Report on the Committee’s Visit to New Zealand

Introduction

The reciprocal Australia New Zealand Parliamentary Committee Exchange Program (NZCEP) has operated on an annual rotational basis between the respective Australian and New Zealand Parliaments since 1989. In addition to bringing together Members of Parliament from both countries to discuss apposite issues of mutual interest, the NZCEP contributes to consolidating the existing Australia-New Zealand economic and diplomatic relationship.

Although a newly established committee in the 43^rd Parliament, the Joint Committee on the National Broadband Network (the committee) eagerly welcomed the opportunity to represent the Australian Parliament in the 2012 NZCEP to learn about the New Zealand experience in developing its high speed broadband network. The committee was also pleased to offer its views on the Australian experience in development and implementation of the National Broadband Network (NBN).

The committee undertook the 2012 NZCEP from 24 to 28 September and met with a range of private sector, government officials and parliamentarians, including the Commerce Select Committee and the Speaker of the New Zealand Parliament. The committee also undertook a half day inspection of fibre and copper broadband network infrastructure, including a central exchange.

This delegation report contains a summary of the information presented to Members and the associated issues discussed during the 2012 NZCEP.

Visit Objectives

The objectives of the 2012 NZCEP were to:

• Reaffirm existing links with the New Zealand Parliament
  
  
• Establish links with the Commerce Select Committee, selected private sector organisations and Government agencies responsible for delivery of New Zealand’s high speed broadband network
  
  
• Gain a practical insight into the workings, policies and funding arrangements underpinning the Ultra Fast Broadband and Rural Broadband Initiatives. In particular to explore:
  
  
  • The mix of technologies incorporated in New Zealand and the rationale for technology selection;
    
    
  • The logistic, budget and time implications of selected technologies and the possible impact on subsequent wholesale products and potential retail service provider take up;
    
    
  • Associated telecommunications regulatory issues in relation to the demerger of Telecom New Zealand (Telecom NZ);
    
    
  • Wholesale pricing issues;
    
    
  • Community consultation and community education strategies;
    
    
  • Government, corporate and community readiness;
    
    
  • Existing employment and skilling issues.

Visit Program

Meetings

The delegation commenced its visit program in Auckland where it met with the National Industry Organiser, Telecommunications of the New Zealand Engineers, Printers and Manufacturers Union and discussed labour force issues such as potential skilling opportunities, future employment demand and supply for construction of the high speed broadband network, and skilled workers being lost to Australia as part of its higher income and demand for the NBN build.

The committee also met with representatives of Crown Fibre Holdings Limited (CFH), which is responsible for the management of New Zealand’s high speed broadband network, with the telecommunications company building the wireless network under the Rural Broadband Initiative (RBI): Vodafone New Zealand (Vodafone).

Finally the committee met with Northpower Fibre Limited (Northpower), one of four local fibre companies tasked with building part of the fibre network under a public-private partnership arrangement with CFH as the company representing the New Zealand Government.

In Wellington, the committee met with former and present Ministers responsible for the establishment, policy development and current build of New Zealand’s high speed broadband network and associated public service departments and agencies such as the: Ministry for Business Innovation and Employment, Treasury, and Ministry of Education.

The committee also met with the Commerce Select Committee and former Chair and members of the Finance and Expenditure Select Committee which inquired into the draft legislation underpinning the reform of the New Zealand Telecommunications industry, including the demerger of Telecom NZ.

The committee gained an appreciation of the broader regulatory processes surrounding the establishment and build of the New Zealand fibre network by meeting with the Commerce Commission which is the equivalent of the Australian Competition and Consumer Commission.

The committee also met with Chorus which was formerly the network arm of Telecom NZ prior to its voluntary demerger.

NZ Figure 1 Delegation Members in front of the New Zealand Parliament Building

NZ Figure 2 Delegation Members with Dr the Rt Hon Lockwood Smith MP, Speaker

NZ Figure 3 Delegation Members with Hon Craig Foss MP, Minister of Commerce and Broadcasting and former Chair, Finance and Expenditure Select Committee

Infrastructure Inspections

The committee undertook a half day inspection of newly built and installed fibre network components and existing copper network infrastructure at the Wellington Central Exchange and at the Churton Park subdivision respectively.

As part of these inspections, the committee was shown the internal components of a newly built fibre cabinet that premises and households may elect to connect to and receive high speed broadband. The committee was also shown the existing cable television infrastructure and copper network broadband infrastructure located within 100 metres of the fibre network cabinet.

As the committee had previously inspected NBN infrastructure, Members were able to compare the visual impact and also gain a basic understanding of the practical component parts of New Zealand’s cabinetisation infrastructure of its fibre network in relation to its existing copper network.

The 2012 NZCEP official program is attached at the end of this delegation report.

NZ Figure 4 Delegation Members at the Wellington Central Exchange

 

NZ Figure 5 A Chorus representative showing the cabinet infrastructure supporting the copper and fibre networks

 

New Zealand’s High Speed Broadband Initiatives

Background

In September 2009, the New Zealand Government announced that it would provide up to NZ$1.5 billion to fund the rollout of a high speed broadband network or Ultra Fast Broadband Initiative (UFB). The New Zealand Government implemented its UFB policy to:

...improve productivity in the economy, New Zealand’s global competitiveness and the lives of New Zealanders. To this end it has put in place the Ultra-Fast Broadband Initiative to assist and encourage the private sector to invest in early deployment of fibre, with a particular focus on sectors that are expected to yield the greatest productivity benefits.[1]

The UFB is also expected to improve social policy outcomes for education and health.[2]

The high speed broadband network policy would be realised through the combination of the Ultra Fast Broadband Initiative (UFBI) and Rural Broadband Initiative (RBI).[3]

The UFB and RBI will be rolled out over a ten year period (due for completion in 2019) and are intended to reach 75 per cent of New Zealanders to provide download speeds of at least 100Mbps and upload speeds of up to 50Mbps through the combination of a fibre-to-the-premise[4] and fibre-to-the-node network[5]. Priority for network rollout for the first six years (ending 2015) is for: broadband users such as businesses, schools and health services, as well as Greenfield developments and certain areas of residential areas. The UFB will be rolled out to urban and suburban residential areas gradually with completion expected by 2019.

Funding Arrangements for Fibre Network Build

The network is being funded through a combination of public-private partnership[6] and joint venture arrangements between the New Zealand Government and its UFB partners. The Government established Crown Fibre Holdings Limited (CFH)[7] to manage its investment in UFB infrastructure and manage and monitor the rollout of the UFB by local, partner fibre companies (Local Fibre Companies).[8] Crown Fibre Holdings has negotiated agreements with four providers to connect fibre to different regions and be directed to create open access infrastructure. These four companies are:

• Chorus Limited (formerly the network arm of Telecom NZ)[9] responsible for 69.4 per cent of total UFB coverage
• Enable Services Limited responsible for 15.3 per cent of UFB total coverage
• Waikato Networks Limited responsible for 13.7 per cent of UFB total coverage
• Northpower Fibre Limited responsible for 1.6 per cent of UFB total coverage[10]

Chorus Limited (Chorus) was created in December 2011 following the voluntary demerger (or structural separation) of Telecom NZ.[11] Crown Fibre Holdings will invest NZ$929 million directly into Chorus with 50 per cent being non-voting shares and 50 per cent interest free loans. For the other three companies, they will each form a joint venture known as a ‘Local Fibre Company’ (LFC) with CFH.[12]

Effectively the LFCs will build the fibre network and provide the wholesale platform from which telecommunications retail service providers (RSPs) will be able to seek access and provide an internet service to end users. To foster competition and ensure a more level ‘playing field’ into the longer term, the wholesale LFCs are prevented from providing a retail service across the fibre network.

Ultra Fast Broadband Initiative

Overview

The UFB will be spread over 33 towns and cities across New Zealand as indicated in the coverage map with the largest population centres selected as the fibre rollout locations. The boundaries of the UFB coverage do not overlap exactly, with the ‘UFB being built in the most densely populated parts of metropolitan areas.’[13]

The four LFCs are responsible for the build of the fibre network across the major cities and towns across New Zealand as follows:

• Chorus – Auckland, Waiheke Island, Pukekohe, Waiuku, Whakatane, Rotorua, Taupo, Gisbourne, Napier-Hastings, Palmerston, North-Fielding, Masterton, Wellington, Levin, Kapiti, Nelson, Blenheim, Greymouth, Ashburton, Timaru, Oamaru, Queenstown, Dunedin, Invercargill
• UltraFast Fibre – Hamilton, Tokoroa, Tauranga, New Plymouth, Hawera, Wanganui
• Enable – Christchurch, Rangiora
• Northpower Fibre Limited – Whangarei.[14]

Deployment, Pricing and Future Demand

As at the end of June 2012 (represents a year of deployment), there were 76 311 premises passed under the UFB.

The pricing offered at the wholesale platform level is creating a situation where pricing at the retail level is currently lower than in the former retail market for ADSL broadband.

In line with international trends, CFH has estimated that as the fibre network build accelerates, demand for faster broadband will increase. Crown Fibre Holdings has estimated residential demand will be driven by ‘back-up and cloud based storage, working at and from home, extended school learning, advanced gaming, real-time entertainment, home security and triple play.’[15]

Source Crown Fibre Holdings, <www.crownfibre.govt.nz/ufb-initiative/rollout-timetable/>

Rural Broadband Initiative

Overview

In February 2011, following a tender process, the New Zealand Government entered into negotiations with Vodafone New Zealand (Vodafone) and Telecom NZ for the delivery of the RBI. The terms of the final agreement were accepted by the Government on 20 April 2011. Following the demerger of Telecom NZ in December 2011, Chorus Limited (the newly created company from the demerger) retained responsibility for implementation of the RBI.

Chorus Limited (Chorus) is responsible for the delivery of ‘fibre to schools, upgrading the rural network with fibre cabinets and broadband equipment, and fibre to the Vodafone mobile sites.’ While Vodafone has created a wireless network for rural areas which is designed to overcome distance and terrain challenges.

Broadly, the RBI is designed to enable 252 000 rural households to receive high speed broadband at prices and levels of service comparable with urban areas. Around 86 per cent of rural households and businesses will receive broadband at peak speeds of at least 5Mbps.

The fibre network will be extended to all rural public schools and hospitals, as well as a large number of rural public libraries. Mobile telephone coverage will also be extended by 6200 square kilometres.

Improvements to access to high speed broadband through the RBI is expected to benefit rural and remote parts of New Zealand by enhancing the efficiency of agri-business (which contributes to two thirds of New Zealand’s export income), as well as improve access to health services and education.

Community Consultation

Community consultation for the RBI has been enabled by the LFCs responsible for its rollout. Chorus and Vodafone are meeting with regional and local stakeholders on a six monthly basis to ‘build constructive collaborative relationships and identify potential efficiencies and benefits.’[16]

In addition, a National Advisory Committee (NAC) was established ‘to provide advice and guidance to maximise benefits for rural communities.’ The NAC’s function is to ‘provide feedback on the RBI plans and guidance and advise on a range of issues during the roll out.  It will also facilitate collaboration between RBI partners and key rural stakeholders and identify opportunities to raise awareness of the initiative and stimulate demand for rural broadband services.’[17]

Source Vodafone Rural Broadband Initiative coverage

Reform of the New Zealand Telecommunications Sector

Telecom New Zealand Demerger

Recent reform of the New Zealand telecommunications sector was implemented through the demerger (structural separation)[18] of Telecom NZ. Telecom NZ as the largest fixed line and IT services industry market operator held significant market share and power and in order to participate in the wholesale provision of the new fibre network had to divest itself of its retail component.[19]

The New Zealand Government’s proposed regulatory changes to implement the UFB were conditional on the Telecom NZ demerger. The post demerger Telecom NZ would be subject to less of the previous Telecom NZ-specific regulation allowing it ‘to compete on a similar regulatory footing with its market peers.’[20]

On 26 October 2011 Telecom NZ shareholders approved the demerger of its Chorus[21] Unit (which became a new entity – Chorus Limited), with the separation day occurring on 30 November 2011.

Chorus then entered into a public private partnership with the New Zealand Government to build the majority of the fibre network[22] and provide wholesale services through this network. The value of the investment provided to Chorus by the New Zealand Government is $929 million.[23] Having divested its network arm, Telecom NZ became a retail service provider after the demerger.[24]

In its presentation to shareholders, Telecom NZ outlined the benefits of the demerger as:

• ‘Facilitates Chorus undertaking a leading role in the Government led fibre initiative
  
  
• Aligns the interests of Chorus with the Government’s UFB objectives
  
  
• Avoids Telecom NZ competing with Government backed fibre competition
  
  
• Leads to the introduction of a simplified regulatory regime with greater certainty, reduced burden and less associated cost
  
  
• Allows Telecom NZ and Chorus to further focus on their independent strategies and core competencies
  
  
• Enables tailored capital structure and financial policies for Telecom NZ and Chorus
  
  
• Allows for improved alignment of management incentives with performance at Telecom NZ and Chorus
  
  
• Provides greater transparency and flexibility for investors.’[25]

Inquiry into the Telecom New Zealand Demerger

Prior to structural reform of the industry, the New Zealand Parliament’s Finance and Expenditure Select Committee was referred for inquiry and report the Telecommunications (TSO, Broadband, and Other Matters) Amendment Bill. The Bill would amend the Telecommunications Act 2001 to provide the framework for the Ultra Fast Broadband and Rural Broadband Initiatives, and implement the Government’s telecommunications service obligations.

While inquiring into this Bill in an effort to provide parliamentary oversight, the New Zealand Parliament also referred Supplementary Order Paper (No 204) which contained the matter of the Telecom NZ demerger (and associated implementation framework).

The committee gave in principle support to the Bill and accompanying contents of the Supplementary Order Paper with recommended amendments. The main areas of discussion undertaken centred on:

• Pricing to ensure competition and adequate consumer take up to support a fibre network
  
  
• Migration of customers to the fibre network
  
  
• Attracting private sector financing for the fibre network build
  
  
• Regulation of the major industry entities such as Crown Fibre Holdings and the Local Fibre Companies (whether pricing measures should be contained in a special access undertaking or whether to install a forbearance period preventing the Commerce Commission from investigating prices set for supplying the UFB until 31 December 2019.
  
  
• Bringing forward the timeframe for review of the policy framework regulating telecommunications services in New Zealand to 2016 and widening the scope of the review to include:
  
  
  • Consultation with interested parties, the commerce Commission, consumers, and Maori
    
    
  • Development in wireless technologies
    
    
  • The experience of comparable jurisdictions such as Australia where appropriate and relevant.

In regard to the TSO inquiry the committee met with the Commerce Select Committee. As a number of members of the Commerce Committee also participated in or had knowledge of the TSO inquiry, through its discussions the committee gained an insight into the types of discussions undertaken during the inquiry.

The committee also met with other previous members of the Finance and Expenditure Committee, two of which are now Ministers, all of whom discussed their experience in undertaking the TSO Inquiry.

Managing the Fibre Network Build and Rollout

The New Zealand Government established CFH in December 2009 to ‘ensure the implementation of the Government’s UFB policy, specifically:

• ‘Manage contracts to deliver the UFB objective
  
  
• Monitor Crown investments in the UFB initiative
  
  
• Support Government policy objectives’[26]

This requires CFH to:

• ‘Manage contracts, payments milestones, approvals
  
  
• Manage Crown risk and financial exposure
  
  
• Ensure deployment achieved and prioritised appropriately
  
  
• Ensure UFB consistency’[27]

In this context, CFH discussed:

• the Government mandated UFB rollout target of reaching 75 per cent of premises by 2019
  
  
• the investment structure of the UFB
  
  
• how fibre network partners will build parts of the UFB
  
  
• technologies used in the rollout
  
  
• current UFB deployment progress
  
  
• product pricing and Australia-New Zealand network comparisons and organisational relationships
  
  
• Network security

As at the end of June 2012, 76 311 premises had been passed, with a view to having an accelerated rollout over the next seven years to reach over one million premises passed.

Network Partner Companies

The committee met with Northpower and Chorus, two of the LFCs responsible for the build of the UFB. Chorus is the largest LFC building the network to connect 24 of the 33 fibre selected locations and Northpower is the smallest, building the fibre network for one of the 33 selected locations. The committee also met with Vodafone in regard to the build of the wireless network for the RBI and also providing services over the UFB.

Chorus

As New Zealand’s largest telecommunications infrastructure company, Chorus discussed how it is preparing to build the majority of the UFB and the planned reach of the UFB. Chorus representatives discussed their experience after a year of build which included:

• extending the fibre network to schools
  
  
• extending the fibre network to apartment blocks
  
  
• future migration planning and factors and incentives to drive uptake of future demand for fibre
  
  
• educating the consumer on the benefits of a fibre connection
  
  
• funding arrangements and Universal Service Obligation
  
  
• overview of negotiations in reaching an agreement prior to Telecom NZ demerger
  
  
• current challenges of building a fibre network while maintaining a copper network
  
  
• subsidy structure of connection per premise.
  

Northpower Fibre Limited

Northpower is a trust owned company with 53 000 shareholders and is the smallest LFC. Northpower discussed its method of build, with 60 per cent overhead and 40 per cent underground and its aim of having a minimal impact on the environment and existing amenity.

Northpower also spoke about the efficiency of its method of build and the low cost of overhead fibre deployment in comparison with the Tasmanian NBN rollout.

Vodafone New Zealand

Vodafone discussed the aims of its RBI rollout and its build of the wireless network expected to reach a greater number of premises in remote areas of New Zealand as well as improve mobile telephony in rural and remote areas. In this context Vodafone discussed or commented on:

• Exploring the span of the satellite option (expected to provide broadband to between 2-3 per cent of New Zealand)
  
  
• Size of the wireless network build
  
  
• Consulting and working with local government
  
  
• Building and pricing of towers
  
  
• Number of homes covered per cell site
  
  
• Pricing data model and funding arrangements for build
  
  
• Interest from RSPs
  
  
• Network security

Regulatory Matters

The committee met with the Commerce Commission and discussed a number of matters relating to regulation of the Telecommunications industry and the recent impact of the structural separation of Telecom NZ. In particular issues discussed included:

• Legislative requirements of the Telecommunications Act
  
  
• Regulatory implications of the forbearance period and role of the Commerce Commission in relation to the fibre network during this time
  
  
• Expected national contribution of the fibre network build and use
  
  
• Regulation of the copper network
  
  
• Retail and wholesale structure of the UFB
  
  
• VoiP services
  
  
• Transition from a copper network to a fibre network
  
  
• Wholesale pricing framework
  
  
• Raising public awareness of the fibre network and services available through such a network

Policy Considerations

The committee also met with a number of Government agencies and discussed the objectives of the policies underpinning the UFB and RBI. Those agencies were the: Ministry of Business and Innovation and Employment, National Infrastructure Unit, Treasury and the Ministry of Education. Areas discussed included:

• Momentum of the UFB and RBI build
  
  
• Negotiations over wholesale pricing and RSP offerings
  
  
• Measuring the impact of the services on business productivity and getting small businesses on line
  
  
• Pricing of the end product
  
  
• Level of regulation to maintain competition and uptake in the market
  
  
• Considering the need to decommission the copper network
  
  
• Cost and logistics of moving from a fibre-to-the-node to a fibre-to-the-premise model
  
  
• Creating local employment opportunities
  
  
• Improving learning outcomes for students and in particular remote students through use of advanced technologies
  
  
• Objective of the School Network Upgrade Project

Concluding Comments

During the course of the 2012 NZCEP, the committee met and spoke with a wide range of parliamentary and industry representatives and organisations, all of which are participating or have participated in contributing to the development, build and regulation of the UFB and RBI. From these discussions, the committee has greatly expanded its knowledge of the types of issues, challenges and short term outcomes that are common to Australia and New Zealand in working towards and building a high speed broadband network.

The committee has also been privileged to be privy to information on which it has not reported, but which was useful in setting the scene for Members to gain an appreciation of the ongoing and future challenges facing New Zealand in the delivery of high speed broadband.

The committee thanks all the individuals and organisations who freely gave of their time and knowledge to discuss topical issues with Members and increase their understanding of the issues currently facing New Zealand in the continuing development and build of the UFB and RBI. The committee also thanks the Hon Amy Adams MP, Minister for Communications and Information Technology, Hon Craig Foss MP, Minister of Commerce, Hon David Cunliffe MP, Spokesperson for Economic Development, Mr Jonathan Young MP, Chair of the Commerce Select Committee and Members of the Commerce Select Committee. To this end, the committee exceeded the objectives of its New Zealand visit as part of the 2012 NZCEP.

Lastly, the committee thanks Dr the Rt Hon Lockwood Smith MP, Speaker of the New Zealand Parliament and His Excellency Michael Potts, High Commissioner for Australia for their hospitality and ensuring the visit was memorable.

 

Membership of the Delegation

Leader	Mr Robert Oakeshott MP
Deputy Leader	Mr Rob Mitchell MP
Members	Senator Doug Cameron
	Mr Paul Fletcher MP
	Senator Alex Gallacher
	Mr Luke Hartsuyker MP
	Hon Sussan Ley MP
	Mr Mike Symon MP
Delegation Secretary	Ms Stephanie Mikac

Official Visit Program

Tuesday, 25 September

8.00 am                                  Meeting with the Engineering, Printing and Manufacturing Union

9.00 am – 10.00 am               Meeting with Crown Fibre Holdings Limited

10.15 am – 11.15 am             Meeting with Vodafone New Zealand

11.30 am – 12.30 pm             Meeting with Northpower Fibre Limited

2.25 pm                                  Depart Auckland for Wellington

3.25 pm                                  Arrive in Wellington

4.30 pm – 5.30 pm                Meeting with Hon David Cunliffe, Opposition Spokesperson for Economic Development

5.40 pm – 6.30 pm                Telecommunications Forum Function hosted by Hon Amy Adams MP, Minister for Communications and Information Technology

7.00 pm                                  Official Dinner hosted by the Speaker, Dr the Rt Hon Lockwood Smith

Wednesday, 26 September

9.45 am – 12noon                 Site inspection of the Wellington Central Exchange and the Churchton Park telecommunications and network infrastructure

12.30 pm – 1.50 pm              Meeting with Hon Amy Adams MP, Minister for Communication and Information Technology

1.40 pm – 2.45 pm                Observe Question Time

3.00 pm – 4.00 pm                Meeting with the Commerce Commission

4.15 pm – 5.00 pm                Meeting with Ministry of Education

6.15 pm – 7.30 pm                Drinks with New Zealand Parliamentary Friendship Group hosted by Ms Denise Roche MP, Chair, Australia-New Zealand Friendship Group Committee

Thursday, 27 September

9.15 am – 10.30 am               Meeting with Dr the Rt Hon Lockwood Smith, Speaker, House of Representatives, New Zealand

10.30 am- 11.30 am               Private Meetings

11.30 am – 12noon                Meeting with Hon Craig Foss MP, Minister for Commerce and Broadcasting

12.15 pm – 2.15 pm              Meeting with the Chair and Members of the Commerce Select Committee

2.30 pm – 3.30 pm                Meeting with Chorus New Zealand

3.45 pm – 4.45 pm                Meeting with the Ministry for Business Innovation and Employment, National Infrastructure Unite, the Treasury, Ministry of Foreign Affairs and Trade

4.45 pm                                  Return to hotel TNPLH

7.00 pm – 10.30 pm              Official Dinner hosted by His Excellency Mr Michael Potts, High Commissioner for Australia