Cunning Chorus will offer UFB fibre that’s twice as fast – and wriggles free from price regulation

Coming soon: UFB fibre that’s twice as fast – and mostly free from price regulation

Working the PR/media circuit ahead so of its full-year result yesterday, Chorus promised UFB fibre connections of 200Mbit/s – that is, twice as fast as today’s top plans – and within a year at that.

And a little further down the track, Chorus promises a 1000Mbit/s (1Gbit/s) UFB fibre trial for residential customers.

That sort of bandwidth is mind-blowing. Today, most Kiwis are on ADSL copper broadband connections that average speeds below 10Mbit/s.

Why bother with big UFB bandwidth boost to 1000Mbit/s, when so far only 3% of New Zealanders in UFB areas have opted to buy today’s 30Mbit/s and 100Mbit/s plans?

Chorus is likely just showing its technical smarts, and illustrating to investors that once the hard part is done (getting fibre into the ground, and into premises), it’s relatively cheap to upgrade the electronics around it to boost bandwidth – palliative words at a time when UFB rollout costs are proving more expensive than anticipated and the government is leaning on Chorus more strongly than anticipated to make nearly all connections free (at least, until the end of 2015).

But there’s also another, intriguing dimension to the pending speed ramp-up.

NBR ONLINE recalled that the template pricing in Chorus’ UFB contract with the government only mandates template pricing on plans up to 100Mbit/s.

What happens to wholesale pricing in the brave new world of 200Mbit/s and faster plans, which is apparently less than 12 months away?

Chorus holds the lion’s share of the UFB contract – nearly 80% of it by premise. NBR contacted the other contract holders – Northpower in Whangarei, Enable in Christchurch and Ultrafast Fibre in Tauranga, Hamilton, New Plymouth and Whanganui. All said they also had plans to ramp up their UFB offerings beyond 100Mbit/s, but none offered any specifics.)

Crown Fibre Holdings strategy director Rohan MacMahon tells NBR, “Contracted products and prices go all the way up to 10Gbit/s (10,000Mbit/s), but only for ‘point-to-point’ direct fibre services.”

Point-to-point is the operative phrase here.

“Point-to-Point services are intended for high end corporate customers and data centres,” Mr MacMahon says.

Residential and small-to-medium business customers are on a cheaper GPON setup (in simple terms, one fibre shared across a number of premises, leading to some contention or congestion of bandwidth, although contractually obligated minimum bandwidth levels make it not nearly as bad as the contention most of us suffer with copper/ADSL broadband most of us use today).

The Crown Fibre Holdings contracted products and pricing only cover point-to-point connections above 100Mbit/s, Mr MacMahon confirms.

With GPON – that is, the vast majority of connections above 100Mbit/s – Chorus is free to set its own pricing.

Mr MacMahon won't comment on how this could effect the cost of plans but does offer, "I won’t speculate on pricing other than to point out that our partners would clearly wish to price new services to encourage uptake." That would certainly be the case with Enable, Ultrafast Fibre and Northpower. Form them, in terms of their broadband business, it's pretty much a case of fibre or bust. But for Chorus, with its cash cow copper business to fall back on, or sweat out - and little immediate competition for its pending premium fibre services - I''m not so sure.

We know from the original UFB contract that Chorus CEO Mark Ratcliffe is a dab hand at negotiations with regulators and the government (although Paul Reynolds was CEO of the still-merged company, Mr Ratcliffe lead the team that saw Chorus bag most of the country, and $929 million of the $1.35 billion in taxpayer funds ear-marked for the UFB rollout - half of it in the form of an interest-free loan that doesn't have to be be paid back until 2025, half in non-voting shares; a sweet, sweet deal).

He's also done very well in the trench warfare surrounding regulated copper line pricing (costing consumer’s hundreds of dollars a year they could have saved if the Commerce Commission's original, steep wholesale price cuts had gone through … at least in an imaginary world were retail ISPs – not subject to direct regulation – automatically pass on wholesale cuts. READ Telco Act Review: regulator seen sidelined; analyst weighs impact on Chorus).

Now, it’s clear he’s pretty good at playing the long game with fibre too.

It's a fair bet that the UFB will cost more to rollout than anticipated (after all, every IT project in the history of the world has run over budget). But if there's anyone skilled at squeezing a few more funds out of the government - and remember the Crown is in the process of loading up on Chorus shares, even as it tries to offload them in power companies - it's Mr Ratcliffe.

ckeall@nbr.co.nz

Follow @ChrisKeall

Chorus shares [NZX:CNU] fell 1% to $2.94 yesterday after the company reported a net profit of $171 million (against $102 million in the year-ago period, and handily ahead of the analyst consensus expectation of $159 million) but forecast lower earnings in the current year, and UFB rollout cost that would rise from $2900 to $3200 per presmise passed.