Solving the rural investment puzzle

A guest blog from Chorus as part of the RBI2 bids blog series

This blog post is the first of a series and was written in response to InternetNZ's blog post: RBI2: Who wants to make a bang with the bucks

It must have felt like Christmas at Crown Fibre Holdings HQ on RFP day, unwrapping what appears to be several strong proposals promising great gifts for rural New Zealand.

The proposed investment of $150m is not a lot in the grand scheme of things. For example, it is broadly equivalent to the 2016 budget’s commitment to improve two bridges and build two bypasses. To borrow from Rutherford for a moment, we don’t have the money so we have to think. 

Clearly there has been much innovative thinking from many players in our industry about how best to use the subsidy to solve the ongoing economic challenge of providing the rural sector with high quality communications infrastructure. 

As Chorus sees it, the puzzle for CFH to solve is how best to use that funding to:

  1. directly subsidise the building of better future-proofed infrastructure
  2. attract the maximum amount of private sector investment to complement the direct investment
  3. Make the right strategic choices to make sure rural NZ is not locked into a digital divide that will ultimately have a detrimental impact on our ability to compete as a nation.

Building better infrastructure

In a small country with sparse population, Chorus believes the model of building infrastructure once, while enabling vibrant competition on a level playing field, is the most effective way to deliver better services to more people. 

As such, the Chorus proposal centres on extending our open access fixed line infrastructure to maximise investment, avoiding duplicating infrastructure where the economics are already challenging. 

While the rules of the RPF process mean we can’t talk about specifics, we can say that our proposal involves more fibre investment and investment that makes remaining copper perform much faster. 

Our extensive fibre network also provides significant flexibility to “break out” various technologies on demand.

That means more fibre, or genuinely fibre like speeds, deeper into rural New Zealand.

Fixed line has other major benefits – unlimited plans and uncongested performance at peak times. 

In the age of video communications and streaming, it is peculiar that Internet New Zealand seems to be readily accepting the re-introduction of data caps after fighting so hard to get them out of the broadband landscape. 

Let’s not let data caps, and all of the behavioural choices they drive, remain a feature of life in rural New Zealand.

The way we use broadband is changing too.  The daily peak of data used on our network each day – around 9pm – has increased by almost 50% in the last 12 months.

Fixed line networks are built to cope with these phenomenal peaks of demand, and assuming your ISP also provisions enough throughput, there is no reason why your connection should slow down during rush hour – even during an All Blacks test. 

We can see peak demands growing faster and faster – why adopt a technology that requires you to share capacity with your neighbours at peak time, a bit like a party line?

And let’s put one final myth to bed regarding reliability – a Chorus fixed line connection has an average fault rate of once every five years, with loss of service being about 18 hours on average.  That translates to 99.96% uptime, which we confidently place against any other access technology.

Choosing Chorus means choosing fixed line broadband that is faster, unlimited, more consistent and more reliable.

Attracting private sector investment

Another great strength of Chorus’ fibre-centric proposal is that investment can be made by others, with certainty, to provide services on top of the infrastructure.

Good quality mobile broadband, for example, requires fibre backhaul.  Chorus’ proposal enables fibre to be used as backhaul for mobile – vastly improving the economics for the mobile providers, enabling them to provide more mobile coverage alongside improvements to fixed line.

Open access infrastructure means more than 80 potential service providers, all vying for your business, all paying the same regulated price on exactly equivalent terms.  No commercial gamesmanship, just straight forward vibrant competition on a level playing field.

And if something is broken, or more capacity needs to be added, it’s clear that’s on Chorus – not on any number of other parties.

In fact, choosing Chorus actually means not having to choose between technologies at all, because fibre is a future proofed ingredient for all investment solutions.   And the speed of light is always going to be faster than the speed of sound.

Making the right strategic choice

We are on the right broadband track as a nation and the benefits have been there for all to see. 

Structural separation of Chorus has delivered a great deal for consumers.

It has unquestionably been a successful industry model, with fibre take up as a proportion of broadband connections now well in the top 10 in the OECD, rapidly growing broadband uptake, significant improvements in broadband capability, fierce competition amongst retailers, new market entrants shaking up the status quo, and historically high levels of investment. 

It would seem bizarre to suddenly veer off in a different direction and essentially give up on rural as simply too hard.  That would lock in a digital divide for a generation at the most crucial time for New Zealand’s place in the global economy.

To emphasise this, the recent Spark announcement about “unlimited” mobile plans laid bare the challenge faced by mobile operators if they ever want to replace fixed line as the broadband access technology of choice. 

The statement said: “The challenges that companies around the world have faced when offering a truly unlimited mobile data plan are well publicised. Some companies have offered ‘unlimited’ data in a way that hasn’t been commercially sustainable as customers’ appetite for data consumption outstripped the economics of the model, often resulting in poor network experiences for their wider customer base.”

Moving away from Chorus as the primary provider of broadband infrastructure means less competition, lesser connectivity, data caps and a deepening digital divide.

That’s not a broadband future rural New Zealand should be excited about.

CFH has many choices to make and weighing the strategic choice is probably the most important of all.