New Zealand Tries to Earmark $252 Million for "Open Access" Broadband

The New Zealand government has proposed creating a Broadband Infrastructure Fund of NZD325 million (USD251.6 million), to be spent over five years. NZD250 million would be earmarked for fiber and other high speed open-access networks in urban areas, and the remaining NZD75 million would help fund broadband infrastructure in rural areas.

Applications would be taken August 2008, with the first decisions on projects made in June 2009.

The urban grants require a match from the applicant. The rural fund would have ‘less onerous’ application criteria.

It normally is perilous to compare countries too closely in the area of what works and why. Loop lengths, density, geographic size, household size, demographics, taxation policies, prices, terms and conditions, government policies and any number of other factors condition the success of particular applications and services.

In the U.K., for example, cable has not emerged as such a powerful competitor in triple play markets for the simple reason that satellite-delivered video is so dominant there. Also, robust wholesale unbundling of copper access loops encourage competitors to lease capacity from BT rather than wasting time and money building facilities.

Still, one wonders how successful the New Zealand plan might be. Open access networks in the sense of robust wholesale have not worked all that well in the U.S. market, though one can point to Western Europe as a place where access to the incumbent access facilities has worked.

And where it has been successful, open access appears to have worked best on incumbent, rather than competitive networks. Sheer payback issues might suggest why. An incumbent almost always has written down the value of the copper assets, so a business can be made on lower-priced wholesale loop rentals.

A brand-new network has to recover the full cost of new construction, again using the lower-priced wholesale revenue model. Huge volume makes a difference, but huge volume is tough to get.

Some executives speculate that wholesale networks sometimes attract competitors with little operational knowledge of voice, data, networking or video. Those contestants often are underfunded and ill-equipped for the long term tasks of providing a high-quality service to mass market customers, with the almost-inevitable result that high initial take rates are followed by high customer churn in a year or two when quality issues have surfaced.

Hopefully, the New Zealand initiative will operate in some like manner to rural telecom subsidizes in the U.S. market, essentially helping defray high capital investment costs. Subsidizing insufficient demand, on the other hand, will doom the projects before they begin.