Broadband plans unveiled
March 31st, 2009 at 11:51 am by David FarrarSteven Joyce has released details of the Government’s $1,500 million investment into ultra fast broadband so that it reaches 75% of NZers within a decade. Key details:
- A Crown-owned investment company called Crown Fibre Investment Co or CFIC will be established.
- CFIC will invest alongside private sector co-investors in regional fibre companies that will deploy and provide access to fibre optic network infrastructure in the 25 towns and cities covered by the initiative.
- CFIC will select local partners based on the amount of additional fibre coverage being proposed, the proposed capital structure, the commercial viability of the proposal, consistency with government objectives and the track-record of the partner.
- It will be an open infrastructure model that will ensure all telecommunications companies have the option of using the fibre.
The Govt also has a Q&A.
This looks a very good process. Most people in the industry thought a regional approach was preferable to a national approach. So there will be up to 25 local fibre companies that are part owned by the Crown and part-owned by private operators.
A key aspect will be the market structure:
It is expected that ISPs, network providers or other service providers will purchase access to dark fibre and install their own active electronics. Local Fibre Cos themselves will have a limited ability to install their own active electronics as well, subject to Crown Fibre Investment Company approval.
In turn, these parties (except the Local Fibre Cos) may use these elements to produce a retail broadband (or other) service, which is sold to end-users. The Local Fibre Cos cannot do this due to their restriction on selling retail services.
These parties may alternatively use these elements to produce a wholesale “bitstream” type of service, which is sold to ISPs or other service providers (Local Fibre Cos can undertake this activity, but as noted above this is subject to Crown Fibre Investment Company approval). The parties that purchase these wholesale services will then use them to provide a retail service.
So generally the local fibre cos will provide access to dark fibre only. In some areas they may be allowed to provide wholesale bitstream services, but only if needed by the market. And in no circujstances can they provide retail services. Joyce is clearly motivated to avoid the vertically integrated monopoly legacy we have over the copper lines.
Also good to see focus on regulatory issues:
In addition, the government will assess how best to facilitate access to and use of fibre cable deployment on telephone and electricity poles, local authority-owned passive infrastructure such as ducts, micro-trenching and fibre-optic cable “drops” from the street-side into customer premises. This may involve codes of practice or regulatory or legislative amendments.
And for those outside the 75%:
The government made a pre-election commitment to provide $48 million to improve rural broadband. The Minister for Communications and Information Technology is currently developing options around this commitment and expects to make announcements regarding the direction of the government’s rural telecommunications policy in the near future.
The framework looks very good to me. The hard part will be evaluating the competing bids – a top class selection criteria, process and panel will be needed.
March 31st, 2009 at 11:59 am
75% of NZers within a decade. ….
Isnt this a big fudge of what was ‘promised’ before the election
Vote:March 31st, 2009 at 12:09 pm
I have never been a supporter of this policy. Despite good intentions, it’s appeal to the masses who just want faster Youtube
Yes, faster broadband will improve video conferencing, but that’s small beer really.
What NZ desperately needs are services that generate foreign exchange earnings – ie we need to be exporting more internet-delivered, in-demand technology services rather than locally consuming more imported services. That is real growth.
Vote:March 31st, 2009 at 12:19 pm
No no no, this is the complete wrong way to go.
We need a new network operator offering equal access to ISP’s.
This solution, smacks of giving taxpayer money to encumbents.
Pathetic.
[DPF: I suggest you read the proposal. It does not favour incumbents and will require equal access to ISPs]
Vote:March 31st, 2009 at 12:19 pm
Just the sort of useless comment I’d expect from a halfwit jacob. For those of us in the real world we’re aware of the expense of providing services to rural areas. Either the farmers pay for the infrastructure to be rolled out to them, or the taxpayer does, because the private sector won’t break even doing it. Mind you, if we can fund it out of savings from hug-a- polar-bear budgets and cutting benefits then I’m all for it. What about you? Sound like a reasonable trade? Or are you just looking for any excuse to show your stupidity?
Vote:March 31st, 2009 at 12:24 pm
Good god – a new government entity not called Kiwi something to go along with Kiwi Bank, Kiwi Rail etc.? Surely not.
Kiwi Fibre anyone?
Vote:March 31st, 2009 at 12:28 pm
weetbix!
Vote:March 31st, 2009 at 12:36 pm
David, could you explain Chorus’s possible involvement in this? Does organisational separation count as “not being a retailer? So they could contest the proposal by simply extend existing fibre investments to the home?
And what’s the connection points in the “back-end”? Each region has to lay an entire backbone and last mile? With interconnections to each other? How do international connections then work?
Lot of questions sorry but hopefully you get the gist of what I’m saying…
[DPF: Chorus is part of Telecom. As Telecom offers retail services, Chorus could not have a majority voting stake in any local fibre company. They could however be a partner - just with minority voting stake. That is my interpretation anyway.
Chorus could try and compete against local fibre companies. However it is hard to see that they can make money by doing so. More likely they will provide backhaul on a commercial arrangement. There are a number of companies that have fibre networks that can provide backhaul.
Int bandwidth is primarily through Southern Cross, and this won't change under this proposal. However Govt ow ned Kordia is looking to build a competing overseas cable so in time we should get more competition there]
Vote:March 31st, 2009 at 12:42 pm
To possibly answer my own question:
“18. As noted above, LFCs will not provide retail services. However, the government will not exclude partners that own or operate telecommunications retail operations, but such partners may not have the majority of voting control on the board of LFC (unless they divest themselves of any retail business).
19. Telecom, and other telecommunications operators with retail operations, will therefore be able to participate in the contestable selection process, subject to the above requirement”
So odds on Chorus being sold down and Telecom diluting their voting control?
Vote:March 31st, 2009 at 12:49 pm
DPF, thanks for the feedback, as you can see I came to a similar conclusion once I actually perused the damn thing. =)
I think it’s a very interesting point for Telecom now – there were murmurs of a full separation being a Board preference last year; this would strengthen that case I think. Sell off 60-odd% of Chorus, become a retailer/wholesaler at heart and share (via equity investment) in the dark fibre business.
Vote:March 31st, 2009 at 12:55 pm
What really is the driver for fibre to the home? ADSL 2+ can most likely provide enough bandwidth (24Mbps theoretical downstream maximum, although it is going to depend on the quality of the copper from the exchange to the home). The only application I can think of that could possibly need more is real time high def movies.
Vote:March 31st, 2009 at 5:27 pm
RightNow – real time high def movies need only slightly more than 24Mbps – 36Mbps maximum. So whilst ADSL2+ can’t quite hit that speed, VDSL2 can. We don’t need fibre, but it is an election promise. It isn’t necessarily the worst government policy ever, but I do think there is a substantial risk that it cannot be made to pay. Even with the government investment, I suspect all the fibrecos will lose money.
On the plus side, the investors in those companies will go broke, leaving their assets to be bought at fire sale prices by later investors, thereby giving us all cheap broadband. On the minus side, that will probably happen before the network rollout completes, so those people to whom the fibre hasn’t rolled out when their local fibreco goes broke will probably not get fibre at all.
Vote:March 31st, 2009 at 5:57 pm
people will be able to run small businesses from more locations using cheaper IP phone/video/data. 5Mb upstream if you’re lucky isn’t enough for this kind of application.
Offices around this low density country of ours might be able to link at usable data speeds and reasonable prices, again 5MB upstream isn’t up to this.
We’ve got 8 year old kids in low decile schools right now producing video news shows before school starts in the morning. Try to imagine the data transfer requirements for their bright ideas as the hit the workforce in ten years time.
If we don’t start cracking on this now they’ll be forced to travel in to say the 3 main city centres to work, stressing those city’s infrastructure to levels we’re barely able to comprehend now.
Vote:March 31st, 2009 at 6:04 pm
I just sent some questions in to broadbandsubmissions@med.govt.nz
Hi
I just read through the Questions and Answers section, and I have a couple more questions which aren’t addressed.
1. What about international bandwidth?
Currently our access to internet-based content travels 2 fibres provided by one company (Southern Cross Cable co). This is the overall limit (bottleneck) on our access to international bandwidth, which currently makes up nearly 90% of all NZ internet access.
Will our international capacity be upgraded as part of this? If not, even with extremely high speed local access, we will continue to receive poor performance accessing foreign sites (the majority of our internet use).
2. What about pricing for end users?
We currently have a fibre connection through vector and the monthly access / termination fee (not counting any traffic) is well over $1000. This is well out of the reach of the home user, so in promoting fibre to the home (FTTH) will there be any requirements on end user pricing to make it affordable?
Regards
Vote:March 31st, 2009 at 6:56 pm
Government supplying a service? What can go wrong? Crony capitalism through public/private partnerships? What can go wrong? Building something the market clearly wouldn’t build, what other use can we have for this taxpayers money anyway?
My prediction: in ten years time people on fibre or ADSL2 will see no difference in performance except in very rare circumstances. The bottleneck isn’t the last mile people.
Vote:March 31st, 2009 at 7:47 pm
The interesting thing that this opens up, which I didn’t see originally, is the potential for free local content. I think that could be the killer app.
We currently pay exorbitant rates for our international bandwidth. Fine, there is a monopoly private provider selling that bandwidth, and we are actually at the arse end of the world….so no big surprises there. Maybe we’ll manage to do something about that, maybe we won’t.
But many of the applications we’re talking about don’t require international bandwidth. If we could have “free local internet” in the same way we used to have “free local calls” then it could make a huge difference. If sitting at home on my internet connection running at 100Mbps, I can see the file server at work at the same speed as my network at work (which is also 100Mbps), or can video conference essentially for free, or work on interactive presentations or any of those other cool apps, then that would be a real game changer.
There seem to be a handful of reasons we don’t have this already:
1. Some of our larger ISPs are choosing not to peer locally. So if you’re on Clear trying to get to someone on Telecom, your traffic actually goes out to Singapore or further, then comes back. So international bandwidth charges. The larger ISPs do this mainly to try to protect their market, not for any good reason. With the new fibreco, there is opportunity to force ISPs to peer at the local region level as a condition of joining. Once everyone has peered, then it is pretty simple as a next step to make that traffic free. Since it is so simple, at least one ISP will do it, once one does it then everyone has to.
2. There are some technical hurdles, which I think could probably be resolved as well.
To me, this is the bit that could genuinely be a game changer, and would make the difference between me saying “silly idea, but as least it isn’t as silly as some of the crap that the last government wasted money on”, or “that could be a major productivity improvement for business.”
Vote:March 31st, 2009 at 8:01 pm
Good god – a new government entity not called Kiwi something to go along with Kiwi Bank, Kiwi Rail etc.? Surely not.
Kiwi Fibre anyone?”
“All band”?……has things flowing through nicely.
Vote:March 31st, 2009 at 8:13 pm
I just hope the Govt is wise enough to select network operators to chuck the money at. The previous broadband initiatives under Labour are littered with wasted taxpayer and ratepayer money where Councils and other interested parties have decided to get on the broadband bandwagon, but have no knowledge or experience of operating networks and more importantly keeping them going. Even some utilities have struggled with the basic concepts.
A good example is SmartLinx3. I don’t know much about them except the articles you read were they are always asking for more money, have no real network and their major shareholder is their only customer.
Vote:March 31st, 2009 at 8:16 pm
x2 for the idea of requiring all fibre ISPs to peer at the regional level. It may be a task to overcome the international choke but we can be world leaders in our national infrastructure. Make it happen!!!!
Vote:March 31st, 2009 at 8:17 pm
Ok, I want faster broadband too, but is there really the justification for this spend?
Ok they are spending $1.5B to make it go 50 times or 100 times quicker or something like that, but what could they get for only say $500M
Would it be 10 or 20 times quicker than currently for instance?
We know that everything ends up costing twicew as much as originally estimated and you have to question if this is the way to go. What if they chucked another $1B at the roading situation for instance.
Would that get Transmission gully or the auckland motorway system sorted or new harbour bridge for instance?
Vote:March 31st, 2009 at 9:11 pm
Well, the proof of this pudding will be in the eating. Effectively what the Government has said today is “We’re prepared to invest $1.5bn into fibre, alongside private investors. But it’ll be up to those private investors to make the investment business case. If it’s a good business case then we’ll co-invest with them.”
The difficult part will be making that business case stack up.
Any fibre roll-out is going to incur significantly higher capital costs than Telecom’s competing FTTC/VDSL network – like more than 5x the capital costs. The operating costs are going to be at least as high – Telecom has economies of scale, and fibre users will (supposedly) incur much higher data charges. And there are meaningful co-ordination costs to be shouldered in wrangling LFC, CFIC, ISP etc together.
Industry experience is very clear that broadband take-up is hugely price driven … it’s practically impossible to get retail customers to pay more than $120 per month for phone & data, and the vast bulk of SME customers behave more like retail customers than like corporate customers (who already get fibre from Telecom and others).
Added to which, you’d have to factor in the likely competitive responses from Telecom. They will not go gentle into that dark night. They’ll drop prices, bundle products, put their best technology into competition with the fibre networks etc.
So any private sector investor is going to face huge challenges working out how to get enough customer take-up to make the business case work. This is not a commercial challenge that a lower cost of capital (ie cheap Government money) can resolve. Take a look at the Network Solutions report for Internet NZ … that’s a report done for the cheerleaders of this policy, and I can’t imagine any commercial Board investing if the business case looks like that report shows – and Network Solutions assumptions were more generous than this policy released today.
My prediction is that there will be a lot of talk from private sector investors, but few **sophisticated** private sector investors will actually enter into anything. A few smaller existing players, like Vector Networks and CityLink, will take a bit of Govt money to extend their networks into the wealthier parts of Auckland and Wellington. But I’ll be interested to see if anyone does a large-scale roll-out in Ashburton, Taupo, Blenheim, Oamaru etc.
Vote:March 31st, 2009 at 9:15 pm
garethw … re Chorus’ role in all this. I think there’s a missed opportunity for the Government to take Chorus as the vehicle for this, and avoid the duplication of investment that this policy implies.
But, given this clarified policy position from the Government today … if you’re the Board of Telecom why would you sell down 60% of Chorus now? Telecom’s big competitive advantage is that it’s vertically integrated and already reaches to every dwelling in the country. That’s all due to owning Chorus.
There are definitely ways the Government could have structured this policy so that Telecom had incentives to sell Chorus. But this policy outlined today doesn’t do that.
Vote:March 31st, 2009 at 9:18 pm
Agree VM. There is unlikely to be any businesses outside the four main centres that could not get by on VDSL.
The only real limiting factor for DSL technologies is the uplink speed.
Vote:March 31st, 2009 at 9:19 pm
Rightnow & PaulL … an HD stream takes up about 5Mbps. Today’s ADSL2 connections struggle to reach that (true) throughput, and really can’t do it for the duration of an HD movie. But VDSL2 has more than enough true bandwidth to comfortably send an HD stream, without needing big buffering etc.
Vote:March 31st, 2009 at 9:28 pm
adc … those are two great questions.
I’ve seen a lot of deep detail of a trans-Tasman cable. The economics are really tough. And the key question on all potential investors minds is what is the likely competitive response from Southern Cross? They’ve already recovered their investment on that cable, with a good cost of capital. It would take 2-3 years to bring a new cable into operation once you pull the trigger, that’s 2-3 years for Southern Cross to sign up all the high-value customers on to long-term sweetheart deals. Basically, Southern Cross will be always be able to undercut the pricing of a new entrant but remain profitable. You’d have to expect them to do that, in order to deter that new entrant.
So anyone building a trans-Tasman cable is going to get mauled by Southern Cross. That’s deterring the private sector investors. I suspect it’ll need a dose of “non-commercial” money to get a trans-Tasman cable over the line, and there’s not a lot of that money around. But then, Kordia did pay $24 million for Orcon …
Vote:March 31st, 2009 at 9:31 pm
A lot of people above appear focused on whether it will work and how it will work in practical terms.
A much smaller proportion of people above are asking what IMO is the only relevant question: is this a wise spend of scarce resources.
When has anyone given us a business case on this policy? So what if it was an election promise. Since when have reef-fish been able to properly evaluate anything, let alone something this complex?
Point is, regrettably, this is a big-ticket item in little-ole NZ. There are plenty of other things, science-wise, that could arguably get much better bang for buck than this.
For example, imagine if, with some of this money, the LH company mentioned last weekend became the world’s leading exporter of hydrogen fuel-cell technology. Imagine if, with another part of this money, the low-temperature super-conductivity technology currently being developed at Vic could be commercialised for use in every single wind-farm around the world.
Look, who knows if that could happen or not. Point is, no-one actually appears to have thoroughly, rigorously and assiduously explored the question: Is this the best possible bang for our remarkably scarce bucks, at this particular moment in time? Well, is it? Why? I don’t recall any debate on it.
This reminds me of a Marsden-Point Think-Big project – except it’s not so wise. At least we KNEW back then we NEEDED vehicles. Do we know the same thing about really fast broadband?
Vote:March 31st, 2009 at 9:34 pm
Southern Raider … I think the problem with this policy is that it puts the cart ahead of the horse. It’s all “Build it and they will come”.
Personally I’d like to see more attention going into just what services will be available over fibre that aren’t do-able over top-end DSL. Overseas that’s video … you roll-out fibre to the home so that you can bundle phone, data and TV over the same network infrastructure. But the TV horse has already bolted here.
Sure, there’ll be a few new services that become possible. But I really question whether they’ll be of sufficient commercial value to justify spending $1.5 billion when, for example, that amount could pretty much sort out Auckland’s current transport problems.
Vote:March 31st, 2009 at 9:38 pm
And VM phone, data and TV are all very nice until you have to charge $500 pm for it.
Someone needs to stop asking how fast do you want it and instead start with how much are you willing to pay.
Vote:March 31st, 2009 at 9:40 pm
Lots of buildings in massively populated cities overseas don’t even have fibre to the room. They actually just bring fibre to the basement and then use VDSL to distribute over copper.
Vote:March 31st, 2009 at 11:00 pm
This actually seems rather sensible from Joyce – unlike his 84% comment, which I can’t believe he was dumb enough to expect people to buy.
Maybe he can get it right when he engages his brain!
Vote:March 31st, 2009 at 11:50 pm
VirtualMark – yes 5Mbps over the air. But 36Mbps off blueray disk. Depends what level of quality you’re looking for. I agree, no real call for that level of bandwidth, or that level of quality. But it’d be pretty cool. Not sure which content provider is going to put their 1080p fullHD movies on the internet for us to download for free…..
Vote:April 1st, 2009 at 12:20 am
The ten year timeframe should be raising alarm bells that this project is one giant government boondoggle. Is John Key likely to be sitting in the PM’s chair in ten years time given that it would be a fourth consecutive term in office for this to be achieved. Where will the ownership of the project be in ten years time?
Was the purpose of this broadband initiative for the PM to point at a completed project and feel proud of the results and New Zealand’s improved infrastructure? Helen Clark was famously embarrassed by New Zealand’s broadband infrastructure after witnessing first hand what South Korea had. It’s too bad she wasn’t embarrassed more often by New Zealand’s dismal economic record, she might have done something positive about it.
The real purpose of the project was to lift an election strategy straight out of the Kevin Rudd play book. Appear to be forward looking and doing something. No need to worry about taxpayer value for money.
I’m glad I’m not paying for it.
Vote:April 1st, 2009 at 2:31 am
Farrar, you lack any principles. Just because the peice of government expenditure appeals to your personal preferences you support it. I won’t comment on Catus Kate’s suggestion for why you want faster broadband…
As you are getting old, I have no doubt you will start supporting government funded healthcare!
With you complete lack of commitment to your claimed philosophy, I’m suprised you haven’t been elected to parliament – as a NZ First MP!
[DPF: Actually I support it, because there is significant evidence that a country gets increased economic growth far in excess of the cost of the broadband investment. This provides a return on capital for the Crown's investment through increased tax take]
Vote:April 1st, 2009 at 4:05 am
The Stig hits the nail right on the head regarding the unveiled Broadband plans.
Vote:April 1st, 2009 at 8:46 am
The Stig seems to think that DPF is something he’s not. I don’t think I’ve ever seen DPF suggest we should get rid of government funded health care. Government provided, though, is a different story.
Vote:April 1st, 2009 at 8:51 am
The simple fact is neither Telecom or Vodafone will invest in fibre by themselves.
If it takes Government funding then it should be as an investment in companies that the government turns a $ on.
And this will also allow competition into the NZ comms market place – something we havent seen happen due to various spurious reasons trotted out by telecom and Vodafone, mostly to do with C level bonuses.
Vote:April 1st, 2009 at 10:44 am
Hmm…$48 million to improve rural broadband compared to $1.5 billion for everyone else. At the same time the govt is looking to primary production exports to save NZ’s collective arse during this economic slump. I think most farmers hoping to be able to check international wool, meat, milk solid and crop prices online and engage directly online with buyers overseas etc will be feeling a bit disappointed. As will those hoping to gain improvements in rural education thanks to better online access.
Still its a huge improvement from having Labour in charge. All they got from Helen and co was threats to rural private property rights and rural school closures!
I shall wait and see what the Minister for Communications and Information Technology future announcements bring. I have the sinking feeling however that rural communities are going to be asked to ‘contribute’ to improvements while urban NZer’s will not for theirs.
Vote:April 1st, 2009 at 12:47 pm
The Transport Chapter in the Royal Commission on Auckland report does not even mention the impact of high speed broadband on telecommuting and the growth in remote office centres and so on. As you might expect from a hangover commission it is all trains, public transport and intensification and includes the following gems:
On page 532 the Commission reports:
“Dense cities use less energy per person than the more dispersed model. For these reasons, the MUL is a key policy and the consequent control of land use will require significant enforcement efforts.”
Sorry, that is simply not true. The ground breaking report “Consuming Australia” put that theory to rest when it found that carbon footprints are not “space related”. A report published today, “Suburbs and Climate Change: a Homegrown Brawl” updates the debate.
The original source of this “conventional wisdom” compared cities like Bombay with Atlanta and failed to realise that Bombay people used less energy because they were poorer.
And on page 546 we learn:
“In most of the cities we visited, there was a realisation that building more roads is not the appropriate answer to the problems that cities face. Various commentators have likened building more roads as a cure for traffic congestion to loosening one’s belt as a cure for obesity.”
Auckland is desperately under-roaded. We have congestion because we have built only about 40% of the network which was meant to have been completed by 1985, and in particular we have not completed the Western By-Pass. Those various commentators are idiots. If extra roads are not the solution then presumably bombing the Newmarket viaduct would reduce congestion.
Under the chapter on waste management the report makes no reference to waste-to-energy as a means of converting waste into a resource. None. Not even in passing.
Liviing in the past and pink coloured glasses.
Vote:April 2nd, 2009 at 2:50 am
A grand subsidy so people can download movies and music a lot faster, including of course a lot of porn. Populist claptrap appealing to internet users.
Can I get one to subsidise book purchases? Or to subsidise my overseas travel? After all those are forms of entertainment I enjoy, why should those who get most of their entertainment through a computer get theirs subsidised?
Don’t tell me it’s about business, there isn’t a business at every residential address in the country (except farms, which wont of course get anything from this).
This isn’t an investment. The government spending money taken from force from others, and expecting a lower return than bank deposits, is out and out theft. The private sector isn’t investing because people are unwilling to pay the price needed for these “essential services”, Telecom knows any investment will be forcibly shared with its competitors at a price set by the state so it isn’t too keen, and the RMA makes stringing up overhead wires difficult in many districts.
Either people want it, and the private sector will supply the infrastructure needed (three mobile networks have been built in 20 years by the private sector from scratch and umpteen broadcasting networks without state aid), or there are barriers to private sector investment.
The idea that government can possibly make the best investment in this sector when it doesn’t face the discipline of shareholders and bankers willing to withdraw support when it stuffs up (instead just pillaging taxpayers like what happened with Think Big) is naive and populist.
Vote: