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Current as of 24/10/14 07:40PM NZST

Chris Barton 's Opinion

Technology columnist for the NZ Herald

Chris Barton: Broadband price controls no way to reverse the great telco rip-off

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Internet plan set to replace one monopoly with another.

Crown Fibre Holdings' ultra-fast broadband (UFB) project will see a great price change with reduced rates for telecommunications services. Photo / Thinkstock
Crown Fibre Holdings' ultra-fast broadband (UFB) project will see a great price change with reduced rates for telecommunications services. Photo / Thinkstock

It's official. We're paying about double what we should be for telecommunications services here. That's the first of two shocking truths laid bare by the leaking of Crown Fibre Holdings' price book for its $1.5 billion ultra-fast broadband (UFB) project.

The second is that the Government's intervention to right this terrible wrong employs price control.

There, I've said it - price control. The last time this spectre raised its ugly head was in the price freeze imposed by Prime Minister Robert Muldoon in 1982. Yet here it is again, delivered to us by a National Government that normally champions the free market and laissez-faire economics.

But it's the prices that Crown Fibre Holdings (CFH) is seeking to set on the proposed nationwide fibre network that should give consumers the biggest shock. The entry-level service, running at a modest 30 megabits per second (Mbps) downstream and 10Mbps upstream, is to be fixed at $35 a month wholesale - equating to about $47.50 per month retail. Adding a phone service and the ability to get TV down the wire brings the wholesale cost to $38.75 a month and retail price to $52.60.

That's the kicker. In addition to broadband, phone and TV services cost a mere $5.10 a month. Compare that with what we pay now - about $100 a month for phone and broadband, providing, if you're lucky, a 15-18Mbps download and 1Mbps upload - and it's hard not to see that consumers are being ripped off to the tune of $50 a month.

There are a number of aspects to the UFB proposal that can be criticised: its underwhelming speed - at best 100Mbps down and 50Mbps up; its top "committed information rate" of 10Mbs; the lack of information about data caps, not to mention the cost of international bandwidth. But even at the entry-level 30Mbps/10Mbps speed, with a committed information rate of 2.5Mbps, that's still about 50 times better than the 45 kilobits per second we're getting now.

If such speeds and prices were available now, many I'm sure would jump at the chance. But the problem with this new ultra-fast fibre network is that it will take six years to build. Some parts of the country, such as Whangarei and Ashburton, where fibre deployment is well under way, may see these benefits soon. But with contracts taking an age to sign I suspect most of us will still be waiting for the promised land for several years.

The real worry is that the price-control mechanism here could rapidly get left behind. There are various indisputable laws in the tech world which insist everything - be it transistors on a chip, storage capacity, memory, or bandwidth - doubles every 18 months or so. Bigger, smaller, better, faster. Which is why the idea of a 10-year regulatory holiday for those who win the contracts to build the network is madness.

Fibre, unlike copper, has bandwidth to burn, so while a 30Mbps/10Mbps service would be a great entry-level service today, to keep pace with the rest of the world 100Mbps, ideally in both directions, should be the starting point. In few years we should be relishing 1Gbps.

The problem with locking in a price book for 10 years is that it will be out of date before we start and there will be no incentive to keep making the network better and faster. You can understand why UFB network participants such as the Regional Fibre Group would be pushing for this "regulatory forbearance" - they want certainty for their fibre investment.

But let's not forget that the reason the UFB project has come about is because of market failure. The Telecom monopoly was never going to build a fibre network and was going to continue milking profits from hapless consumers and its creaking infrastructure until the end of time. The regulatory holiday threatens to replace one rapacious monopoly with another.

Even more worrying is that the Government is also bending over backwards with new legislation to allow Telecom to participate in building the new network. At present, Telecom is a non-compliant bidder because its retail and wholesale arms are too intertwined. Bizarrely, CFH is in negotiations with Telecom on the basis of what it would do if it was compliant.

Why give a company that's been overcharging and under-delivering on services such a privileged position?

What's really revealed here is just how hard it is make competition work across a monopoly utility service balancing profit against public good. The fact that the Government is employing extreme price control indicates just how hard - and how it much easier it would be if the Government owned the network outright. On the plus side, CFH's price book sheds light on the darkness and confusion that has been telecommunications services in New Zealand, revealing the potential for decent services at a decent price.

Less positive, however, is that just when the project looks close to at last delivering something, the Government seems determined to throw it away by handing the bulk of the network build to a non-compliant bidder, with a 10-year regulatory holiday to all participants. If there is anything we have learned in more than two decades of deregulated telecommunications it's that to get a fair deal, regulation - heaps of it - is required.

chris.barton@nzherald.co.nz

- NZ Herald

Chris Barton

Technology columnist for the NZ Herald

Chris Barton is a freelance writer with 28 years experience in newspapers and magazines. He's been writing about technology since 1986, was the founding editor of New Zealand PC World and has won numerous media awards, including, in 2009, journalism's top prize, the Wolfson Press Fellowship to Cambridge. He has a Master of Architecture, teaches part time at the Auckland School of Architecture and is an architecture critic, winning, in 2014, the Canon Media Awards Reviewer of the Year.

Read more by Chris Barton

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