Editorial: Big changes coming with broadband

Opinion

It has taken two months longer than he hoped, but Communications and Information Technology Minister Steven Joyce has announced the ground rules of the Government's plan to lay ultra-fast broadband fibre-optic cable to 75 per cent of the population. In doing so he has rejected several proposals from private operators, singly or jointly, who believe they could use some of the $1.5 billion on offer to more effectively advance the Government's aims.

Not only has he rejected them but the ground rules now exclude any telecommunications retailer from more than a minority participation in the local fibre companies that will lay the cable, own and operate it. If Telecom wants to be a full partner it will need to sever its retailing business entirely, a step it has long resisted and still seems unlikely to take.

It can maintain its copper network monopoly for the best part of 10 years before the fibre service begins to match it. The next step in the Government's plan is to establish a company, to be called Crown Fibre Holdings, to manage the state's outlay. Its first task will be to select private sector partners in each region to set up the local fibre companies, effectively wholesalers for use of the "dark fibre" by internet service providers and others.

While the prospect of network competition is welcome, economic considerations cannot be ignored. An outlay of $1.5 billion is a significant commitment of public funds and it is intended to entice a similar commitment from the private sector. These are resources that ought to flow to purposes of greatest economic value, which ultra-fast broadband could be but it has not passed the market tests.

Mr Joyce freely admits the Government is making this investment because private companies have decided fibre-to-the-home is not commercially worthwhile at this time. Tellingly, Crown Fibre Holdings cannot be set up as a state-owned enterprise because it will have some non-commercial objectives. Some of the first beneficiaries of ultra-fast broadband to 33 population districts will be schools and health clinics. That is unlikely to boost national productivity.

It might always be hard to measure the returns on this investment; how fast does information need to travel? It is not apparent that anyone is missing export opportunities at present internet speeds. But all comparable countries are planning ultra-fast broadband for fear they might be left behind. To doubt its value sounds dangerously Luddite.

But if the infrastructure is worthwhile, access to it must carry wholesale charges that reflect its full cost. If that causes it to be underused in competition with existing networks, so be it. The country would be better served by the most economical wiring rather than a subsidised luxury that drives economic operations out of business.

The finalised plan announced last week has modified the proposal put out for discussion in March. It provides more flexibility for potential users of the open cable, envisages coverage of more population centres, gives specific design requirements for retail products that will be permitted access and includes more commercial and technical detail.

Now it remains to be seen what sort of partners the Government attracts. It is not making its offer entirely to the private sector. Local government, iwi, trusts, are also eligible. And they can have an interest in more than one local fibre company.

If all goes to plan it could change the shape of telecommunications and other line services that might share the "pipe". At the very least it will end Telecom's dominance and that, for many, would be $1.5 billion well spent.