Tag Archive for ‘Broadband in NZ’ at diversity.net.nz

Tag Archive for 'Broadband in NZ'

More on the broadband debate…

Published by Ben Kepes on April 4, 2008 in Economic Development, IT and Society.

First a disclaimer - I’m no engineer, I use broadband (of course) but I don’t profess to understand all the arguments in depth - copper vs fibre vs mobile doesn’t concern me hugely - connectivity is the metric that rocks my world… I’m also not an economist - I use the economy in the broadest sense but leave macroeconomic analysis to others….

This post looks at a few variables - broadband penetration, GDP, broadband availability and broadband price and begs a few questions about them all.

Anyway a post over on the Unreasonablemen blog got me thinking. We’ve heard ad infinitum that the issue around broadband uptake is price, we’ve also had more reasoned discussion asking whether or not some thought should be given to this nirvanic ubiquitous broadband we’re trying to achieve. The UM pointed out a recent study that showed that New Zealand broadband prices are in fact lower than the OECD average, yet our uptake remains in the bottom half.

At US$16.75 per megabit, New Zealand broadband prices are US$1.25 cheaper than the OECD average and US34 cents less expensive than the OECD average of US$49 when comparing monthly subscriptions…New Zealand ranked 20 out of 30 OECD countries for broadband uptake

The graph underneath is interesting in that it shows a positive correlation between broadband penetration (number of subscribers per 100 inhabitants) and GDP within the OECD. Note that we’re talking penetration here and not speed - sure there are some areas that don’t have access to broadband but notwithstanding that, our penetration vs availability rates would be the most telling statistic to analyse. If we have high availability (regardless of speed) but low relative penetration, work needs to be done to right this wrong, rather than the speed issue.

The Unreasonablemen ask whether or not there are some other barriers to uptake other than price - the central premise of their post being that it seems an easy road to go down to blame all of our GDP woes on poor broadband penetration rather than looking at other factors (taxation, compliance, education etc etc)

Update by The UM

Sorry I can’t let this pass and Ben kindly gave me permission to throw in my two cents about this. This kind of data says a lot of things. Ben is right to ask if availability vs penetration is the issue. This should be measured.

This article in the NBR highlights the major issues behind improving productivity. Its worth noting that none of them are ‘broadband penetration’ and only one of them might be linked to it (connecting to the world).

This would challenge the implicit assumption that Broadband will drive productivity. The graph above says to me that productivity (which GDP is a proxy measure for) DRIVES broadband uptake, not the other way around. In this case I think the we’ve been chasing the egg not the chicken.

What factors could be behind this difference?

Cultural affects - Knowledge based economies are more likely to want and use technology than primary producing nations. Its exactly the same as social demographics - poorer families don’t use technology as much as well to do (I’m not saying its right, just that its a measured fact)
Climactic - not wanting to brag, but the kiwi weather is better than some of these regions. In some of them you are literally ice bound for 4-6months of the year, which means its not that nice to be outside, which means you are in the home….and either connected or bored
A highly trained and educated population?
A national focus that isn’t on primary produce, but services, technology and software ( I know tourism is a big earner for NZ, but you could argue that that revenue stream is really the 1st world exploiting the natural resources of the 3rd world)
A retention of the nations business (as opposed to selling them to offshore)

So what do you think?

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This one’s straight from the “what the..” category

Published by The Unreasonablemen on March 13, 2008 in Business.

From computerworld this morning

Telecom chief executive Paul Reynolds has joined the board of XConnect Global Networks, which provides VoIP and IP-based services

From the Xconnect website

XConnect’s award winning services enable over 400 VoIP service providers and carriers worldwide to peer with millions of VoIP endpoints.

Am I alone in thinking that this is way up the bizarre scale? Telecom’s stance around fast broad band, VoIP Trunking and even VoIP solutions has been to treat it like something distasteful stuck to the bottom of your shoe, and their new CEO does this????

Disclosure - Diversity Limited is a consultant to Telecom New Zealand and its subsidiaries.

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The impact of Scale and Economics on SaaS and broadband

Published by The Unreasonablemen on February 25, 2008 in SaaS.

NOTE: this is a mirror post of my unreasonablemen.net blog. There have been a few posts recently about broadband in NZ, some well thought through, others not so. The crux of this issue is about scale & economics. This of course is massively applicable to SaaS too. So in the interests of clarifying things I thought I’d do a laymans explanation of scale the impacts of economies of scale & pricing.

First up, lets accept the premise that any company, public or private is in business to make money. To that end they aren’t going to do things for ‘free’ just because people think they should have better services. Secondly lets clarify what we mean by ‘scale’. Scale as its used here means having a lot of use or users on a system, platform or service. The more scale you have, the larger you subscriber base.

Scale is very important when you are doing infrastructure based services because your capital investment is normally very large and directly affected by the amount of scale you have to build for. It also impacts the potential returns you will get and the price points you can charge.

Simply put, when you are preparing to invest or build some infrastructure like a broadband network or a SaaS application / platform you have to outlay enough to support scale while betting you actually will get that scale.

I’ll illustrate this with a couple of diagrams. Lucky enough in this example, the infrastructure can scale to well over 1 million users

In the first diagram the infrastructure provider has not achieved scale. What this means is that their only customer will effectively end up paying for the entire infrastructure bill. To keep it simple i’ll use round numbers. A $1m investment in infrastructure then gets transferred to that one customer (this ignores infrastructure running expenses, overheads, margins and other expenses which must also be covered). So the price is $ 1m and the market size/ opportunity small. Not many can afford it.

In the second diagram I am showing 10 customers subscribing to the service. This means that the price to them is only $100k. If you get 100 000 customers the price is $10. If you get a million customers and the price could be a dollar, but why would you? If the market is willing to pay $10 why wouldn’t you hold it at that level and aim for a million subscribers. This illustrates pricing for infrastructure perfectly.

This is the power and paradox of scale. If you get it right you can make good profits which is economically reasonable because you are taking large risks initially. Get it wrong, then you’ve spent a huge sum on a piece of infrastructure and you don’t have the income to cover your costs.

How does this affect broadband & SaaS in NZ? Having a small population definitely impacts our chances of getting scale. Having huge cities like Tokyo and LA where there are circa 30 million people living in the nearly the same geographical area as Auckland’s 1 million simply means that the Telco’s and SaaS providers there can get scale benefits easier. Added to that, these providers don’t have to worry about providing services the length and breadth of the country to get that scale, in fact they either ignore them or use the huge metropolitan based scale to fund the rural program. NZ doesn’t have that benefit. This isn’t a “tired old excuse”, just economics at work.

SaaS does have one potential key scale advantage over broadband. The internet isn’t geographically limited, so we could sell to these larger populations. In this respect Xero has it spot on, going after AU and the UK markets. The reason for this is scale, pure and simple.

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