Government finalises $1.5b fibre-to-the-home proposal
Communications Minister Steven Joyce released details of the government’s $1.5 billion fibre-to-the-home proposal today.
Telecom's (NZX: TEL) alternative proposal for a single national network has been rebuffed, as has Vodafone's for a co-operative FibreCo with the government and three largest telcos holding quarter shares.
However, the minister has confirmed his previous hints that multiple regions (which have now been expanded from 25 to 33) could be won by a single player.
Telecom's offer to wire every hospital and school for fibre within two years - as a kind of bonus provision if its Chorus division was given the task of building a single national network - was "not sufficiently attractive to justify moving away from a contestable regionally-based process," said Mr Joyce.
The highlights of the government's revised proposal to bring broadband to 75% of the population within 10 years 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).
New focus on international bottleneck
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.
However, it doesn't seem as if our sole connection to the outside world, the 50% Telecom-owned Southern Cross Cable, is in any immediate danger of regulation, or competion from a crown-backed competitor. The document continues:
"The government has been closely monitoring market-led developments for additional international data connectivity, and has been holding discussions with a
number of relevant market participants.
"The government is encouraged by the developments in this space and does not
consider that additional measures are desirable or necessary at this time."
Major recent developments have included Southern Cross announcing plans for a possible second cable, and Spin Networks - backed, ironically, by the French government - claiming it is finalising plans to lay transtasman fibre. And SOE Kordia is also continuing its campaign to mount a business case that would allow it to ally with Australia's Pipe Networks.
Backhaul - not a problem
A consultation paper on backhaul between the 33 regions is still pending. However, today's document says that "after investigation" the MED has that backhaul, serviced nationwide by four different networks, is not a "material problem" in most areas. Whangerei, New Plymouth, Gisborne, Nelson, Greymouth, Timaru, Queenstown, Oamaru, Dunedin and Invercargill are flagged for futher investigation, however.
Opponents of the regional approach had flagged backhaul as a potential problem, including the issue of technically coordinating disparate networks that could be built to different standards. The Regional Fibre Group - a coalition of power companies, lines companies and other non-traditional broadband players, drafted in Ericsson and Cisco to help advise it on common standards.
As they did it across the ditch
Sydney-based market analyst Paul Budde told NBR: "It looks very much like the Australian model, which has been applauded around the world."
Mr Budde liked the new emphasis on "dark fibre"; that is, wholesale connections (if you don't know your lit fibre from your unlit, school up here).
"I think it is a great way of addressing this development as you clearly create the right environment to move a way from a telco-centric infrastructure approach. This structure allows for a trans-sector approach - other sectors, health, education, media, energy can all buy separately from the wholesale company and built their own products independent from each other, with no gateway keeper). In order to make this work the government will now have to make firm commitment that sectors such as health care and applications such as smart grids will use this infrastructure. That is essential to make the business plan work. This is not just about high-speed internet."
Biggest change since Telecom was privatised
“This ushers in the biggest and most fundamental change to telecommunications in New Zealand since the privatisation of Telecom 20 years ago,” said Telecommunications Users Association chief executive Ernie Newman in a statement broadly supporting the government's announcement.
Mr Newman also drew positive parallels with Australia:
“There will be important lessons to be learned from Australia, both in the infrastructure deployment and the usage. It is interesting that New Zealand and Australia are on parallel tracks and are ahead of many western countries, a fact that reflects the added value of connectivity to countries that suffer inherently from geographic isolation."
The final proposal struck a good balance between the need of investors for predictable regulation and the desire of customers for real market choice, said the Tuanz boss.
“Tuanz is especially pleased with the approach to balancing the need of investors for a predictable regulatory regime, with the desire of users for a competitive market with real choice and value. By dealing up front with competition issues related to fibre investment, and incorporating them in the design of the commercial structures, it should be possible to minimize the regulatory intervention that has been an unfortunate but necessary feature of the copper and mobile markets.
However, Tuanz is still hoping that the government will reveal further plans to boost online content and services, which would in turn ensure quick uptake of the new, superfast network.
"The real benefits of this investment will come through in health, education, business productivity, telework, government services, security, environmental management and a host of other components of people’s economic and social well-being. We need to get all these sectors working together so that the maximum benefit is derived as quickly as possible after the connectivity comes on stream," said Mr Newman.