Chorus wants new Media and Telecommunications Minister Paul Goldsmith to address rural broadband blues with a public-private project to expand UFB fibre. Photo / Mark Mitchell
Chorus has a $2.5 billion proposal for new Media and Communications Minister Paul Goldsmith, barely a fortnight into his new role.
A Ministry of Business, Innovation and Employment briefing paper in January for his predecessor Melissa Lee said: “Despite substantial Government investment [some $800 million], rural New Zealanders experience connectivity services that are slower, less reliable and more expensive than urban New Zealanders.”
Speaking at the Tuanz Rural Connectivity Symposium in Rotorua today, Chorus “fibre frontier” general manager Anna Mitchell proposed a public-private partnership that would expand ultra-fast broadband (UFB) from the current 87 per cent of the population to 95 per cent.
The project would take about 10 years at a cost of “about $2b to $2.5b, or $200m to $250m per year”, she said.
Speaking to the Herald ahead of her speech, Mitchell said Chorus saw the expanded fibre rollout being funded, in part, by an increase in the Telecommunications Development Levy, divvied up proportionately by each company’s share of total industry revenue. During the 2010s, the levy was set at $50m a year, with the funds earmarked for the Rural Broadband Initiative.
The levy was downsized to $10m a year in 2020. Mitchell envisaged it being bumped back up to $50m.
The balance of the $200m to $250m a year would come from an undefined mix of capital from Chorus, smaller UFB operators and the Crown. “There’s always the opportunity for additional private capital if the proposition is right,” Mitchell said.
For Chorus, part of the mix could be a “full exit” from copper lines by 2030. For now, Chorus faces the expense of operating both fibre and copper in many areas. (The gradual withdrawal of copper lines has recently been a pain point between the Commerce Commission and One NZ over emergency calls.)
The $2b to 2.5b price tag is robust. The Crown chipped in about $1.8b in matching funds (in the form of buying equity in Chorus, and no- and low-interest loans) for the urban-focused UFB, which saw fibre reach 87 per cent of the population in the decade from 2011 (Chorus reported a $5.7b regulated asset base for the end of 2022). The steep bill for reaching another 8 per cent reflects that fibre is more challenging to lay in rural areas.
The upside: Mitchell says an additional 400,000 people would get access to higher capacity, more disaster-resilient fibre, “closing the digital divide by two-thirds”.
Lee had not given any indication of her intentions on telecommunications policy before her demotion last month. Chorus’ immediate expectations of her predecessor are modest. Mitchell said Chorus hoped for a rural broadband review by year’s end.
Craig Young, head of the Technology Users Association of New Zealand (Tuanz), backed the idea of boosting the telco levy back to $50m a year. His organisation had recommended it to Lee.
“This may lead to a small increase in urban users’ broadband bills but I am sure that users would not begrudge a few cents a month to help improve the outcomes for our rural friends and whānau.”
The funds needed to go “to the right provider in the right area and not just to the big players such as Chorus”, he said.
Mitchell said that, in Chorus’ view, the fixed wireless technology used for much of the Rural Broadband Initiative was too capacity-contained, or too limited in the number of households that could connect at once, at least with decent data caps. Fibre would not face those limits.
Late last year, Telecommunications Commissioner Tristan Gilbertson told the Herald that Elon Musk’s broadband-via-satellite firm, Starlink, was the fastest-growing rural broadband provider.
The previous Government had a limited pilot to cover the cost of a DIY remote rural broadband installation under the $15m Remote Users Scheme. Beyond that, tens of thousands have paid privately for a Starlink dish on their roof (and about $179 a month in broadband charges).
With the Commerce Commission saying Starlink is good enough for cloud computing and Netflix, why not let Starlink cater to rural New Zealand, be it subsidised or not? (Starlink advertises to Kiwis in all areas; Spark, One and 2degrees are resellers of its business-grade service, based around a larger dish).
“There’s no question that Starlink is a total game-changer,” Mitchell said. “But we would have to have a conversation as a country about what it would mean to have 13 per cent of New Zealanders relying on Starlink.”
Musk’s firm is largely outside New Zealand price and service regulation and its founder has, at times, made decisions on the hoof about coverage in disaster-hit or war-torn areas.
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As things stand, Chorus is still arm-wrestling with the Commerce Commission over its regulated spending allowance for what’s known as the Second Regulatory Period (or “RP2″, covering 2025-28), or the second time the regulator has set the market rules since the UFB rollout wrapped up. The regulator wants to crimp the firm’s RP2 spending by 16 per cent or $300m in its latest draft plan.
Hanging in the balance is a Chorus plan to spend $201m to extend fibre to an additional 40,000 premises (the firm says Crown co-investment would be needed for any push beyond that). The only concrete proposal at present is a scaled-back Chorus plan to expand fibre coverage by 10,000 premises, for $40m, by 2025.
Tuanz is a broad church. Its 2024 Rural Connectivity Symposium will also hear from Ian Hooker, chief executive of the Rural Connectivity Group – a Spark, One NZ and 2degrees joint venture under the Rural Broadband Initiative. The three mobile players have also committed to spending $24m each, beyond that already budgeted, as a quid pro quo for being directly allocated 5G spectrum.
Also in the speaking line-up is Wispa chairman Mike Smith. Wispa (the Wireless Internet Service Providers’ Association) is a coalition of small provincial and rural ISPs.
Smith also has a beef with Starlink, albeit from a different standpoint than Chorus. He told the Herald he wanted the Government to assess whether Musk’s firm had predatory pricing. He said his members could provide near-fibre speeds at a fraction of the price.
Chorus shares were flat at $7.23 in late morning trading. The stock is down 15 per cent over the past 12 months. In February, Chorus reported a fall in first-half profit but raised its full-year operating earnings forecast to a $675-690m range and said it was on track to meet its guidance of a 42.5 cents per share dividend for the full year.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
