Cold shower for fibre fever

Build it and they will come, is the accepted wisdom on high- speed fibre-optic internet.

So powerful is the idea, that National and Labour are competing to throw taxpayers' money at a nationwide roll-out of fibre to the home.

But just as the rhetoric winds up for election time, the accepted wisdom is being challenged.

"We'd all agree, a motorway without cars is not smart," Telecom CEO Paul Reynolds told an industry conference a fortnight ago.

The analogy is simple - the motorway is the fibre, the cars are the data that travel on it - and Reynolds sees the relatively few cars available in New Zealand as Morris Minors, not Mercedes.

The result is many people are yet to be persuaded to subscribe for ADSL broadband on copper, let alone keen to pay a premium for fibre. Of the 93% of New Zealanders able to get ADSL, 44% have taken it up.

So why spend billions on creating 100 megabits/second fibre to the home, 20 times faster than most current services, when people aren't using what they already have?

A commonly cited statistic is the low uptake of online retail in New Zealand. Telecom's broadband manager Ralph Brayham, just back from an overseas trip, reports that 15% of Christmas shopping in Britain was online last year, and the trend is upward.

"Analysts are now saying that in six months online will be almost a quarter of retail, which is phenomenally high."

In New Zealand, the figure is still below 2%.

This doesn't mean, however, that internet users are not shopping online. According to market researcher Nielsen Online, 56% of New Zealand's online population were active online shoppers last year, only marginally less than Australia's on 63%.

So if people are shopping online, why aren't they buying much?

The answer may have something to do with a lack of local online options.

In New Zealand, says Brayham, the economics of online retail are more challenging than elsewhere.

"The critical success factor is getting eyeballs to their websites, getting enough traffic," he says. "But it's more expensive per customer to build online [retail] capability [in NZ]. From what we've learned with [Telecom online site] Ferrit, that's the biggest single barrier to online retail in New Zealand."

Christchurch-based entrepreneur James Hanafin, who set up online retail site offtheback.co.nz in December, says the slow development of broadband infrastructure has certainly restricted online retail, but other factors are also at play.

"The problem is there's been a lack of quality online retail as well, so it's a bit of a horse-and-cart situation.

"What makes a successful online retail business? We're still learning that. But TradeMe's become almost the one-stop shop for everything."

Offtheback is based on successful American website woot.com, whose one-deal-a-day model shows creativity can still challenge the big players like Amazon and eBay.

The trick for TradeMe, woot, and, Hanafin hopes, offtheback, is to create an online community around the website that builds customer loyalty. This, more than fancy features, is often the X-factor behind a winning website, but what does this mean for investment in superfast broadband?

An article in The Economist in May noted that America is not exactly a front-runner in high speed broadband penetration, but has the most innovative interactive content online from the likes of Google, MySpace, YouTube and Facebook.

Finland, with business use of broadband in the OECD top 10, should be a seeing a significant rise in teleworking - one of the commonly cited benefits of broadband infrastructure. But a government study in 2006 found just 1-4% of wage-earners were engaged in telecommuting, well below the estimated potential of 14-19%.

But video, with its hefty demand on bandwidth, is about the only thing that makes fibre worthwhile.

"If you don't have video, you really don't have much use for fibre."

Telecom, however, has ditched its development work on internet TV, saying it was a low priority while the company had so much else on its plate.

Maybe that will prove a mistake. Microsoft's national technology officer Brett Roberts sees a big future in internet video. "What's going to be the killer app [for fibre]? I have a suspicion that entertainment will drive that. People are willing to pay good money for entertainment."

And even if current infrastructure plans can technically cope with the speed demands, he says, it could be a different story if video-type applications become widespread.

"When everyone starts to use these services, the infrastructure required to support that is considerable."

LiveMesh, Microsoft's latest networking wheeze, is a case in point, requiring international broadband wired and wireless links to work properly.

The question remains, though. Are these uncertain entertainment benefits worth enormous public investment in fibre to the home?

Brayham, for one, doesn't seem to think so.

"People love fibre," he says. "But just now people really can't figure out what to do with it."

- © Fairfax NZ News