Door shut on regional bids for rural broadband

The government has had a change of heart, and decided it will now not field bids from regional providers for its $300 million, six-year project to upgrade rural broadband.

On the face of it, the decision looks good for Telecom. The company told the NZX it expected a $60 million earnings hit from the rural broadband initiative (RBI), a contestable process that replaces the old TSO levy that used to go straight into Telecom's pocket. But it now faces less competition - and a much more lucrative prize if its Chorus division wins the RBI contract.

Telecom is also pursing a national bid strategy for the separate ultrafast broadband (UFB) project for urban areas, which is being accessed by Crown Fibre Holdings, charged with recommending options to Communications Minister Steven Joyce.

Not up to snuff
Today, the RBI moved from its expression of interest (EOI) phase to the official request for proposal stage, with RFPs due November 12.

MR Joyce said that a "a significant number of high quality proposals were received" during first round.

But while regional proposals were good, they were not good enough, it seems.

“While regional bidders were able to make a significant impact on broadband coverage, they would fall short of achieving the government’s targets for coverage,” Mr Joyce said in a statement.

But some national bidders looked like they could deliver.

“It’s clear that some national infrastructure companies will be able to meet the government’s rural broadband objectives, along with having the financial backing to guarantee their proposal, across the whole country," Mr Joyce said.

Vector: we're still in the game
Vector is one of the few bidders to openly play its hand. The company (which has also tendered for the $1.35 billion urban fibre project), has said it could cost-efficiently cover Auckland's hinterland by stringing fibre cable on existing overhead lines.

Today, a spokeswoman for Vector said the lines company was still in the running. It will continue working with members of the Rural Fibre Group - a coalition of lines companies and fibre operators across the country - to coordinate a national bid. 

"This still retains, and in fact reinforces, the long held NZRFG stance of providing regional benefits through fibre network deployment by locally owned companies, while delivering a national solution," the spokeswoman said.

In a statement clearly aimed at heading off any talk about lines companies being marginalised by the revised tender, Vector chief executive Simon Mackenzie welcomed the changes.

Labour: only Telecom left in the game
Labour's communications spokesperson Clare Curran was less optimistic, labeling the decision a "death warrant" for regional fibre.

Telecom was the only company with the sort of national capacity to fill the the new rural brief, Ms Curran claimed. The government was laying the groundwork to delivery both the rural and urban fibre roll-outs to the company.

The national contenders
Canada's Axia NetMedia (which is allied with Vodafone in its separate bid for the UFB) is believed to have placed a national bid for the rural broadband project.

The second known national bidder is Telecom.

Mr Joyce said that with the new approach, he is confident of achieving the government's target of 80% of rural households and businesses having access to broadband services of 5Mbps or better, and the remaining 20% of speeds of 1Mbps within six years.

“I expect the first agreement to provide fast rural broadband to be signed by the end of this year,” the minister said.

The RBI is being funded by $48 million of taxpayer and a new levy of $252 million, over five years, on the telco industry (replacing the own Telecommunications Service Obligation levy, which was paid directly to Telecom).

Speaking at the Telco11 conference on June 30, Mr Joyce said RBI bidders included:

• Chorus (Telecom’s network division)
• Vodafone
• Axia-NetMedia (the Canadian fibre company that, allied with potential equity partner Vodafone, is also chasing UFB business)
• “Some” Regional Fibre Group members (Vector has openly pitched, promising to use its existing overhead lines to bring cable to the country)
• FX Networks (a fibre network operator and Commerce Commission darling thatrecently won a major KAREN contract)
• Farmside (a satellite broadband provider that has a marketing alliance with Vodafone)
• Federated Farmers and Fedztel (a new company, more here)
• Compass Communications (a second-tier ISP)
• Opto Network (a start-up launched in November 2009 by industry vet Roger de Salis; uses FX Networks’ backhaul)
• Woosh (which has a lot riding on scoring a Rural Broadband Initiative contract as its commercial business continues to struggle)
   

 Telecom shares (NZX: TEL) were up 2.51% to $2.04 in mid afternoon trading.