Home > Internet > Tales from New Zealand — the Ultrafast Broadband Internet: Digital Public Works for the 21st Century vs. Incumbent Interests?

Tales from New Zealand — the Ultrafast Broadband Internet: Digital Public Works for the 21st Century vs. Incumbent Interests?

Last month I visited Auckland, New Zealand to give a talk at the The Future with High Speed Broadband Conference organized by the Competition Commission (full paper here).

The aim was to assess the factors that might encourage or hobble the country’s plan to make ultrafast, broadband internet service available to all. The Ultrafast Broadband Initiative, and its counterpart for rural areas, looks like a digital public works project for the 21st century, with the government forcing a restructuring of the country’s backwards incumbent telecoms players and investing nearly $2 billion in rolling out a combination of fibre-optic and wireless connections to over 90 percent of New Zealanders in the next six- to eight years. However, as I discovered, there are several factors that significantly stand in the way of such ambitions.

New Zealand shares several things in common with Canada that could turn this project into a big ‘white elephant’. The most important similarities are (1) extremely high levels of media concentration (higher in NZ than Canada); (2) powerful and recalcitrant incumbents; and (3) being two of just four countries worldwide where bandwidth caps are nearly universal and set at exceeding low levels (Iceland and Australia are the other two, see OECD).

As luck would have it, the British comedian and actor Steven Fry was in New Zealand working on Peter Jackson’s new film The Hobbit at the same time I was in town. He set things up perfectly a day before my talk by lambasting the pathetic state of New Zealand’s internet service after his attempts to upload recently completed film footage were throttled and thwarted by the ridiculously low bandwidth caps of between 2 to 5 GB per month that come standard with most telecom-ISP plans.

New Zealand has “probably the worst broadband I’ve ever encountered”, Fry railed on Twitter. Turns itself off, slows to a crawl. Pathetic!”

Media, ministers, Telecom NZ spokespeople and the island was abuzz with a basic fact of life in the country that everybody knows, but which takes an outsider to cast a bright light on in none-too-polite terms: the country’s internet service sucks. That was my role too: the outsider who can say things that local industry-regulatory-political insiders cannot.

With attention on high alert, the attendance at my talk was likely higher than it might have been. Media coverage was good from day one, too, with ComputerWorld catching the gist of my talk as follows: “Get real on data caps, peering and Sky TV dominance, says Canadian professor”. A video of the talk is below.

The Minister responded the next day by trying to squelch any idea that things were as bad as I painted, or that new approaches to regulation are needed. The New Zealand Herald and ComputerWorld, however, have drawn directly on my paper since then to counter such a do nothing attitude.  We’ll know better next month how all this will play out when the Competition Commission publishes its much anticipated final report on the matter.

The New Zealand situation is interesting and important beyond its own inhabitants for several reasons. For one, for much of the last quarter-of-a-century, it has been the outpost of a ‘free market fantasy’. To supporters of such a view, deregulation would liberate telcos from the heavy hand of government intervention and competition, innovation and lower prices for better service would flourish for all as a result.

That never happened. The “free market fantasy” years were nothing short of a disaster.

More recently, however, the country has embarked on a series of seemingly forceful steps that would leave the free market fantasy years behind in favour of something altogether different. The four key steps in this process include the development of telecoms specific regulation and functional separation at Telecom NZ in 2006, followed by the launch of the Ultrafast Broadband (UFB) initiative by the right-of-centre, conservative National government after its election in 2008, and finally what some call the ‘nuclear option’ in telecoms regulation — structural separation — earlier this year.

According to many observers, such steps and a strong regulator are necessary to counter incumbents intent on thwarting the rise of real competition and open networks. The UK regulatory, Ofcom, for instance, argues that only once it stiffened its spine and required British Telecom to break itself into two parts —  one for wholesale, and one for retail — under the Openreach framework did telecoms and Internet development significantly improve in that country.

The new regime led to a huge influx of service-based competition, new investment, cheaper broadband prices and more internet providers, while broadband use increased significantly as a result. Prices for residential broadband services fell 16% per year between 2005 and 2007.

With an eye on the UK experience, New Zealand followed suit in 2006. The results to many observers have been impressive. As the Berkman study (2010) concludes, “in the two earliest instances where functional separation was introduced [UK and New Zealand], it had rapid effects on competitive entry, penetration, prices, and/or speeds” (Benkler, et. al, 2010, p. 84).

New Zealand’s Ultrafast Broadband (UFB) initiative charts new ground as well, both as a way out of a legacy of a muddling market and as a forceful response to the financial crisis of 2007-8. The scale and hefty investment in commercial and state-owned companies involved is unique, but several other countries have also begun to follow suit, not just for legacy networks, but for ‘next generation access’ (NGA) networks based on a combination of fibre optics and wireless, too, including: Australia, Italy and Sweden (see the OECD’s study on Next Generation Access Networks).

The state of telecom and internet development in New Zealand has indeed improved since these changes were implemented. There is a modest increase in competition in some telecom markets and an improved regulatory environment.

Nonetheless, the country still sits at the bottom of the pack when it comes to broadband internet development. Moreover, its rank has actually fallen relative to other countries. Thus, where the Berkman study ranked New Zealand 22nd out of 30 countries based on 2008 data, my ranking puts it at 28th out of 34 OECD countries based on 2010 data. The following table shows the results.

Table 1: Country Ranks Based on Weighted Averages for Broadband Penetration, Price and Speed (2010 Data)

Country

Penetration

Speed

Price

Overall Weighted Avg Rank

1 Sweden

5.3

1

8.7

5.0

2 Japan

11.3

3

2

5.4

3 Finland

8.3

6.5

4.7

6.5

4 Korea

2

6

15

7.7

5 Denmark

4.7

11

10.3

8.7

6 France

15.7

5

10

10.2

7 Netherlands

8.3

6.5

17.7

10.8

8 Norway

4.3

4.5

23.7

10.8

9 UK

14

11

9

11.3

10 Estonia

18

11.5

7.3

12.3

11 Slovak Rep

22.3

3.5

12.3

12.7

12 Australia

17

9

12.3

12.8

13 Iceland

7.7

12.5

18.3

12.8

14 Austria

19.7

10.5

8.3

12.8

15 Italy

25

8.5

8.3

13.9

16 Germany

15

15.5

12.3

14.3

17 Switz.

13

14

18

15.0

18 Belgium

18

11.5

17.3

15.6

19 Portugal

22

1.5

24

15.8

20 Slovenia

24.3

3

20.7

16.0

21 Czech Rep.

22

10.5

15.7

16.1

22 Poland

23.7

11.5

13.7

16.3

23 US

12

17.5

21.3

16.9

24 Hungary

23.7

14

14.3

17.3

25 Canada

16

13.5

24.7

18.1

26 Greece

26

18

10.3

18.1

27 Israel

18.7

16.5

21.7

19.0

28 New Zealand

16.3

15

28.3

19.9

29 Lux

13.3

20

31.3

21.5

30 Ireland

20.7

20.5

26.3

22.5

31 Spain

22

19

27

22.7

32 Turkey

33.3

15.5

23.3

24.0

33 Chile

32.7

22.5

30

28.4

34 Mexico

33

23.5

32

29.5

Note: Prices in USD PPP and include line charges (where applicable). Penetration is a composite of fixed broadband subs/100, households and mobile broadband; Speed is based on average advertised download speed plus fastest speed; Price on low, mid and high-end offerings. Source: OECD (2011). Broadband Portal.

The significant decline in New Zealand’s broadband conditions relative to other countries, slipping from 22nd to 28th, reflects the fact that other countries are also pushing similar initiatives, too, seemingly faster than New Zealand.

Ultimately, the UFB could be the great national digital public works project of the 21stcentury, but if New Zealanders are to realize its full benefits, they must confront several realities head on: (1) high levels of media concentration; (2) restrictive bandwidth caps, (3) low levels of media and internet use, (4) a regulator that is not yet accepted as an essential element in an open, competitive and pluralistic media environment, and (5) strong incumbents intent on bending new technologies and possibilities to their ends.

The last point is particularly important because whilst all the policies and indeed the UFB initiative itself is based on an open Internet model that places as much of the capabilities and resources of these networks at the ends of the network and on to the desktops and into the hands of as many online service providers and users as possible (Saltzer, Reed, & Clark, 1981; Isenberg, 1996; Benkler, 2006), New Zealand’s telecom and broadcasting industry incumbents are hell-bent on creating a supplier-driven walled garden model, circa 1999, where power and resources reside in the core of the network, owned and controlled by network operators and their business partners.

A series of unregulated deals struck between Sky TV — the local monopoly provider of pay-tv services delivered by satellite and local arm of the global behemoth, News Corp. — and all of the key telecom and ISP players (except Orcon) since late-2009 reveal a full-court press by the incumbents to simply graft the ultrafast broadband Internet now being built out mostly at government expense onto their current business models. If they succeed, the media economy will not expand as much as it could; nor will it be as pluralistic. Media and internet use will also likely remain low, because uninspired. Competition, diversity and an open Internet, in short, will be crushed in the name of preserving incumbent interests.

For those who are fans of structural separation, the New Zealand case shows how even that form of regulation can be subverted. It also shows that strong measures are needed to enhance not just network neutrality but also to deter alignments between network and content providers alike designed to throttle competitors and to maintain their own position at the centre of the network media universe.

This is particularly problematic in the context of the UFB because, left unaddressed, one gets the impression that the government is financing the roll-out of a state-of-the-art broadband Internet for incumbents in the telecoms and media industries. Perhaps that’s how we can square the  decidedly right-of-centre government’s decision to publicly-fund such a project to begin with?

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