Kordia warns of broadband risks

Company emphasises international bandwidth constraints

State-owned infrastructure company Kordia is warning the government over the risk of failure in its broadband plan, saying the complexity is high and proposed timeframes are narrow.

The next phase leading up to the RFP will require the resolution of some key issues, it says in its submission (pdf) to the Ministry of Economic Developement. (more submissions here).

"It will be important, to significantly improve the prospect of government achieving its goals, to consult again on those issues. While a goal to get early successes is understandable, the complexity of the issues and this process is such that there is significant risk of failure of the initiative due to the proposed short time lines for each phase, including the initial phases.

"Overseas experience — both good and bad — such as in Singapore, Australia and the UK, shows the importance of 'getting it right' from the start. Planning the overall approach carefully is critical. This cannot be done quickly without marked risk."

Kordia says the government’s proposal is a step in the right direction and it is aware that the draft proposal is "only the first step in a complex process".

"Some of the relevant issues are economic in nature, and it is clear that economic issues will be as important as technological and practical ones in achieving the government’s broadband objectives. Uptake of ultra-fast broadband will only occur on a large scale if the benefits to many end users outweigh the retail market prices they face, and if provision of the relevant services is profitable (at least in the long run) for broadband retailers, wholesalers, and the Local Fibre Companies (LFCs)," it says.

It says uptake of ultra-fast broadband depends on factors that are currently uncertain, in particular the willingness of consumers to pay for higher speed, the development of new applications that make use of the additional speed and the viability of the business plan for retail service providers.

"Therefore, the government’s investment, and that of the private partners, is not without risk. However, the success of the proposal will partly depend on its detailed design and implementation. In that respect, the economic incentives that the proposal creates are crucial."

Kordia says there is already significant infrastructure that is capable of supporting ultra fast broadband. The challenge for companies that want to buy dark fibre is access to

the infrastructure at a price and service level that enables cost effective delivery that businesses and consumers will be able to afford.

It adds that the cost of connecting the customers, and rewiring homes where required, should not be underestimated.

"There will also be costs associated with the lighting of the fibre and the provision of network operations, inter and intra regional backhaul and international connectivity. It is important that these additional costs are properly understood and accounted for in assessing the total commercial proposition and affordability for end users."

The company, which is involved in a bid to build a new trans-Tasman cable, then raises the issue of international bandwidth.

"To obtain the full benefits of a FttP [fibre to the premises] network, users will need to be allocated significantly more international bandwidth than they are currently. A careful comparison of the costs of international bandwidth against the willingness to pay of end-users for higher speeds needs to be made in order to determine what levels of international bandwidth costs can be profitable for retailers. To the extent that there is limited competition in markets for the provision of international bandwidth and this is leading to high prices, this issue could be addressed either by regulation or by investment to relieve the supply constraint."

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