NZ telco report rejects $1.5bn NBN

NZ telco report rejects $1.5bn NBN

Summary: The New Zealand government's plan to spend $1.5 billion subsidising fibre-to-the-home broadband is not an effective use of public money, according to a report commissioned by major New Zealand broadband providers Telecom NZ, Vodafone and TelstraClear.

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TOPICS: Telcos, New Zealand
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The New Zealand government's plan to spend $1.5 billion subsidising fibre-to-the-home broadband is not an effective use of public money, according to a report released by major New Zealand broadband providers Telecom NZ, Vodafone and TelstraClear.

John Key

NZ Prime Minister John Key
(Credit: NZ National Party)

The report, completed by consultancy Castalia, thumbed its nose at the government's policy. Although it acknowledged that broadband signified a benefit to New Zealand's finances, the report said NZ Prime Minister John Key's bucket of cash would not improve upon the likely benefits of $2.5 billion in an already committed industry investment which will provide 10 to 20Mbps to over 80 per cent of New Zealanders before 2012.

"Our analysis of the speeds required by consumer applications suggests that the costs of a policy which immediately subsidises a widespread roll-out of fibre-to-the-home would likely exceed its benefits," the report said. The planned NBN would cover 75 per cent of the country's population.

Although the 10 to 20Mbps speed which the market will achieve on its own lies significantly underneath the 100Mbps which New Zealanders would reach with fibre-to-the-home, the report considered the extra speed to be non-essential.

It examined research carried out by the New Zealand Institute which placed the financial worth of a fibre-to-the-home roll-out to be between NZ$2.7 and NZ$4.4 billion per year, while that of market investments sat at around NZ$0.9 to NZ$1.5 billion per year, meaning the government's NZ$1.5 billion would create an extra NZ$1.5 to NZ$3.5 billion in worth, coming from telepresence, digital media, storage and manipulation of data, remote working, and healthcare and education.

The report considered, however, that education and health benefits would be more effectively realised by deploying fibre selectively to hospitals and schools instead of a blanket roll-out.

It also considered that much of the benefit would be achieved by providing links to businesses, which would likely be serviced by the market investments.

"When we look at the current and emerging applications, it is striking that the key differences between the [plans] lie in improved access to high-definition television services," the report said. "To the extent that these services are mainly used for entertainment purposes, it is difficult to see what public benefits may arise."

The report considered the move from ordinary videoconferencing to high definition to be small. "In any case, high levels of consumer site investment which would be required to take advantage of this benefit would likely preclude it from arising unless consumers perceived significant private benefits."

"Overall, we conclude that, following the considerable improvements already being undertaken, the widespread roll-out of fibre-to-the-home would deliver only a small improvement in New Zealanders' ability to use the existing and emerging internet applications over the market counterfactual," the report said.

It is striking that the key differences between the [plans] lie in improved access to high-definition television services.

Castilia strategic advisors

Even if fibre was laid between cabinets and premises, which the report estimated to cost $6.2 billion, were to be built, there were still bottlenecks which would hold broadband back. These included the price of international bandwidth, the fact that homes were still outfitted with copper wiring and the lack of consumer appetite to pay high prices for broadband.

In addition to the almost $5 billion outlay for the builders, there would also be costs incurred relating to investments already made by telecommunications companies which would be stranded. "A key challenge for the government will be to ensure that policies to encourage high speed broadband do not displace private investment in improved services, but instead build on existing and planned investments," the report said.

Instead of the lump sum investment, the report called for the government to form a partnership with industry to work with targeted subsidies towards combined goals which it believed would not only reduce the risks of a government outlay but ensure that the goals the government has been trying to achieve were met.

Topics: Telcos, New Zealand

Suzanne Tindal

About Suzanne Tindal

Suzanne Tindal cut her teeth at ZDNet.com.au as the site's telecommunications reporter, a role that saw her break some of the biggest stories associated with the National Broadband Network process. She then turned her attention to all matters in government and corporate ICT circles. Now she's taking on the whole gamut as news editor for the site.

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2 comments
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  • Dullards

    I've read the report. It could have been written in 1983. Seriously.

    It is a typical product of cardigan-wearing economists with conceptual blinkers on, and with absolutely no grounding in technology or the realities or potentials of the tech marketplace, or the way the demand side of the current online world is running. As a piece of modern, sophisticated, worthwhile economic analysis it's failings are legion. There are so many omissions, gaps, oversights & dumb assumptions in there they should be embarrassed to release the document.

    But they were paid to produce FUD and they delivered that well enough. Take it with a huge grain of salt everyone.
    anonymous
  • dubbleyoo-tee-eff

    i can accept some of the arguments (not all tho) made.

    when it is declared "the widespread roll-out of fibre-to-the-home would deliver only a small improvement in New Zealanders' ability to use the existing and emerging internet applications over the market counterfactual," one has to ask over what timeperiod.

    over 6 months? sure that would be true enough, in 6 months of outlet you WOULD only expect a small benefit. in that period of time there would not be a whole lot of non business takeup, particularly in terms of the size of the NZ market.

    over the lifetime of the fibre run though? isnt that the important question? especially as fibre is expected to last for longer given equivalent amount of maintenance vs copper? i.e. better bang for buck?

    "The report considered the move from ordinary videoconferencing to high definition to be small" i regard as a pile of steaming hippo poo.

    i do admit i dont use corporate videoconferencing units; and i am not altogether au fait with *all* the video codecs ot there (H.263, mpeg4 and divX being what i would regard as the commonly licensed and used codecs), but "ordinary videoconferencing" i regard as VGA rates (640x480x30 or 60 frames depending on format)

    you can expect that VGA content to use a hell of a lot less outright pixels than 1280x720x30 FramesPerSecond or even full HD, 1920x1080x30fps.

    its easy to show; do the math. VGA (640x480)= 307200 pixels refreshed at say, 60x a second.... that is nowhere near 720P (1280x720)= 921600 pixels, refreshed at 60x a second. there is significantly more data to concern oneself with.

    even after crunching down with an impressive codec (the aforementioned ones) the compressed codec for VGA video is still likely to be three times as small as the compressed 720p, and be three times faster sending over a given connection as the 720p file.

    and significantly lower in quality, but probably not three times as bad :P

    alternatively you could use three times the speed (fibre anyone?) to send the larger data packet in the same time or less than the original lower resolution data, with a MUCH better image.

    as far as "benefits exceed cost" argument, the fact that there has for a long time been an encouraging effect to the public with higher speeds being offered should be considered; historically even in CBD areas it wasnt long after new tiers of speed were offered that those who could pay for it were doing exactly that and availing themselves of it.

    just because it is expensive to lay cross-country fibre NOW (at least expensive in the distance vs cost ratio applicable to NZ) doesnt mean there are not commensurate rates that geeks (asides from bleeding edge tech businesses) are happy to pay for. and have paid for.

    i dont expect this to be any different this time around than the previous waves of speed increases; and there have historically always been those willing to stump up the cash for something that others cant have no matter the region or territory.

    hell theyve done it in estonia and so on; have a look at their connect rates and costs now.

    there are always SOME who deem it valuable; almost regardless of the cost incurred.... just cos they can.

    i think in the end higher resolution imagery makes a difference to a variety of industries (im thinking drafting and house/architectural design, printery, surveying (civil enginering) and so on).

    its amazing how many of those kinds of small businesses use a home or SOHO data provider to shuttle that data around as compared to those using a 'full business' ISP/provider, just because it is cheaper.

    especially in this day and age where the budget has become an oh-so- important item. restricting growth his way will have a knock on effect.

    i have to agree; this very much reeks of FUD.
    anonymous