New Zealand’s forthcoming transformation to fiber-based telecommunications infrastructure has some important lessons to teach those interested in improving broadband in North America.

While Ottawa and Washington depend on the private sector to deliver 21st century broadband, other countries are recognizing private providers alone may not be able to deliver the essential networks of the 21st century, especially in smaller communities and rural areas still bypassed by even 20th century broadband.  For Korea, Japan, Australia, New Zealand, Singapore, and beyond — government and the private sector are working together to deliver advanced fiber-optic-based networks that will likely power broadband for at least the next decade or more.  More importantly, they are doing so on terms that best serve the interests of the public, not just a handful of shareholders and investment bankers.

Priority number one is getting advanced networks built.  Marketplace realities, particularly in North America, constrain private companies from taking risks on fiber networks that will take more than a few years to realize a healthy return on investment.  Without that essentially-guaranteed payback, many providers refuse to think in terms of “revolutionary” broadband, relying on incremental “evolutionary” upgrades instead.  That formula has also allowed many providers to ignore rural America, deemed too costly to wire.

In a country like New Zealand, these rules also apply, but in spades.  Not only do Kiwis face a broadband experience that resembles service offered in the U.S. a decade ago, they are also punished by a lack of international capacity.  With just one international provider delivering nearly all of New Zealand’s connectivity with the United States and beyond, prices are high and data caps are low.

Domestically, many Kiwis have traditionally had just one realistic choice for broadband service — Telecom New Zealand’s DSL technology.  Although competitors have been allowed to resell DSL service over Telecom’s network, the limitations of the technology remain a constant problem for every provider on that network.

New Zealand has decided the best way to handle these challenges is to transform the telecommunications foundation across the country, starting with a new public-private fiber broadband network.  NZ’s National Broadband Plan, dubbed “Ultra Fast Broadband,” establishes as its foundation the principle that broadband is too important to allow the country to languish waiting for private providers to step up.

Rosalie Nelson from IDC – the independent market intelligence advisory service, explores the pro’s and con’s of a nationwide fiber network for New Zealand.  But it’s a lesson not just applicable to broadband in the South Pacific.  Stop the Cap! is sharing this video seminar with our own Viewer’s Guide to help draw parallels to broadband closer to home. As an added bonus, you will come to understand different broadband technologies we regularly discuss.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/IDC Ultra Fast Broadband.flv[/flv]

IDC analyzes New Zealand’s new Ultra Fast Broadband — National Fiber Network in this seminar with Rosalie Nelson.  It’s definitely a long view, but you will gain enormous insight into the challenges of delivering the next generation of broadband, not only in New Zealand, but in other countries around the world.  (39 minutes)

Stop the Cap! Viewer’s Guide

To help draw comparisons with broadband in the South Pacific with that in the United States and Canada, we bring you this viewer’s guide to follow as you watch.

Part One

Nelson

In part one, Nelson explores the recent history of telecommunications in New Zealand, particularly focused on Telecom New Zealand, created from the former state monopoly for landlines and data circuits.  Although the company began to open its network to competitors several years ago, the biggest transformation came in the last few years.  New Zealand experienced its own version of the Bell System breakup, only this time that transformation came from the New Zealand government, not the courts.

When complete, what was once a single company became three — one for wholesale access, namely by independent competitors reselling service over Telecom lines, retail — the public face of the company that continues to market service under the Telecom brand to consumers and businesses, and Chorus, the entity that maintains Telecom’s infrastructure.

In North America, the equivalent would be the breakup of AT&T or Bell, with competitors allowed to lease access to their respective networks at prices and terms that could not favor either parent company.

While the debate rages over whether broadband expansion came as a result of Telecom’s breakup, or in spite of it, one thing everyone agrees on: New Zealand is one of the fastest growing broadband markets in the OECD, with a growth rate of nearly 35 percent every two years.

New Zealand’s telecom market is perhaps five or more years behind the United States and Canada.  The rapid erosion of landlines for mobile or Voice Over IP service is only just starting in New Zealand.  Telecom, like many phone companies in North America, still depends on the enormous pool of revenue landline service provides.  Even as landlines decline domestically, phone companies like AT&T, Bell, Telus, Verizon, Frontier, and CenturyLink still treat this revenue as the critical foundation on which other products and services can be offered.  It will be years before this base revenue erodes to the point of irrelevance.

In Western Europe, VDSL has a significant head start in delivering next generation broadband. Similar to AT&T's U-verse or Bell's Fibe network, this technology delivers fiber to the neighborhood, but relies on traditional existing copper wire phone lines to reach individual subscribers.

Telecom is also highly involved in the mobile market.  Just as in North America, when we talk about industry investment in  networks, wireless is usually the largest recipient, sometimes at the expense of the landline network.

IDC, which is independently analyzing New Zealand’s forthcoming transformation to a fiber-based network, is excited about the transformational aspects of such a network, and recognizes public investment may be the only way to execute its rollout in a world where short term results and recouped investment can make all the difference between a green light and a red one among private providers.

Part Two (begins at 7:30)

In the second part of the video, Nelson succinctly explains some of the different technologies we talk about regularly on Stop the Cap!

For instance, most telephone and cable companies both use fiber cables for at least part of their network.  Telephone companies like Frontier use fiber between their headquarters, local exchanges (a/k/a central offices), and occasionally even to remote exchanges, used to reduce the amount of copper wire between your home or office and their exchange.  Many phone companies, including AT&T, use what Nelson calls “cabinets” to contain the interface between fiber and copper networks.

These are often dubbed lawn refrigerators — big four foot metal boxes installed on top of a concrete slab or attached to the side of a telephone pole.  On one end, fiber optic cable from the central office arrives.  On the other, individual copper wire lines exit, connecting to every customer up and down the street throughout the neighborhood.  With additional fiber, phone companies selling DSL Internet access can increase speeds and offer service where it was not available before.  AT&T can use a more advanced form of DSL as a platform for its U-verse service.  Bell’s Fibe service in Canada is another example of this technology in use.  CenturyLink is also deploying it for some of their service areas.

Cable companies use fiber to deliver their signals out to individual towns and parts of cities.  From there, coaxial cable travels to homes and offices, on which we receive television, telephone, and broadband service.  In large parts of Asia and Europe, cable television is much less common than it is in North America, so it’s a technology more unique to North America than to Europe or the Pacific.

Nelson also reminds us fiber is increasingly important for cell phone companies too, which use the technology to support the increasing amount of traffic that passes through cell towers.  Fiber can help keep mobile broadband speeds at a reasonable level during peak usage periods.  Where fiber isn’t available, the maximum amount of data that can travel between the cell tower back to the cell phone company’s data center can be significantly lower.

Nelson’s larger point is that there is a very real cost-benefit analysis to explore when considering whether the next generation broadband network should be 100% fiber-based, such as Verizon’s FiOS network, or a combination of fiber and more economical, already installed copper wire, such as AT&T’s U-verse.  The initial expense of providing 100% fiber, direct to the home, is greater than repurposing part of our existing landline network.  But with current technology, fiber can deliver a faster and more reliable level of service, and is future-proof.  It also requires less maintenance once installed.

Part Three (begins at 16:20)

In the third part of the video, Nelson explores the political landscape in New Zealand, and with some minor differences here and there, the gap between the telecommunications market in Canada and New Zealand is not too different.

Xtra, the ISP owned by Telecom New Zealand, remains the country's largest service provider.

While the United States broke up the Bell System in the mid-1980s, Canada still relies heavily on behemoth Bell/BCE to deliver broadband access throughout the Atlantic provinces, Quebec, and Ontario.  SaskTel and Telus deliver service to central and western Canada.  Cable companies, primarily owned by Rogers, Shaw, and Videotron deliver service in major Canadian cities and nearby suburbs.

In New Zealand, Telecom was the former state-controlled monopoly telephone company.  In recent years, that monopoly has been broken up, but broadband still relies heavily on Telecom’s landline network to deliver Internet access, primarily by DSL.  In the past, Telecom was -the- Internet Service Provider.  But now the company must sell access to their last mile network to all-comers at a regulated wholesale access rate.  Canadians will recognize this kind of wholesale access policy — Bell has one for independent service providers to this day.

In the United States, things are a bit different.  While there are instances of competitors providing DSL through landlines owned by familiar phone companies like AT&T, Verizon, CenturyLink, Frontier, and Windstream, very few customers know about them.  Instead, cable television is the more familiar competitor, and the two players regularly beat each other up in marketing campaigns.  If you ask an ordinary American consumer what companies sell broadband service, they will typically answer with the name of the telephone company and the cable company, if one serves their area.  They are unlikely to answer Earthlink, which sells service over some telephone company and cable lines.

Some of Nelson’s anaysis about the changes in policy relating to the Ultra Fast Broadband network are no longer in effect with last week’s decision to abandon the “regulatory holiday” concept.  The government’s original fiber network proposal has been modified repeatedly to fit into the business realities of the New Zealand ISP market.  Some examples include recognizing the value and importance of the existing copper wire network, which will remain relevant in some rural areas not scheduled for wireless or fiber access — and will of course also be in operation as the fiber network is built.  The government is also trying to promote private investment, and under pressure from large telecom companies, the government in power is looking for ways to assure investors of a return on their investment.  Critics have charged the government leaned too far towards providers in effectively handing them at least eight years of monopoly service under a “regulatory holiday,” without oversight by the all-important Commerce Commission.  A revised proposal seeks to guarantee investors a certain level of return, even if prices drop in the future, but retains regulatory oversight.

Big Phone Companies...

This policy is unique to New Zealand, and has not been tried in North America.  Canada’s national broadband plan is long overdue and the one in the United States relies on some government stimulus money to incrementally expand broadband in unprofitable rural areas, but relies mostly on private providers for the bulk of the expansion.  The Federal Communications Commission is exploring revamping its rural subsidy currently charged to every telephone line in the United States with the hope of diverting money to broadband development in rural areas.  Private providers are expected to upgrade their networks through private investment for most of the rest.

New Zealand is proposing a totally new way of delivering broadband service with the establishment of an independent company responsible for the fiber network — a company not affiliated with any Internet Service Provider.  That would make Telecom New Zealand no more or less important than any independent provider.  Each ISP will succeed or fail based on price and value-added services, because the basic network experience is likely to be the same regardless of the provider selected.  Some may deliver speed boosting features or sell content to customers.  Others may deliver cheaper, slower speed plans for budget-minded customers.  Some might even bundle free tablets or computers in return for fixed-length contracts.

But Nelson explains there is a risk.  Once a fiber network is in place, it effectively becomes a utility, and it may or may not be able to earn sufficient revenue to embark on innovative new technologies that venture capital might otherwise afford.  Because of market dynamics, for the same reason very few North Americans cities have more than one cable and one phone company, investors are unlikely to pour money into a competing technology if a fiber network is dominant.

...Often Think and Act Alike...

For a legacy phone company like Telecom, past regulatory requirements are also under review at the request of the telephone company.  Telecom argues if a national fiber network is to be established, Telecom should be freed of its regulated responsibility to continue investing in its copper network, and the facilities used to support it.

This is similar to arguments AT&T and other phone companies have been making in their efforts to secure deregulation at the state level, for but different reasons.  AT&T, as an example, argues that their aging copper wire network and its upkeep is a responsibility it agreed to in a different era, when landline service was ubiquitous and virtually everyone had a traditional phone line.  Phone companies argue that as landline disconnections accelerate, the regulatory responsibilities assigned to it are no longer fair, and requires the company to continue investing capital in a network fewer and fewer customers are using.  They argue investments would be more appropriately spent building next generation broadband and wireless networks.

AT&T might have a point, except for the collateral damage impacting rural customers, which AT&T may decide to abandon for the same reasons the company uses when it won’t provide broadband in rural areas — return on investment considerations.  Those investments AT&T seeks to make would disproportionately benefit urban customers, at the expense of rural ones.

Part Four (begins at 29:15)

In the fourth part, Nelson explores the impact of the fiber project on Telecom, which is considering restructuring itself to compete under the new broadband model.

Nelson argues the company’s revenues are expected to be flat in the near future and predicts Telecom will be forced to begin a cost-cutting program, simplify its business, and target growth areas.  Nelson ignores the most common strategies providers have used in this arena, however.  In addition to job cuts, the other common way to increase revenue is to raise prices. Chorus, which administers Telecom’s broadband network, is the only real money maker inside Telecom these days, and that comes from broadband demand.

...Even When They Are Thousands of Miles Apart.

Nelson, like investors, opposes anything resembling a price war in New Zealand, one that could come as copper-based DSL providers slash prices to remain competitive with service on the much faster (but likely more expensive) fiber network.  She sees such competition as a “war of attrition” where shareholder value is lost, along with incentives for further private investment.

Nelson’s final question ponders whether Telecom, still a dominant player in the New Zealand market, has the ability to change and adapt fast enough to the country’s fiber network.

Conversely, we wonder if Telecom will attempt to throw up roadblocks in an effort to curtail the new network as a defense strategy against those required changes to its business model.

We also wonder how much return on investment will be sufficient for investors.  For some, anything short of “the sky is the limit” may fuel investment of a different kind — into special interest campaigns and lobbying to ensure there is no limit on the money they can earn from a network that could have a monopoly position in the marketplace.

Phillip Dampier

Stop the Cap! reader Kimon discovered the debate over Net Neutrality is far from over when alerting us to a strong rebuke of the net policy in a number of newspapers published regionally by GateHouse Media.

Macedon, N.Y. resident Cheryl Miller doesn’t like the federal government involving itself in the Internet, and considers the “physical part of the Internet” the private property of Internet Service Providers:

When a progressive liberal takes up a cause, you can bet he’s found another way to undermine someone else’s liberty. The issue of “net neutrality” is a prime example of this rule.

The concept of net neutrality has piggybacked into recent public interest stories about groups with high-minded names like Free Press and Public Knowledge — stories about Internet-assisted food, clothing and book drives for the needy around the world, and other such humanitarian and environmental endeavors. It is sneakily implied that the success of such undertakings are the result of net neutrality principles, but they are not.

[…] Proposed net neutrality legislation would prohibit ISPs from charging different rates for various types of content or services, such as is done with cable and satellite television (think pay-per-view and premium channels). Restricting ISPs from operating in profitable ways is a disincentive to invest in more bandwidth to better serve customers, and likewise discourages innovations that could benefit consumers. More regulation will result in less profit, less competition, higher prices and a stunted Internet.

For Miller, any government policy that interferes with AT&T, Verizon, and Comcast’s view of how the Internet should be ordered amounts to a government takeover of the Internet, especially when the government can tell providers they cannot prioritize traffic or charge customers different prices to access different content.

Here at Stop the Cap!, we were unimpressed with Miller’s arguments and partisan cheap shots, especially at the expense of public policy groups like Free Press and Public Knowledge.  Perhaps she does not realize conservative groups like the Christian Coalition of America are also supporters of Net Neutrality.  But we don’t necessarily blame her either, considering all of the money being spent by corporate-funded groups to distort Net Neutrality’s ultimate goal: to ensure the same formula that made the Internet a runaway success is kept firmly in place.

Our formal response appeared in the same newspapers this afternoon:

At least 20 percent of Canadians lack Internet access, according to a new survey published by Statistics Canada.  That means one out of every five homes either cannot afford, don’t want, or can’t get online.

The lack of access is most acute in low income households, where only about half with incomes of $30,000 or less access the Internet.  The income and access disparity was readily apparent when comparing broadband rich, income poor New Brunswick (70% have broadband) with service-deprived British Columbia, which has an 84% penetration rate.  In NB, you can get it but you can’t afford it; in BC if you can get it, you already have it.

Although cities in southern Canada are well-wired, smaller communities further north are often not, and the access some get is slow and unreliable.  But few are willing to live with dial-up access.  At least 96% of Canadians rely on broadband or simply go without the service.  The Canadian Radio-television and Telecommunications Commission has set a goal to deliver at least 5Mbps broadband service to every interested Canadian by the end of 2012.

Some statistics, starting with those without Internet service:

• 56% lacked interest or need;
• 20% cited the cost of the service;
• 15% don’t have access to a computer;
• 12% don’t understand enough about computers or the Internet to use it;
• 93% of households with children had Internet access while just 58% of single-person homes had the service;
• 81% of urban homes had access to broadband, just 71% of rural homes do;
• 71% of Canadians access the Internet from a traditional desktop computer, 64% use a laptop, 35% use a tablet or smartphone for access, and just 20% rely on a video game console to get online.

Statistics Canada surveyed 30,000 Canadians as part of its research.

The People’s Republic of China is accelerating its deployment of fiber optic broadband at the expense of DSL, according to a new report from market research firm Infonetics Research.

“The major story in the broadband aggregation equipment market this quarter is the dramatic drop in DSL ports in China, which points to operators there continuing their dramatic shift away from DSL,” said Jeff Heynen, directing analyst for broadband access at Infonetics Research.  “The first quarter is typically one of the slowest for DSL, but the seasonal effect was worsened by Chinese operators’ continued shift away from traditional [DSL].”

The Chinese broadband market is increasingly based on fiber networks, especially in larger cities where broadband demand is rapidly increasing. Worldwide spending on advanced broadband networks is being driven by broadband expansions in China, Japan, and Korea — all accelerating their fiber deployments. For Chinese companies like Huawei and ZTE, the news is both good and bad.  Both companies profited from sales of EPON and GPON equipment which help power fiber networks, but lost plenty from the decline in spending on DSL technology.

The North American market has stalled, and is expected to remain in neutral until Verizon decides to re-initiate its FiOS buildout.  Broadband stimulus funding may also help boost spending, but most providers are relying on slow speed DSL to introduce rural America to broadband service.  In markets where providers are delivering fiber to the home, companies like Calix are reaping the rewards, with revenue up 222 percent this quarter, mostly earned from sales of Ethernet Fiber to the Home equipment.

Stop the Cap! reader Cal believes AT&T cannot be reasoned with about Internet Overcharging until you threaten to cancel.

While a significant number of customers have already pulled the plug on AT&T DSL and U-verse service over their recently-introduced Internet Overcharging schemes, some are telling Stop the Cap! they have no plans to actually disconnect service until AT&T threatens to charge them overlimit fees.

For some AT&T customers, there is no suitable alternative to the phone company.  Rural customers without a cable provider, or those who are faced with two bad choices — AT&T or Charter Communications — say they are going to test AT&T’s resolve to actually overbill them.

Cal is an AT&T customer is Missouri.  His alternative?  Charter Cable, which has an Internet Overcharging scheme of its own and delivers what he calls “third world service” in his community.  Given a choice, he intends to stay with AT&T as long as possible, pulling the plug only after his third warning of exceeding the phone company’s new broadband usage limits.  He thinks AT&T’s customer service won’t ultimately let it come to that.

“My sister works for an AT&T call center where she lives, and there was some training on the subject of handling the company’s usage caps,” Cal reports. “Get the right representative or supervisor and they can make virtually anything go away with a few keystrokes, especially if you are prepared to cancel your service over the issue.  While they may not cancel the caps, they very well may credit back any overcharges.”

Cal says his family does not intend to change their usage habits one bit.  He’ll change providers before he rations his Internet usage.

“I maintain control over our Internet access here, they don’t and sure as hell won’t,” he said.  “We do not do illegal downloads and we don’t allow torrenting or anything else that can get my kids into trouble, but we do use a Roku box and watch Netflix instead of buying pay movie channels with programming not suitable for my family to watch.”

Cal says his five children are home-schooled, which makes daily Internet access an essential part of the education process.  Many companies that provide home-schooling materials increasingly require a broadband connection.  While not as bandwidth hungry as Netflix video streaming, with five children in the home, usage adds up fast.

“It is not hard to do 260GB of usage a month, which puts us just over their U-verse limit, and I’ll be damned if I am going to pay AT&T another $10 for 10GB over,” Cal says.  “This is another reason why the Obama Administration is no better than the last one — they are all masters of big corporations who will rob us blind and use the money to pay off Congress to look the other way.”

Cal used to be a Charter Cable customer, but left when that company implemented its own Internet Overcharging scheme.

“I told Charter with their lousy service they were lucky I was a customer, but after putting usage limits on, I left,” he reports.

Cal’s neighbor thinks he has an even better way to battle AT&T.

“My neighbor will cancel service under his name and sign up under his wife’s and bounce between them whenever AT&T threatens to send him a bigger bill; he has already been doing that for years back and forth between AT&T and Charter on new customer deals,” Cal says.

Cal, and many other readers touching base with us, believe AT&T is not very responsive to customer complaints unless customers threaten to cancel service, and they believe AT&T will only change its mind when shareholders see the usage limits as counterproductive.

“AT&T can buy enough people in Washington to make street protests irrelevant, but their shareholders sure won’t like it when they see customers and revenue dropping,” Cal notes.  “If you can’t get cable, you are stuck with AT&T, so you have to keep the pressure on — file complaints with the Better Business Bureau, the FCC, and Congress.  Make them spend more money defending their policy than they earn from its proceeds.”