High-wire act for economy

The unthinkable happened this week as New Zealand was brought to its knees not by crazed terrorists or an unstoppable force of nature but by a lowly rat and an errant post digger.

Although the sequence of events that crippled the country's telecommunications systems for the better part of a day was unlikely - "freakish" and "one in a million", some said - Monday's events are enough to give pause on the state of the infrastructure and its owner, Telecom.

Early Monday morning, rats chewed through cables going over a bridge in the Rimutaka Ranges.

Telecommunications services immediately defaulted without disruption to Telecom's main western pipeline, until a Powerco post digger hit it at 10.48am.

With both main pipes damaged, services went down for the next 4 1/2 hours.

The damage was widespread as mobile phones, internet services and eftpos were knocked out. Landlines were also jammed with callers wanting to know what was happening.

The biggest outage was in Wellington and Taranaki. Auckland, Palmerston North and parts of the South Island also saw service disruption. About 100,000 customers nationwide were affected.

Virtually every sector was hit. The New Zealand Stock Exchange was down from 11.01am until 4pm. Air New Zealand staff had to check in customers manually and flights were delayed. Retailers were hit as they were unable to process eftpos sales.

The online auction site TradeMe reported between one-third and half of 200,000 members were unable to buy or sell for most of the day.

Despite the damage, though, Telecom wasn't condemned.

Communications Minister David Cunliffe praised the company for getting service restored quickly and competitors expressed "empathy" for what they said was a "bizarre chain of events".

Telecom was quick to defend the outage and said the rat incident was unavoidable. The company buries its cables between 1.2m and 1.5m underground and shields them with steel pipes at points of exposure, such as when they cross bridges.

"We employ the world's best practices in the technique of installing the cable," said Steve Fuller, Telecom's general manager of network delivery. "But rodents being rodents, they gnaw at those entry points, they burrow underground, they find a way in. They're notorious for it."

The company wasn't so forgiving with the second incident.

Powerco diggers ignored protocol and didn't call its cable-location service, so Telecom would be seeking compensation, he said. Powerco did not comment.

So what now? The outage may have been freakish, but it put a spotlight on how reliant today's businesses are on telecommunications.

Is New Zealand's infrastructure up to scratch? What's to prevent similar occurrences? And what is Telecom - the largest provider by far of telecommunications services and owner of infrastructure - doing about it?

The company says it is investing enough and that its infrastructure is on a par with the rest of the developed world. It has spent $1.8 billion on its networks - which include landlines, mobile phones and internet services - since 2001 and is in the process of spending even more.

Last year, Telecom spent $416 million and projects total expenditure for this year to hit $535 million and $560 million next year.

Fuller said Monday's outage was unfortunate timing as Telecom was in the process of installing a $30 million network upgrade.

The network has three major switching points - in Christchurch, Wellington and Auckland - so when incidents such as these occur, a large geographic area can be vulnerable.

When the upgrade is complete, by this time next year, up to five extra switching points will be introduced, thus limiting the area that can be affected.

"If it occurs again next year, it won't be service-impacting," Fuller said. "I'm touching wood as I say that."

But Telecom critics say the company is not investing nearly enough.

"What we have here is a public company that is [mostly] owned by offshore interests whose board has made it crystal clear over time that their responsibility is first and foremost to their shareholders," said an industry source, who asked not to be named.

"They're trying to get away with as minimum an investment as they can ... without losing market share or bringing the wrath of the Government down on them. The lack of pressure on Telecom means it can send money off to its shareholders, when it could be investing on behalf of its users."

A report by the International Telecommunications Union on telecommunications investment in 2002 - the most recent year for which figures are available - paints a poor picture of New Zealand and, thus, Telecom.

New Zealand ranked 41st out of the 42 countries in the union's "high-income" grouping in terms of investment per inhabitant. Only Kuwait was lower.

Total investment here was US$263 million ($372 million) or about US$68 a person. Kuwait was worse at US$19.90 and Norway was first at US$568.

In investment as a percentage of revenue, New Zealand did slightly better, but still poorly. Total revenue was US$1.98 billion and investment was about 13.2 per cent of that - four countries, including Belgium, Germany, Kuwait and Singapore, spent less by this measure. Telecom said the numbers would look better if other companies were matching the amount it was investing.

"While competition is taking off, it is still to grow a lot in New Zealand," said spokesman John Goulter.

"We will see higher investment levels in New Zealand when other investors start to seriously put money into the country."

In comparison with other major international telcos, Telecom's spending ranked well, he said.

The company's capital expenditure as a percentage of revenue is about 13.3 per cent, which compares with US-based SBC at 12.5 per cent, British Telecom at 14.5 per cent and Australia's Telstra at 12.4 per cent.

Industry observers say there is one easy way to improve investment: competition.

"As we've been saying for years, the best way to drive investment is through dynamic competition in the market," said Ernie Newman, chief executive of the Telecommunications Users Association of New Zealand.

"Experience in other smaller countries would suggest that New Zealand users could have a choice of multiple broadband services" that would spur investment.

Norway is a good example - with a population of 4.5 million, it is highly comparable to New Zealand.

Only a few years ago Norway declared its broadband internet situation as deplorable. But with the Government encouraging competition, spending on infrastructure went through the roof and Norway now sits at 10th place in broadband penetration among OECD countries.

New Zealand, meanwhile, continues to wallow near the bottom, at 22nd out of 30.

But is New Zealand's telecommunications market big enough to attract the investment that competition brings? Evidently so. Vodafone says it has invested $2 billion on its mobile network since entering the market in 1998. TelstraClear has also been building pockets of its own broadband network and is rumoured to be constructing its own mobile network.

David Farrar, vice-president of internet regulator InternetNZ, stresses the need for competition and said the damage could have been lessened if businesses looked beyond Telecom.

Farrar said even Niue, with only 1200 people, had two internet feeds - one from the US and one from here.

Paying for infrastructure

Telecom's infrastructure spending in $ million (according to Telecom):

Wired: 369 in 2001, 232 in 2002, 314 in 2003, 348 in 2004, 435 in 2005, 460 in 2006.

Wireless: 266 in 2001, 138 in 2002, 69 in 2003, 68 in 2004, 100 in 2005, 100 in 2006.

International Telecommunications Union stats on telecommunication investment per inhabitant (out of 42):

1. Norway US$568.7

2. Australia US$240.5

3. Denmark US$238.9

41. New Zealand US$68

42. Kuwait US$19.90

International Telecommunications Union stats on telecommunication investment as a percentage of revenue (out of 42):

1. New Caledonia 43.5 per cent

2. Australia 34.8 per cent

3. Austria 32.7 per cent

38. New Zealand 13.2 per cent

Telecom investment as a percentage of revenue in comparison to other major telcos (according to Telecom):

Telecom 13.3 per cent

Deutsche Telekom (Germany) 9.2 per cent

Cable & Wireless (UK) 10.1 per cent

Telefonica (Spain) 10.5 per cent

France Telecom 11.1 per cent

Telstra (Australia) 12.4 per cent

SBC (US) 12.5 per cent

British Telecom 14.5 per cent

Bell South (US) 15.7 per cent