Need is for less regulation and more competition. Now.

Last week, Rural Connect looked at aspects of the government's high speed broadband initiatives and proposed that the UFB and RBI processes needed re-working.

We argued that broadband is a transformational technology that is crucial to the economic development of our district. We compared the broadband programs of New Zealand to Australia. We considered that the government would not want to destroy value in Telecom NZ.

This week we look at the government's need to regulate the telecommunications sector and how that impacts on the urban UFB and rural RBI programs.

The government passed legislation that required Telecom to separate its business functions into a lines division (Chorus), a wholesale division (Telecom Wholesale) and one or more retail divisions. The operational separation agreement required Chorus to invest in a fibre-to-the-node network in all towns and cities with greater than 500 lines. Chorus, now more than half way through that fibre program, have hundreds of kilometres of fibre in the ground making the economics of a fibre-to-the-home project even harder to justify.

Rural areas were not covered although Telecom did subsequently give an undertaking to invest in rural infrastructure.

Subsequent to the regulations, the government announced investment programs to install fibre-to-the-home in urban areas (the UFB) and in rural areas (the RBI). The aim was to provide investment funding for fibre projects that could not demonstrate a return on investment. Telecom Chorus was precluded from bidding for the $1.5Bn UFB funds because the parent company also has a retail arm. The RBI program does allow bidders to also have a retail arm.

To make Chorus eligible for that funding, Telecom has proposed to divest itself of Chorus and whilst the government consider this proposal, the UFB implementation will likely be delayed.

In the rural RFB program, the goal posts were shifted last month when bidders were told that only national bids would be considered. This left only two effective bidders – Telecom Chorus and the local power lines companies.

Many of the gains we have seen in rural broadband provisioning have occurred simply because competition was possible. Rural Connect has previously referred to Opto Networks and the benefits to farms in the Awatere Valley and in the Wairarapa who now have a fibre connection at a very favourable price.

This level of competition must at least be maintained and a national fibre roll out without the direct involvement of Telecom NZ is inconceivable.

So what must the government now do?

First, those rural areas that do not have access to broadband must be the first to have fibre rolled out.

Second, the requirement that Chorus must complete its fibre-to-the-node project must be cancelled.

Third, the principle that competition is good must be asserted and then both Telecom Chorus and local lines power companies must compete for a share of the funding handouts on offer.

Fourth, the requirement in the UFB that successful bidders not have a retail operation must be removed. Changing technology means that telecommunications infrastructure is no longer a natural monopoly and making this change will eliminate delays in the UFB process.

Fifth, the regulations that Chorus operate under must be reviewed to put them on the same footing as the local fibre companies.

Sixth, Telecom Retail must be put on the same side of the table as all other ISPs by making it a customer of Crown Fibre Holdings.

Seventh, the UFB program must be modified so that those urban projects that will achieve a return on investment of greater than 8% not receive any funding.  The money saved must then be redirected to provide for free connection to the fibre network to ensure that it is used.