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.
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
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.
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
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.