Vodafone and Vocus to spend 'tens of millions' unbundling Chorus' fibre network

Tuesday, 5 June 2018

Unbundling would mean Vodafone and Vocus could attach their own electronics to tens of thousands of kilometres of fibre-optic cable laid through the $3.5 billion UFB scheme, but price could be an obstacle.

Vodafone and Vocus NZ plan to 'unbundle' the country's ultrafast broadband network from 2020, saying that would result in a wider range of broadband plans that would be more reliable and attract fewer complaints.

However, it is understood their business plan assumes that they could roughly halve the money they pay to Chorus and other local fibre companies (LFCs) for access to their fibre networks.

Vodafone chief executive Russell Stanners said the companies intended to spend 'tens of millions of dollars' installing their own electronics on the ultrafast broadband (UFB) networks operated by Chorus, Enable, Waikato Networks and Northpower.

That would let them offer a wider range of UFB plans, such as plans with low lag aimed at gamers, Stanners said.

Vodafone is the country's second-largest broadband provider after Spark, while Australian-owned Vocus – which owns the Slingshot and Orcon internet brands – is the third-largest.

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It is understood Vodafone and Vocus have suggested they should be able to wholesale raw fibre-optic lines at a price of $24 a month per home connection.

That would be as an alternative to the current situation where they need to buy a more complete 'bitstream' service from Chorus and LFCs at a cost of between $40.50 and $65 a month – depending on the download and upload speeds requested by each customer.

Vocus NZ chief executive Mark Callander said unbundling and installing their own electronics would enable Vocus and Vodafone to better control the customer experience of UFB, which he forecast would result in fewer customer complaints.

But Vodafone and Vocus are likely to have to negotiate pricing with Chorus and LFCs to access their raw fibre-optic cables – at least for a period after 2020.

It was originally envisaged that Chorus and LFCs would need to offer access to their fibre at prices that would be set by regulators from 2020.

But that was before a change of heart by the former government – approved last month by a select committee – which decided instead that prices should be commercially-negotiated until or unless the Commerce Commission saw a case for regulation.

The policy change was vehemently opposed by Vodafone but tentatively supported by the Telecommunications Users Association (Tuanz).

It was designed to protect thriving competition in the retail broadband market by safeguarding the interests of smaller internet providers which lack the scale to invest in unbundling.

Vodafone NZ chief executive Russell Stanners says unbundling would end the situation where retailers have to offer more or less the same UFB services at roughly the same price.

Chorus spokesman Ian Bonnar said the price at which internet providers should be allowed to access unbundled fibre lines needed to be considered properly.

'It is important to do the work and make sure it is based on real economics.'

Tuanz chief executive Craig Young said whether unbundling UFB would be a good thing or not for consumers would depend on how it played out.

'You want other retail service providers to be able to compete strongly.'

Vodafone and Vocus' announcement was the first salvo in what would probably be a 'long and drawn out negotiation' over pricing, he said.

The goal in them coming out early with strong intent to unbundle appeared to be to accelerate those negotiations, he agreed.

Callander said one of the considerations that had made it want to unbundle UFB was the current plan that the regulated price of the UFB bitstream service would be anchored on a 100 megabit product after 2020.

That would leave Vocus 'at the mercy' of Chorus and LFCs which would be free to set their own pricing for higher-speed services, he said.

'That is a risk we can't afford to take. We have expressed concern over the [speed of the] anchor product being set too low.'

About 10 per cent of Orcon and Slingshot customers were taking 1Gb services and he estimated that would grow to 30 to 40 per cent by 2020.

Stanners said Vodafone and Vocus wanted to 'hit the ground running' with unbundled UFB services from 2020 and intended to wholesale their offerings to other internet providers, so they would be competing for example with Chorus' bitstream service.