Op-Ed: Why A Regional Approach To Fibre Is Right

Now the bids are in and the NZ Government is considering which potential fibre providers to work with in delivering New Zealand’s’ $1.5 billion Ultra-fast Broadband Initiative’, it is perhaps timely to consider where the fibre debate has come to over the past 12 months.

The Government has clearly taken a regional approach to its ultra-fast broadband initiative. Many commentators have complained that this will be inefficient and could lead to ‘incompatible and disconnected islands of coverage’. However, a regional approach to dark fibre deployment makes sound business sense and the strong response from potential partners for proposals vindicates the Government’s approach.

The NZ Government is looking for private partners to develop fibre to the home (FTTH) infrastructure out to at least 75% of the population within 10 years. Under an innovative approach, the Crown will fund the initial construction of the network with private partners progressively taking ownership of the network (effectively paying back the Crown) only as connections are made. This significantly reduces the risk associated with take up on the network. Private partners were able to submit regional or national proposals. Simon Allen, the Chairman of Crown Fibre Holdings (CFH), recently stated that the Government had received “33 proposals from 18 respondents” of which two were “competitive national solutions” and that they included “a number of proposals from regional New Zealand”.

The critics of the Government’s regional approach are wrong for five reasons:

Firstly, the regional deployment of dark fibre will be at least as cost efficient as a national deployment. Economies of scale are far lower for Layer 1 than for Layer 2 because the majority of construction costs are for civil works. Therefore, the ability to project manage local infrastructure deployment effectively, a skill possessed by all the key regional New Zealand players, is the critical driver of build efficiency. Regional players understand the local environment; know where to build; have the support of local stakeholders; and can quickly modify their plans according to local needs.

Secondly, a regional build creates more transparency and accountability for the Crown. Local build and performance metrics will be visible and can be benchmarked nationally to drive best practice.

Thirdly, the New Zealand market structure lends itself to a regional approach. New Zealand has a large number of experienced regional infrastructure companies with strong balance sheets and community support. In contrast, there are very few credible national partners. A national process would have resulted in a very low number of proposals, whereas the regional approach has allowed a wide range of NZ companies to participate. This was clearly demonstrated by the responses received.

Fourthly, the New Zealand Regional Fibre Group (NZRFG) has shown that a regional approach can deliver national outcomes. It has agreed national product and interconnection standards and common interests are driving commercial collaboration where efficiencies are available. Ten members are already underway with regional fibre networks and they are continuing to grow them as you read this. As has been widely reported in the media, the 19 members of the group have submitted a number of closely aligned regional proposals that provide coverage across 80% of the population and extend out beyond the 33 main centres identified by the Government.

Finally, existing retailers and new entrants are not looking for a national dark fibre solution. Most would like to by lit capacity from a national service provider. Therefore, it is the provision of national Layer 2 services that is critical to competition, not the national build and management of dark fibre. The Crown’s regional Layer 1 approach is well suited to the development of one or more national Layer 2 networks, offering wholesale open access services and allowing any retailer to connect to any premise. Several players are actively assessing such an approach.

In summary, the New Zealand Government should be applauded for developing a structure that will allow regional infrastructure players to underpin a national Layer 2 solution.

Justin Jameson is the CEO of Venture Consulting (www.ventureconsulting.com) and has advised both Vector and the New Zealand Regional Fibre Group.

About The Vector Fibre Debate

The Government plans to give New Zealand a complete fibre to the door ultra-fast broadband network. Vector thinks that’s a great idea and is hoping to help them do it and Scoop.co.nz also thinks its something well worth discussing. To have your say in The Vector Fibre Debate see… http://www.fibretothedoor.co.nz/

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