Telecom and Vodafone’s bid to roll out the $300 million Rural Broadband Initiative will be hard to counter, says IDC analyst Rosemary Spragg. “Based on what we know publicly, Telecom and Vodafone appear to be in the best position to win it, but it will ultimately come down to the details of what they have proposed,” she says. The government is due to make an announcement – many are picking this week - on which of the three contenders are successful. They are a Telecom/Vodafone alliance, the Opengate proposal that is an alliance between Kordia, Woosh and FX Networks, and Torotoro Waea - an iwi consortium in partnership with Opto Networks. “Given the information available to date, the Telecom/Vodafone bid appears to be the most pragmatic of the three given the scale and capabilities of the parties involved, and in particular their ability to invest beyond the $300 million subsidy being offered through the RBI,” Spragg writes in an IDC paper. According to Spragg the biggest hurdle to the Telecom/Vodafone bid is “the political hurdles associated with what is being dubbed by some as an 'unholy' alliance between incumbents”. “The biggest question will be whether both operators will undertake to meet equivalence requirements on both RBI-subsidised and existing infrastructure necessary to deliver retail services to end users. Equivalence will ensure that all other access providers - not just Telecom and Vodafone - face exactly the same prices, terms, conditions and systems in rural areas,” Spragg writes. “IDC expects the other two bidders will leverage this concern regarding the competitive impact of the Telecom/Vodafone bid, to promote and differentiate their own proposals. However, in order to be successful, these bidders must also satisfy the government that they are able to equal or better the Telecom/Vodafone proposal with respect to coverage, speed, resilience and pricing - can they provide the certainty of outcomes that the government is clearly looking for?” Opengate have employed the services of consultant Ernie Newman, the former TUANZ CEO, who wrote in Kordia’s customer newsletter in December about the Opengate proposal. “It’s solid, competition-friendly and inclusive. It offers very good speeds. Unlike some bids, it adds to competition in rural New Zealand, rather than shutting it down.” Meanwhile Torotoro Waea’s appeal is that it is a bid focused on rural Maori – it promises to add 1000 marae to the list of schools that will be connected to rural fibre. Linked to the proposal is the Maori bid for 4G-friendly spectrum that will be freed up after the switchover from analogue to digital TV in November 2013. Spokesperson Antony Royal says that spectrum is a separate issue, but he told Computerworld in November, “there is a natural link at some point, with talks about what is the best way to manage the spectrum the government is about to release.” The RBI is funded in part by a $48 million taxpayer grant, the remainder is from an industry levy. It is administered by the Ministry of Economic Development and the goal is to provide fibre to 97 percent of rural schools and a minimum 5Mbit/s broadband service to 80 percent of rural households within six years. In the first year of funding up to $100 million will be available and, according to the timetable in the RFP, contracts with the successful bidder are expected to be signed by 28 February 2010. The levy replaces the TSO, which was previously given to Telecom as compensation for maintaining uneconomic rural customers. However, Spragg says that the new levy won't alter Telecom's obligations under the TSO to provide a rural phone service, regardless if it's RBI bid is successful. "Telecom is still bound by all of its TSO obligations, including the obligation to provide a rural phone service at a capped price (the price can only increase in line with inflation)," Spragg says. "This does not necessarily mean it will be the same price as urban users because Telecom is able to price below the cap (as they do in the larger cities where they face infrastructure-based competition), but they are unable to price basic telephony services above the cap. Basically all that has changed is that, in effect, Telecom will no longer receive compensation for meeting its TSO obligations."
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