KEY POINTS:
Should a cash-strapped Government spend $1.5 billion laying on fast broadband to the home?
A report by the consultancy Castalia commissioned by the big three telcos says in effect no, there is no evidence of market failure that would warrant that kind of Government intervention. Surely there are
better things it could do with that sort of money.
Are they being clearheaded and public-spirited in saying this, or short-sighted and self-serving?
Castalia puts up four main arguments:
* The private sector is doing plenty of investment in this space as it is.
* Consumers are hardly using the speeds and caps available now.
* Fibre to the home may prove to be the wrong technology, a Think Big-style white elephant.
* And home is where we consume things, not produce them, so the productivity-based arguments are rickety.
Almost all New Zealanders, it says, can access some form of broadband already, through one technology or another. The debate is about providing lots more bandwidth through high-speed broadband - a larger diameter pipe, if you like.
The Castalia report says most broadband users are unwilling to pay for the faster broadband packages available already. They mainly use the internet for surfing the web and for email, which do not require fast connections.
Evidently undeterred, the telcos have told Castalia they have committed more than $2.5 billion to the deployment of high-speed broadband infrastructure by 2012, which will provide 80 per cent of us with access to broadband services capable of download speeds of 10 to 20 megabits per second.
Going further than the current programme of laying fibre to the cabinet, taking fibre to the home is estimated to cost a further $6.2 billion, of which the Government is contemplating stumping up about a quarter.
Even then it would cost about $400 per household to upgrade internal wiring within the home to enable consumers to take full advantage of the technology.
All in all, a pretty penny.
But we have something of a tradition of being penny-wise, pound foolish when it comes to infrastructure investment.
We are paying a stiff price for neglecting investment in the national grid.
Auckland would be a better-functioning city right now if it had gone for light rail when Sir Dove-Meyer Robinson advocated it and/or had completed its highway network.
It is as though we have been caught in the mindset lampooned by comedians Flanders and Swann 50 years ago when they proclaimed: "If God had meant us to fly, he wouldn't have given us the railways."
When people first "got the power on" between the wars, it was to to provide electric light and the wireless. The power boards of those days could scarcely have imagined the range of goods today's households use electricity for.
In the case of telecommunications the pace of progress is much faster.
TUANZ chief executive Ernie Newman points to exponential growth in demand for bandwidth. YouTube alone now consumes as much bandwidth as the entire internet did five years ago, he says.
He accuses the telcos of being myopic when we need to be visionary.
They will provide the infrastructure but at a pace that suits them, that is, having squeezed as much profit out of their existing investment as they can.
The telcos have an incentive to create scarcity in the commodity they sell - not perhaps so much as to encourage new entrants into their oligopolistic patch, but enough to frustrate their customers to the point that they are willing to pay more for access to a less-congested network.
Castalia argues that by acting now and investing fibre to the home New Zealand would lose the option of waiting to see how new technologies develop, increasing the risk of getting it wrong. Perhaps the future is wireless.
Newman retorts that while wireless clearly has its place, it is complementary, not a substitute for the volumes fibre-optic cables can deliver - as air freight is to sea freight.
Until we know more about how the Government plans to do this it is not obvious that it would pre-empt other options. And if it turns out it is backing the wrong technological horse after all, well, it can always cut its losses.
Keeping options open is not costless either, especially when lead times are significant.
Sceptics of the Government's plans are on firmer ground perhaps when they question whether they would pay off in lifting the country's unimpressive productivity levels. Surely fibre to the workplace is what counts there.
However the boundary between home and workplace is becoming fuzzier.
If the aim of this exercise is to deliver infrastructure that will be as important for the coming century as roads and power lines were for the last one, then part of that future-proofing should take account of carbon costs and the gains to be had if telecommunications can be substituted for transport.
Details about how it will be structured and intersect with existing players are on the non-existent side of scant at this stage but Communications Minister Stephen Joyce is promising more information within a matter of weeks.
"It is a plan to proceed over 10 years, to achieve a step change and do it faster than the market would otherwise do it," he said.
"The argument is it provides a competitive advantage to New Zealand as a whole to get this infrastructure in ahead of some other countries."
It is not too much of a simplification to say that, historically, the things which have really propelled the New Zealand economy forward have been technologies which overcome or mitigate the tyranny of distance, like refrigerated shipping in the 1880s or jet travel in the 1960s.
It is hard enough to achieve productivity gains through economies of scale or scope given our small size and remoteness.
Any opportunities telecommunications technology provides to offset that should surely be embraced.
The motives of Telecom, TelstraClear and Vodafone in commissioning the report and peddling it around ministers and officials can only be guessed at, but are likely to extend beyond a disinterested desire to contribute to a public policy debate.
Network industries provide especially difficult challenges to competition policy. New Zealand consumers have suffered from the authorities taking too lighthanded and trusting an approach to those issues in the past.
In the electricity sector, ownership of distribution networks is forbidden to companies which generate and retail electricity. While debate continues about whether there is genuine competition among the "gentailers" no one is calling for an unwinding of the lines/energy split.
In the telecommunications sector this may be an opportunity for the Government not only to force the pace of technological change but to hard-wire, so to speak, a more robust competitive model into the industry.
