Q & A: Broadband explained

What is broadband?

It is essentially a fast internet connection that allows high download speeds delivered mainly over copper phone wires, but also coaxial cable, fibre-optic connections and, increasingly, through wireless technology. In New Zealand, virtually all broadband connections - about 92 per cent - are over phone wires and thus through Telecom or its wholesalers.

There is no standardised definition of the speed, as broadband is constantly evolving.

The International Telecommunications Union (ITU) in 1997 suggested the speed at which data travels over a connection needs to be 1.5 or 2 megabits a second to qualify as broadband.

Some studies have set the speed lower, between 200 and 500 kilobits a second. But as new internet uses and services are developed, and demand grows and prices fall, the speeds are pushing upward.

The OECD suggests the most appropriate definition is one put forward by the computer science and telecommunications board of the US National Research Council.

It defines broadband as a connection that is "no longer perceived as the limiting constraint on what can be done over the internet".

Problems in New Zealand

New Zealand was one of the first countries in the OECD to introduce broadband, in 1996, and more than 95 per cent of the country now has access to it. Supply is not a problem.

Demand is an issue, as uptake has been poor. Only 10.9 per cent of households have broadband, half the OECD average of 21.2 per cent.

New Zealand ranks 22nd out of 30 in terms of uptake, ahead of countries such as Hungary, the Czech Republic and Mexico.

The Ministry for Economic Development says uptake here is "among the lowest in OECD countries where broadband is being actively promoted".

So what has stifled demand?

Slow speeds:

New Zealand broadband subscribers have had three connection speeds to choose from: 256 kilobits a second, and 1 and 2 megabits a second. Although 256 kilobits has been an accepted minimum across the OECD, only eight countries - including New Zealand and Australia - still offer it.

While a new top-speed 3.5-megabit service is expected here shortly, offerings are still behind OECD leaders. Australia, which ranks 17th in uptake, has 24-megabit service.

This means that consumers don't get the real benefits of true broadband - such as reliable real-time video - and as such aren't interested in paying for it.

Upload speeds, which are more necessary for business uses such as website maintenance or video teleconferencing, are also slow. A recent MED report shows Telecom's 128-kilobit upstream speed falls far short of a prescribed 512-kilobit minimum. Faster upload speeds are available, but at much higher prices.

Data limits:

New Zealand is one of only eight OECD countries that don't allow broadband subscribers to download as much as they want. Most countries have providers offering plans with unlimited downloading, but limits here range from 200 megabytes to 20 gigabytes. Users incur extra charges after reaching their limits, or have their connection speeds throttled down.

High prices:

In comparing entry-level and standard broadband service pricing, the MED found New Zealand was on a par with the top half of the OECD. However, the comparison did not take into account the speed and data issues, in that entry-level and standard broadband services in many countries are faster with fewer limits.

The report also found that business broadband with at least 512-kilobit upstream speed was the second most expensive in the OECD, next to Mexico.

Underinvestment:

Of the 42 high-income countries tracked by the ITU, only Kuwait has invested less in telecommunications - which includes phone lines, mobile networks and internet.

New Zealand ranks 41st and has invested US$66.80 an inhabitant, according to the latest figures available, compared to leader Norway, at US$568.70. Australia has spent US$240.50 an inhabitant.

How did this happen?

Industry experts agree that the above problems and resulting low uptake are the result of a lack of competition. With Telecom controlling 92 per cent of broadband connections, it has no impetus to boost speeds and data limits, or to lower prices.

Twenty-eight of the 30 OECD countries have undergone a process known as "local loop unbundling", where Governments forced incumbent telcos to open up their networks to competitors. The competitors are able to install and connect their own equipment to the telco's network, and thus control speeds, data limits and overall quality of service.

New Zealand and Mexico, which ranks second-to-last in broadband uptake, are the only two countries to not unbundle. The Government here moved to do so in 2003, but decided against it after lobbying from Telecom in favour of a wholesale arrangement.

Where does that leave us?

Telecom promised to add 250,000 broadband customers in 2005, with a third of those coming through wholesale, if the Government agreed not to force unbundling. The company has fallen through on the one-third goal, but now disputes ever promising it.

Communications Minister David Cunliffe promised during last year's election campaign that "action will follow".

He said he would consider options, including unbundling and structural separation, if Telecom fell short of its goals.

Pressure is mounting on the Government to regulate Telecom, with many analysts suggesting unbundling as the most logical move.