French expert says NZ Government drove too hard a bargain on UFB

Benoit Felten

Benoit Felten. Photo by Peretz Partensky, creative commons

Commenting on the controversy surrounding Chorus and the UFB in his Fibre Revolution blog French telecommunications analyst Benolt Felton describes the copper price debate as a ‘quagmire’.

He says:

…the government got an amazingly good deal out of Chorus and other LFCs, probably too good.

Felton says the $1 billion invested by the New Zealand government works out at around €500 (NZ$800) per household for 75 percent coverage.

His chart, shown below compares this with other government investments in fibre networks. He says : “Obviously, the more of the territory you want to cover, the more expensive it gets as urban density decreases.”

NZ gets more fibre for less money

Felton was recently in New Zealand doing some work for Chorus, so he isn’t and entirely independent outsider.

He points out New Zealand’s government gets 75 percent coverage for the same cost per household that gives Malaysia 20 percent coverage. As he points out building costs are lower in Malaysia than New Zealand and that the NZ government’s money isn’t a subsidy, it’s an investment with an expectation of return.

 

public intervention in fibre costs

Click on image to enlarge

 

Felton says Chorus isn’t using its copper revenues to pay dividends instead of investing in fibre. There are hard targets with stiff penalties for the deployment and Chorus is hitting the targets. Deployment costs have turned out to be higher than expected, but the deployment continues. He says:

Put simply, the current level of copper revenues ensures that fiber deployment is possible. Take it away or reduce it dramatically and either the UFB doesn’t happen or Chorus goes belly up or the government has to commit a lot more taxpayer money at no return.

Felton is critical of the government. He says it opened itself up to the attacks that are now happening. But he doesn’t let the Labour Party off either writing:

I do find it strange though that the party that initiated the UFB is now willing to throw it under the train to score some political points…

Switch off copper

So how does Felton think the government can get out of the quagmire? He suggests the government switches off the copper network in areas where the fibre is installed forcing customers to move to the new network.

He says Chorus can’t afford to finance the UFB roll-out without decent revenues from the copper network and that there’s no incentive for retail service providers to move customers from copper to fibre when there’s a wholesale price difference between the two networks. If that happens, Chorus goes bust, New Zealand gets no benefit from UFB.

Felton says switching off copper will force the service providers to stop investing in unbundling and force customers to move. It would also improve Chorus’ costs – the company would no longer need to manage two networks and keeping the copper network in shape is more expensive anyway. He says this won’t save Chorus’ cash flow, but that can be solved in other ways.

All of which is food for thought.

One thought on “French expert says NZ Government drove too hard a bargain on UFB

  1. “Felton says Chorus isn’t using its copper revenues to pay dividends instead of investing in fibre.”

    This doesn’t make any sense. Dollars are fungible: revenues flow in and costs/dividends flow out. You can keep more cash in the company (eg for investment) either by raising revenue or by cutting dividend flows. Its a choice, and Chorus have chosen to pay out $95m in dividends while also lobbying the government for higher prices.

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