Starlink's second-generation dish features a detachable cable - so you can take the dish with you to get broadband from your bach - or provide internet to a disaster-hit area. Photo / Supplied
A coalition of rural and provincial internet providers has raised concerns about Starlink’s new deal for Kiwis, which it says is potentially predatory pricing.
If the concerns are correct, this would put Starlink on the wrong side of New Zealand’s competition law.
Over the past few days, the Elon Musk-owned Starlink has been promoting a deal - via the Musk-owned Twitter - for New Zealanders to get Starlink’s install kit (satellite dish for receiving broadband, cable and a special wi-fi router) for just $199. The usual price is $1049.
It was pitched as a deal for rural New Zealand, but it was widely noted that seemingly any address in NZ - including central Auckland suburbs - qualified for the $199 deal in Starlink’s address checker (although the prevalence of free UFB fire and fixed-wireless install deal in urban areas, and Starlink’s $159/month pricing, effectively means its deal is only attractive in rural areas).
“There are some concerns from members and others in the market that this could potentially be seen as predatory pricing,” says Mike Smith, who chairs Wispa - the Wireless Internet Service Providers Association, which represents 32 small rural and provincial ISPs around NZ.
“The economic theory has normally been that predation requires some form of low or below cost pricing designed to drive competitors out, to be recouped through profits once the competitors are driven out. Or that the pricing creates a ‘reputational’ barrier to entry – players won’t enter or expand as they know the incumbent response,” competition lawyer Andrew Matthews told the Herald.
Matthews said the question of predatory pricing would hinge, in part, on whether Starlink was selling its install kits at below cost and, if so, the Commerce Commission’s assessment of the impact on competition.
If the ComCom investigated off its own bat, or after a complaint (Smith said he was still in the process of polling members), three key questions would be: Is it just a short-term promotion? (Starlink says the offer is for a “limited time” but gives no indication if that means a week or a year or another timeframe) and whether it’s selling its kits at below cost. Just selling at below cost would not be against the Commerce Act in itself, Matthews said.
“Loss leaders of hardware to get services revenue are common,” Matthews said.
The followup question would be, “Is there a business case for this that doesn’t involve excluding competitors?”
The predatory pricing question is complicated by the fact that a 2022 update to the Commerce Act updated Section 36, the part of the legislation that deals with the misuse of market power.
“This new test focuses more on market impacts rather than targeting a competitor,” Matthews said.
“The new test will not necessarily require below-cost pricing.”
When you hear the likes of self-styled anti-monopoly campaigner Tex Edwards complain about weak competition law, they’re inevitably focusing on the S36 - so it will be interesting to see how it’s interpreted by the regulator then, later, the courts.
Precedents won’t be set for a while. The updated S36 doesn’t come into effect until this Wednesday (April 5)
Starlink has been asked for comment.
Smith says his group, and many in the wider industry, also have concerns “around Starlink’s ability to operate in the New Zealand market with limited exposure to normal telco costs. Starlink has very little investment in spectrum or local infrastructure compared to New Zealand-owned and operated wisps and mobile operators, who have to invest heavily into spectrum licensing costs and infrastructure just to operate their network. There is certainly a sense of lack of fair play about this.”
The Ministry of Business, Innovation and Employment (MBIE) earlier confirmed to the Herald that Starlink - which has six ground stations around NZ, pays just $150 per per year for each spectrum licence at each of its six locations. It has multiple licences at each location, but the total still shakes down to only around $10,000 per year - or chump change next to the collective $259 million that Spark, One (Vodafone) and 2degrees paid for their 4G spectrum, and the tens of millions in quid pro quo commitments they’ve made to expand provincial and rural coverage in return for being directly allocated 5G spectrum.
In 2021 submissions to MBIE in the lead-up to the 5G spectrum auction, Spark, Vodafone, and 2degrees all highlighted this issue, if never namechecking Starlink directly. Vodafone said in its submission, “Currently, satellite broadband providers are effectively using radio spectrum for free”.
The telco wanted “symmetric regulation” - which could be read as: “If we’re going to be whacked with huge fees for our spectrum, then Elon’s company should be too”.
In its own submission, Starlink said that raising spectrum fees would hinder innovation and crimp customer choice.
The landscape has shifted since then. Spark, Vodafone and 2degrees have all been directly allocated 5G spectrum in lieu of an auction process. The spectrum comes at no cost, but does involve quid pro quo pledges to expand provincial and rural mobile coverage. Exactly when, and where, and at what budget is still being hammered out, but in a market filing Spark said it had earmarked $24m for the process.
Other changes to the lay of the land include 2degrees merging with Orcon Group (aka Vocus NZ), which along with a second local outfit, Cello, partnered with Starlink in its six NZ ground stations.
2degrees recently said it has been appointed the first local reseller for Starlink’s business package, which costs $4200 for an install kit (Noel Leeming was earlier named Starlink’s first consumer-grade reseller; on Friday, it was also discounting the $1049 home connection kit, albeit to $749 rather than the $199 from Starlink’s website).
And today as Vodafone NZ officially announced its new “One” branding, the telco revealed a partnership with Starlink that will allow mobile phone users on its network to make emergency texts from anywhere in New Zealand from some point next year, with voice and data to follow.
Smith says his members just want a level playing field.
He’ll keep focusing on spectrum issues, from Starlink’s minimal charges for airwaves to his own members’ being “hamstrung” by (so far) limited access to newly available 3GHz spectrum, and the new unlicensed WiFi 6E band not being available for outdoor use.
But he also sees the arrival of Starlink as an opportunity to highlight what Wisps can do well.
“We accept that this is competition and it presents an opportunity to innovate and focus on what we do well,” he says.
“Our members are the local connectivity experts and are locally driven, this was proven when Cyclone Gabrielle hit and took out infrastructure in the North Island, our members were some of the first on the ground reconnecting links and providing service to impacted and cut-off communities. You can’t do that from California or without people on the ground in the regions.”
Satellite broadband has traditionally had a lousy rap for tight data limits, low speeds and high latency - or the lag you can get with a two-way connection to a geosynchronous satellite orbiting some 36,000km above the Earth. Local providers of satellite internet traditionally offered service from one big bird.
Starlink - a division of the Elon Musk-owned SpaceX - gets around the lag problem with a swarm of thousands of tiny satellites that orbit at just 600km, or the same low Earth orbit as the International Space Station. The LEO setup has also allowed Starlink to offer unlimited data at $159 per month - a keen price by the standards of satellite broadband.
One catch: Starlink has given no indication how long its $159 per month pricing and unlimited data will last. And for the consumer version, Starlink makes no guarantees around speed - which could potentially decrease as bandwidth is shared by more and more users (though that depends in part on how many more thousands of satellites US regulators allow Starlink to launch).
Beyond that, early adopters in rural and city fringe areas, who have usually been upgrading from copper, give the service mostly rave reviews for everything from online gaming and watching Netflix to business tools like Zoom and Slack.
A Starlink install kit, with a dish, cable and wi-fi router, ordinarily costs $1049. Installation is designed to be DIY, via steers from a smartphone app, but local resellers 2degrees (business) and Noel Leeming (consumer) will help you out. Noel Leeming’s fees start from $149 for a basic install.
Version 2 of Starlink’s consumer kit is square (the original was circular) and there’s another key difference: Unlike Version 1.0, it can be unplugged and taken with your camper or to your bach. And, as we saw as NEMA and Ngāti Porou distributed dozens of Starlink kits after Cyclone Gabrielle, it’s a way to rapidly restore internet access for disaster-hit areas.
Starlink’s business kit comes with a larger, higher-gain satellite dish. It costs $4200 upfront and does come with a guaranteed download speed - 350 megabits per second, or on a par with the bandwidth offered by more expensive UFB fibre plans.
The Government’s new Remote Users Scheme will provide up to $2000 per remote rural property to cover the cost of installing broadband, with Starlink covered by the program (applications are being taken up to mid-year). But Starlink has already proved popular. Last October, an insider revealed to the Herald that Musk’s broadband service had signed up 10,000 Kiwis in its first year.
Direct to Cell service reaches 40% of the country not covered by land-based networks.