With its decision to award the bulk of its ultra-fast broadband contract to Telecom, the Government has engineered a reform of historic significance. Not only will it connect most of the country with fibre-optic cable but it will separate the network from the phone company. Telecom's line company, Chorus, will become a listed company in its own right while Telecom will be reduced to a service provider competing with others on the Chorus network.
Many think this ought to have happened before Telecom was privatised in the 1990s, and that the line monopoly should have remained a state-owned operation as happened with electricity. A great deal of anti-competitive pricing and public distrust might have been avoided if the business had been broken apart at the outset.
The previous government forcibly divided Telecom into three business units - wholesale and retail services and the network subsidiary. The broadband contract has given the company the incentive to make the network separation complete. The "Kiwishare" obligation placed on the privatised Telecom, obliging it to maintain service to sparsely populated parts of the country, will be transferred to Chorus which will continue to operate the existing copper network as well as the fibre-optic cable, to be available to 75 per cent of consumers by 2019.
The Government's new network agency, Crown Fibre Holdings, has taken its time choosing its private partners for the broadband installation. It let contracts for Northland and western North Island districts some time ago and by December, Telecom seemed to be on the point of winning Auckland and most of the remaining regions.
But by February, the Auckland power line company Vector was back in contention and Telecom warned that without the largest city, the business would not be worth the separation required of it.
Telecom has won 70 per cent of the work, covering Auckland, the eastern and lower North Island and the South Island, excluding Christchurch and nearby districts that will have fibre laid by a council subsidiary, Enable Networks. Vector's bid undoubtedly kept pressure on Telecom's price for the work and Vector says it will still be able to offer a competitive fibre service.
For Chorus, the contract means an injection of almost $1 billion from the Government, and for the sharemarket it means the break-up of its second biggest stock. No details of Chorus' listing have been announced but it will be enticing, as will the new Telecom with the market share it will inherit on the strength of its previous advantage.
But the additional value to the exchange should be far outweighed by the benefits to the economy of larger internet capacity.
Communications Minister Steven Joyce claims we will "leapfrog many of our competitors to become one of the most wired countries in the world". Let us hope wireless technology has not rendered line networks redundant by 2019, or even by 2015 when he expects the fibre to have reached 90 per cent of businesses as well as schools and hospitals.
Enthusiasts suggest the new bandwidth may be used for remote healthcare, enabling monitoring and diagnosis on screen. Education is expected to benefit through improved research and more capacity for lessons at a distance. Business might use its capacity for video-conferences of better picture quality.
But like most big steps in technology, it's one step ahead of demand. Nobody can foresee all the uses people will make of it. When the pipe reaches homes, we'll probably fill it with so much instant information, entertainment, personal and business communications that in 10 years it will be another of life's necessities. It's the way of the world now.