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FTTH – a bridge to far

Just submitted an article on broadband to the National Business Review online.

FTTH- A bridge to far

I’m concerned that focusing on Fibre to the Home (FTTH) is not the most important thing we should be doing to connect New Zealand small businesses to the world.

The full article follows.

Fibre to the Home (FTTH) is a worthy goal but in my view it’s the wrong focus for our internet aspirations.

The value chain of the internet is from international links, to a national network, to the city, to cabinets, to the last mile.

The international links part of the equation is New Zealand’s bottleneck – not necessarily because of technical limits, but the market encourages those with resources and foresight to build those connections, to price traffic for revenue maximisation, not for the economic and social development goals of a country.

This bottleneck has become so debilitating in terms of the opportunity cost for NZ.inc that traditional free marketers like myself are calling on the government to step in and for the people of New Zealand to own this vital link to connect New Zealand to the world.  

We need to own our own cable because it allows us to change the platform economics to an open access, user pays, cost-plus network.  Bandwidth needs to be an abundant resource for New Zealanders, not a scarce one.

International connectivity is what will make our boat go faster, and is a far easier and cheaper problem to solve.  

If we solve this part of the value chain then the economics around the national, city, cabinet and last mile will fundamentally change.  The market may actually make that part of the equation work.  

$1b dollars would easily fund a new international cable to a major international junction and allow all New Zealand business to have deep electronic relationships with virtually anyone else in the world.  To fund this on a debt basis would only require $100m to cover the cost of capital.  Across New Zealand we spend well in excess of this amount by far so here is a zero cost solution.

This market intervention, where we essentially aggregate New Zealand demand to the world, will fundamentally alter the economics of the last mile. Perhaps with lower cost international connections where business and consumers can communicate in a much richer way to customers we’ll be happy spending more for a substantially better service. So fixing the international links may just fix the last mile anyway.

There is another major economic issue with the FTTH model. Households have a maximum amount of monthly spend on information and entertainment services.  Can households afford both services delivered over Sky and a new content services over a broadband internet connection? Eventually television is likely to be delivered through the IP network. It is unlikely that FTTH can be achieved without the television industry being part of the mix. That will take a few years for broadcast industry to adapt to IP delivery and this is not a delay we can afford to introduce into the equation.

FTTH is a classic inwardly focused ‘what’s in it for me’ New Zealand way of thinking.  We need to think about what really matters – connecting our small, remote, country to the global economy. So while FTTH remains the dream, the fastest way to it is decisive and swift action on our international link.  Let’s create that win and then see where we’re at.

 

Read more about Technology, Industries, New Zealand

 

5 comments

Ian McDonald
12 August 2008 #

I don’t think it is a case of FTTH or international pipe. It should be both. Having high speed internet in South East Asia has transformed how the internet is used there and I don’t think NZ should be the exception. Just as governments around the world often built railways, motorways etc I think this is no different here.

Dermott Renner
12 August 2008 #

Rod, I agree that the home is less important than business and educational institutions. I just wonder why lots of schools on the North Shore of Auckland have 1 gigabit connections and why the government thinks this is more important than business and industry getting high speed links. To me this is getting the cart before the horse as a heathy and world competitive business and industry will pay for everyone else to have these type of links. I disagree that high speed links need to be via the television industry. We need to follow the UK’s lead and pipe it through sewers; everyone has one and they are owned by the rate payers. And it is dirt cheap and does not lock people to organizations with a potential vested interest.

Rod Drury
12 August 2008 #

@Ian

FTTH is of course important. My point is that International needs to be done first. It’s like any project. Bite sized chunks. And it will change the market anyway.

@Dermott

I didn’t say high speed links will be via the TV industry, but I predict TV has to be part of the equation of FTTH as consumers may not pay for both.

Graham
13 August 2008 #

“Can households afford both services delivered over Sky and new content services over a broadband internet connection? ”
I would suggest they don’t need to pay for both. One model of FTTH deployment suggests that consumers don’t pay for the connectivity at all, but merely for the services over it that they wish to use, including Sky. If I have FTTH I don’t need a satellite dish or Sky box. If the FTTH is community owned rather than private sector owned then all on-net traffic could be free to users, paying just for off-net traffic that needs backhaul.

Miki Szikszai
14 August 2008 #

@Ian The copper running to your house is good enough, on average, to deliver 8 Mb via DSL2+. Try downloading something with 20M DSL2+ and you won’ see much difference. Why? Its the contention at the DSLAM (Telco issue) and the international bandwidth.

You can solve the international bandwidth issue much faster than the FTTH issue (for that to work *everyone* needs to get it)

International pipes (if opened up) have 2 benefits

1. It’s faster to get stuff from off-shore
2. It’s faster for us to get stuff off-shore

International bandwidth is expensive because of the difference of traffic into NZ vs traffic out. Hosting more stuff here and having a big fast pipe to get it out reduces cost as well as making it more productive. It’s the right thing to aim at first in my mind. Nice one Rod!

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