KEY POINTS:
A new dawn of internet competition has arrived - but will it be enough to keep New Zealand's economy growing? No, says the New Zealand Institute, which is calling for an unprecedented investment in laying fibre optic cables across our nation.
Orcon this week unveiled the first of New Zealand's truly "unbundled" products - where a customer can get a phone line and fast broadband without going near Telecom.
It comes after the Government ordered Telecom in 2006 to open up its exchanges and allow rivals such as Orcon to install its own equipment in them.
Until now, Telecom's rivals were forced to buy a wholesale product, then repackage it and sell it under their own name. Now Telecom is out of the picture almost entirely for Orcon customers. The company does, however, pay a fee to Telecom for using the copper wires running between the exchanges and individual homes and businesses.
Five Auckland exchanges - Glenfield, Browns Bay, Ellerslie, Mt Albert and Ponsonby - are the first to receive Orcon services. By the end of May it will be in 15 exchanges.
Wellington consumers will get Orcon's unbundled service in the fourth quarter of the year, while Christchurch has to wait until the second half of next year.
Vodafone is waiting until more exchanges are opened before it launches its own rival unbundled service under its iHug brand. It says it will launch its own product "by mid-year" and has already installed "next generation" broadband equipment in five of the 15 unbundled exchanges.
While Orcon is slowly rolling out its new unbundled services as Telecom's exchanges open for its equipment, Vodafone has preferred to wait. It wants to have greater market coverage when it releases its new deals.
It is also spending more time on the "backhaul", the network beyond the local exchange that takes information across the country and around the world.
By the end of this year, Vodafone will have all 42 exchanges in Auckland unbundled and a further 20 exchanges in other centres - giving it the biggest unbundled network in the country.
This change is the sort of thing internet users have been dreaming of for years - Telecom's incumbency advantage stripped away as it is forced to compete on a level playing field with its rivals.
But it's not enough, says one of our leading think tanks, the New Zealand Institute, which has released a report stressing the urgent need for money to be invested in new fibre optic connections into homes and businesses.
The institute says a high-speed broadband network would generate extra economic value for New Zealand of between $2.7-$4.4 billion a year, with additional gains possible through "enabling innovation".
It's not only the internet that is running at high speed in other countries, says the institute - it's also the speed at which fibre optic cable is being rolled out.
"We believe that New Zealand should act with urgency to invest in fibre to build a position of competitive advantage in the weightless economy," it says.
In particular, it thinks we should aim to have "fibre to the premises [FTTP]" for 75 per cent of the population within 10 years.
"At the proposed pace of deployment, IT will take a few decades to achieve FTTP to 75 per cent of the population."
The kind of investments already planned came nowhere near what was needed.
Telecom, the dominant investor in this technology, had only weak incentives to invest in such a big fibre network.
Chief executive of the New Zealand Institute, David Skilling, told the Herald on Sunday he didn't think these ideas for a fibre network would require the Government to step in and spend billions of taxpayers' dollars.
"Our view is that it doesn't need to be the case. We believe there are ways of structuring this where it's very much private sector investment funding the deployment of fibre.
"We think the current funding model in New Zealand of relying on a listed telecommunications company like Telecom to finance significant investments in infrastructure is unlikely to lead to rapid deployment of fibre."
The Government's main role was to get the regulation right. Private enterprise would step up to make the necessary investment.
Skilling says broadband could do for us what the development of refrigerated shipping did for our economy in the 1880s.
"Internet connectivity is the 21st-century equivalent of that - it enables us to get our ideas and our services to international markets far more efficiently and quickly than would otherwise be the case.
"We think that, particularly for a physically remote country like New Zealand, fibre connectivity is an absolutely essential piece of economic infrastructure."
Telecom is not unique among stock exchange-listed telecommunication companies, says Skilling.
All over the world, such companies tended "not to be excited" about quickly laying huge amounts of fibre - only where there was intense competition.
Shareholders in these companies demanded high rates of return to compensate for a "pretty risky investment". And it's here where the problem lies, says Skilling, since laying a fibre optic network was a long-term, low-return type of investment, one that's unreasonable to expect Telecom shareholders to approve.
A different type of investor is needed - similar to those at Australian investment bank Macquarie, a pioneer of long-term infrastructure investing in things such as toll roads.
"Our view is that there are ways of interesting private sector investors. It need not be - and we don't think it's appropriate - for the Government to be in there boots and all and financing it and expecting the taxpayer to cough up billions of dollars."
A fibre network is a natural monopoly, so, before any investor stepped in, they would need to be assured of the rules covering things like access charges.
The "rules of the game" would need to be laid out by the Government.
"I think there is real potential for New Zealand to begin to develop some new and meaningful strengths in the economy."
Telecom spokesman Nick Brown says the company is keen to "turn New Zealand on to fast broadband and all the opportunities it brings". This month marked the first time the number of broadband customers exceeded dial-up customers.
"We are investing $1.4 billion in building a world-class, fast broadband network which will reach all towns throughout New Zealand with 500 or more lines." This network will be available for Telecom customers in these towns and cities, with the choice of services provided by Telecom retail and its wholesale customers.
Brown says there is a "range of activity in the pipeline" to ensure Telecom continued to attract new broadband customers and look after current ones.
Rosalie Nelson, telecommunications research manager for IT research company IDC, is forecasting strong broadband growth in New Zealand over the next five years, but says we will still be "running very hard to catch up".
She says New Zealand's current rate of broadband penetration is still low, with 16.5 broadband connections per 100 inhabitants at the end of the September last year.
This puts New Zealand well behind the OECD average penetration of 18.8 across 30 countries and the 21 to 34 penetration rate in highly developed broadband markets.
IDC is forecasting that broadband connections will increase 79 per cent to 1.5 million subscribers by 2012. Sounds good but only 4 per cent of this - mostly in new housing and business developments - will be the "fibre to the premises" the New Zealand Institute dreams of.
