Exclusive deals at new developments for broadband supply may seem attractive at first, but they could lock out competition

A reader sent an interesting story tip, about a new housing development in Wellington. It comes with fibre-fed broadband included, courtesy of a deal struck by the building's body corporate with a local internet service provider (ISP).

Enquiring with the provider, it seems the broadband offering is 300/100 Mbps, uncapped, and no individual customer invoices raised.

So far so good: it's a decent offering, and simple for users who probably don't have to do a lot beyond plugging into it.

However, an exclusive deal could limit the choice of suppliers customers would normally have if they can't switch to another ISP. In Wellington case, one customer tried that, but was told it's not possible to install the optical network terminals (ONTs) required for fibre broadband connectivity in the building. 

Using mobile or fixed-wireless 4G and 5G works in the development, which is in central Wellington, but whether or not users who do that get a lower body corp levy is not clear. 

It may be that the exclusive deal above isn't quite that, and not as restrictive as it seems. In general though, it poses an interesting question because being locked into a single supplier has the potential to limit competition, even though a bulk service provision agreement could look attractive initially.

Lack of competition used to be a big problem in telecommunications, so much so that multiple governments intervened with Telecom New Zealand being pressured into structural separation eventually. 

The Commerce Commission keeps a keen eye on the telco sector for that reason, so what does the watchdog think? Are exclusive broadband supply deals for new developments kosher, if competing providers are locked out?

Possibly not, a Commission spokesperson said. In general, tilting the playing field so as to reduce competition is a no-no:

"While agreements between businesses are a normal and important part of how markets work, some agreements harm competition, resulting in higher prices, fewer choices and lower quality of goods and services for consumers. If such agreements substantially lessen competition, they are illegal under section 27 of the Commerce Act," the Commission spokesperson said.

Disclosure is all-important so that people know what they're letting themselves in upon: 

"Exclusive contracts for the supply of services to residential buildings are more likely to be problematic if they are not brought to the attention of potential property buyers or they exist for long periods of time," the spokesperson warned.

Paul Brislen, chief executive of the Telecommunications Carriers' Forum (TCF) agreed, saying access for customers to competitive providers is a must.

"One of the key strengths of the telecommunications sector is that we are fiercely competitive and having customers locked out of a competitive market is really unacceptable," Brislen said.

"We have anecdotal evidence of contractors choosing to only offer one mobile network, of deciding that because they have one type of telco service available that’s enough and of telcos being informed of new developments only after customers have moved in and find they have no connectivity options," Brislen added.

"Developers need to understand that there are multiple offerings in terms of technology and make all types available to customers. Whether it’s fibre, mobile or fixed wireless, the choice should be in the hands of the consumer, not the developer," Brislen said.

It seems pretty clear that exclusive service supply deals are not a great idea, at least not in areas where competing providers are active. 

For buyers of properties that are locked into such exclusive supply deals, it's worth considering the consequences of those on resale values. Broadband is not an optional service for the vast majority of people, and not having a choice of supply could be off-putting for buyers.