A Rural Broadband Solution

New Zealand aspires to have a national high speed broadband network that restores the country's placing in world rankings for connectivity and achieves the economic gains touted. Achieving that goal requires some changes to the government's process. The problem is to whom and how much does the government fund broadband infrastructure. That government funding is needed to remove investment uncertainty and ensure a timely provisioning is clear.

One part of the solution is about providing for both Telecom Chorus and local power lines companies to compete equally to provide fibre cable in both urban and rural areas. Another part is to re-allocate UFB funds from fibre companies to users. To do this, the government's urban UFB process need changing.

When it comes to providing high speed broadband throughout New Zealand, the government face a number of dilemmas that are now delaying the implementation of a long-promised solution to our economic woes.

First is that high speed broadband is a transformational technology the benefits of which are difficult to quantify. Economists are saying that $1.8Bn is too much to spend without there being a clear business case. The government see ubiquitous high speed broadband as a necessary component to restoring New Zealand's economic standing in the world and particularly in relation to Australia.

From an economic development perspective Rural Connect is clear that high speed broadband is as important today as were electricity networks 100 years ago, so an investment in high speed broadband must proceed and it must do so today.

Second is about who should fund that broadband network – the taxpayer or the businesses that will earn an income from it? The Australians have shown political pragmatism in their election result by changing their NBN program so that investors fund the urban networks where a 10% - 15% return appears achievable. This leaves the taxpayer to fund only the rural areas where economic returns cannot yet be demonstrated.

The same solution is available to the New Zealand government. Re-directing some of the urban UFB's $1.5Bn funding from urban to rural areas means that more households and businesses will get connected more quickly and at less cost to the taxpayer. In particular, it would mean that rural users without any access to broadband will not have to watch and wait while fibre is rolled out to those who already have DSL broadband. Shifting the funding to areas of need rather than want would also avoid the creation of a urban/rural digital divide that would be detrimental to New Zealand's economy.

Third is about the demand for high speed internet. Broadband uptake in New Zealand is high but will users upgrade to the new network to make the investment worthwhile?

The Australians have removed some investment risk by subsidising the NBN connection fee to make it free for a limited time. There is no good reason that New Zealand should not adopt a similar approach using some of the $1.5Bn redirected from the urban UFB.

Fourth is about the government needing to avoid destroying value in one of New Zealand's largest public companies. When Crown Fibre Holdings announced the first tranche of local lines companies with which they would negotiate under the UFB investment initiative, Telecom's share price immediately fell by 6%. The price has since recovered but therein lies a lesson for what might happen if Telecom were not part of the broadband solution.

Next week, Rural Connect will look at the impact of government regulation in the telecommunications sector.