Steven Joyce helps install Auckland's first UFB cable in Albany.
If Berl (Business and Economic Research Limited) is correct, the $1.5 billion or so of taxpayer money spent on building fibre networks could prove the smartest investment of our times.
In a 2011 report commissioned by Auckland Council, the Bay of Plenty Regional Council and Priority One, a Bay of Plenty economic development organisation, Berl, said the Government's two fast broadband networks could boost New Zealand's GDP by 7 to 9 per cent above the business-as-usual level by 2025.
Berl went on to say the benefits depended on the speed of the network rollout and how fast businesses took up the service.
Despite a few hiccups, it looks like both conditions will now be met. But it isn't all good news. Questions remain over the network's ability to attract consumers, and the ultrafast broadband (UFB) project carries a regulatory sting in the tail that might yet prove troublesome.
Build on track
Earlier this month Communications Minister Amy Adams issued a statement saying the Government's UFB network and rural broadband initiative (RBI) were both ahead of target.
The UFB project is now about 20 per cent complete and on track to be completed in 2019. By then it will connect 75 per cent of New Zealanders in cities and towns to a fibre broadband network. Meanwhile the RBI will deliver radically improved broadband to much of the remainder of the population. The Ministry of Business, Innovation and Employment says the RBI project should be completed in 2016. Adams says between the two projects, 97.8 per cent of the population will have faster broadband.
During the last three months of the last financial year, the UFB network reached an additional 129,000 end users in 28 towns and cities across New Zealand. This brings the total to 300,000 premises able to connect to the UFB network.
A further 149,000 homes and businesses in rural areas are now able to connect to the RBI network being built by Chorus and Vodafone.
Schools, hospitals and businesses are UFB priority customers. The project calls for all schools and hospitals to the network by the end of 2015. Most businesses should also be connected by then. Once that's done, the focus will be on getting the remaining businesses and residential customers connected.
Priority customers largely connected
Chorus general manager marketing and sales Victoria Crone says the priority customers are now mainly connected: "Schools, healthcare and businesses are all on track".
Chorus is building about 70 per cent of the UFB network and expects to finish its share of the project by 2019. Some other builders expect to finish earlier.
Northpower Fibre, the company building the network in Whangarei, previously said it is due to complete by June 2014, by which time it will have reached 18,000 premises. The other two UFB builders are WEL Networks, responsible for much of central North Island and Enable Networks in Christchurch.
Building a new, fast network is one thing. Getting people to use it is another matter.
Adams' statement says 10,000 customers have signed for a UFB service - that's around 3 per cent of the potential market. Though this figure may sound low, Adams says it is in-line with Government expectations and is slightly better than the numbers seen in Singapore or Britain. Crone goes further. She says the number hides the fact that sign-ups are accelerating; she says: "We're continuing to see better numbers".
One reason for the relatively low uptake to date is that the largest companies selling internet services, ISPs, have only recently begun marketing fibre to customers. New Zealand's largest ISP, Telecom, only began offering fibre in the last quarter. The second largest ISP, Vodafone, still doesn't have a fibre product although Crone says the company has trials under way and will be entering the market soon. Likewise, Crone says ISPs are only now starting to sell fibre services to their business customers.
There are no such worries with the RBI - the network has an impressive 38 per cent sign-up rate.
Crone says the past three to six months has seen a huge surge in the number of customers coming off dial-up and moving on to broadband.
Costs
Though the Government has committed nearly $1.5 billion of taxpayer money to the new broadband networks, the total cost of the two projects is likely to be nearer $5 billion - some estimates put it higher - as the builders invest their own money. There is a $1.5 billion investment of taxpayer funds in UFB - you'll sometimes see the figure written as $1.35 billion: the difference is money spent on preparing schools for fibre.
A further $300 million has been set aside to help pay for the RBI. This money is spread over six years.
About $50 million comes from taxpayer funds, the balance is raised through the Telecommunications Development Levy - effectively an additional tax on those New Zealand telecommunications companies that make more than $10 million a year.
These numbers pale beside Australia's NBN network which was originally priced at A$42 billion ($48 billion), later revised to A$37 billion.
And unlike Australia, there's broad political agreement over the need for the UFB and RBI networks. Here any differences between the main political parties tend to be over the processes.
Perhaps the most contentious aspect of this is the recent decision by the Government to overrule the Commerce Commission's decision on the wholesale price of using the copper network.
This was set to drop by $12 per month, but Chorus complained the price cut would make the switch to fibre less attractive to consumers.
The move will certainly help Chorus. Crone says the company faces higher than expected capital expenditure building the UFB network. Some analysts say the company - or more accurately Telecom before the Chorus demerger - underestimated the cost of connecting properties by as much as $500 million.
Chorus still faces high levels of risks by utility company standards, which could still leave the Government's otherwise well-executed fibre projects vulnerable.
And that's the problem with UFB - it could be the Government squeezed too good a price out of Chorus, and some analysts warm more regulatory changes could be needed to keep the company solvent.