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.

The government has today reached agreements with Telecom New Zealand and Enable Networks that will complete the roll out of ultra fast broadband (UFB) to 75% of New Zealanders where they live, work and study.

The government will partner with Enable Networks, which is 100% owned by Christchurch ratepayers through the Christchurch City Council, to build an ultra fast broadband network for Christchurch, Rangiora and surrounding areas.

The Telecom deals will see a fibre optic network built in Auckland, the eastern and lower North Island and most of the South Island.

As part of the deal, Telecom must split off its network arm, Chorus, into a completely separate company, so that all broadband retailers can compete fairly to on-sell wholesale ultra fast broadband. Chorus will maintain the Kiwishare obligations currently placed on Telecom.

Congratulations to Telecom, and commiserations to Vector and the Regional Fibre Group. Also congrats to the Minister for turning an ambitious policy into a reality.

There were pros and cons with either party winning, and I suspect the negotiations were very tough.

The major focus for many now will be on the structural separation of Telecom. This is probably going to the biggest change in the telco sector since Telecom was created out of the Post Office. The details of the separation are quite vital – Chorus needs to be totally independent from Telecom as quickly as possible.

Today’s agreements with Telecom and Enable mean the government will reach its goal of bringing ultrafast broadband to 75% of New Zealanders by 2019. The rollout will start immediately with schools, hospitals and 90% of businesses covered by 2015.

I believe the fibre rollout will change New Zealand. With fibre to the home, you will get far far more people working from home, less demand for office space, video-conferencing will be as routine as changing the channel on your TV etc.

Wholesale household prices will start at $40 or less per month for an entry level product and $60 per month for the 100 Megabit product. There are no connection charges for households.

Mr Joyce says today is a very exciting day for New Zealand.

“The future of broadband is in fibre, and taking it right to the home will bring significant gains for productivity, innovation and global reach.”

The prices seem pretty reasonable. What will be interesting is what retail services develop to use the fibre. such as combined phone/Internet/TV/movie packages.

The future is in fibre, and I do believe this will be a contributor to increased productivity and economic growth.

Chorus is going to become (for most of NZ) the provider of both copper and fibre access. It will be an infrastructure company. Over time, I’d like to see Chorus (and the other local fibre companies) move towards providing cellphone towers to retail telcos such as Vodafone, 2 degrees and Telecom. It would make a lot of sense as the LFCs will have the fibre connection for the backhauls, and it would mean each telco wouldn’t need to get consent for their own individual towers, but could just hire space on a tower for their transmitters.

Steven Joyce has just announced:

Regulatory forbearance on wholesale prices for the ultra-fast broadband network will be replaced with contractual mechanisms that would apply if the Commerce Commission regulates prices lower than those contracted, Communications and Information Technology Minister Steven Joyce announced today.

In announcing the move, Mr Joyce says that he had listened carefully to industry concerns in regards to the plan for regulatory forbearance over the 8 ½ year build period of the contract.

“While I think their concerns are more theoretical than real, given that pretty much everybody has been happy with the very competitive prices announced by CFH to date, we have been able to find an alternative solution which will give the infrastructure builders confidence to stay committed to their low capped prices, and customers confidence that they are will continue to get the best prices over that 8½ year period.”

This is an excellent outcome, and congrats to the Minister for devising it. It retains price certainity for investors (which means we get more fibre laid for $1.5b) but also leaves in place the security of the Commerce Commission to ensure consumers are not being over-charged.

If for some reason the Commerce Commission found prices should be lower than contracturally agreed (which is unlikely but predicting the future is difficult in such a innovative industry), then the Government bears the risk as the entity that entered into the contracts with the local fibre companies.

The Minister get big kudos for making the decision. I think it is also worth handing out kudos to the various ICT groups and Opposition MPs who pressed for changes. Both Labour and ACT MPs on the Select Committee were very receptive to pushing for changes.

I had been concerned that all the good work the Government was doing in investing the $1.5b into fibre would get over-shadowed by the arguments over the proposed regulatory forbearance period. This decision means all eyes will now go to whom will get the contract for the 85% of areas not yet allocated.

That decision is due in a matter of days, maybe weeks. And after that then there’s going to be a lot of work for people in digging up roads, putting in trench, laying fibre etc. The combined public and private spend will probably be $4 to $5b over the next eight years or so.

As we head towards fibe connected homes, I think we will see significant changes in society – many more professionals working from home, virtual offices for some firms, video-conferencing as common as TV,  movies and TV on demand etc, mass storage on the cloud etc. It’s an exciting future.

Homes and businesses could have ultrafast broadband on tap if trials by British firm i3 Group to deploy fibre cable through water pipes are successful.

The company said it was talking to all the bidders for the Government’s $1.5 billion ultrafast broadband scheme as well as Crown Fibre Holdings and expected to begin trials of its Atlantis fibre cabling system soon.

Chief technology officer Alasdair Rettie said it was working with those bidders to identify locations for the trials but some would probably take place in Auckland.

The Atlantis system deploys fibre encased in a tube through cold water pipes and is designed to be used in the final stage of a fibre rollout, connecting premises to fibre in the street.

The biggest cost of fibre is digging up the ground to lay it. If it can be pushed through existing pipes, without degrading the quality of longevity, then tha could be a real cost saver.

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.

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

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.

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!

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.

• 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.

Telecom has confirmed plans to split into two businesses in a bid to take part in the government’s ultra fast broadband scheme.

The company said today it proposed to create a new company, “Chorus2” as a separate standalone entity through a demerger – a process giving existing shareholders pro rata stakes in the new company.

I have been a long-term proponent of structural separation, and believe it will be good for shareholders and good for the country.

While on separation day, the shareholdings of the two companies will be the same, over time they will attract different profiles of shareholders. The main Telecom will be a competitive business paying higher dividends, but with more risk involved.

Chorus will be an infrastructure company, paying lower dividends, but with much guaranteed business. In time I would expect companies like Infratril to seek stakes in it.

While the Government will claim the decision is nothing to do with them, the reality is that by setting rules around ownership for the fibre to the home initiative, the Govt has been the catalyst for this decision which will correct a major problem of the last 20 or so years – a vertically integrated monopoly. The removal of vertical integration means we will get better choice and competition at wholesale and retail levels.

Telecom’s decision to split Chorus off will significantly increase its chances at winning some or even all of the regions for the fibre initiative. However it does not mean they are automatically the preferred choice. Companies like Vector may be able to do it cheaper in Auckland because of their existing infrastructure.

Structural separation is a pre-condition to full involvement in the fibre initiative, but it is not a guarantee of success.

There may be options out there though, such as Chorus gaining the nation-wide contract and sub-contracting companies like Vector and Citylink where they already have assets. Or Chorus could buy a company like Citylink.

Alternatively the Regional Fibre Group could get ambitious and aim to buy 51% of Chorus. It is going to be an interesting two to three months.

Kiwi startup Pacific Fibre yesterday announced a deal with Asian telco Pacnet to share the US$400 million (NZ$548m) cost of building and operating its proposed 13,600-kilometre cable joining Australia, New Zealand and the United States. The project aims to be a competitor for the Southern Cross Cable, half-owned by Telecom, and reduce the price of international data traffic  a major part of internet service costs because Kiwis download more than 85 per cent of their net content from overseas.

Well done to Rod, Lance and the team for turning what was ambitious talk into almost reality. This is a big step forward.

The proposal that the Government take a direct stake in Telecom’s network arm Chorus is alive and well, after briefly being misdiagnosed with an acute case of “copper-poisoning”.

Telecom chief executive Paul Reynolds was leaning towards a full demerger of Chorus when he briefed analysts on options for the possible breakup of Telecom on Thursday, the idea being that Telecom shareholders would be issued with shares in Chorus, which would become a separate listed company.

But the two options are not incompatible. The Government could take a stake in Chorus and the remaining shares could be distributed to Telecom shareholders. Indeed, that may be the best outcome. Nor is there a reason why Telecom shouldn’t be allowed to retain a minority stake in Chorus under that or any other scenario. The more investors the merrier.

I am supportive of structural separation of Telecom. And I believe the preferable way to do it, is to issue all existing share-holders direct shares in Chorus. Over time they would attract infrastructure investors seeking lower but safer returns, while Telecom would attract investors in a competitive higher profit arena.

I would place a limit of any “customer” of Chorus owning more than a certain percentage – say 5% or 10%.

It makes no sense for the Government to set up a separate fibre company to partner with a demerged Chorus to lay fibre to three-quarters of New Zealand under its ultrafast broadband (UFB) investment initiative. After talking to Mr Reynolds following the investor briefing, it is clear that is not what he is suggesting.

“We see a demerged business, somewhat related to the existing Chorus, containing both copper and fibre into which the Government and Crown Fibre Holdings could invest on a nationwide basis and with which others could partner. The concept is you are building one national access business that has copper and fibre in it.”

This is certainly an option. One could put the $1.5 billion into Chorus as capital, with special shares not requiring a dividend (for example).

However one has to also be careful with assuming that even a structurally separated Chorus is automatically the most efficient and effective provider of fibre to the home in all areas.

From what I have seen (including a detailed study of the likely costs), electricity lines companies (such as Vector) will be able to roll out fibre to the home considerably cheaper than telecommunication companies due to their existing assets and resources consents. Vector for example has a strong case in Auckland.

There may be a win-win though if Chorus sub-contracted work in certain areas to companies such as Vector and Citylink, if they can do the job more efficiently. Maybe Vector would even want to take a stake in a separated Chorus?

We also have Axia from Canada in the fray, with considerable experience in rolling out fibre. They also may be offering a cheaper or better option than a separated Chorus. I don’t know, not having seen their bids.

I regard it as a major plus, that the process to date has led to Telecom willing to go down the structural separation path. However that does not mean they are automatically the successful bidder.

The decisions in this area will have a profound impact on NZ infrastructure for the next 30+ years. For my 2c the Government should not rush into a decision. It is much more important to get this right, than to worry about whether or not the actual roll-out starts on schedule.

For me there are four major things it would allow me to do:

1. Video Conferencing. I don’t mean through a webcam on Skype. I mean full steroids video conferencing through my TV set.  Just as I have 50 TV channels, I want 50 video conferencing pre-sets. I want it so I can push four buttons and be immediately connected to a five-way video conference. That would allow me to work at home far more, and travel far less.
2. Remote File Access. I can access files on a remote server now. For example I used to be able to remote access the National Party HQ server. But it would take me a couple of minutes to connect, and copying or opening files was deadly slow. What I want with fibre to the home is that files on my office server open as quickly as if I was on the office LAN. Potentially I even want all my files stored on the Internet and I can access them from anywhere almost as quickly as if they were on my laptop.
3. TV and Movies on demand. With fibre speeds to the home, I want to be able to push a button or two and for (hopefully) $1 or so, a movie will start playing in real time, or maybe the series finale of MASH or the 1963 first episode of Dr Who.
4. A LAN in every house. With fibre to the door, the logical thing is to wire up the house. So then one can view your security camera remotely. You can switch on or off the power to any heaters or appliances. You can grab files off your desktop PC while travelling. You can even turn on a light to keep burglars away. Over time, most of your appliances will be IP connected.

So they’re my four things I want to be able to do. I’m sure there are many more.

Pacific Fibre, an early stage international fibre venture founded by a group including New Zealand businessmen Stephen Tindall, Sam Morgan and Rod Drury, announced its plans today, aiming to break the digital divide between New Zealand, Australia and the rest of the world.

Other founders include Mark Rushworth, former Vodafone Chief Marketing Officer, technology industry veteran John Humphrey, and strategy consultant and entrepreneur Lance Wiggs.

Pacific Fibre is engaging in early discussions with cornerstone investors and customers. The group is looking to secure funding and build a 5.12 Terabits/sec capacity fibre cable to be ready in 2013 connecting Australia, New Zealand and the USA – the initial proposal is a cable which will deliver five times the capacity of the existing Southern Cross system. …

The current proposed cable configuration would be 13,000 km long, and have two fibre pairs with 64 wavelengths (lambdas) each at 40 Gigabits/sec per lambda. The maximum lit capacity initially would be 5.12 Terabits/sec, but would be upgradeable to over 12 Terabits/sec as the emerging 100 Gbit/sec per lambda technology becomes reality. The newer cable and repeater technology that Pacific Fibre proposes to use will be substantially more easily upgradeable than that of existing cables.

Further competition and capacity on the international bandwidth front is much needed. Superb to see such a talented group of people come together to try and make it a reality.

I, for one, would invest in it. And look forward to the benefits another cable would bring.

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.

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.

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.

We have a productivity taskforce set up by the National Government and led by the ignominious Don Brash. It’s likely to come up with an argument for economic growth which is about selling our state assets and keeping wages down, or cutting jobs to create more profits. Because that’s what the conservative side of politics believes productivity to be. Gordon Campbell’s piece on this a couple of months ago is worth reading.

Labour, on the other hand, is an enabler. We want economic growth. We don’t want it at the cost of creating greater gaps in our society between those on no income and those who do have one.

This is just puerile. National bad. Labour good.  She declares that the conservative side believe productivity is about cutting wages and jobs. Slogans are not substitute for analysis.  Fortunately we get this later on:

1. Open government. In particular open software.

The NZ Government currently spends around $2 billion a year on IT, in software, hardware and all the services that go with it.  We have lots of government websites, but we don’t have an open source policy and we don’t practice open government. We have attempted to harmonise govt IT and networking through the previous Labour Govt’s digital strategy. Much of that appears to have been ditched. There’s an awful lot more work to do in this area.

The US government, under Obama, has made a commitment to cut its total IT spend of $76 billion by between 50% and 80% by driving its systems into open source and cloud computing.

Could we save $1 billion?

I think there is considerable potential in this area, and delighted to see Labour take an interest in it.

2. Working from home. Telework

Ten year’s ago, a study funded by the Auckland Regional Council found that spending $3 million on an awareness raising programme about the benefits of telework targeting employers, could take 10% of Auckland’s traffic off the roads. There’s research overseas demonstrating that you can save up to 15% in workplace productivity and lower overheads through flexible arrangements with your employees working from home. And then there’s the greenhouse gas savings, and the boost to local communities. Let alone the social capital through having more parents at home, more often.

Yep – very much the way of the future. I will point out this is one of the reasons why National pledged $1.5 billion for fibre to the home in 2008, as compared to Labour’s $340 million.  I think the fibre rollout will see a very significant increase in people working at least some of the time from home, and some smaller firms doing away with offices all together. In fact some have already started.

3. Saving time. Improving our basic computer skills

Consider this. The UK National Health Service employs 1.2 million people. I’m told they recently put 100,000 staff through a programme to upgrade their basic computer skills, called the International Computer Driver’s Licence (ICDL). This is a reputable programme, developed through the European Union.

An analysis of its effectiveness showed they’d saved 38 mins/day for each employee. Or four weeks per person per year. Crikey! And that was because each staff member knew how to work better with the software they used every day at work and how to solve their own problems.

Not a bad idea also.  We agree on the details, if not on the rhetoric!

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.