The three telcos say industry does not need $1.5 billion on offer
February 21st, 2009 at 9:31 am by David FarrarThe NZ Herald has an exclusive preview of a report being released at 10 am today, that was commissioned by Telecom, Telstra-Clear and Vodafone.
As readers will know, National was elected on a major promise of spending $1.5 billion to help ensure ultra high speed broadband to 75% of NZ homes.
The three telcos have released a report which basically says the Government should not spend $1.5 billion in this area, because all their existing offerings are adequate. I’ll try not to laugh.
Now you have to consider how unusual it is for the major players in a sector to try and stop the Government spending $1.5 billion in subsidies, rather than try and get some of the $1.5 billion.
So why would the big three be fighting against a huge investment in their sector? Because they are scared shitless that it won’t go to them. They are very worried that electricity lines companies may get to provide most of the infrastructure for fibre to the home. And this means the telcos would have to compete in offering services over that fibre network, plus offer complementary services over mobile and wireless.
Labour have been running what is basically a blatant lie for nine months, about National’s policy. They have been scare mongering that National is just going to give the $1.5 billion to Telecom, which would help perpetuate Telecom’s market dominance. Now ask yourself, would Telecom be partnering up with its two biggest rivals, to fund a report that argues the $1.5 billion should not happen – if Telecom thought there was any liklihood that $1.5 billion would be coming their way?
Now I don’t know what the Government is going to do. I’m not even sure if they have made decisions yet. But I think Liam Dann has it somewhat wrong in this article:
Bill English and John Key will already be having serious doubts about their ability to commit $1.5 billion.
The world has changed dramatically since Maurice Williamson – then opposition spokesman on telecommunications – made the $1.5 billion promise.
It was John Key, not Maurice Williamson, that made the promise. I was there at the speech. John was taking, and Maurice was sitting next to me clapping furiously – like all of us. Now this is not to say that Maurice was not a passionate advocate of the policy – he was, and he helped make it happen. But anyone who suggests John Key is not committed to this policy is wrong (in my opinion). It is no secret that John was a very strong advocate for it.
And while the credit crisis is an issue, the Government has made clear that they are looking to bring forward infrastructure spending, not reduce it.
Dann says the benefits of fibre to the home must be jobs, not just movies on demand. I agree. I think fibre to the home will allow many businesses to reduce costs as staff can work from home, which provides both economic and environmental costs. Dann says:
And cost-benefit debate needs to focus on jobs not, unfortunately, speed for the home user.
Last month a report by the Economist noted two studies which found some evidence of increased broadband spending equating to increased employment.
Washington-based Brookings Institution concluded that for every percentage point increase of broadband penetration, employment increases by 0.2 per cent to 0.3 per cent per year. But that is not huge growth.
Not huge? So if we get 10% more broadband penetration we will have extra employment growth of 2% to 3% a year. That is an extra 40,000 to 60,000 jobs a year.
I look forward to reading the full report. There certainly are difficult issues for the Government to deal with. For example if most of the funding does go to electricity lines companies, it would be desirable for this not to hinder current investment plans by the Telcos. I am sure the Castalia report will be a useful piece of research, as they had access to the telco’s commercial data.
Related posts:
- Fibre, copper and telcos
- CTU calls on Govt to freeze Telecom
- Reaction to National’s $1.5 billion fibre to the home plan
- National’s $1.5 billion fibre to the home plan
February 21st, 2009 at 9:41 am
Yes, notwithstanding the long term vs short term argument, it’s pretty critical that right now, we ensure that every single govt dollar spent, get’s the max bang-for-buck, until we see the beginning of the end of this GFC. That’s an inflexible principle of wisdom and if English et al does not adhere to it, I’ll be looking sideways at them, myself.
It’s probably certain this study is based on different conditions that we’re going to be experiencing over the next ?? years. Therefore to base support for the policy on something like that is pretty wishful thinking.
Must say DPF, the more you and people in the govt take a ‘don’t scare the horses approach’ and ‘everything is going to come right very soon indeed’ and ‘it’s only a cyclical correction anyway’ the more I wonder what you’ve all been drinking.
The question re: this particular bit of infrastructure is: what’s the bang for buck going to be, with 20%+ unemployment and few to none expanding overseas markets for our primary produce?
[DPF: When have I ever said everything is going to come right very soon? I do not believe that. I think it is going to get far far worse. Please do not invent beliefs for me]
Vote:February 21st, 2009 at 9:57 am
I am not usually one to say something should be run by the government but….. a nation wide not-for-profit fibre network operator would be great. Perhaps the SOE model would apply?
The role of the operator would be to simply maintain a suitable fibre network, and to onsell capacity.
The biggest problem is to ensure the operator does not get too big for their boots. That is where things get difficult. We don’t need highly paid ceo’s with big egos. We just want a scotsman with short arms and deep pockets to run this organisation.
Vote:February 21st, 2009 at 10:06 am
Damn I would roll with laughter if the money went to the lines companies.
But, as Reid has posted maybe it is better to wait, this recession (depression) could really bite us in employment terms.
Might be time to shut the piggy bank at this time and hunker down and wait.
And I am one of those tax and spend labour types
Vote:February 21st, 2009 at 10:30 am
After the issues with Auckland’s power, do we really want lines companies in charge of our badly needed internet infrastructure?
Vote:February 21st, 2009 at 10:31 am
[DPF: When have I ever said everything is going to come right very soon? I do not believe that. I think it is going to get far far worse. Please do not invent beliefs for me]
You too, DPF?
But do you have a misguided faith that governments can borrow and spend their way out of this problem? Or do you think as I do, that reducing the taxation and regulatory burdens on the private sector are essential, and do you think, as I do, that National is semi paralysed in this regard because most of the best things they need to do are part of what the ignorant NZ public regards as the dreaded “secret agenda” that the Nats had to vigorously repudiate before they could win the election? We desperately need a “Lange” who can explain to the NZ public that these things are not a matter of “lining the pockets of your fat cat mates”, but they are now a matter of ensuring the survival of as many as possible of the businesses that provide Kiwis with jobs. If John Key can rise to this role, he deserves to join the pantheon of NZ’s greatest ever leaders.
It should not be a matter of debating which businesses get a handout from nanny state. It should be a matter of absolutely even-playing-field reduction of burdens on all NZ businesses without favour. The other is fraught with moral hazard and inefficient use of scarce resources that are becoming scarcer as the crisis deepens.
The question I would ask John Key is, why would he commit NZ taxpayers money to an enterprise that he himself would not shift his own investment wealth to, away from where he has it invested now? The answer is important. If he has better uses for his money, so does the NZ economy and certainly so does the NZ taxpayer. If he wouldn’t sink his own money into Fisher and Paykel or into providing Broadband, why is there any case for someone else to be forced to do so, let alone every NZ taxpayer?
Vote:February 21st, 2009 at 10:33 am
Want to stimulate the economy? Here’s where you need to look:
Lifting Our Game
Hon Rodney Hide, Minister of Local Government
Friday, February 20 2009
Speech to the Skyline Buildings Ltd distributors meeting; Hotel Grand Chancellor, Airport Oaks, Auckland Airport, Auckland; Friday, February 20 2009.
“Good afternoon.
Since I became Minister of Local Government, and let it be known what changes I wanted to see in relation to Councils and the way they operate, I’ve been flat out.
And so has my staff.
When I went on TVNZ’s ‘Close Up’ late last year, I asked viewers to write to me about the problems they’d been having with their Councils.
I got literally a sackful of mail.
I’ve had around 1,100 people letters so far, and more come in each day.
And everyone who wrote is getting a reply.
But that’s just the tip of the iceberg in terms of the extent of the problems
people are having with Councils.
I’m sure each of you has your own horror story – about spiralling costs, and
increasingly complicated and unnecessary demands for information before
granting a consent.
Which are driving up the costs of putting up a garage – and threatening your businesses’ viability, as well as driving ordinary Kiwis crazy.
I’m in touch with many different companies and sectors about the costs of getting consents and the red tape involved.
Simply trying to carrying out their everyday business is now a nightmare.
It can cost $10,000 for a consent to put in a small cable car to help an old lady in Oriental Bay get up and down her steep cliff slope.
And nine months to get the consent.
I understand that just to put in a Para Pool in your backyard for the kids will take months to get the paperwork done, and can cost thousands of dollars.
That’s just for the Council consent alone – which can cost up to 50 percent as much as the pool itself.
Families can’t afford a Para Pool because of the Council costs – and if they do they may not get the consent through in time for a swim until next summer.
Earlier this week I visited a fantastic Hutt Valley business that makes the cable cars I referred to earlier.
It has 11 workers, it’s very successful, very entrepreneurial and it exports.
But it’s in trouble.
It’s being driven into the ground by the increasing demands, and costs of, Council consents.
There are many companies like it.
Simply trying to carrying out their everyday business is now a nightmare.
The power that Council officials have accumulated is frightening.
They are now paranoid about the possibility of being considered – or found – negligent some time in the future about any decision they make on minor, as well as major, building projects.
It is appropriate that they’re stringent and demanding in many areas involving safety and reliability of structures – to prevent leaky buildings for example.
And there should be a desire to continually improve our communities.
But it’s gone too far.
It’s all control freak behaviour, and it’s got to stop.
I know there’s a widespread problem – so what are we going to do about it? What can we do about it?
We can make things easier, and we’re going to.
I accept that much of the overbearing regulations and petty restrictions imposed by Councils come from government legislation such as the Resource Management and the Building Acts.
And that’s why we’re making changes to both.
The first changes to the RMA were announced earlier this month.
There will be more work on the RMA and related issues.
There have also been so many more new rules and regulations under the recent Labour Government – all of which meant more costs and more complexity.
No wonder people are giving up on projects like putting up a simple garage – and saying “the hell with it.”
The practice of imposing more and more obligations on Councils, which pass on the costs to ratepayers and consent applicants, must stop.
Another source of problems is the Building Act, and its regulations and requirements.
We’ll be reviewing the Act in the future to make it less prescriptive and restrictive.
But that’s not all.
We’re also going to be sweeping through a whole raft of petty rules and regulations that are unnecessary, small minded and completely outdated, and affect things such as swimming pools.
That’s one of my major goals in my role as Regulatory Reform Minister.
The Local Government Act is another piece of legislation we’re targeting for improvements.
We want more transparency and accountability, and reduced costs passed on to local government because those costs are ultimately passed on.
However, although these pieces of legislation are responsible for the much of the absurdities, Councils themselves must bear part of the blame.
They have become very risk-averse and over zealous – particularly Council planners and the way they interpret legislation and extend the ridiculous controls into micro areas of a project.
In addition, costs and charges and fees keep being raised far beyond what is reasonable.
Three thousand dollars for a consent to build a $10,000 Skyline garage is absurd.
The paperwork’s gone crazy too.
I’m told up to 50 pages of paperwork is needed for Councils to approve a garage – whereas two or three used to be enough.
When ACT went into its support agreement with National after the election, I took on my two Ministerial portfolios: Local Government and Regulatory Reform … because these are important areas that affect people and their communities in so many ways.
I also took them on because this is an area in real need of change.
Red tape is strangling businesses like Skyline, and it’s driving ordinary people and homeowners crazy.
I want to see fewer of the absurd compliance demands in the regulatory area.
I want to see the financial burden placed by central government on local government reduced.
My view is that we should take Councils out of the picture and, for work on large building projects of any size, should hold the builder or tradesperson responsible.
If something should go wrong at some time in the future, whoever built it should bear the liability through their insurer.
Make no mistake: I accept Councils do a lot of good work, but they have become a block on growth in this country.
We are in a very tough situation economically and we must do everything we can to help businesses flourish and grow.
The country’s got to go faster.
We need to lift our game substantially, and I believe there are very real gains to be made in the regulatory area.
Reform is needed, and change is going to come.
Thank you.”
Vote:February 21st, 2009 at 10:36 am
My apologies, DPF.
Vote:February 21st, 2009 at 12:05 pm
I can see some significant positives to spending on infrastructure during a recession. Not from the Kensyan “invent work for the masses and defeat the recession by fiscal stimulus” point of view; if the hard edge is taken off the recession by the spending, I consider this a bonus but not the primary objective. The simple facts are that infrastructure in key areas such as roading, internet, etc have been woefully neglected to the detriment of all. In time of a recession, one can leverage the lower demand and higher unemployment to get these jobs done more cheaply and without risking too much inflation from the government spending (in contrast to Labour increasing govt spending during a boom time, one might note).
Now the real trick (as is always the case for government spending) is to make sure the infrastructure projects undertaken are useful. That said, I think faster internet could open up a great many more opportunities for NZ business in the future.
Vote:February 21st, 2009 at 1:09 pm
Yes, it is useful to do things that increase jobs. But that should not be the primary measure, otherwise we’d just hire people to dig holes and fill them in again – the low capital cost would make that the cheapest possible way to invent jobs. But they are nothing jobs.
The measure of any govt spend, in good times or bad, is what it’s impact on the country is. What does it create that will make our lives better in the future, what does it do for us today to deal with whatever issues we may have. Seen through this lens, the question is more about how we maximise jobs now and in the future. The way we get out of our current situation is to grow, not to throw money around in a short-term stimulus with some sort of hope that the current bad situation will eventually go away all on its own, and then the money will start rolling in again.
We need to return our economy to a sound footing, one where people get paid what they are worth, one where entrepreneurs get rewarded for their risks, and one where entrepreneurs actually take risks rather than getting some sort of risk free return.
I still disagree with DPF – fibre to the home isn’t a useful spend of government money. When we talk about increasing broadband penetration and employment growth, that is about broadband that is sufficient to work from home – that is to say, the broadband you can get today at 24Mbps or thereabouts. There is no evidence that ever increasing bandwidth has an ongoing relationship with employment, and there is no evidence that the size of the bandwidth is the biggest barrier to broadband penetration. I would argue that we would be far better off with every home in NZ (OK, the 80% within reach of ADSL) getting 10-20Mbps into their home somehow subsidised by the government, than the government spending $1.5 billion in order to help build a fibre network that will probably then come at a premium price to those who want to use it – in other words, a network that gives existing broadband users faster speeds, but probably reduces our overall broadband penetration.
We need to set our goal more clearly (is it “fibre to the home” because it sounds cool, or is it “80% of NZers have access to speeds greater than 10Mbps, and 65% of NZers actually have it installed in their house”, or is it “65% of NZers can afford to download more than 1GB in a month”). Once we’re clear what the goal is, and what it will contribute to our productivity growth, we should then set some people off to achieve that goal in the most effective manner.
Vote:February 21st, 2009 at 3:33 pm
Behind the scenes, its going to Telecom. Everybody knows that.
[DPF: Yeah you and your sole brain cell]
Vote:February 21st, 2009 at 3:36 pm
Philbest I guess the best we can do is to wish Rodney well and good luck, he will bloody well need it. I can not see many councils opening their doors for Rodney with smiling faces. Most would probably like to put a knife in his back Many councils look at themselves more like lords over their little kingdoms and will be less then happy to relinquish earning potential. I guess the stupid thing about it is the more the people have to grease the shinny arses palms the slower development becomes and thus the bueacrats are slowly starving the golden goose, bloody socialist morons they are actually killing themselves off.
I hope that the lessons of history have not been lost on the Nats. If they must spend 1.5B I just hope they are not silly enough to put all their eggs in one basket. What we done want is another Telecom nor do we need a another government run business, it will get fat and lazy and could be dangerous to the rights of free speech. Just imagine a government department in control of fibre, very easy to pull the plug on those nasty bloggers
Vote:February 21st, 2009 at 4:02 pm
And cost-benefit debate needs to focus on jobs not, unfortunately, speed for the home user.
I think Liam Dann is 100% wrong on that. We’re talking about the tech sector, the jobs this $1.5 billion spend will create generally require highly skilled people, the sort of people who currently have jobs and don’t make a habit of being on the unemployment benefit. So however many jobs this $1.5 billion is alleged to create, 90% or 95% or 98% will be filled by people leaving their jobs elsewhere in the economy.
Which makes jobs created an entirely useless measure this scheme’s benefits.
A much better measure would be to look at the relationship between GDP and broadband penetration and quality, and then ask whether the projected increase in GDP at the margin is worth the cost of the resources this investment will consume.
Vote:February 21st, 2009 at 4:44 pm
from Rodney Hide via Phil Best – “It is appropriate that they’re stringent and demanding in many areas involving safety and reliability of structures”. Agreed, but wouldn’t that cover a cable car up a steep hillside?
Vote:February 21st, 2009 at 4:49 pm
PaulL makes an excellent point: What exactly is the $1.5 billion supposed to achieve?
It could be used to increase penetration (eg make fixed line broadband available in rural communities), or it could be used to ramp up the speed of the existing networks (Faster Pussycat! Faster!) or it could be used to build parallel networks to stimulate competition (cheaper broadband for city users).
Each of these options has a different cost-benefit analysis. And we must be careful to distinguish between likely benefits to the economy (eg enabling more people to work from home) and likely benefits to the individual (eg faster pornography downloads).
Maybe I have missed the bus on this one, but I really don’t know what is actually intended. Are we all waiting to find out? Whether the proposed spend makes sense may depend on the answer.
Vote:February 21st, 2009 at 6:44 pm
He-man says:
“Behind the scenes, its going to Telecom. Everybody knows that.”
Yes, and I’m sure this is why they are opposed to the government’s plan. Telecom doesn’t like it when they get given free money.
Vote:February 21st, 2009 at 7:07 pm
s.russell Have you used bradband overseas? If the investment isn’t needed why is my broadband so shit?
http://www.speedtest.net/global.php?continent=6&country=5
test it yourself against the world
Vote:February 21st, 2009 at 9:17 pm
PaulL raises the important question … Q: What are the Nats looking to achieve with this $1.5 billion investment? Is it to ignite GDP growth? Or is it for some sort of social objective to ensure that Kiwi homes have access to fibre?
I have yet to hear the Nats actually answer that one, and I know the whole NZ telco industry is struggling with it too. It’s really unclear.
Vote:February 21st, 2009 at 9:25 pm
If the relationship is between broadband penetration and employment then surely we’re better off spending $1.5bn subsidising the marginal customers of existing broadband options like xDSL, rather than duplicating existing services with fibre?
Sure, if there’s a fibre network then the geekiest few percent of the population will switch to fibre. But they’re already broadband users … so we’re not talking about an incremental uptake of broadband there, just switching to a new network.
If the Nats believe that broadband = jobs then surely the answer is to subsidise the existing broadband options so a larger number of people can take it up???
Vote:February 21st, 2009 at 9:43 pm
FWIW, I’m sure that if the lines companies build the fibre network it will:
(i) strip enormous value off Telecom in particular, but also TelstraClear,
(ii) seriously impair the future investment rationales for Telecom and TelstraClear,
(iv) never deliver a commercial return to either the lines companies or the Government.
Fibre itself is a good thing. But competing fibre and copper networks will eat each others heads off. I don’t see how a new-build fibre network can compete cost-wise with an established copper network. So either the fibre has to offer a service people need and can’t get from copper (appreciate any suggestions on that one), or the fibre owners have to take a haircut on the pricing.
My own personal view is that a rationally-priced fibre network will get less than 10% of houses connecting to it. Hard to make the economics work with just 10% signing up. Meanwhile Telecom going from 100% connections down to 90% connections will tip them into marginal profitability on the local access network and really make them re-think the tempo of their ongoing investment in that network.
So sure, Telecom and TelstraClear and Vodafone are scared the Nats will put the $1.5bn into lines companies. Because they know it will wreck the industry’s economics and, in the long run, be more harmful than helpful.
Vote:February 21st, 2009 at 9:59 pm
The problem is that fibre is expensive. The cable itself isn’t too bad, but there is a significant difference between the termination of a copper wire into your house (simple ADSL modem), and the termination of a fibre drop – which involves some specialist and expensive equipment. And you can’t easily shift phone onto fibre – because there is usually a requirement that phones work without power, and fibre connections won’t work without fibre. So you end up with copper and fibre into your house. Once the fibre gets into your house, does it go into the back of your computer? Well, no. The last bit of the link is usually copper still, maybe wireless. The belief that fibre is good just because it is fibre is simply wrong.
Vote:February 21st, 2009 at 10:31 pm
PaulL … some representative costs are that fibre costs about $1,500 to get to the kerb, and then about another $1,500 for the link from the kerb to the building, the CPE and the install costs. So a full connection is about $3,000 per home.
Using line company poles might take a little off the $1,500 cost to get to the kerb, but not a lot (and many of the built-up parts of the country have undergrounded their electricity infrastructure, so fewer cost savings to be had there).
The perennial problem with all distribution networks is getting sufficient connections to make the numbers work. You have to run the network past every house, but you only get revenue from those that connect. Let’s say a Government-funded fibre network gets 10% customer take-up. So for every connection you have to pay 10x $1,500 to go past all the houses plus 1x $1,500 for the install/CPE etc. So that’s $16,500 of investment for one customer.
That’s why I just don’t see how a Govt funded fibre network run by lines companies can ever make a commercial return on the $1.5bn of our money the Nats want to pour into this.
Vote:February 22nd, 2009 at 12:25 pm
Online only businesses like our at interest.co.nz would benefit significantly from an upgraded broadband network. We are continually investing in improving the performance of our page delivery. What we cannot control is the quality of the connection of our readers. The faster the connection a reader has the more content they can and will consume. This has been demonstrated by the significant increase in traffic as we upgrade the capacity of our web servers and optimize our page delivery.
Vote:February 22nd, 2009 at 1:06 pm
Bryan, I agree that if you can raise the number of readers with fast connections you can drive more content delivery and, hopefully, reap more revenue. The question we’re pondering though is how to most cost-effectively raise that number of subscribers with fast broadband connections.
Last I heard about 20% of Kiwi homes had a broadband connection. I’m sure we’d all agree that raising that figure to 30%-40% should lead to a lot of benefits for NZ Inc. And to interest.co.nz too. What we’re struggling with is whether spending $1.5bn on fibre to the home is the most cost-effective way to lift that broadband uptake.
We’re also struggling with the question of what services websites like interest.co.nz could offer over fibre that couldn’t be provided over, say, VDSL.
Vote:February 22nd, 2009 at 10:42 pm
I’ve said it before and I’ll say it again. Pouring 1.5B of taxpayer money into FTTH is a complete waste of money.
I already have fibre at work. I pay for it. I already know
a) how fast it is
b) how much it costs
c) how reliable it is.
I recently looked to switching to ADSL2 (may still) because the cost of the fibre is huge. You pay $1200/month just for the fibre connection, then you pay data on top of that – $2000/month for 2MB international access through an ISP. That’s the kicker..
How many homes would be prepared to pay 5k/month for net access which only gives you 2MB international (albeit uncapped)?
Vector can’t even get their act together to put a backup generator in their comms centre, so any time you get a power outage longer than about an hour, the fibre goes down as well.
Until they upgrade the international links to reduce the cost of International traffic, then fibre to your home isn’t going to mean squat in terms of how fast you can browse youtube. I would rather they put the 1.5B into another international fibre link.
Vote: