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RUEHPB RUEHRN RUEHROV RUEHSR
DE RUEHWL #0102/01 1120303
ZNR UUUUU ZZH
R 220303Z APR 09
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 5840
INFO RUEHNZ/AMCONSUL AUCKLAND 1953
RUEHBY/AMEMBASSY CANBERRA 5497
RUEHDN/AMCONSUL SYDNEY 0832
RHHMUNA/CDR USPACOM HONOLULU HI
RUCPDOC/USDOC WASHDC 0297
RUEAFCC/FCC WASHINGTON DC
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEHSS/OECD POSTS COLLECTIVE

UNCLAS SECTION 01 OF 03 WELLINGTON 000102 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/ANP, EEB/CIP/BA FOR TIM FINTON, AND DOC/ITA/OTEC FOR 
ANDREW BENNETT 
STATE PASS TO FCC ROBERT TANNER 
STATE PASS TO NTIA 
STATE PASS TO PACOM FOR J01E/J2/J233/J5/SJFHQ 
 
E.O. 12958: N/A 
TAGS: ECPS ECON NZ
SUBJECT: NEW ZEALAND'S $1.5NZ BILLION BROADBAND DEPLOYMENT 
INITIATIVE 
 
Ref: State 27310 
 
WELLINGTON 00000102  001.2 OF 003 
 
 
¶1. (SBU)  Summary.  In March, Communications and Information 
Technology Minister Steven Joyce unveiled plans for GNZ to offer up 
to NZ$1.5 billion for building high-speed broadband infrastructure 
to cover seventy-five percent of New Zealand.  A Crown-owned 
investment company is expected, along with private sector partners, 
to invest a total of NZ$3 billion into "regional fiber companies" 
which will install fiber-optic networks throughout New Zealand's top 
25 most densely populated cities and towns.  The effort is part of 
the government's attempt to marry an overall fiscal stimulus package 
with investment in new technology to produce long-range economic and 
commercial benefits.  The GNZ admits that there are challenges for 
the success of the initiative and the Labour opposition has already 
slammed the plan as a waste of tax payer money.  End Summary. 
 
GNZ to Invest NZ$1.5 Billion in Broadband 
----------------------------------------- 
 
¶2. (U)  At the end of March, Communications and Information 
Technology Minister Steven Joyce unveiled plans to create a 
Crown-owned investment company known as the "Crown Fibre Investment 
Co" (CFIC) with a mandate to invest up to NZ$1.5 billion of 
government funds for building high-speed broadband infrastructure 
throughout New Zealand.  CFIC will, alongside private sector 
investors, put money into "regional fiber companies" that will 
install fiber-optic networks in 25 New Zealand towns and cities. 
 
¶3. (U)  The effort comes as part of the government's attempt to 
marry an overall fiscal stimulus package with investment in new 
technology which it hopes will generate long-range economic and 
commercial benefits.  The new company's goal is to boost broadband 
speeds to 100 megabits per second - more than 50 times faster than 
speeds currently available - by connecting fiber-optic cables to 
homes and businesses.  The money will be dispersed via private 
companies on a regional basis in a series of "Public-Private 
Partnerships."  A feasibility study commissioned by the NZ Treasury 
and conducted by Milner Consulting Ltd. projects that total fixed 
investment (infrastructure costs) required to connect seventy-five 
percent of urban New Zealand is expected to range between NZ$2.6 and 
NZ$3.3 billion. 
 
Seventy-five Percent of New Zealand to be Connected 
--------------------------------------------- ------ 
 
¶4. (U)  The 25 (initial) centers identified are based on population 
and range from Auckland, with 1.2 million people, to Oamaru, with 
population of 12,681.  Once finished, the GNZ hopes this investment 
model "will deliver on the government's commitment of ultra fast 
broadband to 75 percent of New Zealanders where they live, work and 
study over the next ten years," said Joyce.  Those towns or rural 
areas outside this initial group would eventually get "improved" 
internet services but that would occur in the second phase of the 
initiative.  The more remote regions could expect eventual upgrades 
to broadband but they would not have the fiber enabling the 
ultra-fast broadband, said Joyce. 
 
Commerce Commission Report on Current NZ Broadband 
--------------------------------------------- ----- 
 
¶5. (U)  Apart from the CFIC initiative, the New Zealand Commerce 
Commission's latest report claims that the quality of current 
broadband services improved greatly by end of 2008.  The Commerce 
Commission released its report just days after the government 
announced the CFIC initiative.  The report, drafted by IDC 
Consultants and Epitiro (consulting firms contracted by Commerce 
Commission), claims that Telecom, TelstraClear DSL, Vodafone, Orcon 
and Slingshot (firms with the largest share of the current NZ 
internet market) have boosted their broadband scores by between 99 
percent and 166 percent over the course of 2008.  Most of this was 
due to investment in their current networks and additional 
improvements stemmed from the inclusion of ADSL2+ technology 
(Asymmetric Digital Subscriber Line - a data communications 
technology that enables faster data transmission over copper 
telephone lines). 
 
 
WELLINGTON 00000102  002.2 OF 003 
 
 
¶6. (U)  As of June 2008, New Zealand ranked 19 out of 30 OECD 
countries in terms of numbers of broadband connections, with about 
20 broadband subscribers per 100 of population.  Total broadband 
connections, including fixed and wireless connections, had reached 
915,000 by December 31, 2008.  The overall quality of broadband 
services has also improved, with major internet service providers 
investing in extra network capacity.  Nearly 60 per cent of digital 
subscriber line (DSL) connections had now been upgraded to the newer 
and faster ADSL2+. 
 
Likely Investors Reviewing GNZ Proposal 
--------------------------------------- 
 
¶7. (U)  An internal report (Castalia consultants) commissioned by 
the three largest telecommunications firms in NZ - Telecom, Vodafone 
and TelstraClear - said their own investment plans would deliver 
broadband speeds adequate for the needs of everyday internet users 
without the need for a boost from the Government.  Castalia 
challenged the belief that high broadband speeds for households - up 
to 50 times faster than what is presently available - would deliver 
significant economic benefits. 
 
¶8. (U)  Telecom (largest NZ telecommunication firm) has set up an 
internal "think tank" to formulate its response to the Government's 
NZ$1.5 billion plan.  Sources suggest there is still internal debate 
within Telecom about the implications of the government plan. 
"Telecom will be reviewing the opportunities the initiative presents 
to work with the proposed CFIC to extend the reach of Telecom's own 
ultra-fast broadband network, and to utilize the fiber networks 
others may build," said chief executive Paul Reynolds.  Reynolds 
further opined that Telecom "looked forward to working with 
government funding to complement the government's plans to take fast 
broadband even further, including to those areas that currently are 
not commercially viable."  Telecom's current share of the retail 
broadband market has slipped to 57 percent, down from 61 per cent in 
¶2007. 
 
¶9. (U)  In addition to the traditional telecommunication firms 
considering the CFIC's offer, Auckland-based Vector Energy is also 
likely to be a prime candidate to join up with the new investment 
company CFIC in rolling out fiber optic cables to homes and 
businesses.  Vector currently has 500km of fiber optic network laid 
in Auckland's business districts and is expanding that network by an 
extra 300km as part of an agreement with Vodafone. 
 
Endorsements 
------------ 
 
¶10. (U)  Much of the GNZ's current CFIC plan was based on a March 
2008 study by the Auckland-based New Zealand Institute entitled, 
"Assessing New Zealand's Current Broadband Path: The Need for 
Change."  The NZ Institute concluded that the current state of NZ 
broadband was insufficient.  The NZ Institute maintained that the 
announced investment by the major telecoms would not take NZ far 
enough fast enough.  Despite the dominant investor (Telecom) making 
significant investments in fiber-optic, it had insufficient 
commercial incentive to roll it out rapidly.  Finally, the longer NZ 
took to roll out its fiber-optic upgrade, the more costly it would 
become thus shutting out all but the major urban centers. 
 
¶11. (U)  CFIC's plans have been favorably welcomed by the 
Telecommunications Users Association, TUANZ.  "The Minister's paper 
is at the top end of our expectations," said TUANZ's chief executive 
Ernie Newman.  "It sets out a clear structure for the proposed 
partnerships, and will give potential partners in the private sector 
all the information they need to come up with regionally-based 
proposals."  Newman said the plan appeared to be "sector-neutral" - 
meaning it opened the way for a wide range of potential co-investors 
including telecommunications companies, power line companies, or 
regional groupings.  This was important, said Newman, as a greater 
diversity of investors were "showing their hands and broadening the 
range of innovative, cost-effective solutions." 
 
Criticism of the Plan 
--------------------- 
 
 
WELLINGTON 00000102  003.2 OF 003 
 
 
¶12. (U)  Labour Party's Finance spokesman David Cunliffe accused the 
Government of "performing a NZ$1.5 billion back flip."  He said the 
scheme largely mirrored the approach of Labour's NZ$325 million 
Broadband Investment Fund (BIF), which the Government scrapped, but 
was more wasteful of taxpayers' dollars.  Minister Joyce responded, 
saying the Government's plan differed from Labour's in three key 
respects: its sheer size, the Government's investment in fiber 
providers instead of handing out subsidies, and its focus on fiber 
to the home, rather than a mix of other technologies such as 
wireless and/or satellite broadband. 
 
¶13. (U)  The Government conceded that there was a risk that private 
investors might not come forward with their share of the NZ$3 
billion, that this might not be enough to provide the desired 
network coverage, and that local fiber companies might fail.  Laws 
might be changed to make it easier for contractors to string cables 
on power and telephone poles, and to lay fiber in "micro-trenches" 
cut in roads.  Tim Davin, policy manager at the Institute for 
Professional Engineers, said 25,000 kilometers of cabling would be 
needed.  New Zealand did not have enough trained engineers to build 
the network, but some could be brought in from overseas, he said. 
 
Comment 
------- 
 
¶14. (SBU)  Despite the contested nature of the high-speed broadband 
debate, most seem to agree that the best way forward for NZ is 
through the Government's proposed collaborative approach.  There are 
a number of technical issues yet to be worked through and engaging 
with the country's major telecoms will help the GNZ to form a 
clearer roadmap towards developing an effective plan for the 
proposed NZ$1.5 billion in spending.  The GNZ's commitment to invest 
in New Zealand's broadband infrastructure clearly demonstrates the 
importance the National-led government attaches to state-of-the art 
information and communication technologies (ICT) as an enabler of 
business and a driver of international competitiveness.  To date, 
too much of the broadband debate in NZ has focused on the "last 
mile" of infrastructure and centered on broadband access alone. 
Faster broadband will eventually encourage developments in areas 
such as eHealth (real time remote healthcare monitoring and 
diagnosis) and education through improved research and 
communications technologies and enhanced distance learning - all of 
which were National Party campaign promises.  End Comment. 
 
KEEGAN