Telco analyst predicts fibre broadband uptake will be low

Commerce Commission demand-side report on Ultra Fast Broadband confirms Paul Budde's expectations

The Commerce Commission’s draft report on its high-speed broadband demand-side study confirms Australian telecommunications consultant Paul Budde’s expectation that uptake of New Zealand’s ultrafast broadband and rural broadband networks will be low, he says.

In a 2010 report, Budde pointed to likely high monthly fees in comparison with Australia’s National Broadband Network. He estimated $NZ40 wholesale per month as against $A29 retail for NBN). Draft wholesale pricing from Chorus – the company awarded 70 percent of the UFB build – is $37.50 per month for 10Mbps upstream /30Mbps downstream or $55 per month for 50Mbps/100Mbps.

Budde’s studies have indicated that at a likely $75-80 retail price, only 40 percent coverage will be achieved. “To get above 50 percent you need to be below $50,” he says.

Budde also cautioned against the impact of high connection costs. “What it will cost to bring fibre to the home and who will pay for it?” he asked in 2010. “All premises need a fibre box (similar to the electricity meter box) and the cost is estimated at between $500 and $1500 per connection. Again, very few customers will be willing to pay that price and ISPs and telcos will be reluctant to invest in something that most people are not prepared to pay for.”

Now, he says, the Commerce Commission report vindicates his misgivings. The Commission also points to the risk of high connection cost, but advances the possibility that some of that will be paid by Chorus. Possible contribution by Chorus or the government is an unknown quantity, says Budde, and needs to be clarified.

Certainly, with almost two million households and businesses potentially connectable to UFB and RBI he says, he can’t see government and/or Chorus meeting a cost of that number multiplied by $1500.

So far, there is a disturbing lack of clear policy in the New Zealand plan beyond “just putting the fibre in the ground”, he says; “Government has to come clean on what exactly is going to happen and who is going to meet what costs.”

From his own conversations with Crown Fibre Holdings representatives, Budde says, he came to the conclusion that their strategy was to try to capture the high-paying customers first. That might be appropriate for a commercial company seeking to make a profit, “but government is talking about broadband as a way of stimulating the economy, about health, education and social objectives.”

If that’s the aim then the “top-down” strategy won’t achieve it, he says. There has to be broad coverage quickly through offering a range of plans, from entry-level pricing upwards.

Without broad coverage, there is the danger of entering a vicious circle where lack of custom will mean lack of interest in providing applications, which in turn will reduce the attractiveness of the offerings and further inhibit take-up, he says.

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