Challenges abound for NZ fibre rollout

Current plans overly optimistic, says InternetNZ report

A Fibre to the home rollout in New Zealand will be beset with challenges that cast doubt on the viability of some of the proposals, an InternetNZ report released this week shows.

Difficulties with an FttP broadband network range from the cost of trenching, through the estimated life of equipment (and therefore the willingness of backers to invest) to the task of attracting sufficient customers to a well-priced option with reasonable data allowances, the report (pdf) says.

Digging trenches to hold at least some of the fibre cables is one of the biggest expenses of deploying a nationwide hetwork, says the report, commissioned by InternetNZ from Network Strategies. Some economies have been gained overseas with microtrenching – putting the cables in a thin saw-cut in the road-seal; but the seal on many New Zealand roads is simply not thick enough.

Microtrenches typically measure a few millimetres wide but at least 100mm deep. Many of our minor roads would not take that depth without risk of crumbling, says the report.

Network Strategies surveyed suggested solutions put forward by political parties before the election and those of independent organisations and finds many unrealistically optimistic.

Prime Minister John Key famously promised at least to get a good start on the nationwide fibre-to-the-premises network – taking in “business premises, schools, health facilities and the first tranche of homes” within six years, for $1.5bn of government money, matched equally by private industry. That would only get the cable, Network Strategies suggests.

“If the scenario were possible in New Zealand, we consider that the total of $3.0 billion would be sufficient to pay for an entirely microtrenched FTTP network to 75% of the population,” but this would exclude network electronics per-premises costs, such as connecting the premises to the cable (drop cost) and any necessary customer premises equipment (CPE), says the report.

Finance for this equipment will be more difficult to obtain, since it has a shorter life than the cable itself and backers will expect a quicker payback.

It is factors like this that lead Network Strategies to estimate the cost of fibre to the premises over 75% of the population at around $5 billion.

Network Strategies also picks holes in alternative proposals such as the New Zealand Institute’s FibreCo.

“NZI’s calculation of the breakeven point for the investment is very superficial and contains a number of questionable assumptions,” including: the timing of the assumed 67% take-up, assumed low operating expenditure and optimistic estimates of the life of assets such as electronics.

Crucial for payback is, naturally, the price that can be charged per month for the service and hence the extent of take-up.

In OECD market leaders, take-up is as high as 30 subscriptions per 100 population, but NZ is unlikely to reach that scale in the next few years, says the report; the internet market is near saturation and most broadband recruits are coming off existing dial-up connections. Many Kiwis, moreover, even some small businesses, have become used to dial-up or slow broadband and simply will not see enough additional value in switching to broadband.

The New Zealand situation is compounded by strict data caps with charges for excess consumption. In most overseas countries, unlimited broadband is available for a similar price to capped broadband here.

A more realistic scenario than a from-scratch build for FttH, the report finds, would be to use the infrastructure of utility companies such as electricity lines companies. Network Strategies calculates the cost of such a network as a little over $3 billion, with about half the investment met by government.

“These deployments tend to arise from either expanding the internal communications networks used by the company, or through taking advantage of the synergies with the company’s existing infrastructure, for example laying fibre at the same time as rebuilding or repairing parts of the power network,” the report says.

In the case of public utility companies, there tends to be more of a public good view taken, and this could result in acceptance of a longer payback period and a less onerous cost. The presence of existing aerial infrastructure also eliminates much of the trenching.

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