Telecom seeks relief on three-way split

Telecom's application for a fourth variation on the operational separation undertakings

Telecom's is seeking relief on its operational separational undertakings in a proposal to the government known as Variation 4, but what are these undertakings and why does the telco want them delayed, or possibly scrapped?

To understand Variation 4, it's necessary to go back to 31 March 2008, when Telecom and the Labour government agreed to a complex set of undertakings to enable operational separation of Telecom. That is the separation of the company into three divisions — Retail (which includes Gen-i), Telecom Wholesale and Chorus. There are two business units that support these divisions — T&SS (Technology and Shared Services) and Corporate Centre.

For T&SS it’s a massive piece of work ensuring that every piece of information about the copper network is correctly tracked and stored so it can be accessed in a such a way that confidential customer information (whether its Telecom Retail or another ISP) isn’t revealed. It also means that Telecom Wholesale and Chorus require separate systems so that competitors wishing to provide wholesale services (that is invest in local loop unbundling) can access Chorus infrastructure separately to Telecom Wholesale.

National’s fibre network
Since operational separation was negotiated the National government was elected with a promise to build a national fibre broadband network with a contribution of $1.5 billion of taxpayer funding. This has become known as the Ultra Fast Broadband (UFB) initiative.

The UFB’s model is that Local Fibre Co's, which are part funded by the government and part by private companies, roll out the network around the country. There could be as many as 33 LFCs or as few as one or two. A government agency called Crown Fibre Holdings (CFH) is currently selecting partners for LFCs.

The rules were recently changed. An LFC can now provide Layer 1 and Layer 2 services — that is lay the fibre (Layer 1) and then provide the electronics to light that fibre (Layer 2). In the copper world that’s the equivalent of an LFC being a combination of Chorus and Telecom Wholesale.

Telecom is claiming that in light of these changes, its operational separation requirements should be altered.


Leave those 500,000 customers where they are, please
In line with its operational separation undertakings Telecom Wholesale launched a new UBA service to ensure that its copper-based broadband service is delivered to Telecom Retail in exactly the same way as it is delivered to customers of other ISPs.

As part of the undertakings it was supposed to migrate 90% of Retail Broadband customers — up to 500,000 connections — to this new service by 31 December 2010. The telco now says this will put undue pressure on its systems “We are not confident that the service is ready yet to handle a sudden ten-fold increase in customer volumes from 60,000 customers to 600,000 within a six-moth period,” it writes in a proposal to the government seeking variations to the undertakings.

Telecom says that in light of the UFB the most sensible strategy is to migrate those customers only once — that is, they should go from their existing service straight onto the UFB’s Layer 2 services, or only be switched over when the customer moves, adds or changes their broadband service. It says that all new broadband connections (around 7-10,000 each month) are being migrated directly to the same service as Telecom’s competitors.


There’s life in the old PSTN yet
In addition, the undertakings are designed to force Telecom to migrate its customers onto next generation services. It was envisaged that the PSTN was on a rapid path to oblivion and that Telecom needed to provide a VoIP service over the copper, so it was agreed that 17,000 VoIP connections would be in place by 31 December 2010.

But according to Telecom’s proposal the PSTN is improving — not deteriorating. “Suppliers, who had indicated withdrawing support for our PSTN by 2015 are now committing to support this equipment through to 2020 and possible beyond.” One of those is NEC, which Telecom CIO David Havercroft says the telco has just signed a new heads of agreement with.

According to the proposal Telecom has been attempting to introduce a Primary Line VoIP service, but don’t appear to have created a feasible service “without placing unacceptable risk on customers”. Compounding the issue for Telecom is the fact that the copper VoIP service it’s trialled can’t be migrated onto a fibre network. It wants the whole undertaking scrapped.

In addition, Telecom points out that LFCs will need to provide analogue ports as well as ethernet ports (in other words facilitate both copper and fibre connections) to enable the migration from copper to fibre.


Why should Chorus and Telecom Wholesale be separate?
If an LFC can have one Future Mode of Operation (FMO) systems for both its network and wholesale services (Layer 1 and 2), then why should Telecom be expected to provide separate FMO for similar services in the copper world?

The third variation that Telecom seeks in its proposal is to push back — possibly indefinitely — the requirement to provide separate systems for Telecom Wholesale and Chorus and requests that instead there be only one system that encompasses both.

“Continuing to develop separate Telecom Wholesale and Chorus FMO system stacks when we know the desirable starting position for UFB is a single set of systems simply creates risks for Telecom and the industry. It takes us backward, not forward,” reads the proposal.

Next steps
A spokesperson for ICT Minister Steven Joyce says submissions to Telecom's proposal are currently being considered. Joyce has already approved three variation requests from Telecom on its operational separational undertakings.