Telcos to govt: keep your $1.5 billion

Showing rare unity, Telecom, TelstraClear and Vodafone have released a joint report saying their existing broadband plans can deliver faster internet for all, no government funds required. The report provides a convenient “out” for a cash-strapped government, and potential telco partners unwilling to accept the strings that would almost inevitably be attached to public funding - but provides extra incentive for Vector, and other power line companies also chasing the $1.5 billion.

The report was jointly commissioned by the three telcos from consultancy Castalia, and is available for public download from the company’s website.

Although noting an NZ Institute report saying fibre-to-the-home would yield $2.7 billion to $4.4 billion in economic benefits to the country overall, report author Alex Sundakov says customers are not yet willing to pay for fibre - and questions whether public investment can run ahead of the public's appetite to pay for the technology (the consultant thinks it could inflate a monthly broadband bill to $75, a figure hotly disputed in some quarters).

On behalf of the three telcos, Mr Sundakov looks at the various broadband infrastructure investments including fibre-to-the-node (roadside cabinets), DSL and wireless. He concludes that over the next three to five years, internet speeds (averaging less than 7Mbit/s today) will double from these private infrastructure investments, plus technology gains in areas such as compression, and provide enough speed for any broadband application - no fibre to the home required.

Although fibre could offer up to 1Gbit/s (1000Mbit/s) download speed, there's no economic rationale for spending government money achieve that bandwidth, argues the report.

Many home and business users, struggling with poor speed inconsistent service, will find Mr Sundakov’s finding optimistic at best. His report will also surprise those who see massively broadband-intensive applications like IPTV, business-grade videoconferencing and software-as-a-service easily filling the extra bandwidth offered by fibre.

But while those who had been hoping for fibre to their front door will be disappointed, Castalia’s report could provide a convenient “out” for both the government and the telcos (although the report has strong let-them-down-gently overtones, officially, Telecom,, TelstraClear and Vodafone say it does not support any specific outcome, or lobby in any specific direction for how the government should spend the $1.5 billion).

With the recession, and government finances, now far worse than when national first promised $1.5 billion for fibre-to-the-home, National well be relieved that there are no takers for its money (at least among telcos; Vector and other power line companies have already expressed interest).

And while the project seems superficially alluring for Telecom, the recently downgraded telco would also likely have to either borrow $3.5 billion to finance the estimated $5 billion cost of laying fibre to the home – then likely face a situation where TelstraClear (which has already indicated it will push for open, fairly-priced access) and others apply political pressure for regulated pricing. Such an outcome would slice across chief executive Paul Reynolds’ stated aim to make a 20% return from a fibre to the home network.

Meanwhile, watchers of the Australian government's broadband tender process across the Tasman - where Telstra is furiously lobbing to win 100% of the $A4.7 billion on offer - will find TelstraClear's reticence here a curious, and disappointing, contraction to its parent company's stance on public funding.

State of the telcos' investments
Telecom is in the middle of a $1.4 billion infrastructure spending programme, including its $514 million upgrade of its mobile network to W-CDMA 3G, to position itself more competitively with Vodafone, and regulation-mandated spending roadside cabinets that bring fibre to within 2km of 80% of homes at an average speed of around 13Mbit/s (full analysis here). Later this year, Telecom will add VDSL (a faster species of DSL) support to the cabinets, juicing the speed that can be achieved by the copper line between a roadside cabinet and homes in a neighbourhood.

Telstra has limited residential fibre networks in Auckland, Kapiti, Wellington and Christchurch, and recently finished a fibre network around the South Island, helping it to secure a major Transpower and NZDF contracts.

Vodafone is spending $500 million on its own W-CDMA 3G upgrade, now 70% complete and due to cover 97% of populated areas by May 31 (just ahead of Telecom's T-Day launch. The telco has also been spending money to move its own ADSL2+ gear into Telecom's unbundled exchanges in Auckland, creating its "Red" network.

Limitations of wireless broadband
Both Vodafone and Telecom are also looking ahead to LTE (so-called 4G) upgrades over the next few years which will boost the 7Mbit/s to 14Mbit/s theoretical top speed of 3G to 20Mbit/s or faster.

While Telstra last week launched a 20Mbit/s cellular network in Australia, and other telcos around the world are on track to achieve even faster speeds, wireless has several limitations - including capacity and latency (lag) that lead many analysts, including Paul Winton of Temple, to say that it can only ever complement, rather than replace, landlines.

Speaking to NBR, Mr Winton expressed similar reservations about WiMax - a turbocharged version of wi-fi that many in the computer industry camp see as an alternative technology to LTE.

Mr Winton - a supporter of power line companies taking charge of any public-private fibre-to-the home project, says only landlines provide enough capacity.

By Mr Winton's estimate, in five year's time the largest player in fixed lines won't be Telecom, but a power line company like Vector (which is looking for more clarity from the government before making its play; a recent report for InternetNZ said power line companies could deliver fast internet to front doors for $2 billion less than Telecom with their expertise at draping fibre around overhead powerlines, or laying cable underground).

If the government still wants to spend $1.5 billion on fibre to the home, Mr Winton could be right.

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18 Comments & Questions

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I think you'll find that LTE runs up to 155Mbit/s, not 20. Telstra is already running 21Mbit/s and we'll have that this year in NZ. Broadband has to be considered in light of mobility not restricted to x To The Home stuff.

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LTE has been demo'd running at even faster than 155Mbit/s, by Japanese telco NTT.

But that's like getting the chance to zoom down a brand new motorway before the ribbon is cut.

When a regular amount of traffic arrives, it's a different story.

That is to say, there's a difference between demo speed and the constrained speed in a real-life situation where multiple customers are accessing an LTE base station at one time. According to a Nokia Siemens rep who demo'd the technology in Auckland, at Vodafone's office, this means each customer could be allocated 20Mbit/s in practice.

I'm not knocking LTE per se. I very much look fwd to it and the much better mobile apps it will undoubtedly bring - but it does have logistical limitations that mean it can't replace fibre, as noted above.

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Thanks for nothing Telcos.. just when we might get decent broadband, as usual you want to stick to inferrior options... not only will ADSL and it's various flavours be slower, they will also have greater latency. Oh and the Telco guys can google the word latency as I'm sure they don't understand such things.

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Let's hope the Power Company's can do a better job than the useless Telco's we have to put up with in New Zealand, I hope you lose a lot of Custumer's.

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The telcos would like us to think they're on the verge of solving NZ's broadband woes with New! Improved! Shiny! Products! Of course, their breezy marketing predictions omit the ugly details:

1) Latency. The new higher speed networks are touted as a boon for videoconferencing and other realtime applications, but high latency would kill these.

2) Asymmetry. Internet users are not solely consumers of content, and current ADSL offerings are useless on the upstream side.

3) Unlikely deployment outside the major centres. Speaks for itself.

4) Southern Cross monopoly, the elephant in the room. As long as SCCN has monopoly status over NZ's international transit we will continue to have the internet equivalent of a ghetto. This is where the government needs to step in, either to regulate or fund an alternative trans-Tasman cable and introduce competition.

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The telcos would like everyone to think that NZ's broadband woes will be solved by New! Improved! Shiny! Products! None of this really matters unles some fundamental issues are addressed:

1) Latency. High speed network offerings are touted as a boon to realtime applications such as vidoeconferencing, but high latency renders them useless.

2) Asymmetry. This also kills any scenario in which the user needs to get content out (once again, videoconferencing is a good example). We're not all just downloaders out here.

3) Unlikely deployment outside the major centres. NZ's rural population drives the bulk of our trade earnings and deserves some form of inclusion.

4) Southern Cross monopoly on international traffic. This is the elephant in the room, and the heavy penalty ISPs pay to access our sole undersea cable makes NZ an internet ghetto.

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Re: double posting.

Don't know if it's my pathetic 118 Kbps upstream connection or NBR's steam-powered servers, but I thought my first post had vanished and wrote a new one. Better broadband infrastructure might have saved all of you from having to read that two ways.

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For more on the above-mentioned monopoly, see part 5 of Keallhauled's "Telecom's 5 biggest headaches" series:
http://tinyurl.com/nbrcable

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While the report goes on about the 10-20Mbps download promised by Telecom they ignore the highly asymmetric 1Mbps upload. And that is really going to be good enough for "access to all internet applications except HD video". Nonsense.

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Good point on asymmetry.

We're also looking at the industry's usual failure of imagination in predicting new, more demanding uses for its technology, and the pace of adoption.

Remember, part of Telecom's current fibre upgrade project is replacing what is now called "legacy fibre". When it was installed, it was supposed to be able to handle "anything" we'd ever throw at it. "Anything", by the imagination of the time, meaning any number of voice calls, and visits to plain vanilla websites.

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But or course they give us the answer on page 54:

"new applications are increasingly economical with bandwidth."

What planet are these guys from?

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De Nile.

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Very good Phil.

Look at figure 2.3 on page 11.

If you (Telecom) can't deliver FTTH then lets redefine it as FTTC(urb) and introduce a new element called CP (Customer Premises) outside of the premises.

Then introduce a new term FITH to replace the accepted definition of FTTH.

Desperate..

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Lol telecom, vodafone, telstra triopoly liers. Their mostly owned by foreigners. And the foreighn share holders employ the CEO of the company's to make money for them. They do not care about us. They want to keep charging 1st rate prices for 4th rate service. They know thtat the government will kill data usage fees and make all the services cheaper. Go government boo corporates

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"If you build it, they will come" the big quote from the film "Field of Dreams".

Saying that fibre based internet will be only used for downloading movies is an attempt to trivialise the serious demand for higher speeds.

Sure, I am paying about $30 per month for internet, but also $53 for the phone connection. If you make the phone an add-on, then I am already paying the $80 per month needed to finance fibre to my computer.

A great internet will reduce road traffic as people shop, recreate and work from home via the net. The saving on roads should pay for the fibre backbone in the long run.

We are moving into a virtual world where “Being There” is becoming less necessary.

Pushing faster and faster speeds through the copper phone lines is getting harder and must come to a practical end sometime.

Treat the digital highway as we do roads - they are becoming as important. Compensate the cable providers well, but do not allow them to extract unrestrained monopoly profits.

What about a public private partnership (PPP) for the digital highway?

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It is hard not to laugh at all of the people who want to spend all of the investment in improving the speed from the home to the local exchange, and nothing on making the internet faster.

If you get dialup speeds on DSL, I am sure you will be happier with dialup speeds on Fibre...

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@Jacob: The "corporates" aren't there to donate you high speed internet connection, they are trying to run a company!!

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"A great internet will reduce road traffic as people shop, recreate and work from home via the net. The saving on roads should pay for the fibre backbone in the long run."

Are you serious?! Of all retail sales, a single number percentage is generated from online sales so whats stopping people from shopping online now, current speeds are sufficient. More importantly add to the fact your goods need to be delivered to you, its hardly going to reduce traffic as you proclaim.

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