Kiwiblog

Hamish Fletcher in the NZ Herald reports:

CallPlus plans to offer internet users hooked into the ultra-fast broadband network at least a terabyte of data each month.

While New Zealand may be looking forward to the 100 megabit speeds on the fibre internet network, commentators are worried the infrastructure will not be used to its potential as data caps will restrict the amount customers can download each month.

Slingshot and CallPlus director Malcolm Dick said his companies could offer unlimited data on the ultra-fast broadband network if more internet links out of New Zealand were built.

“A couple of years out … you’d hope that all those caps would be removed and it would be the same as in Europe and the States. Certainly in the worst case we’re looking in the terabytes [of internet use a month]. It will be up to at least a terabyte, I reckon, it has to be,” Dick said.

Having more content hosted and cached in NZ would help also, but sadly it is cheaper for major content providers to host in the US than in NZ.

A 1 TB data cap would be a lot better than the current offerings. But let us look at how quick it might still be gobbled up.

Say you are on the 30 Mb/s plan. That is equal to 3.75 MB/s. A TB is around 1 million (2^20) MBs so a 1 TB cap would last for around 280,000 seconds or 4,660 minutes which is around 78 hours.

Now a month has around 720 hours in it, but you don’t tend to spend all day on the Internet and you don’t spend all your time using the maximum speed.

So a 1 TB data limit would look to be pretty good to me.

There’s been a number of news stories on the Government’s Telecommunications Amendment Bill, which is currently before the Finance & Expenditure Select Committee. A typical story is this one at Computerworld.

The telecommunications sector is always somewhat controversial, but this bill has attracted criticism from just about everyone – telcos, ISPs, the Commerce Commissions and user groups. This post is aimed to explain what the debate is about, and reflects my views.

It is worth noting that most of what is in the TAB is not controversial, and is generally well supported.

Three aspects which are controversial are:

1. a “regulatory holiday” for the local fibre companies until 31 December 2019.
2. “re-averaging” the costs of local loop unbundling and unbundled bitstream, which will lower the wholesale cost in rural areas but increase the wholesale cost in urban areas by around 20%
3. possible structural separation of Telecom if they win the majority of regions for fibre rollout

In this post I will leave (3) for now as that little baby is so complicated it needs its own post. I want to focus on (1) and (2) and these will apply (if passed) regardless of whether Telecom wins most of the regions for urban fibre, or the lines companies led by Vector win most of the regions.

You may ask why would the Government consider giving the future fibre companies an exemption from the normal regulatory oversight of the Commerce Commission? Well the short answer is because the companies bidding to be future fibre companies have asked for it.

Okay well companies ask for lots of things from the Government. Many companies would like to be exempt from the Commerce Commission until 2010. Why would the Government agree to this?

The answer is because then the bidders will make better bids. They value having a regulatory holiday, so they will agree to roll out more fibre for the same subsidy. It is what Sir Roger Douglas (very perceptively) said was a regulatory subsidy instead of a greater direct financual subsidy.

Now before we talk about the pros and cons of this approach, you need to know the background. In the 2008 election National pledged $1.5b towards having ultra-fast broadband rolled out to 75% of NZ over the next decade. This was a lot of money (Labour committed only $300m – 1/5th of what National did) and it was in my opinion a great policy.

Work done by the NZ Institute concluded that investing in ultra-fast broadband, would result in significantly higher economic growth, and there is evidence from other countries to back this view up.

Now the cost of rolling out fibre to 75% of NZ is hard enough to estimate, let alone what the direct commercial returns will be on doing so in ten years time. The amount of subsidy needed to achieve the 75% target was estimated at $1.5 billion, but this was an estimate. An opposition does not have the resources available to get a precise projection, and even when you do have access in Government to Treasury, even then projections can be wrong.

To some degree one was never going to know until the actual commercial negotiations conclude, whether $1.5b was enough. InternetNZ did try to get some idea of how much it would cost to reaach the goal of 75%, and what would be the best way to go about it. They (which includes me)  commissioned a report from Network Strategies, a specialist economics consulting firm, which is here.  It was published in 2008.

The report concluded that the cost of fibre to 75% of NZ was around $3.3b if one utilised existing utility companies for at least half of it, and that the government’s contribution would need to be around $1.75b. So the $1.5b was a pretty good estimate, but may be not quite enough.

So this takes us back to why the Government is seeking to legislate a regulatory holiday – it makes it more attractive to its potential commercial partners, and helps close the gap. So the motivation is good – to save the taxpayer money.

However that does not mean it is the right decision. If there is a funding gap between the 75% target and what you can achieve with $1.5b, I would rather it be dealt with directly, not indirectly by way of regulatory holiday. Options are to increase the $1.55b on offer, or to reduce the coverage area from say 75% to 70% or push out the timeframe from say 10 years to 12 years etc.

The concern over the regulatory holiday is that whomever wins the contract, will be exempt from the Commerce Commission regulating access to their services until 2010. The Government will be relying just on the contracts they had to regulate the price, However this places Crown Fibre Holdings in the unenviable dual role of being an investor and a regulator. Also 2020 is almost nine years away, and that is a lifetime in the Internet world. The costs and prices of fibre and data may have changed massively in that time. Many people are very nervous about what could happen in the next nine years. This is partly because of the lessons from the past with Telecom (note again they may not be the fibre companies).

Now the Minister has pointed out that as the local fibre companies can not be owned by a company that will provide retail services over them, then it is less likely there will be a need for regulation, as the fibre companies should operate on an open access platform to all providers. But a lot of devil is in the detail. For example you could have Chorus (if they win) saying it will operate a volume discount scheme that only Telecom Retail will qualify for due to its size.

The Minister also says that as the fibre products will be competing against the regulated copper and that the challenge will be ensuring uptake, which will keep prices down also. I suspect Steven is right on the prices – but from my thinking why remove the safety net of the Commerce Commission, in case you’re not.

Now the other major change is that the calculation of costs and hence prices for the current copper based broadband services is to change from deaveraged to reaveraged. At present the costs and prices reflect the fact it is cheaper in urban areas than rural areas. The Government is proposing to legislate to change this, which means the price of broadband over copper will increase in urban areas. The estimate I have seen is by 20%.

So again why would you do this? The answer is the same. It means those bidding for the fibre contracts will be motivated to invest more money into them. Because if the price of broadband over copper increases, then you can be confident that more customers will switch over to broadband over fibre.

So again the rationale is quite understandable, but again that does not mean it is necessairly a good thing. It means people in urban NZ will pay higher prices than they should for broadband over copper for the next six years or so. Should the Government be effectively tilting the playing field to favour fibre over copper?  Again I’m in favour of tilting the field by way of Government subsidy, but not in favour of tilting the field by interfering with a regulatory regime that actually has worked very well in the last few years.

As I said, in a separate post, I’ll cover the possible structural separation of Telecom, and how this may result in a really great outcome or a really lousy outcome, depending on how the structural separation is done. And the consequences of getting it wrong will reverbate for a couple of decades. This is not something to rush.

The Government has announced that Telecom has won most of the remaining areas for fibre to the home rollout. This includes Auckland and Wellington, but in Christchurch and Dunedin the local lines companies are still  in the running, with both them and Telecom proceeding to negotiations.

This is pretty exciting, as it means Telecom will structurally separate, with Chorus becoming a standalone telecommunications infrastructure company. This will be the most important change in the telco sector for a generation. The details of how the separation occurs will be crucial in determining how beneficial this is.

Vector will feel hard done by, but that is the nature of a tender process. Their involvement has probably meant the bid by Telecom is significantly better for taxpayers than would otherwise have been the case.

Telecom will be pleased to have won the bulk of the country, but not be that happy that they may not end up with Christchurch and Dunedin – they’ll need sharp pencils.

So the overall picture is:

* Hamilton, Cambridge, Te Awamutu, Tokoroa, Tauranga, New Plymouth, Hawera & Wanganui – WEL Networks
* Whangarei – Northpower
* Dunedin – Aurora Energy
* Christchurch, Rangiora – Enable or Telecom
* Timaru – Alpine Energy or Telecom
* Elsewhere – Telecom

No Right Turn has breathlessly labeled as corruption the Government’s announcement of the first ultra-fast broadband contracts.

Why? He blogged:

So, what does this look like by electorates? UFB will be rolled out to:

• Whangarei, held by National’s Phil Heatley, with a majority of 14,663;
• Hamilton East, held by National’s David Bennett with a majority of 8,820;
• Hamilton West, held by National’s Tim Macindoe, with a majority of 1,618;
• Taupo, held by National’s Louise Upston, with a majority of 6,445;
• Taranaki-King Country, held by National’s Shane Ardern, with a majority of 15,618;
• Tauranga, held by National’s Simon Bridges, with a majority of 11,742;
• New Plymouth, held by National’s Jonathan Young, with a majority of 105;
• Whanganui, held by National’s Chester Borrows, with a majority of 6,333.

So, the first thing to note is that only National-held electorates get broadband; those with Labour MPs need not apply (sorry, you voted for the wrong person and so must be punished). The second thing to note is the targeting of marginal seats New Plymouth and Hamilton West. It’d be interesting if someone who knew about IT policy used the OIA to delve into National’s rollout decision, but from here it looks like pure pork-barrel politics. And I don’t like it one bit.

Idiot/Savant is like the boy who cries wolf. He slanders so many people as corrupt, that it becomes a meaningless label. Basically it just all comes over as hysterical rants.

His idiocy was picked up and blogged by Clare Curran, but even Clare worked out what weak ground he and she were on, and later did updates backing away “before David Farrar at Kiwiblog has a go”.

I will indeed have a go at such gross stupidity, and even worse effectively slander. Where do I start.

1. National holds every single seat outside the four main cities (which due to their size are more complex decisions) except for Palmerston North. So I guess the first contracts should have gone to Tasmania, to stop them including National held seats.
2. Six of the eight seats listed are very safe seats with majorities over 5,000
3. This is not a case of some areas getting funding, and some not getting funding. All medium to large urban areas will be getting fibre to the home. This is purely an announcement of the first two contracts. Other contracts will be announced in the near future – the difference between being announced first and second is absolutely minimal.
4. Ever heard of MMP?

Clare initially blogged:

Steven Joyce is a crafty fellow. But even he will overplay his hand one of these days.

Then later as she realised every non metro seat bar Palmie is national held:

Oh and before David Farrar at Kiwiblog has a go and points out that Labour holds only Palmerston North of the general electorates outside the metropolitan centres, that’s true. But it would have been smart for the government to think about this. Instead it doesn’t look so good.

So Steven in the one blog post goes from the too crafty manipulator of funding to National seats to being not very smart for not thinking about the look. He can’t win can he!

Frankly I am sure Steven didn’t spend one second thinking about electorate boundaries with the contracts, and am personally very pleased with that.

Oh and here’s one for the conspiracy nutters. 25% of NZers will not be covered by the UFB initiative. And pretty much 100% of them live in National held seats. So 100% of people in Labour seats will get UFB and only around 65% of people in National sears. Yes, obviously pork barrel politics.

Steven Joyce has announced:

The cities of Hamilton, Tauranga, Whangarei, New Plymouth and Wanganui will be among the first to benefit from the government’s rollout of ultra-fast broadband (UFB), says the Minister for Communications and Information Technology Steven Joyce.

Crown Fibre Holdings has concluded negotiations with two partner companies, following shareholding ministers’ approval of the deals over the weekend.

The partners are:

• Northpower Limited
• and Ultra Fast Fibre Limited, owned by WEL Networks,

The new companies will rollout fibre in Whangarei, Hamilton, Cambridge, Te Awamutu, Tauranga, New Plymouth, Wanganui, Hawera and Tokoroa.

Northpower will commence its roll out in Whangarei before Christmas with Ultra Fast Fibre expected to begin laying fibre early in 2011.  Both companies will have completed their rollouts by 2015.

These joint ventures represent nearly 16 per cent of UFB premises and a combined value of more than $200 million.

This is excellent news. It shows the regional approach has worked, in preference to one nation-wide contract.good to see there will be some fibre laid before the end of the year.

There was some suspicion that Northpower and WEL would not end up with the contracts, despite being announced as preferred bidders. People speculated that Telecom might grab it away from them in a negotiation for a nation-wide contract.

So good to see there will be some fibre laid by the end of the year.

CFH will shortly announce a list of parties with whom it will next elect to negotiate with in the remaining 25 UFB regions.

All eyes are on this.

My view is that Telecom/Chorus will be successful if their price is the same or close to the Regional Fibre Group – say within a couple of hundred million. There are long-term benefits to getting Telecom to structurally separate, and having Chorus as a stand alone infrastructure company.

But it is possible the Regional Fibre Group will have undercut Telecom. They have certain cost advantages such as current ducts and poles and resource consents. Over 70% of the cost of fibre is digging up the road, and the less of that you have to do, the cheaper you do it.

In an ideal world I’d have Telecom sell Chorus to the Regional Fibre Group – then you’d have an integrated infrastructure provider. However I’m not sure Vector and co could afford to buy it!

A guest post by Steve Rieger, Vodafone’s General Manager of Wholesale and New Business Development:

Rural Broadband – an easy answer

The Telecom-Vodafone joint bid for the Government’s Rural Broadband Initiative (RBI) has certainly got attention.  Who would have thought that these traditional arch enemies would entertain such a partnership?  Well, it’s the right thing to do to deliver a step change in connectivity for New Zealand’s rural community and moreover we think it’s the way of the future.

We think rural Kiwis deserve high speed broadband, wider mobile coverage and a choice of service provider.  That shouldn’t just be the preserve of the city-dwellers.  That’s why our solution – a new open-access network which combines fibre and wireless gives better bang for the tax-payer’s buck.  It equips New Zealand’s economic heartland, which accounts for 60 percent of New Zealand’s exports, for the 21^st century.

So what will we deliver?  Fibre to 97 percent of rural schools and a minimum of 5Mbps broadband service to 80 percent of rural households within six years and priority users with fibre-based broadband services.  That’s a minimum of 5Mbps.  In time we will deliver more.  And, we will deliver it faster than the government’s timetable.

The solution looks like this: Chorus will extend Telecom’s existing fibre infrastructure to key rural points of presence, including schools and hospitals.  Vodafone will expand its wireless infrastructure to deliver wireless high speed broadband.  Chorus will build the fibre and DSL network and Vodafone will build the mobile towers.  XT and Vodafone will put their cellular equipment on the towers and provide independent services to their wholesale and MVNO customers as well as directly to retail customers.

The key is open access.  Anyone will be able to offer a retail service over the new infrastructure, whether fibre or wireless, on an equivalent basis.  2degrees, XT and regional wifi operators will be able to put their equipment on the towers and provide independent services to their customers, competing on equal terms.  The result – strong retail competition and a real choice of retail solutions and providers for rural customers.

We think this model is the new state of the telecommunications industry.  We compete vigorously on one hand and cooperate on the other.  The design of this solution means we will continue to be fierce retail competitors – and have created a platform that enables other operators to compete with us.  Trying to deliver this as a sole operator just doesn’t stack up economically.

Our proposed solution delivers choice to rural customers: either fixed broadband, or fixed wireless broadband.  In delivering wireless broadband we provide additional social advantages by enabling wider use of mobile voice and text, two important communication channels for individuals and communities.

Why not fibre to the farm? The economics just don’t stack up.  International best practice for rural communities is to deliver broadband over wireless networks.  Ireland, Germany, the US and Australia have all gone this way.  It means rural families can stay connected at home and on the farm, reducing geographical and social isolation.

Wireless is also future-proofed.  It means next generation mobile technologies such as 4G (otherwise known as Long Term Evolution – LTE), can be rolled out to rural users at the same time it’s made available to urban customers.  4G will offer faster data rates, lower latency, shorter delays and loading times, and ultimately a better experience.

Vodafone and Telecom can bridge the urban/rural digital divide in New Zealand, give other players equal access to the infrastructure, and deliver choice to rural New Zealand.

The Minister expects to make a decision by Christmas.

I am a big fan of the open access nature of the proposal, and think it is a model for future mobile expansion.

Four recent Telecom issues, so will talk about them all in the one post.

First they have a new data roaming deal.

The new pricing gives customers 100 megabytes (MB) of mobile data for $100 while roaming overseas in these locations that’s the equivalent of $1/MB.

Customers will be charged $8.00/MB for the first 12.5MB and a remaining 87.5MB worth of data for the rest of their billing month will be free.

A year ago we were all paying $30/MB for roaming data, so this is a good step in the right direction.

If you are on a big trip and will use close to 100 MB this is a damn good deal. If you will only use 10 MB or so, then not so great.

Vodafone charge $5/MB in Australia and $10/MB elsewhere (off memory). So if you plan to use more than 20 MB in Australia Telecom are better. And for US and UK they are cheaper at any rate.

My personal price point is around $1 – $2/MB. I will grudgingly pay that for international data for my mobile devices.

Secondly Stuff reports on the UFB tender:

Telecom will today step up its campaign to become the Government’s broadband partner, releasing a poll on its website that says more Kiwis would prefer its network arm Chorus got the job of building the ultrafast broadband network than electricity lines companies headed by Vector. …

UMR said 48 per cent of those polled would prefer to see Telecom broken up and have “an independent, stand-alone Chorus extend the existing fibre network”, while 28 per cent favoured the Government investing in a new network rolled out by electricity lines companies led by Vector.

Vector spokeswoman Philippa White responded: “Essentially the decision as to who will partner with the Government for the UFB build sits with Crown Fibre Holdings”.

The poll is interesting but to some degree irrelevant. Because it ignores the most important factor – cost.

If the Regional Fibre Group/Vector and Telecom/Chorus both say “Yes we can do fibre to the home to 75% of NZ if the Crown invests $1.5b”, then my view is you would absolutely go with Telecom/Chorus due to their existing infrastructure.

If the two bidders are even “close” to each other – ie Chorus says we can do it for $1.7b and Vector/RFG for $1.5b, then you’d probably still go with Telecom/Chorus – just to avoid the possibility of Telecom using the copper network to make the fibre network unprofitable by undercutting them.

But what the poll ignores, is that there may be a large difference between the two bids. If Vector/RFG are saying we can do 75% in 10 years for $1.5b and Telecom/Chorus are saying we can do 75% but need $2.4b to do it within 10 years, then one goes with Vector (in my opinion). And this scenario is not impossible. The lines companies already have infrastructure assets and resource consents which may allow them to do the job far cheaper than even a structurally separated Chorus.

So at the end of the day it is not a popularity contest between Telecom and Vector. The actual commercial details of their bids are vital.

Thirdly, Telecom have put together a one stop shop website about UFB and their bid. I’ve already read most of the site – lots of useful info there.

Finally, we have an announcement from Telecom and Vodafone about a joint bid for rural broadband:

Telecom and Vodafone have announced they have made a joint bid for the Government’s $300 million rural broadband initiative, bids for which are due in today.

Telecom chief executive Paul Reynolds said the solution would New Zealand’s two largest telecommunications providers “combining their extensive resources and skills to bring the benefits of high speed broadband to rural communities as quickly as possible”.

One goal of the rural broadband initiative is to ensure 93 per cent of New Zealand’s 900 rural schools have access to 100 megabit per second broadband, with the rest getting a 10Mbps service.

The other goal is that 80 per cent of rural New Zealanders get a 5Mbps service to their homes, with the rest able to access broadband with a speed of at least 1Mbps.

Telecom said the joint solution would involve extending Telecom’s existing fibre infrastructure to key rural points of presence, including schools and hospitals, and expanding Vodafone’s wireless infrastructure “that harnesses the power of this fibre to deliver high speed broadband services wirelessly”.

Telecom said any service provider would be able toretail services over the new infrastructure. “This means that rural customers will have not only faster data services but also a much wider choice of technologies and suppliers for these services.”

Telecom would be responsible for building fibre to schools and hospitals, cellsites and rural exchanges and cabinets.

Vodafone would be responsible for the design and build of “open access tower infrastructure” that Vodafone and Telecom XT would share, “as indeed could any other wireless service provider who wishes to do so”.

I’m very supportive of this. I think open access cellphone towers are where the future is. It makes a lot of sense economically, and from a resource consent point of view, to share this infrastructure.

Once we do have announcements on who will be the local (or national) fibre companies, there could well be a role for them in providing future cellphone towers, which Telecom, Vodafone, 2 degrees etc could all put gear on. The fibre company of course would provide high capacity backhaul. There are some technical challenges around size of towers and having all the gear high enough to get a good signal, but these are workable.

So good to see Telecom and Vodafone moving in this direction.

Crown Fibre Holdings have just announced three parties who are entering prioritised negotiations for the fibre roll-out. This will come as a surpise to those who assumed that Telecom/Chorus will win a nationwide contract. The three parties are:

• Alpine Energy (Timaru);
• The Central North Island Fibre Consortium (Hamilton – including Cambridge and Te Awamutu – Tauranga, New Plymouth, Wanganui, Hawera and Tokoroa); and
• Northpower (Whangarei).

This is a welcome step forward, and residents in those communities should be pleased.

CFH note:

“All shortlisted parties remain important contenders for future negotiations of binding agreements.  CFH is open to either a Telecom, New Zealand Regional Fibre Group solution, or some form of combination for the balance of the UFB project.”

So Telecom (and the NZ Regional Fibre Group) can still win the rest of NZ. If they did, presumably they would co-operate with the winners in the above areas. There is of course a risk Telecom/Chorus will try to undercut, if they don’t win a significant portion of the business. That will lead to infrastructure competition which is good in the short term, but inefficient in the long term. Services, rather than infrastructure, is where you want the competition to be.

I’m somewhat staggered to see Frog has blogged against the Government’s fibre to the home programme, and hope that his view is not that of the Green Party.

I’m rather dismayed to see a Green blog repeating moronic nonsense such as fibre will only be used for faster porn.

There are many areas of policy I disagree with the Green Party, but generally I have found myself in agreement with much of their Comms/IT policies – they voted against the original S92A on copyright, they promote open source software, they have been against Internet filtering and censorship, and they supported the operational separation of Telecom.I’ve gone out of my way to praise them in the comms/IT areas I agree with them on – which have been many.

But I can’t believe Frog doesn’t see one obvious benefit (putting aside all the others) from fibre connected homes, and that is the massive impact this may have in having people work from home – this means less fuel consumption, less congestion and less greenhouse gas emissions.

There are two things that would enable people to work from home much more, both which fibre will help enable.

The first is being able to access your work files as quickly and easily as if you are in the office. Sure you can do remote access at the moment, but it is often painfully slow, and nothing like actually being in the office.

The second is near instant high quality video conferencing with multiple people. I don’t mean waiting five minutes as you start the program up, and everyone else does the same. I mean you go to your TV set, push three buttons, and hey two seconds later you have a four way video conference.

Once we have fast enough Internet to do the above, I predict that the number of staff who work at least half the week from home will grow exponentially. Obviously not in some areas such as retail, but some companies may end up with just a meeting room and server as their office, and all their staff working from home. In fact I know of a couple of firms already doing this.

The Dom Post reports:

Wellington homes and businesses will get ultrafast broadband under a plan submitted to the Government by fibre-optic company CityLink, matching a proposal Vector has unveiled for Auckland.

Vector chief executive Simon Mackenzie said all 450,000 homes and premises in Auckland would be connected by the lines company within seven years with fibre that could provide broadband speeds a hundred times faster than average speeds provided today.

The first third would be connected in the “first couple of years”.

“We are not talking about being constrained at 100 megabits a second down and 50 up. This is capable of gigabits and terabits beyond.”

CityLink managing director Neil de Wit would not disclose details of its proposal, but said it was comprehensive and covered the “whole of the four cities of Wellington”.

Vector has done s similar proposal for Auckland.

Tom Pullar-Strecker reviews the fibre investment plan:

Communications Minister Steven Joyce appears genuinely chuffed with the financial model for the ultrafast broadband initiative that he and his team of cerebral but experienced advisers have dreamt up.

The plan released on Wednesday is certainly ingenious.

The fact Steven is one of the very few MPs that has owned and run a major business, made him the ideal Minister for this portfolio.

The Government will, if necessary, foot the entire bill for rolling out fibre-to-the-street, minus any construction overruns, while private investors in local fibre companies (LFCs) will only buy back their share of the infrastructure as they connect up homes and businesses.

That could help nullify the “Catch 22″ that threatened to leave the initiative stillborn – private investors couldn’t guess their return without knowing how ubiquitous the national network would be, which would depend on other investors’ assessment of their likely return.

And Steven has first hand experience of the need for commercial investors to be able to estimate returns.

There is another reason to take the initiative more seriously.

Instead of injecting a “one-off” $1.35 billion into the public-private partnerships in the vain hope that would be enough to garner sufficient private investment to get the whole job done, the Government is now considering investing far more over time. Investment vehicle Crown Fibre Holdings will be to recycle receipts from private investors as they buy shares in LFCs, after the first fibre customers sign up.

The Government’s investment at any one time will be capped at $1.35b, but the total it commits over the life of the scheme could be double or triple that.

“$1.35b is what Crown Fibre Holdings will have access to in order to fund the infrastructure,” says Mr Joyce. “There is certainly the possibility that some or all of the money will be reinvested, but it’s simply too soon to say how much will be reinvested or how many times that might occur.”

Does this mean 75 per cent of people can be assured of getting fibre within 10 years? Hardly. But instead of scuppering the scheme, if $1.35b is not enough to get the job done, it might simply take longer.

This is the most critical part. The big question I, and others, have had, is what if the planned level of investment is not enough to get to 75% of NZ. Do you then scrap the plan, or do you accept a lower coverage target. The answer is neither – you just recycle the crown investment, so you get there eventually, even if it takes a bit longer.

I am going to be fascinated to see what offerings are made by the various telcos, ISPs, lines companies and local government.

Clare Curran has blogged at Red Alert:

Communications and IT Minister Steven Joyce has just told the House in question time that there has been no delay in rolling out ultrafast broadband.

It’s amazing how this government can tell a barefaced lie with a straight face. The election was almost a year ago. The $1.5 billion delivery of broadband to 75% of New Zealand homes was a core election promise. Supposedly ready to go!

If Clare is going to use terms like bare faced lie, I’m going to have to point out how that description is one which better applies to her own blog post.

John Key announced the ultrafast broadband policy in May 2009. I was there when he did it. So was most of the industry. And they know what John Key said. So they get very puzzled when Clare claims the broadband package was supposedly ready to go. Let me quote John Key’s speech:

Delivering on these five principles will require a carefully thought-through and negotiated investment and regulatory model. National will conduct these negotiations in our first year of government.

2009 is the first year of Government. If anything, Steve Joyce is three months ahead of schedule. Everyone in the industry knows that National said the policy was a policy about what they wanted to achieve, and they would take 12 months working out the best way to achieve it.

And frankly it is somewhat bizarre that Clare keeps demanding that decisions should have been made quicker, because she has also blogged what an incredibly complex area this is. If the Government had made decisions more quickly, I suspect Clare would criticise that. Being in Opposition does not mean you have to criticise everything.

Clare then compounds things by claiming:

They axed the previous Government’s programme which was poised to rollout and put everything on hold for months while they recast a plan which now looks remarkedly like the previous government’s. That’s taken all year.

Now I was a big supporter of most of what the previous Government did in the Communications/IT field. But it is not at all correct to claim the previous Broadband Investment Fund is the same as what National is doing. The previous fund was not for a national fibre network reaching 75% of New Zealanders. It was $325 million (compared to $1.5 billion) and was not for fibre to the home. It was for mainly broadband to businesses and MUSH (municipalities, universities, schools and hospitals).

Now that was a good fund and certainly better than doing nothing (from my point of view). But to be blunt National trumped that with a policy that was far more ambitious and with far more funding – around 400% more.

Personally I suspect the former Minister, David Cunliffe, would have loved to have matched or exceeded National’s policy – but the simple fact of the matter is he couldn’t get the extra funding out of Clark and Cullen.

So while there are of course some similarities between the former BIF and the current Government’s proposal (mainly that they both use a regional competive process which is hardly surprising) they are in no way the same plan. And again, most people in the industry know this.

This government talks about investing in infrastructure. It seems to think that infrastructure is purely the network of roads, wires or fibre required to create a physical structure. What Mr Joyce, who is also the Associate Minister of Infrastructure, doesn’t seem to get, or pays lipservice to, is that with broadband, you can just invest in the fibre. You’ve got to invest in what will pass through the fibre. Services that will benefit society. And that’s the government’s role.

I’m not sure what Clare is suggesting here but I don’t want the Government competing with telcos, ISPs, Sky TV etc etc as the applications and services level. The infrastructure level, which is inherently non-competitive in most cases, is where I want the investment to happen.

It’s unknown whether the private sector investment required to make up the shortfall between $1.5 b and $6 billion will manifest itself, because its unknown what level of public investment will be made in the health, education and enregy sectors which will stimulate demand. That’s the real question.

No it is not. Expecting the Government to declare today what services it might seek to deliver in ten years time over the network is incredibly naive – especially considering the pace of change in the Internet industry. Any declaration today is likely to be more inaccurate than a Treasury forecast of the deficit!

The private sector will make their investment decisions on the basis of international experience and their own market research. They will not make them on the basis of what the Government may do online in ten years time.

I’m very very happy with today’s announcement from Steven Joyce:

Communications and Information Technology Minister Hon Steven Joyce today released the details of the government’s $1.5 billion ultra-fast broadband investment initiative. …

Key highlights of the proposal include:

• An open, transparent partner selection process, which will be initiated in the next month.




• Government investment directed to an open access, wholesale-only, passive fibre network infrastructure.




• A new Crown-owned investment company (“Crown Fibre Holdings”), which will be operational by October, to carry out the government’s partner selection process and manage the government’s investment in fibre networks.




• Crown Fibre Holdings and each partner establishing a commercial vehicle, a “Local Fibre Company” (LFC), to deploy fibre network infrastructure and provide access to dark fibre products and, optionally, certain active wholesale Layer 2 services.




• Provision for national and regionally-focused proposals, as well as consortium and proposals aggregating any combination of LFC regions.




• Independence, equivalence and transparency requirements for LFCs.




• Expansion to 33 candidate coverage areas based on the largest urban areas (by population in 2021).

What is really good is the commitment to open access to dark fibre, and the regional approach to the issue. The Government has held firm to most of their draft proposal, with the main change being an increase in the number of coverage areas to 33.

Computerworld reports on positive reaction:

“This ushers in the biggest and most fundamental change to telecommunications in New Zealand since the privatisation of Telecom 20 years ago,” TUANZ CEO Ernie Newman said in reaction to the news.

“The paper builds very constructively on the work done previously,” Newman says. “It takes into account most of the key issues raised in submissions, and sets a timetable with milestones. It is an excellent blueprint on which to build.” …

InternetNZ also welcomed the plan, saying it is “delighted” with today’s announcement of a regionally-based approach to investment.

“This is a world-leading programme that can be expected to deliver the infrastructure New Zealand needs,” spokesperson Jordan Carter says.

“Steven Joyce and the Government have put in place a framework that over time can deliver a widespread fibre rollout across urban New Zealand.”

Those unsure about the benefits of ultra-fast broadband, might want to read the guest post from Rod Drury earlier this week.

Chris Keall (and Kelly Gregor) at NBR cover the proposal in detail. Keall highlights a new focus:

In the proposal document released today, the minister also flags that “The capacity and reliability of New Zealand’s international data connectivity will become increasingly important as LFCs’ [local fibre companies'] networks are deployed over the course of the UFB Initiative.”

The Commerce Commission recently identified slow international data as a roadblock to better domestic broadband performance, with testings showing that overseas pages take twice as long to load as those hosted locally – even with our current copper-dominated networks.

International bandwidth and data costs are often cited as a big issue also.

In a fit of good timing, Juha Saarinen has an article in Computeworld on dark fibre, and how you basically can not get it from Telecom or TelstraClear. Have a look at this price comparison and weep:

James Watts, who runs Palmerston North-based ISP Inspire Net, says the reason dark fibre is attractive to his customers is because they can “do whatever the hell they want with it.” Inspire currently charges $595 and $995 for intra-town dark fibre pair leases, depending on contract terms, and double that for inter-town unlit circuits.

To light the circuits, Watts says his company sells Gigabit Ethernet transceivers for $140 each.

A similar 1Gbit/s circuit from Telecom apparently costs $7000 a month, plus installation charges.It’s $69k a year according to Telecom’s pricing book.

Finally a focus on the issue of fibre providers being discouraged from also operating retail telecommunication services, both here and in Australia. Steven Joyce said in a Q&A:

Will Telecom have to structurally separate its network business to participate?

Any such decisions are up to Telecom.  The Government has made it clear that it will only invest money into fibre companies that are not controlled by shareholders who also operate retail telecommunication businesses.  The Government is also clear that potential partners who already own fibre assets can table options that involve those fibre assets being vended into any new fibre companies.

Preventing vertically integrated monopolies is crucial. This basically means Telecom can not be a majority shareholder in any regional fibre company unless they structurally separate (ie sell off Chorus). They can have a minority stake however.

In Australia, the Government has done similiar:

The government could also deny Telstra access to new spectrum for advanced wireless broadband unless the telco sells off its cable network and 50 per cent stake in Foxtel (25 per cent owned by News Corporation, owner of The Australian)

If you want to be part of the future, you need to be separated.

For those who think separation is not a big issue, think what it would be like if Air New Zealand owned the airports and could set access terms for other airlines. Or if Ford owned the roads and set the rules for what other cars could drive on them, and for how much.

So as I said, very pleased with the announcements today, and now working my way through the details.

A guest post from Internet entrepreneur Rod Drury.

Almost weekly I hear “… but that’s not a silver bullet”. Broadband and connecting New Zealand digitally to the rest of the planet IS the biggest silver bullet for turning New Zealand around that I’ve seen in my business career. Let me explain why.

New Zealand is the farthest country from anywhere in the world. Any business that wants to talk to a market size of more than four million needs to send the founder away on planes (often), learn to export, as well as have the funding and governance to be a sophisticated international entity. That’s a tall order. So in general we don’t do it. Instead we build great little businesses that allow us to fund the ‘three B’s’ lifestyle. We do services rather than manufacturing. We invest in property, not business.

Adding digital channels to business reduces international trade barriers. You can have a web site in many languages. You can show video of your product. You can do seminars to thousands of people all over the world from your home office. You can video conference local phone numbers in your markets.

International broadband levels the playing field for the 400,000 New Zealand small businesses, to get amongst it, with minimal upfront costs. Already thousands of New Zealanders are doing this from all over the country. They’ve worked out how to get around the technical obstacles and constraints and are building little export businesses. Ultrafast international broadband mainstreams this opportunity. Any one of our two million working people can participate. While there will be a few high profile businesses that will be successful, getting mainstream small businesses sending invoices every month to the US and beyond, is the productivity step-change that world class international broadband can create.

It’s not just about pushing New Zealand services out. It’s also about attracting investment in. If New Zealand is connected super fast to the US West Coast there are countless opportunities to attract very connected knowledge workers and investment down here. Silicon Valley is an overnight sleep from most places in New Zealand. The same marketing person at $US150k might work in NZ for $NZ120k and be able to go mountain biking after work. Affordable, high performance, international broadband gives us the opportunity to attract substantial inward investment.

How do we pay for all this? Well it’s actually free. International broadband can fund itself – we just have to get organized.

Traditional telco models rely on a big upfront costs and customer fragmentation. There are minimal margin costs for services, so pricing is for revenue maximisation not public benefits. Logically the market has woken up and various schemes are now aggregating demand so that the pool of money for broadband can be used to provide broader benefits to New Zealand. This allows the expensive infrastructure to be funded and paid for on a cost plus, open access model.

Older New Zealand investors got used to augmenting their income with high interest rates in recent years. Where they used to get 8+% on their money they now get 3%. Consquently there’s plenty of demand for higher coupon bonds. Income for those investors is the cost of capital required to connect New Zealand internationally. A billion dollars of investment may only require $80m per annum to fund. This is quite reasonable as Telecom received about that same last year as a dividend from it’s 50% share of Southern Cross – the monopoly international cable provider.

As a rough back of the envelope calculation, that $80m, divided by 2 million users who access the internet via their phone, home account and at work, is about the cost of a cup of coffee a month. So, connecting New Zealand to the rest of the world, and the resulting step-change in opportunity only requires coordination – not cash.

Everyone, even the incumbent telco’s, can win with this model. There has never been such an opportunity to step-change New Zealand’s productivity and connect our many small businesses directly into global markets. Here is a real silver bullet. They don’t come along often. Let’s not waste the opportunity.

The Herald reports:

Telecom is to offer an uncapped broadband internet deal but customers will have to trade off connection speed.

From next week a new $60 a month “all you can eat” plan will be offered with the compromise that downloads may be slower at peak times. …

Brayham said during peak hours – generally 3pm to 10pm – internet traffic “shaping” would target files consuming large amounts of bandwidth, which could include some music, movie and software downloads.

I think this is a great move. NZ is the only OECD country with no non data capped plans – finally we have one.

I have no problem with data capped customers getting priority speeds during peak times. File sharers often download overnight and are generally more worried about the data cap, not the speed – so long as it is reasonable.

Of course we have to see exactly how fast things go during both off peak and peak times, but if the service holds up Telecom could do well with this offering.

The 2008 OECD Broadband stats have mounds of data. To save you opening several dozen spreadsheets, I’ve done it for you. Some interesting aspects:

1. NZ is one of only four countries that only has data capped broadband. In 16 countries there are no data capped plans at all. And in 10 countries there is a choice of plans with and without data caps.
2. NZ’s average data cap is 20.3 GB and average cost over that is US$7/GB
3. The time it takes to reach a data cap at advertised speeds is almost the worst in the world – ranged from 6.8 minutes to reach the monthly cap on Telecom Basic to 25 hours on Woosh.
4. Our average advertised download speed is 13 Mb/s (actual is a different matter)
5. 14 countries now have over 1% fibre penetration – we are still on zero.  OECD average is 10% penetration.
6. NZ had the third highest growth in broadband connections in 2008 – up 3.77 connections per 100 homes.
7. NZ now in 18th place out of 30 – continuing the gradual improvement from No 23.

This graph shows nicely how far behind we were compared to the OECD average in the early 2000s. And the telecommunication reforms of 2006 have, I believe, been partly responsible for the very significant closing of the gap. However as Australia shows, we still have a fair way to go.

Another good development yesterday in the fibre broadband project. As I blogged Telecom put forward a couple of constructive proposals.

Vector announced yesterday:

A group made up of lines companies and local fibre companies has been formed to support the Government’s vision of introducing ultra-fast fibre broadband to New Zealand.

Vector Chief Executive Simon Mackenzie said that the NZ Regional Fibre Group brought together the collective wisdom and experience of several different regional operators with expertise in open access networks.

“We welcome the opportunity to submit on the Government’s Broadband Investment proposal which will leap frog New Zealand to world class broadband.

Members of the New Zealand Regional Fibre Group include Vector, Aurora, Northpower, Waikato based WEL Networks, Unison, PowerNet, Christchurch City Networks, Network Tasman, and Velocity Networks.

Telecom has released today their proposal to the Government for how best to utilise the $1.5b available for fibre to the premises.

Their first option is an acclerated fibre roll-out by Chorus. Milestones would be:

1. All 93 hospitals connected within 30 months
2. 2,000 schools connected within 30 months
3. Remaining 600 schools (including those outside the 75% zone) within 36 months
4. Possible extensions to medical centres, pharmacies, libraries, maraes and community centres
5. Would build fibre to all new homes in the 75% coverage area (at present only builds to developments of at least 50 lots)
6. Extend the fibre network to pass more homes, and subsidise connections into individual homes.
7. Have shorter cooper loops to increase speeds to non fibre homes on VDSL2

It would see the Government investment and their existing investment co-ordinated (not competing) so there is no over-build. All infrastructure would be open access and dark fibre would be made available to all comers.

It is not promising full fibre into every home, but it is advancing a lot towards that goal.

Their second option is to have the Crown Fibre Network Company to contract Chorus to build a national fibre ducting network of up to 10,000 kms home. So they will not provide the fibre, but will provide the duct for it. Now ducting is estimated to be 80% to 85% of the cost of fibre deployment (off memory) and a lot of people say that it is only the ducting that needs to be open access.

Service providers would fund the actual fibre connection to the premises.

Telecom also offer some hints that they could be willing to sell off some or all of Chorus (which would make their proposal extremely attractive). They say they are open to “alternative partnership models”.

Really pleased to see Telecom put forward constructive and viable proposals. It will be fascinating to see who else steps up to the plate.

Kevin Rudd has just announced a major shift in policy:

THE Federal Government has announced the “largest infrastructure decision in Australia’s history” after deciding not to award the national broadband network contract to a company.

Prime Minister Kevin Rudd said the Government would lead the development of a national fibre-to-the-home broadband network up to “100 times faster than what many people use now”.

“Years of failed policy have left Australia as a broadband backwater,” he said.

“This new super fast national broadband network is the single largest national building project in Australia’s history.”

Mr Rudd said the Government would seek investment from the private sector to build the network.

Construction would begin in the middle of the year and take “seven to eight years”, he said.

Sounds somewhat similiar to here.

NBR reports:

The winning telco in Australia’s national broadband network tender? None of the above. At a press conference this morning, prime minister Kevin Rudd said the government will drive the building of a fibre network itself – taking a leaf out of New Zealand’s book.

The government has also dramatically expanded the scope of the network from fibre-to-the-the node to fibre-to-the-home, putting the total build cost in the vicinity of $A43 billion.

The government’s share of the network, beyond the initially promised $A4.7 billion, will be funded by an infrastructure bond.

The network will be built by a private-public company, with the private investors able to hold up to a 49% stake – a set up that echoes the public-private fibre companies proposed on this side of the Tasman by Communications and IT minister Steven Joyce last week. …

“Fibre to the home, fibre to the business and fibre to the premise is what the 21st Century economy is all about,” says Mr Rudd.

Well done Kevin Rudd. This may also provide some opportunities for companies to pick up work on both sides of the Tasman.

Ever since National announced its $1.5 billion fibre to the home policy in May 2008, Labour has told fibs about it. Great big fibs.  As National was pledging an amount around 400% more than Labour, they couldn’t do their normal cries of “It isn’t enough”.

So they claimed it would all go to Telecom, and entrench their monopoly status. And they kept repeating the lie.

And then yesterday when National announces further details of its policy, Labour has the cheek to claim that National has shifted its policy, and adopted Labour’s policy.

So get this – you tell lies about what a party’s policy is, and when it is clear the lies will no longer work, you then claim they have done a u-turn.

In the House Labour claimed:

Can the Minister confirm that by shifting from its pre-election policy of a single, regulated, utility model for delivering broadband to one that is regional, open, contestable, and technology-neutral, National has adopted Labour’s broadband investment policy framework; if this is true, why did National not campaign for that rather than the opposite?

Now let us first look at National’s policy:

National will contribute an investment of up to $1.5 billion in Crown capital alongside additional privatesector investment to accelerate the roll-out of ultrafast broadband for New Zealand, subject to five key principles:

Totally consistent with what was announced yesterday.

That this investment does not line the pockets of or give undue advantage to existing broadband network providers.

Again totally consistent with what was outlined yesterday. And totally contradictory to Labour’s claims over the last year that all the money would go to Telecom.

That the network is open-access so that many service providers can compete to provide broadband services over it.

Again totally consistent with yesterday’s announcement.

Nowhere at all does the policy say National will have a “single, regulated, utility model for delivering broadband”. National made it very clear it was open minded on what the model will be, so long as the principles outlined were adhered to.

I’ve praised Labour for their engagement over the copyright issue. And I think the Comms/IT policies pursued by Labour over recent years have generally been very good. The co-operation and mood in the industry is radically different to five years ago, and Labour’s record has been very good as a major contributor to that.

But this is why I’m pissed off by the fibs/lies they told over National’s broadband policy.  Most of what Labour did was not opposed by National. I think National realised that this is an area where one shouldn’t be party partisan and at the Internet debates in 2005 and 2008, we got more agreement than disagreement.

But Labour, presumably shocked by the fact National pledged 400% more on broadband investment, has done nothing but spread bullshit over National’s policy, rather than actually say “Hey we support this goal”.

Unlike their admirable forward looking position on s92A, Labour seemed caught in the past trying to say that nothing should change from when they were in power. They foolishly attacked the Government for ceasing funding to the massive loss making Govt Secure Network (that almost no one in Government was using) and they complained about replacing a $340 million level of pledged investment with a $1.5 billion level of investment.

Anyway after months and months of lies about how Telecom had written National’s policy, how Telecom had donated to National, how this policy was a $1.5 billion subsidy to Telecom, how it would give Telecom a perpetual monopoly over our futures, maybe the bullshit will stop. I certainly hope so.

The NZ Herald editorial approves:

Preventing a repetition of the vertically integrated monopoly enjoyed by Telecom’s copper network was always going to be a cardinal requirement of the Government’s $1.5 billion investment in an ultra-fast broadband infrastructure. …

Commendably, Mr Joyce has stuck to his guns despite pressure from the country’s three biggest broadband providers – Telecom, Vodafone and TelstraClear. In public, this took the form of a report that questioned the economic benefit of the Government’s plan, and suggested their own long-term network improvements would deliver broadband speeds adequate for the needs of everyday internet users.

In private, there must have been sustained lobbying, given the delay in confirming the Government’s plan. The minister has demonstrated a resolve that deserted several of his predecessors. In addition, he has signalled a welcome willingness to look at codes of practice, regulation or legislative changes if this is required to ensure good practice.

Incidentially I am on TV3 Sunrise at 7.15 a discussing the policy.

Steven 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.

Brian Fallow makes some good points on broadband:

Going further than the current programme of laying fibre to the cabinet, taking fibre to the home is estimated to cost a further $6.2 billion, of which the Government is contemplating stumping up about a quarter.

Brian is quoting the Castalia report, which I covered on Saturday. That estimate is based on using telcos only to do fibre to the home. It has been estimated the cost drops by around $2 billion if you bring utility lines companies into the equation.

But we have something of a tradition of being penny-wise, pound foolish when it comes to infrastructure investment.

We are paying a stiff price for neglecting investment in the national grid.

Auckland would be a better-functioning city right now if it had gone for light rail when Sir Dove-Meyer Robinson advocated it and/or had completed its highway network.

Indeed.

Sceptics of the Government’s plans are on firmer ground perhaps when they question whether they would pay off in lifting the country’s unimpressive productivity levels. Surely fibre to the workplace is what counts there.

However the boundary between home and workplace is becoming fuzzier.

If the aim of this exercise is to deliver infrastructure that will be as important for the coming century as roads and power lines were for the last one, then part of that future-proofing should take account of carbon costs and the gains to be had if telecommunications can be substituted for transport.

When your home Internet connection means you can access the office LAN as quickly as if you were in the office, and when it means you can be video-conferenced to one or more colleagues more quickly that it would take to walk down a corridor, then you will have a significant exodus of people going from work to working from home.

Details about how it will be structured and intersect with existing players are on the non-existent side of scant at this stage but Communications Minister Stephen Joyce is promising more information within a matter of weeks.

“It is a plan to proceed over 10 years, to achieve a step change and do it faster than the market would otherwise do it,” he said.

“The argument is it provides a competitive advantage to New Zealand as a whole to get this infrastructure in ahead of some other countries.”

It is not too much of a simplification to say that, historically, the things which have really propelled the New Zealand economy forward have been technologies which overcome or mitigate the tyranny of distance, like refrigerated shipping in the 1880s or jet travel in the 1960s.

It is hard enough to achieve productivity gains through economies of scale or scope given our small size and remoteness.

We are the only OECD country that is both very remote and very small. To stay competitive we do need to be ahead of the pack when it comes to technologies that, as Steve Joyce said, mitigate the tyranny of distance.

The 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.

Chris Barton looks at the Government’s fibre plans:

We do know fibre-optic cable is at the centre of Joyce’s rewiring plan and the mechanism to get there is the much-vaunted public-private partnership.

So far so good. But just who does Joyce plan to partner with? And will he be seduced by Telecom’s wiles?

There’s no doubt Telecom would love to bed Joyce. Such a tryst – Telecom building, operating and no doubt, wanting to own, the new wires – would secure the firm’s monopoly dynasty forever.

I think Mr Barton needs to take less Viagra before he writes his column

But it’s also clear such a dalliance would be a terrible mistake. Not to mention a betrayal of voter trust and a very poor return on taxpayers’ money.

And getting the maximum return on the Government’s investment is crucial.

If Joyce is still uncertain about what to do, he should re-read the very fine piece of analysis prepared for Internet New Zealand by Network Strategies. There, in glorious return on investment detail, is a simple answer to who the Government should partner with instead of Telecom – electricity lines companies.

Why? Because if New Zealand wants to rewire its aged telecommunications to a fibre-optic future, the electricity lines companies are the cheapest, most efficient way to do it.
Plenty of power poles and ducting are already going by our homes, already with resource consent, making it much easier to string or trench fibre to our doorsteps. How much cheaper? Without the lines companies, Network Strategies estimates a fibre network will cost $5 billion.

With the lines companies on board, the cost drops to $3 billion – making the Government’s $1.5 billion investment look like a very realistic sum to fulfil its election promise.

A $2 billion difference is far from insignificant. I am of course on the Board of Internet New Zealand, but we were as surprised as anyone I think that the research turned up such a massive price difference.

There are other reasons why this is very good idea. Most of the 27 lines companies in New Zealand are owned by consumer trusts – an ownership structure that tends to be sympathetic to longer payback periods and fits well with local initiatives that recognise the importance of broadband to a region’s economic and social wellbeing. And some, such as Vector and Counties Power, are already providing fibre to homes or businesses.

And even more importantly, lines companies do not tend to be in the business of providing services over their lines – they are an access provide rather than a service provider. This is actually crucial as you then avoid a vertically integrated monopoly, and then multiple service providers can comptere and offer different packages over the fibre.

But there are two problems. The first is what such a network would do to Telecom’s share price. There’s no doubt it would have an unsettling effect. But if the new wires are “open access”, it’s hard to see how Telecom can complain too much.

Open access means companies get equal access to the infrastructure on non-discriminatory terms and conditions, so all comers are offered the same wholesale products or services at the same price and equivalent conditions. In other words, consumers get choice and Telecom competes for business with everyone else, probably getting a whole lot more efficient in the process.

The impact on Telecom is a real issue – not just in terms of share price, but also their fibre to the cabinet plans. Would they continue? Would they sell Chorus if the line companies get the nod to build the fibre to the home network? Could there be a win-win – maybe some partnership with lines companies and Telecom/Chorus? So many issues, which is why a decision should not be rushed.