Why three into one just will not go

Three cellphone towers owned by three companies (Telecom, Vodafone and Woosh) are all within spitting distance of one another on a hilltop near Pokeno, south Auckland. What's wrong with sharing or, in industry parlance, co-locating?

"It's a joke," said Tex Edwards, New Zealand project manager of Econet Wireless. "In any other OECD country, this would all be on one tower."

Econet has been making noise for some time about building a cellular network in New Zealand. But it needs to share existing infrastructure to do it. Edwards believes the present environment is working against new entrants and acting as a barrier to a more competitive cellphone market.

That view is echoed by another network aspirant, TelstraClear. "Both of the existing access providers [Telecom and Vodafone] ... have incentives to limit competition from new entrants in order to protect their current duopoly," it said in a recent submission to the Commerce Commission.

Edwards adds: "Telecom and Vodafone say they're in favour of co-location and say they want to help us, but, as soon as we start talking, it's one delay after another. I'll be dead by the time we are able to build a network."

It's a little melodramatic at the end there, but does he have a point? If Woosh chooses to go through the lengthier, more difficult process - on paper, that is - of building a third tower rather than locate on one of two perfectly good alternatives on the same Pokeno hilltop, something must be wrong. Are the co-location rules proving a help or a hindrance to the creation of a competitive mobile market in New Zealand?

The concept of sharing is certainly important - fundamental even - to the success of cellular operations here. Ten to 20 per cent of TelstraClear's proposed network and up to a third of Econet's could rely on co-location, in which equipment is placed on another company's infrastructure or where there is sharing of territory, such as land or a building top, or resources, such as power and physical access.

It's also a widespread practice among the established players. About 10 per cent of Telecom's cellsites are on Vodafone towers. Vodafone also relies on co-location for about 10 per cent of its own operation.

In November 2001, the Government deemed co-location important enough to be a regulated service.

"Specification of co-location is designed to promote competition," said Paul Swain, then Telecommunications Minister.

Nearly four years on, there hasn't been a new cellphone entrant.

"There's always room for improvement," said Nick Clarke, Woosh's commercial and legal manager - hardly a ringing endorsement. The company, which is trying to roll out a national fixed wireless network, was "just getting on with it".

Perhaps in recognition that things are "not wrinkle-free" - as Telecom's government and industry relations manager, Bruce Parkes, described co-location with Woosh - the Telecommunications Carriers Forum set about drawing up a code of practice. A draft was submitted to the Commerce Commission last October and was described at the time by the group's chairman, Malcolm Alexander as "a testament to the commitment" of forum members.

But not everyone agreed. TelstraClear voted against the code and, in a submission, to the commission called it an "impediment to co-location".

"We do not anticipate Telecom or Vodafone to operate in a co-operative manner in relation to the provision of co-location, beyond ad hoc arrangements ...

"Co-location of cellular services is a bottleneck facility. The provision of this service by Telecom and/or Vodafone to new entrant access-seekers would not be in their commercial interests - co-location would increase competition and result in lower prices/market shares for Telecom and Vodafone."

Also unimpressed with the code was Telecommunications Commissioner Douglas Webb, who rejected the draft in June, describing it as having "obvious flaws". Among them, in his view, was that co-location agreements having to be made site by site was not "entirely consistent" with the Telecommunications Act. Overall, he concluded that the code contained a framework for negotiation but no guidelines for implementation.

Vodafone's public policy manager, Roger Ellis, had concerns over "a one-size-fits-all approach".

"[Access] depends on space, interference issues, electricity supply, tracks for maintenance, paying the landlord. Each site is different and needs to be looked at on a case-by-case basis."

But in the interests of "rapid access" as Webb puts it, wouldn't some sort of grouping be appropriate? Probably. The key thing here is the time that decisions on co-location can take.

"Four to six weeks at most for agreement/application with us," said Telecom's property acquisition manager, Mark Larsen.

Then there's the resource management consent, which can take anywhere between six weeks and six months, maybe more. And get this: resource consent is needed before Telecom will sign off on an application - so a company could go through hoops to get resource consent only to be shown the door.

Clearly, with a national mobile network requiring about 1000 cellsites, the time involved is enormous and the argument for grouping applications, at least from the seekers' side, seems quite compelling.

Telecom and Vodafone claim to be surprised and disappointed by the commissioner's decision.

"Our view is that it's the most efficient and effective way to consider co-location," Parkes said.

Both also remain keen to publicly back co-location.

"If we've got spare room on a site, it makes good business sense to get someone on board to share costs," Ellis said.

If that's so, why didn't Woosh, Telecom and Vodafone co-locate at Pokeno? Or the corner of Dawson Rd and Te Irirangi Drive? Or the junction of St John's Rd and Kohimarama? Do three towers make good business sense?

Another interesting development in the past few years has been Vodafone's and Telecom's increasing use of slimline towers. By their very nature, they generally can't support more than one set of gear.

The argument put forward is resource consent, which is a tricky area. On the one hand the Resource Management Act seeks to limit the environmental and health impact of towers, which suggests the fewer the better.

On the other, decisions are made at the whim of councils. Larger towers look worse and there's the health threat from radio frequency exposure, perceived or otherwise.

This all counts to make slimline towers easier to get through the process, but is a dead end for the co-location process.

So where does this leave us?

"The reality is that the industry operates like this now and all the code did was record how the industry was to play," said Susie Stone, group corporate affairs manager for the THL Group, the parent company of BCL. "We're all just carrying on regardless."

Ah, business as usual.

No doubt the carriers' forum meeting this month should be an interesting one - likewise the meeting with the commissioner.

"We're keen to have a discussion to better understand some of the commissioner's concerns," said Vodafone's Ellis.

Will they stand their respective positions or find some common ground?

"It's our code," said Telecom's Parkes.

Underlying all of this is the question of whether there's room for a third mobile network in New Zealand. Norway, which is remarkably similar in population and topography, has room for three networks.

There's room for three - Vodafone, O2 and Meteor - among Ireland's 4 million-strong population and a fourth is in the cards in the form of Hutchison.

Perhaps the better question is whether we can afford not to have a third network. Telecom and Vodafone will tell anyone who'll listen that the mobile market is perfectly competitive. But is it?

Evidence might suggest otherwise: New Zealand lacks number portability and the commissioner isn't happy with co-location and termination fees.

OECD figures show residential fixed-to-mobile costs are 166 per cent above average - ranking us 27th out of 30 - and would need to fall 64 per cent just to get New Zealand into the top quarter.

In other words, it's a nice little duopoly worth $2 billion.

"Such a development [a third network] would significantly accentuate the competitive threats to Telecom," said Goldman Sachs' analyst Andrew White.

For now, the future for Econet is unclear. If things don't change, Edwards sees no future at all. But with little to show for its reported $25-million investment, that might not be such a great loss.

However, TelstraClear's plans for a $150-million 3G network are the worst-kept "secret" in town. The company's chief executive is bullish about the whole thing.

"Our intention is to build a mobile network," said Allan Freeth. "We have got a viable business case."

The National Business Review has suggested the company's plans are on hold "because the industry is fraught with regulatory problems".

But the company must be itching to get its hands on some of that $2 billion. A lack of cellphone capability is also a key strategic weakness for the company.

Of course, there's still the little matter of the co-location environment that TelstraClear's so concerned about. The company is unlikely to gamble millions of dollars on a flawed model - one that relies on ad hoc co-location agreements.

That suggests it will cut a deal. Vodafone is the obvious partner, with its historical relationship and TelstraClear's desire to use the GSM technology.

Interestingly, Computerworld hinted at a possible deal with Telecom, in return for allowing it "to launch a new mobile brand using the W-CDMA network".

Nevertheless, this all leaves TelstraClear, Woosh and Econet facing the prospect of building, rather than sharing, infrastructure. Co-location will not happen by chance. It only works elsewhere because it's regulated.

In Australia, the ACCC's code for co-location is enforceable by the Telecommunications Act 1997. There is multi-site access and carriers get preferential land access.

It also sets out a draft contract - called a "facilities access agreement" - whereby if the access seeker doesn't like any part of the commercial deal, it can go to the ACCC to have the contract enforced.

It's a setup New Zealand can thus far only dream of. Step forward Mr Webb.

* Greg Adams is editor of TUANZ Topics. This article, edited for space considerations, has been reprinted from the magazine with permission. It appears in full in the August/September issue.