New Zealand's Ultra-Fast Broadband Network

23 Pages Posted: 17 Jan 2012 Last revised: 14 Apr 2015

See all articles by Fernando Beltrán

Fernando Beltrán

University of Auckland Business School

Date Written: September 24, 2011

Abstract

The government of New Zealand is currently building a nation-wide fibre-optics network, a project known as the Ultra-Fast Broadband (UFB) initiative that will lay out an entirely new infrastructure with the capacity to fast track innovation in network-based business models and new applications. Ultra-fast broadband access is defined as a minimum 100 Mbps downlink and 50 Mbps uplink; the UFB network willcover 75 percent of New Zealanders over ten years. Crown Holdings Fibre (CFH), the government agency in charge of UFB deployment, has invested NZD $1.5 billion (or about USD $1.1 billion) and a similar investment is expected from invited private partners with whom CFH has established regional network operators also known as Local Fibre Companies (LFCs).

In the broadband ecosystem facilitated by the UFB initiative, market creation does not follow evolution patterns which are typical of other markets; conditions will be created faster than in any other market that has spawned out of commercial utilization of technological innovations. Thus, not only is the fibre project aimed to reach all New Zealanders with broadband access but it also seeks to stimulate the provision of services by entrepreneurs other than the LFCs. UFB will be an open-access infrastructure with LFCs providing wholesale Layer-2 services – a denomination that basically follows the Metro Ethernet Forum standards – to Retail Service Providers (RSPs) who will, in turn, either sell them to resellers or provide communication services and applications to end-users.

In this paper we analyze the institutional arrangements in place for the development of the New Zealand’s broadband ecosystem, with a focus on elements of the regulatory scheme that starts being delineated by CFH’s decisions and negotiated agreements. We also investigate the possible effects on service competition of proposed wholesale (Layer 2) service pricing schemes as access is open and purchased by service providers on a wholesale basis. Underlying the open-access condition is the government’s vision to create conditions for new, innovative services provided by new entrepreneurs - diminishing the incentives for vertical integration by current telecommunication operators, especially the dominant firm Telecom.

This paper is structured as follows. Section 1 presents the New Zealand UFB project from its origins up to its current state. It discusses the seeming benefits of its ownership structure and the mechanisms proposed for operation and maintenance responsibility and eventual ownership transfer. In Section 2 we discuss the open access principle which supports the network neutrality mandate recently reasserted in different countries. Section 3 highlights and analyzes the proposed fragmentation and separation of regulatory functions that Crown Fibre Holdings would hold as they will not be performed by the Commerce Commission. Section 4 presents a model of competition as a two-stage game of complete information; the model is used to illustrate several scenarios that correspond to different pricing schemes, allowing us to perform a comparative analysis between relative effects of pricing mechanisms on the discussed end-user service markets. Section 5 summarises some preliminary conclusions and discusses further realistic scenarios to study a sort of “inter-modal” competition in which users can opt for either Internet-based, best effort services provided on one of the retail service offers of RSPs, or communications services directly built on the NGN platform by RSP (such as VoIP).

Suggested Citation

Beltrán, Fernando, New Zealand's Ultra-Fast Broadband Network (September 24, 2011). TPRC 2011, Available at SSRN: https://ssrn.com/abstract=1985752

Fernando Beltrán (Contact Author)

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand
+64 9 9237850 (Phone)

HOME PAGE: http://unidirectory.auckland.ac.nz/profile/f-beltran

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