Study suggests fibre plan will fall short

A study commissioned by the Treasury has warned it would cost between $5.3 billion and $10.4b to connect three-quarters of New Zealand homes with fibre-optic cable using the Government's preferred active Ethernet technology.

Former Telecom chief technology officer Murray Milner, who carried out the study, says the $1.5 billion the Government has allocated to its ultrafast broadband plan would not be sufficient to connect that number of homes. That is even if matching investment from the private sector was forthcoming and cheaper, "passive" fibre technology was used.

Communications Minister Steven Joyce said when he unveiled details of the ultrafast broadband plan in March that "local fibre companies" (LFCs) established to build networks in each of 25 regions might be allowed to lay cables only as far as the kerbside, which would greatly reduce the cost of the roll-out. Under this scenario, homes would only be connected as and when customers wanted to use the fibre.

The Treasury study says $3b might be sufficient to extend fibre as far as roads outside properties. However, private investors in LFCs would only receive a return on their investment when homes were connected and fibre was rented by telcos to deliver services.

Dr Milner says a commercial return would not be possible unless at least three-quarters of homes were connected.

Telcos, lines companies and other interested parties have until close of business today to make submissions to the Economic Development Ministry on the ultrafast broadband plan. Dr Milner's study appears likely to add to doubts that the proposal can deliver on its objectives.

ABN Amro analyst Geoff Zame says investing in LFCs would be risky. Private sector partners would be "subject to the usual vagaries around pricing, uptake and competitive response".

The Treasury study says the cost of the broadband rollout could only be cut so far by allowing fibre optic cables to be strung on power poles. Aerial cabling is only viable in areas where power poles already exist, and even then, some would need to be replaced to take the weight of an extra cable.

Dr Milner says aerial cabling could be used to connect at most 30-40 per cent of networked homes, at a cost of $30-$50 a metre.

Micro-trenching - cutting thin, shallow slits in roads in which cable can be directly buried - holds potential, but should only be used at the perimeter of the network, as cables laid in this way can be easily cut or damaged, he says.

"Intelligent directional drilling" - technology developed by Swedish telco Ericsson that uses ground- penetrating radar and remote- controlled drills to detect and avoid underground obstacles - is also worth investigating, according to Dr Milner. But there would be no alternative to open trenching in some areas, where the cost could "explode" to $500-$600 a metre.