I retired from personal blogging in July 2008.
But you can find me over at http://blog.xero.com.
If an SOE brought Telecom’s Network Business off them. What would be the price?
I’d say $1.
Why? Because Telecom’s Share Price would go up.
- The SOE would then be responsible for raising the long term investment to develop world class links between our cities and between NZ and the world.
- It’s well known that parts of the network have suffered from under investment, therefore this obligation for future remedial spend must be priced into Telecom
- There would be less need for regulation and more certainty
- Telecom are best placed to inject high value services into the new network
The Government already has SOEs with an investment in fibre networks. Kordia (ex BCL) and apparently Transpower is building significant fibre capacity. There is also the railway lines which provide a lower cost path for laying fibre to most cities.
A basic bit of research that needs to be done is the question: what is the total govt spend on internet connectivity? In these days of big government I suspect we spend a reasonable chunk of the Capex required for national economic transformation each year as Opex.
The model is broken. Big connections to world improves all facets of New Zealand. Let’s make the investment to be the most connected country in the world.
It’s easy to confuse SOE management of Broadband with fashionable Telecom bashing. But the point of my paper is that Telecom has acted as would be expected when you have shareholders that naturally demand a certain return.
Now, if I may be fashionable.
The Yellow Pages sale just continues to stun me. Before the ink is dry the, far cleverer than us, Canadian Teachers have said they may release the value of YP via an IPO. Directory float possible.
What does this say about the Telecom management? Clearly there is value there that Telecom couldn’t extract. Directories is one of their few content assets and a formidable platform for high value economic commerce. They didn’t even do the basics.
I think their strategy was 180 degrees wrong. They should have sold the Network (which may be worth nothing if my point above makes sense) and kept Directories. Worse is the hospital pass to the incoming management.
You can just hear the sucking sound of value leaving the country. The sale of YP just simply says, we don’t know how to monetize this, lets just give you back you money. Weak. A complete reversal from the promise of what you can do by blurring communications and technology. And they’ve created a competitor.
This would be my action plan for Telecom:
- Sell the network to Kordia/Transpower for $500m dollars. (Grin that you got a great deal because it’s only worth a $1)
- Separate Directories into a different entity and list separately. Telecom shareholders keep ownership but find some Internet generation managers (that means no one from Ferrit)
- Oh heck, why not spin out Mobile as well
- Hire David Kirk (pay him like MarkW). David is one of the few people that could flip Telecom’s brand and culture around quickly
blog
And….
5. Shutdown Ferrit or at a minimum put the money being spent on Ferrit TV ads to much much better use.
6. Make CallMinder and CallerID standard features included in the monthly line rental charge. They are standard features on cellphones and should be on landlines too.
Why not make it possible to send text to landlines, with a text to speech system, so the person on the other end can pick it up, and call back.
This would generate revenue on both sides of the transaction, and could be used as a marketing device on keep people using 027 and stay on net with telecom
I think as per your feb 24 post it’s Telecoms strategy to hold on to the network to ensure scarcity of the resource. It may only be worth a $1 ;) in its present state but can generate more revenue under the present regime.
Sigh. your facts are wrong.
BCL does not have an investment on any consequence in fibre. In fact divestment would be a more accurate description.
Pick the common theme: Transpower. Kordia. Auckland DHB. MedLab. Oops.
The combined spend of government on plain internet transit is less than the equivalent dedicated capacity on Southern Cross. The single biggest line item in terms of any ISP’s costs are international. 80-90% of capacity goes offshore. So even if the network was sold for a dollar, you’d not solve the problem. The problem is the Pacific. Not national networking. At least national is comparitively competitive between cities.
The true bottleneck is the pacific. Focus your attentions on that. That will solve more problems that it creates.
As much as I hate saying it, I think that the Government owing responsibility for the network is a great idea. My huge reservation is that I suspect that they would do beggar all about the problem if they owned it. At least at the moment they can blow out a whole lot of hot air and blame Telecom.
If their purchase and running of On-Track from Toll is an example, we should be very concerned about the ability of a government department to deliver.
Finally, I think we just need to focus on getting a world-class network into the four main centres, and not the entire country. At least then NZ start-ups or multi-nationals wanting to do something here, can. We will never get the money to build a world class network in every city or back block town unless we catch up in the key cities first!
I am sure people living in say Tauranga would disagree, but at least it would be a start.
I presume by “network” you mean the last-mile copper network - if so, Telecom earnt something like $650 million from it last year. It’s easy money too: that’s the amount the line rental/”free” local calls bring alone (I’m not sure if Telecom factors in the TSO Tax that other providers pay it too). On top of that, there money from national and international calling, and broadband adding another $500 million or so each year.
Using Rowan’s nine times current earnings multiplier, we’re looking at a sale price of $10 to $11 billion.
However, earnings from calling charges are steadily declining and as I wrote here: http://www.geekzone.co.nz/juha/2564 even the sweated asset that is Telecom’s copper network is starting to come under fire from competitors like Vodafone.
If I ran Telecom, I’d be tempted to cash out before earnings slide off their current apex… retail broadband isn’t going to shore up earnings, ever.
Nope I meant the core network between cities.
Hey, you know, that’s a great idea.
Building on that, maybe the Gvt could own all the software development companies and software vendor companies it uses! I mean it must it must spend millions of dollars every year in OPEX when it could be looked at as investment in national infrastructure!
And just think how much taxpayer money goes offshore to Redmond every year.
Thinking about it further, may be Gvt could own the national accounting infrastructure - that’d drive real efficiency in so many areas in terms of integration between IRD and business. That’d have to have positive outcomes right?
So maybe some accounting software firms could be sold to the gvt for $1. After all there’s future development spend required before these companies would really enable the national accounting infrastructure.
Can anyone please tell me why Telecom has delivered a copy of the White Pages and the Yellow Pages (2 volumes) on my doorstep? Is there a way that I can opt out of this? I’ve used the Internet exclusively for more years than I care to remember. Surely giving people an easy way to opt out of this (or better yet, opt in) would save a lot of trees, not to mention reduce the Yellow Pages operating expenses.
Met David Kirk last year - completely agree with your assessment on his capability. He’s got great business nous and he genuinely enjoys what he does at Fairfax. I wouldn’t be surprised if it was down to him that Fairfax managed to pick up TradeMe - he gets it and has a very healthy respect for people who execute. I can only assume that he’s a big part of why Sam Morgan is still at TradeMe. It’s almost trivial that he also happened to be the only RWC winning captain - his business success has eclipsed that by a long way…
“It’s almost trivial that he also happened to be the only RWC winning captain”
Oh, look. I know this is more of a business blog, but that’s going just too far.
Intercity transit is not really a problem though. There’s Citylink and FX/Net as well as TelstraClear, Telecom and AT&T/Fujitsu.
See Bruce Simpson today: http://www.aardvark.co.nz/daily/2007/0404.shtml
“Well I’m sorry but the only way faster, cheaper broadband would earn NZ more money is if we created a nation of cottage online porn and gambling operators. Is that what you were thinking of Helen?”
The one thing that Jason et al have been asking you Rod is what precisely is going to happen when we get:
1. 100+ MiB/second to the home, say 95% coverage
2. 10+ GiB/second “free” backbone to major centres that every ISP must use
3. 10+ GiB/second “free” to international POPs
You seem to have been talking about any or all of these three over the past months, it has never been clear which. I’ve not seen anything but a “build it and they will come” justification — but never defining what they’d be coming to. SaaS apps built in NZ can run on a cluster in the US (or anywhere more bandwidth $$ economic than here). TM could be run on such a cluster. The reasons for hosting in NZ are limited, and growing more limited as the international connectivity improves (in size, quality, and robustness).
I’d like all of the things on the list above and I’m not denying that we may we come up with some interesting new apps if we had them. I’m just not sure I am willing to pay for them :-) Trying to equate it with the provision of services that provide life and prevent disease (water, sewerage, electricity) damages your argument. If it is akin to anything it is reticulated gas supply — companies that really need it can get it (at a price), and if you otherwise want it then it comes into play when you make a renting/purchase decision. It is not seen as an essential service.
Where are the apps in Sweden or other countries with widespread, high-speed, connectivity both nationally and internationally? thepiratebay?
Well the most basic one is simply hi-res video conferencing. All exporting businesses would benefit from that. It allows them to be closer to their customers, cover more territories, build better long term relationships.
Broadband is horizontal, it benefits all industries. US phone numbers to desk top video conferencing to hi-res multi point conferencing will use as much capacity as we can through at it.
I guess your looking for specific broadband industries. If we had big pipes well see lots of innovation. TV would change, from broadcast to pulling down content like 5th Gear from Joost. Our creative talent can then distribute the exciting NZ based content to anywhere in the world.
I’m really surprised that you ask the question. Why don’t people post here what they would do with big pipes?
Here’s a few. Home video back up, photo sharing, rich SaaS applications, schools interacting with others globally, remote attendance of niche training events, tourism experiences, hi-res real estate walkthroughs, globally computing grids, niche communities, 24 hour global ask the expert service, remote desktop management, home internet advisory services, Cooking with Lamb video channel …..
Got it yet?
Rod, Mate,
It seems to me you’re really muddled up on this one. The issue is not national long-haul. As Juha says, we’re well served. The issue is international as your paper also mentions. The fact that Kiwis are net consumers and not net providers is the issue. 80-90% of all traffic on the national long-haul is traffic destined offshore. 70% of all of that traffic is inbound from the US. We’re swimming in outbound capacity. The digital containerships leaving NZ are empty. We (NZ) pay for 100% of that capacity. Start loading the ships.
There’s a few things to take out of this:
1) If we had more local/local content (i.e within town/within country) the national long-haul would be used less.
2) Utilisation of international would be proportionally less (check out the Japanese stats on international use - cultural island - cheapest BB around because they don’t do foreign content!).
3) Local content needs to import dollars.
4) We need to find a way of getting the world to part fund the international cable
5) Content is the key. Not gvt ownership of a national cable
Right. Focus on international. Focus on export of content and import of dollars.
Infrastructure I hear you say?
Here’s a bold idea. Spend the cash on a cable from Invercargill to SE Australia. Get some dark fibre up the east coast of Australia (it’s easily bought) and get on to the cheap and plentiful South China sea cable network up to Japan. Hook up to the new Japanese/Russian cable and hitch a ride on the Transrussian cable into Europe. Get to the world the wrong way round.
Why?
Current Patterns (mostly international inbound) means we have a glut of national capacity Northbound and less Southbound. International Traffic entering NZ from the South means delivery of more International Capacity into NZ at no cost Nationally. It means we pick up all the Asian markets along the way. It removes dependence on transit through North America to reach Europe, and it diversifies how we connect.
The Trans-pacific cable is the most critical monopoly of all if your eye is on the world.
Glad to see you’re focusing on applications again with that last post. That’s more your groove man.
Cheers.
I wish people would post their names. Seems a bit unfair.
Anyhoo.
I think we are on the same page but I still think local is an issue.
Of course there is plenty of national capacity in places but the commercial model doesn’t allow us to use it.
When did you last do an online back up of all of your hi-res photo’s. Movies of your kids backed up? Done a video conference lately?
Nup.
Bandwidth needs to be abundant, not scarce. If we change the model innovation follows.
We’re you at Foo? If you were you would have heard Rachel Cunliffe’s story of exporting to the US and you’d understand what could happen if we changed our model.
Backing up my kids photos is not a function of intercity bandwidth. VC from home is not a function of intercity bw. That’s a function of local access.
Businesswise, if you can’t do the above then that’s not a function of intercity bw, it’s a function of the fact that you’ve selected a bad supplier to support your needs. I mean you do have a choice!
Bandwidth is abundant. You just need to know where to look.
cheers.
The Bruce Simpson quote reminds me why I have not visited his site for years.
There are a number Internet infrastructure issues that are related but not the same, Rod has talked about a few of them if you have been following. If you are an NZ content provider with an NZ or international audience you are being discriminated against - badly. It is as simple as that.
The fact that in this day and age all some people can come up with is porn as a sort of argument against wanting a world class competitive infrastructure is just nuts. Roads can be used to transport vibrators, can’t think why we should have better roads just to get more vibrators to Auckland quicker, can you?
Who was that masked man?
If you want to do e-commerce out of NZ, and your market is the US, then co-locate a server there and mirror from here. You don’t need and can’t use a large pipe to service those kind of markets - the latency kills you before the bandwidth does.
If your market is national NZ, co-locate your servers at/near the exchanges.
Don’t wait for ubiquitous broadband because it won’t solve those problems anyway.
You ask people to post what they would do with large pipes. My questions are different:
1. What would you expect to pay for: 10M, 100M, 1G national/international?
2. What service expectation (availability) do you have? (3, 4, or 5 9s)
I’m genuinely confused now about what you want, Rod.
Your initial ideas were related to new broadband for Wellington.
Then you started on about international.
Now you’re talking about national.
And you’re still equating Telecom=Internet. If you want to start making things better, concentrate on:
- promoting companies that are out there providing the “right” kind of bandwidth
- promoting initiatives that generate rich content and distribute it through the mechanisms that we have (think of ways to do that with economic efficiency)
- “fixing” the confused market that equates DSL with Internet and $50/month as the price point
- promoting peering and large local pipes
The more large pipes that you can get between the user and “useful” nodes, the better. But 90% of that is and can be local. Mirror YouTube if you have to. Set Google up with tax breaks and build a co-lo centre in NZ. Get traffic to peering points and aggregate it, then make efficiency gains that don’t tie many people into 000s/month in the telco divide and conquer model. Share bandwidth cooperatively and start making inroads into the telco markets when you decimate their costs.
Joost needs modest bandwidth (around 500Kbps). TVNZ OnDemand works on 400Kbps now and 700Kbps planned. That doesn’t demand huge bandwidth to the residence. Backups at 5Mbps is about 2GB/hour. Anyone generating more than that data volume daily in family photos isn’t a casual user. Hi-res videoconferencing - the equipment cost will kill you before the bandwidth charges do.
Stop focusing on Telecom. Innovation doesn’t come from looking at what people are doing. It comes from looking at what they are not doing. Go there, build what is needed and your market is right there. You can’t build a market and infrastructure at the same time. Build the West Coast South Island cable. Put in ducting and make it easy for providers to run fibre to where it is needed. Start generating NZ content - in reality, there’s bugger all.
Stu, I have always talked about 3 layers. Local, National interchange and International.
Your model is old school, asymetrical, traditional publishing.
Big pipes would allow all sorts of new communications opportunities.
I am not focusing on Telecom. I’m saying we want abundant bandwidth to change the model.
We shouldn’t even think about how much bandwidth we’re using. It’s just like air.
Look over the horizon.
“Who was that masked man?”
My shadow. Apologies if he caused offence :-)
“Your model is old school, asymetrical, traditional publishing.
Big pipes would allow all sorts of new communications opportunities.”
I’m one of the operators out there providing symmetrical, no data cap pipes. I see what my users are doing, including the innovative companies that we serve. Nothing old school about our model, I can assure you, just reality. Some of our clients are doing hundreds of GB/month on a flat rate of under $200. Our upstream/downstream volumes are around 50-50 - nothing asymmetric about that.
I don’t see a direct causal link between building ubiquitous broadband and economic growth. I do see a direct link between putting the right capability to connect the right organizations in the most appropriate manner.
For example, one high-profile innovative software company that we know of runs their stuff out of a server located in a bedroom in a Wellington apartment. That’s great and seemingly exactly the kind of innovation that you indicaste should be happening. But risky. And hard to scale. When ready to grow, shift the risk and get the scalability from building a server cluster and co-locating it topologically near users on the network. That’s just common sense.
Telecom regional peering will happen this year. That suddenly unlocks massive amounts of bandwidth into metropolitan networks at low latency. People are doing rural broadband at reasonable bandwidth and relatively low cost. It doesn’t have to wait for central government to do it.
You need to start engaging with those kind of initiatives to build the kind of capabilities that you are talking about.
I bet Alcatel would be rubbing its hand together at the prospect of a Government owned network.
Guys, the whole idea that Rod has floated here is seriously flawed, and the I think some of you are answering ideas he has previously floated rather than concentrating on this current idea - that the government buy “Telecom’s Network Business”.
This idea has no legs because -
1. they will not sell it
2. the present government will not invest billions in buying it let alone billions in fixing it.
3. if we want this area fixed competitive private enterprise is the way to do it, not have a government department running it, and you only have to look at Transpower to support this view. Remember spot electricity prices and the trustees (the government) screwing the beneficiaries (business).
If government is involved I think a better solution is central and local government providing (on behalf of us - a point missed by all politicians) the pipes through which telcos run fibre.
But the real answer is for the politicians to do is pass the laws to force Telecom to submit to the publics wishes and allow competition. Lots of talk from politicians but little action in reality, like a rocking horse, great action but its going nowhere.
The other problem is that ADSL is pathetic for most of the current business needs of the Internet let alone anything on Rod’s dream list. ADSL is not the long term solution; it is half duplex (anyone other than me remember how useless half duplix modems were?), the answer is fibre.
And Rod your schools “interacting with others globally” comment should not be an issue very soon because all around me government and local councils are paying people to horizontally drill fibre into the ground specifically to connect schools to one another.
“A basic bit of research that needs to be done is the question: what is the total govt spend on internet connectivity? In these days of big government I suspect we spend a reasonable chunk of the Capex required for national economic transformation each year as Opex.”
Statistics New Zealand published outline figures last week.
Roughly: $1bn opex, $600m capex for all Government IT, including Internet.
The report is here: http://www.stats.govt.nz/products-and-services/media-releases/government-use-of-ict/government-use-ict-2006-mr.htm
There’s no breakdown of those figures regarding Internet connectivity as such.
Now, what’s 1Tbps (100 STM-64s) going to cost? US$50/Mbps/month is US wholesale. US$50 * 1,000,000 = $50m/month = US$600m/year = NZ$810M/year. There’s a million broadband customers in NZ, so that’s $810 a year each. But you can only guarantee them 1Mbps each unless you oversell…