WHERE TO FOR UNIVERSAL SERVICE – PART 2

In Part 1 of this post (link) we look at the historical approach to universal service. Part 2 looks at the future: and in particular at rural broadband.

To its credit, the government has recognised that access to broadband in rural areas is a serious economic and social issue. The Rural Broadband Initiative (RBI) is the response: an industry-funded, government-led programme building faster broadband infrastructure in rural areas. When it is finished 86% of households outside the cities and most rural schools, health centres and public libraries will be able to access fast broadband, mostly within the next two years. Vodafone is building around 150 new sites and securing fibre to more of its towers, and Chorus is building 3,100 kms of new fibre.

The RBI was a big and welcome change in approach on how to to encourage telecommunications companies to provide services in hard to reach areas.

• The TSO simply imposes the obligations on Telecom (and from 2001 to 2011 required other operators to pitch in to the costs). A similar model operates in Australia, where Telstra has the obligations and the other operators compensate it to the tune of around 50m each year (see the article on Universal Service Obligation here.

• The RBI is a competitive subsidy model (the money actually comes from the industry itself through a levy), rewarding Chorus and Vodafone, who won the tender, for building networks and providing services in rural areas. The German government has done something similar, requiring bidders for new generation cellphone spectrum to commit to build their networks in rural areas before they are allowed to build them in urban areas (see that story here), implicitly accepting a lower sale price for the cellphone spectrum as the price of universal broadband coverage.

Not only is the RBI a better approach in terms of actually getting services rolled out in rural areas, but it sets a simple and clear standard for minimum broadband services which:

•  will reach 86% of rural customers, over half of whom will have access to multiple competitors and a choice of technology (copper or wireless)

• will deliver a peak speed of at least 5 Mbps over wireless (a bit quicker than average fixed broadband services today) and 20 Mbps for copper-based services

• *will be priced so that services cost the same in both urban and rural areas. 

Four challenges for the review

First, there will be continued pressure from rural customers for better broadband services (see paras 164 to 167 of this Commerce Commission summary. 

This could take the form of a minimum guaranteed broadband service that must be available to all New Zealanders. There was much debate around the RBI as to whether 5 Mbps was fast enough for those customers relying on fixed wireless services (although of course it is a whole lot better than the no broadband at all that many ruralcustomers faced before the RBI came along). The UN has defined broadband as a basic human right, and Finland in 2010 made a rule that all telecommunications operators were required to offer broadband access of at least 1 Mbps.

Competition over the RBI-funded infrastructure should mean that customers willgradually get more bang for their buck – in urban areas competition has meant growing datacaps with broadly static prices. Wireless services have smaller data caps than copper-based services reflecting the higher costs of data on wireless technologies. But new mobile technologies should allow faster wireless data speeds and bigger data caps in due course.

Second, the government’s review will need to consider updating the TSO requirements for the internet age.

Certainly free local calling is heavily utilised – accounting for 29% of all voice minutes in 2011 (see page 11), but if the Commission is right it is holding back competition.

For the growing number of customers who use mostly or only their mobiles,”free” local calling is rather expensive. Other elderly TSO requirements – like not charging more in rural areas than in urban areas, and ensuring Chorus does not shrink its network seem superflous given the developments of recent years.

What to do with the ineffective price cap on basic voice services is trickier. It does not seem to serve customers very well, although clearly it is helpful for the industry to be able to put up prices every year. 

Third, the obligations could be extended beyond just Telecom. With Chorus, the network company, now split from Telecom, the retailer, it doesn’t obviously make sense that the TSO obligations should rest only on Telecom. If Telecom is required, say, to have a standard plan that offers free-local calling as an option, there is no obvious reason why this rule should not apply to other operators as well.

The fourth challenge is ensuring everyone can get decent broadband.

Even after the completion of phase 1 of the RBI there will be coverage and competition black spots. There is a phase 2 of the RBI ably explainedby the Commision in para 159 of this report to reach schools and other priority users that are not at present covered by the RBI or the government’s fibre network (the UFB).

Systematic, public, up-to-date data on remaining areas of trouble could also help – it seems like it would be an easy extension on the government’s broadband map to show people who do not have service at present. This would help operators to figure out the value of network extensions, sharing infrastructure where it makes sense in remote areas. Satellite solutions will work for many. Community self-build solutions like those from Wiz Wireless can also help in some parts of the country.

Over to you

So the ball lies fairly firmly in the government’s court. Its review is required to be completed by the end of 2013.

We wait to see the outcomes with interest. A bold answer would consign the outdated TSO requirements to the dustbin, and ensure a sensible alignment between the TSO and the RBI as we continue to work towards universal broadband.

Hayden Glass is a consultant specialising in telecommunications with the Sapere Research Group, one of Australasia’s largest expert services firms