Vodafone and Vocus are teaming to take advantage of a pending law change, which will potentially give them a degree of freedom from Chorus.

The move would give the pair more flexibility over pricing, and the ability to offer new services that are their own, not dictated by the UFB fibre network operator.

But it can only happen if Chorus plays ball on wholesale pricing. A scrap lies ahead.

A recently passed revision of the Telecommunications Act, which kicks in on January 1 next year, allows for what's called "UFB unbundling."

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That means retail ISPs like Vodafone and Vocus (owner of Orcon and Slingshot) can install their own electronics on either end of a fibre connection on Chorus' network - allowing them to offer new services at a price they set.

However, while the new law requires Chorus to open its exchanges to unbundling, it does not stipulate at what price.

Cue a round of political arm-wrestling.

Both Vodafone NZ chief executive Jason Paris and Vocus NZ boss Mark Callander tell the Herald they expect Chorus to put an opening offer on the table that makes it uneconomic for them to offer an unbundled UFB connection to an average household or small business.

Hence their PR push to promote the benefits of unbundled fibre, which they hope will build popular pressure on Chorus to come back with a more reasonable wholesale price pre line offer.

If that fails, political pressure will likely be applied - and Paris and Callander could have a reasonable expectation of success on that front, given Communications Minister Kris Faafoi recently intervened in a pricing spat between Chorus and retail ISPs over price increases on today's UFB fibre lines. Faafoi got Chorus to agree to a $1 a month wholesale price increase from July rather than the feared $5.

At an unbundled UFB fibre demo in a Parnell, Auckland home, Callander and Paris showed off virtual reality rigs, running over a 10 gigabit per second unbundled fibre connection. Ultra high definition over fibre is another service the pair would like to offer, or at least have more control over.

Chorus was not told about the trial. Instead, Vodafone and Vocus rigged up a "dark fibre" connection to the local Parnell exchange to simulate unbundled fibre.

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Big screen apps VR apps on show featured a virtual meeting and a sailing game. Callander says in future his company wants the flexibility to offer services like 8K streaming video without having to wait for Chorus to install the technology to support them.

Callander and Paris say their companies will spend tens of millions on unbundling UFB if they can reach an agreeable price-per-line deal with Chorus.

Vocus NZ boss Callander says there's a precedent for that level of spending, and it translating into better services and pricing for customers: CallPlus's and Vodafone's unbundling of copper lines in the 2000s (CallPlus, the owner of Orcon and Slingshot was bought by Aussie company M2, which was in turn bought by the ASX-listed Vocus).

Callander says copper unbundling was the key driver behind usable, affordable voice-over-IP (internet calling) service. Paris says consumers who've complained about recent broadband price rises - the blame for which he pins on Chorus - should appreciate how unbundled fibre would put retailers more in the driver's seat.

Savings passed on to consumers?

As well as more services, unbundled fibre also means potentially cheaper monthly pricing for consumers (depending on what deal is ultimately struck with Chorus, and the three smaller local fibre companies).

Callander and Paris say fibre unbundling will add a sense of urgency and competition to the UFB market, and help accelerate upgrades.

Neither Callander nor Paris would give a guarantee that they would pass on any savings to consumers rather than profit a higher margin.

But the Vodafone boss said better services would definitely be part of the deal, and Callander noted that copper line unbundling did see cheaper pricing.

Vodafone NZ CEO Jason Paris. Photo / Leon Menzies
Vodafone NZ CEO Jason Paris. Photo / Leon Menzies

Vodafone (number two in the landline broadband market) and Vocus (number 3) are teaming on UFB unbundling to save costs.

Could that be seen as an attempt to gang up on market leader Spark. Callander and Paris say Spark could potentially join their party, but are vague on timing. Others including 2degrees could potentially come on board, they say.

A spokesman for Spark played things diplomatically, saying the telco is "watching events with interest."

Vodafone and Vocus are cooperating closely, sharing costs and technical nous for their unbundling trial. Both say it's too early to say if they will form a formal commercial joint venture. The former's pending IPO could complicate things on that front.

Consumer advocates back Vodafone & Vocus

Meanwhile, the pair have drawn support from InternetNZ, the user advocate and independent administrator of the .nz domain.

InternetNZ group chief executive Jordan Carter agrees with Vodafone and Vocus that unbundling worked with copper lines and says, "We see the potential for it to lead to more choice and more competition on fibre too."

The Telecommunications Users Association of NZ (Tuanz) is also behind Vodafone and Vocus's trial.

"Today's demonstration by Vocus/Vodafone delivering a 10Gbps service over what is effectively an unbundled fibre, is a really encouraging and positive step in developing increased competition in the NZ comms market," Tuanz head Craig Young says.

"Unbundled networks lead to greater competition at the retail level, and provide a real incentive to the incumbent network provider, in this case Chorus, to innovate and offer services that match the unbundling party. In the end it's all very positive for end users if it delivers new and exciting, well priced services."

Chorus makes its own push

For its part, Chorus has recently been showing-casing potential new services for UFB fibre, including livestreaming 4K video, which could cater to live sports events (including a certain World Cup that Spark will stream later this year), superfast 10 gigabit per connections currently being trialled in 30 homes and new wireless technology that could help bridge the gap from street to home in situations where it's tricky to connect fibre for the final stretch.

And while it has raised the price of the 100Mbps connections used by most households, Chorus has also cut wholesale pricing on its top-of-the-line 1Gbps (1000Mbps) lines.

Its message to Faafoi and the Commerce Commission is, plainly: we can be innovative and flexible; don't muscle us on unbundled UFB pricing.

Expect Vodafone, Vocus and other retail ISPs to mount a vigorous counter-argument in the months ahead.

Chorus must submit its indicative pricing for unbundled UFB before the end of this year.