BuddeBlog

Listed below are some of the factors contributing to the cost-effectiveness and/or excitement surrounding Internet telephony as opposed to traditional carrier circuit-switched approaches:

· Carrier charges for overseas calls are far higher than underlying costs.

· The new ‘operators’ – whether they be individual computer-to-computer users, or a nascent carrier such as OzEmail – have nothing to lose and everything to gain by undercutting carriers’ overseas call rates.

· Customers want to save money and to support alternatives to their monopoly carrier.

· Excitement about a new technology.

Splitting a continuous signal such as speech into individual packets and launching each packet on its own around the world in the hope that it will arrive is not the most obvious nor necessarily the most efficient way to conduct a reliable international conversation!

It may be argued that Internet telephony is more efficient than traditional telephony because no packets are sent in the 60% or so of time in which the user is not speaking. The counter-argument is that carriers have long used this ‘silence removal’ on their international circuit-switched links to increase the number of calls they could fit into, for instance, a 2Mb/s international link. Similarly, arguments about the improved speech compression capabilities of Internet-connected computers are equally applicable to carriers, whose voice compression hardware and software can easily be upgraded.

It could be argued that Internet telephony traffic, by sharing the links used by other types of Internet traffic, requires, on average, very little extra capacity to be added. But Internet packets are no more efficient than a well-managed circuit carrying many calls of compressed voice with silence removal.

If there was no cost differential between international links for circuit-switched traffic and those links which are devoted to Internet traffic (and which often share the same fibre), then the only fundamental cost advantage in Internet telephony which was equally reliable, and equally available (in terms of supporting high numbers of simultaneous calls whenever customers choose to make them), would be if the peak times for such calls were at different times to the peaks for other types of Internet traffic.

New Zealand’s top corporate job is out to tender as TCNZ looks for a replacement for its chief executive, Rod Deane.

The pragmatic, persuasive Deane will be a hard act to follow, given the way TCNZ has operated since he took over in 1992 and TCNZ’s infallibility in the marketplace.

Deane is moving up rather than out in that he’s standing down as TCNZ chief executive but will be TCNZ’s new chairman, upon the retirement of incumbent Peter Shirtcliffe. However, given that the latter is most widely known as leading a charge to stop MMP being introduced, Deane’s most influential days at TCNZ are probably over.

Deane’s tenure at the post has been marked by a winner-takes-all attitude to business, unencumbered by regulation, give or take the Kiwi Share requirements.

Hailed by TCNZ shareholders, condemned by other carriers, Deane has always looked secure in the job. He came with an impeccable pedigree – former chief executive of Electricorp, former chairman of the State Services Commission and former governor of the Reserve Bank.

During his years as chief executive TCNZ, he embarked on a program of cost-cutting which saw thousands of jobs go. The company shucked off any associations with the corner-store nature of the old Post Office and evolved into the TCNZ of today.

The company has managed to keep its top-dog place in New Zealand telecommunications by exploiting its fundamental advantages to the full, while simultaneously rolling out a raft of new technologies and services.

At the announcement of Deane’s exiting from the chief executive position, TCNZ reported a third quarter net profit of NZ$201.8 million – up 1.3 per cent on the 1997 period. While profits have not been as startling as those in the early 1990s, Deane has staked TCNZ’s future on the Big Pipe and expects the Internet to underpin future company revenues. Deane will be leaving the post in September and an international search is on for his successor.

Anna Wallis

Expansive Internet company Ihug has let an NZ$7.5 million contract so it can compete in the long haul toll market with traditional telcos.

A Wellington-based company, Asnet, was chosen by Ihug to install gateways internationally to enable Ihug to transport long-distance toll calls over it private data network. A pilot of the system is now underway, with over 100 customers using the service in its initial phase.

Ihug has been making a lot of noise recently, including an adventurous television advertising campaign. Although the company hit a snag last year when a hacker gained access to its network and wiped the contents of customer Web sites, it has been going from strength to strength of late. Several months ago it announced it was going hunting for investment dollars to fund growth, which includes purchase of spectrum.

The latest development will see Ihug going head-to-head with existing telcos – further evidence of the convergence of the two markets. The company is looking at the United States and Asia for further growth possibilities.

The new service is open to all, with non-Ihug customers using an access code to dial into the ISP’s network. Later enhancements will include voice and universal messaging and a raft of fax services.

The service will be open to non-Ihug customers next month, with nationwide access. Prices are posted on the Internet, with existing customers receiving a further discount.

Anna Wallis

While other leading carriers around the world are already heavily involved in upgrading their networks with IP technologies, Telstra has been slow off the mark.

At the latest presentation of Telstra’s figures progress on the Data Mode of Operation (DMO), as the new strategy is called, was questioned. However, Telstra didn’t want to give details of this project which is costing hundreds of millions of dollars – much to the frustration of many of the suppliers who would like to see Telstra moving a lot faster on this issue.

The DMO is a major strategy to understand the business, operational and infrastructure requirements of the company in the radically different data market (as distinct from voice market) which is rapidly developing.

The work to develop the network architecture, systems and processes to support the data paradigm is progressing through the selection of key partners and suppliers. Tenders for the selection of a partner to work with Telstra in the design, delivery and implementation of the core DMO switching and routing infrastructure were closed in November 1998. In addition, a request for tender was issued to 15 suppliers for a new customer multiplexer platform supporting voice, data and broadband services. The customer multiplexer will be located in the customer access network. Tenderers will be short-listed by the end of March and a supplier selected by June 1999.

Based on my views about 3G it will be very interesting to observe the first auction on this spectrum. New Zealand has volunteered itself as the global guinea pig

This is the first Internet-based auction of this type of spectrum in the world. The spectrum up for auction is in four lots from 1710MHz to 2300MHz. It includes the all-important ranges earmarked for third-generation wideband cellular services such as PCS and mobile Internet, as well as fixed linking services. A dominant position in markets of this type could be worth a mint.

Estimations about how much the auction will get for the New Zealand Government fluctuate wildly. Some quarters are predicting up to NZ$100 million, although the Commerce Ministry is playing it slightly more conservatively, anticipating ‘over NZ$10 million’.

The key question is how can an interested operator bid for spectrum when it is uncertain whether the services it is intended for will actually eventuate. I think it is irresponsible for a government to sell this spectrum while future developments remain so uncertain. If potential operators share my uncertainties about 3G they will be hesitant and an obscure player might buy the spectrum for a small price, and make a killing once the situation regarding this spectrum becomes clearer.

In fact, in the worst case scenario this bidder could hold the country to ransom in this respect. TUANZ commented on the issue along similar lines:

Spectrum is a ‘national resource’ no different than New Zealand’s mountains, rivers or beaches. We wouldn’t give the rights to new Zealand’s water to one organisation so why spectrum.

The inefficacy of New Zealand’s competition laws will now once more be under the microscope. Previous auctions of spectrum have seen criticism by some network operators, including Vodafone precursor BellSouth, who considered the round-robin bidding process unfair. This time, however, the Commerce Commission has issued ‘get tough’ warnings to bidders that they can’t take all the spectrum. Last time round, United States-based Formus managed to snare the bulk of the spectrum on the block. How the Commission intends to control this is anybody’s guess, especially if it gets an omnipotent successful bid. This is either an open bidding process or not. However it is election year in New Zealand.

New Zealand’s laws on competition, such as the Commerce Act, may be required to sort things out afterwards if the spectrum on offer does get snatched up by one company. It is doubtful whether the Commerce Act in its present form could do anything about the auction process, let alone events months or years down the track.