New Zealand's Broadband Push May Bring Few Gains for Telecom By SYMON ROSS Wall Street Journal
July 8, 2008 http://online.wsj.com/article/SB121546287861533473.html?mod=2_1571_leftbox WELLINGTON, New Zealand -- The pace at which broadband service rolls out in New Zealand is likely to quicken, but that doesn't necessarily mean better performance by the country's biggest provider, Telecom Corp. of New Zealand. Broadband supply is shaping up as a campaign issue in a general election due by November, which should be a good thing in terms of bringing fast service to more of New Zealand's many rural residents. Yet providers, Telecom in particular, may be required to spend more to provide access to broadband, and it is far from certain such spending will bring solid returns. Rules that came into force earlier this year split former state-owned monopoly Telecom into separate retail, wholesale and network units and gave competitors access to its exchanges. Rival Internet-service providers have responded aggressively, offering competitive packages designed to cut Telecom's roughly 65% share of broadband subscribers. Telecom expects operating earnings to drop in the year that started July 1, and in the one after that, as traditional call revenue falls and competition bites. Its shares last week touched 15-year lows amid a selloff in global markets. While some still view it as attractive in terms of the yield it offers, most analysts see very little chance of short-term gains because of Telecom's declining earnings profile. Many analysts have neutral ratings on Telecom's stock, which has lost 22% this year. Compared with some other incumbent telecommunications companies that lost monopolies, Telecom has moved toward development of a next-generation network more quickly. It is undertaking a three-year, 1.4 billion New Zealand dollar (US$1 billion) investment plan deploying fiber-optic cable closer to homes and businesses in towns with more than 500 lines, via roadside cabinets known as fiber-to-the-node. While that will be a leap forward for New Zealand, it alone won't be enough to bring the country up to speed with many others. Broadband penetration is increasing, thanks to deregulation, but technology is well below par. Chief among the companies rolling out aggressively priced broadband offers is the local unit of Britain's Vodafone Group, which has just less than 10% of subscribers in the market. It has been making significant efforts in Auckland. As Vodafone and TelstraClear, the local unit of Australia's Telstra, expand their coverage, analysts expect penetration to improve. If conditions are positive, "it is highly likely that it will only take the country another one to two years to catch up with some of the leading countries in Europe, and by that time New Zealand would have certainly surpassed Australia," says Phil Harpur, senior analyst at research firm BuddeComm. The research company expects broadband penetration to rise to 62% in 2009 from 53% in 2008. However, broadband speeds are low. While 40% of Japanese, 34% of Korean and 8% of all broadband subscribers in nations belonging to the Organization for Economic Cooperation and Development use fiber-optic cable, New Zealand has negligible fiber connections. Until the country gets an open-access fiber network, it will miss out on digital-media applications and developments that would aid the economy, such as telecommuting and e-learning, Mr. Harpur says. The New Zealand Institute, a think tank, estimates the economic benefits of a national fiber broadband network to range from NZ$2.7 billion to NZ$4.4 billion a year. But its research suggests about NZ$4.5 billion is needed to build this next-generation network. In the annual budget presented in May, the ruling Labour Party announced a NZ$500 million fund under which companies can seek grants for projects involving building local fiber connections. That was in response to the opposition National Party's saying that if it wins the election, it will spend NZ$1.5 billion over six years to link 75% of New Zealand directly to the broadband network through high-speed fiber-optic cables, with priority to businesses, hospitals and schools. Even alongside Telecom's investment plans, that leaves a significant shortfall and suggests more private-sector investment is going to be needed before New Zealand gets high-speed broadband nationally. Tristan Joll, an analyst at Goldman Sachs JBWere, thinks Telecom's willingness to further expand its fiber network, particularly via fiber-to-the-premises, will be capped by the returns available from smaller communities. "Beyond a certain point of fiber penetration there's not the revenues from customers that will pay" for the network, he says. Stephen Myers, an analyst at Merrill Lynch, says the National Party investment plan could potentially unravel the benefits Telecom's roadside cabinet program will have for the company, depending on conditions that accompany the funding. "The policy states that National intends to provide funding in the form of a public-private partnership which could imply part government ownership of Telecom's network," he says. The Labour government takes the opposite view, believing the National Party plan risks handing back to Telecom, as the only viable network operator, the monopoly that has just been dismantled. While countries like Singapore and Australia have put next-generation network construction and operation up for tender, Telecom is the only option in New Zealand. Mr. Joll of Goldman Sachs says under certain regulatory settings, there could be opportunities for Telecom whoever takes power, but the lack of detail on how a new government might approach network expansion makes this difficult to predict. "You can't just ignore the fact that the incumbent has a massive piece of fiber infrastructure out there and that infrastructure probably does form a very important part of the network," the analyst says. Telecom Chief Executive Paul Reynolds has said he wants a period of stability after the regulatory upheaval of the past two years. The company will be keen to know how an open-access network will be regulated and what the political parties see as an appropriate mix for a public-private partnership. Analysts agree that this won't take shape until well after the election. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu ******************************* * POST TO [EMAIL PROTECTED] * ******************************* Medianews mailing list [EMAIL PROTECTED] http://lists.etskywarn.net/mailman/listinfo/medianews
