The Australian: Kiwis show how to roll out a Broadband Network

If you want proof of how badly the Gillard Government is managing Australia’s broadband rollout, you just need to look across the Tasman.

In November 2008, the Key government came to power in New Zealand promising to spend NZD 1.5 billion on a new broadband network (on current exchange rates, around AUD 1.2 billion.)  

Less than four years later, the Kiwis are setting a cracking pace.  By 30 June 2012, their national fibre to the home broadband network had passed 76,000 homes.

Last year Telecom New Zealand (Telstra’s equivalent) was split into two companies under entirely separate ownership, one operating a wholesale-only network and one a retail service provider. 

In rural New Zealand, a joint venture of Telecom and Vodafone is well advanced building out base stations that will extend mobile coverage – and offer fixed wireless broadband at minimum peak speeds of 5 Mbps (in fact it is consistently delivering 8-9 Mbps.) 

By 30 June 2012 Australia’s NBN passed only 39,000 homes with fibre.  That’s around half as many as New Zealand – despite Labor having been in Government a year longer.  

The real comparison is even worse: adjusted for Australia’s five times bigger population, the NBN passed only one tenth as many homes as New Zealand’s network.

Yet NBN has already blown through AUD 1.35 billion of taxpayer’s capital – more than the entire budget of the New Zealand rollout.

Unlike the clean split of Telecom, Labor’s claimed structural separation of Telstra will not be complete until 2021 at the earliest – and to get this outcome taxpayers will have to pay Telstra some $11 billion.

There are several reasons why the broadband rollout in New Zealand is going so much better than in Australia – and why Kiwi taxpayers are getting much better value for money.

To start with, the Kiwis have got the right mix of public and private sector roles.  They set up a small, focussed government owned company – Crown Fibre Holdings.  Its main job is to contract with private sector companies that will build the network.

The network is being built, and will be operated, by four companies in different parts of the country.  All are experienced, and good, at building and operating networks.  Unsurprisingly, they’re doing a much better job than NBN Co in Australia – a bureaucratic organisation created from scratch, which has never built a network before.

CFH designed a clever process to select the four companies – and get the best possible value for money from them.   It divided New Zealand into multiple regions – and sought bids to build the network covering anything from one region to the entire country.

This maximised competitive pressure – particularly on Telecom.  The pressure increased when CFH announced some early winning bidders in particular regions – such as Northpower, to the north of Auckland – and Telecom was not amongst them. 

Telecom responded by submitting a sharply lower bid in remaining parts of New Zealand.  It won the funding for its network business Chorus to build in around 70 per cent of the country – but on condition that Chorus was split off to become a separate company.

CFH carefully negotiated the terms with each of the four companies.  Essentially, they are each getting an interest-free loan, with payments under the loan linked to milestones – typically, a payment per premises passed. 

Assuming customer take-up on the network meets expectations, the loans will be repaid over time; if take up exceeds expectations, the deal allows for taxpayers to share in the upside.

The selection process allowed government to leverage its contribution – because to get the money, the bidders had to put up some money of their own.  In total, the rollout is expected to cost around NZD 3.5 billion nationally – meaning more than half the cost will be contributed by the private sector companies.

With their own money at risk, these four companies have strong incentives to build out their networks quickly; incentives reinforced by competition between the four companies to win the ‘rollout race.’

There is a very clear contrast between the shrewd and economical Kiwi approach and the flabby profligacy of the Rudd-Gillard Government’s NBN.  

Should the Coalition form government, we will inherit a huge mess with the NBN.  As we work to clean it up, we will look for opportunities to apply the principles which have made the New Zealand approach so much more successful.

Paul Fletcher is a Liberal MP on the Parliament’s NBN Committee; he has just returned from a visit to New Zealand.