Telcos might not want the government’s $1.5 billion for fibre-to-the-home, but power line companies’ internet ambition is vaulting – and they’re happy to take the money.

It’s easy to be cynical about the Castalia report, jointly commissioned by Telecom, TelstraClear and Vodafone, and released last Saturday.

The telco trio say they don’t need any government dosh. Their private investments will keep expanding broadband at an acceptable clip, able to accommodate any application users throw at them over the next three to five years, and beyond.

And indeed Tuanz was quick to point out the telcos have a vested interest in squeezing more out of their existing investments in DSL (that is, copper) before splashing out on fibre – a strategy that makes sense for a private company but runs counter to the national interest.

Your correspondent chipped in that fibre-to-the-home would cost somewhere north of $5 billion. So even after the government subsidy, the winning telco would have to go to the debt markets or accept a government guaranteed or cheap government loan – and the strings around open access and regulated pricing that would inevitably be attached (another option: Telecom merges or sells itself to a telco with money, and expertise in fibre to the home, such as its Southern Cross Cable partner Singtel).

The Castalia report made sense, in its own little world. People would not be willing to pay up to $75 a month for a broadband internet connection delivered over fibre (some think it could be lower), its author says, and regardless, we don’t need fibre to the home.

Keall's pulse quickens
So: the government can keep its money, say Telecom, TelstraClear and Vodafone.

But what if Communications and IT minister Steven Joyce decides he does want to follow through with National’s pre-election promise regardless.

If he does, Vector, and other lines companies, are more than willing to take it.

That raises the intriguing possibility of some genuine competition in home broadband.

While Telecom adds VDSL2 to its exchanges and roadside cabinets later this year, pushing the copper connection to home to its very limit, Vector and other lines companies could be laying fibre to the door (their route to the outside world would be via Chorus’s roadside cabinets, which can take G/pon fibre cards from anyone, be it Telecom, or a lines company. The Commerce Commission has yet to rule what Telecom Wholesale should charge third parties to access Telecom Chorus’ cabinets). Both the traditional telco and the insurgent utility players would be vying for the broadband buck. Cracker.

Talking to NBR, Vector chief executive Simon Mackenzie was keen to position his company as a more willing partner than the sometimes truculent telcos.

Vector is typical of New Zealand’s 27 lines companies in that it is owned by a community trust.

If it picks Vector, and by extension other line companies, the government can set pricing, and dictate the build time, Mr Mackenzie says.

Your report, my report
Mr Mckenzie is quick to dismiss the traditional telcos’ report as “negative, legacy thinking.

"The critical issue is not company self-interest, but national self-interest. The government has put forward a bold vision for first-world infrastructure. We think DSL speeds of 10Mbit/s are “good” but countries like Hong Kong, Singapore, Korea, the US and elsewhere are getting 100Mbit/s or faster asymmetrical [that is, full tilt upload and download) fibre networks.”

And while the telcos have their Castalia report, Vector submitted its own, confidential report to the government ahead of Christmas, outlining its role in building “a cost-effective, open access network” which would require less government subsidy than a fibre project under taken by the telcos.

A complementary report, commissioned by Network Strategies for InternetNZ, says utilities could deliver fast internet access up to $2 billion cheaper than telcos by utilising existing expertise, and infrastructure – and that doesn’t always mean laying fibre underground, incidentally; some could be draped around overhead cables. While this solution helped to bring TelstraClear fibre to some Wellington and Kapiti residents, many objected to the aesthetic impact of thick black cables snaking around power lines. Another power line advocate, Dr Paul Winton of high-end investment consultancy Temple, says if the same tactic was followed today, the cable could be as thin as 5mm.

Mr Mckenzie says Vector would be purely a network operator, with pricing left to retailers.

Nevertheless, he does question how Castalia could be so sure about how much a fibre-based plan would cost, and how it can gauge consumers’ willingness to pay. “Customers have no experience on what they’re being surveyed on. In other markets, lots of people do pay for cable, which is often mixed with other services [typically pay TV; here, both Sky TV and Freeview are keeping a sharp eye on developments, with an eye to delivering HD over fibre]”

There are problems with the power line vision.

Mr Mckenzie concedes that with 27 lines companies, his is a “regional solution”. Vector itself is now centred on Auckland only, having recently sold its Wellington lines to Hong Kong-owned Cheung Kong Infrastructure for $785 million to pay-down debt.

But a national solution could come from a series of regional solutions, argues Mr McKenzie. Vector’s confidential report to the government could serve as a template for other power line companies to follow – plus other regional partners such as councils, fibre specialists like CityLink, and outliers like Kordia.

There is an undeniable logic to Mr McKenzie’s argument, but we’ve been here before. Vector itself, other power line companies and regional councils all had projects being evaluated for funding under the previous government’s $340 million Broadband Investment Fund.

But apparently displaying little taste for this patchwork solution, Mr Joyce unceremoniously scrapped the BIF on February 5.

Mr Mckenzie clearly would like to bring back the BIF but Mr Joyce curtly dismissed it as “not compatible with the government’s rollout of ultra fast broadband to the premises - it had its own specific set of criteria and was not focused on our key objective of achieving widespread ultra fast broadband,”

The logistical challenge of regulating up to 27 different lines companies, all interconnecting back through Telecom’s network, may also be a regulatory headache too far for the minister.

They're heeerrreeee
But even if Mr Joyce passes Vector by, we could still see the company, and other lines operators, compete in fibre to the home (especially if the minister accepts the telco’s proposal that he keep the $1.5 billion).

Vector, like Counties Power, is already selling fibre access directly to some commercial customers, and is co-operating closely with Vodafone to improve the telco’s fibre backhaul. Other projects include a fibre ring for schools on Auckland’s North Shore. If not to people’s front doors, Vector already has a surprising amount of fibre snaking around the city (check out Vector for yourself on the State Service Commission’s amazingly revealing broadband map, which lays bare all the major players fibre and wireless networks in amazing detail; this is information they would have killed to access from each other as little as 12 months ago).

And unlike Telecom, Vector is in rude financial health, making more profit, in absolute terms, than the telco in their most recent results.

One way or another, I sense, things are going to happen in fibre-to-the-home.