It must have been a sweet, if short-lived, moment of political glory. On March 31, the government announced its $1.5 billion national broadband strategy. Its vision: to connect 75% of New Zealand to fibre-based broadband over the next decade through a matrix of 25 regional tenders. Bold, groundbreaking, high risk — and quickly eclipsed.
A week later, the Australian government re-launched its National Broadband plan, this time a great ‘Wall of Fibre’, reaching 90% of Australia over eight years. The price tag: an eye-watering A$43 billion (NZ$54 billion), with the government a 51% owner with a direct investment of A$4.7 billion, and the balance provided through infrastructure bonds and private investment. The network will be privatised after five years.
Once constructed, it will be the largest network of its kind anywhere in the world. Suddenly New Zealand’s $1.5 billion began to sound like pocket money.
To only focus on the scale differences between the two proposals, however, misses a crucial point: collectively the New Zealand and Australian governments are totally changing the current policy paradigm. This is a momentous step: by choosing to directly intervene, they are changing the nature of the game, the players and the goalposts.
Think back to the liberalisation and privatisation of the 1990s and earlier. The policy pendulum swung away from direct government investment in and ownership of telecommunications infrastructure. In Western markets regulatory levers were pulled to deliver competition. Market forces primarily dictated the nature of the game: intervention was to reactively redress market failure or fill the gaps where commercial incentives failed.
This approach has delivered competition but also complexity, particularly in fibre. The regulatory trade off between encouraging fibre investment and allowing a commercial return whilst fostering competition and preventing re-aggregation of significant market power is increasingly challenging.
Now we see a swingback of the pendulum. We have the Australian and New Zealand governments saying, in effect, that broadband is critical to our economic and social future and the market will not, of itself, deliver what is needed. They are intervening to re-nationalise fibre networks and commoditise broadband by making its most raw dark fibre component available to all access seekers. They show themselves willing to carry risk and overbuild existing infrastructure and planned private investment.
The good news is that, if successful, these initiatives will bring fibre to New Zealand and Australia on a scale and within a timeframe that would otherwise be impossible. It will open up broadband access to new types of player, will allow new types of services delivery and bridge the growing digital divide.
It changes the model for fibre to that of a long term utility, recognising that services, demand and revenues may take much longer than anticipated to emerge. And it will force the sector to confront and adapt to the challenges of migrating from the copper network and service reliance.
But we cannot ignore the risks of getting this wrong.
New Zealand has an increasingly effective competitive sector that is already investing over $3 billion in a market worth just $5.7 billion – without government incentives. Cabinetisation is already occurring on a scale unprecedented in other markets. We have international carriers investing significant sums of money in New Zealand.
The government’s fibre programme may — even unintentionally — profoundly impact on current and planned network investment and changes the nature of competition. It takes us into unknown territory and puts the government into the role of arbiter of the fibre business case. Get it right, and the rewards will benefit New Zealand. Get it wrong and we risk a bureaucratic morass which stalls rather than stimulates broadband development.
In Australia, the stakes are even higher. The dramatic shift from a negotiated cabinetisation programme to a government-driven full-fibre solution has blind-sided the market. The Australian government is effectively forcing all infrastructure players to the negotiation table – and saying those that don’t choose to participate will be left in the cold.
At the same time it is planning regulatory reforms that push Telstra into structural or operational separation, will limit cross-media ownership and give the Australian Competition and Consumer Commission the effective power to declare any and all access infrastructure as open to regulation.
Is anyone else looking at this and going “whew”?
We have to remember that both announcements are, at this stage, just that. Nothing is set in concrete. There is still a long way to go before the fibre plans shift from rhetoric to reality. Nevertheless we have to read the writing on the wall. The network is becoming an increasingly shared open access resource: this changes competition and business models.
The current global economic situation creates the opportunity for dramatic decisions in the name of economic stimulation: this changes the economics of fibre investment. And now our governments are showing themselves willing to carry the risk and directly invest in fibre, with or without industry support.
The question now will be whether the industry resists or opts in to find the most pragmatic and sustainable route forward. The world will watch with interest.
Nelson is research telecommunications manager with analyst firm IDC New Zealand