Putting it in perspective

The Irony of building a FTTH network

, posted: 21-May-2009 16:19

An article on Campbell Live (TV3, 20 May) highlighted the irony of the proposed Fibre-to-the-Home build and the prospective companies lining up to jostle for the right to build.  It suggested that the panacea of introducing new network companies may not result in any change from the status quo.  High prices for connections and high prices for providing super-fast broadband irrespective of the network owner/operator.  High prices that the NZ public doesn’t fully appreciate.

The segment in question reported on the significant increase (600%) in providing a gas connection to a home just 48 metres away from a gas pipeline on the street.  Last year the company quoted c$1000 to connect the home but this year c$6000 for the same product and the same distance.  The reason – how the company chose to allocate the cost of connection within its network.  I suspect it was related to the recovery of incremental costs from the network as allowed by the Commerce Commission.  Previously the total cost (n+1 users) would have been reflected by higher prices across all users to recover the cost of the incremental user and earn the appropriate return on the total (regulated) asset base.  This leads to “rampant” price increases that would be considered to high for an efficient operator.  As such the company moved to direct costing (or pure user pays) for any new connection to the network.

How does this spillover onto FTTH?  Essentially any new connection to an existing network is based on fully costed pricing.  Ask any Christchurch business that wants to join their local network or any North Shore School that wants to join the North Shore Education Access Loop (NEAL).  It also means that as potential users of a FTTH network we can probably expect to see high connection prices (final drop and inhome wiring) for any connection to the network that passes down our street.  Rule of thumb $50/metre for overhead and $150/metre for underground plus any inhome wiring.  Walk into your front yard and pace out the distance to the road.  Better yet, obtain a quote from your local gas company and start saving.

The company response to the television article – to suggest alternatives to the user.  Cold comfort to consider LPG cylinders or electricity which are less efficient than the direct natural gas connection that the householder wanted.  But entirely suitable alternatives.  Similarly DSL and wireless broadband are suitable alternatives to those not willing to pay the price of a FTTH connection.  Cold comfort to internet users but I’m sure that we’ll have plenty of complaints posted on Geekzone when reality bites.  If you see utility in super fast broadband then step up and pay for it.  

I’m certain that there will be howls of derision at “how economically important” FTTH is to New Zealand and its households.  Just bear in mind the economic importance of gas versus electricity.  More gas connections lends to more efficient heating, reduced demand on the national grid & our rainfall-pattern-dependent power stations and hence lower electricity prices for all households.  There is only one way to see more generation assets in New Zealand, through investment in those assets and that will require higher electricity prices for all to generate an appropriate risk-adjusted return (note the irony here – the only way we’ll see FTTH in New Zealand is via higher prices to generate an appropriate risk-adjusted return).  If we can reduce the demand for new generation assets via alternative networks this will result in favourable economic outcomes.  It will be of little benefit to us all if we cant access the internet due to brownouts and blackouts.


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It appears UK broadband users are getting poor service too!

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