Editorial: Govt move on fibre has left us the poorer

Luke Newport, principal contractors to Chorus, linking ultrafast broadband connections in Caulfield Place. Photo / Duncan Brown

Strange and costly things can happen to an economy when a government decides its wisdom is better than the signals of a market. That is what the present Government did when it decided to rewire the country with fibre-optic cable.

We already had a well-capitalised company operating the country's telecommunications network. Chorus had only recently been split from Telecom NZ and it was well-placed to decide when and where it might need to replace its copper cable with fibre. But National decided, even before coming to power, the country could not wait for Chorus to upgrade its asset in the ordinary way of business. Once in office, the Government started a nationwide rollout of "ultrafast broadband".

Strange things started to happen rather quickly. Not enough subscribers were keen to switch to the more expensive connection, so Chorus raised the price of copper connections to $45 a month to make fibre more attractive. An organisation of users protested. The Commerce Commission, which can regulate network pricing, stepped in and forced Chorus to lower its copper charge to $32.45. At that, Chorus appealed and the commission has spent the past three years reviewing its calculations.

This week, the commission announced its final decision, allowing Chorus to charge $41.69. The company's sharemarket value, which plummeted after the commission's ruling in 2012, rose by 24 per cent on Tuesday, making its shareholders nearly $300 million richer. Chorus expects to make an extra $120 million a year, which will be paid by internet providers but ultimately by all users of its copper network.

Internet NZ calls the decision a travesty, saying no other country is putting up the price of copper cable. The Business Herald's technology commentator, Juha Saarinen, wrote on Wednesday: "We pay more for fixed broadband than most developed countries; [the] International Telecommunications Union puts us 60th in the world. Australia, hardly a poster child for great, affordable internet access, is 20 places ahead of us."

We will be paying close to a fibre price for copper and, according to Saarinen, copper is not too bad. "Although [it] will not be as fast or match the reach of fibre-optic connections, there is clever technology being developed that can provide about 100 megabit a second speeds over phone lines."

New Zealanders still seem content with copper. The fibre investment has so far attracted only 5 per cent of broadband connections.

Perversely, the country is more likely to stick with copper now for the reason Saarinen explained: "Selling access to the copper network is a much bigger business for Chorus than fibre, one that will become more lucrative now."

If the Government had never interfered, Chorus might have upgraded its network to fibre as needed, or it might have renewed its copper. Either way, it would be a decision based on the company's assessment of its customers' needs and willingness to pay. Instead, the Government decided we needed fibre - and now we are going to get copper at fibre's cost. That is how excess costs are locked into vital infrastructure, and the economy becomes poorer.