Joyce expands scope of UFB tender

Thursday 1st July 2010

Bidders for the government's $1.5 billion ultra-fast broadband fund will now be invited to supply plans for "lit" fibre, indicating a profound change in thinking about how to encourage competition on the expanded network.

The change will push out the date for selecting private sector investment partners in the UFB roll-out from September to October.

Communications Minister Steve Joyce announced the amendments to the UFB "invitation to participate" this morning, and highlighted the change to ensure that "both layers one and two" will be available on an open access basis.

The decision reflects a win for the Ministry of Economic Development in a long-running argument with the Treasury about whether the government's flagship UFB initiative should provide only fibre-optic cable, with no electronics to make it operational - so-called "layer one" or "dark" fibre - or so-called "lit" fibre, known as "layer two".

Making layer two fibre the target will raise the cost of the UFB roll-out, but should not require any addition to the $1.5 billion government funding pot because it is designed to work as a revolving fund to be reused over the next decade or more to push UFB into homes, schools, hospitals, workplaces and the rural hinterland.

The government's policy goal is to establish a platform on which competitive, web-based products and services can be offered at the so-called "layer three" level.

The Treasury strongly argued for a layer one approach because it believed layer two services would be met competitively by players in the telecommunications infrastructure market.

However, the government has favoured MED's preference for a layer two approach for pragmatic reasons, believing it will encourage faster layer three developments, say industry insiders.

Joyce said a number of responses to the initial ITP advised support for offering layer two access as well as layer one.

"This feedback has been echoed across the industry. In particular, the service providers who will be purchasing UFB services and in turn selling them to consumers have said they support such a move," Joyce said this morning.

"It is important that the open access model supports competitive outcomes, and that it is both suitable and attractive to the industry and private sector investors."

Also announced, but without supporting detail, is a change to the ITP model "to avoid burdening infant businesses investing in emerging technologies with inappropriate regulation."

"Prices will be set by Crown Fibre Holdings (the government-owned vehicle which will administer the UFB fund and co-invest in the roll-out with private providers) through negotiations following the tender process, and there will be limited scope for regulatory intervention to alter those prices while the industry is still immature.

"Safeguards will be in place to ensure that effective competition will develop."

Discussions are also scheduled this month over UFB architecture options and product specifications during July and August.

Businesswire.co.nz

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