entitled Building a Fiber NBN on a Copper Budget. I don’t know who Simon Hackett is, and if he is politically motivated (it seems like everybody is, looking from the outside), and more importantly perhaps, I haven’t done the financial analysis that would allow to assess whether his opening statement is correct.

What’s more interesting to me in this context is that he suggests some interesting ways in which a wholesaler can lower his own investment costs. In a nutshell, he offers three paths (not competing, complementary):

  • Forget about QoS: basically, he argues that bandwidth trumps QoS, and since fiber offers virtually unlimited bandwidth, the complexities and costs of QoS management and more importantly QoS wholesaling should be avoided. I don’t disagree on principle with this one, although the confines of QoS should probably be better defined, but I’m assuming he means “different grades of traffic management”.
  • Drop PSTN (and multiple VLAN capability): Simon’s point is that PSTN is dying and shouldn’t be carried over to the NBN. I agree with him 100% on that one although I’m pretty sure the regulator imposed PSTN continuation to the NBN anyway. But honestly, any fiber deployment done today should have two aspects embedded into its DNA: eliminate copper (long term) and eliminate legacy systems. Not sure I’m quite as bullish on eliminating the ability to deliver separate VLANs. Some services, especially around home security, healthcare, etc. are going to require a fully separated path for security reasons, and until that can be done over WDM, VLANs seem to me to be the only way to go.
  • Let the ISPs pay for the ONT: that’s the most intriguing of Simon’s suggestions. Instead of imposing an ONT paid for by the NBN, he says, the set-up should assume that the ISPs will install the ONT since they will want to install some equipment inside the home anyway. On paper this looks very tempting and financially it could represent significant savings for sure, but I’m concerned this simply couldn’t work for a simple reason: first, unless the NBN forced a vendor onto the ISPs, which seems unlikely to be approved, I’d have serious misgivings about interoperability of the ONTs. This has been a known issue with GPON for a long time and while various vendors have spoken about furthering interoperability in the standards, letting the ISPs pick their ONT vendors would still be a huge leap of faith.

 

Still, these are some interesting ideas, and at least it’s good that they’re being asked. I’m assuming in saying that there is no political calculation behind them. In which I may very well be wrong.

Still, if Simon Hackett can convince Malcolm Trunbull that he can get a fiber network for the cost of a copper one the Coalition should be trumpeting that left, right and center!