Now that John Key has started talking about the Chinese bidding for the $1.5 billion ultrafast broadband plan it really seems that things may be coming unstuck. Or at the least confused.
And yesterday’s Sunday Star Times reports Steven Joyce’s acknowledgement that the government may have to dip into money set aside to build its $1.5 billion ultra-fast broadband (UFB) network to pay for further policy advice on the project. Policy advice on what?
Written questions from parliament’s Commerce Select Committee (which I sit on) to Communications Minister Steven Joyce have revealed that the appropriation for policy advice in his portfolio is under “extreme pressure”, and a transfer of up to $2 million more than the $3.7m already budgeted may be needed early in the current financial year. That $2m would come from capital set aside to pay for fibre.
In other words, the funding set aside for policy advice on the broadband initiative is not enough. Why is that? It certainly has become a lot more complicated than anticipated. Which Joyce needs to own up to now.
I”m submitting a bunch more written questions on this. But it does seem that Steven Joyce may have bitten off more than he can chew.
The SST story and previous posts by me have strongly suggested that $1.5billion isn’t going to deliver what the government has promised. Vodafone head Russell Stanners has now said publicly several times that he doubts the $1.5b set aside for the project will be enough.
The country must get broadband rolled out. Soon. And we must do it right. But what the hell is going on? And what will be the cost? And are we going to be faced with a foreign bid that undercuts other local bids, particularly on labour costs?
Steven Joyce continues to remain silent on these issues. It’s time for him, or perhaps now Key to start talking to the nation about just what the problems are and what’s being done about it.
Remember this was the government’s biggest election pledge. There’s a lot riding on it, for them and the nation.
Clare, I’m no expert on this UFB thing, but you seem to be confused. Are you suggesting, like the electric trains for Auckland, that we build all the high tech equipment here? Or is it just that it’s a Chinese company, and it’s ‘flavour of the month’ to demonise them? I would remind you that it was your government that signed the FTA, inviting them in.
@Jennifer Huawai are, like Ericsson and Alcatel Lucent, a supplier of high tech equipment. They also produce fibre. They are a technology provider rather than a builder or operator of networks. And as was reported in this morning’s NZ Herald, they supplied equipment for the 2 Degrees mobile network.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10658164
However, if you read what the PM said in his Q&A interview it sounded as though they could be or already were, more than that.
There’s a couple of issues here. One is local procurement vs overseas.
It’s got nothing to do with whether it’s China, Korea, Germany, the UK or wherever. If the job can be done here competitively by local industry then we should seriously consider it. Lowest price is not always the best bid.
The second issue, which relates specifically to the UFB process is the confusion and the complexity of the bidding process and the final structure of the roll-out. It’s costing more to develop, it’s taking longer and there’s a veil of secrecy and uncertainty around the role Telecom will play. The GOvernment is hiding behind the bidding process so it doesn’t have to discuss it publicly.
Meanwhile millions of dollars have been spent in developing 32 bids that may be superseded by a deal done outside the process.
The Prime Minister didn’t help by throwing a possible Chinese bid into the ring out of left field. I think he’s confused.
Clare, are you seriously suggesting that the bidding process be held out in the open? No one would bid. And besides, what makes you think from Key’s comments that the Chinese are bidding, or part of a bid, for more than the supply of equipment? Have you ever been involved in a large scale bidding process? Or is it just easy politics to wave the flag and ‘dog whistle’ to the xenophobes? Like I said, you guys signed the FTA that let the Chinese in on equal terms. Was Clark wrong?
@Jennifer – this isn’t about Huawai being a Chinese company. It’s about our government telling our technical people you aren’t up to the task. If they’d chose Cisco, Juniper, Ericsson, Alcatel Lucent or any one else the issue would be the same.
The job is to build a fibre network that penetrates deep into the geography of our country in a way that makes it available directly to as many players as possible. Having a large international corporation like Huawei come in and build it would likely end up with us replacing Telecom’s near monopoly in this space with a different but no better monopoly run by overseas interests.
Wait a minute – wasn’t an open and competitive process what we were hoping to get with this?
The PM just made that up methinks, as far as I’m concerned the real issue is economics, there is no point in private companies fronting up the money for a number of economics reasons:
- Because of the LLU they can all wait for Chorus to install fibre and then install their equipment in exchanges, Telstra has pretty big network and Vector has an extensive Auckland network but the main fibre providor is still Telecom…
- Telecom is ****ed due to LLU, they are a bloated company with shareholders sick of investment that competetitors get to immeaditely use and they pay too much for (XT case in point)…
- There is no real commercial applications for 1GB+ connectivity yet – there will be and it may be a case of build it and they will come but who wants to take the risk..?
- Scale, there is a 130,000 km copper network and about 30,000 km fibre total in NZ, that means under the government’s plan they will have to pay 45,000 km and private companies 45,000 km to achieve the 90% target… Will a combined $3 billion pay for that..?
These are the problems outlined by the Regional Fibre Group, which is a combined of Telecommunication and Power Line companies:
“The importance of demand traffic
The Government’s policy will only succeed if fibre take up is strong. The current approach risks a low
and/or slow take up.
The critical risk is that the existing retailers have little incentive to move traffic from their current
networks, whilst the LFCs can do little themselves to attract end-customers. The NZ Regional Fibre
Group is concerned that Telecom and others, from a purely commercial perspective, will want to
manage transition slowly from their core network(s) while in addition, barriers to entry caused by the
significant investment required to light the fibre will reduce the ability for new retailers to enter the
market, especially those who do not wish to provide a full suite of services.
The real risk is that the LFC networks end up with very low penetration for an extended period of time
(five years and beyond). These networks would be stuck in a vicious circle of low penetration and high
wholesale prices. The market power of the very small number of potential retailers makes this a very
real prospect.
None of the Government’s policy objectives can be met if the LFC networks sit unused. In fact, the
policy repercussions would be highly negative. Similarly, private investors will shy away from the LFC
investment opportunities if the economics look poor.
Therefore, in order to give effect to the Government’s policy objectives, we recommend that the
Government should act to incentivise retailers to use the LFC networks; for example, by offering
Telecom a way out from its cabinetisation programme if it commits to using a certain amount of LFC
capacity within a certain timeframe.
The Government should also look for ways to incentivise end-customer take up of fibre (e.g. via a
subsidy to connect households to the network). One idea is to use the Government’s ‘A shares’ under
the proposed structure to incentivise take up by granting them to businesses and/or householders that
take up fibre services within 12 months of being passed.
Government should take a whole-of-government (education, health, agency, SOE and local
government) approach to utilisation of these LFC fibre infrastructures. As New Zealand’s largest single
purchaser of ICT products and services, Government commitment to utilisation of LFC products and
services either directly or indirectly will be vital success factor in the financial viability for all LFCs.
Finally, the Government should provide ‘safety valves’ for the LFCs. The Government should put in
place a cascading series of measures that LFCs can activate in order to protect private sector
investment if demand is low, such allowing the option for LFCs to retail.
An any-to-any broadband model is best for NZ
The NZ Regional Fibre Group approves of the Government’s open access fibre based network model.
However the Group has strong concerns with the Government’s premise that dark fibre alone will
necessarily lead to the best overall competition outcomes.
We fully support an open access model but believe that for the mass market open access is best
served to promote competition in services and deliver uptake, at Layer 2. We accept that there are
some customer segments, e.g. corporates and backhaul, for whom dark fibre is appropriate. However,
we believe that for the mass market, i.e SME and residential, requiring dark fibre to be offered to
retailers risks recreating today’s copper barriers to entry by forever restricting the direct customer
relationships to a small number of large vertically integrated (triple play) telcos. The critical issue is
that in the mass market for new entrant retailers to compete with a vertically integrated (Layer 2 and
above) retailer, they need the scale to put the electronics in place and they will need to offer a full
range of services. A requirement for the LFC to offer dark fibre in the mass market or conversely a
retailer to operate at Layer 2, would favour the vertically integrated incumbent as it would now be able
to prevent an open access Layer 2 market forming as they would control the dark fibre layer.
If a retailer is able to purchase dark fibre, third party service providers (such as Freeview or SKY) will
find it very difficult to reach customers directly, just as they do today. This is a particularly important
factor when it comes to the use of the network for ‘one to many’ broadcast video services – unless the
major operators such as SKY and Freeview are able to supply services to all customers in the market
through one transaction with one retail provider, there is a risk that they will not use the new fibre
networks for distribution, and will instead keep using their existing distribution technologies. This in
turn would be a significant missed opportunity to rapidly boost the usage (and in turn secure the
economic viability) of the new fibre networks. It is worth noting that international experience shows that
the growth in penetration of fibre based services relies on non-telecommunications related services,
provided by a wide range of players, large and small.
The Group believes an “any-to-any model” facilitated by open Layer 2 access enables the benefits of a
Next Generation fibre network to be realised and delivers the Government’s vision of a market of a
large number of service providers delivering a number of innovative services to the customer over one
pipe. Therefore, the Government should allow each LFC to decide the mix of dark fibre and an open
Layer 2 any-to-any broadband that they offer. We strongly expect that unless they can secure
significant pre-commitments, the majority of LFCs will decide to offer dark fibre to large businesses,
Universities, schools and hospitals, but will offer open Layer 2 ‘any-to-any’ broadband connectivity to
small businesses and to households.
The optimal funding approach
Under the model as currently proposed, it may be challenging for LFCs to raise debt finance. The
business model is risky given the inability for the LFCs to drive uptake, the market dominance of the
incumbents and the risk of future regulation should the network be successful over time.
We see a potential risk of asymmetric regulation whereby for many years, the LFC loses money, but as
soon as it starts to make money (making a reasonable ROI), it may, in the long term, become a target
for regulatory authorities due to its growing natural monopoly structure.
Therefore, we propose that the Government should consider the fact that given that both the
Government and private investors’ interests will be met by the LFCs succeeding with strong take up
(thus strong market share), both Government and private investors should expect that the LFC owned
networks may eventually become regulated assets. All investors will recognise this and some will
demand to know what regulatory framework is likely to apply in the future.
We would also propose that a range of funding options should be considered which satisfy the LFC’s
private investors’ need for greater return certainty given the restrictions of the model and provide the
Government with sufficient downside risk share and equity ownership. We would ask that the funding
options be left flexible to leverage the maximum outcome for Government funds.
The NZ Regional Operators Group looks forward to working with the Minister and officials over the
coming months to refine the CFIC/LFC framework and discuss other potential funding options and
commits to playing its part to transform New Zealand’s broadband environment.”
Opps could one of the admins edit that and delete this post… An edit button would be really nice…
Cheers
The delusional government is still trying to find a way for capitalists to provide the telecommunications network when they have very little chance of making a profit.
It would be simpler and cheaper if the government just did it rather than trying to get the capitalists to do it. Just like how it was achieved before.
All the post-LLU whingeing about ‘infrastructure stupidity’ comes across as sour grapes. What are they going to do, sabotage Telstra’s cables and Vodafone’s towers?
The NZ Govt has lost the plot, lost expertise and informed judgement and is left arguing over various approaches offered by groups with commercial interest.
The sacred cow Telecom should be the last consideration when technical design is undertaken.
Allowing more multinationals in for short term fixes is a path to greater loss of direction.
Some fingers are gong to be burned and losses can be expected by any commercial player with changes in our direction.
Glib promises of speed and bandwidth for political gain are equally stupid.
The future of our public phone system is liable for severe compromise as a result of the accumulated mess with hands off Govt.
My FTTH idea:
I want the new FTTH network to be future proof, so it should have more capacity than currently needed.
It should have dual gigabit connections, 1gb for internet only, 1gb for TV & phone.
The TV connection should be an unmetered hybrid of Freeview HD / internet TV and optional Sky/Telstra content, with open access to video on demand sites like youtube, TVNZ on demand and TV3 on demand. Radio unmetered streams too.
Phone services: Free national landline/0800/0508 calling with full videocalling compatible with skype and other major voip services.
Mobile calls to cost no more than 10¢ per minute. mobile video calls to cost no more than 20¢ per minute.
Subsidised netbook program for pensioners, beneficiaries and school kids to simplify and encourage web usage, email and videocalling.
It is vital that TV, Radio and national calls be unmetered as this will free us from the tyranny of area code costs & sheer volume of video, but the phone service will make enough money from mobile calling, international calls and internet charges.
Speaking of which, I believe a fair price for this universal service be $50 per month, (in 2010 dollars, only allowed to adjust for inflation.) including unlimited national traffic and 120 GB international traffic. Excess traffic to be charged by your ISP depending on your plan, and not going to slow down when you hit the limit.
@a pirate, I don’t think they need to go crazy on futureproofing by laying too much cable at the expense of coverage…
Fibre’s ability to carry data seems to be following Moore’s Law too…
Since when did Labour become interested in pushing for high speed internet? Labour has always taken a baby steps approach to telecommunications and now that National has made a commitment to installing fibre optic, Labour says National is not doing enough.
Supposing Labour were to get into power next election (unlikely)… would it pledge to spend more than the $1.5 billion that National has said it would spend?
Labour already had plans for the internet before the last election!
JMH, possibly yes but applying Moore’s Law to fibre would be an inappropriate application (no transistors or transistor density in a length of fibre)…perhaps you could formulate a new Harris’ law though?
If you read back through C.lare’s posts, a fair while now.
@Homer: I doubt there would have been a ‘$1.5b fibre plan’ if it wasn’t for local loop unbundling.
You should read the following Herald article Clare.
Do we even need ultra-fast broadband?
As I’ve always argued here, time and time again. Policies must be driven by factual data and not merely according to what one wishes and in philosophy’s term, it is called inductive learning.