To the point: it's time to find the middle ground on broadband

Radically different approaches from political parties could delay progress

First the good news: broadband growth is now high on the political agenda, with recognition that a collaborative approach is needed if we are to create a world-class telecommunications infrastructure.

Now the bad news: broadband is high on the political agenda — and with it has come the usual vocal grandstanding, ringside sniping and partisan flag waving obfuscating the real issue which is simply this: how can New Zealand extend fibre deployment without undermining the industry or creating a whole new regulatory quagmire?

The National Party’s proposal for a nationalised fibre-to-the-premises network is the most direct but also most disruptive route: bulldozing through the existing roads and railtracks to create one new fibre highway, constructed with a mix of public and private money.

The Labour Government, by contrast, is giving the financial and regulatory tools to build bridges, widen the roads and create new highways. One is transformational, but risks being highly disruptive — the other is slower, more incremental but also consistent and supportive of the groundwork to date.

So which is best? The political answer is, of course, both solutions are quite different, each with their own merits and weaknesses.

National’s proposal is quite literally transformational and, if implemented, has the potential to meet their economic and social objectives. But it effectively proposes a re-nationalisation of the network, which would have far-reaching — and potentially unintended — commercial consequences.

Details are, of course, still scant. Nevertheless the proposal raises of a host of challenges. Firstly, it fundamentally changes the market, undermining all existing and future investment in alternative technologies. New Zealand becomes locked in to one broadband solution — while it may deliver speed, it would discourage new technology investment in a technically fast-moving sector.

Further, wholesale and retail markets risk getting out of sync and becoming disconnected. Distancing network investment from end-user influences means the network developments may fail to keep pace with market changes.

Third, fibre is future-proofed, true, but an entirely separated company running the network as a monopoly, regulated at cost, may have few incentives to innovate its inputs and meet downstream company’s demands. The risk is that the industry moves to a lowest common denominator service approach. Even with a regulated return on investment, there is a risk the network company, in time, fails to keep pace with dynamic industry demands.

Fourth, regulated access prices would need to strike a delicate balancing act between providing a high enough rate of return to satisfy shareholders and encourage network investment, whilst being low enough to encourage competition. This would take time and careful calibration.

But the biggest issue is that this new fibre highway, in the form currently discussed, risks bypassing and stranding all the work of the past two years — the regulatory changes, the operational separation of Telecom, the $1.4 billion cabinetisation programme, the unbundling work underway by competitors, the new fibre backhaul planned by utilities — before it has a chance to work.

By contrast, the government’s budget plans — unsurprisingly — continue to build on its competitive and regulatory architecture. Its $325 million package offers a mix of sponsored, facilitated and direct investment to encourage urban and rural broadband growth and international cable capacity. Rather than being transformational, it is business as usual — a slow road to growth but technology neutral and encouraging industry collaboration.

Yet that, of itself, is not enough. IDC does not believe the government’s current plans will meet its goal of propelling New Zealand into the top quartile of OECD countries: indeed IDC’s analysis shows that by 2012 it will simply allow us to catch up (or at least lessen the gap) between ourselves and other developed broadband markets.

Which is why New Zealand, with all of its geographic and scale limitations, must continue to debate how it can logistically support continued fibre deployment. But that doesn’t mean a quick economic (or election) fix is the answer either.

A sustainable proposal must address the implications for New Zealand’s existing competitors and installed network base. It needs to be founded on an understanding of the commercial implications and have built in safeguards to enhance rather than inhibit competitive growth and investment.

And, alongside preparing for short-term benefits, it must also forecast and mitigate against potential unexpected outcomes that could raise a raft of new competitive and regulatory problems in the future. Let’s hope we can find a middle ground

Nelson is telecommunications research manager for IDC New Zealand .

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