Fibre Broadband Shares

[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	FY2017	FY2018	FY2019	FY2020
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-connec...ea-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-connec...ea-cable-lands

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

https://www.submarinenetworks.com/st...ia/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/Form...gy%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.../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...al-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.