11. Telecommunications
Many of the key assets of a telecommunications network could be argued to fall outside the definition of infrastructure developed by NZIER for the Infrastructure Stocktake work. Telecommunications is vital to New Zealand's society and economy and has therefore been included in the study.
If New Zealand is to prosper as a knowledge-based economy, the capability and efficiency of communications and data transmission within New Zealand and internationally will be vital. IT and telecommunications underpin large sections of the economy (e.g. efficient logistics relies on communications) and tie much of society together through providing the ability to communicate. The introduction of broadband may be particularly critical for the development of businesses outside of the main urban areas.
The focus of the work in this sector has been on the capability to deliver various types of service, rather than the actual specifics of network configuration. Also, whilst issues of capacity utilisation are considered, our focus has been on availability of service (capability to provide) rather than market structure and actual take up of services.
11.1 Key Issues
Whether consciously or through good fortune, New Zealand generally avoided the excesses of the telecommunications "boom" of the late 1990s that drove investment of staggering amounts of capital in infrastructure or operating rights (particularly radio spectrum licences) that is still not being utilised. This means that, whilst New Zealand does not have the volumes of under-utilised assets that could be brought on-stream in due course, its infrastructure owners have not been saddled with high debts or losses.
At present, New Zealand's voice and mobile penetration rates are high, as is internet usage, when compared with other OECD countries. New Zealand trails much of the developed world in the uptake of broadband (particularly in the non-corporate market segments). This appears to be more a function of the availability of low-cost dial-up services and the price of broadband service offerings than the availability of infrastructure. That said, at present New Zealand appears to be entering into a period of much greater competition in the provision of infrastructure assets. CBDs in the major urban areas already enjoy a degree of infrastructure and service competition, but existing players and relative new entrants are now entering the residential and outlying markets in greater force, using a range of technologies, such as fixed-wireless broadband, that were simply not available (or cost effective) in the past. It remains to be seen whether the competition will be sustained in the medium to longer term, but at present the signs are encouraging.
Generally, telecommunications displays rather different characteristics to the other infrastructure examined in this study:
- The pace of technological change is much more rapid, leading to alternative technologies, greater capability and lower cost becoming available far more quickly than in other sectors.
- Assets are generally more scalable than in other sectors (trunk, exchange and local loop assets). Doubling the capacity of a water or gas pipe might mean extensive work on or complete replacement of the pipe. The data-carrying capacity of a simple copper telephone wire can be increased by two orders of magnitude (from 10s of kilobits per second to megabits per second) by changing the transmission technology (this is a simplification - changing access technologies can have ramifications across a whole network), often at a relatively low cost. When "pipes" do need to be changed, they can be laid underground, overground along easements such as railways, round overhead power cables, or even (within limitations) replaced by wireless transmission: technology offers a far greater set of alternatives to any particular problem.
- Another facet of scalability is that increased capacity can often be added cost-effectively in smaller increments than in other sectors: assets are far less "lumpy" than in other sectors.
- There is a greater degree of duplication built into many areas of telecommunications infrastructure than the other sectors under consideration. This is most common in the major backhaul component of the assets where redundancy is built in, in case of a failure of one route (such as a cable being cut) or to accommodate peak or unexpected demand.
New Zealand's telecommunications infrastructure is not "perfect" and there are localised issues of a lack of or potential lack of capacity (although establishing what and where these are is not easy, as they are treated as highly commercially confidential by infrastructure owners).
Our general conclusion is that New Zealand's telecommunications infrastructure does not represent a barrier to economic growth or to the other objectives of sustainable development.
- Competition in broadband offerings is rapidly increasing (although the long term sustainability of those businesses is by no means certain);
- Rural access to basic and advanced telecommunications is likely to improve substantially in the next few years, assisted again by increased competition in infrastructure and service provision, and initiatives such as Project Probe and Fencepost.
We therefore conclude that infrastructure is unlikely to present problems for sustainable development. Access issues are increasingly around price rather than actual availability of infrastructure.
Telecommunications does not tend to raise the types of environmental issues seen with other sectors, particularly pollution. The impact of radio emissions on human health is a continuing subject of research. Visible, above-ground telecommunications cabling can also affect amenity values.
Above all, telecommunications are far more amenable to new technological solutions than other sectors, and even major works such as laying fibre are relatively simple to undertake, compared to building a new power station or motorway.
The sector does however have issues with regulation and the regulatory structure, although it is not the role of this report to recommend solutions.
- There are mixed views on the Kiwi Share Obligation. A number of consultees indicated that this was an inhibitor to roll out of infrastructure to rural areas (through artificially lowering the actual service charges that could be made by a competitor to TCNZ).
- Some market participants also argued that Local Loop Unbundling was not required, due to the possibility of technology bypass options.
Our general conclusion therefore is that whilst take-up of advanced services is, at this stage, relatively low, it is generally not infrastructure that inhibits utilisation. Where there are inhibitors, particularly in outlying areas of the country, the increased competition in infrastructure and service provision and other initiatives such as Fencepost are likely to remedy these issues over the next few years.
11.2 Background
Telecommunications infrastructure consists of the equipment required to transmit data (or a signal), normally in a two way medium, from one point to another. Legacy systems were analogue, using a "circuit-switched" environment in which, in order to transmit signals, a single circuit, or route between two points, must be established. In the legacy voice telephony world a range of assets were required to transmit the signal from the user (at the telephone or handset), through to a local exchange (or switch) to be routed towards the final destination over the main trunk, to be terminated, through another local exchange, at the receiving user's handset.
Networks were traditionally engineered around the following (highly simplified) methodology:
- Determine the peak period requirement for the network (in Erlangs) over the busiest hour;
- Assess the level of demand and quality of service that the network operator wished or could afford to support (such as a 2% failure rate at peak times);
- Design the capacity of the network around these parameters.
The definition of telecommunications infrastructure has become more blurred, and is sometimes difficult to differentiate from certain areas of media provision. The assets that can be used to deliver telephony services can also be used to provide data, high-speed internet access, video streaming and broadcasting.
Incumbent networks are still largely dependent on a circuit switched environment, relying on the most part on a twisted pair of copper wires to provide connectivity to a residential consumer, from the local exchange. However, the nature of the assets and structuring of networks is changing dramatically. Recent changes include:
- The capacity of backhaul, or main trunk lines, has increased exponentially. This is function of technological developments in the fibre itself, improving capacity, and of the switching systems that transmit signals. (e.g. Dense Wave Division Multiplexing (DWDM) is a technology which allows multiple wavelengths of light to be transmitted simultaneously down the same fibre, each wavelength capable of the same data transmission rate).
- The architecture of networks is moving away from the old circuit switched environment, towards a packet switched environment which adopts a more flexible approach by breaking a "message" up into data packets, transmitting these to the terminating address in the most efficient manner and reforming the message at the destination.
- There has been significant development in mobile networks, where penetration levels worldwide have grown significantly. Much of the uptake in mobile telephony was not accurately predicted by many operators, and oddities such as Short Messaging Service ("SMS") have become significant contributors to the revenue of mobile network operators.
- The convergence between the technology used to deliver media (such as cable television), internet connectivity (copper wires, cable and fixed-wireless solutions) and voice-orientated services (copper wires, cable and fixed-wireless solutions) has lead to great development in the access infrastructure of many telecommunication infrastructure providers.
- As capital costs decrease and technological capability increases, there is much greater scope to introduce broadband services to a wider range of users without needing to lay new cables or fibre (i.e. the switching systems provide the capacity).
This latter point highlights a critical issue: the key assets on which telecommunications infrastructure is built are becoming much more scalable and at a lower (often a fraction of original) cost. Changing technology and corresponding increases in network capability have led to significant changes in the demand patterns for telecommunication services:
- Large companies expect high levels of voice and data connectivity between key sites;
- Residential consumers can use telecommunications infrastructure to obtain access to the internet, broadcasting, voice communication and to their workplace.
11.3 Focus of Telecommunication Infrastructure Assessment
As noted above, the focus of the work in the telecommunications sector was on the ability to provide services across New Zealand. In considering service provision, the following categories:
- Voice; over a POTS ("plain old telephone system") type system (this may be a combination of fixed connections or Multi Access radio offered by fixed line operators).
- Dial - Up; internet access via the POTS local area access network.
- Broadband; the range of fixed line and fixed-wireless options available (such as ISDN or ADSL - incorporating TCNZ's sub broadband Jetstream Offering) through to the very high capacity connectivity required by corporates or the NGI initiative.
- Mobile; The voice range of products available on the mobile networks in New Zealand. The two current mobile network operators (Telecom New Zealand and Vodafone) are planning third generation networks. However, plans are very much in the earliest stages of development and highly confidential.
The focus on the capability to provide these services was chosen as the best proxy for the capacity and quality of the telecommunications infrastructure in New Zealand. This also led to a split in focus between access infrastructure and backhaul. Our assessment has focused on the capability of the access infrastructure to provide these services to consumers, and the ability of the supporting infrastructure (such as backhaul) to allow these services to be provided. However, the network operators treat information on backhaul capacity as highly sensitive and such information cannot be disclosed.
11.4 General Trends in New Zealand's Telecommunication Infrastructure
At a snap shot view:
- Penetration by the phone network has been fairly constant over recent years at approximately 96% of households.
- Internet traffic, as a proportion of residential call traffic has increased from approximately 50% in 2000 to approximately 80% at the time of writing.
- At the beginning of 2002 ADSL was available to 62% of houses, 82% businesses. Telecom's latest assessment is that these figures have increased to 85% and 90% respectively. However, broadband uptake, at 1.7% penetration of households, is still very low despite ongoing heavy marketing.
- Mobile Subscribers have increased from 1.542 million (40% of the population) in June 2000 to 2.463 million in March 2003 (62% penetration). Growth in penetration rates appears now to have stabilised, increasing by only three percentage points in the last 18 months.65
11.4.1 Market Participants
This is a brief overview of the major participants in the telecommunications industry in New Zealand. Only providers of reasonably substantial quantities of infrastructure have been included.
a) Telecom New Zealand Limited (TCNZ)
TCNZ is the incumbent fixed line network operator. It has the most extensive telecommunications network, with the most complete geographic coverage in New Zealand. It can provide the complete suite of network infrastructure from local loop connectivity through local and regional switching to backhaul. It operates two mobile networks.
The network was fully digitised in 1999, and New Zealand was the fourth country in the OECD to achieve this. Digitisation is required for the provision of dial up internet access.
b) TelstraClear
TelstraClear Limited was created from the combination of TelstraSaturn Limited and CLEAR Communications Limited in December 2001. It is New Zealand's second largest telecommunications company and can deliver a wide range of services, including voice, high-speed data, mobile, wireless and internet services and cable TV. However, it operates on a more restricted regional basis than TCNZ.
It has the next most comprehensive network after TCNZ, owning significant backhaul capacity and local access infrastructure in a variety of places in New Zealand. There are various announcements regarding possible activity by TelstraClear in mobile telephony, but these remain highly uncertain.
c) Vodafone
Vodafone Group Plc entered New Zealand in 1998 when it purchased BellSouth New Zealand. It operates a GSM (Global System for Mobile) network on the 900 and 1800 megahertz part of the spectrum in New Zealand. Vodafone utilises infrastructure from a variety of sources: some it owns directly (e.g. fibre or digital microwave links connecting base stations to base station controllers). It uses a variety of providers for major backbone connectivity.
d) Broadcast Communications Limited (BCL)
BCL is fully owned by Television New Zealand. It has been delivering broadcast and telecommunications services for more than 60 years in New Zealand. According to its website, its broadcast network provides coverage to more than 99.8% of New Zealanders.
Due to its legacy of being a broadcast communication provider, BCL owns a range of transmission towers located in prominent locations throughout the country. It also owns a range of backhaul connectivity assets, either through digital microwave links or through fibre connecting these sites. It has now started to develop its telecommunications capabilities utilising this network and its tower sites. It has partnered TCNZ on its probe tenders and has been working with Fonterra to roll out broadband to its members.
e) Walker Wireless (or Woosh Wireless)
Woosh Wireless is a new entrant and is currently planning to roll out a national fixed-wireless local access network, based on the use of Secure Wireless Broadband technology. It has begun to deploy its network in Auckland and Southland. It has plans to develop into the Wairarapa and Northland shortly.
It has been actively participating in the Project Probe tendering process, currently having been successful in several of the regional tenders.
f) CityLink
CityLink was formed in 1995 following a Wellington City Council sponsored business initiative to deploy a communications network for local business and government. It has now developed a comprehensive "open-access" broadband network around the Wellington central business district.
g) Tangent
Tangent is owned by Vector, the electricity lines company, and provides high-speed broadband connectivity targeted at business users in the Auckland region and some parts of the Wellington region. Its business model is similar to CityLink in some regards as it focuses on providing connectivity as opposed to the services (e.g. internet service provision) that the customer will use.
h) Wired Country
Wired Country is a division of Counties Power, and is developing a broadband network in the Counties region. It intends to offer its services to a wider segment of the local community than either Tangent or CityLink (although, these networks have very high access capability compared to Wired Country). Its network relies on a combination of fibre cables and fixed-wireless technology to provide its service.
11.4.2 Price Performance
The Ministry of Economic Development recently conducted an assessment of the comparative performance of key telecommunication services in New Zealand.66 The performance of New Zealand's sector was principally assessed by benchmarking pricing against other OECD countries. Where considered appropriate, adjustments where made to reflect New Zealand's particular circumstances.
The report used data available as at November 2002 and concluded that:
- Prices for fixed telephony for residential and business users appears close to the OECD average.
- Prices for mobile telephony were significantly higher in New Zealand than other OECD countries.
- New Zealand had good broadband availability but low uptake. Pricing was found to be comparable to OECD countries, except where large quantities of data were required. The low level of broadband adoption was partially attributed to the higher average data transportation costs (as most of the content for New Zealand is sourced from overseas) and the availability of cheap dial-up internet.
This pricing comparison does need to be treated with some caution, owing to the different markets, business environments, infrastructure and services included in the study and the resulting difficulty of making valid comparisons.
11.5 Current Situation
The current status of the telecommunications infrastructure in New Zealand is heavily influenced by:
- The dominance of the incumbent;
- The regulatory framework;
- The Kiwi Share Obligation ("KSO");
- The dispersed nature of New Zealand's populace;
- Changing growth patterns in elements of the economy (such as changing population distributions).
The analysis of the current status of the sector has been broken into two components:
- Backhaul network; connecting the major regions; and
- Access infrastructure; the key infrastructure that links the user to the network.
11.5.1 Backhaul
As discussed, this is the major "transmission" backbone network which transports data between the access points in the network. It can be predominantly viewed as a city-to-city connection. The Auckland to Wellington, Wellington to Christchurch routes comprising the major elements within the network, with additional connections to the other urban centres around the country. In some areas backhaul is provided by Digital Microwave Radio, but for the most part consists of fibre.
International connectivity is provided by satellite and sub-sea cable systems. The latest sub-sea cable is the Southern Cross Cable which links New Zealand (from two sites near Auckland) with Australia and North America and provides significantly more capacity than its predecessors.
Based on our discussions with the network operators, our conclusion are:
- There is excess capacity between the major hubs in New Zealand. Looking forward, we do not anticipate any shortages of capacity:
- The network is highly scalable (the majority of backhaul utilises DWDM technology), allowing additional capacity to be added relatively easily. Upgraded switching systems can be easily added to exchanges and this equipment is continually reducing in price and increasing in capacity;
- There is a range of alternative fibre operators between the major urban hubs, as operators such as BCL and Telstra in addition to TCNZ;
- In the longer term, Telecom's plans to develop a Next Generation Network are likely to incorporate substantial increases in capacity;
- The Advanced Network is aimed at creating a network to provide very high capacity connectivity between research institutions, both domestically and internationally.
- At a regional level, there are some areas with localised constraints on backhaul, of which two examples are:
- TCNZ's backhaul out to Gisborne; and
- south of Christchurch where the amount of fibre laid diminishes
There is a high degree of commercial sensitivity surrounding this information and we have not been able to establish whether any other such situations exist.
There is considerable commentary that indicates that regional and rural linking is the weakest point in the telecommunication infrastructure, where development has been more limited than between major urban centres. There appears to be less scope to increase capacity in some areas using existing infrastructure and there appears to be less redundancy installed.
- Nevertheless, while a particular operator's network may be constrained in specific regional areas, operators such as BCL are developing and providing additional backhaul (combining both fibre and wireless technology) capacity.
- TCNZ have informed us that currently there is sufficient capacity on the Southern Cross Cable to meet current capacity demands. The current installed capacity of the network is 240Gb/s, with the option to double this to 480Gb/s if required. It is interesting to note that when the cable was being designed and installed, it was intended to have 120Gb/s capacity, but developments in DWDM technology has meant that the capacity has been significant increased. It is uncertain for how long this will provide sufficient international connectivity; some public commentary indicates that it was designed to provide sufficient capacity for the next 10 to 15 years (although it is not clear on what basis or assumptions for upgrades this estimate incorporated).
In summary, whilst some regional constraints do exist, generally backhaul capacity is unlikely to be an issue. Where constraints may be an issue, the market appears to already be responding as alternative operators are investing in backhaul capacity. Likewise, there are no physical inhibitors to the existing TCNZ (or indeed any other) network being upgraded.
11.5.2 Access Infrastructure
As previously discussed, this section focuses on assessing the capability of the access infrastructure which provides the four key services defined:
- Voice (over a POTS type network);
- Dial Up Internet Access (over a POTS type network);
- Broadband; and
- Mobile Telephony.
11.5.2.1 Voice
The carriage of traditional telephone calls over a POTS network.
- New Zealand's POTS voice penetration is in the range of 95% to 96% of households.67 The report commented that this was considered a very high level by international standards, especially when compared to average GDP per capita.
- The majority of residential customers obtain their service via telephone lines and approximately 10,000-12,000 of these customers rely on Multi Access radio for their voice service.
- The statistics indicate that there is a very high level of fixed line voice availability in New Zealand. There is little information available which indicates whether there are any discernible trends or patterns in unavailability. Anecdotal evidence indicates that some of the households which are unconnected are holiday homes in remote locations. However, the key point is that, if a consumer wished to be connected to the "network", it is unlikely that there would be physical inhibitors to connection (although cost may be an issue).
- In addition, a variety of the new fixed-wireless offerings are providing a voice service as well, such as Woosh Wireless in Southland. These offerings in themselves are unlikely to increase voice penetration, but provide competition for services and alternative means of obtaining access.
11.5.2.2 Dial-Up
Access to the internet by utilising the POTS network to "dial-up" an Internet Service Provider ("ISP"). Unlike Broadband, which predominantly provides an "always-on" type service, these services only allow the user access to the internet when they have dialled up (or connected). We conclude that:
- Where subscribers are able to obtain access to a voice service on a copper wire, or via a radio link, they can usually utilise obtain a dial-up service.
- It is a heavily residential and Small Office/Home Office ("SOHO") focused service, and many subscribers utilise it as they either cannot or do not utilise a broadband service.
- This service will provide access speeds generally between 14.4kbs to 56kbs which depends on a variety of factors, not all of which are a function of infrastructure (e.g. type of modem, transmission speed from the ISP/website). Infrastructure issues include:
- Quality of house wiring and the number of telephones across the line.
- Distance from the telephone exchange.
- Quality and makeup of cable between the exchange and the customer.
- Level of interference from external noise sources - electric fences, power lines.
A recent ISCR report68 concludes that New Zealand's dial up access product is of a high standard, as average connection rates are high when compared to that of overseas. This factor, combined with the impact of the free local calling structure incorporated into the KSO, appears to contribute towards New Zealand's comparatively low level of broadband penetration - the level of dial-up internet penetration is high.
- There are a wide range of quality issues regarding the ability to utilise this service. According to the NZIER report to Vodafone, dial up internet now accounts for approximately 80% of all residential local call traffic. As the local exchanges were not designed to provide this level of service, it can place strain on elements of the infrastructure. Telecom acknowledges this issue.
- The major issues with the quality of access occur in rural areas. There are three major factors that appear to be contributing to this:
- There is anecdotal evidence that some local exchanges used in rural areas are not sufficiently upgraded to cope with the demands of dial up access.
- Electrical fence interference is a significant problem with maintaining a dial-up connection. According to TCNZ, the widespread use of powerful fence controllers, plus the lack of proper fence maintenance,69 means that many fences are shorting to earth and are radiating a high level of interference as a result. If the fence is near to and parallel to the road, then the telephone cable picks up the interference. This will cause a diminishment of quality in voice calls (but doesn't interrupt the service) and can cause dialup modems to run very slow or to disconnect. One faulty fence near a cable can cause problems for all consumers served by that telephone cable.
- The dial up service provided by the Multi Access radio used to connect very remote areas provides a less than optimal service of 14.4kbs.
11.5.2.3 Broadband
A commonly accepted definition of broadband is access speeds of greater than 256kbs. Under this definition, the TCNZ Jetstream Starter package (at 128kbs) is not strictly a broadband product but is included in the assessment of broadband as it relies on ADSL technology.
Broadband is increasingly available through wireless services, but it is important to distinguish between portability and mobility. Portable services allow connection with the network from a number of locations, but will generally require the user to be stationary or will not be able to transfer the connection between transmitting stations. Mobile services are intended to offer full mobility consistent with the capabilities of the existing mobile telecommunications networks.
This section focuses on the ability of end-users to obtain broadband access, split between residential and business, but with a rural / urban subcategory.
a) Residential
This element will also apply to SOHO and SME (at the smaller end) category of consumers as the key determinant of access for these groups of consumers are similar.
TCNZ's Broadband Offering
TCNZ states that ADSL is currently available to about 85 percent of its customers. The inhibitors to the spread of this service are:
- The requirement to enable them for ADSL. TCNZ has been upgrading its exchanges and associated backhaul where it determines that it is economically viable. This means that many of the smaller exchanges, servicing small communities have not, and may not, be upgraded. It must be noted that the cost of upgrading the exchanges (installing DSLAMs) has decreased significantly with falling equipment prices.
- ADSL technology requires a minimum level of quality from copper wires installed to the end user. In some areas, where there has been little development or replacement of the copper, the lines may be of insufficient quality to utilise ADSL. TCNZ states that this issue should not affect New Zealand.
- ADSL will only work within approximately 5-7km from the ADSL capable exchange. TCNZ states that 90% of its telephone subscribers are connected within 7km of the local exchange.
TCNZ state that ADSL is available to over 90% of urban customers, 48% of rural customers (those living in a town of less than 10,000) and to about 30% of farmers in New Zealand. This is attributable to the:
- Shorter average distances in towns from the exchange for consumers.
- A stronger economic case for the upgrading of the local exchange in towns
- Additional costs associated with upgrading the backhaul access to rural exchanges, which is a significantly higher cost (from the installation of additional cables, resource consents etc.) than upgrading the exchanges themselves.
Other Residential Offerings
The remainder of the market for broadband provision is currently highly fragmented and centred predominantly around urban areas. Service offerings include:
- TelstraClear, which owns and operates local access fibre networks in most of Christchurch, Central Wellington, Lower and Upper Hutt and areas around the Kapiti Coast
- BCL has just announced that it will be offering broadband to rural dwellers who are currently unable to utilise TCNZ's ADSL product. BCL's press announcement indicated that the first phase of rollout will reach approximately 100,000 subscribers who are unable to utilise Jetstream and propose to develop the capability to reach a further 50,000.
- IHUG offers a high speed satellite download option. This is an asymmetric offering as the return signal is restricted to the existing phone line. IHUG claims countrywide coverage but consumers in the "deep" south will require additional equipment to receive signals.
- WiredCountry has developed a local broadband fibre access and fixed-wireless network in Pukekohe and Franklin.
- thePacific Net operates a broadband wireless access network in Buller and Nelson.
- Southnet Wireless operates a fixed-wireless access network in the Queenstown region.
- Walker Wireless (Woosh) operates a fixed-wireless access network in South Auckland and has just begun commercial operations in Southland.
- Rural Networks is developing a fixed-wireless network in Tokoroa and Putaruru. It is also developing a high speed internet service on Waiheke Island.
Some of these operators, including thePacific.net and Southnet, use unlicensed spectrum in the 2.4GHz band. As this use is not exclusive, it could suffer from interference from competing use of the same spectrum. We are unable to assess the impact of this, as many of these localised offerings are in geographically dispersed areas, but have been informed that there is a level of congestion within the Auckland CBD.
It is notable that very small players can develop small local area fixed-wireless networks that, if connected to the backhaul of a major network, can provide broadband access to a specific geographic region.
Overall, we expect that the availability of residential broadband will increase substantially over the next few years due to:
- Non-network operator initiatives to aggregate demand to promote infrastructure investment, such as Fonterra's Fencepost initiative. This will incorporate a range of alternatives to provide broadband to its 17,000 farmers, utilising ADSL, fixed-wireless access and two-way satellite.
- Public sector initiatives to promote infrastructure roll out through provision of subsidies. Project Probe has now awarded 11 regional contracts. Three Regional Councils are also promoting independent initiatives in conjunction with Probe. Of the 14 regions:
- TCNZ won eight Probe contracts;
- Woosh Wireless won one Probe contract and will provide the services to three Regional Councils;
- Counties Power and thePacific.net won one Probe contract each.
- Operator plans to roll out broadband access nationally: BCL and Walker Wireless both plan initiatives using fixed wireless access technology.
- A number of smaller regional offerings being developed by providers using freely available radio spectrum.
- Potential regulatory issues aimed at spurring competitive provisioning of broadband.
b) Business Users
Businesses in the major centres in New Zealand have access to a wide range of telecommunication services. The CBD's in the major centres in New Zealand have a high level of local access broadband infrastructure. A summary of the services offered by the major market participants are:
- TCNZ has fibre rings installed in all of the major cities in New Zealand. It is also able to offer ADSL to approximately 90% of the businesses in New Zealand.
- TelstraClear operates fibre networks in the areas described in the residential section. It is also offering ADSL to business users.
- CityLink operates a local access fibre network in the Wellington CBD.
- Tangent operates a local access fibre network in Auckland and some of the Wellington region.
The network operators indicate that there are high levels of capacity of fibre installed in the major business areas in New Zealand, to the extent that there are few issues will broadband connectivity for businesses in major centres. Most of the infrastructure providers appear to have the ability to increase their capacity relatively easily.
11.5.2.4 Mobile Telecommunications
The mobile telecommunications market is in a state of transition. Penetration, which has shown the phenomenal growth seen around the world during the late 1990s, appears now to be reaching saturation levels as the rate of growth in subscribers has flattened in the last 18 months. Network operators are now beginning to introduce new services and higher data rate capabilities (which requires new infrastructure and new handsets). Our work has been confined to examination of the extent of existing service availability. We have not been able to assess the likely availability and timing of introduction of higher data rate capabilities as:
- The plans for the proposed rollout of the more advanced mobile networks are highly commercially sensitive.
- The network operators have not fully assessed and developed their proposed network plans.
There are current three main mobile networks operated in New Zealand. These are:
- TCNZ's AMPS network - the original Analogue mobile network (the traditional 025 service)
- TCNZ's CDMA network - the digital CDMA network (027)
- Vodafone's GSM network - (021)
Both TCNZ's CDMA and Vodafone's GSM network cover a large proportion of the population (approximately 97% coverage each). The Analogue network is currently being phased out by TCNZ. TCNZ have indicated that the coverage from the CDMA network almost completely maps that provided by the Analogue services. These networks are heavily focused on centres of population or holiday areas (in summary, where sufficient subscribers will congregate and utilise the service). This means that rural areas currently have, and will continue to have much poorer access to mobile telephony. This is especially true in more remote areas, those away from larger settlements or away from major transport routes (as cell sites also tend to be built alongside major road systems).
Vodafone has indicated that it will continue to increase network coverage, where it is believed to be economic to do so. There is an ongoing programme of investment to fill current gaps in the network, but it is unlikely that there will be any marked or dramatic change in coverage as the overall footprint is reasonably well established around the country.
TCNZ plan to phase out the AMPS network, but have not disclosed precise plans.
11.5.2.5 Introduction of High Speed Mobile Data Services
High speed mobile data services ("third generation mobile" or "3G") are in their infancy and the market for such services is still highly uncertain. This makes it extremely difficult to pass comment on the likely roll-out of such services in New Zealand. It would not be surprising if roll-out trails key mobile markets in Asia and Europe, as the two network operators observe developments there.
Vodafone has stated that it is just beginning to roll out a 2.5G service, utilising a GPRS system (a close cousin of GSM). Vodafone commented that GPRS' flexibility would allow extensive and relatively easy roll-out within the existing GSM network.
It is likely that the Third Generation networks will have a much more limited range of coverage than the existing Second Generation offerings. Much of this is attributable to the extra costs associated with providing the network (as a 3G cell area is much smaller than a 2G cell). It will be logical to assume that these networks will initially focus on CBD areas and will expand into other areas, as demand for services justifies further capital investment from the operator.
11.6 Expected Developments
The discussion above has noted a number of ongoing developments that are likely to affect the availability of advanced telecoms services over the next few years.
The general picture is one of increased competition in service offerings and in the provision of access infrastructure. This is assisted by the ongoing development of new access technologies, which can be expected to continue to increase the capacity of copper, fibre and wireless networks. The general trend has also been for access infrastructure, particularly switching and transmission systems, to decrease in cost.
Two Government initiatives can be expected to have a significant impact on the landscape of New Zealand's telecommunication infrastructure. These are:
a) Project Probe
The impact of Project Probe on the timing and scope of proposed network rollout plans remains uncertain. All contracts apart from the satellite offering have been awarded.
b) Local Loop Unbundling ("LLU")
A critical issue for local loop unbundling is the extent to which its introduction may reduce the impetus to create competing infrastructure. In December 2003 the Commerce Commission issued its report on unbundling the local loop network and the fixed public data network. The Commission has recommend that TCNZ be required to provide access to its ADSL service and the associated backhaul transmission. This represents a requirement to offer wholesale pricing for ADSL services. The Commission has not recommended unbundling the local loop or other elements of TCNZ's network, or providing for allocation at TCNZ exchanges for the provision of competing service offerings or technologies (e.g. DSL).
c) Next Generation Internet/Advanced Network
The NGI initiative will not lead to changes in the level of infrastructure installed but may change the nature of high capacity service offerings.
As noted above, a number of initiatives, both Government and private sector, are likely to drive increased service availability. Determining the impact of these initiatives is extremely difficult. We have summarised the consensus views below.
d) Voice
Major changes in the levels of POTS type voice connectivity are unlikely. The only indications we currently are aware of are that:
- The TCNZ reliance on Multi Access radio in remote areas appears to be reducing.
- The new fixed-wireless offerings may offer the possibility to provide voice connectivity to consumers who have had to rely on Multi Access radio, or even party lines, although signing up to the service may not be cheap (due to the requirement to install equipment) and any additional coverage will be marginal.
- If the KSO terms are significantly altered, this may impact the ability or willingness of telecommunication operators to offer the same quality of service, especially to more remote areas. It is important to note that some market participants view that this may be for the benefit of the economy whereas others disagree.
e) Dial-Up
It has been argued that the high usage of dial-up internet access in New Zealand is partially related to the subsidised local calls available under the KSO. Due to the development of alternative, competing broadband solutions for connectivity, the reliance on dial-up connectivity (especially for rural consumers) may reduce.
There is no evidence to suggest that the capacity to provide dial-up access will be reduced, although there is still uncertainty regarding the impact that LLU could have on this service. If there is a significant uptake of broadband services utilising competing infrastructures, this may ease some of the congestion in the local exchanges for TCNZ, but may also reduce the economic case for TCNZ to further develop its ADSL services.
f) Broadband
There is little doubt that the ability of consumers, especially residential consumers in both urban and rural areas, to obtain access to broadband connectivity services will substantially increase in the short term. Due to the commercial sensitivity of the rollout plans, many on the operators are reluctant to comment on this. However, information in the public arena indicates that:
- BCL will have a fixed wireless network that is intended to go live in early November 2003. This will be capable of providing wireless broadband connectivity to 90,000 TCNZ subscribers who are currently unable to gain access to broadband solutions (including JetStream). Furthermore, BCL has plans to extend this network to a further 50,000 of TCNZ's subscribers. These subscribers are predominantly located in more remote and rural locations.
- Walker Wireless has plans to develop a national network to provide broadband connectivity. It currently is operating a fixed-wireless network in the Auckland region, and has just started rolling out a fixed-wireless network in Southland. We understand it intends to develop a network in the Northland and Wairarapa region after this.
- Several electricity lines companies are involved in the development of local access connectivity offerings, including Counties Power, Vector, Buller Electricity and Network Tasman. There may be further developments in this space as these companies can achieve significant cost savings on installing networks due to the easements they currently have.
- TCNZ has announced that it will significantly upgrade its core network, under the NGN project, which will increase the capacity of the backhaul elements and operate under a package switched, internet protocol driven environment. We are unsure as to the extent that TCNZ will continue to upgrade its exchanges to provide ADSL type services but it may be getting close to the point where any exchanges not upgraded, do not have a strong enough business case to support it.
Whilst broadband availability is likely to increase substantially in the next few years, it is not possible to state with confidence that the increased competition in service offerings will be sustained. The major providers are confident that their business plans will be successful, and potentially they may have identified slightly different or overlapping niches, in that:
- Woosh Wireless has begun to develop infrastructure in areas where there are rural areas and small towns that do not have extensive broadband availability, such as in Southland, the Wairarapa and Northland.
- BCL's offering (as part of Fonterra's Fencepost initiative) will provide enhanced connectivity options to rural communities.
- TCNZ's ADSL offering, by its design structure and distance limitations, is more attractive to more concentrated communities, close to local exchanges.
- TelstraClear can provide fibre broadband access in two cities in New Zealand, providing direct competition to TCNZ.
All the major infrastructure providers have indicated that there is little in the way of physical inhibitors to the development of their networks. They will develop their networks further if they perceive it to be economic to do so. However, it is worth noting that telecoms companies do not have a particularly good record at predicting the uptake of new products and services.
Another important factor to consider is that the cost and capacity of the infrastructure assets available have been moving in opposite directions. In particular, the cost of exponentially increasing the capacity of a backhaul network has diminished significantly over the last few years. The cost of access infrastructure has also been decreasing significantly, and becoming more scalable. Of particular advantage to New Zealand is the introduction of products that can introduce broadband services in smaller "lumps" (e.g. mini-DSLAMs)
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