Telecom-Vodafone sew up $300m rural broadband tender, but questions remain

As widely expected Telecom and Vodafone (aka 'Telefone') have closed commercial negotiations with the government for the $300 million rural broadband initiative (RBI), communications minister Steven Joyce confirmed this morning.

Telecom shareholders reacted positively to the news, with the company's shares (NZX: TEL) closing up 4.62% to $2.15.

Primarily funded by a levy on the telecommunications industry, the RBI will provide 100Mbps services to 95% of rural schools, and a minimum 5Mbps broadband service to over 80% of rural households (or around 252,000 people), within six years.

The network built by joint bidders Telecom and Vodafone will be a wholesale one, with the government promising that all competitors will get equal retail access.

In a phone conference this morning, Mr Joyce said the rural network's wholesale pricing would be equivalent to urban pricing.

Vodafone chief executive Russell Stanners said the new wholesale network would mean rural customers would go from a choice of one internet retailer (Telecom) to many.

Lightening fast now ... but how will it look later?
Mr Joyce said many rural customers would welcome the broadband roll-out, which would offer 'lightening speeds" compared to most rural broadband internet connections today.

With many outside urban areas still stuck on dial-up connections, there would be few arguments that 5Mbps will be a huge step up.

Nevertheless, InternetNZ Vikram Kumar said that in six years time, 5Mbit/s (about half the speed most urban homes get today) could start to look decidedly lousy.

One speedup option would be to upgrade the wireless component of the broadband network to 4G, Mr Kumar told NBR - but there was no guarantee that Telecom or Vodafone would secure the necessary spectrum (see "Nobody gets guaranteed spectrum" below).

And even if Telecom or Vodafone successfully bids for the spectrum, Mr Kumar questions if they would have any commercial incentive to upgrade the rural network beyond 3G - at least not in any hurry.

Federated Farmers boss Don Nicholson echoed Internet NZ's criticism, saying 5Mbps would make cockies "second class citizens".

Kordia's nose out of joint
The government began commercial negotiations with Telecom and Vodafone over their joint RBI bid, on February 7. 

But the pair's main rival, the Kordia-FX Networks-Woosh consortium, kept lobbying hard, maintaining it could provide faster 4G technology immediately.

Communications minister Steven Joyce told NBR that Telecom and Vodafone's joint bid offered better coverage, proven technology (3G with a possible 4G upgrade) and colocation for other providers - although 2degrees recently picked holes in the co-lo argument.

Colocation, until the money runs out
Specifically, the  carrier highlighted that only the 154 new celltowers that will be built by Telecom and Vodafone under the RBI are guaranteed to offer co-location (or the ability for other carriers, such as 2degrees to put their own transmission gear on a tower). 

But only around 60% of the 380 existing towers that will also be utilised for the new rural network will offer co-location.

At the recent TelCon11 conference, Telecom UFB sales and bid strategist Michael Gaunt conceded, "The MED (Ministry of Economic Development) money ran out at the towers", meaning the 154 new towers.

And Vodafone GM of wholesale and business development Steve Reiger added that only around 60% of the existing 380 cellsites were colocatable, and  "The MED is not funding those towers".

Most of the existing towers are too low to support co-location, the pair said. Extra money - or charges to the likes of 2degrees - and not to mention resource consent - would be needed to make the towers shareable.

Mr Joyce said that existing towers would be governed by existing Commerce Commission terms.

Vodafone GM of corporate affairs Tom Chignell added that 2degrees already had access to co-location on existing towers at a discounted rate (in June 2009, 2degrees was publically scolded by the Commerce Commission for not taking of a co-lo deal brokered by the watchdog).

2degrees has countered that Vodafone dragged out the process so long that the co-location decision was too late for the company's initial network build (see more of chief operating officer Bill McCabe's reaction in the Comments section below).

Final contract terms
In a statement this morning, Mr Joyce said the final Telecom-Vodafone contract provided for