The "significant" cost of connecting and using ultra-fast broadband services will likely reduce uptake of high speed internet in the short term, according to a report from the Commerce Commission.
While costs will limit uptake, the Commission said that the availability of video content will drive demand for faster broadband, a view which is widely held across the telco industry.
The Commission's report, released today, aims to raise awareness on what will affect demand for ultra-fast broadband (UFB) and follows the publication of a draft study last month.
The Government has teamed up with private infrastructure partners for its UFB project, which will see fibre lines rolled out across New Zealand.
The initiative will offer 75 per cent of the country download speeds of at least 100 megabits per second by the end of 2019.
This is over 20 times faster than the average speeds enjoyed by urban internet users in 2010.
While fibre is now being deployed, the Commission's report said the cost of connecting to and using high speed broadband could limit appetite for fibre services.
"As these costs (non standard connections, re-wiring, upgrading equipment and subscribing to the services) appear to be significant, they are likely to reduce the initial uptake of high speed broadband services for both consumers and [small to medium businesses]," it said.
According to the report, Telecom has estimated that 1.6-1.7 million customers could incur costs when moving to a fibre-based environment.
Telecom's estimated cost of replacing equipment in homes and businesses such as phones, security alarms, set top boxes or eftpos machines is likely to be $811 million (an average of $500 per user).
While including Telecom's estimates in the report, the Commission did say they are likely overblown and some older equipment can be easily modified for use over fibre.
The Commission said cost may be a particular issue for lower socio-economic groups.
One issue the industry is still finalising is who pays for further cabling if a customer lives down a long driveway or at the back of a subdivided property is still up in the air.
Orcon chief executive Scott Bartlett said last month internet retailers cannot afford to pay for connection and customers should not have to foot the bill.
"Customers don't want to pay for it and I think that would severely limit uptake on to fibre," Bartlett said in May.
While video content is likely to be a primary driver of uptake, the commission expressed concern at the current offerings in the market.
"The rate of uptake is likely to be higher if there is a diverse range of video on demand options available to consumers. Currently, there are limited online video on demand services in New Zealand compared with many other comparable countries," the report said.
The report did note that Australian based online movie provider Quickflix had recently launched in New Zealand.
But according to Quickflix it is unable to offer content from parties like HBO in New Zealand because of arrangements the channels have with SKY Television.
This is despite the fact that Quickflix can offer HBO programmes in Australia.
HBO is a US cable television network that screens popular shows such as Game of Thrones and The Wire.
In November last year, US online video and television service Netflix ruled out launching in New Zealand because of low data caps (the amount of internet data that a user can consume in a month).
But in its report the Commission said that it expects issues around data caps to be sorted out by market forces.
"Historically the high costs of international connectivity have resulted in low fixed line data caps. Recently data transmission costs have been steadily falling, while data caps and unmetered content have been increasing...The Commission expects that competitive pressures will result in further data caps increases and symmetrical speeds becoming the norm," it said.
Pacific Fibre, the company hoping to build New Zealand's second international internet link, has claimed its project is necessary to reduce the costs of internet traffic, the company has not yet sourced enough funding to kick the venture off.By Hamish Fletcher @hamishfletcher Email Hamish