Naked DSL costs don't add up for customers

While Australians are shifting to Naked DSL at a rate of knots, what should be a “killer” service is limping in New Zealand due to the high cost of backhaul.

Naked DSL, which allows users to dump their landline contracts and fees with Telecom and use their line solely for broadband internet access, is reaching into the teens in terms of market uptake for some of the Australian ISPs now providing it.

However, in New Zealand, it may be only the bloody-minded Telecom haters signing up as, according to CallPlus CEO Martin Wyllie, “the numbers don’t stack up”.

“It’s not really economic,” Wylie explains, “because of the backhaul costs and the way it’s provisioned. It’s extremely difficult to make the numbers work.”

Callplus is one of the very few ISPs in the country even offering Naked DSL as an option.

Wylie says it is more likely users will take advantage of LLU than Naked DSL.

“It should be a killer product, but it’s limping along because the economics don’t make sense,” he says.

Both Callplus, through its residential Slingshot brand, and Orcon offer Naked DSL plans at $79.95. Orcon’s comes with a 10GB data cap while Slingshot’s comes with 6GB, with an iTalk voice-line. Orcon says it has just updated the cap on its plan to 15Gb.

In contrast, Slingshot offers a full-speed, “fully clothed” DSL plan with 15GB data cap for $49.95 a month. Telecom offers a speed-capped download plan with 10GB of data for $59.95 and an uncapped 15GB plan for $79.95. Vodafone offers an uncapped 5GB plan, including home phone, for $80 and a 20GB plan for $90.

The reason why Naked DSL is uneconomic, Wylie says, is that providers have to buy backhaul capacity in steps. The pricing of those steps is such that ISPs need a large number of naked DSL subscribers to make it pay.

“It was overlooked and done wrong. It will remain niche until the pricing is changed,” he says.

Australian ISP iiNet was the first to launch a large-scale Naked DSL service there in late 2007. It is now reporting 20,000 users for its line-without-a-dial-tone plans. Other ISPs were quick to announce matching services.

In New Zealand, CallPlus and Orcon are providing services now, while Vodafone is talking about “Vodafone Naked DSL” for later in the year. The terms of Vodafone’s proposed service are not yet available.

Orcon is claiming more success for its Naked DSL product, but acknowledges the pricing issue.

It says Naked DSL is “around 10% on Orcon LLU” and that is about the level expected “due in large part to the pricing of landlines possible due to LLU”.

“Unbundling means that Orcon can provide a landline at a far lower pricepoint — just $20 more a month than Naked DSL,” a spokesman says.

Telecommunications Commissioner Ross Patterson says it is very early days for Naked DSL in New Zealand.

"It's too early to say," he says. "People might be surprised at what the level of uptake will be."