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Tom Pullar-Strecker at the Dominion-Post writes:

Don Christie, co-chairman of information technology industry group NZRise, said Inland Revenue’s decision to shortlist Accenture and CapGemini signalled it was “business as usual” for government procurement despite two years of “agitation and consultation” by the domestic industry.

The lobby group and the Institute for Information Technology Professionals criticised Inland Revenue in October for effectively excluding domestic firms when it invited suppliers to express interest in the work. A clause required would-be suppliers to have led or managed a $100 million-plus major transformation programme for a national tax authority and to have designed and implemented a “national-level social policy transformation programme”.

 

This problem has been with us for more than a generation. It was a common them when I first arrived in New Zealand in the late 1980s to edit The Dominion’s Computer Pages. 

I recall at the time there was one company which had repeatedly attempted to sell its software to government buyers in Wellington with no success. It did, however, manage to partner with Digital Equipment Corporation, then a major player. The software went into Digital’s catalogue and within months a New Zealand government department purchased a licence from the multinational. That deal was worth considerably less than a direct sale.

The incident was proof there was a clear bias, intentional or not, against buying from local technology firms. It seems we have learnt nothing in 25 years.

Benoit Felten

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-Costs

 

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.

New Zealand’s 4G spectrum auction will see nine lots of 5 MHz paired sold each with a reserve price of $22 million.

The auction appears to be structured to encourage mobile competition. During the first round bidders will each be restricted to buying three blocks. If blocks remain unsold individual bidders will be allowed to purchase a fourth block.

Significantly the auction terms give bidders a deferred payment option. They can pay for the spectrum over five years but will be charged a commercial interest rate.

Small block sizes and the deferred payment terms will please smaller potential bidders who feared they could be locked out of the auction by the deep pockets Telecom NZ and Vodafone.

Leaving money on the table for network build

Deferred payment should also leave network operators with the money needed to build new network infrastructure. This could make the auction attractive to new carriers.

New Zealand’s relatively low reserve price looks to be set at a level to avoid the problems the Australian government had earlier this year during its 4G spectrum auction.

That country’s high reserve saw only two-thirds of the available spectrum sold at auction – the total bid fell $1 billion short of the Australian government’s target.

Modest reserve

With the reserve set at $22 million a 5 MHz block, the New Zealand government can realistically expect to clear the shelves at its auction.

Nine blocks of $22 million effectively means the government has set a floor price of $200 million – less change – for the spectrum. This is at the bottom of analyst forecasts for the auction with some saying it could bring in as much as $400 to $500 million.

While the auction is scheduled to start on October 29, communications ministers Amy Adams said the date will be confirmed when the bidder registration process is complete.

The 4G spectrum auction will sell frequencies in the 700 MHz band previously used by analogue television broadcasters. Management rights will begin January 1, 2014 and last for 18 years

Adams: a balanced 4G spectrum auction

Adams says: “In setting the reserve price, we have balanced generating a fair return on the sale of the spectrum rights with the significant investment required by mobile network operators to build the 4G network infrastructure.

“The reserve price also takes into account the value to New Zealand of having 4G connectivity widely deployed”, she says.

There are auction conditions for mobile operators to upgrade existing rural cell networks to 4G within five years. And successful bidders will be expected to expand cellular coverage.

Specifically bidders who buy three lots must build at least five new cell sites each year, for five years. If any bidder wins four lots, they must build ten new cell sites each year for five years.

Adams says these extra rules should see at least 90 percent of the population have access to 4G within five years.

Last year Internal Affairs Minister Chris Tremain told The Dominion Post government could make big savings moving public service computing to the cloud.

The same is true for every organisation in New Zealand. It’s not just about saving money. Cloud computing is more flexible and less trouble.

Tremain went on to say government could save more money by using overseas cloud services. He said the cost savings improve as you go further offshore.

That’s also true. But those extra financial savings come with a different cost attached. Data sovereignty is not often talked about in New Zealand, it’s a huge issue in Australia.

What they don’t tell you about data sovereignty

Multinational cloud service providers prefer it when customers don’t ask awkward questions about data  sovereignty. They often dismiss it as insignificant, or argue that it is nothing for you to worry your pretty little head about.

Maybe it isn’t. Yet the moment your data leaves New Zealand other nation’s laws kick-in. In some cases more than one other nation’s laws. That can quickly get tricky.

You are responsible

It is the data owner’s responsibility to make sure everything complies with the local laws in the country or countries where the data is stored. For data stored in the US, this means the government can access your information without a warrant whenever it chooses. Store your data there and you could be in breach of privacy legislation elsewhere.

Australians worry about data sovereignty because their laws prevent certain types of information being stored overseas. New Zealand businesses operating in Australia, need to keep this in mind as they plan cloud projects.

US laws apply to US companies even when they host data from other countries in other countries. The way US law works means it’s possible the cloud company may be forced to hand over information to the US authorities without seeking your consent or even letting you know that it happened.

Why you need to care

All this may seem a little fussy after the recent revelations governments routinely snoop on data. Yet there are still practical legal matters to worry about. Should anything happen to your cloud project that involves going to law, there’s a good chance the action will take place in a foreign court and be subject to unfamiliar rules, concepts and procedures. All of which could quickly get expensive.

I’ve heard stories of companies saving money from hosting cloud projects overseas, only to see all the savings go up in smoke in a foreign court room.

Another problem is the costs of running overseas clouds can be less clear than operating in New Zealand. Overseas cloud providers don’t necessarily have to worry about the same contract transparency rules as in New Zealand. You may find unexpected extra charges. Good luck getting overseas lawyers to sort that out for you.

None of this means you should avoid using an overseas cloud provider. Just be aware of the risks – they don’t tend to get mentioned in the sales literature.