Barton on broadband cost

Chris Barton writes in the NZ Herald:

The PM further fuelled the uncertainty flame following the release of the commission’s report saying: “It has significant implications both for [Chorus] and for UFB. It substantially reduces the income of that company and its capacity around broadband.”

Here’s what John Key might have said: “Well, thems the breaks. The Commission has arrived at its determination after careful consideration. The determination was signalled in 2010. The process has been in law since 2011 and we’ve been expecting it since before Chorus was formed, following the de-merger with Telecom. No one, including the analysts, should be surprised by this. If they are, then they haven’t done their homework.”

To which an enquiring journalist might have asked: “What about the extra cost Chorus is facing on the UFB?

Key: “Well that’s a bit rich. We’ve given Chorus $929 million interest free for 14 and half years, making it a loan worth about $1.2 billion, to build its part of theUFB.

That’s a pretty generous deal agreed by both parties on commercial terms. That’s business. For Chorus to be moaning about extra costs – well that’s its problem – we acted in good faith.”

Journalist: “So you’re not at all worried that Chorus could fail and the UFB won’t get rolled out in time?”

Key: “Not at all. Look, 18c per share is still a good dividend. Chorus is still a good business with a captive market. It has until 2020 to get just 20 per cent of users onto its part of UFB and has from 2025 to 2036 to repay the loan. That seems quite doable. Meanwhile it has a guaranteed revenue stream from its existing copper network. Nothing to see here.”

But of course John Key didn’t say that. Instead he set in train Adam’s intervention to hold copper broadband prices artificially high.

I think the planned intervention is not well justified.

Even if one accepts that it is in the public interest (not that I do) to have higher (than they would be if no intervention) copper prices so that people migrate to fibre, I don’t understand why you would gift the extra revenue to Chorus – rather than use it to fund further fibre roll-out – or rural broadband.

I’m a Chorus shareholder, but I don’t want Chorus to benefit from regulatory changes that are not good for consumers.

I quite accept that there are legitimate issues over how to price the copper network, and should it be based on its current cost, or the cost of the replacement network – as it is in electricity.

But the complicating factor is that the future network is being delivered by way of government contract and subsidy through contracts with Crown Fibre Holdings. So the investment decisions shouldn’t be based on revenues from copper (well not for 75% of the country).

By coincidence, I was at a Chorus announcement last night, and it was an exciting one. They announced that they will connect an entire town in New Zealand up to 1 GB/s fibre. And they are effectively having a competition where towns will say what they would do with it, how they would market themselves, and the winning town will be chosen, and made the fastest town in the Southern Hemisphere when it comes to the Internet.

That’s a great initiative to get communities involved in thinking about their fibre future, and will attract lots of attention. I suspect, sadly, Thorndon doesn’t qualify as a town 🙂

Paul Brislen writes more about the Chorus announcement:

Chorus has launched a promotion that will give one town in New Zealandgigabit speeds on the Ultra Fast Broadband network.

One gigabit per second is fast. OECD rankings suggest that only four countries in the world offer national 1Gbit/s plans – Turkey, Slovenia, Sweden and Japan (this was in 2011 so there may be more by now) and that most top out at about half that speed.

We’re talking about 1000Mbit/s. Today I get 15Mbit/s download so to call it a step change is something of an understatement. My upload speed is barely 1Mbit/s.

We tend to get complacent about the fantastic advances technology makes each year. A doubling of capacity, a tripling of speed, these numbers become run of the mill and users are blasé about them. But a thousand fold increase in my upload speed would be startling to put it mildly, so good on Chorus for trying this out.

The economic potential of offering such a service is astonishing. Think what having such a speed would do to the way we think about remote working or having to live in the main centres. Think about what access to the world at those kinds of speeds would mean for start-up software developers and to our migration patterns. Software companies should be lining up for our cheap housing and staff with no fear of us being too removed from the world.

I am excited about a fibre future. But I also want copper not over-priced during the transition to fibre.