Unbundling UFB – NZ wholesale/retail changes post 2020

While there is very little detail as to the form it would take, Chorus is at this point looking to launch an unbundled UFB (GPON) offering from 2020. This is in line with the NZ Government’s recent statements that unbundling requirements will kick in after 2020 to promote innovation on the UFB network.

Unbundling UFB essentially means that services are stripped back to only include fibre from the users premises to the cabinet. The ISP would provide the terminating device inside the users premises and would need to terminate the other end on their own hardware inside the splitter cabinet.

Prior to UFB coming to the fore, there was a real focus on unbundling copper, which required ISP’s to put their own equipment inside exchanges and simply rent the copper lines from the exchanges to their client’s locations. This meant that the monthly price of copper access was lower, but given the upfront and recurring costs involved in setting up this scenario, it required scale to make the effort worthwhile.

DTS UFB

Many small to medium sized ISP’s took up the chance to deploy their own gear inside exchanges where they had sufficient customer demand, and at an average of approximately 7,000 end users per exchange, the cost was often easy to justify.

The difference with UFB unbundling is that rather than 143 exchanges with approximately 7,000 users per exchange, we are presented with a scenario where almost 16,000 FFP’s exist (basically splitter cabinets), each with a maximum potential of 48 end users.

This means that compared to copper unbundling, the scale will be greater, inventory management more complex, and the ROI per deployment lower.

Deploying UFB services in an unbundled environment will be tricky as well. The ONT will need to be provided and installed by the ISP rather than Chorus, meaning scheduling, on-site installation, and testing will need to be handled. ONT’s can’t just be setup by end users as ADSL modems are either, at least not in their current form.

The complexity of this job is huge, and any RSP contemplating this move would need very deep pockets, meaning that Spark, Vodafone and Vocus are the only likely contenders to pursue this with any vigour.

The NZ wholesale market post 2020   

The benefit of unbundling for the ISP’s that pursue it is significantly cheaper last mile circuit pricing, some rumours I have heard indicate perhaps as much as a 70% reduction on the current wholesale rates.

One likely outcome will be the creation of a wholesale market where Chorus has regulated retail price points that are undercut by ISP’s offering wholesale access via their unbundled platform.

ISP’s that currently buy directly from Chorus may find themselves offered cheaper wholesale pricing by a large telco such as Spark/Vocus/Vodafone.

Changes to the NZ retail market

If unbundling can be done well, without incurring restrictive overheads that offset the reduction in last mile fibre costs, big players could gain a distinct advantage against the smaller players in the market.

The current regulated price points enforced by the Crown ensure that ISP’s of all sizes are paying the same rate for the fibre that end users have available. Unbundling may present a scenario where the regulatory regime as it currently stands no longer achieves what it was designed to.

Brendan Ritchie

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4 Responses to “Unbundling UFB – NZ wholesale/retail changes post 2020”

  1. Arie Dekker

    Hi Brendan – good post. Agree with your comments about the scale likely required to take fibre unbundling on and the potential for that to create a less even playing field amongst ISPs – particularly if the discount were to be as large as you have suggested in the post.
    On that point interested in who is suggesting that the wholesale rate may be 70% lower – it is not obvious that there are significant foregone costs for the regulated providers of unbundled fibre (Chorus and the LFCs) as the substantial layer 1 costs that dominate the fibre build are certainly no less.
    Regards Arie

  2. Brendan

    Thanks Arie, the 70% is very much a guess by some people within Chorus at this point, and I can’t name names or I will likely be in trouble. But I agree with your point, and hope that the figure is overstated.

  3. Mark Frater

    At this stage, everything is potentially still up for grabs. The average fibre cabinet or ” Fibre Flexibility Point” has 182 premises served off it, but leasing unbundled fibre from the premises to the FFP only gets you a few hundred metres up the road.
    An option to lease fibre between the FFP and the suburban exchange should also be made available for service providers to lease, along with space in the FFP to put their own splitter/aggregator. Competition at multiple levels would help ensure that the LFCs are operating their networks efficiently.

  4. Brendan

    Hi Mark, your point is a fair one, but realistically that option will only be taken by the big three due to the costs involved.

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