It is a pleasure to be here today to deliver the opening address for today's summit. 

We are experiencing an exciting time in telecommunications.

Strong investment from both the government and the private sector combined with developments in technology is delivering significant changes to the ways we communicate with each other. 

And the ways in which we communicate with each other immediately and directly affect how we work, learn and play.

It is a pleasure to speak to an audience that includes so many of those that play major roles in this changing landscape.

Today I would like to outline where the government is in its planning of the Broadband Investment Initiative. I'd like to discuss some of the feedback we've had about the proposal as well as give some more information about the complimentary measures we have been considering to facilitate the rollout of the initiative. 

I would also like to comment on the importance of rural broadband.

Recently there have been a number of announcements that have signalled the work the private sector has been doing in upgrading New Zealand's communications networks.

But despite these successes, and our improving position in the OECD rankings, New Zealand is still a long way from having the telecommunications infrastructure that will be necessary to drive growth and innovation in the coming decades.

We are absolutely committed to urban Fibre to the Home. I am more convinced then ever that this is the technology which fixed broadband will go to. Any questions are around the path there, not the destination.

 

Broadband Investment

The government's $1.5 broadband investment initiative will go a long way to creating this infrastructure.

As you will know, we have committed to rolling out ultra fast broadband to 75% of the population where they live, work and study over the next ten years.

We've set aside up to $1.5 billion for this and we expect that to be at least matched by private sector investment.

From the 104 submissions that were received on our original plan, we have collated the points made, evaluated them and incorporated many into the policy where appropriate. 

Overall, the submissions received were encouraging and illuminating.

It was clear when reading them that the importance of ultra-fast broadband to New Zealand is well recognised, and that the private sector is as excited as we are by the possibilities.

What has also become increasingly evident is the complexity of the challenge and the interlocking set of issues that need to be incorporated into the plan.  These include urban broadband, rural broadband, the TSO, the regulatory environment, demand factors and infrastructure access initiatives.

For this reason we need to take an appropriate amount of time to evaluate all the options. 

We are certainly moving ahead and while I initially indicated Mid June for some announcements - given the volume and complexity of issue I have decided to take a couple of months longer. My view is that it is better to take the time to get it right.

As you know, the stakes are high in this area.  We can't afford not to get it right.

The government wants to ensure New Zealand has a skilled and productive workforce.  A skilled and productive workforce - for today and the future - requires digitally literate people.  Improving digital literacy is one of my key priorities.

There are an estimated 20-30% of New Zealanders who are currently excluded from the digital word.  This is both in terms of access to digital tools and the capability to use them.   If we're serious about keeping up and competing we need to turn this around.

The education, health and business sectors are where significant gains will be made from the ultra-fast broadband roll-out.  In addition to economic gains, there is also the high social return from improving education and health outcomes.

Primary and secondary schools that are connected to ultra-fast broadband will provide a critical initial customer-base to anchor the development of the fibre network.

Ultra-fast broadband in schools has the potential to greatly enhance teaching and learning, and will ensure New Zealand's school students have access to the same information as their peers around the world.

Ultra-fast broadband will have a key role in increasing efficiency in the health sector and will provide opportunities to deliver healthcare smarter.  This will become increasingly important as New Zealand's ageing population puts increased demand on the health system.

Applications such as high definition videoconferencing into regional New Zealand will allow remote diagnosing from specialists in other parts of the country, and the ability for health providers to transfer data such as high resolution scans in real time. 

These applications could help address the workforce shortages in these areas, and reduce the inequalities of access to healthcare currently experienced by people living in non-urban areas.  This in turn should lead to better health outcomes, particularly in rural areas.

A number of common themes or issues have emerged through the submission process and I'll address some of those now.

 

Coverage Areas

One issue which was commented on by many submitters was the definition of the relevant coverage areas for the network. 

Some submitters, particularly interested regional groups, regional commercial players and local authorities, have suggested the coverage areas should be determined on the basis of a wider set of factors, including population growth and the potential for economic and productivity benefit. 

We see merit in these comments and officials are looking more closely at the coverage regions.

 

Layer 2 Services

Another issue that arose in submissions is the ability for LFCs to provide Layer 2 services as well as dark fibre. 

A significant number of submitters appeared to be keen to provide Layer 2 services, and argued that LFCs should be permitted to do so. 

We have taken this on board, and I note that in principle we do not have any problem with allowing LFCs to provide Layer 2 services.

However, the real issues here are around the principles of open access and equivalence of Layer 2 services in the context of LFCs also providing dark fibre.  There will likely need to be transparency of the pricing methodologies for both dark fibre and Layer 2 services. 

Officials are currently examining these issues in detail. 

In addition, we need to ensure that the characteristics of the Layer 2 services that are provided by LFCs will lead to the best possible competition outcomes, ensuring the ability for niche service providers to easily enter the market and provide services over the network. 

In this regard we have looked at the principles required to define a Layer 2 "raw bitstream" service, as well as the developments occurring in the UK in this regard where OFCOM and Open reach are looking at the features of an "Active Line Access" bitstream service which supports competition at the services layer.

An interesting issue in this context is whether our definition of "open access" extends to requiring any Layer 2 service provided by an LFC to enable multiple virtual LANs, on an equivalent and open access basis, which would in turn provide end-users with the ability to mix and match their preferred services over a single fibre connection.

For example, a Layer 2 service provided by an LFC may need to support up to four physical or virtual "ports", with say one for broadband, one for a voice service, one for a digital television service and another for say smart electricity metering. 

In this scenario, an end-user could have the choice of any number of different service providers over each of the "ports". 

An end-user would therefore not be "tied" to the range of services offered by any given service provider - they would be free to "mix and match".

Having said that, because the importance of a competitive Layer 2 service goes beyond our fibre project and is a fundamental aspect of the new "NGN" world, we have also taken on board the comments suggesting there needs to be industry-wide input into the definition of such Layer 2 services.

Finally, I should note that, while we are looking at the provision of Layer 2 services, we remain firmly committed to promoting competition at the passive layer, and we do not plan to move away from the requirement that LFCs supported by government funding must provide open access dark fibre.

I should also note that we have not yet reached a view on whether government funding should be used by LFCs in the provision of Layer 2 services. 

 

Demand side risk

A number of submissions have proposed that demand-side subsidies may be necessary alongside the 50/50 Crown investment to encourage take-up. 

We will consider that possibility, but I need to point out that there is a limit to the Crown's support; it's called $1.5 billion; and supplying 50/50 co-investment and some form of demand subsidy in some areas could reduce the available footprint of the network. Such trade offs in this area are inevitable.

In addition, I note that there may be other measures to address any demand-side risk than a direct subsidy. 

The more obvious of these is the aggregation of Crown demand for telecommunications services. 

The key point is to maximise the impact of a large but capped Crown investment to encourage, not stifle, additional private investment; so we can achieve the maximum geographic coverage and maximum uptake of ultra-fast broadband. In simple terms, that's the challenge.

 

Funding flexibility

Some submitters have argued that the government should retain flexibility over the specific funding model that the CFIC will implement. 

They have argued that up-front capital expenditure by the government is not so much what is necessary, but rather that the government funding should be directed at supporting the business case over the life of the project.  In this way, the uptake risk for private investors is reduced and they will in turn find it easier and cheaper to raise their own finance.

We are looking closely at these issues at the moment.  Again there are a number of tradeoffs, not least of which is how the government limits the risks it takes and how it values its investment in comparison to the joint venture partner. 

 

Rural

A number of submissions on the broadband investment proposal raised concerns about the treatment of rural New Zealand. 

I want the stress that our plans for broadband are two-fold.  The first is the $1.5 billion ultra fast proposal.  The second relates to broadband in rural areas. 

We're dealing with rural broadband separately because the issues we need to overcome are quite different in rural areas than in our bigger centres.

I do understand the urgency to achieve improvements in rural broadband.  And I appreciate that in many cases the first step will be to get speeds in rural areas up to where they already are in our major centres.

The government has set aside $48 million for rural broadband and I'm currently discussing with industry the best way to achieve that. 

Although a definitive policy proposal is still being developed, there will be a strong focus on ensuring rural schools have access to world-class broadband services and maximising the spill-over benefits to surrounding communities from infrastructure deployments for delivering fast broadband to rural schools.

There are, of course, a number of options to be considered for improving the state of rural broadband, and I am sensitive to the need to implement a pragmatic rural broadband policy that can be implemented within a reasonable timeframe. 

I am conscious of the significant role wireless technologies currently play in providing rural broadband services, and I am excited by continuing developments in these technologies that allow higher speed broadband services to be provided to more New Zealanders.

Rural broadband is not an easy issue to tackle and it will be important that the government allocates its funding very selectively.  I will be making further announcements about the government's rural broadband policy in the coming months as the policy direction for the wider broadband investment initiative is finalised, and I look forward to hearing your thoughts on the draft proposal when it is released.

 

Complementary Measures

In the broadband consultation document published in March, I indicated that the Government intended to examine complementary measures designed to facilitate the roll-out of fibre-to-the-home. 

I mentioned that this might involve codes of practice or regulatory or legislative amendments, essentially aimed at allowing better access to existing infrastructure, such as ducts and poles.

A number of contributors provided us with feedback on this issue, and I am grateful for their comments. The diverse perspectives communicated to us were a useful starting point for officials, whom I directed to prepare an analysis of the advantages and disadvantages of the various options available. 

Officials have been preparing their analysis in three reports:  Report One concerns options for enhancing access to the ducts and poles themselves, as well as to national and regional backhaul to support fibre access networks; 

Report Two concerns options for enhancing access to the land in which those ducts and poles are located;

And the third report concerns lessening constraints imposed by the Resource Management Act and associated district plans.

I have given these reports a lot of thought and have to say that the issues involved are complex and given that complexity, heavy handed government regulatory intervention is a blunt instrument that is likely to cause as many problems as it solves.

The likelihood is that if you mandate, too aggressively, access to privately owned infrastructure, the trade off is that you chill further investment by the owners in that infrastructure.

In broad terms, the alternatives are leaving it up to commercial negotiations between parties or a middle path (or safety net) approach where commercial negotiations are backed up by mediation or arbitration. 

In many respects my natural instincts are towards commercial negotiation and I am encouraged that in many cases, at least in the case of poles, common sense seems to prevail and competitors often do adopt reciprocal arrangements.

I would anticipate seeing similar arrangements being made for ducts and appropriate commercial backhaul offerings appearing to support the new fibre access networks.

I would welcome a group of potential suppliers developing standards of reciprocity or equivalence of access in relation to pole and duct sharing and potentially in other areas such as co-location.  This would show a degree of maturity that could be taken into account by CFIC in its decision making.  

Many of these issues will be up for consideration in the coming weeks.  I firmly believe this is a conversation that needs to be had. 

 

Closing Remarks

In all of these areas the government has a lot of decisions to make, and I hope that my discussion today illustrates the complexity and trade-offs that we face in this area. 

I think all of us are aware of the importance of this ultra-fast broadband initiative, both in terms of its effects and the resources it will use.

As I also hope I have conveyed, I am excited about where this industry is headed. 

Telecommunications investment offers great promise to business, education, health and wider society in New Zealand.

Some of these possibilities are being realised as I speak, some have a long way to go with considerable work to be done.

Whether it is through government led initiatives or private sector investment I look forward to these developments that will enable this country to innovate and grow.