The benefits of reducing the digital divide are easily gained but are available only if the government has the will to do so.
In a move long trumpeted, the government have confirmed that the 700MHz digital dividend spectrum will be auctioned off to registered bidders.

The announcement last week also confirms the loss of an opportunity to reduce the growing urban/rural digital divide.  Instead, Amy Adams is enforcing a widening gap between the broadband speeds, reliability and data caps of rural people, compared to their urban cousins.

The digital divide suffered a rapid growth spurt last week with Chorus’ announcement of a competition to make one New Zealand town the “best-connected place in the Southern Hemisphere.”

Chorus’ “Gigatown” is a national competition to determine which New Zealand town will become “the first in the southern hemisphere to receive one gigabit per second (Gbps) broadband speeds.”

A speed of one Gbps, or 1,000 Mbps, is up to 100 times faster than that available in most cities around the globe.  It is ten times faster than the speediest Ultra Fast Broadband (UFB) data plan.  It is more than 200 times faster than the government’s Rural Broadband Initiative (RBI) will deliver to rural people.

This move by Chorus is a fantastical demonstration of the innovations that occur where competition is allowed to thrive.

Not that Chorus has a need to compete.  As a monopoly infrastructure provider, its motivation to push the broadband speed envelope has more to do with garnering interest in its faltering ultra fast broadband rollout.

Chorus expects the winning town to be announced early in 2015.

Amy-Adams-trumpetAmy Adams expects the winner of the 700MHz spectrum auction to be announced in November this year.  Exclusive access rights to the spectrum will be available for 18 years from 1st January 2014.  However services may not be rolled out from that date because of a lack of compatible smartphones.

The Minister has set a reserve price of $22 million for each of the nine pairs of 5MHz spectrum to be auctioned.  This values the spectrum at $198 million, well ahead of Treasury’s $119 million valuation and at a handy profit to the $157 million cost of clearing the band.

The government may reasonably expect the spectrum to sell at a premium to the reserve price because of competition pressures.  This comes from 2Degrees which needs the new spectrum to be able to effectively compete with the Telecom – Vodafone duopoly but lacks the deep pockets of those telcos.

The downside of a higher auction price is that retail prices will be higher.  Which means that rural broadband services provided over the new spectrum will cost rural people even more than current RBI prices.

The effect is that while urban people are benefiting from price falls in the move from copper to fibre services, rural people will see price increases in the move from 3G to 4G services.

The consequence is that the urban/rural digital divide will widen.  Which is entirely due to government policy.

The government has invested $1,500 million on the 75% of the population served by the urban UFB program.  Investing the $157 cost of clearing the 700MHz spectrum on the remaining 25% of the population, offers great value to all parties.

Competition would be provided for.  Telcos would not have to recover the cost of the spectrum so rural people would get lower broadband prices.  And using the 700MHz band for fixed rural broadband services, would provided a service quality on a par to entry-level UFB services.

The benefits of reducing the digital divide are easily gained but are available only if the government has the will to do so.