Vodafone makes secret fibre plan public

Vodafone has released a white paper calling for a single “FibreCo”; a plan that could see Telecom, TelstraClear and Vodafone clubbing together with the government to build a single network - with each telco allowed to run both wholesale and retail operations.Previously, the so-called secret plan had only been shared, verbally, with communications and IT minister Steven Joyce.

Like Telecom's recent, Chorus-based proposals for a single national network, it represents an audacious challenge to the government's official line (beyond their shared audacity, however, there seems little hope of the two telcos finding common ground, keep reading).

Although the date has passed for official submissions on the government’s proposal for up to 25 local fibre companies, Vodafone GM of corporate affairs Tom Chignell says he hopes Mr Joyce - who was given the white paper this morning - will actively consider the proposal.

Potential FibreCo partners such as Telecom, TelstraClear and lines company Vector were also sent copies of Vodafone’s white paper this morning.

Vodafone has proposed a couple of variants on its scheme. One involves companies building in different regions and swapping capacity.

But Mr Chignell tells NBR that a “single firm, co-investor” vehicle - given the placeholder name “FibreCo” - is the telco’s favoured model.

In an example diagram of how FibreCo could be structured, Vodafone’s white paper, three private companies each chip in $1.5 billion for a quarter share each, with the government and its $1.5 billion public investment rounding out the company and giving it a total of $6 billion to spend on fibre.

Mr Chignell - who did not specifically name any private co-investors himself, said Vodafone would be willing to co-invest with other mainstream telcos, or a lines company or other player outside the traditional telco space.

Further, he said that each co-investor putting in $1.5 billion was an example figure only.

Some private investors might put in more capital, and some less. Those who put in more capital could reasonably expect a higher return in future, says Mr Chignell.

Further, the capital a company brings to FibreCo could be “a mix of cash and kind” - kind meaning a promise of capacity on its existing fibre network. This model would bring flexibility, and prevent duplication of assets. Telecom has easily the most fibre already laid in New Zealand, but TelstraClear and Vector (which already partners commercially with Vodafone) and others already have a lot of cable in the ground.

In the event of co-investors holding different-sized stakes, Mr Chignell tells NBR he sees decision making being make on a consensus rather than a majority basis.

Beyond its rejection Mr Joyce’s regional model, with up to 25 local fibre companies (LFCs), Vodafone’s white paper runs counter to the minister’s thinking in two respects.

Total control
First, it allows FibreCo to sell capacity to its own shareholders, who would then “compete vigorously” in the wholesale and retail markets. That is, unlike in Mr Joyce’s proposal, which has restrictions on vertical integration - as Telecom currently enjoys on the copper network - FibreCo would let Vodafone, and potential co-investors like Telecom and TelstraClear, operate at every level in the chain.

Vodafone's whitepaper does allow that there could be some rules around any single player's "concentration" in any given wholesale or retail market; a proviso that the most dominant or "concentrated" carrier of today, Telecom, might not take to.

Regulatory holiday
Second, Mr Chignell calls for what he calls a “regulatory holiday” during the construction of FibreCo’s network, and its initial stages. “The FibreCo concept will rely on a [time-based] commitment from the government not to intervene in the operation of FibreCo or its downstream markets.”

Co-investors in FibreCo would need freedom to operate from the wholesale-to-retail level, and the regulatory holiday, to encourage capital, reduce risk, achieve economy of scale and speed the network roll-out.

Mr Chignell says Vodafone always intended to make a submission on along the lines of the FibreCo model (its official submission concentrated on a critique of the “fractured” local fibre company model, and requests for more detail on wholesale and retail structures).

Telecom has also outlined an alternative vision to Mr Joyce’s regional model, putting forward two proposals for a single national fibre network. Both revolve around its own network operating company, Chorus taking charge of a single network.

Power line and fibre companies, for their part have formed the new Regional Fibre Group to promote the fact that separate local fibre companies could follow common standards.

Mr Chignell gives Telecom’s plans short shrift, but does conceded that FibreCo should use a single company to build and administer its network, and that for the sake of economy of scale and speed, that role could be filled by Chorus.