ICT Minister David Cunliffe has attempted to turn an adverse Treasury report on broadband to the government’s political advantage.
If the economics of the government’s plan, outlined in the Budget, are considered marginal, he says, then National’s even larger suggested expenditure to bring fibre to the premises quickly is shown up as “utterly profligate”.
It has emerged that Treasury officials expressed grave doubts in the weeks leading up to the Budget about the wisdom of government supporting local broadband with hundreds of millions in government funding. It might distort a market in which private-sector providers are currently successfully rolling out infrastructure, they said.
“Treasury recommends [Cabinet does] not support additional funding in Budget 2008 given fiscal constraints and the level of private investment in broadband infrastructure,” say the papers.
The Ministry of Economic Development had previously advised, says Treasury, that “$75 million would be sufficient to leverage all proposed urban fibre loops of which we are aware. This suggests that any contestable funding beyond around $75 million would be targeted at increasingly marginal projects which are likely to require a higher level of government subsidy.”
“The government’s long-term vision is Fibre to the Home,” Treasury says. “It is unclear how this will be achieved. Options could include provision by the current incumbent, a new monopoly, or a piecemeal approach. Until it is known how this goal will be achieved, there is a risk that large-scale Government subsidies will have unintended consequences."
However, Treasury seems comparatively well-disposed to a second high-capacity international link.
“The proposal is to use a Crown anchor tenant to guarantee a sufficient level of demand to ensure a second international cable is built. A second cable is likely to increase New Zealand’s connectivity resilience and have a degree of downward pressure on prices.
“Officials are agreed that this proposal is the most cost-effective option to ensure a second international cable is built in the short-term. The most likely Crown anchor tenant is REANNZ [operator of the KAREN research and education network], however, the right of use would be transferable should the Crown wish to use the bandwidth for another purpose in the future,” Treasury says.
The critical reception is “what I rightly expect from a responsible treasury”, Cunliffe says.
“What is important about this is that our proposal is supported by advice from the Ministry of Economic Development .It is lean and effective and contrasts strongly with National’s proposal which is utterly profligate and badly designed.
“Heaven knows what Treasury would have said about National’s plan for an unregulated capital tender of a billion and a half dollars. Treasury were urging us to be fiscally prudent and not to crowd out private investment and we can put our hand on our heart and say we have done that,” Cunliffe says.