Australia returned a Labour Government this week and whilst there is some debate about the likely longevity of that government, at least programs like their NBN (National Broadband Network) are back on track.
The political football in Australia was the commitment to spend $43Bn of taxpayers money on the national broadband network. That's a lot of money with little or no economic justification for spending it beyond a leap of faith that benefits would, in time, accrue. In the elections, the NBN became an election issue and the party that stuck to that $43Bn commitment would be the one to go unelected. The Labour Party came to the realization that urban fibre connections are capable of a 10% - 15% return on investment. And so the government did not need to subsidize private sector investment in urban broadband. Instead, the Australian government are committing $11Bn to rolling out fibre-to-the-farm in rural areas where there is not a viable economic return on investment to be made.
The deal-maker that persuaded the Independents to back Labour was a change to the NBN policy that gave priority to rural areas over urban ones. Not only does the deal keep city broadband users waiting longer for fibre-to-the-premises whilst fibre is rolled out to their country cousins, it also means that city users will be cross-subsidizing rural users. The result is that the Australian government are spending $11Bn on rural broadband and are still within the central NBN policy.
Hooray for the common sense that Australian politicians are displaying! Oh that New Zealand politicians could display the same!
The New Zealand government have announced the first local fibre companies that will partner the government-owned Crown Fibre Holdings to provide fibre-to-the-home in urban areas. Those local fibre companies will receive a loan under the UFB (Ultra Fast Broadband) investment initiative that must be paid back as customers are connected to the new network. The goal posts for the Rural Broadband Initiative (RBI) have just been changed and it will not be until November that we know whether Telecom Chorus or the NZ Regional Fibre Group (NZRFG) will be successful in being the recipient of a $300M funding gift.
The UFB investment approach is good because it helps reduce the risk to private companies supplying the new fibre network in urban areas. But is it right?
If Australian fibre companies can realise a 10%-15% return on urban fibre investment, can New Zealand companies achieve the same? If they could, then our government would not have to spend $1.5Bn satisfying an unknown demand for urban fibre from a population that already have access to broadband. Some of that money could be re-committed to rural fibre where a $300M spend is far from sufficient. Our own broadband demand survey indicates that demand for high speed broadband does exist in our rural communities. Particularly from those who have been told that broadband is not going to be available because it is not economic to provide it or because there are no circuits.
If the New Zealand government changed their UFB and RBI policies, then our rural communities would get true high-speed and future-proofed broadband in a timely manner. The developing urban/rural digital divide would be eliminated which would reverse the migration of rural people from rural area to cities and enable economic growth in country areas. And save our country a heap in interest costs at the same time.
Another aspect of this is that in Australia, Telstra have been promised that $11Bn funding. The same could be applied in New Zealand where Chorus2, once separated from Telecom, looks to be the likely recipient of the RBI's $300M. But an even better solution is to retain the competition in fibre cable infrastructure that has brought some households high-speed broadband at a very affordable cost, and give the funding to the company that tenders the lowest price. There are only two competitors - Chorus2 and the NZ Regional Fibre Group which is represented in Franklin by Counties Power.
Then we would be more likely to see that future-proofed fibre-to-the-home network rather than the more limited fibre-to-the-node plus ADSL over copper to the home network that Chorus2 would focus on.