Vodafone expresses doubts about shape of broadband plan

Company says it's a willing investor, with significant reservations

Vodafone is a willing investor in the government's plan to roll out fibre to 75% of New Zealand homes provided it can develop an "attractive" business case.

However, it says in its submission (pdf) to the Ministry of Economic Development (MED) that the business case around the project needs further work as the costs are likely ot be higher than expected.

And that is just one of a number of reservations the company expresses about the plan and the process around its implementation.

"We have had only a limited time to evaluate the concept in detail. Accordingly our response is still at a very high level and a lot more work will be needed to be conducted by us on our business case before we would be in a position to confirm any investment," the company says.

Vodafone says the proposed Crown Fibre Investment Company (CFIC) vehicle looks like an appropriate governance model for managing government participation in the network build.

"The government is realistic about its short term returns and acknowledges that without the government subsidy, this initiative is unlikely to succeed," it says.

However, the company goes on to detail its reservations, including concerns about the amount of investment required.

"The actual quantum of investment required is not yet clear. Based on the estimates of independent expert Dr Murray Milner, the real cost of the investment may be as high as $5 to $6 billion," it says. "In Australia, the government has announced a total requirement of A$43 billion to reach 90% of homes which when mapped to the New Zealand context indicates a figure closer to $9 billion. There is clearly more work to be done on the business case"

Vodafone also recommends the government keep a close eye on developments in Australia, as these have highlighted the challenges that such initiatives create "particularly with reference to the role of the fixed incumbent".

Vodafone says an investor in infrastructure with both retail and wholesale operations it has concerns about the restrictions being proposed around eligibility and equity participation. It says these are too limiting to enable effective investment.

"As a capital investor we typically require some level of strategic control over that investment in order to have confidence in the execution of the business plan."

Vodafone also argues the government's "fragmented" local fibre company (LFC) regional concept poses significant issues for investors.

"Loss of scale may negatively impact the business case and we have concerns around technical coordination, national standards, and interface management. This may limit the creation of an effective and consistent range of products and services capable of being offered efficiently on a national basis," it says.

"This initiative requires clarity around the participation of existing infrastructure owners, with particular reference to Telecom. Without its existing infrastructure being included in the mix in some form, the initiative will face significant risk. A solution that builds an orderly transition from the current copper-based services to fibre alternatives will be more likely to succeed."

Vodafone also suggests proposed regulation of the LFCs may not be appropriate.

"Nevertheless, regulatory certainty is something that the government can deliver which can support the overall business case."

the company also criticises the process emerging for the government's investment, saying while it believes that a partnership between the government and the key industry players could be a lower risk plan for success, "current levels of engagement with the industry are minimal and do not reflect a partnership".

"The current process is RFP based, confrontational and does not allow adequate time for the stakeholders to develop their plans," it says.

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