20 Jul 2011New Zealand Broadband Overview

Incumbents

Mobile

Competitive Landscape

New Zealand had over 50 ISPs operating in mid 2010, the largest of which are TNZ, Vodafone, TelstraClear, Orcon and Slingshot. As at mid 2010, nearly 90 per cent of broadband connections in New Zealand are provided over a standard copper telephone line using DSL technology, with cable and fixed wireless at 10 per cent. ADSL2+ is now the most common technology used to provide residential broadband services in New Zealand.

Almost all DSL connections are provided over TNZ’s network. TNZ holds a virtual monopoly in the retail and wholesale broadband market. One third of the DSL connections provided over TNZ’s network in July 2010 were wholesale connections provided to other retailers. TNZ ended 2010 with a 54 per cent retail share of the broadband market. TNZ’s main rival, TelstraClear, has tried in vain to address this imbalance, but alternative ISPs are restricted to reselling TNZ’s services. However, TNZ’s share of the quarterly growth in net retail DSL connections compared to its competitors has tended to decline over the last three years. Although the number of unbundled exchanges reached 101 by the end of 2010, up from 64 in September 2009, the growth in unbundled lines has been subdued. Growth has been affected by TNZ’s wholesale loyalty offers encouraging the sale of broadband plans that rely on a wholesale bitstream service rather than unbundled lines.

TNZ’s business unit Chorus continued to progress the large scale cabinetisation of TNZ’s access network during 2009 to deliver broadband DSL services closer to customers, and rolling out fibre to connect these to the local exchange. The number of new roadside cabinets at end December 2010 was 2600. Chorus has less than 1000 cabinets to go in its nationwide FTTN programme, which has 26,300km of fibre-optic cable already deployed.

Being limited to important urban sites, cable and optical fibre coverage in New Zealand is patchy. However, it continues its gradual advance due to both private and public investment. TelstraClear is the most prominent of New Zealand’s cable operators. It was established after the acquisition of Clear Communications by TelstraSaturn in December 2001 and forms a wholly owned subsidiary of the Telstra Corporation, Australia. The company has a hybrid fibre and coaxial cable (HFC) network covering the residential areas of Greater Wellington and Christchurch in which it offers broadband access via cable modem.

TelstraClear is TNZ’s major competitor in fixed-line access along with a fibre network, although Vodafone has entered into a partnership with Ihug, the third largest ISP in New Zealand. Ihug provides nationwide dial-up services, ADSL broadband Internet bundled services and satellite broadband Internet services. Other major players include Kordia, which owns one of the largest telecommunications networks in New Zealand and is the major provider of television and radio broadcast facilities; and CallPlus, which provides residential and business customers with a full range of Internet, voice and data services.

The lack of competitive fixed line access and low population density in New Zealand has triggered the widespread implementation of fixed wireless access (FWA) networks. Fixed wireless broadband services are available to business and residential customers alike in parts of the country. Alternatively, 3G mobile networks from TNZ and Vodafone have added a further option to broadband access provision.

TelstraClear uses FWA to provide business services in smaller urban areas where it does not have its own fixed access infrastructure. In December 2006, TelstraClear began laying the fibre network to connect cell sites which are part of the Tauranga Unplugged project. For this project, TelstraClear worked closely with Tauranga City Council and the local community on the resource consent process for the wireless network. ‘Tauranga Unplugged’ was launched in late 2007 and uses 3G wireless technology making voice, broadband and mobile access simple and accessible for homes and businesses. The project cost was an estimated NZD 50 million.

Broadcast Communications Ltd (BCL) is another wireless ISP with one of the largest FWA networks in New Zealand. Using some 400 transmission sites, its service reaches 99.8 per cent of the population including areas where DSL is not available. The wireless ISP Woosh Wireless claims that it has begun rolling out a national network based on 3G cellular radio technology provided by IP Wireless. But so far, its services extend only to parts of Auckland, Wellington and Christchurch, offering download speeds of up to 1.6 Mbps. In December 2008, Woosh Wireless announced that it is seeking NZD 160 million in investment which will allow it to upgrade its legacy network based on IPWireless' TD-CDMA, to Mobile WiMAX. This is a move Woosh, one of the first operators to commit to 802.16e, has been planning for years. Woosh was previously held back by disputes with the regulator over reallocation of 2.3GHz spectrum, and by the economic squeeze. In mid 2009 Woosh gained a line of credit from cornerstone shareholder Kuwait Finance House with a view to launching WiMAX in late 2009. In mid 2010, it was announced that Woosh was in peril after posting a NZD 38 million loss, and Kuwait Finance House had pulled out of its agreement, forcing Woosh to search for a new line of credit. By early 2011 there was still no progress in mobile WiMAX. In fact, around 20 per cent of the ISP's 26,000 customers at mid 2010 are now serviced by DSL connections provided by Telecom Wholesale following Woosh's 2006 purchase of QuickSilver.

In late Q308 competition in wholesale broadband began heating up with the launch of a new product from TNZ, just a day after rival Vodafone announced a move into the market. TNZ is touting enhanced unbundled bitstream access (E-UBA) as the first of a new family of network products allowing service providers to offer customers real-time next generation services. In late 2008 Vodafone announced a broadband wholesale market deal with Slingshot, the residential brand of company Callplus. The deal gave Slingshot wholesale access to Vodafone’s so-called Red Network. Vodafone’s own fixed-line network is being built by putting equipment into TNZ’s exchanges. Vodafone launched the Red Network in early June 2008. Slingshot began to transfer customers to the Vodafone network in November 2008.

The move by Vodafone into the broadband wholesale market puts further pressure on TNZ, but is ideal for creating competition at a retail level. During 2008 and 2009 Vodafone has been working on unbundling exchanges, and has been progressively introducing ADSL2+ and VDSL2+ access which can deliver broadband at speeds of up to 50 Mbps over short distances as a premium service offering.

Developments

There are a growing number of fibre-to-the-home (FTTH) providers and projects in New Zealand. Vector Communications, operating in Auckland and Wellington, has introduced FTTH services over its own fibre network which it also wholesales to companies such as Ihug, ICONZ and Orcon. In February 2007, it concluded a contract with Auckland’s North Shore City Council and Ericsson which involved building a 38 km extension to its network, using air-blown cabling. The project was funded by the New Zealand government Broadband Challenge Fund, costing an estimated NZD 4.6 million.

Other ISP’s with fibre-optic networks include Wired Country which has networks in Pukekohe and Papakura, South Auckland. It augments its fixed network with wireless technology in the Greater Auckland and Hamilton areas. ISP Citylink offers services to 350+ buildings in the central business districts of Wellington over 100 km of fibre. In Auckland, CityLink is currently building a fibre-based network within the central Auckland area comprising up to 25 km of fibre links with roll-out plans for Christchurch. Citylink offers 4 Mbps broadband access designed for SMEs and up to 1 Gbps access speeds for large corporate companies.

On 23 November 2006, the mobile communications company TeamTalk agreed on the purchase of a 67 per cent stake in CityLink for NZD 12.7 million. CityLink is also engaged in the building of ‘The Advanced Network’ - an open access fibre network designated for research purposes and planned across 15 cities and towns. It is backed by the Ministry of Research, Science and Technology and was completed in 2010.

With such imminent high-speed deployments, TNZ was forced to move quickly. In September 2005, TNZ estimated that 90 per cent of its customers were within 2 km of an optical fibre cable and prepared testing FTTH with the view to a large-scale roll-out of the technology in 2006. A test trial with 40 selected households commenced in August 2006, and by early December 2006, TNZ announced a NZD 350 million investment project that saw the deployment of FTTP to almost all households in New Zealand.

In October 2008, TelstraClear launched a series of fixed-line broadband plans based on VDSL2 technology that can hit up to 30 Mbps download and 7 Mbps upload speeds. While Vodafone and Orcon had been publicizing their own VDSL2+ trials for months, TelstraClear beat them to becoming the first to commercially offer the technology in New Zealand.

In July 2009 Kordia announced that it will push ahead with a delayed plan to roll-out an alternative submarine cable system linking New Zealand with Australia. The government previously pulled funds which had been promised for such a project, but Kordia said the roll-out could be funded by its potential customer telcos, equity from Kordia and bank finance. The proposed cable would compete with the existing Southern Cross network, which is partly owned by incumbent TNZ, and would bring down the cost of international bandwidth for New Zealanders. In July 2010 Kordia shelved its plans following Pacific Fibre’s announcement that it is partnering with Pacnet on a new international cable connecting New Zealand, Australia and the US. Pacific Fibre formed a partnership with Pacnet, the largest privately owned cable network in the Asia Pacific region. Under the deal the two company’s will share the estimated NZD 546 million cost of building a 13,600km undersea fibre-optic cable with two fibre pairs, 64 wavelengths per fibre pair and a capacity of up to 5.12 Tbps. The cable will deliver fibre five times the capacity of the existing Southern Cross system, as well as giving the extra redundancy that another cable provides. Pacific Fibre plans to have the cable ready for service in 2013.

Pricing and Tariffs

TNZ markets its fixed line high-speed Internet services under the brand name Xtra, with speeds from 256 Kbps up to 8 Mbps. TNZ no longer specifies speed brackets, assuming that this depends on the distance between the customer and the local exchange. Xtra’s ‘Go’ Plan is NZD 41.00 with 3 GB monthly data allowance. Its ‘Pro’ Plan is NZD 81.00 per month for a 40 GB monthly data allowance.

Broadband Statistics

By the end of 2010 there were just over 1 million broadband subscribers. This was up 8.36 per cent year-on-year from 937,600. DSL is the predominant technology, with 922,000 subscribers by the end of 2010 while cable modem subscribers totalled 94,000 at the same period. Household penetration was 66.2 per cent while population penetration was 25.2 per cent by end 2011.

Country	Technology	Unit	Total	Total	Total	Total	Total	Total
			2010Q3	2010Q4	2011Q1	2011Q2	2011Q3	2011Q4
New Zealand	DSL	Subscribers	911,000	922,000	940,000	953,000	970,000	987,000
New Zealand	Cable Modem	Subscribers	92,000	94,000	96,000	99,000	102,000	105,000

Regulatory Developments

New Zealand’s telecoms market was opened to competition in April 1989 and TNZ was privatised in August 1990. The national regulatory authority in New Zealand responsible for regulating the telecoms sector is the Commerce Commission. The Telecommunications Act passed in 2001 put in place an industry-specific regulatory regime to spur competition and investment.

On 21 April 2005, the Commerce Commission issued a draft decision concerning TNZ's wholesale bitstream service. This decision was triggered by a request from TelstraClear made in November 2004 for the Commission to rule on the price and non-price terms for wholesale bitstream access from TNZ. The 2001 Telecommunications Act requires that pricing should follow the retail price minus a discount. The discount should reflect the net costs saved by TNZ in supplying the service on a wholesale rather than retail basis. In its recent draft the Commerce Commission had proposed a retail minus approach, with the minus set at 16 per cent, based on an international benchmark of ‘avoided costs saved’.

This puts the overall wholesale regulation in New Zealand much more in line with international best practice, leaving the alternative operators with more wholesale options at regulated prices. On 9 December 2005, the Commerce Commission issued a determination that confirmed the draft and set wholesale prices at 16 per cent of TNZ's retail prices. Both, TelstraClear and TNZ subsequently logged a further request for a review of that ruling which both parties withdrew after they had reached a commercial agreement on 13 January 2006.

In February 2006, New Zealand was still awaiting the conclusion of a lengthy struggle over regulation and, in particular, the introduction of local loop unbundling (LLU). The Commission was required to assess the possible regulation of LLU and access to TNZ's data network according to the 2001 Telecommunications Act. In December 2003 the Commerce Commission recommended against LLU, a decision met by disappointment by TelstraClear.

Following lobbying from businesses and continued requests by alternative ISPs, the government once again tried to force TNZ to open up its network to competitors. TNZ had until mid-2006 when New Zealand’s Communications Minister reported the results of his regulatory review of TNZ. TNZ came up with a two-pronged strategy to persuade the government not to rule in favour of LLU. First, TNZ announced lower broadband prices and faster speeds for residential and business customers, in an attempt to boost broadband uptake. Second, TNZ underwent negotiations over a 'Wholesale Charter' with the other ISPs. It would include a clause stipulating that TNZ must offer the same speeds and prices to its competitors that it is offering to its subscribers. In theory, the charter could level the playing field, whilst allowing TNZ to retain control.

In March 2006, Ihug and CallPlus asked the Commission to determine an Unbundled Bitstream Service (UBS) price for them. The Commission issued Decision 582 on 22 June 2006, setting the UBS price at NZD 28.04 plus G.S.T. per month at which TNZ must sell its UBS to alternative providers. After Decision 582 was issued, Ihug and CallPlus requested that the Commission reconsider the pricing scheme. In December 2007, the Commission announced final price determinations for TNZ’s UBS. Ranging from NZD 27.44 for a basic service with POTS to NZD 84.62 for a rural service without POTS, the prices came into effect in H2 2008.

The shortcomings of the Telecommunications Act were evident by 2005. This included the fact that the regulatory process was slow and unwieldy and the powers of the Commerce Commission were limited. These shortcomings were the subject of the 2006 Implementation and Stocktake Reviews which decided to quickly unbundle the local loop and bitstream; speed up the Commission’s regulatory processes; review the Telecommunications Service Obligation and develop a rural broadband strategy; and create a fairer wholesale environment by separating the access layer of the incumbent.

Parliament passed the resulting Telecommunications Amendment Act in late 2006 and TNZ underwent operational separation in Q1 2008. This operational separation was a key part of the government’s strategy to deliver a more effective telecommunications sector. Operational separation required TNZ to separate three key business units, establish an Independent Oversight Group (IOG), and implement the principle of equivalence of supply of relevant telecommunications services. In September 2008 the Commerce Commission released a draft determination on how TNZ should make its roadside cabinets available to broadband competition, potentially opening the market to greater data speeds and price competition in the future through sub-loop unbundling.

One of the government’s top priorities has been to facilitate competitive infrastructure provision and access to broadband services in New Zealand. To further this end, in November 2007 the government announced that it is offering renewal rights in the 800MHz and 900MHz spectrum bands to encourage more competition and investment in mobile broadband services. As of November 2007, the government also sought applications for radio spectrum licences for broadband wireless access services in rural and provincial areas. In April 2007, the government also agreed that a 7.5MHz pair of the spectrum that expires in 2011 or 2012 in each band should not be offered for renewal by auction. December 2007 saw the auctioning of spectrum rights in the 2.3GHz and 2.5GHz bands. These spectrum rights commenced in 2009 and 2010. There were six successful bidders.

In December 2008, the Commerce Commission released a new telecommunication service obligation (TSO) Cost Calculation for the Local Residential Telephone Service. The TSO recognizes the costs that TNZ carries in providing services to customers it would otherwise be unable to at an affordable price. The cost of the TSO is spread among telecommunications operators which have liable revenues. The bulk of the cost (around two-thirds) is met by TNZ, with most of the rest coming from Vodafone and TelstraClear. The Submissions on the draft TSO determination closed on 15 January 2009.

A Digital Futures 2.0 Summit was held in late 2007, pivotal to the rewrite of Digital Strategy 2.0 released in August 2008. The core role of the government is to provide the basics that enable creativity, innovation and collaboration – fast, accessible broadband, a digitally skilled population, secure infrastructure and support for and access to New Zealand content. In addition to the national-level actions in this Strategy, local authorities around the country are to assist digital development through a range of activities. These activities range from supporting broadband deployment to implementing e-government initiatives.

Councils in the Digital Age, published by Local Government New Zealand in 2008, outlined many of these initiatives. Goals of the Strategy include New Zealand in the top half of the OECD ranking for broadband uptake, speed and coverage by 2010, as well as all future networks co-funded by the government to be based on open-access principles by 2010. By 2018, 80 per cent of homes or premises would have access to fibre, or equivalent high-bandwidth capable technology and 90 per cent of users would have access to broadband connections of 20 Mbps or higher.

In May 2008 the Digital Development Council was established. The Council then set up the Digital Development Forum in September 2008. These two bodies make up the Digital Development Group, which is charged with creating and implementing initiatives to advance digital development throughout the country. This is intended to be an important partner with the government to guide the implementation of Digital Strategy 2.0.

Also in 2008, the Labour Government announced a major contestable fund aimed at facilitating high-speed broadband connections to businesses in urban centres and key users in the health and education sectors. This will extend the reach of broadband into underserved regions, and improve the resilience of New Zealand's international connections. The Broadband Investment Fund (BIF) comprises a NZD 325 million operating fund and a NZD 15 million capital fund available over a maximum of five years.

Applications were opened in late August 2008, and by early November 2008 it was announced that 56 expressions of interest were received. Of these 56 expressions, 36 were successful and required to submit full applications to the Fund in February 2009. In late 2008 it was announced that processes around the implementation of the BIF were suspended pending the formation of New Zealand’s new Government. In February 2009 the new National led Government’s Communications and Information Technology Minister Steven Joyce moved to clear the decks of the previous Government's broadband programmes in preparation for its alternative strategy to implement the roll-out of ultra fast broadband. Mr Joyce announced that the BIF would not proceed, and funding for the Digital Development Council and Forum (DDC) would be withdrawn immediately.

In March 2009 applications opened for access to a Managed Spectrum Park in the 2.5GHz radio spectrum band. The spectrum band offers potential for new regional wireless broadband services to be rolled out. The 2.5GHz Managed Spectrum Park is a new concept in New Zealand. It is intended for local and regional broadband services, such as WiMAX, and seeks to encourage a flexible, cooperative, low-cost and self-managed approach to allocation and use of the radio spectrum resource. The MSP will be of interest to smaller industry players, local and regional councils and iwi groups (Maori tribes) considering the deployment of wireless broadband services. Applications to access the MSP in the 2.5 GHz band were invited on an ongoingfirst-come-first-served' process commencing from 1 November 2010.

In June 2009 the Commerce Commission reached its decision on the price and non-price terms on which TNZ must make the unbundled sub-loop services available to other telecommunications providers. The Commission set urban access to the copper between the node and a home at NZD 11.99 per month, while urban backhaul access will cost NZD 1,197. Non-urban fees have been set respectively at NZD 22.14 and NZD 3,197 per month. The combined cost per customer for the unbundled sub-loop services is approximately 26 per cent higher than the corresponding costs for local loop unbundling but service providers will be able to provide customers with higher-value services over the sub-loop services.

Later in June 2009 Vodafone NZ complained that prices set for competitors to access TNZ’s FTTN roadside cabinets are too high for competitors to make a profit. The Commerce Commission calculated the cabinets’ monthly cost at NZD 972. Retail telcos’ monthly access fee will be based on the space their equipment consumes in a cabinet. But Vodafone has complained that the pricing made access to all but a few cabinets economically infeasible.

In March 2009, the government announced plans to invest NZD 1.5 billion in its NBN Initiative over the next 10 years to provide an enormous boost to ultra-fast broadband capacity in urban areas of New Zealand. The urban fibre communications infrastructure will be accessible for at least 75 per cent of New Zealanders in 10 years. The Government investment will be directed to an open access, wholesale-only, passive fibre network infrastructure. There is also a case for providing open access to lit fibre under some circumstances.

The government will also be partnering with the private sector. Each private sector partner will be required to establish a commercial vehicle, a “local fibre company” to deploy fibre network infrastructure. The local fibre companies will provide access to dark fibre products and, optimally, certain active wholesale Layer 2 services. The government expects private investment to match its pledge, bringing total investment in the scheme to NZD 3 billion. In May 2009 the government announced in its annual budget that it would invest NZD 290 million in the national broadband network in 2009. The funding which constitutes the initial stage of the NZD 1.5 billion plan would be distributed through the Crown Fibre Investment Company (CFIC) to fund the local fibre companies (LFC). These companies will roll-out FTTP networks in 33 towns and cities nationwide. The budget allocated NZD 200 million to fund the initial roll-out of network infrastructure and a further NZD 6 million to pay for the CFIC.

In September 2009 the government finalized its NZD 1.5 billion fibre-to-the-home proposal. TNZ’s alternative proposal for a single national network was rebuffed, as was Vodafone’s for a co-operative FibreCo with the government and the three largest telcos holding quarter shares. However, the Minister confirmed that multiple regions could be won by a single player. In October 2009 the government issued an invitation to participate in the partner selection process for the government’s broadband investment initiative. In total 38 groups expressed an interest. This ushers in the biggest and most fundamental change to telecommunications in New Zealand since the privatisation of TNZ 20 years ago.

As part of the governments annual budget announced in May 2009, NZD 48 million has been put aside to fund broadband provision in rural areas with the remaining NZD 36 million covering operating costs and upgrades required to make schools broadband ready. NZD 150 million has been allocated in total for schools. This will ensure the upgrading of internal networks within schools and work on a National Education Network. Additional activity is also underway to ensure that teacher professional development, hardware and appropriate content and services are available so schools can make the best use of faster broadband. Up to 2,000 schools (97 per cent of schools in New Zealand) will be connected to the fibre network in successive stages over the next six years.

In September 2009 the Communications and IT Minister Steven Joyce announced coverage targets for the roll-out of broadband to rural communities as part of the Rural Broadband Proposal. Getting fast broadband to the 25 per cent of New Zealanders living outside the footprint of the government’s urban initiative is a priority. Within the next six years it is anticipated that 93 per cent of rural schools will receive fibre, enabling speeds of at least 100 Mbps, with the remaining 7 per cent achieving speeds of at least 10 Mbps. In addition, over 80 per cent of rural households will have access to broadband with speeds of at least 5Mbps, with the remainder to achieve speeds of at least 1Mbps. Enabling rural cell phone towers to be connected to fibre will also improve mobile phone services in rural areas. Taken together with the government’s NZD 1.5 billion ultra-fast broadband investment initiative, the achievement of these rural targets will mean that 97 per cent of New Zealand schools and 99.7 per cent of New Zealand students will have access to broadband speeds of 100 Mbps or greater.

In November 2009, TNZ spoke out against proposed telecoms service obligations (TSO) which will change the way the provision of phone services to uneconomic customers is funded. The proposals for the TSO and RBI (rural broadband initiative) were published by the government in October 2009 as part of its review of rural telecoms strategy. TNZ disagrees with the government’s conclusion that there is not a net cost to TNZ in providing TSO services. Regarding the RBI, TNZ estimated that it would have to spend at least NZD 500 million to meet government targets, assuming it used existing infrastructure.

In December 2009 the government confirmed the initial frequency allocation boundaries for long term use of the present UHF television bands after digital switchover (DSO). Digital switchover is expected sometime between 2013 and 2015. The spectrum between 502 MHz and 694 MHz is to be allocated for digital television use and the spectrum between 694 MHz and 806 MHz will be allocated for new uses. This will allow New Zealanders to have access to significantly faster and better mobile broadband services as new 4G mobile phone and broadband services are implemented. In January 2010 the Commerce Commission confirmed reports that it was open to discussions on different mobile phone operators sharing a single 4G network, which could take the form of sharing cell sites and masts or joint ventures. Now that the boundaries have been set for the spectrum where 4G services could be deployed (694-806MHz), the next phase of planning is to finalise a technical frequency plan suitable for 4G usage, and following that, for the government to determine a process for spectrum allocation. In September 2010 the government announced it has sped up its planned digital switchover from the expected 2015 to 2013 with parts of the country starting in 2012.

On 16 March 2010, the Minister announced the final proposals for the government's Rural Broadband Initiative and reform of the Local Service TSO. The Government has decided to reform how TSO charges are arrived at to compensate TNZ for supplying local telephone service in commercially non-viable areas. The reforms will ensure that when compensation to TNZ for supplying local telephone service is calculated, the full benefits and costs of being the nationwide-supplier of the TSO services are taken into account. If TNZ begins to make a national net loss on providing the national Local Service TSO, TNZ will be able to apply for compensation for this net loss under the Telecommunications Act. In addition to reforming the TSO charge methodology, the reforms will introduce a Telecommunications Development Levy, which is expected to rise over the next six years:

• NZD 48 million for payments for delivery of TSO services and upgrades to the emergency calling services system,

• NZD 252 million for the Rural Broadband Initiative.

The cost to the industry of this new levy is expected to be offset by the reduction in Local Service TSO charges resulting from the TSO reforms. It is not proposed that broadband service be included in Local Service TSO requirements. The government's policy for funding the rural broadband initiative is to allocate some subsidy funding from revenue collected by the new consolidated industry levy.

Plans for the RBI were also finalised in March 2010, with the government ratifying proposals to roll-out high speed broadband networks across rural areas. Under the RBI, 97 per cent of rural households will have access to broadband services with speeds of at least 5 Mbps, with the remainder reaching at least 1 Mbps. Schools will also benefit from the plan with direct fibre connections delivered to 97 per cent of schools across the country. The RBI is expected to cost around NZD 300 million funded by a NZD 48 million grant direct from the government, plus NZD 252 million raised via the new Telecommunications Development Levy. The new levy will see NZD 50 million a year raised through contributions from telcos. All will then be able to compete for the right to tap the fund to develop rural broadband initiatives. In November 2010 TNZ and Vodafone Group announced the compliance of joint response to the RBI to build new open access network infrastructure across New Zealand’s rural areas. Other shortlisted bidders are OpenGate (Kordia and Woosh) and FX Networks who together put in a consortium bid, and Torotoro Waea. The TNZ-Vodafone partnership would see TNZ extending its existing fibre infrastructure by 3,000km, taking it to key rural points, while Vodafone has pledged to build 154 new mobile towers. OpenGate has pledged to provide wholesale wireless access, delivering ‘last mile’ connectivity, with FX Networks contributing the fibre component. Binding contracts are expected to be signed by Q2 2011.

In April 2010, the Commission ruled on regulating VDSL, telling TNZ that if it delivers bitstream services over VDSL then it must do so on regulated terms and conditions, including price. However, if TNZ Wholesale were to use its VDSL network to deliver a service with specifications that do not fall within the regulated unbundled service (for example a higher quality of service that is not covered by the existing regulation), the it would be free to set its own terms and conditions. The Commission said it considers that ongoing monitoring of VDSL-based bitstream services, rather than regulation is appropriate at the present time because VDSL deployment is in its infancy with TNZ yet to launch VDSL services, TelstraClear is already offering retail VDSL services in the market; and TNZ has committed to providing wholesale VDSL-based bitstream services to access seekers on a non-discriminatory basis. In December 2010 the Commission decided that a new wholesale VDSL2 service offered by TNZ does not need to be regulated, as it incorporates a number of features not included in the regulated unbundled bitstream access (UBA) service, and it is appropriate that the market determines the price for this enhanced service.

In August 2010 the Commission suggested that the wholesale broadband, business data and bundled resale services market should no longer be regulated by the Telecommunications Act of 2001, due to a combination of low-take up and the introduction of competing services. Resale regulation was introduced in 2001, with a requirement that TNZ resell all retail level services to competitors, but has since been overtaken by multiple layers of more detailed regulation, including local loop unbundling. With this decision the Commission has recognised the importance of rolling-back early interventions in the market, in the light of subsequent developments and rapidly increasing competition. Also, in December 2010 the Commission announced that the wholesale prices a mobile network operator charges for providing services to customers from other network operators should be significantly reduced. This will remove a significant, long-standing and growing barrier to efficient expansion by small mobile network operators.

The Commission launched an investigation in October 2010 into an alleged breach of the legally binding Separation Undertakings agreed to by TNZ. The investigation will assess whether the group’s Telecom Wholesale unit has been discriminating against New Zealand’s other telecommunications providers, in favour of its retail arm, Telecom Retail. If TNZ is found guilty, the Commission could ask the High Court to impose penalties of up to NZD 10 million for any perceived breach. The investigation is in response to TNZ’s competitors, Callplus, Kordia, Orcon and Vodafone writing to the regulator in January 2010 to lodge official complaints. The Commission expects to complete the investigation by the end of March 2011.

In October 2010 a court decision allowed state-owned telco Kordia to proceed with unilateral upgrades to fibre-optic infrastructure built and owned jointly with domestic rival TelstraClear. Kordia initiated arbitration in 2007 to clarify its upgrade right with TelstraClear, but a decision in favour of Kordia was not issued until June 2010. Kordia is now able to upgrade its share of the fibre capacity for its wholesale business, which the company said will allow it to get a similar cost base for capacity for its wholesale business. This will allow Kordia to compete more effectively with TelstraClear and others in the market. The ruling could clear the way for the state-run telco to raise its profile by winning new wholesale clients such as ISPs as well as large corporate customers.

In September 2010, Crown Fibre Holdings, the government agency in charge of NZ’s USD 972.4 million UFB initiative named three bidders for priority negotiations for the UFB. All are members of the Regional Fibre Group – an alliance of power companies and regional fibre providers. They are Alpine Energy, which plans to operate in Timaru, The Central North Island Fibre Consortium (Hamilton, Tauranga, New Plymouth, Wanganui, Hawera and Tokoroa) and Northpower (Whangarei). TNZ was omitted from the first round of priority negotiations after its plan to offer a nationwide roll-out across all 33 regions was dismissed in favour of a region-by-region approach. In December 2010, Northpower started rolling out its first broadband services under the ultra-fast broadband project in provincial Northland. This follows a government announcement regarding the award of contracts to WEL Networks, a power company supplying cities and towns like Hamilton, New Plymouth and Wanganui in New Zealand’s North Island. Their roll-outs will start early in 2011 and are expected to be completed in 2015. As at February 2011, Alpine Energy remains in negotiations over a fibre build for Timaru, Enable Networks in Christchurch and Rangiora, and Flute Network in Dunedin. Another member of the New Zealand Regional Fibre Group, Vector, was selected in February 2011 for ‘prioritised negotiations’ with Crown Fibre Holdings over the construction of the urban fibre network in Auckland.

It was also announced in mid December 2010 that TNZ has been selected by Crown Fibre Holdings to take part in priority negotiations for the UFB initiative. Crown Fibre has indicated that negotiations with TNZ will cover 25 geographical regions, representing a sharp turn around from its previous standpoint. TNZ has to spin-off its infrastructure business from its retail arm to be eligible for such broadband work and in December 2010 a government Bill was passed under urgency to let this happen.

Relevant Websites

New Zealand Commerce Commission, http://www.comcom.govt.nz

Sources

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