Tuesday, June 22, 2010
  Broadband panic sets in
There are signs of panic in the broadband arena.

It's now more than halfway through the term of this Government and the model brought in by Communications Minister Steven Joyce to roll out fibre to businesses, schools, hospitals and 75 per cent of New Zealanders over the next 10 years still hasn't delivered.

These things take time, especially when so much money is involved - not only the $1.5 billion the Government says it will pony up, but the matching investment from the private sector.

That's why it's important to get things right, especially since one of the reasons for the current lack of suitable broadband is regulatory failure, which has made investing in the New Zealand telecommunications sector so fraught.

Crown Fibre Holdings now has $400 million in the kitty to start signing contracts with private sector companies.

That should allow the new network to start rolling out on schedule, says Minister Joyce.

CFH intends to pick its preferred partners next month, and there is a lot of jostling for all that cash.

Power lines companies, especially Auckland's Vector, have been positioning themselves as the ideal network builders - power lines, fibre optic lines, what's the difference?

Canadian company Axia Net Media, whose presence in the race had many observers perplexed, has this month revealed itself as the front for Vodafone's bid for direct involvement.

And now Telecom New Zealand is offering to twist itself into whatever shape is necessary for its Chorus network division to grab a chunk of the cash.

This week's announcement that it was making a "thorough assessment of structural separation" was accompanied by speculation the real game was a sale back to the Government - 20 years and $20 billion in extracted dividends after privatisation. So long suckers, thanks for the cash.

There are people in the industry who think New Zealand has been waiting long enough for broadband, it won't hurt to wait a bit longer and make sure all the elements are understood and accounted for - or regulated for.

But the Key Government promised ultra-fast broadband, so it will want something to show in time for the next election.

That means its Crown investment company picking winners and losers, rather than letting the market do its work. Oh well, who ever expected ideological consistency from politicians?

Last week, internet New Zealand convened a summit under Chatham House rules under which industry and officials discussed some of the issues, particularly whether the layering rules made sense.

Should the regional fibre companies be restricted to providing layer one or dark fibre, as under current rules, or should they also be allowed to sell lit fibre two retailers, known as layer two services?

The lines companies want to diversify into a business where they can get higher margins than their current regulated space, Telecom wants part of whatever it is that will eventually replace its copper network, and Vodafone also wants a chunk of what is the major threat to its business.

Don't forget that Vodafone bought Ihug's internet business, and its massively profitable New Zealand operation gives it a huge war chest for subscriber acquisition.

Also understand that fibre everywhere will lead to an explosion in wifi, and smartphones will increasingly move off the mobile phone networks and onto the internet.

The other major player is Sky Television. Ultrafast broadband will replace the set-top box, but the pay TV model will remain. Network providers may struggle to earn back their investment, but content providers will rake it in.

The dominant position Sky has built up here (in large part because of poor regulation) means Rupert Murdoch will probably be the largest user and the largest earner from New Zealand's ultrafast broadband.

That makes the Government's decision to scrap the digital broadcasting review started by Labour look shortsighted.

Content is what will eventually sell fibre into every home and business.

So far there has been little appetite even where it is available, whether because of price, lack of compelling applications or just disinterest.

So will the Government buy back Telecom? I'm picking no.

It doesn't need to, because Telecom, with its existing capacity, probably needs to be part of the ultra-fast broadband network as much as Crown Fibre Holdings needs Chorus' existing network and army of trucks and technicians. Both sides will compromise.

It will also send a terrible political signal for the next wave of privatisations Joyce, John Key and Bill English have planned. Or a great one for investors.

Meanwhile, we're still waiting for that fibre to come snaking up the front path.
Adam, not sure who you are or what job you do, but you do make some rather incorrect statements here. You say Murdoch will reap benefits. How? His News Corp only owns 17% of SKY TV. The rest is publically traded. Why will fibre replace the Set Top Box? Do you know anything about IPTV and the bandwidth requirements? Do you know about encryption and the protection of their programming?
No I don't work for SKY, I'm an independant consultant who does know a lot about TV (both Freeview and SKY) transmission over fibre.
You can find me at and
John Nixon
Optical Network Engineering
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