A reasonable rate of return on the Government’s national broadband fibre plans quite possibly won’t be achieved for 25 years, says former CityLink chief executive Neil de Wit. At best, it might begin to pay for itself in 15 years, he says.
De Wit, who recently departed for a six-week sojourn to Europe, is one of the pioneers of fibre in New Zealand and, as such, is as well qualified as anyone to comment on future directions.
“At the heart of this is money,” he says. “The investment needed for the network to be built and be resilient is $5 billion.”
His assessment of long time frames to achieve a return are based on the fact that “everyone wants something for nothing”.
“What is critical mass? If the plan is to replace the copper network, how do you translate that [into money]?
“I think we may need an industry-wide shareholder group in the local fibre companies, with binding undertakings.”
De Wit says Government intervention has changed the landscape. “No one knows yet where it is going. You’ve got to argue that New Zealand needs unrestrained access to a network that needs to be as good as, say, the electricity networks.
“Ultimately, we’re building it for our kids. It is about instant access to information.
“However, we have an epidemic of MBAs who look purely at business cases. At some point you have to take the punt. With Government, there is a great danger that it will be over-analysed by the likes of the Reserve Bank and the Treasury.
“If it is built in a highly competitive environment, it might be doomed to failure. There’s got to be some sort of coming together, because broadband is a national good.”
He says that for the telcos, it is about them reinventing themselves. “There’s still brand stigma around some of them. The power companies have a role to play if they choose to, but the power industry is highly regulated around rate of return. One could argue that fibre needs to be similarly regulated.”
He describes himself as a serial entrepreneur who got involved in fibre optic sales early in the 1980s.
“I formed a company called Communication Instruments to sell fibre and to do sales and repairs of instruments. In 1988, an Australian company called Fibrenet knocked on the door. They wanted a New Zealand operation to help with its big contract for the 1990 Commonwealth Games in Auckland.
“We formed Fibrenet New Zealand and subsequently became the preferred vendor for Telecom.”
Back then, the internet was unknown to most. Wellington City Council IT manager Richard Naylor began to drive matters and de Wit got involved to set up what eventually became CityLink.
“We had initial capital of $85,000. Fortunately, the council was quite generous and though Richard was still on their payroll, he put time into developing CityLink.
“There was a lot of passion and a lot of sweat equity.
“INL was our first customer. The idea was to connect customers to customers, though INL had multiple sites, as a big company.
“The council allowed us to utilise the trolley bus cables to hang our fibre, which allowed us to lower costs.”
He says it took seven to eight years to achieve critical mass in terms of buildings and customers connected, though the company was profitable early on.
“In the early days, everyone was a contractor.
“Fibrenet was sold to a US multinational. CityLink needed some horsepower and I thought one day a week of my time should solve that. I became the notional CEO in 1998, but I very rapidly appreciated that it was a full-time job.”
Back then, CityLink was operating from a couple of desks at the council premises.
De Wit says the company began to develop product definitions and moved to a council business incubator in Arthur Street. “Eighteen months later, we moved to Boulcott Street. That year, we connected our 100th building.”
The company was offered the opportunity to build dark fibre infrastructure in Auckland for the Bank of New Zealand, which was a Wellington customer. “Today, Auckland represents the equivalent of 10 percent of our Wellington business.”
CityLink launched Cafenet in 2003, with a contribution of $90,000 from the council.
De Wit says that, over the years, the shareholding for CityLink fell into the hands of Lower Hunt businessman Ron Woodrow. “In 2005 we looked at a management buyout but that failed. We did it in 2006, with Teamtalk taking two-thirds of the shares. By then, CityLink had become essential infrastructure for Wellington business.
“In 2007, we had two major outages, which was a sober reminder of how important we had become. After that, we made major investment and renewed a lot of infrastructure.
“Then, the Government broadband plans were announced, and Teamtalk became the 100 percent shareholder.”
De Wit was made redundant earlier this year.
“I’m taking the family to Europe for six weeks,” he said earlier this month at a function to mark his contribution to broadband in Wellington. “When I return, I’ll be involved in it again, but I have no firm plans despite having several job offers.”