On December 3, the Commerce Commission will determine how much Chorus, which owns the roughly two million copper phone lines in this country, can charge ISPs each month to provide services over these lines.
Currently ISPs pay between $20 and $45 a month to Chorus for access to an ADSL service.
We add some data, provide support, and incur a bunch of other costs - marketing, staff, buildings, equipment, and then sell services to the end user. The margins are slim, and it's a competitive area. Broadband is almost at full penetration, so ISPs are left luring customers from one another. There's some money left for innovation, but not a lot.
That's why I think the monthly rental should start at more like $15 a month. The lines have been in the ground for a while now, and the cost to run each line is substantially shy of $20 to $45 a month.
Reducing the costs, and allowing ISPs to introduce new technologies such as VDSL that squeeze greater speeds out of copper will allow the country to get the most out of the copper network as customers wait for the Ultra Fast Broadband (Fibre) network to run past their doors. Think of it as a ladder of consumption.
Chorus think otherwise. They have de-merged from Telecom, publicly listed, and have recently finished the first year of a nine-year fibre network build. Chorus claims that it (well, investors in the company actually) need the price of copper to stay at close to current prices. Chorus says "Investors see a reduction in copper pricing as a proposed value transfer between Chorus and retail service providers."
In my opinion this isn't about value transfer between Chorus and ISPs, it's a value transfer between Chorus and the consumer.
If the commission sides with Chorus, customers will have few choices. Most residential customers will have to rely on the ADSL2+ service they currently have, while hoping that their street is due for UFB before 2019.
There are lots of ways to deliver internet services over copper lines. Dial-up (slow), ADSL (still slow, but what we know as broadband), ADSL2+ (what most people use now and decent in many cases), VDSL and VDSL2 (close to fibre speeds).
Today, Chorus charges a $20 premium for VDSL. There's no real reason why it costs that much more, it's just a new (and better) technology. Much like ADSL2 was an improvement over ADSL1, and yet in that instance wholesale prices actually fell. A few small ISPs have launched VDSL services, but it has largely remained a niche product for business customers.
In reality, it's a product we should be transitioning most ADSL2+ users on to while we wait for fibre. However, if we need to charge a $20 premium consumers just won't take it up. The mass market is unwilling to pay that much more for their broadband service.
In short, there's life in copper still. But in order to take advantage of this it needs to be priced correctly. Priced correctly, ISPs will be able to introduce products that improve New Zealand's accessibility to high speed internet.
I am a proud and vocal supporter of the UFB project. A fibre-up business community and society will lead to huge benefits for New Zealand, I am convinced of that. And I am aware there is a risk UFB could be perceived as a failed project if we don't build uptake. But isn't the final objective to rapidly and vastly improve our broadband speeds?
You may say I am just posturing to get more margin into my business. The harsh reality for retail service providers is the ladder of infrastructure investment is almost gone, and bundles of value added services are the future. This requires innovation, partnering and speed.
I am convinced that introducing better services over copper would help fibre uptake and provide a stepping stone to UFB. People will get used to faster speeds, consume more data, and see the internet further ingrained in, and enriching their lives. In addition, ISPs and other internet businesses will develop new, rich, high bandwidth services that will entice consumers on to fibre.
The Commerce Commission has an opportunity on December 3 to make New Zealand's broadband performance the best it can possibly be. Let's get the most out of the copper network we have, encourage innovation, improve productivity and be smart about driving this economy forward through technology.
It is not the commission's role to protect Chorus investors.
* Scott Bartlett is CEO for Kordia New Zealand.
