Telecommunications is an interesting sector - a company's competitor can also be its partner and its customer. That's how you get a situation where the second and third largest players in the fixed line broadband market have publicly announced a joint venture to deliver wholesale fibre broadband market.
Vodafone and Vocus, who between them have 40% of the fixed broadband market, are planning a joint venture to unbundle the Ultra Fast Broadband (UFB) network from 2020. The Telecommunications (New Regulatory Framework) Amendment Bill before Parliament will enable Retail Service Providers to wholesale broadband services, and thereby potentially enjoy greater margins on fibre products, as well as profit from selling fibre broadband services to other RSPs.
"Unbundling a fibre PON network requires installing our own active electronics at the exchange and the end-users premise much like with copper unbundling," says Vodafone CEO Russell Stanners.
"The fibre companies then must manage the physical fibres to make sure we can connect to our customers. This has been efficiently achieved in a number of countries including Singapore. Vodafone itself has unbundled PON networks in both Portugal and Italy. We understand what is involved and how it can be done."
As it currently stands, following recommendations from the Economic Development, Science and Innovation Committee, the new legislation will allow for unbundling but pricing is in the hands of the Local Fibre Companies (LFCs) that built the UFB, with assistance from Government funding. Those companies are Chorus, Northpower, Enable, and Ultra Fast Fibre (which is owned by WEL Networks).
Vodafone and Vocus have issued Request for Proposals to these companies for wholesale services and pricing. "Once we receive proposals from the LFCs we'll be in a position to understand the investment commitment and the scale of unbundling after which we can finalise the JV formalities," Stanners says.
The idea of JVs between rivals is not unusual in the telecommunications sector, for example Vodafone has partnered with Spark and 2degrees to form the Rural Connectivity Group, to rollout the next phase of the Rural Broadband Initiative (RBI2).
When announcing the JV, the chief executives of Vodafone and Vocus said they wanted to offer more choice than is currently available. "Chorus offer 22 different consumer grade fibre products. Most of these are minor variations to the basic 30Mbps, 100Mbps, 200Mbps and 1Gbps products. We understand the volumes of sales in the industry are largely concentrated on the 30Mbps and 100Mbps products however we are seeing popularity of the 1Gbps product rapidly grow," Stanners says.
So what kind of new products would a Vodafone/Vocus JV offer?
"Differentiation could come in many forms, including speed, controls over time of day, business-grade service levels and so on. For example, plans where the speed of your internet connection can change for different times of the day, or the ability to buy booster packs to enable better streaming of particular events," Stanners says.
While public reaction from other players in the sector to the JV announcement by Vodafone and Vocus has been muted, at least one user group has claimed it will be a good thing for consumers. "Unbundling has worked for New Zealand before, and we see the potential for it to lead to more choice and more competition on fibre too," says InternetNZ CEO Jordan Carter.
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