Thursday, November 13, 2008

How to spend $1.5 Billion

Did a brief bit of commentary on TV3 yesterday on what the incoming National Government might do with the $1.5 B they want to invest to deliver super-fast broadband. Apparently I am too serious - I think this might the first time anyone has ever suggested this!

I wrote some notes while I was thinking about this, and am becoming to be more convinced that a quite different approach needs to be taken to work out what to do.

Before you read this you need to know that I have a bunch of interests that may or may not conflict me. But at least you know this now!
1. I am a Director of InternetNZ - a policy and advocacy group with a mission to advance the cause of the Internet in NZ.
2. I worked at Telecom for a while - like 14 years a while
3. I hold Telecom shares still - (ok I missed my window to sell...)
4. I have stakes in, and have worked on a proof of concept for, web based businesses.
5. I support Tottenham Hotspur which makes me something of an optimist.

From what has been said and written to date, the thrust of this investment has been around Fibre to the Home. While this is definitely a good idea, I am not sure if it is the right idea for now.

We have to take a step back and ask ourselves - what is the problem that we are trying to solve here?

In my view the main problem we are trying to solve is to improve the productivity and competitiveness of NZ. Sure there are a bunch of second-order issues (e.g. ameliorating the impact of the financial crisis, keep up with international and technology trends, allowing kids to social network) but the number 1 issue is that NZ's productivity needs to improve.

This is not my idea - Mark Weldon and David Skilling through the NZX blog, and Lloyd Morrison, through the Measureable Goal for New Zealand paper are doing a great job of leading this debate.

What's also clear from the NZX blog is that there are a heap of people who have good skills who are willing to contribute their time and energy to shape this debate. Free resource! Awesome!

It's a selection of people from this group (and others) who should get together real soon to shape this debate. The participation criteria for this is simple - you have to have had experience in lifting productivity in your domain and be a contributor to the debate for the greater good. Selecting it on the basis that every possible interest has to be represented will lead to failure. Furthermore devolving it into interest areas (eg Broadband only) will also mean it diverges from a meaningful goal. That will lead to the phenomenon of 'snouts in the trough' - the people who show are the ones who want to get their mitts on some of the $1.5B, as opposed to driving productivity in NZ. Keeping that off the table for now is a good thing.

Note at this point I still haven't talked about the broadband investment yet - that's because it can only start to be meaningful once the productivity goal is set and all the ways to improve it over the long-term are put forward. Despite my background I am open to the possibility that there are other ways to make this happen - including tax and regulatory structures - that could be more effective. However I would be very surprised if Broadband was not a part of it.

So this gets me to the current issue - should we be spending this $1.5B on Fibre to the Home or on something else?

My view on this is clear

- Fibre to the Home is a great end-game to aim for. 

- Good quality ubiquitous broadband access for homes and businesses is an important first step. While good progress is being made here, there are still inequities in the rural access network which impacts one of our most important industries - agriculture.

- The bottlenecks being experienced in our current broadband network are starting to point to transport issues - both domestic (from DSL cabinets to exchanges) and international.

- $1.5 Billion sounds like a lot but it gets gobbled up pretty easily when rolling our nationwide infrastructure - and it isn't enough for a nationwide Fibre to the Home network.

- DSL 2+ and its variants that run on existing copper lines are able to deliver plenty of access bandwidth for the next 5-10 years.

So if it was me, I would be using the money in this way

1. Improve the overall quality and reliability of the access network nationwide. This probably means
- some more cabinetisation of existing exchanges in fringe areas and development of some rural infrastructure (either fixed wireless or wired - not fussed)
2. Improve the regional transport network - provide enough capacity to allow for -say - on average 1Mb/s per line (note this was engineered for about 32 kb/s per line up until recently - maybe it still is)
3. Invest in a more effective international connection - we need better capacity  and peering charges to ensure we have the best connection possible to the rest of the world.
4. If there's anything less (I doubt there will be much) put that towards targetted Fibre to the Home.

This approach works because it
1. Delivers a tangible outcome - better transport and more ubiquitous access will lift the overall broadband performance for everyone
2. Does not preclude FTTH investment - in fact it probably makes it more effective. Cabinetisation helps the case for fibre. If you rolled out fibre now with the existing transport infrastructure, you would need to make this investment in addition to get the full benefits
3. It can probably get done in one government term if they got moving in 3-6 months.

What do you think?


Anonymous said...

I'm going to have to disagree on this one.
Farmers should get better connectivity sure, but I would also focus on fostering an environment where third party innovation in BBand/comms products is easy.
Telecom is heading that way due to separation obligations, but it needs to happen quicker. 1 Billion or so in a BBand fund to Comms startups, or even a simple/cheap rewrite of the separation legislation would give you much more bang/buck.

Mugway said...

The (previous) government is already working on (1) (through the BIF) and (3). We just have to hope that the new government doesn't scrap them to focus on urban FTTH.

richard said...

I'm a spurs fan too, I'm afraid that makes us more gluttons for punishment than optimists.

Can we not get 'Arry R to sort out Bband here, I'm sure he'd be brilliant.

Hamish said...

I agree FTTH is a good long term strategy and there will be a growth in that market, but not while sufficient performance at a good price can be obtained from other technologies, wireless among them.

It may even be that in getting fibre to the node, ie, the Cabinet, may lay the basis for a home run fibre option.

I sincerely believe that layer 0/layer 1 passive infrastructure is essentially a collective responsibility, because the collective deserves the return, not a small group of shareholders. You write that improved NZ productivity is the goal, OK, does this mean Telecom shareholders (or any subset of NZ) should tax that improvement in addition to the return they receive from the general improvement in performance?

Finally I'm curious what you meant here:

3. Invest in a more effective international connection - we need better capacity and peering charges to ensure we have the best connection possible to the rest of the world

Are the bullies of the NZ peering environment not getting Tier 1 treatment internationally?