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.