KEY POINTS:
Like most engineers, Andrew Blakey knows only too well that faster does not necessarily mean better.
"The question is how much better and does it justify the investment?" he muses from his office in the Auckland suburb of Northcote.
As general manager of in-car satellite navigation company Navman Technology New Zealand, Blakey appreciates that politicians face a similar dilemma when it comes to making decisions about major infrastructure.
Take high-speed broadband. For the past couple of years, New Zealand has debated whether it can actually afford to spend several billion dollars building a new telecommunications network, to replace the rapidly ageing cobweb of copper wire that currently connects us.
But, like some other businesspeople, Blakey senses that progress is finally being made. These days, Navman's in-car navigation division is owned by Taiwanese company MiTAC and the fact that it remains in New Zealand at all may be partly because its head office happens to be based on the North Shore, where power distributor Vector has spent millions laying state-of-the-art fibreglass cables.
After years of second-guessing where telecommunications technology might be heading, the industry consensus seems to have settled on fibre as the medium of the future, largely due to its ability to carry data at the speed of light.
Through a deal with internet provider WorldxChange, Navman now makes all its phone calls via the internet - cutting its monthly toll bill from $2000 to about $600.
Its staff can now transfer large quantities of data to other MiTAC teams in Europe, North America and Taiwan at up to 10 megabits per second (Mbps) - about five times faster than most Telecom customers currently experience.
"Before it might have taken us five hours to transfer a block of information - now we can do that in an hour," says Blakey.
That said, it would be even more convenient if all the company's international staff were able to work together in real time, he notes. "If that process could come down to a matter of minutes, it would make a reasonably big difference to the way we did our development and our software."
And in fact, if some of the industry's most high-profile champions are to be believed, that day might not be too far off.
During the past six months, a flurry of announcements have indicated we may finally be getting to grips with the issue.
The Government's decision in May last year to split Telecom into three separate divisions was seen by the industry as the first crucial step. Theoretically, it will not only allow competitors easier access to Telecom's networks, it will also ensure more transparency of costs, making it easier for rivals to compete.
The decision has already prompted Telecom to announce it will spend $1.4 billion on fibre infrastructure over the next four years, including laying about 2000km of cable to about 3600 cabinets throughout the country.
While critics are sceptical about how much of the money is genuinely new investment, Telecom's aim is that 80 per cent of homes and businesses will have download speeds of at least 10 Mbps by 2012 - with around half enjoying speeds twice as fast as that. That's around 10 times better than the broadband service most people now have.
And it's not just Telecom that is finally jumping on the fibre bandwagon. In February, Vector and Vodafone announced a partnership in which Vector will provide access to a new fibre link connecting some of Telecom's existing exchanges in Auckland.
State-owned communications network Kordia has also revealed a potential partnership with an Australian company that could see a second undersea fibre cable stretching across the Tasman by 2010. As well as providing a crucial back-up should something go wrong with our link to the rest of the world, the extra cable is seen as vital competition which could drive down prices.
Meanwhile, the New Zealand Institute has suggested the Government consider a price-regulated investment vehicle called FibreCo, which would have a monopoly on a fibreglass network.
The National Party has also chimed in, pledging to subsidise a nationwide roll-out of high-speed broadband by up to $1.5 billion over the next six years.
Although it has not said exactly how it would do that, other than the fact that it would invite interested parties to tender for the work in some form of public-private partnership, the policy has been welcomed by businesses who are growing impatient for action.
Blakey admits to being impressed with National's stance, even though the details are sketchy.
"We're waiting to see whether there's going to be a matching thing there for Labour, because obviously it's a fairly attractive thing and quite a key thing for most businesses," he says.
Not that businesses, or residential customers for that matter, are likely to have to wait long. Labour will almost certainly announce its own plans in next week's Budget.
Communications Minister David Cunliffe rejects speculation by some in the industry that Labour has been gazumped by National on the issue, and will struggle to make political mileage out of it because it has so little money left in the pot after buying back the railways, agreeing to tax cuts and setting up a $700 million R&D fund for the food and farming sectors.
"Well, wait and see," is all he will say. With the Budget so close, he simply cannot talk about it, he says. "That can create the false impression that something's not happening. However, I'm comfortable with how we're tracking."
In fact, Cunliffe has hinted on many occasions at where his thinking might be. He has made a point of attacking National for its commitment to a capital tender, which would tend to indicate that he favours setting aside money out of operational budgets instead. This would have the advantage of not revealing to the industry exactly how much money he may have to play with.
He has also ruled out adopting the FibreCo model, suggesting it would be a regulatory step too far to basically pass a law requiring Telecom, Vector and other investors to hand over to the State the networks they have already built or are building.
He admits he is also reluctant to sanction a State-owned monopoly in such a dynamic sector, even though this is exactly what countries such as Australia and the Netherlands have already done.
The most likely scenario, it would appear, is that a Labour-led Government would seek bids to build chunks of the network - with all sorts of strings attached to compensate for the fact that highly populated areas of the country will obviously be far more attractive than those with a few far-flung farms.
But who is likely to bid other than Telecom? Well, Vodafone for a start, says Cunliffe, as well as other smaller players like Vector, CityLink, TelstraClear, Orcon and FX Networks, who have already indicated they are keen to capture a slice of the market.
Although the industry appears to have reached consensus that fibre is the way to go, the door has to remain open to wireless, says Cunliffe.
Within the next two or three years, wireless networks will be considerably faster than they are now. And in rural areas, where the cost of laying fibre is uneconomic, wireless and satellite is likely to be the only option.
"Either way, experience has taught us that having a technology-neutral, competitive regulatory framework supported by a credible regulatory threat to avoid problems of dominance is the best combination," says Cunliffe. "If there was a better model, we'd know about it."
All of which is no doubt heartening for Vodafone's corporate affairs manager, Tom Chignall. In a comment on IT entrepreneur Rod Drury's personal blog last month, Chignall hit back at critics who complained that companies with vested interests, like Vodafone, were holding back progress.
"For me, the fibre vision is very worthy but is a bit like the road analogy," he wrote. "... The country cannot afford to pay for high speed roads to all homes and businesses and, just as importantly, not everyone would need it."
According to Chignall, issues over who will build the basic fibre network are much more complex than many people realise.
"The Vector-Vodafone deal is no evidence of an efficient market. It is evidence of a failure in the market. We want dark fibre [non-live cables laid in the ground] but can't obtain it. Vector are largely over-building fibre belonging to other players."
And the fact that taxpayers might help out did not mean that a cost-plus approach would necessarily work.
"New Zealanders will be paying for that either through their subscriptions or through the government investment. It will take a sophisticated approach to marry the needs of private investors ... and the Government's policy objectives of affordable telecommunications services for all."
Cunliffe admits that at the wholesale level, there is still some uncertainty about how Telecom will be forced to open up its fibre network to anyone who wants to use it.
"It's too soon to be able to put technical standards in place, but we've agreed a process for resolving that, hopefully by the start of next year.
"The key point is there are shades of grey when it comes to open access and there is no detail whatsoever in the National Party proposal. There's not even any indication they understand the difference between the various qualities of access and it's crucial if you're an investor."
But for Vector chief executive Simon Mackenzie, the even more pressing concern is the lack of interest shown so far from the major players in offering the types of services that justify the enormous costs of building fibre networks in the first place.
Despite its announcement last week of a major expansion of its Auckland fibre network, Vector does not see itself as a major rival to Telecom, says Mackenzie.
That said, it is keen to expand its network wherever it can establish a business case. But, so far, it is mostly niche players who have shown the most interest in offering wholesale and retail services, says Mackenzie.
It has also yet to established how big customer demand will be, he maintains.
"Whoever builds it has still got the fundamental issue - whether it's taxpayers' money or private investors' money - how big is the demand, and what the customer connections in those propositions is going to be. I don't think that's an issue that has been well addressed."
Mackenzie's personal view is that progress will be incremental and will involve a wide range of solutions - from local loop unbundling to direct fibre links, wireless solutions and multiple combinations thereof.
"In some countries, the model has been that the funding from central agencies has been used as a catalyst, as opposed to councils or governments taking direct ownership stakes, and that's my sense where the debate will fall now."
Ultimately, he agrees, New Zealand needs high-speed broadband networks.
"That's where we have to go as a country to remove that legacy distance problem we've had.
"It's just a matter of ensuring there is the right environment to ensure the appropriate incentives for the network investment that can deliver solutions and products to consumers."
National's communications spokesman, Maurice Williamson, concedes the issues are tricky and that is why his party has not yet committed itself to a detailed plan.
But he is mystified about why Labour insists on painting National's policy as a sweetheart deal for Telecom.
He doesn't necessarily buy Cunliffe's argument that the only way investors will put up money for a new network is if a regulatory monopoly is in place.
"I agree you'd be mad to come in and do this while Telecom has got the ability to come in and predatory price and take you out of the play.
"So I came to the conclusion quite strongly - and we discussed it and debated this issue long and hard for a long, long time - that there were no real players that would do this. Telecom wasn't going to do it and everyone else would need some sort of protection if they were going to do it."
But rather than follow the United States, which has granted Verizon a monopoly, Williamson prefers something along the lines of what Singapore is doing.
"What they're doing in Singapore is acting as catalyst ... and looking for other participants. We will give some guarantees that this entity can't be cherry picked.
"It won't be monopoly priced in order to take it out of the play, but it will be an open-access network that all will be welcome to."
In fact, says Williamson, he has been surprised at some of the potential investors who have already expressed an interest, including investment banks and utility investors.
"We've even been looking at some fibre infrastructure bonds. There's been interest from way wider than I first expected."
Parliament is buzzing with speculation of a major ideological rift within National over the issue.
Williamson is the first to admit he is among the most conservative members of National's caucus and someone for whom the idea of state subsidies does not exactly come naturally. But he insists he has given the issue much thought and come to the conclusion that the market has indeed failed New Zealand on this occasion.
"It is a change in the view of National. A lot of the debates of the 90s were about what can we sell. This is a debate about what we can actually invest in, and I think that's a really refreshing change."
Not that Cunliffe is going to let him off that easily.
"I'm not knocking where National wants to go but what I am saying is when you're playing with such large sums of money in such an incredibly complex and fast-moving technology environment, you'd better be damn sure about your design principles, otherwise there's a real risk you pay a lot more money than you need to and you can thwart the very goal you're trying to achieve.
"We could end up replacing the previous dominance of copper with future dominance of fibre."
While such sniping is par for the course in politics, the simple fact remains that National and Labour are now arguing that we do indeed need fibre right to our doors - which National, at least, had previously ruled out as far too expensive.
And that's good news for consumers, says Warehouse founder Stephen Tindall.
In February, Tindall chaired a meeting of all the industry players, including local and central government officials and various investment bigwigs such as Brook Asset Management executive chairman Simon Botherway, and Deutsche Bank chief executive Brett Shepherd, in the hope of encouraging some sort of consensus on what needs to happen next.
The group is believed to have rejected the idea of a Fibre Fund, which had previously been mooted by Labour, and which Tindall is also believed to have originally favoured.
The main advantage of such a fund is that it might attract more passive investors such as pension funds, which would be happy to accept a much lower return over a longer period than a company like Telecom. But those present are believed to have baulked at the idea as being far too risky, given Telecom's existing dominance.
Tindall is reluctant to discuss the meeting, which was held under Chatham House rules, but is happy to confirm his personal view, which is that the major issue now facing consumers is what price retailers such as Telecom and Vodafone will charge for high-speed services.
Unlike pension funds, Telecom and Vodafone will presumably continue to expect juicy profits.
"There's one thing about making it available to people, but another about making it available to people so they can afford it," says Tindall.
"If I could help achieve that, I'd be rapt."
In the meantime, he is delighted National has decided to commit taxpayers' money towards the project.
"Where it's spent, of course, is going to be the absolutely crucial issue." However, he remains optimistic that progress is finally being made.
"There's a hell of a lot of exciting stuff that's going to be rolled out in the next 18 months that will make a massive difference to where we are at the moment.
"But we need, first of all, for all the players to be on the same page, then we need to communicate that to the general public, so they can get a feeling for what's going to be happening."
For his part, Mark Ratcliffe, chief executive of Chorus - Telecom's new network division - says his company is simply getting on with the job of laying the foundations of a much faster network.
"It will be a challenge, but we're committed so it will get done," he insists.
Ratcliffe believes 20 Mbps will be fast enough to meet most customers' needs into the future, including watching TV programmes over the internet and downloading entire movies in a matter of minutes.
However, he concedes that more work needs to be done to figure out how to reach the 20 per cent of the population for whom it will be too difficult, and too expensive, to lay fibre to their doors.
"We looked at where you get the biggest bang for your buck, and progressively after the 81 per cent it gets really, really challenging because of the low population density."
That said, some rural customers will still be getting "just about the best broadband network in the world, and miles better than the UK and Australia", he insists.
Of course, he admits, we'll never catch up to some of Asia's most densely populated cities because their economics are different.
"But we compare favourably to the UK now. We've got a committed plan that's well in excess of anything it has got there, or most other European countries."
"... You can go and find in the big city centres people who are deploying fibre, but it's the same here. You can get 100 Mbps services in New Zealand today. No residential customers would dream of spending that much on broadband, but business customers do."
Like many others in the industry, Sydney-based telecoms analyst Paul Budde finds such perkiness a little rich, given the years of under-investment by Telecom which have led to the current dilemma. But Budde believes Cunliffe deserves credit for finally getting tough with Telecom.
"I think progress has been made - there's no doubt about that - but you will always be trailing behind the rest of the world for the next couple of years, at least."
The problem, he says, is that the rest of the world is moving fast and is already talking about speeds of up to 100 Mbps for applications such as distance learning and online government services. "New Zealand hasn't even started on things like that."
However, it is true that we are ahead of Australia in that we have got the structure right, if not the delivery, he says.
"Everybody now needs time to reassess and reposition. A lot of egos have been bruised in the past - they have to be rebuilt. Totally new industry relationships will have to be formed."
Budde believes it was former Telecom chief executive Theresa Gattung's speech to analysts in Sydney when she talked about "confusion as a marketing tool" that finally persuaded the Government to act.
"Let's be honest - for 20 years the Government has been quite cosy towards Telecom and literally hundreds of millions of dollars has been siphoned off to investors in America who were absolutely delighted that the New Zealand Government allowed them to reap these horrific profits and hardly anything was invested in New Zealand.
"What the Government did in May last year was a visionary way to solve the problem, and the fact that Telecom is now registering less profit means customers are finally getting better prices."
Blakey is also convinced we are on the right path at last.
"I understand the concerns about subsidisation of Telecom and not wanting to get back into some of the problems we've had in the past, [but] I think they've given up and realised the heyday of mobile and fixed line calling revenues has pretty much gone. That's a good thing.
"However, the devil will be in the detail, of course."
