In the third part of a four part inquiry into the battle over broadband in New Zealand, telecommunications writer Hamish Fletcher asks whether a carrot or stick approach is needed to boost ultra-fast uptake.

A "carrot" rather than a stick should be used to encourage people to move to ultra-fast broadband and keeping slower internet prices higher is the wrong way to get them to switch, says a research and public policy firm.

Infrastructure firm Chorus says if prices on its older copper internet network are set too low, it could harm uptake to the new ultra-fast broadband (UFB) network it is building.

The argument is that if copper prices are too low relative to fibre there is less incentive for customers to move to the faster services.

See beginner's guide to NZ's broadband battle here.


The NZX-listed firm voiced these concerns when the Commerce Commission released a draft ruling last December that would cut wholesale copper internet prices by more than 25 per cent if finalised.

The Government, which is loaning $929 million to Chorus for the UFB build, has since proposed to intervene in the market and set wholesale copper prices that are higher than in the regulator's draft decision.

The copper prices suggested in this intervention are equivalent to entry-level fibre prices on the UFB network.

Chorus supports this intervention and included the views of former Telecommunications Commissioner Ross Patterson in a submission about it to the Government.

Patterson said setting copper and fibre prices on par would encourage consumers to move to fibre.

"If you encourage someone to build a wonderful network and there's no incentive for customers to use it because it's priced so high compared to other services you've achieved nothing," Patterson said.

Research and public policy consultancy firm Covec said it acknowledges higher copper prices relative to fibre would tilt the market towards UFB. But the Auckland-based company said making fibre better rather than making copper worse was the preferable approach to encourage people to move to the new service.

Vodafone made a similar point in its submission to the Government against intervention.

"To encourage switching from copper to fibre without reducing consumer welfare, a 'carrot' is required. The way to do that is by improving the UFB service so that it is more attractive to customers," Covec said in a report prepared for some opponents to the proposed intervention.

One of its suggestions was to improve the entry-level speeds being offered over the UFB, something Chorus has since proposed to do.

Covec said making sure there were no barriers to selling digital premium content - such as newly released movies or live sports - was another way fibre could be improved.

Communications and Information Technology Minister Amy Adams told the Herald she believed speed and the quality of service would be what attracted consumers to fibre. But she had concerns on whether pricing issues meant retailers had more than of an incentive to keep consumers on the older network.

"My view is that consumers offered a choice, as they see the advantages of fibre, will take up fibre not based on price.

"But my concern is that they may not get that option if the incentives and rewards for retail providers are much more around continuing to keep people on copper," Adams said.

A government discussion document on the proposed intervention also said if retailers are discouraged from offering fibre, that will in turn reduce the services and applications that become available over the fibre network and provide a further disincentive for people to migrate.

But Slingshot and CallPlus boss Mark Callander said internet retailers would have to offer fibre services if they wanted to remain competitive and keep customers.

The Government has also said that a price gap between copper and fibre would have specific consequences for Chorus.

"As the owner of the copper network, Chorus will be directly affected by both lower copper revenue and slower migration to fibre, which will affect its ability to fund the roll-out of fibre in the areas where it is contracted to do so," the discussion document said.

However, Prime Minister John Key took this argument a step further.

"Basically if the Commerce Commission ruling stands there's a chance Chorus will go broke, in which case the ultra fast broadband won't be rolled out," he told TVNZ last month.

But opponents to intervention say there is no evidence that Chorus is at risk of insolvency and therefore claim those are not appropriate grounds for the Government to overrule the regulator.

Tomorrow - Where to from here?