Australia and New Zealand set out at roughly the same time to build national fibre networks. The two countries had similar motives. Each wanted to modernise and reboot its respective telecommunications sector. They shared the same goal of having a separate, wholesale network to spur competition. Both governments aimed to lay down the infrastructure needed for their people to meet the challenge of the digital future.
But that’s about all their plans had in common. From day one the two countries found themselves on quite different broadband trajectories. How has this worked out? Let’s hear from Nick Whigham, a journalist at news.com.au. In September, Whigham wrote: “New Zealand’s internet is about to leave us in the dust.”
He said: “By its expected completion date, of 2019, at least three-quarters of New Zealanders will have the chance to access ultra-fast broadband that is far superior to the internet used by the vast majority of those residing on the other side of the ditch.”
Whigham’s story came as New Zealand fibre companies were readying the launch of residential gigabit services across the entire network.
He compares this with the state of affairs in Australia: “Comparatively, many Australians who have signed up to the NBN (National Broadband Network) currently receive download speeds within the range of 25Mbps to a possible maximum of 100Mbps. Full fibre connections are expected to make up about 20 percent of the completed NBN rollout, meaning retailers will one day be able to offer 1GBps speeds to the lucky few.”
Australian-based Ovum principal analyst Craig Skinner says you can’t make a direct comparison between the Australian and New Zealand fibre networks or the projects to build them. He says: “Australia is a much larger physical land mass. Building a network means dealing with far longer distances.”
Skinner says the bulk of the Australian population is concentrated. Almost 40 percent of the nation’s 24 million people live in two cities: Sydney and Melbourne. Most of the rest live in coastal cities or along coastal strips. A small number of people live in the interior. These people are often hundreds of kilometres from population centres.
Australia is vast. It fills about 7.7 million square kilometres. New Zealand is a mere 268,000 square kilometres.
Australia’s challenge is not just its geographic scale or distance, however. Skinner says: “New Zealand’s Government took a pragmatic approach after looking at early costings. It decided on serving cities and towns with fibre. Australia’s NBN is all-embracing. This was an ideological decision made irrespective of the cost. The network goes everywhere. At first the plan was to connect 93 percent of the population to fibre, with the rest served by a mixture of fixed wireless and satellite. It was, and still is,
a much more challenging project.”
Nothing better illustrates the difference in project scale than the government budgets which were set out in 2009. In New Zealand, the then communications minister Steven Joyce earmarked NZ$1.5 billion of government money for the UFB network and a further $300 million for the Rural Broadband Initiative. The money for ultrafast broadband is, in effect, a soft loan, the government will get it back. At the time, Joyce anticipated the private companies building the network might spend another $5 billion or so of their money.
Australia’s communications minister at the time, Senator Stephen Conroy, set an initial A$43 billion budget for the National Broadband Network. Even given the difference in population size and distances that’s a far bigger spend. Skinner says much of the extra cost comes down to the goal of reaching more of Australia’s people with fibre. He says that has as much to do with political ideas of nation building and national unity than with telecommunications.
At first the Australian Government looked to partner with private industry to build the NBN. By April 2009, it was clear it wouldn’t get the deal it wanted. The then Australian Prime Minister Kevin Rudd announced no tenderer had made a successful bid to build the NBN. Instead, he said, the Australian Government would set up its own company, with the help of taxpayer funds and bonds. In effect, a nationalised project — at least for a time. The plan was to build a nationwide, structurally separated network that would be wholesale only. Rudd said once the network was up and running the Government would sell it to the private sector.
NBN Co is a government-owned monopoly wholesaler. Its job is to build and operate the national network that will include fibre, wireless and satellite. NBN Co is directly funded by government. In the early stages it has no focus on earning revenue or making a profit — that is a long term goal.
This is quite different from the structure in New Zealand, where Crown Fibre Holdings (CFH) is the government organisation managing the UFB. CFH owns equity stakes in the fibre companies but does not own them. There is also private equity in Chorus which has the contract for 24 of the original 33 local fibre areas. The fibre companies have monopolies in their areas and are responsible for managing the network build and then for operating the networks.
CFH administers the government money set aside for the UFB. It is, in effect, undertaking the project risk. Fibre companies repay CFH each time they activate a connection. They also pay for the connecting fibre that runs from the street to the house, although this gets more complicated with non-standard installations.
New Zealand’s system was designed to motivate fast building of the network. The sooner a fibre connects to a house, the sooner it can earn revenue. One notable difference in New Zealand is that the fibre companies have a clear financial incentive to keep down the cost of connecting each home — this helps control project costs.
When the New Zealand Government invited bids for the UFB build, it made it clear that bidders would be wholesale only. This meant that to take part Telecom New Zealand had to divest itself of its Chorus operation. This ensured full separation between the nation’s largest telecommunications company and the fibre access network.
In contrast, Australia went ahead and formed NBN Co without ever dealing with Telstra’s market domination. This gave the telecommunications giant a large degree of leverage. It forced the Government into costly and extensive negotiations with Telstra to get infrastructure access. It also made life difficult for rival telcos.
“New Zealand’s Government took a pragmatic approach after looking at early costings. It decided on serving cities and towns with fibre.”
Another major difference between the two projects is political consensus. In New Zealand, both the Labour Party and National went into the 2008 election with a promise to build a fibre network. Although there has been debate over various aspects of the Telecommunications Act’s reforms and other regulatory matters, there has never been any quarrelling over the need to build a fibre network.
Compare this with the NBN, which has been politically controversial from the outset. At first, the disagreements were over the scope of the project, the amount invested and Opposition uneasiness about the Labor Government’s decision to build what was, in effect, a nationalised network.
There were other problems too. Skinner says Opposition politicians questioned whether consumers would be willing to pay more for higher speed broadband services. The scope of the Australian build and the idea that people in expensive-to-connect remote areas would pay the same as city dwellers meant the premium for a fibre service could be high. Skinner says: “Politicians wondered if people would pay enough for NBN Co to cover its costs. At the same time, there were issues with the idea of regulated prices and a political constraint on the entry-level fibre price, which would need to be the same as ADSL.”
Skinner says it became clear that the A$43 billion budgeted when the project was first proposed was not going to be enough to pay for fibre to everyone’s premises for 93 percent of the population.
Soon a debate emerged over the technology being used. The Opposition Coalition and the media raised questions about the necessity and value of building an expensive and extensive fibre-to-the-premises network. The debate became politicised, with Labor supporters defending fibre and Coalition supporters preferring cheaper alternatives.
After the 2013 federal election, the incoming Coalition Government abandoned much of Labor’s original plan. It then moved to a multi-technology mix model. This involved Telstra and Optus’ HFC cable networks serving up to one-third of homes. Elsewhere a mix of fibre-to-the-node and fibre-to-the-basement would serve apartment buildings. At the time, NBN Co executive chairman Ziggy Switkowski said portions of this new network would need upgrading within five years.
To no one’s surprise the different approaches in Australia and New Zealand have led to different outcomes. Between December 2014 and December 2015, Australia boasted the world’s fifth fastest uptake of fibre broadband, with the numbers increasing by almost 100 percent. During the same period, New Zealand recorded the world’s highest uptake, with numbers increasing by more than 130 percent.
InternetNZ deputy chief executive Andrew Cushen says Australia’s programme was more ambitious but New Zealand got more right. He says New Zealand’s project is more cost effective. “The $1.5 billion in soft loans and $300 million in industry levy funding looks like a bargain in comparison to the many, many billions the Australians are spending, particularly when the Australians aren't getting better outcomes than us. Much has been made of the fact that the soft loans are to be repaid and the money recycled in the form of further soft loans. This multiplicative effect means the actual impact of the $1.5 billion is far more than it looks at face value.”
Cushen says New Zealand is seeing much faster growth of New Zealanders connecting to faster internet than is the case for Australians, and at far less cost. He says: “Our UFB isn't perfect, but it is on time and on budget. That’s unlike the NBN, which is late and apparently blowing its budget significantly.”
One day Australia’s NBN performance will catch up with UFB. It may yet achieve its goal of reaching further into the Bush, although by then New Zealand will be well into the second phase of the UFB and Rural Broadband Initiative. New Zealand will also have got there at a far lower cost and with much less pain. In the end, both countries will be better off. We’re already seeing signs of what fast broadband means for the economy. It’s not a zero sum game, so Australia can enjoy some of these benefits too.