Vector attacks Telecom broadband plan

Vector chief executive Simon Mackenzie has criticised Telecom's response to the Government's $1.5 billion broadband plan, saying what was missing was an explanation of how homes and businesses would get ultrafast broadband.

Telecom yesterday put forward two alternatives to the Government's $1.5 billion ultrafast broadband plan - one a proposal to connect all 2600 state schools and all hospitals in the North and South Islands with fibre within three years.

As an alternative, Telecom would be willing to create a national network of 10,000 kilometres of "ducts'', owned by a Crown-owned company, that all network and service providers could use to lay their own fibre. The network would connect with existing infrastructure owned by Telecom and other telcos. Chief executive Paul Reynolds said Telecom would not seek to profit from taxpayer funding put into the project.

Telecom devoted only a few paragraphs in its submission to a proposal unveiled by Communications Minister Steven Joyce in March.

His scheme would see a Crown Fibre Investment Company invest alongside telcos, lines companies and other private investors in networks built by local fibre companies (LFCs) in 25 cities and towns.

Vector has formed an ”NZ Regional Fibre Group'' with other infrastructure firms including Northpower, PowerNet, Christchurch City Networks and Velocity to support the Government's plan for a "nationally-aligned, regionally-based'' fibre network.

Mr Mackenzie said Vector had made a number of suggestions to the Government in its submission, which has yet to made public. These include releasing Telecom from its obligation to "cabinetise'' its network in areas where fibre was laid. He also called for "greater funding flexibility'' that would provide telcos with more incentive to use fibre and investors more confidence about early-stage returns.

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

The $1.5b it has allocated to the plan would not be sufficient to connect that number of homes, even if matching investment from the private sector was forthcoming, the study warned.

Telecom chief executive Paul Reynolds indicated Telecom would not stand in the Government's way if it chose to press ahead with its original scheme.

"[The Government] put a starter-for-10 proposal on the table. That is fine. We think a national proposal would be more efficient.

"If the Government chooses to go ahead with its existing proposal we will look at that case-by-case, region by region.''

A spokeswoman for Mr Joyce said he would have no comment on the submissions at this stage.

ABN Amro analyst Geoff Zame said the Government would be disappointed by Telecom's contribution, which should be seen as an opening gambit. Telecom was not proposing to invest any of its own money in its proposed schemes, he said.

"Clearly Telecom has come up short of some of the key requirements of the Government, which are dollar-for-dollar incremental investment and a strong governance arrangement for Chorus [Telecom's network arm].

"Telecom wants Chorus to be involved, but some of the bottom lines from the ministry involve it having a majority of independent directors and an independent chair.

"Telecom would be looking to keep its powder dry to assess other submissions, one would assume.''

Mr Zame said Telecom was in a strong negotiating position, as its "size, credibility and speed'' meant it would be "best placed to execute on what the Government wants''.

The alternative was a "patchwork quilt'' of LFCs.

Mr Reynolds noted speculation Telecom might sell off Chorus. "We have said that if there are ideas about how that can be done and we can deliver as much as fast and respect shareholders' interests, we are open to that. But I have never heard a workable suggestion.''

Goldman Sachs JB Were analyst Tristan Joll said Telecom's submission was constructive and rational. But BBY analyst Mark McDonnell said it raised more questions than it answered.

"They are saying, if this is going to happen, let it be us.'' The broadband debate had so far provided only "tentative high-level planning about possible options''.

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