Adam Gifford: Cable plans set up lazy monopoly to fail

IT minister Steven Joyce has given anti-competitive subsidies to companies in the ultra-fast broadband scheme. Photo / Brett Phibbs

Steven Joyce prides himself on being a pragmatic guy. That's what he told this year's Telcon conference, anyway - that's he's surrounded by people who like talking but he'd like to be remembered as a guy who does stuff.

That must be why he's giving Telecom and Vodafone $285 million to build a rural broadband network that relies on technology nearing its use-by date, which won't deliver the promised speeds.

If nothing else, it gives his boss John Key the chance to jump in an airforce helicopter for an election photo-op at some remote location.

The RBI contract gives two of the most profitable companies in the country a huge competitive edge on their rivals, which the market recognised by boosting Telecom's shares 5 per cent - although investors would probably be better off buying Vodafone shares.

Couple that with the regulatory holiday associated with the ultra-fast broadband initiative and you have a recipe for a lazy monopoly that fails to deliver.

As Labour's Claire Curran has pointed out, it's even more alarming that one of Joyce's main advisers on this, Ministry of Economic Development official Bruce Parkes, has just been fingered by the High Court for his lead role in designing the anti-competitive regime Telecom used to charge for access to its data network between 2001 and 2004.

It's the Silvio Berlusconi approach to regulation - rewriting the statues so what was criminal no longer is.

The low turn-out at Telcon was an indication of how this Government has stifled innovation and investment in the sector.

When I last weighed in on this, Vodafone claimed I'd made "misleading statements" - open access was at the heart of the bid and its 3G HSPA (high-speed packet access) solution was the global standard being deployed in the majority of developed countries.

I stand by what I said. Any 3G networks being rolled out today would be at the tail end of old projects, as the technology is supersede by the 4G LTE (long-term evolution) kit proposed by other bidders.

LTE networks will be built this year in Australia, the United States, Germany, China, India and so on.

LTE is a data network. 3G is a mobile phone network with a data service added on top.

Ordinary users struggle with the fact that existing mobile networks weren't designed to cope with the volume of data that smartphones are generating, and data-pricing plans also don't reflect evolving needs.

Claims that the RBI is open access have failed to convince the industry, both for technical and competition reasons.

With its massive taxpayer subsidy, Vodafone will have an overwhelming first-mover advantage and the number of potential customers isn't big enough to justify competitors adding their equipment to the Vodafone towers, let alone into Telecom's fibre cabinets.

The risk is that this anti-competitive subsidy, combined with the regulatory holiday Joyce is giving companies that participate in the ultra-fast broadband scheme, will give New Zealand an internet that's not what it wants or needs.

As IDC analyst Rosalie Nelson told Telcon, mobility, social networking and Generation Y-style communications are driving technology adoption among consumers, rather than the vision of fat pipes delivering data-rich applications such as video on demand.

Nelson asked whether open-access fibre would encourage new service providers - or lead to rapid contraction and consolidation.

She warned that if the Government marginalises competing infrastructure and creates a government-controlled monopoly, that monopoly is likely to become lazy and leave few incentives for private operators to invest.

There is also wallet share: If people opt to spend on their mobile pad, phone or other device rather than on a fibre connection, it will make a big difference to the economics of the ultra-fast broadband roll-out.

Given that the Government isn't investing enough in its broadband projects to buy the required outcomes, it needs to keep private-sector investment flowing, and not just the sort that aims to capture subsidies.

JADE GOES MOBILE

One company that does see opportunity in the mobility explosion is Christchurch software-maker Jade.

It has just released Joob Mobile, a platform that developers can use to connect any business system to mobile-device users.

Managing director Craig Richardson says that by 2014 more people will be accessing the internet from mobile devices than desktop computers.

The problem is that many large enterprises and software developers fail to deliver the mobile experience that customers expect.

On the other side, the sort of small teams that develop mobile phone and tablet applications can't be expected to understand all the intricacies of interfacing with a large enterprise system.

The Joob Mobile cloud service aims to bridge that and give developers on both sides the tools to do the job. It's the kind of pure technology play that Jade has succeeded with in the past.

The fact that it has come together from conception to beta in six months - despite two earthquakes - should give Joyce and his advisers pause for thought as they ponderously build us a new internet.