Last week, Information and Communications Technology Minister Steven Joyce confirmed that the $285M of Rural Broadband Funding would be given to Telecom and Vodafone.

The government's decision to give the taxpayer subsidy to these bidders may be in the best interests of the taxpayer, is absolutely in the best interests of the government and of Telecom and Vodafone, but is it in the best interests of rural people and businesses?  

Rural Connect has long argued that, for many reasons, the Telecom/Vodafone rural broadband bid is not in our rural users' best interests.

The Minister’s announcement now adds four new aspects that make things even worse for rural households and businesses.

First, the statement says the project “...will be completed over the next six years”.  Whilst the rural broadband program has always been a 6-year project, it has also been presented as commencing when the initiative was announced on 16th March 2010.  So we were reasonably expecting the project to be completed within the next five years.  By the time this project is completed, it will have been over 12 years since the previous government started to address the rural/urban digital divide.

Second, the final contracts provide for an “upgrade path to 4G”. This implies one of two things.  Either Telecom and Vodafone are to offer new 4G “wireless” services.  Or the government have agreed in advance, to give Telecom and Vodafone access to the 700MHz “digital dividend” spectrum to enable their expansion in to next generation 4G/LTE mobile services.  Either way, this move hands Telecom and Vodafone a competitive advantage and indicates that the government may have negotiated with this bidder in a preferential way that was not made available to other bidders.

Third is the introduction of the word “peak” in the statement about having“...broadband peak speeds of at least 5 Mbps”.  This a significant change from the “at least 5 Mbps” speeds consistently quoted in the Minister’s press releases and speeches.  To demonstrate that significance, Telecom sell their XT mobile broadband service as offering a peak speed capability of 21 Mbps.  They do qualify this by saying that average speeds are expected to be around 4 Mbps.  On my XT Broadband service, actual average speed has never exceeded 2 Mbps and have been as low as 0.5 Mbps.  This is an actual average to peak ratio of 1:10 and if that ratio holds in the “vastly improved” rural broadband services, we should expect actual average speeds of one tenth of the peak - around 0.5Mbps.  This is a long way short of rural users “getting access to high speed broadband that compares well to urban levels...”

Fourth, whilst urban fibre pricing is not yet available, it appears urban users will be offered fibre to the premises at prices that will include the cost of the fibre drop from the street in to their premise.  The average value of this will be between $1,000 and $2,000.   The minister’s announcement allowing “some homes on route being provided the opportunity of fibre to the premises at urban prices” suggests that rural users will not be connected as a matter of course.  Meaning that they would have to pay for their own fibre drop at a price that will be significantly greater than those that urban people will pay.

In handing Telecom and Vodafone a competitive advantage and failing to address the growing rural/urban digital divide, it will be rural New Zealand that will ultimately pay the cost of the Minister’s failed decision.