Fibre Broadband Shares

[Snoopy]

The roll out of fibre broadband in New Zealand has been on a public/private partnership model. Details of the oversight regime can be found here:

https://www.crowninfrastructure.govt.nz/ufb/what/

The resulting fibre broadband network is a natural monopoly that will require ongoing government oversight.

There are four fibre broadband companies in New Zealand.

1/ 'Chorus', a listed public company on the NZX , that in May 2011 was engaged to build out 24 of the 33 designated Ultra Fast Broadband build out areas at the time. It also had the job of filling in any regional gaps not covered by companies 2,3 and 4 as listed below. Chorus is also the operator of the legacy copper wire network all over New Zealand.
2/ 'Northpower', a power network company that has also taken on the task of rolling out fibre broadband to the following Northland communities: Kaipara, Whangarei, However there are certain outlying areas in these regional centres and 'the far north' that are instead built by Chorus.
3/ 'Ultrafast Fibre' that has covered the Central North Island: Hamilton, Cambridge, Te Awamutu, Kihikihi, Hautapu, Tirau, Tokaroa, Putaruru, Ngaruwahia, Te Kowhai, Tauwhare, Huntly, Raglan, Tauranga, Katikati, Omokoroa, Te Puke, Aongetete, New Plymouth, Hawera, Normanby, Eltham, Stratford, and .Whanganui
4/ 'Enable' that has built fibre broadband all over Christchurch. Lyttelton, Lincoln, Prebbleton, Rolleston, Tai Tapu, Kaiapoi, Mandeville, Tuahiwi, and Woodend

Chorus has its own thread that is busy enough. The other three companies are not publicly listed in NZ as I write this. There are certain discussion topics in relation to funding (via the Crown Infrastructure Partnership) and other 'market' issues that are not unique to Chorus, and are of interest to the other fibre network building companies as well. But it is also clear that these legislated monopoly networks are very different and have an entirely separate place in the market to the retail telecommunications companies in NZ: Spark, Vodaphone NZ (jointly owned by Infratil and Brookfield Asset Management) and Two Degrees (controlled by Trilogy International). So I think there is need for a space to discuss issues relating to fibre broadband that are not necessarily related to Chorus, but are not relevant to the retail telecommunications players. This thread is that space.

SNOOPY

[Snoopy]

I hold a very minor 'position of interest;' in 'Enable Networks' courtesy of being a Christchurch ratepayer. 'Enable Networks' was created to be the builder of the fibre broadband network in Christchurch. Lyttelton, Lincoln, Prebbleton, Rolleston, Tai Tapu, Kaiapoi, Mandeville, Tuahiwi, and Woodend. 'Enable Networks' (ENL) is a wholly owned subsidiary of 'Enable Services Limited' (ESL) which is in turn a wholly owned subsidiary of 'Christchurch City Holdings Limited' (CCHL). CCHL is the commercial arm of the Christchurch City Council. ESL and ENL make up the 'Enable Group'.

The founding shareholders of ENL were ESL and CIP (Crown Infrastructure Partners, was Crown Fibre Holdings). CIP were bought out on 29th June 2016.

Does Enable hold a top three position in its chosen market space. As the monopoly wholesale provider in the greater Christchurch region, the answer has to be 'yes'.

Conclusion: Pass Test

SNOOPY

[Snoopy]

The 'Enable Annual Reports' may be found here:

https://www.enable.net.nz/about-enable/corporate-publications/

Profits for the last five years have been normalised as described in the notes below:

'Earnings Per Share' = 'Adjusted Net Profit' / 'No. Shares on Issue'

FY2016: [$3.311m - $11.838m + 0.72( $0.377m + 0.005m)] / 34m = -24.3cps

FY2017: [-$8.518m - 0.72( $0.023m)] / 44m = -19.4cps

FY2018: [-$3.783m + 0.72($0.021m)] / 67.5m = -5.6cps

FY2019: [+$10.830m + 0.72($0.015m)] / 67.5m = 16.1cps

FY2020: [+$11.320m + 0.72($0.010m) - $0.006m] / 67.5m = 16.8cps


Notes

1/ For FY2016, I have removed $11.838m of asset revaluations that came about from a business recombination, added back $377k of business acquisition costs and $5k of Forex losses.
2/ For FY2017, I have removed $23k of Forex gains.
3/ For FY2018, I have added back $21k of Forex losses.
4/ For FY2019, I have added back $15k of Forex losses.
5/ For FY2020, I have added back $10k of Forex losses and subtracted $6k from asset sales

The eps trend is all one way, and that is up!

Conclusion: Pass Test

SNOOPY

[Snoopy]

ROE or 'Return on Equity' is calculated as follows:

ROE = Adjusted Net Profit / (Shareholder Equity - Equity Adjusted Asset Revaluations)

FY2016: -$8.252m / [$100.799m - (0.2944x $11.838m)] = -8.48%

FY2017: -$8,535m / [$138.888m - (0.3270x $11.838m)]= -6.32%

FY2018: -$3.768m / [$212.952m - 0.4068 x ($11.838m + $24.854m)] = -1.90%

FY2019: +$10.841m / [$227.988m - 0.4157x ($11.838m + $24.854m)] = +5.10%

FY2020: +$11.321m / [$311.323m - 0.4690x ($11.838m + $24.854m +$66.424m)] = +4.31%


Notes

1/ I have decided to adjust shareholder equity by removing the equity funded component of all historic asset revaluations. Asset revaluations are beneficial for shareholders. But since no shareholder funds were outlaid to obtain these revaluations (a good thing), it will artificially reduce the return on 'paid for' company equity - if I include the revaluations in my ROE calculations. To calculate the adjustment to make to:

1/ the shareholder equity for all historically revalued assets,
2/ for each year

I have taken the cumulative historically revalued totals and multiplied each total by the equity ratio of that year.

Although we are going in the right direction, at no time in the last five years has Enable got even close to our return on equity target.

Conclusion: Fail Test



SNOOPY

[Baaarney]

UFF in the Waikato was recently sold by WEL networks to the Australian based First State Investments. A poor decision in my view as a Waikato resident who enjoys the benefits of WEL through power discounts and community grants etc

https://www.ultrafastfibre.co.nz/investor-news-2
(https://www.ultrafastfibre.co.nz/investor-news-2/)
https://www.welenergytrust.co.nz/sale-of-uff-holdings-ltd-goes-unconditional/

May 12, 2020/WEL NETWORKS SELLS SHARES IN UFF HOLDINGS LTD
Electricity distributors WEL Networks Limited (WEL) and Waipa Networks Limited (Waipa) have agreed to sell their shares in UFF Holdings Limited, the holding company for Hamilton-based fibre business Ultrafast Fibre Limited (UFF).
First State Investments (FSI) has agreed to purchase WEL’s 85% majority shareholding and Waipa’s 15% shareholding for $854 million of which a consideration of $200 million payable to WEL is deferred for 18 months from completion. The $200 million deferred payment is supported by obligations enforceable against the Purchaser.


WEL Group Chairman Rob Campbell says: “The UFF sale enables WEL Networks to strengthen the core electricity business balance sheet, allowing us to pursue new opportunities and invest in innovative energy solutions in accordance with our business strategy. The investment in fibre has both delivered valuable infrastructure to our communities and proved a very successful investment for WEL.”


Following their successful 2016 investment in First Gas, FSI are delighted to add another important network business to their investment portfolio in New Zealand, FSI Infrastructure Investments Director Gavin Kerr says.
“We look forward to supporting the strong fibre uptake the business has achieved in New Zealand’s highest growth region and continuing to provide high-quality fibre infrastructure services to the community. The business will remain headquartered in Hamilton and we will be working with the existing management team who have done a great job building the network from the beginning of the fibre network rollout in New Zealand under supervision of Crown Infrastructure Partners.”


WEL Energy Trust Chairman Mark Ingle says the sale places WEL in a strong position to explore new technologies and take new opportunities in the provision of clean, innovative and affordable electricity to the Waikato Region; a position the Trust is proud to have supported the Company to achieve.


“This is a great opportunity for our Waikato community. We’d like to congratulate the WEL and Waipa teams on their 10-year fibre investment journey. The Trust acknowledges the WEL Board and Executives who grasped the UFF opportunity, then built and delivered the world class fibre network UFF now operates, and those who have now enabled the realisation of that investment’s financial success.”
Ultrafast Fibre CEO John Hanna welcomed FSI’s investment and involvement in the business. “We are very pleased to have a highly experienced, long-term investment partner on board. There’s never been a better or bigger time for fibre and we look forward to the ongoing support from our new investors as we continue to explore new opportunities and develop exciting new products for internet users around the North Island,” he says.


Established in 2010, Ultrafast Fibre owns and operates the fibre network in the urban areas of Hamilton, Tauranga, Whanganui, New Plymouth, Tokoroa, Hawera, Cambridge and Te Awamutu, providing access to ultra-fast broadband for more than 237,000 premises.

The transaction is subject to Overseas Investment Act consent and change of control approvals.

[Snoopy]

Net Profit Margin = Adjusted Net Profit After Tax / Working Revenues

FY2016: -$8.252m / [$63.370m - $43,144m -$8.538m] = -70.6%

FY2017: -$8,535m / [$36.272m - $8.781m]= -31.0%

FY2018: -$3.768m / [$48.473m - $6.628m]= -2.14%

FY2019: +$10.841m / [$58.678m - $2.486m] = +19.3%

FY2020: +$11.321m / [$76.985m - $2.000m] = +15.4%

Notes

1/ I have removed 'Contract Construction Revenue' of $43.144m when ENL was regarded as an associate to ESL, before ESL gained full control of it . From FY2017 onwards ESL took full control of ENL. This transaction occurred on 29th June 2016. Balance date for ESL/ENL is 30th June of each year.
2/ I have removed 'inventory' revenue from each year. 'Inventory' represents goods bought to be on sold to contractors for the building of the network.

The above trend is showing that as the fibre network finishes being built, and the take up improves, then profit margins for the business improves. That should not come as a surprise to anyone reading this. What might come as a surprise is to see the net profit margin dip in the last reported financial year. However, I see this as a 'rogue result' that does not devalue the underlying uptrend (yet).

Conclusion: Pass Test

SNOOPY

[Snoopy]

UFF in the Waikato was recently sold by WEL networks to the Australian based First State Investments. A poor decision in my view as a Waikato resident who enjoys the benefits of WEL through power discounts and community grants etc

https://www.ultrafastfibre.co.nz/investor-news-2
(https://www.ultrafastfibre.co.nz/investor-news-2/)
https://www.welenergytrust.co.nz/sale-of-uff-holdings-ltd-goes-unconditional/

May 12, 2020/WEL NETWORKS SELLS SHARES IN UFF HOLDINGS LTD
Electricity distributors WEL Networks Limited (WEL) and Waipa Networks Limited (Waipa) have agreed to sell their shares in UFF Holdings Limited, the holding company for Hamilton-based fibre business Ultrafast Fibre Limited (UFF).
First State Investments (FSI) has agreed to purchase WEL’s 85% majority shareholding and Waipa’s 15% shareholding for $854 million of which a consideration of $200 million payable to WEL is deferred for 18 months from completion. The $200 million deferred payment is supported by obligations enforceable against the Purchaser.
WEL Group Chairman Rob Campbell says: “The UFF sale enables WEL Networks to strengthen the core electricity business balance sheet, allowing us to pursue new opportunities and invest in innovative energy solutions in accordance with our business strategy. The investment in fibre has both delivered valuable infrastructure to our communities and proved a very successful investment for WEL.”

Following their successful 2016 investment in First Gas, FSI are delighted to add another important network business to their investment portfolio in New Zealand, FSI Infrastructure Investments Director Gavin Kerr says.
“We look forward to supporting the strong fibre uptake the business has achieved in New Zealand’s highest growth region and continuing to provide high-quality fibre infrastructure services to the community. The business will remain headquartered in Hamilton and we will be working with the existing management team who have done a great job building the network from the beginning of the fibre network rollout in New Zealand under supervision of Crown Infrastructure Partners.”


I didn't realise that 'Ultrafast Fibre Limited' (UFF) was a side hustle for two of the big regional power companies. I was even more surprised to read in the WEL Networks press release that you referenced, that UFF was a 100% debt funded venture! If WEL Networks never intended putting any capital into the project, it looks like the ultimate sale of the UFF company was planned from 'birth'.

SNOOPY

P.S. I wonder what the roll out "under supervision of Crown Infrastructure Partners" (CIP) means? I thought CIP was strictly an arms length funding mechanism.

[Baaarney]

After I made that post I found that the WEL Energy Trust is to be wound up by 2073, so I guess ultimately the lines company will be sold as well

"As per the Trust Deed, on winding up of the Trust in 2073, the fund will be distributed to Territorial Authorities (Capital Beneficiaries) in specific proportions (Hamilton City Council – 63%, Waikato District Council – 35%, Waipa District Council – 2%)."

[Snoopy]

After I made that post I found that the WEL Energy Trust is to be wound up by 2073, so I guess ultimately the lines company will be sold as well

"As per the Trust Deed, on winding up of the Trust in 2073, the fund will be distributed to Territorial Authorities (Capital Beneficiaries) in specific proportions (Hamilton City Council – 63%, Waikato District Council – 35%, Waipa District Council – 2%)."


Someone with more legal expertise than me might like to comment. But IIRC there is a maximum life set on trusts by law. So this wind up date may reflect that. It might be possible that at the wind up date, these assets are folded into a new trust. But it is certainly an interesting perspective on how the original grouping of the assets was handled.

While "Ultrafast Fibre Limited" is a company, as is "Enable Services Limited" and its subsidiary "Enable Networks Limited", The Christchurch City Council has not seen the need to use a trust structure to administer those Enable assets.

SNOOPY

[Snoopy]

All of the Buffett tests are there for a reason. So a 100% pass rate (all four tests being passed) is needed to go on to the next level of analysis. The 'Return on Equity' calculation for 'Enable' is a big fail (a best of circa 5% is well short of the 15% target). This is not a real surprise, as Buffett does tend to prefer companies with a lower level of capital assets. The 'Enable' assets are relatively new, certainly so compared to the copper wires, probably most of which have a history dating back over 50 years. New assets imply a high asset valuation.

The 'Return on Equity' for 'Enable' will certainly improve going forwards, as more connections are made to the existing fibre network. It will also improve as the overall value of the network depreciates and the accompanying ongoing capital expenditure reduces. At EOFY2020 (30th June 2020), the customer connection rate at 'Enable' had risen to 63%. That compares favourably to 'Chorus' which, at the same date, had a fibre network connection rate of 60%. ROE at 'Chorus' was greater at an albeit still not Buffett inspiring 7.2%. 'Chorus' carry their networks at historic cost. So in this sense, my historic revaluation adjustments that increase ROE for 'Enable' -that I have measured at EOFY2020 to be 4.31%- makes the two ROE figures comparable. Where the companies do differ is where 'Chorus' can rely on the profits of the long established 'legacy copper wire network' as well. Given the depreciated book value of the copper network, and roughly comparable 'customer service charges' for the older and newer technologies, it is no surprise that the ROE on the legacy copper network is greater than the ROE on much newer fibre assets.

This is a long winded way of saying that I expect the ROE of 'Enable' to improve going forwards. But having failed the Buffett test, I feel it is more appropriate to consider both Chorus and 'Enable' as 'dividend shares', with any growth that might arise in the future as a bonus.

SNOOPY

[Snoopy]

One of the more successful government interventions in NZ has been the building of a nationwide fibre broadband network. Did I say nationwide? There are still rural pockets where fibre broadband does not reach. In those areas the also government funded RBI or 'Rural Broadband Initiative', a joint venture with Vodaphone building the towers and Chorus supplying the interconnecting cabling, fills the gaps. Nevertheless NZ is surprisingly well connected by global standards with fibre broadband even in the quite small rural centres. Why did the government get involved? There was worth in building an integrated fibre broadband network all at once in advance of market demand, rather than a fully privately funded piece wise approach that responded to market demand. Private business on its own would have struggled to justify the large capital expense needed to lay out a full fibre network before most customers were ready to adopt it. So the national level government became involved in the fibre network roll out from 2011 via 'Crown Fibre Holdings' (CFH), that was renamed 'Crown Infrastructure Partners' (CIP) by the time FY2018 came along. Chorus has yet to finish its part in the fibre broadband roll out. So new 'CIP Units', triggered upon a fibre broadband network builder reaching certain construction targets, are still being issued today. The term 'Crown Infrastructure Partners' reflects the fact that each particular broadband builder still needed to contribute their own separate funding towards the fibre roll out.

'CIP units' in the form of interest free debt ('CIP Debt') and delayed dividend payment preference shares ('CIP Equity') got built into the balance sheet of Chorus, for example. However, the associated crown subsidy takes the form of a time discounted value of 'CIP units'. There is no capital discount on the 'CIP debt', all of which has to be eventually repaid. Having said this, having interest free access to funding for up to 25 years is obviously a significant benefit to those government anointed fibre broadband network builders and owners. The first repayment date of 'CIP debt' is FY2025. That would have seemed a long way away back in 2011. But now 2025 is less than four years away, even of the final tranche of 'CIP Debt' is not due to be repaid until FY2036. Unlike 'CIP Debt', 'CIP Equity' does not have fixed capital repayment dates. But it does have an ever increasing onerous 'dividend demand regime', starting from FY2025, which is equivalent to an ever increasing interest rate. In today's interest rate climate, it would certainly make sense to either 'repay' or at least 'refinance' these preference shares by replacing them with present day much lower coupon rate equivalent debt. I say this without full information of what sort of revenue stream the likes of these fibre network providers will attract, or more correctly will be allowed to attract (because maximum revenues are government controlled) in the future. It is possible that allowable revenue growth will be sufficient that it will be 'capital efficient' for these broadband network owners to retain a higher level of company debt than is prudent today. But my gut feeling is that from now on growth in broadband revenue will be ever more difficult to achieve as customers reach saturation and the need to upgrade to a 'premium' speed service plateaus. Yet some government control on revenue is always going to happen, because of the natural monopoly that is a wholesale fibre network provider.

SNOOPY

[Snoopy]

Perusing the Enable annual reports, you will find no mention of CIP funding on the respective Enable annual balance sheets. This is a quirk of the corporate structure of how the Christchurch City Council manages their businesses. As explained in my post 2 on this thread, there is an upstream vehicle for holding these CIP units is the holding company for Enable, CCHL. If you look in the CCHL Annual Report (AR2020 Page 63) the details of the CIP funding are to be found.

On that page we find out that the CIP loan facility is secured:

"In June 2016, CCHL entered into a Loan Facility Agreement with Crown Infrastructure Partners Ltd (CIP) (previously known as Crown Fibre Holdings Ltd) as part of the re-organisation of Enable Services Ltd (ESL). The loan is drawn down as network stages/premises are completed, and is used to subscribe in redeemable preference shares in ESL. The loan is interest free and is reflected at its amortised cost over the life of the loan. The loan is secured over the assets of the Enable group."

Now if we go to AR2020 for 'Enable', we can see that the referred to 'redeemable preference shares' are on the books as equity (p37 AR2020). While I don't doubt the legality of this practice I have to admit to being uncomfortable with it. Effectively debt from one company becomes equity in the subsidiary. The saving grace of this arrangement is that the overall owner of both companies is the Christchurch City Council, with no outside shareholders allowed. So it is clear that should the Enable preference share equity demand be called up, then 'real' equity funds from the council would be made available. Without that assured Christchurch City Council backing, the Enable Balance sheet would have a 'house of cards' feel to it in my view.

From Enable AR2020, Note 21

"ESL issued 5,591,500 fully paid redeemable preference shares to CCHL in 2020. ESL has 159,793,465 fully paid redeemable preference shares, paid to $1 to CCHL. The redeemable preference shares have the same dividend entitlement rights on a per share basis, as holders of the ordinary shares and no voting rights. ESL may elect at any time to redeem all or part of the redeemable preference shares."

Other equity that has been created at Enable is as a result of discounted cashflow analysis by Deloitte (CCHL AR2020 p58).

"Deloitte considered that the discounted cash flow (DCF) methodology was the most appropriate method of valuation, given that: long term cash flow forecasts were available, there is a reasonable degree of predictability around the cash flows, and a potential buyer of these assets would primarily be interested in the future economic benefits they could generate."

I don't have a problem with this source of equity. What Deloitte is saying is that a much better valuation of an asset than its cost relates to its earnings capacity. I am more than OK with that. Nevertheless, although such 'equity raising' is good for shareholders, it does distort the underlying return on shareholders funds, because shareholders do not have to stump up any funds to make such gains. So from the point of view of my ROE calculations, I do not include asset revaluation gains (My post 4 in this thread).

However, Chorus values their broadband network on a cost basis. So there are alternative ways within current accounting rules of looking at the same situation.

SNOOPY

[Snoopy]

'Contact Energy' is not known as a broadband provider, although they do offer this option as part of a packaged retail service. But I have included them in this table as an example of another utility type share that pays more than their profits in dividends (as does Chorus). I think it is interesting to see how a gentailer stacks up against fibre service providers.

Information on 'Ultrafastfibre' is taken from note 6 in the 'WEL Networks Limited' AR2020 and the 'Ultrafastfibre' Chief Executive Report ('WEL Networks AR2020' p12) and 'WEL Networks AR2016'.



FY2020Contact EnergyChorusEnableUltrafastfibre
n

No. Shares718.1m444.4m
67.5mN/A

WEL
Share Price (18-05-2021)$7.59$6.29
N/AN/A


Normalised NPAT$127m$67.1m
$11.3m$1.868m


Normalised eps17.7c15.1c
16.8cN/A


Normalised PE42.941.7
N/AN/A


Normalised NPAT Margin6.1%7.0%
15.4%2.2%

Energy
ROE (Assets at Cost)8.4%7.2%
4.3%4.8%


ROIC (Assets at Cost)6.2%5.5%
4.0%N/A


Bank Debt$1,198m$2,322m$294.4m$617.0m

https://www.pwc.co.nz/pdfs/2019pdfs/cost-of-capital-report-1.pdf
Equity Ratio53.5%16.4%46.9%5.84%


NPAT as declared$115m$52m
$11.3m-$3.714m


Min. Debt Repayment Time10.4 years44.7 years
26.0 yearsNM

https://www.pwc.co.nz/pdfs/2019pdfs/cost-of-capital-report-1.pdf
Broadband Revenue$17m$959m
$75.0m$82.4mEnergy


Average Broadband Revenue Growth+243% (1 yr)+37% p.a (4yr Av)+59% p.a. (4yr Av)+39% p.a. (4yr Av)


Wholesale Fibre Market Share (EOFY2020)N/A (retailer)60%
63%61%

Energy
Depreciation & Amortisation$220m$402m
$24.186m$19.5m


D & A per Share30.6c90.5c
35.8cN/A

Energy
Forecast Net Dividend35cps (PI)25cps (FI)
0N/A


Forecast Gross Dividend43.75cps34.7cps
0N/A


Gross Dividend Yield5.76%5.52%
0N/A



Notes

1/ N/A means 'Not Applicable'
2/ NM means 'Not Meaningful'
3/ 'Contact', 'Chorus' and 'Enable' have a 30th June Balance Date. 'Ultrafastfibre' has a 31st March balance date.
4/ Sample calculation for 'Broadband Revenue Growth' for 'Ultrafastfibre'.

($21.8m)(1+g)^4 = ($82.4m) => 1+g= 1.394 => g=39.4%

SNOOPY

[Snoopy]

As a more traditional kind of sharemarket investor, I still have a lot of trouble seeing any 'value' in what is ostensibly a utility kind of investment trading on a normalised PE of over 40 (CEN 42.9, CNU 41.7). It just seems crazy. But if you look at the forecast gross dividend yield (CEN 5.76%, CNU 5.52%) things don't look quite so crazy, especially in this world of ultra low interest rates. Should interest rates rise this will be bad news for yield shares. In fact interest rates are already rising. But even with a ten year time window, I can't see enough overall economy exuberance to push lending rates above 3.5% even at the top of the business cycle. That being the case, I think current prices for CEN and CNU will hold up at today's levels, provided they can keep up those forecast dividend yields.

The ROE based on 'assets at cost' paints a particularly unfavourable picture for 'Enable'. I attribute this to the fibre broadband network being relatively new. With another ten years depreciation under the asset belt, that Enable ROE figure is sure to come back. Indeed I believe the reason the Chorus ROE looks so much more favourable is that a large chunk of Chorus's earnings is from the already very well depreciated copper network.

I have always been a bit debt averse with my investments. That's why I embrace the concept of figuring out how long a company would take to repay all its debts if it diverted all of its profits toward that goal (I have coined the term MDRT or 'Minimum Debt Repayment Time' for this). I am aware that 'certainty of cashflow' means it is fiscally efficient to leverage up a company's balance sheet. Yet, I regard an MDRT figure above 10 years as a sign of a heavily indebted company. Chorus, is on an MDRT figure of 44.7 years. I find that eye watering. I tell myself that extreme certainty of cashflow means extreme levels of debt are sustainable. A counterpoint view to this is that Enable (MDRT of 26 years) have stated that FY2020 is their year of 'peak debt' and they will target debt reduction from here on in. Call me too conservative if you like, and maybe it is my mindset that is wrong. But that debt position at Chorus worries me.

The question I ask myself is this. If I was looking for a good steady income stream, and CEN (MDRT = 10.4 years) had a similar yield to CNU (MDRT of 44.7 years),why would I take the risk of putting money into CNU? Those CIP zero interest CIP loans and zero coupon CIP preference shares are great and full marks to Chorus management for making the most of those. But the day of reckoning is coming. And even before the day of reckoning is here, these loans increase in size thanks to 'notional interest' (an accounting construct) morphing back into CIP loan capital and CIP equity ripe for repayment. The problem I see is that the repayment schedule for these CIP units is just far enough out in the future for current management to kick the can down the road and make it the next guy's problem. Current Chorus management are talking about boosting dividends in the next couple of years from rapidly increasing free cashflows. Increasing free cashflows now the UFB fibre network is near completion will allow them to do this. But is this a reckless action equivalent to lighting a fuse on a debt time bomb?

SNOOPY

[Snoopy]

Unlike Chorus, the 'other' companies (Northpower, Ultrafastfibre and Enable) chosen to roll out fibre broadband in specific areas all over New Zealand had no established telecommunications network from which to earn money. The government funding, at least initially took a slightly different form than that used by Chorus.

From note 14 in the FY2013 'Crown Fibre Holdings Limited' Annual Report

https://www.crowninfrastructure.govt.nz/wp-content/uploads/2018/08/CFH-Annual-Report-2013.pdf

Agreements set out the key commercial terms of the relationships between Crown Fibre Holdings (CFH) and the Local Fibre Companies (LFCs) and their partners. This includes CFH having a shareholding in each of the LFCs that reflects the level of CFH’s investment, in conjunction with its partner, in the deployment of the UFB network in the Candidate Area(s).

Under this model, the Crown’s investment funds the communal infrastructure and the partners’ investments fund the build past each premises. CFH recovers the investment in the LFCs either by dividends received after the concession period or through the sale of shares. (In the case of 'Enable' the Crown was bought out of the Christchurch LFC in FY2016.)

The deployment plans drive CFH’s level of investment in the LFCs. As each stage of a plan is completed by the partner, the LFC purchases the UFB network from the installing partner by paying it an agreed 'cost per premises passed' (CPPP) for the number of premises that have successfully completed user acceptance testing (UAT) for the stage.

In turn, that purchase is funded by CFH subscribing to A shares (these shares carry full voting rights, with no dividend rights until 10 years from establishment) in the LFC, the price for which is the agreed CPPP. In respect of Christchurch based ENL, the local partner (ESL) funds a portion of the purchase by also subscribing to A shares.

The local partner is required to fund the cost to connect a premises and the end customer (essentially fibre optic lead-in from the street), the electronics necessary to light the fibre and the lFC operational costs. The partner generally receives B shares for funding these obligations (B shares carry full dividend rights, but no voting rights until year 10), although some prudent level of debt is permitted in each LFC.

All A and B shares in each LFC convert to ordinary voting dividend entitlement shares 10 years from establishment date (wlFC and Ultrafastfibre: December 2010, ENL: May 2011). The partners also provide management and operational services to the LFCs, which are included in the 'management fees to partners' line in surplus/(deficit) in the income statement..

SNOOPY

[Snoopy]

ROIC is the 'Winner' yardstick on the the efficient use of capital (from whatever source).

ROIC = EBIT(1-T) / (Equity + Borrowings)

where T is the company tax rate.

If a company is earning more than its cost of capital, then it is creating value. A two year old PWC report lists the cost of capital of Contact Energy as 7.4% and Chorus as 6.3%.

https://www.pwc.co.nz/pdfs/2019pdfs/cost-of-capital-report-1.pdf

I have retrospectively incorporated the results of my own calculations in the table above (my post 13). But here are the calculations.

Contact Energy

ROIC = $231m(1-0.28) / [($2,631m - 0.5333 x $2,066m) +($978m+$220m-$44m)] = 6.23%

Chorus

ROIC = $246m(1-0.28) / [$294m + ($430m+$1,892m-$0m)] = 5.45%

Enable

ROIC = $28.399m(1-0.28) / [($311.323m - $91.278m) + ($294.400m+$0m-$5.974m)] = 4.02%

Notes

1/ Equity in Contact Energy reduced by a 'balance sheet equity adjustment factor' multiplied by the revalued asset balance ($2,066m) that is incorporated into the balance sheet. ( Look at my posts 1822 and 1823 on the CEN thread to see how this is derived.}

2/ By contrast the revalued asset balance ( $91.278m) is actually listed in the Enable balance sheet. So I have simply removed it.

SNOOPY

[Snoopy]

I have a lot of trouble seeing any 'value' in what is ostensibly a utility kind of investment trading on a normalised PE of over 40 (CEN 42.9, CNU 41.7). It just seems crazy. But if you look at the forecast gross dividend yield (CEN 5.76%, CNU 5.52%) things don't look quite so crazy, especially in this world of ultra low interest rates.

That debt position at Chorus worries me.

The question I ask myself is this. If I was looking for a good steady income stream, and CEN (MDRT = 10.4 years) had a similar yield to CNU (MDRT of 44.7 years),why would I take the risk of putting money into CNU?


Before I progress with this question, I need to put detail behind the glib two liner in the table that I produced on Depreciation and Amortisation.



For FY2020Contact EnergyChorusEnable


Amortisation: Software & Intangibles$36m$49m$2.495m


Amortisation: Customer Holding Incentives$0m$34m$0m


Total Amortisation$36m$83m$2.495m


Depreciation: FibreN/A$219m$20.356m


Depreciation: Copper CableN/A$15mN/A


Depreciation: Power Generation Assets$177mN/A
N/A


Depreciation: All Other$7m$112m$1.335m


Total Depreciation$184m$346m$21.691m


Total Amortisation & Depreciation$220m$402m$24.186m


less Crown Funding Adjustment (Fibre)N/A$27m$0m


Total Amortisation & Depreciation (as reported)
$220m$375m$24.186m



Notes

1/ Fibre Depreciation for Chorus I have calculated by adding the depreciation of 'Fibre cables', 'Ducts manholes & poles', Network Electronics' together.
2/ Fibre Depreciation for 'Enable' I have calculated by adding 'UFB Network Asset 1' and 'UFB Network Asset 2' depreciation together.
3/ Crown fibre funding for Enable is provided at parent company ( CCHL ) level.
4/ 'Other'intangibles for Contact includes 'Work In Progress'.

For Chorus the key depreciation figure for fibre, which has been mostly fully deployed now, is:

$219m - $27m = $192m

We can add to this the copper cable depreciation, as this will be unlikely to be directly replaced.

$192m + $15m = $207m

Spread over 444.4m shares on issue, this amounts to 46.6cps. The argument that Chorus management makes is that this cashflow becomes surplus because replacement of the long lived fibre assets is decades into the future, if they are required to be replaced even then.

If we add this 'surplus cashflow' to our NPAT, the MDRT time for Chorus reduces significantly:

$52m+ $207m = $259m (maximum theoretical surplus cashflow)

MDRT = $2,322m / $259m = 9.0 years

While still not low, this is much more in line with the MDRT figure for Contact Energy in the table. Just to be clear, I am not suggesting that Chorus will pay off their debt in around ten years. I am saying that if they chose to do this (and that would mean the cancellation of dividends for 10 years - so it is very unlikely), then this would be the result.

The moral of this tale is, once you start to pick apart the headline statistics, maybe the debt position of the company is not as bad as those headline statistics imply.

Looking across to Contact Energy, it is fair to say that most of that 'Power Generation Depreciation' becomes surplus cashflow as well. In the case of Contact on a ''per share basis, that comes to: $177m / 718.1m = 24.6cps. This is part of the magic that allows Contact to forecast a share dividend payout of 35cps, when declared earnings are little more than half that number.

The question that remains unanswered though it how much of that 46.6c of surplus cashflow will Chorus pay out from FY2022 onwards?

Lastly to now answer the original question I posed, as a Contact shareholder you might invest in Chorus simply because Chorus is not a gentailer, but you can make a similar yield from holding it. There are different risks in holding both. There are no wet/dry years at Chorus. But there is the heavy handed risk of government regulation.

SNOOPY

[Snoopy]

As a more traditional kind of sharemarket investor, I still have a lot of trouble seeing any 'value' in what is ostensibly a utility kind of investment trading on a normalised PE of over 40 (CEN 42.9, CNU 41.7). It just seems crazy. But if you look at the forecast gross dividend yield (CEN 5.76%, CNU 5.52%) things don't look quite so crazy, especially in this world of ultra low interest rates.

The question I ask myself is this. If I was looking for a good steady income stream, and CEN (MDRT = 10.4 years) had a similar yield to CNU (MDRT of 44.7 years), why would I take the risk of putting money into CNU?


I wrote the above a month ago, 0n 19-05-2021, and the issue is unresolved in my mind. I am still pondering whether I should be looking to buy more CNU: Do I access a strong cashflow at a fair yield in an industry with a good future that diversifies my significant gentailer 'income investments'? Or do I sell, because the unquestionably strong cashflow forecasts may have to soon be diverted to debt repayment, with debt seemingly at eye watering levels?

To get a wider context on the issue, I have decided to look at what is happening in Australia, with the Australian national broadband roll out of their 'National Broadband Network' (NBN). This is an Australian Commonwealth Government initiative to bringing broadband, at an affordable price, to all of Australia. NBN Co. Ltd was formally established as a government set up company on 09-04-2009.

'NBN' as it is commonly known, has been described as the 'largest infrastructure project in Australian history'. Like Chorus in NZ, it is a 'wholesale only' roll out of broadband technology. Unlike the NZ roll out, it is, for practical reasons, 'technology diverse'. Most of the roll out is 'fibre broadband' in the form of FTTN ('Fibre to the Node'). However on 23rd June 2011, NBN acquired from Optus for $800m , its hybrid co-axial network. to integrate that into the overall build program. Subsequently the Optus acquired network has been deemed to be not able to be upgraded to an acceptable standard. Yet a subsequently acquired Telstra built hybrid co-axial network (can be fast but traditionally speed depends on network loading) has been satisfactorily upgraded. In 2011, NBN also launched a satellite broadband service for those for which there is no plan to have access to 'metro comparable' broadband. NBN also offer 'fixed wireless broadband' in certain areas outside of metro regions as an alternative to satellite broadband coverage. Equal access will be achieved by providing uniform national wholesale access pricing across fibre, fixed wireless and satellite delivery technologies. This type of overall plan is called the MTM (Multi Technology Mix) approach to broadband roll out.

The roll out of fibre nationwide in Australia has not gone as smoothly as the equivalent exercise in New Zealand. From Wikipedia

--------------------------

"In 2017, Ben Morrow, NBN's CEO at the time, wrote a public blog post arguing that the New Zealand program Ultra-Fast Broadband operated in a different policy setting, with Telecom New Zealand separated into Chorus (wholesale) and Spark (retail). On 23 October 2017 the the Australian Prime Minister, Malcom Turnbull said, "The NBN was a calamitous train wreck of a project when we came into government in 2013," and argued that the NBN might never make a profit."

Turnbull commented on New Zealand's program "They basically ensured the incumbent telco, the Telstra equivalent, split its network operations away from its retail operations. And then that network company in effect became the NBN. The virtue of that was you actually had a business that knew what it was doing, that was up and running, that had 100 years of experience getting on with the job."

Morrow admitted that 15% of end users receive poor service through NBN and are 'seriously dissatisfied'. In addition, Morrow indicated that in July 2017, prices and performance for end users were suppressed through a 'price war' between RSPs. However, despite this comment, the Telecommunications Industry Ombudsman released its annual reporting showing a 159% increase in NBN complaints with nearly 40% of NBN customers dissatisfied.

------------------

We can't buy NBN shares. But how do they stack up against the Buffett investment criteria?

SNOOPY

[Snoopy]

We can't buy NBN shares. But how do they stack up against the Buffett investment criteria?


NBN Co. Ltd, better known as simply NBN was established under the Corporations Act in April 2009 by the Federal Government of Australia to design, build and operate Australia's wholesale broadband access network. The company's objective is to ensure all Australians have access to fast broadband at affordable prices and at least cost to the taxpayer. NBN is a pure wholesale provider. That means it must allow access to Retail Service Providers (RSPs) on a non-discretionary basis. The initial build phase for NBN was completed over FY2020. After the initial build, all standard installation premises have an opportunity to connect. 'Complex connections', where site access is restricted and/or difficult, are still being worked on. Likewise, greenfield developments are not included in the 'initial build'.

NBN take up by EOFY2020 was: 7.3 million customers / 11.7 million customer opportunities = a 62% take up rate

The legacy copper network is largely owned and run by Telstra as the principal incumbent. Part of the NBN roll out agreement is that Telstra will receive annual payments to 'turn off' their legacy network and in turn migrate their fixed line customers customers onto NBN. Once this switchover is complete, NBN is required to have a network 'performance guarantee'. This will require peak period wholesale download speeds of 50Mbps for 90% of the network and at least 25Mbps for the rest. However these are 'minimum standards' . 'Homefast'@ 100Mbps, 'Home Superfast' @ 250Mbps and 'Home Ultrafast' @500Mbps are available in many centres. Fibre does have the advantage of performance not falling away in proportion to the distance you are from the exchange, as the ADSL technology did. However customer's own modems and processing power of their computers may reduce download speed to less than the plan figures quoted here.

Lead pricing has been designed to ensure migration of existing broadband and voice End-Users, with the aim of allowing NBN Co to amortise the largely fixed network costs across a large base of End-Users. A key driver to NBN Co’s pricing philosophy has been to maintain low price increments between the different access speed tiers in order to encourage End-Users to migrate up the speed curve. This will in turn drive higher usage, allowing NBN to amortise largely fixed network costs across a broader base, in turn keeping prices low.

Being a monopoly provider, NBN is in a strong position with regard to the first 'Buffett Test'.

Conclusion: Pass Test

SNOOPY

[Lola]

The roll out of fibre broadband in New Zealand has been on a public/private partnership model. Details of the oversight regime can be found here:

https://www.crowninfrastructure.govt.nz/ufb/what/

The resulting fibre broadband network is a natural monopoly that will require ongoing government oversight.

There are four fibre broadband companies in New Zealand.

1/ 'Chorus', a listed public company on the NZX , that in May 2011 was engaged to build out 24 of the 33 designated Ultra Fast Broadband build out areas at the time. It also had the job of filling in any regional gaps not covered by companies 2,3 and 4 as listed below. Chorus is also the operator of the legacy copper wire network all over New Zealand.
2/ 'Northpower', a power network company that has also taken on the task of rolling out fibre broadband to the following Northland communities: Kaipara, Whangarei, However there are certain outlying areas in these regional centres and 'the far north' that are instead built by Chorus.
3/ 'Ultrafast Fibre' that has covered the Central North Island: Hamilton, Cambridge, Te Awamutu, Kihikihi, Hautapu, Tirau, Tokaroa, Putaruru, Ngaruwahia, Te Kowhai, Tauwhare, Huntly, Raglan, Tauranga, Katikati, Omokoroa, Te Puke, Aongetete, New Plymouth, Hawera, Normanby, Eltham, Stratford, and .Whanganui
4/ 'Enable' that has built fibre broadband all over Christchurch. Lyttelton, Lincoln, Prebbleton, Rolleston, Tai Tapu, Kaiapoi, Mandeville, Tuahiwi, and Woodend

Chorus has its own thread that is busy enough. The other three companies are not publicly listed in NZ as I write this. There are certain discussion topics in relation to funding (via the Crown Infrastructure Partnership) and other 'market' issues that are not unique to Chorus, and are of interest to the other fibre network building companies as well. But it is also clear that these legislated monopoly networks are very different and have an entirely separate place in the market to the retail telecommunications companies in NZ: Spark, Vodaphone NZ (jointly owned by Infratil and Brookfield Asset Management) and Two Degrees (controlled by Trilogy International). So I think there is need for a space to discuss issues relating to fibre broadband that are not necessarily related to Chorus, but are not relevant to the retail telecommunications players. This thread is that space.

SNOOPY

Does Vital fit into this group somewhere?

[Snoopy]

Does Vital fit into this group somewhere?


You mean 'Vital' in the sense of the entity that was the old 'Teamtalk' and 'Citylink'? Yes there is a 'fibre' component in what Vital owns. But it isn't part of the network funded by Crown Infrastructure Partners. The Vital network is a private network built where Vital wanted to build it. Their fibre networks are in downtown Auckland and Wellington. I am not a student of Vital, so I am prepared to be corrected on what comes next. But my impression is that Vital supplies intracompany fibre not intercompany fibre. This may include external lines linking different business units in different buildings. But generally a customer of Vital buys fibre for their own use rather than with an intention to sell utility to third parties (*). Vital is not unique in doing this. I think Spark have their own in house built fibre network, for example. But this is how I see Vital fitting into the picture.

As to whether Vital belongs on this thread: They operate a fibre business unit, so of course they do! Thanks for bringing the topic of 'Vital' up.

SNOOPY

(*) I think the downtown Vital Wellington Fibre Network, for example, can service more than one customer of Vital. But generally Vital is 'private network' that Vital manages for their own selected customers. There does not exist a right to join the Vital Network if Vital do not want you to join. There is no guaranteed network access price for allcomers as you might find with the Chorus network in Wellington, (as a comparison). I hope I explained that right. No doubt someone will emerge to correct the picture if I didn't!

[Snoopy]

The roll out of fibre broadband in New Zealand has been on a public/private partnership model. Details of the oversight regime can be found here:

https://www.crowninfrastructure.govt.nz/ufb/what/



From the above reference....

------------------

What is UFB?

Ultra Fast Broadband fibre provides a reliable, consistent experience even at the busiest time of day.

It delivers speeds in excess of 25 Megabits per second (Mbps), using optical fibre technology rather than the slower copper technology (ADSL or VDSL).

Not only does this make your online experience faster, it allows multiple people in your household or business to be online at the same time. You will experience faster download and upload speeds, more reliable connectivity, the speeds will be consistent and you won’t have to deal with buffering.

-------------------

This is a pretty good sales pitch for Fibre Broadband. But have a look at pages 19 and 20 in the FY2019 NBN Annual Report

https://www.nbnco.com.au/content/dam/nbnco2/2019/documents/corporate-reports/nbn_annual_report_2019.pdf

I was particularly interested to read about 'G-fast' which is the latest evolution of VDSL technology.

"G.fast provides greater bandwidth and improved noise mitigation on the copper pair network, and is able to achieve speeds up to 1Gbps over the shorter copper distances in typical FTTC deployments. As G.fast can be deployed on existing copper networks, it is a viable alternative where fibre into the premises is too costly or difficult to deploy."

Yes you did read that right. 1Gbps over copper! 1 Gigabit is 1000 Megabits. So we are talking about a transfer speed forty times higher than the crown fibre broadband minimum performance target! Of course fibre can do 1Gbps as well, if appropriately set up. But I had been under the impression that copper was 'down and out' as data transmission conduit of the future, when this is not so - for the last little bit of delivery to the household anyway. While still experimental, the next generation of G-fast is even more impressive with speeds of 5Gbps over a line length of 70m. Perhaps copper isn't dead yet?

Next we learn more about potential upgrades to HFC (Hybrid Fibre Co-axial; the co-axial bit being copper). This is the network owned by Vodaphone that services customers in Wellington, Kapiti and Christchurch. Vodaphone inherited this network, installed lines which date back some 20 years, when it was acquired from TelstraCkear in 2012.

"Emerging HFC technologies like Full Duplex DOCSIS 3.1®, Extended Spectrum DOCSIS (ESD), and the recently announced DOCSIS 4.0® which may offer upgrade paths capable of delivering low latency services and 10Gbps download speeds (and beyond) into the future."

Reading Crown Infrastructure information here in NZ leaves the impression that HFC technology is a dead end. Yet here we are talking about download speeds over four hundred times faster than 'basic fibre'! Is this or is this not serious competition for 'fibre broadband' in Wellington, Kapiti and Christchurch?

SNOOPY

[Doug]

From the above reference....
Is this or is this not serious competition for 'fibre broadband' in Wellington, Kapiti and Christchurch?

SNOOPY

https://company.chorus.co.nz/first-connection-chorus-8gbps-fibre-broadband-service-live

Available right now!

[Snoopy]

https://company.chorus.co.nz/first-connection-chorus-8gbps-fibre-broadband-service-live

Available right now!


Thanks for that Doug. It looks like Orcon is the first retailer out of the blocks with 8Gbps. It comes at a price though:

https://www.orcon.net.nz/broadband/sign-up




PlanOrcon Price


Fibre 100Mbps$89.95/month


Fibre 950Mbps$99.95/month


Hyperfibre 2000Mbps$149.95/month
[/

Hyperfibre 4000Mbps$184.95/month


Hyperfibre 8000Mbps$274.95/month



The accompanying table in the Chorus news release. cast an interesting light on the utility of such higher speeds



PlanTime taken to download a 5GB Movie


Fibre 100Mbps6min 40s


Fibre 950Mbps42s


Hyperfibre 2000Mbps20s


Hyperfibre 4000Mbps10s


Hyperfibre 8000Mbps5s



Maybe I am just lacking imagination. But I would have thought rustling up the family to watch a movie and get everyone settled on the sofa would take six minutes and forty seconds. I wonder what the potential take up of hyperfibre speeds is? Anyone out there signed up with such speeds? What do you do with such download power?

SNOOPY

[Snoopy]

The next three posts are going to read like a horror story, but here goes.

Earnings Per Share = Normalised Net Profit After Tax / No. of Shares on Issue at EOFY

FY2016: -$2,750m / 20,275m = -13.6cps
FY2017: -$4,224m / 27,465m = -15.4cps
FY2018: -$4,779m / 29,500m = -16.2cps
FY2019: -$4,878m / 29,500m = -16.5cps
FY2020: (-$5,237m + $80m + $150m)/ 29,500m = -17.0cps

Notes

1/ For FY2020 I have added back $80m of credits to internet retailers FY20 as NBN moved quickly to offer pricing relief for increased network capacity requirements attributed to bush fires and Covid-19. I have also added back financial assistance packages for $150 million, created in consultation with industry to help internet providers connect low income households with home schooling needs, support emergency and essential services, and assist small and medium businesses and residential customers facing financial hardship.

Discussion

Despite more capital being put into the company, and more capital continuing to be invested, the loss per share keeps increasing. The trend could not be worse.

Conclusion : Fail Test


SNOOPY

[Snoopy]

ROE = Normalised Net Profit After Tax / Shareholder Equity at End of Financial Year

FY2016: -$2,750m / $12,023m = -22.9%
FY2017: -$4,224m / $14,959m = - 28.2%
FY2018: -$4,779m / $12,212m = -39.1%
FY2019: -$4,878m / $7,337m = -66.4%
FY2020: -$5,007m / $2,100m = -238%


Discussion

All the returns on equity are negative, which is never a good sign. This dramatically worsening statistic is the result of $27.409 billion of accumulated losses since FY2009. Government supplied equity of $29.5 billion is almost exhausted, but fortunately the building of the core of the network is now over and revenue is rising. Will the inflection point be reached, or will the government have to bail NBN out? The answer is not relevant to the question being asked here.

Conclusion : Fail Test

SNOOPY

[Snoopy]

Net Profit Margin = Normalised NPAT / Revenue

FY2016: -$2,750m / $421m = -653%
FY2017: -$4,224m / $1,001m = -422%
FY2018: -$4,779m / $1,978m = -242%
FY2019: -$4,878m / $2,825m = -173%
FY2020: -$5,007m / $3,837m = -130%


Discussion

A negative profit margin is a loss, which is never a good sign. A negative margin of more than 100% means your loss is greater than all of your revenue. The technical term for this kind of loss is 'eye watering'. This has occurred for every year over the last five years. The net profit margin is improving as losses in relation to revenue reduce. But to be able to bank enough money on an ongoing basis to offset inflation, at some point a profit must be made. There is no sign of that here.

Conclusion : Fail Test



SNOOPY

[Snoopy]

Thanks for that Doug. It looks like Orcon is the first retailer out of the blocks with 8Gbps. It comes at a price though:

https://www.orcon.net.nz/broadband/sign-up



With Vocus a trans-tasman company, I thought it might be interesting to compare costs and plans between the Vocus owned retailers




Plan
Orcon Price
Dodo Price
iPrimus Price
'Aussie Broadband' Price


Fibre 100Mbps
$NZ89.95/month
$A85/month
$A90/month
$A99/month


Fibre 950Mbps
$NZ99.95/month


$A119/month


Hyperfibre 2000Mbps$NZ149.95/month
[/

Hyperfibre 4000Mbps$NZ184.95/month


Hyperfibre 8000Mbps$NZ274.95/month



Notes

1/ Prices quoted are standard without any limited time promotional offers.
2/ iPrimus offers a 'Home Superfast' plan for $115 per month. They say it is suitable for 8k streaming verses 4k streaming for their Premium service. However, no uprated access speed is guaranteed.
3/ Both Dodo and iPrimus say that their 100Mbps download speeds may fall to 92Mbps and 95Mbps respectively at peak times.
4/ 'Aussie Broadband' (not Vocus owned) Gigabit plan may only work at 600Mbps at peak times.

I can't find any reference to plans faster than 1Gbps available in Australia. I think 1Gbps was the maximum design speed it was conceived the NBN would operate at. But I guess that doesn't preclude faster speeds being available in certain areas?

http://tektel.com.au/wp-content/uploads/TekTel-Report-How-Fast-is-the-NBN.pdf

Summary (from Feb 2014)

"NBNCo proposes peak rates of up to 1 Gbps. The NBN Fibre to the Premises (FTTP) architecture is based on the GPON (Gigabit Passive Optical Network) standard, which provides 2.488 Gbps shared amongst 32 users. This supports the 1 Gbps NBNCo peak rates (downstream and upstream). XG-PON, the next version of the GPON standard, will provide 10 Gbps downstream, shared among 32 subscribers, allowing multi Gbps subscriber services. However, actual NBN data rates will be constrained by back haul and Connectivity Virtual Circuit capacity."

SNOOPY

[Cricketfan]

Maybe I am just lacking imagination. But I would have thought rustling up the family to watch a movie and get everyone settled on the sofa would take six minutes and forty seconds.

SNOOPY

Also most people stream movies, not download them first and then watch. I really don't see many people being able to make use of such high speeds at the moment. Maybe if everything was streaming at 4K and you had a busy household, you might use those higher speeds, but otherwise it'd be wasted for the majority.

[Snoopy]

Also most people stream movies, not download them first and then watch. I really don't see many people being able to make use of such high speeds at the moment. Maybe if everything was streaming at 4K and you had a busy household, you might use those higher speeds, but otherwise it'd be wasted for the majority.


The iPrimus broadband page suggests that 100Mbps is appropriate for '4k video streaming' (there is your Cricket, Crickrtfan), Multiple player on line gaming (that takes care of the teenagers) and video conferencing (there is your Covid-19 work insurance).

I remember when 'The Hobbit' came out in 2012 using, at the time, cutting edge video technology. I had to look up what that meant. I see it was filmed at 48fps (vs 30fps more common in the US at the time ) and at a 5k resolution (for the 3D effect). Provided it would not be broadcast in 3D, this sounds like 100Mbps could 'live stream' the Hobbit. My memory also says that this 'faster frame per second' technique was only appreciated by geeks and abandoned.

The 'Home Superfast' upgrade suggested that you could video stream 8k images and engage in multiple video conferences, with no hint of that being anywhere near 1Gbps transmission. I wonder if we are getting to the stage where increasing the amount of data being transmitted will overwhelm the human brain's ability to receive it? Thus the Ozzies, seemingly stuck at 1Gbps max, may have done enough?

SNOOPY

[Snoopy]

A look at the numerical Buffett Tests 2,3 and 4 will tell you why it is the Australian Federal Government, and not share investors, that are funding this. As at EOFY2020, the debt ratio is

$34,750m / $36,850m = 94%

Only positive cashflow can save NBN from here!

From AR2020 Section E

"As at 30 June 2020 the total committed equity funding of $29.5 billion from the Commonwealth had been provided to NBN Co under the terms of the EFA."

Translation: $29.5 billion of equity is all you are going to get management - deal with it

"On 22 December 2016, a $19.5 billion loan agreement with the Commonwealth Government was signed for the period from 1 July 2017 to 30 June 2021. On 26 March 2019, the tenor of this loan was extended by three years to 30 June 2024."

Translation: You have screwed up your revenue projections. So to stop this thing going belly up, we will give you three more years to sort out some private funding.

"During the year NBN Co entered into facility agreements with a number of financial institutions to secure $6.1 billion of private sector debt for a period of five years. There have been no drawdowns from these facilities as at 30 June 2020."

Translation: $6.1billion found. Only $13.4billion to go. Keep an eye on that positive cashflow, managers.....

This blog from Gary Mclaren highlights some of the issues as the changing forecasts for planned future cashflows unfolded.

https://www.mclarenwilliams.com.au/2019/09/12/a-comparison-of-nbn-corporate-plans/#disqus_thread

The Kevin Rudd Labor plan from 2013 was forecasting $19.4billion in revenue over the 11 year planning period from 2010 to 2021. The latest ScoMo Coalition plan from 2019 had planned revenue slashed to $15.1billion, even as Capital Expenditure costs blew out from $32.9billion to $37billion.

The big difference between NBN in Australia and Chorus in New Zealand is that Chorus owns the legacy copper network. Chorus in New Zealand can harvest profits from the legacy copper network as their own fibre broadband roll out progresses. Contrast that to NBN which must buy out the existing networks run by the incumbent Telstra and Optus networks (the buyout being recorded in the accounts as 'subscriber costs') as NBN expands. P56 of AR2020 explains what is happening in this regard:

"Subscriber costs of $2.4 billion continue to reflect payments to Telstra for the disconnection of existing services and to Optus for the migration of subscribers to services over the nbnTM access network. These costs are expected to virtually cease by FY22 and, therefore do not reflect ongoing activities."

This means that those huge annual losses being posted by NBN are not quite as dire as they appear, given a longer term view. That is why 'EBITDA before subscriber costs' is a much better measure of debt servicing ability than net profit. I don't think Warren Buffett would be rushing to invest in this business. But it might not be quite as dead as those bare Buffett test figures make it appear.

SNOOPY

[Snoopy]

Also most people stream movies, not download them first and then watch. I really don't see many people being able to make use of such high speeds at the moment. Maybe if everything was streaming at 4K and you had a busy household, you might use those higher speeds, but otherwise it'd be wasted for the majority.


There is an interesting exercise in forecasting broadband demand in Australia up until 2026 here:

https://www.communications.gov.au/file/35266/download?token=xuAA8KO-

They look at:

1/ Total monthly data required ( Unit: GB/month ): Depends on household composition and changes in technology
2/ Bandwidth Required: (This is the rate of data transferred) (Unit: 'bits per second'): Depends on the number and composition of households accessing the net at any one time - typically peaks outside of working hours, during evenings or weekends). Bandwidth is normally only an issue at peak periods.

These two factors are further analysed by age, income and family type, The total 'internet population' is then 'meshed together' to get a 'population view' of 'Total data' and 'bandwidth' use.

The three technological changes forecast to change internet demand in the next five years are:

1/ Video On Demand (VOD): Evolving in resolution from 'SD' (Standard Definition) -> 'HD' (High Definition), -> 4k -> 8k
2/ The "Internet Of Things' (IoT): Homes are expected to have up to 50 smart devices by 2026 (including smart lights and heating).
3/ Use of Virtual Reality (VR) devices.

Against these growth drivers, file compression technology is expected to result in a 9% reduction in transmission load instantaneously (affects bandwidth) and collectively (affects data) every year. Note that the bandwidth and data requirements of 2/ are almost negligible compared to 1/ and 3/. But low latency may be crucial (you don't want to trip up waiting for the lights to be turned on). VR has similar bandwidth requirements to 8k TV (19.5Mbps) , both of which are ten times that of HD TV (1.9Mbps).

The narrative of the highest impact family scenario is

"While one adult makes a video call, the other multi-screens by streaming VOD and browsing the web. The two children are watching YouTube and gaming online. An update to software is downloading in the background."

The significant drivers of increased internet use are higher definition video (from HD to 4k) , both to watch and as conference software, and the use of more virtual reality in games.

The future 2026 scenario as outlined will require 50Mbps for high use households but less than half that for smaller households with fewer people.

Breaking through the bounds of my own limited imagination of a more internet based future, 'the pros' are predicting that up until 2026, a streaming rate of 50Mbps from your internet provider will be more than enough. Only 2% of households are forecast to need more bandwidth than this. These examples are peak loads. We cannot assume that high use households would pay more to operate at peak load for only a short time of the day. They may select a lower speed and cheaper plan that nevertheless satisfies their needs 95% of the time.

SNOOPY

[Zaphod]

Bear in mind that those bitrates advertised in the fibre plans represent EIR's (excess information rate), with the CIR's (confirmed information rate) being in the vicinity of 2.5Mbps - 10Mbps. In other words, you're not guaranteed to receive 100Mbps 24/7/365 on the UFB network, instead you can burst to that level for a period of time. Obviously that doesn't take into account the weakest link in the chain rule, so depending upon how saturated the upstream content delivery networks are, you may see even less.

Netflix for example, requires 25Mbps for 4K but we actually see usage around 16Mbps at peak on our router, cycling down to a few Mbps.

At this point, 1Gbps+ residential plans are really only good for bragging rights or releasing pressure on the wallet.

[Snoopy]

Bear in mind that those bitrates advertised in the fibre plans represent EIR's (excess information rate), with the CIR's (confirmed information rate) being in the vicinity of 2.5Mbps - 10Mbps. In other words, you're not guaranteed to receive 100Mbps 24/7/365 on the UFB network, instead you can burst to that level for a period of time. Obviously that doesn't take into account the weakest link in the chain rule, so depending upon how saturated the upstream content delivery networks are, you may see even less.


Quite right. The iPrimus website:

https://www.iprimus.com.au/index.html#!/internet.

lists the nominal speed of a customer plan PLUS the expected performance at peak time (from 7pm to 11pm). For 50Mbps there is no difference between the headline bit rate and peak time bit rate. For 100Mbps the expected peak time rate has been measured at 95Mbps. But for the so called 'Home Superfast' plan, which the fine print says is based on 250Mbps, no measured peak time rate is given. At first I was thinking, this must be because there probably aren't enough 'high end' users out there to get a statistically representative sample. But then I began to wonder if these actual speeds were based on line tests from individual houses, or bitrate tests from the exit node of the ISP headquarters. If the latter then it maybe that the 'choke point' is upstream of the ISP in the NBN network somewhere. The other reason for not releasing actual 250Mbps system performance could be that it is embarrassing ;-(



Netflix for example, requires 25Mbps for 4K but we actually see usage around 16Mbps at peak on our router, cycling down to a few Mbps.

At this point, 1Gbps+ residential plans are really only good for bragging rights or releasing pressure on the wallet.



Isn't the likes of NZ's Chorus broadband FTTP technology good for 900Mbps (download)/ 400Mbps (upload) straight off the bat? Sure they sell slower bitstream plans, but these would be artifically restricted by Chorus? I am surprised your peak bitstream speed is only 16Mbps Zaphod. Or are you on ADSL or something?

Reading between the lines, it sounds like you are happy with your set up. But presumably if Netflix says you need 25Mbps and you find 'a few' Mbps to 16Mbps is OK, you are able to buffer your incoming bitstream to provide an acceptable viewing experience?

SNOOPY

[Snoopy]

Quite right. The iPrimus website:

https://www.iprimus.com.au/index.html#!/internet.

lists the nominal speed of a customer plan PLUS the expected performance at peak time (from 7pm to 11pm). For 50Mbps there is no difference between the headline bit rate and peak time bit rate. For 100Mbps the expected peak time rate has been measured at 95Mbps. But for the so called 'Home Superfast' plan, which the fine print says is based on 250Mbps, no measured peak time rate is given.


Below is the best bit of writing I have seen on the interplay between 'Fibre Broadband Wholesalers' and the 'Retail Service Providers' in a deregulated telecommunications market.

https://www.nbnco.com.au/content/dam/nbnco2/2018/documents/corporate-reports/is-nbn-cvc-charge-to-blame-position-paper-170731.pdf

Before you read the article you need to know about the two components of any wholesale charge:

1/ Access Virtual Circuit (AVC): An access charge determined by the maximum PIR (Peak Information Rate) bit rate requested, and the
2/ Connectivity Virtual Circuit (CVC): The collective amount of bits to flow between the wholesaler and the retailer at any given time.

After I read the article, I suddenly understood how the whole system works. But when I tried to translate this experience back to New Zealand, and 'Chorus' with 'NZ retailers' I had a problem.

Appendix 2 in the reference below is the Chorus wholesale pricing list:

https://company.chorus.co.nz/sites/default/files/downloads/chorus-ufb-services-agreement-price-list-2020-10.pdf

But here is what does not translate. All of those many connection plans seemed to have one price, regardless of how much data our Retailer's potential end line customer might need (IOW no variable CVC charge). Isn't Chorus in trouble without a CVC charge? By not having a CVC charge, are Chorus not in effect writing contracts to supply an unlimited amount of data?

SNOOPY

[Zaphod]

Isn't the likes of NZ's Chorus broadband FTTP technology good for 900Mbps (download)/ 400Mbps (upload) straight off the bat? Sure they sell slower bitstream plans, but these would be artifically restricted by Chorus? I am surprised your peak bitstream speed is only 16Mbps Zaphod. Or are you on ADSL or something?


Yes you're correct, the speed of plan is artificially restricted, generally by having the core network hardware drop any packets that appear after exceeding the PIR. A software change is usually all that's required to shift a customer from one bitrate plan to another, but the complicating factor seems to be the contractual arrangements between the LFC & ISP. This latter point accounts for the restrictions on the end customer changing their plans regularly.



Reading between the lines, it sounds like you are happy with your set up. But presumably if Netflix says you need 25Mbps and you find 'a few' Mbps to 16Mbps is OK, you are able to buffer your incoming bitstream to provide an acceptable viewing experience?

We have a 100/20 plan, and are heavy users given my use of the connection for video conferencing, remote network administration etc. from my home office, and our propensity to stream videos & general use of the internet. While we do saturate that connection from time to time, there isn't enough justification IMO to increase the bitrate of the overall plan.

Netflix (just as an example) provides a general guideline for the total bandwidth you should have available so as to enjoy a seamless (non-buffering) experience. In this case I think they've padded the recommendation out to 25Mbps to ensure that your experience isn't affected by other equipment or people in the premises also using the same connection. The real-world requirement seems to be around 16Mbps for the 4K stream using their selected codec. Personally, I think their 4K image quality is good, but could be better with a different codec and higher bitrate requirements, but that's a whole different kettle of fish.

[Zaphod]

But here is what does not translate. All of those many connection plans seemed to have one price, regardless of how much data our Retailer's potential end line customer might need (IOW no variable CVC charge). Isn't Chorus in trouble without a CVC charge? By not having a CVC charge, are Chorus not in effect writing contracts to supply an unlimited amount of data?
SNOOPY

You can think of Chorus and the other LFC's as providing the network infrastructure to transport the data packets. The LFC's ensure that their pipes and switching/routing infrastructure are capable of handling the throughput to adhere to any CIR/PIR agreements they have, but they aren't overly worried about the total volume of data transported. The ISP's have peering relationships both locally and internationally, and it is these entities that keep track of the total data throughput and charge the ISP accordingly.

The best comparison I can make would be between the LFC's and the electricity network providers (Vector, PowerCo etc.) The lines infrastructure are sized according to demand, which admittedly is a function of the total throughput, but overall the network provider isn't interested in tallying the exact number of Kw/h being supplied to each retailer or consumer, which is the responsibility of other parties (peers in the above example).

Unfortunately, the landscape is becoming even more complicated, as some ISP's and peering network's seek to charge companies such as Netflix for traffic traversing their networks. This is regarded by some as double dipping, as customers have paid for a certain bandwidth and data cap, but yet the ISP/Peer is seeking to also charge another party for the same traffic.

I've perhaps oversimplified, glossed over, and committed other technical atrocities in the last two posts (for which I'm certain I'll be vilified for) in order to make it appropriate for those not in the IT industry, however the gist is correct.

[Snoopy]

The speed of plan is artificially restricted, generally by having the core network hardware drop any packets that appear after exceeding the PIR (Peak Information Rate). A software change is usually all that's required to shift a customer from one bitrate plan to another, but the complicating factor seems to be the contractual arrangements between the LFC (Local Fibre Company) & ISP (Internet Service Provider). This latter point accounts for the restrictions on the end customer changing their plans regularly.


A reason I can see for having a contract based arrangement between the LFC and ISP for internet delivery would be to give certainty of total demand (the LFC overall supply 'highway' has to be big enough at peak demand for all ISPs combined) and rate of supply (the width of the 'slip road' supplying each ISP must be big enough). If the size and stream rate of bits of information was not contracted, then neither the ISP nor the LFC would be able to size their switching/routing equipment correctly.

Another point here is that the 'amount of data' an end line user wants and the 'rate at which they want to collect that data' are these days usually linked, because much of the data is for 'video on demand' (VOD). VOD demands a high bitrate to deliver high definition images.



You can think of Chorus and the other LFC's (Local Fibre Companies) as providing the network infrastructure to transport the data packets. The LFC's ensure that their pipes and switching/routing infrastructure are capable of handling the throughput to adhere to any CIR (Committed Information Rate)/PIR (Peak Information Rate) agreements they have, but they aren't overly worried about the total volume of data transported.


From page 2

https://www.nbnco.com.au/content/dam/nbnco2/2018/documents/corporate-reports/is-nbn-cvc-charge-to-blame-position-paper-170731.pdf

"There are a lot of statistics involved which form the assumptions of what the quality level of access will be at peak times. If RSPs don’t dimension their own network with enough capacity, if they don’t purchase enough CVC flow through at peak time, or if nbn has not dimensioned its network with enough capacity, service will degrade at peak time."

NBN in Australia seems to be concerned to see that their network has enough capacity.



The ISP's have peering relationships both locally and internationally, and it is these entities that keep track of the total data throughput and charge the ISP accordingly.


Or maybe not charge the ISP accordingly? This could be useful if Netflicks released a popular new movie. Peering would mean that only one of the peered ISPs would have to download the movie to offer it to all peer connected ISPs' customers. That way, one download could be 'sold' to several hundred people, (saving the ISPs traffic charges), but Netflicks could keep all the individual subscriber payments to watch the movie. Clever.

SNOOPY

[Zaphod]

A reason I can see for having a contract based arrangement between the LFC and ISP for internet delivery would be to give certainty of total demand (the LFC overall supply 'highway' has to be big enough at peak demand for all ISPs combined) and rate of supply (the width of the 'slip road' supplying each ISP must be big enough). If the size and stream rate of bits of information was not contracted, then neither the ISP nor the LFC would be able to size their switching/routing equipment correctly.

Another point here is that the 'amount of data' an end line user wants and the 'rate at which they want to collect that data' are these days usually linked, because much of the data is for 'video on demand' (VOD). VOD demands a high bitrate to deliver high definition images.

Yes, it's very important to have some certainty around capacity requirements and those contracts play an important role in that. The RSP's and LFC's have also have a huge pool of historical data to conduct trend analysis upon, so predicting demand and designing their networks accordingly, becomes easier in most respects.



"There are a lot of statistics involved which form the assumptions of what the quality level of access will be at peak times. If RSPs don’t dimension their own network with enough capacity, if they don’t purchase enough CVC flow through at peak time, or if nbn has not dimensioned its network with enough capacity, service will degrade at peak time."

NBN in Australia seems to be concerned to see that their network has enough capacity.

Yes, that's right. The context of my earlier statement above is related to the total volume of data transferred in GB or TB in terms of the LFC. That total is not particularly important to the LFC, but knowing what the peak flow rates are and having the ability to adequately service them are very important. Likewise, the RSP must also ensure their network is capable of sustaining their peak flow rate, while simultaneously monitoring the total volume of data transferred to minimise the costs incurred from peering.


not[/i] charge the ISP accordingly? This could be useful if Netflicks released a popular new movie. Peering would mean that only one of the peered ISPs would have to download the movie to offer it to all peer connected ISPs' customers. That way, one download could be 'sold' to several hundred people, (saving the ISPs traffic charges), but Netflicks could keep all the individual subscriber payments to watch the movie. Clever.
SNOOPY

There are many different methods employed by the ISP, CDN and service providers to achieve this, some of which (such as zero rating traffic for specific services) has come under legal scrutiny. Most SVOD services employ a geographically localised CDN that is directly peered to each of the ISPs, or sometimes just a specific favoured ISP. Sometimes this CDN may actually be deployed within the ISP core network itself. You can see there are plenty of ways to earn a dollar from each of the parties involved, while also charging the customer for data whose costs has in some cases has already been paid for by another party.

There is enormous complexity behind scenes in relation to the core networks that supply internet services, as well as the business models employed by each of the parties involved.

[Snoopy]

The future 2026 scenario as outlined will require 50Mbps for high use households but less than half that for smaller households with fewer people.

Breaking through the bounds of my own limited imagination of a more internet based future, 'the pros' are predicting that up until 2026, a streaming rate of 50Mbps from your internet provider will be more than enough. Only 2% of households are forecast to need more bandwidth than this. These examples are peak loads. We cannot assume that high use households would pay more to operate at peak load for only a short time of the day. They may select a lower speed and cheaper plan that nevertheless satisfies their needs 95% of the time.


The Average Revenue Per User (ARPU) broadband trend for NBN and Chorus (as published by the respective companies) is as follows:



NBNChorus


FY2014$A37


FY2015$A40


FY2016$A43


FY2017$A43


FY2018$A44


FY2019$A44$NZ47.50


FY2020$A45$NZ48.12



There are a few gaps in the 'Chorus' column. That is because although Chorus have been keen to mention in passing how the ARPU of their broadband base is growing, they have been very shy about quoting actual figures. What we do know is that the fibre reaches more deeply into NZ broadband network, with FTTP being the accepted goal whereas in Australia FTTN and even lesser fibre broadband reach has been accepted as a 'cost cutting way' to achieve 'fibre grade broadband' nationwide. It is therefore a little surprising to see that once you adjust for the respective currencies, the NZ system is both cheaper for the consumer and better performing.

My concern about the 'fibre broadband network model' is this. Both NBN and Chorus have enormous debts, because both networks have been built, with government support, ahead of the demand curve. Such a business model was always going to be loss making for many years, while demand caught up with supply. This delay between getting in the revenue and laying out the capital was a good reason for the respective governments on both sides of the Tasman to become involved. However, while the capital spend has largely been completed in both cases, the demand side of the service is still evolving. If both NBN and Chorus are relying on ever increasing ARPU to pay off their massive debts, yet technological developments have - to some extent- caught up with functional demand, what is the incentive for customers to pay more and more for higher bitstream rates? And if ARPU does not continue to increase, what does that mean for the longer term capital position of these network companies (hint: IMO it isn't looking good)?

No one would argue that the NZ roll out of broadband has produced the superior network. Even the Australians grudgingly admit this. But I would argue that the superior NZ network makes the option of paying more for something faster less useful for NZ customers from here on in. That means, in growth in ARPU terms, and taking a network owners perspective, the likes of Chorus NZ is in a worse position than NBN in Australia going forwards.

SNOOPY

[Snoopy]

The Average Revenue Per User (ARPU) broadband trend for NBN and Chorus (as published by the respective companies) is as follows:



NBNChorus


FY2014$A37


FY2015$A40


FY2016$A43


FY2017$A43


FY2018$A44


FY2019$A44$NZ47.50


FY2020$A45$NZ48.12





Having embarrassed myself on the Chorus thread by being unable to calculate the ARPU figures for Chorus, I will now continue my embarrassment by trying to do the same for NBN here,

From NBN AR2020 p133:
Total Broadband Revenue for FY2020 was: $2,979m + $666m = $3,645m

From NBN AR2020 p7:
Average number of 'premises activated' over FY2020 was 0.5x (7.3m + 5.5m) = 6.4m

=> monthly ARPU = (1/12) x $3,645m / 6.4m = $47

That is a bit higher than the $45 figure quoted. But on re-reading the text, that $45 ARPU is for residential connections only (AR2020 p7). If the business rate was higher, that could explain why my 'average calculation' was pushed up. Of course no ARPU figure is quoted for all users including business.

I also see in the fine print that the connection figures include those customers, retail and business, 'ready to connect' as well as those 'actually connected'. If you are looking for a way to obfuscate your calculation methods, NBN is certainly pulling out all stops!

SNOOPY

[Snoopy]

If NBN are relying on ever increasing ARPU to pay off their massive debts, yet technological developments have - to some extent- caught up with functional demand, what is the incentive for customers to pay more and more for higher bitstream rates? And if ARPU does not continue to increase, what does that mean for the longer term capital position of network companies (hint: IMO it isn't looking good)?


Based on the Australian telecommunications network as it existed in 2009, NBN was expecting that some 70% of those existing customers, after the NBN was installed outside their gate, would eventually migrate to NBN. The remainder would likely eventually 'go fixed wireless', (not on a system run by NBN), or not have any fixed line at all. Because NBN is publicly owned, projections of EBITDA well out into the future have been made.

https://www.nbnco.com.au/content/dam/nbnco2/2018/documents/corporate-reports/nbn-co-strategic-review-report.pdf

According to graph 2-3 on page 39 of the above reference, projected EBITDA from FY2021 onwards are as follows (I have interpolated the numbers from the graph).



Financial Year
Projected EBITDA
Actual EBITDA
Projected CAPEX
Actual CAPEX


2019
-$1,200m
$600m-$1,900m= -$1,300m
-$7,000m
-$5,905m


2020
-$600m
$1,800m-$2,400m= -$600m
-$7,000m
-$5,038m



Final Network Build Cost EOFY2020



-$42,512m



2021
$300m

-$6,600m


2022
$1,100m

-$6,400m


2023$1,900m

-$6,000m


2024$3,000m

-$4,000m



Final Network Build Cost EOFY2024


-$55,900m




2025$4,400m

-$800m


2026$4,800m

-$1,200m


2027$5,200m

-$2,000m


2028$5,400m

-$2,200m



Notes

1/ Network build costs and the sum of capital expenditure from FY2010 and do not include associated interest borrowing costs.



The above figures are from the revised outlook where completion of the core network was not envisaged until 2024.
Considering these projections were made back in 2013, the EBITDA figures are surprisingly well on track.

SNOOPY

[Snoopy]

The 'Return on Equity' for 'Enable' will certainly improve going forwards, as more connections are made to the existing fibre network. It will also improve as the overall value of the network depreciates and the accompanying ongoing capital expenditure reduces. At EOFY2020 (30th June 2020), the customer connection rate at 'Enable' had risen to 63%. That compares favourably to 'Chorus' which, at the same date, had a fibre network connection rate of 60%.


Enable are set to catch up with Chorus in offering 'hyperfibre' to the residents and businesses of Christchurch. From p14 of the current edition of the 'Christchurch Star'.

https://www.yumpu.com/en/document/read/65778732/the-star-july-22-2021

"Next month Enable is launching a range of hyperfibre products including 2Gbps, 4Gbps and 8Gbps, all with symmetrical download and upload speeds."

"Most households would still fall short of using 2Gbps of bandwidth even if every family member is mainlining 4k Netflix at the same time, while on-line gaming and watching a Zoom call in the background."

"But Enable (like Chorus and other fibre operators) is in an arms race against Spark and Vodaphone in their push to promote fixed-wireless broadband, which uses a mobile network to deliver fast internet to home or small business - and the fibre companies want to keep bragging rights about offering the fastest service."

"Spark and Vodaphone argue their cheapest unlimited data broadband plans start from just $50 a month with same day install."

"5G rollouts are allowing increasing amounts of bandwidth that, depending on location, can handily outpace entry level 100Mbps UFB fibre plans."

I understand Enable and the others need to compete on speed, because ultimately you can't compete on portability with a mobile network. I understand medium to large business may benefit from Hyperfibre. However, I would suggest that Mom and Dad users may be perfectly well served by fixed mobile broadband, especially with 5G fixed mobile technology coming on stream. I guess there is always the status symbol of having the fastest broadband, just like some prefer to own the fastest car, (notwithstanding the fact that NZ roads won't let you exploit it). But while others can see you have the fastest car, no-one is going to know that you have the fastest broadband. So where is the status in that?

SNOOPY

[Snoopy]

Does Vital fit into this group somewhere?


Hi Lola,

You have piqued my interest in Vital now, and in particular their 'wired network' business in Wellington. I see back before the nationwide fibre roll out, Teamtalk, as Vital was called then, put in a bid with Fulton Hogan to build fibre broadband throughout Wellington. Ultimately that partnership didn't get the gig and Chorus did the job. Then Spark had a go at taking out Teamtalk back in 2017. But they walked away after the 'Vital' Farmside rural division got divested to Vodaphone. So I guess Spark didn't see the value in taking over what was left?

There were some sobering words on Vital's Wellington 'wired network' in the Vital Chief Executives address at the last AGM:

"There was a clear gap on what we could offer verses what customers could get elsewhere with UFB. Our previous network design limited us as to what we could offer in terms of different types of services and associated pricing plans. Our services could not be compared to UFB offerings, they were too expensive and had limited capability. being only offered at 100Mbps , 1Gbps and some limited 10Gbps ports. I am pleased to announce that we now have our new products and pricing plans for our wholesale partners ready to launch, following board approval earlier today. We have moved to meet the market and we now have 74 different wholesale products compared to our legacy 14. Our old pricing and products were a major impediment to new business."

That all sounds very well, but it still looks like Teamtalk are only just ahead of the Chorus freight train, with Chorus rolling out 8Gbps hyperfibre. So Vital have outlaid heaps of capital to upgrade their Wellington network, but will now be charging less money for their services, the services that haven't been usurped by Chorus, than before. Have I got that right?

SNOOPY

[Snoopy]

There were some words on Vital's Wellington 'wired network' in the Vital Chief Executives address at the last AGM:


"We can now offer services utilising our new PE nodes with MPLS as the underlying technology which will provide greater scale and flexibility. Our services will be MEF compliant, UFB comparable along with faster delivery times and priced to compete."

Now I don't mind admitting I have no idea what the CE has just said in that sentence. So using Google to take that sentence apart 'byte by byte'....

1/ PE stands for 'Provider Edge' that I take to mean an exit gateway to the fixed Wellington network. A 'PE router' is a router between one network service provider's area and areas administered by other network providers. So the 'PE node' is where Vital's wholesale customers connect.

2/ MPLS stands for 'Multi Protocol Label Switching'. MPLS is a routing technique in telecommunications networks that directs data from one node to the next based on assigned short path labels rather than long network addresses, thus avoiding complex 'look ups' in a routing table and speeding traffic flows. MPLS can be used to deliver many different categories of traffic.

3/ MEF stands for 'Metro Ethernet Forum', a global alliance of more than 220 organizations including telecommunications service providers, cable TV Multi System Operators, network equipment/software manufacturers, semiconductors vendors and testing organizations. Vital are just embracing common industry standards by saying this.

4/ UFB Comparable means Ultra Fast Broadband comparable which is an interesting thing to say because it implies even the new subterranean Vital city network might not be using the current best practice 'dark fibre' that Chorus have laid as competition?

Phew! I don't see any enduring competitive advantage with any of this though. Is there anything in the above that Chorus cannot replicate?

SNOOPY

[Snoopy]

I have always been a bit debt averse with my investments. That's why I embrace the concept of figuring out how long a company would take to repay all its debts if it diverted all of its profits toward that goal (I have coined the term MDRT or 'Minimum Debt Repayment Time' for this). I am aware that 'certainty of cashflow' means it is fiscally efficient to leverage up a company's balance sheet. Yet, I regard an MDRT figure above 10 years as a sign of a heavily indebted company. Chorus, is on an MDRT figure of 44.7 years. I find that eye watering. I tell myself that extreme certainty of cashflow means extreme levels of debt are sustainable. A counterpoint view to this is that Enable (MDRT of 26 years) have stated that FY2020 is their year of 'peak debt' and they will target debt reduction from here on in. Call me too conservative if you like, and maybe it is my mindset that is wrong. But that debt position at Chorus worries me.


To answer my question first, it is how much cashflow that you need to service your debt that matters. The way that the banks answer this question is to look at:

'Net Debt' / EBITDA

This is a measure of a company's ability to deal with the absolute quantum of its debt. Chorus's banking syndicate says that they want this figure to be below 4.75. So let's take four companies that own fibre broadband circuits and see how this banking covenant stacks up for the FY2020 financial year. The companies are spread across the page in order of descending size.



Broadband Network CompanyNational Broadband Network (Aus)ChorusEnableVital


Total Net Debt$20,619m$2,680m$278.426m$17.619m


EBITDA$1,789m$648m$52.585m$8.136m


'Total Net Debt'/EBITDA11.54.145.292.17



Notes

1/ Total net debt at NBN: $19,548m +1,000m + $415m - $344m = $20,619m
2/ Total net debt at Chorus: $2,234m + $183m + $263m = $2,680m.
3/ Total net debt at Enable: $294.4m - $10m -$5.974m = $278.426m.
4/ Total net debt at Vital: $14.000m + $5.477m - $1.858m = $17.619m
5/ EBITDA for NBN is: -$5,239m (NPAT) + $1,460m (finance costs) + $3,154m (D&A) + $2,414m (Subscriber Costs) = $1,789m. 'Subscriber Costs' are a special payment made to incumbent telcos to turn off their legacy networks once the new national broadband network is in place. Subscriber costs are one off payments.
6/ EBITDA for Vital is: $3.515m +$4.621m = $8.136m


The high depreciation costs have largely turned around the insufficient profit worries that I had. Depreciation is not a cash item and that makes the resultant incremental cashflow sufficient to deal with the heavy debt burden of all four companies. I had thought that Chorus was particularly heavily indebted, butting up close to the banking syndicate standard of 4.75 . However, it is clear that neither Enable nor NBN would even be close to meeting this banking standard. Both are fully government owned, so I guess the safety net of a government bail out has made the difference to allowing them to continue in business under their current financial structures. Chorus claim that debt has peaked at EOFY2020, even if the HY2021 result suggests debt is not yet on target to reduce. Long time readers of this thread will know that the Chorus CIP preference shares and debt, which is part of the above Chorus total debt, has been discounted in accordance with accounting standards too. Curiously, the preference shares on the books at Enable are allowed to be counted as equity in contrast to what has happened at Chorus. So I would argue the net debt to EBITDA ratio for both Enable and Chorus, as I have calculated above, are lower than they could be than under alternative legal accounting presentations.

Now I know that Enable and NBN are both less able to service their debts than Chorus, does this make me a bit more warm and fuzzy about Chorus's debt position? Not really! Maybe I need to go into one of those military run 'accounting camps' to be re-educated?

SNOOPY

[Snoopy]

Interest Cover = EBIT / 'Net Interest'

This is a measure of the importance of 'earned by work' company income, in comparison with that company's "lender's interest income" (an outgoing). It represents how many times a company can pay its bank interest obligations using its earnings. Chorus's banking syndicate have previously said that they want this figure to be greater than 2.75: From the 25th May 2017 Chorus announcement:

"The facility has also been repriced to reflect current market rates and the covenants have been revised from 4.0 to 4.75 times debt to EBITDA and 3.0 to 2.75 times interest coverage, to better align with Chorus’ rating thresholds."

I have looked at all subsequent renewal of banking facilities announcements for Chorus. There is no mention of the interest coverage requirement being relaxed further.

According to investopedia:
"Generally, an interest coverage ratio of at least "2" is considered the minimum acceptable goal for a company that has solid, consistent revenues."

So let's take four companies that own fibre broadband infrastructure (note that the other half of Vital Ltd. is a nationwide two way radio service network), and see how this banking covenant stacks up for the FY2020 financial year. The four companies in the table below are spread across the page in order of descending size.



Broadband Network CompanyNational Broadband Network (Aus)ChorusEnableVital


EBIT-$1,364m (1)$246m$28.399m$3.515m


Net Interest Bill$631m (2)$117m (3)$13.382m (4)$1.001m (5)


EBIT / 'Net Interest'NM2.102.123.51



Notes

1/ EBIT for NBN is: -$5,238m (NPBT) + $1,460m (finance costs) + $2,414m (Subscriber Costs) = -$1,364m. 'Subscriber Costs' are a special payment made to incumbent telcos to turn off their legacy networks once the new national broadband network is in place. Subscriber costs are 'one off' payments that will cease when the initial nationwide roll out of NBN is finished.
2/ Total net interest at NBN: -$1,460m + $829m = -$631m
3/ Total net interest at Chorus: +$12m - $185m + $29m + $27m = -$117m (Ref AR2020 p47)
4/ Total net interest at Enable: +$0.081m - $13.499m + $0.036m = -$13.382m
5/ Total net interest at Vital: +$0.100m - $2.593m + $1.492m = -$1.001m

In all 'net interest' calculations, I have added back any 'lease interest'. This is because 'lease interest' has already been dealt with, in that it has reduced EBIT - lease interest is an expense - (equivalent to how rent was treated in pre-IFRS16 days). If I were to leave 'lease interest' as part of the overall interest bill as well, then that would be double counting its effect. Also 'lease interest' is generally owed to the owner of leased property, not a bank.

So there are the raw numbers for how these four protagonists stack up together. But what does it all mean?

SNOOPY

[Snoopy]

So there are the raw numbers for how these four protagonists stack up together. But what does it all mean?



NBN

NBN looks like an 'outlier case'. Given the extreme debt position at NBN, I was rather surprised to read in the annual report (NBN AR2020 p11)

"In order to lend additional support to our future growth ambitions, NBN Co this year completed its inaugural borrowing from private debt markets with the addition of credit facilities totalling $6.1 billion."

Looking at the EBIT/I statistic, some would say this is showing that NBN is insolvent (the negative EBIT figure, in the context of the the ceiling of government loan support being reached). It is only the depreciation and amortisation (not incorporated within the EBIT/I statistic) from what are 'long lived assets' that will provide any hope of positive cashflow for NBN in the near term. Just as well NBN is fully Australian Federal Government owned then! It would be interesting to know what "group of banks" has put up the new $6.1billion loan facility. To me, they look like fools. And it would be good to know which Australian banks an investor should not buy shares in! I note from p57 of the annual report that the NBN company has not yet drawn down on these facilities. So perhaps it is just a 'look friendly' to the government measure 'at this stage' for the banks?

Chorus

Interest coverage at Chorus and Enable meets the Investopedia standard of 2. But those figures of 2.10 and 2,12 respectively are close enough to that '2' target to demand scrutiny of the respective business models going forwards. All EBIT/I statistics are snapshots of a past time period. So what is really important, even if the EBIT/I figures aren't great (like Chorus and Enable at EOFY2020), is that these statistics keep getting better.

My post 2735 on the Chorus thread predicts interest rate reductions should lead to $7.5m in annual interest rate savings for Chorus from FY2022 onwards in the denominator. Yet EBIT has already fallen to $114m in HY2021 from $134m in HY2020, a drop of 15% (or 13% if we leave out $3m of proceeds from a HY2020 legal settlement). Annualising those changes I get:

EBIT/I = ($114m x2)/($117m-$7.5m) = 2.08

That is still OK, albeit moving in the wrong direction. But there are no more interest rate savings on the horizon until 2028. And there is no guarantee that the downward trend in EBIT over the last five years ($267m, $313m, $266m, $243m, $246m) will not continue. I would describe the Interest Coverage Ratio position at Chorus to be 'tight'.

Enable

Enable, fully owned by the Christchurch City Council, doesn't provide the same amount of continuous disclosure as a publicly listed company. We do know that as at 30th June 2021, they were providing broadband to 132,000 homes and businesses, up from 117,690 on 30th June 2020. Last year I estimate the ARPU to be:

$67,729,000 / (0.5x(101,271 + 117,690)) = $619 per year (Or $51.55 per user per month).

If we assume the average number of new customers over a year for FY2021 was:

0.5 x (132,000 - 117,690) = 7155

Then that equates to incremental revenue of: $51.55 x 7155 = $370,000 over FY2021

With no legacy network to wind down, like Chorus has, and with the underlying infrastructure complete (unlike Chorus), incremental revenue gains should flow straight through to profits. Funding for Enable is via the business holding company of the council, 'Christchurch City Holdings Limited'. Interest is charged at Christchurch City Council borrowing rates, plus 1%. The most recent local government funding authority presentation:

https://www.lgfa.co.nz/sites/lgfa.co.nz/files/25.05.2021%20Investor%20Presentation.pdf

shows eight year bond rates at 2%. So if the Christchurch City Council's financing committee has been prudent, borrowing rates at Enable should be locked in below 3% until 2028. Low borrowing rates and increasing EBIT should see the 'Interest Coverage Ratio' at Enable rise over time. And that is a good thing.

Vital

Finally Vital is seeing a revenue squeeze as they readjust their pricing (to match the likes of Chorus) . Vital is coming off a period of heavy infrastructure investment and the jury is still out on whether profit margins will recover to the level of even three years ago. However, the EBIT/I 'Interest coverage ratio' is still the most favourable of the four protagonists, even under post Covid-19 depressed profitability. Debt is funded by the BNZ and is relatively short dated (as at 30th June 2020 the facility would expire in December 2022). So Vital is far more exposed to market rises in interest rates compared to the others. Averaging the outstanding loan balance over the year, the average interest rate paid by Vital over FY2020 was:

$1.001m / (0.5x($14.000m + $12.500m)) = 7.6%

That seems very high for an infrastructure company, even a small one. Furthermore the short dated nature of the funding would suggest the interest rate payable may increase, ahead of the other three. While meritorious that the interest coverage ratio at Vital is the best of this comparative group, the less certain revenue path forwards combined with the higher risk of interest rate rises probably demands a superior 'interest coverage ratio'.

SNOOPY

[Waltzing]

your a machine

[Marilyn Munroe]

Some are of the opinion 5G wireless broadband is a fiber killer.

Here is a link to a YouTube video which examines the 5G rollout in China. It suggests the 5G reality is less than the hype.

https://www.youtube.com/watch?v=4tE24j5WFw4

Boop boop de do
Marilyn

[Snoopy]

Some are of the opinion 5G wireless broadband is a fiber killer.

Here is a link to a YouTube video which examines the 5G rollout in China. It suggests the 5G reality is less than the hype.

https://www.youtube.com/watch?v=4tE24j5WFw4

Boop boop de do
Marilyn

Greatly increased power consumption because more towers are needed and 5G towers with a range as small as 100m? 5G transmission equipment turned off overnight to save power for the mobile network owners? Maybe Chorus aren't so silly as to suggest their WiFi 6 over fibre could be a real competitor for 5G?

SNOOPY

[Snoopy]

The roll out of fibre broadband in New Zealand has been on a public/private partnership model. Details of the oversight regime can be found here:

https://www.crowninfrastructure.govt.nz/ufb/what/

The resulting fibre broadband network is a natural monopoly that will require ongoing government oversight.

There are four fibre broadband companies in New Zealand.

1/ 'Chorus', a listed public company on the NZX , that in May 2011 was engaged to build out 24 of the 33 designated Ultra Fast Broadband build out areas at the time. It also had the job of filling in any regional gaps not covered by companies 2,3 and 4 as listed below. Chorus is also the operator of the legacy copper wire network all over New Zealand.
2/ 'Northpower', a power network company that has also taken on the task of rolling out fibre broadband to the following Northland communities: Kaipara, Whangarei, However there are certain outlying areas in these regional centres and 'the far north' that are instead built by Chorus.
3/ 'Ultrafast Fibre' that has covered the Central North Island: Hamilton, Cambridge, Te Awamutu, Kihikihi, Hautapu, Tirau, Tokaroa, Putaruru, Ngaruwahia, Te Kowhai, Tauwhare, Huntly, Raglan, Tauranga, Katikati, Omokoroa, Te Puke, Aongetete, New Plymouth, Hawera, Normanby, Eltham, Stratford, and .Whanganui
4/ 'Enable' that has built fibre broadband all over Christchurch. Lyttelton, Lincoln, Prebbleton, Rolleston, Tai Tapu, Kaiapoi, Mandeville, Tuahiwi, and Woodend


From:

https://www.sparknz.co.nz/news/joint_fibre_build/

I never knew that Spark had their own 'secret' fibre network, as revealed in this article from February 2018.

--------------------

“Our fibre network has been constructed over the last 30 years by a combination of solo and joint builds. Typically, we’ve kept these plans confidential due to commercial sensitivity,"

"Spark’s National Fibre Network is the backbone of the company’s network."

"Spark is one of New Zealand’s largest investors in fibre optic infrastructure with over 8,300km of fibre and believes that through a new collaboration process, it could significantly increase the usual level of fibre deployment, with no pass-through of costs to the consumer."

"Spark owns its own network of high speed fibre around the country, mostly between towns and on main arterial routes providing backhaul for data traffic and mobile sites. This differs from the fibre in residential areas which is laid by other network providers as part of the Ultra-Fast Broadband (UFB) initiative."

-------------------

That last sentence refers to the parts of the network, now owned by Chorus and the other three lines companies of that ilk. I have looked back at the publication 'Share Two Journeys' before what became the "Telecom" to "Chorus/Spark" split. From page 69, the following information was published in 2011. The fibre network distribution hierarchy, back then, looked like this:

International Cable (Southern Cross) > Auckland Gateways (2) > Major Exchanges (30) > Local Exchanges (602) > Roadside Cabinets (11430)

The pieces in bold were (still are?) owned by Spark. The 'Major Exchanges' comprise the 'regional back-haul' link, to which the local exchanges connect. The 'regional back-haul' links connect to the 'core network' that is tied to the two Auckland gateways. In 2011, IIRC, our only international connection to other countries was the Southern Cross Cable, which is why everything was funnelled to Auckland.

Back in 2011, before the creation of Chorus, and any government mandated industry interference:

"Over 27,600km of fibre cable has already been deployed throughout New Zealand, with substantially all local exchanges connected to the regional backhaul and core network via fibre."

There is further comment on p77 of the 'Share Two Journeys' reference, which has meaning regarding the upstream part of the fibre broadband network still owned and operated by Spark

"The Commerce Commission's normal role of monitoring and investigating and regulating telecommunications services and overseeing general competition obligations under the Commerce Act and the Telecommunications Act will continue. However, the changes made by the "Telecommunications Amendment Act" will prevent the Commerce Commission from requiring the unbundling of Layer 1 point to multi-point until after 31 December 2019 so long as there is a binding in force (which is anticipated to be the case in the fore of the open access undertakings). Other UFB services may be regulated in the future."

For those not familiar with the jargon

"Layer 1 is the physical hardware within a telecommunications fixed access network comprising copper and or fibre cables and co-location space inside of exchanges or cabinets." "Point to multi point" refers to some kind of wireless broadband inside the aforementioned cabinets (I am not aware of wireless broadband operating like that in NZ, but stand to be corrected).

2019 has been and gone. So I presume no problems emerged from third party network and retail providers unable to gain satisfactory access to Spark's owned exchanges. Whether the likes of 'Vodaphone' and '2 degrees' have subsequently built their own backhaul fibre cabling to subsequently become independent of Spark I do not know (anyone?).

This post exists to give investors a bit more background knowledge of how the fibre broadband network operates in New Zealand. I don't know where in the Spark accounts there are payments from other telecommunications providers to access the Spark owned piece of the broadband network, or even if such payments exist. But I would like to find out!

SNOOPY

[Snoopy]

I have looked back at the publication 'Share Two Journeys' before what became the "Telecom" to "Chorus/Spark" split. From page 69, the following information was published in 2011. The fibre network distribution hierarchy, back then, looked like this:

International Cable (Southern Cross) > Auckland Gateways (2) > Major Exchanges (30) > Local Exchanges (602) > Roadside Cabinets (11430)

The pieces in bold were (still are?) owned by Spark. The 'Major Exchanges' comprise the 'regional back-haul' link, to which the local exchanges connect. The 'regional back-haul' links connect to the 'core network' that is tied to the two Auckland gateways. In 2011, IIRC, our only international connection to other countries was the Southern Cross Cable, which is why everything was funnelled to Auckland.

I don't know where in the Spark accounts there are payments from o'Rent and rates' expensesther telecommunications providers to access the Spark owned piece of the broadband network, or even if such payments exist. But I would like to find out!


"I have flipped over to the other side of the 'network renting' equation and looked at what is declared in the Chorus accounts, under 'Expenditure Commentary'. My eye was first drawn to the line that read 'Other network costs'. However this refers to 'fibre access costs from third parties'. That means retailers coming into a Chorus site and installing their own equipment. As for Chorus accessing the 'Spark' fibre upstream network, I think this is more likely to be found in the category 'Rent and rates' expenses.

The following statement has appeared in the Chorus Annual reports for the past five years under the 'Rent and rates' expenses notes:
"Rent and rates costs relate to the operation of our network estate including exchanges, radio sites and roadside cabinets. These costs include rates that are levied on network assets both above and below ground."



FY2016
FY2017FY2018FY2019FY2020


Rent and rates (A)$16m$17m$9m$13m$13m


Finance Lease interest$13m$14m


Lease Interest$18m$20m$21m


Implied IFRS16 Rent Interest (B)$4m$4m$4m


Total Rent & Rates Expenses (A)+(B)$16m$17m$13m$17m$17m



UFB assets, as they are rolled out, both under and over the ground, are progressively including in the rating calculations of local bodies. That means that one would expect the rates bill for Chorus over the years would increase faster than any general increase in rates, at least up until the UFB roll out was finished.

IFRS16, on the treatment of leases, threw a spanner in the works of the above comparison. From the Chorus AR2018 page 21.

"The adoption of IFRS16 means most rental leases are now capitalised as a right of use asset and subsequently depreciated over the life of the lease, and rental payments are recognised between interest expenses AND repayment of lease liability" IFRS16 has ended the distinction between 'finance lease expenses' and 'other lease expenses' for reporting purposes.

p23 AR2018 comments on the significantly higher lease interest paid over that year by saying: 'due to the treatment of leases under IFRS16'.

That quote implies to me that the increase in lease interest paid 'year to year' of $4m was entirely due to the change in lease standard IFRS16. If that is true and with the full roll out of the network in sight at EOFY2018, then I can use that $4m difference to add up a 'like with like' comparison of 'Rates and rents' payments over the years. This is the last row in my table above. In spite of this the $8m drop in rates and rent for FY2018 is not fully explained by $4m of those costs being reclassed as 'lease interest payments'. What I can say from the table is that if it includes both rates and lease interest payments due to Spark, then the money owed each year to Spark for 'renting' the upstream fibre does not seem to be all that high. Maybe it is not even worth worrying about?

SNOOPY

[Doug]

From:


International Cable (Southern Cross) > Auckland Gateways (2) > Major Exchanges (30) > Local Exchanges (602) > Roadside Cabinets (11430)

The pieces in bold were (still are?) owned by Spark.
SNOOPY

Southern Cross is a joint venture including Spark.

Of course there are now 4 current cable connections to NZ and a further upcoming one from Southern Cross : https://techblog.nz/2603-More-connected-than-ever-new-undersea-cable-lands

[Snoopy]

Southern Cross is a joint venture including Spark.

Of course there are now 4 current cable connections to NZ and a further upcoming one from Southern Cross : https://techblog.nz/2603-More-connected-than-ever-new-undersea-cable-lands


Thanks for that reference Doug. After a bit more digging:

https://www.submarinenetworks.com/stations/oceania/new-zealand

1/ Whenuapai Cable Landing Station: Landing stations A & B for the 'Southern Cross Cable Network' (SCCN) , operated by Spark. In 2018, Telstra acquired 25% stake in SCCN and substantial capacity on both the existing network and the new Southern Cross NEXT subsea cable. As a result, SCCL is owned by Spark NZ (38.12%), Singtel EInvestments (30.49%), Telstra (25%) and Verizon Business (6.4%). The Southern Cross Cable Network (SCCN) forms a protected ring network among 9 cable landing stations (two each in Australia, New Zealand, Hawaii and the US mainland, and one in Fiji) and an access point in San Jose, California. The Southern Cross Cable Network contains 3 fiber pairs between Sydney and Hawaii, and 4 fiber pairs between Hawaii and the US West Coast,

2/ Takapuna Cable Landing Station: Landing stations B & C for 'Southern Cross Cable Network' (SCCN), and also for 'Southern Cross Next' (SC NEXT) , operated by Spark. SC NEXT will link to Australia, Fiji and the island nations of Tokelau and Kiribati on its way to the West Coast of the USA, in this case Los Angekes.

3/ Raglan Cable Landing Station: Landing station for 'Tasman Global Access' cable (TGA), operated by Vodaphone and connecting New Zealand and Australia

4/ Mangawhai Heads Cable Landing Station: Landing station for the 'Hawaiki Submarine Cable" operated by Hawaiki Submarine Cable LP. On 27th July 2021 the business was sold to BW Digital Pte. Ltd. based in Singapore, an affiliate of BW Group Limited, for an undisclosed price. The Hawaiki Submarine cable is actually a network of submarine cable systems linking Australia, New Zealand, American Samoa, Hawaii and Oregon, on the U.S. West Coast.

SNOOPY

[Snoopy]

Some are of the opinion 5G wireless broadband is a fiber killer.

Here is a link to a YouTube video which examines the 5G rollout in China. It suggests the 5G reality is less than the hype.

https://www.youtube.com/watch?v=4tE24j5WFw4

Boop boop de do
Marilyn


I have been perusing the Spark strategy document for FY2021 to FY2023

https://investors.sparknz.co.nz/FormBuilder/_Resource/_module/gXbeer80tkeL4nEaF-kwFA/Spark%202023%203-Year%20Strategy%20FINAL.pdf

I don't remember reading a document with so much hot air and so few facts to back it (although due to the length of the document - 90 slides-, there are sufficient facts to be of some forecasting use). But one thing is very clear. If Spark achieve their goals it will be at the expense of Chorus. Come EOFY2023 either JB Rousselot or Jolie Hodson will be in tears. Spark are going 'all in' with 5G (with support from 4G and 4.5G), and here is their argument, in bullet points, as summarized from the above presentation, for doing so:

1/ Wireless is increasingly able to meet most customer needs. (Slide 11)
2/ 5G rollout will cater to customers with high data needs, underpin innovation and free up 4G spectrum to increase capacity in regional and rural areas. (Slide 18)
3/ Significant progress towards wireless future with 22% of broadband base on wireless broadband (uncapped services launched with wireless broadband services launched in metro areas). (Slide 43)
4/ Currently (EOFY2020), 74% of broadband base is on fibre and wireless. (Slide 47)
5/ Rollout of 5G lowering cost per GB. Aim is for a 200% increase in network capacity over three years. (Slide 48)
6/ By EOFY2023, aim to have 30-40% of broadband base connected on wireless services. (Slide 61)
7/ 5G Investment in line with demand and use cases, can be scaled and commercialised. ( i.e. can quickly scale network development costs to demand), (Slide 62)
8/ Established Market growth to be the biggest growth driver ($140m-$160m revenue growth) with only half that ($80m-$90m revenue growth) coming from the combined new portfolio of 'Internet of Things', 'Digital Health' and 'Spark Sport'. The established market growth will highlight 'call unlimited mobile plans', 'cloud services' (I anticipate international competition in that space) and the aforementioned 'migration to fixed mobile' (that I view as the best of the existing growth engines). (Slide 73)

The weakness in the above strategy to my mind, as regards the 5G roll out, is the very disciplined capital investment of 10-11% of revenues in the medium term that covers all capital projects. My problem is not with the target, but with the potential execution. I know that new market growth strategies rarely go to plan. So what happens when Spark have to bid for more rugby content rights AND build more new 5G towers than expected at the same time? I bet a ramp up in cell tower construction will not come cheap. But equally well, a ramp down in production may see contractors laid off that they then cannot re-employ should the demand equation change. Balancing capex with revenue growth sounds responsible. But is it achievable?

Slide 14 outlines well the risks of expanding business outside of the current core.

--------------------

(There are) • few attractive growth markets where showing up and deploying capital is enough to succeed – need best-in-class, foundational capabilities that underpin success
• Limits optionality and increases risk through ‘big bets’.
• Divided leadership focus and resource allocation between ‘core’ and new markets.

--------------------

There is nothing I disagree with in those quoted statements above. They give rare insight into exactly the position Spark finds itself. The problem I have is that these statements are made in the context of the new 'agile' Spark being able to avoid these conundrums. I am not sure that is possible. I feel as though, at some point, Spark CEO Jolie Hodson is going to have to put her reputation on the line and make a 'big bet'. She will be a hero if it comes off and be out of a job if it doesn't. But if you work in an easily disruptable market -like telecommunications- that is the way of things. The surest bet that I can make is that either JB Rousselot (CEO Chorus) or Jolie Hodson (CEO Spark) will have been removed from their positions by EOFY2023. The growth strategies for both look to be on a collision course.

SNOOPY

[Snoopy]

The three technological changes forecast to change internet demand in the next five years are:

1/ Video On Demand (VOD): Evolving in resolution from 'SD' (Standard Definition) -> 'HD' (High Definition), -> 4k -> 8k
2/ The "Internet Of Things' (IoT): Homes are expected to have up to 50 smart devices by 2026 (including smart lights and heating).
3/ Use of Virtual Reality (VR) devices.


I can't say that I am at the forefront of internet technology. I am particularly skeptical about the commercial rewards that will accrue to internet providers as they access the IoT (Internet of Things.)
I have just found a series of podcasts created by 'Spark' on IoT.

https://www.spark.co.nz/iot/home/iot-insights/iot-podcasts/

I am listening to the first one "Twenty Billion Things" as I write this. It isn't grossly commercial, although Spark do not hesitate to use what they are doing as examples to illustrate a point. But I am hoping to be dignorantisised by the end of course. Just posting as others in my position my find it 'worth a listen'.

SNOOPY

[Snoopy]

Having failed the Buffett test, I feel it is more appropriate to consider both Chorus and 'Enable' as 'dividend shares', with any growth that might arise in the future as a bonus.


Something a bit strange is happening in Christchurch with the Enable broadband network. And it caused me to look up this 11th February press release.

https://www.enable.net.nz/blog/great-news-for-tenants-of-residential-rental-properties/

i got a snail mail notice to say that Enable was running a broadband cable down my shared driveway. Someone had asked to be connected to broadband (not me) so they were doing both houses on the cross leased section. Fair enough I thought. I am happy with my wireless broadband, but if the neighbours want to go the cable way, I am happy to let Enable run a cable to an outside termination point on my house as a future proofing exercise. Then after talking to the neighbours, I found they hadn't ordered fibre broadband. It was the landlord that asked for it to be put in (apparently). (I should mention that I am a homeowner and the other house on the cross leased section is tenanted.) I heard a 'rumour' that cable broadband was now regarded by the residential tenancy act as a basic necessity. The press release that I quoted above did not go that far.

Then I was talking to another friend on the other side of town who again lives in a property with multiple units on it and she said exactly the same thing happened to her (she wasn't a budding cable customer either). Anyway this got me wondering. Is this some phenomenon unique to Christchurch? Or are the likes of Chorus doing these 'uncalled for' roll outs in other parts of the country. It could be a smart grab to snare rental property tenant customers, who otherwise might gravitate towards wireless if no cable broadband connection existed when the moved in. Or it might be a gigantic squandering of shareholder funds on a marginal business prospect. Anyone in the rest of the country got a story like this?

SNOOPY

[Grimy]

I live on a R.O.W. with 3 other properties. I received a bunch of paperwork from Chorus saying one of the other properties had requested fibre and as it is a shared ROW that they needed everyone's permission. No problem, I and another owner gave our consent.
That was August, so at the start of lockdown, but Chorus workers were still out and about as essential workers (our street had fibre laid to section frontages early 2021). About the same time Chorus phoned and asked if we would like fibre connected to our house, even though I said I was happy with our VDSL service at present. No charge to set it up and of course made sense for a quick swap to fibre services in future if/when wanted.
So I said yes and am still waiting for the rep to arrive to check what is needed to do the job.
They've either forgotten, or more likely the 4th person on the ROW has not given their consent (which would not surprise me-he's the sort to be bloody-minded if he doesn't want it, or just wants to annoy the other residents) as the original household wanting the fibre has not been connected. I should really contact Chorus and find out, but it's low priority for me at present.

[percy]

I think you must think fibre is like your Sky satellite dish.
When you move houses, Sky ask you to leave your dish behind.

[Snoopy]

I live on a R.O.W. with 3 other properties. I received a bunch of paperwork from Chorus saying one of the other properties had requested fibre and as it is a shared ROW that they needed everyone's permission. No problem, I and another owner gave our consent.
That was August, so at the start of lockdown, but Chorus workers were still out and about as essential workers (our street had fibre laid to section frontages early 2021). About the same time Chorus phoned and asked if we would like fibre connected to our house, even though I said I was happy with our VDSL service at present. No charge to set it up and of course it made sense for a quick swap to fibre services in future if/when wanted.
So I said yes and am still waiting for the rep to arrive to check what is needed to do the job.
They've either forgotten, or more likely the 4th person on the ROW has not given their consent (which would not surprise me-he's the sort to be bloody-minded if he doesn't want it, or just wants to annoy the other residents) as the original household wanting the fibre has not been connected. I should really contact Chorus and find out, but it's low priority for me at present.


Enable rolled their cable past my gate around five years ago. I remember an Enable guy came around asking if I was interested in switching to broadband fibre, which I said I wasn't. Then he had another go asking if I thought I might change my mind in the next six months. This is fair enough and sensible marketing. Although nothing happened as I presume the neighbours at the time didn't want fibre broadband either. Subsequent neighbours did want fibre broadband. But that installation required permission from a third property tenant which they did not give (my immediate neighbour and the third party tenant did not get on). So nothing subsequent happened on that second occasion. Roll forward to today and there is -apparently- a kind of 'push' strategy going on: to get customers onto fibre that have not ordered it. Maybe Enable are taking the very long term view and such a strategy is sensible? Or maybe their installation contractors are 'in between new suburbs', so Enable need to find them work to do in the interim? (these days if you let contractors go, you might not get them back).

There is little doubt that fibre broadband is the best broadband technology from a performance perspective. But there is also little doubt that many broadband users find something 'less than the best' (in your case VDSL, in my case fixed mobile) more than good enough. The key comment you make about switching 'being a low priority' certainly resonates with me. And with the likes of Spark dangling so called 'fixed mobile' deals in front of their customers, there is often a low priority to seek out fibre alternatives when fixed wireless is offered. Perhaps the only way to compete with 'fixed mobile' is to have fibre broadband ready to go on the doorstep?

We have a special case in Christchurch where Chorus own the copper wires and Enable own the fibre. So maybe Enable are on a mission to 'get rid of Chorus' from Christchurch? I say that because once an alternative service is available, Chorus plan to eventually phase out their copper line service (which means more customers for enable or one of the fixed wireless providers). But if Chorus pull out their copper lines from Christchurch, then that means they are guaranteed to lose customers. I guess network dynamics are different when the owners of the copper and the owners of the fibre are different!

SNOOPY

P.S. Note that if you do decide to move away from VDSL but you change your mind later, your phone company will most likely not allow you to go back.

[Grimy]

We are in an area that doesn't get mobile coverage, so at present fibre will be the only option in the future - once they stop maintaining the copper line, which is why I am happy enough to run the fibre to the house for future-proofing. But at present VDSL is fine for my needs. And the fact that it seems the installation may have been stymied by the neighbour.
I was talking to one of the Chorus guys when they were doing the street works. He was very happy with his VDSL at home.....I must admit that our speeds seem to have increased since most of the street changed to fibre!

[kiwico]

P.S. Note that if you do decide to move away from VDSL but you change your mind later, your phone company will most likely not allow you to go back.

When we went from VDSL to Fibre they cut the copper line. We still have a landline and the copper line was affecting that, as it was receiving a connection from both. So certainly no way back for me. The other issue was that Slingshot, despite pushing for the move to Fibre, decided an extra $5 should be added to my fixed term bill (before I complained). Almost, but can't be, as bad as Vodafone.

[Gonzoid]

I was coming up for my slingshot fibre $85.00 mth and as there $62.00ish new rate was for new customers I have started the move to skinny for effectively under $60.00 a month. It did annoy me when they increased my 12 month "Deal" the extra Chorus was charging them but was still more than their new deal for new C's!

[Gonzoid]

My fibre install took 3 months spanning over Xmas.

[Snoopy]

The 'Enable Annual Reports' may be found here:

https://www.enable.net.nz/about-enable/corporate-publications/

Profits for the last five years have been normalised as described in the notes below:

'Earnings Per Share' = 'Adjusted Net Profit' / 'No. Shares on Issue'

FY2016: [$3.311m - $11.838m + 0.72( $0.377m + 0.005m)] / 34m = -24.3cps

FY2017: [-$8.518m - 0.72( $0.023m)] / 44m = -19.4cps

FY2018: [-$3.783m + 0.72($0.021m)] / 67.5m = -5.6cps

FY2019: [+$10.830m + 0.72($0.015m)] / 67.5m = 16.1cps

FY2020: [+$11.320m + 0.72($0.010m) - $0.006m] / 67.5m = 16.8cps


Notes

1/ For FY2016, I have removed $11.838m of asset revaluations that came about from a business recombination, added back $377k of business acquisition costs and $5k of Forex losses.
2/ For FY2017, I have removed $23k of Forex gains.
3/ For FY2018, I have added back $21k of Forex losses.
4/ For FY2019, I have added back $15k of Forex losses.
5/ For FY2020, I have added back $10k of Forex losses and subtracted $6k from asset sales

The eps trend is all one way, and that is up!

Conclusion: Pass Test


A couple of reporting periods have gone by since I last reported. So here are the updated numbers on how 'Enable', the Christchurch region's equivalent of Chorus, is doing. The 'Enable Annual Reports' may be found here:

https://www.enable.net.nz/about-enable/corporate-publications/

Profits for the last five years have been normalised as described in the notes below:

'Earnings Per Share' = 'Adjusted Net Profit' / 'No. Shares on Issue'


FY2018: [-$3.783m + 0.72($0.021m)] / 67.5m = -5.6cps

FY2019: [+$10.830m + 0.72($0.015m)] / 67.5m = 16.1cps

FY2020: [+$11.320m + 0.72($0.010m) - $0.006m] / 67.5m = 16.8cps

FY2021: [+$15.621m +0.72($0.003m) + $0.251m] / 67.5m = 23.5cps

FY2022: [+$22.440m +0.72($0.018m) - $0.010m] / 67.5m = 33;2cps

Notes

1/ For FY2018, I have added back $21k of Forex losses.
2/ For FY2019, I have added back $15k of Forex losses.
3/ For FY2020, I have added back $10k of Forex losses and subtracted $6k from asset sales
4/ For FY2021, I have added back $3k of Forex losses and added back $251k of losses from disposal of Property, Plant & Equipment.
5/ For FY2022, I have added back $18k of Forex losses and subtracted $10k from asset sales

The eps trend is all one way, and that is up!

Conclusion: Pass Test

SNOOPY

[Snoopy]

ROE or 'Return on Equity' is calculated as follows:

ROE = Adjusted Net Profit / (Shareholder Equity - Equity Adjusted Asset Revaluations)

FY2016: -$8.252m / [$100.799m - (0.2944x $11.838m)] = -8.48%

FY2017: -$8,535m / [$138.888m - (0.3270x $11.838m)]= -6.32%

FY2018: -$3.768m / [$212.952m - 0.4068 x ($11.838m + $24.854m)] = -1.90%

FY2019: +$10.841m / [$227.988m - 0.4157x ($11.838m + $24.854m)] = +5.10%

FY2020: +$11.321m / [$311.323m - 0.4690x ($11.838m + $24.854m +$66.424m)] = +4.31%


Notes

1/ I have decided to adjust shareholder equity by removing the equity funded component of all historic asset revaluations. Asset revaluations are beneficial for shareholders. But since no shareholder funds were outlaid to obtain these revaluations (a good thing), it will artificially reduce the return on 'paid for' company equity - if I include the revaluations in my ROE calculations. To calculate the adjustment to make to:

1/ the shareholder equity for all historically revalued assets,
2/ for each year

I have taken the cumulative historically revalued totals and multiplied each total by the equity ratio of that year.

Although we are going in the right direction, at no time in the last five years has Enable got even close to our return on equity target.

Conclusion: Fail Test


ROE or 'Return on Equity' is calculated as follows:

ROE = Adjusted Net Profit / (Shareholder Equity - Equity Adjusted Asset Revaluations)


FY2018: -$3.768m / [$212.952m - 0.4068 x ($11.838m + $24.854m)] = -1.90%

FY2019: +$10.841m / [$227.988m - 0.4157x ($11.838m + $24.854m)] = +5.10%

FY2020: +$11.321m / [$311.323m - 0.4690x ($11.838m + $24.854m +$66.424m)] = +4.31%

FY2021: +$15,874m / [$357.410m - 0.4834x ($11.838m+$24.854m +$66.424m+$48.266m )] = +5.58%

FY2022: +$22.443m / [$359.850m - 0.4792x ($11.838m+$24.854m +$66.424m+$48.266m )] = +7.81%


Notes

1/ I have decided to adjust shareholder equity by removing the equity funded component of all historic asset revaluations. Asset revaluations are beneficial for shareholders. But since no shareholder funds were outlaid to obtain these revaluations (a good thing), it will artificially reduce the return on 'paid for' company equity - if I include the revaluations in my ROE calculations. To calculate the adjustment to make to:

1/ the shareholder equity for all historically revalued assets,
2/ for each year

I have taken the cumulative historically revalued totals and multiplied each total by the equity ratio of that year.

Although we are going in the right direction, at no time in the last five years has Enable got even close to our return on equity target.

Conclusion: Fail Test

SNOOPY

[Snoopy]

Net Profit Margin = Adjusted Net Profit After Tax / Working Revenues

FY2016: -$8.252m / [$63.370m - $43,144m -$8.538m] = -70.6%

FY2017: -$8,535m / [$36.272m - $8.781m]= -31.0%

FY2018: -$3.768m / [$48.473m - $6.628m]= -2.14%

FY2019: +$10.841m / [$58.678m - $2.486m] = +19.3%

FY2020: +$11.321m / [$76.985m - $2.000m] = +15.4%

Notes

1/ I have removed 'Contract Construction Revenue' of $43.144m when ENL was regarded as an associate to ESL, before ESL gained full control of it . From FY2017 onwards ESL took full control of ENL. This transaction occurred on 29th June 2016. Balance date for ESL/ENL is 30th June of each year.
2/ I have removed 'inventory' revenue from each year. 'Inventory' represents goods bought to be on sold to contractors for the building of the network.

The above trend is showing that as the fibre network finishes being built, and the take up improves, then profit margins for the business improves. That should not come as a surprise to anyone reading this. What might come as a surprise is to see the net profit margin dip in the last reported financial year. However, I see this as a 'rogue result' that does not devalue the underlying uptrend (yet).

Conclusion: Pass Test


Net Profit Margin = Adjusted Net Profit After Tax / Working Revenues


FY2018: -$3.768m / [$48.473m - $6.628m]= -2.14%

FY2019: +$10.841m / [$58.678m - $2.486m] = +19.3%

FY2020: +$11.321m / [$76.985m - $2.000m] = +15.4%

FY2021: +$15,874m / [$84.433m - $2.138m] = +19.3%

FY2022: +$22.443m / [$94.690m - $3.195m] = +24.2%


Notes

1/ I have removed 'inventory' revenue from each year. 'Inventory' represents goods bought to be on sold to contractors for the building of the network. The increase in inventory, despite the network being largely completed, is I believe likely to be related to a 'one in ten year' upgrade to the electronics that drive the network, the 'level 2' investment needed to ensure the network can fulfill future customer expectations like 'hyperfibre'.

The above trend is showing that as the fibre network finishes being built, and the take up improves, then profit margins for the business improves. That should not come as a surprise to anyone reading this. What might come as a surprise was to see the net profit margin dip over FY2020. However, this looks to be a 'rogue result' that has not derailed the underlying uptrend.

Conclusion: Pass Test

SNOOPY

[Snoopy]

Based on the Australian telecommunications network as it existed in 2009, NBN was expecting that some 70% of those existing customers, after the NBN was installed outside their gate, would eventually migrate to NBN. The remainder would likely eventually 'go fixed wireless', (not on a system run by NBN), or not have any fixed line at all.


I have been reading a few Telstra Annual reports of late, and wondered why they seemed so cool on 'fixed wireless'. This is in sharp contrast to the likes of Spark who are very keen to 'skip the wholesale payments to Chorus' and put Spark customers onto their in house fixed wireless plans. Now I know why. There is a clause in the procedure to be followed as nbn is rolled out in Australia.

From the document titled 'Vote In Favour' (of gradually handing over Telstra's fixed line network to nbn), relating to a special resolution to be put to the Telstra AGM way back in 2011. On page 91 of that document, corresponding to page 23 of the accompanying Grant Samuel report.

"Telstra is prohibited from promoting wireless services as a substitute for NBN fibre services for a period of 20 years but is able to market wireless services generally and against competitors."

That is a very interesting business practice restriction, which I have to admit I had no knowledge of until today. I am not sure how it is policed. I guess there is nothing to stop a customer initiated transition if someone in Australia specifically asks Telstra for fixed wireless. I bet Chorus in NZ are wishing they had a similar deal with Spark in this country!

SNOOPY

[warthog]

I have been reading a few Telstra Annual reports of late, and wondered why they seemed so cool on 'fixed wireless'. This is in sharp contrast to the likes of Spark who are very keen to 'skip the wholesale payments to Chorus' and put Spark customers onto their in house fixed wireless plans. Now I know why. There is a clause in the procedure to be followed as nbn is rolled out in Australia.

From the document titled 'Vote In Favour' (of gradually handing over Telstra's fixed line network to nbn), relating to a special resolution to be put to the Telstra AGM way back in 2011. On page 91 of that document, corresponding to page 23 of the accompanying Grant Samuel report.

"Telstra is prohibited from promoting wireless services as a substitute for NBN fibre services for a period of 20 years but is able to market wireless services generally and against competitors."

That is a very interesting business practice restriction, which I have to admit I had no knowledge of until today. I am not sure how it is policed. I guess there is nothing to stop a customer initiated transition if someone in Australia specifically asks Telstra for fixed wireless. I bet Chorus in NZ are wishing they had a similar deal with Spark in this country!

SNOOPY

In 2007 the hog hit up then Telecommunications Minister David Cunliffe for a discussion about how far NZ had fallen behind in terms of network speed and connectivity in general.

It went something like this.

Hog: NZ is quickly falling behind in terms of network connectivity and quality
Cunliffe: Everything will be wifi next year
Hog: No, it won't. You've been fooled by the wifi salesmen
Cunliffe: No I haven't. I'm signed up with Woosh and it's great
Hog: Er, ok.
Cunliffe: Wait and see. No more cables and wires and digging up the ground. All wifi to the Sky Tower and … progress!
Cunliffe: None of that old thinking about pipes in the ground. I appreciate your good intentions but you need to understand how technology is progressing
Hog: There are some applications that are not well-suited to wifi and…
Cunliffe: If you don't mind, I've got a plane to catch.

He even left the hog to pay for coffee.

True story.

[SBQ]

Enable rolled their cable past my gate around five years ago. I remember an Enable guy came around asking if I was interested in switching to broadband fibre, which I said I wasn't. Then he had another go asking if I thought I might change my mind in the next six months. This is fair enough and sensible marketing. Although nothing happened as I presume the neighbours at the time didn't want fibre broadband either. Subsequent neighbours did want fibre broadband. But that installation required permission from a third property tenant which they did not give (my immediate neighbour and the third party tenant did not get on). So nothing subsequent happened on that second occasion. Roll forward to today and there is -apparently- a kind of 'push' strategy going on: to get customers onto fibre that have not ordered it. Maybe Enable are taking the very long term view and such a strategy is sensible? Or maybe their installation contractors are 'in between new suburbs', so Enable need to find them work to do in the interim? (these days if you let contractors go, you might not get them back).

There is little doubt that fibre broadband is the best broadband technology from a performance perspective. But there is also little doubt that many broadband users find something 'less than the best' (in your case VDSL, in my case fixed mobile) more than good enough. The key comment you make about switching 'being a low priority' certainly resonates with me. And with the likes of Spark dangling so called 'fixed mobile' deals in front of their customers, there is often a low priority to seek out fibre alternatives when fixed wireless is offered. Perhaps the only way to compete with 'fixed mobile' is to have fibre broadband ready to go on the doorstep?

We have a special case in Christchurch where Chorus own the copper wires and Enable own the fibre. So maybe Enable are on a mission to 'get rid of Chorus' from Christchurch? I say that because once an alternative service is available, Chorus plan to eventually phase out their copper line service (which means more customers for enable or one of the fixed wireless providers). But if Chorus pull out their copper lines from Christchurch, then that means they are guaranteed to lose customers. I guess network dynamics are different when the owners of the copper and the owners of the fibre are different!

SNOOPY

P.S. Note that if you do decide to move away from VDSL but you change your mind later, your phone company will most likely not allow you to go back.

I was in the same situation where I had strong interest in switching over to fibre. Enable deployed their fibre lines about 8 years ago here and there was a massive backlog in trying to get installs finished - like at least 2 years. Then along came the horror stories of their botched installation jobs. They initially wanted to do a high quality install but instead, over the years they adopted a cheap method that was not critical. That is instead of boring underground trenching, they went to a cheap method of just running the conduit lines along the fence. Those who had alarm monitoring systems would learn that a burglar can easily cut the line on the fence and render the alarm useless. For myself I had 3 attempts to get the installation done back on those early years. The 1st attempt (during the peak demand for installs), I was doing a driveway reno with new concrete. After repeated calls they told me they would not allow use of a 3rd party conduit and that they would have to do the install by their team; of course the driveway guys could not delay the concrete work to suit Enable's schedule. The 2nd attempt I had 2 site scope engineers visit and because of the long distance my line was, they thought they could make the fibre connection at the other end (my other neighbour's line). Of course they didn't get back to me and they also would not come to do a job that I wanted in bringing the line to the exterior of my house.

Since the time Enable deployed their fibre lines here (8+ years), my internet had been on the copper DSL which provided VERY reliable service and I mean few disconnections. Of those 8 years, we were on ADSL for 5 years. Then what happened was Chorus (who own the copper lines) started jacking up the price and Spark magically passed on a $10 extra fee for internet access. Imaging going from $80/month 8 years ago to paying $120/month as there were 3 price hikes. Spark said they could offer me lower pricing IF we switched over to fibre ; but the horror of fibre installs made me switch to Now NZ which were cheaper and they helped me go from ADSL to VDSL2. For over 3 years that service was very good and fast enough. But then again, the line charges went up.

The writing was on the wall as I looked around my neighbours. Nearly ALL of them had switched over to fibre and did not care how shoddy the installation jobs were. There were many botched up concrete cuts to the foot paths just to get their fibre line in. A real mess and collateral damage where the concrete cracks all the way across. Then the clips they use to fix the conduit to the exterior walls all rust up, leaving rust stains on the brick work. I guess for most people they don't know any better. So back in January I discovered that Enable was OPEN to have the home owner supply and do the fibre installation. The cost for 20mm PVC tubing was minor (some 40 metres) and the trenching all done myself according to their guidelines (sweeping bends):

https://i.imgur.com/LSpGEPt.jpg

When the fibre installers came, they knew I was very fussy. One guy asked how was I able to drill a hole in the concrete so close to the brick cladding and yet have the conduit pass through under the concrete foot path? He said they would never install that way and instead would do a side blade cut down the concrete so the fibre like would drop in the gap. But he did say the way I did would be the best and least evasive to the concrete work.

However, the transition to fibre has not been a smooth one. Despite they ran the fibre line direct from the cabinet down the street, to my house, through the ETP box, all the way to the fibre modem (no cuts in the line), we still had problems with the voice homeline. After 3 calls over a month, I gave up and kept the voice line on the copper lines. Then after 3 months, I assume Spark disconnected the copper so I went back to taking the phone line off the fibre modem. However, I had a hell of a time trying to get Now NZ to fix the voice line for not having incoming calls. I could dial out but nothing coming in. I had to escalate the complaint to TDR (Telecommunications Disputes Resolution) and Now NZ insisted it was Spark's end for not porting my ph# properly. After 2 weeks of complaints I was receiving calls but no caller ID. So I made a call today and hopefully they've fixed it.

Anyways forgive my long comments here. I just wanted to share how difficult the transition from copper DSL to Fibre. Also in real world terms, no one in the house finds fibre really that much faster than copper. The YouTube channels still take just as long to load and there's still sometimes buffering.

[SailorRob]

$CABO

Don't mess about with less.