Download Weekly: Five more years of fibre regulation

ComCom passes on fibre deregulation; for now

Telecommunications Commissioner, Tristan Gilbertson is reluctant for the Commerce Commission telecoms team to investigate fibre deregulation at this time.

He says we are just three years into the new regulatory regime and there is “not enough competitive constraint on fibre for there to be any serious question of deregulation at this time”.

Gilbertson says: “Fibre providers occupy a near monopoly position in their markets, with the incentive and ability to act contrary to consumer interests, unless there’s enough competition from alternative technologies to hold them back.”

Fixed wireless competition?

He says 4G wireless broadband is not competitive enough: “4G wireless broadband is limited in its ability to constrain fibre – particularly given the increasing gap between what Kiwi consumers want from their broadband service and what 4G wireless broadband can deliver.”

While this doesn’t contradict the Commerce Commission’s 2024 Telecommunications Monitoring Report, the Commerce Commission comes close to sending mixed messages.

The Monitoring Report’s executive summary puts it this way:

“The retail broadband market is increasingly competitive, offering a wide range of plans across fibre, HFC, wireless, copper, and satellite technologies.”

In other words, “increasingly competitive” is “not competitive enough” to move on from regulation.

The risk of early deregulation

Gilbertson says the Commission worries that fibre companies would be able to increase prices, reduce quality or both, to maximise profits at the expense of consumers if regulation were removed prematurely.

This seems reasonable. Yet if it chooses to carry on regulating, the Commerce Commission doesn’t revisit the question until 2029.

Five years is a long time in telecommunications. If regulation stays in place, it may pay to take another look in three years, not five.

Emerging competition

Five years ago no-one had heard of SpaceX and Starlink. Fixed wireless broadband was uncompetitive with fibre.

By 2029 New Zealand’s fixed wireless broadband networks will have moved from 4G to 5G. The newer technology is faster and more reliable, offering performance much closer to today’s fibre services. 5G fixed wireless is already available today in parts of the country. Fixed wireless services providers are unlikely to drop prices, but their margins mean this remains an option. That would be a real competitor for fibre.

Gilbertson acknowledges this. He says: “We’ll be keeping a close eye on the development of 5G wireless broadband services. They narrow the gap between what most consumers want in terms of speed and performance and what wireless broadband can deliver. However, for now, they’re still in the early stages of being rolled out and their potential hasn’t yet been demonstrated.”

Wireless not the only competition

Satellites are not mentioned as a competing technology. While fibre is more attractive in terms of price and performance, this can change. Existing and would-be low earth satellite broadband providers say fibre-like speeds are possible in the near future.

Gilbertson links the need for continued fibre regulation to the Commerce Commission’s monitoring of Chorus’ spending plans. He says: “Regulation is designed to promote the long-term interest of consumers and outcomes consistent with an effectively competitive market – as seen in our final decision last week on Chorus’ expenditure for the next four years.

“This will see Chorus invest $1.722 billion in its network over the next four years but protect consumers from $172.6 million of unjustified expenditure that would have flowed through to higher prices.”

Spark, Chorus financial results show diverging fortunes

Last week’s financial results for Spark and Chorus show the two companies that emerged from Telecom NZ are currently travelling in almost opposite directions.

Spark reported a 72 percent drop in profit and saw revenue fall 14 percent. The telco’s underlying profit was down by a third and the result fell short of the most recent guidance. Spark’s profit margin came in at a shade over 30 percent, a year earlier it was over 38 percent.

Chorus saw a three percent increase in revenue and while the company reported a net loss after tax, its EBITDA was up by more than four percent.

A combination of factors

The fibre wholesale company says its loss was “a combination of a one-off $15 million non-cash tax expense following the removal of deductibility of tax depreciation for buildings, an $11 million increase in depreciation from our accelerated depreciation of copper assets and higher interest costs”.

Justine Smyth, Spark’s board chair, says the company has had a “challenging year” and noted this was in line with many other businesses who faced difficult economic conditions and a tough operating environment.

She says: “Public sector spending cuts and deferred private sector investment had a significant impact on IT services revenues, while lower household and business spending impacted mobile devices and accessories sales, and intensified competitive pricing pressure, particularly in business mobile.

Underlying drivers “enduring”

"While we are disappointed to not achieve our FY24 ambitions, as we look to the year ahead our business fundamentals are strong, our underlying drivers of growth are enduring, and our continued focus on cost reduction will improve margins and support growth."

Meanwhile Chorus reported steady progress with the number of fibre connections growing 53,000 to 1,084,000 while fibre uptake increased two percent to 71.4 percent. Data traffic on the Chorus network was up eight percent. At the same time the company cut the number of copper connections by more than a third.

Chorus’ guidance suggests next year will be much in line with this year’s result. The company typically experiences fewer surprises than retail telecoms companies and continues to be heavily regulated.

Tait pilots emergency service radio network

Tait Systems NZ says it has launched the first part of New Zealand’s new Public Safety Network Land Mobile Radio network as a pilot in South Canterbury.

It will be the first time all three major emergency services will have communications operating on the same wavelength, which should allow better coordination.

The pilot will include eight digital radio transmission sites. Emergency services will use the network to test the new radios in what the government calls “operational scenarios”. Lessons from the trial will help inform the roll out of the network nationwide between now and 2026.

Emergency Management and Recovery Minister, Mark Mitchell says: “The jobs of our first responders - Ambulance Officers, Fire Fighters, and Police Officers are not easy. They go willingly into situations and places that most New Zealanders do not have to go. They put a lot at risk to keep New Zealanders safe.

“Reliable, secure-modern communications are vital to frontline responders. The new Land Mobile Radio network will help coordinate these services, for the safety, wellbeing and prosperity of all New Zealanders.”

The network will be fully encrypted. Only people working for the emergency services will be able to make and receive calls on the network.

Mitchell says being able to eliminate outside disruption will increase the safety of frontline staff.

Building Nations 2024

Infrastructure New Zealand’s Building Nations 2024 conference took place this week. I worked in the run up preparing the NZ Herald’s Infrastructure Report and filed three stories from the conference for the NZ Herald: Users to pay for new roads, upgrades; Collaboration centre stage at infrastructure conference and Public-private partnerships reboot planned as Government mulls RMA replacement.

While there were many old faces from the telecommunications sector at the conference, Ventia was the only company to play an active role. It was a conference sponsor. Given Ventia’s activities cover many infrastructure areas, that hardly counts as representing telecoms. A question worth discussing is should the telecoms sector regard itself as part of the wider infrastructure sector or should it stay in a separate silo?

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