Ultra-fast broadband: a moment of truth?

I've been at the TelCon11 conference in Auckland yesterday and today.

There is a clear rumbling within the industry about the next stages of the Government's ultra-fast broadband package, the $1.35bn investment in fibre to the premises that is currently moving from policy to digging.

Comms Minister Steven Joyce and Crown Fibre head Graham Mitchell in their presentations yesterday made it clear that there would soon be some adjustments made to the UFB, and that new changes to the UFB framework will be announced with a "request for refined proposals" being released shortly (see the Computerworld report here).

Given the speed of the whole policy process to date in creating the detail of the UFB, adjustments could well be necessary. Industry speculation has focused on whether layer 2 services should be a more central part of the LFC model and the (quite considerable) implications this would have for the model, and hopefully the revised RRP will cover that.

There is though another elephant in this room, which is Telecom's future role. I don't know when Telecom first started talking about structural separation with the government, or who precisely with, but like others I wish they had done it publicly sooner.

InternetNZ has always regarded structural separation of the network as a good outcome for New Zealand (at least, since we made submissions on the telecommunications legislation in 2006). Telecom can only do it if they decide it's in the interests of their owners to do so, which is a different equation than the public interest test we apply.

So if Telecom is thinking about separation carefully, that's fantastic.

What isn't fantastic is the complication it injects into the UFB process.

First, there is a view held by some that Telecom competing head to head with local fibre networks wouldn't lead to an economically efficient outcome for New Zealand, or be to good business cases (takeup-wise) for the LFCs. (This contrasts with the view that infrastructure competition would be a good thing, and that anyway fibre needs to be laid everywhere for an FTTP network and so the value of Telecom's assets in the mix is minimal.)

Second, there is a chicken-and-egg problem on the separation front. Telecom as a vertically integrated firm can't participate directly in the UFB. But Telecom probably can't make the economics of separation work unless it has some kind of assurance that its separated network business will be a lead player in the UFB. 

Third, there are clear political pressures on the government to ensure that there aren't major delays in the UFB process. Yet, working out how a structurally separated Telecom might participate - to avoid the Telecom v UFB scenario noted above - is going to take time, as will Telecom's own hard work on justifying to its owners that separation might work for them.

I'm just raising the questions and the issues here. I don't have any easy answers - for Telecom, for CFH, for the government or anyone else.

I do think though, that there are some things that we all should try to avoid:

• making policy deals or regulatory deals behind closed doors
• changes to the current tender process that undermine the efforts people have gone to in making bids

The first needs to be avoided because the devil is always in the detail, and details crunched under pressure and behind closed doors have a high chance of unintended and damaging consequences.

The second needs to be avoided if possible as a simple matter of honest commercial practice. Adjustments and refinements are fine, as long as the general integrity of the process is maintained - something we'll only know when we see the details.

What are your thoughts? How do you think the industry should proceed?

Jordan Carter, Policy Director