The battle for better broadband heats up. Quarterly Broadband Update: December 2016

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1 The battle for better broadband heats up Quarterly Broadband Update: December 2016

2 Highlights Competition ratchets up to a new level Better broadband technologies battle to win consumer mindshare (fibre, copper, fixed wireless, cable) Consumers see fibre as a superhero brand Research shows fibre has the highest awareness, satisfaction and loyalty of all technologies VDSL is lower profile but many are confused what better means for them Speed is desired by one portion of the market but for others consistency and personal benefits mean more Better broadband migration is the theme for 2017 Strong incentives for providers to upsell and re-contract customers Mar-17 PAGE 2

3 The Better broadband battle for consumer attention escalates The NZ market experienced a significant shift across four key areas in the past six months: Gbps offer from MyRepublic Spark s Wireless Broadband offer > An aggressive push of fixed wireless as a home broadband substitute > Vodafone promoting its newly upgraded FibreX cable > A new focus on migration RSPs are upgrading customers to support retention Vodafone s cable offer in Wellington and Christchurch Slingshot s high-speed copper (VDSL) > A shift from broadband best efforts to broadband that is fit for purpose. A growing focus from regulators on performance commitments Mar-17 PAGE 3

4 Monthly price - NZD Price competition is fierce to win 24-month contracts Big drive towards heavily discounted 6 to 12 month plans Fibre is priced at or below (on special deals) basic ~10-15 Mbps broadband plans (ADSL) NZ residential broadband plan comparisons (max / min) Jan 2017 (1) i.e. maximum price $95, minimum price $45 $149 $145 $110 $85 $95 $95 $95 $95 $80 $79 $40 $55 $45 $60 $45 $60 Fixed Wireless ADSL VDSL Cable Fibre 30 Fibre 100 Fibre 200 Fibre Gig Wireless Copper Fibre Source: Glimp 20 th Jan 2017 ( Notes: (1) Naked plans, variable data caps, special contract offers (i.e. first year / 6 month discounts) included. Excl. modem and install Mar-17 PAGE 4

5 Dec-15 Jun-16 Dec-16 Dec-15 Jun-16 Dec-16 Activity in the market is driving uptake of fibre and VDSL Connections continue to grow across fibre and VDSL as New Zealanders move towards better broadband Broadband connections on the Chorus network VDSL connections Fibre connections 231, , , ,000 25% increase from Jun ,000 38% increase from Jun ,000 Notes: (1) Source - Chorus data. H1 FY17 report. VDSL (includes naked VDSL), Fibre (mass market) Mar-17 PAGE 5

6 Blenheim (Dec-14) Rotorua (Mar-16) Waiuku (Jun-16) Timaru (Jun-15) Ashburton (Mar-15) Masterton (Sep-15) Greymouth (Sep-15) Taupo (Jun-16) Whakatane (Sep-16) Oamaru (Sep-14) Queenstown (Jun-16) Waiheke Is. (Nov-16) Nelson (Jun-18) Invercargill (Jun-18) P. North (Jun-19) Levin (Jun-18) Dunedin (Dec-19) Pukekohe (Mar-18) Napier/Hastings (Dec- 19) Auckland (Dec-19) Wellington (Dec-19) Feilding (Mar-18) Gisborne (Jun-18) Kapiti (Dec-19) % uptake of capable addresses % build completed Strong UFB growth is occurring across all regions Nationally 32% uptake with 216,000 connections within UFB deployed footprint 50% 45% 40% UFB uptake and build by candidate area UFB uptake at Dec-15 UFB uptake at Dec-16 % of build complete Dec % 90% 80% > Blenheim continues to lead with 38% UFB uptake followed closely by Nelson (36%) and Rotorua (35%) 35% 30% 25% 20% 15% 32% UFB uptake overall 70% 60% 50% 40% 30% > Strongest growth from Dec-15 for Greymouth, Kapiti and Feilding 10% 5% 0% 20% 10% 0% > All areas now at least 50% build complete, including the large volume areas of Auckland (56%) and Wellington (51%) UFB region and date of UFB completion Notes: (1) Source - Chorus data Mar-17 PAGE 6

7 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 The fibre market is steadily upgrading from 30Mbps plans Fibre max plans (including Dunedin) account for 4% of fibre connections at December Chorus Mass Market fibre base by Speed 4% 45% 50% 53% 24% 24% 27% 30% 31% 37% 47% 42% 39% 75% 74% 70% 63% 61% 55% > Over half of fibre plans are 100Mbps Now 53% up from 31% a year ago > Around 84% of new fibre connections are for 100Mbps or more > There are now over 9,000 Fibre max plans (incl. Dunedin Gig City) 30Mbps 100Mbps 200Mbps Max Notes: (1) Source - Chorus data (2) Max plans include Dunedin Gig City connections Mar-17 PAGE 7

8 POLAND NEW ZEALAND CANADA AUSTRALIA SPAIN ESTONIA UK SWITZERLAND FRANCE ITALY PORTUGAL LATVIA GERMANY LUXEMBOURG NORWAY AUSTRIA CHILE FINLAND GREECE HUNGARY ICELAND NETHERLANDS SWEDEN SLOVAKIA MEXICO TURKEY DENMARK SLOVENIA SOUTH KOREA USA CZECH REPUBLIC JAPAN BELGIUM New Zealand is a strong performer for fibre adoption We rank second in the OECD for increase in take-up over the 12 months to June 2016 % increase in fibre connections from June 2015 to June % 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 127% Across OECD countries Source: idate (World FTTx Market June 2016) Note: Fibre connection numbers unavailable for Israel and Ireland Mar-17 PAGE 8

9 Six out of ten kiwis could get better broadband today In total, around 720,000 kiwis could upgrade to better today The largest upgrade opportunity is amongst users on standard and basic broadband Base Basic 34,000 Standard 772,000 On Best Available Could get Standard Could get High speed Could get 100+ fibre Migration opportunity 35% 14% 29% 21% 64% 12,000 5,000 10,000 7,000 22,000 24% 0% 46% 27% 73% 188, , , ,000 Chorus Better Broadband Migration Opportunity Sep-16 Dec-16 73% 73% 64% 60% 60% 59% High speed 192,000 Fibre 222,000 74% 0% 0% 24% 24% 143, ,000 46,000 60% 0% 0% 40% 40% 133, ,000 89,000 23% 24% 43% 40% Total 1,220,000 41% 0% 30% 28% 59% 499,000 5, , , ,000 Basic Standard High speed Fibre Total Notes: (1) Source - Chorus data; (2) Basic (BUBA), Standard (EUBA), High speed (VDSL) Those that are at least 100Mbps download plans are counted as on best available. PAGE 9

10 0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 % of maximum capable speed TrueNet results show performance differences between the types of broadband available today Speed by time of day (median) > Fixed Wireless has the largest fluctuation in speed Dropping down to 75% of maximum speed at peak times (around 9pm) In contrast, fixed line broadband (ADSL, VDSL, Fibre) is far more consistent only decreasing by 5% at worst ADSL VDSL Cable Fibre Fixed Wireless > Overall speed (1) comparison showed that fibre was fastest With Fixed Wireless placed between ADSL and VDSL Time of day Source: TrueNet Fixed Wireless report, Shows median best speed of file downloads by hour for January 2017 (1) Average of best speed Mar-17 PAGE 10

11 Consumer attitudes to Broadband Exploring behaviour, attitudes and perceptions of technology Key findings from Chorus December 2016 consumer survey. 25 minute online survey among n=1,001 New Zealanders conducted by Colmar Brunton

12 The consumer research delivered a clear message Fibre is preferred among over three quarters of the population. It has highest awareness, satisfaction, advocacy and loyalty among current users. Fibre is King! Notes: (1) Source Colmar Brunton Broadband Market Foundation Survey, December 2016 (1) Sample sizes: Total (n=1,001), ADSL (n=616), VDSL (n=120), Fibre (n=120)

13 Only 6% of kiwis would not consider fibre Biggest barrier is knowledge How can I get it? Why do I need it? Not available in my location 40% Installation problems 5% Don t need it? 26% Cost 15% Quality Issues 8% Source: Chorus Foundation Research with Colmar Brunton, December Mar-17 PAGE 13

14 VDSL has a much lower profile VDSL has relatively low awareness and low first choice preference but good loyalty and satisfaction for current users. It is a natural stepping stone to fibre VDSL is a sleeping giant 1 st choice is fibre

15 We found dramatically different needs and expectations between consumer groups Segmentation is becoming critical as fibre becomes mass market 25% Low data users that don t see their usage changing will value: Price Reliability Friend & family advice 25% High data users that see their usage changing value: Speed Multiple devices Independent reviews

16 Half the market are not confident with technology They don t understand the personal benefits of upgrading to better and they are looking for a trusted advisor to guide them Fact 52% of Kiwis are confident with technology This means we need to help different user groups understand the benefits in ways that matter to them. Source: Chorus Foundation Research with Colmar Brunton, December Mar-17 PAGE 16

17 Price comes out on top - reliability and speed are close behind Q. Which are the four most important criteria when deciding on which internet package to use at home? Base: Those who have internet at home (n=986) 17

18 The implications for better broadband Fibre is recognised as a hero brand by New Zealanders. But we are entering a new phase of mass market maturity. It requires us to be more sophisticated and segmented in our messaging VDSL provides a strong end-user experience as a stepping stone to fibre but it has a low profile. Opportunity is to integrate it into the fibre journey Understanding end users is key. Some value speed and expect to use more data; others are after price and reliability. With the low levels of confidence in technology we also need to help different user groups understand the benefits of better broadband in ways that are relevant to them. The battle for better broadband will intensify. Price-based competition is continuing to bring better broadband into reach of price-sensitive households, supporting broadband growth. However consumers will need guidance on the best choices to make. We expect the focus will shift to real broadband performance and experience at peak times. Messaging will be more nuanced. The focus will be on encouraging New Zealanders to ask for better.