Taxpayers carry the can if new service slow to win customers

Steven Joyce. Photo / Sarah Ivey

Communications Minister Steven Joyce is confident the combination of the services ultrafast broadband enables and the indicative prices announced yesterday will encourage people to connect to the new fibre network as it is rolled out.

But if he is wrong the taxpayer bears the risk.

The commercial model of the local fibre companies is that the Crown initially bears the cost of rolling out fibre optic cables down every street.

When a household or business signs up for a service over the new network, the private sector partner in the local fibre company pays the cost of connecting them and also buys from the Crown shares in the local fibre company equal to the per-end-user portion of the cost of infrastructure.

In this way the Crown's stake will be progressively bought out, but at a pace determined by uptake, which mitigates the risk to the private sector partner.

"This model therefore provides that Crown Fibre Holdings will take on the risks associated with an immature market, specifically where there may be an initial period during which the local fibre company's network has insufficient end user take-up to deliver an economic return," says the Government's original invitation to participate.

Joyce said ultrafast broadband would mean huge opportunities for internet service providers to offer new services, including movies on demand, two-way video teleconferencing and working from home.

But Labour's telecommunications spokeswoman Clare Curran said that if Telecom failed to secure enough of the country to warrant the costs of splitting into two companies, it could be expected to be very competitive in the services it offered over its existing network. That could also retard uptake and increase the risk to the taxpayer.