Vector’s announcement last week of ‘EduNet’, their fibre-to-the-school network, proffers a solution to a couple of government dilemmas.  

The urban Ultra Fast Broadband (UFB) initiative is stalled.  Unresolved issues around Telecom’s involvement in the program has resulted in delays and late decisions.  Telecommunications Minister Steven Joyce is distancing himself from the delays by promising to be “...quick to pick partners ... once Crown Fibre Holdings (CFH) delivers its recommendations”.  However, the dilemma appears to be about how the government can avoid destroying value in listed company Telecom New Zealand.  CFH’s September announcement of the chosen bidders in three regions, resulted in an immediate drop in Telecom NZ’s share price.  This is a political issue and not a procedural one for CFH to solve.  

The solution lies in the realisation that urban fibre infrastructure projects can earn a return on the investment and do not require $1.35Bn of taxpayer’s funds.

The Australian government realised this in relation to their National Broadband Network (NBN) which in urban areas, will now be funded entirely by the private sector.

Vector, who “...will only invest if it makes commercial sense and maximises value for our shareholders”, demonstrates that their EduNet project is a commercial investment.  As Philippa White, Vector’s External Communications Manager advises, the EduNet program “...illustrates that Vector is a credible fibre network that is prepared to work with other Local Fibre Companies, Content and Service providers and Integrators in order to do what is right for communities.”

So if the private sector are now doing it, why is the government funding the fibre infrastructure build?  

The Ministry of Economic Development (MED), says “The Government is investing in broadband infrastructure because of a lack of investment from the private sector in the Government's preferred timeframes”.  Fair enough in the rural areas.  But in urban areas, that game has now changed.

The MED went on to say that “Vector's announcement is considered complimentary to the UFB initiative as it will make fibre-based broadband available to further schools ahead of the UFB rollout to all urban schools.”  Is this implying that even if Vector roll fibre out to urban schools, the the government UFB program will overlay that fibre?  Minister Stephen Joyce’s announcement that the government will pay for the costs of the ‘fibre drop’ to the school only if the school connects to a UFB/RBI funded fibre cable would seem to support this.  

But it cannot be that the government on the one hand want private sector investment in high speed broadband infrastructure, but on the other will penalise schools who hook up to cables provided by private companies.

The only conclusion to come to is that the government’s UFB program is ill-conceived and going awry.

The solution to the government’s dilemma, again, is to scrap the UFB and let competing companies make the investment based on their own business case.  

This would release the $1.5Bn allocated to the UFB for demand-side stimulation and, more importantly, for the Rural Broadband Initiative for which a business return is harder to achieve.

This needs to be done before it is contractually too late to avoid the spending of $1.35Bn..