Allan Freeth: We don't need fibre for UFB

Allan Freeth: We don't need fibre for UFB
TelstraClear boss Allan Freeth has led a vocal campaign against the government’s $1.5 billion ultrafast broadband initiative. Now he’s got the industry to follow his lead. So what’s the big problem?

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TelstraClear boss Allan Freeth has led a vocal campaign against the government’s $1.5 billion ultrafast broadband initiative. Now he’s got the industry to follow his lead. So what’s the big problem?

The grill

The government’s going to spend a whole lot of money in your industry and you’re unhappy. What’s your beef?

Good point! Well, actually my back hurts and I had an unhappy upbringing and my wife doesn’t like me and so on, but seriously the problem is on lots of fronts. On a pragmatic level the problem is the government is re-establishing a Telecom monopoly under a new name, Chorus 2, which will be protected for ten years from regulation. So that’s a bit of an issue. Second, the government’s come up with this idea unilaterally, with no consultation; it has just started interfering and intervening and it’s done it on a discriminatory basis— that is, the telcos can’t be involved unless we split our businesses up, which, you know, none of us want to do. Third, the government has come up with a bright idea that fast broadband will drive productivity, but at what cost? It doesn’t need this fibre infrastructure to get the broadband it wants.

So you’re against the ultrafast broadband initiative?

No, we’ve been very clear about this: ultrafast broadband is a good thing and we sell it today. I sell it on my fibre network in Wellington and Christchurch, I sell it over my ADSL. You don’t need fibre to run ultrafast broadband. But at the moment, we are way ahead of the demand curve and we know that because we can provide a hundred megabits per second in Wellington and Christchurch and it doesn’t get used— even by the gamers. Even by the universities.

And how many people or places can you deliver that to?

Ninety thousand households, but that’s not the point because 90,000 households don't want it.

Surely it’s like building a road; there are no cars but build the road first and then there will be?

No, but I love that, see, I love that! [Telecom’s] Paul Reynolds says it, too. The fact is there’s a roadway there, already. It’s not new. You don’t need fibre for ultrafast broadband. You’ve got a thing called ADSL2. It might not be as big or as fast as you think you want, but you wouldn’t build an Auckland motorway out of Oamaru.

What’s more, the industry doesn't have apps for this kind of speed at the moment. So the argument is based on productivity gains. But as the Institute of Economic Research recently wrote, the productivity has already been achieved through copper and fibre that has been put into these organisations by us and Gen-i and other people. The issue is not about speed, it’s the data caps. That’s what our customers have told us in Wellington. They don't want faster broadband, they want a better deal on the data caps and price of broadband.

How do you fix that then?

It's because of bandwidth issues across the fibre, especially across the Tasman, and the amount we pay for that.

So more fibre in the ground has got to help them, hasn’t it? Around capacity?

No, not necessarily. Especially if this bill is turned into law. In ten years you won’t have a telco capital in this country because what you’re doing now is sending very strong signals to overseas investors. For example, the regulatory holiday is illegal anywhere else in the world. Germany tried and the EU overrode them and said, “That’s illegal, you will re-establish a monopoly.” There are provisions in the contracts that we have seen that allow the fibre companies, which will be Chorus 2 or a bunch of regional players, to change the pricing, withdraw services, act unilaterally if they want to. When we start raising these issues, we get platitudes that their contracts will protect against this but I think that’s bullshit. By mutual agreement, anyone can change a contract.

Is there any way to make you happy?

We don’t think the bill has to be stopped, we just think they have to take away the regulatory holiday, bring the referee back in, remove the averaging on the prices and a couple of other things. At the end of the day you can’t get everything you want.

Is your shareholder worried?

Why yes! On the day that Mr Key announced with Julia Gillard a protocol to encourage Australian investment in New Zealand, they also tabled a bill or supplementary order paper that has the potential to destroy two billion dollars of Australia’s investment in New Zealand. So my shareholder is very confused. They’re saying, “You want me to invest, then you do this. I don't understand what that’s about.”

Isn’t there a certain irony in TelstraClear arguing the toss here but Telstra is the main beneficiary of the same scheme in Australia?

No, because in Aussie they’d be paying me compensation for the write-down I'm going to take on my assets when they announce they’re overbuilding me. And also on my lost revenue.

The structure of the programmes is very different. All we’re asking for here is the level playing field it took us 20 years to get. And have some respect for property rights, have some respect for industry expertise, and the people who’ve been involved since 1993 as Clear Communications: that was the first year New Zealand had telco competition.

You’re being quite loud about this. Are you worried about your rep with government?

I’m not a discourteous person. About three months ago I went to people privately and said, “You’ve got to be joking—it’s such bad practice that we can’t believe you’re going to do that.” So they should have seen it coming.

But also there’s something about New Zealand where business is happy to be courageous in private and won’t say anything in public. I’m very disappointed that other members of the telecommunications ecosystem, until recently, have not said, “Mr Joyce, this is bad regulation and law.” If you think something is wrong and you think it’s going to destroy the vision of 2,000 people and have a negative impact on New Zealand, then I think you’ve got to speak up. Now that comes at a personal cost: there won’t be any Crown Research Institute or SOE board appointments coming my way any more!

It must be a waste of time fighting the government like this.

I've got two of the best brains in the country on this: I've headhunted from the Commerce Commission, I have the top lobbyist full-time with us, I’ve got [marketing director] John Bone on it, and all my time is focused on it. I’d rather be getting out and competing and winning business.

And we will be there; we’ll probably be the second biggest retailer on the UFB network. Telecom will be first, we’ll be second. But we will have reduced margins, we’ll have to charge more and we won’t be as innovative because it all costs money to do that.

In ten years time will we still be arguing about fibre or will technology make this redundant?

It's already happening. I mean 3G’s pretty good, certainly in Australia, maybe not so much here, it’s a bit expensive. But 4G is amazing. Obama stopped the fibre rollout in the States and said he’s going to go 4G wireless. We may not need fibre everywhere; we may be building for a generation that won’t stay in one spot.

Paul Reynolds says we are tantalisingly close to a first-class broadband in New Zealand. Do you agree?

No, I think the deal that will re-establish the potential for a monopoly in this country again is tantalisingly close. He says the industry should, you know, look at the bigger picture. What he’s really saying is the industry should give up their value to give to him and his shareholders. That sounds like the Telecom of old to me. There’s a quote for you.

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