Joyce bites back [UPDATED]

This morning, Communications Minister Steven Joyce announced the government had entered commercial negotiations with the the Telecom-Vodafone consortium bidding for the $300 million rural broadband initiative (RBI). The pair seem to have the tender wrapped up.

"Unsuccessful tender parties are now encouraged to start working with Telecom and Vodafone to look at ways to further improve solutions for rural New Zealand," the minister said.

But the unsuccessful parties were more interested in howling.

Kordia quickly issued a laundry list of grievances, and raised fears that a wholesale rural broadband network built and run by Telecom and Vodafone would not be truly open.

Consumer lobby group InternetNZ called existing regulation around the RBI "weak."

Returning fire
This afternoon, Mr Joyce swatted aside the criticism.

"Someone didn’t win the bid and they’re very disappointed and saying things that don’t stack up," the minister said.

Specific rules around open access, and specific wholesale pricing, would be included in the RBI contract, the minister said.

He expected the deal to be signed by the end of March.

Pricing for the wholesale fibre/mobile rural network would be on an equivalence basis, meaning competitors must be offered the same wholesale deal as Telecom and Vodafone's retail operations.

Pricing of existing services set by the Commerce Commission offered over RBI infrastructure (for example, rural broadband and unbundled copper local loop backhaul) will remain subject to commission regulation.No regulatory change to the telecommunications regulatory framework would be required, the minister said.

Vodafone NZ boss Russell Stanners has previously pledged that rural customers will pay the same for broadband as urban consumers.

Earlier today, the minister's office told NBR that "Vodafone is open to an independent body undertaking price reviews in the future, the detail of this will be a subject of negotiation".

The regulatory holiday question
What of InternetNZ's interpretation of the Telecommunications Amendement Bill, which saw the urban fibre project's 10-year holiday from Commerce Commission scrutiny crossing over into into the rural iniative.

"That interpretation is wrong," Mr Joyce said.

What swung it for Telecom-Vodafone
So why did he go with Telecom-Vodafone?

The consortium offered the best deal for rural customers, the minister maintained.

Asked how exactly, the minister said it went beyond pricing (still under negotiation).

The Telecom-Vodafone bid was "considerably better than the alternatives" because it offered better uplink speed, superior guaranteed ground coverage and celltowers that allowed for co-location (meaning another carrier, such as 2degrees, could install its own transmitters around Telecom-Vodafone gear), Mr Joyce said.

The minister's understanding was that the Kordia/FX Networks/Woosh consortium - which proposed using around 400 broadcast TV sites to jumpstart coverage - would not be able to offer co-location.

Mr Joyce told NBR that 3G was a proven technology (Vodafone will be boosting it with HSPA+, also recently added to its existing network).

It would not be until the digital TV switchover was complete (at the end of 2013) that 700MHz spectrum would be freed for 4G.

The minister did not want to wait.

(Kordia has argued, backed by its technology partner Nokia-Siemens -  ironically is also Telecom-Vodafone's wireless partner on the RBI - has cited international examples to support its case that its 2300MHz frequency would be suitable for a rural roll-out. With its shorter throw but superior ability to penetrate obstacles such as buildings, 2300MHz is often seen as a more natural match for urban environments).

Mr Joyce said it would be relatively easy to upgrade from 3G to 4G once spectrum was available (earlier, his office confirme that the RBI winners would have to compete alongside everybody else at the 4G spectrum auction).

No urban tie-up
The minister also rejected criticism that the Telecom-Vodafone rural win was an indication that Telecom had the urban-focussed ultrafast broadband (UFB) project wrapped up too.

"Robust negotiations" continued, the minister said, and it would be wrong to draw any correlation.

It would be "weeks, not months" before Crown Fibre Holdings reached contracts in the outstanding Crown fibre regions.

Shares fall
Telecom shares (NZX: TEL) finished the day down 1.79% to $2.20. Two prominent analyts have sell ratings on the company, with uncertainty around the UFB project contributing to the negative sentiment ahead of the company's half-year earnings announcement, due Friday.