Dialogue: At whose expense will farmers surf the net?

BRUCE PARKES* says the Kiwi Share obliges Telecom to deliver a quality voice service to its rural network, but not to provide it with internet access.

Agriculture Minister Jim Sutton rightly raised in a recent article in the Herald the question of internet access for rural communities.

The issues are simple - but the answers less so. Under the Kiwi Share, farmers pay the same price for telephone service as Telecom's customers in the cities.

However, the costs of supplying service vary dramatically between town and country. Imagine the cost of connecting a farm which might be 5km from its closest neighbour.

Telecom now, under Government regulations, has to disclose how much it loses on supplying the rural community. The answer is a whopping $160 million a year.

The Kiwi Share regime worked fine when there was no competition for residential services. Telecom could make profits in the cities to subsidise the country.

Now with competition the system starts to unravel. Telstra Saturn has built a competing network in Wellington and is starting in Auckland and Christchurch.

It is hardly surprising that Telstra Saturn is targeting the profitable main centres. But competition in the cities means there are fewer Telecom customers to pay for the rural network.

The internet now accounts for 60 per cent of all local-call minutes on home phones - that's right, Kiwis now use the phone line more to surf the net than to talk.

Ten years ago, when the Kiwi Share was signed, the internet did not exist as a publicly available service.

But the internet raises the most issues for the rural network. The local telephone network is designed to carry voice calls. Voice calls do not need much bandwidth - 2.4 kilobits a second, to be exact. The internet is much more bandwidth-hungry; most customers expect 10 to 15 times the bandwidth required for a voice call.

In most urban areas, the voice network will carry internet access at a reasonable speed, generally around 33 kilobits a second. In many rural areas, the length of line from the home to the nearest exchange and other factors will result in a good-quality voice service but not necessarily great internet speed.

Farmers, like many New Zealanders, now see the internet as part of everyday life. Understandably, some are frustrated at the slow speed of their internet connection. However, the cost of upgrading the rural voice network to provide even reasonable internet speed is huge - more than $500 million to deliver what most people receive in the main centres.

So here's the real issue. Telecom provides under the Kiwi Share a good-quality voice service to farmers at a huge cost. Ten years after the Kiwi Share was signed, farmers expect with their ordinary phone line not just voice but city-style internet quality, but don't want to pay more.

It hardly seems fair to expect Telecom to increase its subsidy of rural customers by another $500 million when it is already losing substantially more than $100 million a year on rural phone services.

So the real issue is: who pays? And there is not exactly a long queue of contenders.

But hang on, what about the Kiwi Share? Surely Telecom has to provide decent internet quality calls to farmers under the Kiwi Share.

No - sorry. The Kiwi Share is all about ensuring the delivery of a good-quality voice service as it existed in the 1990 pre-internet days when the Kiwi Share was signed. In fact Telecom has gone well beyond its strict Kiwi Share requirements and has substantially improved its rural network.

Ten years ago, 40,000 customers were on party lines. Now there are 200.

So I think we can safely claim rural customers are much better off today than 10 years ago.

So while Mr Sutton raises an extremely important issue, there are no easy answers.

Short of price rises for rural customers or direct Government subsidies, the answer may well lie in looking at the model in Australia, the United States and elsewhere which has all telecommunications players helping to pay for losses on the rural network.

In these countries it is acknowledged that connecting rural communities benefits everyone - not just farmers. People living in the cities, including the customers of Telecom's competitors, benefit from being able to talk to their friends and families in the country. Businesses, like banks, benefit from being able to do business with what is still the backbone of the economy - the rural sector.

Federated Farmers has called for such an innovative approach.

It is clear that the Kiwi Share - 10 years old this month - is no longer serving farmers' best interests. This indeed will be one of the most interesting challenges to come out of the Government's Telecommunications Inquiry.

*Bruce Parkes is Telecom's Government and industry relations general manager.