A quiet revolution is happening in New Zealand broadband.
Spark and Vodafone are in the process of shifting hundreds of thousands of customers on to fast internet technology that’s completely outside the Ultrafast Broadband (UFB) fibre rollout that has cost Chorus and the Crown some $3.5 billion.
Spark chief executive Jolie Hodson underlined a bold goal at her company’s interim earnings briefing: to move between 30 and 40 per cent of her company’s fixed-line broadband customers to wireless broadband by its 2023 financial year (which will kick off in July 1 next year).
That would translate to around 280,000 customers on Spark fixed-wireless (or “wireless broadband)plans – which use a mobile network to deliver fast broadband to a fixed area, such as a home or small office, eliminating the need for a landline.
And Vodafone NZ’s new co-owner, Infratil, has already essayed its ambition to move 25 per cent (or more than 100,000) of the telco’s fixed-line customers to wireless broadband within two years – or about triple today’s number.
Wireless broadband is cheaper than UFB fibre – plans start at around $69 – but still more lucrative for a retail telco like Spark, Vodafone or 2degrees because they pocket all of the bill. With a landline, Chorus clips roughly half the ticket.
A few years ago, analysts saw fixed-wireless nipping at the periphery of Chorus’s business as the dominant UFB fibre provider.
But Spark, in particular, has made hay from the technology.
On a conference call with analysts, Hodson noted that while Spark’s overall broadband numbers were flat (at 702,000), in a competitive market, its fixed-wireless customer numbers had jumped 23 per cent to 165,000 versus this time last year.
Jarden head of research Arie Dekker sounded a note of caution, however, pointing out that wireless broadband growth slowed to a relatively modest 11,000 net adds in the six months to December. Was the low-hanging fruit gone? Dekker posed the question of whether the 30 to 40 per cent target now looked too ambitious.
Hodson said, looking back, the slower growth could be pinned on Covid restrictions that saw net migration fall some 44,000 over the past year, depressing demand for broadband overall (Spark’s 1.5 per cent dip in revenue in the first half was also pinned on the pandemic. The company says it missed out on some $26m of “high margin” mobile roaming revenue amid border controls that meant far fewer Kiwis paying extra to use their phones abroad, or incoming tourists buying sim cards – a $114m market across Spark, Vodafone and 2degrees that was wiped out almost overnight).
And looking ahead, her company was now offering 5G wireless broadband in some areas. More will follow (earlier this week, Vodafone announced the first widespread 5G wireless broadband rollout. 2degrees won’t start its 5G upgrade until later this year).
Hodson said that with 5G being around “10 times faster” than 4G, it addressed capacity issues. Big or unlimited data caps are possible. Fixed-broadband – which can be installed in a few minutes – becomes more attractive, and suitable for everyday internet use such as using Facebook or streaming Netflix. Many would not notice any performance difference with fibre (exact speed depends on mobile reception at any given location).
By the same token, Hodson did not want to overplay wireless broadband, noting that even with Spark’s 30 to 40 per cent goal, some 60 to 70 per cent of its customers would still be on UFB fibre.
But earlier this week, as Chorus delivered its interim result, its new chief executive JB Rousselot devoted a lot of time to attack what he pitched as performance deficiencies; an alleged failure by retail telcos to inform copper line customers properly about their wireless broadband vs fibre options, and what he called “inertia selling” by an unnamed company – which seemed to be a jab at a Spark pilot in Devonport and Miramar that sees households sent a wireless-broadband modem if they do not respond to a letter about moving off copper (which Spark planned to turn off in both suburbs by December 18 last year; it has now issued an extension).A Spark spokeswoman told the Herald that while it does send wireless modems unsolicited in some instances, there is no pressure or obligation to switch to the service.
Chorus boss Rousselot on Monday warned of what he called a “high concentration of market power among the vertically-integrated retailers”.
Vertically-integrated became a dirty word in 2011 as the Government cleaved the company then known as Telecom in two, creating a retailer (Spark) and a network operator and wholesaler (Chorus). Rousselot complained that by controlling all elements of a wireless broadband connection, Spark and Vodafone had the same power as his company but escaped a “Chorus-level of scrutiny” by the Commerce Commission. He wants that to change.
Expect the bunfight to intensify over the next two years. While the UFB rollout is now 92 per cent complete, only around two-thirds of those in reach of fibre have connected. That means around 500,000 copper line customers are still up for grabs.
Chorus will try to lure as many of those as possible to UFB fibre – and it’s already bumped up cash bounties to retail ISPs who lure a customer back to fibre from wireless broadband -while Spark and Vodafone will use the lure of 5G performance in a bid to move a big chunk of them to wireless broadband.
In the meantime, the sheer amount of focus that Rousselot is devoting to the new technology possibly speaks to the scope of the financial threat.
“For a fibre provider, Chorus seems to have been spending a lot of time talking about wireless broadband lately,” Hodson said.
Spark shares were up 1 per cent to $4.73 in early trading. The stock is down 1.26 per cent over the past 12 months.
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