TelstraClear buy exposes Vodafone's fixed ambitions

TelstraClear buy exposes Vodafone's fixed ambitions

Summary: The TelstraClear sale seems like a great deal for Telstra, but what will it mean for Vodafone?

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So far, most of the discussion about Telstra's divestiture of its New Zealand arm, TelstraClear, has focused on what a great deal Telstra got from the NZ$840 million sale.

This certainly seems to be true on the surface. Its per-customer windfall of NZ$2100 (AU$1632) is thrice the AU$531 per customer iiNet paid Telecom New Zealand (TNZ) for 113,000 AAPT customers — and half again of the AU$1166 per customer M2 Telecommunications paid for ISP iPrimus' 165,000 customers and network assets.

Yet, behind the headline numbers is a deeper, more fundamental shift that cannot go without mention — assuming the deal between the country's number-two and number-three telcos is approved, New Zealand will mark yet another geography where global mobile giant Vodafone has committed itself to investing heavily in fixed-network infrastructure.

That's a big change for a company that long argued that the future was wireless and wireless alone. It also makes New Zealand an integration testbed for Vodafone, whose previous decision to resell NBN services in Australia could be seen either as a sign the company was clutching at straws or saw great promise in the convergence of fixed and mobile communications.

In the long term, I'd argue that the latter is more relevant to this deal. Unlike its competitors, Vodafone has long struggled to pair fixed-line services with mobiles in a way that could be both complementary and accretive: its mobile-only solution worked for many users, but left many others with a bad taste in their mouths when the mobile network fell short of expectations.

That Vodafone NZ is willing to pay so much for fixed infrastructure — in a country where Ultra-Fast Broadband Initiative (UFB) investment has changed the dynamics of the fixed market — reflects the realities of a broadband market that simply cannot be satisfied solely by wireless.

Blame Wi-Fi; Ovum certainly does. In a research note issued this week, the research company predicted that Wi-Fi offloading has become a major part of telcos' infrastructure strategies. I might as well quote Daryl Schoolar, principal analyst in Ovum's Network Infrastructure Telecoms team:

Just a few years ago, if one was to ask mobile operators about Wi-Fi, their responses would most likely have been negative, but this has long changed with rising concerns around how to manage the growth of mobile broadband. Now the issue is how best to build up sufficient network resources to manage Wi-Fi offload.

Standards may still be evolving, Ovum noted. Yet, while in-ground fibre assets will offer massive potential as wireless backhaul, TelstraClear's extensive last-mile network will fill out Vodafone NZ's service story and allow it to compete with market Goliath TNZ, whose structural separation has been closely watched and has paved the way for the UFB's progress.

Adding intrigue to the situation is New Zealand's chronic lack of bandwidth, which was brought into sharp relief late last year when a short-lived all-you-can-eat offer brought TelstraClear's network to a standstill. In a country that has even less international connectivity than Australia, that's a scathing indictment of network insufficiency — and a reminder of just how intensely demanding tomorrow's fixed-and-mobile infrastructure is.

Those demands come not only in the form of home broadband, but in terms of the ancillary services tomorrow's telcos must deliver — like increasingly-ubiquitous Wi-Fi, which has become the poor man's 4G, as it pops up across the suburban landscape with increasing frequency.

It's hard to swing the proverbial cat in countries like the US without hitting one or more Wi-Fi hotspots, and this sort of arrangement can't but be in Vodafone's sights. Certainly, by pairing its existing mobile services with a preponderance of fixed broadband, Wi-Fi and related services, Vodafone NZ can become the full-service telco it has always aspired to be.

If Vodafone NZ can leverage TelstraClear's infrastructure to productively strengthen its overall service portfolio, those demands will have justified the premium it has paid for the network. But if it struggles in its integration efforts — or fails to build market momentum through the pairing of fixed and mobile services — the result could be little more than a sobering reminder of just how hard it is to build and maintain a viable telco these days.

That would have dramatic implications for Vodafone Australia's NBN play — and serve as a reminder to other telcos of just how important a scalable back-end is to building a viable customer access network.

What do you think? Did Vodafone over-pay for TelstraClear's assets? Does the market consolidation compromise customer choice? And is it really all about Wi-Fi these days?

Topics: Telcos, Broadband, Telstra, New Zealand, NBN

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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  • The Fibre Is Coming

    The workmen laying the ultrafast fibre broadband are steadily working their way along my street.

    Sure, international links cost money, but not as much money as the neighbourhooed connectivity part.
    ldo17