Overbuilding networks is not on

Let’s talk about overbuilding of networks.

Several years ago I visited the telco regulator in Hong Kong. His biggest challenge was keeping out of the way of telcos, because over there the market really does rule the roost. Why? Because with six or seven copper networks, three or four fibre networks, six or seven 3G networks and at least four proposed LTE networks, there was plenty of competition at the most basic level.

Overbuilding is good.

However, as he said to me at the time, that’s fine once you’ve got build out to every customer. Prior to that, overbuild is a waste of time and resources.

New Zealand is not in that situation. We don’t have a ubiquitous network built out to cover every building or every customer. We don’t have competition at the lowest level, and indeed the government’s decision to fund what are, in effect, four regional monopolies would suggest there’s little chance we’ll ever have the population to support multiple networks overbuilding each other. With only four million customers (in a variety of guises) the costs far outweigh the benefits.

Except that we are already overbuilding.

In central Auckland I have my pick of fibre providers for business grade, point to point fibre. There’s FX Networks, TelstraClear fibre (now owned by Vodafone), Vector and of course Chorus to name the first four that come to mind.

In Wellington there’s CityLink as well, plus there are any number of other providers.

They’re typically not offering the same kind of fibre service that the Ultra Fast Broadband (UFB) project will build. It’s very fast, it’s uncontended (that is, it isn’t shared in the way the UFB’s G-PON network will be shared) and it’s expensive as a result.

For most CBD dwellers (I’m thinking businesses here, not residential) the move to UFB will be a cost-reduction move that means more contention for a lesser charge. They’ll figure out what that looks like in terms of their own risk profiles and everyone will get along.

However, there are pockets of fibre deployment that are already in service and which Chorus and the LFCs should be taking into consideration as they build out the UFB.

Nelson, for example, has had The Loop for around a decade now, and at the launch of the Chorus UFB deployment the mayors of both Tasman and Nelson were at great pains to ensure everyone knew about it. It certainly came as something of a surprise to the Minister whose speech revolved around bringing the future to a corner of the South Island. We’ve got the future already, Minister, they told her.

The explanation from Crown Fibre and Chorus at that point was that the UFB requirements wouldn’t be met by the fibre network in Nelson but that hopefully the UFB pricing would help reduce the cost of The Loop’s fibre to its customers as well. Competition is good and healthy, but there’s no overbuilding going on, I was told.

The Loop tells me its prices are already lower than the UFB prices, and that yes in fact overbuild is going on.

Inspire.Net is another ISP that’s been laying fibre for many years in the lower North Island. Because it’s not a national provider, Inspire.Net wasn’t considered for the UFB or RBI deployments, but it already has a large tract of the country fibred up and operating today.

Surely there won’t be overbuilding going on there, right?

Sadly, that’s not the case. UFB fibre is being deployed in Palmerston North right over the top of existing Inspire.Net fibre and alongside TelstraClear/Vodafone fibre. The UFB and RBI fibre is required to be deployed to schools in and around the country so they’ve gone so far as to put a pit outside a school which already has fibre delivered by one of the existing operators. This despite Chorus telling an audience in Whanganui that fibre won’t be deployed to the farms because the cost of putting a pit in and breaking out the fibre is just too expensive, despite promising just that a year ago.

The UFB project is supposed to provide fibre to 75% of the population. Chorus has won the lion’s share of the project and is claiming to be overspending to the tune of around $400m. Something’s got to give, and apparently that pressure means the government will run over the top of the Commerce Commission decisions around copper pricing so as to make sure Chorus doesn’t lose any more cash.

I have an idea. How about we not overbuild existing networks. How about instead of trying to squash these smaller players we require the UFB fibre network companies to work with existing fibre operators and so avoid spending money to deliver a second or even third fibre network to these places where existing services already operate.

Instead, why not lease capacity from these existing network operators? Why not work with the other network providers, instead of overbuilding them – at least until we have full coverage.

Chorus, UltraFast, Northpower and Enable could then get on with building fibre to new parts of the country, places where there is no fibre today and where new customers will be able to connect up. It will cost less to deploy and we’ll save Chorus its $400m, or a goodly chunk of it, without having to favour one operator over another.

Once we have the whole country covered we certainly can look at overbuilding. In the long run I’d be more than happy for infrastructure-based competition to take off. But publicly-funded network deployments should not be used as a way of quashing competition and certainly not at the expense of operators who have already put in the long hours and hard yards delivering the service. I don’t want my money being spent on that – quite the opposite.