The Minister of Communications and Information Technology, Steven Joyce, has today confirmed the rumours that the joint Telecom/Vodafone (Vodacom) bid is the preferred winner of the Rural Broadband Initiative (RBI).  The government will now enter negotiations with Vodacom and expects formal contracts to be signed "this quarter".

Most rural people will be disappointed with this announcement.  The promise of speeds greater than 5Mb/s for 80% of rural households and businesses within 6 years, falls a long way short of what urban users already take for granted.  That many rural users will gratefully accept these speeds as a step-change improvement is more an indictment on Telecom's corporate imperatives than it is a reflection on the value of Vodacom winning the RBI. 

The urban UFB program is promising 75% of New Zealand's population, speeds of at least 100Mb/s within 10 years. So the Vodacom winning bid does nothing to eliminate the growing urban/rural digital divide.

Mr Joyce makes a great play on the timings - 6 years for the RBI against 10 years for the UFB, but ignores the indications from Torotoro Waea and from Opengate that they would achieve the objectives much earlier.

Whilst Vodacom's pricing has not been released, it is believed that rural users will be charged around $100 per month.  This compares to a competing bidder's indicative pricing of $60 per month for the same level of service.  So from which perspective does Mr Joyce think that this winner will "...achieve the best value we can for rural communities and taxpayers"?

Mr Joyce justifies handing Telecom and Vodafone $285M of taxpayer's money on the basis of the Vodacom bid being the only one that extends mobile phone coverage and the one that uses "proven existing technologies." 

Whilst mobile broadband usage is growing explosively, mobile coverage was never a requirement of the RBI objectives.  Winning the RBI represents a significant financial subsidy to both Vodafone's 3G and Telecom's XT mobile services.

And the infrastructure technologies being offered - fibre cable and radio towers - are no different from what other bidders would use. Further, unlike urban areas, there is not a lot of Telecom-provided fibre in rural areas.  Chorus have not invested a lot in rural fibre cables, so there is little argument around existing technologies to favour the Vodacom bid.

Mr Joyce expects that Vodacom will ensure healthy competition by providing 'open access' to its infrastructure.  The difference between 'open access' and 'equal access' will be highlighted when competing ISPs vie for the prime one or two spots on the towers against the two companies that are providing that infrastructure.  There are many who argue that Telecom has already demonstrated an ability to work with Commerce Commission laws that attempt to regulate its non-price anti-competitive actions.  It is noted that the UFB specifically avoids such anti-competitive potentials by disallowing the infrastructure provider from also being a retailer.

The Minister's announcement sacrifices the aspirational goal, announced in September 2009, for a step-change in broadband provisioning.  Political expediency is the most likely reason.  Whether this expediency is about the costs of it's aspiration's or whether it is about other things yet to be disclosed, only time will tell. 

Rural Connect's prediction is that the government have decided to re-nationalize Telecom's Chorus business unit as a national infrastructure company and this decision simply paves the way for an announcement once Telecom's full separation is negotiated.

The full press release from the Minister can be read here.