Back in February 2000 TelstraSaturn’s $1.2 billion plan to provide cable TV, fast internet and phone services to 60 per cent of residences and 80 per cent of businesses by 2004 was met with a sigh of relief.

Then came the merger with Clear Communications, which appeared to be further cause for celebration. Soon however it was evident more meant less as it began rationalising investment, refocusing on the easy money and sleeping with the enemy.

"We want to be Telecom’s biggest customer, selling more of their broadband services and move their two per cent penetration to 8-10 per cent. We see it as a win-win," says Kevin Millar, TelstraClear’s head of change.

In the next two years TelstraClear will invest $320 million on ‘higher value added services’, fibre, IP edge switching and broadband but under its new business model it’ll be reinvented as a ‘service layer provider’, primarily selling and marketing Telecom services across a patchwork infrastructure.

Mr Millar says capital expenditure is being slashed everywhere across the telecommunications industry forcing carriers to curb investment unless there’s an obvious commercial return. "That means doing deals and forming partnerships with access owners and providers rather than digging holes and filling them in again."

He says TelstraClear will focus on applications delivered over a mix of its own backbone and the infrastructure of Telecom, Walker Wireless, Counties Power, Vector, ihug and other second tier carriers. There’ll be no more replicating the local loop like it did in Wellington and Christchurch.

More pipes more people

Ironically it’s in those two cities where TelstraClear boasts its greatest successes. Its full service broadband cable network - phone, fast internet and TV - has 32 per cent penetration of homes passed in Christchurch and 42 per cent of homes passed in Wellington.

"It’s meaningless if there’s only one broadband pipe available, people don’t take it up. The moment there’s more than one then carriers become more innovative about positioning and marketing. The ability to chose between two carriers in Wellington has resulted in a six per cent take up versus two percent as the nationwide average," says Mr Millar.

Wellington has a third choice for business with CityLink’s PublicLAN providing 50kms of dark fibre around the CBD delivering 10Mb/sec to 1Gbit/sec connections.

TelstraClear claims the new wholesaling arrangement decreed by the Commerce Commission is an example of how New Zealand is joining the 21^st century and that means sharing resources. It’ll continue to invest ‘10s of million of dollars’ in copper and fibre’ and expand and maintain those its existing locations.

The co-dependence on other networks however cuts both ways - nearly 25 per cent of Telstraclear’s business comes from wholesaling its network to CallPlus, WorldExchange, Vodafone, Telecom, ihug and other carriers.

The big winners in broadband so far however are businesses and residences in Auckland and Wellington, and large enterprises in the main centers who can fend for themselves playing off TelstraClear and Telecom to secure attractive wholesale rates in return for long-term contracts.

The biggest losers are regional and rural New Zealand and ironically Auckland where the next TelstraClear roll out was planned. Just as work on a full scale cable network was about to ramp up the NZ Herald ran a series of articles ’exposing’ the potential visual pollution overhead cabling might create. There was little effort to defend the deployment from the public outcry and other than the creation of a fibre backbone, talk of TelstraClear’s plans to cable Auckland faded.

Real growth masked

Telecom claims 62 per cent broadband penetration in the corporate market, 52 per cent in the medium enterprise market and 10 per cent in the SME market. However John Williamson, Telecom’s marketing manager for data, says its huge success and growth is often overlooked when domestic users are included in broadband statistics.

"Some market commentators have talked about Telecom’s broadband penetration across the entire market but when you’ve got 1.4 million households and only about 120,000 business customers you end up masking the real growth."

Mr Williamson claims the slow uptake in the SME market has more to do with education than price. Business customers are often not aware that they no longer pay local call charges when they move on to Jetstream or Secure Business Internet.

"When people realise the benefits we get rapid growth. In June 2002 we only had five per cent in the SME market - that’s doubled in 12 months. We believe the pricing is attractive and take-up is now accelerating. At the medium enterprise level we’re wondering how much more it can grow."

In response to claims the company is overcharging for DSL services he says it must maintain a sustainable position. He reminds us that caps on Jetstream were lifted without increased charge - Jetstream 400 went to 500Mb and the 600 plan became 1000Mb. The Jetstream 1200 plan was introduced last year and the 1500 plan boosted to 1800Mb. Similar changes are likely in the future.

Telecom is looking to install a number of ‘mini DSLAMs’, to further extend its DSL coverage into areas previously considered ‘not economically viable’ using existing technology. These can be installed outside of exchanges in roadside cabinets and need fewer customers to make them pay.

While it says it has enabled 84 per cent of exchanges to provide DSL and hopes to achieve 100,000 customers by the end of 2004 that would only boost ‘broadband’ penetration from 4 to 9 per cent and by then we’d have slipped even further down the OECD ratings table.

Loop unbundling urged

The latest OECD Broadband Access for Business revealed that by June 2002 only 1.1 per cent of New Zealanders were subscribing to broadband (0.72 per cent in 2001) leaving us trailing the bunch at 21 out of the 28 countries surveyed. Our rating was a quarter of the OECD weighted average of 3.9 per cent and we’d slipped from 16^th place the previous year.

The same reasons have been given for the past three years: lack of competition, the exorbitant cost of high-speed communications and the failure of the government to adopt local loop unbundling.

Ewan Sutherland, executive director of the International Telecommunications Users Group (INTUG) speaking in Melbourne in March blamed ‘metered broadband’ for low penetration in Australia and New Zealand saying charging for consumption discourages adoption and use.

He claimed failure to perform in the broadband stakes is most often characterised by refusal to compete, by ‘bloody-minded if creative obstructionism’, which he described as 3D: deny, delay, degrade. "It is the incumbent laying siege to its competitors until they starve to death."

Mr Sutherland says there are 30 million customers worldwide for fixed broadband internet access, doubling by the end of next year, then doubling again. The bandwidth available to those customers is also growing. "A 2003 offer should be around 9Mbit/sec and next year higher still. South Korea is already running trials of VDSL (very high speed DSL) at 50Mbps. You need that to make your plasma screen television work."

For the average New Zealand broadband customer that’s simply depressing.

Telecommunications Users Association CEO Ernie Newman says Telecom has to adopt much more ambitious targets and get marketing and pricing right to bridge the gap between availability and take up of DSL.

And he says Telecom hasn’t made DSL easy to purchase since it backed off modem provision and installation. "I have a neighbour who purchased Sky TV and Jetstream in the same week. The Sky technician put the aerial on the roof, connected it to the TV, tuned it in and showed him how to work it. The Telecom guy enabled the connection gave him the plug, a few scribbled handwritten notes about a suitable modem and left him trying to set it up but you almost needed a degree in electronics."

Telecom says it’s now looking to address this issue and may get back into modem provision and a full end-to-end service.

The issue of getting competitive access to the last mile throughout our cities is being addressed by the wholesaling arrangement which opens the way for second tier carriers to join TelstraClear piggy backing on Telecom’s cable. Then there’s the satellite option which ihug has had for half a decade, power companies who such as Vector who have laid their own cable in Auckland or plan to use their existing infrastructure as a local loop alternative and wireless providers with a variety of licensed and unlicensed options.

However for the majority of small to medium enterprises and domestic users competitive broadband remains vapourware. The availability of more than one broadband pipe to your home or business, as TelstraClear so aptly points, is the key to ‘innovation, better pricing and better packages’. It could also have significant impact on the economy, the culture and the environment.

Access to affordable high speed internet would encourage large companies to deploy more remote workers, encourage teleworking and inspire more entrepreneurial people to establish home businesses.

This in turn could reduce traffic congestion and air pollution levels in the cities, lower the cost of office space and generally provide more widespread access to resources and encourage the uptake of e-commerce.

Content and suitable applications are key drivers for the broadband economy. However without serious second tier competition and a further loosening of the local loop monopoly Telecom and TelstraClear may settle into a cozy duopoly depriving those outside the main centers from the full benefits of competition.

Next issue (July 2003) Telecommunications Review looks closely at life beyond the CBD, how the suburbs, regions and outlying areas are faring, what the customers really wants and what Project Probe and other initiatives can be expected to deliver.