More possible flak for Sky TV as watchdog releases barriers to broadband uptake report

The Commerce Commission releases its draft report into factors that could hinder fast broadband update - and among them is the positioning of video-on-demand services like Sky TV's iSky and the Sky TV-TVNZ igloo joint venture, launching next month.

RAW DATA: The full report (1MB PDF)

Reiterating comments made in an earlier discussion document, the draft says video-on-demand rights "have been held by a small number of market participants."

Cost of connections
The draft also identifies cost of connection as a possible inhibitor for homes and small businesses - a point that will be keenly followed by retail ISPs. Central North Island Ultrafast Broadband (UFB) winner Ultrafast Fibre (a consortium led by lines company Wel) has stuck its neck out and promised free household connections.

But Chorus holds around 80% of the UFB rollout by premise, and the CEO of one of the Big Five ISPs fretted to NBR ONLINE that even with subsidies, householders could be facing bills running to possibly around $1000 - an amount many would be unwilling to pay.

"We agree with the view that Chorus' position regarding customers paying for non-standard connection costs could be a barrier," InternetNZ CEO Vikram Kumar told NBR ONLINE this morning.

"While Chorus is not charging this fee to the end of this year, the situation beyond that is still unresolved."

Another issue identified by the report is data caps. 

Some users saw data caps announced by Orcon - the first major ISP to make its fibre plans public - as stingy.

However, the Commission sees market forces resolving this issue.

The Commission also sees competitive pressures leading to "symmetrical speeds becoming the norm." That is, full speed for uploads and downloads. 

"That is likely to be wrong," Mr Kumar said. "If anything, competitive pressures will continue to penalise New Zealanders being producers as well as consumers by restricting upload speeds. This fundamentally undermines the real benefit of fibre over copper."

Increasing pressure
Although the Commerce Commission has yet to lay a paw on Sky TV, the regulator is increasingly circling the pay TV broadcaster.

On May 17, it dismissed complaints about igloo, clearing the way for the new low-cost pay TV service (51% owned by Sky TV, 49% by TVNZ) to launch in June.

But at the same time, the regulator opened a new investigation into Sky TV's contracts with internet service providers.

Earlier TelstraClear CEO Allan Freeth told NBR his company's wholesale agreement with Sky TV prohibited TelstraClear from buying on-demand content from any other provider.

The zero-rating on-demand TV and movie data has also been contentious. Newcomer to the New Zealand market Quickflix has insinuated that it is difficult for it to negotiate zero-rating of its streaming video service (that is, content not counting toward a customer's monthly data cap) because of "contractual issues" for ISPs that already have agreements in place to zero-rate iSky.

"Video on the internet is the major driver of bandwidth pressure," Mr Kumar told NBR. "Therefore we disagree with the view that "consequently the practice and importance of zero rating traffic is likely to be reduced." In fact, this is likely to be a major source of net neutrality issues in the future."

Telecommunications Users Association CEO Paul Brislen welcomed the draft report, but had concerns about its limited scope.

"Although the Commission has begun an investigation into Sky TV's relationship with the ISPs, Tuanz believes the issue is far broader than one company's role and that that a government-level inquiry will be needed to uncover the full picture," Mr Brislen told NBR Online.

"We need to know about the barriers to entry for new broadcasters and of migration to the new business model that UFB [Ultrafast Broadband project] and RBI [Rural Broadband Initiatives] represents. If we continue to ask the Commerce Commission to look at key components in isolation we will never get a clear understanding of what's going on as broadcasting and telecommunications continue to merge."

QuickFlix's New Zealand MD, Paddy Buckley, told NBR his company agreed with the draft report's findings.

"Given the high cost of the national rollout, it is important that any barriers to the uptake of these services are identified and addressed for the benefit of consumers," Mr Buckley said.

Clear skies
For now, there seems no immediate threat to Sky TV.

ICT Minister Amy Adams has repeatedly poured cold water on regulation talk.

She told the commission's Future Broadband conference, "Over the last few years new suppliers of video content have emerged in overseas markets. They have provided over-the-top services in a much more flexible way than traditional subscription and free-to-air broadcasters we are familiar with. While the innovative services that have been launched in overseas markets are yet to make a significant impact here, I’m concerned that premature government action could in fact stifle innovation in this space."

Quickflix vigorously disagreed, saying Sky TV's monopoly on HBO and other content was stifling its local launch (Sky TV hit back that Quickflix had been quite happy to monopolise HBO content in Australia). Among other things, the newcomer wants so-called "anti-siphoning" legislation - as is pending in Australia - that would prevent one broadcaster monopolising rights to live sports events.

Now, the pressure could mount again. 

Telecommunications Commissioner Ross Patterson has identified a pay TV near-monopoly as a potential inhibitor of fast broadband update as the worlds of broadcast television and on-demand internet content converge.

Complicating matters, Dr Ross Patterson, who sits on the Commerce Commission, has had to suffer the indignity of his job being advertised by the MED - with no mention made that Dr Patterson is seeking a second five-year term (usually a standard inclusion when there is an incumbent). Sky TV foes whisper that the government has plans to put Dr Patterson's "head on a stake" as one insider told NBR.

Of the draft report released today, Dr Patterson said, “Following the introduction of the Ultra Fast Broadband and Rural Broadband initiatives, the Commission has investigated what factors may affect uptake of high speed broadband services by consumers and businesses.

“Two main areas have been identified as being important to consumers – costs relating to connecting and using high speed broadband, and the availability of video-on-demand services. Users in rural areas have identified a more fundamental need, which is to be connected to basic broadband.”

The key points that have emerged in the course of the study are:

• Costs related to connecting to the network and using high speed broadband services are seen as critical factors. If these costs are significant, they are likely to slow-down uptake for both consumers, and small and medium sized businesses.

• Video content has been identified as the primary driver of the uptake of high speed broadband services by consumers.

• Potential issues regarding data caps, backhaul capacity, and internet protocol (IP) interconnection are likely to be resolved by market forces.

• Rural users have the same appetite for high speed broadband as urban users, but have identified a more fundamental need, which is to be connected to basic broadband. They fear that they could be left behind as New Zealand moves forward with high speed broadband services. This issue has been recognised in the Rural Broadband Initiative and the Government’s five-point action plan for ultra fast broadband.

 "We're pleased to see the Commission highlight broadband as an issue in rural areas," Mr Kumar told NBR. "We don't think RBI will meet that need." (The tender for the $300 million, six-year Rural Broadband Initiative was won by a joint Chorus-Vodafone bid).

"The urban-rural divide, especially for people just outside urban limits, will if anything be deepened," Mr Kumar said.

For Tuanz, Mr Brislen added, "Rural New Zealand is concerned it will be left out and rightly so. Traditionally rural New Zealand has been poorly served by telecommunications companies and as a result none of the benefits of the digital economy have been seen in the primary sector.

"Tuanz believes the upcoming 700MHz spectrum sale will play a critical role in ensuring rural New Zealand does not get left behind. We need to incentivise the telcos to build LTE in rural NZ on par with any planned urban rollout - without that kind of incentive rural businesses and consumers alike will be left with a service that delivers only a bare minimum of broadband capability."

Next steps
The Commission is seeking submissions on this draft report. Submissions are due on Thursday 7 June 2012. The Commission intends to publish a final report by 29 June 2012.

In June 2011 the Commission initiated a high speed broadband services demand side study to identify and inform on any factors that may affect the uptake of high speed broadband services in New Zealand.

This study is conducted under Section 9A of the Telecommunications Act 2001, which empowers the Commission to conduct inquiries, reviews and studies into any matter relating to the telecommunications industry or the long-term benefit of end-users of telecommunications services within New Zealand.

Sky TV shares [NZX:SKT] were down 1.54% to $5.12 in mid afternoon.