NZ telco report rejects $1.5bn NBN

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.

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.