The New Zealand Institute suggests in its final report on broadband that a single company be given monopoly ownership of “last-mile” connections between exchanges or street cabinets and user premises.
Existing telcos, utilities, local and central government and other private investors would have shares in the hypothetical company, christened FibreCo, and contribute resources, including fibre ducting and electronics to the company’s operation.
FibreCo would be price-regulated by government and required to give all service providers equal access to its network.
Although this effectively creates a monopoly over the physical links, it does not lessen competition but merely relocates it, says NZ Institute head David Skilling. “This is service-based competition, not infrastructure-based competition.”
Multiple competing sets of infrastructure will not work in New Zealand with our small and comparatively sparse population, Skilling says. “It only works in places like Hong Kong, where you have a large population concentrated in a relatively small area.”
FibreCo would take ownership not only of fibre but also of the copper-wire network currently mostly owned by Telecom, says the institute. The reason for this is to ensure an orderly migration of service providers and their customers from copper to fibre, to the point where the copper network can be discontinued.
NZI envisages an infrastructure monopoly will only be necessary in the last mile. In backhaul (between the exchanged and the core network) the core itself and overseas links, competition in infrastructure is already stimulating an orderly enough market and low enough costs, Skilling says.
It could be argued that a single last-mile network would create vulnerability, with one errant digger able to cut off local customers of all service providers, Skilling agrees; but outside major cities this is the current situation anyway, with Telecom having monopoly control of the copper and any fibre installed, he says.
The report suggests that cheap and relatively low-bandwidth connections could be set up initially to wean users off copper-based DSL. The basic level of access suggested is 1 Mbit/s, but when Computerworld suggested this would be unlikely to move users off DSL, which offers comparable or greater speeds, Skilling said the figure was “hypothetical”.
The market for fibre-based services will have to be tested at low bandwidths initially, he says, to establish users’ real needs. “People say they want higher speed, but what are they willing to pay for it.”
The shell of FibreCo should be set up as soon as possible, says the Institute’s report and investors sought.
NZI envisages the FibreCo plan as meeting a target of 75% broadband coverage of the New Zealand population within the next ten years. It estimates this will cost between $4 billion and $4.5 billion.
Most customers would be commercially viable, the Institute says, but about $1 billion would be needed from the government to help serve the rest.
Skilling agrees that the NZ Institute plan has strong points of resemblance with Peter Macaulay’s Fibre Fund (Computerworld, March 3), “but his, as I understand it, is entirely debt-based; we see ours as equity-based; it’s just a different kind of financing.”
Macaulay sees private and public providers making proposals that would compete for a share of the fund, while the FibreCo plan envisages one stable company in which prospective providers of infrastructure would buy a shareholding.
“FibreCo is structured to provide commercially attractive returns for private shareholders, with the government as the investor of last resort,” says the NZI report.
NZI envisages the FibreCo plan as meeting a target of 75% broadband coverage of the NZ population within the next ten years.