Telecom, Vodafone win $300m rural broadband tender

The timing of last week's speculation was wrong, but the substance was right: Communications minister Steven Joyce announced this morning that the government has begun commercial negotiations with Telecom and Vodafone fo rthe $300 million rural broadband initiative (RBI) tender.

The two big telcos, which submitted a combined bid for the RBI, now look to have it in the bag - an outcome first predicted as likely by NBR on November 12.

Some saw the decision as a prelude to Telecom also bagging the bulk in the urban-focussed ultrafast broadband (UFB) tender. However, a Beehive insider told NBR it would be wrong to assume that Telecom had Crown fibre stitched up.

Ouch
"Unsuccessful tender parties are also now encouraged to start working with Telecom and Vodafone to look at ways to further improve solutions for rural New Zealand," Mr Joyce said in a statement.

The unsuccessful
The other shortlisted parties (not even mentioned in the minister's release) were a consortium consisting of Kordia, FX Networks and Woosh - regarded as a strong contender - and the largely quixotic Torotoro Waea iwi bid.

Dodging a bullet
The win is a fillip for Telecom shareholders. The company had previously warned that its could take a $56 million ebitda hit over three years as the old Telecommunications Service Obligation system (which saw industry levies to subsidise commercially non-viable rural customers go straight into Telecom's pocket) was superceded by the new RBI.

Under the new scheme, most of the funding will still be drawn from an industry levy over the next six years (the government will chip in $48 million of the $300 million). But now, at least, Telecom has the security of knowing that half the money will stay in its camp rather than going to competitors like Kordia and FX.

Out of step with Tuanz
The Telecommunications Users Association (Tuanz) last week suggested that the Kordia/FX/Woosh bid receive strong consideration. The trio's bid was seen as independent, and adding diversity to the New Zealand telecommunications scene. Kordia said it could combine spectrum with Woosh for 4G frequency, and utilise more than 400 towers already in place nationwide for the state-owned company's broadcast TV operation.

The Telefone plan
The so-called "Telefone" bid will see Telecom's Chorus division laying new rural fibre; some of it feeding new at least 183 celltowers that will be built by Vodafone (with partner Nokia-Siemens; Nokia-Siemens was also Kordia's bid partner). Booster aerials will be installed on the roofs of remoter rural homes to boost the cellular signal. The mobile half of the network will initially be 3G, boosted by the same HSPA+ technology added to Vodafone's existing network over Christmas, with an upgrade to 4G after spectrum is freed up after the digital TV switchover in 2013/2014.

Wholesale network
Under the terms of the tender, the pair will build a wholesale rural broadband network, with any retailer able to access and resell its fibre and cellular/wireless capacity.

Telecom and Vodafone have pedged that rural broadband pricing will be on a par with urban plans once the network is complete.

In a joint statement this morning, Telecom and Vodafone emphasised the open nature of the network, and their willingness to work with other parties.

The big question now, is what degree of regulation will be imposed on the cost of accessing the "Telefone/Vodatel" rural network.

Scope of the project
The RBI aims to ensure 93% of rural schools are connected to fibre, enabling speeds of at least 100Mbit/s, with the remaining 7% achieving speeds of at least 10Mbps.

Under the RBI, more than 80% of rural businesses and households will have access to broadband with speeds of at least 5Mbit/s, the government promises, with the remainder a not-so-flash 1Mbit/s.

While the UFB is being decided by Crown Fibre Holdings, the rural broadband initiative winner arrived via a Ministry of Economic Development (MED) recommendation.

MORE SOON.

RAW DATA: THE MINISTER'S STATEMENT

Negotiations for Rural Broadband Initiative underway

The government has commenced commercial negotiations with Telecom and Vodafone for the provision of vastly improved broadband services to rural New Zealand, Communications and Information Technology Minister Steven Joyce announced today.

Last November Telecom and Vodafone submitted a joint proposal to the $285 million Rural Broadband Initiative (RBI) tender, which will improve access to faster broadband for rural customers. In December, three proposals were short-listed for evaluation against strict criteria.

Mr Joyce says the joint Vodafone/Telecom proposal is based on proven existing technology, and provides the government with confidence that it can be deployed.

“The government specifically asked for parties to consider collaborating on joint bids to reduce construction costs – and this bid does just that.”

“Currently 20 percent of customers in rural New Zealand can access speeds of at least 5 Mbps. This will rise to 86 percent of rural households and businesses, with 95 percent of rural schools receiving ultra-fast connection. The extension of the fibre backbone into rural areas means more customers living on the fibre routes may be able to get fibre-to-the-door.”

“For many remote and not-so-remote rural areas this will be light years ahead of where they are today and will ensure they participate in the promise of the digital economy."

The joint bid involves an extension of Telecom’s fibre network to deliver fixed wireless and fixed wire broadband to 252,000 customers in rural New Zealand, and the construction of 154 fibre-connected cell phone towers to enable fixed wireless broadband to rural customers as well as improved mobile coverage, and the direct connection of 719 rural schools to fibre networks.

“The joint proposal was the only one that increases mobile coverage, and it will ensure serious competition in the last mile with many rural customers being able to choose from fixed wireless, ADSL2+ and mobile broadband.”

Negotiations will be undertaken over the first quarter of 2011 with the roll out due for completion by 2016.

“This is another significant infrastructure project for the government – and it is important that we achieve the best value we can for rural communities and taxpayers,” says Mr Joyce.

“A successful project would include Telecom and Vodafone looking to use existing infrastructure where they can. I also expect to see affordable wholesale and retail prices from this investment.

“I have also been clear that strict open access rules will be included in any contract. This will promote healthy competition in both the rural wholesale and retail broadband markets. Other providers who have not been successful in the tender will be able to provide services using the government-funded infrastructure. The infrastructure will also support new technologies like 4G as they roll out.

“I have advised officials that I am seeking contracts to be signed with Telecom and Vodafone for their separate parts of the proposal by the end of this quarter. Should that not prove possible for any reason, the Government reserves the right to re-tender for the contract.”

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