OPINION: Alarm bells over Vodafone and Telecom rural bid

Serious questions if joint telco proposal for Rural Broadband Initiative is successful

Communications minister Stephen Joyce has confirmed five final proposals have been received the Rural Broadband Initiative and although he’s chosen not to name them at this stage, four respondents have publically stated they will be bidding.

In a surprise announcement , Telecom and Vodafone announced they had submitted a joint response to the $300 million RBI, which will be funded in part by a $48 million taxpayer grant and the remainder by an industry levy. The goal is to provide fibre to 97 percent of rural schools and a minimum 5Mbit/s broadband service to 80 percent of rural households with six years.

Should the duopoly win the business, there are some serious questions to address, not the least of which is competition.

Federated Farmers CEO Connor English is one who is concerned.

“Our view is that the RBI targets do not future-proof the rural community and are generally too low,” he says in a letter to the Ministry of Economic Development. “We are seeking a step change that will leapfrog our rural community forward rather than spending decades playing catch-up.”

He suggests that the wholesale cost needs to reflect the benefit of the $300 million input and be around $30 a month. The retail cost, he says, needs to around $60 a month.

“Competition encourages innovation and value for money. In our view, it is in the best interests of end users to have real retail competition and that the successful infrastructure bidder should provide a ‘NETCO’ service to all operators, enabling them to sell minutes and megabytes to consumers. Consumers can then swap their retail provider.

“However, in its current state the RBI may trap consumers to a monopoly provider for several generations to come.”

It is vital, he says, that the regulatory framework ensures competition.

“We would be concerned if the government ended up simply funding the incumbents’ expansion of their existing tower network in a similar manner that Project Probe did.”

Telecom and Vodafone have spoken of providing an open access network using a range of technologies. If it is going to be competitive, that has to apply to the wholesale price.

Sure, ISPs will be able to buy bandwidth at a common price but by the time they add the costs of providing a receiver in homes, this will more or less double. That doesn’t leave much margin to play with and to offer a competitive service.

If there is no competition at the wholesale level, there is no pressure for prices to reduce over time. The service will be effectively circumscribed.

Telecom is the only telco that has a breadth of coverage of the rural sector. It will see no need to drop prices if there is no competitive pressure.

When Kordia announced a while back that it might roll out a second transTasman cable, the price of international bandwidth dropped from $300 per Mbit/s a month to $150. Then Pacific Fibre indicated it might join the party. The international rate came down to $90 a month. That’s what competition – or even the threat of it - can do.

Without competition, it’s hard to see Telecom-Vodafone doing much more than roll out the minimum mandated 5Mbit/s over six years. It’s quite likely that within that time frame urban users could have access to as much as 100Mbit/s.

It’s not just the business and educational benefits that the rural community needs to access. It faces a major problem of social isolation that a decent broadband service would go a long way toward resolving.

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