Vodafone and Vocus in surprise JV to bring competition to broadband: Expect a fight

Tuesday 5th June 2018

Internet user group Internet NZ has welcomed a surprise announcement by telcos Vodafone and Vocus that they have formed a joint venture to bring competition to the ultra-fast broadband fibre network.

The government will allow “unbundling” of the UFB network from 2020, meaning the four companies that have built the network so far have to allow rivals to access their fibre optic cables.

But if history is anything to go by, the incumbents won’t cede ground without a fight – and that battle is likely to be about price and terms.

A similar unbundling of the copper phone network in the late 1990s and 2000s took years, several court battles between Telecom NZ (now Spark) and wannabe players, and interventions by the Commerce Commission before Telecom eventually offered prices and conditions that were acceptable to its rivals.

The biggest player in the ultra-fast broadband roll-out is Telecom’s network spin-off Chorus.

Internet NZ’s outreach and engagement director Andrew Cushen said the announcement, which caught the industry by surprise, was “great news” for consumers.

“It’s an aggressive play, in an innovative, customer-friendly way… Without competition providing an external impetus for innovation, why would Chorus and the other LFCs [local fibre companies building the UFB network] roll out better services.

“We would like to see better speeds; we would like to see better prices and more options for consumers. This allows more competition and more choice.”

Announcing the deal, Vodafone chief executive Russell Stanners and Vocus CEO Mark Callander said the present arrangement with the fibre companies allowed the 100 or so retail service providers to buy only a handful of different products - 30Mbps download speed/10Mbps upload speed, for example, or 100Mbps down/100Mbps up. Retailers then on-sold these packages to customers, selling mostly on price.

Unbundling the network should allow the Vocus/Vodafone joint venture (and other RSPs) to buy fibre at wholesale and then put together their own packages.

While this would mean "tens of millions of dollars" of investment in technology, it would allow the JV partners to introduce more innovative products for customers, Stanners said.

“We might introduce a service with very low latency for gaming, or a student product for university students, or bandwidth on demand, so people can get faster speeds when they need it. For example, you might need a lot of bandwidth when your older kids come home from university and want to game, but you don’t need it the rest of the time," Stanners said.

“[Introducing competition on the fibre network] will bring a marketplace that competes on product, not just price, and where innovation can happen a lot faster. I think there has not been serious innovation on the fibre network so far.”

But there’s the rub. Getting the LFCs [Northpower in Northland; Waikato Networks in some central North Island areas, including Hamilton, Tauranga, New Plymouth and Wanganui; Enable in Christchurch; and Chorus everywhere else] to agree on fair prices and conditions to sell the fibre to their competitors won’t necessarily be easy.

Vodafone, Vocus and others argued that the government should set the price, but the government decided to leave it to the market, as it did with unbundling the copper network.

Callander accepts there could be problems trying to get agreement.

“That’s why we are not leaving it until 2020. We need to put the LFCs on notice.”

He says overseas benchmarks from countries where the fibre network has already been unbundled - Italy and Singapore, for example – will be useful during the negotiations. And having four fibre companies might also be an advantage – some might be more prepared to negotiate than others.

If all else fails, the Commerce Commission has a government mandate to review whether the system is working or not – but only in 2023.

Cushen called on the LFCs to work with the Vodafone-Vocus joint venture, for the benefit of customers.

“[The local loop] unbundling story played out for a decade, but we’d hope the LFCs were able to come up with a commercial solution much faster.

“The Vodafone-Vocus announcement is good news, and if it happens it should benefit New Zealand internet users. We hope Chorus and the other LFCs come to the party, rather than force a regulated solution, which could take a long time.”

(BusinessDesk)

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