Forum: Gaps in broadband plan exposed

Does the business case stack up for private sector investors?

It’s hard to make a compelling financial case for the government’s proposed fibre-to-the-home plan, despite a paper prepared for cabinet describing it as an attractive investment structure for private sector investors.

The government will contribute around $1.5 billion to a 10-year project that the cabinet paper says will cost between $3 billion and $6 billion. That’s a pretty wide parameter the private sector is expected to pick up.

Telco experts Computerworld has spoken to put the likely cost at the top end of the range.

The government’s $1.5 billion will be capped over six years, the same period which is intended for priority users such as health and education to move to the service.

Communications minister Steven Joyce says in a foreword to his recent announcement that benefits of between $2.4 billion and $4.4 billion have been identified.

He doesn’t say by whom.

There are approximately 1.5 million homes in New Zealand and it’s proposed to, eventually, connect 75% of them.

It’s estimated that 20% of homes don’t have a personal computer. For those who do, there is no triple play (voice, video and data) available because of the high penetration of Sky television, which has soaked up a huge amount of the potential revenue for content services.

Surveys overseas — Singapore is an example — show that fewer than 20% of homes need 100Mbit/s, evidenced by the relatively low take-up of high-speed bandwidth.

A local survey indicates New Zealanders are not prepared to spend much more than $50 a month on additional services.

It has been suggested that the average cost of connecting a home in New Zealand will be $3,000 to $4,000.

As well, there’s the question of finding enough resources to do the trenching where it is required. Fibre currently costs around $30 a metre to lay, with two thirds of that cost is in the trenching.

Broad though these figures are, they don’t suggest an adequate return for private investors. Particularly given that it is proposed to have contestable regional tenders, which will mean the establishment of up to 25 local fibre companies, some serving populations of less than 30,000.

The cabinet paper suggests the major bandwidth driver will be high-definition IPTV. It expects sufficient consumer demand to be commercially viable in the long term. There are no published numbers supporting that expectation.

Parliamentary sources told Computerworld last year that finance minister Bill English was overheard at a function prior to the election saying that National thought its broadband promise was a vote winner but hadn’t realised how difficult it would be to deliver.

But monetary return isn’t everything. There is an expectation among the public that fast internet is a “right”, a reaction which is typical of any new technology that becomes pervasive. There are few homes today that don’t have a cellphone or a landline connection.

People demand the ability to communicate and, as such, technologies become part of the social infrastructure. That doesn’t appear to have been specifically recognised in the draft proposal.

In a media release announcing the proposal Joyce stated: “It’s essential we get it right the first time.”

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Tags Networking & Telecomms IDSteven Joycebroadband

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