How’s broadband working out at your home or business?
The correct answer: capped, contended and way, far too slow.
If you don’t think so, you don’t understand the internet’s potential.

Communications and IT minister Steven Joyce does.

And I say that as someone who this time last year, frankly, thought him a bit of a wideboy.

Speaking at the recent Commerce Commission conference on broadband in late February, it was telling where the minister departed from his prepared speech.

Mr Joyce added that as a former business owner, he understood that you could only really work from home – or anywhere, using software-as-a-service or cloud computing – with decent broadband.

Another addition: it should be 100Mbit/s in both directions. That can only mean fibre – the only broadband technology that doesn't fade away after 2km.

Most agree that today’s broadband is bad.

But it’s another leap altogether to say that $1.5 billion of our tax dollars should be spent remedying the situation.

The minister says that left to their own devices, telcos (essentially, Telecom) would take up to 30 years to totally move beyond copper.

He says he understands, and does not dispute, their commercial need to eek more from their investment in copper.

Yet in the bigger picture, New Zealand is already slipping behind its more fibre-friendly trading partners in international competitiveness. Our businesses need a leg up.

Darwinian scramble
Of course, in many areas, government money gets sprayed around to little effect.

But Mr Joyce has a cunning strategy to make sure taxpayers get bang for their broadband buck.

In each of 25 towns and cities (list here), the proposed Crown Fibre Investment Company (CFIC), wholly owned by the state, will form a Local Fibre Companies (LFC), co-investing with a private partner.

A couple of analysts have groused that the minister’s draft proposal is vague about how much money the CFIC will put into each of the mooted 25 regional LFCs (so-called “A shares”) and how much money any given private investor will put in (so-called “B-shares).

But by leaving that question open, Mr Joyce has ensured that budding private partners will have to err on the side of spending more of their own money.

Take the case of, say, Wellington. A company bidding to become that city’s LFC could put forward a proposal under which the government, via the CFIC, picks up most of the bill for rolling out fibre-to-the-premises.

But what if CityLink puts forward a proposal under which it picks up half the tab, or Vector one where it picks up 75% of the cost? With independent fibre operators popping up everywhere from Tasman to Hamilton to the Far North, the contestable LFC tender process is going to be lively, and should deliver some good deals for the government.

The BIF is dead, long live the BIF
Still, many NBR readers will naturally rile against the government having a direct stake in every LFC.

In parliament today, Labour’s Communications and IT spokeswoman Claire Curran crowed that the CFIC, with its regional patchwork approach, was like Labour’s $340 million Broadband Investment Fund (scrapped by Mr Joyce earlier this year) re-born.

In fact, it’s more Labour than Labour. The CFIC has a much bigger cheque-book - $1.5 billion - and it will see direct state investment in up to 25 fibre operators.

But the investment will be for each LFC’s first 10 years only.

Another key difference; while BIF sort to sift through a variety of broadband technologies, weighing them project by project, the CFIC is fully focussed on fibre.

25 local monopolies
Telecom's vertical market domination might be swept away, with LFCs barred from participating in both wholesale and retail broadband (and Telecom barred from a majority stake in LFCs altogether).

But the objection remains that each LFC form its own little fibre fiefdom, given that there will only be one in each of the 25 designated towns and cities? No, Mr Joyce tells NBR. Each LFC will compete against Telecom’s copper network (soon to be juiced with VDSL2+, linked to Chorus’s neighbourhood fibre cabinets), and in some areas they over-lap. And if push comes to shove, Mr Joyce tells NBR he will regulate prices - but he’s banking, and I think correctly, on each LFC adopting keen pricing to drive customer uptake.

Wither Telecom?
Another drawback, depending on your perpsective: the CFIC set-up could well rip the guts out of Telecom. Hailed in some quarters as true separation of the company (which has, in fact, made an honest effort at organisational separation), it might turn out to be more like true-obliteration.

Today, Telecom shares (NZX: TEL) were down just 4c.

Such a modest dip shows the company's shareholders have yet to digest the magnitude of the news.

Telecom has been shut out of the putative national broadband network (retail telcos are formally barred from holding a majority stake in an LFC).

But that’s only the start of its pain.

Mr Joyce has promised open access to every LFC, with any telco or ISP able to buy a wholesale fibre feed.

A number of commentators have said that fibre-to-the-home is only affordable in the US, and elsewhere, because pay TV, VoIP services and other frills come bundled.

Well, bring it on.

Sky TV is ready to deliver its service over fibre (and it has in new subdivisions already). So is Freeview.

And with VoIP, you don’t have to be a traditional telco to offer a fixed line voice service. The fastest growing “telco” in the US, for example, is cable operator Comcast.

A multitude of companies will soon (well, soon-ish) offer many services via fibre, and a number of them will be eating Telecom’s lunch. It’s lucrative fixed line monopoly, which it still enjoys in most areas, will be gone.

Telecom chief executive Paul Reynolds landed his job because of his smarts dealing with regulators.

But the copper-backing Castalia report was clearly the wrong document to drop on the desk of confirmed fibre fan Mr Joyce.

Telecom, which seemed to be caught flat-footed today (the company had no immediate response of any detail) will now have to totally re-tool the way it deals with the government.

You do have to feel for Telecom (or, more poignantly, its long suffering shareholders). Having been coerced by the previous government into $1.3 billion in infrastructure spending on unbundling and roadside cabinets, it now looks like Telecom will have to stand by while new government funds others to build the last mile.

Still, if it had hustled along and delivered faster internet sooner (rather than, say, squandering most of the $1.6 billion Yellow Pages loot on a special dividend, among other follies), it wouldn’t be in the pickle it is today.

To regain the initiative, Dr Reynolds will have to turn to a radical solution, such as spinning of Chorus and Telecom Wholesale in a genuine separation that would let them pitch to build and run LFCs. For now, the bus just doesn't go out that far. More promising divisions like mobile, Gen-i and International will have to work overtime to make up.

Mr Joyce’s plan isn’t perfect. Six to 10 years is a very long time to wait for 75% of homes to get fibre-to-the-doorstep, and I'm not sure the local fibre fiefdom issue has been fully thought through.

But things needed to be turned upside down. And they will be.

Despite the formality of the submission process (and Telecom will be submitting), Mr Joyce's default mode is to talk about the CFIC in the present and future tense.