ULL - my argument

Fundamentally, I don't think that the government has done the right thing unbundling the local loop. I'm not saying that Telecom were doing the right thing either, but unbundling is not the solution.

In the last few weeks, Telecom's share price has dropped considerably on news of unbundling - not good for shareholders. However, it's also bad news for the country, because unbundling isn't going to solve anything. Definitely not in the short term (2-3 years) and I suspect not in the longer term.

Why is it bad?
It's bad because there's currently only one company in NZ with the financial power to undertake the investment required to really make a difference - Telecom. And the government has just removed their competitive advantage - oops. Without a reason to invest (i.e. to make money), no company is going to invest. That's what's happening in Australia where Telstra's major FTTN rollout is under threat.

It's bad because even with an unbundled local loop, it's unlikely that the smaller players can really afford the investment required to take advantage of unbundling. Sure the larger ones such as TelstraClear, CallPlus and ihug might manage it, but even then it will be in the larger city centres. It's unlikely that Fielding or Masterton or Gore or (enter small provincial city/town here) will see much investment because there's no money in it. Maybe a small player such as Inspire could manage something around Palmerston North, where it is based, but little on a national scale.

It's bad because investment in core infrastructure is required to support faster speeds - and that costs a lot of money and has a long payback period. To get to the speeds required for triple-play (voice, data and video) or qad-play (add mobile), you're talking 15-24Mb/sec downstream. That's ADSL2+/VDSL/VDSL2 type speeds. And you only get these speeds with very short copper loops (less than 1KM). From an NZ perspective, with its spread out landscape, that means a cabnetised network. i.e. Lots of 2m x 2m x 0.8m (ish) green cabinets dotted around the country that have copper from the house going in and fibre coming out. That means a lot of streets being dug up - a lot like when underground powerlines went in or when you first got gas in your street (remember those days). And it also means a Resource Management Act nightmare.

So what's the answer?
If we assume for the moment that faster broadband speeds is directly linked to economic growth (I'm only assuming it because I can't find a reference for it yet - I do think this is true), then it follows that it's in the national interest to improve it and is therefore a government problem. i.e. It's up to the government to solve it.

Because Telecom is a private company, its first responsibility is to its shareholders - so why do people get upset when they take actions that aren't necessarily in the best interests of the country? The business case for a large fibre rollout is hard to make. Ergo, the government (read "you and me") should pay. It's kind of like good roads or electricity or health. It's just got to be done and we can't and shouldn't ask a private/public company to take the risk.

So we've got to pay for it. I think the government needs to buy the infrastructure and fund the investment. Maybe they buy the appropriate parts of Telecom? But it needs to be:
  1. Nationwide
  2. Not expected to make a profit
  3. but cost effective
  4. Done quickly
  5. State of the art
  6. For the long term (i.e. kept up to date)

Well, that's what I reckon anyway (in summarised form)


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