Recycling key to fibre plan

OPINION: Communications Minister Steven Joyce appears genuinely chuffed with the financial model for the ultrafast broadband initiative that he and his team of cerebral but experienced advisers have dreamt up.

The plan released on Wednesday is certainly ingenious.

The Government will, if necessary, foot the entire bill for rolling out fibre-to-the-street, minus any construction overruns, while private investors in local fibre companies (LFCs) will only buy back their share of the infrastructure as they connect up homes and businesses.

That could help nullify the "Catch 22" that threatened to leave the initiative stillborn – private investors couldn't guess their return without knowing how ubiquitous the national network would be, which would depend on other investors' assessment of their likely return. There is another reason to take the initiative more seriously.

Instead of injecting a "one-off" $1.35 billion into the public-private partnerships in the vain hope that would be enough to garner sufficient private investment to get the whole job done, the Government is now considering investing far more over time. Investment vehicle Crown Fibre Holdings will be to recycle receipts from private investors as they buy shares in LFCs, after the first fibre customers sign up.

The Government's investment at any one time will be capped at $1.35b, but the total it commits over the life of the scheme could be double or triple that.

"$1.35b is what Crown Fibre Holdings will have access to in order to fund the infrastructure," says Mr Joyce. "There is certainly the possibility that some or all of the money will be reinvested, but it's simply too soon to say how much will be reinvested or how many times that might occur."

Does this mean 75 per cent of people can be assured of getting fibre within 10 years? Hardly. But instead of scuppering the scheme, if $1.35b is not enough to get the job done, it might simply take longer.

Potential investors – lines companies, other utilities and councils – now have an unenviable job though. They need to estimate the cost of building the networks, the price they will be able to charge customers for connections, and work out whether they can get the job done quickly enough to capitalise on what is a government subsidy in all but name – concessionary rights to any dividends generated by LFCs in the first 10 years of the scheme.

They need to get the sums right as they will be legally obliged to connect customers to the network on request, provide the service at the agreed price, still ultimately foot their share of the overall network build, and meet LFCs' establishment costs and the entire cost of any construction overruns. These are all huge potential liabilities.

Mr Joyce has taken 12 months to craft National's flagship election initiative. Utilities and councils now have little more than 12 weeks to work on their conundrum.

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