The high cost of rural broadband

Watching the Australian NBN project implode in a shower of nonsensical, politically-motivated decisions (and indeed non-decisions) has been breath-taking in both its cost and its impact.

Instead of a fibre to the home project, the NBN will now be a mix of fibre to the home for very few, fibre to the node (aka the cabinetisation programme Telecom New Zealand ran in the early 2000s) and fixed wireless services for rural Australia.

If it sounds familiar it’s because in many regards it now mirrors the New Zealand UFB and RBI projects. Over here we have a fibre to the home project for 75% of the population and a blended fibre, copper, fixed wireless model for most of the rest. Those in hard-to-reach places will still have to put up with a satellite service, as indeed will their Aussie counterparts.

Australia’s communications minister, Malcolm Turnbull, says one of the biggest problems in rural Australia has been the overwhelming demand for broadband.

Speaking at the Comms Day  summit in Sydney yesterday, Turnbull says there was a “material underestimation of likely demand” in the fixed wireless areas.

“So instead of an assumed takeup rate of 22-25%, the work done so far by the strategic review team has modelled demand in the satellite footprint to be between 50-63%, and 38-51% in the fixed wireless footprint,” says Turnbull. But even those figures turned out to be low.

“Taken together, the company’s modelling shows that demand in the non-fixed-line footprint was underestimated by two to three times – instead of the forecast 230,000 connections, actual take-up would result in 440,00 to 620,000 connections.”

That’s a remarkable under-estimation of demand. Speaking to rural customers and would-be users (those that can’t get anything at all worth speaking of), I’d say the same level of demand exists in rural New Zealand.

Forget 5% average uptake as we have in UFB areas, rural New Zealand is clamouring for a decent service.

So how do our figures for take-up compare?

Sadly, we don’t have any. The minister of communications releases detail around how many kilometres of fibre have been laid and how many cellphone towers constructed, but not a word is said about usage.

I’ve not found any customers who are using the service, so I can’t tell you even anecdotally about uptake rates.

However, yesterday I was on a Google Hangout chat with John Butt from TrueNet, the company that measures broadband performance around the country.

John tells me he has 400 probes in action at any one time, measuring usage from all sectors of the industry. In total he has around 1200 testers willing to take part, which gives a good spread across providers and technologies. He has DSL probes with customers of most ISPs, UFB probes, cable probes and while most are in urban areas, he has some in rural New Zealand.

He has only two testers using the fixed-wireless RBI service and one of those is moving to DSL.

Given the extraordinary level of demand from rural customers and the ever-increasing availability of RBI service, why are there so few?

The answer may well lie in the price. Vodafone promised it would offer pricing that was comparable with urban prices and one way it has – the price itself. I can get a plan from Vodafone for either fixed or fixed wireless service for about $95 a month.

On the urban service, customers get voice, ADSL2+ broadband, a free MySky box and free calling to five New Zealand phone numbers.

On the rural service, you’d get voice, fixed wireless broadband and free national calling (a nice touch since local calling in rural New Zealand is quite limited). You’ll also have to pay an installation fee as a truck-roll is required – either $99 or $199 depending on your situation, but for that you’ll also have to sign a two-year contract. If you want it without a two-year contract, it’s $699 or $849.

Broadly speaking they’re not too far part. You can get a discount off each if you have your mobile with Vodafone but generally speaking, they’re comparable.

Except for the data. The urban service includes 150GB of data while the rural service has only one tenth of that – 15GB.

There are other plans, but they follow the same pattern. On DSL you get up to half a terabyte of data, on fixed-wireless you can have up to 30GB of data before the over-bundle charges kick in.

Try running your rural business on that, let alone running your household as well.

We need to not only provide the infrastructure, we need to provide a decent service, or face having a rural New Zealand that is left behind, much like Australia will be.

Of course there are other providers, not just Vodafone, but as the lead retail provider on the RBI it’s to Vodafone most RBI customers will turn.

Shop till you drop

The Australian government is looking at the vexing issue of
international companies charging more for products in Australia
than they
elsewhere in the world.

It has become apparent in recent years that in our corner of
the world we pay well above the average for all manner of products. While there’s
some justification for charging more for large items because of shipping costs,
there seems little justification for charging more for software or smaller
consumer items.

The big corporates will tell us it’s all about price points,
about what the local market can bear and what is deemed acceptable in each geographic

The price for calling on a mobile in India is a fraction of
the cost of calling on a mobile in New Zealand but the downside is you have to
live in a country with a billion citizens and all that goes with it.

So do we get charged more here? Should we enact laws to
change this?

Who knows. Certainly our government has said nothing on the
matter, despite the Australian inquiry. We’re remarkably silent on the issue of
what is being described in Australia as “price gouging” by the electronics
industry in particular

Indeed, when Adidas decided we should pay more for World Cup
simply because we’re New Zealanders and are likely to be more willing
to pay more, we didn’t make too much of a fuss, we simply voted with our
wallets and bought online. Until they decided not to sell online to anyone with
a New Zealand based IP address

I know of at least one major corporate in New Zealand that
buys all its software via a US subsidiary because it saves around 30% on the
asking price. CHOICE Australia’s submission to the government hearing on the matter
paints a darker picture – price differentials of up to 50% on software, content
and electronic goods.

That software prices can vary by that much puts the lie to
the idea that corporates simply try to hit local currency sweet spots and
reveals the truth of the matter: they will charge what the market can bear, and
without legislative support, we apparently can bear to pay more.

When you combine this pricing structure concept with the
corporates’ cavalier attitude towards taking part in these kinds of inquiries
and also their unwillingness to pay tax to support local jurisdictions, we start
to paint a picture of a world where the corporates increasingly control the ebb
and flow of commerce and the governmental structure is increasingly irrelevant.

I can only presume our own government isn’t interested in
pursuing these corporates out of fear they’ll simply stop selling products to New
Zealand altogether. That somehow the corporates are willing and able to take
their ball and go home.

Corporates, of course, are coin-operated; they will go where
the money is and so long as we show we’re willing to shop, they’ll be willing
to sell. Already we see NZ Post offering a US address to shoppers so we can buy
online and import directly from those companies that decline to sell outside
the US itself. That NZ Post, a government-owned agency, is willing to do that
speaks volumes about the issue.

But there is another issue at stake – tax revenue. New
Zealand, like most western countries, now gathers a significant proportion of
its tax take from GST. Shoppers who buy goods online often end up paying less
tax locally than shoppers who buy from a New Zealand-based vendor.

That will have huge ramifications for governments in the months
and years ahead.

Meanwhile the best advice would be if you want to pay less
for exactly the same product, you’ll do well to lie about where you live and if
you want a government that will stand up to corporates, you might want to
consider Australia.