FTTH – A bridge too far

by Rod Drury

Fibre to the Home (FTTH) is a worthy goal but in my view it’s the wrong focus for our internet aspirations.

The value chain of the internet is from international links, to a national network, to the city, to cabinets, to the last mile.

The international links part of the equation is New Zealand’s bottleneck – not necessarily because of technical limits, but the market encourages those with resources and foresight to build those connections, to price traffic for revenue maximisation, not for the economic and social development goals of a country.

This bottleneck has become so debilitating in terms of the opportunity cost for NZ.inc that traditional free marketers like myself are calling on the government to step in and for the people of New Zealand to own this vital link to connect New Zealand to the world.

We need to own our own cable because it allows us to change the platform economics to an open access, user pays, cost-plus network. Bandwidth needs to be an abundant resource for New Zealanders, not a scarce one.

International connectivity is what will make our boat go faster, and is a far easier and cheaper problem to solve.

If we solve this part of the value chain then the economics around the national, city, cabinet and last mile will fundamentally change. The market may actually make that part of the equation work.

$1b dollars would easily fund a new international cable to a major international junction and allow all New Zealand business to have deep electronic relationships with virtually anyone else in the world. To fund this on a debt basis would only require $100m to cover the cost of capital. Across New Zealand we spend well in excess of this amount by far so here is a zero cost solution.

This market intervention, where we essentially aggregate New Zealand demand to the world, will fundamentally alter the economics of the last mile.

Perhaps with lower cost international connections where business and consumers can communicate in a much richer way to customers we’ll be happy spending more for a substantially better service. So fixing the international links may just fix the last mile anyway.

There is another major economic issue with the FTTH model. Households have a maximum amount of monthly spend on information and entertainment services.

Can households afford both services delivered over Sky and a new content services over a broadband internet connection? Eventually television is likely to be delivered through the IP network.

It is unlikely that FTTH can be achieved without the television industry being part of the mix. That will take a few years for broadcast industry to adapt to IP delivery and this is not a delay we can afford to introduce into the equation.

FTTH is a classic inwardly focused ‘what’s in it for me’ New Zealand way of thinking. We need to think about what really matters - connecting our small, remote, country to the global economy.

So while FTTH remains the dream, the fastest way to it is decisive and swift action on our international link. Let’s create that win and then see where we’re at.